Siemens Power Engineering Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 4751/DEL/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8110 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2008-2009
• Appeal Filed On: 29-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PERCY PARDIWALA SENIOR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Set aside
• Section: 92D; 244A; 234B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.4754/DEL/2014 (ASSESSMENT YEAR : 2008-09) DCIT, CIRCLE 2, VS. M/S. SIEMENS POWER ENGG. PVT. LTD., GURGAON. SECTOR 18, MARUTI INDUSTRY AREA, GURGAON. (PAN : AACCS5323F) ITA NO.4751/DEL/2014 (ASSESSMENT YEAR : 2008-09) M/S. SIEMENS POWER ENGG. PVT. LTD., VS. DCIT, CIRC LE 2, SECTOR 18, MARUTI INDUSTRY AREA, GURGAON. GURGAON. (PAN : AACCS5323F) (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI PERCY PARDIWALA, SENIOR ADVOCAT E REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR SHRI RAKESH KUMAR, SENIOR DR DATE OF HEARING : 19.03.2019 DATE OF ORDER : 15.04.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : PRESENT CROSS APPEALS FILED BY THE REVENUE AS WELL AS BY THE ASSESSEE/TAXPAYER ARE BEING DISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 2 2. THE APPELLANT, DCIT, CIRCLE 2, GURGAON (HEREINAF TER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.06.2014 PASSE D BY THE LD. CIT (APPEALS)-2, FARIDABAD QUA THE ASSESSMENT YEAR 2008-09 ON THE GROUNDS INTER ALIA THAT :- (I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN EXCLUDING ALPHAGEO (INDIA) LTD. AS COMPARABLE DUE TO THE FOLLOWING REASONS: THE TPO CLEARLY STATED THAT THE ASSESSEE HAS NOWHER E IN ITS TP REPORT GONE INTO THE VERTICALS WITHIN THE ENGINEERING SERVICES INDUSTRY IN ITS COMPARABILITY STUDY AND HAS SEARCHED FOR COMPARABLES WHICH ARE ENGAGED IN THE ENGINEERING AND SOFTWARE SERVICES. THE ASSESSEE IS ENGAGED IN CARRYING OUT ENGINEERING DESIGN SERVICES IN THE NATURE OF TENDERING, SETTING UP, HARMONIZING, BASIC AND DETAILED DESIGN AND ERECTION , INSTALLATION AND COMMISSIONING OF POWER PLANT. BUT THE ASSESSEE HAS NOT GONE INTO ANY VERTICALS IN ITS SEA RCH PROCESS AND THE TPO HAS REEXAMINED IT'S ACCEPT/REJE CT MATRIX ACCEPTING THE KEYWORDS OF ASSESSEE. THE TNMM METHOD IS MORE TOLERANT AND LESS SUSCEPTIB LE TO THE TRANSACTIONAL AND FUNCTIONAL DIFFERENCES AND THEREFORE, IF THE COMPANIES ARE BROADLY COMPARABLES TO THE TESTED PARTY, THE SAME SHOULD BE ACCEPTED. (II) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN TREATING THE MISCELLANEOUS INCOME OF RS.17,90,39S/- FROM NOTICE PERIOD PAY FROM ITS EX-E MPLOYEES AS INCOME DERIVED FROM EXPORT OF ARTICLE OR THING TO B E ELIGIBLE FOR DEDUCTION U/S 19B OF THE IT. ACT, 1961. (III) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD. CIT(A) HAS ERRED IN HOLDING THAT NOTICE PERIOD PAY RECEIVED SHOULD BE CONSIDERED AS INCOME WHILE COMPUTING DEDU CTION UNDER SECTION 10B, WHERE AS THE SAID INCOME WAS NOT DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE BENEFIT OF DEDU CTION U/S 10B OF THE I.T. ACT, 1961. ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 3 3. THE APPELLANT, M/S. SIEMENS POWER ENGG. PVT. LTD . (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.06.2014 PASSED BY THE LD. CIT (APPEALS)-2, FARIDABAD QUA TH E ASSESSMENT YEAR 2008-09 ON THE GROUNDS INTER ALIA THAT :- 1. ON THE FACTS AND IN LAW, THE HON'BLE COMMISSION ER OF INCOME TAX (APPEALS)-2 ('LD. CIT(A)') ERRED IN PART IALLY CONFIRMING THE ADDITION MADE BY THE LEARNED TRANSFE R PRICING OFFICER (HEREINAFTER REFERRED TO AS 'LD. TPO') AND THE LEARNED ASSESSING OFFICER (HEREINAFTER REFERRED TO AS 'LD. AO') UNDER SECTION 92CA(3) OF THE INCOME TAX ACT, 1961 ('THE A CT'). 2. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO/ LD. LD. TPO ERRED IN REJECTING THE ECONOMIC ANALYSIS AND FILTER S APPLIED IN THE TRANSFER PRICING ('TP') DOCUMENTATION MAINTAINE D U/S 92D OF THE INCOME TAX ACT, 196 I READ WITH RULE 10D OF INCOME TAX RULES 1962 AND IN CALLING FOR A FRESH SEARCH DU RING THE ASSESSMENT PROCEEDINGS BASED ON ARBITRARY ADDITIONA L FILTERS WITHOUT DISCHARGING THE STATUTORY ONUS TO ESTABLISH THAT ANY OF THE CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SE CTION 92C(3) OF THE ACT HAVE NOT BEEN SATISFIED. 3. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO/ LD. TPO VIOLATED THE PROVISIONS OF RULE 10B (2) OF THE RULE S BY REJECTING A COMPANY, INDIUM SOFTWARE LTD. CONSIDERED AS COMPA RABLE BY THE APPELLANT IN ITS TP DOCUMENTATION, INCORRECTLY HOLDING IT TO BE FUNCTIONALLY DISSIMILAR TO THE APPELLANT. 4. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO/ LD. TPO VIOLATED THE PROVISIONS OF RULE 10B (2) OF THE RULE BY REJECTING A COMPANY, CHAKKILAM INFOTECH LTD. CONSIDERED AS COMP ARABLE BY THE APPELLANT IN I TP DOCUMENTATION, INCORRECTLY HO LDING IT TO BE FUNCTIONALLY DISSIMILAR TO THE APPELLANT. 5. ON FACTS AND IN LAW, THE LD. AO/ LD. TPO VIOLATE D THE PROVISIONS OF RULE 10B (2) OF THE RULES BY REJECTIN G A COMPANY, VAMA INDUSTRIES LTD. CONSIDERED AS COMPARABLE BY TH E APPELLANT IN ITS TP DOCUMENTATION, HOLDING THAT THE COMPANY HAS SERVICE INCOME TO TOTAL INCOME LESS THAN 75 PER CENT, WITHOUT APPRECIATING THE FACT THAT THE SEGMENTAL RESULTS WE RE CONSIDERED BY THE APPELLANT. THE LD. CIT(A) FURTHER ERRED IN R EJECTING THE COMPANY AS A COMPARABLE HOLDING IT TO BE FUNCTIONAL LY DISSIMILAR TO THE APPELLANT BASED ON CONJECTURES AN D SURMISES. ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 4 6. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO/ LD. TPO VIOLATED THE PROVISIONS OF RULE 10B(2) OF THE RULES BY REJECTING A COMPANY TATA ELXSI LTD. CONSIDERED AS COMPARABLE BY THE APPELLANT IN ITS TP DOCUMENTATION, HOLDING IT TO BE FUNCTIONALLY DISSIMILAR TO THE APPELLANT. 7. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO/ LD. TPO VIOLATED THE PROVISIONS OF RULE 10B (2) OF THE RULE S BY REJECTING A COMPARABLE COMPANY POWERSOFT GLOBAL SOLUTIONS LTD . IDENTIFIED BY THE APPELLANT IN ITS TP DOCUMENTATION , HOLDING THAT THE COMPANY'S ACCOUNTING YEAR ENDED ON 30 SEPTEMBER INSTEAD OF 31 MARCH. 8. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO/ LD. LD. TPO HAVE VIOLATED THE PROVISIONS OF RULE 10B (2) OF THE RULES BY ARBITRARILY ADDING A NEW COMPANY, STUP CONSULTANTS PVT. LTD. AS COMPARABLE TO THE APPELLANT, DISREGARDING THE FACT THAT THE COMPANY IS FUNCTIONALLY DISSIMILAR TO THE APPELLANT AS THE COMPANY IS A FULL SERVICE PROJECT DELIVERY CONSULTA NCY COMPANY OFFERING INTEGRATED PLANNING, ARCHITECTURAL, ENGINE ERING AND PROJECT MANAGEMENT SERVICES TO VARIED INDUSTRIES AN D IGNORING THAT THERE WAS AN ABNORMAL INCREASE IN THE INCOME G ROWTH DURING FY 2007-08. 9. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO/ LD. TPO ERRED IN RE-COMPUTING THE OPERATING PROFIT TO OPERA TING COST ('OPITC') MARGIN OF THE APPELLANT AFTER INCORRECTLY TREATING PROVISION FOR ANTICIPATED LOSS GUARANTEE (RS.15,166 ,484) AND PROVISION FOR ANTICIPATED LOSS GUARANTEE WRITTEN BA CK (RS.43,779,784) AS NON-OPERATING ITEMS AND NOT APPR ECIATING THE APPELLANT'S CONSISTENT TREATMENT OF THE ABOVE AS OP ERATING ITEM WAS ALSO ACCEPTED BY THE LD. TPO THE IN PRECEDING A ND SUCCEEDING FINANCIAL YEAR. 10. THE LD. CIT(A)/ LD. AO/ LD. TPO GROSSLY ERRED O N THE FACTS AND IN LAW IN NOT ALLOWING APPROPRIATE ADJUST MENTS IN ACCORDANCE WITH THE PROVISIONS OF RULE 10B(I)(E)(II I) AND IOB(3) OF THE RULES TO ACCOUNT FOR DIFFERENCE IN RISK ASSU MED, BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES SELECTED BY THE LD. TPO AND AFFIRMED BY THE LD. CIT(A). 11. THE LD. CIT(A)/ LD. AO/ LD. TPO ERRED IN MISINTERPRETING THE REQUIREMENT OF 'CONTEMPORANEOUS ' DATA IN THE RULE 10B(4) BY USING CURRENT YEAR DATA (I.E. FI NANCIAL YEAR 2007-08), THEREBY BREACHING THE PRINCIPLES OF NATUR AL JUSTICE AND 'IMPOSSIBILITY OF PERFORMANCE'. ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 5 12. ON FACTS AND IN LAW, THE CIT(A)/ LD. AO/ LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271( I )(C) OF THE ACT. 13. ON FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO ERR ED IN LEVYING THE INTEREST UNDER SECTION 234B AND 234D AN D RECOVERING THE INTEREST UNDER SECTION 244A OF THE A CT. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : SIEMENS POWER ENGINEERING PVT. LTD., A SUBSIDIARY OF SIEMENS AG, GERMANY (HOLDING 99.99% S HARES) IS INTO THE BUSINESS OF PREPARING AND DEVELOPING DRAWI NGS AND DESIGNS IN THE FORM OF CUSTOMIZED SOFTWARE WHICH HELPS IN P LANNING AND SETTING UP OF POWER PLANTS WORLDWIDE. IN ORDER TO DEVELOP THE DRAWING AND DESIGNS FOR THE POWER PLANTS, THE TAXPA YER USES CUSTOMIZED SOFTWARE FOR DOING 3D PLANNING AND GENER ATION OF ENGINEERING DOCUMENTATION. 5. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AE) AS UNDER :- S.NO. NATURE OF TRANSACTION METHOD USED BY THE ASSESSEE VALUE OF INTERNATIONAL TRANSACTION 1 PAYMENT FOR SERVICES RECEIVED TNMM 4,41,95,028 2 PROVISION OF ENGINEERING DESIGN AND DRAWING SERVICES TNMM 72,99,54,589 3 REIMBURSEMENT OF TRAVEL EXPENSES RECEIVED CUP 8,82,42,450 TOTAL 86,23,92,067 ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 6 6. FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS FOR PROVISION OF ENGINEERING DESIGN AND DRAWING SERVICE S, THE TAXPAYER APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OP/TC AS THE PROFIT LEVEL INDICATOR (PLI) AS THE MOST APP ROPRIATE METHOD (MAM). THE TAXPAYER IN ITS TP DOCUMENTATION COMPUT ED ITS PLI AT 20.53% ON COST WHICH HAS BEEN RECOMPUTED AT 18.1 4%, THEN RECOMPUTED AT 14.35% AS AGAINST THE PLI OF COMPARAB LES AT 40.50% BY CONSIDERING THE DATA FOR AYS 2005-06, 200 6-07 AND 2007-08. 