Parsons Brinckerhoff India Private Ltd, New Delhi V. DCIT, New Delhi

ITA 1037/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6984 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 12-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction; Unabsorbed depreciation
• Section: 143(3); 92D; 142(1); 92E; 234B

Judgement Text

1 ITA NO. 1037/DEL/20 15 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTA NT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 1037/DEL/201 5 ( A.Y 2008-09) PARSONS BRINCHKERHOFF INDIA PVT. LTD. 210, 2 ND FLOOR, ELEGANCE JASOLA DISTRICT CENTRE, OLD MATHURA ROAD NEW DELHI AACCP3729L (APPELLANT) VS DCIT CIRCLE-19(2), C. R. BUILDING, NEW DELHI (RESPONDENT) APPELLANT BY SH. G. C. SRIVASTAVA, ADV, SH. SUVINAY KUMAR DASH, ADV RESPONDENT BY SH. SANJAY KUMAR YADAV, DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ASSESSMENT ORDER DATED 25/11/2014 PASSED BY DCIT, CIRCLE 19(2), U/S 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW; 1. THE ASSESSMENT ORDER PASSED BY THE LD. AO IN PUR SUANCE TO THE DIRECTIONS ISSUED BY THE HONBLE DRP IS A VITIATED ORDER AS TH E HONBLE DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TRANSFER PRICING (TP) ADDITIONS MADE BY THE LD. AO/ LD. TPO TO THE APPELLANTS INCOME BY ISSUIN G AN ORDER WITHOUT DATE OF HEARING 25.07.2018 DATE OF PRONOUNCEMENT 31.07.2018 2 ITA NO. 1037/DEL/20 15 APPRECIATION OF FACTS AND LAW. 2. LD. AO / LD. TPO AND THE HONBLE DRP ERRED IN N OT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 920(3) OF THE INCOME TAX ACT, 1961 (ACT) ARE SATISFIED IN THE PRESENT CASE. 3. THE LD. AO AND THE HONBLE DRP ERRED BOTH ON FAC TS AND IN LAW IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT TO THE I NCOME OF THE APPELLANT BY HOLDING THAT ITS INTERNATIONAL TRANSACTIONS PERTAIN ING TO PROVISION OF ENGINEERING CONSULTANCY SERVICES DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE HONBLE D RP HAS GROSSLY ERRED IN AGREEING WITH THE LEARNED TRANSFER PRICING OFFICER S (LD. TPOS) ACTION OF: 3.1. DISREGARDING THE ARMS LENGTH PRICE (ALP) AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING (TP) DOCUMENTAT ION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 (RULES);; 3.2. DISREGARDING MULTIPLE YEAR / PRIOR YEARS DAT A AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR 2009-10) DATA FOR COMPARABLE COMPANI ES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 3.3. REJECTING, WITHOUT REASON, THE QUANTITATIVE A ND QUALITATIVE SCREENS/FILTERS APPLIED AND SET OF COMPARABLES ARRI VED AT BY THE APPELLANT, FOLLOWING A DETAILED AND ROBUST SEARCH METHODOLOGY CARRIED OUT IN THE TP REPORT, AND PROCEEDING TO ARRIVE AT THE FRESH COMPA RABLES SET BY APPLYING CERTAIN ARBITRARILY SELECTED FILTERS AND ARRIVING A T HIS OWN COMPARABLES SET INSTEAD; 