M/s Bombardier Transportation India Pvt. Ltd., (BTIPL), New Delhi V. DCIT, New Delhi

ITA 1358/DEL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5800 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 06-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction
• Section: 115JB

Judgement Text

ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBE R AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBE R ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 BOMBARDIER TRANSPORTATION INDIA PVT. LTD., (BTIPL), HOTEL HOLIDAY INN, BUSINESS CENTRE, AERO CITY, DELHI INTL. AIRPORT, NEW DELHI-110037 (PAN: AAACA5584C) VS DCIT, CIRCLE-5(1), ROOM NO. 390, C.R. BUILDING, I.P. ESTATE, NEW DELHI. APPELLANT RESPONDENT ASSESSEE BY : SHRI VISHAL KALRA, ADVOCATE DEPARTMENT BY: SHRI SANJAY I. BARA, C.I.T. D R DATE OF HEARING : 14.05.2019 DATE OF PRONOUNCEMENT : 09.08.2019 O R D E R PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- 19, NEW DELHI {CIT (A)} FOR ASSESSMENT YEAR (AY) 20 11-12. 2.0 BRIEF FACTS OF THE CASE ARE THAT BOMBARDIER TRANSPORTATION INDIA PRIVATE LIMITED (BTIPL) I.E. T HE ASSESSEE IS A COMPANY INCORPORATED IN INDIA UNDER THE PROVISIONS OF COMPANIES ACT, 1956. IT IS A WHOLLY OWNED SUBSIDIAR Y OF BOMBARDIER TRANSPORTATION (HOLDINGS) SINGAPORE PTE. LTD. AND IS ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 2 ENGAGED IN THE BUSINESS OF MANUFACTURING AND SUPPLY OF METRO COACHES AND BOGIES AND OTHER RAIL TRANSPORTATION SY STEMS IN THE PASSENGER ('PGR') & BOGIES ('BOG') DIVISION, MANUFA CTURE AND SUPPLY OF SIGNALLING EQUIPMENT IN THE RAIL CONTROL SYSTEMS ('RCS') DIVISION AND CONTROL SYSTEMS IN THE PROPULS ION & CONTROLS ('PPC') DIVISION. 2.1 DURING THE CAPTIONED AY, THE ASSESSEE FILED IT S RETURN OF INCOME DECLARING A LOSS OF RS. 832,507,390/- UND ER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) AND LOSS OF RS. 506,682,596/- UNDER SECTION 1 15JB OF THE ACT. SUBSEQUENTLY, THE ASSESSEE FILED A REVISED RET URN OF INCOME WHEREIN IT HAD DECLARED A LOSS OF RS. 751,768,805/- UNDER THE NORMAL PROVISIONS OF THE ACT AND LOSS OF RS. 506,6 82,596/-UNDER SECTION 115JB OF THE ACT. 2.2 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER (AO) MADE A REFERENCE UNDER SECTION 92CA OF THE ACT TO THE ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRI CING OFFICER - 1(3), NEW DELHI ('TPO') FOR DETERMINATION OF THE AR M'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTIONS ENT ERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES ('AES') DU RING THE ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 3 CAPTIONED AY, WHICH WERE ALSO DULY REPORTED IN THE ACCOUNTANT'S REPORT I.E. FORM NO. 3CEB, FILED ALONG WITH THE RE TURN OF INCOME. 2.3 DURING THE COURSE OF THE TRANSFER PRICING (TP) ASSESSMENT PROCEEDINGS, THE TPO ACCEPTED THE ARM'S LENGTH NATURE OF ALL THE INTERNATIONAL TRANSACTIONS EXCEPT FOR THE TRANSACTION PERTAINING TO 'SALE OF METRO TRAINS' UN DER THE PGR & BOG DIVISION. THE TPO PROPOSED TO DISREGARD THE COM PARABLE UNCONTROLLED PRICE ('CUP') ANALYSIS CONDUCTED BY TH E ASSESSEE IN ITS TP DOCUMENTATION WITH REGARD TO THE DETERMINATI ON OF ALP OF ITS INTERNATIONAL TRANSACTION PERTAINING TO 'SALE O F METRO TRAINS' UNDER THE PGR & BOG DIVISION. INSTEAD, THE TPO PROP OSED TO APPLY TRANSACTIONAL NET MARGIN METHOD ('TNMM') AND PROPOSED A SET OF 6 COMPARABLES WITH AN AVERAGE OPERATING PR OFIT ('OP') / OPERATING COST ('OC') OF 5.5%, RESULTING IN A PROPO SED TP ADJUSTMENT OF RS. 1,402,642,087/-. 2.4 IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSE SSEE THAT THE ASSESSEE AND ITS AE HAD FORMED A CONSORTIU M TO SUPPLY METRO COACHES TO DELHI METRO RAIL CORPORATION ('DMR C'). UNDER THE TRI-PARTY CONSORTIUM AGREEMENT BETWEEN THE ASSE SSEE, THE AE AND DMRC, THE ASSESSEE HAD SUPPLIED CERTAIN METRO T RAIN SETS TO DMRC DURING THE RELEVANT AY, ALL OF WHICH WERE INDI GENOUSLY ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 4 MANUFACTURED AT THE ASSESSEES FACTORY AT GUJARAT. THESE METRO TRAIN SETS SOLD TO THE AE BY THE ASSESSEE HAD FURTH ER BEEN SOLD TO DMRC BY THE AE AT THE SAME PRICE AT WHICH THE AE HA D PURCHASED FROM THE ASSESSEE. BASED ON THE ABOVE, I T WAS SUBMITTED THAT THE PRICE AT WHICH THE AE HAD SOLD T HE METRO TRAIN SETS TO DMRC ACTED AS A VALID CUP SUBSTANTIAT ING THE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION OF ' SALE OF METRO TRAINS' ENTERED INTO BY THE ASSESSEE WITH ITS AE. WITH RESPECT TO THE ABOVE, THE ASSESSEE SUBMITTED A COMPARISON OF T HE PRICES AT WHICH THE ASSESSEE HAD MADE SALES TO ITS AE AND SAL ES MADE BY THE AE TO DMRC TO EVIDENCE A VALID INTERNAL CUP REL IED UPON BY THE ASSESSEE IN ORDER TO DETERMINE THE ALP OF THE S AID TRANSACTION. 2.5 WITH RESPECT TO THE PROPOSED APPLICATION OF TH E TNMM FOR DETERMINATION OF ARM'S LENGTH MARGIN, THE ASSES SEE ARGUED THAT THE SAID APPROACH WAS NOT APPROPRIATE. FURTHER , THE ASSESSEE SUBMITTED THAT BEML LIMITED ('BEML') WAS T HE ONLY OTHER COMPARABLE IN INDIA WHICH IS ENGAGED IN MANUF ACTURE OF METRO TRAINS AND IN RESPECT OF WHICH FINANCIAL INFO RMATION IS AVAILABLE IN PUBLIC DOMAIN. BASED ON THE ABOVE, THE ASSESSEE HAD SUBMITTED BEFORE THE TPO THAT ONLY BEML SHOULD BE ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 5 CONSIDERED AS A VALID COMPARABLE. THE TPO, IN HIS O RDER, ACCEPTED BEML AS ONE OF THE COMPARABLE FOR DETERMIN ING THE ALP OF THE CAPTIONED INTERNATIONAL TRANSACTION. HOWEVER , IN ADDITION TO ACCEPTING BEML, THE TPO ALSO SELECTED 5 ADDITION AL COMPARABLES WHICH WERE BASED ON HIS OWN SET OF QUAN TITATIVE AND QUALITATIVE FILTERS. 2.6 WITH RESPECT TO THE ADDITIONAL COMPARABLES, IT WAS SUBMITTED THAT WHILE SELECTING THE ADDITIONAL 5 COM PARABLE COMPANIES (NAMELY TITAGARH WAGONS LIMITED, TEXMACO RAIL AND ENGINEERING LIMITED, BRAITHWAITE INDIA LIMITED, BUR N STANDARD COMPANY LIMITED AND BESCO LIMITED), THE TPO HAD MAD E AN INAPPROPRIATE COMPARISON WHEREBY THESE COMPANIES WH ICH WERE INTO WAGON MANUFACTURING WERE COMPARED TO THE ASSES SEE WHICH IS A MANUFACTURER OF METRO TRAINS, THUS IGNORING TH E FUNDAMENTAL DIFFERENCE BETWEEN WAGONS AND METRO TRAINS BUSINESS . 2.7 FURTHER, IT HAD BEEN SUBMITTED THAT IT HAD AN ALYSED FEW MORE COMPARABLES AND HAD FOUND 2 MORE SUCH COMP ARABLES WHICH WERE SIMILAR TO THE AFORESAID COMPANIES PROPO SED BY THE LD. TPO. THESE 2 COMPARABLES WERE JESSOP & CO. LIMI TED WHICH WAS REJECTED BY THE TPO ON THE GROUND THAT IT FAILE D HIS ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 6 QUANTITATIVE FILTER OF SALES TURNOVER OF 50% AND BH ARAT WAGON & ENGINEERING LIMITED WHICH WAS REJECTED ON THE GROUN D THAT ITS FINANCIAL DATA FOR THE CAPTIONED AY WAS NOT AVAILAB LE. 2.8 THEREAFTER, THE TPO CONSIDERED A REVISED AVERA GE OP/OC MARGIN OF 4.74% (AFTER INCLUDING ONE COMPARAB LE I.E. JESSOP & CO. LIMITED) USING TNMM AS THE MOST APPROP RIATE METHOD. THE FINAL COMPARABLE SET CONSIDERED BY THE TPO IS PROVIDED BELOW: 2.9 ACCORDINGLY, THE TPO IN HIS ORDER ISSUED UN DER SECTION 92CA(3) OF THE ACT, MADE A TP ADJUSTMENT OF INR 1,108,096,654/- TO THE CAPTIONED INTERNATIONAL TRAN SACTION OF THE ASSESSEE ON A PROPORTIONATE BASIS. BASED ON THE SAME, THE AO ISSUED THE FINAL ASSESSMENT ORDER MAKING A TP AD JUSTMENT OF SR. NO. COMPANY NAME OP/OC 1 BESCO LIMITED 6.14% 2 TEXMACO RAIL & ENGINEERING LIMITED 21.26% 3 TITAGARH WAGONS LIMITED 19.52% 4 BRAITHWAITE & CO. LIMITED 6.65% 5 BURN STANDARD & CO. LIMITED -5.73% 6 BEML LIMITED (RAILWAY CUSTOMER BUSINESS SEGMENT) -14.84% 7 JESSOP & CO. LIMITED (CS WAGON AND EMU SEGMENT) 0.15% AVERAGE 4.74% ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 7 INR 1,108,096,654/- TO THE TAXABLE INCOME FOR THE C APTIONED AY. 2.10 FURTHER, AGGRIEVED WITH THE CONTENTIONS OF T HE TPO THE ASSESSEE FILED AN APPEAL BEFORE THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) WHO REJECTED THE CONTENTIONS OF THE A SSESSEE WITH RESPECT TO APPLICATION OF INTERNAL CUP. HOWEVER, TH E LD. CIT (A) ACCEPTED ASSESSEES CONTENTIONS WITH REGARD TO FREE OF COST ('FOC') SUPPLIES AND THE AO PASSED AN ORDER AFTER G IVING EFFECT TO THE SAME ON JULY 20, 2017, WHEREIN THE ARM'S LE NGTH MARGIN WAS DETERMINED TO BE 3.78% AND THE AMOUNT OF ADJUST MENT WAS REVISED TO INR 1,007,722,861/-. 2.11 NOW, THE ASSESSEE IS IN APPEAL BEFORE THIS TR IBUNAL (ITAT) AND HAS RAISED THE FOLLOWING GROUNDS OF APPE AL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT HOLDING THAT THE ORDER PASSE D BY THE ASSESSING OFFICER (AO)/ TRANSFER PRICING OFFI CER (TPO) IS BAD IN LAW AND VOID-AB-INITIO. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT HOLDING THAT THE REFERENCE M ADE BY THE AO SUFFERS FROM JURISDICTIONAL ERROR IN AS MUCH AS THE AO DID NOT RECORD ANY REASONS IN THE ASSESSMENT ORD ER BASED ON WHICH THE AO REACHED THE CONCLUSION THAT I T WAS EXPEDIENT AND NECESSARY TO REFER THE MATTER T O THE TPO FOR COMPUTATION OF THE ARMS LENGTH PRICE (ALP ), AS REQUIRED UNDER SECTION 92CA(1) OF THE ACT. ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 8 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE TPO IN ENHANCING THE ALP OF THE INTERNATIONAL TRANSACTION PERTAINING TO SALE OF METRO TRAINS IN THE PASSENGER S (PGR) AND BOGIES (BOG) DIVISION BY INR 1,108,096,654 BY REJECTING COMPARABLE UNCONTROLLED PRICE (CUP) METHO D APPLIED BY THE APPELLANT AND INSTEAD APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD. 4. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AP PELLANT HAD SUPPLIED METRO TRAIN TO THE ASSOCIATED ENTERPRI SE AT THE SAME PRICE AT WHICH THE SAME WAS SOLD BY THE ASSOCIATED ENTERPRISE TO THE UNRELATED PARTY, I.E., DELHI METRO RAIL CORPORATION [DMRC], AND THEREFORE THE SAID INTERNATIONAL TRANSACTION WAS APPROPRIATELY BENCHMA RKED APPLYING COMPARABLE UNCONTROLLED PRICE METHOD. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) / TRANSFER PRICING OFFICER [TPO] ERRED IN NOT APPRE CIATING THAT CUP METHOD WAS VALIDLY APPLIED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATION AL TRANSACTION OF SALE OF METRO TRAIN SETS. 4.2 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN REJECTING THE CUP METHOD APP LIED BY THE APPELLANT ALLEGEDLY HOLDING THAT THE APPELL ANT DID NOT PRODUCE ANY INSTANCE OF CUP, I.E., THE APPELLAN T DID NOT SHOW THAT THE ASSESSEE SUPPLIED THE SAME GOOD T O THIRD PARTY NOR HAS SHOWN THAT THE ASSOCIATED ENTER PRISE HAS PURCHASED GOODS FROM THE THIRD PARTY FOR THE SA ME PRICE. 4.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN NOT APPRECIATING THAT SINCE NO INCOME WAS RETAINED BY THE ASSOCIATED ENTERPRISE FROM THE INTERNATIONAL TRANSA CTION OF SALE OF METRO TRAIN BY THE APPELLANT, NO TRANSFER P RICING ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 9 ADJUSTMENT WAS OTHERWISE WARRANTED IN RESPECT OF TH E SAME. 5. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN MAKING THE TRANSFER PR ICING ADJUSTMENT ALLEGEDLY ON THE BASIS THAT THE ASSOCIAT ED ENTERPRISE, WHILE NEGOTIATING PRICE FOR SUPPLY OF T RAINS TO DMRC, OUGHT TO HAVE TAKEN INTO ACCOUNT THE MARK-UP TO BE PROVIDED TO THE APPELLANT IN INDIA FOR ASSEMBLIN G THE TRAINS, NOT APPRECIATING THAT THE SAME WAS AN UNCONTROLLED TRANSACTION UNDERTAKEN WITH THE PUBLIC SECTOR ORGANIZATION, IN WHICH GOVERNMENT ITSELF WAS A PARTY. 5.1 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED (FAR) BY THE APPELLANT WITH RESPECT TO THE CONSORTIUM AGREEMENT ENTERED BETWEEN THE APPELLANT, ITS ASSOCIATED ENTERPRISE AND THE DMRC FOR SUPPLY OF ME TRO TRAINS AND HOLDING THAT THE APPELLANT IS OPERATING IN THE CAPACITY OF A CONTRACT MANUFACTURER 5.2 WITHOUT PREJUDICE THAT THE COMMISSIONER OF INCO ME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDIN G THE ACTION OF THE LD. TPO IN APPLYING INAPPROPRIATE QUANTITATIVE AND QUALITATIVE FILTERS FOR SELECTION OF COMPARABLE UNCONTROLLED ENTERPRISES 5.3 WITHOUT PREJUDICE THAT THE COMMISSIONER OF INC OME- TAX (APPEALS) / THE TPO ERRED ON FACTS AND IN LAW I N CONSIDERING (I) TEXMACO RAIL & ENGINEERING LTD., (I I) TITAGARH WAGONS LTD., (III) BRAITHWAITE & CO. AND ( IV) BUM STANDARD CO. LTD., WHO ARE ENGAGED IN SUPPLY OF WAG ONS, ETC. TO BE FUNCTIONALLY COMPARABLE TO THE APPELLANT , NOT APPRECIATING THAT SPECIFIC CHARACTERISTICS OF THE P RODUCT BEING DIFFERENT, SUCH COMPANIES DID NOT SATISFY THE TEST OF COMPARABILITY IN TERMS OF CLAUSE (I) OF RULE 10B(2) OF THE INCOME-TAX RULES. 5.4 WITHOUT PREJUDICE THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIO NER ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 10 OF INCOME-TAX (APPEALS) ERRED IN NOT HOLDING THAT O NLY THE METRO COACH DIVISION OF BEML LTD. EXECUTING SIMILAR CONTRACTS FOR SUPPLY OF METRO COACHES TO DMRC SATIS FIED THE TEST OF COMPARABILITY AS PROVIDED IN RULE 10B(2 ) OF THE INCOME-TAX RULES FOR UNDERTAKING BENCHMARKING ANALY SIS OF INTERNATIONAL TRANSACTION OF SALE OF METRO RAILS UNDERTAKEN BY THE APPELLANT. 5.5 WITHOUT PREJUDICE THAT THE COMMISSIONER OF IN COME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN OBSERVIN G THAT THE TNMM METHOD ENVISAGES SELECTION OF COMPANIES WHICH ARE SIMILAR ON THE BASIS OF A FAR ANALYSIS. T HIS DOES NOT MEAN THAT COMPANIES ARE MANUFACTURING THE SAME PRODUCT, WHICH IS CONTRARY TO THE TEST OF COMPARABILITY AS PROVIDED IN RULE 10B(2) OF THE INC OME-TAX RULES. 5.6 WITHOUT PREJUDICE THAT THE COMMISSIONER OF IN COME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPR ECIATING THAT TEXMACO RAIL & ENGINEERING LTD HAD TAKEN OVER HEAVY ENGINEERING STEEL FOUNDRY BUSINESS DURING THE RELEVANT PREVIOUS YEAR AND COULD NOT THEREFORE BE REGARDED AS AN APPROPRIATE COMPARABLE FOR THE PURPO SE OF BENCHMARKING ANALYSIS. 5.7 WITHOUT PREJUDICE THAT THE COMMISSIONER OF IN COME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPR ECIATING THAT TITAGARH WAGONS LTD HAD ACQUIRED WAGON MANUFACTURING FACILITY IN FRANCE DURING THE RELEVAN T PREVIOUS YEAR AND COULD NOT BE REGARDED AS AN APPROPRIATE COMPARABLE FOR THE PURPOSE OF BENCHMARK ING ANALYSIS. 5.8 WITHOUT PREJUDICE THAT THE COMMISSIONER OF IN COME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPR ECIATING THAT AT BEST THE WAGONS AND COACHES SEGMENT OF TITAGARH WAGONS LTD COULD ONLY BE CONSIDERED AS FUNCTIONALLY COMPARABLE FOR THE PURPOSE OF BENCHMAR KING ANALYSIS. 5.9 WITHOUT PREJUDICE THAT THE COMMISSIONER OF IN COME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN REJECTIN G FRESH ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 11 COMPARABLE COMPANIES SELECTED BY THE APPELLANT ON T HE BASIS THAT SUCH COMPANIES ARE INCURRING PERSISTENT LOSSES, WITHOUT APPRECIATING THAT SUCH COMPANIES ARE FUNCTI ONALLY SIMILAR TO THE COMPANIES SELECTED BY THE LD. TPO. 5.10 WITHOUT PREJUDICE THAT THE COMMISSIONER OF I NCOME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN REJECTIN G BHARAT WAGON & ENGINEERING LIMITED AS COMPARABLE TO THE APPELLANT NOT APPRECIATING THAT THE SAID COMPANY WA S SELECTED ON THE BASIS OF SEARCH PROCESS ADOPTED BY THE TPO AND WAS FUNCTIONALLY SIMILAR TO THE COMPARABLES SELECTED BY THE TPO. 5.11 WITHOUT PREJUDICE THAT THE COMMISSIONER OF I NCOME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDIN G THE ACTION OF THE TPO WITH RESPECT TO AGGREGATION OF TW O SEGMENTS OF JESSOP & CO. LTD I.E. CS WAGON SEGMENT AND EMU SEGMENT. 6. WITHOUT PREJUDICE THAT THE COMMISSIONER OF INC OME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN INAPPROP RIATELY INCLUDING MISCELLANEOUS INCOME EARNED BY JESSOP & C O. LTD AS PART OF OPERATING INCOME FOR COMPUTING THE OPERATING PROFIT/ OPERATING COST RATIO, EVEN THOUGH THE SOURCE OF MISCELLANEOUS INCOME WAS NOT ASCERTAINABL E FROM THE AUDITED FINANCIAL STATEMENTS. 7. WITHOUT PREJUDICE THAT THE COMMISSIONER OF INC OME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN REJECTIN G BUM STANDARD AND CO. LTD. ON THE BASIS THAT THE SAID COMPANY WAS INCURRING PERSISTENT LOSS NOT APPRECIAT ING THAT THE SAID COMPANY PASSED THE FILTER OF PERSISTE NT LOSSES AND NEGATIVE NET WORTH APPLIED BY THE TPO. 8. WITHOUT PREJUDICE THAT THE COMMISSIONER OF INC OME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPR ECIATING THAT AT BEST THE ENGINEERING PRODUCTS SEGMENT OF BUM STANDARD AND CO. LTD. COULD ONLY BE CONSIDERED AS FUNCTIONALLY COMPARABLE FOR THE PURPOSE OF BENCHMAR KING ANALYSIS. ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 12 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN NOT ADJUDICATING GROUND RELATING TO LEVY O F INTEREST U/S 234A, B, C AND D OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DE LETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR DURING THE HEARING BEFORE T HE HONBLE TRIBUNAL. THE AFORESAID GROUNDS ARE MUTUALL Y EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 3.0 THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITT ED THAT GROUND NOS. 1 AND 2 ARE GENERAL IN NATURE AND DO NO T REQUIRE A SEPARATE ADJUDICATION. 3.1 WITH RESPECT TO GROUND NOS. 3, 4, 4.1 AND 4.2, THE LD. AR SUBMITTED THAT THESE GROUNDS CHALLENGE THE ACTIO N OF THE LD. COMMISSIONER OF INCOME TAX (A) IN UPHOLDING THE ACT ION OF THE TPO IN ENHANCING THE ARMS LENGTH PRICE (ALP) OF TH E INTERNATIONAL TRANSACTION PERTAINING TO SALE OF MET RO TRAINS IN THE PASSENGERS AND BOGIES DIVISION BY RS. 1,108,096,654 /- BY REJECTING COMPARABLE UNCONTROLLED PRICE (CUP) METHO D APPLIED BY THE ASSESSEE AND INSTEAD APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD. THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD METRO TRAIN SETS TO ITS ASSOCIATED ENTERPR ISES FOR RS. 9,843,102,368/- AND AS THESE METRO TRAIN SETS HAD B EEN SOLD TO ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 13 THE ASSOCIATED ENTERPRISES BY THE ASSESSEE WHICH HA D BEEN FURTHER SOLD TO THE DELHI METRO RAIL CORPORATION (D MRC) BY THE AE AT THE SAME PRICE AT WHICH THE AE HAD PURCHASED THE SAME FROM THE ASSESSEE, CUP METHOD WAS SELECTED AS THE M OST APPROPRIATE METHOD. HOWEVER, THIS WAS REJECTED BY THE TPO WHICH WAS ALSO UPHELD BY THE LD. COMMISSIONER OF IN COME TAX (A). THE LD. AR FAIRLY ACCEPTED THAT THE ITAT, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11, HAD REJECTED THE CUP METHOD STATING THAT THE ASSESSEE HAD BEEN UNABLE TO JUSTIF Y WITH DOCUMENTARY EVIDENCE THE COMPARABILITY AND THE ISSU E OF THE QUALITY OF THE PRODUCT OR SERVICE, CONTRACTUAL TERM S, LEVEL OF MARKET, GEOGRAPHICAL MARKET IN WHICH THE TRANSACTIO N TOOK PLACE, DATE OF TRANSACTIONS, INTANGIBLE PROPERTY ASSOCIATE D WITH THE SALE, FOREIGN CURRENCY RECEIPT, ALTERNATIVES REALISTICALL Y AVAILABLE WITH THE BUYER AND THE SELLER, ETC. THE LD. AR FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE LD. COMMIS SIONER OF INCOME TAX (A) HAD OBSERVED THAT THE ASSESSEE HAD N OT SHOWN THAT THE SAME QUALITY OF THE PRODUCT OR SERVICE HAD BEEN SUPPLIED TO A THIRD PARTY AT THE SAME PRICE AT WHICH IT HAD SOLD GOODS TO THE AE. IT WAS SUBMITTED THAT THE SAME TRAIN WAS S UPPLIED BY BTIPL TO BTG WHICH WERE SUPPLIED ONWARD BY BTG TO D MRC AND, ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 14 THEREFORE, TRAINS IN BOTH THE TRANSACTIONS WERE IDE NTICAL WITH RESPECT TO THEIR APPEARANCE AND WERE DESIGNED, MANU FACTURED AND TESTED AS PER THE PARAMETERS SET FORTH BY THE D MRC. IT WAS FURTHER SUBMITTED THAT ALL UNITS WERE METRO TRAIN U NITS MANUFACTURED INDIGENOUSLY BY THE ASSESSEES FACILIT Y AND THAT ALL THE INPUTS WERE OBTAINED FROM THE SAME SOURCE AND T HE MANUFACTURING PROCESS AND THE SITE WERE ALSO IDENTI CAL. 3.2 REFERRING TO THE OBSERVATIONS OF THE LD. COMMI SSIONER OF INCOME TAX (A) WITH RESPECT TO THE CONTRACTUAL T ERMS THAT THE AGREEMENT SEEMED TO BE THE ONE RELATING TO A CONSOR TIUM BUT THE INITIAL DELIVERIES WERE MADE BY THE AE DIRECTLY TO DMRC WITH NO INVOLVEMENT OF THE ASSESSEE AND, THEREFORE, THE AM OUNT OF LOSS TO BE SUFFERED BY THE ASSESSEE WAS NOT TAKEN INTO ACCO UNT WHILE ENTERING INTO THE CONTRACT WITH DMRC, THE LD. AR SU BMITTED THAT ALL SUPPLIES MADE TO DMRC WERE GOVERNED BY THE CONT RACT RS2 (AT PAGES 243 TO 308 OF THE PAPER BOOK) AND ALL TERMS A ND CONDITIONS RELATING TO ALL SUPPLIES WERE COMMERCIALLY ENFORCEA BLE BY THE SAME CONTRACT. THE LD. AR SUBMITTED THAT THE KEY COMMER CIAL CONSIDERATIONS INCLUDING PRICE, DELIVERY DATES, WAR RANTIES, LIQUIDATED DAMAGES, MODE OF PAYMENT, INSURANCE ETC. WERE AGREED UPON ON IDENTICAL LINES THROUGH THE SAME CONTRACT. ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 15 3.3 WITH RESPECT TO THE OBSERVATIONS OF THE LD. COMMISSIONER OF INCOME TAX (A) ON THE LEVEL OF MARK ET AND GEOGRAPHIC MARKET IN WHICH THE TRANSACTION TOOK PLA CE, THE LD. AR SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TA X (A) HAD PLACED RELIANCE ON THE ORDER OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2010-11 WHEREIN IT HAD BEEN MENTION ED THAT THE TPO HAD RIGHTLY REJECTED THE INTERNAL CUP METHOD ON THE GROUND THAT BUYER AND SELLER ARE NOT ONLY LOCATED IN DIFFE RENT GEOGRAPHICAL REGIONS, BUT ALSO AT DIFFERENT LEVELS OF MARKET. I N THIS REGARD, IT WAS SUBMITTED THAT THIS OBSERVATION WAS INCORRECT I NASMUCH AS THE AE AND THE ASSESSEE WERE LOCATED IN THE SAME MA RKET AND THE GOODS NEVER MOVED OUT OF THE COUNTRY. IT WAS FURTH ER SUBMITTED THAT THE AE HAD PROJECT OFFICE IN INDIA AND ALL THE SUPPLIES WERE MADE THROUGH THE PROJECT OFFICE ITSELF WHICH WAS EV IDENT FROM THE INVOICES RAISED BY THE AE TO DMRC AND, THEREFORE, T HE AE AND THE ASSESSEE WERE NOT ONLY IN THE SAME GEOGRAPHICAL REG ION BUT ALSO OPERATED IN THE SAME LEVEL OF MARKET. REFERENCE WA S MADE TO PAGES 479 TO 594 OF THE PAPER BOOK WHICH CONTAINED COPIES OF INVOICES. IT WAS FURTHER SUBMITTED THAT THE SUPPLI ES WERE MADE TO THE SAME CUSTOMER THROUGH THE SAME TENDER AND BIDDI NG PROCESS AND THE ENTIRE MANUFACTURING AND SUPPLIES WERE MADE THROUGH ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 16 THE SAME FACILITY UNDER IDENTICAL GEOGRAPHICAL COND ITIONS AND, THUS, THE REGULATORY, LEGAL AND ENVIRONMENT RELATED FACTORS AFFECTING THIS TRANSACTION WERE IDENTICAL. IT WAS ALSO SUBMITTED THAT THE DATE OF TRANSACTION BETWEEN THE AE AND THE ASSESSEE, WHICH WAS EVIDENT FROM THE INVOICES (WHICH WERE FIL ED BEFORE THE TPO AND WERE NOW AT PAGE NO. 479 TO 594 OF THE PAPE R BOOK), WERE THE SAME. 3.4 IT WAS FURTHER SUBMITTED THAT THE INTANGIBLE P ROPERTY ASSOCIATED WITH THE SALE OF THE METRO TRAINS IS THE SAME AS THE PRODUCTS TRANSFERRED BY THE AE TO DMRC ARE THE SAME AS TRANSFERRED BY THE ASSESSEE. IT WAS FURTHER SUBMIT TED THAT THE AGREEMENT ENTERED INTO WITH THE DMRC CLEARLY SPECIF IED THE CURRENCY IN WHICH THE PRICE OF THE PRODUCT WAS TO B E BILLED AND THE UNDERLYING CURRENCY AND PRICE REMAINED THE SAME FOR BOTH WHEN THE BTIPL BILLED TO BTG AND WHEN SUBSEQUENTLY BTG BILLED TO DMRC. IT WAS ALSO EMPHASISED THAT WHILE ENTERIN G INTO AN AGREEMENT WITH DMRC, THE QUALITY OF THE PRODUCT AGR EED WAS BASED ON THE INTANGIBLE PROPERTY OWNED BY THE BOMBA RDIER GROUP AND, THEREFORE, PRACTICALLY THERE WAS NO REALISTIC ALTERNATIVE AVAILABLE WITH THE BUYER AND SELLER. THE LD. AR SU BMITTED THAT THE APPLICATION OF CUP WAS MOST APPROPRIATE UNDER T HE GIVEN ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 17 CIRCUMSTANCES AND THAT THERE WAS NO AMBIGUITY ON TH E FACT THAT SALE OF METRO COACHES FROM THE ASSESSEE TO BTG WAS IDENTICAL IN ALL RESPECTS TO THE COACHES SOLD BY BTG TO DMRC. I T WAS PRAYED THAT THE METHODOLOGY ADOPTED BY THE ASSESSEE SHOULD BE ACCEPTED. 3.5 WITH RESPECT TO GROUND NOS. 4.3, 5 AND 5.1, TH E LD. AR SUBMITTED THAT THESE GROUNDS WERE ALTERNATE GROUNDS ON THE SAME ISSUE I.E. THE APPROPRIATENESS OF THE METHODOL OGY ADOPTED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE REMUNER ATION OF THE ASSESSEE FROM THE INTERNATIONAL TRANSACTION CANNOT BE GREATER THAN THE OVERALL REVENUE RECEIVED FROM A THIRD PART Y. THE LD. AR REITERATED THAT THE ASSESSEE HAD SOLD METRO TRAIN S ETS TO ITS AE WHICH WERE FURTHER SOLD BY THE AE TO DMRC AND THE C OMPARISON OF THE SALE PRICES (AS EVIDENT FROM THE COPY OF INV OICES ON PAGE 478 TO 594 OF THE PAPER BOOK) WOULD CLEARLY SHOW TH AT THE AE HAD SOLD METRO TRAIN SETS TO DMRC AT THE SAME PRICE WIT HOUT ANY BUILT IN MARK-UP AT WHICH THE AR HAD MADE THE PURCHASES F ROM THE ASSESSEE. IT WAS SUBMITTED THAT, THUS, THE ENTIRE REVENUE WAS RECEIVED BY THE AE FROM THE THIRD PARTY I.E. DMRC. RELIANCE WAS PLACED ON THE ORDER OF THE ITAT DELHI BENCH IN THE CASE OF GLOBAL VANTEDGE VS. DCIT IN ITA NO.2763 AND 2764/DEL/2009 WHEREIN ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 18 THE ITAT, DELHI BENCH, HAD HELD THAT ADJUSTMENT ON ACCOUNT OF ALP OF INTERNATIONAL TRANSACTION CANNOT EXCEED THE MAXIMUM ALP I.E. THE AMOUNT RECEIVED BY THE AE FROM THE CUSTOME R AND THE ACTUAL VALUE OF INTERNATIONAL TRANSACTIONS, I.E. TH E AMOUNT RECEIVED BY THE ASSESSEE IN RESPECT OF SUCH INTERNA TIONAL TRANSACTIONS. IT WAS SUBMITTED BY THE LD. AR THAT THIS ORDER OF THE TRIBUNAL WAS UPHELD BY THE HONBLE DELHI HIGH C OURT AGAINST WHICH THE SLP FILED BY THE REVENUE BEFORE THE HONB LE APEX COURT ALSO STOOD DISMISSED. FOR THIS PROPOSITION, FURTHE R RELIANCE WAS PLACED ON DECISIONS OF ITAT DELHI BENCH IN THE CASE S OF PEPSICO INDIA HOUSING PVT. LTD. VS. ACIT IN ITA NO. 834/DEL /2010, INTERRA INFOTECH (INDIA) PVT. LTD. VS. ITO IN ITA NO. 5620 & 6354/DEL/2012 AND HCL TECHNOLOGIES BPO SERVICES LTD . VS. ACIT IN ITA NO. 3547 & 5071/DEL/2010. THE LD. AR S UBMITTED THAT THE ENTIRE AMOUNT RECOVERED BY THE AE FROM THI RD PARTY I.E. DMRC HAS BEEN PASSED ONTO BTIPL AND BTIPL COULD NOT HAVE RECOVERED ANY AMOUNT WHICH WAS HIGHER THAN THE AMOU NT CHARGED BY THE AE FROM THE THIRD PARTY. IT WAS PRA YED THAT IN VIEW OF THE CASE LAWS CITED BY THE LD. AR, THE AMOU NT RECOVERED BY THE BTIPL FROM AE FOR SALE OF METRO TRAINS SHOUL D BE CONSIDERED TO MEET THE ARMS LENGTH CRITERIA. ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 19 3.6 THE LD. AR ALSO SUBMITTED THAT THIS ISSUE, ALT HOUGH RAISED BEFORE THE LD. COMMISSIONER OF INCOME TAX (A ), WAS NOT ADJUDICATED BY THE LD. COMMISSIONER OF INCOME TAX ( A) AND OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE LD. COMM ISSIONER OF INCOME TAX (A), AS CONTAINED IN PARA 6.1 ONWARDS, W HEREIN THE LD. COMMISSIONER OF INCOME TAX (A) HAS ONLY CONSIDE RED THE APPROPRIATENESS OF THE CUP METHOD BUT HAS NOT CONSI DERED THIS ALTERNATE SUBMISSION OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THIS ALTERNATE GROUND WAS NOT RAISED BEFORE THE ITA T IN EARLIER ASSESSMENT YEAR 2010-11 AND IT WAS PRAYED THAT IN V IEW OF NON- ADJUDICATION OF THIS GROUND BY THE LD. COMMISSIONER OF INCOME TAX (A), THE ISSUE SHOULD BE RESTORED TO THE FILE O F THE LD. COMMISSIONER OF INCOME TAX (A). 3.7 WITH RESPECT TO GROUND NO. 5.2, THE LD. AR SUB MITTED THAT THIS GROUND CHALLENGED THE INCORRECT REJECTION OF FILTERS. IT WAS SUBMITTED THAT WITH REGARD TO THIS FILTER, THE TPO HAD HELD THAT THE INDUSTRY SEGMENT IN WHICH THE ASSESSEE HAS BEEN OPERATING IN IS NOT WITNESSING PERSISTENT LOSSES AN D THE LD. COMMISSIONER OF INCOME TAX (A) HAD FOLLOWED THE ORD ER OF THE ITAT IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRE CEDING YEAR. THE LD. AR SUBMITTED THAT REJECTION OF PERSISTENT L OSS MAKING ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 20 COMPANIES WAS INCORRECT INASMUCH AS LOSS MAKING COM PANIES WERE ALSO PART AND PARCEL OF AN INDUSTRY AS ARE PRO FIT MAKING COMPANIES. IT WAS SUBMITTED THAT THE ELIMINATION O F COMPANIES MERELY ON THE GROUND THAT THEY WERE LOSS MAKING WOU LD TANTAMOUNT TO ELIMINATING ONE-HALF OF THE SPECTRUM OF COMPARABLE COMPANIES WHICH WOULD RESULT IN CERTAIN HIGHER MARK -UP. IT WAS FURTHER SUBMITTED THAT THE INDIAN TRANSFER PRICING PROVISIONS PROVIDED FOR THE COMPARABILITY OF THE ARITHMETIC ME AN OF THE PROFIT LEVEL INDICATOR OF THE SET OF COMPARABLES WITH THAT OF THE TESTED PARTY SINCE AN INDUSTRY REPRESENTED ALL KIND OF COM PANIES, NEW AND OLD, LOSS AND PROFIT MAKING, AND SUCH COMPANIES SHOULD NOT BE REJECTED FROM THE SET OF COMPARABLES. 3.8 WITH RESPECT TO GROUND NOS. 5.3 TO 5.11 AND GR OUND NO. 6, IT WAS SUBMITTED THAT THESE GROUNDS CHALLENGED T HE INCLUSION/EXCLUSION OF THE COMPARABLES. THE DETAIL ED ARGUMENTS OF THE LD. AR WITH RESPECT TO THE COMPARABLES CHALL ENGED ARE AS UNDER:- I) TEXMACO RAIL AND ENGINEERING LIMITED THE LD. AR SUBMITTED THAT TEXMACO WAS DEALING IN WAGONS AS AGAINST THE ASSESSEE WHO IS DEALING IN ME TRO TRAIN COACHES AND BOGIES. IT WAS SUBMITTED THAT BO TH USE ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 21 AN ENTIRELY DIFFERENT TECHNOLOGY AND, THEREFORE, TH E PRODUCT PROFILE OF THE TWO COMPANIES WAS VERY MUCH DIFFERENT AND COULD NOT BE COMPARED. HE REFERRED T O THE ANNUAL REPORT OF TEXMACO AS PLACED AT PAGES 1032, 1 033, 1044, 1045 OF THE PAPER BOOK AND SUBMITTED THAT TEXMACO WAS ENGAGED IN MANUFACTURING OF WAGONS, STE EL CASTINGS AND HEAVY EARTH MOVING MACHINERY AND, THEREFORE, THIS COMPANY HAD A COMPLETELY DIFFERENT FUNCTIONAL PROFILE AS COMPARED TO THE ASSESSEE WHO IS ENGAGED IN THE MANUFACTURING OF METRO TRAIN COACHES . IT WAS FURTHER SUBMITTED THAT WHILE ACCEPTING THE TEXM ACO AS A COMPARABLE IN ASSESSMENT YEAR 2010-11, ONLY HE AVY ENGINEERING SEGMENT HAD BEEN CONSIDERED AS A COMPARABLE WHEREAS IN THE CURRENT YEAR, THE MARGIN OF THIS COMPANY HAS BEEN TAKEN AT THE ENTITY LEVEL. I T WAS SUBMITTED THAT THE SEGMENTAL RESULT PERTAINING TO H EAVY ENGINEERING SEGMENT SHOULD BE DIRECTED TO BE INCLUD ED AS DONE IN THE PREVIOUS YEAR BY THE TPO AND UPHELD BY THE ITAT. IT WAS FURTHER SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (A), WHILE FOLLOWING THE ORDER OF THE ITAT IN THE EARLIER ASSESSMENT YEAR, ALLOWED FREE OF ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 22 COST (FOC) ADJUSTMENT FOR SUPPLIES TO BE MADE WHILE COMPUTING THE MARGIN OF THE COMPARABLE COMPANIES BU T THE TPO, WHILE GIVING EFFECT TO THE ORDER OF THE LD . COMMISSIONER OF INCOME TAX (A), DID NOT GIVE EFFECT TO THE FOC ADJUSTMENT AS DIRECTED BY THE ITAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. IT WAS FURT HER SUBMITTED THAT HEAVY ENGINEERING AND STEEL FOUNDRY BUSINESSES OF TEXMACO LTD. WERE DEMERGED TO THE COMPANY, WHICH RESULTED IN A SUBSTANTIALLY ABNORMAL INCREASE IN THE TOTAL INCOME OF THE COMPANY VIS-A-VIS THE PREVIOUS YEAR AND THESE EXTRAORDINARY EVENTS ALSO M ADE THIS COMPANY INCOMPARABLE. II) TITAGARH WAGONS LIMITED IT WAS SUBMITTED THAT THIS COMPANY IS DEALING IN WA GONS AS AGAINST THE ASSESSEE COMPANY WHICH IS DEALING IN METRO TRAIN COACHES AND BOGIES AND BOTH USE AN ENTI RELY DIFFERENT TECHNOLOGY AND, THEREFORE, THE PRODUCT PR OFILE BEING DIFFERENT, COMPARISON CANNOT BE MADE. IT WAS ALSO SUBMITTED THAT WHILE ACCEPTING TITAGARH FOR THE PRE VIOUS YEAR, THE ITAT HAD CONCLUDED THAT THE COMPANY IS FUNCTIONALLY COMPARABLE AFTER PROVIDING FOR FREE OF COST ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 23 SUPPLIES ADJUSTMENT. HOWEVER, IN THE CURRENT YEAR, ANOTHER COMPANY, NAMELY TITAGARH STEEL LIMITED MERG ED INTO THE COMPANY AND ALSO ACQUIRED THE WAGON MANUFACTURING UNIT IN FRANCE. THEREFORE, DUE TO TH IS EXTRAORDINARY EVENT, THE COMPANY NO LONGER REMAINED A COMPARABLE. IT WAS ALSO SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR, THE TPO HAD TAKEN ONLY WAGON SEGMENT OF THE COMPANY AS A COMPARABLE TO THE ASSESSEE WHEREAS DURING THE CURRENT YEAR, THE COMPA NY AS A WHOLE WAS TAKEN AS A COMPARABLE WHEREAS ONLY T HE WAGON SEGMENT OF THE COMPANY COULD BE COMPARED TO T HE ASSESSEE COMPANY. III) BRAITHWAITE AND CO. LIMITED THE LD. AR SUBMITTED THAT THIS COMPANY WAS ALSO FUNCTIONALLY INCOMPARABLE BECAUSE THIS COMPANY DEAL S IN MANUFACTURING OF WAGONS, BOGIES, COUPLERS, STEEL CA STING AND STRUCTURAL FABRICATIONS AS AGAINST THE METRO CO ACHES WHICH WERE BEING MANUFACTURED BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE LD. COMMISSIONER OF INCO ME TAX (A), FOLLOWING THE ORDER OF THE ITAT IN THE IMM EDIATELY PREVIOUS YEAR, HAD ALLOWED THE FOC SUPPLIES ADJUSTM ENT ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 24 TO BE MADE WHILE COMPUTING THE MARGINS OF THE COMPARABLE COMPANIES IN THE YEAR UNDER CONSIDERATIO N BUT ADJUSTMENT FOR FOC HAS NOT BEEN GIVEN APPEAL EF FECT ALTHOUGH THE SAME WAS ALLOWED BY THE LD. COMMISSION ER OF INCOME TAX (A). IT WAS PRAYED THAT SUITABLE DIR ECTIONS MAY BE GIVEN TO THE ASSESSING OFFICER TO GIVE THE A PPEAL EFFECT. IV) BESCO LIMITED IT WAS SUBMITTED THAT THIS COMPANY ALSO WAS NOT FUNCTIONALLY COMPARABLE AS THIS COMPANY DEALT IN MANUFACTURING OF WAGONS AS COMPARED TO THE ASSESSEE DEALING WITH METRO COACHES. IT WAS FURTHER SUBMITT ED THAT THE LD. COMMISSIONER OF INCOME TAX (A), FOLLOW ING THE ORDER OF THE ITAT FOR THE IMMEDIATELY PRECEDING YEAR, HAD ALLOWED FOC ADJUSTMENT TO BE MADE WHILE COMPUTI NG THE MARGIN OF THE COMPARABLE COMPANIES BUT WHILE GI VING EFFECT TO THE APPELLATE ORDER, THE TPO HAD NOT GIVE N EFFECT TO THE FOC SUPPLIES ADJUSTMENT AS DIRECTED BY THE I TAT IN THE IMMEDIATELY PRECEDING YEAR. IT WAS PRAYED THAT DIRECTIONS MAY BE GIVEN IN THIS REGARD ALSO. V) JESSOP AND COMPANY LIMITED ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 25 IT WAS SUBMITTED THAT THE TPO WHILE TAKING THIS COM PANY AS COMPARABLE HAD TAKEN THE COMBINED SEGMENTAL PROFITABILITY OF BOTH EMU AND WAGON SEGMENTS INSTEA D OF TAKING THEM AS SEPARATE SEGMENTS. IT WAS SUBMITTED THAT THE STATUTORY AUDITOR OF JESSOP & CO. LIMITED HAD CLASSIFIED THE TWO SEGMENTS AS TWO INDEPENDENT AND DISTINCT SEGMENTS IN THE SCHEDULE PERTAINING TO SEG MENTAL REPORTING. IT WAS ALSO SUBMITTED THAT THE TPO HAD CONSIDERED THESE TWO SEGMENTS AS SEPARATE SEGMENTS IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11. I T WAS FURTHER SUBMITTED THAT IN THIS YEAR, THE TPO HAS TA KEN THE MISCELLANEOUS INCOME AS OPERATING INCOME AND COMPUT ED THE MARGIN OF THIS COMPANY ALTHOUGH THE SOURCE OF MISCELLANEOUS INCOME HAS NOT BEEN MENTIONED AND, THEREFORE, THE SAME COULD NOT HAVE BEEN CONSIDERED AS OPERATING. IT WAS ALSO SUBMITTED THAT THERE WERE S OME CALCULATION ERRORS WHILE CALCULATING THE MARGIN OF JESSOP & CO. LIMITED BECAUSE THE TPO HAD TAKEN THE SAME AT 0.5% WHEREAS AFTER MERGING THE TWO SEGMENTS, THE CO RRECT MARGIN COMES TO 2.38%. ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 26 3.9 IT WAS FURTHER SUBMITTED BY THE LD. AR THAT GR OUND NOS. 7 AND 8 WERE NOT PRESSED AND GROUND NO. 9 WAS CONSEQUENTIAL. 4.0 IN RESPONSE, THE LD. C.I.T. DR SUBMITTED THAT GROUND NOS. 3 TO 4.2 AND 4.3 TO 5.1 ALREADY STOOD COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR. IT WAS FURTHER SUB MITTED THAT THE GROUNDS RAISED IN GROUND NOS. 4.3 TO 5.1 WERE NOT A LTERNATE SUBMISSIONS OF THE ASSESSEE ON THE SAME ISSUE AND T HERE WAS NO CHANGE IN FACTS IN THIS YEAR AS COMPARED TO THE IMM EDIATELY PRECEDING YEAR WHEREIN THE ITAT HAD ALREADY CONSIDE RED THE CUP METHOD AND HAD REJECTED THE SAME. IT WAS SUBMITTED THAT UNDER THE GARB OF ALTERNATE SUBMISSIONS, THE ASSESSEE WAS TRYING TO BUILD A NEW CASE. IT WAS ALSO SUBMITTED THAT THE L D. COMMISSIONER OF INCOME TAX (A) HAD DULY CONSIDERED ALL THE ARGUMENTS OF THE ASSESSEE AND IT WAS INCORRECT TO S AY THAT THE ASSESSEES SUBMISSIONS HAD NOT BEEN CONSIDERED AND ADJUDICATED UPON. IT WAS ALSO SUBMITTED THAT THERE WAS NO REQU IREMENT FOR THE ISSUE TO BE RESTORED TO THE FILE OF THE LD. COM MISSIONER OF INCOME TAX (A) AS BEING PRAYED BY THE ASSESSEE. TH E LD. C.I.T. DR ALSO DREW OUR ATTENTION TO THE OBSERVATIONS OF T HE TPO AS ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 27 APPEARING IN PAGE 3 OF THE TRANSFER PRICING ORDER A ND SUBMITTED THAT THE TPO HAD GIVEN DETAILED REASONS FOR REJECTI NG THE CUP METHOD OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) DESERVES TO BE U PHELD ON THIS ISSUE. 4.1 WITH RESPECT TO GROUND NO. 5.2 ON INCORRECT RE JECTION OF FILTERS AS CLAIMED BY THE ASSESSEE, RELIANCE WAS PL ACED ON THE OBSERVATIONS AND FINDINGS OF THE TPO AS WELL AS THE LD. COMMISSIONER OF INCOME TAX (A). 4.2 WITH RESPECT TO THE COMPARABLES BEING AGITATED BY THE ASSESSEE, THE LD. C.I.T. DR SUBMITTED THAT THE ASSE SSEE HAS BEEN AGITATING FOR EXCLUSION OF TEXMACO RAIL & ENGINEERI NG LTD. ON THE GROUND THAT THERE WERE EXTRAORDINARY EVENTS DUE TO DEMERGER IN THE COMPANY AND, THEREFORE, THIS COMPANY SHOULD BE EXCLUDED BUT THE TPO HAS DISCUSSED THIS ISSUE IN PARA 36 OF THE ORDER WHEREIN IT HAS BEEN OBSERVED THAT THIS COMPANY HAS BEEN A STEADY PERFORMER AND THE MERGER HAS NOT CAUSED ANY RADICAL DIFFERENCE TO THE COMPANYS RESULTS. THE LD. C.I.T . DR HIGHLIGHTED THE FACT THAT THE BUSINESS THAT HAD MERGED INTO THI S COMPANY WAS ALSO OF HEAVY ENGINEERING WHICH WOULD SUPPORT THE E XISTING FUNCTIONS OF THE COMPANY AND, THEREFORE, THIS WOULD NOT MAKE ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 28 THIS COMPANY INCOMPARABLE. THE LD. C.I.T. DR ALSO HIGHLIGHTED THE FACT THAT THE ACCOUNTS OF THE COMPANY ALSO DID NOT SHOW ANY INFIRMITY. 4.3 WITH RESPECT TO TITAGARH WAGONS LIMITED, THE L D. C.I.T. DR SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TA X (A) HAS DISCUSSED THIS ISSUE AT LENGTH ON PAGE 21 OF HIS OR DER WHEREIN HE HAS DULY NOTED THAT EVEN IN THE IMMEDIATELY PRECEDI NG YEAR, THE ENTITY LEVEL RESULTS WERE CONSIDERED AND, THEREFORE , THERE WAS NO REASON TO TAKE ONLY SEGMENTAL MARGINS FOR THE WAGON SEGMENT. 4.4 WITH RESPECT TO THE COMPARABLE BRAITHWAITE & C O. LTD., THE LD. C.I.T. DR HAD NO OBJECTION TO THE BENCH GIV ING DIRECTIONS FOR GIVING APPEAL EFFECT. 4.5 WITH RESPECT TO JESSOP & CO. LIMITED, THE LD. C.I.T. DR SUBMITTED THAT SINCE CUP METHOD HAD BEEN REJECTED, TNMM WAS TAKEN AS THE MOST APPROPRIATE METHOD AND THIS METHO D ENVISAGED SELECTION OF COMPANIES WHICH WERE SIMILAR ON THE BA SIS OF FAR ANALYSIS. IT WAS SUBMITTED THAT THIS COMPANY HAD T WO SEGMENTS EMU SEGMENT AND CS WAGON SEGMENT BUT BOTH COULD BE COMBINED IF THE COMPANY IS TO BE TAKEN AS A WHOLE F OR THE PURPOSE OF COMPARABILITY. IT WAS SUBMITTED THAT TH E JUGGLERY OF ACCOUNTING RESULTS AND MATHEMATICAL RESULTS CANNOT BE ALLOWED TO ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 29 ARTIFICIALLY REDUCE THE MARGIN BY INCREASING THE LA RGE NUMBER OF COMPARABLES ARTIFICIALLY. IT WAS ALSO SUBMITTED TH AT MISCELLANEOUS INCOME IS A NORMAL INCIDENCE OF BUSINESS BECAUSE EX TRAORDINARY ITEMS OF INCOME HAVE BEEN SHOWN SEPARATELY. 4.6 THE LD. C.I.T. DR SUBMITTED THAT THE APPEAL OF THE ASSESSEE DESERVES TO BE DISMISSED. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FIRST ISSUE ARISING FOR OUR CONSIDERATION IS THE ASSESSEES CHALLENGE TO REJECT ION OF CUP METHOD BY THE DEPARTMENT. GROUND NOS. 3, 4, 4.1 A ND 4.2 AGITATE THE ACTION OF THE TPO IN REJECTING THE ASSE SSEES STAND THAT CUP METHOD WAS THE MOST APPROPRIATE METHOD. THIS V IEW OF THE TPO WAS FURTHER UPHELD BY THE LD. COMMISSIONER OF I NCOME TAX (A) WHO HAS RELIED ON THE ORDER OF THE ITAT IN ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 WHEREIN THE ITAT ALSO H AS REFUSED TO INTERFERE ON THE REJECTION OF THE CUP METHOD BY THE LOWER AUTHORITIES. UNDISPUTEDLY, THE FACTS IN THIS YEAR ARE SIMILAR TO THE FACTS AS IN ASSESSMENT YEAR 2010-11 WHICH HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE COORDINATE BENCH OF THE ITAT IN ITA NO. 1626/DEL/2015 VIDE ORDER DATED 4.11.2015. THIS ISSUE WAS RAISED BY THE ASSESSEE IN GROUND NO. 3.2 OF ASSESSE ES APPEAL FOR ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 30 ASSESSMENT YEAR 2010-11 AND THE RELEVANT FINDINGS W HILE DISCUSSING THE CUP METHOD, ARE CONTAINED IN PARA 18 , 19, 20 AND 21 OF THE ORDER OF THE ITAT FOR ASSESSMENT YEAR 201 0-11. THE SAME ARE BEING REPRODUCED HEREIN FOR A READY REFERE NCE:- 18. WE HAVE PERUSED ALL THE RECORDS AND HEARD THE SUBMISSIONS MADE BY LD. AR AND LD. DR. IT IS PERTIN ENT TO NOTE, THAT THE COMPARABLE UNCONTROLLED PRICE I.E . CUP METHOD IS THE MOST DIRECT METHOD FOR APPLYING THE A RMS LENGTH PRINCIPLE. BUT THE STRICT REQUIREMENTS OF COMPARABILITY HAVE TRADITIONALLY MADE ITS USAGE A B IT CHALLENGING. WHILE APPLYING CUP METHOD, THERE ARE CERTAIN REQUIREMENTS WHICH SHOULD BE TAKEN INTO CONSIDERATION. THESE ARE (I) THE DATA WHICH IS WIDE LY AND ROUTINELY USED IN THE ORDINARY COURSE OF BUSINESS I N THE PARTICULAR INDUSTRY OR MARKET SEGMENT FOR DETERMINI NG THE PRICES FOR UNCONTROLLED TRANSACTIONS, (II) THE DATA WHICH IS USED TO SET PRICES IN THE CONTROLLED TRANS ACTION IN THE SAME WAY, AS IT IS USED BY EITHER CONTROLLED COMPANIES OR UNCONTROLLED COMPANIES IN THE INDUSTRY , AND (III) THE AMOUNT CHARGED IN THE CONTROLLED TRAN SACTION IS ADJUSTED TO REFLECT DIFFERENCES THAT MAY AFFECT THE PRICE THAT UNCONTROLLED COMPANY WOULD AGREE. IN THIS CASE , THE CUP METHOD WILL NOT APPLY, AS THE CONTRACTUAL TERMS THOUGH APPEARS SIMILAR, ARE DIFFERENT BECAUSE THE S ALES OF METRO TRAIN SETS BY BTIPL TO BTG AND BTG TO DMRC ARE ON DIFFERENT FOOTING ALTOGETHER WHICH CANNOT BE EQUATED. LD. TPO HAS RIGHTLY REJECTED THE INTERNAL CUP METHOD ON THE GROUND THAT BUYER AND SELLER ARE NOT ONLY LOCATED IN DIFFERENT GEOGRAPHICAL REGIONS, BUT ALSO AT DIFFERENT LEVELS OF MARKET, ONE IS SELLING TO INTER NATIONAL BUYER AND ONE IS SELLING TO LOCAL MARKET. THUS HERE , THE CUP METHOD CANNOT BE APPLICABLE AS RIGHTLY HELD BY LD. TPO AND LD. DRP. ON THE CONTRARY, ALL THE TRANSACTI ONS BEING TRANSACTIONS IN MLM DIVISION RELATING TO IMPO RT OF COMPONENTS AND SUB ASSEMBLIES IMPORT OF CAPITAL GOO DS, AVAILING OF INTERMEDIARY SERVICES, SALE OF METRO TR AINS AND REIMBURSEMENT OF EX PACT SALARY ARE SO CLOSELY RELATED THAT THEY CANNOT BE EVALUATED ADEQUATELY ON AN ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 31 INDIVIDUAL BASIS. THE RELIANCE OF THE JUDGMENT OF H ONBLE DELHI HIGH COURT IN CASE OF RAMGREEN SOLUTIONS PVT. LTD. VS. COMMISSIONER OF INCOME TAX (ITA NO. 102/2015) ALSO ASSERTS THIS POINT AND CLEARLY HELD IN PARA 44 THAT: WHILE USING TNMM, THE SEARCH FOR COMPARABLES MAY BE BROADENED BY INCLUDING COMPARABLES OFFERING SERVICES/PRODUCTS WHICH ARE NOT ENTIRELY SIMILAR TO THE CONTROLLED TRANSACTION/ENTITY. HOWEVER, THIS CAN BE DONE ONLY IF (A) THE FUNCTIONS PERFORMED BY THE TESTED P ARTY AND THE SELECTED COMPARABLE ENTITY ARE SIMILAR INCL UDING THE ASSETS USED AND THE RISKS ASSUMED; AND (B) THE DIFFERENCE IN SERVICES/PRODUCTS OFFERED HAS NO MATE RIAL BEARING ON THE PROFITABILILTY. 19. THE CASE LAWS WHICH ARE REFERRED BY THE ASSESSEE AT THE TIME OF ARGUMENT ARE NOT APPLICABLE IN THE P RESENT CASE FIRST BECAUSE OF THE FACTUAL DIFFERENCE AS THO SE CASES WERE DECIDED ON ITS OWN FACTUAL MATRIX AND WHETHER TO APPLY TNMM OR CUP METHOD WAS DEPENDING UPON THE VARIOUS FACTORS IN THOSE CASES. THUS THE C ASE LAWS GIVEN BY ASSESSEE WILL NOT BE APPLICABLE IN TH IS CONTEXT. 20. IT IS PERTINENT TO NOTE, THAT LD. TPO RELIED UPON THE TWO CASES NAMELY MERCK LIMITED AND DIAGEO INDIA PVT. LT D. LD. TPO DISCUSSED THE SAME AND HELD THAT THE LEVEL OF COMPARABILITY REQUIRED FOR THE ANALYSIS IS DIFFEREN T FOR DIFFERENT METHODS. THUS, AS A METHODOLOGY, UNDER TH E TNMM THE STANDARD OF COMPARABILITY IS RELAXED RELATIVE T O THE OTHER METHODS AND REQUIRES SIMILARITY OF FUNCTIONS. THIS FINDS SUPPORT EVEN IN THE OECD GUIDELINES WHICH PROVIDES THAT, WHERE EXACT COMPARABLES (IN TERMS OF PRODUCT OR PRI CE) ARE NOT AVAILABLE, TNMM IS THE MOST PREFERRED METHODOLOGY IN ANALYZING TRANSACTIONS (AT THE NET LEVEL) AS IT IS MORE TOLERANT TO DIFFERENCES BETWEEN THE TESTED PARTY AND COMPARA BLE UNCONTROLLED TRANSACTIONS. THE USE OF TNMM METHOD A LLOWS COMPARABILITY OF THE FUNCTIONS RATHER THAN STRICTLY FOCUSING ON PRODUCT/SERVICE COMPARABILITY AS IN THE CASE OF CPL M, RESALE PRICE METHOD AND CUP. THUS TPO FINALLY HELD THAT TN MM METHOD SHALL BE USED FOR BENCHMARKING TRANSACTION P ERTAINING TO PASSENGER AND BOGIE SEGMENT. THUS, LD. TPO HAS R IGHTLY ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 32 APPLIED THE TNMM AS MOST APPROPRIATE METHOD BY LOOK ING INTO THE ASPECT THAT THE ASSESSEE WAS UNABLE TO JUSTIF Y WITH DOCUMENTARY EVIDENCE THE COMPARABILITY ON THE ISSUE OF QUALITY OF THE PRODUCT OR SERVICE, CONTRACTUAL TERM S, LEVEL OF MARKET, GEOGRAPHICAL MARKET IN WHICH THE TRANSACTIO N TAKES PLACE, DATE OF TRANSACTIONS, INTANGIBLE PROPERTY AS SOCIATED WITH THE SALE, FOREIGN CURRENCY RECEIPT, ALTERNATIV ES REALISTICALLY AVAILABLE WITH THE BUYER AND THE SELL ER. 21. IN RESULT THIS GROUND NO. 3.2 IS DISMISSED. 5.1 WE FURTHER NOTE THAT THE ISSUE OF REJECTION OF CUP BY THE TPO AND AS UPHELD BY THE ITAT WAS NOT CHALLENGE D BY THE ASSESSEE BEFORE THE HONBLE HIGH COURT ALSO AND, TH US, THE ISSUE HAS ATTAINED FINALITY FOR ALL PRACTICAL PURPOSES. THEREFORE, WE HAVE NO OTHER ALTERNATIVE BUT TO DISMISS GROUND NOS. 3, 4, 4.1 AND 4.2 OF THE ASSESSEES APPEAL IN THIS YEAR ALSO BY RESPE CTFULLY FOLLOWING THE RATIO LAID DOWN BY THE COORDINATE BENCH IN ASSE SSEES OWN APPEAL FOR ASSESSMENT YEAR 2010-11 AS AFORESAID. T HUS, GROUND NOS. 3, 4, 4.1 AND 4.2 STAND DISMISSED. 5.2 IN GROUND NOS. 4.3, 5 AND 5.1, THE ASSESSEE HA S RAISED AN ALTERNATE GROUND THAT REMUNERATION TO THE ASSESS EE FROM THE INTERNATIONAL TRANSACTION CANNOT BE GREATER THAN TH E OVERALL REVENUE RECEIVED FROM THE THIRD PARTY. IN THIS REG ARD, THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE ORDER OF TH E DELHI TRIBUNAL IN THE CASE OF GLOBAL VANTEDGE VS. DCIT IN ITA NO. 2763 AND 2764/DEL/2009 WHEREIN THE TRIBUNAL HAD HELD THA T ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 33 ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE OF INTE RNATIONAL TRANSACTIONS CANNOT EXCEED THE MAXIMUM ARMS LENGTH PRICE. RELIANCE HAS ALSO BEEN PLACED ON THE FACT THAT THE HONBLE DELHI HIGH COURT HAD UPHELD THIS ORDER OF THE TRIBUNAL AN D THE SLP OF THE REVENUE BEFORE THE HONBLE APEX COURT WAS ALSO DISMISSED AND FURTHER RELIANCE HAS BEEN PLACED BY THE ASSESSE E IN THE CASE OF PEPSICO INDIA HOUSING PVT. LTD. VS. ACIT IN ITA NO. 834/DEL/2010 AND ALSO SOME OTHER CASE LAWS WHICH AR E PART OF THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE, WHILE RELYING ON THESE JUDICIAL PRECE DENTS, IS THAT THE ENTIRE AMOUNT RECOVERED BY THE AE FROM THE THIR D PARTY I.E. DMRC HAD BEEN PASSED ON TO BTIPL AND, THEREFORE, BT IPL COULD NOT HAVE RECOVERED ANY AMOUNT WHICH IS HIGHER THAN THE AMOUNT CHARGED BY THE AE FROM THE THIRD PARTY. IT HAS BEE N PLEADED THAT ALTHOUGH THIS GROUND WAS VEHEMENTLY RAISED BEFORE T HE LD. CIT (A), THE LD. CIT (A) DID NOT SPECIFICALLY ADJUDICAT E THIS GROUND AND PROCEEDED TO DISMISS THE ASSESSEES CHALLENGE TO RE JECTION OF THE CUP METHOD WITHOUT CONSIDERING THESE ALTERNATE ARGU MENTS OF THE ASSESSEE. WE HAVE PERUSED THE ORDER OF THE LD. CIT (A) AND WE DO NOTE THAT ALTHOUGH THE LD. CIT (A) HAS DULY R EPRODUCED THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD, HE, HOW EVER, HAS NOT ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 34 ADJUDICATED THIS ISSUE SPECIFICALLY. THE DISCUSSIO N OF THE LD. CIT (A) CENTERS AROUND THE REJECTION OF CUP METHOD BUT DOES NOT REFER TO THE SUBMISSIONS OF THE ASSESSEE REGARDING THE IS SUE AS AFORESAID. THEREFORE, IT IS OUR CONSIDERED OPINION THAT INTEREST OF SUBSTANTIAL JUSTICE WOULD BE SERVED IF THESE GROUND S ARE RECONSIDERED BY THE LD. CIT (A) AND THE LD. CIT (A) , AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE, PASSES A SPEAKING ORDER ON THE ISSUE. ACCORDINGLY, GROUND NOS. 4.3, 5 AND 5.1 ARE RESTORED TO THE FILE OF THE LD. CIT (A) TO BE CONSIDERED AFRESH AND FOR THE PURPOSES OF PASSING A SPEAKING ORDER AFTER GIVING DUE OPPORT UNITY TO THE ASSESSEE TO PRESENT ITS CASE. THUS, GROUND NOS. 4. 3, 5 AND 5.1 STAND ALLOWED FOR STATISTICAL PURPOSES. 5.3 GROUND NOS. 5.2 TO 5.11 AND 6 CHALLENGE THE COMPARABLES. THE COMPARABLES ARE ADJUDICATED UPON AS UNDER:- I) TEXMACO RAIL AND ENGINEERING LIMITED THE ASSESSEE HAS PRAYED FOR THE EXCLUSION OF THIS COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY NO T COMPARABLE TO THE ASSESSEE COMPANY BECAUSE TEXMACO WAS DEALING IN WAGONS WHEREAS THE ASSESSEE WAS DEAL ING IN METRO TRAIN COACHES AND BOGIES. IT HAS ALSO BEE N SUBMITTED THAT THERE WERE EXTRAORDINARY EVENTS IN T HIS ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 35 COMPANY BECAUSE HEAVY ENGINEERING AND STEEL FOUNDRY BUSINESSES OF THIS COMPANY WERE DEMERGED RESULTING IN A SUBSTANTIALLY ABNORMAL INCREASE IN THE TOTAL INCOME OF THAT COMPANY. IT HAS ALSO BEEN PLEADED THAT IN THE IMMEDIATELY PRECEDING YEAR, MARGIN OF THE COMPANY H AS BEEN TAKEN AT THE ENTITY LEVEL. IT HAS ALSO BEEN P LEADED THAT THE LD. COMMISSIONER OF INCOME TAX (A), FOLLOW ING THE EARLIER ORDER OF THE ITAT FOR THE IMMEDIATELY P RECEDING YEAR, HAD ALLOWED ADJUSTMENT ON ACCOUNT OF FREE OF COST SUPPLIES BUT THE TPO, WHILE GIVING EFFECT TO THE OR DER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (A), H AD NOT GIVEN EFFECT TO THE ADJUSTMENT ON ACCOUNT OF FR EE OF COST SUPPLIES. THUS, IT IS UNDISPUTED THAT THIS CO MPANY WAS ACCEPTED AS A COMPARABLE IN THE IMMEDIATELY PRECEDING YEAR AND ALSO THE LD. COMMISSIONER OF INC OME TAX (A) HAS GIVEN RELIEF TO THE ASSESSEE BY ALLOWIN G ADJUSTMENT TO BE MADE ON ACCOUNT OF FREE OF COST SUPPLIES. BUT IT IS ALSO SEEN THAT IN THE EARLIER YEAR, ONLY SEGMENTAL RESULTS PERTAINING TO HEAVY ENGINEERING SEGMENT WERE INCLUDED WHEREAS IN THIS YEAR, THE MAR GINS AT THE ENTITY LEVEL HAVE BEEN TAKEN. THEREFORE, IT WILL BE IN ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 36 THE FITNESS OF THINGS IF ONLY SEGMENTAL RESULTS OF HEAVY ENGINEERING SEGMENT ARE INCLUDED BY THE TPO AND FUR THER THE TPO ALSO GIVES ADEQUATE ADJUSTMENT IN RESPECT O F FREE OF COST SUPPLIES. AS FAR AS THE ASSESSEES CLAIM O F EXTRAORDINARY EVENT IS CONCERNED, IT IS SEEN THAT T HE TPO HAS DULY CONSIDERED THE ASSESSEES CLAIM OF EXTRAOR DINARY EVENT AND HAS NOTED THAT THIS COMPANY HAS BEEN A ST EADY PERFORMER AND THAT THE DEMERGER HAS NOT CAUSED ANY RADICAL DIFFERENCE TO THE PERFORMANCE OF THE COMPAN Y. THIS OBSERVATION OF THE TPO COULD NOT BE CONTRADICT ED BY THE LD. AR ON FACTS. THEREFORE, THIS ARGUMENT IS R EJECTED AND ACCORDINGLY, THIS COMPARABLE IS RESTORED TO THE FILE OF THE TPO/ASSESSING OFFICER FOR RE-ADJUDICATION AND R E- COMPUTATION OF THE MARGIN AFTER INCLUDING ONLY THE HEAVY ENGINEERING SEGMENT AFTER GIVING THE BENEFIT OF ADJ USTMENT WITH RESPECT TO FREE OF COST SUPPLIES. II) TITAGARH WAGONS LIMITED THIS COMPARABLE HAS BEEN OBJECTED TO ON THE GROUND THAT THIS COMPANY IS DEALING IN WAGONS WHEREAS THE ASSES SEE COMPANY IS DEALING IN METRO TRAIN COACHES AND BOGIE S ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 37 AND, THUS, THEY WERE FUNCTIONALLY DISSIMILAR. HOWE VER, THE FACT REMAINS THAT THIS COMPANY WAS TAKEN AS A COMPARABLE IN THE PREVIOUS ASSESSMENT YEAR ALSO AND THE ITAT HAD HELD THIS COMPANY FUNCTIONALLY COMPARABLE AFTER PROVIDING FOR FEE OF COST SUPPLIES ADJUSTMENT. IT IS SEEN THAT IN THE IMMEDIATELY PRECEDING YEAR, THE TPO HAD TAKEN ONLY THE WAGON SEGMENT OF THE COMPANY WHEREAS IN THE CURRENT YEAR, THE COMPANY HAS BEEN TAKEN AS A W HOLE. THIS, IN OUR CONSIDERED OPINION, NEEDS RECTIFICATIO N. ACCORDINGLY, WHILE UPHOLDING THE INCLUSION OF THIS COMPANY AS A COMPARABLE, WE DIRECT THE TPO TO RE- COMPUTE THE MARGIN AFTER PROVIDING FOR FEE OF COST SUPPLIES ADJUSTMENT AND ALSO AFTER TAKING THE RESULTS OF ONL Y WAGON SEGMENT FOR THE PURPOSE OF COMPARABILITY. III) BRAITHWAITE AND CO. LIMITED ALTHOUGH THE ASSESSEE HAS AGITATED THE INCLUSION OF THIS COMPARABLE ON THE GROUND OF FUNCTIONAL INCOMPARABIL ITY BECAUSE THIS COMPANY DEALS IN MANUFACTURING OF WAGO NS, BOGIES, COUPLERS, STEEL CASTING AND STRUCTURAL FABR ICATIONS AS AGAINST THE METRO COACHES WHICH WERE BEING MANUFACTURED BY THE ASSESSEE COMPANY, THE FACT REMA INS ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 38 THAT THIS COMPANY WAS HELD AS A COMPARABLE BY THE I TAT IN THE IMMEDIATELY PRECEDING YEAR ALSO. HOWEVER, T HE ITAT HAD DIRECTED THAT ADJUSTMENT SHOULD BE MADE WI TH RESPECT TO FOC SUPPLIES WHILE COMPUTING THE MARGINS . IN THIS YEAR, THE TPO, WHILE GIVING EFFECT TO THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX (A), HAS NOT GIVEN E FFECT TO THE FOC SUPPLIES ADJUSTMENT. THEREFORE, THIS COMPARABLE IS RESTORED TO THE FILE OF THE TPO FOR T HE LIMITED PURPOSE OF RE-COMPUTING THE MARGIN OF THIS COMPARABLE AFTER MAKING SUITABLE ADJUSTMENT WITH RESPECT TO FOC SUPPLIES. IV) BESCO LIMITED IN THE CASE OF THIS COMPARABLE ALSO, IT IS SEEN THA T THE LD. COMMISSIONER OF INCOME TAX (A), WHILE FOLLOWING THE ORDER OF THE ITAT IN THE IMMEDIATELY PRECEDING YEAR, HAD DIRECTED THAT FOC SUPPLIES ADJUSTMENT SHOULD BE GIV EN WHILE COMPUTING THE MARGINS BUT THE TPO WHILE GIVIN G EFFECT TO THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (A) HAS NOT DONE SO. THEREFORE, THIS COMPARABLE IS ALSO RESTORED TO THE FILE OF THE TPO FOR RECALCULATION O F THE MARGIN AFTER MAKING ADJUSTMENT TO FOC SUPPLIES. ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 39 V) JESSOP AND COMPANY LIMITED THIS COMPARABLE HAS BEEN AGITATED BY THE ASSESSEE O N THE GROUND THAT THE TPO HAS TAKEN COMBINED SEGMENTAL PROFITABILITY OF BOTH EMU AND WAGON SEGMENTS WHEREA S IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2010-11, THESE TWO SEGMENTS WERE TAKEN AS TWO DIFFERENT SEGM ENTS. IT HAS ALSO BEEN AGITATED THAT THERE ARE COMPUTATIO NAL ERRORS WHILE COMPUTING THE MARGIN OF THIS COMPANY. IT HAS ALSO BEEN AGITATED THAT THE TPO HAS TAKEN THE MISCELLANEOUS INCOME AS OPERATING INCOME FOR THE PURPOSES OF CALCULATING OF MARGIN OF THIS COMPANY. IN VIEW OF THE ANOMALIES POINTED OUT BY THE LD. AR IN THIS REGARD, WE DEEM IT FIT TO RESTORE THIS COMPARABLE A LSO TO THE FILE OF THE TPO FOR DULY CONSIDERING THESE OBJE CTIONS OF THE ASSESSEE. 5.4 GROUND NOS. 1 AND 2 BEING GENERAL IN NATURE DO NOT REQUIRE ANY SEPARATE ADJUDICATION. 5.5 GROUND NO. 7 AND 8 ARE DISMISSED AS NOT PRESSE D. 5.6 GROUND NO. 9 IS CONSEQUENTIAL IN NATURE AND RE QUIRES NO SPECIFIC ADJUDICATION. ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 40 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST, 2019. SD/- SD/- (R.K. PANDA) (SUDHANSHU SRI VASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 9 TH AUGUST, 2019 GS COPY FORWARDED TO: - 1) APPELLANT 2) RESPONDENT 3) CIT(A) 4) CIT 5) DR BY ORDER ASSTT. REGISTRAR ITA NO. 1358/DEL/2017 ASSESSMENT YEAR: 2011-12 41 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 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.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 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