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TMI Blog2023 (6) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... at most of the services it is found that they are low value adding services and therefore the focus should be more to the process adopted by the assessee and associated enterprises then evaluation of evidences such as email, reports as well as other correspondences. But that does not mean that even in absence of such details the low value adding services cannot be tested with respect to its arm's-length price. It is the duty of the assessee to substantiate that international transaction entered into is at arm's-length. In view of this we set-aside this issue back to the file of the learned transfer pricing officer/AO with a direction to the assessee to substantiate all the above five tests before the learned assessing officer/TPO and justify that they are at arm's-length. AO/TPO is directed to verify the claim of the assessee and then determine the arm's-length price of such transaction.Ground number one of the appeal is allowed for statistical purposes. Accrual of income - Addition on account of on unbilled receivable shown by the assessee - double addition - HELD THAT:- Before us the annual accounts are placed in the paper book. According to schedule P ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01. This is the bunch of 8 appeals of MWH India private limited (the assessee/appellant) for assessment year 2010 11 to 2017 18 involving similar issue, parties also argued them together, submitted a common chart, facts and circumstances for all these years are identical, therefore, heard together and disposed of by this common order. 02. Assessment year 2010 11 is with respect to ITA No. 1009/Mum/2015 filed by the assessee against the assessment order passed by the Dy. Commissioner of Income Tax-12(3)(2), Mumbai (the learned Assessing Officer) on 8th January, 2015 under Section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (the Act), passed in pursuance to the direction issued under Section 144C(5) of the Income-tax Act, 1961 (the Act) by the Dispute Resolution Panel- IV, Mumbai (the learned DRP) on 19th December, 2014, wherein the objections of the assessee against the draft order passed on 7th March, 2014, incorporating the adjustment proposed by the learned Transfer Pricing Officer-(1)(8), Mumbai (the learned TPO) as per order under Section 92CA(3) of the Act, dated 24th January, 2014, proposing an adjustment of Arms Length Price of international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistrative, financial, marketing requires cost has also impact on the overall business of the assessee company. Therefore it cannot be said that it's arm's-length price is RS. Nil. 07. The learned Transfer Pricing Officer on examination of the submission of the assessee held that the intra group services transactions as Cross-charges is an independent transaction required to be analyzed under the Comparable Uncontrolled Price (CUP) method. He referred to OECD guidelines and held that no charge should be paid for the intra group services which the taxpayer is performing by it also. He further, held that the taxpayer has to prove that the services are rendered and commensurate benefits derived there from. He further held that the services are duplicative in nature and are in the form of shareholder' activity. Due to this an independent third party would not have made payment for this service. Accordingly, he treated the Arm's Length Price of management fees paid of ₹ 1,17,42,745/- as nil. The above adjustment was proposed by the order dated 24th January, 2014 passed under Section 92CA (3) of the Act by the learned Transfer Pricing Officer. 08. On receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant by holding that the arm's length price in respect thereof was Nil. 1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the international transaction relating to payment of the management charges entered into by the Appellant with its AEs could not be regarded as shareholder's activities and, therefore, the stand taken by the Assessing Officer/the Dispute Resolution Panel/the Transfer Pricing Officer in this regard is misconceived, erroneous and incorrect. 1:3 The Appellant submits that the Assessing Officer be directed to delete the upward adjustment of Rs. 1,17,42,745/- made by him to the Appellant's total income and to re-compute its total income and tax thereon accordingly. 2:0 Re: Addition of Rs. 4,29,93,962/-on account of unbilled receivables: 2:1 The Assessing Officer/ the Dispute Resolution Panel have erred in treating the amount of Rs.4,29,93,962/- being unbilled receivables reflected in the Balance Sheet as the income of the Appellant. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 2014, the complete details were filed before the learned Transfer Pricing Officer. He also submitted that for A.Y. 2009-10, identical issue arose in case of the assessee of determination of Arm s-Length Price wherein though in the final order addition on this account was made and therefore, addition was deleted. He otherwise submitted that assessee has provided all the details which proves the rendition of services, need of the services, benefit arising from the above service and further, those services are not duplicative or shareholders activity. In view of this submission, the learned Transfer Pricing Officer and Dispute Resolution Panel have wrongly determined the Arms Length Price of these services at ₹ nil. He submitted that in determining the Arm s-Length Price the learned Transfer Pricing Officer and the Dispute Resolution Panel has not adopted any method. It was also submitted that the additional evidence submitted by the assessee showing the rendition of the services as well as the benefit derived by the assessee were completely ignored by the learned dispute resolution panel. He therefore submitted that the determination of the arm's-length price at rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent entities. The payment was made by the assessee for provision of corporate services to the assessee for illegal, advisory, technical and financial direction and support. The assessee has entered into an agreement with all these five entities, which are placed at page number 12 to 68 of the paper book. Assessee also explained that how the charges are raised on the assessee. It explained that in some of the cases 2% of external sales are recovered from assessee, in some cases there is an allocation of expenditure. The copies of invoices were placed before the learned assessing officer. With respect to the rendition of the services, assessee submitted the details of emails received. Thus, the claim of the assessee is that based on agreements, emails and invoices of the associated enterprises proves that assessee has received those services. Before the learned dispute resolution panel assessee submitted email correspondence between the assessee and its associated enterprises to demonstrate that the services are availed from the associated enterprise and to justify the payments toward the corporate charges. The learned TPO in the remand proceedings held that these evidences are not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s-length price of such transaction. Needless to say that an opportunity of hearing be granted to the assessee. Accordingly ground number one of the appeal is allowed for statistical purposes. 015. Coming to the ground number 2 where there is an addition on account of on unbilled receivable shown by the assessee of ₹ 42,993,962. On careful analysis of the facts we find that the method adopted by the assessee for accounting these unbilled services is that on completion of a specified percentage of work on a project the proportionate income is recognized in the profit and loss account by crediting the revenue income and debiting the unbilled receivable income. When subsequently on completion of the project or on achieving the preset milestone the final invoices raised on the customer and the entry passed in the accounts at that stage amount is debited to the customer's account by crediting the unbilled receivable account. This shows that assessee is creating work in progress at the end of the year of the ongoing projects by crediting the same to the profit and loss account and creating a work in progress in the form of unbilled receivable. The learned AO, DRP has miscons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction at source statement. In view of this, it is clear that there is a difference between these two statements, it is also the duty of the assessee to show reconciliation before the assessing officer and demonstrate that no income accrued during the year has not been shown in the profit and loss account/offered for income. In view of this ground number three is set-aside to the file of the learned assessing officer with a direction to the assessee to produce the reconciliation statement. The learned AO may verify the same and decide the issue thereafter in accordance with the law. Accordingly ground number 3 of the appeal of the assessee is allowed with above direction. 017. Ground number 4 is general in nature, no arguments were advanced, therefore, same is dismissed. 018. In the result appeal of the assessee for assessment year 2010 11 is allowed with above direction for statistical purposes. 019. For assessment year 2011 12 in ITA number 2133/M/2016 assessee has raised identical grounds. 020. Ground number one is with respect to the adjustment on account of arm's-length price of the international transaction of payment of management fee/corporate cost amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a direction to the assessee. With similar direction we set-aside these grounds back to the file of the learned transfer pricing officer for fresh determination of arm's-length price of these intragroup services. Accordingly ground number 1 ( in ITA number 2015 16 where it is ground number 2) are allowed with above direction. 027. For all those years starting from assessment year 2012 13 to assessment year 2017 18 there is an addition on account of unbilled receivables. This issue has already been decided in the case of the assessee for earlier assessment year as well as in assessment year 2010 11 wherein the issue has been set-aside to the file of the learned assessing officer to determine whether there is a double addition on this account or not. Accordingly for similar verification, this ground of the appeal for all these years are set-aside to the file of the learned AO. Accordingly for all these years ground relating to addition on account of unbilled receivable is allowed with above direction. 028. For assessment year 2012 13 the assessee has not been granted credit for tax deduction at source of ₹ 912,536/ . For assessment year 2013 14 similarly tax cred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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