DCIT, New Delhi V. M/s. MCI Com India Pvt. Ltd., New Delhi

ITA 4187/DEL/2010

• Counselvise Citation: 418720114 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2012
• Appeal Filed By: Department
• Bench Allotted: H
• Next Hearing Date: 05-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 10-09-2010
• Court: TRIBUNAL
• Department Lawyers: J S AHALWAT SR D R SHRI
• Assessee Lawyers: ROHIT TIWARI C AS
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Retrospective amendment; Wholly owned subsidiary
• Section: 92F; 92E; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: H NEW DELHI BEFORE SHRI A.D.JAIN, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO: 4187/DEL/2010 A.Y. : - 2004-05 DY.CIT, CIRCLE 17(1) VS. M/S MCI COM INDIA P.LTD. ROOM 221, C.R.BLDG. (NOW KNOWN AS VERIZON INDIA P. LTD.) NEW DELHI C-56, NEETIBAGH NEW DELHI 110 049 C.O. 341/DEL/2010 (IN ITA NO: 4187/DEL/2010) A.Y. : - 2004-05 M/S MCI COM INDIA P.LTD. VS. DCIT, CIRCLE 17(1) NEW DELHI NEW DELHI ITA NO: 2766/DEL/2010 A.Y. : - 2005-06 JCIT, CIRCLE 17(1) VS. M/S VERIZON INDIA P.LTD. NEW DELHI NEW DELHI C.O. 218/DEL/2011 (IN ITA NO: 2766/DEL/2010) A.Y. : - 2005-06 M/S VERIZON INDIA P.LTD. VS. JCIT, CIRCLE 17(1) NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : N.VENKATRAM, SR.ADV. MS.SIK HA GUPTA & SH.ROHIT TIWARI, C.AS DEPARTMENT BY : SHRI J.S.AHALWAT, SR.D.R.SHRI O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE REVENUE AND ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CITA)-XX, NEW DELHI DT. 30.6.2010 FOR THE ASSESSMENT YEAR 2004-05 AND DT. 24.3.2011 FOR THE A SSESSMENT YEAR ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 2 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. 2005-06. THE CROSS OBJECTIONS ARE FILED BY THE ASS ESSEE. AS THE ISSUES ARISING IN THESE APPEALS AS WELL AS THE CROSS OBJEC TIONS ARE IDENTICAL, FOR THE SAKE OF CONVENIENCE THEY ARE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER. 2. THE FACTS IN BRIEF: THE ASSESSEE M/SVERIZON (IND IA) P.LTD. IS A WHOLLY OWNED SUBSIDIARY OF MCI WORLDCOM ASIA P.LTD. (HEREINAFTER REFERRED TO AS MCI), A HONGKONG BASED PRIVATE LIMIT ED COMPANY. THE HOLDING COMPANY MCI WORLDCOM ASIA P.LTD. IS A PREEM INENT GLOBAL COMMUNICATION COMPANY FOR THE DIGITAL GENERATION, O PERATING IN MORE THAN 65 COUNTRIES WITH 2000 REVENUES OF APPROXIMATE LY 540 BILLION. WORLDCOM PROVIDES THE INNOVATIVE TECHNOLOGIES AND S ERVICES WHICH PRIMARILY INCLUDE HIGH QUALITY, LONG DISTANCE, INTE RNET DATA AND INTERNATIONAL COMMUNICATION SERVICES ACROSS A SEAML ESS GLOBAL TELECOM NETWORK. THE COMPANY HAS ESTABLISHED ITSELF AS A L OCAL NETWORK FACILITIES BASED COMPETITOR IN MORE THAN 21 COUNTRIES THROUGHO UT EUROPE, NORTH AND SOUTH AMERICA AND THE ASIA-PACIFIC REGION. 3. THE ASSESSEE COMPANY WAS ESTABLISHED WITH AN OBJ ECTIVE OF RENDERING MARKETING SUPPORT SERVICES TO THE PARENT COMPANY. THE SERVICES PROVIDED ARE AS FOLLOWS: (A) MARKET DEVELO PMENT; (B) PROVIDING INFORMATION ON POTENTIAL CUSTOMERS; (C) LIAISONING WITH POTENTIAL CUSTOMERS FOR DISSEMINATING INFORMATION REGARDING T HE PRODUCTS OF THE ASSOCIATED ENTERPRISES (AES) AND FOR OBTAINING FEE DBACK FROM POTENTIAL CUSTOMERS; AND (D) EXPLORING NEW SERVICE LINES/VENT URES FOR AES IN INDIA. ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 3 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. THE ASSESSEE WAS COMPENSATED FOR ALL ITS COSTS, PLU S A PRE-AGREED MARK- UP THEREON. DURING THE YEAR THE ASSESSEE ENTERED I NTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH THE AES. SL.NO. DESCRIPTION OF INTERNATIONAL TRANSACTION AMOUNT-RS. 1. PROVISION OF MARKETING SUPPORT 104,974,351 2. REIMBURSEMENT OF EXPENSES RECEIVED 154,781 3. REIMBURSEMENT OF EXPENSES PAID 6,549,870 4. THE ASSESSEE CARRIED OUT THE TRANSFER PRICING (T P) ANALYSIS AND CHOSE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD. OPERATING PROFIT MARGINS (OP/TOTAL COST) W AS USED AS THE PROFIT LEVEL INDICATOR (PLI). IN THE T.P. STUDY THE ASSES SEE RELIED UPON 11 COMPARABLES FOR THE PURPOSE OF BENCH MARKING. IT A RRIVED AT AN ARITHMETICAL MEAN OF 7.73%. AS OPERATING PROFIT MA RGIN/TOTAL COST OF THE ASSESSEE WAS 6.59% AND AS IT FALLS WITHIN + 5% RANGE OF THE ARITHMETICAL MEAN OF THE OPERATING PROFIT MARGIN/TOTAL COST OF T HE 11 COMPARABLES WHICH WAS 7.73%, THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS GROUP COMPANIES WERE SHOWN AS AT ARMS LENGTH. 