TaxTMI 
TaxTMI 
2019 (11) TMI 1094
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....being heard on transfer pricing issues. Hence, the order passed is bad in law being wholly arbitrary and against the principles of natural justice. 2. The learned Addl. CIT (after incorporating Hon'ble DRP's and Ld. TPO's order) has erred on facts and in law in not removing M/s Mahindra Engineering Services Ltd. from the list of final comparables since it fails RPT filter despite the direction of the Hon'ble DRP in para 4.4.3 of its order dated 26.12.2016. 3. The learned Addl. CIT (after incorporating Hon'ble DRP's and Ld. TPO's order) has erred on facts and in law in making addition of Rs. 2,35,50,348 on account of: (a) adjustment in value of international transaction (by increasing the margin of comparable companies to 19.40% as against actual margin of 12.65% of the assessee), on account of the following: * Selecting 3 new comparable companies which were not selected by the assessee * Rejecting 5 comparable companies selected by the assessee (b) Rejecting adjustment in margin due to different risk profile of comparable companies. 4. The learned Addl. CIT (after incorporating Hon'ble DRP's order) has erred on facts and in law in initiating penalty proceedings u/....
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.... TPO after granting working capital adjustment calculated the margin of 8 comparables at 19.40%. It is also not in dispute that after allowing rectification application by the taxpayer TPO excluded one more comparables and calculated the margin at 18.65%. 9. Post- DRP directions and after passing order by the Ld. TPO dated 28.02.2017 u/s 154 of the Act final list of comparables for benchmarking international transactions entered into by the taxpayer with its AEs is as under :- S. No. Name of the Company Comments OP/OC% 1. HSCC (INDIA) Ltd. NA 41.70 2. Mitcon Consultancy & Engg. Services Ltd. NA 32.26 3. TCE Consulting Engineerings Ltd. NA 19.12 4. UB Engineering Ltd. The company passes all the filters 4.07 5. Cades Digitech P. Ltd. The Company passes all the filters 0.03 6. Kratos Energy & Infrastructure Ltd. The company passes all the filters 7. Mahindra Consulting Engineerings Ltd. NA 26.43 Average 18.65 10. After computing the average of comparables at 18.65% as against average of the tested party as 6.53%. The Ld. TPO proposed the Arm's Length Price of international transaction as under :- Parti....
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....uded from the final set of comparables to benchmark the international transactions. M/s. Mitcon Consultancy & Engg. Services Limited (Mitcon) 17. The taxpayer sought to exclude Mitcon from the final list of taxpayer on the grounds inter alia that it is functionally dissimilar vis-à-vis taxpayer ; that Mitcon fails revenue from services filter applied by the TPO and relied upon order passed by co-ordinate bench of Tribunal is Granite Services International (P.) Ltd. v. ACIT [2017] 87 taxmann.com 24 (Delhi Trib.) Taxpayer raised this objection before TPO as well as Ld. DRP but the same have not been addressed to. 18. Ld. DR for the revenue, on the other hand, relied upon the order passed by lower authorities below. 19. When we examine para 4.5 at page 5 and 6 of the TPO order. The Ld. TPO himself applied the filters to exclude companies from the final list of comparables whose revenue is less than 75% of the total income. However, when we examine profit and loss account of the Mitcon available at page 44 of the paper book revenue earned by the Mitcon from consultancy fee during the year under assessment comes to 55.65%, which is less than the filter of 75% applied by the ....
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..... CIT 60 taxmann.com 355 (Delhi HC) and Avenue Asia Advisors (P.) Ltd. v. Dy. CIT [2017] 85 taxmann.com 311 (Delhi HC), Li & Fung (India) (P.) Ltd. v. ACIT [2018] 96 taxmann.com 151 (Delhi-Trib.) 23. Ld. DR for the revenue, on the other hand, relied upon the order passed by lower authorities below. 23.1 Suitability of HSCC as a comparable vis-à-vis a routine engineering and consultancy provider has been examined by the Coordinate Bench of Tribunal in case of Terex India (P) Ltd. (supra) available at page 16 to 44 of the paper book wherein it has been ordered to be excluded being a Government of India Enterprise as major part of its business is from the Government itself. 24. Even functional profile of HSCC is dissimilar to taxpayer as it is also into providing health services being a multi disciplinary organization with experienced professionals like health planners and economists, doctors, biomedical engineers, computer experts, pharmacists, architects and public health engineers etc. So the function of HSCC are dissimilar to taxpayer who is a routine engineering consultancy service provider, hence we order to exclude the same from final list of comparable to the benchma....
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....odel of the taxpayer during the year under assessment. 28. So, following the order passed by the Co-ordinate Bench of Tribunal and in view of facts discussed above, we are of the considered view that Simon is a suitable comparables vis-à-vis taxpayer, hence, order to be included in the final set of comparables for benchmarking the International Transactions. Subject to verification of financials available at page 53,54 of the paper book by AO/TPO. Toyo Engineering Ltd. (Toyo) 29. This comparable of the taxpayer has been rejected by the TPO on ground of functional dissimilarity. The Ld. AR for the assessee contended that TOYO is also rendering similar services as that of the taxpayer in the field of Petrochemical & fertilizers, Refinery, Oil & Gas etc., and further contended that this company is the competitor of the taxpayer. 30. When, we examine the TP order at page 7, the Ld. TPO rejected Toyo as comparable vis-à-vis taxpayer by merely recording that company is functionally different from the taxpayer, hence, not a suitable comparable. At the same time, assessee has not brought on record annual reports of Toyo to work out it is suitability. In these circumstanc....