9911796707
TMI Blog2023 (2) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... d view that M/s.Sunil Hitech Engineers Ltd., cannot be a good comparable to the assessee company and thus, we direct the TPO to excluded. M/s.Everest Infra Energy Ltd - functions carried out by the assessee and M/s.Everest Infra Energy Ltd., are broadly similar in nature, although, the client base is different. Therefore, we are of the considered view that there is no error in the reasons given by the TPO and the DRP to include M/s.Everest Infra Energy Ltd., in the list of comparable and thus, we reject the ground taken by the assessee. Consideration of foreign exchange loss as operating in nature - HELD THAT:- As question whether foreign exchange loss is operating or non-operating is depending upon the nature of loss incurred by the assessee and treatment of said loss in the books of accounts by the assessee. The assessee has treated foreign exchange loss as other income and further, excluded foreign exchange loss for computing operating margin on the ground that it is non-operating in nature. On perusal of details filed by the assessee and also observation of the TPO, we find that the assessee has incurred foreign exchange loss on account of creditors for purchase and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of multiple year data for the purpose of bench marking of international transaction entered during the year. Disallowance of reimbursement of expenses u/s.40(a)(i) - HELD THAT:- Admittedly, the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, is not before the TPO. For the first time, the DRP on the basis of international transaction reported by the assessee in Form No.3CEB, opined that payment towards reimbursement of expenses, is in the nature of FTS. The assessee, although, claimed before the DRP that reimbursement of expenses is on cost to cost basis without any mark-up, but no details or explanation was submitted by the assessee - issue needs to go back to the file of the TPO for further verification. Hence, we set aside the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, and direct the TPO to re-examine the claim of the assessee in accordance with law. Depreciation on UPS - assessee had claimed 60% depreciation on UPS, Printers and other accessories - AO has restricted depreciation on UPS printers @15% which is applicable to normal block of plant machinery - HELD THAT:- This issue is covered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant. 2.4 The AO/DRP has erred in confirming the action of the TPO in including Everest Infra Energy- Limited' which is functionally not comparable to that of the Appellant. 2.5 Without prejudice to the ground 2.4 above, the AO/DRP has erred in confirming the action of the TPO by considering the finance charges incurred by 'Everest Infra Energy Limited' as non-operating in nature. 2.6 The AO/DRP has erred in confirming the action of the TPO in rejecting the comparable companies selected by the assesse in the transfer pricing report. 2.7 The AO/DRP erred in confirming the order of the TPO in conducting a fresh search and arbitrarily rejecting the search process adopted by the Appellant with respect to EPC segment. Foreign exchange fluctuation: 2.8 The AO/DRP erred in confirming the order of the TPO in treating foreign exchange loss suffered by the Appellant as operating expense. Working Capital Adjustment: 2.9 The AO/DRP erred in confirming the order of the TPO in not providing working capital adjustment while determining the net profit margins of the appellant. 2.10 The AO/DRP erred in confirming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction on claim of depreciation on UPS: 3.5 The AO/DRP erred in restricting the claim of depreciation on UPS. 3.6 The AO/DRP ought to have appreciated the fact the UPS is an integral part of the computer and as such it is eligible for higher rate of depreciation at the rate of 60%. 4. The Appellant craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 3. The brief facts of the case are that the assessee company M/s.Eversendai Construction Private Limited (in short M/s.ECPL ) was incorporated in 2009. The company is a subsidiary of Eversendai Constructions (s) Pte Ltd, Singapore. The Global Ultimate parent company is Eversendai Corporation, Berhad, Malaysia. The company is engaged in the business of engineering, design, detailing, steel fabrication, development of residential buildings and commercial complexes. The international transactions entered into by M/s.ECPL were segregated into two segments, i.e. Engineering, Procurement Construction (in short EPC ) Services segment and Engineering Design Services (in short E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,61,971 5 Issue of shares 14,60,00,000 Total 36,01,45,660 5. Examination of TP study conducted by taxpayer: The taxpayer has carried out the economic analysis and has summarized it as under: Nature of international transaction Amount (in Rs.) MAM PLI Margin of taxpayer Margin of comparables Provision of erection, testing and commissioning services 15,68,80,440 TNMM OP/OC 3.35% 3.09% Provision for designing and drawing services 5,06,97,615 TNMM OP/OC 18.50% 15.08% Reimbursement of expenses paid 29,05,634 Other method Reimbursement of received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .38 Arithmetic Mean 5.61% 9. As per the provision of rule 10B (4), the assessee company is to mandatorily adopt only the current year data to determine the ALP of its AE transaction. But Assessee Company has failed to do so and has adopted the 3 years weighted average. Even as per the proviso of Rule 10B(4), use of previous year data is applicable only when it is established that usage of such data is necessary as it influences the current year profit of the company. The assessee company has not provided any such evidences to prove that the earlier year data have influenced the current year profit of the company. Therefore, the act of the assessee company to use weighted average of 3 years is not compliance of with rule 10B (4). 