5. THE ASSESSEE FILED ITS RETURN OF INCOME ON 11.5. 2005 ALONG WITH THE TAX AUDIT REPORT AND REPORT U/S 92E IN FORM NO.3CB. THE ASSESSING OFFICER MADE A REFERENCE TO THE T.P.O. FOR DETERMIN ING THE ARMS LENGTH PRICE U/S 92CA(3) IN RESPECT OF THE INTERNATIONAL T RANSACTIONS ENTERED INTO BY THE ASSESSEE. ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 4 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. 6. THE TRANSFER PRICING OFFICER (TPO) ACCEPTED THE SUBMISSION OF THE ASSESSEE THAT TNMM METHOD IS THE MOST APPROPRIATE M ETHOD. THE PLI MADE BY THE ASSESSEE WAS ALSO ACCEPTED. THE ASSESS EE HAS UTILIZED THE DATA OF 3 YEARS AND COMPUTED THE PLI BY TAKING WEI GHTED AVERAGE OF THE 3 YEARS. 7. THE T.P.O. WAS OF THE VIEW THAT FOR ANALYZING CO MPARABILITY OF UNCONTROLLED TRANSACTION WITH INTERNATIONAL TRANSAC TION DATA FOR THE YEAR OTHER THAN THE YEAR IN WHICH INTERNATIONAL TRANSACT IONS HAVE BEEN ENTERED INTO HAS TO BE TAKEN INTO ACCOUNT AND THE E XISTENCE OF EXCEPTIONAL CIRCUMSTANCES AS ENJOINED UPON BY THE P ROVISO, THE COMPARABILITY DOES NOT CONFORM TO THE PROVISIONS AN D HENCE A SHOW CAUSE NOTICE WAS SERVED ON THE ASSESSEE. THE ASSES SEE FILED HIS REPLY SUPPORTING USE OF MULTIPLE YEAR DATA. IT OPPOSED T HE USING OF DATA OF ONLY THE F.Y. 2003-04. WITHOUT PREJUDICE IT SUBMITTED THAT IF THE DATA PERTAINING TO 2003-04 ONLY IS USED, A FRESH OPPORTU NITY MUST BE PROVIDED TO CARRY OUT A FRESH SEARCH AND IDENTIFY ADDITIONAL COMPARABLES. THE T.P.O. REJECTED THE CONTENTIONS OF THE ASSESSEE BY HOLDING AS FOLLOWS. 6.3. THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN DUL Y CONSIDERED. I DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE ASSESS EE FOR THE FOLLOWING REASONS: I) SUB-RULE 4 OF RULE 10B IN UNEQUIVOCAL TERMS PROVIDE S FOR USE OF DATA PERTAINING TO THE YEAR IN WHICH THE INTERNATIO NAL TRANSACTION HAS BEEN ENTERED INTO; II) USE OF MULTIPLE YEAR DATA IS PERMISSIBLE BY VIRTUE OF PROVISO TO THE SAID RULE; III) PROVISO IS APPLICABLE ONLY WHEN THE PRE-CONDITIONS LAID DOWN IN THE PROVISO ARE MET; ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 5 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. IV) THE FACTS CONTAINED IN THE PRIOR YEARS DATA WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS HAVE NEITHER BEEN IDENTI FIED NOR CONSIDERED; V) THE FACTS MAKING IT INEVITABLE TO TAKE RECOURSE TO THE PROVISO RATHER THAN TO THE MAIN PROVISIONS ARE NOT DISCERNI BLE IN THE INSTANT CASE EVEN AFTER A DILIGENT STUDY OF ALL THE ASPECTS AND CIRCUMSTANCES OF THE CASE AS ARE AVAILABLE ON RECOR D. HE CONCLUDED THAT IN THE ABSENCE OF EXISTENCE OF AN Y EXCEPTIONAL CIRCUMSTANCES NECESSITATING RECOURSE TO THE PROVISO TO SUB RULE 4(4) HAVING BEEN DEMONSTRATED, USE OF MULTIPLE YEAR DATA HAS NO SANCTION OF LAW. THUS HE CONSIDERED DATA FOR THE YEAR 2004 ONLY. THE ASSESSEE HAD PROVIDED FINANCIAL DATA FOR THE ASSESSMENT YEAR 2003-04 IN ANNEXURE-I IN HIS ALTERNATIVE SUBMISSIONS, WHEREVE R SUCH DATA WAS NOT EARLIER GIVEN. 8. THE ASSESSEE HAD FILED A LIST OF 18 COMPARABLES WITH STAND ALONE MARGIN COMPUTED FOR THE ASSESSMENT YEAR 2003-04. A S IN THE CASE OF 4 COMPARABLES I.E. ESQUIRE ENGINEERS AND CONSULTANT S LTD; GILCON PROJECT SERVICES LTD., POWERPLANT PERFORMANCE IMPRO VEMENT LTD., NIS SPARTA LTD., THE T.P.O. FOUND THAT FINANCIAL DATA W AS NOT AVAILABLE AND HENCE THESE COMPARABLES WERE EXCLUDED. SIMILARLY I N THE CASE OF WATER & POWER CONSULTANCY SERVICES LTD., AS DATA WA S NOT AVAILABLE, THE COMPARABLE WAS NOT CONSIDERED. THUS 5 COMPARA BLES WERE EXCLUDED. 