Haldor Topsoe (I) Pvt Ltd, New Delhi V. DCIT, New Delhi

ITA 654/DEL/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8875 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: H P AGGARWAL; PRASHUKA JAIN
• Keywords: Related party transaction; Depreciation; Transfer pricing; Rectification of order; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Question of law; Working capital adjustments; Initiation of penalty proceedings; Bad and doubtful debts; Assessment record; Benefit of exemption; Revised return
• Section: 271(1)(c); 143(3); 142(1); 234B; 10B; 144; 154

Judgement Text

ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 1 OF 112 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: I-1: NEW DELHI) BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA NO:- 654/DEL/2015 ( ASSESSMENT YEAR: 2010-11) HALDOR TOPSOE INDIA PVT. LTD., ELEGANCE TOWER, 2 ND FLOOR, JASOLA DISTRICT CENTRE, NEW DELHI-110025. VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 10(1), NEW DELHI. PAN NO: AABCH7781F APPELLANT RESPONDENT ASSESSEE BY : SH. H.P. AGGARWAL, FCA, AND MS. PRASHUKA JAIN, CA REVENUE BY : SH. SANJAY I. BARA, CIT (DR) ORDER PER: ANADEE NATH MISSHRA, AM THIS APPEAL BY THE ASSESSEE IS FILED DIRECTED AGAIN ST THE ASSESSMENT ORDER DATED 04-12-2014 PASSED BY THE ASSESSING OFFICER U/S 154/ 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). THE GROUNDS OF APPEAL ARE AS UNDER:- I. THE LEARNED DCIT(AFTER INCORPORATING LD. DRPS ORDER) HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 3,20,93,274/- ON ACCO UNT OF ADJUSTMENT IN VALUE OF INTERNATIONAL TRANSACTION, ON ACCOUNT OF FOLLOWING: A) SELECTING 2 NEW COMPARABLE COMPANIES B) REJECTING 4 COMPARABLE COMPANIES SELECTED BY THE AS SESSEE C) REJECTING ADJUSTMENT IN MARGIN DUE TO DIFFERENT RIS K PROFIT OF COMPARABLE COMPANIES ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 2 OF 112 II. THE LEARNED DCIT (AFTER INCORPORATING LD. DRPS ORD ER) HAS ERRED ON FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) III. THE APPELLANT CRAVES LEAVE TO ADD TO OR MODIFY THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. (1.1) THE ASSESSEE HAS ALSO FILED AN ADDITIONAL GROUND OF THE APPEAL, WHICH IS REPRODUCED AS UNDER: THE LEARNED DCIT (AFTER INCORPORATING LD. DRPS OR DER) HAS ERRED IN NOT GRANTING 100% OF THE ELIGIBLE PROFIT AS DEDUCTION U/S 10A(1A ), AND CONFINING THE DEDUCTION AT 90% ONLY. (2) THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 43,58,900 ON 30.09.2009. THE CASE SELECTED FOR SCRUTINY AND A RE FERENCE WAS MADE TO TRANSFER PRICING OFFICER (TPO FOR SHORT). THE TPO, VIDE OR DER DATED 17.01.2014 U/S 92CA(3) OF I.T. ACT, PROPOSED ADJUSTMENTS OF RS. 3,26,30,31 7 TO THE RETURNED INCOME. (2.1) BRIEF FACTS OF THE CASE, AS NOTICED BY TPO IN AFO RESAID ORDER DATED 17.01.2014 OF TPO ARE, THE ASSESSEE IS A FULLY OWNED SUBSIDIAR Y IN THE TOPSOE GROUP (WITH 99.9% SHARES BEING HELD BY HTIAS AND 1 SHARE BEING HELD B Y ANOTHER GROUP COMPANY- SUBCONTINENT AMMONIA INVESTMENT COMPANY APS). THE A SSESSEE PROVIDES ENGINEERING SERVICE (INCLUDING PREPARATION OF ENGINEERING PACKA GES, EQUIPMENT DESIGNS, ETC.) AND TECHNICAL ASSISTANCE SERVICES (INCLUDING PROVIDING ENGINEERS FOR SUPERVISION) TO HTAS FOR THEIR GLOBAL PROJECTS (INCLUDING PROJECTS IN IN DIA). THE KEY EFFORTS OF THE HALDOR TOPSOE INDIA PRIVATE LIMITED ARE IN DEVELOPING BASI C ENGINEERING DESIGN PACKAGES BASED ON TOPSOE TECHNOLOGIES FOR AMMONIA, METHANOL, HYDROGEN, HYDROGEN + CARBON- MONOXIDE, SNG, DME, HYDRO-PROCESSING TECHNOLOGIES IN CLUDING NAPHTA TREATERS, ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 3 OF 112 VGO/DIESEL HYDRO-TREATERS, HYDROCRACKERS, ENVIRONME NTAL TECHNOLOGIES FOR ABATEMENT OF NOX, SOX ETC. FOR TOPSOE'S GLOBAL MARKET. THE IN TERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE AS UNDER : S. NO. INTERNATIONAL TRANSACTION AMOUNT (IN RS.) 1 ENGINEERING & TECHNICAL ASSISTANCE SERVICE 25,00,55,515 2 PURCHASE OF FIXED ASSETS 11,87,625 3 REIMBURSEMENT OF EXPENSES (RECEIVED) 81,000 4 REIMBURSEMENT OF EXPENSES (PAID) 13,31,078 (2.2) TPO OBSERVED IN HIS ORDER THAT THE ASSESSEE IS ENGA GED IN ACTIVITY WHICH IS LARGELY DEFINED AS TECHNICAL CONSULTANCY OF ENGINEE RING SERVICES. THE ASSESSEE HAS ALSO MENTIONED IN ITS TP REPORT THAT IT CAN BE CLASSIFIE D AS A TECHNICAL AND ENGINEERING SERVICE PROVIDER. AS PER ASSESSEES TP REPORT, THE ASSESSEE SELECTED EIGHT COMPARABLES, AND SUMMARY OF THE RESULTS AS SUBMITTED BY THE ASSE SSEE ARE AS UNDER: PARTICULARS AMOUNT OPERATING REVENUES 250,055,514.60 OPERATING EXPENSES 223,767,775.99 OPERATING PROFIT 26,287,738.61 OP/OC 11.75% METHOD USED TNMM PLI OP/OC NO OF COMPARABLES 8 MEAN MARGIN OF COMPARABLES 14.45% (2.3) THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSAC TIONS REPRESENTING PROVISION OF TECHNICAL SUPPORT SERVICES PROVIDED TO THE ASSOC IATED ENTERPRISES (AE) WAS DETERMINED BY THE ASSESSEE BY APPLYING TRANSACTIONA L NET MARGIN METHOD (TNMM), ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 4 OF 112 WHICH WAS STATED BY THE ASSESSEE TO BE THE MOST AP PROPRIATE METHOD IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE OPERATING PROFIT TO TOTAL COST (OP/TC) RATIO WAS TAKEN AS THE PROFIT LEVEL INDICATOR (PLI) IN THE TNMM ANALYS IS. THE PLI OF THE COMPANY WAS ARRIVED AT 11.75% ON COST WHEREAS THE AVERAGE PLI O F THE EIGHT CCOMPARABLES SELECTED BY THE ASSESSEE WAS ARRIVED AT 14.45% IN THE ANALYS IS IN THE TP DOCUMENT, AS PER AFORESAID SUMMARY OF RESULTS. AS THE PRICE CHARGE D IN ITS INTERNATIONAL TRANSACTIONS WAS MORE THAN THE SAID ARITHMETICAL MEAN PRICE, THE PRI CE CHARGED IN THE INTERNATIONAL TRANSACTIONS WAS TREATED BY THE ASSESSEE TO BE AT A RM'S LENGTH. (2.4) FOR INTERNATIONAL TRANSACTIONS OF THE ASSESSEE RELA TED TO PROVISION OF TECHNICAL SUPPORT SERVICES, THE TPO COMMENTED AS UNDER IN RES PECT OF THE FILTERS USED BY THE ASSESSEE IN SELECTION OF 08 COMPARABLES USING THE P ROWESS DATABASE; IN SHOW CAUSE NOTICE DATED 17.12.2013 OF TPO. THE FILTERS USED BY THE ASSESSEE AND REMARKS OF THE TPO ARE AS UNDER: SI. NO. PARTICULARS REMARK OF THE TPO 1 FINANCIAL INFORMATION NOT AVAILABLE FOR YEAR 2009-10, REJECTED THIS IS AN APPROPRIATE FILTER. 2 COMPANIES FOR WHICH DATA FOR 12 MONTHS WERE NOT AVAILABLE, REJECTED AN APPROPRIATE FILTER, HOWEVER, IT SHOULD BE MARCH ENDING. 3 COMPANIES HAVING THIS IS NOT AN APPROPRIATE FILTER BECAUSE THERE IS ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 5 OF 112 MARKETING EXPENSES GREATER THAN AND EQUAL TO 3% OF TOTAL SALES, REJECTED NO CORRELATION OF MARKET ING EXPENSES AND PROFIT EARNED IN SERVICE INDUSTRY. 4 COMPANIES HAVING R&D EXPENSES GREATER THAN EQUAL TO 3% OF TOTAL SALES, REJECTED THIS IS NOT AN APPROPRIATE FILTER. THE TAXPAYER HAS NOT EXPLAINED ANY RATIONALE FOR PUTTING THE LIMIT OF 3%. THE TAXPAYER ADOPTED THE CUT OF LIMIT OF 3% OF R&D EXPENDITURE OVER SALES IN A VERY ARBITRARY MANNER. THERE ARE NO STUDIES TO SHOW THAT COMPANIES INCURRING R&D EXPENDITURE LESS THAN 3% OF TURNOVER ARE NECESSARILY SOFTWARE DEVELOPER COMPANIES. A COMPANY ENGAGED IN PROV IDING SERVICES IN THE NATURE OF SOFTWARE DEVELOPMENT MAY NOT REQUIRE INCURRING ANY EXPENDITURE ON R&D. HENCE THIS FILTER DOES NOT HAVE LOGICAL APPLICATION IN THE CASE OF SOFTWARE COMPANIES. 5 COMPANIES HAVING NEGATIVE NET WORTH, REJECTED THIS HAS TO SEE CASE TO CASE BASIS. 6 COMPANIES HAVING MORE THAN 25% OF RELATED PARTY TRANSACTIONS, REJECTED AN APPROPRIATE FITLER. IN THE AFORESAID SHOW CAUSE NOTICE, THE TPO PROPOSE D THE FOLLOWING FILTERS: COMPANIES WHOSE TECHNICAL SUPPORT SERVICE INCOME 3% OF TOTAL SALES: THE TAXPAYER APPLIED THIS FILTER WHEREBY COMPANIES WITH THE RATIO OF SUM OF ADVERTISING, MARKETING AND DISTRIBUTION EXPENSES TO SALES MORE THAN 3% WERE REJECTED. AS PER TPO, THIS IS NOT AN APPROPRIATE FI LTER. AS PER TPO, INDEPENDENT ENTERPRISE HAS TO INCUR MARKETING EXPENDITURE. AS P ER TPO, IN A SERVICE INDUSTRY LIKE TECHNICAL SUPPORT, THE TAXPAYER DID NOT PROVIDE THE BASIS ON WHICH SUCH EXPENSES RESULTED IN ANY INTANGIBLE UNLIKE IN MANUFACTURING INDUSTRY WHERE SUBSTANTIAL MARKETING EXPENDITURE CREATES AN INTANGIBLE; AND TH US, THIS FILTER IS NOT RELEVANT IN SERVICE INDUSTRY LIKE TECHNICAL SUPPORT. THE TAXPAY ER'S MAIN ARGUMENT WAS THAT MARKETING AND ADVERTISING ACTIVITIES CARRIED OUT BY THE COMPARABLE COMPANIES RESULT IN CREATION OF MARKETING INTANGIBLES AND THEREBY A RET URN ON SUCH INVESTMENT MADE IN CREATION OF SUCH INTANGIBLE. HOWEVER, TPO NOTED THA T THE TAXPAYER DID NOT GIVE THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 14 OF 112 BASIS ON WHICH IT COULD BE CONCLUDED THAT SUCH COMP ANIES HAVE CREATED MARKETING INTANGIBLE. AS PER TPO, IN THE CASE OF MANUFACTURIN G OR DISTRIBUTION COMPANIES, MARKETING EXPENSES OVER A PERIOD OF TIME MAY CREATE MARKETING INTANGIBLE BUT THE SAME MAY NOT BE TRUE FOR SERVICE INDUSTRY LIKE TECH NICAL SUPPORT SERVICES. FURTHER, AS PER TPO, THE MARKETING EFFORT IS ALWAYS LINKED WITH EXPENDITURE AND THESE EFFORTS MAY NOT NECESSARILY RESULT IN THE INCREASED PROFITS/MAR GINS. THE TPO NOTED THAT ITAT, HYDERABAD BENCH IN M/S DELOITTE CONSULTING INDIA PVT. LTD ITA NO. 1082 AND 1084 OF 2010 IN ORDER DATED 22.07.2011 HAD AFFIRMED THE ABOVE PRINCIPLE. (2.10.3) FILTER OF R&D EXPENSES > 3% OF TOTAL SALES: ASSESSEE OBJECTED TO THE REJECTION OF THIS FILTER M ENTIONING THAT IT HASN'T SPENT ANY EXPENSES ON R&D ACTIVITIES THUS APPLICATION OF THIS FILTER IS APPROPRIATE IN ITS CASE. AS PER TPO, THERE ARE NO UNIFORM STANDARDS REGARDING D ISCLOSURE OF R&D EXPENDITURE IN THE ACCOUNTS AND THE NATURE OF R&D IS NOT AVAILABLE FROM THE PUBLISHED ACCOUNTS. AS PER TPO, FOR CREATING INTELLECTUAL PROPERTY RIGHTS, RESEARCH AND DEVELOPMENT IS REQUIRED BUT THE CONVERSE IS NOT TRUE I.E. EACH COM PANY SPENDING ON RESEARCH AND DEVELOPMENT AUTOMATICALLY IS TOWARDS CREATING AN IP R. AS PER TPO, THE RESEARCH AND DEVELOPMENT ACTIVITY, IF ANY IN A SERVICE INDUSTRY IS TO IMPROVE THE PROCESSES IN DELIVERING THE TECHNICAL SERVICES AND NOT IN CREATI NG AN INTANGIBLE. THE TPO OBSERVED THAT THE TAXPAYER HAD ALSO NOT DEMONSTRATED THAT CO MPANIES HAVING EXPENDITURE GREATER THAN 3% ON R&D WERE NECESSARILY CREATING IP PRODUCTS. THE TPO WAS OF THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 15 OF 112 VIEW THAT THERE WERE OTHER QUANTITATIVE FILTERS WHI CH WOULD MORE APPROPRIATELY SEGREGATE COMPANIES WHICH WERE RENDERING COMPARABLE SERVICES AS THAT OF THE ASSESSEE. IN THE ABSENCE OF ANY SUPPORTING DATA, R& D EXPENDITURE @ 3% OF THE TURNOVER CANNOT BE CONSIDERED AS CREATING ANY SIGNI FICANT ECONOMIC INTANGIBLES; THE TPO HELD AND OBSERVED THAT REJECTION OF THIS FILTER DOES NOT HAVE MATERIAL IMPACT IN THE CASE OF THE ASSESSEE. (2.10.4) REGARDING COMPARABLES SELECTED BY THE ASSE SSEE BUT REJECTED BY THE TPO. THE TPO STARTED WITH A GENERAL DISCUSSION, STATING THAT IT IS SEEN THAT TAXPAYERS ARGUE AGAINST OR FOR A COMPANY BASED ON THE CERTAIN KEYWO RDS RATHER THAN SEEING THE MAIN ACTIVITY OF THE COMPANY; THAT EVERY COMPANY TRIES T O PUT ITS BEST FACE BOTH IN ITS WEBSITE AS WELL AS IN ANNUAL REPORT; THAT ANY PERSO N CAN PICKUP CERTAIN KEYWORDS FROM THE WEBSITE AND ANNUAL REPORT AND MAY ARGUE THAT IT IS PROVIDING A SOPHISTICATED SERVICE, HAS CERTAIN PATENTS, HAS SPECIALIZED IN CE RTAIN AREAS, HAS OBTAINED EXCELLENCE IN CERTAIN AREA; THAT, HOWEVER, WHAT NEEDS TO BE SE EN IS WHETHER THAT IS THE SUBSTANTIAL ACTIVITY OF THAT COMPANY OR IT IS JUST AN AREA WHICH COMPANY WANTS TO DEVELOP AND DO BETTER WORK ; THAT THE EFFORT OF TH E OFFICE OF TPO HAS BEEN TO SEE THE COMPANY'S ACTIVITY IN ITS ENTIRETY AND FIND OUT WHA T IT IS DOING SUBSTANTIALLY. FURTHER, THE TPO STATED THAT IT IS NOT POSSIBLE TO FIND COMP ANIES PROVIDING EXACTLY SIMILAR SERVICES AS THAT OF TAXPAYER BECAUSE THERE WILL NOT BE AN INDEPENDENT COMPANY IN THE MARKET WHICH IS PROVIDING ONLY SOME TECHNICAL SUPPO RT; THAT IN ORDER TO EXIST AS A ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 16 OF 112 SEPARATE COMPANY, IT HAS TO PROVIDE A RANGE OF TECH NICAL SERVICES; THAT IT IS POSSIBLE FOR THE TAXPAYER TO ARGUE THAT A COMPARABLE COMPANY TAKEN BY THIS OFFICE DOES NOT PROVIDE THE TYPE OF TECHNICAL SERVICE, TAXPAYER IS RENDERING BUT THEN THE TAXPAYER ITSELF HAS NOT BEEN ABLE TO SUGGEST COMPARABLES PROVIDING EXACTLY SIMILAR SERVICES AS THAT OF TAXPAYER. THE TPO STATED THAT