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Bombardier Transportation India Pvt. Ltd. Versus DCIT, Circle 5 (1) , New Delhi

Transfer pricing adjustment - most appropriate method to be applied for bench marking the transaction relating to sale of metro trains - Held that:- As a methodology, under the TNMM the standard of comparability is relaxed relative to the other methods and requires similarity of functions. This finds support even in the OECD guidelines which provides that, where exact comparables (in terms of product or price) are not available, TNMM is the most ‘preferred’ methodology in analyzing transactions .....

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ooking into the aspect that the assessee was unable to justify with documentary evidence the comparability on the issue of quality of the product or service, contractual terms, level of market, geographical market in which the transaction takes place, date of transactions, intangible property associated with the sale, foreign currency receipt, alternatives realistically available with the buyer and the seller.

Aggregating the transaction pertaining to sale of metro train sets with oth .....

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t was similar those carried out by BEML in its "Railway Customer Segment" with respect to RS3 contract. Therefore, Ld. DRP’s finding is set aside herewith and BEML is allowed as comparable in assessee’s case.

While deciding the comparables Ld. TPO has not taken into consideration the proper information related to the free of cost material provided by the Railways to Titagarh Wagons Ltd. as well as to Texmaco Ltd. and thus the said information is necessary to take into account the func .....

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cost" material and revised the OP/TC margin of 13.65% for determining the arm’s length margin as claimed by the Assessee.

The companies operating on negative margins is an industry reality and companies incurring persistent losses cannot be accepted as comparable. The negative margin earned by these companies is reflective of the industry. This company i.e. Bharat Wagon & Engineering Co. Ltd. was rightly rejected by the Ld. TPO stating that the company was earning persistent losses ov .....

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t Level Indicator (PLI) i.e. Operating Profit/Operating Revenue (OP/OR) used by the Assessee for benchmarking with Operating Profit/Operating Cost (OP/OC) - Held that:- Popularly used ratios include operating profit / sales, operating profit / total cost, gross profit / operating expenses, operating profit by capital employed, etc. The choice of the appropriate ratio must be done keeping in mind the characterisation and the nature of business of the tested party, as well as, the nature of compar .....

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ons made by Ld. AR, OP/Sales has to be taken into consideration by the revenue as the untainted base of the Profit Level Indicator (PLI). Ld. TPO is directed to consider the same and give finding to that effect.

Intra group services - when AEs transact with each other, for the purpose of transfer pricing they must replicate the dynamics of market forces, as there is no concept of free lunch in business dealings. Thus, Ld. DRP rightly held that the benefit test which is well recognized .....

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to its AEs, therefore, we uphold the orders of Ld. DRP and Ld. TPO. - I.T.A .No.-1626/Del/2015 - Dated:- 4-11-2015 - SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For the Appellant : Sh. Tarun Arora, C.A, Mrs. Deepa, C.A, Sh. Gyan, Prakash Srivastava, C.A For the Respondent : Sh.R.S. Rawal, CIT DR ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the assessee against the Assessment Order dated 22.07.2015 for A.Y. 2010-2011 passed under Section 143(2) read .....

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/auxiliary conflates, vacuum circuit breakers, control electronics, tap changes and traded in transformers and gear case. In the RCS division, the company is engaged in the supply of installation of advance signaling systems and equipments. Under the main line and metros (MLM), the Bombardier Transportation Ltd. is manufacturing Metro Trains for supply to Delhi Metro Corporation (DMRC), wherein Bombardier India is engaged in ascending and supply of coaches for metro trains. The PGR division of t .....

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ting Profit/Operating Revenue ( OP/OR ) 7,47,636,409 2 Import of Capital Goods 1,292,236 3 Export of Finished Goods 18,526,086 4 Availing of Intermediary Services from Propulsion Hub in BT Switzerland 98,698,657 MLN Division (PGR & BOG Business) 5 Import of Components and Sub Assemblies TNMM Operating Profit/Operating Revenue ( OP/OR ) 3,106,812,386 6 Import of Capital Goods 1,533,592 7 Availing of Intermediary Services from PGR and BOG Hubs 169,055,034 Reimbursement of Expatriate Salaries a .....

