M/s. Halliburton Technology India Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 641/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2591 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIVYA BAJPAI
• Keywords: Related party transaction; Capital asset; Transfer pricing; International transaction; Difference of opinion
• Section: 143(3); 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 64 1 /PN/201 4 / ASSESSMENT YEAR : 20 09 - 1 0 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD., SAI RADHE, 100/101, KENNEDY ROAD, SUITE 400, P UNE 4110 0 1 . / APPELLANT PAN: AA BCH7818P VS. THE DY. COMMISSIONE R OF INCOME TAX, CIRCLE - 1( 2 ) , PUNE . / RESPONDENT / APPELLANT BY : SHRI M.P. LOHIA / RESPONDENT BY : S MT. DIVYA BAJPAI / DATE OF HEARING : 09 . 1 2 .2015 / DAT E OF PRONOUNCEMENT: 29 . 0 2 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF DY. CIT , CIRCLE - 1(2), PUNE , DATED 3 0 . 0 1 .20 1 4 RELATING TO ASSESSMENT YEAR 20 09 - 1 0 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W .S. 144C(1) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 2 ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP AND CONSEQUENTLY THE LEARNED A O HAVE ERRED AS UNDER: 1. INAPPROPRIATE TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS . 6,27,94,130 EVEN THOUGH ALL INTERNATIONAL TRANSACTIONS OF THE APPELLANT ARE AT ARM'S LENGTH ERRED IN MAKING TRANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS PERTAINING TO RENDERING OF CONTRACT RESEARCH AND DEVELOPMENT AND TECHNICAL SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES ('AES') AND CONCLUDING THAT THE SAME ARE NOT AT ARM'S LENGTH. 2. INAPPROPRIATE NON ACCEPTANCE OF THE APPROACH AND ANALYSIS PROVIDED IN THE TRANSFER PRICING STU DY REPORT ERRED BY NOT ACCEPTING THE APPROACH AND THE ANALYSIS ADOPTED / CONDUCTED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT FOR BENCH MARKING ITS INTERNATIONAL TRANSACTIONS PERTAINING TO RENDERING OF CONTRACT RESEARCH AND DEVELOPMENT AND TEC HNICAL SUPPORT SERVICES TO AES . 3. INAPPROPRIATE CHERRY PICKING OF FUNCTIONALLY DIFFERENT COMPANIES, SUPERNORMAL PROFIT MAKING COMPANIES, COMPANIES WITH SIGNIFICANT RELATED PARTY TRANSACTIONS AND EXCEPTIONAL YEAR OF OPERATIONS WITHOUT CARRYING OUT A SYST EMATIC ECONOMIC ANALYSIS ERRED IN CHERRY PICKING FUNCTIONALLY DIFFERENT COMPANIES WITH HIGH PROFIT MARGINS AS COMPARABLE TO THE APPELLANT WITHOUT CARRYING OUT A SYSTEMATIC ECONOMIC ANALYSIS. WITHOUT PREJUDICE TO THE ABOVE, ERRED BY CONSIDERING COMPANIES WITH SUPER NORMAL PROFITS, COMPANIES WITH EXCEPTIONAL YEAR OF OPERATIONS AND HAVING SIGNIFICANT RELATED PARTY TRANSACTIONS AS COMPARABLE TO THE APPELLANT. 