9911796707
TMI Blog2022 (11) TMI 1446X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of Income (filed on 31.03.2018), despite the fact that in the draft order of assessment Gross Total Income was computed after giving effect to the Revised Return of Income. 3. That on facts and in law the AO/DRP have erred in disallowing deduction u/s 80IA(4)(i) claimed by the appellant in the revised return of income. 3.1 That on facts and in law the AO / DRP have erred in holding that: (a) Contractees, who have allotted work of infrastructural facility to the appellant, are not recognized u/s 80IA(4)(i)(b), and (b) Appellant is merely a contractor and not a "developer". 4. That on facts and in law the TPO / DRP have erred in making / upholding Transfer (a) Adjustment of Rs 1,01,87,884/- on account of alleged interest receivable on advance given to M/s BSC C&C JV Nepal Pvt Ltd. (b) Adjustment of Rs 37,71,124/- on account of interest paid to Mr B. Krishnalah. 4.1 That on facts and in law the TPO / DRP has erred in not appreciating that there is no advance given by the appellant to M/s BSC JV Nepal Pvt. Ltd. and hence there is no "transaction" for receiving interest from the AE. 4.2 That on facts and in law the TPO / DRP have erred in holding/upholding that "t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of income as against the income shown by the assessee in the revised return of income. Ld. Counsel therefore submits that direction may be given to the Assessing Officer to correctly compute the total income after taking into consideration the revised return of income filed by the assessee. 3. Heard both the parties and perused the copies of returns placed in the paper book. On perusal of the draft assessment order, we noticed that the Assessing Officer had already taken cognizance of the revised return filed by the assessee on 31.03.2018 and this return was picked up for scrutiny while passing the final assessment order on 30.04.2021. The Assessing Officer started the computation of income by taking the income declared in the original return filed by the assessee instead of the income declared in the revised return. The Assessing Officer is directed to act upon the revised return filed by the assessee and compute the income accordingly for the assessment year under consideration. Ground no. 2 is allowed for statistical purpose and Ground No.1 being general ground the same is not required to adjudicate. 4. Ground no. 3 of grounds of appeal of the assessee is in respect of disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer was also of the view that the assessee is only a contractor and not a developer as the developer is expected to arrange finances and also to undertake risk. According to the Assessing Officer, assessee cannot be held to be a developer and, therefore, deduction claimed u/s 80IA was denied. The assessee approached the DRP and made its elaborate submissions. However, the DRP noted that the analysis as well as the conclusions drawn by the Assessing Officer is based on perusal of contract agreements and its details and, therefore, did not find any reason to interfere with the conclusions drawn by the Assessing Officer. 9. The Ld. Counsel for the assessee before us referring to the provisions of clause (b) of sub-section (4) of Section 80IA of the Act submits that any enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility and has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility is enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves the purpose of incorporating PGCIL and has been a notified central transmission utility since 1998. It is responsible for integrated development of Interstate transmission system in the Country for evacuation of power from central sector projects, system strengthening scheme, etc. and for implementation of transmission projects assigned to it. Therefore, the Ld. Counsel submits that the above Companies (PCUs & PSCs) are incorporated by Central/State Governments as special purpose vehicle to undertake specific jobs of respective Ministries. 11.1 The Ld. Counsel for the assessee further submits that the provisions of Section 80IA incentive wise rapid development of infrastructural projects in India and, therefore, a liberal interpretation has to be given to the condition stipulated in Section 80IA(4)(i). It is submitted that the literal/strict interpretation of Section 80IA(4)(i)(b) as done by the AO will yield manifestly absured results and this kind of interpretation has not been approved by the High Courts in the following cases: 1. CIT Vs. Ranjit Projects Pvt. Ltd. 408 ITR 274 SLP filed by the Revenue dismissed by the Hon'ble Supreme Court reported in 263 Taxman 363; 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Central Government or State Government or a local authority or any other statutory body. However, DFCCIL, PGCIL and IRCON have not come into existence because of any law connected by any legislature and, therefore, they are not statutory bodies but are only Companies owned by the Government. Thus, the