TaxTMI 
TaxTMI 
2025 (6) TMI 1906
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.... the case. The Ld. AO / TPO erred by making an adjustment under section 92CA(3) of the Act. The ld. AO / TPO erred issuing adverse order without considering the facts and circumstances of the case by disregarding the submissions made by the Appellant. 1. The order of the Ld. AO / TPO u/s 143(3) r.w.s 144C(13) read with section 144B of the Act is erroneous both in law and on the facts of the case. 2. The Ld. AO / TPO is not justified in arriving at the arm's length margin of 16% by using wrong comparables and not considering the adjustments made in the Assessee Company's PLI thereby resulting in the TP adjustment of INR 12,95,02,892. 3. The Ld. AO / TPO erred in considering the transactions pertaining to the Design services as KPO and benchmarked the transaction accordingly. 4. The Ld. AO / TPO erred by excluding comparable companies as mentioned below selected by Assessee Company which has passed RPT filter: Sr. No. Comparable Companies 1 Enoia babcock borsig Pvt. Ltd. 2 Citec Engineering India Pvt. Ltd. 3 Devita Engineering (India) Pvt. Ltd. 4 NPCC Engineering Pvt. Ltd. 5 Intec Infra - Technologies Pvt....
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....ech Project India (P) Ltd through business transfer agreement. The appellant has reported international transaction in respect of sale engineering design services to its AEs. The ALP of the international transaction in EDS segment provided to its AEs has been determined by applying the TNNM method as the most appropriate method in the facts and circumstances of the case. The operating cost to the operating profit has been taken to be the profit level indicator (PLI) in TNNM analysis. The appellant has selected 8 comparable companies for engineering design services on the basis of search conducted in the public data basis. 4. During the course of assessement proceedings, a reference u/s 92CA of the I.T. Act, 1961 has been made to the TPO to determine the ALP of international transactions with its AEs. During the course of TP proceedings, the TPO examined the taxpayers TP study and relevant search criteria adopted for selection of comparables. The TPO after analyzing the functions performed by the assessee and relevant search criteria considered for selection of comparables has observed that the assessee had considered certain inappropriate filters which are not relevant to identi....
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....een the FAR analysis and the filters adopted by the TPO for selection of comparables. The TPO after considering the relevant objections filed by the assessee and also taken note of relevant provision of Rule 10TA of the I.T Rules 1962 which defines the KPO Services held that the services rendered by the appellant to its AEs in EDS segment falls under the KPO services and therefore, examined the objections filed by the assessee on each comparables including Mahindra Consulting Engineering Ltd, L&T Technology Services Ltd and Genesys International Corporation Ltd in the final set of comparables and has arrived at the arithmetic mean of OC/OP at 20.91%. Further, the TPO had also considered exceptional items being consultancy charges paid to M/s. Cyient Ltd by the erstwhile company MW High Tech Project India (P) Ltd amounting to Rs. 5,68,86,667/- as part of operating cost to arrive at a total cost of Rs. 49,56,96,297/- as against the total operating cost reported by the appellant at Rs. 43,88,09,630/-. Further, the TPO after considering the operating cost of Rs. 49,56,96,297/- has made a markup of 20.91% to arrive at ALP to be received by the assessee from its AEs for rendering service....
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....sessee company. The DRP had also rejected the ground raised by the appellant challenging recomputation of operating cost by including consultancy charges paid to Cyient Ltd on the ground that the said expenditure is part of the operating cost of the appellant company because such expenditure has been paid in pursuant to the agreement with Cyient Ltd by the erstwhile company and the same has been transferred to the appellant company by virtue of business transfer agreement. Therefore, observed that there is no merit in the argument of the assessee that it is one time and exceptional in nature and cannot be considered as operating cost. The learned DRP had also rejected the ground taken by the assessee challenging the reasons given by the TPO for not considering the amortization of goodwill and management fee and termination fee as part of operating cost on the ground that the amortization of goodwill is part of the operating cost of the assessee and also management fee & termination fee is part of the cost of the assessee as is evident from the treatment given by the assessee in its books of account. Therefore, rejected the grounds of objections filed by the assessee. The DRP had al....
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....e appellant company which design supporting services are provided. Therefore, considering the simple design services provided by the assessee on the basis of concepts supplied by the AEs cannot be considered as engineering design services as defined under KPO services in terms of section 10TA(g) of IT Rules, 1962. The learned Counsel for the assessee further referring to various evidences submitted that the appellant is providing services with the help of low skilled employees which includes Diploma Holders and ITI Trainees. Therefore, classifying the services rendered by low qualified employees as KPO services which is generally provided by high skilled technical graduates is not correct. The TPO without understanding the relevant evidences simply recharacterized the appellant services as KPO only on the basis of definition of KPO services as per Rule 10TA(g)(iii) of the Act. Therefore, he submitted that recharacterization of services rendered by the TPO should not be upheld. 12. The learned CIT (DR), on the other hand, supporting the orders of the DRP & TPO submitted that the assessee is engaged in the business of providing engineering design services to its AEs on the basis o....
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....ration from Ground No.5 of assessee's appeal is exclusion of Mahindra Consulting Engineers Ltd. The learned Counsel for the assessee submitted that the above company is not comparable to the appellant company because it has been in the business for almost 27 years and further, it fails RPT filter. The learned Counsel for the assessee further submitted that it is also functionally different from the assessee company which is evident from the annual report of above company where if we go through the services rendered by above company, it is into multidisciplinary engineering consultancy services, project advisory services and infrastructure consulting. The clients base include Central & State Governments and Public Sector Undertakings etc., Since the company is into multidisciplinary engineering consulting services and also fails RPT filters, the same cannot be included in the final set of comparables. Although, the assessee has raised objection in the light of the above facts, the TPO and DRP has rejected the objections filed by the assessee and included the above company in the final set of comparables. In this regard, the assessee has relied upon the decision of the ITAT Bangalore....
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....p of companies and therefore, from the above, in our considered view, it is very clear that the services rendered by the assessee to the AE are comparable to services rendered by Mahindra Consulting Engineers Ltd. Further, although the appellant contended that it fails the RPT filter, but in our considered view, the method of computation of related party transaction by the assessee is contrary, because related party transactions should be computed to revenue or expenses separately but there is no question of aggregating both the transactions and computing the percentage. Since related party transaction of the appellant company with related party is less than 25% in respect of income and expenditure separately, in our considered view, it passes the RPT filter applied by the TPO. Further, the standing in the business of number of years does not matter for the margin earned by the company, but all depends upon the nature of services rendered by the company. Therefore, the argument of the learned Counsel for the assessee that Mahindra Consulting Engineers Ltd is in the business of almost 37 years and cannot be compared with the appellant company being in the first year operation does n....
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....Es in EDS segment, it provides services to EPC contractor. On the other hand, if we go through the services provided by M/s Genesys International Corporation Ltd as a comparable company, it predominantly into the services of geographical information system services comprising of photogrammetry, remote sensing, car topography, data conversion, state of the art terrestrial and 3D geo-content including location and other computer related services, whereas the assessee is into simple activities of engineering design services of EPC contractors and cannot be compared to each other. The TPO/DRP without considering the relevant facts simply included the above company in the list of final set of comparables. Thus, we direct the TPO/Assessing Officer to exclude M/s Genesys International Corporation Ltd as a comparable company, from the list of final set of comparables. 21. The next issue that came up for our consideration from Ground No.7 is selection of L&T Technologies Services Ltd as a comparable company. The learned Counsel for the assessee submitted that L&T Technologies Services Ltd is a huge conglomerate having turnover of more than 115 times from that of the assessee company. It ....
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....d is not a comparable company to the appellant company which is providing engineering design services to its AEs for EPC Contractor. Therefore, on this count also, L&T Technologies Services Ltd cannot be included in the list of final set of comparables. Therefore, we direct the TPO/Assessing Officer to exclude L&T Technologies Services Ltd from the list of final set of comparables. 24. The next issue that came up for our consideration from Ground No.8 is regarding inclusion of exceptional item being consultancy charges paid to Cyient Ltd for Rs. 5,68,86,667/- as part of operating cost. The appellant has acquired global engineering design services division of M+W Hightech Services (P) Ltd vide business transfer agreement dated 01/06/2019. Before acquisition of the global engineering design services by the assessee, MW Hightech Projects (P) Ltd entered into a service agreement with Cyient Ltd on 9/12/2016 for a period of 3 years from 1/2/2017 for rendering engineering design services. In the BTA agreement, it is mentioned that Cyient Ltd shall receive the consultancy charges for the purpose of establishing the global engineering design centre in Hyderabad. Since the agreement peri....