7. THE TPO IN ORDER TO CARRY OUT THE TP ANALYSIS AP PLIED FILTERS AS UNDER :- (I) USE OF CURRENT YEAR DATA; (II) REJECT COMPANIES WHERE RELATED PARTY TRANSACTI ONS EXCEED 25% OF SALES; AND (III) COMPANIES THAT ARE AFFECTED BY SOME PECULIAR ECONOMIC CIRCUMSTANCES. 8. TPO AFTER FAR ANALYSIS EXAMINED THE COMPARABLES ON QUANTITATIVE FILTERS AND QUALITATIVE FILTERS WITH R ATIO OF SERVICE INCOME TO TOTAL INCOME AT LEAST 75%. TPO ALSO PROP OSED TO CONSIDER THE COMPARABILITY IN THE ECONOMIC ACTIVITY OF TECHNICAL CONSULTANCY AND ENGINEERING SERVICES AND NOT IN COM PUTER SERVICES. 9. AFTER APPLYING THE AFORESAID FILTERS, TPO REJECT ED 5 COMPARABLES OUT OF 7 COMPARABLES CHOSEN BY THE TAXP AYER AND ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 7 INTRODUCED 2 MORE COMPARABLES AND COMPUTED OP/TC OF COMPARABLES AT 29.70% AND ADJUSTED OP/TC AT 28.26% AND THEREBY PROPOSED AN ADJUSTMENT OF RS.9,65,99,160/- ON ARMS LENGTH PRICE (ALP). AO DISALLOWED THE CLAIM OF THE TAXPAYER FOR INCLUDING THE INCOME OF RS.17,90,395/- BEING MISC. INCOME IN THE NET PROFIT OF THE BUSINESS OF THE UNDERTAKING WHILE COMPUTING THE SAME FOR BENEFIT OF DEDUCTION U/S 10B OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AND THEREBY ASSESSED THE TOTAL INCOME AT RS.10,98,76,429/-. 10. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. CIT (A) BY WAY OF AN APPEAL WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE TAXPAYER AS WELL AS REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEALS. 11. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.4754/DEL/2014 (REVENUES APPEAL) TRANSFER PRICE GROUND GROUND NO.(I) 12. UNDISPUTEDLY, IN ORDER TO BENCHMARK THE INTERNA TIONAL TRANSACTIONS QUA ENGINEERING DESIGN SERVICES TNMM A S MAM WITH ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 8 OP/TC AS PLI APPLIED BY THE TAXPAYER HAS BEEN ACCEP TED BY THE TPO. IT IS ALSO NOT IN DISPUTE THAT LD. CIT (A) HA S CONSIDERED FOREIGN EXCHANGE LOSS AS NON-OPERATING, WHICH HAS B EEN ACCEPTED BY THE REVENUE. IT IS ALSO NOT IN DISPUTE THAT THE TAXPAYER IS A CAPTIVE SERVICE PROVIDER QUA ENGINEERING DESIGN SER VICES. 13. LD. TPO IN HIS TP ANALYSIS SELECTED 4 COMPARABL ES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA ENG INEERING DESIGN SERVICES WHICH ARE AS UNDER :- S.NO. NAME OF THE COMPANY OP/TC ADJUSTED OP/TC 1 ACCUSPEED ENGINEERING DEVICE SERVICES 12.97% 12.68% 2 MAHINDRA ENGINEERING, DESIGN AND DEVELOPMENT CO.LTD. 27.54% 27.81% 3 ALPHAGEO (INDIA) LTD. 41.58% 40.81% 4 STUP CONSULTANTS PVT. LTD. 36.72% 31.74% MEAN 29.70% 28.26% 14. WITH TAXPAYERS MARGIN AT 14.35% AS AGAINST MAR GIN OF COMPARABLE COMPANIES AT 28.26%, THE TPO COMPUTED TH E ALP AFTER ALLOWING WORKING CAPITAL ADJUSTMENT OF THE MA RGIN OF COMPARABLES AS UNDER :- OPERATING COST 68,16,20,185 OP/TC 28.26% MARGIN 19,26,25,864 ARMS LENGTH PRICE 87,42,46,049 PRICE CHARGED BY THE ASSESSEE 77,76,46,889 DIFFERENCE 9,65,99,160 % OF DIFFERENCE WITH THE VALUE OF INTERNATIONAL TRANSACTION 13.23% ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 9 CONSEQUENTLY, TPO PROPOSED THE ADJUSTMENT OF RS.9,6 5,99,160/- IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS Q UA ENGINEERING DESIGN SERVICES BEING THE DIFFERENCE IN ALP AND THE PRICE CHARGED BY THE TAXPAYER FROM ITS AE. 15. LD. CIT (A) ACCEPTED THE TP ANALYSIS MADE BY TH E TPO EXCEPT REJECTION OF ONE COMPARABLE, NAMELY, ALPHAGE O (INDIA) LTD.. NOW, THE REVENUE HAS CHALLENGED EXCLUSION OF ALPHAG EO (INDIA) LTD. BY THE LD. CIT (A). LD. CIT (A) HAS ALSO CONS IDERED FOREIGN EXCHANGE LOSS AS NON-OPERATING. WE WOULD EXAMINE TH E COMPARABILITY OF ALPHAGEO (INDIA) LTD. VIS--VIS THE TAXPAYER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA ENGINE ERING DESIGN SERVICES AS UNDER. ALPHAGEO (INDIA) LTD. (ALPHAGEO) 16. LD. DR FOR THE REVENUE CHALLENGING THE EXCLUSIO N OF ALPHAGEO DREW OUR ATTENTION TO PARAS 7.2 AND 7.3 AT PAGE 16 OF THE IMPUGNED ORDER PASSED BY LD. CIT (A) AND CONTENDED THAT FINDINGS ARE CRYPTIC ONE WHICH NEED TO BE EXTENSIVE ONE WITH FAR ANALYSIS AND PROFIT OF BUSINESS IS VERY IMPORTANT. LD. DR A LSO RELIED UPON THE ORDER PASSED BY THE TPO. 17. HOWEVER, ON THE OTHER HAND, LD. AR FOR THE TAXP AYER RELIED UPON THE ORDER PASSED BY THE LD. CIT (A) EXCLUDING ALPHAGEO AND ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 10 CONTENDED THAT ALPHAGEO IS FUNCTIONALLY DISSIMILAR AND IT ALSO FAILS TO SATISFY THE FILTER OF EXPORT TURNOVER WHICH IS L ESS THAN 25% AS PROPOSED BY THE TPO. 18. PERUSAL OF THE ANNUAL REPORT, AVAILABLE AT PAGE 1468 OF THE PAPER BOOK, SHOWS THAT ALPHAGEO IS PROVIDING 2D AND 3D SEISMIC SERVICES; DESIGN AND PREPLANNING OF 2D AND 3D SURVE YS; SEISMIC DATA ACQUISITION IN 2D AND 3D; SEISMIC DATA PROCESS ING/ REPROCESSING/ SPECIAL PROCESSING; SEISMIC DATA INTE RPRETATION; GENERATION, EVALUATION AND RANKING OF PROSPECTS; RE SERVOIR DATA ACQUISITION; RESERVOIR ANALYSIS; TOPOGRAPHIC SURVEY S WITH GPS/RTK; DIGITIZATION OF HARD COPIES OF MAPS, SEISM IC SECTIONS AND WELL LOGS INTO CGM/SEGY/LAS FORMATS; AND THIRD PARTY QUALITY CONTROL FOR ACQUISITION AND PROCESSING. 19. ALPHAGEO ALSO FAILS EXPORT TURNOVER FILTER WHIC H IS LESS THAN 25% PROPOSED BY THE TPO HIMSELF IN THE SHOW-CAUSE N OTICE. HOWEVER, LD. CIT (A) HAS DECLINED THE ARGUMENT AS T O FAILING THE EXPORT TURNOVER FILTER ON THE GROUND THAT TAXPAYER HIMSELF HAS NOT APPLIED THIS FILTER IN TP DOCUMENTATION. 20. WHEN WE EXAMINE THE FUNCTIONALITY OF ALPHAGEO V IS--VIS THE TAXPAYER, ALPHAGEO IS INTO PROVIDING SEISMIC SE RVICES WHICH INCLUDE DESIGN AND PREPLANNING OF 2D AND 3D SURVEYS ; TOPOGRAPHIC SURVEYS WITH GPS/RTK; SEISMIC DATA ACQUISITION IN 2 D AND 3D; ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 11 SEISMIC DATA INTERPRETATION; SEISMIC SECTIONS AND W ELL LOGS INTO CGM/SEGY/LAS FORMATS; THIRD PARTY QUALITY CONTROL F OR ACQUISITION AND PROCESSING; ETC. WHEREAS THE TAXPAY ER IS INTO THE BUSINESS OF PREPARING AND DEVELOPING DRAWINGS AND D ESIGNS IN THE FORM OF CUSTOMIZED SOFTWARE WHICH HELPS IN PLANNING AND SETTING UP OF POWER PLANTS WORLD-WIDE AS A CAPTIVE SERVICE PROVIDER. ALPHAGEO HAS ALSO CHANGED ITS CLASSIFICATION TO OF FSHORE DRILLING SERVICES AND NCC CODE AS SERVICES INCIDENTAL TO OF FSHORE OIL EXTRACTION, SO IT CANNOT BE CLASSIFIED AS TECHNICAL CONSULTANCY PROVIDER. 