10. Owing to the above limitation, we decided to adopt the single year data of the comparables given by the assessee. Further an independent search was conducted in Prowess by adopting requisite filters. As a result of search, 8 companies have been selected as comparable companies and their arithmetic mean is 13.82%. The detail is as under: Accordingly, a fresh study ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Final companies selected by this Office are as under and none of them have segmental details: Ansal Buildwell Ltd. 27.60 Everest Infra Energy Ltd. 19.01 Petron Engineering Construction Ltd. 3.97 Rishi Laser Ltd. 1.80 Shyama Power India Ltd. 14.49 Sunil Hitech Engineers Ltd. 9.27 U B Engineering Ltd. 5.26 Zep Infratech Ltd. 29.17 Average 13.82 12. ALP calculation by this office is as below: Value of the international transaction = Rs.15,68,80,440 Margin of the assessee company = 3.35 % Margin of the comparable companies taken by TPO = 13.82%% Cost Markup (%) Sales 100 3.35 103.35 100 13.82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (1) and (2) of 92C. Hence an adjustment amounting to Rs.85,15,716 is to be made to the sales of the international transactions. 5. Pursuant to the TPO order u/s.92CA(3) of the Act, dated 28.10.2016, the AO has passed draft assessment order u/s.143(3) r.w.s.144C(1) of the Act, on 30.06.2017 and proposed TP adjustment as suggested by the TPO. The AO had also made additions towards disallowance of employee s contribution to PF ESI for belated remittances under respective Acts and also disallowed excess depreciation claimed on printer, UPS and port switch, etc. Aggrieved by the draft assessment order, the assessee filed objection before the DRP and the DRP vide their order passed u/s.144C(5) of the Act, dated 05.05.2017 rejected the objection filed by the assessee and upheld TP adjustment proposed by the TPO as well as other Corporate Tax additions made by the AO. In pursuant to the DRP directions, the AO has passed final assessment order u/s.143(3) r.w.s.144C(13) of the Act, on 30.06.2017 and determined total income of Rs.1,80,55,800/- by making additions towards TP adjustment, excess depreciation on printer, UPS port switch, and disallowance of reimbursement of expenses. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exclude M/s.Shyama Power India Ltd., from the list of comparables. M/s.Sunil Hitech Engineers Ltd.: 6.2.1 The Ld.Counsel for the assessee referring to annual report of M/s.Sunil Hitech Engineers Ltd., submitted that said company is engaged in the business of construction work for power projects which includes fabrication, erection, testing and commissioning of bunkers electro static pre-boilers, turbines and generators in power plants, whereas, the assessee company is in simple steel structural fabrication and erection for commercial or residential works. Therefore, M/s.Sunil Hitech Engineers Ltd., cannot be considered as good comparable. 6.2.2 The Ld.DR, supporting the order of the DRP, submitted that the TPO as well as the DRP brought out clear facts in light of profile of both the companies and held that M/s.Sunil Hitech Engineers Ltd., is functionally similar to functions carried out by the assessee and thus, same cannot be excluded. 6.2.3 We have heard both the parties, perused the materials available on record and gone through various details filed by the assessee including annual report of M/s.Sunil Hitech Engineers Ltd., we find that functions carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd thus, we reject the ground taken by the assessee. 7. The next issue that came up for our consideration from Ground No.2.8 of the assessee s appeal is consideration of foreign exchange loss as operating in nature. The assessee while computing PLI has excluded foreign exchange loss on the ground that it is non-operating in nature and does not have any effect on operating margin of the assessee. The TPO had included foreign exchange loss as operating in nature on the ground that the assessee has mainly incurred foreign exchange loss in connection with debtors and creditors which is having a bearing on operating margin on the assessee. 7.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The question whether foreign exchange loss is operating or non-operating is depending upon the nature of loss incurred by the assessee and treatment of said loss in the books of accounts by the assessee. The assessee has treated foreign exchange loss as other income and further, excluded foreign exchange loss for computing operating margin on the ground that it is non-operating in nature. However, on perusal of details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been reiterated by the Tribunal. Therefore, by following the decision of ITAT, we direct the TPO to reconsider the issue of working capital adjustment in light of various averments made by the assessee and also evidences placed on record. 9. The next issue that came up for our consideration from Ground Nos.2.11 2.12 of the assessee s appeal is adjustment for underutilization of capacity. The Ld.Counsel for the assessee submitted that the TPO/DRP is not appreciating the fact that the fixed cost to sales ratio to the assessee is 26.62% as against 13.01% of the comparable companies selected in TP order. Therefore, suitable adjustment needs to be provided. 9.1 The Ld.DR, on the other hand, supporting the order of the DRP submitted that the assessee has failed to make out a case for providing capacity utilization adjustment. 9.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below and we find that there is no merit in ground taken by the assessee for providing capacity utilization adjustment, because, the assessee has failed to make out a case of underutilization of capacity when compared to compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, is not before the TPO. For the first time, the DRP on the basis of international transaction reported by the assessee in Form No.3CEB, opined that payment towards reimbursement of expenses, is in the nature of FTS. The assessee, although, claimed before the DRP that reimbursement of expenses is on cost to cost basis without any mark-up, but no details or explanation was submitted by the assessee. Therefore, we are of the considered view that the issue needs to go back to the file of the TPO for further verification. Hence, we set aside the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, and direct the TPO to re-examine the claim of the assessee in accordance with law. 13. The next issue that came up for our consideration from Ground Nos.3.5 3.6 of the assessee s appeal is restriction of claim of depreciation on UPS. The assessee had claimed 60% depreciation on UPS, Printers and other accessories. The AO has restricted depreciation on UPS printers @15% which is applicable to normal block of plant machinery. 13.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
