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2015 (11) TMI 1562 - ITAT DELHI

2015 (11) TMI 1562 - ITAT DELHI - TMI - Transfer pricing adjustment - selction of comparable - Held that:- Holtec Consulting Private Limited engaged in providing engineering support services for bulk material handling and structural steel detailing etc. having plant and machinery as part of its fixed assets and inventory in its books, it has also large portion of cost as sub-contracting and profile of Holtec is diametrically opposed to the assessee company which is engaged in engineering design .....

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uction and project management for railway track, electrification together with traffic and software consultancy assignments as against, the appellant company which is engaged in engineering design and drawing for various overseas AEs to support overseas offices on turnkey project execution basis. - Webcam Consultancy Service Indi Ltd - perusal of the P & L account statement for the year ended 31.03.2005, which has otherwise not been reproduced above, which has otherwise not been disputed by .....

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in M/s. Avaya India Pvt. Ltd. [2011 (2) TMI 1294 - ITAT DELHI] and M/s. Thyussen Krupp Industries India Pvt. Ltd. [2013 (11) TMI 930 - ITAT MUMBAI] - M/s. Steewards Lloyed India Ltd. - TPO has rejected the companies on the sole ground that these companies fall in service filter and has service income to sales income ratio of less than 75% whereas a bare perusal of the audited financial statement of the company for the year ending 31.03.2004 lying at page 48 of appeal set goes to prove that t .....

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ed, by filing the present appeal u/s 253(1) of I. T. Act, 1961 (hereinafter referred as the Act ) sought to set aside the impugned order dated 30.01.2015 u/s 254/143(3) read with section 144C passed in consonance with the directions of DRP -I, making addition to the tune of ₹ 8,63,90,740/- on account of raising income as a consequence of TPO/Dispute Resolution Panel-I (DRP) u/s 92C(3) of the Act, which is second round of litigation qua the Assessment Year 2005-06. 2. Initially, in consonan .....

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bunal and in consonance with the directions made by TPO/DRP, A.O. made an addition of ₹ 8,63,90,740/- on account of transfer pricing adjustment. 2. Feeling aggrieved, the assessee has again come up before the Tribunal and sought to set aside the impugned order dated 31.01.2015 passed by the A.O. u/s 254/143(3) read with Section 144C of the Act on the grounds inter alia that: 1. That on facts and circumstances of the case and in law, the Ld. AO 1 Ld. Transfer Pricing Officer ("TPO" .....

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fficient 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 Including government held enterprises as comparables. 1.5 Not considering the correct computation of operating margins of certain comparables. 1.6 Denying the benefit of economic adjustments on account of idle capacity and difference in risk profile in arriving at the arm's length margin. 1.7 In selecting the current ye .....

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f functional comparability must also be accepted. 3. That further without prejudice to the above, based on the facts of the case and in law, the Appellant's income cannot be enhanced by more than the income determined by the Ld. AO in the original assessment order U/S 143(3) of the Act as a consequence of the directions given by Hon'ble ITAT. 4. That the Ld. AO has erred in charging interest under section 234B, 234D and 244A of the Act amounting to INR 1,57,74,232. 5. That on the facts a .....

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ional transaction, has adopted TNMM PLI: OP/OR method as most appropriate method in order to benchmark the international transaction showing his PLI @ 3.71% and making the comparables in TP study @ -5.17% in engineering design and related services (EDS). The TPO and the A.O. both have accepted the TNMM with PLI percentage of OP/OR as a PLI as the most appropriate method for benchmarking the international transaction. However, the appellant has opted multiplier data in accordance with Rule 10B(iv .....

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tancy service is less than ₹ 5 crores; that companies whose revenue and engineering design and drawing is less than 75% of total operating revenue; that companies having more than 25% related parties transaction of income, have been excluded and companies having different financial year ending (i.e. March 31st, 2004) and data of the company does not fall 12 months period i.e. 01.04.2003 to 31.03.2004, that the companies which are functionally different from the taxpayer and that the compan .....

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ule l0B (3). Foreign exchange fluctuation has been considered to be nonoperating expenses in view of recently issue safe harbor guidelines. As per details filed the foreign exchange fluctuation loss amounts to ₹ 29,00,000/- which is considered to be non operating in nature. The operating cost as submitted is ₹ 460514088 which is reduced by foreign exchange loss of ₹ 29,00,000/-. This amounts to ₹ 457614088. Operating Cost 457614088 Arms Length Margin (%) 29.46 Arms Length .....

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O has made the adjustment on account of outstanding receivables from the AE and also made the final TP adjustment as under:- S. N. Nature of international transaction Appellant's margin (OP/total cost) refer page 152 of paper book Arm's Length margin determined by Ld. TPO (refer page 184 of appeal set) Adjustment u/s 92CA (In INR crores) (refer page 198 of appeal set) 1 Provision of engineering design and related services 0.07% 29.46% 13.45 2 Overdue Receivables N.A. 8.64 Total N.A. 22.0 .....

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s 20.23% and consequently, made Transfer pricing by adding an amount of ₹ 9,22,55,795/-. 7. We have heard Ld. authorized representatives of both the parties and have gone through the material placed on record in the light of the facts and circumstances of the present case. 8. At the very outset, Ld. A.R. contended that except ground No.1 read with gourds 1.1, 1.2, 1.3 , 1.4 and 2, rest of the grounds are of academic nature and as such need no adjudication. 9. In consonance with the directi .....

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the comparables adopted by the assessee without passing any speaking order and as such, the order under appeal is liable to be set aside. 11. The TPO in his order dated 27.01.2008, selected M/s. Holtek Consulting Pvt. Ltd. as comparable and its P & L account statement for the year ended 31.03.2005 is lying at page 141 of the appeal set. 12. The assessee filed comprehensive objection for the exclusion of M/s. Holtek Consulting Pvt. Ltd. lying at page 54 of the appeal set, which are reproduced .....

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nt and machinery and tools and testing equipment in its fixed assets; • The export sales of traded goods account for 0.26 per cent of the total sales of the company; and High sub-contracting costs (20.18% of its total costs) in the books of Holtec for FY 2004-05. 13. A bare perusal of the profile of the aforesaid company goes to prove that the same is engaged in offerings comprehensive services from concept to commissioning for green-field, modernization/ conversion/ expansion of cement as .....

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eas offices turnkey project execution. The assessee company has neither any plant and machinery as part of its fixed assets and inventory in its books nor has large portion of its cost as sub-contracting cost. So, it cannot be taken as a comparable in any case. 14. RITES Ltd., taken as comparable by DRP/TPO: The taxpayer filed detailed objections to the different orders against inclusion of aforesaid company as comparable. The crux of the same is lying at pages 73-75 of the appeal set. Major obj .....

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engaged in engineering design and drawing for various overseas AEs to support overseas offices on turnkey project execution basis. Similarly, the cost of export sales and supply services constitutes merely 35.86% of the total cost. So keeping in view the fact that comparable company i.e. RITES Ltd. taken by TPO is functionally distinctive having been engaged in the area of engineering consultancy, traffic studies, export of locomotives and maintenance of the locomotives, construction and project .....

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aid companies lying at page 47 of appeal set:- 1.5 Water & Power Consultancy Supply (India) Limited TPO's comments in the order The Ld. TPO rejected this company stating that this company fails service filter and has service income to sales income ratio of less than 75%. Assessee's comments: The Assessee continues to argue that the company has service income more than 75% and is functionally similar to the activities undertaken by the Assessee and should be considered as a comparable .....

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res) Sales INR Crores) Income/Sales Wapcos 86.58 87.12 99.38% Functionally Comparable The Assessee would like to mention that the company is engaged functionally comparable to the Assessee and hence it should be considered as a comparable 17. The A.O. has merely rejected M/s. Webcham Services (India) Ltd. on the sole ground that its services income to sales income is less than 75%. However, from the bare perusal of the P & L account statement for the year ended 31.03.2005, which has otherwis .....

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levant consideration in case of Government undertakings by relying on the judgements cited as M/s. Thyssen Krup Industries India Pvt. Ltd. in I.T.A. No. 6460/Mum/2012 New Delhi M/s. Avaya India Private Ltd. in I.T.A. No. 5150/Del/2010 (supra) and contended that the Government companies cannot be taken as comparables for TP by following the law laid down by Hon'ble Jurisdictional High Court in M/s. Avaya India Pvt. Ltd. and M/s. Thyussen Krupp Industries India Pvt. Ltd. (supra). The Governmen .....

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ards Lloyed India Ltd. for TP. TPO s comments for rejection of aforesaid companies are lying at pages 47-48 of the appeal set. TPO has rejected the companies on the sole ground that these companies fall in service filter and has service income to sales income ratio of less than 75% whereas a bare perusal of the audited financial statement of the company for the year ending 31.03.2004 lying at page 48 of appeal set goes to prove that this company has service income to sale is more than 75% i.e. 9 .....

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it of economic adjustment. Ld. A.R. for the assessee contended that DRP merely passed the direction denying benefit of capital utilization adjustment on the basis of its directions issued in the immediately preceding year (Assessment Year 2004-05) and as such liable to be set aside and further contended inter alia that the assessee company got compensated on yearly basis for the services rendered to its AEs and got reimbursable at actual for direct and indirect project cost incurred by it. Thus .....

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