ASST CIT 15(2)(1), MUMBAI V. IOT DESIGN & ENGINEERING LTD, MUMBAI

ITA 63/MUM/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8157 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 07-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HUSAIN ANSARI
• Assessee Lawyers: DARSHAN DALAL
• Keywords: Business income; Transfer pricing; International transaction; Period of limitation; Working capital adjustments; Non-deduction of tax; Bad and doubtful debts; TDS; Set aside
• Section: 271(1)(c); 143(3); 92D; 144C; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K, BENCH MUM BAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.4722/MUM/2016 ( ASSESSMENT YEAR: 2010-11 ) IOT DESIGN & ENGINEERING LIMITED PLOT NO.Y2, CEAT TYRE ROAD, NEAR NAHUR RAILWAY STATION, BHANDUP(W) MUMBAI-400 078 VS. DCIT-10(3) AAYKAR BHAWAN, M.K.ROAD MUMBAI-400 020 PAN/GIR NO. A ABCI7624L ( APPELLANT ) .. RESPONDENT ) & ITA NO.536/MUM/2016 ( ASSESSMENT YEAR: 2011-12 ) IOT DESIGN & ENGINEERING LIMITED PLOT NO.Y2, CEAT TYRE ROAD, NEAR NAHUR RAILWAY STATION, BHANDUP(W) MUMBAI-400 078 VS. DCIT-15(2)(1) AAYKAR BHAWAN, M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AABCI7624L ( APPELLANT ) .. RESPONDENT ) & ITA.NO.63/MUM/2016 ( ASSESSMENT YEAR: 2011-12 ) ACIT-15(2)(1) ROOM NO.403, 4 TH FLOOR AAYKAR BHAWAN, M.K.ROAD MUMBAI-400 020 VS. IOT DESIGN & ENGINEERING LIMITED PLOT NO.Y2, CEAT TYRE ROAD, NEAR NAHUR RAILWAY STATION, BHANDUP(W) MUMBAI-400 078 PAN/GIR NO. AABCI7624L ( APPELLANT ) .. RESPONDENT ) & ITA NO.4921/MUM/2016 ( ASSESSMENT YEAR: 2011-12 ) ACIT-15(2)(1) AAYKAR BHAWAN, M.K.ROAD MUMBAI-400 020 VS. IOT DESIGN & ENGINEERING LIMITED PLOT NO.Y2, CEAT TYRE ROAD, NEAR NAHUR RAILWAY IOT DESIGN & ENGINEERING LIMITED 2 STATION, BHANDUP(W) MUMBAI-400 078 PAN/GIR NO. AABCI7624L ( APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI AKHTAR HUSAIN ANSARI, CIT-DR ASSESSEE BY SHRI DARSHAN DALAL, AR DATE OF HEARING 29/01/2020 DATE OF PRONOUNCEME NT 17 /0 6 /2020 / O R D E R PER G.MANJUNATHA (A.M) : THE ASSESSEE HAS FILED APPEAL AGAINST ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-56, MUMBAI, DA TED 28/03/2016 FOR ASST.YEAR 2010-11, WHICH IN TURN FIL ED AGAINST FINAL ASSESSMENT ORDER PASSED BY THE LD. AO U/S 143(3) R. W.S. 144C OF THE I.T.ACT, 1961, DATED 07/03/2014. THE ASSESSEE H AS ALSO FILED APPEAL AGAINST DIRECTION OF THE DISPUTE RESOLUTION PANEL (DRP)-1, MUMBAI, DATED 15/09/2015, WHICH IN TURN ARISING OUT OF DRAFT ASSESSMENT ORDER PASSED BY THE LD. AO U/S 144C(1) O F THE I.T.ACT, 1961, DATED 31/03/2015 FOR ASST.YEAR 2011-12. THE R EVENUE HAS FILED APPEAL AGAINST DIRECTIONS OF THE DRP-1, MUMBA I UNDER RULE 13 OF INCOME TAX (DRP) RULES, 2009, DATED 28/03/2016 F OR ASST.YEAR 2011-12. THE REVENUE HAS ALSO, FILED CROSS OBJECTIO N AGAINST ORDER OF THE DRP-1, MUMBAI, DATED 15/09/2015 FOR ASST.YEAR 2 011-12. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THE APPEALS FILED BY THE ASSESSEE, AS WELL AS THE IOT DESIGN & ENGINEERING LIMITED 3 REVENUE AND CROSS OBJECTION FILED BY THE REVENUE WE RE HEARD TOGETHER AND ARE DISPOSED-OFF BY THIS CONSOLIDATED ORDER. ITA NO.4722/MUM/2016 FOR ASST.YEAR 2010-11:- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. TRANSFER PRICING 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF RS. 2 ,16,04,328 MADE BY THE LEARNED ASSESSING OFFICER ('AO) TO THE VALUE OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE APPELLANT COMPANY W ITH ITS ASSOCIATED ENTERPRISE ('AE') AS THE SAME IS BASED O N AN INCORRECT UNDERSTANDING OF THE FACTS OF THE CASE AND THEREBY INCORRECT APPLICATION OF THE LAW. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS LEGALLY AND FACTUALLY ERRED IN CONFIRMING THE ACTION OF LEARNED AO/TPO BY REJECTING 3 COMPANIES ADOPTED BY THE APPELLANT COMP ANY AS COMPARABLES IN ITS TRANSFER PRICING STUDY REPORT (T PSR'), ON THE BASIS OF OBSERVATION MADE BY THE LEARNED TPO AND ON VERIFICATION OF FINANCIALS OF THESE COMPARABLE COMPANIES, NAMELY: SR.NO. NAME OF THE COMPANY 1 CADES DIGITCEH PRIVATE LIMITED 2 EASUN ENGINEERING CO. LTD. 3 MOLIND ENGINEERING LTD. 1.3. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS LEGALLY AND FACTUALLY ERRED IN CONFIRMING THE ACTION OF LEA RNED AO/TPO BY INCLUDING 2 COMPANIES, ON THE BASIS OF THE OBSERVAT ION MADE BY THE LEARNED TPO, IN THE FINAL SET OF 6 COMPARABLES, REJ ECTED BY THE APPELLANT COMPANY AS BEING FUNCTIONALLY DIFFERENT IN ITS TPSR, NAMELY: SR.NO. NAME OF THE COMPANY 1 MAHINDRA CONSULTING ENGINEERS LID. 2 WAPCOS LTD. IOT DESIGN & ENGINEERING LIMITED 4 1.4.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS LEGALLY AND FACTUALLY ERRED IN CONFIRMING THE ACTION OF LEARNED AO/TPO BY INCLUDING 2 COMPANIES, ON THE BASIS OF THE OBSERVATION MADE BY THE LEARNED TPO, IN THE FINAL SET OF 6 COMPARABLES, NOT APPEARING IN TH E SEARCH PROCESS ADOPTED BY THE APPELLANT COMPANY AS BEING FUNCTIONA LLY DIFFERENT IN ITS TPSR, NAMELY: SR.NO. NAME OF THE COMPANY 1 ENGINEERS INDIA LTD. (CONSULTANCY SEGMENT) 2 RITES LTD (CONSULTANCY SEGMENT) 1.5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS LEGALLY AND FACTUALLY E RRED IN NOT GIVING ANY FINDING ON THE APPELLANT'S GROUND AGAINST THE ACTIO N OF LEARNED AO/TPO IN NOT CONSIDERING MULTIPLE YEAR DATA FOR CALCULATION OF PROFIT LEVEL INDICATOR ('PLI') OF COMPARABLE COMPANIES, FAILING TO APPRECI ATE THE PROVISIONS OF PROVISO TO RULE 10B(4) OF THE INCOME TAX RULES, 196 2. 1.6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS LEGALLY AND FACTUALLY E RRED IN NOT GIVING ANY FINDING ON THE APPELLANT'S GROUND AGAINST ACTION OF LEARNED AO/TPO IN MAKING ERRONEOUS CALCULATION OF PLI OF CERTAIN COMP ANIES INCLUDED IN THE FINAL SET OF COMPARABLES AND ALSO BY CONSIDERING TH E FOREIGN EXCHANGE GAIN/LOSS AS NON-OPERATING EXPENDITURE. 1.7. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS LEGALLY AND FACTUALLY E RRED IN NOT GIVING ANY FINDING ON THE APPELLANT'S GROUND AGAINST ACTION OF LEARNED AO/TPO IN NOT ALLOWING THE APPELLANT COMPANY TO MAKE FUNCTIONAL A ND RISK ADJUSTMENTS, INCLUDING WORKING CAPITAL ADJUSTMENTS, TO THE PLI O F COMPARABLE COMPANIES, AND ALSO NOT MAKING SUCH ADJUSTMENTS THE MSELVES, THEREBY, FAILING TO APPRECIATE THE PROVISIONS OF RULE 10B(L) (E) OF THE INCOME TAX RULES, 1962. 1.8 WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS LEGALLY AND FACTUALLY E RRED IN NOT GIVING ANY FINDING ON THE APPELLANT'S GROUND AGAINST ACTION OF LEARNED AO/TPO IN MAKING TRANSFER PRICING ADJUSTMENTS TO THE TOTAL RE VENUE OF THE APPELLANT COMPANY INSTEAD OF RESTRICTING IT TO THE VALUE OF T HE INTERNATIONAL TRANSACTION. 2. ADDITION OF UNDISCLOSED RECEIPTS OF RS 40,16,24 3 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN CONFIRMING ADDITION OF RS. 40,16,244 AS RECEIPT FRO M IOT MABAGAS LIMITED (ERSTWHILE KNOWN AS IOT CUDDALORE CONSTRUCT ION & TERMINALLING LIMITED) AS UNDISCLOSED RECEIPTS TO THE TOTAL INCOM E OF THE APPELLANT COMPANY WITHOUT APPRECIATING THE FACT THAT THE SAID RECEIPT HAS ALREADY IOT DESIGN & ENGINEERING LIMITED 5 BEEN CONSIDERED IN THE TOTAL INCOME OF THE APPELLAN T COMPANY IN AY 2009-10 ON ACCRUAL BASIS AND OFFERED TO TAX AND SAI D ADDITION AMOUNTS TO DOUBLE TAXATION OF SAME INCOME. 3. DISALLOWANCE OF PROFESSIONAL FEES OF RS 31,48,1 79 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN CONFIRMING THE DISALLOWANCE OF RS 30,13,959 AS PROF ESSIONAL FEES FOR FAILURE TO DEDUCT TAX AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII B OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE SAID AMOUNT IS IN NATURE OF BAD DEBTS BUT WAS ERRONEOUSLY DISCLOSED IN THE PROFESSIONAL FEES LEDGER INSTEAD O F SEPARATE ITEM IN THE PROFIT & LOSS ACCOUNT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER FAILED TO APPRECIATE THE FACT THAT THE SAID WRITE OFF IS IN NATURE OF IRRECOVERABLE REVENUE WHICH RECOGNIZED AS REVENUE AND OFFERED TO TAX IN AY 2009-10. 4. PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S LEGALLY AND FACTUALLY ERRED IN NOT GIVING! FINDING AGAINST ACTI ON OF LEARNED AO IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(L) (C) OF ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF DESIGN & ENGINEERING SER VICES IN THE FIELD OF REFINERIES, PETROCHEMICALS, CEMENTS, FERTI LIZERS & POWER PLANTS. THE ASSESSEE COMPANY IS ALSO, ENGAGED IN TH E BUSINESS OF DETAILED ENGINEERING OF EPC PROJECTS MAINLY WITH RE SPECT TO TERMINALS. THE ASSESSEE HAS ENTERED INTO INTERNATIO NAL TRANSACTIONS OF RS.17,71,95,912/-, WHERE IT HAS PROVIDED ENGINEE RING SERVICES TO ITS ASSOCIATED ENTERPRISES(AE), INDIAN OIL TANKING ENGINEERING AND CONSTRUCTION SERVICES LLC, OMAN. THE ASSESSEE HAS B ENCHMARKED INTERNATIONAL TRANSACTIONS WITH ITS AE AND SELECTED TNMM AS MOST APPROPRIATE METHOD. THE ASSESSEE HAS SELECTED FIVE COMPARABLE COMPANIES BASED ON THE SELECTION CRITERIA AND FILTE RS WITH A ARITHMETIC MEAN OF (1.64%). THE ASSESSEE HAS COMPUT ED OPERATING MARGIN AND USED OP/OC AS PLI AND SELECTED THREE YEA RS DATA. THE ASSESSEE HAS COMPUTED PLI AT 13.74% AND STATED THAT ITS MARGIN WITH AES IS AT ARMS LENGTH PRICE (ALP). THE FINAL COMPARABLES IOT DESIGN & ENGINEERING LIMITED 6 SELECTED BY THE ASSESSEE AND THE DETERMINATION OF A LP IS TABULATED BELOW:- SR NAME OF COMPANY PLI (OP/OC) A COMPARABLE COMPANIES 1 AUTOLINE DESIGN SOFTWARE LIMITED (8.24%) 2 CADES DIGITECH PVT LTD (1.49%) 3 CHEMTEX GLOBAL ENGINEERS LTD 1.32% 4 EASUN ENGINEERING CO LTD 1.55% 5 MOLIND ENGINEERING LTD (1.33%) ARITHMETIC MEAN (1.64%) B APPELLANT COMPANY IOT DESIGN & ENGINEERING LIMITED 13.74% 4. THE ASSESEE HAS FILED ITS RETURN OF INCOME FOR A SST.YEAR 2010- 11 ON 14/10/2010, DECLARING TOTAL INCOME AT RS.47,2 3,023/-. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURS E OF ASSESSMENT PROCEEDINGS, A REFERENCE U/S 92CA(1) OF THE I.T.ACT , 1961 WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) TO DETERMINE ALP OF INTERNATIONAL TRANSACTIONS WITH THE AES. DURING TH E COURSE OF TRANSFER PRICING PROCEEDINGS, THE TPO HAS REJECTED THREE COMPANIES SELECTED BY THE ASSESSEE FROM THE SET OF COMPARABLE S AND ADDED FOUR NEW COMPANIES AND DETERMINED ARITHMETIC MEAN O F 23.90% AND HAS MADE TRANSFER PRICING ADJUSTMENT (TPA) OF RS.2, 16,04,328/-. THE FINAL SET OF COMPARABLES SELECTED BY THE TPO AN D TPA MADE ON INTERNATIONAL TRANSACTIONS IS TABULATED BELOW:- SR . NO NAME OF THE COMPANY PLI (OP/OC) A APPELLANT COMPANY IOT DESIGN & ENGINEERING LIMITED 7 IOT DESIGN & ENGINEERING LIMITED 14.43% B COMPARABLES 1 AUTOLINE DESIGN SOFTWARE LIMITED (ACCEPTED) 13.58% 2 CHEMTEX GLOBAL ENGINEERS PVT LTD (ACCEPTED) 15.66% 3 MAHINDRA CONSULTING ENGINEERS LTD (ADDED) 23.84% 4 WAPCOS LTD (ADDED) 15.92% 5 ENGINEERS INDIA LTD (ADDED) 43.85% 6 RITES LTD (ADDED) 30.52% ARITHMETIC MEAN 23.90% OPERATIN G COST (REFER TPO ORDER) (A) 22,81,82,836 ARM'S LENGTH PROFIT ( 23.90% *A) = (B) 5,45,24,289 ACTUAL PROFIT (REFER TPO ORDER) = (C) 3,29,19,961 TP ADJUSTMENT (B - C) RS, 2,16,04,328 5. THE LD. AO HAS PASSED DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S. 144C OF THE I.T.ACT, 1961 ON 07/03/2014 AND MADE TPA OF RS.2,16,04,328/-, AS SUGGESTED BY THE TPO IN HIS O RDER U/S 92CA(3) OF THE I.T.ACT, 1961, DATED 24/01/2014 TO THE INTER NATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES. THE LD. AO HAS ALSO, MADE ADDITIONS TOWARDS DISALLOWANCES ON ACCOUNT OF NON RECONCILIATION OF TDS, AS PER FORM-26AS AMOUNTING T O RS.40,26,903/-. THE LD. AO HAS MADE FURTHER ADDITIO NS OF RS.31,48,179/- TOWARDS DISALLOWANCES ON ACCOUNT OF NON DEDUCTION OF TDS, IN RESPECT OF PROFESSIONAL FEES PAID TO CER TAIN PARTIES. BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESS EE HAS FILED AN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) VIDE ITS ORDER DATED 28/03/2016 FOUND SUBSTANCE IN THE OBSERVATIONS AS A DOPTED BY THE TPO, WHILE DETERMINING THE TPA, IN RESPECT OF INTER NATIONAL IOT DESIGN & ENGINEERING LIMITED 8 TRANSACTIONS OF THE ASSESSEE WITH ITS AE AND ACCORD INGLY, CONFIRMED TPA AS SUGGESTED BY THE TPO. THE LD.CIT(A) HAS ALSO , CONFIRMED ADDITIONS MADE BY THE LD. AO TOWARDS UNDISCLOSED RE CEIPT OF RS.40,16,243/-, ON THE BASIS OF FORM-26AS AND HAS A LSO, CONFIRMED ADDITIONS MADE BY THE LD. AO TOWARDS DISALLOWANCES OF PROFESSIONAL FEES OF RS.31,47,179/- FOR FAILURE TO DEDUCT TAX AT SOURCE. AGGRIEVED BY THE LD.CIT (A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.1.3 AND 1.4 OF ASSESSEE APPEAL IS INCLUSION OF C ERTAIN COMPANIES AS COMPARABLES BY THE TPO AND UPHELD BY THE LD.CIT( A). THEREFORE, WE DEEM IT NECESSARY TO CONSIDER EACH COMPARABLES I NCLUDED BY THE TPO AND UPHELD BY THE LD.CIT(A). I) MAHINDRA CONSULTING ENGINEERS LTD.:- 7. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING INCLUSION OF MAHINDRA CONSULTI NG ENGINEERS LTD.(MCEL) AS COMPARABLE WITHOUT APPRECIATING THE F ACT THAT MCEL IS FUNCTIONALLY DISSIMILAR, WHEN COMPARED TO FUNCTI ONS CARRIED OUT BY THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT MCE L IS ENGAGED IN DIVERSIFIED SERVICES, WHICH IS ALTOGETHER DIFFER ENT FROM FUNCTIONS PERFORMED BY THE ASSESSEE. FURTHER, MCEL PROVIDES S ERVICES IN DIFFERENT SEGEMNTS, HOWEVER NO SEGMENTAL DATA IS PR OVIDED IN THE FINANCIALS FOR THE YEAR. IT HAS ALSO FAILS EXPORT F ILTER, BECAUSE THE ASSESEE HAS GENERATED REVENUE IN FOREIGN EXCHANGE, WHICH IS AT 67.86% OF TOTAL REVENUE, WHEREAS MCEL HAS MERELY 0.93% REVENUE IN FOREIGN EXCHANGE. FURTHER, MCEL OWNS INT ANGIBLES OF RS.40,69,438/-, WHEREAS THE ASSESSE DOES NOT POSSES S ANY TECHNICAL KNOW-HOW. THE LD. AR, FURTHER SUBMITTED T HAT THE DRP IN IOT DESIGN & ENGINEERING LIMITED 9 ASSESSEE OWN CASE IN ASST.YEAR 2008-09 HAS REJECTED MCEL, ON THE BASIS OF EXPORT FILTER. THEREFORE, THE LD.TPO, AS W ELL AS THE LD.CIT(A) WERE ERRED IN INCLUSION OF MAHINDRA CONSULTING ENGI NEERS LTD FOR THE YEAR UNDER CONSIDERATION. 8. THE LD. DR, ON THE OTHER HAND SUPPORTING ORDER O F THE LD.CIT(A) SUBMITTED THAT THE LD.CIT(A) HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT MAHINDRA CONSULTING ENGINEERS LT D. IS FUNCTIONALLY COMPARABLE TO THE FUNCTIONS CARRIED OUT BY THE ASSE SEE AND ACCORDINGLY, INCLUDED IN THE FINAL SET OF COMPARABL ES AND HENCE, THERE IS NO REASON TO DEVIATE FROM THE FINDINGS REC ORDED BY THE LD.CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT ALTHOUGH, THE LD.TPO AND LD.CIT(A) HAS RECORDE D FINDING THAT MCEL IS FUNCTIONALLY COMPARABLE, BUT ON PERUSAL OF DETAILS FILED BY THE ASSESSEE, WE FIND THAT MCEL IS ENGAGED IN DIVER SIFIED SERVICES, SUCH AS PROJECT MANAGEMENT, PORTFOLIO MANAGEMENT AN D CONSULTANCY SERVICES. FURTHER, THE COMPANY MANAGES VARIOUS PORTFOLIO COMPANIES WHICH INCLUDE VARIOUS INDUSTRIE S, SECTORS LIKE CLEANTECH, STEEL, LOGISTICS ETC. IT IS ALSO ENGAGED IN THE BUSINESS OF PROVISIONS OF CONSULTANCY SERVICES IN SPECIAL ECONO MIC ZONES, WATER SUPPLY AND SEWERAGE AND SOLID WASTE MANAGEMEN T, URBAN INFRASTRUCTURE, AGRI AND HORTI INFRASTRUCTURE, SOCI AL INFRASTRUCTURE, MARINE INFRASTRUCTURE, INDUSTRIAL INFRASTRUCTURE AN D RENEWABLE ENERGY. ALTHOUGH, THE COMPANY PROVIDES SECTOR DEVEL OPMENT TO VARIOUS TYPES OF INDUSTRIES, BUT NO SEGMENTAL DATA HAS BEEN PROVIDED IN FINANCIALS. WE FURTHER NOTED THAT IT AL SO FAILS EXPORT FILTER, BECAUSE, THE ASSESSEE HAS GENERATED REVENUE IN FORE IGN EXCHANGE, IOT DESIGN & ENGINEERING LIMITED 10 WHICH IS AT 67.86% OF TOTAL REVENUE, WHILE MCEL HAS MERELY 0.93% REVENUE IN FOREIGN EXCHANGE. FURTHER, MCEL CARRIES INTANGIBLES WORTH OF RS.40,69,438/-, WHEREAS THE ASSESSEE DOES NOT POSSESS ANY INTANGIBLES. WE FURTHER NOTED THAT THE DRP FOR ASST.YEAR 2008- 09 HAS REJECTED MCEL, ON THE BASIS OF EXPORT FILTER AND SAID FINDINGS HAS BEEN ACCEPTED BY THE REVENUE. FURTHER, THE ITAT , DELHI IN THE CASE OF DCIT VS TEREX INDIA PVT. LTD. (SUPRA) REJEC TED MCEL AS A COMPARABLE, ON THE GROUND THAT IT IS ENGAGED IN PRO VIDING A VARIETY OF SERVICES, ONLY ONE OF WHICH IS ENGINEERING SERVICES AND ALSO, SEGMENTAL INFORMATION OF ENGINEERING SERVICES IS NO T AVAILABLE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE L D.TPO, AS WELL AS THE LD.CIT(A) WERE ERRED IN INCLUSION OF MAHINDRA C ONSULTING ENGINEERS LTD. IN THE FINAL SET OF COMPARABLES AND HENCE, WE DIRECT THE LD.TPO TO EXCLUDE MAHINDRA CONSULTING ENGINEERS LTD. FROM THE FINAL SET OF COMPARABLES. II) WAPCOS LTD.:- 10. THE LD. AR FOR THE ASSESEE SUBMITTED THAT THE L D.TPO, AS WELL AS THE LD.CIT(A) HAS ERRED IN INCLUSION OF WAPCOS L TD. IN THE FINAL SET OF COMPARABLES, WITHOUT APPRECIATING THE FACT T HAT THE SAID COMPANY IS FUNCTIONALLY DISSIMILAR AND ALSO, IT HAS HIGH TURNOVER, WHICH IS EVIDENT FROM THE FACT THAT THE COMPANY HAS RECORDED RS.302 CRORES TURNOVER, WHICH IS MORE THAN 11 TIMES OF T HE TURNOVER OF THE ASSESSEE COMPANY. THE LD. AR, FURTHER, SUBMITTED TH AT WAPCOS LTD. IS A GOVERNMENT OF INDIA UNDERTAKING AND THE F UNCTIONS AND RISK PROFILE OF THE GOVERNMENT COMPANY CANNOT BE COMPARE D WITH THAT OF THE ASSESSEE COMPANY. IN THIS REGARD, HE RELIED UPO N THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS PE NTAIR WATER IOT DESIGN & ENGINEERING LIMITED 11 INDIA PVT.LTD. AND ALSO, THE DECISION OF CIT VS TH YSSENKRUPP INDUSTRIES INDIA PVT.LTD. (2016) 68 TAXMANN.COM 248 (BOM.) 11. THE LD. DR, ON THE OTHER HAND, SUPPORTING ORDE R OF THE LD.CIT(A) SUBMITTED THAT THE FUNCTIONS PERFORMED BY THE ASSESEE ARE SIMILAR TO FUNCTIONS CARRIED OUT BY M/S WAPCOS LTD. AND MERELY, BECAUSE IT IS A GOVERNMENT OF INDIA UNDERTAKING, IT CANNOT BE EXCLUDED FROM COMPARABLES. 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT WAPCOS LTD. IS A GOVERNMENT OF INDIA UNDERTAKI NG AND THE FUNCTIONS AND RISK PROFILE OF THE GOVERNMENT COMPAN Y ARE ENTIRELY DIFFERENT FROM THAT OF THE ASSESSEE, BECAUSE IN GOV ERNMENT OF INDIA UNDERTAKINGS, THE PROFIT MOTIVE IS NOT THE MAIN OBJ ECTS OF THE COMPANY AND THEY ARE MAINLY IN FURTHERANCE OF SOCIA L OBLIGATIONS OF THE GOVERNMENT. WE FURTHER NOTED THAT WAPCOS LTD. I S FUNCTIONALLY DISSIMILAR, WHICH IS EVIDENT FROM THE FACT THAT THE COMPANY IS ENGAGED IN PRE-INVESTMENTS SURVEYS AND INVESTIGATIO NS, TOPOGRAPHIC SURVEYS, OPERATION AND MAINTENANCE OF ALL KINDS OF WORKS INVOLVED IN THE DEVELOPMENT AND UTILIZATION OF WATER RESOURCES, GENERATION AND UTILIZATION OF ELECTRONIC POWER ETC., WHEREAS THE A SSESSE COMPANY IS PRIMARILY ENGAGED IN ENGINEERING SERVICES TO EPC PR OJECTS MAINLY WITH RESPECT TO TERMINALS. FURTHER, THE HONBLE BOM BAY HIGH COURT, IN THE CASE OF CIT VS THYSSENKRUPP INDUSTRIES INDIA PVT.LTD.(SUPRA) HAS HELD THAT PROFIT MOTIVE IS NOT A RELEVANT CONSI DERATION IN THE CASE OF GOVERNMENT UNDERTAKING AND THAT MANY GOVERNMENT COMPANIES, EVEN OPERATE ON LOSSES IN FURTHERANCE OF THE SOCIAL AND OBLIGATIONS OF THE GOVERNMENT AND HENCE, CANNOT BE COMPARED WITH THAT OF PRIVATE COMPANY. THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS IOT DESIGN & ENGINEERING LIMITED 12 PENTAIR WATER INDIA PVT.LTD. HELD THAT TURNOVER IS A RELEVANT FACTOR TO CONSIDER COMPARABILITY. IN THIS CASE, ON PERUSAL OF DETAILS AVAILABLE ON RECORD, WE FIND THAT WAPCOS LTD. TURNOVER IS AT RS.302 CRORES, WHICH IS MORE THAN 11 TIMES OF THE TURNOVER OF TH E ASSESSEE COMPANY. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT WAPCOS LTD. CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPA NY AND ACCORDINGLY, WE DIRECT THE LD.TPO TO EXCLUDE WAPCOS LTD. FROM THE FINAL SET OF COMPARABLES. III. ENGINEERS INDIA LIMITED:- 13. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE FUNCTIONS PERFORMED BY ENGINEERS INDIA LIMITED ARE ALTOGETHER DIFFERENT FROM THE FUNCTIONS CARRIED OUT BY THE ASSESSEE TO ITS AE AND HENCE, CANNOT BE COMPARABLE. HE, FURTHER SUBMITTED THAT EN GINEERS INDIA LIMITED TURNOVER FROM CONSULTANCY SEGMENT IS AT RS. 1,055 CRORES, WHICH IS MORE THAN 40 TIMES TURNOVER OF THE ASSES SEE COMPANY, WHICH IS AT RS.26.11 CRORES. FURTHER, ENGINEERS IND IA LIMITED IS A GOVERNMENT OF INDIA UNDERTAKING AND FUNCTIONS AND R ISKS PROFILE OF THE GOVERNMENT COMPANIES CANNOT BE COMPARED WITH TH AT OF THE ASSESSEE COMPANY. 14. THE LD. DR, ON THE OTHER HAND SUPPORTED ORDER O F THE LD.CIT(A). 15. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. BASICALLY, ENGINEERS INDIA LIMITED IS A GOVERNMENT OF INDIA UNDERTAKING AND THE FUNCTIONS AND RISKS PROFILE OF THE GOVERNMENT OF INDIA COMPANIES ARE ALTOGETHER DIFFERENT FROM THAT OF THE ASSESSEE IOT DESIGN & ENGINEERING LIMITED 13 COMPANY, BECAUSE GOVERNMENT COMPANIES ARE WORKING I N LINE WITH OBJECTIVE OF GOVERNMENT OF INDIA, IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT OF INDIA. THEREFORE, THE SAME CANNOT BE CONSIDERED WITH THAT OF ASSESSEE COMPANY. WE FUR THER NOTED THAT THE TURNOVER OF ENGINEERS INDIA LIMITED FROM C ONSULTANCY SEGMENT IS AT RS.1,055 CRORES, WHICH IS MORE THAN 40 TIMES OF THE TURNOVER OF THE ASSESSEE COMPANY, WHICH IS AT RS.26 .11 CRORES. WE FURTHER NOTED THAT THE COMPANY IS ENGAGED IN THE BU SINESS OF PROVIDING DIVERSIFIED ENGINEERING SERVICES, WHICH I NCLUDES CONSTRUCTIONS, MINING, CHEMICALS, AND FERTILIZERS E TC. THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS PENTAIR WA TER INDIA PVT.LTD. (SUPRA) HELD THAT TURNOVER IS A RELEVANT F ACTOR TO CONSIDER COMPARABILITY. FURTHER, THE HONBLE BOMBAY HIGH COU RT, IN THE CASE OF CIT VS TYSSENKRUPP INDUSTRIES INDIA (P) LTD. HEL D THAT PROFIT MOTIVE IS NOT A RELEVANT CONSIDERATION IN CASE OF GOVERNME NT UNDERTAKING AND THAT MANY GOVERNMENT COMPANIES EVEN OPERATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERN MENT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ENGINEERS INDIA LIMITED IS NOT A GOOD COMPARABLE TO THE ASSESSEE, WHICH IS MAINLY PR OVIDING SERVICES TO ITS AE IN THE FIELD OF EPC PROJECTS AND MAINLY WITH RESPECT TO TERMINALS. HENCE, WE DIRECT THE TPO TO EXCLUDE E NGINEERS INDIA LIMITED FROM THE FINAL SET OF COMPARABLES. IV) RITES LTD.:- 16. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT RITE S LIMITED IS A GOVERNMENT OF INDIA UNDERTAKING, WHICH IS ENGAGED I N CONSULTANCY AND PROJECT MANAGEMENT SERVICES FOR TRANSPORTATION AND INFRASTRUCTURE SECTOR. HE FURTHER SUBMITTED THAT TH E FUNCTIONS AND RISK PROFILE OF THE GOVERNMENT COMPANY CANNOT BE COMPARE D WITH THAT OF IOT DESIGN & ENGINEERING LIMITED 14 ASSESSEE COMPANY. HE, FURTHER, SUBMITTED THAT TURNO VER OF RITES LIMITED FROM CONSULTANCY SEGMENT IS AT RS.474.92 CR ORES, WHICH IS 18 TIMES MORE THAN THE TURNOVER OF THE ASSESSEE C OMPANY, WHICH IS AT RS.26.11 CRORES. THEREFORE, RITES LIMITED CANNOT BE A GOOD COMPARABLE AND NEEDS TO BE EXCLUDED. 17. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORTI NG ORDER OF THE LD.CIT(A) SUBMITTED THAT THE LD.TPO, AS WELL AS THE LD.CIT(A) HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE FUNC TIONS PERFORMED BY THE ASSESSEE ARE SIMILAR TO THE FUNCTIONS CARRIED O UT BY RITES LIMITED AND HENCE, MERELY BECAUSE IT IS A GOVERNMENT OF IND IA UNDERTAKING, IT CANNOT BE EXCLUDED FROM THE LIST OF COMPARABLES. 18. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. BASICALLY, RITES LIMITED IS A GOVERNMENT OF INDIA U NDERTAKING AND THE FUNCTIONS AND RISKS PROFILE OF THE GOVERNMENT O F INDIA COMPANIES ARE ALTOGETHER DIFFERENT FROM THAT OF THE ASSESSEE COMPANY, BECAUSE GOVERNMENT COMPANIES ARE WORKING IN LINE WITH OBJEC TIVE OF GOVERNMENT OF INDIA, IN FURTHERANCE OF THE SOCIAL O BLIGATIONS OF THE GOVERNMENT OF INDIA. THEREFORE, THE SAME CANNOT BE CONSIDERED WITH THAT OF ASSESSEE COMPANY. WE FURTHER NOTED THAT TUR NOVER OF RITES LIMITED FROM CONSULTANCY SEGMENT IS AT RS.474.92 CR ORES, WHICH IS MORE THAN 18 TIMES OF THE TURNOVER OF THE ASSESSE E COMPANY, WHICH IS AT RS.26.11 CRORES. WE FURTHER NOTED THAT THE CO MPANY IS ENGAGED IN THE BUSINESS OF PROVIDING DIVERSIFIED ENGINEERIN G SERVICES, WHICH INCLUDES CONSTRUCTIONS, MINING, CHEMICALS, AND FERT ILIZERS ETC. THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS PE NTAIR WATER INDIA PVT.LTD. (SUPRA) HELD THAT TURNOVER IS A RELE VANT FACTOR TO CONSIDER COMPARABILITY. FURTHER, THE HONBLE BOMBAY HIGH COURT, IN IOT DESIGN & ENGINEERING LIMITED 15 THE CASE OF CIT VS TYSSENKRUPP INDUSTRIES INDIA (P) LTD. HELD THAT PROFIT MOTIVE IS NOT A RELEVANT CONSIDERATION IN CA SE OF GOVERNMENT UNDERTAKING AND THAT MANY GOVERNMENT COMPANIES; EVE N OPERATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT RITES LIMITED IS NOT A GOOD COMPARABLE TO THE ASSESSEE, WHICH IS MAINLY PR OVIDING SERVICES TO ITS AE IN THE FIELD OF EPC PROJECTS AND MAINLY WITH RESPECT TO TERMINALS. HENCE, WE DIRECT THE TPO TO EXCLUDE R ITES LIMITED FROM THE FINAL SET OF COMPARABLES. 19. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 2 OF ASSESSEE APPEAL IS ADDITION OF UNDISCLOSED RECEIPT OF RS.40,16,243/- . DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE LD. AO CALLED UPON THE ASSESSE TO SUBMIT RECONCILIA TION OF TDS AND INCOME OFFERED TO TAX, ON THE BASIS OF TDS CLAIM MA DE AS PER FORM- 26AS. SINCE, THE ASSESSEE WAS NOT ABLE TO RECONCILE THE DIFFERENCE BETWEEN INCOME REPORTED IN BOOKS OF ACCOUNTS AND TD S CLAIM AS PER FORM-26AS, THE LD. AO HAS MADE ADDITION OF RS.4 0,16,243/-. 20. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT AFTE R THE ASSESSMENT PROCEEDINGS, THE ASSESSEE NOTICED THAT N AME OF IOT CUDDALORE CONSTRUCTION & TERMINALLING LIMITED HAS C HANGED TO IOT MABAGAS LIMITED AND THAT INCOME RECEIVED FROM IOT M ABAGAS LIMITED, ON ACCOUNT OF ADDITIONAL DESIGN AND ENGINE ERING SERVICES PROVIDED WAS ALREADY OFFERED TO TAX IN THE ASST.YEA R 2009-10, BUT THE SAME INCOME WAS REFLECTED IN FORM-26AS FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE ISSUE MAY BE SET ASID E TO THE FILE OF THE LD. AO TO VERIFY THE FACTS WITH REFERENCE TO CLAIM OF THE ASSESSEE. IOT DESIGN & ENGINEERING LIMITED 16 21. THE LD. DR, ON THE OTHER HAND SUBMITTED THAT TH E ASSESSEE HAS FAILED TO FILE RECONCILIATION BETWEEN INCOME OF FERED IN BOOKS OF ACCOUNTS AND TDS APPEARED IN FORM-26AS AND HENCE, T HE LD. AO HAS MADE ADDITIONS OF RS.40,16,243/- AND THE CLAIM OF THE ASSESSEE THAT THE SAME INCOME HAS BEEN OFFERED TO TAX FOR AS ST.YEAR 2009-10 WAS NOT SUPPORTED BY NECESSARY EVIDENCES AND HENCE, NO REASON TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE. 22. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD, AND GONE THROUGH ORDERS OF THE AUTHORITI ES BELOW. IN LIGHT OF AVERMENTS MADE BY THE ASSESSEE THAT INCOME FROM TDS DEDUCTED ON ACCOUNT OF ADDITIONAL DESIGN & ENGINEERING SERVI CE PROVIDED BY IOT MABAGAS LIMITED, WAS ALREADY OFFERED TAX IN THE ASST.YEAR 2009-10, WE SET ASIDE THE ISSUE TO THE FILE OF THE LD. AO AND DIRECT HIM TO CAUSE NECESSARY VERIFICATION AND IN CASE INC OME WAS ALREADY OFFERED TO TAX FOR ASST.YEAR 2009-10, THEN THE LD. AO IS DIRECTED TO DELETE ADDITIONS FOR THE YEAR UNDER CONSIDERATION. 23. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO.3 OF ASSESSEE APPEAL IS DISALLOWANCES OF PROFESS IONAL FEES OF RS.31,48,179/- FOR NON DEDUCTION OF TDS. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCES MADE BY T HE LD. AO IS NOT PROFESSIONAL FEES ON WHICH TAX IS REQUIRED TO B E DEDUCTED, BUT PERTAINS TO WRITE OFF OF BAD DEBTS. THEREFORE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE LD. AO FOR VERIFICATION. 24. HAVING CONSIDERED ARGUMENTS OF BOTH THE SIDES, WE DEEM IT APPROPRIATE TO SET ASIDE THE ISSUE TO THE FILE OF T HE LD. AO AND DIRECT HIM TO CAUSE NECESSARY ENQUIRIES, IN LIGHT OF CLAIM OF THE ASSESSEE THAT SAID AMOUNT PERTAINS TO BAD DEBTS WRITTEN OFF. IN CASE, THE LD. IOT DESIGN & ENGINEERING LIMITED 17 AO FOUND THAT THE AMOUNT OF DISALLOWANCES IS NOT PE RTAINS TO PROFESSIONAL FEES ON WHICH TAX IS REQUIRED TO BE DE DUCTED, AND THEN THE SAME MAY BE CONSIDERED IN ACCORDANCE WITH LAW, AS APPLICABLE TO WRITE OFF OF BAD DEBTS. 25. THE OTHER GROUND TAKEN BY THE ASSESSEE IN ITS M EMORANDUM OF APPEAL OR EITHER, WITHDRAWN OR NOT PRESSED AND THER EFORE, ALL OTHER GROUNDS ARE DISMISSED AS NOT PRESSED. 26. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.536/MUM/2016 FOR ASST.YEAR 2011-12 & ITA.NO.63/MUM/2016 FOR ASST. YEAR 2011-12 27. THE FACTS AND ISSUES INVOLVED IN THIS APPEAL, I NSOFAR AS THE ISSUE OF TRANSFER PRICING ADJUSTMENT (TPA) ON INTER NATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES REVOLVES AROUND INCLUSION AND EXCLUSION OF CERTAIN COMPARABLES BY THE LD.TPO/ DRP. THE ASSESSEE HAS CHALLENGED INCLUSION OF MAHINDRA CONSU LTING ENGINEERS LTD. AND EXCLUSION OF CHEMTEX GLOBAL ENGI NEERS LTD,. THE REVENUE HAS CHALLENGED EXCLUSION OF WAPCOS LTD., EN GINEERS INDIA LIMITED AND RITES INDIA LTD. THEREFORE, WE DEEM IT PROPER TO ADJUDICATE THE GROUND RAISED BY THE ASSESSEE, AS WE LL AS THE REVENUE WITH REFERENCE TO EACH COMPARABLE INCLUDED AND EXCLUDED BY THE LD.TPO AND THE LD.DRP. 28. THE ASSESSEE HAS CHALLENGED INCLUSION OF MAHIND RA CONSULTING ENGINEERS LTD., ON THE GROUND THAT THE C OMPANY IS DISSIMILAR TO FUNCTIONS PERFORMED BY THE ASSESSEE A ND ALSO, THERE IS NO SEGMENTAL DATA IN FINANCIALS OF MECL. ALTHOUGH, IT HAS PROVIDES IOT DESIGN & ENGINEERING LIMITED 18 VARIOUS SERVICES TO DIFFERENT SEGMENTS OF INDUSTRIE S. THE LD. AR, FURTHER SUBMITTED THAT THERE IS AN ABNORMAL EVENT, INASMUCH, AS IT HAS ENTERED INTO A STRATEGIC PARTNERSHIP WITH SAFEG E AND SAFEGE AND EXERCISE SIGNIFICANT INFLUENCE OVER THE COMPANY. FU RTHER, IT HAS INTANGIBLES WORTH OF RS.40,69,438/-, WHEREAS THE AS SESSEE DOES NOT POSSESS ANY TECHNICAL KNOW-HOW. THEREFORE, THE SAME NEEDS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 29. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ED ORDER OF THE LD. DRP. 30. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDER OF THE AUTHORITIES BELOW. WE FIND THAT M/S. MAHINDRA CONSULTING ENGINEERS LTD. HAS BE EN CONSIDERED BY US IN ASSESSEE OWN CASE FOR ASST.YEAR 2010-11, W HERE THE TRIBUNAL HELD THAT MAHINDRA CONSULTING ENGINEERS LT D. IS NOT A GOOD COMPARABLE TO THAT OF THE ASSESSEE COMPANY WHICH IS PROVIDING ENGINEERING CONSULTANCY TO EPC PROJECTS MAINLY WITH RESPECT TO TERMINALS. THE RELEVANT FINDINGS OF THE TRIBUNAL AR E AS UNDER:- 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT ALTHOUGH, THE LD.TPO AND LD.CIT (A) HAS RECORDED FINDING THAT MCEL IS FUNCTIONALLY COMPARA BLE, BUT ON PERUSAL OF DETAILS FILED BY THE ASSESSEE, WE FIND T HAT MCEL IS ENGAGED IN DIVERSIFIED SERVICES, SUCH AS PROJECT MA NAGEMENT, PORTFOLIO MANAGEMENT AND CONSULTANCY SERVICES. FURT HER, THE COMPANY MANAGES VARIOUS PORTFOLIO COMPANIES WHICH I NCLUDE VARIOUS INDUSTRIES, SECTORS LIKE CLEANTECH, STEEL, LOGISTICS ETC. IT IS ALSO ENGAGED IN THE BUSINESS OF PROVISIONS OF CONSU LTANCY SERVICES IN SPECIAL ECONOMIC ZONES, WATER SUPPLY AN D SEWERAGE AND SOLID WASTE MANAGEMENT, URBAN INFRASTRUCTURE, A GRI AND HORTI IOT DESIGN & ENGINEERING LIMITED 19 INFRASTRUCTURE, SOCIAL INFRASTRUCTURE, MARINE INFRA STRUCTURE, INDUSTRIAL INFRASTRUCTURE AND RENEWABLE ENERGY. ALT HOUGH, THE COMPANY PROVIDES SECTOR DEVELOPMENT TO VARIOUS TYPE S OF INDUSTRIES, BUT NO SEGMENTAL DATA HAS BEEN PROVIDED IN FINANCIALS. WE FURTHER NOTED THAT IT ALSO FAILS EXP ORT FILTER, BECAUSE, THE ASSESSEE HAS GENERATED REVENUE IN FOREIGN EXCHA NGE, WHICH IS AT 67.86% OF TOTAL REVENUE, WHILE MCEL HAS MEREL Y 0.93% REVENUE IN FOREIGN EXCHANGE. FURTHER, MCEL CARRIES INTANGIBLES WORTH OF RS.40,69,438/-, WHEREAS THE ASSESSEE DOES NOT POSSESS ANY INTANGIBLES. WE FURTHER NOTED THAT THE DRP FOR ASST.YEAR 2008-09 HAS REJECTED MCEL, ON THE BASIS O F EXPORT FILTER AND SAID FINDINGS HAS BEEN ACCEPTED BY THE R EVENUE. FURTHER, THE ITAT, DELHI IN THE CASE OF DCIT VS TER EX INDIA PVT. LTD. (SUPRA) REJECTED MCEL AS A COMPARABLE, ON THE GROUND THAT IT IS ENGAGED IN PROVIDING A VARIETY OF SERVICES, O NLY ONE OF WHICH IS ENGINEERING SERVICES AND ALSO, SEGMENTAL INFORMA TION OF ENGINEERING SERVICES IS NOT AVAILABLE. THEREFORE, W E ARE OF THE CONSIDERED VIEW THAT THE LD.TPO, AS WELL AS THE LD. CIT(A) WERE ERRED IN INCLUSION OF MAHINDRA CONSULTING ENGINEERS LTD. IN THE FINAL SET OF COMPARABLES AND HENCE, WE DIRECT THE L D.TPO TO EXCLUDE MAHINDRA CONSULTING ENGINEERS LTD. FROM THE FINAL SET OF COMPARABLES. 31. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN ASSESSEE OWN CASE, WE DIRECT T HE LD. TPO TO EXCLUDE MAHINDRA CONSULTING ENGINEERS LTD, FROM THE FINAL SET OF COMPARABLES. 32. THE ASSESEE HAS CHALLENGED EXCLUSION OF CHEMTEX GLOBAL ENGINEERS PVT.LTD. FROM FINAL SET OF COMPARABLES. T HE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE COMPANY IS FUNCTIONALLY COMPARABLE, BECAUSE THE FUNCTIONS PERFORMED BY THE COMPANY ARE SIMILAR TO FUNCTIONS PERFORMED BY THE ASSESSEE. FURTHER, THE T PO IN ASST.YEAR 2010-11 HAS SELECTED THIS COMPANY AS COMPARABLE, BU T HAS IOT DESIGN & ENGINEERING LIMITED 20 ERRONEOUSLY REJECTED FOR THE YEAR UNDER CONSIDERATI ON, ON THE GROUND THAT ANNUAL REPORT IS NOT AVAILABLE IN PUBLIC DOMAI N AND THE INDUSTRIAL SALES OF THE COMPANY HAVE DECREASED BY 69%. BUT, F ACT REMAINS THAT THE ANNUAL REPORT OF THE COMPANY IS AVAILABLE IN PUBLIC DOMAIN AND ITS TURNOVER HAS MARGINALLY DIP FROM RS.44.99 C RORES TO 43.91 CRORES. THEREFORE, THE LD.TPO, AS WELL AS THE DRP W AS INCORRECT IN REJECTION OF CHEMTEX GLOBAL ENGINEERS PVT.LTD. 33. THE LD. DR ON THE OTHER HAND, SUPPORTING ORDER OF THE LD.DRP SUBMITTED THAT THE LD.DRP HAS BROUGHT OUT FACTS, IN CLUDING ABNORMAL FINANCIAL RESULTS TO REJECT THE COMPANY AND HENCE, THERE IS NO REASON TO TAKE A DIFFERENT VIEW TAKEN BY THE LD. DRP. 34. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE DRP HAS BROUGHT OUT CLEAR FACTS, IN LIGHT OF VARIOUS EVIDENCES FILED BY THE ASSESSEE, INCLUDING ANNUAL R EPORT AND NOTICED THAT THERE IS AN ABNORMAL CHANGE IN FINANCIAL RESUL TS AND THE INDUSTRIAL SALES OF THE COMPANY HAS DECREASED BY 69 %, WHEN COMPARED TO PREVIOUS FINANCIAL YEAR. THE LD. DRP FU RTHER NOTED THAT THE ANNUAL REPORT OF THE COMPANY IS NOT AVAILABLE I N PUBLIC DOMAIN. THE LD. DRP, FURTHER, NOTED THAT EVEN, IF CHEMTEX G LOBAL ENGINEERS LTD. IS REGARDED AS COMPARABLE, SINCE IT WAS SELECT ED IN PROCEEDING YEAR, BUT THE ASSETS AND LIABILITY I.E FAR CANNOT B E SAID TO BE COMPARABLE DURING THE YEAR. FACT REMAINS UNCHANGED. ALTHOUGH, THE LD. AR FOR THE ASSESEE EXPLAINED THAT THE FUNCTIONS PERFORMED BY THE COMPANY ARE SIMILAR TO FUNCTIONS CARRIED OUT BY THE ASSESSEE, BUT ON PERUSAL OF DETAILS FILED BY THE ASSESSEE, WE FIND T HAT THERE IS AN ABNORMAL CHANGE IN FINANCIALS OF THE COMPANY FOR TH E YEAR UNDER CONSIDERATION. FURTHER, THE LD.TPO HAS BROUGHT OUT ANOTHER PECULIAR IOT DESIGN & ENGINEERING LIMITED 21 FACTS OF THE CASE, AS PER WHICH, THE SALES OF THE C OMPANY HAS DRASTICALLY REDUCED. THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT THERE IS NO ERROR IN FINDINGS RECORDED BY THE LD.TP O/DRP FOR EXCLUSION OF CHEMTEX GLOBAL ENGINEERS PVT.LTD. AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS AND REJECT GROUND T AKEN BY THE ASSESSEE. 35. THE OTHER GROUNDS TAKEN BY THE ASSESEE, INCLUDI NG GROUND NO. 4, 6, 7 AND 8 ARE NOT PRESSED AND HENCE, THE SAME A RE DISMISSED AS NOT PRESSED. 36. THE REVENUE HAS CHALLENGED THE FINDINGS OF THE LD. DRP IN EXCLUSION OF WAPCOS LTD, ENGINEERS INDIA LIMITED & RITES LIMITED. THEREFORE, IT IS NECESSARY TO DISCUSS EACH COMPARAB LE CHALLENGED BY THE REVENUE, IN LIGHT OF FACTS BROUGHT OUT BY THE A SSESSEE AND THE FINDINGS OF THE LD. DRP. II. WAPCOS LTD: 37. WE FIND THAT WAPCOS LTD HAS BEEN CONSIDERED BY US IN ASSESEE OWN CASE FOR ASST.YEAR 2010-11 AND HELD THA T THE COMPANY IS NOT A GOOD COMPARABLE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT WAPCOS LTD. IS A GOVERNMENT OF INDIA UNDERTAKING AN D THE FUNCTIONS AND RISK PROFILE OF THE GOVERNMENT COMPANY ARE ENTI RELY DIFFERENT FROM THAT OF THE ASSESSEE, BECAUSE IN GOVERNMENT OF INDI A UNDERTAKINGS, THE PROFIT MOTIVE IS NOT THE MAIN OBJECTS OF THE COMPAN Y AND THEY ARE MAINLY IN FURTHERANCE OF SOCIAL OBLIGATIONS OF THE GOVERNM ENT. WE FURTHER NOTED IOT DESIGN & ENGINEERING LIMITED 22 THAT WAPCOS LTD. IS FUNCTIONALLY DISSIMILAR, WHICH IS EVIDENT FROM THE FACT THAT THE COMPANY IS ENGAGED IN PRE-INVESTMENTS SURVEYS AND INVESTIGATIONS, TOPOGRAPHIC SURVEYS, OPERATION AND MAINTENANCE OF ALL KINDS OF WORKS INVOLVED IN THE DEVELOPMENT AND UTIL IZATION OF WATER RESOURCES, GENERATION AND UTILIZATION OF ELECTRONIC POWER ETC., WHEREAS THE ASSESSE COMPANY IS PRIMARILY ENGAGED IN ENGINEE RING SERVICES TO EPC PROJECTS MAINLY WITH RESPECT TO TERMINALS. FURT HER, THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS THYSSENKRU PP INDUSTRIES INDIA PVT.LTD.(SUPRA) HAS HELD THAT PROFIT MOTIVE IS NOT A RELEVANT CONSIDERATION IN THE CASE OF GOVERNMENT UNDERTAKING AND THAT MANY GOVERNMENT COMPANIES, EVEN OPERATE ON LOSSES IN FURTHERANCE OF THE SOCIAL AND OBLIGATIONS OF THE GOVERNMENT AND HENCE, CANNOT BE COMPARED WITH THAT OF PRIVATE COMPANY. THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS PENTAIR WATER INDIA PVT.LTD. HELD THAT TURNOVER IS A RELEVANT FACTOR TO CONSIDER COMPARABILITY. IN THIS CASE, ON PERUSAL OF DETAILS AVAILABLE ON RECORD, WE FIND THAT WAPCOS LTD. TURNOVER IS AT RS. 302 CRORES, WHICH IS MORE THAN 11 TIMES OF THE TURNOVER OF THE ASSESSE E COMPANY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT WAPCO S LTD. CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY AND ACCORDIN GLY, WE DIRECT THE LD.TPO TO EXCLUDE WAPCOS LTD. FROM THE FINAL SE T OF COMPARABLES. 38. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE TPO TO EXCLUDED W APCOS LTD AND REJECT GROUND TAKEN BY THE REVENUE. III) ENGINEERS INDIA LIMITED:- 39. WE FIND THAT ENGINEERS INDIA LIMITED HAS BEEN C ONSIDERED BY US IN ASSESEE OWN CASE FOR ASST.YEAR 2010-11 AND HE LD THAT THIS COMPANY IS NOT A GOOD COMPARABLE. THE RELEVANT FIND INGS OF THE TRIBUNAL ARE AS UNDER:- 15. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES B ELOW. BASICALLY, ENGINEERS INDIA LIMITED IS A GOVERNMENT OF INDIA UN DERTAKING AND THE IOT DESIGN & ENGINEERING LIMITED 23 FUNCTIONS AND RISKS PROFILE OF THE GOVERNMENT OF IN DIA COMPANIES ARE ALTOGETHER DIFFERENT FROM THAT OF THE ASSESSEE COMP ANY, BECAUSE GOVERNMENT COMPANIES ARE WORKING IN LINE WITH OBJEC TIVE OF GOVERNMENT OF INDIA, IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT OF INDIA. THEREFORE, THE SAME CANNOT BE CONSIDERED WITH THAT OF ASSESSEE COMPANY. WE FURTHER NOTED THAT THE TURNOVER OF ENGI NEERS INDIA LIMITED FROM CONSULTANCY SEGMENT IS AT RS.1,055 CRORES, WHI CH IS MORE THAN 40 TIMES OF THE TURNOVER OF THE ASSESSEE COMPANY, WHIC H IS AT RS.26.11 CRORES. WE FURTHER NOTED THAT THE COMPANY IS ENGAGE D IN THE BUSINESS OF PROVIDING DIVERSIFIED ENGINEERING SERVICES, WHICH I NCLUDES CONSTRUCTIONS, MINING, CHEMICALS, AND FERTILIZERS ETC. THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS PENTAIR WATER INDIA PVT.LTD. (SU PRA) HELD THAT TURNOVER IS A RELEVANT FACTOR TO CONSIDER COMPARABILITY. FURTHE R, THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS TYSSENKRUPP INDUS TRIES INDIA (P) LTD. HELD THAT PROFIT MOTIVE IS NOT A RELEVANT CONSIDERA TION IN CASE OF GOVERNMENT UNDERTAKING AND THAT MANY GOVERNMENT COM PANIES EVEN OPERATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLI GATIONS OF THE GOVERNMENT. THEREFORE, WE ARE OF THE CONSIDERED VIE W THAT ENGINEERS INDIA LIMITED IS NOT A GOOD COMPARABLE TO THE ASSESSEE, WHICH IS MAINLY PROVIDING SERVICES TO ITS AE IN THE FIELD OF EPC PR OJECTS AND MAINLY WITH RESPECT TO TERMINALS. HENCE, WE DIRECT THE TPO TO E XCLUDE ENGINEERS INDIA LIMITED FROM THE FINAL SET OF COMPARABLES. 40. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD.TPO TO EXCLUDE ENGINEERS INDIA LIMITED AND ACCORDINGLY, REJECT THE GROUND TAKEN BY THE REVENUE. IV. RITES LIMITED:- 41. WE FIND THAT THE TRIBUNAL HAS CONSIDERED RITES LIMITED IN ASSESSEE OWN CASE FOR ASST.YEAR 2010-11 AND DIRECT THE TPO TO EXCLUDE THE COMPANY FROM THE FINAL THE SET OF COMPA RABLES. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- IOT DESIGN & ENGINEERING LIMITED 24 18. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES B ELOW. BASICALLY, RITES LIMITED IS A GOVERNMENT OF INDIA UNDERTAKING AND TH E FUNCTIONS AND RISKS PROFILE OF THE GOVERNMENT OF INDIA COMPANIES ARE AL TOGETHER DIFFERENT FROM THAT OF THE ASSESSEE COMPANY, BECAUSE GOVERNMENT CO MPANIES ARE WORKING IN LINE WITH OBJECTIVE OF GOVERNMENT OF IND IA, IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT OF INDIA. THER EFORE, THE SAME CANNOT BE CONSIDERED WITH THAT OF ASSESSEE COMPANY. WE FUR THER NOTED THAT TURNOVER OF RITES LIMITED FROM CONSULTANCY SEGMENT IS AT RS.474.92 CRORES, WHICH IS MORE THAN 18 TIMES OF THE TURNOVER OF TH E ASSESSEE COMPANY, WHICH IS AT RS.26.11 CRORES. WE FURTHER NOTED THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING DIVERSIFIED ENGINEERIN G SERVICES, WHICH INCLUDES CONSTRUCTIONS, MINING, CHEMICALS, AND FERT ILIZERS ETC. THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS PENTAIR WA TER INDIA PVT.LTD. (SUPRA) HELD THAT TURNOVER IS A RELEVANT FACTOR TO CONSIDER COMPARABILITY. FURTHER, THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS TYSSENKRUPP INDUSTRIES INDIA (P) LTD. HELD THAT PRO FIT MOTIVE IS NOT A RELEVANT CONSIDERATION IN CASE OF GOVERNMENT UNDERT AKING AND THAT MANY GOVERNMENT COMPANIES; EVEN OPERATE ON LOSSES IN FUR THERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT RITES LIMITED IS NOT A GOOD COMPARABLE TO THE ASSESSEE, WHICH IS MAINLY PROVIDING SERVICES TO ITS AE IN THE FIELD OF EPC PROJECTS AND MAINLY WITH RESPECT TO TERMINALS. HENCE, WE DIRECT THE TPO TO EXCLUDE RITES LIMITED FROM THE FINAL SET OF COMPARABLES. 42. IN THIS VIEW OF THE MATER AND CONSISTENT WITH V IEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE INCLINED TO UPHOLD THE FI NDINGS OF THE LD.DRP AND REJECT GROUND TAKEN BY THE REVENUE. 43. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. IOT DESIGN & ENGINEERING LIMITED 25 ITA NO.4921/MUM/2016:- 44. THE ONLY ISSUE CHALLENGED BY THE REVENUE FROM I TS GROUND OF APPEAL IS TRANSFER PRICING ADJUSTMENT MADE BY THE T PO AT TRANSACTION LEVEL AND DELETED BY THE DRP. THE LD. D R SUBMITTED THAT THERE IS NO QUARREL TO THE PROPOSITION THAT THE TP ADJUSTMENT, IF ANY IS TO BE MADE TO THE VALUE OF INTERNATIONAL TRANSACTIO NS, AS HAS BEEN LAID DOWN BY THE VARIOUS DISCUSSIONS OF THE HIGH CO URT AND ITAT, HOWEVER, THE DISPUTE IS REGARDING THE MANNER OF WOR KING OUT SAID ADJUSTMENT TO THE VALUE OF THE INTERNATIONAL TRANSA CTION I.E, AS TO WHETHER, IT SHOULD BE DONE ON A PROPORTIONAL BASIS, AS CLAIMED BY THE ASSESEE. THE LD. DR, FURTHER REFERRING TO THE PROVI SIONS OF SECTION 92D OF THE I.T.ACT, 1961 AND RULE 10D OF THE I.T.RU LES, 1962 HAS SUBMITTED THAT THE PROPORTIONATE ADJUSTMENT, AS SOU GHT BY THE ASSESEE IS PURELY MISLEADING AND NOT WARRANTED. HE, FURTHER, SUBMITTED THAT THOUGH, THE ADJUSTMENT IS COMPUTED A T THE ENTITY LEVEL, BUT THE SAME IS ONLY WITH RESPECT TO INTERNATIONAL TRANSACTIONS AND NOT IN RELATION TO THE NON AE TRANSACTIONS. THE LD. DRP, WITHOUT APPRECIATING THE FACTS HAS DIRECTED THE TPO TO MAKE ADJUSTMENT ONLY TO TRANSACTIONS WITH AE. IN THIS REGARD, HE HAS FIL ED A DETAILED WRITTEN SUBMISSION, WHICH HAS BEEN REPRODUCED AS UNDER;- 4. AT THE OUTSET, IT IS STATED THAT THERE IS N O QUARREL TO THE PROPOSITION THAT THE TP ADJUSTMENT IF ANY IS TO BE MADE TO THE VALUE OF INTERNATIONAL TRANSACTION, AS HAS BEEN LAID DOWN BY THE VARIOUS D ECISIONS OF THE HIGH COURT AND ITAT RELIED UPON BY THE ASSESSEE. HOWEVER, THE DISPUTE IS REGARDING THE MANNER OF WORKING OUT THE SAID ADJUST MENT TO THE VALUE OF INTERNATIONAL TRANSACTION, I.E AS TO WHETH ER IT SHOULD BE DONE ON A PROPORTIONATE BASIS AS CLAIMED BY THE ASS ESSEE?. 5. BEFORE ANALYZING THE ABOVE CLAIM OF THE ASSESSEE TO COMPUTE THE ADJUSTMENT ON A PROPORTIONATE BASIS, LET US FIRST E XAMINE THE STATUTORY PROVISIONS REGARDING OBLIGATION OF THE ASSESSEE WITH REGARD TO THE MAINTENANCE OF DOCUMENTS AND PRODUCTION OF THE SAME DURING TRANSFER PRICING PROCEEDINGS WITH REGARD TO ALP DETERMINATIO N OF INTERNATIONAL TRANSACTIONS. IOT DESIGN & ENGINEERING LIMITED 26 6. THE OBJECT OF PRESCRIBING THE DOCUMENTATION REQU IREMENT IS TO ENABLE THE ASSESSEE TO SHOW THAT THE CHOICE OF THE MOST AP PROPRIATE METHOD AND THE COMPARABILITY ANALYSIS UNDERTAKEN BY IT IS CORR ECT BY PRODUCING THE SUPPORTING DOCUMENTARY EVIDENCES. SIMILARLY, THE DO CUMENTS ALSO HELP THE TPO/AO TO DETERMINE WHETHER THE CHOICE MADE BY THE ASSESSEE IS CORRECT AND WHETHER THE ALP IS CORRECTLY DETERMINED . THE MATERIAL ALSO AFFORDS THE BASIS TO THE AO/TPO TO DETERMINE THE AL P ON THE BASIS OF INFORMATION AVAILABLE ON RECORD WHERE IT IS FOUN D THAT THE DETERMINATION MADE BY THE ASSESSEE IS NOT IN ACCORD ANCE WITH LAW. 7. SINCE, THE CRUX OF THE MATTER REVOLVES AROUND THE ALP DETERMINATION OF THE INTERNATIONAL TRANSACTIONS FOR WHICH THE LAW MANDATES A CORRESPONDING DOCUMENTATION FT IS NECESSARY TO REFE R TO THE PROVISIONS OF SECTION 92D AND RULE 10D THE REQUIREMENT UNDER R ULE 10D IS TO BE EXAMINED IN THE LIGHT OF THE COMPARABILITY FACTORS IN RIDE 10B(2) AND CRITERION FOR JUDGING APPROPRIATENESS CONTAINED IN RULE 10C. THE SAME ARE EXTRACTED BELOW FOR READY REFERENCE. SECTION 92D OF THE INCOME TAX ACT. 1961 PROVIDES AS FOLLOWS *SEC92D MAINTENANCE, KEEPING OF INFORMATION AND DOC UMENT BY PERSONS ENTERING INTO AN INTERNATIONAL TRANSACTION. (1) EVERY PERSON WHO HAS ENTERED INTO AN INTERNATIO NAL TRANSACTION SHALL KEEP AND MAINTAIN SUCH INFORMATION AND DOCUMENT IN RESPECT THEREOF, AS MAY BE PRESCRIBED. 8. THUS, SUBSECTION (1) OF SECTION 92D MANDATES AND PUTS AN ONUS ON THE ASSESSEE TO MAINTAIN AND KEEP SUCH INFORMATION AND DOCUMENTS AS MAY BE PRESCRIBED IN RESPECT OF 'INTERNATIONAL TRAN SACTIONS'. 9. RULE 10D OF THE INCOME TAX RULES, 1962 PRESCRIBES THE INFOR MATION AND DOCUMENTS REQUIRED TO BE MAINTAINED BY EVERY PE RSON WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION. THE SAME READS AS FOLLOWS: 'INFORMATION AND DOCUMENTS TO BE KEPT AND MAINTAINE D UNDER SECTION 92D . 10D. (1) EVERY PERSON WHO HAS ENTERED INTO AN INTER NATIONAL TRANSACTION C '[OR A SPECIFIED DOMESTIC TRANSACTION] SHALL KEEP AND MAINTAIN THE FOLLOWING INFORMATION AND DOCUMENTS, NAMELY: (G) A RECORD OF UNCONTROLLED TRANSACTIONS TAKEN INTO ACCOUNT FOR ANALYZING WITH THE INTERNATIONAL TRANSACTIONS [ OR THE SPECIFIED DOMESTIC TRANSACTIONS] INCLUDING A RECORD OF THE NA TURE, TERMS AND CONDITIONS RELATING TO ANY UNCONTROLLED TRANSACTION WITH THIRD PARTIES WHICH MAY BE OF RELEVANCE TO THE PRICING OF THE INTERNATIONAL TRANSACTIONS [OR SPECIFIED DU*IJ6C TRANSACTIONS, AS THE CASE MAY BE] ; (H) A RECORD OF THE ANALYSIS PERFORMED TO EVALUATE COMPARABILITY OF UNCONTROLLED TRANSACTIONS WITH THE RELEVANT INTERNATIONAL TRANSACTION - [OR SPECIFIED DOMESTIC TRANSACTION]; IOT DESIGN & ENGINEERING LIMITED 27 (I) A DESCRIPTION OF THE METHODS CONSIDERED FOR D ETERMINING THE ARM'S LENGTH PRICE IN RELATION TO EACH INTERNATIONAL TRAN SACTION [ OR SPECIFIED DOMESTIC TRANSACTION] OR CLASS OF TRANSACTION, THE METHOD SELECTED AS THE MOST APPROPRIATE METHOD ALONG WITH EXPLANATIONS AS TO WHY SUCH METHOD WAS SO SELECTED, AND HOW SUCH METHOD WAS APPLIED IN EACH CASE; (J) A RECORD OF THE ACTUAL WORKING CARRIED OUT FOR DETERMINING THE ARM'S LENGTH PRICE, INCLUDING DETAILS OF THE COMPAR ABLE DATA AND FINANCIAL INFORMATION USED IN APPLYING THE MOST APPROPRIATE METHOD, AND ADJUSTMENTS IF ANY. WHICH WERE MADE TO ACCOUNT FOR DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTION ~[OR THE SPEC IFIED DOMESTIC TRANSACTION] AND THE COMPARABLE UNCONTROLLED TRANSA CTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS; 10. THUS, THE ASSESSEE HAS TO MAINTAIN DOCUMENTS GIVING VARIOUS DETAILS ABOUT THE INTERNATIONAL TRANSACTION LIKE NATURE AND TERMS, FAR ANALYSIS, RECORD OF FORECASTS BUDGETS ETC ; DOCUMENTS EXPLAIN ING AND JUSTIFYING THE SELECTION OF THE MOST APPROPRIATE METHOD CONSIDERIN G THE FACTORS SPECIFIED IN RULE 10C. AND ALSO THE DOCUMENTS RELAT ED TO UNCONTROLLED TRANSACTIONS TO ESTABLISH COMPARABILITY AND ALP OF THE INTERNATIONAL TRANSACTION BY APPLYING SUCH MOST APPROPRIATE METHO D AND A RECORD OF ACTUAL WORKING CARRIED OUT FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. 11. RULE 10B(2) PRESCRIBES THE COMPARABILITY FACTORS TO BE TAKEN I NTO ACCOUNT. AN EVALUATION OF RULE 10B(2) SHOWS THAT TH E COMPARABILITY BETWEEN INTERNATIONAL TRANSACTION AND UNCONTROLLED TRANSACTION HAS TO BE JUDGED WITH REFERENCE TO THE SPECIFIC CHARACTERISTI CS OF THE PROPERTY AND THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED BY THE PARTIES TO THE TRANSACTION AND THE CONTRACTUAL TERM S OF THE TRANSACTIONS THAT SHOWS HOW RISKS AND REWARDS ARE DIVIDED BETWEE N THE PARTIES THUS FOR THE PURPOSE OF ESTABLISHING COMPARABILITY, COMP LETE DETAILS OF THE RELEVANT INTERNATIONAL TRANSACTION ARE MANDATOR Y AS ALSO THE DETAILS OF THE COMPARABLE UNCONTROLLED TRANSACTION BEING CONSIDERED. 12. RULE 10C DISCUSSES THE 'MOST APPROPRIATE METHOD' . RULE 10C {1} PROVIDES FOR SELECTION OF THE METHOD WHICH PROVIDES THE MOST RELIABLE MEASURE OF ALP OF INTERNATIONAL TRANSACTION. SUB RU LE (2) PROVIDES FOR VARIOUS FACTORS TO BE TAKEN INTO ACCOUNT FOR DETERM INATION OF THE MOST APPROPRIATE METHOD THIS INTER-ALIA INCLUDES 'THE DE GREE OF COMPARABILITY EXISTING BETWEEN THE INTERNATIONAL TRANSACTION AND UNCONTROLLED TRANSACTION' AND 'THE NATURE AND EXTENT AND RELIABI LITY OF ASSUMPTIONS REQUIRED TO BE MADE IN APPLICATION OF A METHOD 1 . THUS, THE MANDATE OF THE RULE FOR SELECTION OF MOST APPROPRIATE METHOD I S THAT IT WILL PROVIDE THE MOST RELIABLE MEASURE OF ALP AND THE AS SUMPTIONS MADE IN APPLICATION OF THE METHOD ARE ALSO RELIABLE . AN EVALUATION OF RULE 10C(2) FURTHER SHOWS THAT EVEN FOR THE PURPOSE OF SELECTING THE MOST APPROPRIATE METHOD, MAXIMUM IMPORTANCE IS BEIN G GIVEN TO THE NATURE AND CLASS OF INTERNATIONAL TRANSACTION A ND THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED THEREI N. CHOICE OF IOT DESIGN & ENGINEERING LIMITED 28 APPROPRIATE METHOD ALSO DEPENDS ON THE COMPARABILIT Y BETWEEN THE INTERNATIONAL TRANSACTION AND THE UNCONTROLLED TRAN SACTION, A CHOICE OF THE METHOD IS GOVERNED BY THE AVAILABILITY OF RELIABLE DATA NECESSARY FOR APPLICATION OF METHOD. THUS, EVEN FOR THE PURPOSES OF SELECTING THE MOST APPROPRIATE METHOD, IT IS NECESSARY TO HAVE COMPLET E INFORMATION ABOUT THE INTERNATIONAL TRANSACTION, THE UNCONTROLLED TRA NSACTION AND THE COMPARABILITY BETWEEN THE SAME. 13. AT THIS JUNCTURE, IT IS RELEVANT TO NOTE THE PR OVISIONS OF RULE 10B(1)(E) WHICH PROVIDES FOR THE MANNER OF DETERMIN ATION OF ALP OF AN INTERNATIONAL TRANSACTION WHILE APPLYING TNMM. W HICH READS AS UNDER: [10B. DETERMINATION OF ARMS LENGTH PRICE UNDER SEC TION 92C. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C, THE ARM'S LENGTH PRICE IN TO IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY: (A).. .. (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH (I) THE NET PROFIT MARGIN REALIZED BY THE ENTERPRIS E FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD OF ANY OTHER RELEVANT BASE; 14. CLAUSE (I) OF RULE 10B(1)(E) SPECIFICALLY PROVI DES THAT NET PROFIT MARGIN REALIZED BY AN ENTERPRISE FROM AN INTERNATIO NAL TRANSACTION IS TO BE COMPUTED THE LAW MANDATES THAT WHENEVER TNMM IS APPLIED OR SOUGHT TO BE APPLIED, AS A 1ST STEP THE PROFIT MARG IN REALIZED FROM THE INTERNATIONAL TRANSACTION IS TO BE COMPUTED. 15. ON A COMBINED READING OF SECTION 92D. RULE 10D( 1). RULE 10B(2). RULE 10C AND 10B(1)(E), IT IS CLEAR THAT THE LAW MA NDATES THE ASSESSEE TO CHOOSE ANY OF THE METHOD DESCRIBED IN SECTION 92C(1 ) AS THE MOST APPROPRIATE METHOD BY CONSIDERING THE FACTORS SPECI FIED IN RULE 10C, WHICH WILL PROVIDE THE MOST RELIABLE MEASURE OF ALP OF INTERNATIONAL TRANSACTION AND MAINTAIN RECORDS AS TO WHY SUCH MET HOD WAS SELECTED AS MOST APPROPRIATE METHOD AND HOW IT WAS APPLIED IN E ACH CASE [REFER CLAUSE(I) OF RULE 100(1}]. FURTHER, HAVING SELECTED THE MOST APPROPRIATE METHOD, THE ASSESSEE WOULD ALSO MAINTAIN A RECORD O F THE UNCONTROLLED TRANSACTION (INCLUDING A RECORD OF UNCONTROLLED TRA NSACTION ENTERED INTO BY THE ASSESSEE WITH THE 3RD PARTIES) WHICH WERE TAKEN INTO ACCOUNT FOR ANALYZING THEIR COMPARABILITY WITH INTERNATIONAL TR ANSACTION [REFER CLAUSE(G) OF RULE 10D(1)], IN LINE WITH THE METHOD SELECTED A S THE MOST APPROPRIATE METHOD. THEREAFTER, THE ASSESSEE IS ALSO MANDATED T O KEEP A RECORD OF THE ANALYSIS PERFORMED TO EVALUATE COMPARABILITY OF UNCONTROLLED TRANSACTION WITH INTERNATIONAL TRANSACTION [REFER C LAUSE(H) OF RULE 10D(1)] IN LINE WITH THE METHOD SELECTED AS THE MOST APPROP RIATE METHOD FURTHER, THE ASSESSEE IS MANDATED TO MAINTAIN A RECORD OF TH E ACTUAL WORKING IOT DESIGN & ENGINEERING LIMITED 29 CARRIED OUT FOR DETERMINATION OF ALP INCLUDING DETA ILS OF FINANCIAL INFORMATION USED IN APPLYING THE MOST APPROPRIATE M ETHOD [REFER CLAUSE(I) OF RULE 10D(1)]. THUS IF TNMM IS APPLIED, THE TO KEEP A RECORD OF THE ACTUAL WORKING CARRIED OUT FOR ALP BY APPLYING TNMM AS PER THE METHOD OF DETERMINATION RULE 10B(1)(E). 16. THUS IT CAN BE SEEN THAT THE DOCUMENTATION REQU IREMENTS PRESCRIBED IN RULE 10D ARE OF SUCH A NATURE THAT BOTH THE ASSESSEE AS WELL AS THE AO IS ENABLED TO SELECT THE MOST APPROPRIATE METHOD BASED ON THE DOCUMENTATION MAINTAINED AND IS ALSO ABLE TO ESTABL ISH COMPARABILITY BETWEEN THE INTERNATIONAL TRANSACTION AND UNCONTROL LED TRANSACTION. 17. IT IS SUBMITTED THAT IT IS THE RESPONSIBILITY O F THE ASSESSEE / TAXPAYER TO PROVIDE DATA OF PROFITABILITY OF AE SEGMENT AND ALS O OF NON-AE SEGMENT. THIS IS DUE TO THE REASON THAT SPECIAL FACTS ARE IN THE KNOWLEDGE OF THE ASSESSEE AND IT IS THE TAXPAYER WHO HAS RESPONSIBIL ITY TO DISCHARGE THE ONUS. IN THIS CASE, THE ASSESSEE HAS NOT DISCHARGED ITS ONUS TO PROVIDE DATA OF AE AND NON-AE SEGMENT. THERE IS NO DISPUTE WITH REGARD TO THIS FACT 18. IN VIEW OF THE DOCUMENTATION REQUIREMENT AS PER THE ACT DISCUSSED ABOVE IT MAY BE NOTED THAT THE PURPOSE IS TO DETERM INE THE PROFITABILITY OF THE AE SEGMENT AS WELL AS THE NON AE SEGMENT. HAVIN G NOT COMPLIED WITH THE DOCUMENTATION REQUIREMENT AS PRESCRIBED BY LAW, THE ASSESSEE NOW CANNOT TAKE THE BENEFIT OF ITS OWN FAILURE. BY CLAIMING PROPORTIONATE ADJUSTMENT, THE ASSESSEE IS MAKING AN INHERENT ASSU MPTION THAT 'IN THE ENTITY LEVEL PROFITABILITY, THE PROFITS EARNED ON T HE AE SEGMENT AS WELL AS THE NON-AE SEGMENT IS SAME,. WHICH MAY BE LESS THAN THE ARM'S LENGTH PROFITS FOR BOTH THE SEGMENTS' THE SAME COULD BE AC CEPTED PROVIDED THE ASSESSEE FURNISHED THE RELEVANT DATA FOR THE AE AND NON-AE SEGMENT, AS PROVIDED BY LAW. EVEN AT THE COST OF REPETITION, IT MAY BE STATED THAT AS A FIRST STEP FOR DETERMINATION OF PROFITABILITY UNDER TNMM. THE ASSESSEE HAS TO COMPUTE THE PROFITS FROM THE INTERNATIONAL TRANS ACTION UNDER RULE 10B(1)(E)(I). ONCE SEPARATE PROFITABILITY OF THE AE TRANSACTIONS IS NOT FURNISHED, AND THE ASSESSEE USES ENTITY LEVEL PROFI TS FOR COMPARABILITY, THE ASSUMPTION OF THE ASSESSEE THAT BOTH THE AE SEGMENT AS WELL AS THE NON AE SEGMENT HAVE EARNED THE SAME PROFITS, DOES NOT STAND DEMONSTRATED BY ANY EVIDENCE. IN SUCH A SITUATION. THE ASSUMPTIO N OF THE REVENUE THAT ' THE PROFITS EARNED BY THE ASSESSEE ON THE NON-AE SEGMENT (EMBEDDED IN THE ENTITY LEVEL PROFITS TAKEN FOR COMPARABILITY ) IS AT ARM'S LENGTH IN ABSENCE OF ANY RELATIONSHIP TO IMPACT THE PROFITS O F THIS SEGMENT, WHICH WOULD BE THE RATE OF PROFITS EARNED BY THE COMPARAB LE COMPANIES' WOULD BE MORE JUSTIFIED AS HAS ALSO BEEN UPHELD BY THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF ALSTROM PROJECTS INDIA LIMITED IN IT A 362 OF 2014 AT PARA 12 WHEREIN IT HAS BEEN HELD THAT 'THE TRANS ACTION WITH NON- AE ARE PRESUMED TO BE AT ARM'S LENGTH AS THERE IS N O RELATIONSHIP WHICH IS LIKELY TO INFLUENCE THE PRICE. 19. AS PER FACTS ON RECORD, THE ASSESSEE HAD DISCLO SED INTERNATIONAL TRANSACTIONS, FOR WHICH EXTERNAL TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS CONSIDERED AS THE MOST APPROPRIATE METHO D AND IT WAS APPLIED TO DETERMINE THE ALP OF THE SAID INTERNATIO NAL TRANSACTION. FOR IOT DESIGN & ENGINEERING LIMITED 30 WORKING OUT THE ALP OF THE SAID INTERNATIONAL TRANS ACTION, THE PI I WAS TAKEN AS OP/OC, WITH THE ASSESSEE AS THE TESTED PAR TY THUS THIS WAS THE ADMITTED POSITION OF THE ASSESSEE CONSIDERING T HE VARIOUS PROVISIONS OF THE ACT DISCUSSED ABOVE. IT MAY BE NO TED THAT THE ASSESSEE HAS NOT WORKED OUT SEPARATE PROFIT FROM TH E INTERNATIONAL TRANSACTION AS PER THE MANDATE OF RULE 10D AND RULE 10B(1)(E). 20 THE ASSESSEE HAS APPLIED EXTERNAL TNMM , WHEREIN THE PLI OF THE ASSESSEE WAS COMPUTED AND COMPARISON WAS DONE WITH THE PLI OF THE COMPARABLE COMPANIES THE PLI WAS WORKED OUT BY THE ASSESSEE FOR THE ENTIRE COMPANY (WHICH CONSISTS OF BOTH AE SALES AS WELL AS NON AE SALES) AND WAS NOT WORKED OUT SEPARATELY FOR THE IN TERNATIONAL TRANSACTIONS WITH AES IN CONTRAVENTION TO THE MANDA TE OF RULE 10B(1)(E) DISCUSSED ABOVE. IT MAY BE STATED THAT WHEN THE ASSESSEE ITSELF HAS COMPUTED THE PLI AT ENTITY LEVEL (CONSISTING BOTH O F AE SALES AS WELL AS NON AE SALES) AND HAS ITSELF APPLIED EXTERNAL TN MM, IT MEANS THAT THE ASSESSEE HAS NOT CONSIDERED INTERNAL TNMM AS AN APPROPRIATE METHOD FOR COMPARISON. IN OTHER WORDS, EVEN AS PER THE ASSESSEE, THE PROFIT OF NON AE SEGMENT WAS NOT COMP ARABLE TO THE AE SEGMENT INTERNATIONAL TRANSACTIONS. THIS ALSO ME ANS THAT EVEN AS PER THE ASSESSEE OUT OF THE ENTITY LEVEL COST, T HE COST ATTRIBUTABLE TO THE AE SEGMENT AND THE NON AE SEGMENT CANNOT BE ALLOCATED ON A PROPORTIONATE BASIS OF SALES. HAD IT BEEN SO. THE ASSESSEE WOULD HAVE PREPARED THE ACCOUNTS OF AE AND NON AE SEGMENT SEPARATELY AND WOULD HAVE DONE INTERNAL TNMM ANALYSIS AND WOUL D HAVE JUSTIFIED THE ALP OF THE INTERNATIONAL TRANSACTION ON THIS BASIS ITSELF. 21. BY CLAIMING PROPORTIONATE ADJUSTMENT ON THE BAS IS OF AE SALES TO TOTAL SALES, THE ASSESSEE IS BY INFERENCE NOW CLAIMING TH AT ENTITY LEVEL DATA CAN BE SEGREGATED INTO AE AND NON-AE SEGMENT.. THIS ASSUMPTION IS ERRONEOUS, FALLACIOUS AND NOT TENABLE AS ACCEPTING THIS CLAIM MEANS THAT INTERNAL TNMM IS AVAILABLE WHICH HAS NOT BEEN CONSIDERED APPROPR IATE BY THE ASSESSEE ITSELF AND FOR WHICH NO DATA HAS BE EN PROVIDED BY THE ASSESSEE AND THERE COULD BE NO NEED TO APPLY EXTERN AL TNMM AT ALL IT HAS BEEN HELD IN A NUMBER OF CASES THAT INTERNAL CO MPARISON IS BETTER THAN EXTERNAL, IF OTHER CONDITIONS ARE SATISFIED PR OVIDED RELIABLE DATA IS PROVIDED. HAVING FAILED TO PROVIDE THE RELIABLE DAT A OF TWO SEGMENTS - AE TRANSACTIONS AND NON-AE TRANSACTIONS, THE ASSESSEE IS TRYING TO TAKE BENEFIT OUT OF HIS FAILURE. 22. THE DIFFERENCE BETWEEN THE REVENUE AND ASSESSEE IS IN THE METHODOLOGY OF WORKING OUT TP ADJUSTMENT TO INTERNA TIONAL TRANSACTION THE DEPARTMENT IS WORKING OUT COST OF NON-AE TRANSA CTION BY APPLYING AVERAGE PLI OF EXTERNAL COMPARABLE, IN THE ABSENCE OF DATA FOR AE/NON- AE SEGMENTS. IT MAY BE NOTED THAT EVEN THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ALSTROM PROJECTS INDIA LIMITED IN ITA 362 OF 2014 AT PARA 12 HELD THAT 'THE TRANSACTION WITH NON -AE ARE PRESUMED TO BE AT ARM'S LENGTH AS THERE IS NO RELAT IONSHIP WHICH IS LIKELY TO INFLUENCE THE PRICE . 23. ACCORDINGLY, SINCE, THE AVERAGE PLI OF COMPARAB LES WAS HIGHER THAN THE PLI OF THE ASSESSEE'S TOTAL TRANSACTION (AE + N ON-AE TRANSACTIONS), IOT DESIGN & ENGINEERING LIMITED 31 THE NATURAL PRESUMPTION (AS CONFIRMED BY THE HON'BL E BOMBAY HIGH COURT SUPRA) IS THAT THE TRANSACTION RELATING TO THE NON- AE PART IN THE TOTAL TRANSACTION IS AT ALP. IN OTHER WORDS, THE PROFITS EARNED BY THE ASSESSEE ON NON-AE TRANSACTION IS AT ARM'S LENGTH. IT AUTOMA TICALLY MEANS THAT OUT OF THE TOTAL PROFITS SHOWN, THE PROFIT ON THE NON A E PART EMBEDDED IN THIS TOTAL PROFITS IS AT ALP I.E AT THE AVERAGE PLI OF T HE COMPARABLES ONCE IT IS SO, THE SHORTFALL IN THE PROFITS AS COMPUTED AT ENT ITY LEVEL IS ONLY IN RESPECT OF INTERNATIONAL TRANSACTIONS, FOR WHICH NO PROPORT IONATE ADJUSTMENT CAN BE ALLOWED. IT MAY BE NOTED THAT ALTHOUGH IN THE ME THOD OF COMPUTATION, THE ENTITY LEVEL DATA COMPRISING BOTH OF AE AS WELL AS NON AE TRANSACTIONS HAS BEEN USED, THE ADJUSTMENT IS ONLY WITH RESPECT TO THE INTERNATIONAL TRANSACTION, AS THE NON AE PART IS ALREADY AT ALP. 24 REGARDING THE CONTENTION RAISED BY THE ASSESSEE THAT THE ADJUSTMENT WAS REQUIRED TO BE RESTRICTED ONLY TO THE AE TRANSA CTION AND CANNOT BE RESORTED TO AT ENTITY LEVEL IT IS SUBMITTED THAT WORKING OF PROPORTIONATE ADJUSTMENT SUBMITTED BY THE ASSESSEE IS BASED ON AN ERRONEOUS PRESUMPTION THAT AE AND NON-AE TRANSACTION HAVE ACTUALLY EARNE D SAME PERCENTAGE OF PROFIT. AS DISCUSSED, EVEN THE BOMBAY HIGH COURT HAS HELD THAT THE NON-AE TRANSACTIONS WOULD BE AT ARM'S LENG TH IN ABSENCE OF ANY RELATIONSHIP WHICH IS LIKELY TO INFLUENCE THE PRICE . THIS ASSUMPTION OF THE ASSESSEE. THEREFORE, IS ERRONEOUS. IN CASE THIS ASS UMPTION OF THE ASSESSEE IS HELD ACCEPTABLE, IT WOULD AMOUNT TO EXI STENCE OF INTERNAL TNMM WHICH HAS NOT BEEN CONSIDERED AS THE MOST APPR OPRIATE METHOD BY THE ASSESSEE AND FOR WHICH IT HAS NOT FURNISHED ANY DETAILS, WHICH ARE IN SPECIAL KNOWLEDGE OF THE ASSESSEE 25. EXAMPLE TO EXPLAIN THE CONTENTION OF REVEN UE: (COLUMN) AE NON-AE TOTAL SALES ENTITY A 100.00 100.00 200.00 SUPPOSE ACTUAL OP/OC AT ENTITY LEVEL (%) B 10.00 OPERATING COST AT ENTITY LEVEL C=TOTAL SALES/110% 181. 82 TOTAL OP. PROFITS AT ENTITY LEVEL D=A-C 18.18 SUPPOSE ALP MARGIN (OP/OC)OF COMPARABLES ( %) E 15.00 AS FOR NON-AE TRANSACTIONS THERE IS NO RELATIONSHIP TO INFLUENCE THE PRICE, THE MARGIN ON THESE TRANSACTIONS ARE AT ALP I.E THE OC IS SUCH THAT IT PRODUCES ALP OP/OC MARGIN OF 15% F 15.00 OC OF NON AE TRANSACTION G= NON-AE SALES/115% 86.96 86.96 OC OF AE TRANSACTION H=C-G 94.86 94.86 OP PROFITS EARNED AS PER BOOKS (RS) L=A-[H-AE,G-NON AE] 5.14 13.04 18 18 IOT DESIGN & ENGINEERING LIMITED 32 OP/OC AS PER BOOKS (%) J=L/[H-AE,G-NON AE]*100 5.42 15. 00 . PROFIT TO BE EARNED AT ENTITY LEVEL TO GET OVERALL OP/OC OF 15% K=C*15% 27.27 DIFFERENCE OF PROFITABILITY AT ENTITY LEVEL/ ADJUSTMEN T PROPOSED L=K-D 9.09 9.09 TOTAL OP PROFIT OF AE SEGMENT POST ADJUSTMENT (RS) M=L+I 14.23 AE OP/OC POST ADJUSTMENT (%) N=M/H*100 15.00 6. THE ABOVE IS EXPLAINED AS UNDER: > SUPPOSE, AE SALES AND NON AE SALES ARE RS. 100 EACH AGGREGATING TO RS. 200.(COLUMN A) > SUPPOSE, ACTUAL ENTITY LEVEL OP/OC IS 10%. (COL UMN B) HENCE, ENTITY LEVEL OC WILL BE 181. 82. (COLUMN C) AND, ENTITY LEVE L OP WILL BE 18. 18. (COLUMN D) > SUPPOSE, ALP MARGIN OF COMPARABLES IS WORKED OU T AT 15%. (COLUMN E) > SINCE THE TRANSACTION WITH NON-AE ARE PRESUMED TO B E AT ARM'S LENGTH AS THERE IS NO RELATIONSHIP WHICH IS LIKELY TO INFLUENCE THE PRICE, THE ALP MARGIN OF NON-AE BE ALSO 15% IN THIS EXAMPLE. (COLUMN F) APPLYING THE RATE OF 15% TO NON AE SALES, OC OF NON -AE SALES WORKS OUT TO RS 86 96 (COLUMN G) ACCORDINGLY, SINCE OUT OF ENTITY LEVEL OC OF RS 181.82. RS 86.96 IS NON-AE, THE AE COST IS THE DIFFERENCE AMOUNT OF RS 94.86 (COLUM N H) THUS, WHEN WE DEDUCT THE SEGMENT OC FROM THE SE GMENT SALES SEGMENT WISE OP WORKS OUT TO RS. 5.14FOR AE SEGMENT AND RS. 13.04 FOR NON-AE SEGMENT {COLUMN I) THIS OP SEGMENT WISE IN TERMS OF % WORKS OUT TO 5.42% FOR AE, 15% FOR NON-AE AND 10% AT ENTITY LEVEL (COLUMN J). IT MAY BE NOTED THAT NON-AE SEGMENT PROFITABILITY IS SAME AS 15% WHICH IS THE ALP MARGI N. *- THE ENTITY LEVEL PROFIT ON OC OF RS. 181.82 WIT H OP/OC AS PLI @15% WORKS OUT TO RS. 27.27 (COLUMN K) > HENCE THERE IS DIFFERENCE IN OVERALL ENTITY LEVE L PROFITABILITY OF RS 909 WHICH IS PROPOSED AS ADJUSTMENT TO THE AE SEGMENT (COLUMN L) . * IF THIS ADJUSTMENT PROPOSED OF RS. 9.09 IS ADDE D TO THE OPERATING PROFIT EARNED FOR THE AE SEGMENT OF RS.5.14, THE TOTAL WORKS OUT TO RS. 1 4.23 (COLUMN M) THIS TOTAL PROFIT OF RS. 14.23 WORKS OUT TO 15% OF THE OC OF AE SEGMENT OF RS 94 86 (COLUMN N), WHICH IS THE ALP WHICH SHOULD HAVE BEEN EARNED ON THE AE TRANSACTION 27. THUS, IT MAY BE SEEN THAT THE PROPORTIONATE ADJ USTMENT AS SOUGHT BY THE ASSESSEE IS PURELY MISLEADING AND NOT WARRANTED. IT IS AGAIN EMPHASIZED THAT THOUGH THE ADJUSTMENT IS COMPUTED AT ENTITY LEVEL, BUT, THE SAME IS ONLY WITH RESPECT TO THE INTERNATIONAL TRANSACTION AND NOT IN RELATIO N TO THE NON-AE TRANSACTION. 28. FURTHER, IF THE PROPORTIONATE ADJUSTMENT AS SOUGHT BY THE ASSESSEE IS ALLOWED, THE POSITION IN THE ABOVE EXAMPLE WOULD BE AS UNDER : COLUMN AE NON-AE TOTAL SALES A B 10000 100.00 20000 OC AS PER BOOKS 94.86 86.96 181.82 IOT DESIGN & ENGINEERING LIMITED 33 OP. PROFITS EARNED AS PER BOOKS (RS} C=A-B 5.14 13.04 18.18 ADJUSTMENT PROPOSED TO PROFITS ON PRORATA BASIS OF SALES D 4.55 4. 55 9.09 TOTAL SEGMENT WISE PROFIT EARNED E=C+D 968 17.59 27.27 PROFIT AS % OF COST F=E/B*100 10.21 20.23 15.00 29. FROM THE ABOVE CHART, IT MAY BE SEEN THAT IF PROPORTIONATE ADJUSTMENT AS CLAIMED BY THE ASSESSEE IS ALLOWED, I N EFFECT, IT MEANS THAT ONLY RS 4.55 WOULD BE ADDED TO THE EXISTING AE SEGM ENT PROFIT OF 5.14 THIS WOULD TRANSLATE INTO TOTAL AE SEGMENT PROFIT O F RS. 9 68. WHICH WORKS OUT TO ONLY 1021% OF THE OC OF THE AE SEGMENT OF RS 94 86 THUS WHEN THE AE SEGMENT IS EXPECTED TO EARN ALP PROFIT OF 15 %, THE ADJUSTMENT MADE ON PROPORTIONATE BASIS WOULD ONLY LEAD TO OP/O C FOR THE AE SEGMENT AT 10.21%. HENCE, THE PROPORTIONATE ADJUSTM ENT AS CLAIMED BY THE ASSESSEE IS NOT CALLED FOR ACCORDINGLY, ALTHOUG H THE ADJUSTMENT HAS BEEN COMPUTED ON ENTITY LEVEL, THE ADJUSTMENT IS ON LY WITH RESPECT TO INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 30. TO SUM UP, THE REVENUE DOES NOT HAVE ANY GRIE VANCE AGAINST THE PROPOSITION THAT TP PROVISIONS DO NOT APPLY TO NON- AE TRANSACTIONS. HOWEVER, THE ISSUE IS WHETHER FOR THE PURPOSE OF DE TERMINING THE ALP ON AE TRANSACTIONS, IF ONLY ENTITY LEVEL MARGINS ARE G IVEN BY THE ASSESSEE, ADOPTING THE PROPORTIONATE BASIS TO DERIVE THE PROF ITS ON AE TRANSACTIONS, IS IN ACCORDANCE WITH LAW OR NOT THE UNDERLYING ASS UMPTION IN ADOPTING THE PROPORTIONATE BASIS TO DERIVE THE AE PROFITS IS THAT THE ASSESSEE EARNS THE SAME MARGIN ON AE TRANSACTION AS IT HAS EARNED ON NON-AE TRANSACTION HOWEVER, THIS PRESUMPTION IS CONTRARY T O THE TP PROVISIONS WHERE THE UNDERLYING PRESUMPTION IS ALWAYS THAT THE NON-AE TRANSACTIONS AT WHATEVER PRICE THEY ARE ENTERED INTO ARE AT ARM' S LENGTH.. IN FACT, THE OBJECT OF TP PROVISIONS IS TO DETERMINE WHETHER THE PROFIT ON AE TRANSACTIONS (WHERE TNMM METHOD IS ADOPTED) IS BETT ER THAN THE PROFITS ON NON-AE TRANSACTIONS. UNDER SUCH CIRCUMSTANCES, T HE ASSUMPTION THAT ALL ASSESSEE'S TRANSACTIONS, WHETHER WITH AE OR NON -AE, RESULT IN SAME RATE OF PROFIT IS TO ASSUME THE CORRECTNESS OF THE CONCLUSION WHICH SHOULD HAVE ACTUALLY BEEN INDEPENDENTLY ESTABLISHED, AND W HICH THE ASSESSEE HAS FAILED TO DEMONSTRATE. . 45. THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS TA RA JEWELS EXPORTS PVT.LTD. (2017) 80 TAXMANN.COM 117, WHERE I T WAS HELD THAT THE VALUE OF THE TP ADJUSTMENT NEEDS TO BE MADE TO THE VALUE OF THE IOT DESIGN & ENGINEERING LIMITED 34 INTERNATIONAL TRANSACTIONS INSTEAD OF MAKING THE AD JUSTMENTS AT ENTITY LEVEL. IN THIS REGARD, HE HAS RELIED UPON THE FOLLO WING JUDICIAL PRECEDENTS. CASE LAW NAME CITATION BOMBAY HIGH COURT CIT V. TARA JEWELS EXPORT (P.) LTD. [2017] 80TAXMANN.COM 117 (BOMBAY) RATILAL BECHARLAL & SONS V. CIT [2016] 65 TAXMANN.COM 155 (BOMBAY) CPT V. THYSSEN KRUPP INDUSTRIES INDIA [2016] 70 TAXMANN.COM 329 (BOMBAY) CITV. FIRESTONE INTERNATIONAL (P.) LTD. [2015] 60 TAXMANN.COM 235 (BOMBAY) - BOMBAY HIGH COURT MUMBAI ITAT DOT VS TARA JEWELS EXPORT (P) LTD. [2018] 96 TAXMANN.COM 429 (MUMBAI - TRIB.) SMT. DINA SUDHIR SHAH VS ACIT [2015] 53 TAXMANN.COM 496 (MUMBAI - TRIB ARAMEX INDIA (P.) LTD VS DCIT 2014] 51 TAXMANN.COM 573 (MUMBAI - TRIB.) PHOENIX MECANO (INDIA) (P.) LTD VS (TO 2014] 42 TAXMANN.COM 469 (MUMBAI - TRIB.) SANDOZ(P.)LTD VS DCIT [2013] 34 TAXMANN.COM 28 (MUMBAI - TRIB.) SYSCOM CORPORATION LTD VS ACIT [2013] 35 TAXMANN.COM 600 (MUMBAI - TRIB.) TCL HOLDINGS (P.) LTD VS ACIT [2013] 35 TAXMANN.COM 147 (MUMBAI - TRIB.) PENFORT (ISRAEL) LIMITED VS DCIT [2013] 36 TAXMANN.COM 499 {MUMBAI TRIB.) IOT DESIGN & ENGINEERING LIMITED 35 ALSTOM PROJECTS INDIA LTD VS ACIT [2013] 36 TAXMANN.COM 130 (MUMBAI TRIB.) STAR DIAMOND GROUP VS DCIT 2011] 44 SOT 532 (MUMBAI) DCIT VS STARLITE [2010] 40 SOT 421 (MUM.) ITAT HUNTSMAN ADVANCED MATERIALS (INDIA) PVT. LTD VS DCIT I.T.A. NO. 8237/MUM/2010. ITAT ITAT - OTHER KIRLOSKAR TOYODA TEXTILE MACHINERY PRIVATE LIMITED VS ACIT [2015] 53 TAXMANN.COM 389 (BANGALORE - TRIB.) MINDTECK (INDIA) LIMITED VS ITO [2015] 55 TAXMANN.COM 261 (BANGALORE - TRIB.) GILLETE INDIA LTD VS ACIT [2014] 44 TAXMANN.COM 133 (JAIPUR - TRIB.) DCIT VS ALCATEL INDIA LIMITED 2014] 51 TAXMANN.COM 518 (DELHI - TRIB.) IGARASHI MOTORS INDIA LTD VS ACIT 2013] 36 TAXMANN.COM 389 (CHENNAI - TRIB.) DCIT VS INVENSYS INDIA PVT. LTD ITA NOS. 1858, 1859 & 2214/DEL/ 2011 INVENSYS INDIA PVT. LTD VS DCIT ITANOS. 1858, 1859/DEL/2011 [2010] IL JIN ELECTRONICS (I) (P.) LTD V. ACIT [2010] 36 SOT 227 (DELHI) - ITAT 46. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD.DRP HAS DIRECTED THE TPO TO LIMIT THE ADJUSTMENT ONLY TO THE AE TRANSACTIONS BY FOLLOWING THE DECISION OF HO NBLE BOMBAY HIGH COURT, IN THE CASE OF RATILAL BECHARLAL & SONS VS CIT(2016) (65 TAXMANN.COM 155) (BOM.), WHERE IT WAS CATEGORICALLY HELD THAT TP IOT DESIGN & ENGINEERING LIMITED 36 ADJUSTMENT NEEDS TO BE MADE AT TRANSACTIONS LEVEL A ND NOT AT ENTITY LEVEL. A SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON BLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS TARA JEWELS EXPOR TS PVT.LTD.(SUPRA) THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD.DRP, WHILE DIRECTING TH E LD.TPO TO LIMIT THE ADJUSTMENTS ONLY TO THE TRANSACTIONS WITH AES. HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. DRP AND REJECT GROUND TAKEN BY THE REVENUE. 47. IN THE RESULT, APPEAL FILED THE REVENUE IS DISM ISSED. 48. AS A RESULT, APPEAL FILED BY THE ASSESEE FOR AS ST. YEARS 2010- 11 & 2011-12 ARE PARTLY ALLOWED AND APPEAL FILED BY THE REVENUE FOR ASST.YEAR 2011-12 IS DISMISSED AND CROSS OBJECTION FILED BY THE REVENUE FOR ASST.YEAR 2011-12 IS ALSO DISMISSED. 49. BEFORE PARTING, WE SHALL DEAL WITH PROCEDURAL A SPECT OF PROUNCEMENT OF ORDER AS PRESCRIBED UNDER RULE 34(4) OF INCOME TAX (APPELLATE TRIBUNAL) RULES 1963. AS PER RULE 34(4), NO ORDER SHALL BE PRONOUNCED AFTER EXPIRY OF 90 DAYS FROM THE DATE OF HEARING. THIS APPEAL WAS HEARD ON 29/01/2020 AND ORDINARILY, THE ORDER SHALL BE PRONOUNCED ON OR BEFORE 27/04/2020. BUT, THIS ORDER COULD NOT BE PRONOUNCED ON OR BEFORE 27/04/2020, DUE TO THE FACT THAT THE GOVT. OF INDIA HAS IMPOSED NATIONWIDE LOCKDOWN FROM 25/03 /2020 AND THE SAME HAS BEEN EXTENDED TIMT TO TIME UP TO 31/05/202 0 AND BECAUSE OF THIS THE OFFICE WAS CLOSED UP TO 21/05/2020. FUR THER, IF THE ABOVE LOCKDOWN PERIOD IS EXCLUED FOR THE PURPOSE OF LIMIT ATION, THEN THE ORDER CAN BE PRONOUNCED ON OR BEFORE 23/06/2020. FU RTHER, WHETHER LOCKDOWN PERIOD CAN BE EXCLUDED OR NOT HAS BEEN EXH ASTIVELY DEALT BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI, IN THE CA SE OF DCIT VS IOT DESIGN & ENGINEERING LIMITED 37 JSW LIMITED, IN ITA NO. 6264/MUM/2018, DATED 14/05/ 2020, WHERE IT WAS HELD THAT DUE TO CORONA VIRUS PANDAMIC, THE PERIOD OF LIMITATION AUTOMATICALLY GETS EXTENDS TILL SUCH PERIOD THE LOC KDOWN IS IN FORCE. WE, THEREFORE, ARE OF THE OPINION THAT CONSIDERING THE PREVAILING SITUATION AND ALSO, BY RESPECTFULLY FOLLOWING THE D ECISION OF CO- ORDINATE BENCH IN THE CASE OF DCIT VS. JSW LIMITED (SUPRA), THE ORDER IS PRONOUNCED WELL WITHIN THE TIME ALLOWED UN DER RULE 34(4) OF INCOME TAX (APPELLATE TRIBUNAL) RULES 1963. ORDER PRONOUNCED AS PER RULE 34(4) OF INCOME TAX RU LES 1963, THOUGH NOTICE TO PARTIES, ON THIS: 17 /06/20 20 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 17/06/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//