9. THE T.P.O. ALSO OBSERVED THAT THE LAST INCLUDED 7 NEW COMPARABLES, AS COMPARED TO THE LIST OF COMPARABLES IN THE ORIGI NAL T.P. STUDY. OUT ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 6 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. OF THIS 7, THE TPO FOUND THAT IN THE ORIGINAL T.P.S TUDY, THE ASSESSEE HAD CONSIDERED 6 OF THESE 7 COMPARABLES AND REJECTE D THE SAME. THE LIST IS EXTRACTED FOR READY REFERENCE. PARA 7.4 ON PAGE 10 TPO ORDER 7.4. A PERUSAL OF THE EXCEPT REJECT MATRIX FILED A S ANNEXURE 2 OF THE TP DOCUMENTS REVEALS THAT 6 OF THESE COMPARABLES WE RE ALSO CONSIDERED AT THAT TIME TOO AND WERE REJECTED FOR T HE FOLLOWING REASONS: CRISI LIMITED - NON COMPARABLE SERVICES EDUCATIONAL CONSULTANTS - INSUFFICIENT DESCRIPTIVE INFORMATION ICRA LIMITED - NON COMPARABLE SERVICES KITCO LIMITED - EXPERIENCES PERSISTENT OPERATING LOSSES MAHINDRA ACRES CONSULTING ENGINEERS LTD. - EXPERIENCES PERSISTENT OPERATIN G LOSSES TATA SHARE REGISTRY - NON COMPARABLE SERVICES . AT PARA 7.5 THE TPO OBSERVED AS FOLLOWS:- 7.5. A VERY STRANGE BEHAVIOUR HAS BEEN EXHIBITED B Y THE ASSESSEE. DOES IT WANT TO SAY THAT THE FAR STUDY UNDERTAKEN B Y IT AT THE TIME OF PREPARING THE TP DOCUMENTS WAS NON COMPES MENTIS OR IT TANTAMOUNT TO SUPERSSIO VERI. THE ALTER SELECTION OF THE COMPARA BLES IS NOT OBJECTIVE. NO FAR STUDY HAS BEEN UNDERTAKEN. WHEN THESE COMPA RABLES WERE DULY NOT CONSIDERED BY THE ASSESSEE HOW THEY HAVE B ECOME COMPARABLE ALL OF A SUDDEN. THE DISCERNABLE FACT I S THAT THE NET OPERATING MARGINS OF THESE NEW COMPARABLES ARE IN T HE NEGATIVE RANGING FROM -34.60% IN THE CASE OF TATA SHARE REGI STRY TO 0.01%.IN THE CASE OF MAHINDRA ACRES. ONLY ONE OF THE COMPARABLE NAMELY EDUCATIONAL CONSULTANT HAS AN OPERATING MARGIN OF 4 .64%. SINCE THE ONLY MOTIVE OF THE ASSESSEE IN THE COMPARABLES FILE D LATER IS TO SOMEHOW ADJUST THE AVERAGE PLI TO ITS OWN LEVEL, TH E SAME CANNOT BE ACCEPTED. IN ITS DESPERATION TO ADJUST THE ARMS L ENGTH PLI TO ITS OWN LEVEL THE ASSESSEE HAS FORGOTTEN THE FACT THAT THES E ALLEGED COMPARABLES HAVE ALREADY BEEN CONSIDERED AND REJECTED BY IT FOR SPECIFIC REASONS. THEREAFTER AT PARA 7.6 THE TPO CONCLUDED AS FOLLOWS . ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 7 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. 7.6. IN THE CIRCUMSTANCES THE FINAL SET OF COMPARA BLES AND CONSEQUENT ARMS LENGTH PLI IS COMPUTED BY TAKING T HE COMPARABLES WHICH WERE SELECTED BY THE ASSESSEE IN ORIGINAL TP STUDY AFTER UNDERTAKING FAR STUDY. THE ARMS LENGTH PLI IS COM PUTED IN THE FOLLOWING. SL.NO. NAME OP/TC MARGIN FOR THE F.Y. 2003-04 1. BASANT RAJ INTERNATIONAL LTD. 28.00% 2. ENGINEERS INDIA LTD. 37.41% 3. PRIYA INTERNATIONAL LTD. 3.16% 4. RITES LIMTIED 34.96% 5. TCE CONSULTING ENGINEERS LTD. 11.68% 6. UJJWAL LTD. 4.03% 7. WATER&POWER CONSULTANCY SERVICES LTD. 20.25% AVERAGE : 19.92% 10. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN AP PEAL. 11. BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESS EE DID NOT DISPUTE THE EXCLUSION OF COMPARABLES FURNISHED BY I T BY THE TPO. IT CONTENDED THAT 4 OF THE COMPARABLES SELECTED BY IT AND ACCEPTED BY THE TPO HAVE TO BE EXCLUDED FOR THE REASON THAT THE Y ARE NOT FUNCTIONALLY COMPARABLE. THESE 4 ENTITIES ARE : EN GINEERS INDIA LTD., RITES LTD., TCE CONSULTING ENGINEERS LTD. AND WATER & POWER CONSULTANCY SERVICES LTD. 12. THE FIRST APPELLATE AUTHORITY FRAMED THE FOLLOW ING QUESTIONS FROM THE GROUNDS OF APPEAL FILED BEFORE HER. (I) WHETHER THE REFERENCE MADE BY THE ASSESSING OFFICER TO THE T.P.O. MECHANICALLY IS BAD IN LAW MAKING THE TPO;S ORDER VOID- AB-INITIO (GROUND 4 AND 5); (II) WHETHER THE MECHANICAL ACCEPTANCE OF TPO;S RECOMMEN DATION BY THE AO MAKES THE ASSESSMENT ORDER BAD IN LAW (GR OUND 5 AND 6); ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 8 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. (III) WHETHER THE TPO WAS JUSTIFIED IN CONSIDERING THE CU RRENT YEAR DATA(GROUND 7.1); (IV) WHETHER THE COMPARABLES SELECTED IN THE ORDER OF TH E TPO ARE FUNCTIONALLY NON-COMPARABLE TO THE APPELLANT. 13. THE FIRST APPELLATE AUTHORITY ANSWERED THE FIRS T 3 QUESTIONS IN FAVOUR OF THE REVENUE. THE 4 TH QUESTION WAS HELD IN FAVOUR OF THE ASSESSEE. THE REVENUE FILED AN APPEAL ON THE 4 TH ISSUE ON THE FOLLOWING GROUNDS. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW BY GRA NTING RELIEF OF RS.54,44,164/- OUT OF ADDITION OF RS.88,83,674/- ON ACCOUNT OF ARMS LENGTH PRICE BY: I. WRONGLY HOLDING THAT OUT OF THE SEVEN COMPANIES CHO SEN BY THE TPO AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE COMP ANY, ONLY THREE COMPANIES WERE FUNCTIONALLY COMPARABLE AND TH E REMAINING FOUR COMPANIES WERE FUNCTIONALLY NON-COMPARABLE. II. IGNORING THE OBSERVATION IN THE ORDER U/S 92(A)(3) THAT THE FINAL SET OF SEVEN COMPARABLES CHOSEN BY THE TPO WERE THE SAME COMPARABLES SELECTED BY THE ASSESSEE ITSELF IN THE ORIGINAL FAR/TP REPORT. III. BY WRONGLY TAKING THE ARMS LENGTH AVERAGE OP/TC AT 11.73% ON THE BASIS OF ONLY THREE COMPARABLES INSTEAD OF 19.9 2% AS COMPUTED BY THE TPO ON THE BASIS OF SEVEN COMPARABL ES. IV. WRONGLY ACCEPTING THAT THE ASSESSEES OPERATING MEA NS MARGIN OF 6.59% TELL WITHIN +/- 5% OF THE ARITHMETIC MEANS OF THE COMPARABLE PRICE AND THEREBY HOLDING THE ASSESSEES INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTE RPRISES TO BE AT ARMS LENGTH. 14. THE ASSESSEE FILED CROSS OBJECTIONS ON THE FOLL OWING GROUNDS. 1. THAT THE LD.CIT(A)-XV, NEW DELHI ERRED IN NOT H OLDING THE ORDER PASSED BY THE LD.ACIT, CIRCLE 17(1) AS BEING CONTRARY TO THE FACTS, LAW AND THE PRINCIPLES OF NATURAL JUSTICE. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW IN NOT HOLDING THAT THE ASSESSING OFFICER DID NOT MEET THE PRECONDITIONS FOR MAKING REFERENCE TO THE TPO U/S 9 2CA(1) OF THE INCOME TAX ACT, 1961 AND IN NOT PROVIDING THE RESPO NDENT AN ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 9 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. OPPORTUNITY OF BEING HEARD BEFORE REFERRING THE T RANSFER PRICING ISSUES TO THE TPO. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW AND ON FACTS IN NOT ACCOUNTING FOR DIFFERENCES IN R ISKS ASSUMED BY THE RESPONDENT VIS--VIS COMPARABLE COMPANIES, W HILE DETERMINING THE ARMS LENGTH PRICE FOR ITS INTERNAT IONAL TRANSACTION. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN UPHOLDING THE TPOS APPROACH OF USING DATA BEYOND THE DUE DATA DESPITE THE FACT THAT SUCH DATA WAS NOT AVAILABLE TO THE RESPONDENT AT THE TIME OF PREPARIN G ITS T.P.DOCUMENTATION AND MAINTAINING SUCH DOCUMENTATIO N BY THE REQUIRED DUE DATE. 6. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) DI D NOT ADJUDICATE ON WHETHER THE TPO HAS ERRED IN NOT PROV IDING THE BENEFIT OF THE ARMS LENGTH RANGE AS PROVIDED UNDER PROVISO TO S.92C OF THE INCOME TAX ACT, 1961 FOR PURPOSES OF C OMPUTING THE ARMS LENGTH PRICE U/S 92F OF THE INCOME TAX ACT, 1 961. 7. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DISMISSING THE GRO UND TAKEN BY THE RESPONDENT THAT INITIATING PENALTY PROCEEDINGS UNDER EXPLANATION 1 AND EXPLANATION 7 TO S.271(1)(C ) OF THE INCOME TAX ACT, 1961 AGAINST THE RESPONDENT, IS NOT IN ACCORDA NCE WITH APPLICABLE LAW. 8. THAT THE ABOVE CROSS OBJECTIONS ARE MUTUALLY EXC LUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 9. THAT THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR MODIFY ANY OF THE CROSS OBJECTIONS EITHER BEFORE OR DURING THE COURSE OF THE APPELLATE PROCEEDINGS. 15. THE LD.DEPARTMENTAL REPRESENTATIVE MR.J.S.HALWA T SUBMITTED THAT THE PARENT COMPANY MCI WORLDCOM ASIA PACIFIC LTD. (MCI) IS A HIGH TECHNICAL COMPANY WITH GLOBAL EMINENCE. HE REFERRE D TO THE PROFILE OF THE COMPANY AND SUBMITTED THAT MCI DEALS WITH INNOVATIV E TECHNOLOGY AND SERVICES WHICH PRIMARILY INCLUDE HIGH QUALITY INTER NET DATA AND COMMUNICATION NET WORKS AND SERVICES AND SUBMITTED THAT PROVISION OF SERVICES BY THE SUBSIDIARY INDIAN COMPANY INCLUDES RENDERING OF HIGH ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 10 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. TECHNICAL ENGINEERING CONSULTANCY SERVICES. THUS H E SUBMITS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) WAS AT ERROR I N HOLDING THAT THE 4 COMPARABLES SELECTED BY THE ASSESSEE AND ACCEPTED B Y THE TPO, ARE NOT FUNCTIONALLY COMPARABLE. HE EMPHASIZED THE FACT TH AT, IT WAS THE COMPANY IN ITS T.P.REPORT, MADE A FUNCTIONAL ANALYS IS OF THE COMPARABLES AND HAS COME TO A CONCLUSION THAT THESE 4 COMPANIES ARE COMPARABLE. HE SUBMITTED THAT THE ASSESSEE HAD RA ISED OBJECTIONS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) ON ITS OWN FINDINGS AND THE COMMISSIONER OF INCOME TAX (APPEALS) WAS IN ERR OR IN ATTEMPTING SUCH GROUNDS AND THEREAFTER ADJUDICATING THE ISSUE IN ITS FAVOUR. HE RELIED ON THE ASSESSEES ANALYSIS IN THE T.P. STUDY AS WELL AS THE ORDER OF THE TPO AND SUBMITTED THE ASSESSEE CANNOT APROBATE AND REPROBATE. 