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ommercial Borrowings CUP LIBOR+300 Basis Points 14 Availing of Administrative and Intermediary Services TNNM Operating Profit/Operating Revenue ( OP/OR ) 15 Reimbursement of Expenses to AEs TNNM Operating Profit/Operating Revenue ( OP/OR ) 16 Reimbursement of Expenses from AEs No benchmarking required NA 17 Liability/Provisions written Back No benchmarking required NA 4. In the Passengers (PGR) & Bogies (BOG) business segment, the assessee company have undertaken the following transaction: i .....

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of capital goods During F.Y. 2009-10, the BOG and PGR division of Bombardier India imported certain capital goods from its AEs for factory in Savli (Gujarat) in connection manufacturing of bogies and metro coaches. The total value of the said international transaction was as follows: Associated enterprises Amount (Rs.) Bombardier Transportation Railway Equipment (Qingdao) 836697 Bombardier Transportation GmbH 696895 Total 1533592 iii. Availing of intermediary services During FY 2009-10, the PGR .....

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PGR and BOG division of Bombardier India has supplied few metro trains to Bombardier Transportation GmbH for further supply to DMRC. The total value of the said international transaction was as follows: Associated enterprises Amount (Rs.) Bombardier Transportation GmbH, Germany 4213264526 v Reimbursement of Expat Salary During FY 2009-10, certain employees to overseas Bombardier group companies were seconded to Bombardier India to support in new business divisions- PGR & BOG. The salary and .....

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21587 Bombardier Transportation U.K. Ltd. 19827566 Bombardier Transportation GmbH 304987221 Bombardier Transportation France S.A.S 17542167 Bombardier Transportation Polska Sp. 6095544 Bombardier Corporate Financial Services Islandi SF, Zurich 432881 Total 464905980 The transactions at Sr. No. i to iii & v have been benchmarked by the assessee using Transactional Net Margin Method (TNMM) whereas the transaction relating at Sr. No. iv have been benchmarked by assessee using Comparable Uncontr .....

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UP method (b) Texmaco Infrastructure and Hoardings Ltd. and Titagarh Wagons Ltd be included as comparables and (c) other income wrongly included as operating income. 6. Vide order dated 29.01.2014 Ld. Transfer Pricing Officer (TPO) proposed an addition of ₹ 1,42,49,34,50/- and Assessing Officer vide his draft assessment order proposed to assessee the assessee s income at ₹ 1,34,56,92,730/-. Aggrieved by the said action of the Assessing Officer, the assessee company filed the objectio .....

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the Ld. Additional Commissioner of Income Tax, Transfer Pricing_1 (1), New Delhi ("Ld. TPO")/Ld. AO holding that the international transactions of the Appellant do not satisfy the arm s length principle and upholding the adjustment made by the Ld. TPO/AO for the captioned A.Y. 2. The Hon ble DRP erred in facts and in law by not adjudicating on several ground raised by the appellant during the proceedings and not providing an opportunity of being heard while disregarding BEML limited as .....

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he Act. In doing so, the Hon ble DRP has grossly erred in: 3.1 disregarding multiple year/prior years data used by the appellant in its contemporaneous Transfer Pricing ("TP") documentation and holding that current year [i.e Financial Year ("FY") 2009-10] data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 3.2 rejecting the Comparable Uncontrolled Price (CUP) .....

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g the overall margin of the division under the Transactional Net Margin Method; 3.4 rejecting BEML Limited in (Railway customer segment) without providing any opportunity of being heard to the Appellant during the proceedings, and also not appreciating the fact that the Ld. TPO had also accepted the railway customer segment of BEML Limited as a comparable segment for determining the arm s length margin of the Mainline division of the Appellant; 3.4.1 while rejecting BEML Limited ("BEML" .....

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oncluding that standalone margin of BEML Limited (Railway customer segment) cannot be determined; 3.6 upholding the modification proposed by the Ld. TPO of the economic analysis undertaken by the Appellant in the TP documentation by introducing two new comparable companies namely Titagarh Wagons Limited and Texmaco Limited based on arbitrary accept/reject of comparables and in doing so disregarding the fact that the same are not comparable to the Appellant in terms of functions performed, assets .....

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stating that the Annual Report of the company was not available in public domain even though the financial information is available in the public domain; 3.8 modifying the Profit Level Indicator ("PLI") i.e. Operating Profit/Operating Revenue ( OP/OR ) used by the Appellant for benchmarking the captioned transaction and substituting the same with OP/Operating Cost ( OP/OC ); 3.9 committing an apparent error in computing the amount of TP adjustment on the entire sale and cost of the Ma .....

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Ld. TPO/Ld.AO of making an adjustment of ₹ 63,22,77,905/- to the income of the Appellant by holding that its international transaction of availing of intra- group services do not satisfy the arm s length principle envisaged under the Act. In doing so, the Hon ble DRP has grossly erred in upholding the Ld. TPO s approach that: 5.1 the services received under the various inter company agreements are incidental and duplicative in nature which have not resulted in any economic and commercial .....

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e;-vis independent parties; 5.4 the Appellant has not identified payment for each serviced and in order to benchmark the payment for receipt of each service it is necessary to know as to what are the different services and what is the payment made for each particular service; 5.5 the intra-group services received by the Appellant were in the nature of shareholder services by misinterpreting the concept of shareholder services and other concepts relating to intra group services contained in the T .....

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rice charged in any comparable uncontrolled transaction and consequently erred in not considering the benchmarking analysis submitted by the Appellant to justify the arm s length nature of the intra-group services. 5.7 disregarding judicial pronouncements in India in undertaking the TP adjustments. 8. Ground no. 1 is general in nature. Ground No. 2 and Ground No. 3.1 are not pressed by Ld. Assessee s Representative (AR) at the time of the submissions, therefore, same are dismissed. 9. First of a .....

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ame sale price per set, and were delivered directly to DMRC. The assessee further submitted that the sale price invoiced by BTIL to BTG represents third party price and hence conforms to the arm s length standards under the CUP method. 11. Ld. TPO held that under the CUP method the properties of a product and accompanying circumstances and conditions has to be evaluated for comparison. Even a minor change in the properties of the products, circumstances of trade such as billing period, amount of .....

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rain being closely interlinked with import of components and sub-assemblies and import of capital goods, the transaction relating to sale of metro trains could not be evaluated adequately on an individual basis. Therefore, assessee s submissions before Ld. TPO was that the most appropriate method is CUP method and the same should be adopted was rejected by Ld. TPO and held that it would be prudent to benchmark these transactions on a composite basis using TNMM method. 12. The above finding of Ld .....

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usly manufactured at BTIPL s facility in Gujrat. BTIPL had first sold 22 train sets to BTG booking total revenue of ₹ 4,213,264,526 and then these train sets were further supplied by BTG to DMRC at the same sales price per set as charged by BTIPL. The train sets were delivered directly to DMRC site in New Delhi. Ld. Counsel referred to Paper Book VI at page no. 2489 to 2532 which reveals that the sale price invoiced by BTIPL to BTG and BTG to DMRC for train sets is same. Ld. Counsel submit .....

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s is concerned, the same would not differ irrespective of the transfer pricing method adopted. In other words the comparable transactions/entities must be selected in the basis of similarity. Comparability of control and uncontrolled transaction has to be judged inter alia, with reference to comparability factors, as indicated under Rule 10B (2) of the Income Tax Rules, 1962. Comparability analysis by TNMM method may be less sensitive to seeking its similarities between the tested party and the .....

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ining to sale of metro trains should be benchmarked using CUP method to be determine arms length price. 15. Ld. DR relied upon the order of the TPO. Ld. DR further submitted that the principles that have been laid down in Rule 10B(1)(a) and the judicial pronouncement on the issue shall be the touchstone to decide, which method has to be applied. The same was taken into consideration by the Ld. TPO. Under the CUP method the properties of a product and accompanying circumstances as well as conditi .....

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n differ from that received by others in the market place. Thus, CUP method requires a high degree of comparability with the following dimensions: (i) quality of the product or service; (ii) Contractual terms (example, scope and terms of warranties provided, sale or purchase volumes, credit terms, transportation terms, etc.) (iii) Level of market i.e. wholesale, retail, etc. (iv) Geographical market in which the transaction takes place. (v) Date of transaction (vi) Intangible property associated .....

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eller Geographical market Bombardier Transportation Germany Germany Bombardier Transportation India Ltd. India Delhi Metro Rail Corporation India Bombardier Transportation Germany Germany 17. Ld. DR further submitted that the assessee company has also failed to substantiate similarity of contractual terms of the two agreement vis-à-vis between Bombardier transportation Germany and Delhi metro corporation and second agreement between Bombardier Transportation Germany and Bombardier Transpo .....