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....A.Y 2020-21. Further, as per business transfer agreement, the appellant has taken over global engineering design division and necessary payment required to be made to Cyient Ltd is the responsibility of the assessee. The assessee has treated part of expenditure pertains to its business operations and the remaining part of expenditure not pertains to its operation only on the ground that the period pertains to the business transfer agreement. But the fact remains that since the payment is made for various services including drawing, designing etc., the benefit from the said services may accrue to the assessee in future and therefor, the TPO/DRP has rightly included the said expenditure as operating expenditure and their orders should be upheld. 27. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the agreement with Cyient Ltd and the erstwhile company is for a period 3 years starting from 1/2/2017 and it lasted up to 31/01/2020. In fact, the assessee itself has apportioned the expenditure into 2 parts i.e. prior to BTA agreement and post BTA agreemen....
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....uired global engineering services division as a going concern from M+W Hightech Projects by way of BTA in financial year 2019-20. This acquisition resulted in a goodwill of Rs. 8,56,17,387/- which had been recognized in the final statement and in this year, a sum of Rs. 1,42,69,565/- has been amortized and debited to P&L Account. The assessee submitted before the DRP that amortization of goodwill was an extraordinary item and was not pertaining to the regular operation of the assessee and the same has to be considered as non-operating in nature. The DRP without considering the relevant aspect held that the appellant cannot claim depreciation of goodwill arising out of amalgamation even though they challenged before the DRP whether it is operating or nonoperating. Since the amortization of goodwill, one time expenditure, the same should be excluded for the purpose of operating cost. 29. The learned CIT (DR) on the other hand supporting the orders of the DRP submitted that the assessee has not challenged the exclusion of amortization of goodwill from the operating cost before the TPO. The assessee has taken a ground for the first time before the DRP and argued that the amortizatio....
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.... for depreciation on goodwill, then the same cannot be considered as operating in nature for the purpose of computing margin. Therefore, we are of the considered view that the TPO is erred in including amortization of goodwill as part of operating cost. Thus, we direct the TPO to exclude amortization of goodwill from operating cost. 31. The next issue that came up for our consideration from Ground No.10 relates to considering management fee amounting to Rs. 6,58,03,545/- and value fee amounting to Rs. 1,62,53,333/- as part of operating cost. 32. We have considered an identical issue in Ground No.8 of assessee's appeal with relation to exceptional item being consultation/management fees paid to Cyient Ltd. The assessee has considered the very same expenditure in Ground No.10 and seeks to exclude the amount as part of operating cost. Since we have already held that consultancy/management fees paid to Cyient Ltd is part of operating cost, in our considered view, Ground No.10 taken by the assessee challenging the exclusion of management fee amounting to Rs. 6,58,03,545/- and value fee at Rs. 1,62,53,333/- is devoid of any merit and thus, we reject the ground No.10 taken by the as....
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....t submitted any details for the number of hours utilized for the under utilization and therefore, on this ground itself, capacity utilization computed by the assessee should be rejected. However, the case of the assessee is that it has utilized 86.87% whereas the comparables which utilized 100% of their capacity. In our considered view, once again the assessee is making a claim without there being any evidence. We do not know whether the comparables are operating with full capacity to say that they are operating with 100% capacity. In absence of any evidence, it cannot be said that the comparables are operating at 100% capacity. Since the appellant has failed to file any evidences to support its claim, in our considered view, there is no reason to deviate from the reasons given by the DRP to reject allow adjustment towards capacity utilization. Thus, we reject ground No.11 taken by the assessee. 36. Ground No.12 relates to the filing of additional ground for inclusion of comparables which are functionally comparable to the assessee. The learned Counsel for the assessee submitted that owing to data base related problem, it could not list Code Ploy Engg. Ltd and E2G Engineering & ....