16. LD.COUNSEL FOR THE ASSESSEE MR.N.VENKATRAMAN, S R.ADVOCATE ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE CANNOT B E ESTOPPED FROM PLEADING BEFORE THE FIRST APPELLATE AUTHORITY THAT THE COMPARABLES CHOSEN WERE WRONG. HE RELIED ON THE FOLLOWING CASE LAWS. I. SONY INDIA P.LTD. 114 ITD 448 II. METAGRAPHS NOIDA P.LTD. VS DCIT ITA 1969/DEL/2006(2 007)-TII- 02-ITAT-DEL-TP 17. ON MERITS HE RELIED ON THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE CONCLUSIONS DRAWN BY THE COMMISSIONER OF INCOME TAX (APPEALS) A ND ARGUED THAT THE REVENUE NOWHERE POINTED OUT ANY INFIRMITY IN THE FI NDINGS OF THE ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 11 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. COMMISSIONER OF INCOME TAX (APPEALS) THAT THESE 4 C OMPARABLES ARE FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSE. 18. BOTH THE PARTIES SUBMITTED THAT FOR THE ASSESS MENT YEAR 2005-06 THE T.P.O. AS WELL AS THE COMMISSIONER OF INCOME TA X (APPEALS) RELIED ON THEIR FINDINGS FOR THE ASSESSMENT YEAR 2004-05 AND HENCE THE ARGUMENTS ARE THE SAME. 19. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE ARGUMENTS OF BOTH PARTIES AND ON A PERUSAL OF THE P APERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 20. THE SOLE ISSUE THAT ARISES FOR OUR ADJUDICATION IS WHETHER THE COMMISSIONER OF INCOME TAX (APPEALS) WAS RIGHT IN E XCLUDING 4 COMPARABLES CHOSEN BY THE ASSESSEE IN ITS T.P.STUDY AND ACCEPTED BY THE T.P.O IN HIS ORDER, OR THE GROUND THAT THERE IS NO FUNCTIONALLY COMPARABILITY BETWEEN THE FUNCTIONS OF THESE COMPAR ABLES AND THE FUNCTIONS OF THE ASSESSEE COMPANY. THE FIRST ;ASPE CT IS WHETHER THE ASSESSEE IS ESTOPPED FROM PLEADING BEFORE THE FIRST APPELLATE AUTHORITY THAT THE COMPARABLES TAKEN BY IT ARE WRONG. 21. IN THE T.P.STUDY THE ASSESSEES DESCRIPTION OF BUSINESS OF THE COMPARABLE COMPANIES WAS AS FOLLOWS. ENGINEERS INDIA LTD. ENGINEERS INDIA LTD. WAS ESTABLISHED IN 1965 AND IS ENGAGED IN PROVISION OF ENGINEERING AND RELATED TECHNICAL SERVICES FOR P ETROLEUM REFINERIES AND ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 12 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. OTHER INDUSTRIAL PROJECTS. THE COMPANY HAS DIVERSIF IED INTO OTHER FIELDS SUCH AS PIPELINES , PETROCHEMICALS , OIL AND GAS PROCESSING , OFFSHORE STRUCTURES AND PLATFORMS , FERTILIZERS , METALLURGY AND POWER . ELL NOW PROVIDES A COMPLETE RANGE OF PROJECT SERVICES IN TH ESE FIELDS AND HAS EMERGED AS ASIA'S LEADING DESIGN AND ENGINEERING CO MPANY . SERVICES PROVIDED BY THE COMPANY INCLUDE FEASIBILITY STUDIES , PROJECT MANAGEMENT , PLANNING AND SCHEDULING , COST ENGINEERING , PROCESS & EQUIPMENT DESIGN , DETA I LED ENGINEERING , PROCUREMENT & CONSTRUCTION MANAGEMENT , MATERIALS & MAINTENANCE SERVICES . RITES LIMITED RITES IS AN INTERNATIONALLY RECOGNIZED LEADING CONS ULTANT WITH OPERATIONAL EXPERIENCE OF OVER 50 COUNTRIES IN AFRI CA , SOUTH EAST ASIA , MIDDLE EAST AND LATIN AMERICA . MOST OF THE COMPANY ' S FOREIGN ASSIGNMENTS ARE FOR NATIONAL GOVERNMENTS AND OTHER APEX ORGANIZATIONS. IN INDIA , THEIR CLIENTS RANGE FROM STATE GOVERNMENTS , PUBLIC SECTOR UNDERTAKINGS AND CORPORATIONS TO INDUSTRIAL ESTABLI SHMENTS AND PRIVATE ENTERPRISES. THE COMPANY PROVIDES SERVICES SUCH AS PRE-PROJECT PLANNING INVOLVING PROJECT IDENTIFICATION , FEASIBILITY STUDIES AND PROJECT APPRAISAL , PROJECT SUPPORT ACTIVITIES COMPRISING SURVEYS , ENVIRONMENTAL I MPACT ASSESSMENT , GEO-TECHNICAL AND OTHER INVESTIGATIONS , PROJECT PREPARATION ACTIVITIES OF DETAILED ENGINEERING, DESIGN , TENDER DOCUMENTATION , BID EVALUATIONS AND ECONOMIC AND FINANCIAL EVALUATIONS. TCE CONSULTING ENGINEERS LTD. TCE CONSULTING ENGINEERS LTD., A TATA GROUP COMPANY IS ENGAGED IN THE PROVISION OF ENGINEERING SERVICES SUCH AS OPERATION AND DESIGN ENGINEERING, UPGRADATION AND RENOVATION SERVICES, S URVEY AND FILED INVESTIGATION SERVICES ETC. WATER AND POWER CONSULTANCY SERVICES (INDIA) LTD. ( WAPCOS) WAPCOS PROVIDES CONSULTING IN THE DOMESTIC AND INT ERNATIONWAL WATER AND POWER SECTORS. SERVICES OFFERED INCLUDE MARKE T INTELLIGENCE , FEASIBILITY STUDIES, PLANNING/PROJECT FORMULATION, FIELD I NVESTIGATIONS AND TESTING, ENGINEERING DESIGN , CONTRACT MANAGEMENT , QUALITY ASSURANCE & MANAGEMENT AND HUMAN RESOURCE DEVELOPMENT. APART FR OM THE INDIAN ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 13 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. SUB-CONTINENT, WAPCOS RENDERS CONSULTANCY SERVICES IN OVER 30 DEVELOPING COUNTRIES. 22. IN ITS CONTENTIONS BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS) THE ASSESSEE ARGUED THAT THESE 4 COMPARABLE COMPANI ES ARE NOT FUNCTIONALLY COMPARABLE FOR THE FOLLOWING REASONS. FUNCTIONALLY NOT COMPARABLE ENGINEERS INDIA LTD. ENGINEERS INDIA LTD. WAS ESTABLISHED IN 1965 AND IS ENGAGED IN PROVISION OF ENGINEERING AND RELATED TECHNICAL SERVICES FOR P ETROLEUM REFINERIES AND OTHER INDUSTRIAL PROJECTS. THE COMPANY HAS DIVERSIF IED INTO OTHER FIELDS SUCH AS PIPELINES , PETROCHEMICALS , OIL AND GAS PROCESSING , OFFSHORE STRUCTURES AND PLATFORMS , FERTILIZERS , METALLURGY AND POWER . ELL NOW PROVIDES A COMPLETE RANGE OF PROJECT SERVICES IN TH ESE FIELDS AND HAS EMERGED AS ASIA'S LEADING DESIGN AND ENGINEERING CO MPANY . SERVICES PROVIDED BY THE COMPANY INCLUDE FEASIBILITY STUDIES , PROJECT MANAGEMENT , PLANNING AND SCHEDULING , COST ENGINEERING , PROCESS & EQUIPMENT DESIGN , DETA I LED ENGINEERING , PROCUREMENT & CONSTRUCTION MANAGEMENT , MATERIALS & MAINTENANCE SERVICES . DURING F.Y. 2003-04, THE COMPANY HAS EARNED APPROXIMATELY 26.68 PER CENT OF ITS REVENUE FROM CONSULTANCY AND ENGINEERING PROJECTS AND REMAI NING FROM LUMPSUM TURNKEY PROJECTS. AS PER THE INFORMATION AVAILABLE IN THE ANNUAL REPO RT FOR FY 2003-04, THE REFINERY SECTOR CONTINUED TO PLAY A SIGNIFICANT ROLE IN EILS BUSINESS. DURING THE YEAR THE COMPANY UNDERTOOK A MAJOR REFIN ERY PROJECT IN HYDROTREATING AT DIGBOI. FURTHER, THE WORK ON THE RS.3,500 CRORES PANIPAT REFINERY EXPANS;ION PROJECT AND GREEN FUELS PROJECT OF HPCL, MUMBAI PROGRESSED WELL. IN OVERSEAS, EIL ACHIEVED A MAJOR BREAK-THROUGH B Y BAGGING FEED FOR PRESTIGIOUS INTER REFINERIES PIPELINES (IRP) PROJEC T OF RAKREER (ADNOC GROUP COMPANY), ABU DHABI. CURRENTLY COMPANY IS PR OVIDING CONSULTANCY SERVICES FOR NUMBER OF ASSIGNMENTS INCL UDING ENGINEERING SERVICES FOR ASAB AND SAHIL OIL FACILITIES MODIFICA TION PROJECT OF ADCO, ABU DHABI, ENGINEERING REVIEW AND SUPERVISION SERVI CES CONTRACTOR. ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 14 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. RITES LIMITED RITES IS AN INTERNATIONALLY RECOGNIZED LEADING CONS ULTANT WITH OPERATIONAL EXPERIENCE OF OVER 50 COUNTRIES IN AFRI CA , SOUTH EAST ASIA , MIDDLE EAST AND LATIN AMERICA . MOST OF THE COMPANY ' S FOREIGN ASSIGNMENTS ARE FOR NATIONAL GOVERNMENTS AND OTHER APEX ORGANIZATIONS. IN INDIA , THEIR CLIENTS RANGE FROM STATE GOVERNMENTS , PUBLIC SECTOR UNDERTAKINGS AND CORPORATIONS TO INDUSTRIAL ESTABLI SHMENTS AND PRIVATE ENTERPRISES. THE COMPANY PROVIDES SERVICES SUCH AS PRE-PROJECT P LANNING INVOLVING PROJECT IDENTIFICATION , FEASIBILITY STUDIES AND PROJECT APPRAISAL , PROJECT SUPPORT ACTIVITIES COMPRISING SURVEYS , ENVIRONMENTAL I MPACT ASSESSMENT , GEO-TECHNICAL AND OTHER INVESTIGATIONS , PROJECT PREPARATION ACTIVITIES OF DETAILED ENGINEERING, DESIGN , TENDER DOCUMENTATION , BID EVALUATIONS AND ECONOMIC AND FINANCIAL EVALUATIONS. THE COMPANY IS PRIMARILY A CONSULTANCY ORGANISATION RENDERING CONSULTANCY SERVICES IN ALL FACETS OF TRANSPORTATIO N . MAJOR AREAS OF OPERATIONS ARE : - CONSULTANCY SERVICES EXPORT OF ROLLING STOCK , EQUIPMENT AND SPARES LEASING OF RAILWAY ROLLING STOCK AND EQUIPMENT FURTHER, THE COMPANY RENDERS ITS SERVICES IN THE FI ELDS OF ENGINEERING DESIGN , C ONSTRUCTION AND PROJECT MANAGEMENT FOR RAILWAY TRAC KS AND ELECTRIFICATIONS TOGETHER WITH TRAFFIC AND SOFTWARE CONSULTANCY ASSIGNMENTS . AS PER THE ANNUAL REPORT FOR FY 2003-04 , RITES HAS RENDERED SERVICES TO ETHIOPIA , UGANDA , TANZANIA , BOTSWANA , SUDAN AND MOZAMBIQUE . THE COMPANY ALSO CONTINUED RENDERING ADVISORY AND MANAG EMENT SERVICES TO FENOCO THE CONCESSIONAIRE FOR ATLANTIC PART OF RAIL WAYS IN COLOMBIA. WATER AND POWER CONSULTANCY SERVICES (INDIA) LTD. ( WAPCOS) WAPCOS PROVIDES CONSULTING IN THE DOMESTIC AND INT ERNATIONWAL WATER AND POWER SECTORS. SERVICES OFFERED INCLUDE MARKE T INTELLIGENCE , FEASIBILITY STUDIES, PLANNING/PROJECT FORMULATION, FIELD I NVESTIGATIONS AND ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 15 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. TESTING, ENGINEERING DESIGN , CONTRACT MANAGEMENT , QUALITY ASSURANCE & MANAGEMENT AND HUMAN RESOURCE DEVELOPMENT. THE COMPANY HAS IDENTIFIED ITS BUSINESS ACTIVITY INTO TWO BUSINESS SEGMENT I . E . CONSULTANCY & ENGINEERING PROJECTS AND LUMP SUM TURNKEY PROJECTS (AS PER THE ANNUAL REPORT FOR FINA NCIAL YEAR 2003-04) . WAPCOS HAS BEEN PROVIDING CONSULTANCY SERVICES IN A LL FACETS OF WATER RESOURCES , POWER AND INFRASTRUCTURE SECTORS IN INDIA AND ABROA D. ' MAIN FIELDS OF THE COMPANY COVER IRRIGATION , WATER MANAGEMENT , DRAINAGE , GROUND WATER EXPLORATION , DEVELOPMENT , FLOOD CONTROL , RECLAMATION AND RIVER MANAGEMENT , DAM AND RESERVOIR , POWER ENGINEERING ; HYDRO POWER GENERAT I ON ; AGR I CULTU R AL DEVELOPMENT ; WATERWAYS ; SYSTEMS STUD I ES AND INFORMAT I O N TECHNOLOGY , HUMAN RESOURCES DEVELOPMENT. WAPCOS HAS ALSO BEEN VENTUR I NG I N T O NEWER F I ELDS S UCH AS SOFTWARE DEVELOPMENT , CITY DEVELOPMENT PLANS , FINANC I AL MANAGEMENT SYSTEM , TECHNICAL EDUCATION , QUALITY CONTROL A ND CONSTRUCTION SUPERVISION , ROADS & BR I DGES. ' TCE T C E IS ENGAGED IN THE PROVISION OF ENGINEERING SERVIC ES SU C H AS OPERATION AND DESIGN ENGINEER I NG , UP GRADATION & RENOVAT I ON SERV I CES , SURVEY & FIELD INVESTIGATION SERVICES , ETC . T HE ANNUAL REPOR T OF TCE FOR THE FY 2003 - 04 HIGHL I GHTS THE KE Y PROJECTS WON BY THE COMPANY DURING THE YEAR WHICH I NCLUDES , THE 2 X 20 MW CAPTIVE CO-GENERATION POWER PLANT OF CHENNAI PETROLEUM CORPORATION LIMITED , FOR WHICH TCE PROVIDED DETAILED ENGINEERING WAS COM MISSIONED TCE IS ALSO PROVIDING PROJECT MANAGEMENT CONSULTANC Y TO CHENNAI PETROLEUM CORPORATION LIMITED FOR THE EXPANSION OF THEIR PLANT BY ADDITION OF A NEW 20 MW GAS TURBINE WITH ASSOCIATED HEAT RECOVERY STEAM GENERATOR. ITC IS DEVELOPING A 16 MW COAL BASED CO -GENERATION PLANT FOR PROCESS STEAM AND POWER, FOR WHICH TCE IS PROVIDING DETAILED ENGINEERING SERVICES. WHILE THE BOILER HAS BEEN C OMMISSIONED, THE ERECTION OF THE TURBINE IS IN PROGRESS. PHASE I OF THE 24.5 MW CAPTIVE ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 16 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. POWER PLANT OF HINDALCO INDUSTRIES LIMITED WAS SUCC ESSFULLY COMMISSIONED. DETAILED ENGINEERING SERVICES ARE BE ING PROVIDED FOR THE 1X60 MW UNIT PHASE III EXPANSION. ALL THESE PROJECTS ARE CORE ENGINEERING PROJECTS OF DOMESTIC AS WELL INTERNATIONAL REPUTE WHICH STRESS ON THE FACT THAT TCE IS AN ;ENGINEERING CONSULTANCY PROVIDER ENGAGED IN HIGH END ENGINEERIN G PROJECTS. TCE OPERATES UNDER A SINGLE REPORTABLE BUSINESS SEG MENT, NAMELY:ENGINEERING CONSULTANCY SERVICES. YOUR HONOUR WOULD APPRECIATE THAT THE ABOVE MENTION ED COMPANIES ARE PRIMARILY ENGAGED IN PROVIDING ENGINEERING CONSULTA NCY AND UNDERTAKE TURNKEY CONTRACTS ON A REGULAR BASIS. THE INHERENT FACTORS OF THIS INDUSTRY I.E. MARKETING STRATEGIES, COMPETITIVE EDG E, LEVEL OF TECHNOLOGICAL DEVELOPMENT, OPERATIONAL EFFICIENCY, COMPETENCE AND EFFECTIVENESS OF MANAGEMENT, CASH FLOW TRENDS AND POTENTIAL, LIQUIDI TY, FINANCIAL FLEXIBILITY, GOVERNMENT POLICIES, SENSITIVITY TO PO SSIBLE CHANGES IN BUSINESS/ECONOMIC CIRCUMSTANCES AFFECT THE FUNCTION ING OF THESE COMPANIES. AS IS EVIDENT FROM THE DESCRIPTION OF THE ENGINEERI NG CONSULTANCY ACTIVITY, GIVEN THE COMPLEXITY OF THE FUNCTION COUPLED WITH T HE TECHNICAL EXPERTISE REQUIRED IN PROVIDING ENGINEERING CONSULTANCY, THE SAME ACTIVITY CANNOT BE CONSIDERED COMPARABLE TO FUNCTION OF PROVIDING M ARKETING SUPPORT SERVICES DUE TO FUNCTIONAL DIFFERENCES, DIFFERENCES IN INDUSTRY AND DIFFERENCE IN MARKET DYNAMICS. THE SERVICES PROVID ED BY THE APPELLANT ARE FUNCTIONALLY DIFFERENT VIS--VIS THE BUSINESS O PERATIONS OF TIL, RITES, WAPCOS AND TCE. HIGH RISK BEARERS AS SUPPORTED BY OECD GUIDELINES ALSO, FUNCTIONAL CO MPARABILITY OF THE COMPANIES WILL HAVE TO BE CONSIDERED IN CONJUNCTION WITH THE RISK AND RETURN PROFILE OF THE COMPANIES BEING SELECTED FOR DETERMINING ARMS LENGTH PRICE. RISK AND RETURN PROFILE OF THE COMPA NIES ENGAGED IN SIMILAR INDUSTRY IS LIKELY TO BE SAME AND THIS PROVIDES A G OOD APPROXIMATION TO JUDGE WHETHER OR NOT A COMPANY CAN BE CONSIDERED AS COMPARABLE. ELL , RITES , WAPCOS AND TCE OPERATE IN ENGINEERING