TMI Blog2015 (12) TMI 1560X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Accuspeed Engineering Services India Limited and Development Consultants Private Limited - DRP has not given any reasons for rejecting these comparables. On examination of the papers on record, we are in agreement with the submissions of the ld. AR. Hence we direct the A.O to include this company as a comparable. M N Dastur & Co. Private Limited - It is relevant to note that the Ld. TPO/DRP has accepted M N Dastur & Co. Pvt. Ltd., as a comparable in the assessee’s own case for assessment year 2009-10. Under such circumstances, we direct the A.O to include this company as a comparable. Mott Macdonald Private Limited - this comparable company is involved in the provision of multi-disciplinary management and engineering consultancy services like business advice for development planning to engineering design 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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. Omega Healthcare Management Services Pvt. Ltd. - the financial data of the company is available on the database. The ld. TPO however did not give proper opportunity to the assessee to substantiate the inclusion of this company as a comparable. The issue was carried further before the Ld.DRP, and the Ld.DRP also did not comment upon the economic analysis of the company. We therefore set aside this issue of selecting this company, to be considered by the TPO as a comparable, and to include the same in the event it satisfies all the filters applied by the ld.TPO. Techprocess Solutions Ltd. (Processing Services segment) - TPO has rejected the company on the ground that financial statement of the company was not available. The issue was carried further before the Ld.DRP, and the Ld.DRP also did not comment upon the economic analysis of the company. We therefore set aside this issue of selecting this company be considered by the TPO as a comparable, and to include the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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% Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.61% 7. TCS E-Serve International Ltd. 51.51% 8. TCS E-Serve Ltd. 66.35% 9. Jindal Intellicom Ltd. 14.19% 10 . Microland Ltd. -3.11% Mean 29.30% III. IT Infrastructure support services S. No. Company Name OP/Cost (Forex as operating) (%)* 1. Accentia Technologies Ltd. 43.62% 2. Cosmic Global Ltd. 18.28% 3. E4e Healthcare Ltd. 32.67% 4. Fortune Infotech Ltd. 19.62% 5. iGate Global Solutions Ltd. 18.21% 6. Infosys BPO Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which was to adopt the same set of comparables for both these segments. The DRP directed the ld. TPO/Ld. Assessing Officer to make working capital adjustment. The DRP also confirmed the TP adjustment made by the ld. TPO on account of interest on intercompany receivables. 9. Thus, pursuant to the DRP s directions, the ld. AO issued the final assessment order. Following are the arm s length margins as per TPO: Engineering design services S. No. Company Name Working Capital adjusted OP/TC 1. Kirloskar Consultants Ltd. 11.85% 2. Mahindra Consulting Engineers Ltd. 23.55% 3. TCE Consulting Engineers Ltd. 26.23% 4. IBI Chematur Ltd. 58.24% 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case and in law, the ld. AO/ld. Transfer Pricing Officer/Ld. Dispute Resolution Panel erred in making an addition of INR 15,45,32,767/- to the returned income of the Appellant by re-computing the arm s length price of the international transactions pertaining to all three segments of the Appellant Company viz. engineering services, financial support and IT infrastructure support u/s 92 of the Act. Thus, in passing the order, the ld. AO/ld. TPO/ld. DRP erred in: 1.1Rejecting the comparable companies adopted by the Appellant in its transfer pricing 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rojects in priority sectors) and to entrepreneurs operating in SME sector (preparation of project report, market studies and conducting training program s). However, over the years Kitco has evolved into a multifunctional and multi-disciplinary organization and has started offering consultancy service from concept to commissioning . As portfolio of services offered by Kitco currently includes the following: Project consultancy; Detailed design engineering and project execution; Technical services; Environmental Engineering; and HRD consultancy 12.2 The assessee fairly submits that Kitco is a 100% 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 cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. Whereas the assessee provides services as a captive unit to its overseas AEs. The diversified functions of this comparable company include pre-project activities, procurement assistance, project management, commissioning and coordination, inspection, construction and supervision. Further, there is no segmental accounting in the annual report of the Company which provides profitability, for the engineering design segment. Hence the same cannot be accepted as a comparable. 3) IBI Chematur Ltd. 12.7 The comparable Company is involved in activities beyond engineering design which assessee provides. Apart from detailed engineering, the comparable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010-11is available on the database of Capitaline Plus. It is relevant to note that the Ld. TPO/DRP has accepted M N Dastur Co. Pvt. Ltd., as a comparable in the assessee s own case for assessment year 2009-10. Under such circumstances, we direct the A.O to include this company as a comparable. 7) Mott Macdonald Private Limited 12.11 The ld.TPO has rejected the company as a comparable on the ground of being widely diversified and that segmental information was not available. The ld.AR submitted that this comparable company is involved in the provision of multi-disciplinary management and engineering consultancy services like business advice for development planning to engineering design 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thcare. It is submitted by the ld.AR that Accentia Technologies Ltd is also engaged into diversified activities such as Knowledge Process outsourcing(KPO), Legal process outsourcing(LPO), Data process Outsourcing(DTO), high end software services. It is also submitted by the ld.AR that segmental information in respect of this company is not available. It has been further brought to our notice that this company has been rejected by the Ld.TPO in the earlier year. The company has also had business restructuring during the year under consideration thereby giving rise to extraordinary circumstances. For all these reasons we direct the Assessing Officer to exclude this company as a comparable. 3) E4e Healthcare Business Services Private 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 exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue of selecting this company be considered by the TPO as a comparable, and to include the same in the event it satisfies all the filters applied by the ld.TPO. Ground nos. 1 2 stands disposed off accordingly. Adjustment on account of Receivables 14.7 During the course of the proceedings before TPO, he observed that payments on account of sales to the AE, is realized after a significant time period. The ld.TPO ascertained that payment for invoices raised by the assessee has not been paid within the stipulated time as provided in the service agreement and accordingly treated the delayed payments as loan facility advanced to the AE s. The ld.TPO charged 14.88% interest for the delayed period, beyond a period of 30 days. The ld. DRP upheld the adjustments 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 agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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