AO was of the view that the basic condition for claiming deduction u/s 80IA(4) in respect of six projects which was awarded by DFCCIL, PGCIL and IRCON are not fulfilled as these contractee companies are neither Central Government nor State Government nor a local authority nor any other statutory body. 17. The AO further observed that insofar as Mokama-Munger Project is concerned the assessee JV entered EPC agreement with Mokama-Munger Highway Ltd. which is a Company registered under the provisions of Companies Act and Mokama-Munger Highway Ltd. obtained contract from NHAI, the assessee is an EPC Contractor for carrying out the contract work awarded by NHAI to the Project Company namely Mokama-Munger Highway Ltd. and, therefore, fails to fulfill the basic condition of sub-section (4) of Section 80IA. 18. The AO was also of the view that the assessee is not a developer but only a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Limited (DFCCIL) Dedicated Freight Corridor Corporation of India (DFCCIL) is a Special Purpose Vehicle set up under the administrative control of Ministry of Railways to undertake planning & development, mobilization of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors. DFCCIL was incorporated on 30th October 2006 under Indian Companies Act 1956. Your Honours may also observe from the copy of the agreement with IRCON International (submitted separately) that the Tender Documents were issued by the Ministry of Railways. IRCON International has executed the contracts under the Ministry of Railways. Organisational Structure of Ministry of Power: We are also submitting herewith relevant pages of the Annual Report for the FY 2015-16 of Ministry of Power. It explains complete Organisation Structure of Ministry of Power. Your Honour would observe that Power Grid Corporation of India Ltd. is a part of Ministry of Power as depicted in the Organisation Structure. Your Honour would further observe the purpose of incorporating the above said PGCIL as detailed below: Power Grid Corporation of India Limited (FGCIL) Power Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e participation and was a Government agency as defined in section 2(e) of the Act of 1999. Significant factors in the present case are that the road widening project was cleared by the Government, land for such purpose was alloted by the Government. The concession agreement which GSRDC executed was approved by the Government. It was under the Government Resolution that the assessee would collect toll upon completion of such project. Upon the completion of the project period, the entire infrastructure so developed would vest in the Government. Signatory to the applicant may be GSRDC for all practical purposes and in essence, it was the agreement between the assessee and the State Government. We are conscious that condition (b) of subsection (4) of section 80IA requires the assessee to have entered into agreement with the Central Government or a State Government or a local authority or any other statutory authority. However, rigid interpretation of this provision as canvassed by the Revenue would only result into the assessees involved in genuine infrastructure development projects for and on behalf of the Government or local authorities would be denied the deduction merely on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 80-IA includes a rail system also. 2. The Indian Railways have formulated a Build-Own-Lease-Transfer (BOLT) Scheme, wherexinder a private enterprise will provide the necessary and crucial components of a Railway system, own them for a stipulated period but will not maintain or operate the same. Instead, the enterprise will lease the asset (only necessary and crucial components of a Railway System) back to Indian Railways for maintenance and operation, and shall ultimately transfer it to Indian Railways. 3. This is to clarify that, the said (BOLT) Scheme of the Indian Railways shall be eligible for the benefit of section 80-IA of the Income-tax Act, IQ6I, since it is not legally possible for any enterprise other than the Indian Railways to maintain and operate a Railway System. However, this concession shall be applicable only to an infrastructure facility meant for development of Rail System and not to any other infrastructure facility including Rolling Stocks." Circular : No. 733, dated 3-1-1996. Your Honour would observe from the above that Hon'ble CBDT has allowed deduction u/s 80-IA on the projects awarded by Indian Railway under BOLT System other than BOT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ranjit Project's case (supra) is squarely applicable to the present situation. In view of above, it is submitted that since NHAI had awarded the contract to the applicant, it cannot be held that the above said agreement was entered into with an Indian Company. The said Indian Company is a pre-condition imposed by NHAI and hence, the deduction u/s 80IA of the Act may kindly not be denied to the applicant. It is prayed accordingly. Re: Ground of Objection No. 5.2 The Ld. AO