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TMI Blog2019 (1) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 amounting to INR 7,44,04,229 by: 3.1. Rejecting the comparable companies selected by the Appellant in its Transfer Pricing documentation; 3.2. Accepting companies, which are not comparable to the Appellant in terms of functions, assets and risks; 3.3. Erroneously ignoring comparable companies, obtained by way of a fresh search, provided by the Appellant as a response to the show cause notice; and 3.4. Not granting an economic adjustment for the risk mitigated environment in which the Appellant operates. 4. That on the facts and circumstances of the case and in law the Ld. AO/ Ld. TPO erred in not examining the validity of initiation of penalty proceedings u/s 271 (1) (c) of the Act. That the appellant craves leave to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Consultants Ltd. Data for the current year is not available in the public domain. Hence, not a suitable comparable 4. Engineering Projects (India) Ltd. This company is in construction business of many spheres. Hence, not a suitable comparable. 5. Kitco Ltd. This is a suitable comparable. 6. KLG Systel Ltd. (Life Cycle Solutions Segment) This company fails service income filter (28.19%) and this company as per disclosure made in Annual Report is in Computer Software & Hardware. Hence, not a suitable comparable. 7. Project and Development India Limited. This is a suitable comparable. 8. Simon India Limited This company is engaged in 'Construction contract' which are functionally different from the tax payer and fails service filter also (4.09%). Hence, not a suitable comparable. 2.5. Ld.TPO has not disputed regarding functional profile of assessee, most appropriate method used and PLI in respect of service rendered by assessee. Only dispute raised by Ld.TPO is in respect of comparables, chosen by assessee. He thus, by applying various filters, rejected certain comparables from assessee's list and included 2 new comparables, details of which are as under: Sl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been submitted that once a contract has been awarded by ultimate customer, Fluor Affiliates may sub-contract different tasks such as engineering design, procurement, commissioning etc. to different group companies depending upon their core competency. Final service provided to end-user, generally requires integration of different services, sub-contracted to different group companies. The engineering design activities sub-contracted to assessee, are thus part of the total contract awarded to the Fluor Affiliates by an unrelated party. Briefly, functions performed by assessee (more particularly detailed at page 35-37) are as under: a. Business Development: As the affiliate is responsible for all marketing efforts for engineering design and related services rendered by assessee, and assessee has no role to play, vis-a-vis business development. b. Engineering Design Services: Assessee is engaged in the business of providing detailed engineering and design services to its affiliate which is a part of total contract awarded to the affiliate. Assessee provides said services on cost plus basis. c. Invoicing, Collection and Delivery: It is the responsibility of Fluor affiliate to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. On the basis of above, we shall compare FAR undertaken by the comparables disputed by assessee for being included/excluded as the case may be. 8. Before we proceed to examine comparables, several decisions of various Tribunals have been cited by parties regarding its inclusion /exclusion by submitting that, these comparables should be excludible/includible based on those decisions. We are of the view that each decision has rendered particular comparable excludible/includible, based on facts of that case, as well as FAR of assessee whose issues are decided. We are also aware about precedent value of those decisions, while deciding comparables regarding its suitability. However, we feel, paramount importance shall be on Rule 10B (2) of Income Tax Rules 1962 which is as under:- "(2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us. Functional profile of this company, as submitted by assessee, and as per annual report placed at page 277-309 of paper book is as under: KITCO, the first Technical Consultancy Organization(TCO) in India, was established in 1972 by Industrial Development Bank of India, other national and state level financial institutions, Govt. of Kerala and 7 Public Sector Banks for rendering services to Entrepreneurs, Govt. Departmental PSUs, Local Bodies, etc. Presently, Small Industries Development Bank of India (SIDBI) is the prime shareholder with 49% shares of the company. Would KITCO successfully implemented projects like Cochin International Airport Ltd., , Cochin Special Economic Zone, etc and is involved in implementing a multimodal Mobility Hub at Cochin, all of which are first of its kind in the country in their own respect. KITCO successfully is stated to have completed Phase-1 of CIAL Golf Course & Country Club and Ghallah Wentworth Golf Course at Muscat, Sultanate of Oman, thereby establishing itself in an area, which was considered to be the forte of European Consultants. The prestigious overseas assignments completed by KITCO include technical evaluation of electrical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion of this comparable from the list of comparables. (III) TCE Consulting Engineers 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 perused submissions advanced by both sides in the light of records placed before us. It is submitted that this company is engaged in providing highend technical services. Profile submitted by the assessee at page 310-395 of paper book volume 1 shows that it successfully managed complex engineering projects across infrastructure spectrum and is associated with prestigious urban infrastructure facilities such as Airports, Railways and metropolis engineering consulting projects. Therefore, in our view it is apparent that this company is engaged in providing high end engineering consulting services which is not comparable with limited functions performed by assessee. Therefore we direct to exclude this comparable. (IV) Mahindra Consulting Engineers: Ld.TPO included thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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