TaxTMI 
TaxTMI 
2013 (4) TMI 772
X X X X Extracts X X X X
X X X X Extracts X X X X
....es and design function. b) In choosing appropriate method the appellant shifted from Cost Plus Method to Transaction Net Margin Method (TNMM). c) The comparables selected by the appellant were on random basis that too not selected on methodical way. d) The appellant could have selected more comparables from companies available in India apart from the selected companies. e) The above such selection by the appellant would give biased results and the same was selected with an intention to show low and negative Profit Level Indicator (PLI). f) The comparables chosen by the TPO was most appropriate particularly as the appellant has also suggested similar comparables. g) The PROWESS is the only public domain and comparables selected there from are an acceptable one and comparables from any other sources are not acceptable. 3. The DRPITPO/AO erred in rejecting the approach adopted for the transfer pricing analysis and contemporaneous documentation maintained by the appellant. 4. The DRP has erred in upholding the comparables chosen by the TPO for determining Arm's Length Price. 5. The DRP/TPO/AO has erred in not considering that the expenses incurred Rs. 77,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h used to produce fabrication details of each element in the steel frame for manufacture and design engineering section which develops the connection patterns for ht steel section. Therefore, the TPO rejected the comparables relied on by the assessee. The TPO further observed that Cost Plus Method cannot be adopted as there was no standard formula adopted by the company to determine the gross profit. The TPO held that comparable Uncontrolled Price (CUP) method, Resale Price Method(RPM), Profit Split Method (PSM) and Cost Plus Method (CPM) are not appropriate methods for determining ALP. He concluded that Transaction Net Margin Method (TNMM) was to be adopted. The TPO proceeded to choose comparables using Prowess and Capitaline data bases and found that IOT Design and Engineering Ltd.(Percentage of profit to cost 10.48%) and L&T Valdel Engineering Ltd.(Percentage of profit to cost 24.12%), data can be relied in the case of the assessee for determining the ALP. The TPO also chose the profit level indicator which is operating profit/operating cost. The TPO arrived at the arithmetic mean of the PLI of the comparables at 17.30%. According to the calculation of TPO, PLI of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the connection design done by the assessee had nothing to do with the basic/primary design function. Connecting design was about identifying how the two steel pieces (members) like column, beam, plates etc. are connected based on the primary design information provided to the assessee. The view of the TPO was that the assessee was executing designing function in Architectural and Engineering activities and related technical consultancy services was based on that understanding. The choice of the comparables was also on that basis by the TPO. It was submitted that TPO did not reveal the analysis made in choosing the particular comparables i.e IOT Design and Engineering Ltd. and L&T Valdel Engineering Ltd. It was submitted that the assessee analysed the functions performed by these companies with the public documents filed before the Registrar of Companies and their websites and found that these companies were performing basic/architectural design/primary design function and also as Engineering Procurement Contractor/Engineering Procurement Contract Management. But the TPO could not appreciate the same. 5. The ld. A.R of the assessee further submitted before the DRP that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenses 46,648,443 81,842,000 Profit (Loss) before depreciation and tax (1,307,307) 9,633,000 Depreciation 3,208,703 5,664,000 Profit (Loss) before tax and without deducting loss on sale of fixed assets -4,510,151 3,969,000 Profit (Loss) before tax/sales % (PLI) -9.33% 4.34% Arithmetic Mean - 2.50% 7. He therefore, argued before the DRP that the TPO was not justified in making the addition of Rs. 2,54,30,779/- to the ALP. 8. After considering the submissions of the assessee, the DRP confirmed the addition made of Rs. 2,54,30,779/- towards ALP adjustment. 9. We have considered the rival submissions, perused the orders of the lower authorities and materials available on record. In the instant case, the assessee is a company providing connection design services, which is identifying how two steel pieces column, beam, plates etc. are connected based on primary design provided to the assessee. In the previous year relevant to the assessment year under appeal, the assessee reported sales of connection design service to its AEs at Rs. 18.65 crores. In the light of the above transacti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from the TPO. The DRP in this respect, observed as under: " 18. The matter was referred back to the TPO. The assessee submitted that the TPO agreed to drop the companies IOT Design and Engineering Ltd and the assessee agreed to drop M/s Zamil Steel Engineering India Pvt Limited from the comparables. But the assessee objected to inclusion of even M/s L&T Valdel Engineering Ltd, on the grounds of functional dissimilarity. " 14. After this, the DRP dismissed the appeal of the assessee by observing as under: "23. The Panel considered the objections of the assessee in detail, including its rejoinder on the TPO's report. The Panel also considered the report of the TPO. The objection of the assessee was on the choice of the comparables by the TPO. Though initially, the assessee stated that it had selected costplus method but eventually came round to accepting the TNMM. Actually, the assessee had also adopted the TNMM, though it was saying it to be cost-plus method. That apart, the objection was on the comparables selected by the assessee. The assessee initially selected its comparables saying that the assessee was a KPO and so the comparables was to be KPO only. But la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of many more companies in India which can be selected at random by the assessee. Why did the assessee choose only these two companies? It seems that reason could be low or negative PLI for these selected companies. These companies were not selected on the basis of any methodical selection but were selected randomly. Such random selection can often be considered biased, and hence may give biased results. The Panel decided to not consider them. 26. On the balance, the selection of the comparables as done by the TPO was found appropriate, particularly also because the assessee also came round to suggest similar comparables. The Panel therefore decided not to interfere with the order of the TPO." 15. Before us, the ld. A.R of the assessee submitted that the two companies whose data were relied on by the DRP were functionally different from the assessee-company and therefore, their data cannot be relied upon for determining the ALP of the transactions of the assessee. He further submitted that the companies namely, M/s Zamil Steel Engineering India Pvt. Ltd and M/s Blackstone Group Technologies Pvt. Ltd., whose data were provided by it to the DRP were functionally comparable as ....