SNC LAVALIN ENGINEERING INDIA P.LTD, MUMBAI V. DCIT CIR 11(2)(2), MUMBAI

ITA 1067/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1778 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 02-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH KUMAR SINGH
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction; Arm length price; Revised return; TDS; Set aside
• Section: 143(3); 92D; 234B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NOS.1067/M/2016 ASSESSMENT YEAR: 2011-12 ITA NOS.4713/M/2016 ASSESSMENT YEAR: 2013-14 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD., TRADE STAR, 2 ND FLOOR, A-WING, J.B. NAGAR, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI 400 059 PAN: AAACR 1966M VS. DY. COMMISSIONER OF INCOME TAX-CIR.11(2)(2), IT OFFICE, R.NO.421, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI AJIT KUMAR JAIN, A.R. SHRI SIDDHESH CHAUGULE, A.R. REVENUE BY : SHRI MANISH KUMAR SINGH, D.R. DATE OF HEARING : 11.03.2019 DATE OF PRONOUNCEMENT : 06.06.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED TWO APPEALS HAVE BEEN PREFERRED B Y THE ASSESSEE AGAINST THE ASSESSMENT ORDERS DATED 18.11. 2015 & 27.03.2017 PASSED IN PURSUANCE TO THE OF THE DIRE CTION OF DISPUTE RESOLUTION PANEL [HEREINAFTER REFERRED TO A S THE DRP] RELEVANT TO ASSESSMENT YEAR 2011-12 & 2013-14 RESPE CTIVELY. ITA NO.4713/M/2017 (A.Y. 2013-14) 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED TRANSFER PRICING OFFICER ('TPO') AND THE LEARNED AS SESSING OFFICER ('AO') UNDER THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') ERRED IN MAKING AN ADJUSTMENT OF RS. 15,56,02,007 (UNDER CHAPTER X OF THE INCOME-TAX ACT, 1961 ('THE ACT'); 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED TPO AND THE LEARNED AO ERRED AND THE HON'BLE DRP FURTHE R ERRED IN UPHOLDING THE ACTION OF THE LD. TPO/AO IN NOT PROVIDING ANY REASO NS TO SHOW THAT THE CONDITIONS MENTIONED IN CLAUSES (A) TO (D) OF SECTION 92C(3) O F THE ACT WERE SATISFIED BEFORE MAKING AN ADJUSTMENT TO THE INCOME OF THE APPELLANT . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED TPO AND THE LEARNED AO UNDER THE DIRECTIONS OF THE HON' BLE DRP ERRED IN DISREGARDING THE TRANSFER PRICING STUDY REPORT MAINTAINED BY THE APPELLANT AS PER SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RULES, 1962 AND THE VARIOUS SUBMISSIONS MADE BY THE APPELLANT; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED TPO AND THE LEARNED AO UNDER THE DIRECTIONS OF THE HON' BLE DRP ERRED IN ARBITRARILY REJECTING INTERNAL TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTION P ERTAINING TO ENGINEERING CONSULTANCY SERVICES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED TPO AND THE LEARNED AO UNDER THE DIRECTIONS OF THE HON' BLE DRP ERRED IN ARBITRARILY REJECTING AUDITED AND CERTIFIED SEGMENTAL PROFIT AN D LOSS ACCOUNT DULY MAINTAINED BY THE APPELLANT, WITHOUT APPRECIATING THE FACT THA T THE EXPENDITURE HAS BEEN APPORTIONED BETWEEN AE AND NON-AE SEGMENT BY ADOPTI NG APPROPRIATE ALLOCATION KEYS. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED TPO AND THE LEARNED AO UNDER THE DIRECTIONS OF THE HON' BLE DRP ERRED IN INCORRECTLY COMPUTING THE MARGIN EARNED BY THE APPELLANT FROM I TS INTERNATIONAL TRANSACTION. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED TPO AND THE LEARNED AO UNDER THE DIRECTIONS OF THE HON' BLE DRP ERRED IN REJECTING THE PLEA FOR USE OF MULTIPLE YEAR DATA AS SPECIFIED IN PROVISO TO RULE 10B(4) OF THE RULES; 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL, THE LEARNED TPO AND THE LEARNED AO UNDER THE DIRECTIONS OF THE HON'BLE DRP ERRED IN NOT ALLOWING ADJUSTMENTS IN ACCORDANCE WITH THE PROVISIONS OF RULE 10B OF THE INCOME TAX RULES, 1962. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO ERRED IN MENTIONING 'BUSINESS INCOME (AS PER REVISE D RETURN OF INCOME)' AS RS. 3,19,51,113 AS AGAINST 'INCOME FROM BUSINESS AND PR OFESSION' OF RS. 1,38,70,575, AS PER REVISED ROI, THEREBY ERRONEOUSLY COMPUTING THE TOTAL INCOME AT RS. 18,32,45,111; ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 3 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO ERRED IN SHORT GRANTING CREDIT FOR TAX DEDUCTED AT SOURCE ('TDS') TO THE EXTENT OF RS. 13,38,651; 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO CONSEQUENTIALLY ERRED IN LEVYING EXCESS INTEREST UN DER SECTION 234B OF THE ACT. 3. AT THE TIME OF HEARING THE LD. COUNSEL OF THE AS SESSEE SUBMITTED THAT GROUND NO.1, 2 & 3 ARE GENERAL IN NA TURE WHEREAS GROUND NO.7, 8 & 9 WERE NOT ARGUED AND GRO UND NO.10 & 11 WERE NOT PRESSED. THEREFORE, GROUND NO.1,2,3, 7,8,9,10 & 11 ARE DISMISSED. 4. THE ONLY EFFECTIVE ISSUE WHICH REQUIRES ADJUDICA TION HAS BEEN RAISED IN GROUND NO.4, 5 & 6 WHETHER THE INTER NATIONAL TRANSACTIONS OF THE ASSESSEE WITH THE AES HAVE BEEN RIGHTLY BENCHMARKED ON THE BASIS OF TRANSACTIONAL NET MARGI N METHOD (HEREINAFTER CALLED AS TNMM). 5. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS PART OF THE SNC LAVALIN GROUP, HAVING EXPERTISE IN OIL AND GAS, MINING AND METALLURGY AND POWER INCLUDING HYDRO AND POWER TRAN SMISSION. THE ASSESSEE IS ENGAGED IN PROVIDING ENGINEERING SE RVICES LIKE DETAILED ENGINEERING SERVICES TO VARIOUS PROJECTS L IKE REFINERY PETROCHEMICAL PLANTS ETC. AND ALSO TO POWER PROJECT S. DURING FINANCIAL YEAR UNDER CONSIDERATION, THE ASSESSEE PR OVIDED SERVICES TO THE ASSOCIATE ENTERPRISE (HEREINAFTER R EFERRED TO AS AE) AND UNRELATED THIRD PARTIES (NON AES). THE ASS ESSEE HAS ALSO AVAILED ENGINEERING SERVICES FROM THE AE WHICH WERE UTILISED FOR PROVIDING SERVICES TO THE NON AES. CONSIDERING THE INTERNATIONAL NATURE OF TRANSACTIONS WITH THE AE, T HE AO REFERRED THE TRANSACTIONS AS FILED IN AUDIT REPORT IN FORM N O.3CEB TO ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 4 TRANSFER PRICING OFFICER (HEREINAFTER REFERRED TO A S TPO) TO COMPUTE THE ARM LENGTH PRICE (HEREINAFTER REFERRED TO ALP) UNDER SECTION 92CA(1) OF THE ACT AFTER OBTAINING PR IOR APPROVAL OF COMMISSIONER OF INCOME TAX. DURING THE YEAR THE INTERNATIONAL TRANSACTIONS BY THE ASSESSEE WITH THE AE WERE AS U NDER: SR. NO. INTERNATIONAL TRANSACTIONS AMOUNT (IN INR) TRANSACTION IN DISPUTE 1. PROVISION OF ENGINEERING AND ANCILLARY SERVICES 7,82,44.321 DISPUTED 2. AVAILING OF ENGINEERING SERVICES 58,51.968 DISPUTED 3, RECOVERY OF EXPENSES 1,70,75,547 NO DISPUTE 4. REIMBURSEMENT OF EXPENSES 2,88,27.078 NO DISPUTE 6. THE TRANSACTION AS STATED IN SL.NO.1 & 2 OF THE TABLE ABOVE WERE AGGREGATED AND BENCHMARKED TOGETHER UNDER THE HEAD PROVISIONS OF ENGINEERING AND ANCILLARY SERVICES AN D THE AGGREGATION APPROACH OF THE ASSESSEE IS NOT UNDER D ISPUTE. THE INTERNATIONAL TRANSACTIONS WERE BENCHMARKED BY THE ASSESSEE BY APPLYING INTERNAL COST PLUS METHOD TO JUSTIFY THE A RM LENGTH PRICE. THE GROSS MARGIN BY THE ASSESSEE FROM THE S AID INTERNATIONAL TRANSACTIONS WITH AE WAS AT 56.15% WH EREAS THE GROSS MARGIN EARNED BY THE ASSESSEE FROM TRANSACTIO N WITH NON AES WAS AT 49.09%. THE LD. TPO REJECTED THE INTER NAL COST PLUS METHOD AND ASSESSEE IS NOT DISPUTING THE SAME. THE ASSESSEE ALTERNATIVELY ALSO BENCHMARKED THE INTERNATIONAL T RANSACTIONS USING TNMM IN THE TRANSFER PRICING STUDY REPORT (HE REINAFTER CALLED AS TPSR). BOTH INTERNAL TNMM AND EXTERNAL T NMM WERE USED IN THE TPSR FOR BENCHMARKING PURPOSES. ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 5 7. IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACT ION USING THE INTERNAL TNMM AS MOST APPROPRIATE METHOD, THE A SSESSEE SEGMENTED ITS FINANCIALS INTO AES AND NON AES TRANS ACTIONS BY SEGREGATING THE TRANSACTIONS RELATING TO REVENUE AN D COST ACCORDINGLY. ACCORDINGLY, THE REVENUE OF RS.7,82,4 4,321/- FROM AES AND CORRESPONDING COST WAS TAKEN IN THE AE SEGM ENT. SIMILARLY, THE COST OF AVAILING ENGINEERING SERVICE S FROM AES OF RS.58,51,968/- WAS ALSO REQUIRED TO BE CLUBBED WITH NON AES SEGMENTAL AS THESE SERVICES WERE PROVIDED TO THE NO N AES FROM WHOM THE ASSESSEE GENERATED A REVENUE OF RS.10,00, 10,642/-. IN OTHER WORDS, THE REVENUE OF RS.10,00,10,642/- WA S GENERATED BY TAKING SERVICES FROM AES FOR WHICH THE ASSESSEE INCURRED EXPENSES OF RS.58,51,968/-. THUS THIRD PARTY TRANS ACTION COST INVOLVED IN THIS WAS ALSO REQUIRED TO BE CLUBBED. ACCORDING TO THE SEGMENTATION WHICH WAS PART OF TPSR THE SEGMENT AL MARGIN UNDER AE SEGMENT WAS 22.36% AND NON AE SEGMENT WAS (-)4.95%. THEREFORE, THE TRANSACTION WITH AE SEGME NT WAS CONSIDERED TO BE AT ARM LENGTH PRICE. 8. DURING THE COURSE OF TP PROCEEDINGS THE LD. TPO CALLED UPON THE ASSESSEE FOR AUDITED SEGMENTAL PROFITABIL ITY ALONG WITH ALLOCATION KEYS WHICH WAS SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 05.11.2014 AND IS REPRODUCED AS UNDER: PARTICULARS ALLOCATION KEYS ASSOCIATED ENTERPRISE (AE SEGMENT) NON-AE SEGMENT TOTAL INCOME INCOME FROM ENGINEERING SERVICES ACTUALS 195,841,760 300,978,217 496,8 19,977 ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 6 TOTAL INCOME (A) 195,841,760 300,978,217 496,819,977 EXPENDITURE DIRECT EXPENSES ACTUALS 21,849,669 10,491,048 32,340,717 SALARIES & ALLOWANCES ACTUALS 68,480,159 103,215,475 171,701,634 EIIGG. PROFESSIONAL FEE ACTUALS 15,641,748 3 1 ,824,465 47,466,213 SELLING AND MARKETING EXPENSES MAN HOURS 6,893,071 22.5 84, 1) 6 29,477,186 ADMINISTRATIVE AND OTHER EXPENSES MAN HOURS 44,093,916 136,348,883 180,442,799 DEPRECIATION MAN HOURS 3,088,512 10,8.37,642 13,926,153 SUNDRY BALANCES WRITTEN OFF ACTUALS - 1,366,882 1,366,882 TOTAL OPERATING COST (B) 160,053,075 316,668,510 476,721,585 NET PROFIT (A-B) 35,788,685 (15,690,293) 20,098,392 NET COST PLUS MARKUP (%) 22.36 (4.95) MAN HOURS 125,940 343,333 9. THE ASSESSEE ALSO FURNISHED AUDITED PROJECT WISE MAN HOUR DETAILS OF AE SEGMENT AND NON AE SEGMENT. THE ASSE SSEE ALSO FILED A RECONCILIATION AT THE INSTANCE OF TP OF SEG MENTAL FURNISHED IN TPSR WITH INTERNATIONAL TRANSACTIONS AS REPORTED IN FORM NO.3CEB WHICH IS REPRODUCED AS UNDER: PARTICULARS AMOUNT (RS.) SALES TO AES DISCLOSED IN THE ACCOUNTANTS REPORT IN FORM NO.3CEB (A) 78,244,321 RECOVERY OF EXPENSES FROM (B) 17,075,547 ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 7 AES AS DISCLOSED IN THE ACCOUNTANTS REPORT IN FORM NO.3CEB TOTAL INCOME TRANSACTION WITH AES AS DISCLOSED IN THE ACCOUNTANTS REPORT IN FORM NO.3CEB (C)= (A+B) 95,319,868 SALES DISCLOSED IN THE AE SEGMENT IN THE SEGMENTAL PROFIT AND LOSS A/C (D) 195,841,760 DIFFERENCE (E)=(D - C) - 100,521,892 SALES TO NON-AES PURSUANT TO WHICH SERVICES WERE RECEIVED FROM AES (F) 100,010,642 SALES MADE TO INDIAN AES (G) 511,250 TOTAL (H)=(F+G) 100,521,892 (H - E) NIL 10. THE TPO RAISED SEVERAL POINTS AND OBJECTIONS WH ICH WERE ADDRESSED BY THE ASSESSEE IN LETTER DATED 23.12.201 4. FURTHER, ON REQUEST FROM TPO A REVISED SEGMENTAL WAS PREPARE D IN WHICH REVENUE OF AE WAS TAKEN IN THE AE SEGMENT HOWEVER, THE RELATED PARTY TRANSACTIONS ON COST SIDE WAS SHIFTED TO NON AE SEGMENT WHICH IS REPRODUCED AS UNDER: PARTICULARS ALLOCATION KEYS ASSOCIATED ENTERPRISE ('AE') SEGMENT NON-AE SEGMENT INCOME INCOME FROM ENGINEERING SERVICES ACTUALS 95,831,118 400,988,859 SUB- TOTAL (A) 95,831,118 400,988,859 OTHER INCOME INTEREST INCOME NON-OPERATING - - SUNDRY BALANCES WRITTEN BACK NON-OPERATING - - ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 8 SALES TAX REFUND NON-OPERATING - - MISC. INCOME (INCL. SALE OF ASSETS) NON - OPERATING - - SUB- TOTAL (B) - - TOTAL INCOME (A) 95,831,118 400,988,859 EXPENDITURE DIRECT EXPENSES ACTUALS 16,239.592 16,101,125 SALARIES & ALLOWANCES ACTUALS 29,208,535 142.493,099 ENGG. PROFESSIONAL FEE ACTUALS 4,982,526 42,483,687 SELLING AND MARKETING EXPENSES MAN HOURS 3,963,756 25,513,431 ADMINISTRATIVE AND OTHER EXPENSES MAN HOURS 24,641,178 155,801,621 DEPRECIATION MAN HOURS 1.829,193 12,096,961 SUNDRY BALANCES WRITTEN OFF ACTUALS - 1,366,882 TOTAL OPERATING COST (B) 80,864,780 395,856,805 NET PROFIT (A - B) 14,966,338 5,132,054 NET COST PLUS MARKUP (%) 18.51 1.30 MAN HOURS 67,439 403,834 11. THE MARGIN IN THE AE SEGMENT WAS 18.51% AND NON AE SEGMENT WAS 1.30% AND THEREFORE TRANSACTIONS WERE STILL AT ARM ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 9 LENGTH PRICE. PERTINENT TO STATE THAT THE ASSESSEE HAS MAINTAINED TIME SHEET FOR RECORDING HOURLY SPENT ON EACH PROJECT BY EVERY EMPLOYEE OF THE ASSESSEE WHICH WERE ALSO A UDITED. THE LD. TPO REJECTED THE INTERNAL TNMM ON THE BASIS THA T DETAILS OF MAN HOURS WERE NOT VERIFIABLE AND AUDITED SEGMENTAL SUBMITTED BY THE ASSESSEE CAN NOT BE VERIFIED AS IT SEEMED TO BE SELF SERVING DOCUMENT AND CONSEQUENTLY BENCHMARKED THE INTERNAT IONAL TRANSACTIONS BY APPLYING EXTERNAL TNMM BY TAKING TH E FOLLOWING COMPARABLES: SR. NO. COMPANY NAME MAR 2011 NCP 1 DEVELOPMENT CONSULTANTS PVT. LTD. 17.93 2 MAHINDRA CONSULTING ENGINEERS LTD. 30.96 3 COMPUTRONICS FINANCIAL SERVICES (I) LTD. 29.58 4 TATA CONSULTING ENGINEERS LTD. 27.70 ARITHMETIC MEAN (%) 26.54 12. THE LD. TPO COMPUTED THE ASSESSEES MARGIN ON E NTITY LEVEL AT .006% AND THE PLI COMPUTATION OF THE ASSESSEE BY THE TPO IS REPRODUCED AS UNDER: PARTICULARS AMOUNT (RS.) AMOUNT (RS.) SALES 47,92,28,430 MISC INCOME 5,92,215 OPERATING INCOME (OI) 47,98,20,645 DIRECT EXPENSES 3,23,40,717 SALARIES & ALLOWANCES 17,17,01,634 ENGG. PROFESSIONAL FEE 4,74,66,213 SELLING AND MARKETING KXPEMES 2,94,77,186 ADMINISTRATIVE AND OTHER EXPENSES 18,18,72,571 DEPRECIATION 1,39,26,153 LESS: INTEREST EXPENSE (55,563) ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 10 TOTAI OPERATING COST (OC) 47,67,28,911 NET PROFIT (OF) -OI -OC 30,91,734 OP/OC (%} .006% 13. THEREAFTER, THE TPO OBSERVED THAT PLI OF THE AS SESSEE WAS .006% WHICH WAS LOWER THAN THE ARITHMETIC MEAN OF T HE PLI OF THE COMPARABLE WHICH IS 26.54% AND THUS COMPUTED TH E ARM LENGTH TRANSACTION WITH THE AE AS UNDER: ALP OF THE TRANSACTIONS PROVISION OF SERVICES TO AE 7,82,44,321 OPERATING PROFIT/COST RATIO OF THE ASSESSEE 0.00 6% OPERATING COST OF THE ASSESSEE ON AE EXPORT 7,82,39 ,627 OPERATING PROFIT/COST RATIO OF THE COMPARABLES 26.54% ALP OF THE EXPORT SALE TO AE 9,90,04,424 DIFFERENCE ALP & EXPORT SALE TO AE 2,07,60,103 (+5%) OF EXPORT SALE TO AE 39,12,216 14. THEREAFTER, THE FINAL ORDER OF THE ASSESSMENT W AS FRAMED BY THE AO UNDER SECTION 143(3) READ WITH SECTION 144C( 13) OF THE ACT DATED 23.12.2015 BY MAKING AN ADDITION OF RS.2,07,60,103/-. 15. THE LD. DRP REJECTED THE APPEAL OF THE ASSESSEE AND UPHELD THE ADJUSTMENT MADE BY THE TPO BY HOLDING AND OBSER VING AS UNDER: 5. DISCUSSION AND DIRECTIONS OF DRP: 5.1 THIS GROUND OF OBJECTION RELATES TO THE PROPOSE D ADJUSTMENT BY THE AO/TPO U/S 92CA(3) OF THE INCOME TAX ACT, 1961 AGGREGATING TO RS. 2,07,60,1037-. THE ASSESSEE COMPANY IS PROVIDING ENGINEERING SERVICES TO AES AS WELL AS CERTAIN THIRD PARTY CLIENTS. THE ASSESSEE COMPANY HAS IN ITS TP STUDY R EPORT COMPARED THE NET COST PLUS MARK-UP EARNED BY THE SNC, INDIA FROM TRANSACT IONS WITH ITS AH WITH THE NCP MARK-UP EARNED FROM TRANSACTIONS WITH NON-AES. THE CALCULATION OF THE MARGINS EARNED BY THE ASSESSEE FROM THE AH CLIENTS AND NON- AE CLIENTS SUBMITTED BY THE ASSESSEE COMPANY ARE SUMMARISED AS BELOW:- ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 11 PARTICULARS TOTAL AE TOTAL NON-AE ALLOCATION INCOME I NCOME FROM ENGINEERING SERVICES 1,95,841,760 300,978,217 ACTUAL TOTAL INCOME (A) 195,841,760 300.978,217 EXPENDITURE DIRECT EXPENSES 21,849,669 10,491,048 ACTUAL SALARIES & ALLOWANCES 68,486,159 103,215,475 ACTUAL ENGG. PROFESSIONAL FEE 15,641,748 31,824,465 ACTUAL SELLING AND MARKETING EXPENSES 6,893,071 22,584,116 MAN HOURS ADMINISTRATIVE AND OTHER EXPENSES 44,093.916 136,348,883 MAN HOURS DEPRECIATION 3,088,512 10.837,642 MAN HOURS SUNDRY BALANCES WRITTEN OFF - 1,366.882 ACTUAL TOTAL COST (B) 160,053,075 316,668,510 NET PROFIT (A-B) 35,788,685 (15,690,293) NET COST PLUS MARKUP(%) 22.36 (4.95) MANHOURS 125,940 345,333 5.2 BASED ON THE ABOVE TABLE AND BY APPLYING INTERN AL TNMM THE ASSESSEE COMPANY HAS STATED THAT THE NCP MARK-UP FOR AE IS 2 2.6%. WHILE THE NCP MARK-UP FOR NON-AE IS (-) 4.95%. THEREBY HOLDING THAT THE I NTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH. 5.3 THE DRP HAS GONE THROUGH THE TPO'S ORDER AND TH E VARIOUS SUBMISSIONS MADE BY THE ASSESSEE COMPANY, DURING THE COURSE OF DRP P ROCEEDINGS AND HAS NOTED VARIOUS DISCREPANCIES AND ANOMALIES IN THE WORKING OF THE ASSESSEE COMPANY. 5.4 A PERUSAL OF THE ABOVE TABLE REVEALS THAT THE T OTAL SALES OF ENGINEERING SERVICES TO THE AE IS AMOUNTING TO RS.19,58,41,760/-, HOWEVE R THIS SALES FIGURE IS NOT MATCHING WITH THE SALES DISCLOSED IN FORM NO. 3CEB. AS PER THE FORM NO. 3CEB, THE SALES TO THE AES ARE ONLY AMOUNTING TO RS. 7,82,44, 321/-. THE ASSESSEE WAS DULY ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 12 CONFRONTED WITH THESE DISCREPANCIES AND A RECONCILI ATION WAS FILED BY THE ASSESSEE COMPANY, WHICH IS PLACED AT PAGE 610 & 611 OF THE A SSESSEE'S PAPER BOOK. A PERUSAL OF THE SAID RECONCILIATION REVEALS THAT AN AMOUNT OF RS.10,00,10,642/- IS ACTUALLY SALES MADE TO THE NON-AES AND NOT TO THE A E'S, AS CLAIMED IN THE SEGMENTAL DATA OF THE AE & NON-AE (REFER TO THE TABLE ABOVE). ON THIS AMOUNT OF SALES MADE TO THE NON-AE WORTH RS. 10,00,10,642/-, THE ASSESSE E COMPANY HAS JUST RECEIVED SERVICE CHARGES FROM THE AES. THE DRP IS OF THE VIE W THAT AN AMOUNT OF RS.10,00,10,642/- IS ACTUALLY SALES MADE TO NON-AE WHICH HAS BEEN CATEGORIZED AS SALES MADE TO AE IN THE ABOVE TABLE. IT IS BASICALL Y BECAUSE OF THIS WRONG CATEGORIZATION THAT THE NET COST PLUS MARK-UP FOR T HE AE IS 22.36% WHILE THE NET COST PLUS MARK-UP FOR NON-AE SEGMENT IS (-)4.95%. T HE ASSESSEE COMPANY WAS DULY CONFRONTED WITH THE FACT THAT THERE IS A HUGE DIFFE RENCE IN THE NCP MARK-UP OF AE (22.36 %) AND NON-AE (-4.95%). HOWEVER, THE ASSESSE E COMPANY HAS FAILED TO GIVE ANY PLAUSIBLE REASON FOR SUCH A HUGE GAP IN THE NCP MARK-UP OF THE TWO SEGMENTS. 5.5 IF THE NON-AE SALES AMOUNTING TO RS. 10,00,10,6 42/- ARE CORRECTLY REFLECTED IN THE ABOVE TABLE, THE CORRECT NCP MARK-UP FOR THE AE OR NON-AE SEGMENT WILL BE AS BELOW: PARTICULAR AE NON-AE (A) INCOME FROM ENGINEERING SERVICES 9,53,19,868 40,09,88,859 (B) TOTAL COST 16,00,53,075 31,66,68,510 NET PROFIT (A-B) -6,47,33,207 8,43,20,349 NET COST PLUS MARK-UP(%) -40.44% 26.62% 5.6 THUS, THE ABOVE REVISED AE AND NON-AE. NCP MARK -UPS REVEAL THAT THE SALES TO THE AE ARE NOT AT ARM'S LENGTH. IT MAY BE NOTED THA T WHILE DRAWING UP THE ABOVE TABLE, NO CHANGES HAVE BEEN MADE IN THE FIGURES OF THE COST ALLOCATED LO THE AE & NON- AE SEGMENT. THE REASON FOR THIS LIES IN THE TA CT THAT THE ASSESSEE COMPANY HAS DURING THE COURSE OF THE DRP PROCEEDINGS VEHEMENTLY STALED THAT IT IS BASED ON ACTUAL MAN-HOURS OF EACH SEGMENT. HOWEVER, IN THE A BSENCE OF RELEVANT DETAILS AND EVIDENCES ON RECORD AND THE ABOVE DISCUSSION, THE D RP IS IN NO POSITION TO GIVE A FINDING THAT THE SEGMENTAL PROVIDED BY THE ASSESSEE COMPANY ARE RELIABLE. 5.7 FURTHER, THE DRP HAS NOTED THAT THE DETAILS OF MAN HOURS, WHICH HAS BEEN TAKEN AS A BASIS FOR ALLOCATION OF THE EXPENSES AMONGST T HE AE & NON-AE SEGMENT IS NOT VERIFIABLE. THUS, THE FACT IS THAT THE SEGMENTAL RE SULTS OF THE AE & NON-AC SUBMITTED BY THE ASSESSEE COMPANY REMAINED UNVERIFIED. A PERU SAL OF THE TABULAR SEGMENTAL DATA PRESENTED BY THE ASSESSEE COMPANY CLEARLY REVE ALS THAT THE NON-AE SEGMENT HAS BEEN HEAVILY LOADED WITH LARGE AMOUNT OF EXPENS ES ON THE BASIS OF MAN HOUR. THIS HAS RESULTED IN AN INCREASE IN THE NET NCP MAR K-UP FOR THE AE SEGMENT AND A CONSEQUENT SUBSTANTIAL DECREASE IN THE NCP MARK-UP OF NON-AE SEGMENT. IT IS SEEN THAT THE INCOME FROM ENGINEERING SERVICES OF THE NO N-AE SEGMENT IS 1.53 TIMES OF THE AE SEGMENT, BUT THE SELLING AND MARKETING EXPEN SES, ADMINISTRATIVE AND OTHER ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 13 EXPENSES AND DEPRECIATION ARE 3.27 TIMES, 3.09 TIME S AND 3.51 LIMES RESPECTIVELY. THE ASSESSEE COMPANY HAS ALSO SUBMITTED A DETAILED CHART OF THE EMPLOYEES, WHEREIN THE SAME EMPLOYEE HAS WORKED FOR BOTH THE A E AND NON-AE SEGMENT. THE ASSESSEE COMPANY WAS DULY CONFRONTED WITH THE FACT THAT THE DATA GIVEN IN THE PAPER BOOK ON THE MAN HOUR BASIS FOR THE AE & NON-A E SEGMENT IS UNVERIFIABLE & IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. IN VIEW OF THESE CIRCUMSTANCES, THE AO HAS RIGHTLY NOTED IN THE ASSESSMENT ORDER THAT T HE DATA OF THE MAN HOURS ON THE BASIS OF WHICH ALLOCATION HAS BEEN MADE IS A SELF S ERVING DOCUMENT. 5.8 IN VIEW OF THE FACT THAT THERE IS MATERIAL DISC REPANCY BETWEEN THE DATA CONTAIN IN THE AUDITED FORM 3CEB AND THE SEGMENTAL AE/NON-A E DATA FURNISHED DURING THE PROCEEDINGS COUPLED WITH THE FACT THAT HARDLY ANY E XPENSES HAS BEEN ALLOCATED TO THE AE SEGMENT ON THE BASIS OF MAN HOURS, THE INTER NAL TNMM ANALYSIS DONE BY THE ASSESSEE COMPANY HAS BEEN CORRECTLY REJECTED BY THE TPO. AFTER REJECTING THE INTERNAL TNMM ANALYSIS, THE TPO HAS RIGHTLY BENCHMA RKED THE INTERNATIONAL TRANSACTIONS BASED ON EXTERNAL TNMM BY COMPARING TH E MARGINS EARNED BY THE ASSESSEE COMPANY FROM ITS AH AND THE BROADLY SIMILA R COMPARABLE COMPANIES. 5.9 THE TPO HAS REJECTED 2 OUT OF THE 4 COMPARABLES TAKEN BY THE ASSESSEE COMPANY, THE FIRST ONE IS M/S BABCOCK BORSIG SOFTEC H PVT. LTD AND THE SECOND IS M/S DESEIN PVT. LTD. IT IS AN UNDISPUTED FACT THAT THE DATA PROVIDED BY THE ASSESSEE COMPANY WHICH IS PLACED FROM PAGE 276 ONWARDS OF TH E ASSESSEES PAPER BOOK ONLY DATA FOR THE F.Y. 2009-10 RELEVANT TO A.Y. 2010-11 HAS BEEN PLACED BEFORE THE DRP. SIMILARLY, IN THE CASE OF M/S DESEIN PVT. LTD.. THE DATA WHICH HAS BEEN PLACED IN THE ASSESSEES PAPER BOOK FROM PAGE 313 ONWARDS RELATES TO F.Y. 2011-12 RELEVANT TO A.Y. 2012-13. THUS, FOR BOTH THE COMPANIES, THE ASS ESSEE COMPANY COULD NOT PRODUCE DATA FOR THE CURRENT YEAR UNDER CONSIDERATI ON. IN VIEW OF THIS, THE DRP IS OF THE VIEW THAT THE TPO HAS RIGHTLY REJECTED THE 2 CO MPARABLES, NAMELY M/S BABCOCK BORSIG SOFLECH PVT. LTD AND M/S DESCIN PVT. LTD. 5.10 THE TPO HAS ALSO CONSIDERED 2 NEW COMPARABLES NAMELY M/S COMPUTRONICS FINANCIAL SERVICES (I) LTD. AND TATA CONSULTING ENG INEERS LTD. THE OBJECTION OF THE ASSESSEE COMPANY REGARDING COMPUTRONICS FINANCIAL I .S THAT THE COMPANY IS ENGAGED IN DATA PROCESSING. HOWEVER, THE MATERIAL P LACED ON RECORD REVEALS THAT THE COMPANY IS ENGAGED IN PROVIDING CONSULTANCY SER VICES AND HENCE, FUNCTIONALLY SIMILAR TO THE ASSESSEE COMPANY. IN THIS REGARD, TH E DATA OF COMPUTRONICS PLACED IN THE PAPER BOOK ON PAGE 626 & 627 IS RELIED UPON. 5.11 IN THE CASE OF TATA CONSULTING ENGINEERING LTD ., THE ONLY OBJECTION OF THE ASSESSEE COMPANY IS THAT THE TURNOVER OF THE COMPAR ABLE IS 9 TIMES OF THE TURNOVER OF THE ASSESSEE COMPANY. IN THIS REGARD, IT IS STAT ED THAT IN THE TP STUDY REPORT THE ASSESSEE COMPANY HAS NOT APPLIED ANY UPPER TURNOVER FILTER. AS FAR AS TURNOVER IS CONCERNED, THE ASSESSEE COMPANY HAS APPLIED A LOWER TURNOVER FILTER OF SALES LESS THAN RS. 1 CRORE, ONLY. SINCE, THE ASSESSEE COMPANY HAS ITSELF NOT APPLIED ANY UPPER TURNOVER FILTER IN ITS TP STUDY REPORT IT CANNOT FI ND FAULT WITH THE TPO'S COMPARABLE ON THE BASIS OF HIGH TURNOVER. FURTHER, THERE ARE A LARGE NUMBER OF DECISIONS OF VARIOUS APPELLATE AUTHORITIES, WHEREIN IT IS HELD T HAT IF THE FAR OF THE COMPARABLE IS SAME THEN TURNOVER IS NOT A CRITERION TO REJECT PAR TICULAR COMPARABLE. ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 14 5.12 THIS ARGUMENT OF THE ASSESSEE OF HIGH TURNOVER HAS BEEN CONSIDERED BY THE HON'BLE ITAT MUMBAI, IN THE CASE OF M/S WILLIS PROC ESSING SERVICES (INDIA) PVT LTD IN ITA NO.4547/MUM/2012, WHEREIN IT WAS HELD THAT TURN OVER IS NOT A CRITERIA AS PRESCRIBED UNDER THE RULE 10B(2) FOR SELECTING THE COMPARABLES. IT IS A SETTLED PROPOSITION THAT THE DECISIVE FACTOR FOR DETERMININ G INCLUSION OR EXCLUSION OF ANY COMPARABLE IS PRESCRIBED UNDER RULE 10B(2), WHICH D OES NOT SPECIFY ANY SUCH FACTOR OF TURNOVER ON THE BASIS OF WHICH A PARTICULAR ENTI TY CAN BE INCLUDED OR EXCLUDED IN THE LIST OF COMPARABLES. WHEN THE ASSESSEE HAS NOT MADE OUT A CASE AS TO HOW THE HIGH OR LOW TURNOVER HAS INFLUENCED OPERATING MARGI N, THEN A COMPARABLE CANNOT BE REJECTED SOLELY ON THE BASIS OF HIGH TURNOVER. 5.13 IN VIEW OF THIS, THE PLI WORKING BY THE TPO B Y TAKING 4 COMPARABLES AT 26.54% IS HELD TO BE CORRECT. IN VIEW OF THE ABOVE MENTIONED FACTS AND CIRCUMSTANCES OF THE CASE, THE DRP IS OF THE VIEW T HAT ADJUSTMENT OF RS.2,07,60,103/- MADE BY THE TPO DOES NOT REQUIRE ANY INTERFERENCE AND THE GROUND OF OBJECTION OF ASSESSEE COMPANY IN THIS REG ARD, IS REJECTED. 16. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT AS SESSEE HAS BENCHMARKED THE INTERNATIONAL TRANSACTION BY APPLYI NG INTERNAL TNMM. THE LD. A.R. STATED THAT ASSESSEE HAS PREPAR ED AUDITED SEGMENTAL WORKING OF TRANSACTIONS WITH AE AND TRANS ACTIONS WITH NON AE ON THE BASIS OF AUDITED MAN HOUR DETAIL S AND ALSO DREW OUR ATTENTION TO THE PAGE NO.118 TO 249 OF THE PAPER BOOK WHEREIN THE COMPREHENSIVE DETAILS OF MAN HOURS WERE FILED. THE LD. A.R. SUBMITTED THAT PREPARATION OF AUDITED SEGM ENTAL ON THE BASIS OF MAN HOUR DETAILS IS THE MOST SCIENTIFIC ME THOD. THE LD. A.R. SUBMITTED THAT ASSESSEE HAS TWO OFFICES ONE IN DELHI AND SECOND IN MUMBAI. DETAILS OF MAN HOUR IN BOTH THE OFFICES WERE BIFURCATED INTO AE AND NON AE SEGMENT. DETAILS WHE REOF ARE FILED AT PAGE NO.84 TO 86 OF THE ASSESSEES PAPER B OOK. THE LD. A.R. SUBMITTED THAT TPO REJECTED THE SEGMENTAL AT P ARA 6.1.3 BY OBSERVING THAT DETAILS OF MAN HOURS TAKEN AS BASIS OF ALLOCATION IS NOT VERIFIABLE AS IT SEEMS TO BE SELF SERVING DO CUMENT AND ACCORDINGLY TNMM ANALYSIS WAS REJECTED AND DISCARDE D. THE LD. A.R. SUBMITTED THAT ON THE STANCE OF TPO TO FURNIS H THE REVISED WORKING OF SEGMENTAL BY TAKING ONLY AE SALES IN AE SEGMENT AND ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 15 BY TAKING AE COST IN NON AE SEGMENT WHICH IS REPROD UCED ABOVE EVEN THE MARGIN OF AE SEGMENT AND NON AE SEGMENT WE RE RS.18.51% AND 1.30% WHICH WERE EVEN REJECTED BY THE TPO WITHOUT EVEN ASSIGNING ANY REASON WHATSOEVER. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS BENCHMARKED THE INT ERNATIONAL TRANSACTIONS UNDER INTERNAL TNMM METHOD BY COMPARIN G THE MARGIN EARNED FROM AE TRANSACTIONS WITH MARGIN EARN ED FROM NON AE TRANSACTIONS WHICH IS PART OF THE TPSR AND A CCORDING TO THE SAID METHOD THE MARGIN UNDER AE SEGMENT WAS 22. 36% AND NON AE WAS (-) 4.95% AND THUS THE TRANSACTION WITH AE SEGMENT WAS CONSIDERED TO BE AT ARM LENGTH. THE LD. A.R. R EFERRED TO THE THIRD MEMBER RULING OF THE MUMBAI, ITAT IN THE CASE OF M/S. TECNIMONT ICB PRIVATE LTD. VS. ADDL. CIT IN ITA NO.4608/M/2010 WHEREIN THE HONBLE THIRD MEMBER HAS HELD THAT INTERNAL TNMM HAS TO BE PREFERRED OVER EXTERNA L TNMM FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. THE L D. A.R. SUBMITTED WITHOUT PREJUDICE, IT IS PERTINENT TO SU BMIT THAT SEGMENTAL BIFURCATION AS DIRECTED BY TPO SUFFERED FROM BASIC FLAWS. CONTROLLED TRANSACTION IS BEING COMPARED WITH ANOTHER CONTROLLED TRANSACTION I.E. THE AE SEGMENTAL HAS RE VENUE FROM SALES TO AE AND NON AE SEGMENT HAS COST RELATED TO AE SEGMENT. THEREFORE SUCH A COMPARISON IS AGAINST THE PRINCIPL E OF TRANSFER PRICING PROVISIONS. THE LD. A.R. SUBMITTED THAT IN THE AFORESAID DECISION THE HON'BLE THIRD MEMBER HAS HELD THAT IT IS EVIDENT THAT RULE 10B(E) VIVIDLY REFERRED TO MAKING A COMPA RISON OF NET PROFIT MARGIN WITH SOME COMPARABLE UNCONTROLLED TRA NSACTION AND THERE IS NO REFERENCE OF MAKING COMPARISON OF A SSESSEES INTERNATIONAL TRANSACTION WITH COMPARABLE CONTROLLE D TRANSACTION. IT WAS OBSERVED BY THE HON'BLE THIRD MEMBER THAT ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 16 COMPARABLE MAY BE INTERNAL OR EXTERNAL BUT IN ANY C ASE SUCH COMPARABLE MUST BE THAT OF UNCONTROLLED TRANSACTION S OR NUMBER OF SUCH UNCONTROLLED TRANSACTIONS AND THUS S TATED THAT THE APPROACH OF THE TPO IS FALLACIOUS AND WRONG. T HE LD. A.R. SUBMITTED THAT THE DRP HAS MISUNDERSTOOD THE SEGMEN TAL RESULTS AND SHIFTED THE THIRD PARTY REVENUE FROM AE SEGMENT TO NON AE SEGMENT. HOWEVER, THE DRP HAS FAILED TO APP RECIATE THAT IF THIRD PARTY REVENUE IS SHIFTED FROM AE SEGMENT T O NON AE SEGMENT THEN CORRESPONDING COST IS ALSO REQUIRED TO BE SHIFTED FROM AE SEGMENT TO NON AE SEGMENT AND THUS THE DRP HAS MISUNDERSTOOD THE ISSUE OF INTERNAL SEGMENTAL AND H AS RECOMPUTED THE FIGURE WHICH ARE BEYOND ACCOUNTING N ORMS. FINALLY THE LD. A.R. SUBMITTED THAT THE INTERNAL SE GMENTAL OF THE ASSESSEE MAY BE ACCEPTED AND THE INTERNATIONAL TRAN SACTION OF THE ASSESSEE MAY BE ACCEPTED AT ARM LENGTH PRICE. 17. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF TPO AND DRP BY SUBMITTING THAT THE APPLICATION OF INTER NAL TNMM IS NOT BASED ON SCIENTIFIC AND RELIABLE MAN HOURS AS H AS BEEN DONE BY THE ASSESSEE AS SAME COULD NOT BE VERIFIED ON TH E BASIS OF RECORDS PRODUCED BY THE ASSESSEE. UNDER THESE CIRC UMSTANCES, THE LD. D.R. SUBMITTED THAT THE ONLY OPTION LEFT WI TH THE TPO WAS TO RECOMPUTE MARGINS BY REPOSITIONING THE SALES AND COST OF AES AND NON AES WHICH WAS RIGHTLY DONE AND UPHELD B Y THE DRP. SO FAR AS THE ALLOCATION OF REVENUE FROM NON AES TO AE AND NON ALLOCATION OF COST RELATING THERETO AS AES ARE CONCERNED, THE LD. D.R. PRAYED BEFORE THE BENCH THAT THE DRP F INDING MAY BE UPHELD IN VIEW OF THE NON RELIABLE BENCHMARKING DONE BY THE ASSESSEE. ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 17 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND SUBMISS IONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD . WE OBSERVE THAT THE ASSESSEE HAS MAINTAINED THE AE AND NON AE SEGMENTAL WHICH WERE DULY AUDITED AND APPLIED INTERNAL TNMM F OR BENCHMARKING THE INTERNATIONAL TRANSACTION WITH THE AES. WE OBSERVE FROM THE ABOVE THAT TPO HAS REJECTED THE IN TERNAL TNMM METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTI ON AS DONE BY THE ASSESSEE ON THE GROUND THAT THE MAN HOUR ALL OCATED TO AES AND NON AES WERE NOT RELIABLE. WHEREAS, ON THE OTHER HAND, WE FIND THAT THE ASSESSEE HAS MAINTAINED COMP REHENSIVE RECORDS OF MANPOWER UTILISATION AND ALLOCATION WHIC H WERE DULY AUDITED AND THERE IS NO DEFICIENCY IN THAT. THE LD . TPO ADOPTED THE EXTERNAL TNMM FOR BENCHMARKING THE INTERNATIONA L TRANSACTION AND COMPUTED THE ARITHMETIC MEAN AT 26. 54% AND THE ASSESSEES MARGIN ON ENTRY LEVEL WAS CALCULATED AT .006% AS REPRODUCED ABOVE. THE METHOD ADOPTED BY THE LD. TP O IS ARBITRARY AND CAN NOT BE ACCEPTED. SIMILARLY, THE LD. DRP HAS ALSO GONE A STEP AHEAD BY JUST MIXING UP THE DATA O F AE AND NON AES AND THEREBY MISUNDERSTANDING THE AUDITED SEGMEN TAL AND RECASTING THE SAME BY SHIFTING THE REVENUE RECEIPTS FROM NON AE OF RS.10,00,10,642/- TO NON AE SEGMENT HOWEVER, NOT SHIFTING THE CORRESPONDING COST WHICH WAS PAID TO AE FOR THE SERVICES RENDERED TO NON AE AND THUS DRP REJECTED THE REQUE ST OF THE ASSESSEE THAT THE MARGIN AS PER AUDITED SEGMENTAL I .E. 22.36% MAY BE ACCEPTED AT ARM LENGTH PRICE. HOWEVER, DRP COMPUTED THE MARGIN OF AE SEGMENT AND NON AE SEGMENT AT (-) 40.44% AND 22.26% RESPECTIVELY. WE OBSERVE THAT DRP HAS W RONGLY REJECTED THE INTERNAL TNMM AND UPHELD THE EXTERNAL TNMM AS APPLIED BY THE TPO AND THUS WE ARE NOT IN AGREEMENT WITH THE ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 18 ORDER PASSED BY THE DRP ON THIS ISSUE. ACCORDINGLY , WE HOLD THAT THE ASSESSEE HAS RIGHTLY BENCHMARKED THE TRANS ACTION WITH THE AE ON THE BASIS OF AUDITED SEGMENTAL BY FOLLOWI NG INTERNAL TNMM. ACCORDINGLY, WE ARE INCLINED TO SET ASIDE TH E ORDER OF LD. DRP AND DIRECT THE LD. TPO/AO TO DELETE THE DISALLO WANCE. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ITA NO.1067/M/2016 (A.Y. 2011-12) 20. THE ISSUE RAISED BY THE ASSESSEE IN THIS APPEA L IS IDENTICAL TO ONE AS DECIDED BY US IN ITA NO. 4713/M/2016 WHER EIN THE INTERNAL TNMM HAS BEEN HELD TO BE MOST APPROPRIATE METHOD TO BENCH THE INTERNATIONAL TRANSACTIONS WITH AE. THERE FORE OUR DECISION IN ITA NO. 4713/M/2016 WOULD, MUTATIS MUTA NDIS, APPLY TO THIS APPEAL AS WELL. ACCORDINGLY THE APPEA L OF THE ASSESSEE IS ALLOWED. 21. IN RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.06.2019. SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 06.06.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ ITA NOS.1067/M/2016 ITA NOS.4713/M/2016 M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 19 BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.