3.4. INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES SET FOR BENCHMARKING A COMPARATIVELY LOW RISK UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE) , THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE-FORMULATED OPINION WIT HOUT COMPLETE AND ADEQUATE APPLICATION OF MIND WITH THE SINGLE-MINDED INTENTIO N OF MAKING AN ADDITION TO THE RETURNED INCOME OF THE APPELLANT; 3.5. INCLUDING CERTAIN COMPANIES THAT ARE NOT COMP ARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS E MPLOYED AND RISKS ASSUMED; 3.6. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRI VOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERM S OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 3 ITA NO. 1037/DEL/20 15 3.7. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT 4. WITHOUT PREJUDICE TO THE OTHER GROUNDS, THE ECO NOMIC ADJUSTMENTS ARE REQUIRED TO BE MADE TO THE OPERATING MARGIN OF COMP ARABLE COMPANIES SUCH AS DIFFERENCE IN WORKING CAPITAL EMPLOYED BY THE AP PELLANT AND COMPARABLE COMPANIES SHOULD BE ACCOUNTED FOR. 5. WITHOUT PREJUDICE TO THE OTHER GROUNDS, THE LD. AO/TPO HAS FAILED TO APPRECIATE THAT THE MARGIN EARNED BY THE ASSESSEE F ROM SERVICES PROVIDED TO ITS AES IS HIGHER THAN THE MARGIN EARNED BY THE ASS ESSEE FROM SERVICES PROVIDED TO THIRD PARTIES THEREBY SATISFYING THE AR MS LENGTH PRINCIPLE. 6. THE LD. AO/HONBLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN INITIATING THE PENALTY UNDER SECTION 27I(I)(C) OF THE ACT 7. THE LD. AO/HONBLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN CHARGING INTEREST UNDER SECTION 234B AND 234D OF THE ACT THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHD RAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ACTIVITIES OF PROVIDING ENGINEERING CONSULTANCY SERVICES AND SUPPLY OF MAN POWER SERVICES TO THE INDIAN POWER AND INFRASTRUCTURE SECTOR, PROVIDING M ULTI DISCIPLINARY CONSULTANCY SERVICES AND PROVIDING ENGINEERING CONS ULTANCY SERVICES FOR POWER AND INFRASTRUCTURAL PROJECT OUTSIDE INDIA. RE TURN DECLARING NIL INCOME WAS E-FILED ON 14/10/2010. THE ASSESSEE CLAIMED BEN EFIT OF BROUGHT FORWARD LOSSES WHILE FILING RETURN OF INCOME. THE RETURN W AS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. THE CASE WAS SELECTED FO R SCRUTINY ASSESSMENT. STATUTORY NOTICES U/S 143(2) AND 142(1) OF THE INCO ME TAX ACT WERE ISSUED AND DULY COMPLIED WITH. IN RESPONSE TO THE NOTICES, CH ARTERED ACCOUNTANT/AUTHORIZED REPRESENTATIVE OF THE ASSESSE E COMPANY ATTENDED THE ASSESSMENT PROCEEDING AND FURNISHED DETAILS IN SUPP ORT OF RETURN FILED BY THE ASSESSEE AS WELL AS IN RESPONSE TO QUERIES RAISED D URING THE COURSE OF 4 ITA NO. 1037/DEL/20 15 ASSESSMENT PROCEEDINGS. DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH AS SOCIATED ENTERPRISES AS DETAILED BELOW:- 4. THE ASSESSEE FILED