Emerson Process Management Power & Water Solutions India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 5343/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8344 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 20-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 18-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Services rendered outside India
• Section: 92D; 234B; 133(6); 144; 90; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5343/DEL./2012 (ASSESSMENT YEAR : 2008-09) M/S. EMERSON PROCESS MANAGEMENT VS. ACIT, POWER & WATER SOLUTIONS INDIA PVT. LTD., CIRCLE 18(1), WINDSOR IT PARK, TOWER A, NEW DELHI. TOWER A, GROUND & IST FLOOR, SECTOR 125, NOIDA 201 301 (UTTAR PRADESH). (PAN : AAACW2693N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT TIWARI, CA AND MS. SHRUTI KHIMTA, ADVOCATE REVENUE BY : SHRI AMRENDRA KUMAR, CIT DR DATE OF HEARING : 19.01.2016 DATE OF ORDER : .04.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. EMERSON PROCESS MANAGEMENT POWER & WATER SOLUTIONS INDIA PVT. LTD. (HEREINAFTER REFERR ED TO AS THE ASSESSEE), BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 16.12.2012 PASSED BY THE DRP/T PO/AO QUA THE ASSESSMENT YEAR 2008-09 ON THE GROUNDS INTER AL IA THAT :- ITA NO.5343/DEL./2012 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW; 1. THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP') IS A VITIATED ORDER AS THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING PART OF THE ADDITION MADE BY THE LD. ASSESSING OFFICER ('AO') TO THE APPELLANT'S INCOME BY ISSUING AN ORDER WITHOUT APPROPRIATE APPLICATION OF MIND. 2. THE LD. AO I LEARNED TRANSFER PRICING OFFICER (L D. TPO) AND THE LD. DRP ERRED IN IGNORING THE FACT THAT THE REFERENCE MADE U/S 143(2) OF THE ACT BY THE LD. AO SUFFERS FROM JU RISDICTIONAL ERROR AS THE LD AO DID NOT RECORD ANY REASONS IN TH E DRAFT ASSESSMENT ORDER BASED ON WHICH IT WAS CONCLUDED TH AT IT WAS 'NECESSARY OR EXPEDIENT' TO REFER THE MATTER TO THE LD. TPO FOR COMPUTATION OF THE ARM'S LENGTH PRICE (,ALP') FOR T HE APPELLANT'S INTERNATIONAL TRANSACTION OF PROVISION OF APPLICATI ON ENGINEERED SOFTWARE DEVELOPMENT AND RELATED SERVICES. 3. THE LD. TPO GROSSLY ERRED IN NOT CONSIDERING THE CORRECT OPERATING PROFIT I TOTAL COST MARGIN OF M/S MN DAST UR & CO. PRIVATE LIMITED OF 0.18% DESPITE THE FACT THAT THE CORRECT COMPUTATION WAS DULY SUBMITTED BY THE APPELLANT BEF ORE THE LD. TPO IN ACCORDANCE WITH THE DIRECTIONS OF THE LD. DR P AND THE SAME WAS DULY CHECKED AND VERIFIED BY THE LD. TPO. 4. THE LD. AO / LD. DRP ERRED BOTH ON FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPELLANT BY RS.31,301, 467 BY HOLDING THAT ITS INTERNATIONAL TRANSACTION OF PROVI SION OF APPLICATION ENGINEERED SOFTWARE DEVELOPMENT AND RELATED SERVICE S DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE LD. DRP HAS GROSSLY ERRED IN AGREEING WITH THE LD. TPO'S ACTION OF: 4.1 NOT APPRECIATING THAT NONE OF THE CONDITIONS SE T OUT IN SECTION 92C(3) OF THE ACT WERE SATISFIED IN THE PRE SENT CASE; 4.2 DISREGARDING THE ALP AS DETERMINED BY THE APPEL LANT IN THE TRANSFER PRICING (,TP') DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE IN COME-TAX RULES, 1962 (,RULES') AS WELL AS FRESH SEARCH; AND IN PARTICULAR MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APP ELLANT; 4.3 DISREGARDING MULTIPLE YEAR / PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR I.E. FINANCIAL YEAR 2007-08 DATA FOR COMPARABLE COM PANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECE SSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DO CUMENTATION; ITA NO.5343/DEL./2012 3 4.4 REJECTING COMPARABILITY ANALYSIS IN THE TP DOCU MENTATION / APPELLANT'S FRESH SEARCH AND INSTEAD, CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON THE APPLICATION OF ERRONEOUS AND INAPPROPRIATE QUANTITATIVE AND QUALITATIVE FILTERS IN DETERMINING THE ALP FOR THE APPELLANT; 4.5 INCLUDING CERTAIN COMPANIES IN THE FINAL SET TH AT WERE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS P ERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 4.6 EXCLUDING CERTAIN COMPANIES ON ARBITRARY/FRIVOL OUS GROUNDS EVEN THOUGH THEY WERE COMPARABLE TO THE APPELLANT I N TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED; 4.7 CONSIDERING FOREIGN EXCHANGE FLUCTUATIONS AS OP ERATING IN NATURE WHILE CALCULATING THE OPERATING MARGINS OF T HE COMPARABLES/ APPELLANT; 4.8 INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE F INAL COMPARABLES' SET FOR BENCHMARKING A NORMAL RISK BEA RING COMPANY SUCH AS THE APPELLANT AND NOT ALLOWING A RISK ADJUS TMENT TO THE APPELLANT; 4.9. COLLECTING INFORMATION OF THE COMPANIES UNDER SECTION 133(6) OF THE ACT THAT WAS NOT AVAILABLE TO THE ASS ESSEE IN THE PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABI LITY PURPOSES; 4.10. GROSSLY ERRED IN NOT PROVIDING THE BENEFIT OF +/- 5% RANGE TO THE APPELLANT; AND 4.11. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. 5. THAT THE LD. AO HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT MECHANICALLY A ND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. 6. THAT THE LD. AO GROSSLY ERRED IN FACTS AND IN LA W IN NOT ALLOWING TAX CREDIT CLAIMED IN THE RETURN OF INCOME (IN RESPECT OF PREPAID TAXES, SELF ASSESSMENT TAX AND RELIEF CLAIM ED UNDER SECTION 90 OF THE ACT) TOTALLING TO RS.7,958,453. 7. THAT THE LD. AO HAS GROSSLY ERRED IN LEVYING AN INTEREST U/S 234B OF THE ACT TO THE TAXABLE INCOME OF THE APPELL ANT. 2. BRIEFLY STATED, THE FACTS OF THIS CASE ARE : CON SEQUENT UPON THE NOTICE ISSUED U/S143(2) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ITA NO.5343/DEL./2012 4 THE ACT), DURING SCRUTINY PROCEEDINGS, MS. ASHIMA VADHERA, CA PUT IN APPEARANCE, ATTENDED ASSESSMENT PROCEEDINGS, FILED SUBMISSIONS AND NECESSARY DETAILS AS REQUISITIONED. KEEPING IN VIEW THE AVERMENTS MADE BY THE ASSESSEE IN FORM 3CA B VIDE WHICH ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANS ACTION TO THE TUNE OF RS.15,39,29,906/-, THE MATTER WAS REFERRED TO TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LE NGTH PRICE (ALP) U/S 92CA (3), WHO HAS PASSED ORDER DATED 31.1 0.2011. BY DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTE RNATIONAL TRANSACTION QUA THE PROVISIONS OF ADVISORY SERVICES AT RS.19,38,60,164/- AS AGAINST RS.15,39,29,906/- DETE RMINED BY THE ASSESSEE AND THEREBY CALLED UPON THE ASSESSEE TO MA KE ADJUSTMENT/ENHANCEMENT OF RS.3,99,30,258/-. THE AS SESSEE REITERATED ITS SUBMISSIONS MADE BEFORE THE TPO EARL IER AND CONTENDED THAT COST PLUS METHOD APPLIED BY THE ASSE SSEE IN DETERMINING THE ARMS LENGTH PRICE IS THE MOST APPRO PRIATE METHOD HAVING ALREADY BEEN ACCEPTED BY THE REVENUE DEPARTM ENT IN THE PAST. ASSESSEE THEN CARRIED THE MATTER BEFORE THE LD. DRP AND VIDE ORDER DATED 17.06.2012, THE LD. DRP HAS DECLINED TO INTERFERE IN THE FINDINGS RETURNED BY THE TPO BY REJECTING ALL OBJEC TIONS RAISED BY THE ASSESSEE AND CONSEQUENTLY, ADJUSTMENT OF RS.3,9 9,30,258/- WAS MADE TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF AL P. ITA NO.5343/DEL./2012 5 3. FEELING AGGRIEVED WITH THE ORDER PASSED BY THE TPO/DRP/AO, THE ASSESSEE HAS COME UP BEFORE THE TRI BUNAL BY FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. AT THE VERY OUTSET, LD. AR FOR THE ASSESSEE HAS FAIRLY CONCEDED THAT THE GROUNDS NO.1, 2, 5 & 7 ARE OF ACA DEMIC NATURE AND HE DOES NOT PRESS THE SAME AND PROCEEDED TO ARG UE ON GROUNDS NO.3, 4 & 6 ONLY. 6. THE ASSESSEE COMPANY IS A SUBSIDIARY OF M/S. EME RSON ELECTRIC COMPANY, USA. EMERSON TODAY IS DESIGNING AND SUPPLYING PRODUCT TECHNOLOGY AND DELIVERING ENGINEE RING SERVICES IN A WIDE RANGE OF INDUSTRIAL, COMMERCIAL AND CONSU MER MARKETS AROUND THE WORLD. EMERSON AND ITS SUBSIDIARIES HAD AN AVERAGE OF APPROXIMATELY 137,700 EMPLOYEES DURING 2007. DURING THE FINANCIAL YEAR UNDER CONSIDERATION, THE ASSESSEE WA S ENGAGED IN PROVIDING APPLICATION ENGINEERED SOFTWARE DEVELOPME NT AND RELATED SERVICES TO ITS GROUP COMPANIES. 7. UNDISPUTEDLY, DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY ENTERED INTO FO UR INTERNATIONAL ITA NO.5343/DEL./2012 6 TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES), OUT OF WHICH TPO HAS DISPUTED ONLY ONE TRANSACTION WHICH IS TO T HE FOLLOWING EFFECT :- INTERNATIONAL TRANSACTION METHOD VALUE OF INTERNATIONAL TRANSACTION APPLICATION ENGINEERING SOFTWARE DEVELOPMENT SERVICES TNMM 15,39,29,906 8. TPO HAS DISPUTED THE ARMS LENGTH STANDARD ADOPTE D BY THE ASSESSEE FOR BENCHMARKING, HOWEVER ACCEPTED THE TRA NSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE ME THOD TO DECIDE OPERATING PROFIT/TOTAL COST (OP/TC) AS PROFI T LEVEL INDICATOR (PLI) FOR DETERMINING THE ARMS LENGTH NAT URE OF ITS INTERNATIONAL TRANSACTION REGARDING ENGINEERED SOF TWARE DEVELOPMENT AND RELATED SERVICES. THE TPO HAS ALS O NOT DISPUTED THAT PLI ASSESSED BY THE ASSESSEE AT 10.86 %. 