21. THE LD. CIT (A) HAS ALSO RIGHTLY OBSERVED THAT THERE IS A STARK DIFFERENCE BETWEEN EMPLOYEE COST TO TOTAL COST RATI O IN THE CASE OF ALPHAGEO OF 7.55% AS AGAINST 60.35% IN CASE OF THE TAXPAYER. FURTHER WHEN WE EXAMINE THE SHOW CAUSE NOTICE ISSUE D BY THE TPO IN PARA 4.2 SUB-PARA 3 AT PAGE 609 OF THE PAPER BOO K, THE TPO HAS HIMSELF APPLIED THE EXPORT FILTER THAT THE COMPANY HAVING EXPORT TURNOVER LESS THAN 25% IS NOT TO BE TAKEN AS COMPAR ABLE. SO, WHEN ALPHAGEO FAILS THE EXPORT FILTER WHICH IS LESS THAN 25% AS AGAINST 100% EXPORT OF THE TAXPAYER COMPANY, THE SAME CANNO T BE A VALID COMPARABLE. SO, WE ARE OF THE CONSIDERED VIEW THAT ALPHAGEO IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER AN D AS SUCH HAS ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 12 BEEN RIGHTLY EXCLUDED BY THE LD. CIT (A). CONSEQUE NTLY, GROUND NO.(1) OF THE REVENUES APPEAL IS DETERMINED AGAINS T THE REVENUE. ITA NO.4754/DEL/2014 (REVENUES APPEAL) CORPORATE GROUNDS GROUNDS NO.(II) & (III) 22. AO WHILE COMPUTING ALLOWABLE DEDUCTION U/S 10B OF THE ACT EXCLUDED MISC. INCOME OF RS.17,90,395/- FROM THE NE T PROFIT OF THE BUSINESS OF THE UNDERTAKING ON THE GROUND THAT THE TAXPAYER HAS NOT FULFILLED THREE CONDITIONS LAID DOWN U/S 10B INTER ALIA THAT (I) PROFITS SHOULD BE DIRECTLY DERIVED FROM INDUSTRIAL UNDERTAK ING AND SHOULD NOT BE MERELY ATTRIBUTABLE TO THE INDUSTRIAL UNDERT AKING; (II) THERE SHOULD BE A DIRECT AND PROXIMATE NEXUS BETWEEN THE INCOME RECEIVED AND THE ACTIVITY CARRIED OUT BY THE INDUST RIAL UNDERTAKING; AND THE SOURCE OF THE INCOME OF PROFITS SHOULD BE T HE INDUSTRIAL UNDERTAKING ITSELF. 23. AO FURTHER OBSERVED THAT THE EXPORT INCENTIVE I NCOME IS NOT HAVING ANY DIRECT NEXUS WITH THE ACTIVITIES CARRIED OUT BY THE TAXPAYER AND RELIED UPON THE DECISION RENDERED BY H ONBLE SUPREME COURT IN THE CASE CITED AS LIBERTY INDIA VS. CIT SLP CCJ NO.5827/07 DATED 31.08.2009 . 24. HOWEVER, LD. CIT (A) INCLUDED THE MISC. INCOME OF RS.17,90,395/- IN THE NET PROFIT OF BUSINESS OF THE TAXPAYER FOR ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 13 COMPUTING THE ALLOWABLE DEDUCTION U/S 10B OF THE AC T BY DISTINGUISHING THE DECISION OF LIBERTY INDIA (SUPRA) RELIED UPON BY THE AO. 25. UNDISPUTEDLY, THE TAXPAYER HAS DULY SHOWN THE M ISC. INCOME OF RS.17,90,395/- IN PROFIT & LOSS ACCOUNT UNDER TH E HEAD OTHER INCOME, WHICH REPRESENTS AMOUNT RECOVERED FROM ITS EMPLOYEES TOWARDS THE NOTICE PAY IN RELATION TO THE PERIOD OF NOTICE NOT SERVED. IT IS ALSO NOT IN DISPUTE THAT THE SALARY OF THE EM PLOYEES IS CLAIMED AS EXPENSES OF THE UNDERTAKING OF THE TAXPAYER AND THAT SUBSEQUENT RECOVERY ON TERMINATION OF THE EMPLOYEE SHOULD ALSO BE CREDITED TO THE RESPECTIVE UNDERTAKING. 26. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FAC TS, WE ARE OF THE CONSIDERED VIEW THAT BY APPLYING THE DECISION R ENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN BIRLA SOFT (INDIA) LTD. VS. DCIPT (2012) 20 TAXMANN.COM 43 (DELHI) , LD. CIT (A) HAS RIGHTLY ALLOWED THE NOTICE PERIOD PAY RECEIVED AS I NCOME WHILE COMPUTING THE DEDUCTION U/S 10B OF THE ACT BECAUSE AMOUNT RECEIVED TOWARDS NOTICE PERIOD PAY WAS TO BE TREATE D AS INCOME DERIVED FROM THE ELIGIBLE UNDERTAKING. THE DECISIO N RENDERED BY THE HONBLE SUPREME COURT IN LIBERTY INDIA (SUPRA) APPLIES TO DEPP/DUTY DRAWBACK BENEFITS WHICH DO NOT FORM PART OF NET PROFIT FOR THE PURPOSE OF COMPUTATION OF PROFITS AND DO NO T FALL WITHIN THE ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 14 EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTA KING FOR THE PURPOSE OF SECTION 80IB. SO, LD. CIT (A) HAS RIGHT LY HELD THAT LIBERTY INDIA (SUPRA) IS NOT APPLICABLE TO THE FACT S AND CIRCUMSTANCES OF THE CASE. SO, WE FIND NO ILLEGALI TY OR PERVERSITY IN THE FINDINGS RETURNED BY THE LD. CIT (A) ON THIS IS SUE, HENCE GROUNDS NO.(II) & (III) ARE DETERMINED AGAINST THE REVENUE. ITA NO.4751/DEL/2014 (TAXPAYERS APPEAL) 27. AT THE VERY OUTSET, LD. AR FOR THE TAXPAYER IN ORDER TO COMPRESS THE ISSUE RAISED IN THE APPEAL FAIRLY CONC EDED THAT IN CASE APPEAL FILED BY THE REVENUE IS DISMISSED, THE TAXPA YER ONLY CHALLENGES THE INCLUSION OF STUP CONSULTANTS PVT. LTD. AS A COMPARABLE. SO, IN VIEW OF OUR FINDINGS RETURNED I N THE PRECEDING PARAS, DISMISSING THE APPEAL FILED BY THE REVENUE, WE WOULD EXAMINE THE SUITABILITY OF STUP CONSULTANTS PVT. LTD. AS A COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANS ACTIONS UNDERTAKEN BY THE TAXPAYER WITH ITS AE. STUP CONSULTANTS PVT. LTD. (STUP) 28. PERUSAL OF PARA 9.5 OF THE TP ORDER SHOWS THAT THE TAXPAYER HAS CHALLENGED THE INCLUSION OF STUP THAT IT IS FUN CTIONALLY DISSIMILAR AND IT FAILS EXPORT FILTER OF < 25%. BU T THE TPO RETAINED STUP AS A SUITABLE COMPARABLE. ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 15 29. THE TAXPAYER CHALLENGED STUP BEFORE THE LD. CIT (A) AS IS EVIDENT FORM GROUND NO.7 EXTRACTED AT PAGE 449 OF T HE PAPER BOOK BUT LD. CIT (A) HAS NOT RETURNED ANY FINDINGS ON TH IS ISSUE. 30. WHEN WE EXAMINE THE SUBMISSIONS MADE BY THE TAX PAYER BEFORE THE LD. CIT (A), AVAILABLE AT PAGES 411 TO 4 53 OF THE PAPER BOOK, RELEVANT PAGE 452, WHICH IS BASED UPON PROWES S DATA BASE, IT HAS COME ON RECORD THAT STUP CONSULTANTS PVT. LT D. IS PURELY A CONSULTANCY FIRM WHICH, RENDERS CONSULTANCY AND PRO JECT MANAGEMENT SERVICES FOR POWER, TRANSPORTATION, TELECOMMUNICATIONS, COMMERCIAL, INSTITUTIONAL, RECR EATIONAL AND MANUFACTURING FACILITY INFRASTRUCTURE, WHEREAS THE TAXPAYER IS INTO PROVIDING ENGINEERING DESIGN SERVICES IN THE FORM O F CUSTOMS SOFTWARE FOR PLANNING AND SET UP OF POWER PLANTS, H ENCE STUP IS NOT FUNCTIONALLY COMPARABLE VIS--VIS THE TAXPAYER. 31. FURTHERMORE, STUP ALSO FAILS EXPORT FILTERS APP LIED BY THE LD. TPO HIMSELF AS IT HAS EXPORT OF > 25% AS AGAINST 10 0% EXPORT OF THE TAXPAYER. SO, WHEN TPO HAS HIMSELF APPLIED THI S EXPORT FILTER, HE CANNOT BE ALLOWED TO MAKE PICK AND CHOOSE IN ORD ER TO APPLY THIS FILTER AS PER HIS CONVENIENCE. LD. CIT (A) HA S REJECTED THE CONTENTION OF THE TAXPAYER THAT SINCE THIS FILTER H AS NOT BEEN APPLIED BY THE TAXPAYER IN ITS TP DOCUMENTATION, IT IS NOT A VALID OBJECTION RAISED BY THE TAXPAYER. SO, WE ARE OF THE CONSIDER ED VIEW THAT ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 16 WHEN FINAL FILTERS ARE TO BE DECIDED BY THE LD. TPO , IT DOES NOT MATTER IF SUCH LIKE FILTER IS APPLIED BY THE TAXPAY ER OR NOT. 32. COORDINATE BENCH OF THE TRIBUNAL IN CASE CITED AS EMERSON PROCESS MANAGEMENT POWER & WATER SOLUTIONS INDIA (P .) LTD. VS. ACIT (2016) 69 TAXMANN.COM 185 (DELHI-TRIB.) EXAMINED THE SUITABILITY OF STUP VIS--VIS EMERSON PROCESS MANAGEMENT POWER & WATER SOLUTIONS INDIA (P.) LTD. WHICH IS ENGAGED IN PROVIDING APPLICATION ENGINEERING SOFTWARE DEVELO PMENT AND RELATED SERVICES TO ITS GROUP COMPANY AND FOUND THE SAME AS NOT A SUITABLE COMPARABLE FOR AY 2008-09 BY RETURNING FOL LOWING FINDINGS :- 26. A PERUSAL OF THE AFORESAID OBSERVATION RETURNE D BY THE TPO APPARENTLY SHOWS THAT THE ASSESSEE HAS RAISED SPECIFIC OBJECTION AS TO DISSIMILARITY OF TH IS COMPANY BY HIGHLIGHTING THAT THIS COMPANY IS PRIMAR ILY ENGAGED IN PROVIDING RANGE OF SERVICES IN FIELD OF ENGINEERING AND ARCHITECTURE AND THAT NO SEGMENTAL INFORMATION IS AVAILABLE BUT THE LD. TPO BY RELYING UPON THE SEGMENT INFORMATION, LYING AT PAGE 13 OF THE AN NUAL REPORT, REJECTED THE OBJECTION RAISED BY THE ASSESS EE ON THE GROUND THAT THE COMPANY IS ENGAGED IN PROVIDING CONSULTANCY IN BOTH THE SEGMENTS I.E. CIVIL AND ENGINEERING, CONSULTANCY AND ARCHITECTURAL CONSULTA NCY AND IS DRIVING ITS TOTAL FEE FROM CONSULTANCY ONLY AND DISPOSED OFF THE OBJECTION OF ABNORMALLY HIGH MARGI N ON THE GROUND THAT THE COMPANY HAS A DIFFERENT FUNCTIONAL PROFILE COMPARED TO THE ASSESSEE WHICH EXPLAINS WHY IT IS EARNING SUCH HIGH PROFIT MARGIN. ALL THESE FINDINGS ARE SELF CONTRADICTORY BECAUSE ON TH E ONE HAND, THE TPO OBSERVED THAT THIS COMPANY IS TAKEN A S A COMPARABLE AND ON THE OTHER HAND, RECORDED THE FIND ING THAT THIS COMPANY HAS A DIFFERENT FUNCTIONAL PROFIL E ITA NO.4754/DEL/2014 ITA NO.4751/DEL/2014 17 COMPARED TO THE ASSESSEE COMPANY. SO, WE ARE OF TH E CONSIDERED VIEW THAT THIS COMPANY IS NOT FIT FOR TA KING AS COMPARABLE AND HAS TO BE EXCLUDED AND FRESH SEAR CH IS REQUIRED TO BE MADE BY THE TPO BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 33. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT STUP IS NOT A SUITABLE COMPARA BLE VIS--VIS TAXPAYER ON GROUND OF FUNCTIONAL DISSIMILARITY, NON -AVAILABILITY OF SEGMENTAL INFORMATION AND ON GROUND OF FAILING THE EXPORT FILTER, HENCE WE ORDER TO EXCLUDE IT FROM THE FINAL SET OF COMPARABLES. 34. THE LD. AR FOR THE TAXPAYER HAS NOT PRESSED THE INCLUSION/ EXCLUSION OF OTHER COMPANIES AS COMPARABLE FOR BENC HMARKING THE INTERNATIONAL TRANSACTIONS. 35. RESULTANTLY, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE TAXPAYER IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF APRIL, 2019. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 15 TH DAY OF APRIL, 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.