TaxTMI 
TaxTMI 
2020 (12) TMI 778
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....and related services segment of the Appellant, under section 92 of the Act. In passing the order, the Ld. AO / Ld. TPO / Ld. DRP erred in: 1.1. Rejecting comparable companies selected by the Appellant in its transfer pricing documentation on the basis of additional/modified quantitative filters which lacked valid and sufficient reasoning; 1.2. Accepting companies which are functionally not comparable; 1.3. Including enterprises owned or affiliated by government and having significant reliance on government projects; 1.4. Completely ignoring the orders passed by Hon'ble High Court, Hon'ble Income Tax Appellate Tribunal and Ld. DRP in the Appellant's own case for previous years, by accepting comparables directed to be excluded for benchmarking the engineering design service rendered by the Appellant; 1.5. Not appreciating the fact that the Revenue Authorities have accepted the exclusion of certain comparables by not appealing at higher forum; and 1.6. Erroneously relying on the orders of Ld. DRP for prior years in respect of functions performed by the Appellant in the impugned segment. 2. That on facts and circumstances o....
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....ase for Assessment Year 2010-11 which is squarely applicable in the instant case as well, thus violating the principal of judicial discipline; and 5.4. selecting an ad hoc interest rate of LIBOR plus 400 basis points while computing the addition. 6. That the Ld. AO has erred in charging interest under section 234B of the Act amounting to INR INR 4,06,44,495/-. 7. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271 (l)(c) of the Act. The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of appeal either before or during the course of the proceedings before the Hon'ble Income Tax Appellate Tribunal in the interest of the natural justice. The aforesaid grounds are mutually exclusive and without prejudice to each other. 2. Briefly stated facts of the case are that the assessee company was incorporated on 21/04/1994 as a wholly owned subsidiary of 'Bechtel Corporation USA'. The assessee was engaged in export of customers electronic data to its Associated Enterprises (AEs). The assessee filed return of income....
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....TNMM') Operating profit / operating cost ('OP/OC') 14.00% 13.87% 10.02% Provision of financial and accounting support services 8.94 TNMM OP/OC 17.7% 12.03% 12.59% Provision of information technology infrastructure support services 27.44 TNMM OP/OC 18.8% 11.88% -2.26% Reimbursement of expenses (paid)1 4.21 TNMM OP/OC Not applicable ('NA') Reimbursement of expenses (received) 20.55 Comparable Uncontrolled Price Method NA NA 5.2 The functions, assets and risk (FAR) analysis of the assessee has been reproduced by the Learned TPO in para 2.2 of his order. According to the FAR analysis, after awarding the contract to the Associated Enterprises by their customers, work of various engineering designs and drawings required for the project, are assigned to the assessee. The assessee employs engineers having qualification and experience in the field of plant layout design, electrical design, instrumentation design, piping design, civil design and mechanical designs etc. The assessee has wide area (WAN) leased IT cable infrastructure, which connects assessee's computers and servers to AEs computers and serve....
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.... 3. Cades Digitech Private Limited --- 6.02% 4. Simon India Limited --- 8.62% 5. Allcargo Logistics Limited --- 11.45% 6. Neilsoft Limited --- 15.03% 7. Mitcon Consultancy & Engineering Services Limited --- 37.37% 8. Certification Engineering International Limited --- 35.44% '9. Acropetal Technologies Limited (EDS Segment) --- 37.79% 10. HSCC (India) Limited --- 52.32% Mean 19.47% 5.6 The Learned TPO recomputed the adjustment for provisioning of Engineering design and related services to Rs. 15,23,01,077/-. 5.7 Before us, the Ld. Counsel of the assessee submitted that if three comparables namely 'CEIL', 'HSCC India Ltd.' and 'Mitcoin Consultancy' are excluded from the set of the comparables, the assessee's margin would be at par with the average margin of the comparables and no adjustment would be required in the case of the assessee. 6. We have heard rival submission of the parties on the issue in dispute and perused the material on record. The issue of exclusion/retaining of three comparables argued by the parties is adjudicated as under....
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....ilar. We may like to mention that company has been rejected by the Tribunal (ITA No.882/Del./2014) in assessment year 2009-10 also on the ground of functional dissimilarity. The relevant finding of the Tribunal is reproduced as under: "32. On the basis of foregoing discussion, we have no hesitation to hold that the functions of assessee Bechtel India are quite dissimilar with CIEL which was wrongly taken by the TPO as a suitable comparable for benchmarking of impugned international transaction undertaken by the assessee during the relevant financial period. The functional dissimilarity as well as distinction in the geographical market in the light of foreign exchange fluctuation risk of the assessee company coupled with below 25% RPT undertaken by the CIEL, we, therefore, decline to agree with the conclusion of the AO/DRP/TPO that the CIEL is a suitable comparable for the purpose of proposed TP adjustment made by the authorities below. Functional dissimilarity and other aspects cannot be ignored and these factors clearly demonstrate that CIEL should not have been included in the final set of comparables for making transfer pricing adjustment pertaining to the impugned inte....
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....overnment controlled enterprise. Accordingly, we direct the Ld. AO/TPO to exclude the company from the set of the final comparables. 8. HSCC India Ltd (HSCC): 8.1 Before the Learned TPO, the assessee submitted that the company was engaged in rendering services to healthcare industry in relation to healthcare facility design, procurement, logistics and installation, conceptually study and management consultancy and, therefore, it was functionally dissimilar. The Learned TPO, however, found the company as functionally similar to the assessee. Learned DRP also upheld the finding of the Learned TPO. 8.2 Before us, the Learned Counsel of the assessee submitted that company has been rejected by the DRP in assessment year 2004-05 and 2009-10 on the ground of functional dissimilarity. He further submitted that the company is owned by the President of India and earns revenue from government contract and, therefore, it need to be excluded in view of the finding of the Tribunal in the case of the assessee for assessment year 2009-10, 2010-11 and 2011-12. 8.3 The Learned DR, on the other hand, relied on the order of the lower authorities. 8.4 We have heard rival submission of th....
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....relied on the finding of the lower authorities. 9.3 We have heard rival submission of the parties and perused relevant material on record. On perusal of the Annual Report of the company (page 499 and 520 of the paper-book ) for the year under consideration, we find that main revenue has been shown from consultancy fee (Rs. 26.45 Crores) and income from vocational training (Rs. 14.27 crores), which are functionally different from the activity of providing engineering design and drawing services. Therefore, the company is functionally dissimilar to the assessee. The Tribunal in the case of the assessee for assessment year 2011-12 in ITA No. 6779/Del./2015, order dated 20.08.2018, has rejected the company as comparable observing as under: "31. The profile of this company suggests that it provides technical consultancy in various areas such as power division, energy and carbon service division, banking and finance division. This company also renders vocation trainings, IT trainings and laboratory services from which it earns 40% (approx.) of its revenue. From a screen shot of its profile, which is also at page 113 of appeal set, shows that the Ministry of Environment and Fo....
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....elying on the decision of the Tribunal in the case of 'Ameriprise India P Ltd.', 2015-TII-347-ITAT-Del-TP held that when the export proceeds are realized within the year, but beyond the stipulated period of the agreement, then same will not come within the working capital adjustment and rejected the contention of the assessee that interest on delayed payment of receivable get subsumed in the working capital adjustment allowed to the assessee. The Tribunal in AY 2012-13 held that interest on delayed realization of receivables is a separate international transaction and therefore require benchmarking. The Tribunal applying interest rate of six months LIBOR +400 basis point on receivables, upheld the transfer pricing adjustment of interest on receivables accordingly. In view of the finding of the Tribunal in assessment year 2012-13, the Learned DRP in the year under consideration directed the Learned TPO to compute the adjustment using the interest rate of six month of LIBOR +400 basis point. 11.2 Before us, the Learned Counsel of the assessee has repeated the historical background of the issue in dispute and submitted that special leave petition filed by the Revenue against the or....
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.... against the above order of the Tribunal, the Hon'ble Delhi High Court (ITA No. 379/2016) in order dated 21/07/2016 dismissed the appeal observing as under: "4. As far as question (B) concerning the adjustment for interst no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned." 11.6 The assessee brought the decision of the Hon'ble High Court in assessment year 2010-11, before the Tribunal in assessment year 2012-13 by way of raising ground No. 1.5 of the appeal, however, the Tribunal after considering the amendment brought into Act by way of Finance Act, 2012 and other decisions held that interest on delayed realization of receivable is a separate international transaction, which requires separate benchmarking. The finding of the Tribunal in assessment year 2012-13 is reproduced as under: "17. We have considered the submissions of both the parties and perused the record of the case. The assessee's grievance is tw....
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....t from 1.4.2002, which has been duly taken into account by the Tribunal in its later order in Techbooks International Pvt. Ltd. (supra). 21. After considering the rival submissions and perusing the relevant material on record, it is noticed as highlighted above, that the assessee argued before the TPO that interest on receivables is not an international transaction. At this stage, it would be apposite to note that the Finance Act, 2012 has inserted Explanation to section 92B with retrospective effect from 1.4.2002. Clause (i) of this Explanation, which is otherwise also for removal of doubts, gives meaning to the expression 'international transaction' in an inclusive manner. Sub-clause (c) of clause (i) of this Explanation, which is relevant for our purpose, provides as under:- ` Explanation.--For the removal of doubts, it is hereby clarified that-- (i) the expression "international transaction" shall include-- (a) ............ (b) ........... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or ....