Lummus Technology Heat Transfer BV Vs DCIT (ITAT Delhi)
ITAT had held that Rule 10B(1)(e) of the Income Tax Rules, dealing with TNMM, does not mandate that net profit computations for internal comparables be based on audited segmental accounts. The Tribunal had observed that computation on the same parameters for controlled and uncontrolled transactions is sufficient, provided necessary comparability adjustments are made.
Overview: The case involves Lummus Technology Heat Transfer BV, a Dutch company with a branch office in India that specializes in designing, engineering, and construction projects in power, oil and gas, fertilizer, and petrochemical sectors. For Assessment Year 2006-07, the assessee filed an Income Tax Return declaring a loss of INR 1,80,21,014.
During scrutiny assessment, the Transfer Pricing Officer (TPO) made an adjustment of INR 3,02,64,835 to the arm’s length price (ALP) of international transactions between the assessee and its Associated Enterprises (AEs). This adjustment was primarily related to engineering and design services provided by the assessee.
Case Facts: Lummus Technology Heat Transfer BV, a Dutch company with an Indian branch providing engineering services, reported a loss of INR 1,80,21,014 for AY 2006-07. The Transfer Pricing Officer made an adjustment of INR 3,02,64,835, rejecting the assessee’s internal TNMM based on segmental accounting (AE, non-AE, and idle capacity segments). The TPO questioned the expense allocation where approximately 50% of costs went to each segment while non-AE revenue was only about 5% of total revenue. After a remand from ITAT, the TPO again rejected the segmental data, citing lack of audited accounts and proper documentation for idle capacity. The CIT(Appeals) upheld the TPO’s decision, but ITAT ultimately allowed the assessee’s appeal, following a favorable precedent set by the Delhi High Court in the assessee’s own case for AY 2008-09.