4. INAPPROPRIATE NON CONSIDERATION OF CORRECT OPERATING MARGINS OF COMPANIES FOR AY 2009 - 10 WITHOU T PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, ERRED BY NOT CONSIDERING THE CORRECT OPERATING MARGINS OF CERTAIN COMPANIES FOR FY 2008 - 09 EVEN THOUGH HON'BLE DRP DIRECTED TO CONSIDER THE CORRECT OPERATING MARGINS OF THE COMPARABLE COMPANIES FOR ARRIVING AT TH E ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT. 5. INAPPROPRIATE REJECTION OF ECONOMIC ADJUSTMENT TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS - A - VIS COMPARABLE COMPANIES WITHOUT PREJUDICE TO TH E ABOVE GROUNDS OF APPEAL, ERRED IN BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT WITHOUT GRANTING ECONOMIC ADJUSTMENT TO ACCOUNT FOR DIFFERENCES BETWEEN THE RISKS UNDERTAKEN BY THE APPELLANT VIS - A - VIS COMPARABLE COMPANIES. 6. INAPPROPRIAT E USE OF SINGLE YEAR AND NON - CONTEMPORANEOUS FINANCIAL DATA OF COMPARABLE COMPANIES FOR TRANSFER PRICING ANALYSIS ERRED IN CONSIDERING THE OPERATING MARGINS ON OPERATING COST OF COMPARABLE COMPANIES BASED ON THE FINANCIAL DATA PERTAINING ONLY TO FINANCIAL YEAR ENDED 31 MARCH 2009 AND REJECTING USE OF FINANCIAL DATA OF COMPARABLE COMPANIES FOR MULTIPLE I.E. THREE YEARS INCLUDING 31 MARCH 2008 AND 31 MARCH 2007. ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 3 FURTHER, ERRED IN COMPUTING THE ARM'S LENGTH PRICE USING THE FINANCIAL INFORMATION OF COMPARABLE COMPANIES AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS, ALTHOUGH SUCH INFORMATION WAS NOT AVAILABLE AT THE TIME WHEN THE APPELLANT COMPLIED WITH THE TRANSFER PRICING REGULATIONS. 7. NOT GRANTING OF 5% BENEFIT UNDER PROVISO TO SECTION 92C(2) OF THE AC T WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, ERRED BY COMPUTING THE ARM'S LENGTH PRICE WITHOUT GRANTING THE BENEFIT OF 5% UNDER PROVISO TO SECTION 92C(2) OF THE ACT. 8. ERRONEOUS LEVY OF INTEREST UNDER SECTION 234B OF THE ACT WITHOUT PREJUDICE T O THE ABOVE GROUNDS OF APPEAL, IF THE TRANSFER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT, WITHOUT CONSIDERING THE FACT THAT THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS DUE TO THE DIFFERENCE OF OPINION AND AS AT THE DUE DATE OF PAYMENT OF ADVANCE TAX BY NO MEANS THE APPELLANT COULD HAVE ESTIMATED SUCH ADJUSTMENTS AND CONSEQUENTIAL TAX ON SUCH ADJUSTMENT. 9. ERRONEOUS LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT WITHO UT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, IF THE TRANSFER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED AO HAS ERRED IN PROPOSING TO LEVY PENALTY UNDER SECTION 271(L)(C) OF THE ACT WITHOUT CONSIDERING THE FACT THAT ADJUSTMENT TO TRANSFER PRICE IS JUS T ON ACCOUNT OF DIFFERENCE OF OPINION WHICH HAS CONSEQUENTLY RESULTED IN AN ADJUSTMENT TO INCOME. ADDITIONAL GROUNDS OF APPEAL 10. INAPPROPRIATE NON CONSIDERATION OF ECONOMIC ADJUSTMENT TO 10. INAPPROPRIATE NON CONSIDERATION OF ECONOMIC ADJUSTMENT TO ACCOUNT FOR DIFFERENCES IN THE WORKING CAPITAL LEVELS OF THE APP ELLANT VIS - A - VIS COMPARABLE COMPANIES WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, ERRED IN BENCH MARKING THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT WITHOUT CONSIDERING ECONOMIC ADJUSTMENT TO ACCOUNT FOR DIFFERENCES IN THE WORKING CAPITAL LEVELS OF THE APPELLANT VIS - A - VIS COMPARABLE COMPANIES. 