M/s. Lummus Technology Heat Transfer BV, Gurgaon V. DCIT, Gurgaon

ITA 1817/DEL/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3959 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 30-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHA KANT SAHU SENIOR
• Assessee Lawyers: VISHAL KALRA MS SURABHI SURI
• Keywords: Related party transaction; Depreciation; Transfer pricing; Double taxation relief; International transaction; Permanent establishment; TDS; Set aside
• Section: 143(3); 234B; 201; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1817/DEL./2015 (ASSESSMENT YEAR : 2010-11) M/S. LUMMUS TECHNOLOGY HEAT TRANSFER BV, VS. DCIT, 2 ND FLOOR, INFINITY TOWER B, CIRCLE-GURGAON, DLF CYBER CITY PHASE II, SECTOR 25A, INTERNATIO NAL TAXATION, GURGAON 122 002 (HARYANA). GURGAON. (PAN : AABCA9045K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL KALRA, ADVOCATE MS. SURABHI SURI, ADVOCATE REVENUE BY : SHRI SUBHA KANT SAHU, SENIOR DR DATE OF HEARING : 15.10.2019 DATE OF ORDER : 28.11.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER THE APPELLANT, M/S. LUMMUS TECHNOLOGY HEAT TRANSFE R BV (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.01.2015 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C (13) OF THE ACT QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT:- ITA NO.1817/DEL/2015 2 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN COMPLETING THE ASSESSMENT OF THE APPELLANT UNDER SECTION 143(3) READ WITH SECTION 14 4C(13) OF THE ACT, AT AN INCOME OF INR 2,74,96,515, IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE DRP, AS AGAINST RETURNED I NCOME OF INR 92,81,393. TRANSFER PRICING ('TP') ADJUSTMENT 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TRANSFER PRICING OFFICER (TPO') / DRP HAVE ERRED IN MAKING AN UPWARD TP ADJUSTMENT OF INR 93,62,468, IN RESPECT OF THE TRANSACTION RELATING TO PROVISION OF DESIGN AND ENGINEERING, AND SUPERVISION SERVICES TO ASSOCIATED ENTERPRISES CAE'), ALLEGING THAT THE SAME WERE NOT AT ARM'S LEN GTH. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULE S, 1962 ('RULES') FOR DETERMINATION OF THE ARM'S LENGTH PRI CE ('ALP') OF PROVISION OF DESIGN AND ENGINEERING, AND SUPERVISIO N SERVICES. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN REJECTING / ARBITR ARILY MODIFYING THE SEARCH PROCESS AND FILTERS ADOPTED BY THE APPELLANT FOR THE PURPOSE OF BENCHMARKING ITS INTERNATIONAL T RANSACTIONS OF PROVISION OF DESIGN AND ENGINEERING, AND SUPERVISIO N SERVICES TO AES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, DRP , TPO ERRED IN ARBITRARILY REJECTI NG THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT APPL YING ARBITRARY' SUBJECTIVE SEARCH FILTERS. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, DRP , TPO ERRED IN ARBITRARILY REJECTI NG THE COMPARABLE COMPANY NAMELY, GHERZI EASTERN LIMITED, WITHOUT APPRECIATING THAT IT PASSED ALL THE SEARCH FILTERS ADOPTED BY THE TPO. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, DRP, TPO ERRED IN SELECTING FRESH COMP ARABLE COMPANIES, ON THE BASIS OF ARBITRARY SEARCH FILTERS AND INCORRECT APPRECIATION OF THE FUNCTIONS, ASSETS AND RISK ('FA R') PROFILE OF APPELLANT AND THE COMPARABLE COMPANIES. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, DRP, TPO ERRED IN NOT PROVIDING APPROP RIATE ECONOMIC ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN I DLE CAPACITY, ITA NO.1817/DEL/2015 3 WORKING CAPITAL AND RISK PROFILE BETWEEN THE APPELL ANT AND THE COMPARABLE COMPANIES. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE. CASE AND IN LAW, THE TPO ERRED IN REDUCING THE AMOUNT OF FOREIG N EXCHANGE GAIN FROM THE OPERATING INCOME OF THE APPELLANT, FO R THE PURPOSE OF COMPUTING THE TP ADJUSTMENT. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, DRP, TPO ERRED IN IGNORING THE PROVISI ONS OF RULE 10B(4) OF THE RULES WHICH ALLOWS USE OF MULTIPLE YE AR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATI ON OF THE ALP. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, DRP, TPO ERRED IN NOT ALLOWING APPELLA NT THE BENEFIT OF 5 PERCENT RANGE AS PROVIDED BY THE PROVI SO OF SECTION 92C(2) OF THE ACT. CORPORATE TAX ADJUSTMENT 12. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO , DRP HAVE ERRED IN MAKING AN ADJUSTMENT OF INR 76,33,390 TO THE INCOME OF THE APPELLANT, IN RESPEC T OF THE DIRECT SUPPLIES' SERVICES BY THE HEAD OFFICE TO THE INDIAN CUSTOMERS, ON THE PREMISE THAT SUCH DIRECT SUPPLIES' SERVICES WER E MADE THROUGH THE PERMANENT ESTABLISHMENT ('PE') OF THE APPELLANT , BEING THE BRANCH OFFICE IN INDIA. 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE AO, DRP HAVE ERRED IN ARBITRARILY ALLEG ING THAT THE PE OF THE APPELLANT WAS INVOLVED IN NEGOTIATING AND CONCLUDING CONTRACTS ON BEHALF OF THE HEAD OFFICE WITH THE IND IAN CUSTOMERS IN RELATION TO THE DIRECT SUPPLIES' SERVICES MADE B Y SUCH HEAD OFFICE. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN APPLYING AN AD-H OC AND ARBITRARY RATE OF 25 PERCENT TO DETERMINE GROSS PRO FIT FROM THE DIRECT SALES / SERVICES IN INDIA BY THE HEAD OFFICE AND FURTHER ERRED IN ESTIMATING, ON AN AD-HOC BASIS, 50 PERCENT THEREOF, AS ATTRIBUTABLE TO THE PE OF THE APPELLANT, ON CONJECT URES AND SURMISES. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN ATTRIBUTING FURTHER PROFITS TO THE PE OF THE APPELLANT WITHOUT APPRECIATING THAT THE S UBJECT TRANSACTIONS HAVE BEEN SCRUTINIZED BY THE TPO AND N O FURTHER PROFITS COULD HAVE BEEN ATTRIBUTED. ITA NO.1817/DEL/2015 4 16. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED BY COMPLETELY MISINTER PRETING THE FACTS OF THE CASE AND MAKING ASSUMPTIONS IN ATTRIBU TING FURTHER PROFITS TO THE PE OF THE APPELLANT, BEING THE BRANC H OFFICE IN INDIA. 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN NOT GIVING CREDIT OF TAXES AMOUNTING TO INR 4,73,055, WHILE COMPUTING THE ALLEGED TAX PAYAB LE BY THE APPELLANT. 18. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE AO HAS ALSO ERRED IN NOT GIVING CREDIT OF TAXES AMOUNTING TO IN R 7,27,883 WITHHELD ON PAYMENTS RECEIVED BY HEAD OFFICE OF THE APPELLANT FROM THE INDIAN CUSTOMER. 19. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN APPLYING TAX RATE OF 10.55 75 PERCENT ON THE ROYALTY / FEE FOR TECHNICAL SERVICES ('FTS') IN COME RECEIVED BY THE HEAD OFFICE OF THE APPELLANT INSTEAD OF 10 P ERCENT TAX RATE PRESCRIBED UNDER THE INDIA-NETHERLANDS TAX TREATY F OR TAXATION OF SUCH INCOME. 20. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE AO HAS ERRED IN CHARGING INTEREST UNDER SECTIONS 234B OF THE ACT. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. LUMMUS TECHNOLOGY HE AT TRANSFER BV, THE TAXPAYER IS A COMPANY INCORPORATED UNDER TH E LAWS OF NETHERLAND. IT HAS ESTABLISHED LIAISON OFFICE IN I NDIA IN ACCORDANCE WITH APPROVAL ACCORDED BY RESERVE BANK O F INDIA (RBI) IN JUNE 1997. THEREAFTER, IN JUNE 1999, LIAI SON OFFICE WAS CONVERTED INTO A BRANCH OFFICE (LUMMUS-BO) AT NEW D ELHI AFTER GETTING NECESSARY APPROVAL FROM RBI TO TRANSFER THE NET ASSETS AND LIABILITIES FROM THE LIAISON OFFICE TO THE BRANCH O FFICE. THE TAXPAYER IS ENGAGED IN PROVISION OF DESIGN & ENGINE ERING SERVICES ITA NO.1817/DEL/2015 5 TO ITS HEAD OFFICE (HO) AND THIRD PARTY CUSTOMERS I N INDIA ALONG WITH OTHER SUPERVISORY SUPPORT SERVICES TO REFINERY , PETROCHEMICAL AND OTHER PROCESS INDUSTRIES. 3. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AE) AS UNDER :- S.NO. NATURE OF TRANSACTION METHOD VALUE OF TRANSACTION 1 SUPPLY OF EQUIPMENT TNMM 55,61,847/- 2 PROVIDING DESIGN AND ENGINEERING SERVICES TNMM 10,88,12,276/- 3 PROVIDING SUPERVISION SERVICES TNMM 76,56,808/- 4 COST ALLOCATION OF OFFICE RENT COST TO COST RECHARGE 8,44,800/- 5 REIMBURSEMENT OF EXPENSES PAID REIMBURSEMENT AT COST 1,48,74,237/- 6 REIMBURSEMENT OF EXPENSES RECEIVED REIMBURSEMENT AT COST 52,24,700/- 4. THE TAXPAYER IN ITS TP ANALYSIS HAS BENCHMARKED ITS INTERNATIONAL TRANSACTIONS QUA SUPPLY OF EQUIPMENT, PROVIDING DESIGN AND ENGINEERING SERVICES AND PROVIDING SUPER VISION SERVICES TOGETHER ON COMBINED TRANSACTION APPROACH ON THE GR OUND THAT PROVISION OF SUPERVISORY SUPPORT SERVICES AND SUPPL Y OF EQUIPMENT IS INTERLINKED WITH THE PRIMARY TRANSACTION OF PROV ISION OF DESIGN AND ENGINEERING SERVICES. THE TAXPAYER APPLIED TRA NSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERATING PROFIT/OPERATIN G COST (OP/OC) AS PROFIT LEVEL INDICATOR (PLI) AS MOST APP ROPRIATE ITA NO.1817/DEL/2015 6 METHOD (MAM) AND COMPUTED ITS MARGIN AT 46.54% ON C OST AFTER CLAIMING IDLE CAPACITY ADJUSTMENT WHEREAS THE AVERA GE MARGIN OF COMPARABLE IS 21.12% BY USING MULTIPLE YEAR DATA AN D FOUND ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. 5. LD. TRANSFER PRICING OFFICER (TPO) DENIED THE ID LE CAPACITY ADJUSTMENT OF RS.2,50,63,818/- I.E. 21.90% OF THE T OTAL COST OF RS.11,44,23,546/- CLAIMED BY THE TAXPAYER ON THE GR OUND THAT THE TAXPAYER HAS FAILED TO PROVIDE DOCUMENTARY EVIDENCE IN RESPECT OF BASIS OF COST ALLOCATION UNDER EACH HEAD I.E. PERSO NNEL EXPENSES, OPERATING & OTHER EXPENSES, FINANCIAL EXPENSES AND DEPRECIATION, FINALLY SELECTED 10 COMPARABLES WITH MARGIN OF 25.2 1% AND PROPOSED ADJUSTMENT OF RS.93,62,468/- TO ARMS LENG TH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS PERTAINING TO P ROVISION OF DESIGN & ENGINEERING SERVICES. ASSESSING OFFICER ( AO)/DRP HAVE CONFIRMED THE ADDITIONS MADE BY THE TPO IN DRAFT OR DERS AND FURTHER MADE ADDITIONS AMOUNTING TO RS.76,33,390/- BY ATTRIBUTING PROFITS OF HO TO BO FROM HOS DIRECT TRANSACTIONS W ITH INDIAN CUSTOMERS. 6. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY WAY OF FILING OBJECTIONS, WHO HAS CONFIRMED THE ADDITIO NS/DISALLOWANCES MADE BY THE TPO/AO BY DISMISSING THE OBJECTIONS RAI SED BY THE TAXPAYER. AO CONSEQUENTLY PASSED ASSESSMENT ORDER A ND FRAMED ITA NO.1817/DEL/2015 7 ASSESSMENT OF THE TAXPAYER AT RS.2,74,96,515/-. FE ELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 7. 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. GROUNDS NO.1 & 6 8. GROUND NO.1 BEING GENERAL IN NATURE NEEDS NO SPE CIFIC ADJUDICATION. GROUND NO.6 BEING PREMATURE NEEDS NO SPECIFIC FINDINGS. GROUND NO.8 9. THE AFORESAID GROUND PERTAINS TO ADJUSTMENT OF RS.93,62,468/- QUA PROVISION OF SERVICES TO ITS AE. HOWEVER, THE LD. AR FOR THE TAXPAYER CONTENDED THAT FIRST OF ALL , ISSUE AS TO DENYING THE IDLE CAPACITY ADJUSTMENT BY THE AO/TPO/ DRP IS REQUIRED TO BE ADDRESSED. THE LD. AR FOR THE TAXPA YER CHALLENGING THE IMPUGNED ORDER PASSED BY THE AO/TPO/DRP DENYING THE IDLE CAPACITY ADJUSTMENT CONTENDED INTER ALIA THAT IN OR DER TO UTILIZE THE TECHNOLOGY BY LUMMUS BO IN ITS DAY-TO-DAY FUNCTIONI NG, THE PERSONNEL EMPLOYED ARE GIVEN TECHNICAL TRAINING WHI CH CONSUMES LARGER NUMBER OF MAN-HOURS AND AS SUCH, THE MAN-HOU RS CONSUMED ITA NO.1817/DEL/2015 8 IN TRAINING ARE IDLE HOURS WHICH ARE NOT ABSORBED I N ANY SPECIFIC PROJECT; THAT THE HOURS SPENT BY EMPLOYEES ON VARIO US JOBS ARE RECORDED TO RAISE THE BILL BY THE TAXPAYER TO THE C USTOMERS ACCORDINGLY, MAINTAIN EFFICIENCIES, ATTRACT EMPLOYE E PERFORMANCE AND ASSET IN TAKING MEASURES TO REDUCE COST AND ALS O ENABLES TAXPAYER TO ANALYSE REASONS FOR IDLE CAPACITY; THAT ISSUE OF IDLE CAPACITY ALSO ARISES IN CASES WHERE THE TAXPAYER IS NOT HAVING SUFFICIENT NUMBER OF PROJECTS TO WORK FOR; THAT TO ESTABLISH COMPARABILITY, THE TAXPAYER EXCLUDED THE COST OF ID LE HOURS FROM ITS COST BASE IN ORDER TO DETERMINE THE TRUE AND FAIR P ROFITABILITY; THAT SIMILAR IDLE CAPACITY ADJUSTMENT HAS BEEN GRANTED B Y THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AYS 2008-09 AND 2009-10 AND ALSO RELIED UPON THE DECISION RENDERED BY THE TRIBUNAL I N TRANSWITCH INDIA PVT. LTD. VS. DCIT (2012) 53 SOT 151 (DELHI), SITEL INDIA (P) LTD. VS. ACIT (2013) 55 SOT 541 (MUMBAI), DCIT VS. PANASONIC AVC NETWORK INDIA CO. LTD. (2014) 63 SOT 121 (DELHI), HCL TECHNOLOGIES BPO SERVICES LTD. VS. ACI T (2015) 69 SOT 571 (DELHI), BECHTEL INDIA (P) LTD. VS. DCIT (2016) 66 TAXMANN.COM 160 (DELHI), ARISTON THERMO INDIA LTD. VS. DCIT (2014) 147 ITD 388 (PUNE) AND DCIT VS. GENESIS INTE GRATING SYSTEMS (INDIA) (P) LTD. (2016) 66 TAXMANN.COM 20 ( BANGALORE) . ITA NO.1817/DEL/2015 9 10. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE RELIED UPON THE ORDERS OF THE LOWER REVENUE AUTHORITIES. 11. WHEN WE EXAMINE PAGE 36 OF THE PAPER BOOK, IT S HOWS THAT THE TAXPAYER HAS GIVEN THE COMPLETE CALCULATION AS TO HOW THE IDLE HOURS ARE CALCULATED. PERUSAL OF PROJECT-WISE BREA K-UP OF THE ACTUAL HOURS AT PAGE 490 OF THE PAPER BOOK SHOWS THAT THE TAXPAYER HAS EXPLAINED AS TO HOW THE WORKING HOURS OF THE EMPLOY EES HAVE BEEN CALCULATED. 12. HOWEVER, LD. TPO DENIED THE IDLE CAPACITY ADJUS TMENT CLAIMED BY THE TAXPAYER BY RETURNING FOLLOWING FIND INGS :- 11. AS PER THE DETAILS FILED IT IS SEEN THAT YOU H AVE CLAIMED IDLE CAPACITY ADJUSTMENT OF RS.2,50,63,818, WHICH HAS LE AD TO OP/OC OF 46.54%. HOWEVER THIS CLAIM CANNOT BE ALLOWED TO YOU. IT IS NOT EVIDENT FROM NOTES ON ACCOUNT FILED ALONG WITH AUDI TED P&L ALE AND BALANCE SHEET OF THE ASSESSEE AND FORM 3CD REPO RT OF TAX AUDITOR THAT IDLE CAPACITY ADJUSTMENT IS REQUIRED. THE TAX AUDITOR IN HIS REPORT ALSO DOES NOT MENTION THE REQUIREMENT OF THIS ADJUSTMENT. YOU HAVE ALSO NOT SHOWN THAT THE COMPAR ABLES HAVE IDLE COST AND IF SO HOW IT HAS AFFECTED THEIR PROFI TABILITY. 12. ACCORDINGLY, THE ARM'S LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION RELATED TO PROVISION OF SUPPORT SERVICE S IS PROPOSED TO BE RE-CAST AS BELOW. OPERATING COST RS.11,15,85,601/- ALP AT A MARGIN OF29.59% RS.14,46,03,780/- PRICE RECEIVED RS.11,64,69,084/- DIFFERENCE RS. 2,81,34,696/- THE ABOVE SHORTFALL OF RS.2,81,34,696/- IS BEING PR OPOSED AS AN ADJUSTMENT TO THE PRICE SHOWN BY THE TAXPAYER IN IT S BOOKS OF ACCOUNT. ITA NO.1817/DEL/2015 10 13. SIMILARLY, LD. DRP BY FOLLOWING ITS OWN ORDER IN AY 2009-10 ALSO DENIED THE IDLE CAPACITY ADJUSTMENT BY RETURNING FOLLOWING FINDINGS :- 5.3 A SIMILAR ISSUE AROSE IN A.Y. 2009-10. IN THEI R ORDER DATED 26.11.13 FOR A.Y. 2009-10, THE DRP HAVE REJECTED TH E ARGUMENTS OF THE ASSESSEE AND OBSERVED AS FOLLOWS: 7.2 WE HAVE GONE THROUGH THE ABOVE CONTENTION OF THE TAXPAYER AND FACTS EVIDENCES ON RECORD. AS PER RULE 10B(2) AND 10B(3) OF INCOME TAX RULES, 1962, INDIAN TRANSFER PRICING PROVISIONS PRESCRIBE ONLY FOR 'REA SONABLE AND ACCURATE ADJUSTMENT' AND FURTHER ADJUSTMENT TO THE MARGINS OF COMPARABLES CAN BE MADE ONLY IF THEY ENH ANCE COMPARABILITY. BUT AT THE SAME TIME THE DATA FOR T HE SAME MUST BE RELEVANT RELIABLE AND ROBUST. IDLE CAPACITY AS A GENERAL RULE CANNOT BE ALLOWED UNLESS THE SIMILAR R OBUST DATA FOR COMPARABLES IS ALSO AVAILABLE. THE REVISED OECD GUIDELINES OF 2010 HAS ALSO STATED IN PARA 3.54 AS UNDER:- ENSURING THE NEEDED LEVEL OF TRANSPARENCY OF COMPARABILITY ADJUSTMENTS MAY DEPEND UPON THE AVAILABILITY OF AN EXPLANATION OF ANY ADJUSTMENTS PERFORMED THE REASONS FOR THE ADJUSTMENTS BEING CONSIDERED APPROPRIATE, HOW THEY WERE CALCULATED HOW THEY CHANGED THE RESULTS FOR EACH COMPARABLE AND HOW THE ADJUSTMENT IMPROVES COMPARABILITY. ISSUES REGARDING DOCUMENTATION OF COMPARABILITY ADJUSTMENTS ARE DISCUSSED IN CHAPTER V.' EVEN THE VARIOUS JUDICIAL DECISIONS ON THE ISSUE OF ADJUSTMENTS AND EVEN OECD GUIDELINES, IMPRESSES UPO N TIME AND AGAIN THAT THE ADJUSTMENT SHOULD BE 'REASO NABLE ACCURATE ADJUSTMENT'. HENCE IN VIEW OF THE ABOVE, THE TPO IS RIGHT IN NOT ENTERTAINING THE CLAIM OF ADJUSTMENT OF IDLE CAPACITY. 14. UNDISPUTEDLY, FINDINGS RETURNED BY THE LD. TPO/ DRP/AO IN TAXPAYERS OWN CASE FOR PRECEDING YEAR HAVE BEEN SE T ASIDE BY THE ITA NO.1817/DEL/2015 11 COORDINATE BENCH OF THE TRIBUNAL IN AY 2009-10 IN I TA NO.1047/DEL/2014 BY RETURNING FOLLOWING FINDINGS :- 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. I N THE PRESENT CASE, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF ADJUDICATION IN THE PRECEDING A SSESSMENT YEAR 2008-09 IN ITA NO. 6227/DEL/2012 WHEREIN VIDE ORDER DATED 21.02.2014, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 4 & 5 WHICH READ AS UNDER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. RULE 10B(1)(E) OF THE INCOME TAX RULES, WHICH DE ALS WITH THE TRANSACTIONAL NET MARGIN METHOD, PROVIDES REQUIRES THAT THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE (I.E. THE ASSESSEE) FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY TH E ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE IS COMPAR ED WITH THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE ( I.E. THE ASSESSEE) OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONT ROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COM PUTED HAVING REGARD TO THE SAME BASE OF COURSE, SUBJECT TO CO MPARABILITY ADJUSTMENTS WHICH COULD AFFECT THE AMOUNT OF NET PR OFIT MARGIN IN UNCONTROLLED CONDITIONS. IT IS NOT AT ALL NECESS ARY, AS THE AUTHORITIES BELOW SEEM TO SUGGEST, THAT SUCH NET PR OFIT COMPUTATIONS, IN THE CASE OF INTERNAL COMPARABLES ( I.E. ASSESSEES TRANSACTIONS WITH INDEPENDENT ENTERPRISE), ARE BASE D ON THE AUDITED BOOKS OF ACCOUNTS OR THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE. IN OUR CONSIDERED VIEW, ALL THAT IS NECESSARY FOR THE PURPOSE OF COMPUTING ARMS LENGTH PRICE, UNDER TNMM ON THE BASIS OF INTERNAL COMPARABLES, IS COMPUTATION OF NET PROFIT MARGIN, SUBJECT TO COMPAR ABILITY ADJUSTMENTS AFFECTING NET PROFIT MARGIN OF UNCONTRO LLED TRANSACTIONS, ON THE SAME PARAMETERS FOR THE TRANSA CTIONS WITH AES AS WELL AS NON AES, I.E. INDEPENDENT ENTERPRISE S, AND AS LONG AS THE NET PROFITS EARNED FROM THE CONTROLLED TRANS ACTIONS ARE THE SAME OR HIGHER THAN THE NET PROFITS EARNED ON UNCON TROLLED TRANSACTIONS, NO ALP ADJUSTMENTS ARE WARRANTED. IT IS NOT AT ALL NECESSARY THAT SUCH A COMPUTATION SHOULD BE BASED O N SEGMENTAL ACCOUNTS IN THE BOOKS OF ACCOUNTS REGULARLY MAINTAI NED BY THE ASSESSEE AND SUBJECTED TO AUDIT. WE ARE, THEREFORE, OF THE VIEW THAT THE AUTHORITIES BELOW WERE IN ERROR IN REJECTI NG THE SEGMENTAL RESULTS ON THE GROUND THAT THE SEGMENTAL ACCOUNTS ITA NO.1817/DEL/2015 12 WERE NOT AUDITED AND THAT THESE SEGMENTAL ACCOUNTS WERE NOT MAINTAINED IN THE NORMAL COURSE OF BUSINESS. AS REG ARDS VAGUE GENERALIZATIONS BY THE TPO TO THE EFFECT THAT THESE ACCOUNTS ARE MANIPULATED, THAT ALLOCATION BASIS OF EXPENSES IS U NFAIR AND THAT THESE ACCOUNTS CONCEAL TRUE PROFITABILITY, WE FIND THAT THESE OBSERVATIONS ARE TOO SWEEPING AND GENERALIZED THE O BSERVATIONS TO HAVE ANY MERITS. IN ANY EVENT, LEARNED COUNSEL F OR THE ASSESSEE HAS PAINSTAKINGLY TAKEN US THROUGH THE SEGMENTAL AC COUNTS, POINTED OUT THE BASIS OF ALLOCATION OF THE EXPENSES . WE HAVE NOTED THAT THE ALLOCATION OF EXPENSE IS ON THE MAN HOUR B ASIS, WHICH IS QUITE FAIR AND REASONABLE, AND THAT EVERY PERSON HA S TO PUNCH IN HOURS ON A SPECIFIC PROJECT. WE HAVE ALSO NOTED THA T ALL THESE DETAILS AND EXPENSE ALLOCATION BASIS WERE ALSO BEFO RE THE TPO AND EVEN THEN, NO SPECIFIC DEFECTS WERE POINTED OUT BY THE TPO. TAKING INTO ACCOUNT ALL THESE FACTORS, AS ALSO ENTI RETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE TPO INDEED E RRED IN REJECTING THE SEGMENTAL ACCOUNTS AND THUS DECLINING TO ACCEPT THE INTERNAL COMPARABLE. WE ARE ALSO OF THE VIEW THAT T HE SIZE OF THE UNCONTROLLED TRANSACTION OR TRANSACTIONS BEING SMAL LER, BY ITSELF, DOES NOT MAKE THESE TRANSACTIONS INCOMPARABLE WITH THE TRANSACTIONS IN CONTROLLED CONDITIONS. SIZE OF THE COMPARABLE DOES MATTER IN ENTITY LEVEL COMPARISON BECAUSE SCAL E OF OPERATIONS SUBSTANTIALLY VARY AND SO DOES THE UNDER LYING PROFITABILITY FACTOR, BUT IN A TRANSACTION LEVEL CO MPARISON WITHIN THE SAME ENTITY, MERE DIFFERENCE IN SIZE OF THE UNC ONTROLLED TRANSACTIONS DOES NOT RENDER THE TRANSACTION INCOMP ARABLE. IF THE SIZE OF UNCONTROLLED TRANSACTION IS TOO BIG, IT MAY CALL FOR AN ADJUSTMENT FOR VOLUME BUSINESS. IF THE SIZE OF THE UNCONTROLLED TRANSACTION IS TOO SMALL, IT MAY PROVOKE AN INQUIRY BY THE TPO TO ENSURE THAT IT IS NOT A CONTRIVED TRANSACTION OUTSI DE THE NORMAL COURSE OF BUSINESS OR WITH REGARD TO OTHER SIGNIFIC ANT FACTORS SURROUNDING SMALLNESS OF SUCH TRANSACTION. HOWEVER, IN OUR CONSIDERED VIEW, IN NONE OF THESE CASES, A COMPARAB LE CAN BE REJECTED ON THE BASIS OF ITS SIZE PER SE. IN THIS V IEW OF THE MATTER, THE AUTHORITIES BELOW WERE CLEARLY IN ERROR IN REJE CTING THE INTERNAL COMPARABLE, I.E. PROFITABILITY OF ASSESSEE S TRANSACTIONS WITH NON AES, ON THE GROUND THAT THE VOLUME OF BUSI NESS WITH NON AES WAS TOO SMALL VIS--VIS BUSINESS WITH AES. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, THE ASSESSEE WAS QUITE JUSTIFIED IN ADOPTING INTERNAL T NMM AND COMPARING THE PROFIT EARNED ON ITS TRANSACTIONS WIT H AES WITH PROFIT EARNED WITH NON AES. ACCORDINGLY, THE ALP AD JUSTMENT OF RS 2,72,42,940 DESERVES TO BE DELETED. WE ORDER SO. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 9. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERR ED TO ORDER DATED 21.02.2014 FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE IN ITA NO. 6227/DEL/2012, THIS ISSUE IS DE CIDED IN FAVOUR OF THE ASSESSEE. ITA NO.1817/DEL/2015 13 15. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT IDLE CAPACITY FROM THE TOTAL E XPENDITURE INCURRED BY THE TAXPAYER WHILE DETERMINING ALP IS R EQUIRED TO BE EXCLUDED AS HAS BEEN HELD BY THE COORDINATE BENCH O F THE TRIBUNAL IN TRANSWITCH INDIA PVT. LTD. VS. DCIT (2012) 53 SOT 1 51 (DELHI) AND SITEL INDIA (P) LTD. VS. ACIT (2013) 55 SOT 541 (MUMBAI). 16. SINCE THE TAXPAYER HAS COME UP WITH COMPLETE DE TAIL OF IDLE HOURS OF ITS WORK FORCE IN ORDER TO CLAIM THE IDLE CAPACITY ADJUSTMENT TO BE EXCLUDED FROM THE TOTAL EXPENDITUR E INCURRED WHILE DETERMINING THE ALP, AS DISCUSSED IN THE PREC EDING PARAS, BUT THE SAME HAS NOT BEEN EXAMINED BY THE LD. TPO/D RP, SO WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE IS REQUIRED T O BE SET ASIDE TO THE LD. TPO TO DECIDE AFRESH AFTER DUE VERIFICATION S OF THE DETAILS GIVEN BY THE TAXPAYER QUA IDLE CAPACITY ADJUSTMENTS IN THE LIGHT OF THE DECISIONS RENDERED BY THE COORDINATE BENCH OF T HE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2008-09 AND 2009-10 AND IN VIEW OF THE DECISION RENDERED BY THE COORDINATE BENCH OF TH E TRIBUNAL IN TRANSWITCH INDIA PVT. LTD. VS. DCIT (2012) 53 SOT 1 51 (DELHI) AND SITEL INDIA (P) LTD. VS. ACIT (2013) 55 SOT 541 (M UMBAI) . SO, GROUND NO.8 IS DECIDED IN FAVOUR OF THE TAXPAYE R FOR STATISTICAL PURPOSES. ITA NO.1817/DEL/2015 14 GROUNDS NO.2, 3, 4, 5 & 7 17. WITHOUT PREJUDICE, THE TAXPAYER SOUGHT EXCLUSIO N OF SIX COMPARABLE COMPANIES VIZ. ENGINEERS INDIA LTD., RITES LTD., HSCC (INDIA) LTD., MAHINDRA CONSULTING ENGINEERS LT D., TATA CONSULTING ENGINEERS LTD. AND KITCO LTD. TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA PROVISION OF DESIGN AND ENGINEERING SERVICES ALONG WITH SUPERVISORY SUPPORT SERVICES AN D SUPPLY OF EQUIPMENT & MATERIAL TO AE. SO, WE WOULD EXAMINE T HE SUITABILITY OF ALL THE AFORESAID COMPARABLES VIS--VIS THE TAXP AYER ONE BY ONE AS UNDER. ENGINEERS INDIA LTD. (EIL) 18. THE TAXPAYER SOUGHT EXCLUSION OF EIL ON THE GRO UNDS INTER ALIA THAT IT IS A GOVERNMENT OF INDIA OWNED COMPANY HAVING 90.40% OF TOTAL SHAREHOLDING; THAT EIL IS ENGAGED I N THE BUSINESS OF CONSULTANCY AND ENGINEERING PRODUCTS AND TURNKEY PROJECTS WITH DIVERSIFIED AREA OF PRODUCTION; THAT EIL IS INTO EX TENSIVE RESEARCH AND DEVELOPMENT (R&D) ACTIVITIES; THAT EIL HAS HUGE ASSETS; THAT TURNOVER OF EIL IS 150 TIMES OF THE TAXPAYER AND RE LIED UPON THE DECISIONS OF PCIT VS. INTERNATIONAL SOS SERVICES INDIA (P.) LTD. SLP (CIVIL) DIARY NO.18255/2018 (SC) UPHOLDING THE DECISION OF HONBLE DELHI HIGH COURT IN ITA 454 OF 2016, HONBL E DELHI HIGH COURT IN PCIT VS. BECHTEL INDIA PVT. LTD. IN I TA 655/2016 ITA NO.1817/DEL/2015 15 UPHOLDING THE DECISION OF THE COORDINATE BENCH OF T HE TRIBUNAL IN ITA NO.6779/DEL/2015, HONBLE BOMBAY HIGH COURT IN CIT VS. THYSSEN KRUPP INDUSTRIES INDIA (P.) LTD. (2016) 68 TAXMANN.COM 248 (BOMBAY) UPHOLDING THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN (2013) 154 TTJ 689, GENZYM E INDIA (P.) LTD. VS. ACIT (2018) 93 TAXMANN.COM 222 (DELHI -TRIB.), ELI LILY & CO. (INDIA) LTD. VS. ACIT ITA NO.6819/DEL/20 14 (DELHI- TRIB.), BOEING INTERNATIONAL CORPORATION INDIA (P.) LTD. VS. DCIT (2019) 101 TAXMANN.COM 349 (DELHI-TRIB.) AND BECHTE L INDIA (P.) LTD. VS. DCIT (2016) 66 TAXMANN.COM 160 (DELHI-TRIB .) . 19. LD. DR FOR THE REVENUE, ON THE OTHER HAND, RELI ED UPON THE ORDERS OF THE LOWER REVENUE AUTHORITIES BELOW. 20. WHEN WE EXAMINE ANNUAL REPORT OF EIL, AVAILABLE AT PAGES 706 TO 865 OF THE PAPER BOOK, RELEVANT PAGES 717 TO 724, IT IS PROVED ON RECORD THAT EIL IS WORKING IN DIVERSIFIED AREAS EG. PETROLEUM REFINING, PETROCHEMICAL PROJECTS, PIPELIN ES DIVISION, STRATEGIC STORAGE SERVICES, METALLURGY SECTOR, INFR ASTRUCTURE DIVISION, TURNKEY PROJECTS, ENGINEERING DIVISION, CONSTRUCTIO N DIVISION, PROCESS DESIGN & DEVELOPMENT AND HEAT & MASS TRANSF ER. FROM PAGES 722 & 723 OF THE ANNUAL REPORT PAPER BOOK, I T SHOWS THAT EIL IS INTO THE EXTENSIVE RESEARCH & DEVELOPMENT AC TIVITIES AND HAS ALSO FILED FOR ONE PATENT BASED ON INNOVATIVE W ORK FOR THE ITA NO.1817/DEL/2015 16 OXYGEN ENRICHED CLAUS PROCESS AND PRESENTED SEVERAL PAPERS IN NATIONAL AND INTERNATIONAL CONFERENCES/SEMINAR. FU RTHERMORE, DETAIL OF DISTRIBUTION OF SHAREHOLDING DURING THE Y EAR UNDER ASSESSMENT OF EIL GIVEN AT PAGE 747 OF THE ANNUAL R EPORT PAPER BOOK SHOWS THAT GOVERNMENT OF INDIA IS HAVING 90.40 1% OF TOTAL SHARES AND MAJORITY OF THE PROJECTS UNDERTAKEN AND COMPLETED BY EIL WERE OF PUBLIC SECTOR UNDERTAKINGS LIKE INDIAN OIL CORPORATION LTD., OIL AND NATURAL GAS CORPORATION, ETC. FURTHE RMORE, IT HAS COME ON RECORD THAT EIL IS HAVING HUGE NET WORTH OF ASSETS TO THE TUNE OF RS.60 CRORE WHEREAS THE TAXPAYER IS HAVING ROUTINE ASSETS WORTH RS.17 LAKHS IN THE FORM OF FURNITURE ETC. PE RUSAL OF PROFIT & LOSS ACCOUNT OF EIL, AVAILABLE AT PAGE 743 OF THE A NNUAL REPORT PAPER BOOK, SHOWS THAT EIL IS HAVING TURNOVER OF RS .1993.80 CRORES AS AGAINST RS.13 CRORES TURNOVER OF THE TAXP AYER. 21. COORDINATE BENCH OF THE TRIBUNAL EXCLUDED EIL A S A COMPARABLE VIS--VIS ROUTINE ENGINEERING DESIGN SER VICES PROVIDER IN CASE OF INTERNATIONAL SOS SERVICE INDIA P. LTD. VS. DCIT (2016) 67 TAXMANN.COM 73 (DELHI-TRIB.) ON THE GROUNDS INTER ALIA THAT A 100% GOVERNMENT COMPANY CANNOT BE SELECTED A S COMPARABLE AND THAT COMPANY HAVING NO INTANGIBLE AS SETS CANNOT BE A VALID COMPARABLE VIS--VIS A COMPANY OWNING IN TANGIBLE ASSETS IN THE FORM OF TECHNICAL KNOW-HOW. ORDER OF THE COORDINATE ITA NO.1817/DEL/2015 17 BENCH OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 30.05.2017 PASSED IN ITA 454 /2016 AND SLP FILED BY THE REVENUE IN THE HONBLE SUPREME COU RT HAS ALSO BEEN DISMISSED. 22. EIL AS A COMPARABLE HAS BEEN ORDERED TO BE EXCL UDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF THYSSEN KRUPP INDUSTRIES (P.) LTD. VS. ACIT (2013) 25 ITR (T) 243 (MUMBAI- TRIB.) ON THE GROUNDS THAT EIL IS A GOVERNMENT COMPANY AND MOST OF ITS CUSTOMERS OF THE TURNKEY PROJECT DIVISION ARE RELATED PARTIES, BEING OTHER PUBLIC SECTOR UNDERTAKINGS, WH ICH IS MORE THAN THE FILTER OF 25%. THE DECISION OF THE TRIBUNAL HA S BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT BY RETURNING FOLLOWIN G FINDINGS :- TRIBUNAL RECORDS THE FACT THAT THE ENGINEERING IND IA IS A GOVERNMENT COMPANY AND ITS ANNUAL REPORT INDICATES THAT A SUBSTANTIAL PART OF REVENUE OF A COMPARABLE IN EXEC UTION OF TURNKEY PROJECTS AROSE OUT OF EXECUTING PROJECTS OF PUBLIC SECTOR UNDERTAKINGS. IN THE CIRCUMSTANCES, THE IMPUGNED OR DER OF THE TRIBUNAL HOLDS THAT THE ENGINEERS COULD NOT BE CONS IDERED TO BE COMPARABLE AS CONTRACTS BETWEEN PUBLIC SECTOR UNDER TAKINGS ARE NOT DRIVEN BY PROFIT MOTIVE ALONE BUT OTHER CONSIDE RATION ALSO WEIGH IN SUCH AS DISCHARGE OF SOCIAL OBLIGATIONS ET C. THUS, IT WAS NOT COMPARABLE. MOREOVER, FROM THE ANNUAL REPORT, I T IS CLEAR THAT THE REVENUE EARNED IN EXECUTING TURNKEY PROJEC T FOR OTHER PUBLIC SECTOR UNDERTAKINGS WAS MUCH MORE THAN THE F ILTER OF 25 PER CENT, WHICH HAS BEEN APPLIED BY THE TPO IN HIS ORDER UNDER SECTION 92CA(3), WHILE TAKING TRF LTD. AS A COMPARA BLE ON THE GROUND THAT ITS RELATED PARTY TRANSACTION WAS NOT I N EXCESS OF 25 PER CENT OF ITS TOTAL TURNOVER. THUS, APPLYING CONS ISTENT FILTER OF 25 PER CENT OR LESS OF RELATED PARTY TRANSACTION AL ONE TO BE CONSIDERED COMPARABLE, ENGINEERS INDIA LTD. COULD N OT BE CONSIDERED TO BE COMPARABLE. ITA NO.1817/DEL/2015 18 23. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE INTER ALIA THAT EIL IS INTO THE AREA OF DIVERSE ACTIVITIE S WHEREAS THE TAXPAYER IS A ROUTINE ENGINEERING DESIGN SERVICES P ROVIDER; THAT EIL IS INTO EXTENSIVE RESEARCH & DEVELOPMENT ACTIVITIES AS AGAINST NO R&D ACTIVITIES OF THE TAXPAYER; AND THAT EIL IS HAV ING HUGE ASSETS OF RS.60 CRORES AS AGAINST RS.17 LAKHS OF THE TAXPA YER CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER, HENCE O RDERED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. RITES LTD. (RITES) 24. THE TAXPAYER SOUGHT EXCLUSION OF RITES AS A COM PARABLE VIS- -VIS THE TAXPAYER FOR BENCHMARKING THE INTERNATION AL TRANSACTION ON THE GROUNDS INTER ALIA THAT RITES IS INTO PROVID ING HIGH-END TECHNICAL SERVICES AND HAVING DIVERSE NATURE OF ACT IVITIES; THAT RITES IS A GOVERNMENT OF INDIA WHOLLY OWN COMPANY; THAT R ITES IS HAVING HUGE ASSET BASE OF RS.163 CRORES AND RELIED UPON THE DECISIONS OF PCIT VS. INTERNATIONAL SOS SERVICES INDIA (P.) LTD. SLP (CIVIL) DIARY NO.18255/2018 (SC) UPHOLDING THE DECISION OF HONBLE DELHI HIGH COURT IN ITA 454 OF 2016, HONBL E DELHI HIGH COURT IN PCIT VS. BECHTEL INDIA PVT. LTD. IN I TA 655/2016 UPHOLDING THE DECISION OF THE COORDINATE BENCH OF T HE TRIBUNAL IN ITA NO.6779/DEL/2015, HONBLE BOMBAY HIGH COURT IN CIT VS. THYSSEN KRUPP INDUSTRIES INDIA (P.) LTD. (2016) 68 ITA NO.1817/DEL/2015 19 TAXMANN.COM 248 (BOMBAY) UPHOLDING THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN (2013) 154 TTJ 689, ROLLS ROYCE INDIA (P) LTD. VS. DCIT (2016) 176 TTJ 1 (DEL TRIB.), M /S. TEREX INDIA PVT. LTD. VS. DCIT IN ITA NO.4791/DEL/2015 OR DER DATED 30.05.2019 AND ELI LILY & CO. (INDIA) LTD. VS. ACIT ITA NO.6819/DEL/2014 (DELHI-TRIB.) . 25. WHEN WE EXAMINE PROFIT & LOSS ACCOUNT OF RITES, AVAILABLE AT PAGE 890 OF THE PAPER BOOK, IT SHOWS THAT RITES HAS INCOME FROM VARIOUS ACTIVITIES LIKE CONSULTANCY FEE, CONSTRUCTI ON PROJECTS, EXPORT SALES, INSPECTION FEES, LEASE SERVICES ETC. FURTHE RMORE, PERUSAL OF ANNUAL REPORT, AVAILABLE AT PAGES 855 & 856 OF THE ANNUAL REPORT PAPER BOOK, SHOWS THAT DURING THE YEAR UNDER ASSESS MENT, RITES WAS ENGAGED IN TURNKEY PROJECT OF ENHANCEMENT OF CO ACH PRODUCTION FACILITIES FOR RAIL COACH FACTORY, KAPUR THALA; GENERAL CONSULTANCY FOR DMRC, AIRPORT EXPRESS LINK; PROJECT MANAGEMENT CONSULTANCY FOR LAYING WATER TRANSMISSION LINE FOR KOLKATA MUNICIPAL CORPORATION; ENGINEERING AND CONSTRUCTION MANAGEMENT FOR RAILWAY INFRASTRUCTURE, PROJECT REPORT FOR DIVE RSION OF RAILWAY, ROAD TRANSMISSION LINES AND WATER PIPELINES FROM FI RE AND SUBSIDENCE AFFECTED AREA; BRIDGE/TUNNEL DESIGN AND GEO-TECH INVESTIGATIONS FOR NEW RAILWAY LIENS PROJECTS IN J& K; AND NUMBER OF INTERNATIONAL ASSIGNMENTS IN EXPORT, LEASE AND C ONSULTANCY ITA NO.1817/DEL/2015 20 SERVICES WHICH INCLUDE SUPPLY OF TRAIN SETS, DIESEL LOCOMOTIVES, MACHINERY & PARTS, CONSTRUCTION OF MAINTENANCE FACI LITIES & TRAINING. IT IS ALSO PROVED ON RECORD THAT RITES I S POSSESSING GLOBAL AND DOMESTIC EXPERIENCE IN TRANSPORTATION AND PROJ ECT MANAGEMENT SERVICES AND HAS SIGNED BIGGEST EVER CONSULTANCY CO NTRACT WITH SAUDI RAILWAY COMPANY FOR OPERATION AND MAINTENANCE OF RAILWAY NETWORK FOR KINGDOM OF SAUDI ARABIA. IT IS ALSO PR OVED ON RECORD THAT RITES IS A WHOLLY OWNED COMPANY OF GOVERNMENT OF INDIA AND IS HAVING HUGE ASSET BASE OF RS.163 CRORES, DETAILE D AT PAGE 893 OF THE PAPER BOOK, AS AGAINST RS.17 LAKHS OF THE TAXPA YER. 26. SO, BARE PERUSAL OF FUNCTIONAL PROFILE AND ASSE T BASE AND THE FACT THAT RITES IS A WHOLLY OWNED GOVERNMENT OF IND IA COMPANY, IT CANNOT BE A SUITABLE COMPARABLE OF RITES VIS--VIS THE TAXPAYER. 27. COORDINATE BENCH OF THE TRIBUNAL EXCLUDED EIL A S A COMPARABLE VIS--VIS ROUTINE ENGINEERING DESIGN SER VICES PROVIDER IN CASE OF INTERNATIONAL SOS SERVICE INDIA P. LTD. VS. DCIT (2016) 67 TAXMANN.COM 73 (DELHI-TRIB.) ON THE GROUNDS INTER ALIA THAT A 100% GOVERNMENT COMPANY CANNOT BE SELECTED A S COMPARABLE AND THAT COMPANY HAVING NO INTANGIBLE AS SETS CANNOT BE A VALID COMPARABLE VIS--VIS A COMPANY OWNING IN TANGIBLE ASSETS IN THE FORM OF TECHNICAL KNOW-HOW. ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE DELHI HIGH ITA NO.1817/DEL/2015 21 COURT VIDE ORDER DATED 30.05.2017 PASSED IN ITA 454 /2016 AND SLP FILED BY THE REVENUE IN THE HONBLE SUPREME COU RT HAS ALSO BEEN DISMISSED. 28. COORDINATE BENCH OF THE TRIBUNAL EXAMINED THE S UITABILITY OF A GOVERNMENT COMPANY VIS--VIS ROUTINE ENGINEERING DESIGN SERVICE PROVIDER IN CASE OF THYSSEN KRUPP INDUSTRIES (P.) LTD. VS. ACIT (2013) 25 ITR (T) 243 (MUMBAI-TRIB.) ON THE GROUNDS THAT EIL IS A GOVERNMENT COMPANY AND MOST OF ITS CUSTOME RS OF THE TURNKEY PROJECT DIVISION ARE RELATED PARTIES, BEI NG OTHER PUBLIC SECTOR UNDERTAKINGS. 29. COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ROLLS ROYCE INDIA (P) LTD. (SUPRA) ORDERED TO EXCLUDE RITES AS A COMPARABLE VIS--VIS ROUTINE ENGINEERING DESIGN SERVICES BY RE TURNING FOLLOWING FINDINGS :- THE SAID COMPANY IS A GOVERNMENT OF INDIA ENTERPRI SE AND IS A MULTIDISCIPLINARY CONSULTANCY ORGANIZATION IN THE FIELDS OF TRANSPORT, INFRASTRUCTURE AND RELATED TECHNOLOGIES. IT PROVIDES A COMPREHENSIVE ARRAY OF SERVICES UNDER A SINGLE ROOF AND BELIEVES IN TRANSF ER OF TECHNOLOGY TO CLIENT ORGANIZATIONS. IN OVERSEAS PRO JECTS, ITA NO.1817/DEL/2015 22 IT ACTIVELY PURSUES AND DEVELOPS COOPERATIVE LINKS WITH LOCAL CONSULTANTS/FIRMS, AS MEANS OF MAXIMUM UTILIZATION OF LOCAL RESOURCES AND AS AN EFFECTIVE INSTRUMENT OF SHARING ITS EXPERTISE. THUS, IT IS EVIDENT THAT RITES LTD. IS A PRIMARILY IMPARTING HIGH END TECHNICAL SERVICES, WHICH CANNOT BE COMPARED WITH LOW END MARKETING BUSINESS SUPPORT SERVICES RENDERED BY ASSESSEE. [PARA 32] 30. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT RITES BEING A WHOLLY OWNED GOVERNMENT OF INDIA COMP ANY INTO DIVERSE ACTIVITIES HAVING HUGE ASSET BASE AND IS IN TO PROVIDING HIGH END TECHNICAL SERVICES AND DIVERSE NATURE OF ACTIVI TIES IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER. HSCC (INDIA) LTD. (HSCC) 33. THE TAXPAYER SOUGHT INCLUSION OF HSCC AS A COMP ARABLE ON THE GROUNDS INTER ALIA THAT IT IS INTO DIFFERENT NA TURE OF ACTIVITIES; THAT IT IS OPERATING IN SINGLE SEGMENT WITH NO AVAI LABILITY OF SEGMENTAL DATA; THAT IT IS A WHOLLY OWNED GOVERNMEN T COMPANY HAVING HUGE ASSET BASE AND RELIED UPON THE DECISION S OF INTERNATIONAL SOS SERVICE INDIA P. LTD., THYSSEN KR UPP ITA NO.1817/DEL/2015 23 INDUSTRIES (P.) LTD. (SUPRA) , DCIT VS. ANGLO-EASTERN SHIP MANAGEMENT (INDIA) PVT. LTD. ITA NO.1053/MUM/2017 A ND DCIT VS. TEREX INDIA (P) LTD. (2019) 71 ITR (T) 259 (DELHI- TRIB.). 34. PERUSAL OF BUSINESS PROFILE OF HSCC AT PAGE 931 OF THE ANNUAL REPORT OF PAPER BOOK SHOWS THAT HSCC WAS AWA RDED THE WORK OF RENDERING CONSULTANCY SERVICES FOR DESIGN & ENGINEERING, PROJECT MANAGEMENT AND PROCUREMENT OF MEDICAL EQUIP MENTS, DRUGS & PHARMACEUTICALS, ETC. FOR VARIOUS PRESTIGIO US & CHALLENGING PROJECTS. PERUSAL OF PAGE 937 OF THE A NNUAL REPORT OF PAPER BOOK SHOWS THAT HSCC SHOWS THAT HSCCS MAJOR ON-GOING CONSULTANCY PROJECTS ARE QUA ARCHITECTURAL PLANNING , DESIGN & PROJECT MANAGEMENT SERVICES, PROCUREMENT MANAGEMENT SERVICES, STUDIES AND TRAINING SERVICES. PERUSAL OF SEGMENTA L REPORTING IN TERMS OF AS-17, AVAILABLE AT PAGE 975 OF THE PAPER BOOK, SHOWS THAT HSCC IS CONFINED ONLY TO CONSULTANCY IN A SING LE PRIMARY SEGMENT, WHEREAS NO SEGMENTAL DATA IS AVAILABLE TO EXPLAIN DIVERSIFIED CATEGORIES OF SERVICES BEING CARRIED OU T BY HSCC. PERUSAL OF SCHEDULE 3 OF FIXED ASSETS SHOWS THAT HSCC IS HAVING ASSET BASE OF RS.6.32 CRORES AS AGAINST RS.17 LAKHS OF THE TAXPAYER. ITA NO.1817/DEL/2015 24 35. COORDINATE BENCH OF THE TRIBUNAL EXCLUDED A GOV ERNMENT COMPANY AS A COMPARABLE VIS--VIS ROUTINE ENGINEERI NG DESIGN SERVICES PROVIDER IN CASE OF INTERNATIONAL SOS SERVICE INDIA P. LTD. VS. DCIT (2016) 67 TAXMANN.COM 73 (DELHI-TRIB. ) ON THE GROUNDS INTER ALIA THAT A 100% GOVERNMENT COMPANY C ANNOT BE SELECTED AS COMPARABLE AND THAT COMPANY HAVING NO I NTANGIBLE ASSETS CANNOT BE A VALID COMPARABLE VIS--VIS A COM PANY OWNING INTANGIBLE ASSETS IN THE FORM OF TECHNICAL KNOW-HOW . ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 30.05.2017 PASSED IN ITA 454/2016 AND SLP FILED BY THE REVENUE IN THE HONBLE SUPREM E COURT HAS ALSO BEEN DISMISSED. 36. COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. TEREX INDIA (P.) LTD. (SUPRA) EXAMINED SUITABILITY OF A GOVERNMENT COMPANY AS A COMPARABLE VIS--VIS ROUTINE ENGINEERI NG DESIGN SERVICES PROVIDER AND ORDERED TO EXCLUDE THE SAME O N THE GROUND THAT IT IS A GOVERNMENT OF INDIA ENTERPRISES AND MA JOR PART OF ITS BUSINESS IS FROM GOVERNMENT ITSELF. 37. IN VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT HSCC BEING A WHOLLY OWNED GOVERNMENT OF INDIA COMPA NY ITA NO.1817/DEL/2015 25 DRAWING MOST OF ITS PROJECT FROM GOVERNMENT AND ITS PUBLIC SECTOR UNDERTAKINGS AND IS INTO DIVERSIFIED NATURE OF ACTI VITIES HAVING ASSET BASE OF RS.6.32 CRORES AS AGAINST RS.17 LAKHS OF TH E TAXPAYER, IT CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPA YER, HENCE ORDERED TO EXCLUDE THE SAME FROM THE FINAL SET OF C OMPARABLES. MAHINDRA CONSULTING ENGINEERS LTD. (MAHINDRA) 38. THE TAXPAYER SOUGHT EXCLUSION OF MAHINDRA ON TH E GROUNDS INTER ALIA THAT IT IS INTO DIVERSIFIED NATURE OF AC TIVITIES OF PROVIDING CONSULTANCY SERVICES IN THE AREA OF INFRASTRUCTURE VIZ. SPECIAL ECONOMIC ZONES, WATER SUPPLY & SEWERAGE, SOLID WAST E MANAGEMENT, URBAN INFRASTRUCTURE, AGRI AND HORTI IN FRASTRUCTURE, SOCIAL INFRASTRUCTURE, MARINE INFRASTRUCTURE, INDUS TRIAL INFRASTRUCTURE, RENEWABLE ENERGY, SUSTAINABLE STUDIES, ETC., AS DET AILED IN THE ANNUAL REPORT AT PAGE 979 OF THE PAPER BOOK; THAT M AHINDRA HAS A SINGLE REPORTABLE SEGMENT I.E. INCOME FROM CONSULTA NCY SERVICES WHEREAS NO SEGMENTAL FINANCIALS ARE AVAILABLE QUA D IVERSIFIED CATEGORIES OF SERVICES BEING PERFORMED BY IT AS PER DETAIL OF INCOME & EXPENDITURE AVAILABLE AT PAGE 995 OF THE PAPER BO OK AND RELIED UPON THE DECISIONS OF TEREX INDIA (P.) LTD. VS. DCIT IN ITA ITA NO.1817/DEL/2015 26 NO.4791/DEL/2015 FOR AY 2010-11, DCIT VS. TEREX IND IA (P.) LTD. (2019) 104 TAXMANN.COM 281 (DELHI-TRIB.) FOR AY 201 1-12, RAMPGREEN SOLUTIONS (P.) LTD. VS. CIT (2015) 377 IT R 533 (DELHI) AND NCS PEARSON INDIA (P.) LTD. VS. DCIT (2 018) 91 TAXMANN.COM 105 (DELHI-TRIB.) . 39. COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. TEREX INDIA PVT. LTD. (2019) 104 TAXMANN.COM 281 (D ELHI-TRIB.) ORDERED TO EXCLUDE MAHINDRA AS A COMPARABLE VIS--V IS A ROUTINE ENGINEERING DESIGN SERVICES PROVIDER ON THE GROUND THAT IT IS INTO VARIETY OF SERVICES OUT OF WHICH ONLY ONE IS ENGINE ERING SERVICES AND SEGMENTAL INFORMATION OF SAME IS NOT AVAILABLE. 40. COORDINATE BENCH OF THE TRIBUNAL IN M/S. TEREX INDIA PVT. LTD. FOR AY 2010-11 ORDER DATED 30.05.2019 ORDERED TO EXCLUDE MAHINDRA AS A COMPARABLE BY RETURNING FOLLOWING FIN DINGS :- 32. PERUSAL OF FUNCTIONS OF MAHINDRA, AVAILABLE AT PAGE 444 OF THE PAPER BOOK, SHOWS THAT IT IS ENGAGED IN PROV IDING CONSULTING SERVICES IN INFRASTRUCTURE SECTOR IN THE AREA OF SPECIAL ECONOMIC ZONES, WATER SUPPLY & SEWERAGE, SOLID WAST E MANAGEMENT, URBAN INFRASTRUCTURE, AGRI & HORTI INFR ASTRUCTURE, SOCIAL INFRASTRUCTURE, MARINE INFRASTRUCTURE, INDUS TRIAL INFRASTRUCTURE, RENEWABLE ENERGY, SUSTAINABILITY ST UDIES, INSTITUTIONAL STRATEGIES / PLANNING STUDIES, INDUST RIAL PLANTS AND SYSTEMS ETC.. 33. COORDINATE BENCH OF THE TRIBUNAL EXAMINED THE COMPARABILITY OF MAHINDRA VIS--VIS THE TAXPAYER IN TAXPAYERS OWN CASE FOR AY 2011-12 (SUPRA) (THOUGH A DIFFERENT YEAR BUT ITA NO.1817/DEL/2015 27 BUSINESS MODEL HAS NOT UNDERGONE ANY CHANGE), FOUND THE SAME TO BE NOT A SUITABLE COMPARABLE ON GROUND OF NON-AV AILABILITY OF SEGMENTAL INFORMATION ABOUT ENGINEERING DESIGN SERV ICES AND ON THE GROUND THAT THE COMPANY HAS RECOGNISED ITS REVE NUE ON PERCENTAGE COMPLETION METHOD. NO DOUBT, A COMPARAB LE CANNOT BE EXCLUDED MERELY ON THE BASIS OF DIFFERENT REVENU E ACCOUNTING METHOD WHICH IS RECOGNISED ONE BUT NON-AVAILABLE OF SEGMENTAL INFORMATION IN THE FACE OF THE FACT THAT IT IS INTO DIVERSIFIED SERVICES AS DISCUSSED ABOVE, WE FIND IT NOT A SUITA BLE COMPARABLE VIS--VIS TAXPAYER WHICH IS INTO PROVIDING ROUTINE LOW END ENGINEERING DESIGN SERVICES. HENCE, WE ORDER TO EX CLUDE MAHINDRA AS A VALID COMPARABLE. 41. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT MAHINDRA BEING INTO DIVERSIFIE D CONSULTANCY SERVICES WITH NO SEGMENTAL FINANCIALS AVAILABLE TO EXPLAIN THE DIVERSIFIED CATEGORIES OF ITS SERVICES IS NOT A SUI TABLE COMPARABLE VIS--VIS THE TAXPAYER WHO IS A ROUTINE ENGINEERING DESIGN SERVICE PROVIDER, HENCE ORDERED TO BE EXCLUDED. TATA CONSULTING ENGINEERS LTD. (TCEL) 42. THE TAXPAYER SOUGHT TO EXCLUDE TCEL AS A COMPAR ABLE ON THE GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DISS IMILAR HAVING HUGE ASSET BASE; THAT TCEL IS HAVING A SINGLE REPORTABLE SEGMENT I.E. INCOME FROM ENGINEERING CONSULTANCY SERVICES WITH N O BIFURCATION OF DIVERSIFIED CATEGORIES OF SERVICES AND RELIED UP ON THE DECISION OF HONBLE DELHI HIGH COURT IN PCIT VS. BECHTEL INDIA PVT. LTD. ITA 655/2019 (DELHI HC) UPHOLDING THE DECISION OF C OORDINATE BENCH OF THE TRIBUNAL IN ITA NO.6779/DEL/2015 AND DECISION OF ITA NO.1817/DEL/2015 28 COORDINATE BENCH OF THE TRIBUNAL IN DCIT VS. TEREX INDIA (P.) LTD. (2019) 71 ITR (T) 259 (DELHI-TRIB.) . 43. PERUSAL OF INFORMATION CONTAINED IN WEBSITE EXT RACT, AVAILABLE AT PAGE 13, SHOWS THAT TCEL IS INTO PROVI DING ENTIRE GAMUT OF PROJECT ENGINEERING FROM INCEPTION TO PROJ ECT COMMISSIONING AND TURNKEY DESIGN, SUPPLY AND INSTAL LATION OF ENGINEERED EQUIPMENTS, WHICH COVERS ENGINEERING STU DIES AND DESIGN ENGINEERING SERVICES, PROJECT MANAGEMENT CON SULTANCY AND CONSTRUCTION MANAGEMENT SERVICES AND OPEX SERVICES. INFORMATION CONTAINED IN THE WEBSITE EXTRACT ALSO SHOWS THAT TC EL IS ALSO INTO PROVIDING SERVICES IN INFRASTRUCTURE, ENERGY, PROCE SS, PROJECT MANAGEMENT CONSULTING AND ADVANCED TECHNOLOGIES. 44. PERUSAL OF SCHEDULE FORMING PART OF THE BALANCE SHEET AT PAGE 1013 SHOWS THAT TCEL IS HAVING HUGE ASSET BASE OF R S.38 CRORES AS AGAINST RS.17 LAKHS OF THE TAXPAYER. FURTHERMORE, WHEN WE EXAMINE PROFIT & LOSS ACCOUNT, AVAILABLE AT PAGE 10 11 OF THE PAPER BOOK, THERE IS ONLY SINGLE REPORTABLE SEGMENT I.E. INCOME FROM ENGINEERING CONSULTANCY SERVICES WITHOUT ANY BIFURC ATION OF DIVERSIFIED CATEGORIES OF SERVICES BEING PROVIDED B Y THE COMPANY. 45. COORDINATE BENCH OF THE TRIBUNAL IN M/S. TEREX INDIA PRIVATE LTD. (SUPRA) HAS EXCLUDED THE TCEL AS COMPARABLE VIS-- ITA NO.1817/DEL/2015 29 VIS THE ROUTINE ENGINEERING DESIGN SERVICES PROVIDE R BY RETURNING FOLLOWING FINDINGS :- 40. PERUSAL OF THE ANNUAL REPORT OF TCE CONSULTIN G, AVAILABLE AT PAGES 538 TO 559 OF THE PAPER BOOK, SH OWS THAT IT IS INTO VARIOUS OTHER SERVICES APART FROM ENGINEERING SERVICES LIKE PROVIDING SERVICES OF DESIGNING, DEVELOPMENT OF NEW PRODUCT AND COMPUTER AIDED DESIGNING (CAD), BUT ITS SEGMENTAL F INANCIALS ARE NOT AVAILABLE. 41. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2011-12 (SUPRA) ORDERED TO EXCLUDE TCE CONSU LTING FROM FINAL SET OF COMPARABLES ON TWO GROUNDS, VIZ., (I) IT DOES NOT SATISFY THE UPPER TURNOVER FILTER OF RS.200 CRORES; AND (II) THAT BRAND NAME OF THE COMPANY HAS ENABLED THIS COMPANY TO CAPTURE MAJOR GOVERNMENT CONTRACTS AND OTHER HIGH END CUSTO MERS. 42. SO FAR AS QUESTION OF EXCLUDING THIS COMPANY ON GROUND OF UPPER TURNOVER FILTER IS CONCERNED, THIS FILTER HAS NOT BEEN APPLIED BY THE TAXPAYER AS WELL AS TPO DURING THE Y EAR UNDER ASSESSMENT. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT IT IS NOT A VALID COMPARABLE ON ACCOUNT OF FUNCTIONAL DISSIMI LARITY AND NON-AVAILABILITY OF ITS SEGMENTAL FINANCIALS. MORE OVER, IN 2009- 10, TPO HIMSELF EXCLUDED TCE CONSULTING FROM FINAL SET OF COMPARABLES ON RAISING OBJECTIONS BY THE TAXPAYER A ND SINCE THEN, TAXPAYERS BUSINESS PROFILE HAS NOT UNDERGONE ANY CHANGE. 43. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF BEC HTEL INDIA PVT. LTD. VS. DCIT 2015 (12) TMI 1560 ITA T DELHI FOR AY 2010-11 HAS ORDERED TO EXCLUDE TCE CONSULTING AS A COMPARABLE VIS--VIS ROUTINE ENGINEERING DESIGN SER VICE PROVIDER BY RETURNING FOLLOWING FINDINGS :- 12.6 THE COMPARABLE COMPANY IS INVOLVED IN ACTIVIT IES BEYOND ENGINEERING DESIGN. IT IS ENGAGED IN ACTIVIT IES THAT EXTEND FROM CONCEPT TO COMMISSIONING. WHEREAS THE ASSESSEE PROVIDES SERVICES AS A CAPTIVE UNIT TO ITS OVERSEAS AES. THE DIVERSIFIED FUNCTIONS OF THIS COMPARABLE COMPANY INCLUDE PRE-PROJECT ACTIVITIES, PROCUREMENT ASSISTANCE, PROJECT MANAGEMENT, COMMISSIONING AND COORDINATION, INSPECTION, CONSTRUCTION AND SUPERVIS ION. FURTHER, THERE IS NO SEGMENTAL ACCOUNTING IN THE AN NUAL REPORT OF THE COMPANY WHICH PROVIDES PROFITABILITY, FOR THE ENGINEERING DESIGN SEGMENT. HENCE THE SAME CANN OT BE ACCEPTED AS A COMPARABLE. 44. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT TCE CONSULTING HAVING A BIG BR AND VALUE ITA NO.1817/DEL/2015 30 AND BEING INTO HIGH END ENGINEERING CONSULTING SERV ICES WITH NO FINANCIAL SEGMENTAL AVAILABLE IS NOT A SUITABLE COM PARABLE VIS-- VIS TAXPAYER, HENCE ORDERED TO BE EXCLUDED. 46. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, W E ARE OF THE CONSIDERED VIEW THAT TCEL BEING INTO PROVIDING ENTI RE GAMUT OF PROJECT ENGINEERING FROM INCEPTION TO PROJECT ENGIN EERING AND TURNKEY DESIGN, SUPPLY AND INSTALLATION OF ENGINEER ED EQUIPMENT, AND IS INTO PROVIDING SERVICES OF ENGINEERING STUDI ES AND DESIGN ENGINEERING SERVICES IS HAVING DIFFERENT FUNCTIONAL PROFILE VIS--VIS THE TAXPAYER WHO IS A ROUTINE ENGINEERING DESIGN SE RVICES AND MOREOVER TCEL IS HAVING A SINGLE REPORTABLE SEGMENT SHOWING INCOME FROM ENGINEERING CONSULTANCY SERVICES AND NO BIFURCATION IS AVAILABLE QUA VARIETY OF SERVICES BEING PROVIDED BY TCEL, HENCE NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER. SO, WE ORDER TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPARABLES. KITCO LTD. (KITCO) 47. THE TAXPAYER SOUGHT EXCLUSION OF KITCO ON THE G ROUNDS INTER ALIA THAT IT IS A GOVERNMENT OF INDIA OWNED COMPANY ; THAT IT IS INTO DIVERSIFIED NATURE OF ACTIVITIES; THAT ITS FINANCIA L SEGMENTAL ARE NOT AVAILABLE AND RELIED UPON THE DECISIONS OF PCIT VS. SOS SERVICES INDIA (P) LTD., PCIT VS. BECHTEL INDIA PVT. LTD., C IT VS. THYSSEN ITA NO.1817/DEL/2015 31 KRUPP INDUSTRIES INDIA (P.) LTD. (SUPRA) AND GENZYM E INDIA (P) LTD. VS. ACIT (2018) 93 TAXMANN.COM 222 (DELHI-TRIB .). 48. LD. DR FOR THE REVENUE, ON THE OTHER HAND, RELI ED UPON THE ORDERS OF THE LOWER REVENUE AUTHORITIES. 49. PERUSAL OF THE ANNUAL REPORT, AVAILABLE AT PAGE S 6 TO 8, SHOWS THAT KITCO IS INTO DIVERSIFIED FIELD OF CONSULTANCY SERVICES EG. MANAGEMENT CONSULTANCY DIVISION, DETAILED ENGINEERI NG DIVISION, TECHNICAL SERVICES DIVISION AND PROJECT CONSULTANCY DIVISION. HOWEVER, ANNUAL REPORT AT PAGE 29 DOES NOT PROVIDE SEGMENTAL FINANCIALS CONCERNING DIVERSIFIED CATEGORY OF SERVI CES BEING PROVIDED BY KITCO. MOREOVER, IT IS A GOVERNMENT OF INDIA COMPANY. 50. COORDINATE BENCH OF THE TRIBUNAL EXCLUDED EIL A S A COMPARABLE VIS--VIS ROUTINE ENGINEERING DESIGN SER VICES PROVIDER IN CASE OF INTERNATIONAL SOS SERVICE INDIA P. LTD. VS. DCIT (2016) 67 TAXMANN.COM 73 (DELHI-TRIB.) ON THE GROUNDS INTER ALIA THAT A 100% GOVERNMENT COMPANY CANNOT BE SELECTED A S COMPARABLE AND THAT COMPANY HAVING NO INTANGIBLE AS SETS CANNOT BE A VALID COMPARABLE VIS--VIS A COMPANY OWNING IN TANGIBLE ASSETS IN THE FORM OF TECHNICAL KNOW-HOW. ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 30.05.2017 PASSED IN ITA 454 /2016 AND ITA NO.1817/DEL/2015 32 SLP FILED BY THE REVENUE IN THE HONBLE SUPREME COU RT HAS ALSO BEEN DISMISSED. 51. COORDINATE BENCH OF THE TRIBUNAL IN PCIT VS. BECHTEL INDIA PVT. LTD. (SUPRA) EXCLUDED KITCO BY RELYING UPON THE DECISIO N OF THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. IN ITA NO.6460/MUM/2012 BY RETURNING FOLLOWING FINDINGS :- 22. THE PROFILE OF THIS COMPANY SHOWS THAT IT IS A 100% GOVERNMENT OWNED UNDERTAKING RENDERING SERVICES PRI MARILY TO CENTRAL/STATE GOVERNMENT UNDERTAKING AND PSUS. MOST OF THE CLIENTS OR PROJECTS UNDERTAKEN BY THIS COMPANY ARE EITHER FOR STATE GOVERNMENT OR GOVERNMENT RUN INSTITUTIONS. THEREFOR E, THE MAJORITY REVENUE OF THIS COMPANY COMES FROM GOVERNM ENT /STATE OR CENTRE RUN PROJECTS AND THE COMPANY DERIVES BENE FIT OUT OF ITS PARENTAL RELATION WITH THE GOVERNMENT IN GETTING CO NTRACT AND BECAUSE OF THIS, THE PROFIT MARGINS OF THIS COMPANY CANNOT BE SAID TO BE INDICATIVE OF A FREE MARKET ECONOMY WHER E THE APPELLANT COMPANY AND OTHERS OPERATE. FOR THESE REA SONS, THIS COMPANY WAS EXCLUDED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ASSESSMENT YEAR 2010-11 IN ITA NO. 1478/DEL/2015 WH EREIN THE TRIBUNAL RELIED UPON THE FINDINGS OF THE COORDINATE BENCH IN THE CASE OF THYSSENKRUPP INDUSTRIES INDIA PRIVATE LIMIT ED ITA NO. 6460/MUM/2012. 23. THE RELEVANT FINDINGS GIVEN IN THE CASE OF THYS SENKRUPP INDUSTRIES INDIA PRIVATE LIMITED AND OF THE COORDIN ATE BENCH IN ASSESSEE'S OWN CASE READ AS UNDER: 'WE FIND IT AS UNDISPUTED THAT ENGINEERS INDIA LIMI TED IS A GOVERNMENT COMPANY. IT HAS SEVERAL SEGMENTS WHICH ALSO INCLUDE 'TURNKEY PROJECT' PAGE 700 OF THE PAPE R BOOK IS A COPY OF ANNUAL REPORT OF ENGINEERS INDIA LIMIT ED ON TURNKEY PROJECT. IT CAN BE SEEN THAT THE REVENUE HA S ARISEN FROM COMPLETING PARAXYLENE PLANT OF IOCL AND FURTHE R THAT COMPANY IS ENGAGED IN EXECUTION OF OTHER UNIT OF IOCL'S PANIPAT NAPHTHA CRACKER PROJECT. IN OUR CONSIDERED OPINION' THIS CASE SHOULD NOT HAVE BEEN INCLUDED IN THE LIST OF FINAL COMPARABLES FOR TWO R EASONS. FIRST REASON IS THAT PROFIT MOTIVE IS NOT A RELEVAN T CONSIDERATION IN CASE OF GOVERNMENT UNDERTAKINGS. M ANY GOVERNMENT UNDERTAKINGS EVEN OPERATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERN MENT. THE SECOND REASON IS THAT ENGINEERS INDIA LIMITED E ARNED ITA NO.1817/DEL/2015 33 INCOME FROM TURNKEY PROJECT BY SUCCESSFULLY COMPLET ING THE PROJECT OF IOCL AND OTHER PUBLIC SECTOR UNDERTAKINGS. IN THAT SENSE OF THE MATTER, THE RELA TED PARTY TRANSACTIONS ARE MUCH MORE THAN THE FILTER OF 25%. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES.' 12.5 IN THE ABOVE RULING, THE COMPARABLE M/S. ENGIN EERS INDIA LIMITED WAS REJECTED PRIMARILY ON THE GROUND THAT IT WAS WORKING FOR GOVERNMENT/PUBLIC SECTOR UNDERTAKIN GS AND SINCE THE COMPANY ALSO BEING A GOVERNMENT OWNED ENTERPRISE; THE TRANSACTIONS TANTAMOUNT TO RELATED PARTY TRANSACTIONS. THE SAME IS TRUE FOR THE SAID COMPARA BLE AS KITCO LTD., TRANSACTIONS ARE PRIMARILY WITH GOVERNM ENT OWNED ENTERPRISES. APPLYING THE PREPOSITION LAID DO WN IN THE CASE OF M/S THYSSENKRUPP INDUSTRIES INDIA PRIVA TE LIMITED (SUPRA), WE HOLD THAT KITCO LTD., CANNOT BE ACCEPTED AS A COMPARABLE COMPANY. HENCE THE SAME IS DIRECTED TO BE ELIMINATED.' 24. RESPECTFULLY FOLLOWING THE FINDINGS OF THE COOR DINATE BENCH [SUPRA], WE DIRECT TO EXCLUDE KITCO FROM THE FINAL SET OF COMPARABLES. 52. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT KITCO FIRSTLY BEING A GOVERNMENT OF INDIA UNDERTAKI NG RENDERING SERVICES TO CENTRAL AND STATE UNDERTAKINGS AND PSUS AND AS SUCH, SUBSTANTIAL REVENUE OF THIS COMPANY IS FROM GOVERNM ENT/STATE OR CENTRE RUN PROJECTS AND IT IS INTO DIVERSIFIED ACTI VITIES OF BUSINESS QUA WHICH SEGMENTAL FINANCIALS ARE NOT AVAILABLE, I S NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHICH IS A ROUTIN E PROVIDER OF DESIGN ENGINEERING SERVICES ALONG WITH SUPERVISORY SUPPORT SERVICES TO ITS AE, HENCE ORDERED TO BE EXCLUDED. ITA NO.1817/DEL/2015 34 GROUNDS NO.9 & 10 53. GROUNDS NO.9 & 10 ARE DISMISSED HAVING NOT BEEN PRESSED DURING THE COURSE OF ARGUMENTS. GROUND NO.11 54. GROUND NO.11 BEING CONSEQUENTIAL IN NATURE NEED S NO SPECIFIC FINDINGS. GROUNDS NO.12, 13, 14 & 16 55. AO/DRP FOLLOWING THE EARLIER ASSESSMENT YEAR ES TIMATED THE GROSS PROFIT OF SUCH SALES MADE BY HO AT 25% WHICH COMES TO RS.1,52,66,780/-. AFTER CONSIDERING THE FUNCTIONS PERFORMED BY THE FIXED PLACE PERMANENT ESTABLISHMENT (PE)/SERVICE PE / SUPERVISORY PE, 50% OF THE AFORESAID PROFIT IS ATTRIBUTED TO PE WHICH COMES TO RS.76,33,390/- ON THE GROUNDS INTER ALIA THAT BO WA S SET UP IN INDIA FOR THE BUSINESS ACTIVITIES OF HO AS THE BO WAS INV OLVED IN NEGOTIATIONS AND OTHER ACTIVITIES OF HO AND THAT EX PENSES OF BO DID NOT COMMENSURATE WITH THE SCALE OF ITS TURNOVER SHO WING MORE WORK DONE THAN CONTENDED BY THE TAXPAYER AND THAT T HE CUSTOMERS OF BO AND HO WERE COMMON AND PRESENCE OF BO S EMPL OYEES TO PROVIDE SERVICES TO HOS CLIENTS IMPLYING INVOLVEME NT OF BO IN ACTIVITIES OF THE HO. 56. LD. AR FOR THE TAXPAYER CONTENDED THAT THE TAXP AYER HAS A BO IN INDIA AND CONSEQUENTLY INCOME EARNED BY IT IS TAXED IN INDIA. ITA NO.1817/DEL/2015 35 IT IS ALSO CONTENDED BY THE LD. AR FOR THE TAXPAYER THAT THE TRANSACTIONS BETWEEN HO AND BO ARE SUBJECT TO TRANS FER PRICING PROVISIONS AND HAVE BEEN ALREADY BENCHMARKED AND TH E PROFIT RELATED TO THAT PART OF THE CONTRACT, WHICH IS DIRE CTLY CARRIED OUT BY THE HO, SHALL ONLY BE TAXABLE IN NETHERLAND AND AS SUCH, NO FURTHER INCOME IS LIABLE TO BE ATTRIBUTABLE TO THE BO AND A LSO RELIED UPON ARTICLE 7 OF THE TAX TREATY BETWEEN INDIA AND NETHE RLAND. 57. THE LD. AR FOR THE TAXPAYER FURTHER CONTENDED T HAT THE AO HAS PROCEEDED ON THE BASIS OF ASSUMPTION THAT BO PE RFORMED ALL THE ACTIVITIES DETAILED AT PAGE 13 OF THE ORDER TO FACI LITATE HO WHEREAS WORK ORDERS ENTERED INTO BY THE HO WITH INDIAN CUST OMERS CLEARLY STIPULATE THE SCALE OF WORK, AMOUNTS TO BE PAID, LI ABILITY AND OTHER TERMS AND CONDITIONS. SO, THE ABOVE MENTIONED FACI LITIES ARE PERFORMED BY THE HO ITSELF AS A PART OF THE CONTRAC T FOR SUPPLIES/SERVICES AND THE BO WAS NOWHERE INVOLVED. LD. AR FOR THE TAXPAYER RELIED UPON THE DECISION OF THE COORDI NATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AYS 206-07, 2008-09 AND 2009-10. 58. IDENTICAL ISSUE HAS BEEN DECIDED BY THE COORDIN ATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE TAXPAYER BY RETURNING FOLLOWING FINDINGS :- ITA NO.1817/DEL/2015 36 '4.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM TH E ASSESSING OFFICER'S FINAL ORDER PASSED U/S 144C(13) THAT THE ENTIRE ISSUE HAS BEEN DISCUSSED IN A SOLITARY PARA NO. 6 OF AROUND 1 0 LINES AT PAGE 37 OF THE ORDER. IT HAS BEEN CONCLUDED THAT THE ASS ESSEE MUST HAVE RECEIVED A SUM EQUAL TO ITS DECLARED RECEIPTS IN RESPECT OF DIRECT TRANSACTIONS BETWEEN THE HO AND ITS INDIAN C USTOMERS AND THE FURTHER PRESUMPTION IS THAT IT IS IN NATURE OF FEES FOR TECHNICAL SERVICES. WE ARE UNABLE TO APPRECIATE THE LOGIC OF THE AO IN DRAWING INFERENCES, ONE AFTER ME OTHER AND THE CONC LUSIONS REACHED IN THIS REGARD. THERE IS NO MATERIAL WORTH THE NAME TO SUGGEST, EVEN REMOTELY, THAT THE ASSESSEE WAS RENDE RING SERVICES TO ITS HEAD OFFICE OR THE INDIAN CLIENTS IN RESPECT OF DIRECT TRANSACTIONS BETWEEN THEM. THERE IS ABSOLUTELY NO B EDROCK FOR SUCH PRESUMPTION. THE LEARNED DR WAS REQUIRED TO IN VITE OUR ATTENTION TOWARDS ANY MATERIAL INDICATING THE ASSES SEE'S INVOLVEMENT IN THE DIRECT TRANSACTIONS BETWEEN THE HEAD OFFICE AND INDIAN CUSTOMERS. IN THE NAME OF REPLY, HE TOOK US THROUGH CERTAIN PORTIONS OF THE DRAFT ASSESSMENT ORDER IN W HICH THERE IS A LUMMUS TECHNOLOGY HEAT TRANSFER BV REFERENCE TO CER TAIN INVOICES OF THE HO INDICATING THE ROLE OF THE ASSES SEE IN SUCH DIRECT TRANSACTIONS. ON A CAREFUL SCRUTINY OF THE D ATES OF SUCH INVOICES, IT CAN BE SEEN THAT THEY RELATE TO THE FI NANCIAL YEAR 2004- 05 RELEVANT TO THE PRECEDING ASSESSMENT YEAR 2005-0 6. A COPY OF THE ASSESSMENT ORDER FOR THE A.Y. 2005-06 HAS BEEN PLACID ON RECORD. IT CAN BE SEEN FROM SUCH ORDER DATED 17.12. 2007, THAT NO ADDITION WAS MADE IN RESPECT OF SUCH PRESUMPTIONS O F THE ASSESSING OFFICER. IT IS FURTHER RELEVANT TO NOTE T HAT THE ASSESSEE'S ACCOUNTS WERE EXAMINED BY THE TPO, WHO HAS NOT POIN TED OUT EVEN A SINGLE RUPEE EXPENSE ATTRIBUTABLE TO THE DIR ECT TRANSACTIONS BETWEEN HO AND INDIAN CUSTOMERS. WHEN THIS IS THE P OSITION OBTAINING IN THIS CASE, WE FAIL TO COMPREHEND AS TO HOW AN INCOME CAN BE ESTIMATED IN THIS REGARD. SUCH ADDITI ON MADE BY THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO BE DELETED. THIS GROUND IS ALLOWED.' 59. IT IS FURTHER CONTENDED BY THE LD. AR FOR THE T AXPAYER THAT AO HAS WRONGLY RELIED UPON THE ORDER OF RESERVE BANK O F INDIA (RBI) DATED 13.04.1999 BECAUSE BO WAS GRANTED SPECIFIC AP PROVAL BY THE RBI FOR PERFORMING CERTAIN ACTIVITIES WHICH WAS RES TRICTED ONLY TO PERMIT ACTIVITIES, AND THE INCOME EARNED FROM SUCH PERMITTED ACTIVITIES HAS ALREADY BEEN OFFERED TO TAX IN INDIA . ITA NO.1817/DEL/2015 37 60. NO ACTIVITIES HAVE BEEN PERFORMED BY THE BO ON BEHALF OF THE HO AS PRESUMED BY THE AO. MOREOVER, THE TAXPAY ER HAS SPECIFICALLY EXPLAINED THE FUNCTIONS PERFORMED AND RISK UNDERTAKEN BY THE HO AND BO IN ITS TP STUDY, RELEVANT PAGES 55 8 TO 590 OF THE PAPER BOOK, SHOWING ACTIVITIES OF THE BO BEING REST RICTED TO BASIC DESIGN AND ENGINEERING SERVICES. FURTHERMORE, HO W AS OTHERWISE RESPONSIBLE FOR ITS OWN MARKET DEVELOPMENT RESEARCH AND NEGOTIATION FOR CONTRACT. 61. SO FAR AS GROUNDS TAKEN BY THE AO QUA THE EXPEN SES ATTRIBUTED TO EXPATRIATE DIRECTOR STATIONED AT GURG AON, SHRI RAJ THAKRAL THAT HE HAS PLAYED A MAJOR ROLE IN SUPERVIS ING MARKET RESEARCH TO FIND OUT CUSTOMERS, PROCURING ORDERS, C ONTRACT NEGOTIATIONS, ETC. IT HAS COME ON RECORD THAT THER E IS NO EVIDENCE ON RECORD BROUGHT FORWARD BY THE AO TO SUPPORT HIS CONTENTION REGARDING DOING AFORESAID WORK BY THE DIRECTOR IN I NDIA IN MARKET RESEARCH AND RELATED JOBS. MERELY BECAUSE OF THE F ACT THAT EXPATRIATE DIRECTOR WAS PRESENT IN INDIA, NO NEXUS CAN BE HELD TO BE ESTABLISHED BETWEEN HO AND BO. 62. LD. AR FOR THE TAXPAYER DREW OUR ATTENTION TOWA RDS DOCUMENT QUA CONTRACTS ENTERED INTO BETWEEN HO DIRE CTLY WITH INDIAN CUSTOMERS ALONG WITH COPY OF CONTRACTS/PURCH ASE ORDERS, AVAILABLE AT PAGES 400 TO 471 OF THE PAPER BOOK WHE REIN IT IS ITA NO.1817/DEL/2015 38 NOWHERE MENTIONED THAT SAID EXPATRIATE EMPLOYEE IS INVOLVED IN NEGOTIATIONS OR MARKETING. THE NAME OF MR. GUIDO H ERBERGHS OF THE HO, NETHERLAND IS MENTIONED IN MOST OF THE WORK ORDERS ENTERED INTO BY THE HO WITH INDIAN CLIENTS WHO CONS IDERS, DISCUSSES, NEGOTIATES AND ENTERS INTO CONTRACTS WIT H THE INDIAN CLIENTS ONLY ON BEHALF OF THE HO AND THERE IS NO EV IDENCE WHATSOEVER ON THE FILE TO PROVE THAT THERE WAS NEXU S BETWEEN HO AND BO. FURTHERMORE, AO PROCEEDED TO MAKE AN ADDIT ION ON THIS ACCOUNT ALSO ON THE GROUND THAT BO HAS DEBITED EXPE NSES AMOUNTING TO RS.11.44 CRORES TO ITS PROFIT & LOSS A CCOUNT AS AGAINST REVENUE OF RS.13.08 CRORES AND THE COST SO INCURRED IS NOT COMMENSURATE WITH THE BUSINESS TURNOVER AND AS SUCH , BO PROVED TO HAVE PERFORMED MORE THAN WHAT HAS BEEN CLAIMED B Y IT. 63. WE ARE OF THE CONSIDERED VIEW THAT ACCOUNT DETA IL OF ANY SUCH SPECIFIC EXPENSE OR REVENUE ITEM, OTHERWISE UN REASONABLE OR UNDER-STATED, HAS NOT BEEN POINTED OUT, AND THE ENT IRE DECISION HAS BEEN MADE ON THE BASIS OF ASSUMPTIONS. MOREOVER, EV EN OTHERWISE, REASONABLENESS OF THE EXPENDITURE HAS TO BE CONSIDE RED WITH BUSINESSMANS STAND POINT AND REVENUE OFFICER CANNO T DECIDE SUCH ISSUE WHILE SITTING ON THE BUSINESSMANS ARM CHAIR. THIS PROPOSITION HAS BEEN LAID DOWN BY HONBLE SUPREME C OURT IN CIT ITA NO.1817/DEL/2015 39 VS. WALCHAND AND CO. (P) LTD. (1967) 65 ITR 381 (SC ) AND ALUMINIUM CORPORATION OF INDIA VS. CIT (1972) 86 IT R 1 (SC) . 64. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE ORDER PASSED BY THE TRIBUNAL IN TAXPAYERS OWN CASE IN 2006-07, 2008-09 & 2009-10, WE ARE OF THE CONSIDERED VIEW TH AT AFORESAID ADDITION MADE BY THE AO/DRP QUA ATTRIBUTION OF PROF ITS AMOUNTING TO RS.76,33,390/- TO HO FROM DIRECT SUPPLIES AND SE RVICES TO CUSTOMERS IN INDIA TO PE IN INDIA I.E. BO IS NOT SU STAINABLE, HENCE ORDERED TO BE DELETED. GROUND NO.15 65. AO/DRP HAVE FURTHER ATTRIBUTED PROFITS TO PE O F THE TAXPAYER IGNORING THE FACT THAT THE SAID TRANSACTIO NS HAVE ALREADY BEEN CONSIDERED BY THE TPO AND NO FURTHER PROFITS C OULD HAVE BEEN ATTRIBUTED. 66. UNDISPUTEDLY, TPO IN ITS TP ANALYSIS HAS CONSID ERED ALL THE TRANSACTIONS BETWEEN BO AND HO AND AFTER CONDUCTING FAR ANALYSIS THE SAME HAS BEEN COMPENSATED ON ARMS LEV EL BASIS. IN THESE CIRCUMSTANCES, NO FURTHER ATTRIBUTION OF PROF IT TO BO CAN BE MADE. 67. HONBLE SUPREME COURT IN THE CASE OF DIT VS. MO RGAN STANLEY AND CO. INC. (2007) 292 ITR 416 (SC) DECIDE D THE ISSUE BY RETURNING FOLLOWING FINDINGS :- ITA NO.1817/DEL/2015 40 AS REGARDS ATTRIBUTION OF FURTHER PROFITS TO THE P E OF MSCO WHERE THE TRANSACTION BETWEEN THE TWO ARE HELD TO B E AT ARM'S LENGTH, WE HOLD THAT THE RULING IS CORRECT IN PRINC IPLE PROVIDED THAT AN ASSOCIATED ENTERPRISE (THAT ALSO CONSTITUTE S A PE) IS REMUNERATED ON ARM'S LENGTH BASIS TAKING INTO ACCOU NT ALL THE RISK-TAKING FUNCTIONS OF THE MULTINATIONAL ENTERPRI SE. IN SUCH A CASE NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE PE.' 68. IN VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT WHEN TRANSACTION BETWEEN THE HO AND BO HAS OTHERWIS E BEEN HELD AT ARMS LENGTH BY TAKING INTO ACCOUNT THE RISK BEA RING FUNCTIONS, NO FURTHER PROFIT TO THE BO CAN BE ATTRIBUTED. CON SEQUENTLY, GROUND NO.15 IS DECIDED IN FAVOUR OF THE TAXPAYER. GROUNDS NO.17 & 18 69. THE TAXPAYER CHALLENGED THE ACTION OF THE AO IN NOT GIVING CREDIT OF TAXES AMOUNTING TO RS.4,73,055/- WHILE CO MPUTING THE ALLEGED TAX PAYABLE BY THE TAXPAYER AND WITHOUT PRE JUDICE TO GROUND NO.17 TAXPAYER CONTENDED THAT AO HAS ERRED I N NOT GIVING CREDIT OF TAXES OF RS.7,27,883/- WITHHELD ON PAYMEN TS HELD BY HO FROM INDIAN CUSTOMERS. WE ARE OF THE CONSIDERED VI EW THAT WHEN THE TAXPAYER CLAIMED THAT THEY ARE ENTITLED FOR CRE DIT OF TAXES, THE MATTER IS REQUIRED TO BE SET ASIDE TO THE AO TO VER IFY IF SUCH TAXES HAVE BEEN DEPOSITED BY DEDUCTING THE TDS AND TO PRO VIDE THE CREDIT TO THE TAXPAYER UNDER RULES. ITA NO.1817/DEL/2015 41 GROUND NO.19 70. THE LD. AR FOR THE TAXPAYER CONTENDED THAT THE AO HAS INCORRECTLY APPLIED SURCHARGE AND CESS OVER THE TAX RATE OF 10% AS PER DOUBLE TAX AVOIDANCE AGREEMENT (DTAA) APPLIED O N THE AMOUNT OF INCOME OF HO AND RELIED UPON ARTICLE 2 OF DTAA WHICH IS EXTRACTED FOR READY PERUSAL AS UNDER :- 3. THE EXISTING TAXES TO WHICH THE CONVENTION SHAL L APPLY ARE IN PARTICULAR: (B) IN INDIA: - THE INCOME-TAX INCLUDING ANY SURCHARGE THEREON, - THE SURTAX, - THE WEALTH-TAX. (HEREINAFTER REFERRED TO AS 'INDIAN TAX'? 4. THE CONVENTION SHALL APPLY ALSO TO ANY IDENTICAL OR SUBSTANTIALLY SIMILAR TAXES WHICH ARE IMPOSED AFTER THE DATE OF SIGNATURE OF THE CONVENTION IN ADDITION TO, OR IN P LACE OF, THE EXISTING TAXES. THE COMPETENT AUTHORITIES OF THE ST ATES SHALL NOTIFY TO EACH OTHER ANY SUBSTANTIAL CHANGES WHICH HAVE BEEN MADE IN THEIR RESPECTIVE TAXATION LAWS. 71. UNDER ARTICLE 2(3) OF THE DTAA, TAX INCLUDES IN COME-TAX AND SURCHARGE THEREON AND AS SUCH, SURCHARGE IS INC LUDED IN THE INCOME-TAX AND THE TAX RATE OF 10% FOR FEE FOR TECH NICAL SERVICES AS PRESCRIBED IN ARTICLE 12 IS DEEMED TO BE INCLUDED S URCHARGE AS CESS IS NOTHING BUT AN ADDITIONAL SURCHARGE, SO ONLY TAX RATE OF 10% UNDER DTAA IS APPLICABLE. LD. AR FOR THE TAXPAYER RELIED UPON THE DECISION RENDERED BY THE COORDINATE BENCH OF TH E TRIBUNAL IN SOREGAM SA VS. DCIT (2019) 101 TAXMANN.COM 94 (DELH I-TRIB.) ITA NO.1817/DEL/2015 42 WHEREIN THE IDENTICAL ISSUE HAS BEEN DECIDED IN FAV OUR OF THE TAXPAYER BY HOLDING THAT SINCE EDUCATION CESS IS A FORM OF ADDITIONAL SURCHARGE, EDUCATION CESS OR ANY OTHER S URCHARGE CANNOT BE APPLIED ADDITIONALLY TO INCREASE THE TAX RATE PR ESCRIBED IN THE DTAA I.E. 10%. SO, WE DIRECT THE AO TO APPLY TAX R ATE OF 10% IN THIS CASE ON ROYALTY/FTS. CONSEQUENTLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE TAXPAYER. GROUND NO.20 72. AO HAS CHARGED THE INTEREST U/S 234 B, WHICH HA S BEEN CHALLENGED BY THE TAXPAYER ON THE GROUND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE TAXPAYER IN NUMEROUS CASES AND MORE SO, IN TAXPAYERS OWN CASE FOR AY 2006-07 , THIS ISSUE STANDS COVERED. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2006-07 DECIDED THE ISSUE IN CONTROVERSY IN FAVOUR OF THE TAXPAYER BY RETURNING FOLLOWING FINDINGS :- '5.2 HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD IN RESPECT OF THIS ADDITIONAL GROUND, WE FIND THAT THE ISSUE OF CHARGI NG INTEREST U/S 234B IN THE PRESENT CASE IS HO MORE RE S INTEGRA IN VIEW OF THE JUDGMENT OF THE HON'BLE BOMB AY HIGH COURT IN DIT (INTERNATIONAL TAXATION) V. NGC NETWORK ASIA LLC [2009J 313 ITR 187, IN WHICH IT HA S BEEN HELD THAT WHEN THE DUTY IS CAST ON THE PAYER T O DEDUCT TAX AT SOURCE, ON FAILURE OF THE PAYER TO DO NO INTEREST CAN BE CHARGED FROM THE PAYEE ASSESSEE U/S 234B. THE SAME VIEW HAS BEEN REITERATED IN DIT (IT) V. ITA NO.1817/DEL/2015 43 KRUPP UOHE GMBH [2013J 40 TAXMANN.COM 38 (BOM.). AS THE ASSESSEE BEFORE US IS A NON-RESIDENT , NATURALLY ANY AMOUNT PAYABLE TO IT WHICH IS CHARGEA BLE TO TAX UNDER THE ACT, IS OTHERWISE LIABLE FOR DEDUC TION OF TAX AT SOURCE.' 5.3 AT THIS JUNCTURE, IT IS RELEVANT TO NOTE THAT T HE FINANCE ACT, 2012 HAS INSERTED A PROVISO, AT THE EN D OF SECTION 209(1) W.E.F. 1.4.2012 WHICH PROVIDES THAT FOR COMPUTING LIABILITY FOR ADVANCE TAX, INCOME-TAX CALCULATED UNDER CLAUSE (A) OR (B) OR (C) SHALL NOT , IN EACH CASE, BE REDUCED BY THE AFORESAID AMOUNT OF INCOME-TAX WHICH WOULD BE DEDUCTIBLE OR COLLECTIBLE AT SOURCE DURING THE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOME, IF THE PERSO N RESPONSIBLE FOR DEDUCTING TAX HAS PAID OR CREDITED SUCH INCOME WITHOUT DEDUCTION OF TAX OR IT HAS BEEN RECE IVED OR DEBITED BY THE PERSON RESPONSIBLE FOR COLLECTING TAX WITHOUT COLLECTION OF SUCH TAX. THE EFFECT OF THIS INSERTION IS TO NULLIFY THE MANDATE OF THE ABOVE JUDGMENTS HOLDING THAT NO INTEREST IS CHARGEABLE IF THE INCOME RECEIVED BY SUCH ASSESSEE IS OTHERWISE LIABL E FOR DEDUCTION OF TAX AT SOURCE IN THE HANDS OF THE PAYE R. THE POINT WORTH NOTING IN THIS REGARD IS THAT THE FINANCE ACT, 2012 HAS INSERTED THIS PROVISO PROSPECTIVELY W.E.F. 1.4.2012. EVEN THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2012 PROVIDES THAT: 'THIS AMENDMENT WILL TAKE EFFECT FRO M 1ST APRIL, 2012 AND WOULD, ACCORDINGLY, APPLY IN RELATI ON TO ADVANCE TAX PAYABLE FOR THE FINANCIAL YEAR 2012-13 AND SUBSEQUENT FINANCIAL YEARS'. IT, THEREFORE, BECOMES VIVID THAT THE INSERTION OF THE PROVISO TO SECTION 209(1) IS PROSPECTIVE AND THE SAME CANNOT BE APPLIED RETROSPECTIVELY TO THE YEAR UNDER CONSIDERATION.' 73. FOLLOWING THE DECISION RENDERED BY THE COORDINA TE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE, WE ARE OF THE CONSIDERED VIEW THAT INTEREST U/S 234B OF THE ACT AS CHARGED BY AO/ DRP IS NOT SUSTAINABLE BECAUSE WHEN DUTY IS ON THE PAYER TO DE DUCT TAX AT ITA NO.1817/DEL/2015 44 SOURCE, ON FAILURE OF THE PAYER TO DEDUCT THE TDS N O INTEREST CAN BE CHARGED FROM THE PAYEE/TAXPAYER U/S 234B OF THE ACT . CONSEQUENTLY, THIS GROUND IS DETERMINED IN FAVOUR O F THE TAXPAYER. 74. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF NOVEMBER, 2019. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 28 TH DAY OF NOVEMBER , 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.