DCIT, New Delhi V. M/s. Bechtel India Private Ltd., New Delhi

ITA 1404/DEL/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1433 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2005-2006
• Appeal Filed On: 10-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: NISHANT SAINI ADITYA ANAND; ANKIT BHATIA ARS
• Keywords: Related party transaction; Transfer pricing; International transaction; Services rendered outside India
• Section: 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NOS.1403/DEL./2015 (ASSESSMENT YEAR : 2004-05) ITA NOS.1404/DEL./2015 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE 4 (2), VS. M/S. BECHTEL INDIA PRIVATE LIMITED, NEW DELHI. 418, NAURANG HOUSE, 21, K.G. MARG, NEW DELHI 110 001. (PAN : AAACB0298A) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI NISHANT SAINI, ADITYA ANAND & ANKIT BHATIA, ARS REVENUE BY : SHRI SURENDER PAL, CIT DR DATE OF HEARING : 24.02.2020 DATE OF ORDER : 04.05.2020 O R D E R PER BENCH : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN BOTH THE AFORESAID APPEALS, THE SAME ARE BEING D ISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCU SSION. 2. APPELLANT, DCIT, CIRCLE 4 (2), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEALS SOUGHT TO SET ITA NO.1403 & 1404/DEL./2015 2 ASIDE THE IMPUGNED ORDERS BOTH DATED 30.01.2015 PAS SED BY THE AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP /TPO UNDER SECTION 254/143 (3) R/W SECTION 144C OF THE INCOME- TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEARS 200 4-05 & 2005-06 ON THE GROUNDS INTER ALIA THAT :- AY 2004-05 THE LD. DRP HAS ERRED IN LAW AND ON FACTS IN DIREC TING THE TPO TO INCLUDE M/S. U.B. ENGINEERING LTD., TATA PROJECT S LTD. AND L&T SARGENT LUNDY LTD. AS COMPARABLE IGNORING THE F ACT THAT THE FUNCTIONAL PROFILES OF THESE COMPANIES ARE DIFF ERENT FROM THE PROFILE OF THE ASSESSEE.' AY 2005-06 1. THE LD. DRP HAS ERRED IN LAW AND ON FACTS IN DIRECT ING THE TPO TO EXCLUDE M/S. NTPC ELECTRICITY SUPPLY COMPANY LTD. AS COMPARABLE IGNORING THE FACT THAT ORGANISATION O F ECONOMIC COOPERATION AND DEVELOPMENT (OECD) GUIDELI NES ADVOCATE USE OF TNMM METHOD AS IT ALLOWS COMPARABIL ITY OF THE FUNCTIONS RATHER THAN STRICTLY FOCUSING ON PROD UCT/SERVICE COMPARABILITY AS IN THE CASE OF COST PLUS METHOD, R ESALE PRICE METHOD AND COMPARABLE UNCONTROLLED PRICE METH OD. 2. THE LD. DRP HAS ERRED IN LAW AND ON FACTS IN DIRECT ING THE TPO TO INCLUDE M/S. U.B. ENGINEERING LTD., TATA PRO JECTS LTD. AND L&T SARGENT LUNDY LTD. AS COMPARABLES IGNO RING THE FACT THAT THE FUNCTIONAL PROFILES OF THESE COMP ANIES ARE DIFFERENT FROM THE PROFILE OF THE ASSESSEE.' 2. THIS IS SECOND ROUND OF LITIGATION AS IN THE FIR ST ROUND, COORDINATE BENCH OF THE TRIBUNAL HAD REMITTED THE M ATTER BACK TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) AFRESH BY TREATING THE COMPANY T O BE INVOLVED IN THE BUSINESS OF ENGINEERING DESIGN AND DRAWING S ERVICES INSTEAD OF COMPANY ENGAGED IN INFORMATION TECHNOLOGY ENABLE D SERVICES ITA NO.1403 & 1404/DEL./2015 3 (ITES) FOR BENCHMARKING THE ENGINEERING DESIGN SERV ICES (EDS) SEGMENT. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. BECHTEL CORPORATION, USA HAS SET UP A SUBSIDIARY COMPANY IN INDIA, NAMELY, M/S. BECHTEL INDIA PRIVATE LIMITED (BIPL), THE TAXPAYER, IN APRIL 1994 TO REND ER ENGINEERING SUPPORT SERVICES IN RESPECT OF ENGINEERING DESIGNS AND DRAWINGS. THE TAXPAYER EXECUTES ENGINEERING DESIGNS AND DRAWINGS FOR VARIOUS OVERSEAS BECHTEL ENTITIES/ASSOCIATED ENTERPRISES (A ES) TO SUPPORT THE OVERSEAS OFFICES TURNKEY PROJECT EXECUTION. THE TA XPAYER HAS BEEN ESTABLISHED TO :- (I) CARRY ON ENGINEERING DESIGN, DRAWING, PROJECT MONI TORING AND CONTROL, PROJECT SUPPORT, PROCUREMENT SERVICES AND CONSTRUCTION SERVICES; (II) CREATE A MULTIDISCIPLINE ENGINEERING CENTER FO R BECHTELS PROJECTS AND TO PROVIDE ADMINISTRATION AND PROCESSI NG SERVICES TO BECHTEL ENTITIES; (III) ESTABLISH A STRONG LOCAL ENGINEERING PRESENCE FOR PROJECTS IN INDIA; (IV) PROVIDE FINANCIAL AND MANAGEMENT ACCOUNTING SE RVICES; (V) DEVELOP A COST-EFFECTIVE RESOURCE BASE FOR PROJ ECTS WORLDWIDE THROUGH ASSOCIATIONS WITH MAJOR INDIAN PRODUCERS AND EQUIPMENT MANUFACTURERS AND ALSO PROVIDING PROCUREMENT SERVICES FOR OTHER BECHTEL EN TITIES; (VI) PROVIDE OUTSOURCED SERVICES TO OVERSEAS BECHTE L ENTITIES. 4. DURING THE ASSESSMENT YEARS 2004-05 & 2005-06, T HE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE S AS UNDER :- ITA NO.1403 & 1404/DEL./2015 4 AY : 2004-05 SR.NO. NATURE OF TRANSACTION ARMS LENGTH PRICE AS PER TAXPAYER (I) PROVISION OF ENGINEERING SERVICES AND RELATING SERVICES RS.43.46 CRORES (II) REIMBURSEMENT OF EXPENSES (PAID) RS.0.16 CRORE S (III) REIMBURSEMENT OF EXPENSES (RECEIVED) RS.5.53 CRORES AY : 2005-06 SR.NO. NATURE OF TRANSACTION ARMS LENGTH PRICE AS PER TAXPAYER (I) PROVISION OF ENGINEERING SERVICES AND RELATING SERVICES RS.45.77 CRORES (II) REIMBURSEMENT OF EXPENSES (PAID) RS.0.16 CRORE S (III) REIMBURSEMENT OF EXPENSES (RECEIVED) RS.4.67 CRORES 5. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS QUA PROVISION OF ENGINEERING DESIGN SERVICES (EDS) CHOSEN 9 COMPARABLES IN ITS TRANSFER PRICING (TP) STUDY OUT OF WHICH 8 COMPARABLES HAVE BEEN REJECTED BY THE TPO BY APPLYI NG VARIOUS FILTERS AND DURING THE REMAND PROCEEDINGS, TPO CONDUCTED FR ESH TP STUDY AND CHOSEN 7 NEW COMPARABLES HAVING MARGIN OF 32.47% AS AGAINST TAXPAYERS MARGIN OF (-) 6.77% AND THEREBY MADE AN ADDITION OF RS.13,67,89,416/- FOR AY 2004-05. 6. LIKEWISE, IN AY 2005-06, HAVING IDENTICAL FACTS, THE TAXPAYER CHOSEN 10 COMPARABLES IN ITS TP STUDY OUT OF WHICH TPO REJECTED 9 COMPARABLES BY APPLYING VARIOUS FILTERS, CONDUCTED FRESH TP STUDY CHOSEN 4 NEW COMPARABLES QUA PROVISION OF DESIGN EN GINEERING SERVICES ITA NO.1403 & 1404/DEL./2015 5 AND THE 5 COMPARABLES HAVING MARGIN OF 29.46% AS AG AINST TAXPAYERS (-) 0.56%, THE TPO MADE ADDITION OF RS.13,44,93,575 /-. 7. THE REVENUE CARRIED THE MATTER BEFORE THE LD. DR P BY FILING OBJECTIONS HAVING LIMITED GRIEVANCE THAT THE TPO HA S ARBITRARILY EXCLUDED 3 COMPARABLES SELECTED BY THE TAXPAYER IN ITS TP STUDY IN AYS 2004-05 & 2005-06 VIZ. UB ENGINEERING LTD., TATA PROJECT LTD. AND L&T SARGENT & LUNDY LTD. ON THE GROUND THAT THESE COMPARABLES FAILED SERVICE INCOME FILTER OF 75%. A CCEPTING THE CONTENTIONS RAISED BY THE TAXPAYER, THE LD. DRP DIR ECTED THE TPO TO ACCEPT THE AFORESAID THREE COMPARABLES AND CONSEQUE NTLY POST-DRP DIRECTIONS, AO PASSED FINAL ORDER WITH REVISED ARM S LENGTH MARGIN DETERMINED BY AO AT 15.34% & 20.23% AND THEREBY MAD E ADDITION OF RS.6,22,45,957/- & RS.9,22,55,794/- FOR AYS 2 004-05 & 2005-06 RESPECTIVELY. FEELING AGGRIEVED, THE REVEN UE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT AP PEALS IN BOTH THE AYS 2004-05 & 2005-06. 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.1403 & 1404/DEL./2015 6 9. POST-DRP DIRECTIONS, FINAL SET OF COMPARABLES FO R BENCHMARKING THE INTERNATIONAL TRANSACTIONS FOR AYS 2004-05 & 2005-06 ARE AS UNDER :- AY 2004-05 S.NO. COMPANY NAME MARGIN AS PER TP ORDER OP/TC POST DRP DIRECTIONS MARGINS OP/TC WORKING CAPITAL ADJUSTED (OP/TC) 1 HOLTEC CONSULTING PVT. LTD. 11.97% 11.97% 15.26% 2 IL&FS EDUCATION & TECHNOLOGY SERVICES LTD 11.22% 11.22% 12.69% 3 IL&FS TRANSPORTATION NETWORKS LTD 51.29% 51.32% 50.86% 4 RITES LTD 30.7% 30.70% 31.88% 5 STUP CONSULTANTS LTD. 19.36% 19.38% 18.77% 6 T C E. CONSULTING ENGINEERS LTD 11.79% 11.78% 12.28% 7 WAPCOS LTD. 18.95% 18.95% 17.95% 8 U B ENGINEERING LTD. - 4.27% 1.07% 9 L&T SARGENT & LUNDY LIMITED - -14.20% -11.75% 10 TATA PROJECTS LIMITED - -1.67% 4.40% AVERAGE 32.47% 14.71% 15.34% AY 2005-06 S.NO. COMPANY NAME AS PER TP ORDER OP/TC POST DRP DIRECTIONS OP/TC MARGINS WORKING CAPITAL ADJUSTED (OP/TC) 1 HOLTEE CONSULTING PVT. LTD. 36.01% 36.00% 37.71% 2 RITES LTD 34.19% 34.19% 32.63% 3 T C E CONSULTING ENGINEERS LTD 22.95% 22.95% 21.96% 4 U B ENGINEERING LTD. - 1.36% 1.95% 5 TATA PROJECTS LIMITED - 4.03% 6.88% AVERAGE 31.05% 19.71% 20.23% ITA NO.1403 & 1404/DEL./2015 7 10. NOW, THE IDENTICAL GRIEVANCE OF REVENUE RAISED BY FILING PRESENTS APPEALS FOR AYS 2004-05 & 2005-06 IS :- THE DRP HAS ERRED IN LAW AND FACTS DIRECTING THE T PO TO INCLUDE UB ENGINEERING LTD., TATA PROJECT LTD. AND L&T SARG ENT & LUNDY LTD. AS COMPARABLES ON THE GROUND THAT FUNCTI ONAL PROFILE OF THESE COMPANIES ARE DIFFERENT FROM THE PROFILE O F THE TAXPAYER? 11. HOWEVER, WHEN WE EXAMINE THE TP ORDER PASSED BY THE LD. TPO QUA REJECTION OF AFORESAID 3 COMPARABLES TO BEN CHMARK THE INTERNATIONAL TRANSACTIONS, IT IS UNDISPUTED FACT T HAT THE LD. TPO HAS NOT REJECTED AFORESAID 3 COMPARABLES ON GROUND OF F UNCTIONAL DISSIMILARITY RATHER REJECTED THE SAME ON GROUND OF FAILING SERVICE INCOME FILTER. FOR READY PERUSAL, FINDINGS OF THE TPO REJECTING COMPARABLES CONTAINED IN PARA 4.7 OF THE TP ORDER O F AYS 2004-05 & 2005-06 CONTAINING IDENTICAL COMMENTS ARE AS UNDE R :- AY 2004-05 COMPANY NAME COMMENTS OF THE TPO 1 L & T -SARGENT & LUNDY LTD. SERVICE INCOME LESS THAN 75%, HENCE REJECTED 2 TATA PROJECTS LTD. SERVICE INCOME LESS THAN 75%, HENCE REJECTED 3 U B ENGINEERING LTD. SERVICE INCOME LESS THAN 75% , HENCE REJECTED AY 2005-06 COMPANY NAME COMMENTS OF THE TPO 1 L & T -SARGENT & LUNDY LTD. SERVICE INCOME LESS THAN 75%, HENCE REJECTED 2 TATA PROJECTS LTD. SERVICE INCOME LESS THAN 75%, HENCE REJECTED 3 U B ENGINEERING LTD. SERVICE INCOME LESS THAN 75% , HENCE REJECTED ITA NO.1403 & 1404/DEL./2015 8 12. WHEN WE EXAMINE PARA 4.4.4 OF TP ORDER THE LD. TPO HAS CATEGORICALLY APPLIED SERVICE INCOME THRESHOLD INCO ME OF 75% TO ENSURE SELECTION OF COMPANIES HAVING FUNCTIONAL PRO FILE SIMILAR TO THAT OF THE TAXPAYER. SO, LD. TPO APPLIED FILTER T HAT COMPANIES SHOULD HAVE AT LEAST 75% OF ITS REVENUE FROM TECHNI CAL CONSULTANCY SERVICES TO BE ELIGIBLE AS A COMPARABLE TO BENCHMAR K THE INTERNATIONAL TRANSACTIONS QUA EDS. 13. THE LD. DR FOR THE REVENUE CHALLENGING THE IMPU GNED ORDER PASSED BY THE LD. DRP CONTENDED THAT THE DRP HAS NO T APPLIED ITS MIND IN DECIDING THE ISSUE AND THE FINDINGS RETURNE D BY THE LD. DRP ARE UNREASONABLE AND EVEN NO FINDINGS HAVE BEEN RET URNED BY THE LD. DRP QUA SUITABILITY OF UB ENGINEERING LTD. AS A COMPARABLE. 14. HOWEVER, ON THE OTHER HAND, LD. AR FOR THE TAXP AYER CONTENDED THAT THE ONLY GROUND ON WHICH LD. TPO HAS REJECTED UB ENGINEERING LTD., TATA PROJECT LTD. AND L&T SARGENT & LUNDY LTD. IS FAILING OF SERVICE INCOME FILTER OF 75% WHICH IS NOT SUSTAINABLE AND DREW OUR ATTENTION TOWARDS EXTRACT OF THE ANNUA L REPORT OF UB ENGINEERING LTD., TATA PROJECT LTD. AND L&T SARGENT & LUNDY LTD., AVAILABLE AT PAGES 379, 378 & 375 RESPECTIVEL Y OF THE PAPER BOOK, PRODUCED BEFORE THE LD. DRP WHICH SHOWS THAT ALL THREE COMPANIES PASS SERVICE INCOME FILTER OF 75%. FOR R EADY PERUSAL, ITA NO.1403 & 1404/DEL./2015 9 EXTRACT OF ANNUAL REPORT SHOWING INCOME OF ALL THE AFORESAID 3 COMPANIES HAVING SERVICE INCOME OF MORE THAN 75% IS AS UNDER :- UB ENGINEERING LIMITED COMPANY NAME INCOME FROM TECHNICAL SERVICE TOTAL INCOME SERVICE INCOME/ TOTAL INCOME UB ENGINEERING LIMITED 747,463,720 751,952,786 99.40% TATA PROJECTS LIMITED COMPANY NAME INCOME FROM TECHNICAL SERVICE TOTAL INCOME SERVICE INCOME/ TOTAL INCOME TATA PROJECTS LIMITED 2,561,181,348 2,590,244,324 9 8.88% L & T SARGENT & LUNDY LIMITED COMPANY NAME INCOME FROM TECHNICAL SERVICE TOTAL INCOME SERVICE INCOME/ TOTAL INCOME L & T SARGENT & LUNDY LIMITED 84,617 100,006 84.08% 15. MOREOVER, UB ENGINEERING LTD. HAS BEEN ACCEPTED AS A SUITABLE COMPARABLE BY THE TRIBUNAL IN TAXPAYERS O WN CASE FOR AY 2010-11, COPY AVAILABLE IN THE JUDICIAL FILE, AND L D. TPO IN AYS 2007-08 & 2008-09 HAS HIMSELF INCLUDED UB ENGINEERI NG LTD. FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS WHEN UN DISPUTEDLY ITA NO.1403 & 1404/DEL./2015 10 THERE IS NO CHANGE IN THE BUSINESS MODEL OF THE TAX PAYER SINCE 2007-08. 16. SO FAR AS CONTENTION RAISED BY THE LD. DR FOR T HE REVENUE THAT LD. DRP HAS ERRED IN INCLUDING AFORESAID 3 COM PARABLES BY IGNORING THE FACT THAT FUNCTIONAL PROFILES OF THESE COMPANIES ARE DIFFERENT FROM THE PROFILE OF THE TAXPAYER IS CONCE RNED WHEN UNDISPUTEDLY NO SUCH FINDINGS HAVE BEEN RETURNED BY THE TPO NOR HE HAS QUESTIONED FUNCTIONAL DISSIMILARITY OF TAXPA YER VIS--VIS UB ENGINEERING LTD., TATA PROJECT LTD. AND L&T SARGENT & LUNDY LTD., THIS ISSUE HAS BEEN RAKED UP BEFORE THE TRIBU NAL FIRST TIME. 17. MOREOVER, WHEN WE EXAMINE THE ORDERS PASSED BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AYS 2007-08, 20 08-09 & 2010-11, UB ENGINEERING LTD. HAS BEEN INCLUDED BY T HE TPO HIMSELF AS A COMPARABLE AND THERE IS NO CHANGE IN T HE FUNCTIONAL PROFILE OF THE TAXPAYER EVER. SO, THIS CONTENTION OF THE LD. DR FOR THE REVENUE IS NOT TENABLE. HOWEVER, WE DIRECT LD. TPO TO VERIFY THE DATA SUPPLIED BY THE TAXPAYER FROM ANNUAL REPOR T IF THE UB ENGINEERING LTD., TATA PROJECT LTD. AND L&T SARGENT & LUNDY LTD. ARE HAVING SERVICE INCOME OF MORE THAN75% TO RETAIN AS A SUITABLE COMPARABLES. 18. IN AY 2005-06, REVENUE ALSO CHALLENGED EXCLUSIO N OF NTPC ELECTRIC SUPPLY LTD. (NTPCESL) AS A COMPARABLE BY T HE LD. DRP ITA NO.1403 & 1404/DEL./2015 11 ON THE GROUND THAT LD. DRP HAS IGNORED THE FACT THA T ORGANISATION OF ECONOMIC COOPERATION AND DEVELOPMENT (OECD) GUID ELINES ADVOCATE USE OF TNMM METHOD AS IT ALLOWS COMPARABIL ITY OF THE FUNCTIONS RATHER THAN STRICTLY FOCUSING ON PRODUCT/ SERVICE COMPARABILITY AS IN THE CASE OF COST PLUS METHOD, R ESALE PRICE METHOD AND COMPARABLE UNCONTROLLED PRICE METHOD. 19. WHEN WE EXAMINE THE FUNCTIONAL PROFILE OF TAXPA YER ITS FUNCTIONAL PROFILE IS TO RENDER ENGINEERING SUPPORT SERVICES BY WAY OF PREPARING DESIGNS AND DRAWINGS AS PER SPECIFICAT ION FOR ITS AES I.E. BECHTEL CORPORATION, USA AND ITS ENTIRE REVENU E IS FROM 100% EXPORT OF SERVICES TO ITS AES HAVING FOREIGN CURREN CY FLUCTUATION RISK AND 100% RELATED PARTY TRANSACTIONS WHEREAS ON THE OTHER HAND, NTPCESL AS PER ITS ANNUAL REPORT, IS A 100% GOVERNM ENT OWNED COMPANY, SUBSIDIARY OF NATIONAL THERMAL POWER CORPO RATION WITH ITS ACTIVITIES AS ADVISORY-CUM-CONSULTANCY UNDER TH E ACCELERATED POWER DEVELOPMENT REFORMS PROGRAMME (APDRP), AN INI TIATIVE TAKEN BY THE MINISTRY OF POWER FOR DEVELOPMENT REFO RMS, HAS BEEN UNDERTAKEN BY THE COMPANY. 20. NTPCESL HAS BEEN AWARDED CONSULTANCY WORK IN TH E AREAS OF PROJECT MONITORING, QUALITY ASSURANCE AND INSPEC TION OF APDRP WORK OF BHOPAL AND GWALIOR REGIONS BY CENTRAL ZONE OF MADHYA PRADESH STATE ELECTRICITY BOARD/MADHYA PRADE SH MADHYA ITA NO.1403 & 1404/DEL./2015 12 KSHETRA VIDYUT VITAREN COMPANY LTD. SIMILAR ASSIGNM ENTS OF CONSULTANCY WORK IN INDORE AND UJJAIN CIRCLES ALONG WITH EIGHT DISTRICTS OF WESTERN ZONE OF MADHYA PRADESH STATE E LECTRICITY BOARD/MADHYA PRADESH PASCHIM KSHETRA VIDYUT VITARAN CAMPANY LTD. ARE ALSO IN PROGRESS SINCE LAST YEAR. CHANDIG ARH ADMINISTRATION HAS DECIDED TO ENTRUST THE TURNKEY C ONTRACT FOR DESIGN, SUPPLY, ERECTION, TESTING AND COMMISSIONING OF A 2X2O MVA SUB-STATION ALONG WITH ASSOCIATED HT LINE AT MA NI MAJRA TO NTPCESL. 21. NIPCESL SIGNED AN MOU WITH RURAL ELECTRIFICATIO N CORPORATION LTD.(REC) FOR TAKING UP RURAL ELECTRIFI CATION WORK IN WEST BENGAL UNDER GOVERNMENT OF INDIA'S ACCELERATED RURAL ELECTRIFICATION PROGRAMME. A QUADRIPARTITE AGREEMEN T HAS BEEN SIGNED BETWEEN REC, WBSEB, GOVERNMENT OF WEST BENGA L AND NTPCESL FOR THE SAME ALONG WITH A SUPPLEMENTARY AGR EEMENT BETWEEN REC AND YOUR COMPANY FOR EXECUTION OF THE W ORK. AS PER THE AGREEMENT WITH REC, YOUR COMPANY WILL BE EXECUT ING THE WORK IN KHARAGPUR BLOCK - 1 AND 2 OF WEST MIDANAPORE DIS TT, OF WEST BENGAL. THE NTPCESL IS YET TO UNDERTAKE COMMERCIAL ACTIVITIES IN THE AREA OF DISTRIBUTION OF POWER. IT IS EXPLORI NG VARIOUS OPTIONS IN THIS FIELD. NTPCESL IS IN DISCUSSIONS WITH THE G OVERNMENT OF KARNATAKA FOR ACQUISITION OF MANGLORE CIRCLE OF MAN GLORE ELECTRIC ITA NO.1403 & 1404/DEL./2015 13 SUPPLY COMPANY LTD. (MESCOM) IN KARNATAKA. BASED ON THE DETAILED DISCUSSIONS WITH GOVERNMENT OF KARNATAKA, KARNATAKA POWER TRANSMISSION CORPORATION LTD. AND MESCOM A DR AFT AGREEMENT FOR ACQUISITION OF ELECTRICITY DISTRIBUTI ON BUSINESS IN MANGALORE CIRCLE HAS BEEN SENT TO GOVERNMENT OF KAR NATAKA. 22. AN EXPRESSION OF INTEREST WAS SUBMITTED TO GUJA RAT ELECTRICITY BOARD FOR APPOINTMENT AS CITY DISTRIBUT ION FRANCHISEE IN THE CITIES OF BARODA AND RAJKOT. DISCUSSIONS ARE IN PROGRESS FOR IDENTIFICATION OF A SUITABLE DISTRIBUTION AREA IN G UJARAT, WHICH IS TO BE HANDED OVER TO THE JOINT VENTURE COMPANY TO ENSU RE BANKABILITY OF THE PROPOSED 1000 MW POWER PROJECT AT PIPAVAV AS PER THE PROVISIONS OF THE MOU SIGNED BETWEEN NTPC, GUJARAT POWER CORPORATION LTD. AND GUJARAT ELECTRICITY BOARD. NT PCESL HAS ALSO DECIDED TO TAKE UP THE DISTRIBUTION OF ELECTRICITY IN THE NEIGHBOURING AREAS OF NTPC POWER STATIONS. FOR THIS PURPOSE THE MATTER REGARDING REQUIRED ALLOCATION OF POWER FROM THE UNA LLOCATED QUOTA OF NTPC POWER STATIONS HAS ALREADY BEEN TAKEN UP WI TH THE MINISTRY OF POWER. DISTRIBUTION OF ELECTRICITY IN T HESE AREAS IS PROPOSED TO BE UNDERTAKEN BY APPLYING TO THE STATE ELECTRICITY REGULATORY COMMISSION FOR PARALLEL LICENSE. AS A PI LOT SCHEME, ELECTRICITY DISTRIBUTION IN THE KORBA REVENUE DISTR ICT NEAR NTPC STATION IN CHHATTISGARH IS BEING UNDERTAKEN. ITA NO.1403 & 1404/DEL./2015 14 23. NTPCESL HAS NOT BEEN FOUND AS A SUITABLE COMPAR ABLE IN TAXPAYERS OWN CASE IN AY 2009-10 IN ITANO.882/DEL/ 2014 ORDER DATED 14.10.2015 , COPY AVAILABLE ON THE JUDICIAL FILE, BY RETURNING FOLLOWING FINDINGS :- 17. IN VIEW OF PROPOSITION LAID DOWN BY THE ITAT, MUMBAI, WE OBSERVE THAT IN THAT CASE, ENGINEERS IND IA LTD. EARNED INCOME FROM TURNKEY PROJECTS BY SUCCESSFULLY COMPLETING THE PROJECT OF IOCL AND OTH ER PUBLIC SECTOR UNDERTAKING AND THE RELATED PARTY TRANSACTION WERE MUCH MORE THAN THE FILTER OF 25%, THEREFORE, THE ORDER FOR EXCLUSION OF ENGINEERS IND IA LTD. WAS PASSED BY THE TRIBUNAL. IN THE PRESENT CAS E, THE NTPCES WAS SHELTERED BY ITS HOLDING COMPANY NTPCES AND GOVERNMENT COMPANIES AND DEPARTMENTS AWARDED/ENTRUSTED VARIOUS PROJECTS/CONTRACTS FOR RU RAL ELECTRIFICATION, DISTRIBUTION OF POWER AND PROJECT MANAGEMENT CONSULTANCY, THEREFORE, NTPCES LOSES THE TAG OF COMPARABILITY WITH THE ASSESSEE BECHTEL INDI A. WE ALSO FIND IT APPROPRIATE TO MENTION THAT IT CANNOT BE IGNORED THAT THE NTPCES IS ALSO ENJOYING SETTLEMENT OF ALL EMPLOYEES FROM THE HOLDING COMPANY NTPCS AT COS T AND THE BENEFITS RECEIVED FROM THE HOLDING COMPANY AND RELATED PARTY TRANSACTIONS (RPT) ARE NOT MONETI SED IN THE ANNUAL REPORT AND IN ABSENCE OF SPECIFIC DAT A IN THIS REGARD, NTPCES CANNOT BE HELD AS COMPARABLE WITH THE ASSESSEE COMPANY. THEREFORE, AO/TPO WAS NO T JUSTIFIED IN INCLUDING NTPCES IN THE FINAL SET OF COMPARABLES FOR BENCHMARKING IMPUGNED INTERNATIONAL TRANSACTION OF THE ASSESSEE COMPANY AND THEY ARE DIRECTED TO DELETE THE SAME. WE ORDER ACCORDINGLY. 24. EVEN OTHERWISE, NTPCESL IS ENTIRELY PROVIDED WO RK BY ITS HOLDING COMPANY, NTPC, AND VARIOUS PROJECTS AND CON TRACTS ARE BEING AWARDED BY GOVERNMENT COMPANIES/DEPARTMENTS A ND AS SUCH, IS FUNCTIONALLY DISSIMILAR VIS--VIS THE TAXP AYER. ITA NO.1403 & 1404/DEL./2015 15 25. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT LD. DRP HAS RIGHTLY EXCLUDED N TPCESL AS A COMPARABLE ON GROUND OF FUNCTIONAL DISSIMILARITY. 26. RESULTANTLY, BOTH THE APPEALS FILED BY THE REVE NUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 4 TH DAY OF MAY, 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 4 TH DAY OF MAY, 2020 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.