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nment are identical. Thus the Ld. DRP held that Ld. TPO s action in using TNMM as the most appropriate method to benchmark the international transaction was held to be correct approach. Ld. DRP further observed that RS2 and RS3 contracts cannot be equated with each other with regard to the scope of work, as the specifications for the product, the cost centre, the timelines etc. have a profound impact on the profitability etc. Ld. DR further submitted that the assessee has sold its coaches to Ass .....

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nsideration. These are (i) the data which is widely and routinely used in the ordinary course of business in the particular industry or market segment for determining the prices for uncontrolled transactions, (ii) the data which is used to set prices in the controlled transaction in the same way, as it is used by either controlled companies or uncontrolled companies in the industry, and (iii) the amount charged in the controlled transaction is adjusted to reflect differences that may affect the .....

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buyer and one is selling to local market. Thus here, the CUP method cannot be applicable as rightly held by Ld. TPO and Ld. DRP. On the contrary, all the transactions being transactions in MLM Division relating to import of components and sub assemblies import of capital goods, availing of intermediary services, sale of metro trains and reimbursement of ex pact salary are so closely related that they cannot be evaluated adequately on an individual basis. The reliance of the judgment of Hon ble .....

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ing the assets used and the risks assumed; and (b) the difference in services/products offered has no material bearing on the profitabililty." 19. The case laws which are referred by the assessee at the time of argument are not applicable in the present case first because of the factual difference as those cases were decided on its own factual matrix and whether to apply TNMM or CUP method was depending upon the various factors in those cases. Thus the case laws given by assessee will not b .....

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act comparables (in terms of product or price) are not available, TNMM is the most preferred methodology in analyzing transactions (at the net level) as it is more tolerant to differences between the tested party and comparable uncontrolled transactions. The use of TNMM method allows comparability of the functions rather than strictly focusing on product/service comparability as in the case of CPLM, Resale Price Method and CUP. Thus TPO finally held that TNMM method shall be used for benchmarkin .....

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lly available with the buyer and the seller. 21. In result this ground no. 3.2 is dismissed. 22. Ground No. 3.3 relates to the aggregating the transaction pertaining to sale of metro train sets with other international transaction in the Mainline division and testing the overall margin of the division under the Transactional Net Margin Method. We find that the discussion held hereinabove asserts that TNMM method for sale of metro train sets is proper and just, because the rules provide that unde .....

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. 23. In result Ground No. 3.3 is dismissed. 24. Now coming to the second issue, raised in Show Cause Notice regarding comparables which assessee raised in Ground No. 3.4 (3.4.1) and 3.5. The first issue is, regarding exclusion of BEML by Ld. DRP. This comparable was accepted by Ld. TPO subject to certain adjustments. The BEML Ltd. is engaged in three major business verticals viz. 1) Mining and construction, 2) Defence and 3) Rail and Metro. In the "Railway Customer" business segment, .....

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ness segment of BEML is functionally comparable to the Assessee and had therefore been selected for determination of the arm s length margin of the PGR and BOG segment of the Assessee. Ld. TPO therefore, excluding the consortium supply value/cost, the revised segmental of BEML has allowed the comparable BEML. 25. Ld. DRP held that from the perusal of various clauses of consortium agreement among BEML and its 3 members of RS-3 contract and the assessee company with its AE for carrying out RS- 2 c .....

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ct was to be made to DMRC from BEML but MC was to collect the payment from DMRC. (iii) the consortium agreement also stated that BEML would be procuring its input from the other consortium member under separate purchase agreement and DRP is not privy to those agreement. (iv) The data of BEML obtained under Section 133(6) of the Act reveals that as against total turnover of ₹ 1,02,084 lacs in the railways segment, the shares of DMRC is ₹ 71,789 lacs, which works out to about 70%. It c .....

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ortium the Mitsubishi Corporation s share is just 3.40% and they are the consortium leader to incur liabilities and to receive payments on behalf of all the members whereas BEML is having share of just 17.70% in RS-3 contract. All these facts, on cumulative basis establish that the risks, functions and assets involved in the case of assessee and that of the BEML would not be comparable at all, because (unlike in service sector where turnover does not affect the margins of the comparable companie .....

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exclude this comparable in toto (including the segment, TPO has taken in this order) for carrying out the comparability analysis. Ld. TPO accordingly passed the order on 26.02.2015 28. Ld. AR submitted that the assessee has selected the "Railway Customer" segment of BEML as the only comparable in its TP study in activities in the PGR & BOG division for benchmarking the international transactions of the assessee in the PGR & BOG division, as the functional profile of BEML in the .....

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a consortium for the supply of metro coaches and bogies to DMRC. Similarly, BEML along with three other independent entities namely Mitsubishi Corporation (MC), Hyundai Rotem Company (HRC) and Mitsubishi Electric Corporation (MELCO) had formed a consortium (MRMB consortium) for the supply of metro coaches to DMRC as part of the RS3 contract. 29. Ld. DR submitted that Ld. DRP has rightly rejected the BEML as comparable. In fact in point 10 at page 12 of Ld. DRP s order, the extracts of consortiu .....

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om Ld. TPO s original order it can be seen that assessee and the "Railway Customer" segment of BEML Limited are almost generating similar turnover from the manufacture and supply of rail and metro wagons which evidences the similarity in the scale of operations between the Assessee and comparable. The examination of consortium agreement reveals following facts: i. The consortium agreement was for design manufacture, supply testing, commissioning, training and transfer of technology. ii .....

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early demonstrate that revenue and cost of the consortium supply was as per pre determined value agreed upon by the consortium members who were bound in the contract and therefore was not a clear cut independent third party transactions. The consortium agreement also included providing services relating to design, training, testing, transfer of technology which is outside the purview of the activities which is carried out by the tested party. The consortium supply value / cost therefore was to b .....

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egmental Cost 48,515.44 Less: RS3 contract cost (Refer B) 18,683.50 Total Cost (TC) 29,831.93 Operating Profit (OP) 463.11 OP/TC 1.55% OP/SR 1.53% A. Details of Consortium share / RS3 sales (Rs. In Lakhs) Particulars Mar-10 Consortium share 58,302.41 Excise Duty 1,430.62 RS3 sale 12,056.18 Total Consortium share/RS3 sales 71,789.21 B. Details of RS3 contract cost (Rs. In Lakhs) Particulars Mar-10 RS3 Cost 18,558.24 Deration RS3 1,430.27 Total RS3 contract cost 18,683.50 31. Thus Ld. TPO has righ .....

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and BEML is allowed as comparable in assessee s case. 32. In result, the Ground No. 3.4, 3.4.1 and 3.5 is allowed. 33. As relates to Ground No. 3.6, TPO has taken into consideration two comparables after further examination of accept/reject matrix which have similar functional profile. Their details and operating margins was as under:- Company Name Functional Profile Texmaco Infrastructure & Holdings Ltd. Manufacturer of Railway & Tramway equipment Titagarh Wagons Ltd. Manufacturer of Ra .....

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has estimated the provision of free of cost wheel sets to be 30% of sales value. This fact has also been taken into consideration by the Ld. DRP and accordingly, instructed Ld. TPO to re-compute the margin of Titagarh. Ld. TPO in his order dated 26.02.2015 while giving effect to the Directions of Ld. DRP stated that Rectification u/s 154 was moved before the Ld. DRP regarding their directions to issue notice 133(6) to Titagarh Wagons Ltd. to seek information about value of free of cost supply si .....

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d for determining arm s length margin. 37. Ld. DR relied upon the order of Ld. TPO and Ld. DRP. 38. Ld. AR submitted that Titagarh receives various material on free of cost (FoC) basis from Indian Railways. These components include wheel sets, cartridge tapered roller bearing and steel, etc. With respect to these FoC supplies, the Managing Director of the Company in an interview available publically has estimated the provision of free of cost wheel sets to be 30% of sales value (pages 2981 to 29 .....

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n of 13.65% should be considered for determining arm s length margin. 39. Ld. AR further submitted that there is no similarity between the assessee company and Texmaco and Titagarh. The assessee manufacturers world class metro coaches with latest Bombardier Technology whereas Texmaco was engaged in the manufacture of general purpose and commodity specific special wagons catering to the India Railways and Titagarh was primarily engaged in the business of manufacturing Railway Wagons, Heavy Earth .....

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ct manufacturing of metro coaches. Accordingly, there is virtually no comparison between the sophisticated metro trains supplied by BT for the passengers with the wagons supplied by Texmaco/Titagarh. Both use entirely different technology, hence the produce profile of BTIPL and Texmaco/Titagarh are very different and cannot be compared. 40. Reliance in this regard is placed on the following case laws by the Ld. AR, the said case laws held that the functional similarity should form the basis for .....

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lting (TS-74-ITAT-2014 (Mum)-TP) • General Atlantic Private Limited (TS-22-ITAT-2013 (Mum)-TP) • Skoda Auto India Pvt. Limited (TS-18-ITAT-2009 (Pun)-TP • Evonik Degussa India Private Limited (TS-717-ITAT-2012 (Mum)-TP) • Techbook International Pvt Ltd. (ITA No. 722/Del/2014 A.Y 2009-10) • Heardland Delhi Transcription & Services Private Limited (ITA No. 6043/Del/2012) 41. Ld. DR relied upon Ld. TPO s order and Ld. DRP s order. 42. We have perused the records and the .....

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the said comparables. There is no doubt that these two companies are having the major role in supplying coaches to the Indian Railway and these are proper comparables if all the aspects are taken into consideration including the free of cost material value. Therefore, Ld. TPO is directed to take into account 30% additional cost base to account "free of cost" material and revised the OP/TC margin of 13.65% for determining the arm s length margin as claimed by the Assessee. 43. In resul .....

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Ltd. (Wagon Segment) 9.74% 8.87% 5 BEML Limited (Railway Customer Segment) -7.34% -7.92% 6 Braithwaite -0.30% -0.30% 7 Hindustan Engg. & Industries Ltd. (Engineering Segment) -3.17% -3.27% Average -0.05% -1.57% 45. Ld. TPO while rejecting the M/s. Braithwaite & Co. Ltd. as comparable as its annual report was not available. For Bharat Wagon & Engineering Co. Ltd. the TPO held that the said company is having persistent losses for several years. 46. Ld. AR contended that though the Annu .....

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as rightly rejected by Ld. TPO as there was persistent loss. 48. We have perused the papers and proceedings as well as heard both the parties. The companies operating on negative margins is an industry reality and companies incurring persistent losses cannot be accepted as comparable. The negative margin earned by these companies is reflective of the industry. This company i.e. Bharat Wagon & Engineering Co. Ltd. was rightly rejected by the Ld. TPO stating that the company was earning persis .....

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und No. 3.7 (a), (b) of the assessee s appeal are dismissed. 50. Ground No. 3.8 relates to the modification of the Profit Level Indicator (PLI) i.e. Operating Profit/Operating Revenue (OP/OR) used by the Assessee for benchmarking with Operating Profit/Operating Cost (OP/OC). The assessee had used OP/Sales as the relevant Profit Level Indicator (PLI) for determining the arm s length nature of the margins earned by it in the PGR & BOG division. However, in the Transfer Pricing Order, the Ld. T .....

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cator ( PLI ), should be considered as the relevant Profit Level Indicator (PLI) for benchmarking the remaining cost side related party transactions. As the aforementioned ground has not been adjudicated by the Ld. DRP in its directions, accordingly the assessee submitted that the same should be taken into consideration. 52. Ld. DR relied upon the orders of the TPO. 53. We have perused the proceedings and the records as well as the submissions made by the AR and DR. While considering the Profit .....

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t be done keeping in mind the characterisation and the nature of business of the tested party, as well as, the nature of comparables selected and the quality of information available. In present case, Ld. TPO after taking into consideration all factors, decided that the Profit level indicator which has to be used for benchmarking the captioned transaction has to be Operating Profit /Operating Cost. Operating Profit Margin by subtracting selling, general and administrative (SG&A), or operatin .....

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computing the amount of Transfer Pricing adjustment on the entire sale and cost of the Mainline division which included third party sale and cost as well and not just restricting to the AE sales and cost. The same has to be examine and hence Ld. TPO be directed accordingly while computing the amount of Transfer Pricing adjustment restrict the same to AE sales and cost. 56. This ground has also been taken into account in the above ground No. 3.8 and the finding given to the said ground is applica .....

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c technical requirements of the customer. As the assessee company is relatively new in the industry and does not possess the requisite technical competence and expertise, it had received various intra-group services from its Associated Enterprises (AEs) who have developed a level wise organizational structure so as to develop group synergies through centralized locations that possess specialized divisional knowledge and experience. For providing the said intra-group services to the assessee comp .....

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g assessment proceedings, the Ld. TPO however, rejected the aggregated approach applied by the Assessee company under TNMM and instead resorted to a transactional level analysis. Based on the said approach, the Ld. TPO determined the arm s length price for such services to be Nil. Ld. TPO held that such services were either duplicative in nature and /or were shareholder services. Ld. TPO observed that the assessee company had not proved the benefits derived from the services purportedly provided .....

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ch Class I transaction should be benchmarked separately. Ld. DRP observed that during the year the assessee had sought various services from its AE in various fields viz. IS/IT, President and Finance, Engineering, Marketing & Strategic Planning, Supply Management/ Procurement, Legal Taxation, Human Resources and HRSSO, Communication, Six Sigma and operations, Quality and other services and VAT. Though the assessee submitted voluminous documents to Ld. TPO and before the Panel to substantiate .....

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of such services for which payment has been made. (iii) Documentary evidences as to when and how these services were requisitioned from the AEs. (iv) Basis of determination of rate or payment for intra-group services at the time of entering into the agreement. (v) Details of cost benefits analysis vis-à-vis the expected benefit from the intra-group services and the payment made for the same. (vi) Details of benchmarking analysis done at the time of entering into the agreement so as to co .....

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s the assessee did not prove whether the services were actually needed and subsequently received by it by producing contemporaneous documentary evidence. Ld. DRP further held that payment for Intra Group Services to Associated Enterprises is a separate international transaction independent of financial results and capable of verifiable separately, therefore TPO was right in his action to determine the arm s length price separately, rather than aggregating it with other transactions under TNMM. 6 .....

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,99,091/- which was raised by the third parties on the AE for the services rendered by them to the assessee. Thus, the Ld. DRP directed the TPO to examine these invoices and allowability of the same as expense should be decided. 64. Ld. DRP observed that with regard to the remaining services for which the payments have been made to the Associated Enterprises (AE), the assessee had not given the details of the total costs incurred by the Associated Enterprises (AE) on a particular services and ho .....

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r the purpose of transfer pricing they must replicate the dynamics of market forces, as there is no concept of free lunch in business dealings. Thus, Ld. DRP held that the benefit test which is well recognized by OECD and other developed countries Tax regime have to be seen for allowing the payment in case of Intra-Group Services. The expected benefit must be sufficiently direct and substantial so that an independent entity in similar circumstances, would be prepared to pay for it. If no benefit .....

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liances Limited (ITA Nos. 1068/2011 & ITA Nos. 1070/2011) wherein it has been held that it is not necessary for the taxpayer to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the taxpayer to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The AR further placed reliance on the ruling .....

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dia) Pvt. Ltd. (ITA No. 2444/Del/2012) wherein the Bench provided relief in following the rulings in the case of McCann and Hive Communication Pvt. Ltd (ITA No. 306/2011) 67. Ld. AR pointed out that the Ld. TPO in AY 2011-12, has himself accepted the charges paid by the assessee company to its Associated Enterprises (AEs) for availing similar intra-group services to be at arm s length under TNMM. Since the fact pattern of the said services has not undergone a significant change, accordingly AR s .....

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the present case for the reason that Ld. DRP and Ld. TPO have given finding to the effect that how the benefit test will be applicable. Though, the Ld. TPO in A.Y 2010-11 accepted the arm s length nature of the international transactions in PPC and RCS Divisions during the TP assessment for AY 2010-11 as the Ld. TPO has accepted the margins earned by the assessee company in the PPC and RCS division after including the IGS cost, to be at arm s length, the same can not be accepted in toto, in the .....

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sessee could not establish how the said cost was incurred and on what basis the said cost was placed upon the assessee. The E-mails etc. were also not supported by any documentary evidences. Thus, the assessee s contentions of the benefit given in A.Y. 2008-2009 and 2010-2011 be taken into consideration, does not survive. The payment for Intra Group Services to Associated Enterprises is a separate international transaction independent of financial results and capable of verifiable separately. Th .....

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n was routed through the AE, those invoices were to the tune of ₹ 13,87,84,117/- and invoices amounting to ₹ 97,99,091/- which was raised by the third parties on the AE for the services rendered by them to the assessee. Thus, the Ld. DRP rightly directed the TPO to examine these invoices and allowabaility of the same as expense to be decided. From the review of the services and benefit report and the supporting documents submitted by the Assessee company, it can be seen that the asse .....

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