Saipem India Projects Limited, CHENNAI V. ACIT, CHENNAI

ITA 1596/CHNY/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8728 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 01-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-08-2012
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADHUKAR BHUSARI
• Assessee Lawyers: PRANITH GOLECHA CAS
• Keywords: Transfer pricing; Wholly owned subsidiary

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1596/MDS/2012 / ASSESSMENT YEAR : 2008-09 M/S SAIPEM INDIA PROJECTS LTD [FORMERLY KNOWN AS SAIPEM INDIA PROJECTS SERVICES LTD] YARLAGADDA TOWERS, 4, FOURTH LANE OFF NUNGAMBAKKAM HIGH ROAD CHENNAI 600 034 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE VI(1) CHENNAI [PAN AAACI 7915 F] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SH RI AJIT KUMAR JAIN, & SHRI PRANITH GOLECHA, CAS /RESPONDENT BY : DR. MILIND MADHUKAR BHUSARI, CIT / DATE OF HEARING : 01 - 06 - 2016 ! / DATE OF PRONOUNCEMENT : 31 - 08 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 6.7.2012 CONSEQUENT TO THE DIRECTION OF THE DISPUTE RESOLUTION PANEL FOR THE ASSESSMENT YEA R 2008-09. 2. SHRI AJIT KUMAR JAIN, LD. REPRESENTATIVE FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE-COMPANY IS ENGAGED IN T HE BUSINESS OF ITA NO1596/12 :- 2 -: PROJECT MANAGEMENT SERVICES, ENGINEERING SERVICES, SITE SUPERVISION SERVICES AND COMMISSIONING SERVICES. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE-COMPANY IS A WHOLLY OW NED SUBSIDIARY OF M/S SAIPEM S.A OF FRANCE. THE ASSESSEE-COMPANY OFF ERED ITS SERVICES TO BOTH DOMESTIC AND FOREIGN CLIENTS INCLUDING RELA TED PARTIES. THE ASSESSEE PARTICIPATED IN THE PROCUREMENT, SUPERVISI ON, INSTALLATION OF PHASES OF THE EPC CYCLE APART FROM PROVIDING THE DE TAILED ENGINEERING BACKBONE. IN THE COURSE OF TRANSFER PRICING STUDY , THE ASSESSEE- COMPANY SELECTED FIVE COMPANIES. THE TPO INCLUDED THREE MORE COMPANIES AS COMPARABLES INCLUDING M/S ENGINEERS IN DIA LTD. AFTER ANALYZING THE COMPARABLE COMPANIES, THE TPO DETERMI NED THE ARITHMETIC MEAN OF OPERATING MARGIN AT 15.3%. HOWE VER, THE ASSESSEE HAS SHOWN THE OPERATING MARGIN AT 7.69%. REFERRING TO THE GROUNDS OF APPEAL, THE LD. REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS RAISED SO MANY GROUNDS, HOWEVER, HE IS CONFININ G HIS ARGUMENTS ONLY WITH REGARD TO COMPARISON OF M/S ENGINEERS IND IA LTD. FOR THE PURPOSE OF TRANSFER PRICING ADJUSTMENT. 3. REFERRING TO THE FUNCTIONS CARRIED OUT BY M/S ENGIN EERS INDIA LTD., THE LD. REPRESENTATIVE SUBMITTED THAT BASICAL LY M/S ENGINEERS INDIA LTD. IS A GOVERNMENT COMPANY. THE FUNCTIONS OF THE COMPANY ARE GREEN FUEL & EMISSION CONTROL PROJECT OF HPCL, MUMBAI, CLEAN FUEL PROJECT AT VISAK REFINERY OF HPCL , DIESEL HYD ROTREATER PROJECT OF ITA NO1596/12 :- 3 -: BRPL AND ALSO CARRYING ON TURNKEY PROJECT IN EXECUT ION OF HYDROCARBON INDUSTRY. THE PROJECT OF M/S ENGINEERS INDIA LTD. INVOLVES SETTING UP A HIGH SEVERITY DIESEL HYDROTRE ATER UNIT, THEREFORE, M/S ENGINEERS INDIA LTD. IS NOT FUNCTIONALLY SIMILA R AS THAT OF THE ASSESSEE-COMPANY. ACCORDING TO THE LD. REPRESENTAT IVE, THE ASSESSEE- COMPANY IS NOT ENGAGED IN TURNKEY PROJECTS. THE L D. REPRESENTATIVE FURTHER SUBMITTED THAT IF M/S ENGINEERS INDIA LTD. IS REMOVED FROM THE COMPARABLE COMPANIES, THE PAYMENT MADE BY THE ASSES SEE-COMPANY WOULD BE AT THE ARMS LENGTH PRICE AND FURTHER ADJ USTMENT MAY NOT BE REQUIRED. THE LD. REPRESENTATIVE HAS PLACED HIS RELIANCE ON THE UNREPORTED JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS M/S THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD IN I.T. A.NO. 2218 OF 2013 DATED 28.3.2016. 4. ON THE CONTRARY, DR. MILIND MADHUKAR BHUSARI, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT M/S ENGI NEERS INDIA LTD. IS MAINLY ENGAGED IN EXECUTION OF TURNKEY PROJECTS FOR PUBLIC SECTOR UNDERTAKINGS. HE FURTHER SUBMITTED THAT AS SEEN FR OM THE ORDER OF THE TPO, THE FUNCTIONS OF THE ASSESSEE-COMPANY ARE PROJ ECT MANAGEMENT SERVICES, ENGINEERING SERVICES, SITE SUPERVISION SE RVICES AND COMMISSION SERVICES. IT APPEARS THAT THE ASSESSEE IS NOT ENGAGED IN ANY TURNKEY PROJECTS AS INDICATED IN M/S ENGINEERS INDIA LTD. ITA NO1596/12 :- 4 -: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, THE ASSESSEE-COMPANY IS A WHOLLY OWNED SUBSIDIARY OF SA IPEM S.A OF FRANCE. THE ASSESSEE-COMPANY PROVIDED SERVICES TO BOTH RELATED AND UNRELATED PARTIES IN DOMESTIC AND ABROAD. IN THE C OURSE OF ITS BUSINESS ACTIVITY, THE ASSESSEE PROVIDED SERVICES TO ITS PA RENT COMPANY. IN THE TRANSFER PRICING STUDY, THE ASSESSEE SHOWED OPERA TING MARGIN AT 7.69% BY TAKING FIVE COMPARABLE COMPANIES. THE TPO HAS ACCEPTED ALL THE FIVE COMPANIES SELECTED BY THE ASSESSEE. APART FROM THAT, THE TPO HAS ALSO ADDED THREE MORE COMPANIES INCLUDING M/S ENGINEERS INDIA LTD. THE ASSESSEE-COMPANY IS NOT OBJECTING F OR INCLUSION OF TWO COMPANIES NAMELY, M/S TCE CONSULTING ENGINEERS LTD AND M/S STEWARTS & LLOYD INDIA LTD. THE ONLY OBJECTION OF THE ASSESSEE IS WITH REGARD TO INCLUSION OF M/S ENGINEERS INDIA LTD. IN THE COMPARABLE COMPANIES. FOR THE PURPOSE OF COMPARING A COMPANY, THERE SHOULD BE A FUNCTIONAL SIMILARITY WITH REGARD TO THE ACTIVITI ES CARRIED ON. M/S ENGINEERS INDIA LTD. IS ENGAGED IN TURNKEY PROJECTS AS SEEN FROM THE ANNUAL REPORT WHICH IS AVAILABLE AT PAGE 517 OF THE PAPER BOOK. THE ASSESSEE APPARENTLY IS NOT ENGAGED IN TURNKEY PROJE CTS, THEREFORE, THERE IS NO FUNCTIONAL SIMILARITY BETWEEN THE ASSES SEE-COMPANY AND M/S ENGINEERS INDIA LTD. AND HENCE, IT HAS TO BE EX CLUDED FROM THE COMPARABLE COMPANIES. ONCE M/S ENGINEERS INDIA LTD . IS EXCLUDED ITA NO1596/12 :- 5 -: WHICH HAS THE OPERATING MARGIN OF 38.33%, AS RIGHTL Y POINTED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE, THERE MAY NOT BE ANY NEED FOR ADJUSTMENT FOR DETERMINING THE ALP. THEREFORE, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN VIEW OF THE FUNCTIONAL D ISSIMILARITY BETWEEN THE ASSESSEE-COMPANY AND M/S ENGINEERS INDIA LTD., M/S ENGINEERS INDIA LTD. CANNOT BE TAKEN AS A COMPARABLE COMPANY FOR THE PURPOSE OF MAKING TRANSFER PRICING ADJUSTMENT. ACCORDINGLY , THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING O FFICER IS DIRECTED TO REMOVE M/S ENGINEERS INDIA LTD. FROM THE COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINING THE ALP. THE ASSESSING OFFICER SHALL RECOMPUTE THE ALP/ARITHMETIC MEANSOF OPERATING MARG IN AFTER REMOVING M/S ENGINEERS INDIA LTD. FROM THE COMPARAB LE COMPANIES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 31 ST AUGUST, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF