2016-TII-INSTANT-ALL-369
27 August 2016   

CIRCULAR

Circular No - 30

Streamlining the process of No Objection Certificate (NOC), Port Clearance Certificate (PCC), voyage return and voyage assessment in the case of Foreign Shipping Companies (FSCs).

INSTRUCTION

Format of reporting under Chapter-lX "Exchange of Information under Tax Treaties" of the Central Action Plan 2016-17-reg

CASE LAW

2016-TII-447-ITAT-HYD-TP

IJM INDIA INFRASTRUCTURE LTD Vs ADDL CIT: HYDERABAD ITAT (Dated: August 24, 2016)

Income Tax - Sections 37, 92A, 92B, 133A, 143(1), 143(3), 144C(13) & 244A.

Keywords - Form 3CEB - Interest - Refund - Survey - Unexplained payments.

Whether disallowance of payments @ 15% is reasonable when assessee who made payments to contractors fails to prove the genuineness of the transaction and identity of the contractors - YES : ITAT

Whether transactions between the assessee and the AEs do not fall u/s 92B(2) of the Act and the addition made towards transfer pricing transactions should be deleted when entities involved are the residents for the purpose of Indian Taxation - YES : ITAT

The assessee is a Company, engaged in infrastructure works. The assessee filed return for relevant AY, which was processed u/s 143(1) of Act, determining refund (including interest). This refund was issued. The assessee filed report in form 3CEB. Thereafter, the case was picked up under CASS for scrutiny to examine various aspects of contractors business. During the course of survey, blank letter heads in the name of various concerns apparently located at Delhi were found. Upon questioning, the assessee could not provide proper answers. During the present proceedings, the assessee was requested to produce the parties for verification. Despite repeated opportunities, the assessee did not produce the parties for verification under the plea that they are not traceable. Independent enquiries were conducted to ascertain the correct facts and bank account copies of the concerns along with opening forms have been obtained. It was found that the concerns were very much active and the persons behind the concerns were available. It was also noticed that the concerns were not doing any work and only providing entries as noticed from the bank account entries which were typical of accommodating concerns.When the evidence was confronted to the assessee, it agreed for the disallowance. The AO observed that the assessee was unable to justify the work/purchases from the alleged parties and escaping all through by stating that the work was done long back and it was not possible to trace the parties. The plea of the assessee for non-levy of penalty was not accepted and the amounts were proposed to be disallowed and added back being unexplained payments not admissible u/ s 37 in the draft assessment order. Aggrieved, the assessee filed its objections before the DRP. The DRP confirmed the action of the AO. Aggrieved, the assessee filed appeal before Tribunal.

In the relevant year, the assessee company entered into transactions with the AE. The AO referred the matter to the TPO. After rejecting the TP analysis conducted by the taxpayer, the TPO has made an independent analysis for selection of comparables under TNMM and selected 13 comparables as final comparables and the arithmetic mean PLI(OP/OC) which comes to 15.25% on sales as against the PLI of the taxpayer at-6.76% which was outside the arm's length range of plus/minus five percent. Aggrieved, the assessee raised objections before the DRP who held that the transactions between the assessee and the AEs do not fall u/s.92B(2) of the Act and the addition made towards transfer pricing transactions be deleted. Revenue filed appeal before the Tribunal.

After hearing parties, Tribunal held that,

+ the assessee made payments to contractors without proving the genuineness of the transaction/contractors, the reason being it could not produce the contractors before any authority. In further investigation, it was proved by the department that these contractors are in existence. Still, assessee could not produce any of the contractors before the department. In our view, the payments were made to contractors, it shows that there exists transaction, but, in the earlier AY the coordinate bench of this Tribunal has adjudiated that inflating of expenditure by the assessee cannot be ruled out. The case before us also has similar facts and circumstances, therefore, we are also inclined to disallow 15% of the payment as reasonable and appropriate. In the result, appeal of the assessee is partly allowed;

+ after considering the submissions of the assessee, the DRP noted that in the assessee-company's own case relating to Asst. year 2008-09, Income Tax Appellate Tribunal, Hyderabad bench 'A' in its order in - 2013-TII-195-ITAT-HYD-TP has categorically held that the transactions between the Company and its PE do not fall under section 92 B(2) of the Act. The relevant portion of the decision is reproduced hereunder:

"The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act. After considering the entire facts and circumstances of the present case and the findings of the DRP, we are of the opinion that the transactions taken place are with domestic enterprises and at least one among the AEs are not non-resident. Both the assessee and other parties which whom the assessee entered into transactions are the residents for the purpose of Indian Taxation. Any transaction between them will not constitute an international transaction. The transactions between the assessee and IJMII do not fall under section 92B(2) of the Act and the same is the position in the case of other entities with whom the assessee carried on the impugned transactions. In our opinion, the argument of the Department is devoid of merit. Accordingly, we agree with the contention of the assessee's counsel on legal issue and allow the legal ground raised by the assessee. "

+ as the issue in dispute is squarely covered by the decision of the coordinate bench of this Tribunal in assessee's own case, we do not find any infirmity in the order of the DRP in holding that the transactions between the assessee and the AEs do not fall u/s 92B(2) of the Act and the addition made towards transfer pricing transactions is deleted.

Assessee's appeal partly allowed

 

Thanking you for your support and cooperation.

Regards,
Customercare Executive,

Taxindiainternational.com Pvt. Ltd.

TIOL HOUSE, 490, Udyog Vihar, Phase - V
Gurgaon, Haryana - 122001, INDIA
Board : +91 124-2879600 Fax: +91 124-2879610
Web: http: //www.taxindiainternational.com
Email: tiiinstant@taxindiainternational.com
____________________________
CONFIDENTIALITY/PROPRIETARY NOTE.
The Document accompanying this electronic transmission contains information from Taxindiainternational.com ,which is confidential, proprietary or copyrighted and is intended solely for the use of the individual or entity named on this transmission. If you are not the intended recipient, you are notified that disclosing, copying, distributing or taking any action in reliance on the contents of this information is strictly prohibited. This prohibition includes, without limitation, displaying this transmission or any portion thereof, on any public bulletin board. If you are not the intended recipient of this document, please return this document to Taxindiainternational.com immediately.