AI Drafter 
TaxTMI 
TaxTMI 
2016 (9) TMI 1484
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....ring iconic buildings to designing sustainable transport networks and from developing the energy sources of the future to enabling new ways to extracting essential resources. 3. During the year under consideration the assessee had entered into following international transactions:- No. Nature of transaction Method Value of transaction 1 Purchase of software TNMM 1,83,125 2 Engineering consultancy services TNMM 8,49,15,100 3 IT support services/design support services TNMM 3,35,10,245 4 Reimbursement of expenses incurred by AE on behalf of company - 17,38,165 5 Reimbursement of expenses incurred by company on behalf of AE - 19,31,512 4. The assessee had justified the ALP of its international transactions in regard to engineering consultancy services and IT support services provided to the AEs by applying transactional net margin method (TNMM). The operating profit to total cost (OP/TC) was taken as PLI in the TNMM analysis. PLI of the company was arrived at 1.31% on cost whereas the average PLI of the comparable was arrived at 1.01% as per the analysis in the TP report. The as....
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....ayer vis a vis those of the comparable companies. 8. The assessee in its reply to the show cause notice took following contentions, as noticed by ld. TPO:- "3.2.1 The assessee has stated that TPO has not considered segmental operating profit of the company, The assessee has submitted details of domestic transaction and transaction with AEs. 3.2.2. Assessee has argued that services provided by it are in the nature of business support services in relation to engineering disciplines. 3.2.3. Assessee has objected against the use of current year data. 3.2.4. Objection against finance charges and provision of losses written back considered as non-operating by the TPO. 3.2.5. Objection against filters applied by the TPO. 3.2.6. Assessee has objected on rejection of comparables selected by it. 3.2.7. Assessee has objected against the additional comparables proposed by the TPO. 9. As regards assessee's contention regarding segmental profitability submitted before TPO, he pointed out that assessee had never submitted segmental profitability before show cause notice. Ld. TPO has reproduced the segmental profitability s....
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.... Ld. DRP after considering assessee's objections directed the TPO to exclude and include certain companies as comparable in calculating ALP. Accordingly, after giving effect to ld. DRP's directions, adjustment of Rs. 38754545/- was made by AO. 14. Being aggrieved, the assessee is in appeal before us against the final assessment order passed by AO and has taken following grounds of appeal: 1. On facts, circumstances of the case and in law, the Learned Deputy Commissioner of Income Tax, Circle -27(2) ("Ld. AO") erred in completing the assessment under section 143(3) read with section 144C(4) of the Income-tax Act, 1961 ("the Act") by making an adjustment of INR 38,754,545 under section 92CA(4) of the Act, on account of the arm's length price of the international transaction pertaining to provision of back end support in respect of engineering and designing services rendered by its AEs. 2. On facts and in law, the Learned Dispute Resolution Panel- 2, New Delhi. ("Hon'ble DRP"), Ld. AO and Deputy Commissioner of Income Tax, Transfer Pricing Officer - III(1)(1) ("Ld. TPO") erred in disregarding the Appellant's use of multiple year/ prior years' data ....
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..... TPO erred in initiating penalty proceedings under Section 271(1)(c) of the Act when the facts of the case and provision of the law do not warrant such initiation of penalty proceedings. 15. Ld. counsel for the assessee submitted that assessee is a back end support service provider and was providing architectural consultancy services to its AE. Ld. counsel pointed out that assessee was also engaged in provision of end to end structural engineering and consultancy services to third parties in India under direct contract and as a full-fledged entrepreneur engaged in negotiation of prices, conclusion of contracts, sub-contracting of work based on further negotiations where required, assuming project risk, capacity utilization risks etc. He pointed out that 47% of the revenue was derived from AE and 53% revenue was derived from independent third parties. As regards the service rendered to AE, ld. counsel pointed out that assessee operated as a limited risk service provider with respect to provision of back end support services wherein AEs were engaged in front ending design and engineering business with third parties. These constituted only 47% of the total revenue. 16. Ld. coun....
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.... counsel has filed additional evidence in the PB in support of its contention that segmental margin of the assessee is to be considered. Ld. counsel submitted certain documents before us, which, inter alia, includes details in relation to design and consultancy expenses which were solely incurred for independent third party business. Ld. counsel pointed out that for the purpose of executing such independent third party contracts, assessee in turn availed services of sub-contractors and consultants and incurred D&C expenses which showed that 100% of such amount was sub-contracted to others. In the paper book assessee has submitted following documents: "Back-up documentation such as back-to-back trail of contracts undertaken by the Appellant with third parties and subcontracted to others parties has been submitted; Invoices raised by sub-contractors and consultants on WSP CIPL; A tabulation providing details to establish that such D&C expenses related to third party projects; and A certificate issued by the Statutory Auditors of WSP CIPL (for FY 10-11) providing the total amount incurred on "Design Consultancy" expenses and the break-up thereof has....
