Indian Kanoon - Search engine for Indian Law

Income Tax Appellate Tribunal - Mumbai

Boskalis International-Dredging ... vs Department Of Income Tax

             IN THE INCOME TAX APPELLATE TRIBUNAL
                   MUMBAI BENCH "L": MUMBAI

              BEFORE SHRI PRAMOD KUMAR (AM) AND
                    SHRI R.S. PADVEKAR (JM)


                        ITA No. 3950/Mum/2006
                            (Asstt. Year : 2001-02)

ADIT(IT)-3(2), Mumbai,                                ...   Appellant
Scindia House, R.No. 132,
1st floor, N M Road,
Mumbai - 38

      V/s.

Boskalis International - Dredging                     ...   Respondent
International CV
C/o. S.R. Batliboi & Co., CA
18th Floor, Express Towers
Nariman Point
Mumbai - 400 021


                        Appellant by   : Mr. Ajit Kumar Sinha
                     Respondent by     : Mr. M.P. Lohia

                               :ORDER:

PER R.S. PADVEKAR, J.M

The Revenue has filed this appeal challenging the impugned Order of the Ld CIT(A)-XXXI, Mumbai dated 30.3.2006 for the A.Y. 2001-02.

2. The Revenue has taken the following Ground in the appeal :

" On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that provisions of section 40A(2)(b) are not applicable to the transaction and payments of hire charges is reasonable."

3. The facts pertaining to the issue which reveal from the record are as under :-

The assessee is the Partnership Firm (PF) in the Netherland and is also a Non-resident. The assessee firm was awarded contract by the Indian Oil Corporation Limited (In short 'IOCL') for dredging and reclamation works for 'Paradip Refinery Project' ( In short 'PRP'). The assessee had paid charter hire charges to M/s. World Dredging International B.V. (WDI), which was a company incorporated in the Netherlands for chartering the Cutter Suction Dredger 'Amazone' and self propelled cutter suction dredger 'Tarus'. The A.O. has noted that the amount paid to M/s. WDL was to the tune of Rs.24,51,22,454/- for 'Amazone' and Rs. 20,19,35,613/- for 'Taurus'. The A.O. asked for certain details including the copies of the contract for charter hire rates as applicable and also the relationship of the assessee with the M/S. WDI. The A.O has observed that as per the assessee's submission, during the F.Y. 2000-01, M/S. WDI was a related concern to the assessee as M/s. Boskalis Westminister International B.V., was the ultimate parent entity of the 'Boskalis Group'. It is pertinent to note here that the assessee was the Partnership Firm between M/s. Baggermaatschappij Holland B.V., Tideway B.V. and Boskali International-Dredging International B.V. The A.O has given the details in respect of the hire rental charges as per the 'charter hire agreement' (CHA) which was 3,11,985 Euros per week for 'Tarus' and 1,94,683 Euros per week for 'Amazone'. The A.O has also given some technical details in respect of one dredger namely "DCI Dredge Aquarius' which was leased out by M/s. Dredging Corporation of India Ltd. to Dredging International for US $ 54000 per week. The A.O has also given specifications of 'Amazone' BEING Annx.-3' to assessment order which is a print out of web page of 'Birth Visor, directory of Visor. As noted by the A.O, 'Taurus' was a propelled suction Dredger having total installed power of 15618 K.W. and so far as 'Amazone' was concerned which was a cutter suction Dredger having the installed power of 9,74 K.W. So far as DCI Dredge Aquarius was concerned, it was also self propelled cutter suction "Dredger" which was similar to the 'Taurus' having total installed power of 14000 K.W. In view of the A.O, the services rendered by 'Taurus' and 'Amazone' were similar to the services which could have been rendered by 'DCI Dredge Aquarius' inspite of that fact, less payment was made towards lease rental for 'DCI Dredge Acquarius'. The A.O. therefore proceeded to work out the fair market rental charges in respect of 'Amazone' and 'Taurus' Dredgers taking the example of 3 ITA No.3950/Mum/2006 'DCI Dredge Aquarius' which was an another dredger. The A.O. finally concluded that the fair market lease rental charges payable to 'Tarus' per week should not be more than 1,61,000/- Euros and in respect of 'Amazone' 94,683 Euros per week were excess payment made by the assessee to M/S. WDI which was a related party. The A.O, therefore, worked out the total excess payment made by the assessee aggregating Rs. 9,52,42,180 in case of 'Taurus' and Rs.9,95,71,150/- in case of 'Amazone' totaling Rs.19,46,64,330/- and disallowed the same u/s. 40A(2)(a) of the I.T. Act treating the said payment made to a person which was related concern of the assessee within the meaning of sec. 40A(2)(b) of the Act. The sum and substance and the base for making disallowance was M/S.WDI.

4. The assessee challenged the disallowance before the Ld CIT(A). The Ld CIT(A), after examining the provision of Section 40A(2)(a)/(b) of the Act held that the A.O failed to bring anything on record as to how the WDI is a person specified in Section 40A(2)(b) of the Act. Moreover, the Ld CIT(A) also considered the fact that though the said contract was continued in the A.Y. 2002-03, the Transfer Pricing Officer (TOP) vide order u/sec. 92CA(3) accepted the correctness of the lease-rental per week in respect of same Dredgers i.e. 'Taurus' and 'Amazon'. The operative part of the order of the Ld CIT(A) is as under :-

"2.8 Accordingly, it is apparent that the WDI cannot be termed as a person specified in any one of the clauses mentioned in Sec.40A(2)(b). The AO has also failed to bring anything on record how the WDI is a person specified in sec. 40A(2)(b). The AO has simply mentioned that the WDI has substantial interest in Boskalis International-Dredging International B.V. through its parent entity. After consideration of the AR's arguments and examination of the provision of sec. 40A(2)(b), and the findings of the AO, it is apparent that the AO has failed to established as to how the WDI is covered by the definition of person receiving payment as mentioned in sec. 40A(2)(b). In view of this, I hold that the WDI is not a person u/s. 40A(2)(b) and the AO has 4 ITA No.3950/Mum/2006 wrongly applied sec. 40A while making the disallowance of lease rental paid in respect of two dredgers.

2.9 Besides the applicability of Sec. 40A(2), the order of the TPO for A.Y. 2002-03, while examining the correctness of the lease rental paid within the meaning of Sec. 92CA(3) is very relevant. The AO has simply mentioned that the order of TPO for A.Y. 2002-03 cannot be applicable to A.Y. 2001-02. However, the leasing of dredger is made over a long term for a certain rent and while applying section 92CA(3), the TPO has to examine whether any excessive payment has been made taking into account the relationship between the payer and the payee. The TPO is obliged to compute the payment on arm's length basis and make the disallowance of expenditure if he finds that the payment is in excess of the payment required to be given as per the arms' length prices. Provisions of Sec. 92 and 92 A are much wider than Sec. 40A(2). Thus any decision arriving at by the TPO for A.Y. 2002-03 is certainly relevant while considering the same issue in A.Y. 2001-02.

2.10 I have examined the order u/s. 92CA(3) of the TPO dated 28.03.2005. He has discussed in detailed in the order, the issue of lease rental paid in respect of two dredgers "Amazone" and "Taurus" to WDI. He has also discussed the most appropriate Transfer Pricing method to judge the correctness of the lease rental paid. He has accepted the VG Bouw Valuation certificates regarding the arm's length price of the dredgers and equipments on page 5 & 6 of his order. The AR has submitted that there is no change in the charter higher charges of "Amazone" and "Taurus" in A.Y. 2001-02 vis-à-vis the rates applicable for A.Y. 2002-03. The AR has submitted that the same transactions of A.Y. 2001-02 were continued in A.Y. 2002-03. The examination of the TPO's order u/s. 92CA(3) reveals that the TPO has accepted the correctness of the lease rental per week in respect of "Taurus" and "Amazone" dredgers. However, disallowance has been made in respect of "Taurus" Dredger on page 9 of the order on the ground that the number of days for which lease rental was paid for 261 days where it is payable only for 252 days. Thus it is very apparent 5 ITA No.3950/Mum/2006 that the TPO has accepted the correctness of the lease rental paid to WDI, in respect of two dredgers. Since there is no difference between the lease rental paid in A.Y. 2001-02, and prevailing in A.Y. 2002-03, it is to be accepted that the lease rental paid in A.Y. 2001-02 is also correct. As no other circumstances justifying the applicability of the different rate have been brought on record, I accordingly hold that the AO was not justified in disallowing a part of the lease rental paid in respect of to dredgers namely 'Amazone' & 'Taurus'."

5. We have given our anxious considerations to the rival submissions of the Parties and also perused the reasons given by the Ld CIT(A). Admittedly, the A.O has not brought on record anything to make out the case under sec. 40A(2)(b) that how the M/S. WDI had substantial interest in the Boskalis International - Dredging International B.V., through its parent entity except giving the summary of their relations. We also agree with the findings of the Ld CIT(A) that the A.O failed to establish as to how M/S. WDI is covered by the definition of the persons receiving the payment as mentioned in Sec. 40A(2)(b) of the Act. Moreover, the same transaction is continued in the A.Y. 2002-03 and as submitted by the Ld Counsel, the TPO has not gone back on the view taken by the A.O in the A.Y. 2001-02 while passing the order u/s. 92CA(3) of the Act and has accepted the correctness of the payment. The Ld D.R. did not controvert the submissions made by the Ld. Counsel as well as the observations of the Ld. CIT(A) in his order. We also find that though the A.O has relied on the transactions made by M/s. Dredging Corporation of India Ltd. in May 2002 in respect of 'DCI Dredge Aquarius', except mentioning the installed power of the said Dredger as 14000 KV which was also evident from the print out taken from the Web page of 'Birth Wasor's Dictionary of Dredgers', no other comparable data is brought on record. In our opinion, the Ld. CIT(A) has rightly deleted the addition made by the A.O. We, accordingly, confirm the same.

6. In the result, Revenue's appeal is dismissed.

Order pronounced in the open court on 14th day of December , 2009.

             Sd/-                                           Sd/-
        (PRAMOD K UMAR)                               (R.S. PADVEKAR)
      ACCOUNTANT MEMBER                            J UDICIAL MEMBER

Mumbai, on this 14th day of Dece mber, 2009.

:US

Copy to:

1. Appellant
2. Respondent ,
3.The CIT(A)- XXXI, Mumbai
4.The CIT concerned, Mumbai
5.The DR, "L" be nch, Mumbai
6.Guard File
                                        BY ORDER
True co py

                                  Asstt..Re gistrar, ITAT, Mumbai.
                                       7                ITA No.3950/Mum/2006




US
                               Date         Initials

1.   Draft dictated on         7/12/09      ---------------    Sr.P.S.
2.   Draft   Placed   before    authority     8/ 12/ 09       --------------
Sr.P.S.
3.   Draft proposed & place d -----------         -------------      JM
     Before the Second Member

4.   Draft discussed/ approve d       ----------- -------------      JM/AM
       By Second Member

5.   Approved Draft comes to          ----------- -------------
     Sr.P.S.
     the Sr. P.S./ P.S

6.   Kept for pronouncement on -------- -         -------------
     Sr.P.S.
7.   File sent to the Be nch Cle rk ---------     -------------
     Sr.P.S.
8.   Date on which file goes to the -------       -------------
9.   Date of dispatch of Order       ---------    -------------