in the income tax appellate tribunal hyderabad bench “a

IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH “A”, HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
ITA No. 43/Hyd/2014
Assessment year 2009-10
The Deputy CIT
Circle-2(1)
Hyderabad
vs. M/s. IJM (India)
Infrastructure Ltd.
Hyderabad
PAN: AAACI7067A
Respondent
Appellant
Appellant by: Sri P. Soma Sekhar Reddy
Respondent by: Sri I. Rama Rao
Date of hearing: 29.04.2014
Date of pronouncement: 29.04.2014
ORDER
PER CHANDRA POOJARI, A.M.:
This appeal by the Revenue is directed against the
Directions of the Dispute Resolution Panel, Hyderabad dated
8.11.2013 for A.Y. 2009-10.
2.
The Revenue raised the following grounds:
1. Whether the DR is correct on facts and in law in
granting relief to the assessee with respect to the
adjustment to ALP.
2. Whether the DRP is correct in law in holding that
there are no transactions with associated enterprises
even when the assessee voluntarily declared the
transaction 3CEB report?
3. Whether the DRP is correct in haw in holding that
the Revenue has to be established that the AEs are
2
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
controlled from abroad though there was no
occasion for the Revenue to establish such fact
because the transactions were reported by the
assessee as transactions with AEs?
4. Whether DRP is correct in law in holding that the
AEs are domestic entities without any evidence to
the fact that the business of the AEs is controlled
and managed in India?
3.
The assessee is a closely held limited company
promoted by IJM Corporation, Berhad. The assessee is
engaged in the business of works contracts, construction and
maintenance of roads, bridges, townships, residential and
commercial buildings. Return of income was filed by the
assessee on 30-9-2009 declaring a total income at NIL. The
case was selected for scrutiny and the case was referred to the
Transfer
Pricing
Officer
since
during
the
year
under
consideration, the assessee company entered into transactions
with the Associated Enterprises within the meaning of Section
92A and 92B of the Act. The Transfer Pricing Officer passed
order u/s. 92CA(3) of the Act determining Arm's Length Price
at Rs. 62,45,39,693/-. The Assessing Officer vide his draft
assessment order dt. 20-3-2013 computed the total loss of the
assessee at Rs. 15,45,41,576/- taking into account the
adjustments of Rs. 62,45,39,693/- made in accordance with the
Transfer Pricing Order (TP Order) passed u/s. 92CA(3) by the
Addl. CIT (Transfer Pricing), Hyderabad (the TPO). The TPO in
the TP order has stated that as per the audited annual report
for FY 2008-09, the taxpayer is an infrastructure company
engaged in construction and maintenance of roadways,
townships, commercial buildings, bridges and metro rail
3
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
projects. As per the TP report furnished, the taxpayer uses
modern technology and equipment in executing these works
and the projects undertaken by the taxpayer, the same are of
high end specialized projects like bridges, highways, metro
projects and multi-storied residential and commercial projects
which involve complex/integrated civil engineering functions.
As per the 3CEB report, the international transactions entered
into by and between the taxpayer and its AEs during FY 200809 are as under:
S.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
4.
Class of
transactions
Provision of site
engineering,
construction and
allied services.
Reimbursement of
expenses.
Reimbursement of
expenses.
Provision of site
engineering,
construction and
allied services
Reimbursement of
expenses.
Reimbursement of
expenses.
Purchase of fixed
assets.
Reimbursement of
expenses.
Reimbursement of
expenses.
Reimbursement of
expenses.
Reimbursement of
expenses.
Reimbursement of
expenses.
Paid/Payable/
Received/
Receivable
Received/
receivable
A.E.
IJM
Corpn
Berhad
Project Office
Amount
involved
(Rs.)
222,47,28,385
TNMM
TNMM
Method
applied
Received/
receivable
Paid/payable
IJM1IJMII JV
36,54,42,244
IJM1IJMII JV
46,41,084
Received/
receivable
IJM1IJMII JV
40,11,98,720
TNMM
Received/
receivable
Paid/payable
IJM1IJMII JV
9,63,11,153
TNMM
IJM1IJMII JV
1,20,45,779
CUP
Paid/payable
IJM1NBCC1
VRM JV
IJM1NBCC1
VRM JV
IJM1NBCC1
VRM JV
IJM
Corpn
Berhad
IJM
Corpn
Berhad
IJMII
(Mauritius)
Ltd.
2,34,52,730
CUP
Received/
receivable
Paid/payable
Received/
receivable
Paid/payable
Paid/payable
CUP
58,769
TNMM
19,893
CUP
5,340
TNMM
29,09,350
CUP
88,09,294
CUP
The Auditors PWC have prepared the TP study wherein
it has worked out the operating profit separately in respect of
MCD Civic Center, Sagar C-4, BC-4 & BC-8 projects and AMEL
C-2 project by working out OP/TC at 11.02%, 3.19%, 6.03%,
4
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
3.19% and 7.53% respectively based on the information
provided by the taxpayer. It is thus claimed that the margins
so computed are within arm's length range and hence no
adjustment is required.
5.
After rejecting the TP analysis conducted by the
taxpayer, the TPO has made an independent analysis for
selection of comparables under TNMM and selected 15
comparables as final comparables and the arithmetic mean PLI
(OP/OC) which comes to 15.36% on sales as against the PLI of
the taxpayer at -6.76% which is outside the arm's length range
of plus/minus five percent. Out of the 15 comparable
companies selected by the TPO, the taxpayer has objected to
13 companies, even though the same are engaged in similar
activities. The TPO has also stated that out of the 13
comparables, 5 were also selected as comparable by TPO in
taxpayer's case for Asst. year 2008-09 which was upheld by the
DRP. The TPO placed reliance on various case laws and
rejected the objections raised by the taxpayer, thereby
computed an amount of Rs. 62,45,39,693/- held as shortfall
being adjusted u/s. 92CA.
6.
Before the Panel, the assessee submitted that the
Company M/s. IJM (India) Infrastructure Ltd., is a subsidiary
Company of IJMII (Mauritius) Ltd., 99% of the equity shares of
the Company is held by IJMII (Mauritius) Ltd. In turn IJMII
(Mauritius) Ltd., is a wholly owned subsidiary of IJM
Corporation Berhad, Malaysia.
IJM Corporation Berhad,
Malaysia have their MCD project office in Delhi. During the
5
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
financial year 2005-06, IJM Corporation Berhad, Malaysia MCD
Project office had secured two contracts namely i) MCD
project from Municipal Corporation of Delhi and ii) Sagar C-4
project from National Highway Authority of India for upgradation of existing road. The Delhi project office was
established in India under the provisions of Section 592 of the
Companies Act, 1956 and is considered as Permanent
Establishment. Subsequently, the jobs secured by the IJM
Corporation Berhad, Malaysia, MCD project office Delhi were
sub-contracted to the Company and its subsidiary company on
back to back basis by retaining very small margin of less than
3.2%. The IJM Corporation Berhad Delhi project office is filing
its income tax return for its project office activities before the
Income tax authorities Delhi. The Company had several joint
ventures with other business entities. One of such joint venture
entered by the Company is with IJM Corporation Berhad,
Malaysia by name IJM-IJMII JV. The joint venture has secured
three contracts from Delhi Metro Rail corporation. The
construction work relating to the said contracts were subcontracted to the Company, The IJM-IJM II JV is a resident
business entity and is filing the return of income in India.
Further, IJM Corporation Berhad, Malaysia had entered into a
joint venture with National Building Construction Company
Ltd., (NBCC) a Govt. of India undertaking, and Villayati Ram
Mittal (VRM) by name IJM-NBCC-VRM Joint Venture. The Joint
venture was awarded a contract from DMRC. Some of the
work from the DMRC was sub-contracted to the Company. The
IJM-NBCC-VRM JV is a resident business entity and is filing the
6
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
return of income in India. The transactions done by the
Company with IJM Corporation Berhad, MCD project office
Delhi, IJM-IJMII JV and IJM-NBCC-VRM JV had been reported
as international transactions in Form NO.3CEB as an abundant
caution.
7.
It was also submitted that the impugned transaction
between the Company and IJM CORP MCD PROJECT OFFICE
DELHI, IJM-IJMII JV AND IJM-NBCC-VRM- JV does not fall
under section 92B(2) for the following reasons.
(a) The Company and IJM CORP MCD PROJECT OFFICE
DELHI, being resident PE and IJM-IJMII JV AND IJMNBCC-VRM- JV are residents of India for tax purposes.
They pay their taxes in India. To fall under 92B( 1), the
international transaction has to be between associated
enterprises, at least one of whom is a non-resident. As
all the parties are residents, the transaction between the
Company and IJM Delhi Project Office and JV's do not
constitute an international transaction. Even in the case
of IJM Corp MCD Project office Delhi, the Project office
is filing the income tax return under the status of
permanent establishment before Income tax authorities,
Delhi. Thus the basic premise for invoking the deeming
fiction under section 92B(2) does not arise.
(b) The transaction in question did not involve transfer of
goods or services from the Company to IJM Group or to
any other non-resident enterprise, either directly or
7
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
indirectly, or by using IJM CORP MCD PROJECT OFFICE
DELHI, being resident PE and IJM- IJMII JV AND IJMNBCC-VRM- JV as an intermediary. The transaction in
question involved direct rendering of services by the
Company to IJM CORP PROJECT OFFICE DELHI, being
resident PE and IJM-IJMII JV AND IJM-NBCC-VRM- JV.
As a result, the preconditions to attract section 92B(2)
have not been satisfied in the instant case. It cannot
therefore be deemed that the transaction between the
Company and IJM CORP MCD PROJECT OFFICE DELHI,
IJM-IJMII JV AND IJM-NBCC-VRM- JV are one between
associated enterprises. Therefore, the basic condition
for the existence of an international transaction is not
satisfied.
8.
The assessee further submitted that in the Company's
own case relating to the Asst. year 2008-09, the Hon'ble
Income Tax Appellate Tribunal, Hyderabad bench 'A', has
categorically held that the transactions between the Company
and PE Joint Venture do not fall under section 92 B(2) of the
Act. And also the Hon'ble Income Tax Appellate Tribunal,
Hyderabad bench 'A', has categorically held that, the
transactions between Swarnandhra IJMII Integrated Township
Development Co. Ltd., and the Company i.e, IJM (India)
Infrastructure Ltd., do not fall u/s 92B(2) of the Income tax Act,
1961.
8
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
9.
After considering the objections, the DRP observed as
follows:
"The Panel has considered the submissions of the
assessee and it is noted that in the assesseecompany's own case relating to Asst. year 200809, Hon'ble Income Tax Appellate Tribunal,
Hyderabad bench 'A' in its order in ITA
No.1814/Hyd/2012
dt.22-8-2013
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."
It is noted that the jurisdictional Hon'ble Income
Tax Appellate Tribunal Hyderabad order in its
own case relating to the Asst. year 2008-09 and
also in the case of Swarnandhra IJMII Integrated
Township Development Co. Ltd., VS DCIT, the
transactions between the Company and IJM Corp
Berhad MCD PE situated at Delhi, IJM-IJMII JV
and IJM-NBCC-VRM JV are not the international
transactions and hence, the said transactions
between the Company and PE Joint Ventures are
9
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
not to be treated as international transactions.
Since as per the judicial discipline, the
jurisdictional Tribunal's decision is binding, the
Panel follows the above decision of Hon'ble ITAT
and holds 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 are to be deleted."
Against this, the Revenue is in appeal before us.
10.
We have heard both the parties and perused the
material on record.
The issue in dispute is identical as
considered by this Tribunal in assessee’s own case for A.Y.
2008-09 reported in 147 ITD 437 wherein the Tribunal held as
follows:
"PE should be treated as resident in India
Moreover, under the provisions of DTAA with
Malaysia, PE is treated as a separate legal
entity, independent of its foreign principal
enterprise. Further, Article 24 of the DTAA
contains a non-discrimination provision. It
prohibits a Contracting State from making any
discrimination in the matter of taxation
between its own national and a national of the
other Contracting State, who are placed in
similar circumstances. In other words, a
Contracting State is obliged to provide the
same tax treatment to a national of the other
Contracting State as it would give to its own
nationals. Article 3(h) of the DTAA defines the
term "national" to include both-natural persons
and artificial persons, such as companies, etc.
Therefore, PE should be treated as resident in
India inasmuch as the business profits
attributable to PE are taxable in India and all
business decisions relating to PE are entered
and concluded in India. In other words, the
control and management of the affairs of PE
are situated in India, the PE should be treated
10
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
as resident in India, treating PE otherwise
amounts to violation of Article 24.
Joint venture formed
resident in India
by
assessee
were
In the present case, all the decisions relating to
the affairs of the Joint Venture are taken in
India and the business is executed in India
through a Joint Venture Agreement in India.
Indisputably, Joint Ventures are residents in
India. Even otherwise, Clause 3 of Article 4 of
Malaysia provides that a person which
includes AOPs also shall be deemed to be
residents of the State in which its place of
effective management is situated. On perusal
of the Joint Venture agreements, it can be seen
that all the decisions relating to the Joint
Venture are taken in India and, therefore, the
JVs are to be treated as "residents" only.
Transfer pricing regulation not applicable
Further in the present case the transactions
are between two resident parties as outlined
at paras 3.18 and 3.19 of this order. There is
no possibility of shifting of profits outside India
or erosion of country's tax base. Therefore, its
transactions with AEs are outside the purview
of the transfer pricing regulations. This PE is
assessed to income-tax in India in the status of
foreign company in respect of its business
profits. No shifting of profits outside India or
erosion of taxes in India is involved, that is,
there is no motive to shift the profits or evade
the taxes in India inasmuch as its business
profits are taxable as separate entity in India.
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
11
ITA No. 43/Hyd/2014
M/s. IJM (India) Infrastructure Ltd.
=========================
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 same is
the position in case of other entities with whom
assessee
carried
on
the
impugned
transactions. In our opinion, the argument of
the
Department
is
devoid
of
merit.
Accordingly, the legal ground raised by the
assessee is allowed.
11.
Being so, we find no infirmity in the order of the DRP
and the same is confirmed.
12.
In the result appeal of the Revenue is dismissed.
Order pronounced in Open Court on 29th April, 2014
Sd/(P. MADHAVI DEVI)
JUDICIAL MEMBER
Sd/(CHANDRA POOJARI)
ACCOUNTANT MEMBER
Hyderabad, dated the 29th April, 2014
tprao
Copy to:
1. The Deputy CIT, Circle-2(1), 8th Floor, B-Block, IT Towers,
Hyderabad.
2. M/s. IJM (India) Infrastructure Ltd., H. No. 1-89/1, Plot No.
42 & 43, Kavuri Hills, Phase-1, Madhapur, Hyderabad-81.
3. The Dispute Resolution Panel, 2nd Floor, IT Towers, 10-2-3,
AC Guards, Hyderabad-500 004.
4. The Director of Income-tax (International Taxation), 10-23, AC Guards, Hyderabad-500 004.
5. The CIT-II, Hyderabad
6. The DR, A Bench, ITAT, Hyderabad.

Download Report