DETAILS OF INTERNATIONAL T RANSACTIONS IN FORM NO. 3CEB U/S 92E OF THE INCOME TAX ACT. ACCORDINGLY, ARMS LENGTH PRICE DETERMINATION WAS REFERRED TO TPO U/S 92CA(1) OF THE ACT. THE TP O VIDE ORDER DATED 28/1/2014 COMPUTED ARMS LENGTH PRICE OF THE INTERNA TIONAL TRANSACTIONS AND SUGGESTED AN UPWARD ADJUSTMENT OF RS. 1,40,69,150/- IN RESPECT OF ARMS LENGTH PRICE. A DRAFT ASSESSMENT ORDER U/S 143(3) READ WITH SECTION 144C OF THE ACT WAS PASSED ON 6/2/2014 AND AN UPWARD ADJUS TMENT OF RS.1,40,69,150/- WAS MADE TO THE BUSINESS INCOME AN D INCOME FOR THE ASSESSMENT YEAR 2010-11 WAS DETERMINED AT RS. 4,99 ,286/-. SINCE, THE ASSESSEE HAS A TOTAL BROUGHT FORWARD LOSSES AND UNA BSORBED DEPRECIATION OF RS.3,44,07,988/-. THEREFORE, AFTER ALLOWING BENEFI T OF SET UP OF LOSSES AS WELL AS BENEFIT OF SET OFF OF UNABSORBED DEPRECIATION, TOTA L INCOME OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 WAS DETERMINED AT RS.56,91 ,298/-. THE ASSESSEE COMPANY FILED OBJECTION BEFORE THE DRP AGAINST THE ADDITIONS MADE IN THE DRAFT ASSESSMENT ORDER. THE DRP AFTER CONSIDERING THE OB JECTIONS OF THE ASSESSEE COMPANY HAS ISSUED ITS DIRECTIONS U/S 144C (5) OF T HE ACT ON 30/10/2014. AFTER CONSIDERING THE DRPS DIRECTIONS, THE ASSESSI NG OFFICER MADE ADDITION OF RS.1,23,61,456/- BEING THE DIFFERENCE BETWEEN ARMS LENGTH PRICE AND PRICE CHARGED BY THE ASSESSEE FROM ITS AES FROM PROVISIO N OF MARKET SUPPORT S. NO. INTERNATIONAL TRANSACTION METHOD USED BY THE ASSESSEE VALUE OF TRANSACTION 1 PROVISION OF SERVICES TNMM 7,79,44,594/ - 2 AVAILING OF SERVICES TNMM 6,19,40,541/ - 3 COST REIMBURSEMENT PAID CUP 34,92,265/ - 4 COST REIMBURSEMENT RECEIVED - 1,17,06,011/ - 5 ITA NO. 1037/DEL/20 15 SERVICES. 5. THE ASSESSEE IS AGGRIEVED BY THE ASSESSMENT ORDE R AND HAS FILED THE PRESENT APPEAL BEFORE US. 6. THE LD.AR SUBMITTED THAT GROUND NO. 1 TO 3.1 IS GENERAL IN NATURE. THEREFORE, GROUND NO. 1 TO 3.1 ARE DISMISSED. 7. GROUND NO. 3.2 TO 3.7 ARE RELATE TO THE COMPARAB LES. THE LD. AR SUBMITTED THAT THE TRANSFER PRICING OFFICER HAS SEL ECTED 12 COMPARABLES AS FINAL COMPARABLES FOR THE PURPOSE OF BENCH MARKING INTERNATIONAL TRANSACTION RELATING TO BUSINESS/TECHNICAL SUPPORT SERVICE SEGM ENT. THE LD. AR SUBMITTED THAT THE ASSESSEE IS CHALLENGING 5 COMPARABLES WHIC H HAS TO BE EXCLUDED FOR THE REASONS GIVEN DURING THE HEARING. 8. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A SUBS IDIARY OF PARSONS BRINCKERHOFF INTERNATIONAL INC. USA, IS ENGAGED IN THE PROVISION OF ENGINEERING CONSULTANCY SERVICES TO THE INDIAN POWER SECTOR AND FOR INFRASTRUCTURE PROJECTS. THE PRIMARY BUSINESS OF THE ASSESSEE IS TO PROVIDE DESIGN AND ENGINEERING SERVICES FOR A RANGE OF INFRASTRUCTURE AND FACILITI ES, INCLUDING HIGHWAYS, TUNNELS, BRIDGES, TRANSIT SYSTEMS, AIRPORTS, RAILRO ADS, PORTS, POWER FACILITIES, TELECOMMUNICATIONS, WATER AND PETROLEUM, ENVIRONMEN TAL PROJECTS, BUILDINGS, OIL/GAS/PETROLEUM PIPELINE, ETC. AS A PART OF ITS B USINESS OPERATIONS, PB INDIA PRIMARILY RECEIVES CONTRACTS AND ENGAGES IN TRANSAC TIONS WITH NON AES. THEREIN, PB INDIA MAY IT REQUIRE ENGINEERING CONSUL TANCY SERVICES FROM ITS ASSOCIATED ENTERPRISES, FOR WHICH ITS AES SECOND PE RSONNEL TO PB INDIA FOR RENDERING SERVICES. SIMILARLY, PB INDIAS ASSOCIATE D ENTERPRISES ALSO WHILE RENDERING SERVICES MAY REQUIRE SOME SERVICES FROM P B INDIA AND ACCORDINGLY, PB INDIA SECONDS PERSONNEL TO ITS AES FOR RENDERING SERVICES. PB INDIA PROVIDED ENGINEERING CONSULTANCY SERVICES TO BOTH AES AS WEL L INDEPENDENT THIRD PARTIES. THE PROPORTION OF REVENUES FROM AES AND INDEPENDENT THIRD PARTIES WAS 31% 6 ITA NO. 1037/DEL/20 15 AND 69% RESPECTIVELY. PB INDIA IS RESPONSIBLE FOR S UPERVISION OF THE ENTIRE CONSTRUCTION WORK. IT ADMINISTERS THE CONSTRUCTION CONTRACTS AND ENSURES THAT THE CONTRACTUAL REQUIREMENTS, WITH RESPECT TO BOTH QUALITY AND QUANTITY OF WORK, ARE FOLLOWED AND THE WORKS ARC CONSTRUCTED IN ACCORDANCE WITH THE PROVISION OF THE CONSTRUCTION CONTRACTS. PB INDIA H AS PROVIDED ENGINEERING DESIGN AND CONSULTANCY SERVICES FOR VARIOUS PROJECT S OF THE AES. FOR THESE PROJECTS OF THE AES, IT IS THE RESPONSIBILITY OF TH E AES TO DETERMINE THE OVERALL SCOPE OF THE SERVICES AND COMMUNICATE ITS COMMUNICA TE ITS REQUIREMENTS TO PB INDIA. PB INDIA IS IN TURN RESPONSIBLE FOR MONITORI NG THE QUALITY OF ITS SERVICES. IT IS ALSO RESPONSIBLE FOR ADHERING TO THE STANDARD AND TIME FOR PERFORMANCE OF THE SERVICES AS DETAILED IN THE AGREEMENT ENTERED. THE SERVICES INCLUDE PREPARATION OF A DESKTOP STUDY, REVIEW OF DRAWINGS, ON-SITE SUPERVISION, ETC. THE LD. AR SUBMITTED THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE I.E. PB INDIA HAS ALSO AVAILED ENGINEERING AND OTHER SUPPORT SERV ICES FROM ITS AES FOR EXECUTION ITS PROJECTS IN INDIA. PB INDIA PROVIDED SUPPORT SERVICES: -ASSISTANCE IN PREPARATION OF REPORTS AND PRESENTA TIONS -ASSISTANCE IN PREPARATION OF ENGINEERING DRAWINGS AND PLANNING LAYOUTS. -PREPARATION OF FEASIBILITY STUDY IN RELATION TO T HE PROJECT - REVIEW OF DOCUMENTS PB INDIA ALSO UNDERTOOK CERTAIN BUSINESS SUPPORT F UNCTIONS THAT ARE THE PART OF THE NORMAL COURSE OF ANY BUSINESS I.E. FINA NCE AND ACCOUNTING AND IT WHEREIN IT PREPARES ITS OWN FINANCIAL STATEMENTS AN D ITS BUDGET ON A PERIODICAL BASIS AND HUMAN RESOURCE MANAGEMENT WHEREIN IT PERF ORMS RECRUITMENT, SOFT SKILL TRAINING, PERFORMANCE EVALUATION AND OTHER RE LATED FUNCTIONS. 