TMI Blog2018 (10) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has challenged the correctness of the order dated 17.02.2014 framed u/s 143(3) read with section 147C read with section 92CA(3) of the Act. 2. The sum and substance of the grievance of the assessee is that the DRP/TPO/A.O. erred in enhancing the income of the assessee by ₹ 13,38,73,412/- and, in doing so, arbitrarily selected companies engaged in performing services which are functionally different from the business development, advisory and other support services rendered by the assessee. 3. The appellant is a captive service provider to its associated enterprises (AEs) and is primarily engaged in providing business development advisory and other support services to its AEs on a cost plus basis. The international transactions reported during the year read:- Sl. No. Description of transaction Amount in INR Method Used 1. Purchase of Traded Goods 20,928 Transactional Net Margin Method 2. Purchase of fixed assets 7,21,51,740 Transactional Net Margin Method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00485 Shortfall being adjustment u/s 92CA 170,268,169 9. The assessee raised objections before the DRP and after considering the objections of the assessee, the DRP directed for the inclusion of Wapcos Ltd., which was rejected by the TPO. The DRP further directed for the exclusion of HSCC (India) Ltd. which was taken by the TPO. Before us, the counsel for the assessee vehemently opposed inclusion of following five comparables:- (i) Certification Engineers International Ltd. (ii) Engineers India Ltd., (iii) NTPC Electric Supply Co. Ltd. (iv) Kitco Ltd., (v) Rites Ltd. 10. It is the say of the counsel that all these companies are government companies or Public Sector Undertakings and, therefore, should not be taken as comparable. The counsel relied upon several judgments of the coordinate Benches where the coordinate Benches have rejected government companies to be taken as good comparables. 11. Per contra, the DR strongly opposed the contentions of the counsel stating that what needs to be compared is the functional similarity. It is the say of the DR that it does not make any difference whether a company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions with controlled transactions. 21. Rule 10B(2) reads as under:- (2) For the purpose 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 employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal 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. 13. The coordinate Bench in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Choksi, Rites and WAPCOS, Delhi Tribunal in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. has held that companies like EIL, Rites, Wapcos and TCE are engineering companies which provide end to end solutions and therefore they cannot be compared with assessees who provide marketing support services to the parent company. They were held to be functionally not comparable with these engineering companies. 11.1. Following the orders of coordinate benches of lTAT in the cases of M/s MCI Com India P. Ltd.; M/s Verizon India P. Ltd. (supra); Estel in ITA no.584/Bangalore/06 and our own decision in case of Actis Advisers Pvt. Ltd. ITA No. 6390/Del/2012, we hold that Choksi, Rites and WAPCOS being functionally different cannot be applied as appropriate comparable to the assessee. Therefore, they are to be excluded from TP adjustment while determining the ALP. A similar finding has been given by the Tribunal regarding the comparability of this company in the case of MCI Com India Pvt. Ltd. as well as M/s. Chemtex Global Engineers Pvt. Ltd. Thus, having regard to the nature of functions and activities performed by the Rites Ltd., we find that this company cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking which has the support and backing of the Government and is engaged in providing engineering procurement, construction, lumpsum turnkey projects and total solutions consultancy, high end and full-fledged engineering and related technical services for petroleum refineries, pipelines and other industrial projects. The various activities carried out by EIL in Engineering Service Division include feasibility studies, project management, planning and scheduling, cost engineering, process and equipment design, total engineering, procurement and construction management, materials and maintenance services. As compared to its diversified activities, the activities of the assessee are not only low-end, but, are also restricted to captive service provided to its AE. This company is not only functionally dissimilar, but, also a government owned company, hence, we direct for the exclusion of this company. (iii) NTPC Electric Supply Company 20. This company is also a Government of India Undertaking and, therefore, has the support and backing of the government and is engaged in electrification services and has undertaken several activities for the generation of power during the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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