further held that the applicant is not a developer and is rather a contractor. The Ld. AO referred to the agreement with Chief Engineer, PWD (Roads), Meghalaya, Shillong and cited some clauses with regard to payments to be received by the applicant on monthly basis alongwith Advance Payments and Secured Advance (Para 9.5 of the order) and has stated that as per judicial understanding a Developer is not expected to raise bills at every step of construction and is expected to charge the cost of construction plus mark-up of his profit; a developer is expected to arrange his own finances and to undertake the risk. In this regard, our humble submissions are as under: It is submitted that the Ld. AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80-IA(4), which is not the intention of the law. If a person who only develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility: When the Legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it pre-supposes that there can be income to developer, i.e., to the verson who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll therefrom, has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of "BT" (build and transfer) also falls within eligible construction activity, that is, activity eligible for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was not only required to develop but also required to operate and maintain the infrastructure facility, there was collection of revenue through toll tax by which assessee could have recovered not only its cost part but also profit thereon. After amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in resvect of infrastructure facility developed bu it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditions for claim of deduction u/s. 80IA(4) when the Government has made payment to the assessee in respect of the project of infrastructure development undertaken bu it in terms of respective agreement entered into with Government. Thus from the above, it is clear that the fact that the assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s 80IA of the Act. Deduction Section 80IA(4): The assessee is eligible for deduction under section 80IA which has been explained as below: Section 80IA provides that deduction as per clause (4) to Section 80IA of the Act is available to an enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m over the land or the project. However, in some case there can be a situation that the developer has to take the approval of the design from the Government/contractee but that will not change the status of the developer as works contractor. (b) That the first phase for the developers is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. (c) That a developer has to execute managerial responsibility by engaging the requisite qualified/skilled/semi-skilled staff and the labourers including the other supporting staff As the developer under takes the complete responsibility of the manpower to be used in developing the infrastructure facility. (d) The assessee has to utilize its expertise, experience including its technical knowhow in the development of the project. (e) That a developer has to execute financial responsibility. A developer is therefore expected to arrange finances either by private placement or from financial institutions for the proper development of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veloper and do not own any risks and responsibilities of the work. In such cases, the contractors may not be eligible for the deduction under section 80-IA of the Act, as they are not developing any infrastructure facility but only providing assistance to the actual developer. 13.4 In view of the above, we note that it is possible to ascertain whether a civil construction work is assigned on development basis or contract basis only on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a "work contract" or a "development contract......." True test therefore is who is carrying on Entrepreneur Risk. The above proposition has also echoed by the decision of Kolkatta ITAT in case of ACIT vs Ho Hup Simplex reported in (2018) 92 taxmann.com 106(Kol) and it is held as under: "6.15 We find that like any other entrepreneur who employs his material, plant, machinery, labour etc in a project and undertakes risk, the assessee was also exposed to a substantial amount of risk by virtue of engaging his establishment in the infrastructure projects. In addition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r into an agreement with Central Government, State Government and or local authority or Statutory body on or after 01.04.1995. As explained in Ground of Objection No. 5 even contracts entered into with PSUs/PSEs, fully owned by the Governments, are also covered. C. The agreement should be for development of a new infrastructure facility. New infrastructure facility also includes widening/ improvement/ upgradation of existing infrastructure. In this regard, we need to point out that the Central Board of Direct Taxes in its Circular No.4/2010 issued on 18.05.2010 has clarified that the work of widening of an existing road by constructing additional lanes as a part of Highway project would be recorded as a new infrastructure facility for the purpose of Section 80-IA(4)(i) of the Act. The said Circular is reproduced below for the sake.of convenience: "CIRCULAR NO.4. OF 2010 DT. 18TH MAY, 2010 Widening of existing road-Definition of a new infrastructure facility- Clarification regarding 18/05/2010 DEDUCTIONS SECTION 8O-IA(4) References have been received by the Board as to whether widening of existing roads constitutes creation of new infrastructure facility for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . * Interested parties collect the tender documents from the concerned offices. This tender documents contains, specifications, standards (including what type of material to be used), schedule, drawings of the entire project. * The department will also provide the Estimated Project Cost (bench mark). * The interested parties send their survey team to inspect the entire stretch of the project and compare with the drawings provided by the department. * Accordingly, the Contractor submits the Tender and the work will be awarded to the lowest bidder. * The lowest bidder will receive the LOI (Letter of Intent) from the Department and the bidder will send the confirmation. * The Department and the bidder will execute the Contract Agreement and the bidder would give performance bank guarantee within the stipulated time mentioned in the Agreement. * As per the agreement terms the bidder will get mobilisation advance on submission of bank guarantee. * The bidder will start the work and submit the monthly work bill and the department will release the amount after verification of the work done and deduct the statutory deduction. * Independent Engineer / Authority Engineer wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of various components of the works; rectification of the defects in the completed works during the Defects Liability Period; submission of "As built" drawings and any other related documents; and other item of work as may be required to be carried out for completing the works in accordance with the drawings and provisions of the contact to ensure safety . (B) Bridge Works Dite clearance; setting out, provision of foundations, piers abutment and bearings; prestressed/reinforced cement concrete superstructure; wearing coat, hand railings, expansion joint, approach slabs, drainage spouts/down take pipes, arrangement for fixing light posts, water mains, utilities etc; provision of suitably designed protective works; providing wing/return walls; provision of road markings, road signs etc; all aspects of quality assurance; clearing the site and handling over the works on completion; rectification of the defects during the Defects Liability Period and submission of "As-built" drawings and other related documents; and other items of work as may be required to be carried out for completing the works in accordance with the drawings and the provisions of the contract and to Insure safet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or damage of property (except the Works, Plant, Materials and Equipments) in connection with the Contract; and (d) personal injury or death. 21 Possession of the Site 21.1 The Employer shall give possession of all parts of the Site to the Contractor. If possession of apart is not given by the date stated in the Contract Data the Employer is deemed to have delayed the start of the relevant activities and this will be Compensation Event. 27 Programme 27.1 Within the time stated in the Contract Data the Contractor shall submit to the Engineer for approval a Programme showing the general methods, arrangements, order, and timing for all the activities in the Works along with monthly cash flow forecast. 32 Early Warning 32.1 The Contractor is to warn the Engineer at the earliest opportunity of specific likely future events or circumstances that may adversely affect the quality of the work, increase the Contract Price or delay the execution of works. The Engineer may require the Contractor to provide an estimate of the expected effect of the future event or circumstance on the Contract Price and Completion Date. The estimate is to be provided by the Contractor as soon as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils to carry out the maintenance works, he will be notified by the Executive Engineer to execute the same. If the contractor still then fails to carry out the same within 7 days from the date of receiving instruction etc. from the Executive Engineer in writing, the Executive Engineer will be done the work and the cost thereof will be recovered from the contractor's next bill for the works. The maintenance Road as required in the place of work is to be carried out as per the existing provisions of the road i.e. WBM/BUSG/PC/SC as may be applicable as per the director of the Engineer-in-charge. D> FOURTH CONDITION; Above responsibilities and duties duly substantiate that the assessee is not a simplicitor contractor rather the assessee is developer of the project. Your Honours would observe from the above said details that the Shillong Project duly complies with the conditions laid down for claiming deduction u/s 80IA as follows: i> The Project has been awarded by the State Government of Meghalaya; ii> The Project is for development of "New Infrastructure facility" as the project is for widening of the existing carriageway; iii> The Project was awarded after 01.04.1995; iv> ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s undertaken both managerial as well as financial responsibility; it is under an obligation to design the project; it is fully responsible for development or completion of the project; it has undertaken complete risk of the project; it has employed manpower, machinery and has also arranged finances. Responsibilities of the Contractor include following: Kindly see following Clauses of the Agreement for assessee's obligations with respect to the Project, which provides as follows: 1.1.6.4 Materials 1.1.6.4 "Materials" means things of all kinds (other than Plant) to be provided and incorporated in the Permanent Works by the Contractor, including the supply-only items (if any), which are to be supplied by the Contractee as specified in the Contract. 4.1 Contractor's General Obligations 4.1.1 The Contractor shall design including checking and validating of designs and drawings provided by the Employer (to the extent- specified in the Contract), execute and complete the Works wholly in accordance with the Contract and fit for the purposes for which they are intended, as defined in the Contract. The Works shall include any work which is necessary to satisfy the Employer' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person of his work force stating the reasons, the contractor shall ensure that the person leaves the site within several days and has no further connection with the work in the Contract. 4.5.2 Performance Security 4.5.2.1 Amount of Performance Security Within 15 days of receipt of the Letter of Acceptance, the successful bidder shall furnish Performance Security in the form of a bank guarantee from a Nationalized/ Scheduled Commercial bank in India for an amount equal to eight percent (8%) of the Contract Value. The prescribed form annexed as of these conditions shall be used for Bank Guarantee. The Bank Guarantee shall be valid up to 6 months beyond the "Defect Liability Period". Failure of the successful Tenderer/ Bidder to furnish the required Performance Security shall be a ground for the annulment of the award of Contract and forfeiture of the Bid Security. 4.5.3 Security Deposit The Bid Security' deposited by the contractor with a tender will be retained by employer as part of security' of the due and faithful fulfilment of the contract by the contractor and in addition, 2% will be deducted and retained from each on-account bills progressively so that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the safety of all persons on or in the vicinity of the Site (including without limitation persons to whom access to the site has been allowed by the Contractor), comply with all relevant safety regulations, including provision of safety gear, and in so far as the Contractor is in occupation or otherwise is using areas of the Site, keep the Site and the Works (so far as the same are not completed and occupied by the Employer) in an orderly state appropriate to the avoidance of injury to all persons and shall keep the Employer indemnified against all injuries to such persons; c. Provide and maintain all lights, guards, fences and warning signs and watchmen when and where necessary or required by the Engineer or by laws or by any relevant authority for the purpose of the Works and for the safety and convenience of the public and all persons on or in the vicinity the Site; and d. Where any work would otherwise be carried out in darkness, ensure that all parts of the Site where work is being carried out are so lighted as to ensure the safety of all persons on or in the vicinity of the Site and of such work. 4.18 Electricity, Water and Gas 4.18 The Contractor shall be respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot find any reason to interfere with the conclusions drawn by the Assessing Officer observing as under: "3.1.5.2 "Vide submission Appendix-2 pages 30 to 62 the assessee has given detailed submission and the panel has carefully considered the submission of the assessee as well as the observations of the AO in the draft order. The Panel observes that the AO has given a detailed discussion on the above disallowance vide para 9.2 and 9.4 of the draft order. The AO has gone through the details of the contract agreement for each of the above 6 projects and after analyzing the contract agreement as well as the payment conditions came to the conclusion that the assessee cannot be held to be a Developer. As deduction u/s 80IA(4) of the Act is admissible only for developing and maintaining infrastructure facilities, and the fact that