Honeywell Turbo Technologies (I) P. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 378/PUN/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2387 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-06-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Assessee Lawyers: R R VORA
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings; Difference of opinion; Set aside
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 377 /P U N/20 1 4 / ASSESSMENT YEAR : 20 09 - 10 HONEYWELL TURBO TECHNOLOGIES (INDIA) PVT. LTD. (LEGAL SUCCESSOR OF HONEYWELL TURBO (INDIA) PVT. LTD.) PLOT NO.4A, RAISON INDUSTRIAL ESTATE, VILLAGE MANN, NEAR HINJEWADI PHASE II, P UNE 4110 57 . / APPELLANT PAN: AA BCH5865J VS. THE DY . COMMISSIONER OF INCOME TAX , CIRCLE 1(2), PUNE . / RESPONDENT . / ITA NO. 378 /P UN/2014 / ASSESSMENT YEAR : 2009 - 10 HONEYWELL TURBO TECHNO LOGIES (INDIA) PVT. LTD. PLOT NO.4A, RAISON INDUSTRIAL ESTATE, VILLAGE MANN, NEAR HINJEWADI PHASE II, PUNE 411057 . / APPELLANT PAN: AABCH5035J VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE . / RESPONDENT ASSESSEE BY : S /S HRI R.R. VORA & RAJENDRA AGIWAL REVENUE BY : SHRI S.B. PRASAD, CIT / DATE OF HEARING : 19.06.2019 / DATE OF PRONOUNCEMENT: 24 . 0 6 .201 9 ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 2 / ORDER PER SUSHMA CHOWLA, J M : BOTH T HE APPEA L S FILED BY CONNECTED ASSESSEE ARE AGAINST SEPARATE ORDER S OF D CIT , CIRCLE 1(2) , PUNE , BOTH DATED 01.04.2014 RELATING TO ASSESSMENT YEAR 20 09 - 10 PASSED UNDER SECTION 143(3) R.W.S. 144C(1) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. BOTH THE APPEA LS OF CONNECTED ASSESSEE ON SIMILAR ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE ARE FIRST REFERRING TO THE FACTS AND ISSUES IN ITA NO. 377 /PUN/201 4 . 3. THE ASSESSEE IN ITA NO. 377 /PUN/201 4 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP AND CONSEQUENTIALLY THE LEARNED AO HAVE: GROUND 1 GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT OF RS 498.73 LACS ERR ED IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS 498.73 LACS TO THE VALUE OF INTERNATIONAL TRANSACTIONS OF HTI BY REJECTING THE ANALYSIS UNDERTAKEN BY HTI TO DETERMINE ARM'S LENGTH PRICE FOR ITS INTERNATIONAL TRANSACTIONS. INTERNATIONAL TRANSACTIO NS PERTAINING TO MANAGEMENT AND ADMINISTRATIVE COST ALLOCATION GROUND 2 ADDITION TO TOTAL INCOME TREATING THE ARM'S LENGTH PRICE ('ALP') OF COSTS ALLOCATED BY AES FOR ADMINISTRATIVE AND MANAGERIAL SERVICES AS NIL ERRED IN MAKING TRANSFER PRICING ADJUST MENT AMOUNTING TO RS 147.54 LACS TO THE VALUE OF INTERNATIONAL TRANSACTIONS BY TREATING THE ARMS LENGTH PRICE OF COST ALLOCATED BY AES FOR ADMINISTRATIVE AND MANAGERIAL SERVICES AS NIL. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 3 GROUND 3 INAPPROPRIATE APPLICATION OF COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD INSTEAD OF APPLYING TRANSACTIONAL NET MARGIN METHOD ('TNMM') ERRED IN IGNORING THE ARM'S LENGTH RESULTS ON APPLYING TNMM CONSIDERING THE COST ALLOCATION AS PART OF COST BASE OF THE ASSESSEE AND APPLYING CUP METHOD INAPPROPRIATELY FOR DETERM INATION OF ALP OF THE SAID TRANSACTION. INTERNATIONAL TRANSACTION PERTAINING TO RENDERING OF SUPPLY BASE DEVELOPMENT AND OTHER BACK OFFICE SERVICES (BUSINESS SUPPORT SERVICES) GROUND 4 INCLUSION OF NON - COMPARABLE COMPANIES IN THE FINAL SET OF COMPARABLE COMPANIES ERRED IN INCLUDING NON COMPARABLE COMPANIES (ICRA ONLINE LIMITED AND TSR DARSHAW LIMITED) IN THE FINAL SET OF COMPARABLE COMPANIES FOR THE FINANCIAL Y EAR ENDED 31 MARCH 2009. GROUND 5 REJECTION OF OVERSEAS MANPOWER CORPORATION LTD AS A COMPAR ABLE COMPANY ERRED IN REJECTING OVERSEAS MANPOWER CORPORATION LTD AS A COMPARABLE COMPANY GROUND 6 INCLUSION OF COMPANIES HAVING EXTRA ORDINARY MARGINS ERRED IN INCLUDING COMPANIES WITH EXTRA ORDINARY MARGIN IN THE SET OF COMPARABLE COMPANIES. INTERNA TIONAL TRANSACTION PERTAINING TO RENDERING OF APPLICATION ENGINEERING SERVICES GROUND 7 INCLUSION OF A FUNCTIONALLY NON - COMPARABLE COMPANY EARNING EXTRA ORDINARY MARGINS, IN THE FINAL SET OF COMPARABLE COMPANIES ERRED IN INCLUDING VARDAAN PROJECTS LIMIT ED WHICH IS FUNCTIONALLY NON - COMPARABLE AND EARNING EXTRA - ORDINARY MARGIN AS A COMPARABLE COMPANY FOR FINANCIAL YEAR ENDED 31 MARCH 2009. GROUND 8 REJECTION OF CG VAK SOFTWARE AND EXPORTS LIMITED AS A COMPARABLE COMPANY ERRED IN REJECTING CG VAK SOFTWAR E AND EXPORTS LIMITED AS A COMPARABLE COMPANY. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 4 GROUND 9 CERTAIN ADDITIONAL, COMPANIES CAN ALSO BE CONSIDERED AS COMPARABLE BASED ON UPDATED DATA ERRED IN NON - CONSIDERING CERTAIN ADDITIONAL COMPANIES IDENTIFIED BY THE ASSESSEE BASED ON UPDATED DATA SPEC IFICALLY WHERE THE LEARNED AO/TPO HAVE USED UPDATED DATA. GROUND 10 INCLUSION OF COMPANIES HAVING EXTRA ORDINARY MARGINS ERRED IN INCLUDING COMPANIES WITH EXTRA ORDINARY MARGINS IN THE SET OF COMPARABLE COMPANIES. OTHER GROUNDS OF OBJECTIONS GROUND 11 NON CONSIDERATION OF CONTEMPORANEOUS DATA ERRED IN CONDUCTING AN ANALYSIS BASED ON INFORMATION SUBSEQUENTLY AVAILABLE FOR DETERMINING ARM'S LENGTH PRICE WHICH WAS NOT AVAILABLE AT THE LIME OF COMPLYING WI TH THE TRANSFER PRICING REGULATIONS. GROUND 12 DENIAL OF ADJUSTMENT FOR RISK DIFFERENCES ERRED IN DENYING ADJUSTMENT ON ACCOUNT OF DIFFERENCES IN THE FUNCTIONAL AND RISK PROFILE OF COMPARABLE COMPANIES VIS - A - VIA THE ASSESSE E . GROUND 13 LEVY OF INTEREST UNDER SECTION 234B OF THE ACT ERRED LEVYING IN TEREST UNDER SECTION 234B OF THE ACT ON ACCOUNT OF UNANTICIPATED ADDITIONS MADE TO THE TOTAL INCOME ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. GROUND 14 INITIATING PENALTY PROCEEDINGS UNDER SECTION 271( 1 )(C) OF THE ACT ERRED IN INITIATING PENALTY PROCEE DINGS UNDER SECTION 271( 1 )(C) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT ADJUSTMENT TO TRANSFER PRICE IS MAINLY ON ACCOUNT OF DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE TPO REGARDING SET OF COMPARABLES COMPANIES AND ADJUSTMENTS ON ACCOUNT OF FUN CTIONAL AND RISK DIFFERENCES, CONSEQUENTLY RESULTING IN AN ADJUSTMENT TO INCOME. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, AMPLIFY OR MODIFY ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING OF THE APPEAL. THE APPELLANT PR AYS THAT APPROPRIATE RELIEF BE GRANTED BASED ON THE GROUNDS OF APPEAL AND F ACTS AND CIRCUMSTANCES OF THE CASE. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 5 4. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS OF APPEAL WHICH READ AS UNDER: - ON FACTS AND IN CIRCUMSTANCES OF THE CASE, LEARNED AO / TPO: GROUNDS IN RESPECT OF INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF BUSINESS SUPPORT SERVICES (BSS SEGMENT) ADDITIONAL GROUND 15 FUNCTIONALLY NOT SIMILAR COMPANIES SHOULD BE REJECTED ERRED IN NOT EXCLUDING SAKET PROJECTS LIMITED FROM THE FINAL SET OF COMPARABLE COMPANIES ON ACCOUNT OF BEING FUNCTIONALLY NON - COMPARABLE TO THE APPELLANT; GROUNDS IN RESPECT OF INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF APPLICATION ENGINEERING SERVICES ('AE SEGMENT) ADDITIONAL GROUND 16 FUNCTIONALLY NO T SIMILAR COMPANIES SHOULD BE REJECTED ERRED IN NOT EXCLUDING COMPANIES, WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT I.E. AGRIMA CONSULTANTS INTERNATIONAL LIMITED, COSMIC GLOBAL LIMITED, ICRA ONLINE LIMITED (OUTSOURCED SERVICE SEGMENT); MAHINDR A CONSULTING ENGINEERS LIMITED). GROUNDS IN RESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO MANAGEMENT AND ADMINISTRATIVE COST ALLOCATION ADDITIONAL GROUND 17 ADVANCE PRICING AGREEMENT ('APA') ENTERED BY THE APPELLANT FOR FUTURE YEARS SHOULD BE CON SIDERED WHILE DETERMINING ARM'S LENGTH PRICE FOR THE YEAR UNDER CONSIDERATION (WITHOUT PREJUDICE) WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL, THE APPELLANT PRAYS THAT THE ARM'S LENGTH PRICE F OR THE MANAGEMENT AND ADMINISTRATIVE COST ALLOCATION TRANSACTI ON FOR THE YEAR UNDER CONSIDERATION TO BE DETERMINED AS PER THE TERMS AGREED BY THE APPELLANT IN THE APA ENTERED INTO FOR SAME TRANSACTION. 5. THE ADDITIONAL GROUNDS OF APPEAL RAISED ARE LEGAL ISSUES AND DOES NOT REQUIRE INVESTIGATION INTO THE FACTS, HENC E THE SAME ARE ADMITTED FOR ADJUDICATION. 6. THE GROUND OF APPEAL NO.1 RAISED BY ASSESSEE IS GENERAL, HENCE DOES NOT NEED ANY ADJUDICATION. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 6 7 . THE ISSUE RAISED IN GROUNDS OF APPEAL NO.2 , 3 AND ADDITIONAL GROUND OF APPEAL NO.17 IS AGAINST INTERNATIONAL T RANSACTION PERTAINING TO MANAGEMENT AND ADMINISTRATIVE COST ALLOCATION BY ASSOCIATED ENTERPRISE. 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE STANDS SETTLED BY APAS MADE UNDER SECTION 92CC OF THE ACT IN THE CASE O F ASSESSEE ITSELF IN LATER YEARS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09 AND THE SAID ISSUE HAS BEEN SET ASIDE TO THE FILE O F ASSESSING OFFICER TO APPLY LEGAL PROPOSITIONS MENTIONED THEREIN AND DECIDE THE ISSUE IN THE LIGHT OF APAS. IT WAS ALSO MENTIONED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE DELHI BENCH OF TRIBUNAL IN RANBAXY LABORATORIES LTD. VS. ACIT IN ITA NO.196/DEL/2013 FOR ASSESSMENT YEAR 2008 - 09 HAS ALSO LAID DOWN SIMILAR PROPOSITION. 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FAIRLY POINTED OUT THAT THE ISSUE STANDS COVERED BY ORDER OF TRIBUNAL. HE WAS ASKED TO PRODUCE REMA ND REPORT FROM THE ASSESSING OFFICER. HOWEVER, NO SUCH REPORT HAS BEEN FILED TILL DATE. 10 . ON PERUSAL OF RECORD AND THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09, WE FIND THAT IN ITA NO.359/PUN/2013 VIDE ORDER DATED 02.11.2018 , THE ISSUE HAS BEEN DELIBERATED UPON IN PARAS 4 TO 6 AND REFERENCE IS BEING MADE TO THE SAME, BUT IS NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. FOLLOWING THE SAME PARITY OF REASONING, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO EXAMIN E THE FACTS AND DECIDE THE ISSUE OF ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 7 APPLICABILITY OF APAS TO ASSESSEES CASE FOR THE YEAR UNDER CONSIDERATION IN PRINCIPLE. THE GROUNDS OF APPEAL NO.2 AND 3 AND ADDITIONAL GROUND OF APPEAL NO.17 ARE THUS, ALLOWED FOR STATISTICAL PURPOSES. 1 1 . THE ISSUE I N GROUNDS OF APPEAL NO.4 TO 6 AND ADDITIONAL GROUND OF APPEAL NO.15 IS WITH REGARD TO INTERNATIONAL TRANSACTION PERTAINING TO RENDERING OF SUPPLY BASE DEVELOPMENT AND OTHER BACK OFFICE SERVICES UNDER THE BUSINESS SUPPORT SERVICES (BSS) . 1 2 . BRIEF FACTS RE LATING TO THE ISSUE ARE THAT THE ASSESSEE PROVIDES SUPPLY BASE ANALYST, SUPPLY CHAIN PLANNER, PACKAGING SPECIALIST, INFORMATION TECHNOLOGY RELATED SERVICES, FINANCE RELATED SERVICES, HEALTH, SAFETY AND ENVIRONMENT CONTROL AND QUALITY ANALYST SERVICES UNDER THE BSS SEGMENT . THE ASSESSEE HAD SELECTED TNMM METHOD AS THE MOST APPROPRIATE METHOD AND MARGINS OF ASSESSEE WERE 8.23%. THE ASSESSEE SELECTED CERTAIN CONCERNS AND HELD THAT ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WAS NIL. HOWEVER, THE TPO RE JECTED CERTAIN COMPANIES AND ALSO PROPOSED CERTAIN NEW COMPANIES TO BE COMPARABLE. THE TPO ALSO RE - CALCULATED THE MARGINS OF ASSESSEE AT 8.77% . THE MEAN MARGINS OF FINALLY SELECTED COMPARABLES WAS 29.09% AND THE TPO THUS PROPOSED AN UPWARD ADJUSTMENT OF 2,22,53,700/ - . 1 3 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THOUGH IT HAS RAISED THE ISSUES AGAINST THREE CONCERNS WHICH WERE FINALLY SELECTED BUT IN CASE SAKET PROJECTS LIMITED AND TSR DARASHAW LIMITED ARE EXCLUDED FROM F INAL LIST OF COMPARABLES, WHICH ISSUE RAISED BY WAY OF GROUND OF APPEAL NO.4 (PART) AND ADDITIONAL GROUND OF APPEAL NO.15, THEN MARGINS SHOWN BY ASSESSEE WOULD BE WITHIN +/ - 5% OF MARGINS OF COMPARABLES. THE LEARNED ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 8 AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT IN ASSESSMENT YEAR 2008 - 09, THE TRIBUNAL HAD EXCLUDED SAKET PROJECTS LIMITED ON THE GROUND OF FUNCTIONALITY DIFFERENCE AND ALSO BECAUSE OF FLUCTUATING MARGINS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE ASSESSEE HAD INITIALLY SELECTED THIS CONCERN BUT ON A LATER STAGE, THE ASSESSEE WANTED EXCLUSION OF THE SAID CONCERN. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. TATA POWER SOLAR SYSTEMS LIMITED IN ITA NO.1120/2014, JUDGMENT DATED 16.12.2016, WHEREIN IT HAS BEEN HELD THAT COMPARABLES WHICH WERE ORIGINALLY SELECTED BY ASSESSEE CAN BE EXCLUDED IN FINAL ANALYSIS. 1 4 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED R ELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 1 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS AGGRIEVED BY INCLUSION OF SAKET PROJECTS LIMITED IN FINAL SET OF COMPARABLES IN BSS SEGMENT. WE FIND THAT SIMILAR ISSUE OF FUNCTI ONAL DIFFERENCE IN ACTIVITIES OF ASSESSEE AND SAKET PROJECTS LIMITED AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL HAD EXCLUDED THE SAME ON FUNCTIONALITY DIFFERENCE AS IT WAS ENGAGED IN ORGANIZING EVENTS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS REFERRED TO THE BUSINESS PROFILE OF SAKET PROJECTS LIMITED FOR THE INSTANT ASSESSMENT YEAR AND HAS BROUGHT TO OUR NOTICE THAT THERE WAS NO CHANGE IN BUSINESS PROFILE OF SAKET PROJECTS LIMITED DURING T HE YEAR. IN SUCH CIRCUMSTANCES, WE FIND MERIT IN THE PLEA OF ASSESSEE THAT A CONCERN WHICH IS NOT FUNCTIONALLY COMPARABLE BEING ENGAGED IN ORGANIZING EVENTS FOR VARIOUS KINDS OF SPONSORS, CANNOT BE HELD TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 9 ENGAGE D IN THE BUSINESS OF BUSINESS SUPPORT SERVICES SEGMENT. FURTHER, A COMPANY SHOWING FLUCTUATING PROFIT LEVELS IN COMPARISON TO VARIOUS YEARS, WHERE IN ASSESSMENT YEAR 2006 - 07 THE SEGMENTAL MARGINS WERE 76.76%, IN ASSESSMENT YEAR 2007 - 08 WERE 11.25%, IN ASS ESSMENT YEAR 2008 - 09 WERE 159.37% AND IN ASSESSMENT YEAR 2009 - 10 WERE 143.76%, WE ARE OF THE VIEW THAT A CONCERN SHOWING SUCH FLUCTUATION IN ITS MARGINS CANNOT BE HELD TO BE COMPARABLE. SUCH IS THE VIEW TAKEN BY PUNE BENCH OF TRIBUNAL IN EMERSON CLIMATE T ECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT IN ITA NO.2432/PN/2017, RELATING TO ASSESSMENT YEAR 2013 - 14, ORDER DATED 06.06.2018 . 1 6 . WE MAY ALSO REFER TO OBJECTION OF AUTHORITIES BELOW THAT THE ASSESSEE ITSELF HAD INCLUDED THE SAID CONCERN AS COMPARABLE IN ITS TP REPORT , BUT DURING TP PROCEEDINGS OBJECTED TO ITS INCLUSION . WE FIND THAT THE ISSUE NOW STANDS COVERED BY THE DICTATE OF JURISDICTIONAL HIGH COURT IN CIT VS. TATA POWER SOLAR SYSTEMS LIMITED (SUPRA), WH ERE IT HAS BEEN HELD THAT A CONCERN CAN BE EXCLUD ED THOUGH IT WAS ORIGINALLY SELECTED BY ASSESSEE AS COMPARABLE , WHERE THE ASSESSEE ESTABLISHES THAT IT WAS NOT FUNCTIONALLY COMPARABLE . HENCE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE SAKET PROJECTS LIMITED FROM THE FINAL LIST OF COMPARABLES FOR BSS SEG MENT OF ASSESSEE. 1 7 . THE NEXT CONCERN WHICH THE ASSESSEE WANTS TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES UNDER BSS SEGMENT IS TSR DARASHAW LIMITED. THE TPO HAD SELECTED THE SAID CONCERN ON THE GROUND THAT IT WAS ENGAGED IN SIMILAR FUNCTIONS AS PERFO RMED BY ASSESSEE AND IT WAS SELECTED BY ASSESSEE ITSELF IN TP REPORT IN EARLIER YEARS AND ALSO IN TP ORDER IN EARLIER YEARS. HE WAS OF THE VIEW THAT MERELY BECAUSE THE PROFIT MARGINS WERE HIGH, IT DOES NOT MEAN THAT THE SAME SHOULD BE EXCLUDED FROM FINAL SET OF COMPARABLES. THE PLEA OF ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 10 ASSESSEE THAT THE SAID CONCERN WAS NOT FUNCTIONALLY COMPARABLE WAS NOT ACCEPTED AND FINAL LIST WAS DRAWN. 1 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN TSR DARASHAW LIMITED HA D DEVELOPED ITS OWN SOFTWARE FOR PAYROLL PROCESSING AND INCOME WAS EARNED THROUGH THE SAID SOFTWARE. SO, IT WAS ENGAGED IN SALE OF SOFTWARE AND ALSO WAS PROVIDING SERVICES ON ACCOUNT OF PATENTED SOFTWARE AND HENCE, WAS NOT FUNCTIONALLY COMPARABLE. IN THI S REGARD, IT WAS ALSO POINTED OUT THAT THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 HAD DIRECTED EXCLUSION OF TSR DARASHAW LIMITED. 1 9 . THE ISSUE OF EXCLUSION OF TSR DARASHAW LIMITED STANDS COVERED BY ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2008 - 09, WHEREIN THE SAID CONCERN WAS EXCLUDED BEING NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THAT THE SAID CONCERN BE EXCLUDED. WE FIND NO MERIT IN THE OBSERVATIONS OF TPO THAT A CONCERN WHICH WAS SELECTED BY ASSESSEE I N ITS TP STUDY IN EARLIER YEARS CANNOT BE EXCLUDED IN THIS YEAR, SINCE THE FINDING OF TPO HAS BEEN REVERSED BY TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 . 20 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT IN CASE SAKET PROJECTS L IMITED AND TSR DARASHAW LIMITED ARE EXCLUDED FROM FINAL LIST OF COMPARABLES, THEN THE MARGINS IN BSS SEGMENT WOULD BE WITHIN +/ - 5% RANGE AND THERE IS NO NEED TO ADJUDICATE THE ISSUE OF EXCLUSION OF ICRA ONLINE LIMITED AND RISK ADJUSTMENT AS THEY WOULD BEC OME ACADEMIC. IN VIEW THEREOF, WE DO NOT ADJUDICATE OTHER CONNECTED ISSUES RAISED IN BSS SEGMENT AND DIRECT THE ASSESSING OFFICER TO EXCLUDE SAKET PROJECTS LIMITED AND TSR DARASHAW LIMITED IN THE SAID BSS SEGMENT AND WORK OUT THE ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 11 ARM'S LENGTH PRICE OF INT ERNATIONAL TRANSACTIONS AND IF THE SAME IS WITHIN +/ - 5% RANGE, THEN NO ADJUSTMENT IS TO BE MADE IN THE HANDS OF ASSESSEE. 2 1 . THE NEXT ISSUE RAISED IN THE PRESENT APPEAL VIDE GROUNDS OF APPEAL NO.7 TO 10 AND ADDITIONAL GROUND OF APPEAL NO.16 IS OF ADJUST MENT PERTAINING TO APPLICATION ENGINEERING SERVICES SEGMENT . 2 2 . BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE NATURE OF SERVICES RENDERED IN APPLICATION ENGINEERING SERVICES SEGMENT ESSENTIALLY COMPRISE OF CUSTOMIZATION OF DESIGNS OF TURBOCHARGERS TO PA RTICULAR VEHICLE MODELS OF DIFFERENT CUSTOMERS , UNDER ITES SEGMENT . THE BASE DESIGN OF THE TURBOCHARGER IS ALREADY DEVELOPED AND PATENTED. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD SHOWN MARGINS OF 9.79% AND HAD APPLIED TNMM METHOD. HOWEVER, THE TPO RE - CALCULATED OPERATING MARGINS OF ASSESSEE AT 10.35% AND ALSO FINALLY SELECTED DIFFERENT COMPARABLES THAN THE ONE PICKED UP BY ASSESSEE TOTALING 13 AND MEAN MARGINS OF COMPARABLES WAS 42.87%. THE TPO PROPOSED AN ADJUSTMENT OF 1,28,64,900/ - IN THE SAID SEGMENT. 2 3 . THE ASSESSEE IS AGGRIEVED BY EXCLUSION / INCLUSION OF CERTAIN CONCERNS AND HAS MADE SUBMISSIONS WITH REGARD TO THE SAME. VIDE GROUND OF APPEAL NO.7, THE ASSESSEE IS AGGRIEVED BY INCLUSION OF VARDAAN PROJECTS LIM ITED ON THE GROUND THAT (A) IT WAS FUNCTIONALLY NON - COMPARABLE AND (B) IT WAS EARNING EXTRAORDINARY MARGINS DURING THE YEAR UNDER CONSIDERATION. 2 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT VARDAAN PROJECTS LTD. WAS RENDERIN G SERVICES OF FINANCIAL STRUCTURING, FINANCIAL ANALYSIS, FINANCIAL ARRANGEMENTS, ETC. AND WAS ALSO PROVIDING SERVICES LIKE ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 12 VALUATION FOR COMPLIANCE WITH INTERNATIONAL FINANCE REPORTING STANDARDS (IFRS) AND OTHERS. THE SAID COMPANY HAD REPORTED THE ENTIRE OPERATING REVENUE UNDER THE HEAD INCOME FROM ENGINEERING CONSULTANCY SERVICES BUT PART OF INCOME CONSISTED INCOME EARNED FROM RENDERING FINANCIAL AND MANAGEMENT CONSULTANCY SERVICES, FOR WHICH NO SEGMENTAL INFORMATION WAS AVAILABLE, HENCE THE SAID CONCER N COULD NOT BE SELECTED AS COMPARABLE. THE OTHER ISSUE WHICH WAS RAISED IN THE HANDS OF SAID CONCERN WAS SUPERNORMAL MARGINS EARNED BY THE SAID CONCERN. 2 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW AND POINTED OUT THAT THE SAID CONCERN WAS ENGAGED IN SIMILAR FUNCTIONS AS PERFORMED BY ASSESSEE. 2 6 . WE HAVE PERUSED THE REPORT OF THE COMPANY ON WEBSITE, WHICH IS PLACED AT PAGES 2196 TO 2198 OF PAPER BOOK - 5, WHEREIN IT IS RE PORTED THAT VARDAAN PROJECTS LTD. WAS RENDERING SERVICES OF FINANCIAL STRUCTURING, FINANCIAL ANALYSIS, FINANCIAL ARRANGEMENTS, ETC. AND WAS ALSO ENGAGED IN ASSET VALUATION FOR COMPLIANCE WITH IFRS AND OTHERS. IN SUCH CASE, WHERE THE SEGMENTAL DETAILS WERE NOT AVAILABLE, THEN THE SAID COMPANY COULD NOT BE HELD TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE , THOUGH THE ENTIRE OPERATING REVENUE EARNED BY ASSESSEE WAS REPORTED UNDER THE HEAD INCOME FROM ENGINEERING CONSULTANCY SERVICES. ACCORDINGLY, WE HOLD THAT VARDAAN PROJECTS LTD. NEEDS TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES IN THE HANDS OF ASSESSEE IN APPLICATION ENGINEERING SERVICES SEGMENT. THE GROUND OF APPEAL NO.7 RAISED BY ASSESSEE IS THUS, ALLOWED. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 1 3 2 7 . NOW, COMING TO GROUND OF APPEAL NO.8, WHICH IS AGAINST REJECTION OF CG VAK SOFTWARE & EXPORTS LTD. (IN SHORT CG VAK) . THE ASSESSEE IS AGGRIEVED BY REJECTION OF CG VAK AND HAS POINTED OUT THAT THE SAID CONCERN WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. 2 8 . THE LEARNED AUTHORIZED REPRESENT ATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN ITES SERVICES AND EVEN CG VAK WAS ENGAGED IN MEDICAL TRANSCRIPTION I.E. IN ITES SERVICES. OUR ATTENTION WAS DRAWN TO ORDER OF TPO AT PAGE 2315 OF PAPER BOOK, WHEREIN IN ASSESSMENT YEAR 20 08 - 09, HE HAD SELECTED THE SAID CONCERN AS FUNCTIONALLY COMPARABLE IN THE FINAL LIST OF COMPANIES. IT WAS ALSO POINTED OUT THAT ON COMPARISON OF FINANCIALS OF CG VAK FOR BOTH THE YEARS, THERE WERE NO CHANGES OBSERVED IN FUNCTIONALITY OF SAID COMPANY AND H ENCE, THE SAID CONCERN SHOULD BE INCLUDED AS COMPARABLE TO THE ASSESSEE. 2 9 . ON PERUSAL OF RECORD, WE FIND THAT THE ASSESSEE WAS PROVIDING SERVICES WHICH COMPRISED OF CUSTOMIZATION OF DESIGN OF TURBOCHARGERS TO PARTICULAR VEHICLE MODELS OF DIFFERENT CUSTO MERS, SUCH DESIGN SERVICES FALL WITHIN AMBIT OF INFORMATION TECHNOLOGY ENABLED SERVICES. M/S. CG VAK WAS ALSO ENGAGED IN PROVIDING SIMILAR ITES SERVICES THOUGH IN MEDICAL FIELD AND WAS SELECTED AS COMPARABLE TO THE ASSESSEE BY TPO IN ASSESSMENT YEAR 2008 - 09. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE FUNCTIONAL ANALYSIS OF THE SAID CONCERN AND HAS POINTED OUT THAT THERE WERE NO CHANGES IN FUNCTIONALITY DURING THE YEAR WHEN COMPARED WITH EARLIER YEAR. IN SUCH CIR CUMSTANCES, WE FIND NO MERIT IN THE ORDER OF TPO IN EXCLUDING CG VAK FROM THE FINAL LIST OF COMPARABLES. HENCE, WE DIRECT HIM TO INCLUDE THE SAME FOR ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 14 BENCHMARKING TRANSACTIONS IN ITES SEGMENT. THE GROUND OF APPEAL NO.8 RAISED BY ASSESSEE IS THUS, ALLOWED . 30 . NOW, COMING TO GROUND S OF APPEAL NO.9 AND 10 , WHEREIN THE ASSESSEE HAS PLEADED THAT CERTAIN ADDITIONAL COMPANIES WERE IDENTIFIED BASED ON UPDATED DATA ON THE BASIS OF REVISED FILTERS APPLIED BY TPO AND THE SAME SHOULD HAVE BEEN INCLUDED IN FINAL LIS T OF COMPARABLES. 3 1 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BEFORE ADJUDICATING THE GROUNDS OF APPEAL NO.9 AND 10, ADDITIONAL GROUND OF APPEAL NO.16 BE ADJUDICATED FIRST . UNDER THE ADDITIONAL GROUND OF APPEAL NO.16, TH E ASSESSEE IS AGGRIEVED BY INCLUSION OF AGRIMA CONSULTANTS INTERNATIONAL LTD. ON THE GROUND THAT IT HAS DIFFERENT YEAR END AND THE INFORMATION WITH REGARD TO BALANCE THREE MONTHS WAS NOT AVAILABLE. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF HO NBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) (P.) LTD. (2016) 75 TAXMANN.COM 31 (BOM). 3 2 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT BEFORE THE TPO, THE ASSESSEE WAS AGGRIEVED BY INCLUSION OF AGRIMA CONSULTANTS INTERN ATIONAL LTD. ON THE GROUND OF SUPERNORMAL MARGINS AND THIS PLEA OF INFORMATION NOT AVAILABLE WAS NOT RAISED BEFORE ANY OF THE AUTHORITIES. 3 3 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE PERUSAL OF ORDER OF TPO / DRP REFLECTS THAT AGR IMA CONSULTANTS INTERNATIONAL LTD. WAS PROPOSED TO BE INCLUDED IN FINAL LIST OF COMPARABLES. THE OBJECTION OF ASSESSEE BEFORE BOTH THE AUTHORITIES WAS ON THAT GROUND OF SUPERNORMAL PROFITABILITY. BUT THIS CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ANY OF THE ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 15 AUTHORITIES. HOWEVER, BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS POINTED OUT THAT THE FINANCIALS OF AGRIMA CONSULTANTS INTERNATIONAL LTD. WHICH WE RE AVAILABLE IN PUBLIC DOMAIN COVERS PERIOD ONLY UPTO 31.12.2008. SINCE THE SAID CONCERN WAS UNLISTED COMPANY, DATA FOR THE THREE MONTHS WAS NOT AVAILABLE IN PUBLIC DOMAIN. 3 4 . WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) (P) LTD. (SUPRA) HAVE HELD THAT PROVISIONS OF RULE 10B(4) OF THE INCOME TAX RULES ARE CLEAR IN AS MUCH AS IT OBLIGES THAT DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD BE OF THE SAME FINANCIAL YEAR IN WHICH INTERNATIONAL TRANSACTIONS WERE ENTERED INTO BY TESTED PARTIES. APPLYING THE SAID PRINCIPLE, WE HOLD THAT IN CASE THE DATA FO R SAME FINANCIAL YEAR AS FOLLOWED BY ASSESSEE IS NOT AVAILABLE IN PUBLIC DOMAIN, THEN THE MARGINS OF SAID CONCERN COULD NOT BE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF SAID SEGMENT. IN THIS REGARD, AS THIS ISSUE WAS NOT RAISED BEFORE ANY OF THE AUTHORITIES BELOW, THIS NEEDS VERIFICATION. HENCE, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER/TPO TO CARRY OUT NECESSARY VERIFICATION AND DECIDE THE ISSUE. 3 5 . NOW, COMING TO NEXT CONCERN FOR WHICH THE ASSESSEE AGGRIEVED IS COSMIC GLOB AL LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US HAS POINTED OUT THAT THE SAID CONCERN CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE AS IT HAD OUTSOURCED MAJOR PORTION OF ITS WORK AND WAS MAKING SUBSTANTIAL VENDOR PAYMENTS. I N THIS REGARD, RELIANCE WAS PLACED ON THE DECISION IN PTC SOFTWARE (INDIA) PVT. LTD. VS. DCIT IN ITA NO.336/PN/2014, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 31.10.2014. IT WAS FURTHER POINTED OUT THAT THE SAID DECISION HAS BEEN APPROVED BY THE HO NBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.598 OF ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 16 2016, VIDE ORDER DATED 16.04.2018 ON THE GROUND THAT WHERE COSMIC GLOBAL LTD. HAD OUTSOURCE ITS SERVICES TO VENDOR, THEN SUCH A CONCERN COULD NOT BE INCLUDED AMONGST THE COMPARABLES TO DETERMINE ARM'S LENGTH PRICE. 3 6 . ON PERUSAL OF RECORD, WE FIND THAT BOTH BEFORE THE DRP / TPO, THE ASSESSEE HAD OBJECTED TO INCLUSION OF COSMIC GLOBAL LTD. IN THE FINAL LIST OF COMPARABLES FOR APPLICATION ENGINEERING SERVICES SEGMENT ON THE GROUND OF SUPERNORMAL PROFITA BILITY. HOWEVER, BEFORE US, IT HAS RAISED ANOTHER ISSUE THAT THE SAID CONCERN CANNOT BE CONSIDERED AS COMPARABLE AS IT HAD OUTSOURCED MAJOR PORTION OF ITS WORK AND HAS VENDOR PAYMENT OF ABOUT 3 CRORES. 3 7 . WE FIND THAT THE HONBLE BOMBAY HIGH COURT W HILE DECIDING THE ISSUE IN THE CASE OF PTC SOFTWARE (I) PVT. LTD. (SUPRA) HAD HELD THAT THE CONCERN COSMIC GLOBAL LTD. HAD OUTSOURCED ITS SERVICES TO VENDORS AND SUCH CONCERN COULD NOT BE HELD TO BE FUNCTIONALLY COMPARABLE. FOLLOWING THE SAME PARITY OF R EASONING, WE HOLD THAT COSMIC GLOBAL LTD. IS TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES. WE ARE NOT ADDRESSING THE ISSUE OF SUPERNORMAL MARGINS AS WE HAVE DIRECTED EXCLUSION OF COSMIC GLOBAL LTD. OTHERWISE. 3 8 . THE NEXT CONCERN WHICH THE ASSESSEE WANT S TO BE EXCLUDED IS ICRA ONLINE LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN RESPECT OF SAID CONCERN POINTED OUT THAT IT WAS KPO COMPANY AND FILED OUTSOURCE SEGMENT OF SAID CONCERN. IT WAS AN EXCEPTIONAL YEAR OF PERFORMANCE BECAUSE OF A DDITION OF NEW PROCESS. OUR ATTENTION WAS DRAWN TO DIRECTORS REPORT AT PAGE 2177 OF PAPER BOOK - 5 IN THIS REGARD. IT WAS ALSO POINTED OUT THAT THE SAID CONCERN WAS SHOWING FLUCTUATING PROFITS. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 17 3 9 . ON PERUSAL OF RECORD AND AFTER HEARING BOTH THE LEARNED A UTHORIZED REPRESENTATIVES, WE FIND THAT AS IN OTHER CASES, OBJECTION OF ASSESSEE BEFORE THE AUTHORITIES BELOW WAS SUPERNORMAL PROFITS EARNED BY THE SAID CONCERN. WE FIND THAT IT WAS EXCEPTIONAL YEAR OF PERFORMANCE FOR THE SAID CONCERN AS REPORTED BY DIREC TORS IN ITS REPORT THAT KPO DIVISION HAD REPORTED 52.4% GROWTH IN OPERATIONAL INCOME OVER THE PREVIOUS YEAR ON ACCOUNT OF ADDITION OF NEW PROCESSES. HENCE, ICRA ONLINE LTD. BEING KPO DIVISION COULD NOT BE HELD TO BE FUNCTIONALLY COMPARABLE DURING THE YEAR , TO THE ASSESSEE AND HENCE, THE SAME IS DIRECTED TO BE EXCLUDED. 40 . THE NEXT CONCERN THE ASSESSEE WANTS TO BE EXCLUDED IS MAHINDRA CONSULTING ENGINEERS LTD., WHICH WAS ENGAGED IN INFRASTRUCTURE RELATING PROJECT I.E. IN CONSTRUCTION FIELD AND IT COULD NO T BE HELD TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION IN M/S. CISCO SYSTEMS (INDIA) PVT. LTD. VS. DCIT (2014) 50 TAXMANN.COM 280 (BANGALORE TRIB.). FURTHER, THE S AID CONCERN WAS RECOGNIZING REVENUE AS PER ACCOUNTING STANDARD - 7 I.E. PERCENTAGE COMPLETION METHOD AS AGAINST ASSESSEES MERCANTILE SYSTEM FOR RECOGNIZING REVENUE. 4 1 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STRESSED THAT THE ASSESSEE ITSE LF HAD INCLUDED MAHINDRA CONSULTING ENGINEERS LTD. AS COMPARABLE UNDER ITS AE SEGMENT AND THE TPO AND DRP HAD ACCEPTED IT AS COMPARABLE. 4 2 . ON PERUSAL OF RECORD, WE FIND THAT AS FAR AS THE CONCERN MAHINDRA CONSULTING ENGINEERS LTD. IS CONCERNED, THE ASSE SSEE HIMSELF HAD INCLUDED THE SAID CONCERN AS COMPARABLE TO BENCHMARK ITS TRANSACTIONS UNDER AE SEGMENT. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 18 THE TPO AND DRP HAD APPLIED THE MARGINS OF SAID CONCERN AS PART OF FINAL LIST OF COMPARABLES. HOWEVER, THE ASSESSEE NOW CONTENDS THAT ON FURTHER ANAL YSIS, THE SAID CONCERN MAHINDRA CONSULTING ENGINEERS LTD. WAS NOT COMPARABLE DUE TO FUNCTIONAL NON - COMPARABILITY IN THE SAID YEAR. THE FIRST OBJECTION WHICH HAS BEEN RAISED IS WITH REGARD TO FUNCTIONAL COMPARABILITY. THE ASSESSEE BEFORE US HAS POINTED OU T THAT MAHINDRA CONSULTING ENGINEERS LTD. WAS ENGAGED IN RENDERING CONSULTANCY SERVICES IN CONNECTION WITH INFRASTRUCTURE RELATED PROJECTS , AND ASSESSEE IS ALSO RENDERING SERVICE IN ITES SEGMENT. HENCE , THE SAME CANNOT BE HELD TO BE NOT COMPARABLE TO THE ASSESSEE ON THIS GROUND ALONE, WHEN ASSESSEE HAD IN TP STUDY REPORT INCLUDED THE SAID CONCERN AS COMPARABLE. NO ISSUE IN THIS REGARD WAS RAISED BEFORE TPO AND DRP. FURTHER, THE ASSESSEE HAS FAILED TO ESTABLISH ITS CLAIM OF THE SAID COMPANY BEING NOT FUNC TIONALLY COMPARABLE. WE HAVE IN PARAS ABOVE ALSO DIRECTED INCLUSION OF CG VAK ENGAGED IN MEDICAL TRANSCRIPTION FIELD. WE HAVE APPLIED THE RATIO OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA POWER SOLAR SYSTEMS LIMITED (SUPRA) TO HOLD THAT CONC ERN ORIGINALLY SELECTED BY ASSESSEE MAY NOT BE PART OF FINAL LIST. BUT IN CASE OF MAHINDRA CONSULTING ENGINEERS LTD., THE ASSESSEE HAS FAILED TO ESTABLISH HOW IT IS NOT FUNCTIONALLY COMPARABLE. 4 3 . NOW, COMING TO NEXT OBJECTION RAISED BY ASSESSEE THAT TH E SAID CONCERN WAS FOLLOWING DIFFERENT ACCOUNTING METHOD I.E. AS - 7 I.E. WHERE THE REVENUE IS RECOGNIZED ON ESTIMATE BASIS , BASED ON COMPLETION OF PROJECT ; ON THE OTHER HAND, THE ASSESSEE HA D RECOGNIZED ITS REVENUE ON MERCANTILE SYSTEM OF ACCOUNTING. THIS ASPECT NEEDS VERIFICATION AT THE END OF ASSESSING OFFICER. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE SAME AND IN CASE THE ASSESSEE AND THE CONCERN MAHINDRA CONSULTING ENGINEERS LTD. ARE FOLLOWING DIFFERENT ACCOUNTING METHODS, THEN THE SAI D CONCERN NEEDS TO BE REJECTED AS ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 19 COMPARABLE ; IN TURN, WE RELY ON THE RATIO LAID DOWN IN CIENA INDIA (P.) LTD. VS. ITO (2015) 59 TAXMANN.COM 92 (DELHI - TRIB.) . 4 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE VIDE GROUND OF APPEAL NO.9 RAISED THE ISSUE OF CEPHA IMAGING PVT. LTD. TO BE INCLUDED, WHICH WAS IDENTIFIED BY THE ASSESSEE DURING TP PROCEEDINGS ; BUT DURING THE COURSE OF HEARING, THE SAID ISSUE OF INCL USION OF CEPHA IMAGING PVT. LTD. WAS NOT PRESSED, HENCE THE SAME IS DISMISSED AS NOT PRESS ED. 4 5 . NOW, COMING TO LAST ISSUE OF MICROGENETICS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN CASE UPDATED MARGINS ARE TO BE APPLIED, THEN THE SAID CONCERN WOULD BE INCLUDED IN THE FINAL LIST OF COMPARABLES. THE ASSESSEE HAD NOT INCLUDED THE SAID CONCERN IN TP STUDY REPORT. AFTER UPDATED MARGINS WERE APPLIED BY THE TPO, NO SUCH CONCERN WAS SELECTED AND EVEN BEFORE THE DRP, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS NOT ABLE TO POINT OUT THE PARA IN WHICH THE SAID ISSUE WAS RAISED. HOWEVER, IN THE WRITTEN NOTE, IT RELIED ON DRP DIRECTIONS FOR ASSESSMENT YEAR 2011 - 12. WE FIND NO MERIT IN THE PLEA OF ASSESSEE AND THE ISSUE OF INCLUSION OF MICROGENETICS IS DECIDED AGAINST ASSESSEE. 4 6 . NOW, COMING TO GROUND OF APPEAL NO.12 RAISED BY ASSESSEE I.E. GRANT OF RISK ADJUSTMENT IN THE APPLICATION ENGINEERING SERVICES. IT MAY BE POINTED OUT THAT GROUND OF APPEAL RELATES TO BOTH THE SEGMENTS I.E. BSS SEGMENT AND AE SEGMENT ; BUT IN RESPECT OF BSS SEGMENT, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE BE NOT DECIDED AS ITS MARGINS WERE WITHIN +/ - 5% RANGE. HOWEVER, IN RESPECT OF AE SEGMENT, IT WAS POINTED OUT THAT THE RATIO LAID DOWN IN THE CASE OF SONY INDIA PVT. LTD. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 20 REPORTED IN 114 ITD 448 (DELHI - TRIB.), BE APPLIED TO ALLOW 20% AS IT WAS NOT POSSIBLE TO QUANTIFY THE RISK ADJUSTMENT. IT WAS ALSO POINTED OUT THAT THE SAID DIRECTIONS HAVE BEEN GIVEN IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09. ACCORDINGLY, WE HOLD THAT RISK ADJUSTMENT AS DIRECTED IN THE CASE OF SONY INDIA PVT. LTD. (SUPRA) SHOULD BE ALLOWED ON OPERATING MARGINS OF COMPARABLES IN THE PROVISION OF APPLICATION ENGINEERING SERVICES SEGMENT. THE GROUND OF APPEAL NO.12 IS THUS, PARTLY ALLOWED. 4 7 . THE ISSUE IN GROUND OF APPEAL NO.13 RAISED BY ASSESSEE OF LEVY OF INTEREST UNDER SECTION 234B OF THE ACT IS CONSEQUENTIAL, HENCE THE SAME IS DISMISSED. 4 8 . THE ISSUE IN GROUND OF APPEAL NO.14 AGAINS T INITIATION OF PENALTY PROCEEDINGS IS PREMATURE, HENCE THE SAME IS DISMISSED. THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE THUS, PARTLY ALLOWED. 4 9 . NOW, COMING TO APPEAL OF CONNECTED ASSESSEE IN ITA NO.378/PUN/2014, WHEREIN THE ONLY ISSUE RAISED IS AGA INST TRANSFER PRICING ADJUSTMENT MADE IN THE SEGMENT PERTAINING TO MANAGEMENT AND ADMINISTRATIVE COST ALLOCATION. 50 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE SAID ISSUE IS SIMILAR TO THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.2 AND 3 AS IN ITA NO.377/PUN/2014. FOLLOWING THE SAME PARITY OF REASONING, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL DECIDE THE SAME IN LINE WITH OUR DIRECTIONS IN ITA NO.377/PUN/2014. ITA NO S . 377 & 378 /P U N/20 1 4 HONEYWELL TURBO TECHNOLOGIES (I) PVT. LTD. & ANR. 21 5 1 . IN THE RESULT, A PPEAL OF ASSESSEE IN ITA NO.377/PUN/2014 IS PARTLY ALLOWED AND APPEAL OF ASSESSEE IN ITA NO.378/PUN/2014 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 24 TH DAY OF JUNE , 201 9 . SD/ - SD/ - ( D.KARUNAKA RA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 24 TH JUNE , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP , PUNE ; 4. THE CONCERNED CIT, PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE