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of <h1>Tribunal excludes government companies from comparables, rules in favor of assessee</h1> <h3>Boeing International Corporation India Pvt. Ltd., Versus DCIT, Circle-5 (1), New Delhi.</h3> Boeing International Corporation India Pvt. Ltd., Versus DCIT, Circle-5 (1), New Delhi. - TMI Issues Involved:1. Enhancement of income by the DRP/TPO/A.O.2. Selection of comparables for benchmarking international transactions.3. Functional similarity and business model comparability.4. Inclusion/exclusion of government companies as comparables.Issue-wise Detailed Analysis:1. Enhancement of Income by the DRP/TPO/A.O.:The assessee challenged the correctness of the order dated 17.02.2014 framed under sections 143(3) read with 147C and 92CA(3) of the Income Tax Act. The primary grievance was the enhancement of income by Rs. 13,38,73,412/-, which the assessee argued was due to the arbitrary selection of functionally different companies by the DRP/TPO/A.O.2. Selection of Comparables for Benchmarking International Transactions:The appellant, a captive service provider, reported various international transactions using the Transactional Net Margin Method (TNMM) and Comparable Uncontrolled Price Method. The dispute centered around the 'Provision of business support services' amounting to Rs. 87,73,51,570/-. The assessee used a set of comparables, but the TPO accepted only Mahindra Consulting Engineers Ltd., rejecting others for being functionally different. The TPO then chose a new set of comparables, including Certification Engineers International Ltd., Engineers India Ltd., HSCC (India) Ltd., Rites, TCE Consulting Engineers, and NTPC Electric Supply Co. Ltd.3. Functional Similarity and Business Model Comparability:The assessee contended that the selected comparables were government companies or Public Sector Undertakings (PSUs) and thus not suitable due to different business models and environments. The Tribunal agreed that comparables should not only be functionally similar but also operate under similar business models to ensure a level playing field. This principle was supported by the judgment in Rampgreen Solutions Pvt. Ltd., emphasizing that entities selected as comparables must be subject to similar business environments and risks.4. Inclusion/Exclusion of Government Companies as Comparables:The Tribunal examined each government company individually and concluded that their operations, support, and backing by the government made them incomparable to the appellant. Key observations included:- Certification Engineers International Ltd.: Excluded due to government backing and different functional activities.- Engineers India Ltd.: Excluded for being functionally dissimilar and a government undertaking.- NTPC Electric Supply Company: Excluded due to its government support and different functional activities.- RITES Ltd.: Excluded for its diversified operations and government backing.- Kitco Ltd.: Excluded due to its multifunctional services and government support.The Tribunal cited various precedents, including decisions from the Delhi and Mumbai Benches of the ITAT, which consistently excluded government companies from comparables due to their unique operational environments and government backing.Conclusion:The Tribunal directed the A.O./TPO to exclude the five government companies from the final set of comparables and allowed the appeal filed by the assessee. The decision was pronounced in the open court on 30.10.2018.
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