the assessee is not a Developer, the AO disallowed the deduction claimed u/s 80IA(4) of the Act. The Panel notes that the analysis as well as the conclusions drawn by the AO is based on perusal of contract agreements and its details. Hence, the Panel does not find any reason to interfere with the conclusion drawn by the AO in this regard. Ground number 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AI to the assessee JV. Therefore, since NHAI through LOA has put a condition for incorporation of Limited Liability Company under the Companies Act for the purpose of undertaking and performing the obligation and exercise the rights of the builder under LOA and also to enter concession agreement pursuant to LOA for executing the project we are of the view that the assessee fulfills the basic condition under sub-section (4) of Section 80IA of the Act. 24. Coming to the last contention of the AO that the assessee is not a developer but only a contractor we find no substance in the contention of the AO. Various clauses in the agreement entered into by the assessee for execution of infra projects clearly shows that the assessee is the complete risk bearer, liable for liquidated damages in case of delay in execution of the projects. Some of the clauses in the agreement entered into by the assessee with the Chief Engineer PWD Highway, Meghalaya State Government are as follows: "9 Personnel 9.1 Contractor shall employ the key personnel named in the Schedule Key Personnel as referred to in the Contract Data to carry out the functions stated in the Schedule or other personnel approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the milestone as stated in the contract data). The total amount of liquidated damages shall not exceed the amount defined in the Contract Data. The Employer may deduct liquidated damages from payments due to the Contractor. Payment of liquidated damages does not affect the Contractor's liabilities. 52 Securities 52.1 The Performance Security (including additional security for unbalanced bids) shall be provided to the Employer no later than the date specified in the Letter of Acceptance and shall be issued in an amount and form and by a bank or surety acceptable to the Employer and denominated in Indian Rupees. The Performance Security shall be valid until a date 28 days from the date of expiry of Defect Liability Period and the additional security for unbalanced bids shall be valid until a date 28 days from the date of issue of the certificate of completion. 54 Cost of Repairs 54.1 Loss or damage to the Works or Materials to be incorporated in the Works between the Start Date and the end of the Defects Correction period shall be remedied by the Contractor at the Contractor's cost if the loss or damage arises from the Contractor's acts or omissions. SPECIAL CONDITIONS OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the contention of the AO that the assessee is not a developer but only a contractor is misconceived. 26. In view of the above, we hold that the assessee is entitled for deduction u/s 80IA(4) in respect of projects executed by the assessee and awarded by DFCCIL, IRCON, PGCIL. Ground no. 3 and 3.1 of grounds of appeal of the assessee are allowed. 27. Ground nos. 4 to 7 of grounds of appeal of the assessee is in respect of Transfer Pricing Adjustment of Rs. 1,01,87,884/- made by the AO/TPO on account of interest receivables on advance given to M/s BSE C&C JV Nepal Pvt. Ltd. and TP Adjustment of Rs. 37,71,124/- on account of interest paid to Mr. B. Krishnaiah. 28. The Ld. Counsel for the assessee submits that there is no justification in making TP Adjustment in respect of interest receivables on the advance given to AE of the assessee JV and placed reliance on the submissions made before the DRP. Ld. Counsel also placed reliance on the decision of Hon'ble Delhi High Court in the case of PCIT Vs. Kusum Healthcare Pvt. Ltd. (398 ITR 66). 29. The Ld. DR strongly placed reliance on the orders of the TPO/DRP. 30. Heard rival submissions, perused the orders of the authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to make aggregate and Nepal and transport it to the construction units in Bihar. d) Due to terrorism in Nepal, production activities in Nepal was closed down and its all the assets consisting mainly of Crusher Unit were transferred to the construction sites in Bihar. We are enclosing herewith copies of ledger accounts of our construction sites in Bihar, where the assets/LCs issued by JV Partners were transferred. This is an additional evidence for which separate request has been made for its admission as these documents could not be submitted before AO due to paucity of time. Your Honours would observe from the above said ledger accounts that earlier there was a credit balance. After transfer of LCs issued by JV Partners, the amount due to Nepal Unit was converted to a debit balance. This debit balance was shown as receivable in the books of the applicant company. e) Your goodself would observe that the applicant company has not given any advance