TMI Blog2020 (2) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... -vis comparables in the light of the decisions of the coordinate Bench of the Tribunal in cases of Mentor Graphics (Noida) Pvt. Ltd. vs. DCIT [ 2007 (11) TMI 339 - ITAT DELHI-H] and DCIT vs. Hellosoft India Pvt. Ltd. [ 2013 (10) TMI 747 - ITAT HYDERABAD] Deduction u/s 10A(1A) - AO/TPO/DRP restricting the deduction at 90% instead of 100% as provided in section 10A(1A) of the Act on the ground that the taxpayer has inadvertently claimed deduction at 90% of the eligible profit of the undertaking instead of 100% of the eligible profit - HELD THAT:- In AY 2010-11, identical issue was also raised by the taxpayer as additional ground which was allowed as per order dated 26.12.2018 and restored the issue back to the AO for passing order afresh in accordance with law. Since this is a mistake apparent on record on the part of the taxpayer, this issue is required to be restored back to the AO to decide afresh keeping in view the provisions contained u/s 10A(1A) of the Act. Consequently, the AO is directed to decide the issue afresh after providing an opportunity of being heard to the taxpayer. So, ground no.2 is determined in favour of the taxpayer for statistical purposes. - ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esigns, etc.) and technical assistance services (including providing engineers for supervision) to HTAS for their global projects (including projects in India). The key efforts of the taxpayer are in developing basic engineering design packages based on Topsoe technologies for ammonia, methanol, hydrogen, hydrogen + carbon-monoxide, SNG, DME, hydro-processing technologies including naphta treaters, VGO/Diesel hydro-treaters, hydrocrackers, environmental technologies for abatement of Nox, Sox etc. for Topsoe s global market. 4. During the year under transactions, the taxpayer entered into international transactions with its AE as under :- S. No. International Transactions Amount (in Rs.) 1 Engineering Technical Assistance service rendered 28,92,94,708 2 Reimbursement of Expenses (Received) 98,798 3 Reimbursement of Expenses (Paid) 36,345 5. The taxpayer is engaged in activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the taxpayer at 12.28% nor has disputed the TNMM as OP/OC as PLI as MAM applied by the taxpayer to benchmark the international transactions. 10. It is the case of the taxpayer that it has rendered services to industry operating in fertilizer, petro-chemical and refinery and oil gas sector and accordingly selected engineering companies as comparables which were also rendering services to the industry in fertilizer, petro-chemical, refinery and oil gas sector. It is also not in dispute that the taxpayer is a 100% captive unit of HTIAS. 11. By filing the present appeal, the taxpayer has only challenged exclusion and inclusion of certain comparables by the ld. TPO for benchmarking the international transactions, which we would discuss ground-wise as under. GROUND NO.1(a) 12. The taxpayer by filing the present appeal sought exclusion of 6 comparables chosen by the ld. TPO to benchmark the international transactions qua provision of technical support services rendered viz. (i) M/s. Ashok Leyland Project Services Ltd., (ii) M/s. Mitcon Consultancy Engg. Services Ltd., (iii) M/s. Mahindra Consulting Engineers Ltd., (iv) M/s. HSCC (India) Ltd., (v) M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineering Services Ltd., is concerned we find this company provides services to the banking division, entrepreneurship and vocational training division, E-schools and BT and Pharma sector. Revenue earned by the company from services other than consultancy is approx. 43% of the total revenue. Milton also owns fixed assets such as wind turbine generators and therefore, has a high fixed asset to sales ratio of 34.09%. We find this company was rejected by the Tribunal in assessee s own case Granite Services International (P) Ltd. v. Asstt. CIT [2017] 87 taxmann.com 24 (Delhi-Trib) by observing as under :- 7. Similarity, in respect of Mitcon Consultancy and Engineering Services Limited and Rites Ltd. it is submitted that both these companies have multi dimensional functionality and mostly serving the related parties, and apart from that the segmental data is not available. On facts, Ld. DR does not dispute the same. We, therefore, hold that these two companies also cannot be comparables to the assessee company. 21. In view of the matter, we are of the considered view that Mitcon is not a suitable comparable vis- -vis taxpayer on account of functional dissimilarity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce provider excluded Mahindra on account of different method of revenue recognition vis- -vis the taxpayer by returning following findings :- d) Mahindra Consulting Engg. Services Ltd.: We have perused the financial statements of the company placed at Paper Book pages 491 509. On going through the same, we note that this company is engaged in providing a variety of services, only one of which is engineering services and segmental information about the Engineering Services is not available. Further, this company recognizes its revenue on percentage completion method, as stated in the notes to accounts which is different than the method of revenue recognition being followed by the assessee company. The revenue recognition method impacts the profit of an enterprise and as such a company cannot be compared with another company in case where methods of revenue recognition are different. Further, this company has been held to be not a good comparable by the ITAT Delhi Bench in the case of Alcatel-Lucent India Ltd. v. ITO in ITA Nos. 2154 2209/Del/2014 dated 06.04.2018 and in the case of Alcatel- Lucent India Ltd. v. DCIT in ITA No. 6856/Del/2015 dated 06.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1 of Government of India company and subsidiary of NBCC (India) Ltd.; and that it is functionally dissimilar being into healthcare and social sector as against the taxpayer who is providing technical services to companies in fertilizer, petro-chemical, refinery and oil gas industries, etc.; that HSCC fails service filter of 75% applied by the TPO to exclude the company whose revenue from services is less than 75% of the total operating cost. Since HSCC s total revenue from services is 69.08% it fails service filter applied by the taxpayer and is liable to excluded on this score also. Consequently, we order to exclude HSCC as a comparable from the final list of comparables. M/S. BENGAL SREI INFRASTRUCTURE DEVELOPMENT LTD. (BENGAL SREI) 25. The taxpayer sought exclusion of Bengal SREI on the ground that it is a joint venture between West Bengal Industrial Development Corporation Ltd., an undertaking of Government of West Bengal having shareholding of 49% and Bengal SREI having 51%, having substantial transactions with AE and has earned high margin of 37.57% in the current year; that it is functionally dissimilar to the taxpayer being into project advisory and transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of equipments and installations in the hydrocarbon and other quality sensitive sectors of the industry which is dissimilar to taxpayer s profile who is providing technical consultancy services in the field of fertilizer, petro-chemical, refinery and oil gas industries etc. 28. In view of the law laid down by Hon ble Delhi High Court in the case of Rampgreen Solution vs. CIT 60 taxmann.com 355 (Delhi), comparable needs to be functionally similar with the controlled comparable transactions or entities and mere broad similarity is not sufficient. 29. Furthermore, business model of Certification vis- -vis taxpayer is different because Certification outsourced 35% of its activities during the year under assessment as compared to 0.97% by the taxpayer. In taxpayer s own case for AYs 2009-10 2010-11 (supra), this comparable has been rejected on account of substantial outsourcing of its activities by a company, hence ordered to be excluded from the final set of comparables. COMPARABLE SOUGHT TO BE INCLUDED FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS QUA PROVION OF TECHNICAL SUPPORT SERVCIES 30. Initially, the taxpayer sought to include 4 comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l repot of this comparable is not available in the public domain. Ld. AR for the taxpayer contended that now financials of Chemtex are available in the public domain and requested for restoring the matter to TPO. Since annual reports/financials of Chemtex are now available in the public domain, this issue is restored to TPO/AO for reconsideration after providing opportunity of being heard to the taxpayer. GROUND NO.1(b) 35. TPO/DRP have made addition of ₹ 3,25,52,475/- on account of adjustment in the value of international transaction (while increasing the margin of comparable companies to 24.90% as against actual margin of 12.28% of the taxpayer by rejecting the adjustment in margin due to different risk profile of the comparable companies). So, it is contended by the ld. AR for the taxpayer that since the taxpayer is a captive service provider of its AE it operates in risk-insulated environment on cost plus model and is compensated for all the costs incurred by it whereas risk borne by the third party comparables are much more than those of the taxpayer. The taxpayer claimed the risk adjustment of 5.25% and sought adjustment on account of difference in the ris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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