9. ASSESSEE IN ORDER TO BENCHMARKING INTERNATIONAL TRANSACTIONS RELATING TO PROVISIONS OF APPLICATION ENGINEERED S OFTWARE DEVELOPMENT AND RELATED SERVICES, SELECTED TNMM AS THE MOST APPROPRIATE METHOD WITH OP/TC AS PLI HAVING ITS OWN PLI OF 10.86%. THE ASSESSEE HAS TAKEN FIVE COMPARABLE COM PANIES AND COMPUTED FROM WEIGHTED AVERAGE METHOD AT 9.91 %, HO WEVER DURING TRANSFER PRICING PROCEEDINGS, ASSESSEE IN OR DER TO MEET WITH THE QUERIES RAISED BY THE TPO FOR FILING UPDATED CU RRENT YEAR DATA ITA NO.5343/DEL./2012 7 OF FINANCIAL YEAR 2007-08 OF THE COMPARABLE COMPANI ES ADOPTED BY THE ASSESSEE, MADE A SUBMISSION TO MAKE A FRESH SEA RCH BY CONSIDERING UPDATED DATA ON THE GROUND THAT UPDATED DATA OF THE COMPARABLE COMPANIES ADOPTED BY THE ASSESSEE WAS NO T NECESSARILY AVAILABLE AT THE TIME OF PREPARING TRANSFER PRICING STUDY. THEN, ASSESSEE COMPANY SELECTED SEVEN NEW COMPARABLE COMP ANIES HAVING AVERAGE OP/TC AT 11.12% AS AGAINST ASSESSEE S OP/TC AT 10.86% BY MAKING USE OF CURRENT YEAR DATA. 10. HOWEVER, THE TPO AFTER REJECTING THE FILTERS AD OPTED BY THE ASSESSEE AND BY ADOPTING ADDITIONAL FILTERS FOR SCR EENING OF THE COMPARABLE COMPANIES CHOSEN FIVE NEW COMPANIES AS C OMPARABLES FOR BENCHMARKING THE ASSESSEES CONTRACT OF ENGINEE RING EXPORT SERVICES SEGMENT. A FINAL SET OF COMPARABLES ADOPT ED BY THE TPO ARE AS UNDER :- S. NO. NAME OF THE COMPANY ADJUSTED OPERATING PROFITS ON OPERATING COST (%) 1. MAHINDRA CONSULTING ENGINEERS LTD. 28.50 2. ALPHAGEO (INDIA) LTD. 38.48 3. STUP CONSULTANTS PVT. LTD. 30.52 4. SEMAC LTD. 49.00 5. KIRLOSKAR CONSULTANT LTD. 27.54 AVERAGE 34.80 11. ON THE BASIS OF STUDY OF AFORESAID FIVE FINAL C OMPARABLES CHOSEN BY THE TPO HAVING AVERAGE OP/TC AT 34.80% MA DE AN ADJUSTMENT OF RS.3,99,30,258/- TO THE ASSESSEES TA XABLE INCOME ON ITA NO.5343/DEL./2012 8 THE GROUND THAT INTERNATIONAL TRANSACTION OF PROVIS ION OF APPLICATION ENGINEERED SOFTWARE DEVELOPMENT AND RELATED SERVIC ES WAS NOT MEETING ARMS LENGTH STANDARD. PURSUANT TO THE TP O RDER PASSED BY THE TPO, THE AO UPHELD THE TP ADJUSTMENT OF RS.3,99 ,30,258/- AND ISSUED THE DRAFT ASSESSMENT ORDER. THEN THE ASSESS EE CARRIED THE MATTER BEFORE DISPUTE RESOLUTION PANEL (DRP), FILED DETAILED OBJECTIONS, WHO HAS DIRECTED THE TPO TO REJECT M/S. ALPHAGEO (INDIA) LTD. AND INCLUDE M/S. M.N. DASTUR & COMPANY (P.) LTD. AS COMPARABLE AFTER VERIFYING THEIR OPERATING PROFIT M ARGIN, BUT REJECTED ALL OTHER CONTENTIONS RAISED BY THE ASSESS EE. 12. SINCE THE AO HAS MADE AN ADJUSTMENT OF RS.3,99, 30,258/- OF THE ASSESSEE WITHOUT GIVING EFFECT TO THE DRP TRANS ACTION, THE SAID ERROR WAS GOT RECTIFIED BY THE ASSESSEE BY FILING A PPLICATION U/S 154 AND THEREAFTER, TPO PASSED AN ORDER DATED 18.06.201 2 BY GIVING EFFECT TO THE DIRECTIONS ISSUED BY THE LD. DRP AND MADE AN ADJUSTMENT OF RS.3,13,01,467/- TO THE TAXABLE INCOME OF THE ASSESSEE. GROUND NO.3 13. IN THE BACKDROP OF AFORESAID UNDISPUTED FACTS A ND CIRCUMSTANCES OF THE CASE, THE FIRST QUESTION ARISE S FOR DETERMINATION QUA GROUND NO.3 IN THIS CASE IS AS TO WHETHER THE TPO HAS ERRED IN NOT CONSIDERING CORRECT OP/TC MARG IN OF ITA NO.5343/DEL./2012 9 M/S. M.N. DASTUR & COMPANY (P.) LTD. OF 0.18% AND THEREAFTER FAILED TO COMPLY WITH THE DIRECTIONS ISS UED BY THE LD. DRP? 14. FINAL SET OF COMPARABLES CHOSEN BY THE TPO ON T HE BASIS OF DRPS DIRECTION ARE REPRODUCED AS UNDER FOR READY R EFERENCE :- SR.NO. NAME OF THE COMPANY OP / TC MARGIN FY 2007-08 1 MAHINDRA CONSULTING ENGINEERS LIMITED 28.50% 2 STUP CONSULTANTS LIMITED 30.52% 3 SEMAC LIMITED 49.00% 4 KIRLOSKAR CONSULTANTS LIMITED 27.54% 5 MN DASTUR & CO. PRIVATE LIMITED 8.46% COUNT 5 AVERAGE 28.80% 15. NOW, ON THE BASIS OF DOCUMENTS ON RECORD, WE AR E TO EXAMINE AS TO WHETHER OP/TC MARGIN FOR FINANCIAL YE AR 2007-08 OF M.N. DASTUR & CO. PVT. LTD. IS 8.46% AS CLAIMED BY THE TPO AS AGAINST 0.18% CLAIMED BY THE ASSESSEE. THE LD. AR FOR THE ASSESSEE BROUGHT ON RECORD COMPUTATION OF OP/TC MARGIN OF M/ S. M.N. DASTUR & CO. PVT. LTD., A COMPARABLE COMPANY FOR AY 2008-09 WHICH IS REPRODUCED AS UNDER FOR READY REFERENCE :- PARTICULARS AMOUNT (IN INR) OPERATING INCOME (A) 