Decided on July 18,2014



Vijay Pal Rao, Member (J) - (1.) THIS appeal by the assessee is directed against the order dt. 12th June, 2008 of the CIT(A) for the asst. yr. 2002 -03. The assessee has raised the following grounds in this appeal: "1(a) The learned CIT(A) has erred in disallowing Rs. 18,93,130 i.e. 10.61 percent of the lease rentals paid by the appellant for the small vessels George Denin, D1 621, D1 613 and D1 622 (hereinafter referred to as 'Pontoons'), by stating that the same is in excess of the ALP of the lease rentals payable for such pontoons. 1(b) The learned CIT(A) has erred in comparing the lease rentals paid in excess of the VG Bouw valuation rate for other vessels used on the project (such as BKM 100, Paru, Saskia and Hassan) with the lease rentals paid for Pontoons, to determine the arm's length lease rental for such Pontoons.
(2.) THE learned CIT(A) has erred in disallowing Rs. 90,71,754 by upholding the contention of the AO of adopting a vessel by vessel approach for determining the lease rentals in respect of the vessels BKM 100, Paru, Saskia and Hassan, without appreciating the provisions of s. 92C of the Act, r/w r. 10A of the IT Rules, 1962, which provide for adoption of a 'class of transactions' approach for determining the ALP in respect of closely linked transactions. The learned CIT(A) has erred in disallowing Rs. 2,36,49,438 by upholding the contention of the AO by not considering the terms and conditions of the Bareboat Charter Agreements and thereby disallowing lease rentals computed in excess of 267 days for the vessels D1 509, D1 508, BKM 100, Paru, Oostende XII and Saskia. The appellant submits that all the above grounds are independent of and without prejudice to one another." At the time of hearing the learned Authorised Representative of the assessee has stated that the assessee does not press ground No. 1(a) and 1(b) and the same may be dismissed as not pressed. The learned Departmental Representative had no objection if ground No. 1(a) and 1(b) are dismissed as not pressed. Accordingly ground No. 1(a) and 1(b) are dismissed being not pressed. 2. Ground No. 2 is regarding transfer pricing adjustment of lease rentals by rejecting the contention of the assessee for clubbing of the transactions to compare with the arm's length price (ALP). The assessee is a limited partnership firm and incorporated in Netherlands to undertake international dredging contract. The assessee entered into a contract with Indian Oil Corporation (IOC) on 12th Oct., 2000 for undertaking dredging and reclamation work for IOC in Paradeep Refinery Project in Orissa (India). Assessee (M/s. Boskalis International -Dredging International) and Dredging International NV, Belgium, as well as M/s. Boskalis International BV, Netherlands formed a consortium for the contract. During the year the assessee has international transactions with its AEs namely: (i) World Dredging International BV (WDI), Netherlands; (ii) Boskalis Dredging India (P) Ltd. (BDIL), Mumbai; and (iii) Dredging International India (P) Ltd. (DIPL), New Delhi The international transactions are in respect of hiring the dredger/vessels on lease. Thus the assessee paid vessels and equipment hiring charges of Rs. 1,28,79,89,255 during the year under consideration and the international transactions with AEs are summarized by TPO in para 4 as under: 3. To benchmark the international transaction of leasing of dredger and other equipments the assessee used Comparable Uncontrolled Price (CUP) as most appropriate method whereas for personnel service and support services the assessee used Transactional Net Margin Method (TNMM) and for lease of survey equipments Cost Plus Method (CPM) was used as most appropriate method. The assessee computed the ALP of international transaction as the transactional value recorded in the books of account.
(3.) BEFORE the Transfer Pricing Officer (TPO) the assessee filed a transfer pricing study report and computed the ALP study of dredgers and equipments by using the VG Bouw Valuation Certificates as the same are used in the dredging industry for setting/negotiating the lease rentals. The VG Bouw valuation was accepted by the TPO as a suitable benchmark for computing the ALP. However, the TPO rejected the claim of the assessee that the lease rental have to be aggregated on the basis of class of transactions rather than analyzing the lease rentals on dredger by dredger basis or on equipment by equipment basis. Since some of the lease transactions are less than or below the valuation of B.G. Bouw norms, therefore, the assessee clubbed/aggregated the transactions of lease of dredgers and equipments for computation of ALP. The TPO relied upon the OECD guidelines on transfer pricing and held that leasing of all equipments are separately done by the assessee and all the transactions are separate and neither the same are closely linked nor continuous, therefore, the same require to be evaluated separately. Accordingly the TPO worked out an adjustment of Rs. 90,71,754 in respect of the lease rentals paid by the assessee. The assessee challenged the action of the TPO/AO before the CIT(A) but could not succeed as CIT(A) has confirmed the action of the TPO/AO in considering each transaction as a separate and distinct transaction which cannot be clubbed together.;

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