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2017 (9) TMI 239 - ITAT DELHITPA - selection of comparables - benchmarking technique - TNMM as most appropriate method (MAM) - Composite contract - Held that:- As per the contract between assessee and BALCO we find that entire contract of executing Turnkey projects is a composite contract and the assessee is required to deleiver both supply of equipment and rendering of services. Also assessee has applied same ratio of % of contract work executed for computing revenue from both the activities. While deciding the issue for benchmarking the aggregate approach, we have observed that 60% of the revenue of the assessee is earned from supplying equipments, spares etc and 40% of the revenue is earned from rendering services. therefore assessee cannot be considered as engaged in providing engineering services. Thus, we direct the TPO to characterize the assessee’s function as EPC contractor engaged in providing turnkey solutions. Since the TPO has characterized, the function of the assessee as engaged in the engineering services and the comparable have also been chosen keeping in mind the function of the assessee as engineering services, the comparables also need a relook. On perusal of the documents submitted in respect of TCE and Holtec, we agree with the contention of the Ld. counsel that the comparables TCE and Holtec were engaged in services of engineering consultancy only. Therefore, in our opinion, the transfer pricing officer, need to carry out a fresh search of comparables engaged in execution of the turnkey projects. Accordingly, in the interest of Justice, we restore the issue of searching comparables and computation of arm’s length of the international transactions to the file of the TPO/AO for adjudicating afresh. It is needless to mention that the assessee shall be afforded sufficient opportunity of hearing on the issue in dispute. The ground of appeal is accordingly allowed for statistical purposes. Additional claim on account of salary expenses of expatriates- Held that:- Salary of the few expatriates was computed incorrectly at the time of filing of return of income and subsequently higher amount was found to be payable to them. He also referred the TDS certificates issued to those employees and return of income filed by them. In our opinion, if the assessee has actually incurred higher salary expenses and same are found to be as expenditure wholly and exclusively incurred for the purpose of the business of the assessee in terms of section 37(1) of the Act, then same should be allowed to the assessee. In view of above facts and in the interest of Justice, we feel it appropriate to restore the matter to the file of the AO for verification of the claim of the salary expenses of ₹ 34,86,766/- and allow the claim in accordance with law. It is needless to mention that the assessee shall be afforded reasonable opportunity of being heard. Accordingly, the ground of the appeal is allowed for statistical purpose.
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