11. INAPPROPRIATE TRANSFER PRICING ADJUSTMENT TO THE INCOME OF THE APPELLANT IRRESPECTIVE OF THE FACT THAT THE APPELLANT AVAILS TAX HOLIDAY UNDER THE PROVISIONS OF THE ACT WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, ERRED BY MAKING TRANSFER PRICING ADJUSTMENT TO THE INCOME OF THE APPELLANT IRRESPECTIVE OF THE FACT THAT THE APPELLANT WAS ELIGIBLE AND CLAIMED TAX HOLIDAY UNDER THE PROVISIONS OF THE ACT DURING AY 2009 - 10. THE APPELLANT CRAVES LEAVE T O ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE YOUR HONOURS TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. THOUGH THE ASSESSEE HAS RAISED SEVERAL GROUNDS O F APPEAL, BUT ALL RELATE TO THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES AMOUNTING TO RS. 6,27,94,130/ - . ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 4 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE FURNISHED RET URN OF INCOME DECLARING BOOK PROFIT OF RS.66,66,793/ - UNDER SECTION 115JB OF THE ACT. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF RESEARCH AND DEVELOPMENT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES TOTALING RS.67,29,81,670/ - . THEREFORE, REFERENCE UNDER SECTION 92CA(1) OF THE ACT WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) FOR VERIFICATION OF CORRECTNESS OR OTHERWISE OF THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 5. THE TPO NOTED THAT THE ASSESSEE WAS ENGAGED IN PROVIDING CONTRACT RESEARCH AND DEVELOPMENT SERVICES AND TECHNICAL SUPPORT SERVICES TO ITS PARENT COMPANY M/S. HALLIBURTON ENERGY SERVICES INC., USA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH SEVERAL ASSOCIATE ENTERPRISES TOTALING 13 ENLISTED AT PAGES 1 AND 2 OF THE ORDER OF TPO. THE BREAK - UP OF INTERNATIONAL TRANSACTIONS WAS ON ACCOUNT OF PROVISION OF CONTRACT RESEARCH AND DEVELOPMENT AND TECHNICA L SUPPORT SERVICES AMOUNTING TO RS. 48,86,60,784/ - , PURCHASE OF CHEMICALS & CONSUMABLES OF RS. 3,33,01,776/ - , PURCHASE OF CAPITAL ASSETS OF RS. 9,94,60,389/ - , REIMBURSEMENT OF EXPENSES OF RS. 4,92,55,023/ - AND RECOVERY OF EXPENSES OF RS. 23,03,698/ - . THE FIRST INTERNATIONAL TRANSACTION CONSIDERED BY THE TPO WAS THE CONTRACT RESEARCH AND DEVELOPMENT AND TECHNICAL SUPPORT SERVICES AMOUNTING TO RS. 48. 8 6 CRORES PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES. THE ASSESSEE HAD ADOPTED TNMM METHOD AND NET COST PLUS MARK - UP (NCP METHOD) WAS TAKEN PROFIT LEVEL INDICATOR (PLI) IN TNMM ANALYSIS. THE OPERATING PROFIT OF THE ASSESSEE WAS RS.6.99 CRORES AND THE OPERATING COST WAS RS.41.87 CRORES AND THE PLI OF THE ASSESSEE WORKED OUT TO 16.71% . THE ASSESSEE HAD SELE CTED 11 COMPARABLES AND THE ARITHMETIC MEAN ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 5 OF THEIR MARGINS W AS 19.17% . THE TPO WAS OF THE VIEW THAT THAT THE COMPANIES SELECTED BY THE ASSESSEE WERE NOT COMPARABLE AND HENCE, SEARCH PROCESS CONDUCTED BY THE ASSESSEE WAS REJECTED. THE TPO SELECTED 11 CO MPARABLES AND THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ADJUSTMENT SHOULD NOT BE MADE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS WITH REGARD TO ARITHMETIC MEAN OF THE MARGINS OF THE SAID COMPARABLES. THE ASSESSEE FURNISHED THE REPLY AND POINTED OUT TH AT THE BRIEF BACKGROUND OF THE SELECTED COMPARABLES PICKED UP BY THE TPO. THE REPLY OF THE ASSESSEE IS REPRODUCED BY THE TPO UNDER PARA 6.3. HOWEVER, THE TPO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE FURTHER OBSERVED THAT THE BOARD CIRCULAR NO.1 4/2001 STATED THAT THE TAX PAYERS ARM'S LENGTH PRICE COULD BE ACCEPTED ONLY IF THE DATA USED WAS RELIABLE AND CORRECT. HOWEVER, IN THE CASE OF THE ASSESSEE, THE DATA USED BY THE ASSESSEE WAS NOT RELIABLE AND CORRECT. THE TPO FURTHER OBSERVED THAT THERE WERE SOME PERTINENT DEFECTS IN THE SELECTION OF COMPARABLES BY THE TAX PAYERS AND THUS, DETERMINATION OF ARM'S LENGTH PRICE BY THE ASSESSEE MAKES IT PAYERS AND THUS, DETERMINATION OF ARM'S LENGTH PRICE BY THE ASSESSEE MAKES IT DEFECTIVE AND UNRELIABLE. THE FIRST ASPECT NOTED BY THE TPO WAS THE USE OF CURRENT YEAR DATA AND THE TPO O BSERVED THAT THERE WERE NO FACTS BROUGHT ON RECORD TO JUSTIFY THE USE OF EARLIER YEAR DATA. HENCE, THE TPO ADOPTED 11 SELECTED COMPANIES AS FINAL COMPARABLES AFTER ANALYZING THE DATA BAS E, THE ANNUAL REPORTS, ETC. AND AFTER DUE CONSIDERATION OF ASSESSEES OBJECTIONS IN THIS REGARD. THE TPO PROPOSED AN ADJUSTMENT OF RS. 6,27,94,125/ - SINCE THE INTERNATIONAL TRANSACTIONS CONDUCTED BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES WERE NOT AT ARM'S LENGTH PRICE. THE ASSESSING OFFICER THEREAFTER, PASSED A DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(1) OF THE ACT, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP) . ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 6 6. THE DRP AFTER ANALYZING THE EXPLANATIONS FILED BY THE ASSESSEE AND VARIOUS EVIDENCES, CAME TO THE CONCLUSION THAT THE ASSESSEE HAD NOT RAISED ANY OBJECTIONS WITH REGARD TO NON - DISCLOSURE OF METHODOLOGY APPLIED FOR SELECTING COMPARABLES OR THE REASONS FOR DISCARDING COMPARABLES SELECTED BY THE ASSESSEE, WERE RAISED. IN OTHER WORDS, BASIC OBJECTIONS RAI SED BY THE ASSESSEE COULD NOT BE ENTERTAINED AT THIS STAGE. IN RESPECT OF OBJECTIONS OF THE ASSESSEE THAT THE TPO HAD MISCONSTRUED THE FUNCTIONAL AND RISK PROFILE OF THE ASSESSEE AND HAD FURTHER ERRED IN CHERRY PICKING THE COMPARA BLES WITH REGARD TO THEIR FUNCTIONAL COMPARABILITY WITH THE ASSESSEE , THE DRPS VIEW THAT WHERE THE TPO HAD CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE IN ITS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT IN PARAS 6.3 AND 6.4 , THERE WAS NO MERIT IN THE OBJECTIONS RAISED BY TH E ASSESSEE. HOWEVER, WITH REGARD TO THE ASSESSEES PLEA OF RAISING SOME SPECIFIC OBJECTIONS UNDER THE HEADING FOR ACCURACY OR INACCURACY OF THE DAT A BEING PROPOSED TO BE ADOPTED IN RESPECT OF CERTAIN COMPANIES, THE DRP NOTED THAT THE TPO HAD NOT GIVEN FIN DING IN THE CERTAIN COMPANIES, THE DRP NOTED THAT THE TPO HAD NOT GIVEN FIN DING IN THE SAID OBJECTIONS. THEREFORE, THE TPO / AO WAS DIRECTED TO CONSIDER THE SAID OBJECTIONS AND MAKE SUITABLE ADJUSTMENT IN THE CALCULATIONS MADE BY THE TPO, IF THE FACTS STATED IN THE SAID OBJECTIONS WERE CORRECT AND ACCEPTABLE. THE ASSESSING OFFI CER THEREAFTER, PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT AND MADE AN ADDITION OF RS.6,27,94,125/ - ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 7. THE ASSESSEE IS IN APPEAL AGAINST THE AFORESAID ORDER OF ASSESSING OFFICER. 8. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONTRACT RESEARCH AND DEVELOPMENT SERVICES. THE TPO HAD APPLIED SET OF 11 COMPARABLES AS AGAINST ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 7 THE COMPANIED PICKED UP BY TH E ASSESSEE, WHICH WERE ALL IN LINE OF R & D. HOWEVER, THE TPO PICKED UP NEW COMPARABLES, WITHOUT CONSIDERING THE SUBMISSIONS AND OBJECTIONS RAISED, PROPOSED THE ADDITION TO THE ARM'S LENGTH PRICE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FU RTHER POINTED OUT THAT IN ASSESSMENT YEARS 2008 - 09, 2010 - 11 AND 2011 - 12, THE SAME SET OF COMPARABLES PICKED UP BY THE ASSESSEE WERE ACCEPTED BY THE TPO HIMSELF. OUR ATTENTION WAS DRAWN TO THE DIRECTIONS OF THE DRP, UNDER WHICH HE HAD ASKED THE TPO / AO TO VERIFY THE CLAIM OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER WITHOUT CONSIDERING THE REPLY OF THE ASSESSEE, HAD MADE THE AFORESAID ADDITION. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN TURN, RELIED ON THE ORDERS OF TPO / AO AND DIR ECTIONS OF THE DRP. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE EXPORT OF IT ENABLES SERVICES (IT E S) . FURTHER, THE ASSESSEE WAS REGISTERED AS A 100% EXPORT ORIENTED UNDERTAKING AND HAD ENTERED INTO TECH NICAL SERVICES , RESEARCH AND DEVELOPMENT AGREEMENT WITH HALLIBURTON ENERGY SERVICES INC (HESI) FOR PROVISION OF CONTRACT RESEARCH AND DEVELOPMENT AND TECHNICAL SUPPORT SERVICES. THE ASSESSEE HA D EXPLAINED BEFORE THE AUTHORITIES BELOW THAT THE SERVICES T O BE PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES INCLUDED RESEARCH AND DEVELOPMENT AND TECHNICAL SUPPORT SERVICES IN THE AREA OF UPSTREAM OIL AND GAS THAT CATERS TO CEMENTING, BAROID FLUID SERVICES, PRODUCTION ENHANCEMENT , ANALYSIS SERVICES AND C OMPLETION TOOLS TO ITS ASSOCIATE ENTERPRISES. THE SERVICES SO PROVIDED BY THE ASSESSEE ARE CLAIMED TO BE AKIN TO CONTRACT RESEARCH TECHNICAL SUPPORT CONSULTANCY AND ENGINEERING PRODUCT COMPANIES. THE ASSESSEE HAD ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 8 UNDERTAKEN INTERNATIONAL TRANSACTIONS WIT H DIFFERENT ASSOCIATE ENTERPRISES AS ENLISTED AT PAGE 1 OF THE ORDER OF TPO UNDER SECTION 92CA(3) OF THE ACT. WHILE DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF PROVISION OF CONTRACT RESEARCH DEVELOPMENT AND TECHNICAL SUPPORT SERVIC ES AMOUNTING TO RS.48.86 CRORES, THE ASSESSEE HAD APPLIED THE TRANSACTIONAL NET MARGINS METHOD (TNMM) STATING THE SAME TO BE MOST APPROPRIATE METHOD. FURTHER, THE ASSESSEE HAD TAKEN NET COST PLUS MARK - UP (NCM) METHOD AS THE PROFIT LEVEL INDICATOR (PLI) IN TNM ANALYSIS. THE PLI WAS WORKED OUT AT 16.71%. THE ASSESSEE ADOPTED A SET OF 11 COMPARABLES AND SINCE THE ARITHMETIC MEAN OF THEIR MARGINS WAS 19.17% , THE ASSESSEE CL AIMED ITS INTERNATIONAL TRANSACTIONS TO BE AT ARMS LENGTH. THE LIST OF COMPARABLES S ELECTED BY THE ASSESSEE IS AS UNDER: - SR NO NAME OF THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT DURING TP STUDY FOR AY 2009 - 10 1 ARTEFACT PROJECT LIMITED 1 ARTEFACT PROJECT LIMITED 2 CHOKSI LABORATORIES LTD 3 ENGINEERS INDIA LIMITED (SEG) 4 JUBILANT CHEMSYS LIMITED 5 MAHINDRA CONSULTING ENGINEERS LIMITED 6 MN DASTUR & CO PVT LTD 7 RITES LIMITED (SEG) 8 TELECOMMUNICATIONS CONSULTANTS INDIA LIMITED (SEG) 9 VARDAAN PROJECTS LIMITED 10 VIMTA LABS LIMITED 11 WAPCOS LTD (SEGMENT) 11. THE TPO DURING THE COURSE OF T RANSFER PRICING PROCEEDINGS WAS OF THE VIEW THAT THE SAID COMPANIES WERE NOT COMPARABLE AND THE SEARCH PROCESS CONDUCTED BY THE ASSESSEE WAS REJECTED. THE TPO SELECTED FRESH SET OF 11 COMPARABLES AND THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY ADJUS TMENT SHOULD NOT BE MADE WITH ARITHMETIC MEAN OF THE MARGINS OF THE SAID COMPARABLES. THE LIST OF 11 COMPARABLES SELECTED BY THE TPO WERE AS UNDER: - ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 9 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN THE FIRST INSTANCE, THE ASSESSEE WAS ENGAGED IN A SPECIFIC FIELD OF RESEARCH AND DEVELOPMENT AND THE COMPARABLES PICKED UP BY IT WERE FUNCTIONALLY SIMILAR. HOWEVER, THE COMPARABLES PICKED UP BY THE TPO WERE NOT FUNCTIONALLY SIMILAR AND HENCE, THE MARGINS OF THE SAID CONCERNS COULD NOT BE APPLIED IN ORDER TO SL NO. NAME OF THE COMPARABLE 1 ACROPETAL TECHNOLOGIES (SEG.) 2 ADITYA BIRLA MINACS WORLDWIDE LIMITED 3 CALIBER POINT BUSINESS SOLUTIONS LIMITED 4 COSMIC GLOBAL LIMITED 5 CROSSDOMAIN SOLUTIONS LIMITED 6 ECLERX SERVICES LIMITED 7 GENESYS INTERNATIONAL CORPORATION LIMITED 8 HCL COMNET SYSTEMS & SERVICES LIMITED (SEG.) 9 INFOSYS BPO LIMITED 10 MAPLE ESO LUTIONS LIMITED 11 R SYSTEMS INTERNATIONAL (SEG.) DETERMINE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE IN THE FIELD OF PROVISION OF CONTRACT RESEARCH DEVELOPMENT AND TECHNICAL SUPPORT SERVICES. ANOTHER POINT RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE ASSESSEE WAS ENGAGED IN PROVIDING SIMILAR SER VICES IN ALL THE YEARS UNDER CONSIDERATION STARTING FROM ASSESSMENT YEAR 2008 - 09 ONWARDS. THE YEAR UNDER APPEAL BEFORE US IS ASSESSMENT YEAR 2009 - 10 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE TABULATED DETAILS FILED BEFORE US AND IT WAS POINTED OUT THAT THE IDENTICAL COMPANIES WERE PICKED UP BY THE ASSESSEE IN ITS TP STUDY REPORT FOR ASSESSMENT YEARS 2008 - 09, 2010 - 11 AND 2011 - 12 AND ALL THESE COMPANIES WERE CONSIDERED BY THE ASSESSEE AS COMPARABLES WHILE CONDUCTING ITS TP STUD Y REPORT FOR THE AFORESAID YEARS AND THE TPO HAD ACCEPTED THE SAID ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 10 COMPANIES AS COMPA RABLE TO THE ASSESSEE PURSUANT TO THE TPO ASSESSMENT ORDER FOR THE SAID YEARS. THE ASSESSEE HAS ALSO FILED ON RECORD THE COPIES OF ORDERS PASSED UNDER SECTION 92CA(3) OF THE ACT RELATING TO ASSESSMENT YEARS 2008 - 09, 2010 - 11 AND 2011 - 12 TO SUPPORT ITS PROPOSITION, UNDER WHICH IT IS CLEARLY MENTIONED THAT THOUGH THE ASSESSING OFFICER HAD MADE REFERENCE FOR DETERMINATION OF ARM'S LENGTH PRICE WITH REFERENCE TO ALL TRANSACTION S REPORTED IN FORM NO.3CB. HOWEVER, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASES, THE ASSESSEES SUBMISSIONS AND DOCUMENTS FURNISHED, THE VALUE OF INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES WERE CONSIDERED AT ARM'S LENGTH. THE ASSESSEE HAS ATTACHED THE LIST OF THE CONCERNS PICKED UP BY IT FOR THE RESPECTIVE YEARS IN ITS TRANSFER PRICING STUDY AND THE OPERATING PROFITS, OPERATING COST AND OPERATING MARGINS / OPERATING COST IN ALL THE YEAR S AND HAD WORKED OUT THE AVERAGE OPERATING MARGIN / OPERATING COST AND THE ARITHMETIC MEAN OF THE SAID MARGINS OF THE COMPARABLES WAS FOUND TO BE WITHIN ( +/ - ) 5% RANGE OF THE MARGINS SHOWN BY THE TESTED PARTY I.E. THE ASSESSEE BEFORE US. RANGE OF THE MARGINS SHOWN BY THE TESTED PARTY I.E. THE ASSESSEE BEFORE US. 13. THE LIMITED ISSUE ARISING BEFORE US IS WHETHER WHERE THE ASSESS EE IS ENGAGED IN A PARTICULAR FIELD OF OPERATION AND HAS BEEN SO ENGAGED IN THE SAID FIELD OF OPERATION FOR ALL THE YEARS STARTING FROM ASSESSMENT YEAR 2008 - 09 AND WHERE IN ALL THE SAID YEARS, THE REFERENCE WAS MADE TO THE TPO UNDER SECTION 92CA(1) OF THE ACT TO DETERMINE WHETHER THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE AT ARMS LENGTH, CAN THE RESULTS OF TP STUDY REPORT CARRIED OUT BY THE ASSESSEE BE NOT ACCEPTED IN ONE YEAR AND FOLLOWED AND APPLIED IN ALL THE OTHER YEARS. THE RECONC ILIATION STATEMENT FILED BY THE ASSESSEE OF THE COMPARABLE COMPANIES CONSIDERED IN TP STUDY REPORT FOR ASSESSMENT YEARS 2008 - 09, 2010 - 11 AND 2011 - 12 VIS - - VIS COMPARABLES