Eigen Technical Services Private Ltd., Gurgaon V. DCIT, New Delhi

ITA 244/DEL/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4058 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 24-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 16-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.244/DEL/2012 ASSESSMENT YEAR : 2007-08 EIGEN TECHNICAL SERVICES PVT. LTD., 5 TH FLOOR, TOWER B, VATIKA ATRIUM, GOLF COURSE ROAD, SECTOR- 53, GURGAON. VS. DCIT, CIRCLE- 11(1), NEW DELHI. PAN : AAACL9591N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAVI SHARMA, ADV. SHRI ANUBHAV RASTOGI, ADV. RESPONDENT BY : SHRI SANJAY I. BARA, CIT-DR DATE OF HEARING : 19-12-2017 DATE OF PRONOUNCEMENT : 22-01-2018 O R D E R PER R. K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 28.10.2011 PASSED BY THE ASSESSING OFFICER U/S 143( 3)/144C FOR THE ASSESSMENT YEAR 2007-08. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING SERVICES IN THE FIELD OF INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED ENGINEERING SERVICES (ITES) ETC.. IT FILED ITS RETURN OF INCOME ON 02.11.2007 DECLARING TOTAL INCO ME OF RS.20,92,30,794/-. SINCE THE ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRA NSACTIONS WITH ITS AE WHICH EXCEEDED MORE THAN 50 CRORES, THE ASSESSING OFFICER REFERRED THE MATTER TO THE 2 ITA NO.244/DEL/2012 TPO FOR DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE TPO DURING THE COU RSE OF TP ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE COMPANY HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AE :- NATURE OF TRANSACTION METHOD SELECTED TOTAL VALUE OF TRANSACTION (RS.) PROVISION OF SOFTWARE DEVELOPMENT SERVICES TNMM 14 ,913,278 PROVISION OF ENGINEERING DESIGN SERVICES TNMM 195,214,578 COST REIMBURSEMENT RECEIVED CUP 532,03 9 3. HE OBSERVED THAT THE ASSESSEE HAS USED TNMM AS T HE METHOD AND OP/TC AS THE PLI. HE FURTHER OBSERVED THAT THE ASSESSEE HAS ARRIVED AT A SET OF 6 COMPARABLES FOR ITS ENGINEERING DESIGN SEGMENT. TH E AVERAGE MARGIN OF THE COMPARABLES, USING MULTIPLE YEAR DATA IS 5.03%. TH E ASSESSEES MARGIN IN THIS SEGMENT IS 8.9%. SO FAR AS SOFTWARE DEVELOPMENT SE GMENT IS CONCERNED, THE ASSESSEE HAS ARRIVED AT A SET OF 18 COMPARABLES WIT H AN AVERAGE MARGIN OF 13.43%. SINCE THE ASSESSEES MARGIN IS 21.47%, IT WAS CONCLUDED THAT THE TRANSACTIONS ARE AT ARMS LENGTH PRICE. 4. THE TPO, IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS, REJECTED THE APPLICATION OF MULTIPLE YEAR DATA WHICH WAS USE D BY THE ASSESSEE IN SOME OF THE COMPARABLES AND APPLIED CURRENT YEAR DATA. THE TPO FURTHER REJECTED THE ASSESSEES APPROACH OF BENCHMARKING ENGINEERING DES IGN SEGMENT AND SOFTWARE DEVELOPMENT SEGMENT SEPARATELY AND ADOPTED ENTITY L EVEL APPROACH. ACCORDINGLY, HE UNDERTOOK A FRESH SEARCH FOR COMPAR ABLES SINCE THE 3 ITA NO.244/DEL/2012 COMPARABLES USED BY THE ASSESSEE ACCORDING TO HIM W ERE FOUND TO BE FUNCTIONALLY IN COMPARABLE. AFTER REJECTING SOME O F THE COMPARABLE TAKEN BY THE ASSESSEE AS NOT COMPARABLE AND CONSIDERING CERT AIN OTHER COMPARABLES, THE TPO FINALLY SELECTED THE FOLLOWING COMPARABLES AND DETERMINED ADJUSTMENT OF RS.26,026,695/- AS PER THE FOLLOWING CALCULATION :- S.NO. NAME OP/TC (%) 1 ALPHAGEO (INDIA) LTD. 40.64 2 L&T VALDEL ENGS. (P) LTD. 22.43 3 M J B INDIA GAS TURBINE SERVICES LTD. 7.11 4 MAHINDRA CONSULTING ENGINEERS LTD. 2.71 5 MAHINDRA ENGINEERING SERVICES LTD. 36.31 6 MITCON CONSULTING SERVICES LTD. 36.32 7 OIL FIELD INSTRUMENTATION (INDIA) LTD. 74.83 8 STUP CONSULTATION (P) LTD. 25.07 9 T C E CONSULTATION (P) LTD. 20.99 10 ACCUSPEED ENGINEERING LTD. 2.34 11 ASE STRUCTURE DESGN (P) LTD. (-) 0.95 12 GEOMETRIC LTD. 13.18 13 MN DASTUR CO. (P) LTD. 5.63 ARITHMETIC MEAN 22.04 CALCULATION OF ARMS LENGTH PRICE TOTAL COST OF THE ASSESSEE RS.20,97,81,615/- ALP AT A MARGIN OF 22.04% RS.25,60,17,482/- REVENUE SHOWN RS.22,99,90,787/- ADJUSTMENT U/S 92CA RS.2,60,26,695/- 5. THE ASSESSING OFFICER ACCORDINGLY PASSED THE DRA FT ASSESSMENT ORDER MAKING UPWARD ADJUSTMENT OF RS.26,026,695/- TOWARDS THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE AS SESSEE. 6. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE IN ITS STPI UNIT HAS CLAIMED DEDUCTION U/S 10A OF THE I.T. ACT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INSURANCE EXPENSE S AMOUNTING TO 4 ITA NO.244/DEL/2012 RS.9,79,500/- ATTRIBUTABLE TO THE DELIVERY OF GOODS SHOULD NOT BE EXCLUDED FROM THE TOTAL EXPORT TURNOVER FOR DEDUCTION U/S 10A OF THE I.T. ACT. HE ALSO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE OTHER INCOME SHOULD NOT BE EXCLUDED FROM THE BUSINESS INCOME FOR DEDUCTION U/S 10A OF THE I. T. ACT. REJECTING THE VARIOUS ARGUMENTS ADVANCED BY THE ASSESSEE AND RELYING ON V ARIOUS DECISIONS INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF PANDIAN CHEMICALS LTD. VS. CIT REPORTED IN 129 TAXMANN.COM 539, HE HE LD THAT THE OTHER INCOME IS ATTRIBUTABLE TO BUSINESS BUT NOT DERIVED FROM BUSIN ESS AND, THEREFORE, THE SAME HAS TO BE EXCLUDED FROM THE PROFIT ELIGIBLE FOR DED UCTION U/S 10A OF THE I.T. ACT. THE ASSESSING OFFICER, IN VIEW OF THE ABOVE, FURTHE R HELD THAT THE INSURANCE CHARGES AMOUNTING TO RS.9,79,500/- HAS TO BE EXCLUD ED FROM THE EXPORT TURNOVER. HE ACCORDINGLY RECOMPUTED THE DEDUCTION U/S 10A OF THE I.T. ACT. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER MADE ADDITION OF RS.2,44,840/- BY RESTRICTING THE DEPRECIATION ON CO MPUTER PERIPHERALS AT 15% AS AGAINST 60% CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER ACCORDINGLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.3 ,09,95,020/-. 7. THE ASSESSEE APPROACHED THE DRP WHO GAVE PARTIAL RELIEF ON ACCOUNT OF REDUCING INSURANCE CHARGES FROM EXPORT TURNOVER FOR CALCULATING DEDUCTION U/S 10A AND ALLOWED DEPRECIATION AT THE RATE OF 60% ON SOME OF THE PARTS OF THE COMPUTER PERIPHERALS. THE REST OTHER ADDITIONS MAD E BY THE ASSESSING OFFICER WERE SUSTAINED. 5 ITA NO.244/DEL/2012 8. AGGRIEVED WITH SUCH ORDER OF THE DRP/ASSESSING O FFICER/TPO, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISIN G THE FOLLOWING GROUNDS :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW. 1. THE ASSESSING OFFICER PASSED IN PURSUANCE OF THE DI RECTIONS ISSUED BY THE LEARNED DISPUTE RESOLUTION PANEL (LD. DRP) IS A VITIATED ORDER AS THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE LD. ASSESSING OFFICER (LD. AO') TO THE APPELLANTS INCOME BY ISS UING AN ORDER WITHOUT APPRECIATION OF FACTS AND LAW; 2. THE LD. DRP ERRED IN CONFIRMING THE ADDITION OF RS. 2,60,26,695 TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRA NSACTIONS DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE LD. DRP HAS GROSSLY ERRED IN AGREEING WITH THE LD. TRANSFER PRI CING OFFICERS (TPO) ACTION OF: 2.1 NOT APPRECIATING THAT THE APPELLANT AND PREPARED TH E DETAILED CONTEMPORANEOUS TRANSFER PRICING DOCUMENTATION BONA FIDE AND IN COMPLIANCE WITH THE INCOME TAX ACT, 1961 (THE ACT ) AND INCOME TAX RULES, 1962 (THE RULES). 2.2 NOT APPRECIATING THE FACT THAT THE APPELLANT HAD SE LECTED UNCONTROLLED COMPARABLE COMPANIES BASED ON A DETAILED FUNCTIONAL ASSET AND RISK (FAR) ANALYSIS FOLLOWING A METHODICAL BENCHMARKIN G PROCESS AND COMPLETELY DISREGARDING THE COMPARABLE COMPANIES ID ENTIFIED BY THE APPELLANT. 2.3 CLUBBING/ AGGREGATING THE ACTIVITIES OF IT ENABLED ENGINEERING DESIGN SERVICES AND SOFTWARE DEVELOPMENT SERVICES FOR THE PURPOSE OF ECONOMIC ANALYSIS AND IGNORING THE FACT THAT THESE ACTIVITIE S HAVE DISTINCT FUNCTIONS, ASSETS AND RISK PROFILE AND THUS SHOULD NOT BE AGGREGATED FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 2.4 SELECTING COMPARABLE COMPANIES WHOSE FAR IS DIFFERE NT FROM THE ASSESSEE RENDERING THEM NON-COMPARABLE TO THE ASSES SEE. 2.5 DISREGARDING THE COMPANIES AS IDENTIFIED BY THE ASS ESSEE, ON A WITHOUT PREJUDICE BASIS, FOLLOWING THE SAME METHODOLOGY AS ADOPTED B THE TPO. 2.6 FAILING TO APPRECIATE THAT THE MARGIN EARNED BY THE ASSESSEE FROM SERVICES PROVIDED TO ITS AES IS HIGHER THAN THE MAR GIN EARNED BY THE ASSESSEE FROM SERVICES PROVIDED TO THIRD PARTIES TH EREBY SATISFYING THE ARMS LENGTH PRINCIPLE. 2.7 DISREGARDING THE CERTIFICATE BY INDEPENDENT CHARTER ED ACCOUNTANT DULY CERTIFYING THE COMPUTATION OF OPERATING MARGIN EARN ED BY THE ASSESSEE WITH RESPECT TO ITS BUSINESS SEGMENTS AND ALSO WITH RESPECT TO SALES MADE TO ITS OVERSEAS GROUP COMPANIES AND TO THIRD PARTIE S WITHIN THE IT ENABLED ENGINEERING DESIGN SERVICES SEGMENT. 2.8 ERRONEOUS APPLICATION OF RELATED PARTY TRANSACTIONS FILTER BY THE LD. TPO. 2.9 DENYING THE BENEFIT OF IDLE CAPACITY ADJUSTMENT. 2.10 DISREGARDING PRIOR YEARS DATA AS USED BY THE APPEL LANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. F Y 2006-07) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FAC T THAT THE SAME WAS 6 ITA NO.244/DEL/2012 NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE T IME OF PREPARING ITS TP DOCUMENTATION. 2.11 FAILED TO CONSIDER AND APPRECIATE THAT THE APPELLAN T IS ENTITLED TO THE BENEFIT OF THE OPTION OF +/- 5% AS PER THE PROVISIO NS OF PROVISO TO SECTION 92C(2) OF THE ACT. 3. THE LD. AO ERRED IN EXCLUDING LEASELINE EXPENSES AM OUNTING TO INR 232,264 FROM BUSINESS INCOME FOR COMPUTING PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10 OF THE ACT. 3.1 THE LD. AO ERRED IN NOT APPRECIATING THAT LEASELINE EXPENSES WRITTEN BACK AMOUNTING TO RS.232,264 WERE NOT CONSIDERED FO R THE PURPOSE OF COMPUTATION OF BUSINESS PROFITS ELIGIBLE FOR DEDUCT ION UNDER SECTION 10A IN PREVIOUS YEAR 2005-06. 4. THE LD. AO ERRED IN ALLOWING THE DEPRECIATION ON CO MPUTER PERIPHERALS AT THE RATE OF 15 PER CENT, WHICH IS THE RATE ALLOWABLE FOR GEN ERAL PLANT AND MACHINERY, INSTEAD OF AT THE RATE OF 60% PER CENT. 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LD. AO HAS, ERRED IN NOT ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT ON THE INCOM E ENHANCED ON ACCOUNT OF DISALLOWANCES MADE IN THE ASSESSMENT ORDER PASSED U NDER SECTION 143(3) OF THE ACT. 6. THE LD. AO HAS ERRONEOUSLY CONSIDERED INCOME FROM B USINESS AND PROFESSION AS INR 28,358,727 INSTEAD OF INR 27,268,942 WHILE COMP UTING THE TAXABLE INCOME OF THE APPELLANT. 7. THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDI NGS U/S 271(1)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY ADEQUATE SAT ISFACTION FOR SUCH INITIATION. 8. THE LD. AO HAS ERRED IN LAW IN PROPOSING TO CHARGE INTEREST UNDER SECTION 234B OF THE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHD RAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDE RED NECESSARY EITHER BEFORE OR DURING THE HEARING. 9. GROUND NO.1 BY THE ASSESSEE BEING GENERAL IN NAT URE IS DISMISSED. 10. GROUND NO.2.3 WAS NOT PRESSED BY THE ASSESSEE F OR WHICH LD. DR HAS NO OBJECTION. ACCORDINGLY, GROUND NO.2.3 IS ALSO DISM ISSED. 11. SO FAR AS REMAINING SET OF GROUNDS OF APPEAL NO .2 ARE CONCERNED, THEY RELATE TO THE ORDER OF THE ASSESSING OFFICER/DRP ON ACCOUNT OF ADJUSTMENT OF RS.2,60,26,695/- TO THE INCOME OF THE ASSESSEE. 7 ITA NO.244/DEL/2012 12. LD. COUNSEL FOR THE ASSESSEE WHILE ARGUING THE CASE LIMITED HIS ARGUMENT TO FIVE OF THE COMPARABLES FROM THE FINAL SET OF CO MPARABLES AS CHOSEN BY THE TPO AND UPHELD BY THE DRP WHICH ARE AS UNDER :- S.NO. COMPANY NAME OP/OC % 1 ALPHAGEO (INDIA) LTD. 40.64 2 MAHINDRA ENGINEERING SERVICES LTD. 36.31 3 MITCON CONSULTANCY SERVICES LTD. 36.32 4 OIL FIELD INSTRUMENTATION (INDIA) LTD. 74.83 5 T C E CONSULTING ENGINEERS LTD. 20.99 13. SO FAR AS ALPHAGEO (INDIA) LTD. IS CONCERNED, L D. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 3 TO 5 AND 33 TO 37 OF THE ANNUAL REPORT OF THE SAID COMPANY AND SUBMITTED THAT THE ABOVE COMPANY IS ENGAGED IN SEISMIC DATA ACQUISITION, PROCESSING AND INTERPRETATION. REFERRING TO PAGE 2 1 OF THE SAID PAPER BOOK, LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE SERVICE FLOW CHART OF THE COMPANY WHICH INCLUDES AREA RECONNAISS ANCE, CAMP ESTABLISHMENT, IDENTIFICATION OF DRILLING LOCATION, TOPOGRAPHICAL SURVEY, DRILLING, LAYING OF CABLES AND SENSORS, CONNECTING THE SENSORS TO THE R ECORDING INSTRUMENT, INTERPRETING AND PROCESSING OF DATA ETC.. REFERRIN G TO PAGE 259 OF THE PAPER BOOK, VOLUME I, LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE SCOPE OF SERVICES TO BE PROVIDED TO THE AE A S PER THE AGREEMENT. REFERRING TO THE SAME HE SUBMITTED THAT THESE ARE A LL SOFTWARE DRIVER ACTIVITIES AND THE ASSESSEE IS NOT REQUIRED TO GO TO THE SITE. REFERRING TO PAGE 260 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO T HE CLAUSE RELEVANT TO 8 ITA NO.244/DEL/2012 INFORMATION TECHNOLOGY. REFERRING TO PAGE 4 OF THE ANNUAL REPORT COMPILATION, HE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING CLAUSE :- OUR PRESENCE INDIAS LARGEST PRIVATE SECTOR COMPANY TO OFFER SEI SMIC DATA ACQUISITION, DATA PROCESSING, DATA INTERPRETATION SERVICES, RESERVOIR STUDIES AND TOPOGRAPHIC SURVEY SERVICES. 14. HE SUBMITTED THAT THE ABOVE ACTIVITIES ARE NOT COMPARABLE WITH THAT OF THE ASSESSEE COMPANY WHICH IS ENGAGED IN ENGINEERING DE SIGN SERVICES. REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF FLOU R DANIEL INDIA (P.) LTD. VS. DCIT REPORTED IN 78 TAXMANN.COM 138, HE SUBMITTED T HAT UNDER IDENTICAL CIRCUMSTANCES, THE TRIBUNAL AT PARA 5.9 OF THE ORDE R HAS DIRECTED THE ASSESSING OFFICER TO EXCLUDE M/S ALPHAGEO FROM THE SET OF COM PARABLES. HE ACCORDINGLY SUBMITTED THAT FOLLOWING THE SAME RATIO ALPHAGEO IN DIA LIMITED SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 15. SO FAR AS MAHINDRA ENGINEERING DESIGN AND DEVEL OPMENT COMPANY IS CONCERNED, HE SUBMITTED THAT THE RELATED PARTY TRAN SACTION AS PERCENTAGE OF SALES IS 31.07%. REFERRING TO PAGE 99 OF THE ANNUAL REPO RT COMPENDIUM, HE DREW THE ATTENTION OF THE BENCH TO THE RPT OF THE ABOVE COMPARABLE. HE SUBMITTED THAT SINCE THIS ISSUE WAS NOT DECIDED BY THE ASSESS ING OFFICER/TPO OR DRP, HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE F ILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO FIND OUT THE RPT AND IF IT IS MORE THAN 25%, THE SAME SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 9 ITA NO.244/DEL/2012 16. SO FAR AS MITCON CONSULTANCY SERVICES LTD. IS C ONCERNED, HE SUBMITTED THAT THE ABOVE COMPARABLE IS FUNCTIONALLY DIFFERENT . THE ABOVE COMPANY HAS PROVIDED CONSULTANCY SERVICES AND HAS ORGANIZED SEV ERAL TRAINING PROGRAMS THAT INCLUDED WORKSHOPS, VOCATIONAL TRAINING CENTRES, ET C. IT HAS INCURRED VARIOUS VOCATIONAL AND IT TRAINING EXPENSES AND ALSO HAS GE NERATED INCOME FROM SUCH TRAININGS. FURTHER, IT IS A POWER SECTOR COMPANY A ND HAS NUMEROUS DIVISIONS ENGAGED IN DIVERSIFIED BUSINESS. THEREFORE, THE AB OVE COMPANY SHOULD NOT BE CONSIDERED AS A COMPARABLE. 17. SO FAR AS OIL FIELD INSTRUMENTATION LIMITED IS CONCERNED, HE SUBMITTED THAT THE ABOVE COMPANY IS ALSO FUNCTIONALLY DIFFERE NT. IT HAS DIVERSIFIED NATURE OF OPERATIONS AND UNDERTAKES A WIDE RANGE OF SERVIC ES LIKE MUD LOGGING SERVICES, SUPPLY OF EQUIPMENT ETC. REFERRING TO TH E ANNUAL REPORT COMPENDIUM, HE DREW THE ATTENTION OF THE BENCH TO P AGE 122 OF THE PAPER BOOK AND SUBMITTED THAT THE ABOVE COMPANY IS INTO MANUFA CTURING ACTIVITIES AND EXPORT OF FINISHED GOODS AS IS EVIDENT FROM THE FAC TS MENTIONED IN THE ANNUAL REPORT. REFERRING TO PAGE 126 OF THE PAPER BOOK, V OLUME-II, HE SUBMITTED THAT A PERUSAL OF SCHEDULE 9 OF THE PROFIT & LOSS ACCOUN T OF THE COMPANY INDICATES THAT THE COMPANY IS ALSO ENGAGED IN THE SALES OF FI NISHED GOODS, SOFTWARE AND SPARES WHICH COMPRISES APPROXIMATELY 23% OF THE TOT AL SALES OF THE COMPANY. FURTHER, SEGMENTAL DETAILS OF THE COMPANY ARE NOT A VAILABLE IN THE AUDITED 10 ITA NO.244/DEL/2012 FINANCIALS. THEREFORE, THIS COMPANY ALSO SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 18. SO FAR AS TCE CONSULTING ENGINEERS LIMITED IS C ONCERNED, HE SUBMITTED THAT THIS COMPANY IS ALSO FUNCTIONALLY DIFFERENT, S INCE APART FROM PROVIDING ENGINEERING SERVICES, THE COMPANY IS ENGAGED IN PRO VIDING OTHER SERVICES ALSO SUCH AS PRELIMINARY PLANNING, ASSISTANCE IN STARTUP , TESTING AND COMMISSIONING ETC. WHICH ARE NOT PROVIDED BY THE ASSESSEE. HE SU BMITTED THAT THE TECHNICAL CONSULTANCY SERVICES ARE NOT FUNCTIONALLY COMPARABL E TO THAT OF THE ASSESSEE AND, THEREFORE, TCE CONSULTING ENGINEERS LTD. CANNOT BE CONSIDERED AS COMPARABLE. HE SUBMITTED THAT ALTHOUGH IT WAS SUBMITTED BEFORE THE DRP THAT THE ABOVE COMPANY IS NOT COMPARABLE, HOWEVER, THE DRP HAS NOT GIVEN ANY COMMENTS AS TO WHY THE ABOVE COMPANY SHOULD BE CONSIDERED AS CO MPARABLE. HE ACCORDINGLY SUBMITTED THAT THE ABOVE FIVE COMPANIES BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 19. LD. DR ON THE OTHER HAND SUBMITTED THAT SINCE T HE ORDER OF THE TPO IS VERY CRYPTIC ON THE ISSUE OF THE COMPARABLES AND TH E DRP HAS NOT GIVEN ANY OBSERVATIONS, THEREFORE, THIS MATTER MAY BE RESTORE D TO THE FILE OF THE ASSESSING OFFICER/TPO FOR ADJUDICATION OF THE TRANSFER PRICIN G ADJUSTMENT ISSUE. 20. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE TPO/AO/DRP AND THE PAPER BOOK FIL ED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. SO FAR 11 ITA NO.244/DEL/2012 AS ADJUSTMENT OF THE ARMS LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION IS CONCERNED, THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE SAME IS NIL IF THE FIVE COMPARABLES ARE EXCLUDED FROM THE F INAL SET OF COMPARABLES. FROM THE CHART FILED BY THE LD. COUNSEL FOR THE ASS ESSEE, WE FIND THERE IS NO OBSERVATION OF THE DRP ON THE ISSUE OF THE ABOVE FI VE COMPARABLES. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE FILED A CO PY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF FLOUR DANIEL INDIA (P.) LTD. (SUPRA) WHEREIN THE TRIBUNAL AT PARA 5.9 OF THE ORDER HAS OBSERVED AS UNDER :- 5.9 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE. ON PERUSAL OF THE ANNUAL REPORT OF M/S ALPHAGEO, WE FIND THAT DURING THE YEAR UNDER CO NSIDERATION THE COMPARABLE COMPANY HAS SHOWN INCOME FROM SEISMIC SURVEY AND OT HER RELATED SERVICES. ON PERUSAL OF PAGE 326 OF THE PAPER BOOK, WHICH IS PAR T OF THE ANNUAL REPORT OF M/S ALPHAGEO , WE FIND THAT THE COMPANY WAS ENGAGED IN PROVIDING SERVICES OF DESIGN AND PREPLANNING OF 2-D AND 3-D SURVEYS, SEISMIC DATA AC QUISITION, SEISMIC DATA INTERPRETATION , TOPOGRAPHIC SURVEYS ETC. AS COMPAR ED TO THE SERVICES OF ENGINEERING DESIGN BY THE ASSESSEE. THUS, IN OUR OPINION, THE C OMPARABLE COMPANY WAS ENGAGED IN PROVIDING DESIGNS FOR SURVEY AS WELL AS IN CONDU CTING THE SURVEYS AND DATA ACQUISITION ETC. THUS, WE FIND THAT THE ASSESSEE IS ENGAGED IN PROVIDING ONLY ENGINEERING DESIGN SERVICES WHEREAS M/S ALPHAGEO HA S PROVIDED MANY OTHER ENGINEERING SERVICES. FURTHER, THE ASSET EMPLOYED B Y M/S ALPHAGEO IS HIGHER IN TERMS OF NET FIXED ASSETS/SALES RATIO. IN THE CASE OF THE ASSESSEE, NET FIXED ASSET/SALES RATIO IS 4.86%, WHEREAS THE SAME RATIO IN THE CASE OF M/S AL PHAGEO IS 220.55%. THUS, THERE IS A VERY LARGE DIFFERENCE IN THE ASSET INTENSITY BETW EEN THE ASSESSEE AND THE COMPARABLE. FURTHER, WE ALSO FIND THAT IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF QUARK SYSTEM PRIVATE LIMITED (SUPRA), THE ASSESSEE CANNOT BE STOPPED FROM POINTING OUT THAT M/S ALPHAGEO HAD WRONGLY BEEN TAKEN AS COMPARABLE. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT M/S ALPHA GEO NEED TO BE EXCLUDED FROM THE SET OF COMPARABLES BEING FUNCTIONALLY DISSIMILAR AN D DIFFERENCE IN INTENSITY OF ASSET EMPLOYED. ACCORDINGLY, WE DIRECT THE ASSESSING OFFI CER TO EXCLUDE M/S ALPHAGEO FROM THE SET OF COMPARABLES CHOSEN FOR COMPUTING ARMS L ENGTH OF THE INTERNATIONAL TRANSACTION AND COMPUTE THE TRANSFER PRICING ADJUST MENT ACCORDINGLY. 12 ITA NO.244/DEL/2012 21. THE TRIBUNAL APART FROM HOLDING THAT THE ABOVE COMPANIES ARE FUNCTIONALLY DIFFERENT HAS ALSO GIVEN A FINDING ABO UT THE NET FIXED ASSETS/SALES RATIO AND DIFFERENCE IN THE ASSET BETWEEN THE ASSES SEE AND THAT OF THE COMPARABLE. WE, THEREFORE, RESTORE THE ISSUE RELAT ING ALPHAGEO INDIA LTD. TO THE FILE OF THE ASSESSING OFFICER/TPO WITH THE DIRECTIO N TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE THE ABOVE DETAILS AND DECIDE THE INCLUSION/EXCLUSION OF THE SAME IN THE LIGHT OF THE DECISION OF THE TRI BUNAL. 22. SO FAR AS THE COMPARABLE I.E. MAHINDRA ENGINEER ING DESIGN AND DEVELOPMENT COMPANY IS CONCERNED, IT IS THE SUBMISS ION OF THE LD. COUNSEL FOR THE ASSESSEE THAT RPT IS 31.0% AND, THEREFORE, THE SAME SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. THE VARIOUS BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTENT VIEW THAT WHERE THE RPT ARE MORE THA N 25%, THE COMPARABLE SHOULD BE EXCLUDED. SINCE THIS ASPECT HAS NEVER BE EN ARGUED BEFORE THE ASSESSING OFFICER AND THE TPO/DRP, THEREFORE, IT WA S NOT VERIFIED BY THE AUTHORITIES BELOW. THEREFORE, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO WITH THE DIRECTION TO VERIFY THE RPT TRANSACTIONS. IF THE CONTENTION OF THE ASSESSEE THAT THE RPT IS 3 1.07% AND, THEREFORE, IS MORE THAN 25% IS CORRECT THAN THE SAID COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE. 23. SO FAR AS MITCON CONSULTANCY LIMITED AND OIL FI ELD INSTRUMENTATION LIMITED ARE CONCERNED, WE FIND THE ORDER OF THE TPO IS VERY CRYPTIC AND THERE IS 13 ITA NO.244/DEL/2012 NO OBSERVATION BY DRP TO THE VARIOUS SUBMISSIONS OF THE ASSESSEE. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE AS SESSING OFFICER/TPO FOR FRESH ADJUDICATION FOR INCLUSION/EXCLUSION OF THE ABOVE T WO COMPARABLES. 24. SO FAR AS TCE CONSULTING ENGINEERS LIMITED IS C ONCERNED, WE FIND THE ORDER OF THE TPO HERE IS ALSO VERY CRYPTIC. THE OR DER OF THE DRP ALSO IS SILENT ABOUT THE VARIOUS ARGUMENTS ADVANCED BY THE ASSESSE E BEFORE THEM. THEREFORE, WE DEEM IT PROPER TO RESTORE THE INCLUSION/EXCLUSIO N OF THE ABOVE COMPARABLE TO THE FILE OF THE ASSESSING OFFICER/TPO WITH THE DIRE CTION TO PASS APPROPRIATE ORDER BY GIVING REASONS REGARDING THE INCLUSION/EXC LUSION OF THE ABOVE THREE COMPARABLES. GROUNDS NO.2.2, 2.5 TO 2.11 ARE ACCOR DINGLY ALLOWED FOR STATISTICAL PURPOSES. 25. SO FAR AS GROUND NO.3 IS CONCERNED, THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DURING THE ASSESSMENT Y EAR 2005-06 HAS DEDUCTED LEASELINE EXPENSES FROM THE TURNOVER. THEREFORE, W HEN THE SAME IS INCLUDED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2 007-08, THE SAME SHOULD NOT BE REJECTED. WE FIND THE ORDER OF THE ASSESSING OF FICER ON THIS ISSUE IS CONTRARY TO WHAT THE LD. COUNSEL FOR THE ASSESSEE HAS ARGUED BEFORE US. EVEN THE ORDER OF THE DRP ALSO MENTIONED THAT THE ASSESSING OFFICER H AS NOT UNDERSTOOD THE TRUE NATURE OF BUSINESS. THEREFORE HE HAS NOT CONSIDERE D THE SAME IN THE EXPORT TURNOVER. ALTHOUGH THE DRP HAD DIRECTED THE ASSESS ING OFFICER TO RECALCULATE THE DEDUCTION U/S 10A BY NOT REDUCING INSURANCE EXP ENSES FROM EXPORT TURNOVER, 14 ITA NO.244/DEL/2012 THE ASSESSING OFFICER, ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE HAS NOT FOLLOWED THE DIRECTION OF THE DRP. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE AFRESH AS PER FACT AND LAW AND IN THE LIGHT OF THE DIRECTION GIVEN BY THE DRP. THE GROUNDS RAISED BY THE ASSESS EE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 26. SO FAR AS GROUND NO.4 IS CONCERNED, THE SAME RE LATES TO DEPRECIATION ON COMPUTER PERIPHERALS AT THE 15% ALLOWED BY THE ASSE SSING OFFICER AS AGAINST 60% CLAIMED BY THE ASSESSEE. 27. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SING OFFICER REJECTED THE CLAIM OF DEPRECIATION AT THE RATE OF 60% ON COMPUTE R PERIPHERALS SUCH AS UPS, SWITCHES, COMPUTER RACKS ETC. AND ALLOWED 15% DEPRE CIATION ON THE SAME TREATING THESE ITEMS AS PLANT AND MACHINERY. THE D RP IN THE ORDER UPHELD THE DISALLOWANCE OF DEPRECIATION PROPOSED BY THE ASSESS ING OFFICER IN RESPECT OF UPS, SWITCHES, MICROWAVE, RADIO, CAMERA, CABLE. TH EY, HOWEVER, DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION AT THE RATE OF 60% ON ITEMS LIKE SWITCHES, CABLES PARTS AND CONNECTORS WHICH ARE CON NECTED WITH A COMPUTER SYSTEM. IT IS THE SUBMISSION OF THE LD. COUNSEL FO R THE ASSESSEE THAT THE COMPUTER ACCESSORIES AND PERIPHERALS BEING INTEGRAL PART OF COMPUTER SYSTEM ARE ELIGIBLE FOR DEPRECIATION AT HIGHER RATE OF 60%. WE FIND ME RIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. THE HONBLE DELHI HIGH C OURT IN THE CASE OF CIT VS. BSES YAMUNA POWERS LTD. REPORTED IN 358 ITR 47 HAS HELD THAT COMPUTER 15 ITA NO.244/DEL/2012 ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANN ERS AND SERVER, ETC. FORM AN INTEGRAL PART OF COMPUTER SYSTEM AND HENCE THEY ARE ENTITLED TO DEPRECIATION AT HIGHER RATE OF 60%. THE DELHI BENCH OF THE TRIBUNA L IN THE CASE OF AIRCOM INTERNATIONAL (INDIA) (P.) LTD. VS. DCIT REPORTED I N (2017) 84 TAXMANN.COM 41 AND IN THE CASE OF DCIT VS. OCHOA LABORATORIES LTD. REPORTED IN (2017) 85 TAXMANN.COM 168 HAS HELD THAT COMPUTER PERIPHERALS SUCH AS UPS SYSTEM/INVERTER/PRINTERS ARE ELIGIBLE FOR DEPRECIAT ION AT THE RATE OF 60%. IN VIEW OF THE ABOVE DECISIONS CITED (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION AT THE RATE OF 60% ON COMPUTER PERIPHE RALS. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 28. SO FAR AS GROUND NO.5 IS CONCERNED, THE SAME RE LATES TO DEDUCTION U/S 10A OF THE I.T. ACT ON THE INCOME ENHANCED ON ACCOUNT O F DISALLOWANCES MADE IN THE ASSESSMENT ORDER. IT HAS BEEN HELD IN VARIOUS DECI SIONS THAT WHENEVER THERE IS ENHANCEMENT OF INCOME BY THE ASSESSING OFFICER ON A CCOUNT OF DISALLOWANCE OF EXPENSES, THE PROFIT GOES UP AND THE ENHANCED PROFI T IS ENTITLED TO DEDUCTION U/S 10A OF THE I.T. ACT. THEREFORE, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 29. SO FAR AS GROUND NO.6 IS CONCERNED, THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT DUE TO SOME CLERICAL ERRORS BY THE A SSESSING OFFICER, THERE IS DIFFERENCE IN THE FIGURE IN THE DRAFT ASSESSMENT OR DER AND THE FINAL ASSESSMENT ORDER. SINCE THIS IS A CLERICAL ERROR AS ARGUED BY THE LD. COUNSEL FOR ASSESSEE, THEREFORE, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE 16 ITA NO.244/DEL/2012 DIRECTION TO VERIFY THE SAME AND CONSIDER THE CORRE CT INCOME. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 30. SO FAR AS GROUND NO.7 IS CONCERNED, THE SAME RE LATES TO INITIATION OF PENALTY U/S 271(1)(C) OF THE I.T. ACT. 31. THIS GROUND BY THE ASSESSEE AT THIS JUNCTURE IS PREMATURE. THEREFORE, THIS GROUND IS DISMISSED. 32. SO FAR AS GROUND NO.8 IS CONCERNED, THE SAME RE LATES TO LEVY OF INTEREST U/S 234B, WHICH IN OUR OPINION, IS MANDATORY AND CONSEQ UENTIAL IN NATURE. THEREFORE, THIS GROUND IS DISMISSED. 33. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JANUARY, 2018. SD/- SD/- (SUDHANSHU SRIVASTAVA) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22-01-2018. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE DRP- 1, NEW DELHI 4) THE DR, I.T.A.T., NEW DELHI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI