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TMI Blog2015 (12) TMI 1560X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction Amount (in Rs.) 1. Engineering services/Other services 114,37,93,036/- 2. Financial and accounting support services 4,57,02,508/- 3. IT infrastructure support services. 5,50,04,596/- 4. Reimbursement of expenses(paid) 6,70,973/- 5. Reimbursement of expenses(received) 21,97,07,529/- 4. For benchmarking the international transactions, assessee selected TNMM as the most appropriate method (MAM), with Operating Profit to Total Cost(OP/TC) as Profit level Indicator (PLI). The approach followed by the assessee in the TP Study has been encapsulated in the table below: Nature of International Transaction Amount (In INR crores) Most Appropriate Method & Profit Level Indicator ('PLI') Results Appellant's PLI No. of Comparables Margin of Comparables in TP Study* Provision of engineering design and related services 114.38 Method: TNMM PLI: OP/TC 13.04% 6 11.79% Provision of FAS services 4.57 Method: TNMM PLI: OP/TC 15.00% 10 14.37% Provision of IT infrastructure support services 5.50 Method: TNMM PLI: OP/TC 17.56% 4 17.26% Reimbursement of expenses (paid) 0.07 Method: TNMM PLI: OP/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Appellant's margin Arm's length margin determined by ld. TPO Adjustment u/s 92CA (in INR) 1. Provision of engineering design and related services 13.04% 21.00% 8,05,09,189 2. Provision of FAS services 15.00% 29.30% 54,91,653 3. Provision of IT Infrastructure support services 17.56% 29.30% 56,83,008 4. Outstanding Receivables N.A. 3,10,93,116 Total 12,27,76,966 8. Aggrieved by the draft assessment order of the ld.TPO, the assessee filed its objections before the DRP. The DRP directed as follows: I. Engineering design services: The ld. DRP accepted the approach and the comparable set considered by ld. TPO. The DRP also directed the ld. TPO to include a comparable selected by the assessee being UB Engineering Limited if it passed the filters applied by the ld. TPO. Since the comparable was passing the filters, it was subsequently accepted in the final assessment order. II. IT infra support services and FAS services: The DRP accepted the approach and the comparable set considered by ld. TPO. All additional comparables proposed by the assessee in the fresh search were rejected. Also, the DRP accepted the approach of the ld. TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing documentation on the basis of additional/modified quantitative filters which lacked valid and sufficient reasoning. 1.2 Accepting companies which were functionally not comparable to the Appellant. 1.3 Including companies with high/supernormal margins as comparables. 1.4 Not considering the correct computation of operating margins of certain comparables. 1.5 Denying the benefit of economic adjustments on account of difference in risk profile in arriving at the arm's length margin. 1.6 That on facts and circumstances of the case and in law, the ld. AO/TPO/ld. DRP erred in selecting the current year (i.e. financial year 2009-10) data for comparability despite the fact that at the time of preparation of Transfer Pricing Documentation by the Appellant, the complete data for financial year 2009-10 was not available within the public domain. 2. That without prejudice to the above, if comparables selected the ld. AO/TPO/DRP that do not meet the parameters of functional comparability are accepted, then the comparables selected by the Appellant that were rejected by ld. AO/TPO/DRP on account of functional comparability must also be accepted. 3. That on facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00% government owned undertaking, rendering services primarily to central/state government undertaking and PSUs. It is not in dispute that most of the clients or projects undertaken by this company are either for state government or government run institutions. The majority revenue (and profitability) of this company comes from government (state or center) run projects and that the company derives benefit out of its parental relation with the Government in getting contract. In other words, the company is getting the benefit of preferential treatment in obtaining contracts from government/government undertakings. This inevitably impacts the profit margins of the said comparable and cannot be said to be indicative of a free market economy where the other comparables and the assessee operates. 12.3 In this regard the assessee placed its reliance on the ruling of M/s ThyssenKrupp Industries India Private Limited ITA No. 6460/Mum/2012 wherein it has been held asunder: "We find it as undisputed that Engineers India Limited is a Government company. It has several segments which also include 'Turnkey project' page 700 of the paper book is a copy of annual report of Engineers India Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, also provides project planning, management services, procurement assistance, project management, commissioning and coordination, inspection, construction and supervision etc. Further, there is no segmental accounting available in the annual report of the Company which provides profitability for the engineering design segment. The comparable company undertakes substantial R&D activities (R&D expense 5.41% of turnover) which is not a function performed by the assessee. Hence this company cannot be accepted as a comparable. Now we take-up the comparables selected by the assessee company but rejected by DRP/ld.TPO, which are in dispute: 4) Accuspeed Engineering Services India Limited 12.8 The ld. TPO in his order, has rejected the said comparable based on its functional profile, holding that the comparable company is involved in software services. The Ld.AR submitted that this comparable company is not into software services, instead, is engaged in providing consultancy activities in Engineering solutions and services covering design, detailed engineering, project construction & management. The ld.AR submitted that this comparable company provides engineering design solu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign to project management. It is engaged in planning, developing and delivering projects across many sectors such as energy, industry, water and environment to transport, buildings, urban infrastructure and social development. We observe that the Ld.DRP has not given any reasons for rejecting this comparable. We observe that the functions of this comparable company are diversified in nature. As we have rejected company like TEC on similar ground, this company also cannot be accepted as a comparable. Hence we direct the A.O not to include this company as a comparable IT Infra & FA segment 13. In respect of IT Infra & FA segment, the comparables selected by the ld. TPO are common. 13.1 In the IT Infra segment the assessee monitors and manages various IT Infrastructure components such as servers, networks, storage equipment, managing etc. The services include data centre and system management, infrastructure management, web hosting and internet excess, desktop solution etc. 13.2 In the FA segment, the functions of the appellant company are, invoice processing, help desk support, account closing and management reporting, tax advisory services, management of fund. The assessee con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Limited This company has been included by the ld.TPO as a comparable. Functionally the company is into health care outsourcing services and in addition it also renders software development services. It is also observed that segmental information in respect of this company is not available. The company is also a 100% EOU, under STPI guidelines. We are therefore inclined to accept the contention of the assessee that this company should be excluded as a comparable. Hence we direct the Assessing Officer to do so. Comparable company selected by the assessee, but rejected by DRP/ld.TPO: 1) Omega Healthcare Management Services Pvt. Ltd. Ld. TPO has rejected the company on the basis that the annual report is not available in public domain. However, we find that the data can be extracted from the Capitaline database. The company is involved in the provision of offshore healthcare business outsourcing services, like medical coding, billing, accounts receivable management, claims processing, and healthcare revenue management. It also provides services to AR Management companies, and their hospital clients, for their credit balance account, regular accounts receivable and facility co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made by the ld.TPO. 14.8. The ld.AR submitted that during the financial year, the assessee had entered into international transactions pertaining to provision of support services to its AE's. In this regards, the details of the invoices raised and the payment received with dated were submitted before the TPO/DRP. The ld.AR has submitted that thought there was no credit period that was specified in the service agreement, however the assessee had agreed a credit period of 60 days with its AE's. The ld.AR submits that it has sufficient cash balance to manage its cash flow requirements. 14.9. He further submitted that the assessee does not earn any interest on the current account maintained with the bank. Except for interest earned from fixed assets, the assessee has not earned any interest, on any advances paid to third parties. The ld.AR further submitted that being a captive undertaking, the assessee does not render similar services to any other concern. He submitted that, excess credit period arises, only when there is a standard credit period for the services sold at the same price to independent enterprises. He submitted that the cost of funds blocked in the credit period was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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