CONSULTANCY INDUSTRY, THE RISKS AND RETURNS VARY SI GNIFICANTLY FROM THOSE OF THE MARKETING SUPPORT SERVICES COMPANY OPERATING ON A COST PLUS MODEL. MOREOVER , ENGINEERING CONSULTANCY BEING A HIGH RISK ACTIVITY, THE RETURNS FROM SUCH BUSINESS SHALL BE COMPARATIVELY H IGHER TO THE ROUTINE ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 17 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. MARKETING ACTIVITIES OF THE APPEL/ANT . THE BUSINESS DYNAMICS OF THE INDUSTRY ARE SUCH THAT COMPANIES ENGAGED IN ENGINEE RING CONSULTANCY ARE PRONE TO HIGH LIABILITY IN CASE OF ANY FAILURE TO IMPLEMENT, DESIGN AND COMPLETE PROJECTS IN TIME. HENCE, SUCH COMPANIES AR E BY ITS NATURE OF BUSINESS EXPOSED TO HIGHER RISKS . THE HIGH RISK PROFILES OF ELL, RITES , WAPCOS AND TCE, RENDER THE COMPANY ' S FINANCIAL RESULTS NON-COMPARABLE TO THE MARGINS E ARNED BY THE APPELLANT FROM ITS MARKETING SUPPORT ACTIVITIES . THEREFORE , ELL , RITES, WAPCOS AND TCE CANNOT BE CONSIDERED AS COMPA RABLE TO THE APPELLANT. A COPY OF THE RELEVANT EXTRACTS OF THE ANNUAL REPORTS OF ELL , RITES , WAPCOS AND TCE IS ENCLOSED WITH THIS. 23. A PERUSAL OF THE ABOVE DEMONSTRATES THAT THE AS SESSEE HAS NOT CONDUCTED A PROPER T.P.STUDY AND HAS WRONGLY CHOSEN THESE 4 COMPARABLES. WHEN ON FACTS, WE ARE OF THE OPINION THAT THE T.P.STUDY WHEREIN THESE 4 COMPARABLES TAKEN WERE WRONG AS APP ARENTLY THERE IS NO FUNCTIONAL COMPARABILITY, WE CANNOT APPROVE SUCH T. P.STUDY, EVEN IF THE T.P.O. HAS ACCEPTED IT. WRONG FACTS HAVE TO BE COR RECTED. THERE CAN BE NO ESTOPPEL IN SUCH FACTUAL SITUATION. THE LD.CIT( A) HAS THE POWER TO ACCEPT FRESH CLAIM OF THE ASSESSEE. MARKETING SUPP ORT SERVICES CANNOT BE COMPARED WITH TURN KEY ENGINEERING SERVICES. WE AG REE WITH THE VIEW OF THE FIRST APPELLATE AUTHORITY THAT EIL, RITES, WAPS OS AND TCE ARE ENGINEERING COMPANIES AND PROVIDE END-TO-END SOLUTI ONS AND WHEREAS THE ASSESSEE COMPANY PROVIDES MARKETING SUPPORT SER VICES TO THE PARENT COMPANY, WHICH IS IN THE NATURE OF SUPPORT SERVICE AND HENCE NOT FUNCTIONALLY COMPARABLE. SHE RIGHTLY CONCLUDED THA T THE RISK PROFILE IS ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 18 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. VASTLY DIFFERENT AND HENCE ON THIS COUNT ALSO THEY ARE NOT COMPARABLE. THIS FACTUAL CONCLUSIONS ARE NOT DISPUTED BY THE LD .D.R. 24. ON THESE FACTS WE FIND NO INFIRMITY IN THE COMM ISSIONER OF INCOME TAX (APPEALS) ADMITTING A GROUND BY THE ASSESSEE, W HEREIN IT ARGUED THAT THE COMPARABLES SELECTED BY IT IN THET.P. RETURN AR E ERRONEOUS. 25. COMING TO THE CASE LAWS ON THE MATTER, IN THE C ASE OF QUARK SYSTEMS ROLLING (SUPRA) THE CHANDIGARH SPECIAL BENC H OF THE TRIOBUNAL HELD THAT THE ASSESSEE IS NOT ESTOPPED FROM POINTI NG OUT A MISTAKE IN THE ASSESSMENT, FOR SUCH MISTAKE IS THE RESULT OF EVIDE NCE ADDUCED BY THE TAX PAYER. IN THIS CASE ALSO THE ASSESSEE HAS DEMO NSTRATED THAT PRIMA FACIE THERE IS A MISTAKE IN ITS TAKING ALL THESE CO MPARABLES. THUS ON BOTH COUNTS WE UPHOLD THE FINDINGS OF THE COMMISSIONER O F INCOME TAX (APPEALS). 26. BOTH THE PARTIES HAVE NOT ARGUED GROUND NO.4 IN THE REVENUES APPEAL. NEVERTHELESS IN VIEW OF THE RETROSPECTIVE AMENDMENT TO S.92 C, WE SET ASIDE THE ISSUE TO THE FILE OF THE LD.CIT(A) FOR FRESH ADJUDICATION. 27. IN THE RESULT BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. 28. COMING TO THE C.O. THE LD.SR.ADVOCATE SUBMITTED THAT THESE ARE IN SUPPORT OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE ASSESSEE DOES NOT WISH TO PRESS THE CROSS OBJEC TIONS. IN VIEW OF THE ABOVE SUBMISSION, WE DISMISS BOTH THE CROSS OBJECTI ONS FILED BY THE ASSESSEE AS NOT PRESSED. ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 19 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. 29. IN THE RESULT BOTH THE REVENUES APPEALS AND TH E CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2012. SD/- SD/- (A.D.JAIN) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 30TH AUGUST, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR // C O P Y // ITA 4187/DEL/2010 & C.O. 341/DEL/10 PAGE 20 OF 20 ITA 2766/DEL/11 & C.O.218/DEL/11 ASSESSMENT YEAR 2004-05 & 2005-06 M/S VERIZON INDIA P.LTD. 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :