TaxTMI 
TaxTMI 
2015 (12) TMI 516
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....he directions of the learned Dispute Resolution Panel u/s.144C(5) of the Incometax, is erroneous, untenable in law and on facts for the various reasons and not limited to the following: - 3.1. The TPO as well as the DRP and consequently the AO have grossly erred in law and on facts and in the circumstances of the case in erroneously: 3.1.1. Rejecting the scientifically the assessee without cogent reason. 3.1.2. Carrying out a new search process based on erroneous filters 3.1.3. Cherry Picking Ii comparables with high margins 3.2. The TPO as well as the DRP and consequently the AO have grossly erred in law and on facts and in the circumstances of the case for the choice of comparable companies by erroneously: 3.2.1. Adjusting the ALP of the international transactions of the assessee related to project management services (PMS) and marketing support services (MSS) that are support services in nature by treating and comparing them to high end technical services. 3.2.2. Ignoring the fact that the AE service segment of the assessee constitutes of more than 90% of support services and therefore comparable companies which prov....
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....arketing, research and commercial information services to its AEs. 2.2 Further, the Group also operates. in India through its liaison office ("RRIL-LO"). RRIL-LO carries out the liaison activities for the Rolls-Royce group. It provides marketing support and other support services such as provision of commercial information and co-ordinates service support operations. 2.3 The Assessee Company (RRIPL) undertakes trading of Rolls Royce engines and has a presence primarily in the power generation and oil and gas markets, supporting a range of reciprocating engines covering gas engines, HFO engines and crude oil engines. It also functions as an integrated solution provider for the afore-mentioned two markets. In the oil and gas sector, Rolls-Royce engines are used for running very large pumps to drive crude oil through pipelines running several hundred miles and also providing electrical power for such pumping stations. Similarly, for power generation, the engines are used to run generators catering for the captive power needs and process steam/heat requirements of various industrial units. 2.4. RRIPL also undertakes servicing contracts, which involve selling ....
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....ted enterprises for rendering various support services which facilitates the Rolls-Royce Group to conduct business ill India. Such services are in the nature of technical support, project management and market support services. In this regard, the functions performed by RRIPL have been enumerated below: Provision of technical services During the year under consideration, RRIPL rendered technical services to Rolls- Royce Power Engineering Pic, Bedford "RRPE, Bedford"), Rolls-Royce Power Engineering Pic, Derby ("RRPE, Derby'') and Roll-Royce Marine AS, Notway("RRMAS, Notway"}. In this regard, the functions performed by RRIPL include: - Assistance and / or advice in repair and overhaul of Rolls- Boyce energy production and / or oil and gas distribution engines Making recommendations with respect to technical solutions and workflows to enhance repair and overhaul capability Provision of project management services - In addition to the above, RRTPL also rendered project management services to RRMAS, Norway. The nature of services rendered includes the following: - Review of the internal operations of the firm with the good practice fr....
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....income of at least 75% was a quantitative filter which had been used to arrive at a set of companies which were deriving service income. Ld. TPO pointed out that the comparables passing this quantitative filter were examined in detail with respect to the broad functional similarity as required by the TNMM for benchmarking international transactions. He pointed out that from the TP report it is evident that assessee was engaged in providing O&M, Project Management services; corporate services as well as market support services to its AEs. He further observed that it could be seen from TP report that the services provided by the assessee to the AE were in the nature of marketing support services, managerial services and some amount of technical support also. He observed that while using TNMM method, companies providing approximately similar services can be taken as comparable and, therefore, functional or service line was the type of functions being performed whether low or high end. He, thus, did not accept the assessee's contention that the comparables performing high end as well as low end services should be considered segmental wise having regard to the composition of proportion ....
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....ssed the assessment order and determined the average PLI at 22.70% as under: S. No. Company Name Adjusted OP/OC (%) 1. Apitco Ltd. 40.09 2. Crystal Hues Ltd. 9.10 3. Cyber Media Research Ltd. 14.85 4. HSCC(India) Ltd. 18.32 5. Kitco Ltd. 14.01 6. Quadrant Communication Ltd. 13.11 7. RITES Ltd. 49.43 Average 22.70 12. The AO, accordingly, determined the ALP as under: Operating Cost 29,25,59,385/- Arm's Length Margin 22.70% Arm's length price (ALP) 35,89,70,365/- Price shown in the international Transaction s 32,18,56,258/- Shortfall 3,71,14,107/- Percentage difference with intl. transaction 11.53% 13. Ld. counsel for the assessee narrated the factual aspects in regard to the two main service segments viz. technical segment and the other business support service segment. He referred to page 85 of the PB wherein segmentwise profitability for AY 2010-11 has been given in regard to all the service segments. 14. Ld. counsel pointed out that assessee was maintaining separate books of account for all the four service segments. He dem....
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....57,425 135,136,691 54,389,080 105,334,207 Project Management cost Personnel costs 1,339,459 2,926,398 Administrative and other exp 1,352,810 3,332,423 Material costs 562,099 1,642,222 Other costs 243,493 3,497,861 145,211 8,046,254 Marketing Support cost Personnel costs 5,998,615 7,021,484 Administrative and other exp 6,513,420 5,724,002 Other costs 971,306 13,483,341 - 12,745,486 152,117,893 126,125,947 18. He, therefore, submitted that the remark of ld. TPO regarding nonallocation of cost to project management services and Market support service is not correct. He submitted that ld. DRP has not dealt with assessee's objections regarding selection of comparables, having regard to the segmental details. 19. Ld. counsel submitted that keeping in view the nature of services rendered by assessee being non-risk bearing and non-technical, the comparables should have been selected accordingly, even if for bench marking the TNMM meth....
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....s under consideration in MAP proceedings. 27. We have considered the submissions of both the parties and have perused the record of the case. As far as ld. CIT(DR)'s submission regarding MAP agreement in the case of M/s Rolls Royce India Pvt. Ltd. for AY 2008- 09 and 2009-10 is concerned, we are of the opinion that the same cannot be imported in the case of the assessee, which, as per the statement made by ld. counsel for the assessee, is for a different assessee altogether. 28. At this juncture we may point out that the name of the assessee, as given in the order of MAP agreement, is same as that of assessee, but it appears that the name of present assessee before us formerly was Rolls Royce Energy Systems India Pvt. Ltd., which has now been changed to Rolls Royce India Pvt. Ltd. 29. Thus, there is some confusion in regard to the names of the assessee but, be that as it may, since the MAP agreement, in any view of the matter, is not for AY 2010-11, under consideration, therefore, the same cannot be applied in the current assessment year. 30. We now proceed to consider the merits of the arguments of both the parties. 31. There is no quarrel with the proposition advan....
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.... to various non-railway clients Locomotive on wet lease are working at Bandel Thermal Power Station, Bandel and NTPC, SAIL Power Co. Ltd., Bhilai. Recently, the unit has given two locomotives to Dharma Port Co. Ltd. and one locomotive to Lloyds Steel Industries, Wardha. The unit has also secured orders for supplying and commissioning DLW manufactured DG Sets Id domestic clients. 33. Further, this comparable has been excluded in the case of M/s Verizon India Pvt. Ltd. Vs. JCIT 2766/Del/2010, which has been filed by the assessee in its case law PB as Annexure V, wherein it has been, inter alia, observed in para 23 that RITES Ltd. is an engineering company and provides end to end solutions to its clients. 34. Ld. counsel has also pointed out that this comparable has also been excluded in following cases: - Shell India Markets Pvt. Ltd. [TS-430-ITAT-2014(MUM)-TP]; - Chemtex Global Engineers Pvt. Ltd. [TS-161-ITAT-2013(Mum)- TP]; Yum Restaurants (India) Pvt. Ltd. [TS-166-ITAT-2014 (Del)- TP] and Nortel Networks India Pvt. Ltd. 'TS-65-ITAT- 2014(DEL)-TP]. 35. We, therefore, in view of above discussion, direct the AO to exclude RITES Ltd. from the list of comparables. 36....
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....esently implementing a multimodal Mobility Hub at Cochin, all of which are first of its kind in the country in their own respect. KITCO has successfully completed the 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 KITCO so far has completed include the technical evaluation of electrical power distribution network at King Abdul Aziz International Airport, Jeddah. 4. All its clients are either central government, state government, PSU etc. Snapshot enclosed. 5. It is working In divisions like infrastructure, tourism, aviation, IT services, HRD, financial services etc. which are dissimilar to the functional profile of the assessee company. Snapshot enclosed. 39. From the above submissions it is evident that this comparable is not functionally comparable with the assessee because it is the nature of services rendered and not per se rendering of services is relevant in accepting or rejecting a company as comparable. Therefore, we direct exclusion of this comparable from ....
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....s have held that foreign exchange fluctuation gains form part of the sale proceeds of exporter-assessee. The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee company" 46. Ld. counsel pointed out that learned TPO has stated in its order Para- 22.10 that Safe Harbour Rules notified by CBDT on 18.09.2013 gives clear indication as to what constitute the operating items of income and expenses and, accordingly, disposed off the assessee's objection that safe harbour rules do not apply to the year under consideration. 47. In this regard ld. counsel submitted that Delhi ITAT in a recent decision in case of Westfalia Separator India Pvt. Ltd. vs. ACIT has, inter alia, held that- "Para 4.8 The ld. AR relied on Rule 10T(j) to contend that loss arising on account of foreign currency fluctuations cannot be included in the operating expense. We are not persuaded to give any mileage to the ld. AR on this count for the simple reason that Rule 10T is a part of Safe harbour rules notified on 18.09.2013 which are not applicable to the assessment year under consideration. " "Para 4.10 In contrast to the above, ....
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....cordingly, direct that the forex gain/ loss be treated as operating income/ loss both in the case of tested party as well as comparable and the PLI should be determined accordingly. 51. As regards provision for doubtful debts, ld. counsel submitted that provision for doubtful debts are a part of the operating activities of a business. The accounting standards issued by the ICAI require that accounting policies must be governed by the principles of "prudence". Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only the basic estimate in the light of available information. Para 6 of Accounting Standard-l defines accrual as the assumption that revenues and costs are accrued, i.e., recognized as they are earned or incurred and recorded in the financial statements of the period to which they relate. 52. Thus, going with the abovementioned facts and statutory provisions, when the making of provisions is very much in the interest of business to show the true and fair view and statutorily required, it cannot be said that such provisions are of non-operating nature. Such provisions are made to comply....