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TMI Blog2019 (4) TMI 2134X X X X Extracts X X X X X X X X Extracts X X X X ..... erticals within the engineering services industry in its comparability study and has searched for comparables which are engaged in the engineering and software services. * The assessee is engaged in carrying out engineering design services in the nature of tendering, setting up, harmonizing, basic and detailed design and erection, installation and commissioning of power plant. But the assessee has not gone into any verticals in its search process and the TPO has reexamined it's accept/reject matrix accepting the keywords of assessee. * The TNMM method is more tolerant and less susceptible to the transactional and functional differences and therefore, if the companies are broadly comparables to the tested party, the same should be accepted. (ii) That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in treating the miscellaneous income of Rs.17,90,39S/- from notice period pay from its ex-employees as income derived from export of article or thing to be eligible for deduction u/s 19B of the IT. Act, 1961. (iii) That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in holding that notice period pay received should be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company as a comparable holding it to be functionally dissimilar to the Appellant based on conjectures and surmises. 6. On facts and in law, the Ld. CIT(A)/ Ld. AO/ Ld. TPO violated the provisions of Rule 10B(2) of the Rules by rejecting a company Tata Elxsi Ltd. considered as comparable by the Appellant in its TP documentation, holding it to be functionally dissimilar to the Appellant. 7. On facts and in law, the Ld. CIT(A)/ Ld. AO/ Ld. TPO violated the provisions of Rule 10B (2) of the Rules by rejecting a comparable company Powersoft Global Solutions Ltd. identified by the Appellant in its TP documentation, holding that the Company's accounting year ended on 30 September instead of 31 March. 8. On facts and in law, the Ld. CIT(A)/ Ld. AO/ Ld. Ld. TPO have violated the provisions of Rule 10B (2) of the Rules by arbitrarily adding a new company, Stup Consultants Pvt. Ltd. as comparable to the Appellant, disregarding the fact that the Company is functionally dissimilar to the Appellant as the Company is a full service project delivery consultancy company offering integrated planning, architectural, engineering and project management services to varied industries a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices TNMM 72,99,54,589 3 Reimbursement of travel expenses received CUP 8,82,42,450 Total 86,23,92,067 6. For benchmarking the international transactions for provision of engineering design and drawing services, the taxpayer applied Transactional Net Margin Method (TNMM) with OP/TC as the Profit Level Indicator (PLI) as the Most Appropriate Method (MAM). The taxpayer in its TP documentation computed its PLI at 20.53% on cost which has been recomputed at 18.14%, then recomputed at 14.35% as against the PLI of comparables at 40.50% by considering the data for AYs 2005-06, 2006-07 and 2007-08. 7. The TPO in order to carry out the TP analysis applied filters as under :- (i) Use of current year data; (ii) Reject companies where related party transactions exceed 25% of sales; and (iii) Companies that are affected by some peculiar economic circumstances. 8. TPO after FAR analysis examined the comparables on quantitative filters and qualitative filters with ratio of service income to total income at least 75%. TPO also proposed to consider the comparability in the economic activity of technical consultancy and engineering services and not in computer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee 77,76,46,889 Difference 9,65,99,160 % of difference with the value of International transaction 13.23% Consequently, TPO proposed the adjustment of Rs.9,65,99,160/- in order to benchmark the international transactions qua engineering design services being the difference in ALP and the price charged by the taxpayer from its AE. 15. Ld. CIT (A) accepted the TP analysis made by the TPO except rejection of one comparable, namely, Alphageo (India) Ltd.. Now, the Revenue has challenged exclusion of Alphageo (India) Ltd. by the ld. CIT (A). Ld. CIT (A) has also considered foreign exchange loss as non-operating. We would examine the comparability of Alphageo (India) Ltd. vis-à-vis the taxpayer to benchmark the international transactions qua engineering design services as under. ALPHAGEO (INDIA) LTD. (ALPHAGEO) 16. Ld. DR for the Revenue challenging the exclusion of Alphageo drew our attention to paras 7.2 and 7.3 at page 16 of the impugned order passed by ld. CIT (A) and contended that findings are cryptic one which need to be extensive one with FAR analysis and profit of business is very important. Ld. DR also relied upon the order passed by the TPO. 17. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t turnover less than 25% is not to be taken as comparable. So, when Alphageo fails the export filter which is less than 25% as against 100% export of the taxpayer company, the same cannot be a valid comparable. So, we are of the considered view that Alphageo is not a suitable comparable vis-à-vis the taxpayer and as such has been rightly excluded by the ld. CIT (A). Consequently, ground no.(1) of the Revenue's appeal is determined against the Revenue. NO.4754/DEL/2014 (REVENUE'S APPEAL) CORPORATE GROUNDS GROUNDS NO.(ii) & (iii) 22. AO while computing allowable deduction u/s 10B of the Act excluded misc. income of Rs.17,90,395/- from the net profit of the business of the undertaking on the ground that the taxpayer has not fulfilled three conditions laid down u/s 10B inter alia that (i) profits should be directly derived from industrial undertaking and should not be merely attributable to the industrial undertaking; (ii) there should be a direct and proximate nexus between the income received and the activity carried out by the industrial undertaking; and the source of the income of profits should be the industrial undertaking itself. 23. AO further observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings returned in the preceding paras, dismissing the appeal filed by the Revenue, we would examine the suitability of Stup Consultants Pvt. Ltd. as a comparable for benchmarking the international transactions undertaken by the taxpayer with its AE. STUP CONSULTANTS PVT. LTD. (STUP) 28. Perusal of para 9.5 of the TP order shows that the taxpayer has challenged the inclusion of Stup that it is functionally dissimilar and it fails export filter of < 25%. But the TPO retained Stup as a suitable comparable. 29. The taxpayer challenged Stup before the ld. CIT (A) as is evident form ground no.7 extracted at page 449 of the paper book but ld. CIT (A) has not returned any findings on this issue. 30. When we examine the submissions made by the taxpayer before the ld. CIT (A), available at pages 411 to 453 of the paper book, relevant page 452, which is based upon Prowess Data Base, it has come on record that Stup Consultants Pvt. Ltd. is purely a consultancy firm which, renders consultancy and project management services for power, transportation, telecommunications, commercial, institutional, recreational and manufacturing facility infrastructure, whereas the taxpayer is into providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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