TMI Blog2019 (1) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... : Sh. Sanjay I Bara, CIT, D.R. ORDER PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against final assessment order dated 29/01/16 passed by Ld.AO under section 143(3) read with section 144C of the Income Tax Act, 1961 (the Act) on following grounds of appeal: 1. The Ld. Assessing Officer ( AO ) / Ld. Transfer Pricing Officer ( TPO ) erred on facts and in law by making an adjustment to the arm s length price of the Appellant s international transactions which resulted in the enhancement of returned income of the Appellant by INR 7,44,04,229. 2. That the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was expedient and necessary to refer the matter to the Ld. TPO for computation of the arm s length price, as required under section 92CA(1) of the Act. 3. The Ld. AO/Ld. TPO/ Ld. Dispute Resolution Panel ( DRP ) erred on facts and in law in making an upward adjustment to the arm s length price of the Appellant s international transaction in relation to provision of engineering design services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee with its AEs as under: Sl. No. International Transaction Amount (in Rs.) 1. Provision of services 1,224,193,283 2. Receipt of services 45,276,486 3. Training costs 4,960,379 4. Payment of software charges 47,515,618 5. Reimbursements received 21,037,547 2.4. Assessee used TNMM as most appropriate method and computed margin by using OP/OC as PLI. In its comparability analysis assessee considered following 8 comparables with an average of 6.99% and assessee had worked out its own margin to be 12.70%. Sl. No. Name of the Company Remark of the TPO 1. Acropetal Technologies Ltd. (Engineering Design Services Segment) This is a suitable comparable. 2. Consulting Engineering Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T C E Consulting Engineers Ltd. 29.29% Arithmetic Mean 27.46% 2.6. Ld.TPO thus determined average mean to be 27.46%. Ld.TPO thus proposed an adjustment of ₹ 10,05,97,632/- after determining the ALP of international transactions at ₹ 1,34,21,10,505/-. 2.7. Aggrieved by adjustment proposed by Ld.TPO, assessee raised objections before DRP. The DRP though upheld approach adopted by Ld.TPO and comparables selected by him, allowed benefit of working capital adjustment. On giving effect to directions of DRP, arithmetic mean of comparables reduced to 20.07%, pursuant to which, adjustment reduced to ₹ 7,44,04,229/-. 2.8. Ld.AO upon receipt of order of DRP, passed final assessment order by making addition of ₹ 7,44,04,229/-in hands of assessee. 2.9. Aggrieved by order of Ld.AO, assessee is in appeal before us now. 3. Ground No.1 2 raised by assessee are general in nature and therefore do not require any adjudication. 4. Ground No. 3 is in respect of comparables disputed by assessee having been included/excluded by Ld.TPO. 4.1. By this ground, asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign activities carried out by assessee are part of larger project led by its affiliate. d. Marketing and Sales: Fluor affiliates are solely responsible for determining the overall marketing strategy of the group. The primary role of assessee is to provide engineering design and related services to its affiliate. e. Support Services: Assessee provides back-office support service in the nature of bank reconciliation, transbilling, cash receipt, intercompany reconciliation etc. to its affiliate. Other routine functions performed by assessee are: providing input on strategic policies relating to assessee Finance and Accounting, IT and Legal wherein assessee is responsible for performing day-to-day financial matters and deals with local tax and regulatory issues Human Resource Management: recruitment, soft skills training, employees evaluation related functions are performed by assessee. ( ii) Assets employed: Assessee utilises routine tangibles like computers and peripherals, office premises, communication facilities etc. for the purpose of its business. It does not own any significant intangibles and does not undertake any significant research and dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; ( d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. 9. Therefore it may so happen that, a comparable engaged in similar business which is having similar FAR may be included, though same might have been held to be not includible by Courts/Tribunals in other cases. Further, contractual terms as well as host of other factors stated in above sub-rule, may determine comparability analysis. Thus in our opinion, if difference arising on comparability analysis does not affect price or profitability of comparable, or if it can be reasonably adjusted, same should be taken as good comparable for Comparability analysis. Therefore, it should not be assumed that, if a comparable is held to be exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is working in divisions like infrastructure, tourism, aviation, IT services, HRD, financial services etc. which are dissimilar to the functional profile of the assessee company. Snapshot enclosed. In our considered opinion this company is involved in executing huge projects with a motive to earn profits. We therefore reject the argument of Ld.Counsel that since this company is owned by government it cannot be considered to be a fit comparable. However we observe that functions performed, risks assumed and assets owned by this company is huge and fast as compared to that of assessee who is acting as a sub contractor for its AE, rendering engineering and design services and is remunerated on cost plus basis. We therefore reject this company as it does not satisfy the functionality test with that of assessee s. (II) Project and Development India Ltd: Ld.TPO included this comparable into the final list, as it provides engineering and designs services to its customers. On the contrary Ld.Counsel submitted before us that it is not a fit comparable as it is functionally dissimilar. On the contrary Ld. CIT DR placed reliance upon the observations of Ld. TPO/DRP. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services to its customers. On the contrary Ld.Counsel submitted before us that it is not a fit comparable as it is functionally dissimilar. On the contrary Ld. CIT DR placed reliance upon the observations of Ld. TPO/DRP. We have perused submissions advanced by both sides in the light of records placed before us. It has been submitted that this company is engaged in services which are highly technical. Functional profile is placed at page no.271, 272 of the Paper Book and objections before the ld. TPO at page 480-498 of Paper Book volume 1. It is observed from the functional profile that this company is part of 'Mahindra Partners'. It does not show functional profile of Mahindra Consulting Engineers. However it shows that this company is engaged in providing services and has proved its capability to execute innovative projects and to penetrate into new areas of operation. It is further submitted that it is engaged in providing infrastructure engineering and consulting services. Therefore it is apparent that it is functionally different. We therefore direct to exclude this company, in view of highly technical capabilities of executing infrastructure development pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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