1,32,78,00,000 FEES ON ENGINEERING JOBS 1,32,64,06,080 FEES ON COMPUTER CONSULTANCY 13,93,920 OPERATING EXPENSES (B) 1,32,53,55,862 OPERATING & OTHER EXPENSES 1,28,83,36,863 DEPRECIATION 3,70,18,999 ITA NO.5343/DEL./2012 10 OPERATING PROFIT (OP) (A) (B) (C) 24,44,138 OP/TC = (C) / (B) 0.18% ADD : NON OPERATING INCOME (D) 19,13,64,978 DIVIDEND INCOME 4,43,30,681 INTEREST INCOME 6,52,63,205 OTHER INCOME 8,17,71,092 LESS : NON OPERATING EXPENSES (E) 2,18,68,513 EXCESS OF COST OVER FAIR VALUE OF CURRENT INVESTMENTS 2,18,68,513 PROFIT BEFORE TAXATION (C) + (D) (E) (AS PER PROFIT & LOSS ACCOUNT) 17,19,40,603 16. ASSESSEE IN ACCORDANCE WITH THE ORDER PASSED BY THE LD. DRP AND AFTER CONSIDERING THE OP/TC MARGIN OF M.N. DAST UR & CO. PVT. LTD. AT 0.18% AND GIVEN THE FRESH COMPUTATION SHOWI NG OP/TC MARGIN OF FINANCIAL YEAR 2007-08 OF THE FINAL COMPA RABLES CHOSEN BY THE TPO WHICH ARE REPRODUCED AS UNDER FOR READY REFERENCE :- SR.NO. NAME OF THE COMPANY OP / TC MARGIN FY 2007- 08 COMPARABLE PROPOSED BY THE LD. TPO / APPELLANT 1 MAHINDRA CONSULTING ENGINEERS LIMITED 28.50% LD. TPO 2 STUP CONSULTANTS LIMITED 30.52% LD. TPO 3 SEMAC LIMITED 49.00% LD. TPO 4 KIRLOSKAR CONSULTANTS LIMITED 27.54% LD. TPO 5 MN DASTUR & CO. PRIVATE LIMITED 0.18% APPELLANT COUNT 5 AVERAGE 27.15% 17. UNDISPUTEDLY, DURING THE RECTIFICATION PROCEEDI NGS FILED BEFORE TPO U/S 144 BY THE ASSESSEE, CORRECT COMPUTA TION OF OP/TC ITA NO.5343/DEL./2012 11 METHOD OF M/S. M.N. DASTUR & CO. PVT. LTD. OF 0.18% WAS FILED WHICH WAS VERIFIED BY THE TPO AND HAS NOT DISPUTED THE SAME IN ANY MANNER. AT THE SAME TIME, THE AO HAS ALSO ALLO WED TO PERPETUATE THE ERROR COMMITTED BY THE TPO IN CONSID ERING THE OP/TC MARGIN OF M/S. M.N. DASTUR & CO. PVT. LTD. BY RECORDING ITS OP/TC MARGIN AT 8.46% INSTEAD OF ACTUAL OP/TC M ARGIN OF 0.18%. SO, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER IS REQUIRED TO BE RESTORED TO THE TPO TO DECIDE THE MA TTER AFRESH BY TAKING ACTUAL MARGIN OF OP/TC BY M/S. M.N. DASTUR & CO. PVT. LTD. AND THEN TO COMPUTE THE ADJUSTMENT OF TRANSFER PRICING. CONSEQUENTLY, GROUND NO.3 IS DETERMINED IN FAVOUR O F THE ASSESSEE. GROUND NO.4 18. NOW, THE NEXT QUESTION ARISES FOR DETERMINATION IS AS TO WHETHER TPO HAS ERRED IN MAKING ADDITION OF RS.3,13 ,01,467/- TO THE TAXABLE INCOME OF THE ASSESSEE COMPANY ON AC COUNT OF ALP OF THE INTERNATIONAL TRANSACTIONS OF PROVISION OF APPLICATION OF ENGINEERED SOFTWARE DEVELOPMENT AND RELATED SERVICES BY ILLEGALLY AND ARBITRARILY INCLUDING FU NCTIONALLY DISSIMILAR COMPANIES AS COMPARABLE? 19. LD. AR FOR THE ASSESSEE CONTENDED THAT THE TPO HAS ARBITRARILY CHOSEN MAHINDRA CONSULTING INDIA LTD., STUP CONSULTANTS LIMITED, SEMAC LIMITED AND KIRLOSKAR CO NSULTANTS ITA NO.5343/DEL./2012 12 LIMITED, FUNCTIONALLY DISSIMILAR COMPANIES AS COMPA RABLES. WE WOULD LIKE TO EXAMINE THE FUNCTIONAL AND FINANCIAL PROFILE OF THE COMPARABLE COMPANIES IN ORDER TO BENCHMARKING INTER NATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE COMPANY UNDE R CONSIDERATION ONE BY ONE. MAHINDRA CONSULTING INDIA LTD. 20. THE LD. AR FOR THE ASSESSEE CONTENDED THAT THIS COMPARABLE COMPANY IS FUNCTIONALLY DISSIMILAR, HAVING SIGNIFIC ANT RELATED PARTY TRANSACTIONS AND RELIED UPON ORDER PASSED BY DELHI TRIBUNAL IN CASE CITED AS BECHTEL INDIA (P.) LTD. VS. ADDL.CIT 146 ITD 733 (DELHI TRIB.). 21. THE TPO, WHILE SELECTING THE MAHINDRA AS A COMP ARABLE COMPANY, HAS RETURNED THE FOLLOWING FINDINGS :- THE ASSESSEE HAS OBJECTED TO THE USE OF THIS COMPA NY AS A COMPARABLE ON ACCOUNT OF BEING FUNCTIONALLY DIFFERE NT AND SUBMITTED THAT CONSULTANCY SERVICES PROVIDED BY THI S COMPARABLE COMPANY IN MULTIDISCIPLINARY AREAS. IN CONTRAST, T HE SERVICES PROVIDED BY THE ASSESSEE ARE IN OF AN ENTIRELY DIFF ERENT NATURE. FURTHER, THE ASSESSEE HAS PROVIDED ARGUMENTS ON APP LICATION OF RELATED PARTY TRANSACTION FILTER TO REJECT COMPANIE S HAVING CONTROLLED TRANSACTIONS IN EXCESS OF 15% OF REVENUE , THE ASSESSEE HAS SUBMITTED THAT DURING THE FY 2007-08, MAHINDRA HAD TRANSACTIONS WITH ITS RELATED PARTIES TO THE EXTENT OF 15.51% OF THE TOTAL REVENUE. HERE AGAIN THE OBJECTION OF THE ASSESSEE IS MAINLY ON VERTICALS OF THE COMPANY. IT HAS ALREADY BEEN DISCUSSED EARLIER IN THIS ORDER. THEREFORE, THIS COMPANY CAN ALSO BE USED AS A COMPA RABLE HAVING REGARD TO ASSESSEES FUNCTIONAL PROFILE. FURTHER THE TAXPAYER HAS OBJECTED THIS COMPANY ON T HE BASIS OF ITS OWN CONTENTION OF RPT FILTER. THIS HAS ALREADY BEE N DISCUSSED IN ITA NO.5343/DEL./2012 13 THE RELEVANT PARA IN THIS ORDER AND ACCORDINGLY THE COMPANY HAS LESS THAN 25% OF RPT. HENCE IT IS RETAINED. 22. A PERUSAL OF THE PROFILE OF THE AFORESAID COMPA NY LYING AT PAGE 2 OF COMPENDIUM OF ANNUAL REPORT SHOWS THAT TH IS COMPANY IS INTO INFRASTRUCTURE SECTOR BY PROVIDING CONSULTA NCY SERVICES IN THE AREAS OF SPECIAL ECONOMIC ZONES, WATER SUPPLY & SEWERAGE, SOLID WASTE MANAGEMENT, URBAN INFRASTRUCTURE, AGRI INFRASTRUCTURE, SOCIAL INFRASTRUCTURE, PORTS & HARB OUR & OFFSHORE TERMINAL, INDUSTRIAL INFRASTRUCTURE, ETC. THE COMP ANY HAS ALSO WORKED ON INNOVATIVE PROJECTS LIKE CENTRE OF EXCELL ENCE FOR HORTICULTURE, DEDICATED OFFSHORE TERMINAL FOR COAL HANDLING AND IS AUGMENTING ITS EFFORTS TO CONSOLIDATE ITS POSITION AS A FRONT RUNNER IN INNOVATIVE PROJECTS. 23. SIMILARLY, PERUSAL OF PAGE 24 OF COMPENDIUM OF ANNUAL REPORT GOES TO PROVE THAT THE COMPARABLE COMPANY IS HAVING RELATED PARTY TRANSACTIONS TO THE EXTENT OF 15.51% OF THE TOTAL VALUE WHEREAS, ON THE OTHER HAND, THE ASSESSEE COMPANY IS INTO PROVIDING APPLICATION ENGINEERED SOFTWARE DEVELOPMENT AND RE LATED SERVICES TO ITS GROUP COMPANY WHICH IS DIAMETRICAL LY DISSIMILAR TO THE FUNCTIONAL PROFILE OF THE COMPARABLE COMPANY. 24. THE TPO HAS DISPOSED OFF BOTH THE OBJECTIONS TO THE INCLUSION OF THIS COMPARABLE COMPANY AS TO THE FUNC TIONAL ITA NO.5343/DEL./2012 14 DISSIMILARITY AS WELL AS A RELATED PARTY TRANSACTIO N TO THE EXTENT OF 15.51% BY RETURNING CRYPTIC FINDING THAT, THE COMPARABLE COMPANIES IS ALSO OPERATING IN THE AREA OF CONSULTA NCY ONLY AND THE COMPANY HAVING LESS THAN 25% RELATED PARTY TRAN SACTIONS AND HAS TAKEN AS COMPARABLE. HOWEVER, WHEN ADMITTEDLY, THE COMPARABLE COMPANY IS ENGAGED IN INFRASTRUCTURE IN THE AREA OF SPECIAL ECONOMIC ZONE, WATER SEWERAGE, SOLID WASTE MANAGEMENT, URBAN INFRASTRUCTURE, AGRI-INFRASTRUCTURE, SOCIAL I NFRASTRUCTURE, PORTS AND HARBOR & OFFSHORE TERMINAL, HORTICULTURE, COAL HANDLING, ETC., THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPA NY WHICH IS INTO APPLICATION ENGINEERED SOFTWARE DEVELOPMENT A ND RELATED SERVICES. THIS COMPARABLE HAS BEEN REJECTED BY TH E COORDINATE BENCH OF THE TRIBUNAL IN CASE CITED AS BECHTEL INDI A (P.) LTD. (SUPRA) AND RESTORED THE FILE BACK TO THE TPO. LD. DR FOR THE REVENUE HAS NOT CONTROVERTED THE PROPOSITION MOOTED OUT BY THE ASSESSEE AS TO THE AFORESAID DECISION OF THE COORDI NATE BENCH IN BECHTEL INDIA (P.) LTD. (SUPRA). STUP CONSULTANTS PRIVATE LIMITED 25. THE LD. AR SOUGHT TO EXCLUDE THIS COMPARABLE ON THE GROUND OF FUNCTIONAL DISSIMILARITY, ABNORMAL GROWTH IN TUR NOVER/ABNORMAL HIGH MARGIN AND AGAIN RELIED UPON BECHTEL INDIA (P. ) LTD. (SUPRA). ITA NO.5343/DEL./2012 15 THE TPO WHILE SELECTING THIS COMPANY AS COMPARABLE RETURNED THE FINDINGS TO THE FOLLOWING EFFECT :- 15.4 STUP CONSULTANTS PUT. LTD. ' THE ASSESSEE HAS OBJECTED TO THIS COMPANY ALSO ON A CCOUNT OF THE COMPANY BEING ENGAGED IN NON COMPARABLE SERVICES AS THE COMPANY IS PRIMARILY ENGAGED IN PROVIDING RANGE OF SERVICES IN THE FIELD OF ENGINEERING AND ARCHITECTURE. THE ASSESSEE HAS SUBMITTED THAT THE SERVICES RELATED TO ARCHITECTURAL CONSULTA NCY ARE ONLY COMPARABLE TO THE ASSESSEE HOWEVER, IN THE ABSENCE OF ANY SEGMENTAL INFORMATION REPORTED BY THE COMPANY, IT I S DIFFICULT TO SEGREGATE THE COST AND REVENUE ALLOCABLE TO EACH OF THESE TWO SERVICES RENDERED BY THE COMPANY. HENCE, ACCEPTING THE COMPANY WOULD RESULT IN A VERY SUBJECTIVE ANALYSIS. THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDERED. HERE, AGAIN THE OBJECTION OF THE ASSESSEE IS MAINLY ON VE RTICALS OF THE COMPANY. IT HAS ALREADY BEEN DISCUSSED EARLIER IN T HIS ORDER. IT IS SEEN FROM PAGE 13 OF THE ANNUAL REPORT : 'SEGMENT INFORMATION: (A) COMPANY IS CARRYING ON PROFESSION OF CIVIL ENGI NEERING AND ARCHITECTURE CONSULTANCY (B) FEES 2007-08 2006-07 FEES FOR CONSULTANCY SERVICES RENDERED WITHIN INDIA 93,90,66,985 60,69,58,122 FEES FOR CONSULTANCY SERVICES RENDERED OUTSIDE INDIA 6,33,13,896 2,21,28,452 THE OBJECTION OF THE ASSESSEE IS NOT TENABLE . A CA REFUL READING OF THE ABOVE SEGMENT INFORMATION CLEARLY SH OWS THAT THE COMPANY IS ENGAGED INTO PROVIDING CONSULTANCY IN BO TH THE SEGMENTS I.E. CIVIL ENGINEERING CONSULTANCY AND ARC HITECTURAL CONSULTANCY AS IT IS DERIVING ITS TOTAL FEES FROM C ONSULTANCY ONLY. THIS IS ALSO EVIDENT FROM THE EXTRACT TAKEN BY ASSE SSEE FROM THE WEBSITE OF THE ASSESSEE THAT, 'STUP IS A FAIL SERVICE PROJECT DELIVERY CONSULTANCY COMPANY,..,.,.,,.--'. THEREFORE, THE COMPANY IS FULLY INTO ENGINEERING AND TECHNICAL CONSULTANCY AN D WILL BE TAKEN AS COMPARABLE. ABNORMALLY HIGH MARGIN: FURTHER, IT IS SUBMITTED THAT HIGH PROFIT MAKING COMPANIES SHOULD NOT BE TAKEN AS COMPARABLES FOR BENCHMARKING PROVISION OF ENGINEERING SERVICES OF THE ITA NO.5343/DEL./2012 16 ASSESSEE. IN THIS REGARD, REFER ARGUMENTS FURNISHED BY THE ASSESSEE IN CASE OF ALPHAGEO. IN LIGHT OF THE ABOVE IT IS SUBMITTED THAT MITCON W ITH OP/ TC MARGIN OF 41.21% SHOULD BE EXCLUDED FROM THE FIN AL SET OF COMPARABLES. AS DISCUSSED ABOVE, THE REASONS FOR IT S SUPERNORMAL PROFITS ARE NOT FAR TO SEEK. THE SAID COMPANY HAS A DIFFERENT FUNCTIONAL PROFILE COMPARED TO THE ASSESSEE, WHICH EXPLAINS WHY IT IS EARNING SUCH ABNORMALLY HIGH PROFIT MARGIN COMPA RED TO ASSESSEE. HENCE THERE ARE VALID REASONS FOR ITS EXC LUSION FROM THE FINAL SET OF COMPARABLES. IT IS SEEN FROM THE ABOVE THAT THE MAJORITY OF THE INCOME OF THE COMPANY IS FROM PROFESSION FEES ONLY. SINCE, TH E COMPANY IS DERIVING ITS MAJORITY OF THE INCOME FROM PROFESSION FEES ON ACCOUNT OF TECHNICAL CONSULTANCY, THESE ACTIVITIES CAN BE CONSIDERED AS COMPARABLE TO THE ACTIVITIES BEING PE RFORMED BY THE ASSESSEE AND ACCORDINGLY, THE COMPANY IS ALSO ACCEP TED AS A COMPARABLE. 26. A PERUSAL OF THE AFORESAID OBSERVATION RETURNED BY THE TPO APPARENTLY SHOWS THAT THE ASSESSEE HAS RAISED SPECI FIC OBJECTION AS TO DISSIMILARITY OF THIS COMPANY BY HIGHLIGHTING TH AT THIS COMPANY IS PRIMARILY 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 SEGME NT INFORMATION, LYING AT PAGE 13 OF THE ANNUAL REPORT, REJECTED THE OBJECTION RAISED BY THE ASSESSEE ON THE GROUND THAT THE COMPANY IS E NGAGED IN PROVIDING CONSULTANCY IN BOTH THE SEGMENTS I.E. CIV IL AND ENGINEERING, CONSULTANCY AND ARCHITECTURAL CONSULTA NCY AND IS DRIVING ITS TOTAL FEE FROM CONSULTANCY ONLY AND DIS POSED OFF THE OBJECTION OF ABNORMALLY HIGH MARGIN ON THE GROUND T HAT THE COMPANY HAS A DIFFERENT FUNCTIONAL PROFILE COMPARED TO THE ITA NO.5343/DEL./2012 17 ASSESSEE WHICH EXPLAINS WHY IT IS EARNING SUCH HIGH PROFIT MARGIN. ALL THESE FINDINGS ARE SELF CONTRADICTORY BECAUSE O N THE ONE HAND, THE TPO OBSERVED THAT THIS COMPANY IS TAKEN AS A CO MPARABLE AND ON THE OTHER HAND, RECORDED THE FINDING THAT THIS C OMPANY HAS A DIFFERENT FUNCTIONAL PROFILE COMPARED TO THE ASSESS EE COMPANY. SO, WE ARE OF THE CONSIDERED VIEW THAT THIS COMPANY IS NOT FIT FOR TAKING AS COMPARABLE AND HAS TO BE EXCLUDED AND FRESH SEAR CH IS REQUIRED TO BE MADE BY THE TPO BY PROVIDING AN OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. SEMAC LIMITED 27. THE TPO SELECTED THIS COMPARABLE DESPITE OBJECT IONS RAISED BY THE ASSESSEE COMPANY FOR ITS INCLUDING FOR TP ST UDY BY RETURNING THE FOLLOWING FINDINGS :- 15.5 SEMAC LIMITED FOR THIS COMPARABLE, THE ASSESSEE HAS STATED THAT T HE ANNUAL REPORT IS NOT AVAILABLE IN THE PUBLIC DOMAIN. NO DESCRIPTI ON ABOUT THIS COMPANY IS PROVIDED IN THE SHOW-CAUSE NOTICE. IN TH E ABSENCE OF ANY INFORMATION TO ESTABLISH COMPARABILITY, IT IS R EQUESTED NOT TO CONSIDER SEMAC LIMITED AS A COMPARABLE TO THE ASSES SEE. IN THIS REGARD, THE ANNUAL REPORT M/S SEMAC LIMITED WAS OBTAINED U/S 133(6) AND SAME HAS BEEN PROVIDED TO T HE TAXPAYER WITH THE SHOW-CAUSE NOTICE.: HOWEVER, NO RESPONSE HAS BEEN RECEIVED FROM THE ASS ESSEE COMPANY. HOWEVER, IT IS SEEN FROM THE ANNUAL REPORT OF THE COMPANY FOR FY 2007-08 THAT 100% OF THE INCOME OF T HE COMPANY IS FROM PROFESSION FEES ONLY: SEMAC PRIVATE LIMITED, BANGALORE ITA NO.5343/DEL./2012 18 PROFIT AND LOSS ACCOUTN FOR THE YEAR ENDING 31 ST MARCH 2008 SCHE- DULE NO. 2008 2007 1 2 3 4 5 I. INCOME : PROFESSIONAL FEES BANGALORE OFFICE HYDERABAD OFFICE NEW DELHI OFFICE DUBAI OFFICE MISCELLANEOUS RECEIPTS T O T A L II. EXPENDITURE : ESTABLISHMENT, ADMINISTRATION AND OTHER EXPENSES T O T A L PROFIT BEFORE TAXATION 12 13 4 RUPEES 89,246,536 81,710,542 131,372,010 10,464,069 205,985,457 6,673,677 RUPEES 312,793,156 3.909,575 316,702,731 __________ 212,659,134 104,043,597 RUPEES 50,546,796 40,876,015 80,001,200 