Louis Dreyfus Commodiies India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 6409/DEL/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3325 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 18-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAVI SHARMA CA SHRI A RASTOGI
• Keywords: Transfer pricing; International transaction; Revenue expenditure
• Section: 92F; 14A; 144

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 6409/DEL/2012 (ASSESSMENT YEAR: 2008 - 09 ) LOUIS DREYFUS COMMODITIES INDIA PVT. LTD, 8 TH FLOOR, TOWER A BUILDING NO. 5, CYBER CITY, DLF PHASE - III, GURGAON PAN:AAACL7361E VS. DCIT, CIRCLE - 4(1), CR BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA, CA SHRI A RASTOGI, CA REVENUE BY: SHRI PIYUSH JAIN, CIT DR DATE OF HEARING 11/12 /2017 DATE OF PRONOUNCEMENT 0 9 / 0 3 / 2018 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4 (1), NEW DELHI { THE LD AO } MADE UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 [ THE ACT] ON 25/10/2012 PURSUANT TO THE DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL [ THE LD DRP ] PASSED UNDER SECTION 144C (5) OF THE ACT ON 21/9/2012 FOR THE ASSESSMENT YEAR 2008 - 09 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ASSESSMENT ORDER PASSED IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL (HONBLE DRP) IS A VITIATED ORDER AS THE HONBLE DRP ERRED BOTH ON FACTS AND IN LAW IN PARTIALLY CONFIRMING THE ADDITION MADE BY THE LD. ASSESSING O FFICER (LD. AO') TO THE APPELLANT'S INCOME BY ISSUING AN ORDER WITHOUT APPRECIATION OF F ACTS AND LAW; 2. THE HONBLE DRP ERRED IN PARTIALLY CONFIRMING THE ADDITION OF THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTIONS OF THE APPELL ANT PERTAINING TO THE EXPORT TRANSACTIONS AND THE BUSINESS SUPPORT SERVICES SEGMENT DO NOT SATISFY THE ARMS PAGE | 2 LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE HON'BLE DRP HAS GROSSLY ERRED IN AGREEING WITH THE LEARNED TRANSFER PRICING OFFICER 'S ( LD. TPOS) ACTION OF: COMMON TRANSFER PRICING OBJECTIONS - ALL SEGMENTS 2.1. NOT APPRECIATING THAT THE APPELLANT HAD PREPARED THE DETAILED CONTEMPORANEOUS TRANSFER PRICING DOCUMENTATION BONA FIDE AND IN COMPLIANCE WITH THE ACT AND INCOME TAX RULES 1962 ( THE RULES); 2.2. REJECTING THE APPELLANTS CLAIM REGARDING WORKING CAPITAL ADJUSTMENT; 2.3. DISREGARDING THE CLAIM OF THE APPELLANT FOR THE +/ - 5% RANGE AS ALLOWED IN THE PROVISO TO SECTION 92C(2) OF THE ACT; 2.4. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TRANSFER PRICING (TP') ADJUSTMENT; TRANSFER PRICING OBJECTIONS - EXPORT TRANSACTIONS 2.5. REJECTING THE COMPARABLE UNCONTROLLED PRICE METHOD (CUP), WHICH WAS SELECTED BY THE APPELLANT AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS EXPORT TRANSACTIONS, AND INSTEAD SELECTING TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR BENCHMARKING EXPORT TRANSACTIONS; 2.6. WHILE APPLYING TNMM FOR BENCHMARKING EXPORT TRANSACTIONS, ARBITRARILY SELECTING CERTAIN QUANTITATIVE CRITERIA WHICH ARE INAPPRO PRIATE HAVING REGARD TO THE TRANSACTION BEING ANALYSED; 2.7. WHILE APPLYING TNMM FOR BENCHMARKING EXPORT TRANSACTIONS, SELECTING CERTAIN COMPANIES WHICH ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 2.8. REJECTING INTERNAL TNMM AS A CORROBORATIVE BENCHMARKING ANALYSIS IN RESPECT OF THE APPELLANTS EXPORT TRANSACTIONS; TRANSFER PRICING OBJECTIONS - BUSINESS SUPPORT SERVICES SEGMENT 2.9. REJECTING WITHOUT REASON, THE QUANTITATIVE AND QUALITATIVE SCREEN S/FILTERS APPLIED AND SET OF COMPARABLES ARRIVED AT BY THE APPELLANT FOLLOWING A DETAILED AND ROBUST SEARCH METHODOLOGY CARRIED OUT IN THE TP REPORT, AND PROCEEDING TO CARRY OUT FRESH SEARCH BY APPLYING CERTAIN ARBITRARILY SELECTED FILTERS AND ARRIVING AT HIS OWN COMPARABLES SET INSTEAD IN BUSINESS SUPPORT SERVICES SEGMENT. 2 10 WHILE APPLYING TNMM FOR BENCHMARKING BUSINESS SUPPORT SERVICES, SELECTING CERTAIN Z' COMPANIES WHICH ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMP LOYED AND RISKS ASSUMED; 2.11 DISREGARDING PRIOR YEARS DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FY 2007 - 08) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AV AILABLE TO THE APPELLANT AT THE TIME OF PAGE | 3 PREPARING ITS TP DOCUMENTATION, AND IN DOING SO HAS GROSSLY ERRED IN INTERPRETING THE REQUIREMENT OF CONTEMPORANEOUS DATA IN THE RULES TO NECESSARILY IMPLY CURRENT YEAR (I.E. FY 2007 - 08) DATA. 3 THE LD. AO ERRED IN PROPOSING TO DISALLOW INR 158,937 UNDER SECTION 14A OF THE ACT. 4 THE LD. AO ERRED IN DISALLOWING EXPENSES AMOUNTING TO INR 877,259 BASED ON THE ALLEGATION THAT THESE EXPENSES PERTAIN TO INCREASE IN THE AUTHORIZED SHARE CAPITAL AND ARE HENCE NOT ALLOWABLE AS REVENUE EXPENDITURE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1) (C) OF THE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 3. ASSESSEE IS A COMPANY WHO FILED ITS RETURN OF INCOME ON 26/11/2008 SHOWING LOSS OF RS. 3 , 66 , 00 , 879/ . ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN AGRICULTURAL COMMODITIES. AS ASSESSEE HAS ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS, A REFERENCE WAS MADE TO THE LD. TRANSFER PRICING OFFICER [THE LD TPO ] TO DETERMINE THE ARM S LENGTH PRICE [ ALP] UNDER SECTION 92CA OF THE ACT. THE LD. TRANSFER PRICING OFFICER VIDE HIS ORDER DATED 31/10/2011 MADE UNDER SECTION 92CA (3) PROPOSED AN ADJUSTMENT OF RS. 2 74100236/ BECAUSE OF ADJUSTMENT OF EXPORT TRANSACTIONS AND BECAUSE OF BUSINESS SUPPORT SERVICES. CONSEQUENT TO THAT , DRAFT ASSESSMENT ORDER WAS PASSED BY THE LD. AO WHERE THE INCOME OF THE ASSESSEE WAS DETERMINED AT 3, 67, 81, 035 AGAINST THE RETURN ED LOS OF ASSESSEE OF RS. 3, 66,00,879/ . 4. THE ASSESSEE AGGRIEVED WITH THE PROPOSED VARIATION BY THE ASSESSING OFFICER PREFERRED OBJECTION BEFORE THE LD . DISPUTE RESOLUTION PANEL. THE LD. DRP ISSUED DIRECTIONS UNDER SECTION 144C (5) ON 21/9/2000 VARIED THE ADJUSTMENT PROPOSED TO THE INTERNATIONAL TRANSACTIONS OF RS. 2 7410 0236/ RESTRICTED TO RS. 5 161 8113/ . 5. CONSEQUENT TO THAT THE LD. AO PASSED AN ASSESSMENT ORDER UNDER SECTION 143 (3) SECTION 144 C OF THE ACT ON 25/10/2012 WHEREIN TOTAL INCOME OF THE ASSE SSEE WAS DETERMINED AT RS. 16053430/ AGAINST THE LOSS DECLARED BY THE ASSESSEE OF RS. 3, 66, 00, 879/ . ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSESSING OFFICER HAS PREFERRED AN APPEAL BEFORE US. PAGE | 4 6. A SSESSEE HAS RAISE D 5 EFFECTIVE GROUNDS OF APPEAL. H OWEVER BEFORE US ONLY ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WITH RESPECT TO EXPORT TRANSACTION AND BUSINESS SUPPORT TRANSACTIONS ARE CHALLENGED . IT IS COVERED BY GROUND NUMBER 2.5 TO 2.11 OF THE GROUNDS OF APPEAL AND THEREFORE ALL OTHER GROUNDS OF APPEAL OTHER THAN THOSE GROUNDS ARE DISMISSED AS NOT PRESSED. 7. GROUND NO. 2.5 2.8 ARE AGAINST THE ADJUSTMENT PROPOSED WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS OF EXPORT OF AGRICULTURAL COMMODITIES [ AGRI BASED COMMO DITIES] . 8. THE ASSESSEE IS A SUBSIDIARY OF SINGAPORE COMPANY AND IS A N INDIA - BASED TRADER OF THE AGRICULTURAL BASED COMMODITY PRODUCTS SUCH AS COTTON, COPY, SOYABEAN MEAL, SUGAR AND GRAIN . THE COMPANY ENGAGES IN THE TRADING ACTIVITY OF THOSE COMMODITIES WI TH BOTH ASSOCIATED ENTERPRISES AND UNR ELATED PARTIES IN THE DOMESTIC AND INTERNATIONAL MARKET. ASSESSEE IS ALSO ENGAGED IN PROVIDING BUSINESS SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISE. 9. BRIEF FACTS RELATED TO THE EXPORT TRANSACTION ARE THAT ASSESSEE HA S ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES OF EXPORT OF AGRICULTURAL COMMODITIES OF RS. 4032, 01, 267/ . THE APPELLANT ANALYZED THE TRADING SEGMENT USING COMPARABLE UNCONTROLLED PRICE METHOD ( CUP ) A S THE MOST APPROPRIATE MET HOD. FOR THE COMPARABILITY ANALYSIS , ASSESSEE PLACED RELIANCE ON THE CONTRACT PRICE FOR THE SAME COMMODITIES BETWEEN 2 NON - ENTERPRISES AND PRICES PUBLISHED AND REPORTED IN VARIOUS TRADE PUBLICATIONS. ACCORDING TO THE ASSESSEE THE CUP METHOD WAS USED A S THE PREVAILING MARKET PRICE WERE EASILY AVAILABLE FOR THE COMMODITIES EXPORTED. THE LD. TRANSFER PRICING OFFICER REJECTED IT AND INSTEAD SELECTED TRANSACTION NET MARGIN METHOD [ TNMM] TO BENCHMARK THOSE TRANSACTIONS. THE LD. TPO UNDERTOOK RESEARCH IN SELECTED 2 COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. THE LD. TPO INCLUDED KOHINOOR FOODS LTD, WHICH IS A COMPANY, ENGAGED IN DISTRIBUTION OF BRANDED PRODUCTS WHOSE PROFIT LEVEL INDICATOR OF OPERATING PROFIT/TOTAL COST WAS 7.87%. THE NEXT IN CLUDED WAS MADE, INTERNATIONAL LTD WHICH IS ENGAGED IN PRODUCTION OF FLOWERS WHOSE PROFIT LEVEL INDICATOR WAS 12.88%. PAGE | 5 THE RANGE PROFIT LEVEL INDICATOR OF THE ABOVE TWO COMPARABLES WAS DETERMINED AT 10.38 PERCENTAGE. CONSEQUENTLY THE ADJUSTMENT OF RS. 2 6, 95, 63, 89 3/ WAS PROPOSED BY THE LD. TRANSFER PRICING OFFICE . ON OBJECTION S, BEFORE THE LD. DISPUTE RESOLUTION PANEL, IT UPHELD REJECTION OF APPLICABILITY OF CUP METHOD AS EXAMINED BY THE LD. TRANSFER PRICING OFFICER IN DETAIL AND THE LD. DRP WAS OF THE OPINION THAT FOR COMPARABILITY UNDER THAT METHOD ROBUST AND DIRECT COMPARISON IS REQUIRED WHICH DOES NOT EXIST ON A TRANSACTION TO TRANSACTION BASIS . T HEREFORE THE REJECTION OF CUP METHOD WAS UPHELD. THE LD. DISPUTE RESOLUTION PANEL FURTHER CONSI DERED THE OBJECTION OF THE ASSESSEE THAT TP ADJUSTMENT SHOULD BE APPLIED ONLY ON THE TRANSACTIONS WITH ASSOCIATED ENTERPRISE AND NOT ALL THE TRANSACTIONS. THE LD. DISPUTE RESOLUTION PANEL DIRECTED THE LD. TRANSFER PRICING OFFICER TO VERIFY WHETHER THE QUANTUM OF ADJUSTMENT INCLUDES OVER UN CONTROLLED TRANSACTION AND IF SO THE QUANTUM OF ADJUSTMENT IS TO BE RESTRICTED TO THE INTERNATIONAL TRANSACTIONS ONLY. CONSEQUENT TO THAT ADJUSTMENT OF RS. 27,41, 00, 236/ WAS REDUCED TO RS. 5, 1 6, 18, 113/ 10. THE LD. AUTHORIZED REPRESENTATIVE OBJECTED TO THE SELECTION OF TRANSACTION NET MARGIN METHOD IS THE MOST APPROPRIATE METHOD BY THE LD. TRANSFER PRICING OFFICER INSTEAD OF CUP METHOD ADOPTED BY THE ASSESSEE. IT WAS SUBMITTED THAT LD. TRANSFE R PRICING OFFICER HAS MADE A GENERIC OBSERVATION WITHOUT DEALING INTO THE REASONS FOR HOLDING CUP A S AN UNRELIABLE METHOD. IT WAS FURTHER STATED THAT THERE WERE NO INSTANCES IN THE TRANSFER PRICING OFFICER S ORDER WHICH INDICATE ANY SCRUTINY OF THE EXTENSI VE DATA SUBMITTED BY THE APPELLANT. IT WAS FURTHER SUBMITTED THAT FOR THE BENCHMARKING OF EXPORT TRANSACTION THE APPELLANT HEAVILY RELIED UPON COMPARABLE UNCONTROLLED PRICES, WHICH WERE USED FOR PRICE FIXATION. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED T HAT WHENEVER THE APPELLANT IS TO ENGAGE IN A TRANSACTION FOR EXPORT OF COMMODITIES TO ITS ASSOCIATED ENTERPRISES, THE APPELLANT RELIES UPON RATES QUOTATIONS OFFERED BY BROKERS OR 3 RD PARTIES. THESE RATES ARE INVITED FROM THE BROKERS ON THE DATE THE CONTRAC T IS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. FURTHER, IN SOME CASES OF THE CONTRACT THE APPELLANT RELIES UPON THE RATES PUBLISHED ON COMMODITIES EXCHANGES FOR DECIDING PRIOR TO TRANSACTIONS PAGE | 6 WITH ITS ASSOCIATED ENTERPRISES. THESE QU OTATIONS, WHICH WERE REFERENCED FOR PRICE SETTINGS, HAVE ONLY BEEN USED FOR SUPPORTING ARM S LENGTH COMPLIANCE. IT WAS FURTHER STATED THAT CONSIDERING THE INDUSTRY DYNAMICS, THESE QUOTATIONS SERVE AS THE MOST DIRECT AND RELIABLE WAY OF ESTABLISHING ARM S L ENGTH PRICES. HE THEREFORE SUBMITTED THAT THE QUOTATIONS RELIED UPON BY THE APPELLANT DOES NOT REPRESENT POST FACTO OF PRICE JUSTIFICATION FOR TRANSACTIONS ALREADY ENTERED BUT ACTUALLY IT RE PRESENT COMPARABLE DATA WHICH WAS USED FOR DETERMINING THE ARMS LENGTH PRICE OF THE TRANSACTION PRIOR TO ENTERING INTO THE CONTRACT. HE FURTHER RELIED UPON THE DECISION OF THE COORDINATE BENCH IN CASE OF DCIT VERSUS NOBEL RESOURCES AND TRADING INDIA PRIVATE LIMITED 70 TAXMANN.COM 300 (2016) (DELHI) WHEREIN THE US E OF CUP A S THE MOST APPROPRIATE METHOD IN CASE OF TRADING TRANSACTIONS WERE UPHELD. HE FURTHER REFERRED TO THE 2 ND OBJECTION OF THE LD. TRAN SFER PRICING OFFICER THAT CUP METHOD WARRANTS GREATER PRODUCT COMPARABILITY AND THE LA CK OF PRODUCT SIMILARITY RESULTS REJECTION OF CUP METHOD. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE EXPORTED 5 COMMODITIES SUCH AS COFFEE, COTTON, SOYABEAN MEAL, SUGAR AND GRAIN TO ITS ASSOCIATED ENTERPRISE DURING ASSESSMENT YEAR 2008 0 9. HE SUBMITTED COMPARATIVE DETAILED OF THIRD PARTIES RATES VARIOUS CONTRACT FOR ALL COMMODITIES EXPORTED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE. HE REFERRED TO THE OTHER OBJECTION OF THE LD. TRANSFER PRICING OFFICER OF THAT QUOTATIONS CANNOT BE CONSIDERED FOR APPLICABILITY OF CUP METHOD. HE SUBMITTED THAT LAW DOES NOT MAKE A DISTINCTION BETWEEN THE ACTUAL PRIZES APPLIED IN UNCONTROLLED TRANSACTIONS OR PRIZES PROPOSED TO BE APPLIED IN UNCONTROLLED TRANSACTION. ACCORD ING TO HIM THE QUOTATION REPRESENTS A PRICE WHICH IS PROPOSED TO BE APPLIED IN A TRANSACTION BETWEEN UN RELATED ENTERPRISE AND HENCE THE SAME SHALL QUALIFY THE DEFINITION OF ARMS LENGTH PRICE IN ACCORDANCE WITH SECTION 92F OF THE ACT. HE REFERRED TO THE PR OVISIONS OF RULE 10 D (3) OF THE INCOME TAX RULES AND SUBMITTED THAT PRICE PUBLICATIONS INCLUDING STOCK EXCHANGE IN COMMODITY MARKET QUOTATIONS CAN BE RELIED UP ON . HE FURTHER SUBMITTED THAT WITH THE INSERTION OF RULE 10 AB HYPOTHETICAL PRICES OF TRANSA CTIONS ARE ALSO TAKEN INTO ACCOUNT AS WELL. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF THE PAGE | 7 COORDINATE BENCH IN CASE OF TOLL GLOBAL FORWARDING VERSUS DCIT 51 TAXMANN.COM 342 (2014) (DELHI). WITH RESPECT TO THE USE OF THE QUOTATION HE FURTHER RELIED ON THE DECISION OF NOBLE RESOURCES AND TRADING (SUPRA) HE FURTHER REFERRED TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CASE OF CIT VERSUS ADANI WILMAR LTD (ITA NO. 240 OF 2014/). HE ALSO OBJECTED TO THE TRANSACTIONAL NET MARGIN METHOD APPLIED BY THE ASSESSEE SUBMITTING THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF AGRICULTURAL COMMODITIES BASED ON EXPECTATION OF PRICE INCREASE OR DECREASE IN THE FUTURE. HE THEREFORE SUBMITTED THAT IRRESPECTIVE OF THE MARKET RESEARCH OR INTELLIG ENCE GATHERED BY THE APPELLANT THE PRICES OF THE COMMODITIES MAY OR MAY NOT MOVE IN THE SAME DIRECTION IN THE SAME PROPORTION AS ANTICIPATED BY THE APPELLANT. THUS, ACCORDING TO HIM THE PRICES OF THE AGRICULTURAL COMMODITIES DEPEND ON A HOST OF FACTORS L IKE SITUATION OF DEMAND & SUPPLY, W EATHER CONDITIONS, REGULATORY FRAMEWORK, GLOBAL S HIFTS IN DEMAND AND SUPPLY ETC AND IT WOULD BE IMPOSSIBLE TO PREDICT THE MOVEMENT OF PRICES . T HEREFORE THE PROFITABILITY WOULD NOT BE THE RIGHT BENCHMARKING CRITERIA F OR DECIDING THE ARMS LENGTH PRICE OF A TRANSACTION. THEREFORE, HE SUBMITTED THAT TRANSACTIONAL NET MARGIN METHOD CANNOT BE ACCEPTED AS THE MOST APPROPRIATE METHOD IN CASE OF THE ASSESSEE ENGAGED IN TRADING TRANSACTION OF AGRICULTURAL PRODUCES. TO SUPPORT HIS CONTENTION HE REFERRED TO THE PARAGRAPH 2.3 OF THE OECD TRANSFER PRICING GUIDE LINES THAT TRADITIONAL TRANSACTIONAL METHODS ARE THE MOST DIRECT MEANS OF ESTABLISHING WHETHER CONDITION IN THE COMMERCIAL AND FINANCIAL RELATIONS BETWEEN ASSOCIATED ENTERPR ISES AR M S LENGTH. HE THEREFORE SUBMITTED THAT THE LD. TRANSFER PRICING OFFICER SHOULD HAVE ACCEPTED THE CUP METHOD A S THE MOST APPROPRIATE METHOD IN CASE OF EXPORT OF AGRICULTURAL COMMODITIES. 11. THE LD. CIT DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. TRAN SFER PRICING OFFICER HOLDING THAT THOUGH CUP METHOD MAY BE IDEALLY SUITABLE AS THE MOST APPROPRIATE METHOD ONLY WHERE THE DA TA OF THE ASSESSEE ARE MOST RELIABLE AND COMPARABLE. HE FURTHER SUBMITTED THAT THERE IS LA C K OF PRODUCT SIMILARITY IN THE VARIO US EVIDENCES OF THE ASSESSEE. HE FURTHER PAGE | 8 OBJECTED THAT MERE QUOTATIONS WHICH ARE NOT PRICES OF ACTUAL TRANSACTIONS CANNOT BE USED AS COMPARABLE INSTANCES FOR CUP METHOD. HE THEREFORE SUBMITTED THAT LD. TRANSFER PRICING OFFICER /LD. DISPUTE RESOLUTION PANE L HAS CORRECTLY REJECTED THE APPLICABILITY OF CUP METHOD IN CASE OF EXPORT OF AGRICULTURAL COMMODITIES BY THE ASSESSEE TO ITS ASSOCIATED TRANSACTION IN ABSENCE OF ANY RELIABLE DATA. HE FURTHER SUBMITTED THAT LD. ASSESSING OFFICER/ TRANSFER PRICING OFFICER / LD. DISPUTE RESOLUTION PANEL HAS THEREFORE NO OTHER ALTERNATIVE BUT TO ADOPT TRANSACTIONAL NET MARGIN METHOD A S THE MOST APPROPRIATE METHOD. IN THE RESULT HE SUBMITTED THAT THE ADJUSTMENT PROPOSED BY THE LD. TRANSFER PRICING OFFICER PURSUANT TO DIRECTIONS OF THE LD. DISPUTE RESOLUTION PANEL MAY BE UPHELD. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL C ONTENTIONS AS WELL AS THE ORDER OF THE LD. TRANSFER PRICING OFFICER AND THE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL. THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION OF EXPORT OF AGRICULTURAL COMMODITIES OF RS. 4 0,32,01,267 / - APPLYING THE CUP METHOD SUBMITTED THAT IT IS AT ARMS LENGTH. ASSESSEE SUPPORTED ITS METHOD SELECTION OF CUP BY QUOTATION OF AGRI BROKERS AS WELL AS SOME ASSOCIATIONS AND BOARDS. HOWEVER THE LD. TRANSFER PRICING OFFICER REJECTED THE CUP METHOD HOLDING THAT WHEN THE DATA WAS PRODUCED BEFORE HIM IT WAS SEEN THAT CUP DATA WAS ACTUALLY THE QUOTATIONS FROM 3 RD PARTIES AND NOT THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVI CES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTIONS AS PER THE INTENT OF RULE 10 B OF THE INCOME TAX RULES, 1962. HE THEREFORE HELD THAT ACTUAL UNCONTROLLED TRANSACTIONS COULD ONLY BE ACCEPTED FOR ARMS LENGTH PRICE FOR A CUP. A CCORDING TO HIM A MERE QU OTATIONS FROM THE BROKER CANNOT BE ESTABLISHED A PRICE IN ARMS LENGTH BENCHMARKING UNDER INDIAN TRANSFER PRICING REGULATIONS. HE FURTHER STATED THAT IN THE CUP METHOD THE FUNCTIONAL SIMILARITIES BETWEEN THE PRODUCTS IS MORE STRINGENT AND RELIABILITY OF DAT A FOR APPLICATION OF METHOD AS WELL AS THE DEGREE OF COMPARABILITY BETWEEN THE INTERNATIONAL TRANSACTION AND UNCONTROLLED TRANSACTIONS. THEREFORE HE APPLIED T RANSACTIONAL NET MARGIN METHOD A S THE MOST APPROPRIATE METHOD. BEFORE US , THE ASSESSEE HAS SUBMIT TED A DETAILED CHART WHEREIN EACH OF THE TRANSACTIONS ENTERED INTO BY THE PAGE | 9 ASSESSEE HAS BEEN ANALYSED . FOR AN INSTANCE , ASSESSEE ENTERED INTO THE TRANSACTION ON 17 TH OF JANUARY 2008 SOYABEAN OIL OF RS. 1 026, 18, 188/ RELYING ON THE QUOTATION PROVIDED BY THE SUNVIN GROUP WHICH ARE THE BROKERS AND CONSULTANTS WITH STRONG RESEARCH BACKUP IN OILS AND OILSEEDS TRADE INDUSTRIES. THE ASSESSEE ALSO SUPPORTED THE TRANSACTIONS WITH QUOTATIONS OF SOLVENT EXTRACTORS ASSOCIATION OF INDIA WHICH IS A NON - GOVERNMENT ORGANIZATION RECOGNIZED BY THE MINISTRY OF AGRICULTURE , GOVERNMENT OF INDIA AND WHICH IS AN ALL INDIA BODY OF SOLVENT EXTRACTION INDUSTRY. FURTHER, THE TRANSACTION OF COTTON ON 07/10/2007 WAS ALSO SUPPORTED BY THE QUOTATIONS OF KOTAK GINNING AND PRESSING INDUSTRY W HICH IS ALSO INVOLVED IN GINNING AND PRESSING OF COTTON . W ITH RESPECT TO EACH OF THE TRANSACTIONS OF SUGAR, CORN, COFFEE AND COFFEE ARABICA PLANTATION , THE ASSESSEE HAS USED VARIOUS QUOTATIONS INCLUDING THE QUOTATIONS OF THE COFFEE BOARD OF INDI A TO JUSTIFY THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. IN FACT IT WAS MENTIONED THAT COFFEE BOARD OF INDIA I S AN ORGANIZATION MANAGED BY THE MINISTRY OF COMMERCE AND INDUSTRY OF THE GOVERNMENT OF INDIA TO PROMOTE COFFEE PRODUCTION IN INDI A. THE COFFEE BOARD FUNCTION INCLUDES THE PROMOTION, SALE AND CONSUMPTION OF COFFEE IN INDIA AND ABROAD. IT IS FURTHER STATED THAT IT REGULARLY PUBLISHES BOOKS AND BULLETINS, MARKET STUDY REPORTS AND OTHER MATERIALS SIGNIFYING THE QUALITY AND COFFEE CONSUM PTION IN INDIA. IN THE STATEMENT SUBMITTED BY THE ASSESSEE WITH RESPECT TO EACH OF THE TRANSACTION, THE ASSESSEE HAS PRODUCED RELEVANT INFORMATION ABOUT THE PREVAILING PRICES. IN SOME OF THE CASES, IT IS SUPPORTED BY THE EVIDENCES FROM 2 DIFFERENT ENTITIES AND IN SOME OF THE CASES IT IS SUPPORTED BY SINGLE QUOTATION OF THE BROKERS. HOWEVER, WE AGREE WITH THE VIEWS OF THE LD. TRANSFER PRICING AND LD. DISPUTE RESOLUTION PANEL THAT ADEQUATE AND RELIABLE DATA IS A NECESSARY INGREDIENT OF SELECTING ANY METHOD FOR COMPARABILITY ANALYSIS FOR DETERMINING ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. HOWEVER WITHOUT EXAMINATION OF THE EVIDENCES S UBMITTED BY THE ASSESSEE IT IS PREMATURE TO STATE THAT INFORMATION SUPPLIED BY THE ASSESSEE IS NOT RELIABLE, IT LACKS CREDIBILITY OR IT IS NOT ENOUGH FOR DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. WE DO NOT FIND ANY MENTION PAGE | 10 BY THE LD TPO OR BY LD DRP ANY REFERENCE OF EXAMINATION OF THESE DOCUMENTS AND THEN REJECTING IT WITH COGENT REASONS THAT THEY ARE NOT RELIABLE, AUTHENTIC OR INADEQUATE. WITH RESPECT TO THE APPLICABILITY OF THE QUOTATIONS FOR CUP METHOD, HONBLE GUJARAT HIGH COURT IN CASE OF CIT VERSUS ADANI WILMER LTD 363 ITR 338 (GUJARAT) (2014) INTERPRETING RULE 10 D OF THE INCOME TAX RULES HAS HELD AS UNDER: - 7. IN TERMS OF CLAUSE (C) OF SUB - SECTION (3) OF RULE 10D OF THE RULES, THESE PRICE PUBLICATIONS AS LONG AS THE SAME WERE AUTHENTIC AND RELIABLE, WOULD BE RELEVANT MATERIALS. IN THIS BACKGROUND, MERE BASE OF THE ORGANISATION WOULD BE OF NO CONSEQUENCE. FURTHER, THOUGH THE PRICE QUOTATIONS OF THE MPOB WOULD BE ENTITLED TO ITS DUE AND FULL WEIGHTAGE AND RESPECT, W OULD NOT NECESSARILY MEAN THAT THE OTHER QUOTATIONS WOULD LOSE THEIR SIGNIFICANCE, UNLESS, OF COURSE, IT IS POINTED OUT THAT SUCH QUOTATIONS LACK BASIS. IN THIS CONTEXT, WE MAY RECALL THAT THE ONLY OBJECTIONS WITH THE TPO TO TAKE INTO CONSIDERATION THE RAT E QUOTATIONS OF THE OIL WORLD WERE, THAT WERE NOT BASED IN MALAYSIA AND THAT IT WAS AN INDEPENDENT ORGANISATION, WHICH HAD NOTHING TO DO WITH THE OLD PRICE PREVAILING IN MALAYSIA. WHEN THE CIT (APPEALS) AS WELL AS THE TRIBUNAL HAVE ACCEPTED THE RELIABILITY AND AUTHENTICITY OF THE ORGANISATION AND ITS PUBLICATION OF RATE - LIST, SUCH OBJECTION OF THE TPO MUST BE OVERRULED. LEARNED ADVOCATE MR. BHATT FOR THE REVENUE, HOWEVER, STRENUOUSLY ATTEMPTED TO PERSUADE US THAT THE OIL WORLD IS A FORECASTING AGENCY AND FU RTHER THAT SUCH RATES WERE NOT BASED ON ACTUAL TRANSACTIONS. QUITE APART FROM THE OBSERVATIONS OF THE CIT (APPEALS) AND TRIBUNAL BEING TO THE CONTRARY, THESE WERE NOT THE OBJECTIONS OF THE TPO. WE WOULD, THEREFORE, FOCUS ON THE GROUNDS ON WHICH THE TPO DES IRED TO REJECT SUCH PRICE QUOTATIONS. 13. THE PRINCIPLE LAID DOWN BY THE HONBLE GUJARAT HIGH COURT WAS THAT QUOTATIONS AND OTHER INFORMATION OF THE PREVAILING PRICES SUBMITTED BY THE ASSESSEE FOR CUP METHOD FOR DETERMINATION OF ARMS LENGTH PRICE OF PAGE | 11 INTERNA TIONAL TRANSACTIONS CANNOT BE REJECTED OUT RIGHTLY WITHOUT EXAMINATION OF THOSE DOCUMENTS. THE HONBLE GUJARAT HIGH COURT ALSO STATED THAT SUCH EVIDENCES TO BE EXAMINED MUST BE RE LIABLE AND AUTHENTIC. IN THE PRESENT CASE THE LD. TRANS FER PRICING OFFICER HAS NOT EXAMINED THE EVIDENCES SUBMITTED BY THE ASSESSEE. THEREFORE , IN THE INTEREST OF JUSTICE , WE SET ASIDE THE ISSUE OF DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF EXPORT OF AGRICULTURAL COMMODITIES TO THE ASSOCIATED ENTER PRISE BACK TO THE FILE OF THE LD. TRANSFER PRICING OFFICER WITH A DIRECTION TO EXAMINE THE DETAILS FURNISHED BY THE ASSESSEE IN THE FORM OF VARIOUS QUOTATIONS OF AGRICULTURAL COMMODITY BROKERS AS WELL AS OTHER ENTITIES WITH RESPECT TO THEIR AUTHENTICIT Y , ADEQUACY AND RELIABILITY. IF THE LD. TRANSFER PRICING OFFICER FINDS THOSE EVIDENCES A S AUTHENTIC, RELIABLE AND ADEQUATE INFORMATION FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE THEN HE IS DIRECTED TO ADOPT THE CUP METHOD FOR COMPARABILITY A NALYSIS. THE ASSESSEE IS ALSO DIRECTED TO SUPPORT THE EVIDENCES BEFORE THE LD. TRANSFER PRICING OFFICER AND TO SHOW THEIR RELIABILITY, AUTHENTICITY, AND ADEQUACY FOR SUPPORTING THE INTERNATIONAL TRANSACTION OF EXPORT OF COMMODITIES. IN VIEW OF THIS GROU ND NO. 2.5 2.8 OF THE APPEAL OF THE ASSESSEE IS SET ASIDE TO THE FILE OF THE LD. TPO TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH ABOVE DIRECTION . ACCORDINGLY, THOSE GROUNDS ARE ALLOWED WITH ABOVE DIRECTION. 14. NOW WE COME TO GROUND NO. 2.9 2.11 OF THE APPEAL OF THE ASSESSEE, WHICH IS RELATED TO THE TRANSFER PRICING ADJUSTMENT MADE TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH RESPECT TO ITS BUSINESS SUPPORT SERVICES SEGMENT. THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS FOR PROVISION OF SERVICES AS BUSINESS SUPPORT SERVICES WITH ITS ASSOCIATED ENTERPRISE OF RS. 4 69, 86, 599/ . ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN METHOD A S THE MOST APPROPRIATE METHOD AND SELECTED 3 COMP ARABLE COMPANIES WHOSE AVERAGE PROFIT MARGIN CONSIDERING THE PROFIT LEVEL INDICATOR OF OPERATING PROFIT/SALES WAS 4.49 PERCENTAGE WHEREAS THE APPELLANTS PROFIT MARGIN WAS 10% AND THEREFORE ACCORDING TO THE ASSESSEE THE INTERNATIONAL TRANSACTIONS WERE AT AR MS LENGTH. PAGE | 12 15. THE LD. TRANSFER PRICING OFFICER REJECTED THE COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT AND INSTEAD CONDUCTED A FRESH SEARCH FOR COMPARABLE COMPANIES SELECTING 11 COMPANIES WHOSE AVERAGE PROFIT LEVEL INDICATOR OF OPERATING PROFIT/TOTAL COST WAS 20.62% AND THEREFORE PROPOSED AN ADJUSTMENT UNDER SECTION 92CA OF RS. 45,36,343/ . THE ASSESSEE OBJECTED BEFORE THE LD. DISPUTE RESOLUTION PANEL AND PRAYED FOR EXCLUSION OF SOME COMPARABLE COMPANIES SELECTED BY THE LD. TRANSFER PRICING OFFICER. T HE LD. DISPUTE RESOLUTION PANEL REJECTED OBJECTIONS . 16. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT APPELLANT PERFORMS ROUTINE BUSINESS SUPPORT FUNCTION FOR ITS ASSOCIATED ENTERPRISE AND IS BEARING LIMITED BUSINESS RISK , EMPLOYS ROUTINE TANGIBLE ASSETS F OR ITS OPERATIONS. IT WAS FURTHER STATED THAT APPELLANT DOES NOT HAVE ITS OWN INTANGIBLES AND ASSESSEE IS OPERATING ON ASSURED RETURN REVENUE MODEL, WHICH IS COST PLUS MARKUP BASIS BY ITS GROUP COMPANIES IRRESPECTIVE OF THE SUCCESS OR FAILURE OF ITS ACTIVI TIES. THEREFORE, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IT IS OBJECTING FOR THE INCLUSION OF FOLLOWING COMPARABLES THAT ARE FUNCTIONALLY DIS SIMILAR TO THE ASSESSEE. EACH OF THE COMPARABLES NOW CONTESTED BY THE ASSESSEE ARE DEALT WITH AS UNDER. 17. THE 1 ST COMPARABLE COMPANY OBJECTED TO BY THE ASSESSEE INCLUDED BY THE LD TRANSFER PRICING OFFICER IS APITCO LIMITED WHICH IS ENGAGED IN THE PROVISION OF HIGHLY TECHNICAL CONSULTANCY SERVICES. IT HAS A VARIOUS LINE OF SERVICES WHICH INCLUDES ASSET RECONS TRUCTION AND MANAGEMENT SERVICES, PROJECT RELATED SERVICES, MICRO - ENTERPRISE DEVELOPMENT, INFRASTRUCTURE PLANNING AND DEVELOPMENT, RESEARCH STUDIES, SKILL DEVELOPMENT, ENVIRONMENT MANAGEMENT, ENTERPRISE DEVELOPMENT AND TRAINING, CLUSTER DEVELOPMENT AND ENE RGY - RELATED SERVICES ETC. IT WAS FURTHER CONTENDED THAT OUT OF THE ABOVE WORK DOMAIN OF THIS COMPANY ONLY THE RESEARCH STUDIES RELATED ACTIVITIES SEEMS TO BE COMPARABLE TO THE FUNCTIONS PERFORMED BY THE APPELLANT. LD. AUTHORISED REPRESENTATIVE ALSO SUBMITT ED THAT THE REVENUE FROM RESEARCH STUDIES IN CASE OF THE COMPARABLE COMPANY CONSTITUTE ONLY ABOUT 12% OF TOTAL REVENUE OF THE COMPANY. IT WAS FURTHER SUBMITTED THAT IN SOME OF THE OTHER CASES THIS COMPARABLE COMPANY HAS BEEN EXCLUDED FOR THE ABOVE REASON. HE THEREFORE PAGE | 13 SUBMITTED THAT THIS COMPANY SELECTED BY THE LD. TRANSFER PRICING OFFICER IS NOT FUNCTIONALLY SIMILAR TO THE ASSESSEE. 18. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LD TRANSFER PRICING OFFICER AND REFERRED TO PAGE NO. 33 OF THE ORDER OF THE LD. TRANSFER PRICING OFFICER WHERE IN IT HAS BEEN HELD THAT ABOVE COMPARABLE COMPANY MEETS ALL THE QUANTITATIVE CRITERIA SET FORTH BY THE LEARNER TRANSFER PRICING OFFICER FOR THE SELECTION OF THE COMPARABLE AND FURTHER THE ASSESSEE HA S ALSO NOT CONSIDERED THE VERTICALS BY CARRYING OUT ITS SEARCH PROCESS AND THEREFORE NOW IT CANNOT CONTEST THE EXCLUSION FOR THE SAME. 19. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND ORDERS OF THE LEARNER TRANS FER PRICING OFFICER WHERE IN A T PAGE NO. 32/33 THE ABOVE COMPARABLE COMPANY HAS BEEN CONSIDERED. THE LD. TRANSFER PRICING OFFICER HAS REJECTED THE CONTENTION OF THE ASSESSEE AS THE COMPARABLE COMPANY IS FULFILLING ALL THE QUANTITATIVE CRITERIA SET FORTH BY THE LD. T RANSFER PRICING OFFICER . THE ARGUMENT OF THE SELECTION OF THE ABOVE COMPARABLE COMPANY VIS - A - VIS IS THE FUNCTIONS PERFORMED BY THE COMPARABLE COMPANY WHICH SHOWS THAT ONLY 12% OF THE TOTAL REVENUE OF THE COMPARABLE COMPANY IS PERTAINING TO THE RESEARCH S TUDIES DESERVES CONSIDERATION . THIS IS A GLARING FACTOR WHICH SHOWS THAT THE COMPARABLE COMPANY IS NOT FUNCTIONALLY COMPARABLE WHEREIN IT PERFORMS ONLY ONE FUNCTIONS WHICH IS CONSTITUTING ONLY 12% OF ITS REVENUE WHICH IS COMPARABLE WITH THE FUNCTIONS PERF ORMED BY THE ASSESSEE. WE HAVE ALSO PER USED THE ANNUAL ACCOUNTS OF THE ABOVE COMPARABLE COMPANY PLACED AT PAGE NO. 681/706 OF THE PAPER BOOK FURNISHED BY THE ASSESSEE. A CAREFUL PERUSAL OF THE OPERATIONS CARRIED OUT BY APITCO LTD. DECIPHERS THAT THIS COMPA NY IS PROVIDING SERVICES IN THE NATURE OF PROJECT REPORT PREPARATION, TECHNICAL AND ECONOMIC STUDIES, FEASIBILITY STUDIES, MICRO ENTERPRISE DEVELOPMENT, SKILL DEVELOPMENT, PROJECT MANAGEMENT CONSULTING, INDUSTRIAL CLUSTER DEVELOPMENT, ENVIRONMENTAL MANAGEM ENT CONSULTING, ENERGY MANAGEMENT CONSULTING, MARKET AND SOCIAL RESEARCH AND ASSET RECONSTRUCTION MANAGEMENT SERVICES. NO SEGMENT - WISE PROFITABILITY DATA OF THESE SERVICES IS AVAILABLE. IN VIEW OF ABOVE FACTS AS WELL AS PAGE | 14 CONSIDERING THE VARIOUS JUDICIAL PRO NOUNCEMENTS , WHICH ARE ALSO RELIED UPON BY THE ASSESSEE , WE ARE OF THE OPINION THAT ABOVE COMPARABLE COMPANY CANNOT BE CONSIDERED AS FUNCTIONALLY SIMILAR TO THE FUNCTIONS PERFORMED BY THE ASSESSEE COMPANY HENCE THE LD. TRANSFER PRICING OFFICER IS DIRECTE D TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABILITY ANALYSIS. 20. THE 2 ND COMPARABLE OBJECTED TO BY THE ASSESSEE IS BEST MULYANKAN CONSULTANTS PRIVATE LIMITED. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED ABOVE COMPAN Y IS ENGAGED IN VALUATION OF ASSETS SUCH AS LAND AND BUILDING, PLANT AND MACHINERY, STOCKS, EQUITY, BRANDS ETC AND THEREFORE THIS COMPANY IS FUNCTIONALLY NOT SIMILAR. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER STATED THAT WHEN THE ASSESSEE ITSELF HAS PROVIDED SERVICE S IN THE MINING SECTOR WHICH IS NOT LAW AND TECHNOLOGY AND HIGHLY SPECIALIZED THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED. HE RELIED UPON THE ORDER OF THE LD. TRIAL PRICING OFFICER FOR THE INCLUSION OF THE ABOVE COMPANY. 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND LOOK AT THE ANNUAL ACCOUNTS OF THE ABOVE COMPANY SUBMITTED ITS PAGE NO. 707 730 OF THE PAPER BOOK. ON LOOKING AN INDEX OF THE PAPER BOOK WE FOUND THAT BALANCE SHEET SUBMITTED BY THE ASSESSEE IS FOR THE FINANCIAL YEAR ENDING ON 3 1 ST OF MARCH 2009 WHICH IS RELEVANT NOT FOR THE ASSESSMENT YEAR 2008 09 BUT FOR ASSESSMENT YEAR 2009 10 . H OWEVER LOOKING AT THE FUNCTIONS OF THE ABOVE COMPANY IT IS APPARENT THAT THIS COMPANY IS ENGAGED IN THE VALUATION OF VARIOUS ASSETS WHICH IS HIGH LY TECHNICAL INVOLVING HUGE EXPERTISE, WHICH IS NOT COMPARABLE WITH THE FUNCTIONS PERFORMED WITH THE ASSESSEE COMPANY. IN VIEW OF THE STRIKING DISSIMILARITIES IN THE FUNCTIONALITY OF THE COMPANY WE DIRECT THE LD. TRANSFER PRICING OFFICER TO EXCLUDE THE A BOVE COMPARABLE COMPANY. 22. WITH RESPECT TO THE CHOKSHI LABORATORIES LTD THE ASSESSEE HAS SUBMITTED THAT IT IS A COMPANY WHICH IS ENGAGED IN COMMERCIAL TESTING OF VARIOUS PRODUCT INCLUDING CHEMICALS. IT ALSO OFFERS CONSULTANCY SERVICES IN THE FIELD OF POLLUTI ON - CONTROL ARE AN ALLIED ACTIVITY . IT WAS FURTHER STATED THAT IT DOES NOT HAVE SEGMENTAL INFORMATION WITH RESPECT TO ITS TESTING ACTIVITIES AS PAGE | 15 WELL AS THE CONSULTANCY ACTIVITIES AND HENCE IT IS NOT COMPARABLE. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. TRANSFER PRICING OFFICER. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PRODUCED THE VARIOUS DECISIONS RELIED UPON BY THE LD. AUTHORISED REPRESENTATIVE FOR EXCLUSION OF THE ABOVE COMPARABLE. UNDISPUTEDLY , THE ABOVE COMPANY IS PROVIDING THE SERVICES OF THE TESTING OF VARIOUS CHEMICALS AS WELL AS CONSULTANCY IN THE FIELD OF POLLUTION - CONTROL. THE SEGMENTED DATA IS ALSO NOT PROVIDED. THE CONSULTANCY SERVICES IN THE FIELD OF POLLUTION - CONTROL CANNOT BE CON SIDERED SIMILAR TO THE FUNCTIONS PERFORMED BY THE ASSESSEE. IN VIEW OF ABSENCE OF ADEQUATE INFORMATION ABOUT THESE COMPARABLE COMPANY IT DESERVES TO BE EXCLUDED. ACCORDINGLY, THE LD. TPO IS DIRECTED TO EXCLUDE THIS COMPANY. 24. THE NEXT COMPARABLE CONTESTED BY ASSESSEE IS ICRA MANAGEMENT CONSULTING LTD CONTESTING THAT THIS COMPANY IS IN THE KNOWLEDGE BUSINESS AND TO ITS BUSINESS CONSULTING AND TRANSACTION ADVISORY SERVICES TO THE COMPANIES AND FINANCIAL INVESTOR. ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE B E PRODUCT, SERVICES OFFERED BY THE COMPANY PRIMARILY INVOLVE INNOVATIVE, AND ORIGINAL THINKING AFFORDS TO THE EXPORT THAT THEY RESULT IN CREATION OF INTELLECTUAL PROPERTY. ACCORDING TO HIM APPELLANT IS ON THE OTHER HAND PROVIDES IN SUPPORT SERVICES WHICH D O NOT RESULT IN CREATION OF ANY INTANGIBLE ON ITS ACCOUNT. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. TRANSFER PRICING OFFICER AND SUBMITTED THAT THIS COMPARABLE COMPANY RENDERS SERVICES IN THE AREA OF STRATEGY, RISK ANALYTICS AND, PROCESS REENGINEERING ETC AND IS VERY SIMILAR TO THE SERVICES PROVIDED BY THE ASSESSEE. 25. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. A BOVE COMPARABLE COMPANY CAN BE SAID TO BE ENGAGED IN THE BUSINESS OF PROVIDING SERVICES WITH RESPECT TO BUSINESS CONSULTING AND TRANSACTIONS ADVISORY TO THE COMPANIES AND OTHER FINANCIAL INVESTORS , WE DO NOT FIND ANY DIFFERENCE IN THE FUNCTIONS PERFORMED BY THE ASSESSEE COMPANY AS WELL AS THE ABOVE COMPARABLE COMPANY. IN VIEW OF THIS, WE REJECT THE ARGUMENT OF THE LD. AUTHORI SED REPRESENTATIVE FOR EXCLUSION OF THE ABOVE COMPARABLE. PAGE | 16 26. THE ASSESSEE ALSO OBJECTED ABOUT THE INCLUSION OF THE INDUS TECHNICAL AND FINANCIAL CONSULTANT LTD STATING THAT THIS COMPANY IS ENGAGED IN PROVISION OF TECHNICAL CONSULTANCY SERVICES HENCE IT IS FUN CTIONALLY NOT COMPARABLE. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY IS SUPPORTED THE ORDER OF THE TRANSFER PRICING OFFICER AND SUBMITTED THAT THIS COMPANY IS INVOLVED IN ENVIRONMENTAL SERVICES TECHNOLOGY MANAGEMENT FINANCIAL SERVICES ADMINISTRATIVE SE RVICES AND ENERGY SERVICES. THE NATURE OF SERVICES ARE SIMILAR TO THAT OF THE ASSESSEE AND THEREFORE IS COMPARABLE COMPANY WHICH IS MEETING ALL THE QUALITATIVE CRITERIA SET FORTH BY THE LD. TRANSFER PRICING OFFICER CANNOT BE EXCLUDED. 27. WE HAVE CAREFULLY CO NSIDERED THE RIVAL CONTENTION AS WELL AS PER USED THE ORDERS OF THE LD. TRANSFER PRICING OFFICER FOR INCLUSION OF THE ABOVE COMPANY. BEFORE US THE LD. AUTHORISED REPRESENTATIVE COULD NOT SHOW US THAT HOW THE SERVICES PROVIDED BY THIS COMPARABLE COMPANY ARE DIFFERENT WHEN THE FUNCTIONS PERFORMED BY THE ASSESSEE. THEREFORE, THE ARGUMENT OF REPRESENTATIVE WITH RESPECT TO THE EXCLUSION OF THIS COMPARABLE IS REJECTED. 28. THE NEXT COMPARABLES CONTESTED BY THE AUTHORISED REPRESENTATIVE IS WAPCOS LTD. THE LD. AUTHORI SED REPRESENTATIVE SUBMITTED THAT SEGMENT OF THIS COMPANY IS ENGAGED IN HIGH AND CONSULTANCY AND ENGINEERING PROJECTS AND FURTHER THE COMPANYS MAIN STRENGTH LIES IN ITS TECHNICAL EXPERT EYES AND IT WORKS AS A TECHNICAL CONSULTANCY ORGANIZATION . ACCORDINGL Y, THE SEGMENT OF THE COMPANY IS FUNCTIONALLY NOT COMPARABLE AS IT UNDERTAKES HIGH END TECHNICAL CONSULTANCY SERVICES A S AGAINST THE ROUTINE SUPPORT SERVICES UNDERTAKEN BY THE APPELLANT. IT WAS FURTHER SUBMITTED THAT THE ABOVE COMPARABLE COMPANY IS AN GOV ERN MENT OWNED UNDERTAKING WHICH HAS THE SUPPORT AND BACKING OF THE GOVERNMENT WHICH MAKES IT N OT COMPARABLE TO THE APPELLANT A S THE FUNCTIONAL PROFILES OF THE ENTITIES ARE COMPLETELY DIFFERENT. 29. THE LD. CIT DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. TR ANSFER PRICING OFFICER AND SUBMITTED THAT ONLY SEGMENTED IN RESPECT OF THE CONSULTANCY SERVICES ARE BEEN USED FOR THE PURPOSE OF THE COMPARABILITY ANALYSIS. PAGE | 17 30. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PRODUCED THE ORDERS OF THE LD. TRANSF ER PRICING OFFICER. UNDOUBTEDLY, THE ABOVE COMPANY Y IS GOVERNMENT OF INDIA UNDERTAKING. HOWEVER MERELY BECAUSE COMPANY IS A GOVERNMENT OF INDIA UNDERTAKING IT CANNOT BE EXCLUDED FOR THAT REASON ALONE WITHOUT POINTING OUT THAT IT HAS RECEIVED SPECIAL CONS IDERATION OR ITS FUNCTIONAL PROFILE IS DIFFERENT. MANY TIMES GOVERNMENT OF INDIA UNDERTAKINGS ARE ENGAGED IN SPECIFIED BUSINESSES AS A PRIVATE ENTERPRISE ONLY. THIS IS FURTHER SUPPORTED BY THE FACT THAT MANY OF THEM ARE NAVRATNAS AND MINI RATNAS. WAPCOS LIMITED IS A MINI RATNA - I AND ISO 9001:2008 ACCREDITED PUBLIC SECTOR ENTERPRISE UNDER THE AEGIS OF THE UNION MINISTRY OF WATER RESOURCE, RIVER DEVELOPMENT & GANGA REJUVENATION, GOVERNMENT OF INDIA. WITH IN - BUILT CAPABILITY TO PROVIDE MULTI - DISCIPLINARY PROJECT TEAMS COMPRISING OF ITS OWN CORE GROUP OF PROFESSIONALS AND SPECIALISTS FROM VARIOUS ORGANIZATIONS OF GOVT. OF INDIA, WAPCOS PROVIDES CONSULTANCY SERVICES IN ALL FACETS OF WATER RESOURCES, POWE R AND INFRASTRUCTURE SECTORS IN INDIA AND ABROAD. PCOS CONSULTANCY SERVICES ARE CARRIED OUT IN THRE E MAIN AREAS OF WATER RESOURCES, POWER AND INFRASTRUCTURE. IT'S RANGE OF CONSULTANCY SERVICES COVERS A WIDE RANGE OF ACTIVITIES THAT INCLUDES PRELIMINARY INVESTIGATIONS/ RECONNAISSANCE FEASIBILITY STUDIES/ PLANNING/ PROJECT FORMULATION BASELINE AND SOCIO - ECONOMICS SURVEYS FIELD SURVEYS AND INVESTIGATIONS AND TESTING GHAT DEVELOPMENT ENGINEERING DESIGNS, DRAWINGS AND TENDERING PROCESS PROJECT MANAGEMENT AND CONSTRUCTION SUPERVISION OPERATION AND MAINTENANCE AGRICULTURE (INCLUDING CROP IMPROVEMENT, RESEARCH STATIONS, SUPPLY OF TRACTORS AND FA RM EQUIPMENT) INFORMATION TECHNOLOGY OR TELECOM INSFRASTRUCTURE (IT PARKS/CENTRES, MICROWAVE LINKS, V - SAT TERMINALS, OPTICAL FIBRE NETWORKS) CIVIL CONSTRUCTION (INCLUDING HOUSING, HOSPITALS ETC.) FISHERIES (INCLUDING PISICULTURE, COLD STORAGE) IRRIGATION (INCLUDIN G MICRO/DRIP IRRIGATION, CANALS ETC.) POWER GENERATION (THERMAL, HYDRO) POWER TRANSMISSION AND DISTRIBUTION, INCLUDING RURAL ELECTRI FICATION PAGE | 18 INDUSTRIAL PROJECTS (SUGAR, CEMENT, FOOD PROCESSING, TEXTILE, AUTOMOTIVE ETC.) RENEWABLE ENERGY (INCLUDING SOLAR, WIND, BIO - GAS) ROADS AND HIGHWAYS WATER AND SANITATION (INCLUDING DESALINATION, WATER TREATMENT AND PURIFICATION, STORAGE AND DISTRIBUTION ) SERVICES SUCH AS SOFTWARE DEVELOPMENT. LOOKING AT THE ABOVE BUSINESS PROFILE OF THIS COMPARABLE COMPANY , IT IS APPARENT THAT ITS CONSULTANCY SERVICES SEGMENT IS VERY SPECIALIZED AND DIVERSE C OMPARED TO THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY . FOR THIS REASON ALONE, ACCORDING TO US THE FUNCTIONS PERFORMED BY THIS COMPARABLE COMPANY ARE NOT AT ALL COMPARABLE WITH THE ASSESSEE COMPANY THEREFORE THE LD. TRANSFER PRICING OFFICER IS DIRECTED TO EXCLUDE IT. 31. WITH ABOVE DIRECTIONS GROUND NO. 2.9 2.11 OF THE GROUNDS OF APPEAL ARE DISPOSED. 32. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 33. ORDER PRONOUNCED IN THE OPEN COURT ON 0 9 / 0 3 / 2018 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 9 / 0 3 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, N EW DELHI