9. THE LD. AR SUBMITTED THAT THE ASSESSEE APPLIED T RANSACTIONAL NET MARGIN METHOD (TNMM). THE MARGIN OF THE ASSESSEE IS THAT OF 8.25%. THE LD. 7 ITA NO. 1037/DEL/20 15 AR SUBMITTED A THE ASSESSEE IS CHALLENGING FOLLOWIN G 5 COMPARABLES WHICH HAS TO BE EXCLUDED ON ACCOUNT OF FUNCTIONAL DISSIMILARI TIES AND OTHER VARIOUS REASONS:- (1) ENGINEERS INDIA (2) HSCC (INDIA) (3) IBI CHEMATUR (4) RITES LTD. (5) TCE CONSULTANCY ENGINEERING LTD. THE LD. AR SUBMITTED THAT IF THESE COMPARABLES ARE EXCLUDED THE MARGIN WILL COME TO APPROXIMATELY 13% TO 14%. THE LD. AR FURTH ER SUBMITTED THAT IF THESE COMPARABLES ARE EXCLUDED THEN GROUND NO. 4, 5 REMAI NS ACADEMIC AND NEED NOT TO BE COMMENTED UPON. GROUND NO. 6 & 7 AS PER THE LD. AR ARE CONSEQUENTIAL. 10. COMPARABLES (1) ENGINEERS INDIA :- THE LD. AR SUBMITTED THAT THIS COMPARABLE HAS HI GH TURNOVER OF INR 1193.75 CRORE AND THE ASSESSEES T URNOVER WAS 25.17 CRORE. THUS, THERE IS SUPER NORMAL PROFITS AND HENCE THAT DOES NOT REPRESENT INDUSTRY MARGINS. THE LD. AR FURTHER SUBMITTED THAT ITS A GO VERNMENT COMPANY. THUS, THE LD. AR SUBMITTED THAT THE GOVERNMENT COMPANY/PU BLIC SECTOR UNDERTAKING COMPANY OF GOVERNMENT OF INDIA HAS AN E DGE OVER PRIVATE FIRMS IN SECURING CONTRACTS. THE LD. AR SUBMITTED THAT WHEN DIRECT COMPARABLES ARE AVAILABLE SEGMENT RESULTS SHOULD NOT BE CONSIDERED. THUS, THIS COMPARABLE IS FUNCTIONAL DISSIMILAR AND IT PROVIDES COMPLETE RANG E OF PROJECT SERVICES FROM CONCEPTUALIZATION, PLANNING, DESIGN, ENGINEERING AN D CONSTRUCTION ACTIVITIES IN THE SECTORS OF PETROLEUM REFINING, PETROCHEMICALS, OFFSHORE OIL AND GAS, ONSHORE OIL AND GAS, TERMINALS AND STORAGES, MINING AND MET ALLURGY AND INFRASTRUCTURE. IT PROVIDES THE SERVICES OF COMMISSIONING AND BEYON D THE COMMISSIONING OF CLIENTS THROUGH MONITORING AND OPERATIONS OF PLANTS . THIS COMPARABLE HAS 8 ITA NO. 1037/DEL/20 15 MADE SIGNIFICANT R & D EFFORTS. (2) HSCC (INDIA) :- THE LD. AR SUBMITTED THAT THIS COMPARABLE IS ENG AGED IN THE PROVISION OF ARCHITECTURAL PLANNING, DESIGN, ENGINEERING, PROJECT MANAGEMENT AND PROCUREMENT MANAGEMENT SERVICES. THI S IS GOVERNMENT COMPANY. THE CUSTOMERS OF THE COMPANY INCLUDE CENTR AL GOVERNMENT, STATE GOVERNMENT, STATE GOVERNMENT HOSPITALS AND INSTITUT ES. HENCE, THE TRANSACTION WITH OTHER GOVERNMENT UNDERTAKING INCLU DING CENTRAL AND STATE GOVERNMENT WOULD BE CATEGORIZED AS CONTROLLED TRAN SACTIONS'. THE COMPANY PROVIDES PROFESSIONAL CONSULTANCY SERVICES IN HEALT HCARE AND SOCIAL SECTOR. PROFILE OF EMPLOYEES (DOCTORS, PHARMACISTS, HEALTH PLANNERS AND COMPUTER EXPERTS) IS DIFFERENT FROM THE ASSESSEE COMPANY. TH E LD. AR RELIED UPON THE FOLLOWING DECISIONS: (3) IBI CHEMATUR :- THE LD. AR SUBMITTED THAT THIS COMPARABLE IS FUNCTIONALLY DISSIMILAR. THERE IS PROVISION OF PLAN NING AND ENGINEERING SERVICES FOR CHEMICAL MANUFACTURING INDUSTRY IN THI S COMPARABLE COMPANY. IT PROVIDES DETAILED ENGINEERING INTELLIGENT 3D PLA NT MODELING, 2D CONVERSION SERVICES, SMART PLANT INSTRUMENTATION, P IPING STRESS ANALYSIS, PROCUREMENT ASSISTANCE, PROCESS SIMULATION, PROCESS EQUIPMENT DESIGN, INSPECTION SERVICES, PROJECT PLANNING AND MANAGEMEN T AND ERECTION SUSPENSION. THERE IS SIGNIFICANT R&D EFFORTS. THE C OMPANY PROVIDES BASIC AND DETAILED ENGINEERING SERVICES IN THE FIELD OF P ETROCHEMICALS, FINE CHEMICALS, COSMETICS, PHARMACEUTICALS, INDUSTRIAL E XPLOSIVES AND WASTE ACID RECOVERY AND NOT INFRASTRUCTURE RELATED CONSUL TANCY PROJECTS. POSSIBLE RELATED PARTY TRANSACTION IBI CHEMATUR IN ASSOCIATI ON WITH CHEMATUR ENGINEERING AB HAVE BUILT SEVERAL PLANTS IN INDIA T O MANUFACTURE CHEMICALS AND THE WEBSITE INDICATES THAT COMPANY PROVIDES DET AILED ENGINEERING SERVICES TO CHEMATUR ENGINEERING AB ON REGULAR BASI S WHICH INDICATES RIM THERE ARE HIGH RELATED PARTY TRANSACTIONS. 9 ITA NO. 1037/DEL/20 15 (4) RITES LTD :- THIS COMPARABLE IS GOVERNMENT COMPANY AS PER TH E LD. AR. THERE IS HIGH TURNOVER OF THIS COMPANY WHICH IS INR 623.26 CRORE. THE COMPARABLE COMPANY IS ENGAGED INTO CONSULTANCY SERV ICES, CONSTRUCTION PROJECTS, EXPORT OF ROLLING STOCK EQUIPMENT AND SPA RES, LEASING OF RAILWAY ROLLING STOCK EQUIPMENT. THE CUSTOMERS OF THE COMPANY INCLU DED CENTRAL GOVERNMENT, STATE GOVERNMENT, STATE GOVERNMENT HOSPITALS AND IN STITUTES. HENCE, THE TRANSACTION WITH OTHER GOVERNMENT UNDERTAKING INCLU DING CENTRAL AND STATE GOVERNMENT WOULD BE CATEGORIZED AS 'CONTROLLED TRAN SACTIONS'. (5) TCE CONSULTANCY ENGINEERING LTD :- THE LD. AR SUBMITTED THAT THIS COMPARABLE COMPANY OFFERS MULTIDISCIPLINARY SERVIC ES RELATING TO PROJECT ENGINEERING THE INDUSTRY OF POWER PLANTS, WATER SUP PLY, WASTE WATER PROJECTS. IT HAS HIGH TURNOVER OF 354.36 CRORE. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: 1) M/S THYSSENKRUPP INDUSTRIES INDIA PRIVATE LIMITED V S. ACIT (2013) 25 ITR 243 2) ACIT VS. M/S. JACOB ENGINEERING INDIA PVT. LTD. VS. ACIT- [C.O NO. 36/MUM/20L7 (A.Y. 2010-11) ORDER DATED 10.01.2018] 3) AT & T COMMUNICATION SERVICES INDIA VS. ACIT (2018) 91 TAXMANN.COM 58 4) M/S ELI LILY & CO. (INDIA) LTD. VS. ACIT [ITA NO. 6 819/DEL/2014] (A. Y. 2004-05) ORDER DATED 11.04.2018] 5) CAPITAL IQ INFORMATION SYSTEMS [INDIA ) PVT. LIMITE D VS. DCIT (ITA NO.1961/HYD/2011 ORDER DATED 23.11.2012) 6) MENTOR GRAPHICS NOIDA PRIVATE LIMITED VS. DCIT [(20 07) 109 ITD 101 (DELHI)] 7) M/S PREMIER EXPLORATION SERVICES PVT. LTD. VS ITO 2 91 ITR 427 10 ITA NO. 1037/DEL/2 015 8) GRANITE SERVICES INTERNATIONAL PRIVATE LTD. VS. ACI T (2017) 87 TAXMANN.COM 24 9) BECHTEL INDIA PVT. LTD. VS. DCIT (2016) 66 TAXMANN. COM 6 10) PYRAMID IT CONSULTING PVT. LTD. VS. ITO (ITA NO. 5 401/DEL/2012 ORDER DATED 11.12.2014) 11) ACIT VS. M/S CHEMTIX GLOBAL ENGINEERS P. LTD. (2014 ) 147 ITD 488 12) MICROCHIP TECHNOLOGY (INDIA) PRIVATE LIMITED VS. AC IT [IT(TP) A NO. 1247/BANG/2011 AND 44/BANG/2012 ORDER DATED 31.10.2 016] 9. THE LD. DR SUBMITTED THAT MERELY THE COMPANIES A RE OF GOVERNMENT ENTITY CANNOT BE EXCLUDED AS COMPARABLE WHEN THE FU NCTIONAL PROFILE IS SIMILAR TO THAT OF THE ASSESSEE COMPANY. THE LD. DR RELIED UPON THE DECISION OF LUISE DREYFUS WHEREIN IT IS OBSERVED BY THE TRIBUNAL THAT MERELY COMPANY IS GOVERNMENT COMPANY THAT CANNOT BE THE SOLE GROUND F OR EXCLUDING THE COMPARABLES. THE LD. DR ALSO RELIED UPON THE DECIS ION OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P) LTD. VS. DCIT (20 15) 56 TAXMANN.COM 417 (DELHI):376 ITR 183 FOR HIGH TURNOVER CRITERIA. TH US, THE LD. DR SUBMITTED THAT THE COMPARABLES SELECTED BY THE TPO ARE JUST AND PR OPER AND SHOULD BE RETAINED. 10. THE LD. AR RELIED HEAVILY ON THE DECISION OF TH E THYSSENKRUPP (SUPRA) AND SUBMITTED THAT THE SAID CASE LAW WAS NOT CITED BEFORE THE TRIBUNAL IN CASE OF LOUIS DREYFUS. THE LD. AR FURTHER SUBMITTED TH AT ALL THESE COMPANIES ARE FUNCTIONALLY DISSIMILAR AND, THEREFORE, THE SAME SH OULD BE TAKEN INTO ACCOUNT AND THERE IS NO SEGMENTAL BIFURCATION GIVEN OF THE COMPARABLES. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS ENGINEERS INDIA, HSCC (INDIA) A ND RITES LTD. THESE ARE 11 ITA NO. 1037/DEL/2 015 GOVERNMENT BASED COMPANIES AND ALSO HAVING DIFFEREN T FUNCTIONAL PROFILE THAN THE ASSESSEE COMPANY. FROM THE ANNUAL REPORTS OF TH ESE COMPANIES, IT IS CLEAR THAT THE FUNCTIONAL PROFILE AND THE OP/OC MARGIN IN EACH CASE IS HIGHER THAN THE ASSESSEE COMPANY EXCEPT HSCC INDIA LIMITED. BU T ALL THESE COMPANIES HAVE THE CUSTOMERS MAINLY OF THAT OF GOVERNMENT FOR WHICH THERE IS LIMITED RISK FACTOR INVOLVED. THUS, THEY ARE NOT SUITABLE WITH T HE ASSESSEES FUNCTIONAL PROFILE. AS REGARDS TCE CONSULTANCY ENGINEERING LT D. AND IBI CHEMATUR, THE FUNCTIONAL PROFILES OF THESE COMPANIES ARE DIFFEREN T. THERE IS NO SEGMENTAL BIFURCATION GIVEN IN THESE COMPANIES DETAILS. THERE FORE, ALL THESE 5 COMPARABLES ARE NOT APPROPRIATE COMPARABLES CHOSEN BY THE TPO/A O. THE CASE LAWS CITED BY BOTH THE PARTIES ARE TAKEN INTO ACCOUNT AND AFTE R CONSIDERING THE FACTS OF THE PRESENT CASE WE DECIDE ACCORDINGLY. THUS, WE DIRECT THE TPO/AO TO EXCLUDE ALL THE 5 COMPARABLES CONTESTED HEREIN. AS REGARDS GRO UND NO. 4 AND 5, THE SAME ARE ACADEMIC, HENCE DISMISSED. AS REGARDS GROUND NO . 6 AND 7 ARE CONSEQUENTIAL, HENCE DISMISSED. 12. IN RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST JULY, 2018 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 31/07/2018 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 12 ITA NO. 1037/DEL/2 015 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 25.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 3 1 .07.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 3 1 .07.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 3 1 .07.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER