Delhi HC upholds Tribunal allowing assessee's PLI computation for transfer pricing adjustment in building design services case.

Delhi HC upheld Tribunal's decision allowing assessee's PLI computation for TP adjustment in building design services. Court found assessee maintained proper segmental accounts with project-wise salary records, making AE-deployed employees identifiable. DRP's conclusion about common employee allocation was unsupported by records. Tribunal correctly rejected comparable company due to insufficient functional comparability evidence. HC determined no substantial question of law arose, affirming Tribunal's factual findings on PLI computation and comparable selection.

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Issues Involved:
The judgment concerns an appeal regarding the Assessment Year (AY) 2012-13, where the appellant/revenue challenges an order passed by the Income Tax Appellate Tribunal (Tribunal).

First Issue - Profit Level Indicator (PLI) Adoption:
The first issue revolves around whether the Tribunal was justified in rejecting the Profit Level Indicator (PLI) adopted by the Assessing Officer (AO). The appellant argues that due to the unavailability of separate segmental accounts, the method used by the Transfer Pricing Officer (TPO) to allocate costs based on turnover was appropriate. On the other hand, the respondent contends that project-wise expenses were identifiable, and turnover method could not have been used for cost allocation. The Tribunal found that the PLI computed by the respondent was higher than the average of comparables, indicating arm's length transaction. It disagreed with the TPO's approach of allocating expenses based on turnover, stating that segmental accounts were maintained, and employees were identifiable project-wise. The Tribunal's findings supported the respondent's computation of PLI, leading to the conclusion that the Tribunal correctly handled this issue.

Second Issue - Comparable Selection:
The second issue questions the rejection of M/s Korus Engineering Solutions Pvt. Ltd. as a comparable entity by the Tribunal. The appellant argues that sufficient information was available to use Korus for benchmarking, contrary to the Tribunal's decision. The respondent, however, asserts that the functional profiles of Korus and the respondent were different, making a proper comparison for benchmarking unfeasible. The Tribunal found that the functional profile of Korus, as available in the public domain, was deficient. It noted that the DRP accepted Korus without a detailed analysis of its comparability with the respondent. The Tribunal deemed the information on Korus as "sketchy," leading to the conclusion that Korus was not suitable for benchmarking international transactions. The Tribunal's factual findings supported the rejection of Korus as a comparable entity, indicating that the Tribunal appropriately handled this issue.

Conclusion:
The High Court upheld the Tribunal's decision, stating that no substantial question of law arose for consideration. The judgment closed the appeal without interference, affirming the Tribunal's findings on both the PLI adoption and comparable selection issues.

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