TMI Blog2015 (10) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... owever he agreed that in the circumstances the issue may be restored so as to address the first issue first. In the facts of the present case where the Ld. AR has taken the argument that the intensity of functions with the non-AEs are higher than the intensity of functions with the AE’s the nuanced difference if any on the business model of the assessee has to be seen. This difference in the intensity of functions is stated to be impacting the characterization of the business model itself which difference is stated to be not considered either by the DRP or the TPO a position which is borne out from the record. We find that in the case of BMW India Pvt. Ltd. vs ACIT (2014 (11) TMI 266 - ITAT DELHI) while examining the plea of the tax payer that it was a routine distributor it was found on analyzing the Agreements and considering the conduct as borne out from the record that based on its intensity of functions performed that the tax payer was not a routine normal distributor. Analyzing the Agreements and the functions undertaken the tax payer’s claim that it was a normal distributor was not accepted and the tax payer on an analysis of its Agreement with its AE was found to have pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and do not require any specific adjudication. Ground No.-4 it was stated is consequential in nature. Addressing the remaining ground, it was his submission that he would be addressing only the issues in the following sub-grounds of Ground No.3 namely Ground Nos.3(a), 3(c), 3(d) and 3(g) and the other sub-grounds may be dismissed as not pressed. The specific grounds on which the Ld. AR requests a finding read as under:- 3. (a) The Ld.CIT(A) erred in upholding rejection of the Appellant s TP documentation, comparable companies and analysis thereof. (c) The Ld.CIT(A) erred in not considering and appreciating the business model of the Appellant and its AEs and classified it as a technical service provider . (d) The Ld.CIT(A erred in confirming companies, selected by Ld.TPO/AO, which were not functionally comparable to the Appellant and in rejecting comparable companies selected by the Appellant. (g) The Ld.CIT(A) erred in treating loss on foreign exchange fluctuation as operating in nature for determining the margin of the Appellant. Also, without prejudice to this contention, even though the same is treated as operating, foreign exchange loss not relating to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was his submission that despite the recording of detailed pleadings on the said issue there is no discussion whatsoever in the finding. 3.3. On the basis of these arguments it was his submission that the issue may be remanded to the TPO to re-consider the business model of the assessee as once the business model of the assessee is correctly appreciated then the selection of comparables it was submitted can be carried out. 4. The Ld. Sr. DR submitted that on facts the assessee s business model has been considered by the TPO and a speaking order has been passed. It was her submission that once there is no discussion in the finding given by the CIT(A) then it can be safely deemed to have been rejected. Similarly the arguments for accepting or rejecting the comparables as argued by the assessee before the CIT(A) can also be stated to be fully considered and rejected. Thus remand to the TPO was objected to. 5. We have heard the rival submissions and perused the material available on record. Before we address the issues canvassed before us, it is appropriate to address the relevant facts. The assessee i.e. AVLTC is a subsidiary of AVL India Private Limited who holds 70% of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Europe and the U.S.A. for customers around the globe. With wide-ranging production engineering experience, including the planning of engine and transmission manufacturing facilities, plus cutting edge-application and reliability engineering capabilities, AVL is fully equipped to provide its customers with mature solutions ready for series production. Ail AVL's software and methodology development capabilities for engine and powertrain simulation are concentrated in its software house , Advanced Simulation Technologies. The AVL-designed software tools represent state-of the-art technology based on long experience in engine and drivetrain development. These tools are not only used in-house, but also by leading engine and vehicle manufacturer's worldwide. AVL is a manufacturer and system integrator of complete test bed systems delivering technologically superior tools for specific tasks, which can be individually adapted to the needs of different group of user. The intelligent modular organization of the product range ensures optimum flexibility, from professional single-user applications to fully integrated systems designed to maximize productivity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical support service provider. In turn the comparables used by the Ld. TPO are all engaged in high-end technical consultancy services and hence reflects high margins commensurate with the functions provided by them. The business model of AVLTC is such that it can cater to limited requirements of the ultimate customer. In case the customer requires high-end services like truck-engines, bus engines, railway engines, etc. then the Appellant does not have the requisite skills and infrastructure to cater. Set out below is the business model of the Appellant for your Honour's kind perusal: 2.41 Business model AVLTC serves a broad range of powertrain design development and testing services to the automotive industry. AVLTC has capability for simulation, analysis design, engine powertrain development, calibration, validation, etc. The first requirement in powertrain engineering process is, to establish clear boundaries and expectation of the project. Once the project is defined, program management disciplines are used to build the most appropriate project team. The next stage usually consists of detail design supported by full analysis. AVLTC uses ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware tools which is required for finite element analysis. In short, meshing is a prerequisite of Unite element analysis. This finite element analysis method can be performed in readymade software. Meshing means dividing the total structure (3D CAD model) in very small elements or parts using finite element software. b) Design: The design team in AVLTC has engineers who have undergone project related training at AVL Graz for understanding the specific requirements of AVL Design Methodology as applied to Automotive Engine Components and Systems. The technical lead for design projects involving commercial vehicles to be developed to meet the more stringent emission norms are taken by AVL Graz. The initial concept and engine requirements are finalized by AVL Graz in consultation with the customer. Later activities like laying out of the system design and detailed drawings is handled by engineers from Technical Centre under the overall guidance of AVL Graz design experts. The software tool is purchased to deliver the project; the invoice of the same is attached as Annexure- 1 of Appendix XI. The final product is in the nature of the design which is provided as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication etc. However, AVLTC did not have the expertise to handle the project and hence it was sub-contracted to AEs. AVLTC is involved only in liaising activity for this project. The entire technical work is executed by AE. The contractual liability for these services lie with the AE, refer Annexure -2 of Appendix XI for the purpose. 11. On a consideration of the impugned order it is seen that there is not even a whisper of a discussion whatsoever on this aspect. A perusal of the impugned order at page 5 para 5 to 5.4 at page 6 shows that on the issues agitated in Paper Book page 338 to 342 the Ld. CIT(A) proceeded to take all these grounds as being linked to each other. In para 6 the ld. CIT(A) sums up the issues to be considered in the following manner:- 6. The appellant raised various issues during the course of the TP proceedings. The submissions of the appellant as well as order of the TPO are considered carefully. The following issues emanate for a decision in this case:- 1. Use of single year date vs multiple year data. 2. Use of powers u/s 133(6) by the TPO. 3. Rejection of the TP documentation by the TPO and the comparables. 4. Which shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orego any ground(s) of appeal at any time before or during the hearing of this appeal. 14. In view of the fact that the issue has to be restored to the TPO/AO for first consideration on merits the fundamental issue of characterization of the assessee on the basis of its FAR the appeal of the Revenue accordingly necessarily also has to be allowed as the entire issue is restored. In the facts of the present case where the Ld. AR has taken the argument that the intensity of functions with the non-AEs are higher than the intensity of functions with the AE s the nuanced difference if any on the business model of the assessee has to be seen. This difference in the intensity of functions is stated to be impacting the characterization of the business model itself which difference is stated to be not considered either by the DRP or the TPO a position which is borne out from the record. We find that in the case of BMW India Pvt. Ltd. vs ACIT (2014) 146 ITD 165 (Del.) while examining the plea of the tax payer that it was a routine distributor it was found on analyzing the Agreements and considering the conduct as borne out from the record that based on its intensity of functions perform ..... X X X X Extracts X X X X X X X X Extracts X X X X
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