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TMI Blog2018 (4) TMI 1631X X X X Extracts X X X X X X X X Extracts X X X X ..... 70,56,740/-. During scrutiny, learned Assessing Officer (Ld. AO) noticed the following international transactions entered into by the assessee company with its associated enterprises:- S.No. International Transactions Method Value (Rs) 1 Purchase of formulations & service kit TNMM 89,78,62,302/- 2 Clinical trial TNMM 4,62,43,599/- 3 Quality control, audit services and market research income TNMM 1,84,70,653/- 4 Interest on ECB CUP 47,48,163/- 5 Link charges, travel expenses, miscellaneous, Relocation, conference expenses and subversion - 42,49,29,586/- 4. Matter was referred to the learned Transfer Pricing Officer (Ld.TPO ) to determine the Arm's-Length Price (ALP) under section 92-CA(3) of the Income Tax Act, 1961 ("the Act) in respect of the International transaction. Assessee used multi-year data for benchmarking the international transaction, but the Ld. AO rejected the same and used only single year data for that purpose. In respect of the international transactions of coordination of clinical trial and business support services, Ld. TPO increased the book value by Rs. 54,64,835/-and since the difference in Arm's-Length Price and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was not discharged. 7. Thatthe Commissioner of Income-tax (Appeals) erred on the facts and in law in not being consistent while denying on the claim of working capital adjustment by the appellant, when working capital adjustments have been allowed in case of other assesses. 8. That the assessing officer erred on facts and in law in levying interest under Section 234B and Section 234C of the Act." 6. This appeal is filed with a delay of 30 days. Assessee submits that when they have engaged the advocate for preparing the appeal and filing the same in the tribunal, due to some technical reasons the material sent by them did not reach the counsel till after the actuary of the limitation or filing the appeal. It is submitted on behalf of the assessee that the delay occurred in filing the appeal is neither intentional no deliberate but only accidental. Reliance is placed on the decision of the Hon'ble apex court in collector, land acquisition Vs. Mst. Katiji 167 ITR 471. 7. We have considered the facts and circumstances of the case. There is no reason for us not to believe the facts separated by the assessee. Normally the assessee does not stand to gain by allowing the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (2011-TII-64-ITAT-DEL-TP). 10. We have gone through the provisions under Rule 10 B(4) of the IT Rules. In the light of the proviso to this rule, use of data relating to the period not being more than two years prior to such financial year is permissible if such data reveals facts which could have an influence on the determination of the transfer prices in relation to the transaction being compared. As rightly pointed out by the AO, assessee did not bring to our notice any factors that would influence the determination of the transaction price. In the absence of any special reasons to invoke the proviso to Rule 10 B (4), we find it difficult to reach the conclusion that the authorities below committed any mistake in considering the single year data for determination of arm's-length price instead of multiple year data, or that such data evens out the variations in industry and produce cycles. This ground is answered accordingly. 11. Now coming to the question of considering certain companies as comparables in the final set of comparable companies, during the course of arguments the assessee confined the challenge in respect of only four companies, namely, Engineers India Ltd, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these four entities were not functionally comparable in respect of the services rendered by the respondent/assessee to its associated enterprise in Singapore. It has been established on facts that while the services rendered by the respondent/assessee were in the nature of marketing services, the services rendered by the so-called four comparables were in the nature of engineering services. On facts, the Commissioner of Income-tax (Appeals) as well as the Tribunal have held that the two services, that is, marketing services and engineering services, were functionally different and were, hence, not comparable. The Tribunal arrived at the following conclusion:- "23. A perusal of the above demonstrates that the assessee has not conducted a proper TP. study and has wrongly chosen these four comparables. When on facts, we are of the opinion that the T.P. study wherein these four comparables taken were wrong as apparently there is no functional comparability, we cannot approve such T.P. study, even if the T.P.O. has accepted it. Wrong facts have to be corrected. There can be no estoppel in such factual situation. The Ld. CIT(A) has the power to accept fresh claim of the assessee. Mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of this company on three aspects, namely, firstly, the company is inter alia, engaged in construction and overall project management in hydrocarbon, metallurgy, power and ports & terminals; secondly, Financial statement does not provide separate profit from provision of low end services, if any and lastly, difference in business model. It is submitted on behalf of the assessee that Engineers India Limited is a Government of India Enterprise, which was established in 1965. Engineers India Ltd (EIL) is a leading global engineering consultancy and EPC company, providing engineering consultancy and EPC services principally focused on the oil & gas and petrochemical industries. The Company has also diversified into sectors like infrastructure, water and waste management, solar & nuclear power and fertilizers to leverage its strong technical competencies and track record. It is submitted that the company being a public sector enterprise, operates under a different business and commercial environment, in as much as (i) it receives assignments from many other Indian and International Government enterprises and being funded through grants and aids. 17. We have gone through the profile o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by profit motive alone impacting the profit margin and to exclude the same and then benchmark the international transactions qua Network Support Services. Consequently, grounds no.4 to 4.12 are determined in favour of the taxpayer. " 20. Further, Pune bench of the Tribunal in case of Behr India Ltd. vs. ACIT (ITA No. 566/Pn/2013) too, directed exclusion of Engineers India Limited as comparable holding that substantial part of its revenue came from executing projects of Public Sector Undertakings and is, therefore, ought not to be considered as comparable, with the observation that: "34. We have heard the rival contentions and perused the record. In the IT Enabled Services Division, the assessee was providing services to its parent company in Germany and was a limited scope service provider. The assessee adopted TNMM method as the most appropriate method to benchmark its international transactions and had applied PLI of OP/OC. For benchmarking the said transactions, the Ld. TPO had selected certain concerns as comparable. Out of five external comparables selected, the Ld. TPO finally taken M/s. Kitco Ltd., M/s. Water & Power Consultancy Services (India) Ltd. and M/s. Engineer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject', besides this being a Government company, we find that this company is not a good comparable to the assessee for benchmarking the international transaction. RITES LIMITED 23. Ld. TPO, included RITES Limited as comparable company with operating profit margin over cost ratio of 43.74%, stating that this company is functionally comparable to the assessee. 24. It is submitted on behalf of the assessee that RITES Limited is a Government of India Enterprise, which was established in 1974 under the aegis of Indian Railways. RITES is incorporated in India as a Public Limited Company under the Companies Act, 1956 and is governed by a Board of Directors which includes persons of eminence from various sectors of engineering and management. RITES Ltd., an ISO 9001:2008 company, is a multidisciplinary consultancy organization in the fields of transport, infrastructure and related technologies. Further this company being a public sector enterprise of Indian Railways, operates under a different business and commercial environment, in as much as (i) it receives assignments from many other Indian and International Government enterprises and (ii) being funded through grants and aids. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43/Mum/2012), while rejecting (i) Rites Limited being Government undertaking, as comparable to the assessee engaged in providing medical support services, observed that,- i) Rites Ltd. The Revenue has not disputed that Rites Ltd. is a government company established under the Ministry of Indian Railways and is providing the services in the field of architecture and planning, bridge and tunnel engineering, construction project, electrical engineering etc. to the government organizations and public section undertakings. The functions performed and carried out by Rites Ltd. are entirely different from the functions and services provided by the assessee to its AE. The assessee is providing the support service in the field of pharmaceutical and medical support service, therefore on the face of it, this company cannot be a functionally comparable with the assessee. 28. In support of their contention that this company had multi-dimensional functionality and the segmental data in respect of various activities were not available rendering this company not a good comparable, Ld. AR placed reliance on a decision of Delhi Bench of Tribunal in the case of Granite Services International Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COS is primarily engaged in providing engineering consultancy and undertake turnkey contracts on a regular basis. The inherent factors of this industry i.e. marketing strategies, competitive edge, level of technological development, operational efficiency, competence and effectiveness of management, cash flow trends and potential, liquidity, financial flexibility, government policies, sensitivity to possible changes in business/economic circumstances affect the functioning of these companies. 31. Our attention is drawn to the decision of a coordinate bench of this tribunal in DCIT vs. MCI Com India P. Ltd. (2012) 19 ITR 0042 wherein the profile of the water and Power consultancy services (India) limited was noticed as follows,- "WAPCOS provides consulting in the domestic and international water and power sectors. Services offered include market intelligence, feasibility studies, planning/project formulation, field investigations and testing, engineering design, contract management, quality assurance & management and human resource development. The company has identified its business activity into two business segment i. e. Consultancy & Engineering projects and Lump Sum Turnk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered comparable to the assessee, TCE Consulting Engineers Limited 35. Lastly coming to another comparable retained by the Ld. Ld. TPO , namely, Tata Consultancy Engineers Limited of TCE Consulting Engineers Limited, assessee contends that it is not functionally comparable to the assessee and ought to be rejected from the final set of comparable companies, because this company is engaged in providing engineering consultancy services to its group companies and unrelated third parties. The services rendered during the year under consideration are described in the annual report of the company, which is reproduced as under: "Operations During the year April 2003 to March 2004 the Company secured jobs worth Rs. 889.6 million (previous year Rs. 567 million). Some of the major projects secured in India included 1x500 MW Bellary Thermal Power Station Stage-1 for BHEL; 1x20 MW Cogeneration plant for expansion of Chennai Petrochemicals Limited; 1x120 MW Unit four at Jojobera for Tata Power Company Limited; 2x250 MW Thermal Power Station Expansion for Neyveli Lignite Corporation; 660 MW Vijaywada Thermal Power Plant for Vattenfall Europe Power Consult GMBH; Solid Propellant Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssurance, UK". 36. In support of the contention that this company is not a good comparable with the assessee, reliance is placed on the decisions in Microsoft Corporation India Pvt. Ltd. vs. DCIT (ITA No. 5855/Del/2010) which was followed by the ITAT for the assessment year 2007-08 and 2008- 09 in ITA No.5766/Del/2011 and ITA No. 6417/Del/2012, respectively, DCIT vs. MCI Com India Pvt. Ltd.(ITA No. 2766/Del/2010), Bechtel India (P.) Ltd. vs. DCIT (ITA No. 1478/Del/2015), Verizon (India) Pvt. Ltd. Vs JCIT [ITA No: 4187/Del/2010] and Rolls-Royce India Pvt. Ltd. vs. DCIT (ITA No. 6636/Del/2015), wherein, TCE Engineers Consulting Limited has specifically been excluded on account of being engaged in providing engineering consultancy services. 37. On a careful perusal of the profile of this company as is incorporated in its Annual report, we find that this company is engaged in providing high end engineering services and therefore, cannot be compared to the assessee who has been engaged in providing low end business support services, therefore, on that ground, this company ought to be excluded from the final set of comparable companies considered for the purpose of benchmarking low en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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