11,315,628 182,733,639 2,539,982 185,273,621 144,501,257 5,123,696 149,624,953 35,648,668 ALSO, THE ASSESSEE HAS OBJECTED TO THIS COMPANY ALS O ON ACCOUNT OF THE COMPANY BEING ENGAGED IN NON COMPARABLE SERVICE S AS THE COMPANY IS PRIMARILY ENGAGED IN PROVIDING RANGE OF SERVICES IN THE FIELD OF TOPOGRAPHICAL SURVEYS, SOIL INVESTIGATION ETC. THIS OBJECTION PERTAINS TO INDUSTRY VERTICALS WHICH HAS BEEN DISCU SSED EARLIER. THE ASSESSEE HAS ALSO OBJECTED TO THIS COMPANY ALSO ON ACCOUNT OF THE COMPANY BEING A HIGH PROFIT MAKING COMPANY. TH IS OBJECTION HAS ALSO BEEN DEALT EARLIER. SINCE, THE COMPANY IS DERIVING ALL OF ITS INCOME FR OM PROFESSION FEES ON ACCOUNT OF TECHNICAL CONSULTANCY, THESE ACT IVITIES ARE TO BE CONSIDERED AS COMPARABLE TO THE ACTIVITIES BEING PE RFORMED BY THE ASSESSEE AND ACCORDINGLY, THIS COMPANY HAS BEEN RIG HTLY TAKEN AS A COMPARABLE. 28. A PERUSAL OF THE ANNUAL REPORT AT PAGES 603 TO 645 OF THE PAPER BOOK APPARENTLY SHOWS THAT THIS COMPARABLE CO MPANY IS PROVIDING ENGINEERING CONSULTANCY SERVICES WHEREAS THE ASSESSEE COMPANY PROVING APPLICATION ENGINEERED SOFTWARE DE VELOPMENT AND RELATED SERVICES. SO, THERE IS A STARK DIFFER ENCE BETWEEN ITA NO.5343/DEL./2012 19 APPLICATION OF ENGINEERED SOFTWARE DEVELOPMENT AND RELATED SERVICES AND CONSULTING ENGINEERING SERVICES. 29. MOREOVER, THE LD. AR HAS VEHEMENTLY CONTENDED T HAT THE COMPANYS ANNUAL REPORT FOR FY 2007-08 IS NOT AVAIL ABLE IN PUBLIC DOMAIN. THOUGHT THE TPO HAS CLAIMED TO HAVE PROVID ED ANNUAL REPORT TO THE ASSESSEE COMPANY AT THE TIME OF ISSUA NCE OF THE SHOW- CAUSE NOTICE BUT THE SAID REPORT IS NOT LEGIBLE. N OT ONLY THIS, NO SEGMENTAL INFORMATION IS AVAILABLE IN THE ANNUAL RE PORT TO WORK OUT THE REQUISITE COMPARABILITY. FURTHERMORE, UNDISPUT EDLY THIS COMPANY HAS EARNED HIGH OPERATING PROFIT MARGIN OF 49.00% FOR FY 2007-08 AS PER TP ORDER. LD. AR TO EXCLUDE THIS COMPARABLE AGAIN RELIED UPON BECHTEL INDIA (P.) LTD. (SUPRA) W HEREIN THIS COMPARABLE COMPANY HAS BEEN EXCLUDED ON GROUND OF I LLEGIBLE ANNUAL REPORT. SO, WE ARE OF THE CONSIDERED VIEW T HAT TO ARRIVE AT A LOGICAL CONCLUSION TO SELECT SEMAC LIMITED AS A COM PARABLE COMPANY, LEGIBLE REPORT IS REQUIRED TO BE EXAMINED BY THE ASSESSEE. SO, THE TPO TO RECONSIDER THIS COMPARABLE BY SUPPLY ING LEGIBLE COPY OF ANNUAL REPORT TO THE ASSESSEE AND TO DECIDE AFRESH. 30. LD. DR HAS FAILED TO CONTROVERT THE SUBMISSIONS MADE BY THE LD. AR DISCUSSED IN PRECEDING PARAS THAT AFORESAID COMPANY, NAMELY, MAHINDRA, STUP CONSULTANTS PRIVATE LIMITED AND SEMAC ITA NO.5343/DEL./2012 20 LIMITED ARE LIABLE TO BE EXCLUDED BY APPLYING THE O RDER PASSED BY THE ITAT IN CASE BECHTEL INDIA (P.) LTD. (SUPRA). 31. LD. AR SOUGHT INCLUSION OF THREE COMPARABLES, N AMELY, PROJECTS & DEVELOPMENT INDIA LIMITED, GEOMETRIC LIM ITED (FORMERLY KNOWN AS GEOMETRIC SOFTWARE SOLUTIONS LIM ITED) AND KITKO LIMITED, AS PER TP STUDY/FRESH SEARCH BY APPL YING THE MODIFYING PARAMETERS IN THE LIGHT OF SHOW CAUSE NOT ICE ISSUED BY THE TPO. 32. TPO REJECTED GEOMETRIC LIMITED (FORMERLY KNOWN AS GEOMETRIC SOFTWARE SOLUTIONS LIMITED) ON THE GROUND THAT THE SERVICE INCOME OF THIS COMPARABLE IS LESS THAN 75% AND ON THE FURTHER GROUND THAT THE COMPANY IS ENGAGED IN SOFTW ARE DEVELOPMENT AND AS SUCH IS FUNCTIONALLY DIFFERENT. 33. HOWEVER, FROM THE PROFIT & LOSS ACCOUNT OF THIS COMPANY FROM ANNUAL REPORT FOR FY 2007-08 LYING AT PAGE 186 OF THE COMPENDIUM OF ANNUAL REPORT, IT IS APPARENTLY CLEAR THAT THIS COMPANY IS SERVICE COMPANY AND IS EARNING ITS INCOM E TO THE EXTENT OF 85.66% FROM SERVICE INCOME, WHICH FITS INTO THE TPOS FILTER THAT THE SERVICE INCOME SHOULD NOT BE LESS THAN 75% . SO FAR AS QUESTION OF FUNCTIONAL DISSIMILARITY IS CONCERNED, THE COMPANY IS INTO SOFTWARE SOLUTIONS FOR THE MECHANICAL DESIGN A ND MANUFACTURING MARKETS, OFFERINGS END-TO-END SOLUTIO NS FOR THE ITA NO.5343/DEL./2012 21 CAD/CAM/CAE AND COLLABORATIVE ENGINEERING MARKETS. WE ARE OF THE CONSIDERED VIEW THAT THIS COMPANY HAS BEEN R EJECTED FROM THE LIST OF COMPARABLES ON THE BASIS OF WRONG DATA AND ASSUMED FUNCTIONAL DISSIMILARITY AND AS SUCH IS REQUIRED TO BE RECONSIDERED FOR INCLUSION BY THE TPO. 34. SO FAR AS INCLUSION OF KITCO LTD., AS SOUGHT FO R BY THE ASSESSEE, IS CONCERNED, THE LD. AR AGAIN RELIED UPO N THE ORDER OF THE ITAT, DELHI BENCH IN CASE OF BECHTEL INDIA (P.) LTD . (SUPRA) WHEREIN IT HAS BEEN HELD THAT KITKO LIMITED SHOULD NOT HAVE BEEN EXCLUDED AS OTHER COMPARABLES ARE INCLUDED BY THE T PO ON THE SAME PARAMETERS. THIS PROPOSITION HAS NOT BEEN CON TROVERTED BY THE LD. DR. SO, THIS COMPARABLE IS ALSO REQUIRED T O BE INCLUDED BY THE TPO FOR TP ADJUSTMENT BY PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 35. LD. AR FURTHER CONTENDED TO INCLUDE PROJECTS & DEVELOPMENT INDIA LIMITED AS COMPARABLE SELECTED I N THE FRESH SEARCH CONDUCTED BY THE ASSESSEE DURING TP PROCEEDI NGS. THE TPO REJECTED THIS COMPANY ON THE ONLY GROUND THAT THIS COMPANY DOES NOT SHOW ANY SERVICE INCOME. HOWEVER, PERUSAL OF T HE PROFIT & LOSS ACCOUNT AND SCHEDULE 11 OF THE ANNUAL REPORT O F THE COMPANY, LYING AT PAGE 115 TO 121, IT IS APPARENTLY CLEAR TH AT THE MAJOR COMPONENT OF THE INCOME OF THIS COMPANY IS FROM THE SERVICE ITA NO.5343/DEL./2012 22 INCOME WHICH IS 99.92% AND IS MORE THAN 75% AS REQU IRED BY THE TPO. SO, WE ARE OF THE CONSIDERED VIEW THAT THIS C OMPANY HAS BEEN REJECTED BY THE TPO/DRP FROM THE LIST OF COMPA RABLES ON FLIMSY GROUND WITHOUT PERUSING THE RECORD AND AS SU CH, IS LIABLE TO BE INCLUDED IN THE FINAL LIST OF COMPARABLES. GROUND NO.4.8 36. THE LD. AR CONTENDED THAT THE LD. AO/DRP HAS ER RED IN INCLUDING HIGH PROFIT MAKING COMPANIES IN THE LIST OF FINAL COMPARABLES FOR BENCHMARKING A NORMAL RISK BEARING COMPANY AND NOT ALLOWING A RISK ADJUSTMENT TO THE ASSESSEE COMP ANY AND RELIED UPON MOTOROLA SOLUTIONS. 37. THE LD. TPO DISALLOWED THE RISK ADJUSTMENT AS C LAIMED BY THE ASSESSEE COMPANY BY RETURNING THE FOLLOWING FIN DINGS :- RISK ADJUSTMENT AS A GENERAL RULE CANNOT BE ALLOW ED UNLESS IT IS CLEARLY SHOWN THAT THE COMPARABLES HAD ACTUAL LY UNDERTAKEN SUCH RISK AND HOW THE SAME MATERIALLY AFFECTED THEI R MARGINS. THE REVISED DECO GUIDELINES OF 2010 HAS ALSO STATED IN PARA 3.54 AS UNDER: 'ENSURING THE NEEDED LEVEL OF TRANSPARENCY OF COMPA RABILITY ADJUSTMENTS MAY DEPEND UPON THE AVAILABILITY OF AN EXPLANATION OF ANY ADJUSTMENTS PERFORMED, THE REASONS FOR THE ADJU STMENTS BEING CONSIDERED APPROPRIATE, HOW THEY WERE CALCULATED, H OW THEY CHANGED THE RESULTS FOR EACH COMPARABLE AND HOW THE ADJUSTMENT IMPROVES COMPARABILITY. ISSUES REGARDING DOCUMENTAT ION OF COMPARABILITY ADJUSTMENTS ARE DISCUSSED IN CHAPTER V.' FROM THE ABOVE GUIDELINES IT CAN BE SEEN THAT UNLES S IT IS SHOWN THAT HOW THE RISK ADJUSTMENT WOULD CHANGE THE RESULT OF EACH COMPARABLE AND HOW THE SAME WOULD IMPROVE THE COMPARABILITY AND UNLESS ADEQUATE REASONS ARE GIVEN FOR SUCH ADJUSTMENT, NO ADJUSTMENT CAN BE ALLOWED TO THE TAX PAYER. IN THE PRESENT CASE EXCEPT POINTING OUT VARIOUS RISKS THE TAXPAYER HAS NOT ITA NO.5343/DEL./2012 23 SHOWN WITH EVIDENCE AS TO WHETHER EACH OF THE RISK WAS ACTUALLY UNDERTAKEN BY THE COMPARABLES OR NOT AND IF SO HOW THESE RISKS AFFECTED EACH OF THEM AND WHETHER SUCH ADJUSTMENT W OULD IMPROVE THE COMPARABILITY IT MAY ALSO BE MENTIONED THAT IT IS INCORRECT TO SAY THAT THE TAXPAYER IS WORKING VIRTUALLY IN A RIS K FREE ENVIRONMENT. AS MENTIONED ABOVE THE TAXPAYER TOO BE ARS SEVERAL RISKS LIKE TECHNOLOGY RISK, FOREIGN EXCHANGE RISK, MANPOWER RISK, ETC. 38. NO DOUBT, THE ASSESSEE COMPANY HAS CLAIMED RISK ADJUSTMENT DURING TP PROCEEDINGS FOR BENCHMARKING WITH THE COM PARABLE COMPANIES BUT THE DETAIL OF THE RISK ADJUSTMENT SOU GHT FOR BY THE ASSESSEE IS NOT AVAILABLE ON THE FILE. SO, WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE IS TO PROVIDE THE DETAILS OF THE RISK ADJUSTMENT SOUGHT FOR AND IN CASE, IT COMES WITHIN + / - 5% T HEN NO SUCH BENEFIT IS TO BE GIVEN. OTHERWISE, TPO IS DIRECTED TO DECIDE THE MATTER AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEI NG HEARD. 36. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE P RESENT APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED FOR STATIST ICAL PURPOSES AND THE FILE IS ORDERED TO BE RESTORED TO THE TPO TO DE CIDE AFRESH IN PURSUANCE OF THE OBSERVATIONS MADE HEREINBEFORE BY PROVIDING OPPORTUNITY OF BEING HEARD TO THE PARTIES. ORDER PRONOUNCED IN OPEN COURT ON THIS 13TH DAY OF APRIL, 2016. SD/- SD/- (S.V. MEHROTRA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 13 TH DAY OF APRIL, 2016/TS ITA NO.5343/DEL./2012 24 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CITP 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.