Voith Siemens Hydro Private Limited Vs ACIT (ITAT Delhi)
The case of Voith Siemens Hydro Private Limited vs. ACIT involves transfer pricing proceedings. The focus of the proceedings is on the expenses incurred for engineering services and administrative support services. This article analyzes the details presented during the case, including the examination of invoices, the nature of the services, and the arguments put forth by the parties involved. The ultimate outcome and implications of the case are also discussed.
Analysis: During the transfer pricing proceedings, Voith Siemens Hydro Private Limited submitted details of expenses incurred for engineering services and administrative support services provided by its associated enterprise (AE). The invoices contained information such as invoice numbers, dates, gross amounts in Euros, and their equivalent amounts in INR. The expenses totaled Rs. 1,89,53,444, with Rs. 1,46,21,403 relating to engineering services and Rs. 43,32,041 related to administrative support services.
The Transfer Pricing Officer (TPO) examined the invoices and found that the AE charged the assessee for services rendered during the OTO (order to offer) stage of projects, which included OTO-support and application work. The TPO acknowledged that the engineering services were essential for the assessee, a start-up company with limited experience in the hydro power industry. The services provided by the AE included sales support, product engineering, feasibility studies, and technical assistance using Computational Fluid Dynamics (CFD) software.
The case involved a discussion on the characterization of the assessee as an EPC (Engineering, Procurement, and Construction) contractor and the comparison with companies providing engineering services. The assessee argued that its activities in subsequent assessment years were similar to the AY 2007-08, which had been characterized as an EPC contractor. The assessee presented a detailed search process that resulted in identifying comparable companies engaged as EPC contractors, supporting the arm’s length standard for the international transactions.
Regarding administrative support services, the assessee clarified that they included public relations, human resources, and corporate sourcing. The charges for these services were allocated based on the proportion of sales among various Voith entities without any markup. The outsourcing of certain works to subcontractors, such as erection and commissioning, was highlighted to refute the notion that these services were unnecessary due to outsourcing.
The assessee contended that the segmental approach for benchmarking its international transactions related to outbound engineering services should be accepted. The Ld. TPO’s rejection of the segmental approach at the entity level was challenged, with duly certified segmental financials provided to support the assessee’s position.
Conclusion: Based on the facts presented and the legal position, it is evident that the expenses incurred by Voith Siemens Hydro Private Limited for engineering services and administrative support services were necessary and commercially expedient for its business operations. The objections raised during the transfer pricing proceedings were adequately addressed by the assessee. As a result, the addition made by the transfer pricing adjustment was deemed unnecessary, and the appeal of the assessee was allowed. The case highlights the importance of accurately analyzing and justifying expenses in transfer pricing matters.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal by the assessee is directed against the assessment order dated 19.10.2011 of the Ld. ACIT, Circle-17(1), New Delhi (“AO”) pertaining to assessment year (“AY”) 2 007-08.
2. The assessee is a private limited company which develops, designs, procures, erects, installs and commissions all electrical and mechanical parts of hydro-power projects. It executes Engineering, Procurement and Commissioning (“EPC”) contracts. During the AY 2007-08 the assessee held license for use of the Voith Trademarks and also the Technical know-how of Voith Siemens Hydro Power Generation Grubh & Co. KG for its EPC
3. For AY 2007-08 the assessee filed its return of income on 30.09.2007 declaring income of Rs. 6,41,35,888/-. Following the order of Transfer Pricing Officer, Hyderabad (“TPO”) dated 30.06.2010 an addition of Rs. 5,42,39,943/- was proposed as an adjustment/ difference in the arm’s length price (“ALP”) vide the draft order dated 16.12.2010 by the Ld. AO after the case was transferred to him under section 127 of the Income Tax Act, 1961 (“the Act”). The addition comprised of two variables which are as under:-