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....rrect computation the assessee's plea regarding sub-contracting expenses 100% attributable to non AE business has to be examined. The assessee has filed additional evidence in support of its contention and, therefore, it would be in the interest of justice that the additional evidence is admitted for arriving at proper computation of ALP. We, accordingly, admit the additional evidence and restore the matter back to the file of Ld. TPO to examine the assessee's plea in this regard. In case it is found that D&E expenses were attributable 100% to independent third party transaction then the same has to be excluded for computing the operating cost of the assessee because operating cost pertaining to AE only has to be considered. 26. In the result assessee's petition under Rule 29 of the Income Tax (Appellate Tribunal) rules, 1963 for admission of additional evidence is allowed and matter restored to file of ld. TPO/AO for consideration. 27. Before we examine the contention of assessee in regard to various comparables, it would be proper to first consider the functional profile of assessee to which we have referred to earlier also, in order to find out whether assessee is merely i....
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....f this comparable from the list of comparables. Global Procurement Consultants Ltd. ("GPCL"): 32. Ld. counsel for the assessee pointed out that this company was promoted by the EXIM Bank of India and provides procurement related services and inter-allied activities for projects in India and abroad. It dealt in industries like power, hydro, transportation infrastructure etc. Further acted as the client's representative in taking on the total responsibility of procurement activities, by providing a comprehensive range of procurement related advisory services and inter allied activities for projects in India and abroad. Ld. counsel submitted that this comparable has government connection and, therefore, should be excluded. He pointed out that ld. DRP excluded on this count only seven comparables. He relied on the order dated of the ITAT dated 15.2.2016 in the case of Marubeni Itochu Steel India Pvt. Ltd. Vs. DCIT in ITA no. 1716/Del/2014, wherein the majority revenue was derived from government enterprises and World Bank. Ld. counsel relied on the decision of Hon'ble Delhi High Court in the case of Thyssen Krupp Industries India Pvt. Ltd. in ITA no. 2218/2013 dated 28.3.2016 and....
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....out that the major service offered by Kitco were project consultancy, detailed engineering & project execution, technical services, environmental engineering and HRD consultancy. Further, assessee was expanding its business activities by introducing more verticals like sea ports, urban planning and financial services etc. Further, Kitco was also engaged in infrastructure activities. He submitted that there was no segmental information available in the annual report. Ld. counsel relied on the order of the ITAT in the case of Bechtel India Pvt. Ltd. Vs. DCIT dated 21.12.2015 in ITA no. 1478/Del/2015, wherein after taking note of the fact that Kitco was a 100% government owned undertaking, rendering services primarily to Central/ State government undertaking and PSUs and the majority revenue and profitability of the company came from government (state or centre) run projects and that the company derived benefit out of its parental relation with the Government in getting contract, excluded this comparable following the order of the ITAT in the case of M/s ThyssenKrupp Industries India Pvt. Ltd. ITA no. 6460/Mum/2012. 36. We have considered the submissions of both the parties and hav....
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....e to assessee as in that case assessee was engaged in providing application engineering, software development and related services for aviation control systems. However, in the present case assessee is primarily engaged in providing highly technical consultancy services and, therefore, this comparable was rightly selected by ld. TPO. Ld. counsel has referred to certain peculiar economic circumstances noticed in his argument but the effect on profitability of these circumstances has not been demonstrated and, therefore, merely because shares of assessee was acquired by same organization will not be of any significance. We, therefore, reject the assessee's contention on this count. Mitcon Consultancy & Engineering Services Ltd.: 41. Ld. TPO noticed in the annual report for AY 2010-11 that this company was engaged in providing engineering services which were in the nature of technical services. He reproduced the extracts from annual report in his order. He, therefore, included this company as good comparable. 42. Ld. DRP confirmed the TPO's action in view of similar FAR. 43. Ld. counsel for the assessee pointed out that this company provides technical services in diversifi....
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....onfirm the order of ld. TPO as confirmed by ld. DRP. IBI Chematur (Engineering and consultancy) Ltd.: 50. Ld. TPO has observed that assessee objected to this comparable on the ground of non-comparable functions as the company provided a range of services-detailed engineering, intelligent 3D plant modeling, 2D conversion services, smart plant instrumentation, smart plant electrical, piping stress analysis, procurement assistance, process simulation, process equipment design, inspection services, project planning and management and erection supervision. He rejected the plea of assessee in view of his finding in general discussion, wherein after considering the assessee's functional profile, the companies which were providing technical services with similar employee profile (engineers and technical people) as that of taxpayer, irrespective of their size and range of services were included, inter alia, observing that finding company's rendering exactly similar services as that of taxpayer was a very difficult and impossible exercise. 51. Ld. DRP confirmed the TPO's action observing that this was good comparable in view of similar FAR. 52. Ld. counsel for the assessee pointe....