to its foreign AE. This is only the transfer of LCs issued by JV Partners on account of closure of business activities in Nepal which has turned credit balance to a debit balance. We are also enclosing year-wise detail of Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r se, but is a result of the international transaction. In plain words, a continuing debit balance only reflects that the payment, even though due, has not been made by the debtor. It is not, however, necessary that a payment is to be made as soon as it becomes due. Many factors, including terms of payment and normal business practices, influence the fact of payment in respect of a commercial I transaction. Unlike a loan or borrowing, it is not an independent transaction which can be viewed on standalone basis. What can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into. The payment terms are an integral part of any commercial transaction, and the transaction value takes into account the terms of payment, such as permissible credit period, as well. The residuary clause in the definition of 'international transaction', i.e., any other transaction having a bearing on the proof its, incomes, losses or assets of such enterprises, does not apply to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d pay at the applicable LIBOR rate. In view of above submissions, it is submitted that the debit balance of Nepal company in the books of the applicant is not an advanced given rather it is a net-off balance on account of transfer of LCs issued by JV Partners which ultimately is to be debited to the Partners of the applicant since they have incorporated the Nepal Company in equal ratio and hence, no adjustment on account of interest on the debit balance of Nepal Company should be made to the returned income of the applicant." 32. As could be seen from the above, the assessee contended before the DRP that the ledger accounts in earlier years showed credit balance and after transfer of LCs issued by JV Partners the amount due to Nepal Unit was converted to a debit balance and this was shown as receivable in the books of the assessee company. It was contended that the assessee company has not given any advance to its foreign AE and this is only transfer of LCs issued by JV Partners on account of closure of business activities in Nepal which has turned into credit balance to a debit balance and the assessee furnished year wise details of credit and debit balances of BSC C&C Nepal Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational Transaction intended to benefit the AE in some way. 35. On perusal of the TPO's order, we find that no such exercise has been carried out by the TPO in benchmarking the interest on "receivables". Further, we observed from the order of the DRP none of the submissions or additional evidences were considered nor is there any finding by the DRP though the assessee has produced additional evidences before the DRP and made its submissions which were not made before the Assessing Officer. 36. Therefore, in the interest of justice, we are of the view that this matter should go back to the AO/TPO for deciding this issue afresh in the light of the submissions the additional evidences produced by the assessee and also keeping in view the observations of the above Hon'ble Delhi High Court. Thus, we restore this issue to the file of the AO/TPO for denovo adjudication in accordance with law. This ground is allowed for statistical purpose. 37. Coming to the TP adjustment made on account of interest paid to Mr. B. Krishnaiah the assessee contended before the TPO that it had taken unsecured loan from Mr. B. Krishnaiah as bank do not provide working capital loans to a JV Company, hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On perusal of the DRP's order the DRP observed that the assessee failed to demonstrate the commercial expediency which mandated the loan from Mr. B. Krishnaiah, Chairman of BSE PL Infrastructure Ltd. which is one of the partners of the assessee's JV, the related party had higher rate than the market price. The contention of the assessee was that the bankers do not provide loans for working capital requirements and this was not denied either by TPO or by the DRP. When once the bankers do not provide loans towards working capital requirements to the JV Companies the interest rate cannot be compared to the base rate of State Bank of India. At the same time, we are in agreement with the TPO that Arm's Length Price of specified domestic transactions need to be determined as per Section 92 & 92C of the Act w.e.f. the AY 201314. However, the TPO did not bring in any comparables for benchmarking the ALP interest on loan received from Mr. B. Krishnaiah. We further find that the TPO has not examined the CUP submitted by the assessee in its transfer pricing study. Therefore, in the interest of justice, we restore this issue also to the file of the AO/TPO to determine the ALP of the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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