PICKED UP FOR ASSESSMENT YEAR 2009 - 10 READ S AS UNDER: - ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 11 SR NO NAME OF THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT DURING TP STUDY FOR AY 2009 - 10 WHETHER CONSIDERED BY THE APPELLANT IN ITS TP STUDY REPORT AS COMPARABLE AND REASON FOR REJECTION, IF ANY AY 2008 - 09 AY 2010 - 11 AY 2011 - 12 1 A RTEFACT PROJECT LIMITED YES YES YES 2 CHO KSI LABORATORIES LTD YES YES YES 3 ENGINEERS INDIA LIMITED (SEG) YES YES EXCEPTIONAL YEAR OF OPERATION 4 JUBILANT CHEMSYS LIMITED FD YES YES 5 MAHINDRA CONSULTING ENGINEERS LIMITED YES YES YES 6 MN DASTUR & CO PVT LTD FD YES YES 7 RITES LIMITED (SEG) YES YES EXCEPTIONAL YEAR OF OPERATION 8 TELECOMMUNICATIONS CONSULTANTS INDIA LIMITED (SEG) YES YES YES 9 VARDAAN PROJECTS LIMITED YES NOT IN AR MATRIX NOT IN AR MATRIX 10 VIMTA LABS LIMITED YES YES YES 11 WAPCOS LTD (SEGMENT) YES YES YES 14. THE P ERUSAL OF THE ORDER S PASSED BY TPO UNDER SECTION 92CA(3) OF THE ACT FOR THE RESPECTIVE YEARS I.E. 2008 - 09, 2010 - 11 AND 2011 - 12 REFLECT THAT THE MARGINS DECLARED BY THE ASSESSEE WERE FOUND TO BE AT ARMS LENGTH AND NO ADDITION WAS PROPOSED ON ACCOUNT OF ANY ADJUSTMENT TO BE MADE TO THE ADDITION WAS PROPOSED ON ACCOUNT OF ANY ADJUSTMENT TO BE MADE TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE TP STUDY REPORT IN EACH OF THE YEAR HAS PLACED RELIANCE IN THE IDENTICAL SET OF COMPARABLES AS PICKED UP BY THE ASSESSEE FOR THE YEAR U NDER APPEAL. WHERE CERTAIN SET OF CONCERNS WERE FOUND TO BE FUNCTIONALLY SIMILAR TO THE ASSESSEE BY THE TPO HIMSELF, WE FIND NO MERIT IN DEVIATING FROM THE SAME IN THE YEAR UNDER APPEAL. THE TPO WHILE CONDUCTING THE TP STUDY FOR THE CAPTIONED ASSESSMENT YEAR HAS PICKED UP FRESH SET OF CONCERNS AS COMPARABLE , WHICH AS PER THE ASSESSEE ARE NOT IN THE FIELD OF RESEARCH AND DEVELOPMENT AND THE MARGINS SHOWN BY THE SAID SET OF CONCERNS ARE NOT TO BE APPLIED FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATION AL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. ACCORDINGLY, WE HOLD SO. IN LINE THEREOF, WE DIRECT THE TPO / ASSESSING OFFICER TO RE - COMPUTE THE ADDITION, IF ANY, TO BE ITA NO. 64 1 /PN/20 1 4 M/S. HALLIBURTON TECHNOLOGY INDIA PVT. LTD. 12 MADE IN THE HANDS OF ASSESSEE BY APPLYING MARGINS OF 11 COMPARABLES PICKED UP BY THE ASS ESSEE IN ITS TP STUDY REPORT TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. HOWEVER, THE TPO SHALL NOT APPLY THE MARGINS OF 11 COMPANIES SELECTED BY IT DURING TP PROCEEDINGS FOR THE CAPTIONED ASSESSMENT YEAR. ACCORDINGLY, WE DIRE CT SO. THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER. 15 . IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF FEBRUARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / ; TH . / PUNE ; DATED : 29 TH FEBRUARY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE