AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 1527
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....ontrol electronics, tap changes and traded in transformers and gear case. In the RCS division, the company is engaged in the supply of installation of advance signaling systems and equipments. Under the main line and metros (MLM), the Bombardier Transportation Ltd. is manufacturing Metro Trains for supply to Delhi Metro Corporation (DMRC), wherein Bombardier India is engaged in ascending and supply of coaches for metro trains. The PGR division of the company is engaged in ascending and supply of coaches for metro trains and in the BOG division. The assessee company is engaged in manufacturing and supply of bogies for metro trains. 3. During the year, the assessee company entered into international transactions as mentioned in Form 3CEB. The details are herein below: S.No. Name of Transaction Method PLI Transaction Value in (INR) PPC Division (Propulsion controls business) 1 Import of Raw materials, components and Finished Goods TNMM Operating Profit/Operating Revenue ("OP/OR") 7,47,636,409 2 Import of Capital Goods 1,292,236 3 Export of Finished Goods 18,526,086 4 Availing of Intermediary Services from Propulsion Hub....
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.... The total value of the said international transaction was as follows: Associated enterprises Amount (Rs.) Bombardier Transportation Railway Equipment (Qingdao) 836697 Bombardier Transportation GmbH 696895 Total 1533592 iii. Availing of intermediary services During FY 2009-10, the PGR and BOG division of Bombardier India availed centralized support services from Hub entities in Germany and Singapore in relation to DMRC project. The total cost allocated to Bombardier India by PGR and BOG hubs for intermediary services provided to respective division in Bombardier India was as follows: Associated enterprise Amount (Rs.) Bombardier Transportation GmbH 91872407 Bombardier Transportation (Singapore)Pte. Ltd. 77182897 Total 169055034 iv Sale of Metro trains During FY 2009-10, the PGR and BOG division of Bombardier India has supplied few metro trains to Bombardier Transportation GmbH for further supply to DMRC. The total value of the said international transaction was as follows: Associated enterprises Amount (Rs.) Bombardier Transportation GmbH, Germany 4213264526 v Reimburs....
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....of the Assessee company with the directions to the Assessing Officer. 7. Aggrieved by the orders of Ld. Transfer Pricing Officer and Ld. Dispute Resolution Panel, the assessee company filed present appeal on the following grounds whereby challenging the said orders: 1. That Honorable (Hon'ble) Dispute Resolution Panle-1 ("DRP") has erred in relying on the order passed by the Ld. Additional Commissioner of Income Tax, Transfer Pricing_1 (1), New Delhi ("Ld. TPO")/Ld. AO holding that the international transactions of the Appellant do not satisfy the arm's length principle and upholding the adjustment made by the Ld. TPO/AO for the captioned A.Y. 2. The Hon'ble DRP erred in facts and in law by not adjudicating on several ground raised by the appellant during the proceedings and not providing an opportunity of being heard while disregarding BEML limited as an appropriate comparable, thereby, rendering its directions as incomplete which are subject matter of rectification u/s154 of the Act. 3. The Hon'ble DRP erred both on facts and in law in confirming the action of the Ld. TPO/Ld. AO of making an adjustment of Rs. 79,92,45,330/- to the income of the appellant by holding th....
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....arh Wagons Limited and Texmaco Limited based on arbitrary accept/reject of comparables and in doing so disregarding the fact that the same are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed ("FAR") 3.7 by upholding approach of the Ld. TPO of not following consistency in his own approach and rejecting some of the comparables which were of similar FAR profile as that of companies proposed as comparables by the Ld. TPO himself; (a) on arbitrary/frivolous grounds such as diminishing revenues/persistent losses, company not in accept/reject matrix; and (b) by rejecting one of the comparable company namely Braithwaite & Co. Ltd. ('Braithwaite') by stating that the Annual Report of the company was not available in public domain even though the financial information is available in the public domain; 3.8 modifying the Profit Level Indicator ("PLI") i.e. Operating Profit/Operating Revenue ('OP/OR') used by the Appellant for benchmarking the captioned transaction and substituting the same with OP/Operating Cost ('OP/OC'); 3.9 committing an apparent error in computing the amount of TP adjustment on the entire sale and cost of t....
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....ons of Rule 10B of the Income Tax Rules, 1962 merely based on presumptions without furnishing details of price charged in any comparable uncontrolled transaction and consequently erred in not considering the benchmarking analysis submitted by the Appellant to justify the arm's length nature of the intra-group services. 5.7 disregarding judicial pronouncements in India in undertaking the TP adjustments. 8. Ground no. 1 is general in nature. Ground No. 2 and Ground No. 3.1 are not pressed by Ld. Assessee's Representative (AR) at the time of the submissions, therefore, same are dismissed. 9. First of all we will consider the issue relating to most appropriate method to be applied for bench marking the transaction relating to sale of metro trains as raised vide Ground No. 3.2. 10. The Assessee submitted before Ld. TPO that during the relevant assessment year, Bombardier Transportation Indian Ltd. (BTIL) had delivered set of 22 train to Bombardier Transportation Germany (BTG), thereby booking total revenue of Rs. 421.32 Cr. These train sets were then further supplied by BTG to DMRC at the same sale price per set, and were delivered directly to DMRC. The assessee further subm....
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....Ld. Counsel submitted that this represents third party price and hence conforms to the arm's length standards under the CUP Method as they were identical nature of transactions. 14. Ld. AR further submitted that the assessee's contention of being the CUP method, is an appropriate method, has been considered by the Hon'ble Delhi High Court in the case of Rampgreem Solutions Pvt. Ltd Vs. CIT (order dated 10/8/2015) The Hon'ble High Court observed that in so far as identifying comparable transactions entities is concerned, the same would not differ irrespective of the transfer pricing method adopted. In other words the comparable transactions/entities must be selected in the basis of similarity. Comparability of control and uncontrolled transaction has to be judged inter alia, with reference to comparability factors, as indicated under Rule 10B (2) of the Income Tax Rules, 1962. Comparability analysis by TNMM method may be less sensitive to seeking its similarities between the tested party and the comparables however, that cannot be the consideration for diluting the standards of selecting comparable transactions/entities. The Ld. AR submitted that sales of metro train sets....
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....eller Geographical market Bombardier Transportation Germany Germany Bombardier Transportation India Ltd. India Delhi Metro Rail Corporation India Bombardier Transportation Germany Germany 17. Ld. DR further submitted that the assessee company has also failed to substantiate similarity of contractual terms of the two agreement vis-à-vis between Bombardier transportation Germany and Delhi metro corporation and second agreement between Bombardier Transportation Germany and Bombardier Transportation India Ltd. This method of benchmarking as per CUP is, therefore, not found to be satisfactory, as it is not as per the intent of provisions of Rule 10B(1)(a). Ld. DR further relied upon the order of Ld. Dispute Resolution Panel (DRP), wherein Ld. DRP gave finding that for CUP method, the TP regulations and standards of comparability are strict ones. It has been decided in number of cases that CUP can be applied correctly, only when all the conditions of controlled and uncontrolled environment are identical. Thus the Ld. DRP held that Ld. TPO's action in using TNMM as the most appropriate method to benchmark the international transacti....
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....olutions Pvt. Ltd. Vs. Commissioner of Income Tax (ITA No. 102/2015) also asserts this point and clearly held in para 44 that: "..... While using TNMM, the search for comparables may be broadened by including comparables offering services/products which are not entirely similar to the controlled transaction/entity. However, this can be done only if (a) the functions performed by the tested party and the selected comparable entity are similar including the assets used and the risks assumed; and (b) the difference in services/products offered has no material bearing on the profitabililty." 19. The case laws which are referred by the assessee at the time of argument are not applicable in the present case first because of the factual difference as those cases were decided on its own factual matrix and whether to apply TNMM or CUP method was depending upon the various factors in those cases. Thus the case laws given by assessee will not be applicable in this context. 20. It is pertinent to note, that Ld. TPO relied upon the two cases namely Merck Limited and Diageo India Pvt. Ltd. Ld. TPO discussed the same and held that the level of comparability required for the analysi....
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....rables which assessee raised in Ground No. 3.4 (3.4.1) and 3.5. The first issue is, regarding exclusion of BEML by Ld. DRP. This comparable was accepted by Ld. TPO subject to certain adjustments. The BEML Ltd. is engaged in three major business verticals viz. 1) Mining and construction, 2) Defence and 3) Rail and Metro. In the "Railway Customer" business segment, the company is engaged in the manufacture and supply of Rail and metro coaches. The company has an exclusive unit to manufacture Metro Coaches. During FY 2009-10, the company manufactured and supplied India's first indigenous Standard Gauge Metro Car to DMRC. The Company is engaged in manufacture of coaches for metro projects in Delhi and Bangalore and is in the process of obtaining order to meet the requirement of upcoming metro projects in Chennai and Hyderabad. "Rail and Metro" business segment of BEML is functionally comparable to the Assessee and had therefore been selected for determination of the arm's length margin of the PGR and BOG segment of the Assessee. Ld. TPO therefore, excluding the consortium supply value/cost, the revised segmental of BEML has allowed the comparable BEML. 25. Ld. DRP held that from the....
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.... assessee's consortium and BEML consortium pertains to the supply of Electrical Multiple Units to DMRC but the functions, assets and risk of the assessee and that of the BEML were altogether different, hence BEML is not a valid comparable at all to the taxpayer & Ld. TPO was directed to exclude this comparable in toto (including the segment, TPO has taken in this order) for carrying out the comparability analysis. Ld. TPO accordingly passed the order on 26.02.2015 28. Ld. AR submitted that the assessee has selected the "Railway Customer" segment of BEML as the only comparable in its TP study in activities in the PGR & BOG division for benchmarking the international transactions of the assessee in the PGR & BOG division, as the functional profile of BEML in the said segment is very similar to that of the assessee. BEML is the only Indian company which had executed an identical contract with the same customer (i.e. DMRC) in the first phase of DMRC (RS 1). Further, "Railway Customers segment" of BEML earned majority of its revenue from manufacture and supply of metro coaches which was similar to the business activity as that of the assessee in the PGR & BOG division. The assessee a....
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....esign, training, testing, transfer of technology which is outside the purview of the activities which is carried out by the tested party. The consortium supply value / cost therefore was to be excluded from the railway segment of BEML to ensure comparability with the tested party. v. BEML further submitted sales/cost details for the railway segment. Therefore Ld. TPO by excluding the consortium supply value/cost, revised segmental of BEML has taken into account the same as comparable. BEML Ltd. (Railway Customers Segment) (Rs. In Lakhs) Particulars Mar-10 Total Segmental Revenue 102,084.25 Less: Consortium share/RS3 sales (Refer A) 71,789.21 Total Segmental Revenue 30,295.04 Total Segmental Cost 48,515.44 Less: RS3 contract cost (Refer B) 18,683.50 Total Cost (TC) 29,831.93 Operating Profit (OP) 463.11 OP/TC 1.55% OP/SR 1.53% A. Details of Consortium share / RS3 sales (Rs. In Lakhs) Particulars Mar-10 Consortium share 58,302.41 Excise Duty 1,430.62 RS3 sale 12,056.18 Total Consortium share/RS3 sales 71,789.21 B.....
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....ld be given in the absence of availability of quantified information regarding 'free of cost supply'. 36. Ld. AR contended that in case this Tribunal includes Titagarh as a comparable for determining the arm's length margin, the value of free of cost materials/ supplies should be included in its cost and the revised OP/TC margin of 13.65% should be considered for determining arm's length margin. 37. Ld. DR relied upon the order of Ld. TPO and Ld. DRP. 38. Ld. AR submitted that Titagarh receives various material on free of cost (FoC) basis from Indian Railways. These components include wheel sets, cartridge tapered roller bearing and steel, etc. With respect to these FoC supplies, the Managing Director of the Company in an interview available publically has estimated the provision of free of cost wheel sets to be 30% of sales value (pages 2981 to 2984 of paper book VI). The same is also taken into consideration by Ld. DRP and had accordingly, instructed Ld. TPO to re-compute the margin of Titagarh. Thus Ld. AR submitted that there is incorrect margin computation of Titagarh. Ld. AR further submitted that Titagarh is not comparable to the assessee company and if the same is ....
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.... Private Limited (TS-717-ITAT-2012 (Mum)-TP) * Techbook International Pvt Ltd. (ITA No. 722/Del/2014 A.Y 2009-10) * Heardland Delhi Transcription & Services Private Limited (ITA No. 6043/Del/2012) 41. Ld. DR relied upon Ld. TPO's order and Ld. DRP's order. 42. We have perused the records and the proceedings as well as heard both the sides. It can be seen that while deciding the comparables Ld. TPO has not taken into consideration the proper information related to the free of cost material provided by the Railways to Titagarh Wagons Ltd. as well as to Texmaco Ltd. and thus the said information is necessary to take into account the functions performed, assets employed and risks assumed ("FAR"). Ld. DRP in his finding also has directed Ld. TPO to take these aspect while allowing the said comparables. There is no doubt that these two companies are having the major role in supplying coaches to the Indian Railway and these are proper comparables if all the aspects are taken into consideration including the free of cost material value. Therefore, Ld. TPO is directed to take into account 30% additional cost base to account "free of cost" material and revised the OP/....
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....Braithwaite & Co. Ltd. it is properly rejected by Ld. TPO because the Annual Report for A.Y. 2010-2011 was not available and thus the Profit Margin and the relevant deciding factors for comparability will be lacking if the said company is taken as comparable. Therefore, Ld. TPO's findings are just and proper. 49. In result, Ground No. 3.7 (a), (b) of the assessee's appeal are dismissed. 50. Ground No. 3.8 relates to the modification of the Profit Level Indicator (PLI) i.e. Operating Profit/Operating Revenue (OP/OR) used by the Assessee for benchmarking with Operating Profit/Operating Cost (OP/OC). The assessee had used OP/Sales as the relevant Profit Level Indicator (PLI) for determining the arm's length nature of the margins earned by it in the PGR & BOG division. However, in the Transfer Pricing Order, the Ld. TPO has considered OP/TC as the PLI to benchmark the performance of PGR & BOG division of BTIPL and in doing so the Ld. TPO has also considered income from Scrap Sales as non-operating in nature. 51. In this regard, Ld. AR submitted that the sale of Metro trains is considered to be at arm's length applying CUP method and substantial related party transactions remai....
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....ed accordingly while computing the amount of Transfer Pricing adjustment restrict the same to AE sales and cost. 56. This ground has also been taken into account in the above ground No. 3.8 and the finding given to the said ground is applicable herein. 57. In result, Ground No. 3.9 is partly allowed for statistical purpose. 58. In respect of Ground No. 4 the same is already discussed in Para 41 hereinabove. In result, Ground No. 4 is partly allowed for statistical purpose. 59. Now taking up the last ground No. 5 entirely. The assessee company operates in a highly technology intensive and a buyer driven market wherein it is engaged in the manufacturing of metro coaches and other railway equipments which have to be as per the specific technical requirements of the customer. As the assessee company is relatively new in the industry and does not possess the requisite technical competence and expertise, it had received various intra-group services from its Associated Enterprises' (AEs) who have developed a level wise organizational structure so as to develop group synergies through centralized locations that possess specialized divisional knowledge and experience. For provid....
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.... substantiate on the following issues: (i) Contemporaneous documentary evidence to show that these services have actually been received. (ii) Need for the receipt of such services for which payment has been made. (iii) Documentary evidences as to when and how these services were requisitioned from the AEs. (iv) Basis of determination of rate or payment for intra-group services at the time of entering into the agreement. (v) Details of cost benefits analysis vis-à-vis the expected benefit from the intra-group services and the payment made for the same. (vi) Details of benchmarking analysis done at the time of entering into the agreement so as to compare the payment of intra-group services to the AE vis-à-vis an independent party under similar circumstances. (vii) Tangible and direct benefits derived by the taxpayer company from the use of such intra-group services. (viii) Details and documentary evidences of cost incurred by the AE for rendering each type of services purportedly received by the taxpayer company. Thus Ld. DRP held that the assessee failed to show that the above mentioned cr....
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....st be sufficiently direct and substantial so that an independent entity in similar circumstances, would be prepared to pay for it. If no benefits have been provided (or was expected to be provided), then the services cannot be charged for. Ld. DRP further held that since the taxpayer has just explained in generic nature about the benefits vis-à-vis the intra-group services payment to its AEs, hence Ld. DRP upheld the order of Ld. TPO and confirming that the value of such services to be as "Nil". 66. During the course of hearing, Ld. AR placed reliance on the ruling of the Hon'ble High Court, New Delhi in case of EKL Appliances Limited (ITA Nos. 1068/2011 & ITA Nos. 1070/2011) wherein it has been held that it is not necessary for the taxpayer to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the taxpayer to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The AR further placed reliance on the ruling of the Delhi Tribunal in case of McCann Ericsson [TS-391-ITAT-2012 ....
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....could not establish how the said cost was incurred and on what basis the said cost was placed upon the assessee. The E-mails etc. were also not supported by any documentary evidences. Thus, the assessee's contentions of the benefit given in A.Y. 2008-2009 and 2010-2011 be taken into consideration, does not survive. The payment for Intra Group Services to Associated Enterprises is a separate international transaction independent of financial results and capable of verifiable separately. Therefore, Ld. TPO was right in his action to determine the arm's length price separately, rather than aggregating it with other transactions under TNMM. The e-mail and other documents filed before the Panel did not show any specifics except in few cases of IS/IT services and the documents field before the Panel shows that the assessee company have received hardware/software from third parties directly and the billing was also raised by those third parties on the assessee. Only the said transaction was routed through the AE, those invoices were to the tune of Rs. 13,87,84,117/- and invoices amounting to Rs. 97,99,091/- which was raised by the third parties on the AE for the services rendered by them ....