THE EFFORT OF HIS OFF ICE HAS THEREFORE BEEN TO FIND COMPANIES WHICH ARE PROVIDING TECHNICAL SERVICES WI TH SIMILAR EMPLOYEE PROFILE ENGINEERS AND TECHNICAL PEOPLE AS THAT OF TAXPAYER IRRESPECTIVE OF THEIR SIZE AND RANGE OF SERVICES INSTEAD OF FINDING COMPANIES WHICH HAVE EXACTLY SIMILAR SERVICES AS THAT OF TAXPAYER AS THIS WILL BE A VERY DIFFICULT AND IN FA CT AN IMPOSSIBLE EXERCISE; AND THAT MOST OF THE SMALL INDEPENDENT COMPANIES WILL BE PRO VIDING ONLY SERVICES IN A NICHE AREA AND THEN THE TAXPAYER'S ARGUMENT WOULD BE THAT THESE COMPANIES ARE PROVIDING SERVICES IN A NICHE AREA WHILE IT IS PROVIDING GENE RAL TECHNICAL SUPPORT SERVICES. HENCE, ACCORDING TO THE TPO, SIZE, RANGE OF SERVICE S ETC. WILL HAVE TO BE DISREGARDED WHILE MAKING COMPARISONS AS LONG AS THE EMPLOYEE PROFILE IS SIMILAR THAT IS OF PROVIDING TECHNICAL SERVICES. (2.10.5) CENTRAL MINE PLANNING AND DESIGN INSTITUTE LIMITED THE ASSESSEE SUBMITTED THAT THIS COMPANY IS FAILING SERVICE INCOME FILTER WHEREAS FORM 23ACA SHOWS THAT THIS COMPANY IS HAVING 100% SERVICE INCO ME. AS PER TPO, CONTENTION OF THE ASSESSEE WAS VERIFIED FROM THE IN FORMATION AVAILABLE IN THE PUBLIC DOMAIN AND A FEW SNAP SHOTS TAKEN BY HIM WERE REPRO DUCED AS UNDER: AS PER TPO, IT WAS EVIDENT FROM THE ABOVE A SERVICE. MOREOVER, AS PER TPO, TRANSACTIONS AS EVIDENT FROM THE FOLLOWIN 'YOUR COMPANY CONTINUED TO ASANSOL/DHANBAD, RANCHI, NAGPUR, BILASPUR, SINGRAUL I & BHUBANESWAR AND ITS HEADQUARTERS AT RANCHI. SEVEN REGIONAL INSTITUTES D ESIGNATED AS RI RENDERED CONSULTANCY SERVICES TO SEVEN CORRESP I), BCCL (RI-II), CCL (RI- III), WCL (RI VII). AS PER AR, THE COMPANY IS A SUBSIDIARY OF COAL INDI A LIMITED AND IS ALSO PROVIDING SERVICES TO SEVEN OTHER SUBSIDIARIES OF COAL HELD THAT ALL THE TRANSACTIONS ARE RELATED PARTY TRANSACTIONS . (2.10.6) PETRON ENGINEERING CONSTRUCTION LIMITED ASSESSEE OBJECTED TO THE REJECTION OF THIS COMPARABLE AND SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY SIMILAR TO ASSESSEE AS IT I S PROVIDING SIMILAR SERVICES ITA NO. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 17 OF 112 EVIDENT FROM THE ABOVE THAT THE EXPLORATION CAN'T BE CONSIDERED AS AS PER TPO, THE COMPANY WAS HAVING 100% RELATED PARTY TRANSACTIONS AS EVIDENT FROM THE FOLLOWIN G EXTRACTS OF THE ANNUAL REPORT AS P 'YOUR COMPANY CONTINUED TO OPERATE WITH SEVEN REGIONAL INSTITUTES (RI) LOCATED AT ASANSOL/DHANBAD, RANCHI, NAGPUR, BILASPUR, SINGRAUL I & BHUBANESWAR AND ITS HEADQUARTERS AT RANCHI. SEVEN REGIONAL INSTITUTES D ESIGNATED AS RI RENDERED CONSULTANCY SERVICES TO SEVEN CORRESP ONDING SUBSIDIARIES OF CIL VIZ. ECL (RI III), WCL (RI -IV), SECL (RI-V), NCL (RI- VI), & MCL (RI AS PER AR, THE COMPANY IS A SUBSIDIARY OF COAL INDI A LIMITED AND IS ALSO PROVIDING SUBSIDIARIES OF COAL INDIA LTD; THE TPO NOTED. HENCE, ALL THE TRANSACTIONS ARE RELATED PARTY TRANSACTIONS . PETRON ENGINEERING CONSTRUCTION LIMITED THE REJECTION OF THIS COMPARABLE AND SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY SIMILAR TO ASSESSEE AS IT I S PROVIDING SIMILAR SERVICES NO. -654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. THE EXPLORATION CAN'T BE CONSIDERED AS HAVING 100% RELATED PARTY G EXTRACTS OF THE ANNUAL REPORT AS P ER P-6/AR OPERATE WITH SEVEN REGIONAL INSTITUTES (RI) LOCATED AT ASANSOL/DHANBAD, RANCHI, NAGPUR, BILASPUR, SINGRAUL I & BHUBANESWAR AND ITS HEADQUARTERS AT RANCHI. SEVEN REGIONAL INSTITUTES D ESIGNATED AS RI -I TO RI-VII ONDING SUBSIDIARIES OF CIL VIZ. ECL (RI - VI), & MCL (RI - AS PER AR, THE COMPANY IS A SUBSIDIARY OF COAL INDI A LIMITED AND IS ALSO PROVIDING HENCE, THE TPO THE REJECTION OF THIS COMPARABLE AND SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY SIMILAR TO ASSESSEE AS IT I S PROVIDING SIMILAR SERVICES AS THAT OF ASSESSEE. IN THIS REGARD, AS SNAP SHOT OF P&L ACCOU NT BELOW:- AS PER TPO, THE ABOVE DATA SHOWS COMPANY FOR THE RELEVANT YEAR THIS COMPANY LIKE CONSTRUCTION CONTRACTS IS SIMILAR TO ASSESSEE. HENCE, THIS COMPANY CAN'T BE CONSIDERED AS SUITABLE COMPARABLE, THE TPO HELD. (2.10.7) SIMON INDIA LIMITED THE TPO REJECTED THIS COMPARABLE, STATING : FAILING SERVICE INCOME FILTER WHEREAS FORM 23ACA SH OWS THAT THIS COMPANY IS HAVING 96.70% SERVICE INCOME. HOWEVER, CONTENTION OF THE A SSESSEE IS VERIFIED FORM THE DATA PRODUCED IN ITS CLAIM. IT IS SEEN THAT ASSESSE E HAS FROM SALE OR SUPPLY OF SERVICES WHICH IS THE MAJOR PART OF ITS REVENUE DURING THE YEAR. HOWEVER, IT HAS MADE PURCHASES FOR RE ITA NO. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 18 OF 112 ASSESSEE. IN THIS REGARD, AS SNAP SHOT OF P&L ACCOU NT WAS TAKEN WHICH DATA SHOWS THAT THE SOURCES OF REVENUE OF THIS COMPARABLE COMPANY FOR THE RELEVANT YEAR MAKES IT EVIDENT THAT NONE OF THE WORK PERFORMED BY THIS COMPANY LIKE CONSTRUCTION CONTRACTS IS SIMILAR TO ASSESSEE. HENCE, THIS COMPANY SUITABLE COMPARABLE, THE TPO HELD. SIMON INDIA LIMITED THE TPO REJECTED THIS COMPARABLE, STATING : IT IS SUBMITTED THAT THIS COMPANY IS FAILING SERVICE INCOME FILTER WHEREAS FORM 23ACA SH OWS THAT THIS COMPANY IS HAVING 96.70% SERVICE INCOME. HOWEVER, CONTENTION OF THE A SSESSEE IS VERIFIED FORM THE DATA PRODUCED IN ITS CLAIM. IT IS SEEN THAT ASSESSE E HAS MADE SIGNIFICANT REVENUE FROM SALE OR SUPPLY OF SERVICES WHICH IS THE MAJOR PART OF ITS REVENUE DURING THE YEAR. HOWEVER, IT HAS MADE PURCHASES FOR RE - SALE FOR ALMOST EQUIVALENT AMOUNT ALSO NO. -654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. WHICH IS PRODUCED THE SOURCES OF REVENUE OF THIS COMPARABLE EVIDENT THAT NONE OF THE WORK PERFORMED BY THIS COMPANY LIKE CONSTRUCTION CONTRACTS IS SIMILAR TO ASSESSEE. HENCE, THIS COMPANY IT IS SUBMITTED THAT THIS COMPANY IS FAILING SERVICE INCOME FILTER WHEREAS FORM 23ACA SH OWS THAT THIS COMPANY IS HAVING 96.70% SERVICE INCOME. HOWEVER, CONTENTION OF THE A SSESSEE IS VERIFIED FORM THE MADE SIGNIFICANT REVENUE FROM SALE OR SUPPLY OF SERVICES WHICH IS THE MAJOR PART OF ITS REVENUE DURING THE SALE FOR ALMOST EQUIVALENT AMOUNT ALSO ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 19 OF 112 AND IN THE NOTE TO THE ACCOUNTS, AGAINST THE PURCHA SE OF SERVICES IT IS MENTIONED THAT 'PURCHASES MADE FOR RE-SALE IS TO BE GIVEN AS PER FOLLOWING CALCULATION - OPENING STOCK OF GOODS TRADED + PURCHASES OF GOODS TRADED-C LOSING STOCK OF GOODS TRADED HENCE, IT IS EVIDENT FROM THE ABOVE THAT ASSESSEE I S NOT PROVIDING SERVICES AND IS ENGAGED IN SALES PRIMARILY AS SUCH. HENCE, THIS COM PANY CANT BE CONSIDERED AS A SUITABLE COMPARABLE. (2.10.8) IOT DESIGN & ENGINEERING THE TPO REJECTED THIS COMPARABLE, STATING : IT IS SUBMITTED THAT THIS COMPANY IS FAILING SERVICE INCOME FILTER WHEREAS FORM 23ACA SH OWS THAT THIS COMPANY IS HAVING 100% SERVICE INCOME. HOWEVER IT IS SEEN THAT AR OF THE COMPANY IS NOT AVAILABLE ON THE PUBLIC DOMAIN. ONLY DATA IS AVAILABLE ON THE DA TA BASES, WHICH SHOWS THAT THIS COMPANY IS FAILING SERVICE FILTER. HENCE, IN ABSENC E OF COGENT FINANCIAL DATA THIS COMPANY CAN'T BE CONSIDERED AS SUITABLE COMPARABLE. (2.10.9) REGARDING NEW COMPANIES SELECTED BY THE TPO & ADDED TO THE LIST OF COMPARABLES. (2.10.9.1) ENGINEERS INDIA LIMITED THE ASSESSEE OBJECTED TO THIS COMPARABLE STATING TH AT IT PROVIDES A COMPLETE RANGE OF PROJECT SERVICES RANGING FROM CONCEPTUALIZATION, PL ANNING, DESIGN, ENGINEERING AND CONSTRUCTION ACTIVITIES TO MEET THE SPECIFIC REQUIR EMENTS OF ITS CLIENTS IN THE SEVERAL FIELDS- PETROLEUM REFINING; PETROCHEMICALS; PIPELIN E; OFFSHORE OIL & GAS; ONSHORE OIL ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 20 OF 112 & GAS; TERMINALS & STORAGES; MINING & METALLURGY; A ND INFRASTRUCTURE. AND FURTHER THAT EIL IS ENGAGED INTO PROVIDING SERVICES FROM C ONCEPT TO COMMISSIONING IN ALL THE SECTORS LISTED ABOVE AND IT PROVIDES SERVICES BEYON D THE COMMISSIONING OF CLIENTS PLANTS THROUGH MONITORING THE OPERATION OF EACH PLA NT AND ACCUMULATING FEEDBACK ON ITS PERFORMANCE; AND FURTHERMORE, THAT THIS COMPANY HAS A MUCH HIGHER TURNOVER THAN THAT OF TAXPAYER. RELYING ON HIS EARLIER GENERAL DI SCUSSION; THE TPO FURTHER R NOTED THAT M/S. PROJECT AND DEVELOPMENT INDIA LIMITED, A COMPARABLE SELECTED BY THE ASSESSEE, IS ALSO A GOVERNMENT COMPANY. AS PER TPO , RELATED PARTY TRANSACTIONS (RPT) OF THE COMPANY IS CHECKED AND IT IS WITHIN T HRESHOLD LIMIT. THE TPO CONTENDED THAT ALL GOVERNMENT CONTRACTS ARE BEING BID BOTH BY GOVERNMENT AND PRIVATE COMPANIES ON COMPETITIVE BASIS AND THEREFORE THERE IS NO ADVANTAGE TO EIL ON THIS ACCOUNT AND THAT NEWS ITEMS REGARDING THE CONTRACTS OF NTPC BEING BID COMPETITIVELY BY BHEL, L&T, BGR ENERGY MAKE THIS POINT ABUNDANTLY CLEAR. ON THE ISSUE OF HIGH TURNOVER THE TPO OBSERVED THAT THE TAXPAYER'S HYPOTHESIS TH AT THERE IS A DIRECT CO- RELATION BETWEEN TURNOVER AND PROFIT MARGINS OF THE COMPANY IS NOT ACCEPTABLE; THAT THE TRANSFER PRICING RULES OR THE OECD GUIDELINES DO NOT PRESCRIBE ANY SPECIFIC RANGE OF TURNOVER FOR COMPARABILITY CORRESPONDING TO SIZE AND SCALE OF OPERATIONS; THAT ONCE FUNCTIONAL SIMILARITY IS ACCEPTED, COMPANIES CAN BE COMPARED IRRESPECTIVE OF THE TURNOVER, SIZE OR SCOPE OF OPERATION PARTICULARLY I N THE SERVICE INDUSTRY WHERE NOT MUCH OF INFRASTRUCTURE IS NEEDED TO SET UP BUSINESS ; THAT THE FIXED COSTS IN THE SERVICE INDUSTRY ARE INSIGNIFICANT COMPARED TO THE MANUFACT URING INDUSTRY ; THAT THE MAJOR ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 21 OF 112 COSTS IN THE SERVICE INDUSTRY WHICH INCLUDES THE TA XPAYER ARE VARIABLE COSTS SUCH AS SALARY, TRAVELING EXPENSES, COMMUNICATION EXPENSES ETC. ; THAT MARGINS IN ANY INDUSTRY VARY WITH CHANGE IN TURNOVER ONLY WHEN THE FIXED COSTS INVOLVED ARE SIGNIFICANT; THAT IN THE ABSENCE OF ANY SIGNIFICANT FIXED COSTS, THE MARGINS IN THE SERVICE INDUSTRY ARE NOT LINKED TO THE TURNOVER OF THE COMPANY; THAT MANY SMALL COMPANIES HAVE MUCH HIGHER MARGINS THAN THE BIG COM PANIES; THAT IN SERVICE INDUSTRY TURNOVER DOES NOT PLAY ANY SIGNIFICANT ROLE AS FAR AS THE MARGINS ARE CONCERNED; AND THAT THERE IS NO LINKAGE WHATSOEVER BETWEEN THE SAL ES AND THE MARGINS. THE TPO REFERRED TO THE CASE OF M/S SYMANTEC SOFTWARE SOLUTIO NS PVT LTD (2011-TII- 60-ITAT-MUM-TP) , WHICH WAS RELATED TO MARKET SUPPO RT SERVICE, IN WHICH THE ITAT HAS OBSERVED A) IT IS NOT SHOWN THAT HIGH OR LOW T URNOVER INFLUENCES THE MARGINS OF THE COMPARABLE. B) ASSESSEE'S OBJECTION WAS GENERAL IN NATURE AND NO SPECIFIC FACT WAS BROUGHT ON RECORD TO SHOW THAT DUE TO DIFFERENC E IN TURNOVER COMPARABLES BECAME NON-COMPARABLES; IT COULD NOT BE DEMONSTRATE D AS TO HOW THE DIFFERENCE IN TURNOVER INFLUENCED THE RESULTS OF COMPARABLES. C) THE ACCEPTED ECONOMIC PRINCIPLES AND COMMERCIAL PRACTICE IN A HIGHLY COMPETITIVE MAR KET ONE CAN SURVIVE ONLY BY KEEPING LOW MARGIN BUT HIGH TURNOVER. D) SIMILARLY, LOW TURNOVER DOES NOT NECESSARILY MEAN HIGH MARGIN. THEREFORE, UNLESS AND UNTIL IT IS SHOWN THAT TURNOVER MAKES UNDUE DIFFERENCE ON THE MARGINS, IT IS NOT A GENERAL RULE TO EXCLUDE SUCH COMPARABLES. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 22 OF 112 (2.10.9.1.1.) THE TPO ALSO REFERRED TO THE FOLLOWING DECISIONS IN WHICH IT WAS HELD THAT THE TURNOVER IS NOT A RELEVANT FACTOR FOR CHOI CE OF COMPARABLES I) WILLIS PROCESSING, MUMBAI, ITAT ITA NO. 4429/MUMBAI AND 457/ MUMBAI /2012 DATED 01.03.2013 - A.Y. 2007-08 DATED 01.03.2013 II) CAPGEMINI, MUMBAI, ITAT ITA NO. 786/ MUMBAI / 2011 DATED 28.01.2013 A.Y. 2007-08 (2.10.9.1.2.) AS REGARDS ABNORMAL MARGINS ISSUE IT WAS ARGUED BY THE ASSESSEE THAT COMPARABLES HAVING 'ABNORMALLY' HIGH MARGINS S HOULD NOT BE SELECTED. IN SUPPORT OF THIS THE TAXPAYER HAS REFERRED TO CERTAI N JUDICIAL DECISION. THE ABOVE OBJECTION OF THE TAXPAYER WAS NOT ACCEPTED BY THE T PO, STATING : IN SEVERAL DECISIONS THE ITATS HAVE ACCEPTED SO CALLED HIGH MARGIN COMPA RABLES. FOR INSTANCE, THE ITAT, BANGALORE IN THE CASE OF SAP LABS(2010-TII- 44-ITAT -BANG-TP), ITAT, HYDERABAD IN THE CASE OF DELOITTE CONSULTING PVT. LTD. CONFIRMED SELECTION OF HIGH MARGIN COMPARABLES FOR SERVICE INDUSTRY. THESE DECISIONS P ERTAIN TO THE SERVICE SECTOR VIZ. SOFTWARE DEVELOPMENT AND ITES. IN THE CASE OF EXXON M OBIL THE ITAT UPHELD ALPHA GEO INDIA LTD HAVING MARGIN OF 47.79% AND VIMTA LAB HAVING MARGIN OF 57.68%. IN ANY CASE, AS PER TPO IN COMPARABILITY ANALYSIS LOSS OR SO CALLED HIGHER MARGIN IS NOT A DETERMINING FACTOR UNLESS THERE ARE ANY PECULIAR EC ONOMIC CIRCUMSTANCES IN SUCH A ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 23 OF 112 CASE. AS PER TPO, IN FAVOUR OF LOSS MAKING COMPANI ES IT IS GENERALLY ARGUED THAT SUCH COMPANIES SHOULD NOT BE REJECTED SIMPLY BECAUSE THE Y HAVE INCURRED LOSSES IN A SINGLE YEAR AS LOSS MAKING COMPANIES ARE AS MUCH PART OF I NDUSTRY AS ARE PROFIT MAKING COMPANIES. AS PER TPO, THE SAME LOGIC IS REQUIRED T O BE APPLIED TO THE CASES HAVING SUPERNORMAL PROFIT. JUST LIKE LOSS MAKING COMPANI ES, 'SUPER* NORMAL PROFIT MAKING COMPANIES ARE ALSO PART OF THE INDUSTRY AND HENCE C ANNOT BE REJECTED MERELY BECAUSE THEY HAVE EARNED SUCH PROFITS, UNLESS PECULIAR ECON OMIC CIRCUMSTANCES OF SUCH COMPANIES ARE POINTED OUT. THE TPO MENTIONED THAT T HIS VIEW HAS BEEN COMPLETELY ENDORSED BY THE OECD IN THEIR REVISED 2010 GUIDELINE S; AND REFERRED TO THE RELEVANT PARA 3.63 EXTREME RESULTS MIGHT CONSIST OF LOSSES OR UNU SUALLY HIGH PROFITS. EXTREME RESULTS CAN AFFECT THE FINANCIAL INDICATORS THAT AR E LOOKED AT IN THE CHOSEN METHOD (E.G. THE GROSS MARGIN WHEN APPLYING A RESALE PRICE, OR A NET PROFIT INDICATOR WHEN APPLYING A TRANSACTIONAL NET MARGIN METHOD). THEY CAN ALSO A FFECT OTHER ITEMS, E.G. EXCEPTIONAL ITEMS WHICH ARE BELOW THE LINE BUT NONETHELESS MAY REFLECT EXCEPTIONAL CIRCUMSTANCES. WHERE ONE OR MORE OF THE POTENTIAL COMPARABLES HAVE EXTREME RESULTS, FURTHER EXAMINATION WOULD BE NEEDED TO UNDERSTAND THE REASO NS FOR SUCH EXTREME RESULTS. THE REASON MIGHT BE A DEFECT IN COMPARABILITY, OR EXCEP TIONAL CONDITIONS MET BY AN OTHERWISE COMPARABLE THIRD PARTY. AN EXTREME RESULT MAY BE EXCLUDED ON THE BASIS THAT A PREVIOUSLY OVERLOOKED SIGNIFICANT COMPARABILITY D EFECT HAS BEEN BROUGHT TO LIGHT, NOT ON THE SOLE BASIS THAT THE RESULTS ARISING FROM THE PROPOSED COMPARABLE' MERELY APPEAR TO BE VERY DIFFERENT FROM THE RESULTS OBSERV ED IN OTHER PROPOSED 'COMPARABLES. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 24 OF 112 THE TPO ALSO REFERRED TO ORDER OF MUMBAI ITAT IN CA SE OF BP INDIA SERVICES (2011-TII- 118) IN WHICH IT WAS HELD: 'WE ARE NOT CONVINCED WITH THE SUBMISSION ADVANCED ON BEHALF OF THE ASSESSEE THAT SIMPLY BECAUSE TWO LOSS MAKING CASES HAVE BEEN EXCLUDED FROM THE LIST OF COMPARABLE CASES FOR DETERMINING T HE MEAN MARGIN RATE OF PROFIT, THE OTHER TWO CASES OF EXTREME PROFIT SHOULD ALSO BE EX CLUDED. RULE 10B(L)(E)(II) CLEARLY REFERS TO 'A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS'. IT NOT ONLY TALKS OF ONE TRANSACTION WHICH IS COMPARAB LE AND UNCONTROLLED, BUT ALSO CONTEMPLATES A NUMBER OF SUCH TRANSACTIONS. BY USIN G SUCH COMPARABLE TRANSACTIONS IN PLURAL, IT HAS BEEN MADE CLEAR THAT IF THERE ARE A NUMBER OF SUCH TRANSACTIONS UNDER CONSIDERATION, THEN THEIR AVERAGE SHOULD BE ADOPTED AS A BENCHMARK. IT IS OBVIOUS THAT THE VERY RATIONALE OF HAVING AVERAGE IN CASE OF MOR E THAN ONE TRANSACTIONS IS TO IRON OUT THE EFFECT OF EXTREME CASES AND FINDING THE PRO FIT MARGIN AS A REPRESENTATIVE OF THE WHOLE LOT.. THE CASES OF FI AND ME HAVE BEEN HELD B Y US TO BE RIGHTLY EXCLUDED BY THE TPO BECAUSE OF THEIR HAVING DIFFERENT PRODUCT PROFI LE AND ALSO NOT SATISFYING THE REQUIREMENT OF RULE 10B READ WITH RULE 10A AS UNCON TROLLED TRANSACTIONS. THESE ARE THE REASONS IN SUPPORT OF THEIR EXCLUSION FROM THE LIST OF COMPARABLE CASES AND NOT BECAUSE THERE WAS HIGH LOSS IN SUCH CASES. THIS ELI MINATION BY ITSELF WOULD NOT SUPPORT THE OMISSION OF HT AND DT, BEING THE CASES WITH EXT REME PROFIT RATE. THE EXCLUSION BY THE CIT(A) OF THESE CASES ON THE SOLE REASON OF HIG H PROFITS, IS NOT SUSTAINABLE. BEFORE ELIMINATING SUCH CASES FROM THE COUNT, IT WAS INCUM BENT UPON HIM TO SHOW THAT SUCH CASES WERE INCOMPARABLE ON THE BASIS OF RELEVANT CO NSIDERATIONS AND NOT THE HIGHER OR ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 25 OF 112 LOWER PROFIT RATES. IT IS IMPERATIVE TO NOTE THAT T HE LIST OF 12 COMPARABLE CASES WAS PROVIDED BY THE ASSESSEE AND NOT SOMETHING CREATED BY THE TPO AS PER HIS OWN WHIMS AND FANCIES. WHEN THE LIST OF COMPARABLE CASES WAS FURNISHED BY THE ASSESSEE, IT WAS THE TURN OF THE TPO TO FIND OUT WHETHER SUCH CASES WERE, IN FACT, COMPARABLE OR NOT AND IF NOT, THEN TO EXCLUDE THEM AFTER SHOWING HOW THESE WERE NOT COMPARABLE; THE DECISIVE FACTORS FOR DETERMINING INCLUSION OR EXCLU SION OF ANY CASE IN/FROM THE LIST OF COMPARABLES ARE THE SPECIFIC CHARACTERISTICS OF SER VICES PROVIDED, ASSETS EMPLOYED, RISKS ASSUMED, THE CONTRACTUAL TERMS AND CONDITIONS PREVAILING INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, COST S OF LABOUR AND CAPITAL IN THE MARKETS ETC. NOWHERE, THE HIGHER OR LOWER PROFIT RA TE, AS PRESUMED BY THE CIT(A), HAS BEEN PRESCRIBED AS THE DETERMINATIVE FACTOR TO MAKE A CASE INCOMPARABLE. RIGHTLY SO, BECAUSE PROFIT IS NOT A FACTOR IN ITSELF, BUT CONSE QUENCE OF THE EFFECT OF VARIOUS FACTORS. ONLY IF THE HIGHER OR LOWER PROFIT RATE RESULTS ON ACCOUNT OF THE EFFECT OF FACTORS GIVEN IN RULE 10B(2) READ WITH SUB-RULE (3), THAT SUCH CA SE SHALL MERIT OMISSION. IF HOWEVER SUCH EXTREME PROFIT IS ACHIEVED BECAUSE OF FACTORS OTHER THAN THOSE GIVEN IN THE RULE, THEN SUCH CASE WOULD CONTINUE TO FIND ITS PLACE IN THE LIST OF COMPARABLES HENCE, EIL WILL BE RETAINED AS A SUITABLE COMPARABL E IN ASSESSEE'S CASE, THE TPO HELD. (2.10.9.2) MAHINDRA CONSULTING ENGINEERS LIMITED THE ASSESSEE ARGUED THAT WEBSITE WWW.MAHINDRAMACE.C OM SUGGESTS THAT IT IS PRIMARILY ENGAGED IN PROVIDING CONSULTANCY SERVICES SUCH AS OPPORTUNITY ANALYSIS, EXPEDITING SERVICES, MARKET DEMAND ASSESSMENT ETC. IN THE AREAS OF SEZ, INDUSTRIAL ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 26 OF 112 PARKS AND TOWNSHIP, PRIVATISATION, ENVIRONMENT AND O THER AREAS. FURTHER, THE ASSESSEE ARGUED THAT AS PER P-114 OF ANNUAL REPORT, THE COMPANY IS ENGAGED IN RENDERING CONSULTANCY SERVICES IN THE AREAS OF SPEC IAL ECONOMIC ZONES, WATER SUPPLY AND SEWERAGE, SOLID WASTE MANAGEMENT, URBAN INFRAST RUCTURE, AGRICULTURAL AND HORTICULTURAL INFRASTRUCTURE, INDUSTRIAL INFRASTRUC TURE, RENEWABLE ENERGY, ETC. FOR THE YEAR UNDER REVIEW. ACCORDING TO THE TPO, HOWEVER, T HIS COMPANY IS ENGAGED IN VARIOUS ENGINEERING AND PROJECT CONSULTANCY SERVICE S WHICH ARE IN THE NATURE OF TECHNICAL SERVICES AND THEREFORE COMPARABLE TO TAXP AYER IN VIEW OF HIS GENERAL DISCUSSION. (2.10.10.) REGARDING WORKING CAPITAL ADJUSTMENT : ASSESSEE SOUGHT WORKING CAPITAL ADJUSTMENT TO THE M ARGINS OF THE COMPARABLES AS WELL AS IN ITS OWN CASE. HOWEVER, AS PER TPO, ASSES SEE HAS NOT DEMONSTRATED THAT THERE IS A DIFFERENCE IN THE LEVELS OF WORKING CAPI TAL EMPLOYED BY IT VIS-A-VIS THE COMPARABLES. AS PER TPO, CLAIM OF WORKING CAPITAL A DJUSTMENT IS NOT A MATTER OF RIGHT; AND AS IN THE CASE OF RISK ADJUSTMENT, IT MU ST BE BASED ON SOME DATA. THE TPO REFERRED TO OECD GUIDELINES WHICH MENTION THAT NO ADJUSTMENT CAN BE ALLOWED IN THE ABSENCE OF RELIABLE DATA. THE TPO REFERRED T O PARAGRAPH 1.33 OF THE OECD GUIDELINES, 2010 , IN WHICH IT IS STATED : '[.....] TO BE COMPARABLE MEANS THAT NONE OF THE DIFFERENCES (IF ANY) BETWEEN THE SITUATIONS BEI NG COMPARED COULD MATERIALLY AFFECT THE CONDITION BEING EXAMINED IN THE METHODOLOGY (E. G. PRICE OR MARGIN), OR THAT REASONABLY ACCURATE [EMPHASIS ADDED] ADJUSTMENTS CA N BE MADE TO ELIMINATE THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 27 OF 112 EFFECT OF ANY SUCH DIFFERENCES. [....].' FOR TRANSA CTIONAL NET MARGIN METHOD, THE TPO ALSO REFERRED TO PARAGRAPH 3.2 OF THE GUIDELINES WH ICH STATE: '[....] THE RELIABILITY OF A METHOD SHOULD BE ASSESSED TAKING INTO ACCOUNT THE P RINCIPLES DISCUSSED IN THIS REPORT, INCLUDING THE EXTENT AND THE RELIABILITY [E MPHASIS ADDED] OF ADJUSTMENTS TO THE DATA USED.' THE TPO ALSO REFERRED TO ARTICLE OF SHRI. JAMAL HEFAZI, A TRANSFER PRICING EXPERT OF CANADA IN HIS ARTICLE (AT PAGES 3 56 TO 358 OF INTERNATIONAL TRANSFER PRICING JOURNAL NOVEMBER/DECEMBER 2008 ISSUE) TO HI GHLIGHT THAT GROWTH IN TRANSFER PRICING INFORMANT WILL FORM ANALYSIS TO RELY MORE H EAVILY ON ASIAN FINANCIAL STATEMENT; THAT IN ASIA WORKING CAPITAL ADJUSTMENTS ARE DIFFIC ULT TO APPLY DUE QUALITY CONSIDERATIONS IN DATA; ES THAT ACCURATE FINANCIAL INFORMATION IN NEEDED TO PERFORM WORKING CAPITAL ADJUSTMENTS AND FAILURE TO HAVE SOU ND FINANCIAL DATA MAKES THE APPLICATION OF WORKING CAPITAL ADJUSTMENT DIFFICULT AND RESULTS IN POTENTIALLY MORE BIASED RESULTS ARE OBTAINED; AND THAT CONCERN OVER THE LACK OF TRANSPARENT ACCOUNTING STANDARD AND WEAKNESS OF FINANCIAL DATA IN ASIA ARE WELL DOCUMENTED AMONGST PRACTITIONERS. THE TPO ALSO MENTIONED THAT OECD IN I TS ABOVE REFERRED TO PUBLIC DRAFT ON COMPARABILITY HAS EXPLAINED PROCESS OF WORKING C APITAL ADJUSTMENT AND HAS ALSO RAISED SOME IMPORTANT RESERVATION ON WORKING CAPITA L ADJUSTMENT IN THESE WORDS : 'THE PROCESS OF CALCULATING WORKING CAPITAL ADJUSTM ENTS: 1. IDENTIFY DIFFERENCES IN THE LEVELS OF WORKING CAPITAL. GENER ALLY TRADE RECEIVABLES, INVENTORY AND TRADE PAYABLES ARE THE THREE ACCOUNTS CONSIDERED. T NMM IS APPLIED RELATIVE TO AN APPROPRIATE BASE, FOR EXAMPLE COSTS, SALES OR ASSET S (SEE PARAGRAPH 3.26 OF THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 28 OF 112 GUIDELINES). IF THE APPROPRIATE BASE IS SALES, FOR EXAMPLE, THEN ANY DIFFERENCES IN WORKING CAPITAL LEVELS SHOULD BE MEASURED RELATIVE TO SALES. 2. CALCULATE A VALUE FOR DIFFERENCES IN LEVELS OF WORKING CAPITAL BETWEEN TH E TESTED PARTY AND THE COMPARABLE RELATIVE TO THE APPROPRIATE BASE UND REFLECTING THE TIME VALUE OF MONEY BY USE OF AN APPROPRIATE INTEREST RATE. 3. ADJUST THE RESULT TO REFLECT DIFFERENCES IN LEVELS OF WORKING CAPITAL. THE FOLLOWING EXAMPLE ADJUSTS THE COMPARABLE'S RESULT TO REFLECT THE TESTED PARTY'S LEVELS OF WORKING CAPITAL. ALTERNATI VE CALCULATIONS ARE TO ADJUST THE TESTED PARTY'S RESULTS TO REFLECT THE COMPARABLES L EVELS OF WORKING CAPITAL OR TO ADJUST BOTH THE TESTED PARTY AND THE COMPARABLES RESULTS T O REFLECT ZERO' WORKING CAPITAL.' THE TPO ALSO REFERRED TO THESE OBSERVATIONS ; EXTRAC TED FROM PAGES 57-58 OF CTPA/CFA(2006)31: AN ISSUE IN MAKING WORKING CA PITAL ADJUSTMENTS IS WHAT POINT IN TIME ARE THE RECEIVABLES, INVENTORY AND PA YABLES COMPARED BETWEEN THE TESTED PARTY AND THE COMPARABLES. THE EXAMPLE COMPA RES THEIR LEVELS ON THE LAST DAY OF THE FINANCIAL YEAR. THIS MAY NOT, HOWEVER, BE AP PROPRIATE IF THIS TIMING DOES NOT GIVE A REPRESENTATIVE LEVEL OF WORKING CAPITAL OVER THE YEAR. IN THE LONG RUN RECEIVABLES + INVENTORY - PAYABLES SHOULD APPROACH ZERO FOR A COMPARABLE. IF PROPOSED WORKING CAPITAL ADJUSTMENTS ARE SIGNIFICAN T, CONSIDERATION MAY NEED TO BE GIVEN TO WHETHER THE PROPOSED COMPARABLE IS AN APPR OPRIATE ONE. A MAJOR ISSUE IN MAKING WORKING CAPITAL ADJUSTMENTS IS THE QUESTION OF WHICH INTEREST RATE TO USE. THE RATE TO BE USED IS DETERMINED BY THE TESTED PAR TY. IN MOST CASES A BORROWING RATE WILL BE APPROPRIATE. IN CASES WHERE THE TESTED PARTY'S WORKING CAPITAL BALANCE IS ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 29 OF 112 NEGATIVE (THAT IS PAYABLES > RECEIVABLES * INVENTOR Y) A LENDING RATE MAY BE CONSIDERED IN SOME CASES. THE EXAMPLE USES AN INTER EST RATE BASED ON WHAT TESTCO IS ABLE TO BORROW AT IN THE LOCAL MARKET. THIS EXAM PLE ALSO ASSUMES THAT THE SAME INTEREST RATE IS APPLIED TO PAYABLES, RECEIVABLES A ND INVENTORY. THE PURPOSE OF WORKING CAPITAL ADJUSTMENTS IS TO IMPROVE THE RELIA BILITY OF THE COMPARABLES. THERE IS A QUESTION WHETHER WORKING CAPITAL ADJUSTMENTS SHOU LD BE MADE WHEN THE RESULTS OF SOME COMPARABLES CAN BE RELIABLY ADJUSTED WHILE THE RESULTS OF SOME OTHERS CANNOT'. THE TPO EXPRESSED THE OPINION THAT THE UNDERLYING A SSUMPTION IS THAT ALL COMPANIES ARE EFFICIENT PROFIT MAXIMIZERS BUT POOR MANAGER MA Y BE THE SIMPLE REALITY. RATHER THAN EMBARKING ON ADJUSTMENTS, THE QUESTION SHOULD REALLY BE ASKED AT THIS STAGE AS TO WHY THE ASSESSEE OR SUGGESTED COMPARABLES HAVE M ATERIAL DEVIATION IN THE WORKING CAPITAL SOURCE OR LEVEL, HE OBSERVED. STATI NG THAT THE ASSESSEE HAD BEEN UNABLE TO SATISFACTORILY ANSWER THIS QUESTION; HE H ELD THAT THERE WAS NO CASE FOR ALLOWING A WORKING CAPITAL ADJUSTMENT. HE ALSO REFE RRED TO AN ARTICLE PUBLISHED IN ECONOMIC TIMES (NEW DELHI EDITION) UNDER THE TITLE, 'WHEN EVERY PENNY COUNTS', AND QUOTED THESE PORTIONS FROM THE ARTICLE : COMPANIES EITHER BORROW SHORT-TERM LOANS OR USE INTERNALS CASH ACCRUALS TO PROCURE RAW MATER IALS AND TO MEET DAY-TO-DAY REQUIREMENTS. THESE LOANS ARE PAID ONCE THE CASH IS RECEIVED FROM CUSTOMERS. THIS PROCESS IS TERMED AS THE WORKING CAPITAL CYCLE OF A FIRM. THE LESSER THE NUMBER OF DAYS IN WHICH THE COMPANY EARNS BACK THE CASH INVESTED IN OPERATING ACTIVITIES, BETTER IS ITS WOR KING CAPITAL MANAGEMENT COMPANIES, ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 30 OF 112 WHICH HAVE SMALLER WORKING CAPITAL CYCLES, TEND TO DELIVER BETTER PROFITABILITY SINCE THEIR SHORT-TERM BORROWING REQUIREMENT IS LOWER COM PARED WITH FIRMS THAT HAVE LONGER WORKING CAPITAL CYCLE. WORKING CAPITAL EFFICIENCY ASSUMES GREATER SIGNIFIC ANCE. DURING A LOW-GROWTH PHASE, DEMAND FOR GOODS AND SERVICES ERODES THEREBY INCREASING THE AMOUNT OF AVERAGE INVENTORY AT HAND. FOR COMPANIES THAT UNDER TAKE EXECUTION OF TURNKEY PROJECTS, INVESTMENTS MADE TO PROCURE MATERIALS ARE BLOCKED UNTIL THE EXECUTION OF THE PROJECTS. WHEN THE IMPLEMENTATION OF SUCH PROJE CTS IS DELAYED, THE SHORT-TERM BORROWING REQUIREMENT OF SUCH PAYERS SHOOTS UP. WHEN WORKING CAPITAL REMAINS TIED UP IN RECEIVABLES OR INVENTORY FOR LONGER THAN THE AVERAGE PERIOD, THE COMPANY WILL HAVE TO B ORROW ADDITIONAL CAPITAL TO MEET DAILY EXPENSES. GIVEN THE CURRENT SCENARIO OF RISIN G INTEREST RATES, HIGHER BORROWINGS WILL INCREASE INTEREST OUTGO THEREBY PUTTING PRESSU RE ON NET MARGINS. AS HAS BEEN BROUGHT OUT, THE ISSUE OF WORKING CAPIT AL WILL BE RELEVANT WHEN THERE IS A SITUATION OF INVENTORY REMAINING TIED UP OR RECEIVABLES BEING HELD UP. FRANKLY SPEAKING THESE SITUATIONS MAY NOT BE SO REL EVANT TO THE SERVICE INDUSTRY. THE ASSESSEE, AS ALSO THE COMPARABLES USED, SHALL LAUNC H INTO A PROJECT ONLY WHEN THEY HAVE BEEN AWARDED A CONTRACT. IT IS NOT AS IF THESE PARTIES HAVE MANUFACTURED GOODS THAT AWAIT BUYERS. THIS BEING THE CASE, THERE IS A SERIOUS QUESTION ON THE VERY NEED FOR A WORKING CAPITAL ADJUSTMENT IN THE SERVICE IND USTRY. A WORKING CAPITAL ADJUSTMENT WILL BE REQUIRED ONLY WHEN THE VARYING LEVELS OF TH E WORKING CAPITAL DEPLOYED IS ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 31 OF 112 ACTUALLY MAKING A DIFFERENCE TO THE MARGINS EARNED BY THE ASSESSEE AND THE COMPARABLES. THIS IS ACTUALLY AT THE HEART OF EVERY COMPARABILITY ADJUSTMENT. THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE DIFFERENCE IN THE WORKING CAPITAL DEPLOYED IS MAKING A DIFFERENCE IN THE MARGIN EARNE D BY THE ASSESSEE AND THE COMPARABLES. THE TPO HELD THAT THERE WAS NO CASE FOR WORKING CAP ITAL ADJUSTMENT. (2.10.11) REGARDING RISK ADJUSTMENT THE TPO DECLINED TO MAKE RISK ADJUSTMENT. ACCORDING TO TPO, RISK ADJUSTMENT AS A GENERAL RULE CANNOT BE ALLOWED UNLESS IT IS CLEARLY SHOWN THAT THE COMPARABLES HAD ACTUALLY UNDERTAKEN SUCH RISK AND HOW THE SAME MATE RIALLY AFFECTED THEIR MARGINS. THE TPO QUOTED TO QUOTE HIM, REVISED OECD GUIDELINES OF 2010 'ENSURING THE NEEDED LEVEL OF TRANSPARENCY OF COMPARABILITY ADJUSTMENTS MAY DEPEND UPON THE AVAILABILITY OF AN EXPLANATION OF ANY ADJUSTMENTS PERFORMED, THE REASONS FOR THE ADJUSTMENTS BEING CONSIDERED APPROPRIATE, HOW THEY WERE CALCULA TED, HOW THEY CHANGED THE RESULTS FOR EACH COMPARABLE AND HOW THE ADJUSTMENT IMPROVES COMPARABILITY. ISSUES REGARDING DOCUMENTATION OF COMPARABILITY ADJUSTMENT S ARE DISCUSSED IN CHAPTER V. ' FROM THE ABOVE GUIDELINES IT CAN BE SEEN THAT UNLES S IT IS SHOWN THAT HOW THE RISK ADJUSTMENT WOULD CHANGE THE RESULT OF EACH COMPARAB LE AND HOW THE SAME WOULD IMPROVE THE COMPARABILITY AND UNLESS ADEQUATE REASO NS ARE GIVEN FOR SUCH ADJUSTMENT, NO ADJUSTMENT CAN BE ALLOWED TO THE TAX PAYER. IN THE PRESENT CASE, ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 32 OF 112 EXCEPT GIVING PROPORTION OF VARIOUS RISKS BORNE, TH E TAXPAYER HAS NOT SHOWN WITH EVIDENCE AS TO WHETHER EACH OF THE RISK WAS ACTUALL Y UNDERTAKEN OR NOT BY THE COMPARABLES AND IF SO, HOW THESE RISKS AFFECTED EAC H OF THEM AND WHETHER SUCH ADJUSTMENT WOULD IMPROVE THE COMPARABILITY. MECHAN ICAL ADJUSTMENT CANNOT BE MADE TO THE MARGINS OF THE COMPARABLES WITHOUT KNOWING W HICH RISK WAS TAKEN BY THE ENTITY CONCERNED AND HOW ITS PROFITABILITY WAS AFFECTED. P ROBABILITY OF RISK AND CERTAINTY OF RISK ARE TWO DIFFERENT ASPECTS AND CANNOT BE EQUATE D FOR THE PURPOSE OF ADJUSTMENT. IN MY VIEW ASSESSEE CANNOT BE COMPARED TO A RISK FR EE SECURITY. EVEN OTHER METHODOLOGY, WHETHER AD HOC ADJUSTMENT AS IN CASE O F SONY INDIA, CAPM OR SHARPE RATIO (WHICH IS A MEASURE OF THE EXCESS RETURN ON R ISK UNDERTAKEN BY AN ENTITY INVESTING IN A PARTICULAR ASSET), AS APPLIED BY HYD ERABAD ITAT IN THE CASE OF ADP PRIVATE LTD, ARE BASED ON RETURN OF CAPITAL WHICH I S NOT THE PLI ADOPTED BY THE ASSESSEE AND THE TPO. ALL THIS REQUIRES ROBUST AND RELIABLE DATA, BOTH FOR THE ASSESSEE AND THE COMPARABLES IN THE ABSENCE OF WHIC H RISK ADJUSTMENT CANNOT BE CONSIDERED FOR ENHANCING COMPARABILITY. T HUS CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE . ACCORDING TO TPO, ASSESSEE MAY OBJECT ON THE COMPUTATION MARGIN OF THIS COMPARABLE COMPANY. IN T HIS REGARD TPO MENTIONED THAT MARGIN HAS BEEN COMPUTED IN ACCORDANCE WITH THE PRI NCIPLES GOVERNING THE TREATMENT OF AN ITEM AS OPERATING AND NON-OPERATING HAS BEEN FOLLOWED WHICH WAS ISSUED IN CBDT NOTIFICATION SO 2810(E) DT. 19.9.2013, EXTRACT OF THE SAME IS PRODUCED BELOW: - (QUOTE) (J) 'OPERATING EXPENSE' MEANS THE COSTS INCURRED IN THE PREVIOUS YEAR BY THE ASSESSEE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 33 OF 112 IN RELATION TO THE INTERNATIONAL TRANSACTION DURING THE COURSE OF ITS NORMAL OPERATIONS INCLUDING DEPRECIATION AND AMORTIZATION EXPENSES RE LATING TO THE ASSETS USED BY THE ASSESSEE, BUT NOT INCLUDING THE FOLLOWING, NAME LY. (I) INTEREST EXPENSE; (II) PROVISION FOR UNASCERTAINED LIABILITIES; (III) PRE-OPERATING EXPENSES; (IV) LOSS ARISING ON ACCOUNT OF FOREIGN CURRENCY FL UCTUATIONS; (V) EXTRAORDINARY EXPENSES; (VI) LOSS ON TRANSFER OF ASSETS OR INVESTMENTS; (VII) EXPENSE ON ACCOUNT OF INCOME TAX; AND (VIII) OTHER EXPENSES NOT RELATING TO NORMAL OPERAT IONS OF THE ASSESSEE; (K) 'OPERATING REVENUE' MEANS THE REVENUE EARNED BY THE ASSESSEE IN THE PREVIOUS YEAR IN RELATION TO THE INTERNATIONAL TRAN SACTION DURING THE COURSE OF ITS NORMAL OPERATIONS HUT NOT INCLUDING THE FOLLOWI NG, NAMELY: (I) INTEREST INCOME; (II) INCOME ARISING ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATIONS; (III) INCOME ON TRANSFER OF ASSETS OR INVESTMENTS; (IV) REFUNDS RELATING TO INCOME-TAX; (V) PROVISIONS WRITTEN BACK; (VI) EXTRAORDINARY INCOMES; AND (VII) OTHER INCOMES NOT RELATING TO NORMAL OPERATIO NS OF THE ASSESSEE (2.10.12) REGARDING PROVISION FOR DOUBTFUL DEBTS AS PER TPO, PROVISION FOR DOUBTFUL DEBTS WAS CONSID ERED PART OF OPERATING EXPENSES ONLY WHEN THE SAME EXPENSES ARE INCURRED EVERY YEAR FOR THE LAST THREE YEARS UPTO AND INCLUDING THE FY 2009-10 AND THESE EXPENSES ARE INCURRED AT ALMOST CONSISTENT LEVEL IN TERMS OF ITS RATIO WITH THE TURNOVER; AND OTHERWISE, THE SAME IS EXCLUDED FROM OPERATING EXPENSES TREATING THE SAME EXPENSE AS EXT RA ORDINARY OR RESTRICTED TO THE EXTENT OF REASONABLENESS BASED ON THE THREE YEAR FI GURES. ACCORDING TO TPO, THUS PROVISION FOR DOUBTFUL DEBTS ARE ALLOWED PROVIDED A COMPANY FOLLOWS A CONSISTENT APPROACH TO MAKE PROVISION EVERY YEAR; AND OTHERWI SE, SUCH EXPENSE BECOMES EXTRA ORDINARY AND THUS IS EXCLUDED FROM OPERATING EXPENS ES. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 34 OF 112 (2.11) THE FINAL SET OF COMPARABLES SELECTED BY TPO; AND C OMPUTATION OF ARMS LENGTH PRICE IN HIS AFORESAID ORDER DATED 17.01.201 4 U/S 92CA(3) OF I. T. ACT ARE AS UNDER : SI. NO NAME OP/OC 1 MAHINDRA CONSULTING ENGINEERS LIMITED 23.50 2 TCE CONSULTING ENGINEERS LIMITED 25.88 3 ENGINEERS INDIA 67.77 4 MUKAND ENGINEERS LIMITED 12.87 5 PROJECT AND DEVELOPMENT INDIA LIMITED 23.09 6 UB ENGINEERING LIMITED 9.71 AVERAGE 26.33 COMPUTATION OF ARMS LENGTH PRICE: OPERATING COST 223,767,776 ARM'S LENGTH PRICE AT A MARGIN OF 26.33% 282,685,831 PRICE RECEIVED 250,055,515 105% OF INTERNATIONAL TRANSACTION 262,558,290 PROPOSED ADJUSTMENT U/S 92CA 32,630,317 (2.12) THUS THE ABOVE DIFFERENT OF RS.3,26,30,317/- WAS PR OPOSED BY TPO AS TRANSFER PRICING ADJUSTMENT FOR THE FY 2009-10. (3) THE ASSESSING OFFICER (AO FOR SHORT) FORMULATED DRAFT ASSESSMENT ORDER U/S 144C OF I.T. ACT ON 31.01.2014 ON THE BASIS OF THE AFORESAID ORDER DATED 17.01.2014 OF TPO. THE ASSESSEE FILED OBJECTIONS AGAINST THE D RAFT ASSESSMENT ORDER BEFORE DISPUTE RESOLUTION PANEL (DRP FOR SHORT) AGAINST THIS DRAFT ASSESSMENT ORDER. THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 35 OF 112 DRP ISSUED DIRECTIONS VIDE ORDER DATED 25.09.2014 U /S 144C(5) OF I.T. ACT. RELEVANT PORTION OF THE ORDER OF THE DRP IS AS UNDER: 2. BUSINESS ACTIVITY OF THE TAXPAYER COMPANY: THE TAXPAYER, HALDOR TOPSOE INDIA PVT. LTD. IS AN E NGINEERING AND CONSULTANCY SERVICE PROVIDER TO ITS AE, HALDOR TOPSO E INTERNATIONAL A/S, DENMARK. THE TAXPAYER CLAIMS TO PROVIDE ENGINEERING AND TECHNICAL ASSISTANCE SERVICES TO ITS PARENT COMPANY FOR THEIR GLOBAL PROJECTS (INCLUDING PROJECTS IN INDIA) AND THEREBY SERVES TO AUGMENT TH E TOTAL STRENGTH OF THE TOPSOE GROUP. THE INTERNATIONAL TRANSACTIONS ENTERED INTO ARE TAB ULATED BELOW:- SR. NO. NATURE OF TRANSACTION ARMS LENGTH PRICE AS PER TAXPAYER (I) ENGINEERING AND TECHNICAL ASSITANCE SERVICE RENDERED RS.25,00,55,515 (') PURCHASE.PF FIXED ASSETS RS. 11,87,625 (III) REIMBURSEMENT OF EXPENSES (RECEIVED RS. 81,0000 (IV) REIMBURSEMENT EXPENSES (PAID) RS. 13,31,078 3. THE TAXPAYER FURNISHED THE TP STUDY AND SELECTED T NMM AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL T RANSACTION NAMELY ENGINEERING AND TECHNICAL ASSISTANCE SERVICE RENDER ED. THE TAXPAYER SELECTED A SET OF 8 COMPANIES WHOSE AVERAGE MARGIN WAS 14.45 % AS COMPARED TO ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 36 OF 112 THAT OF THE TAXPAYER AT 11.75%. SINCE, THE TAXPAYER 'S MARGIN WAS WITHIN THE RANGE OF 5%, HENCE TAXPAYER CONTENDED THAT THEIR I NTERNATIONAL TRANSACTION WAS AT ARMS LENGTH. THE TPO HOWEVER DID NOT AGREE WITH THE TP STUDY AND INSTEAD USED CERTAIN FILTERS AND REJECTED 4 OF TAXPAYERS COMPARABLES AN D IN ADDITION INTRODUCED 2 NEW COMPARABLES. THUS TPO USED A SET OF 6 COMPARABL ES IN ALL (4 FROM TAXPAYER'S SET AND 2 NEW COMPARABLE) WHOSE AVERAGE MARGIN WAS 26.33% AND THUS HE PROPOSED AN ADDITION OF RS.3,26,30,317. 4. AGGRIEVED BY THE ACTION OF THE AO THE FOLLOWING GR OUNDS OF OBJECTION HAS BEEN RAISED BEFORE THE DRP IN FORM NO. 35A:- 1. A) THE ACTION OF LEARNED TRANSFER PRICING OFFICE R OF ADDING NEW COMPANIES TO THE LIST OF COMPARABLES AND REJECTING COMPANIES FAIRLY SELECTED BY THE TAXPAYER IS NOT SCIENTIFIC / METHOD ICAL AND IS ON ARBITRARY BASIS. B) THE ORDER PASSED BY THE AO / TPO IS BAD IN LAW B EING AGAINST THE PRINCIPLE OF NATURAL JUSTICE AS NO OPPORTUNITY OF HEARING WAS GRANTED BY THE AO TO TAXPAYER BEFORE REFERRING THE MATTER TO TPO. 2. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED O N FACTS AND IN LAW IN SELECTING 2 NEW COMPANIES AND ADDING THE SAME TO THE LIST OF ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 37 OF 112 COMPARABLE COMPANIES. 3. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED O N FACTS AND IN LAW IN REJECTING 4 COMPARABLE COMPANIES SELECTED BY TAXPAY ER. 4. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED O N FACTS AND IN LAW IN REJECTING THE COMPANYS REQUEST FOR ADJUSTMENT T O THE MARGINS DUE TO DIFFERENT RISK PROFILES OF COMPARABLE COMPANIES. 5. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED O N FACTS AND IN LAW IN REJECTING THE COMPANY'S REQUEST FOR WORKING CAPITAL ADJUSTMENT TO THE MARGINS OF COMPARABLE COMPANIES. 6. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS IN MAKING ADDITION OF RS. 71 PROVISION FOR EXPENSES MADE BY THE COMPANY. 7. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS IN MAKING ADDITION OF RS. 29,74,264 ON ACCOUNT OF INCOME FROM OTHER SO URCES. 8. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS IN MAKING ADDITION OF RS. 24,01,433 ON ACCOUNT OF DISALLOWANCE U/S 40A (2)(B). 9. THE LEARNED ASSESSING OFFICER ERRED ON FACTS AND IN LAW INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) ON ACCOUNT OF CER TAIN ADDITIONS. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 38 OF 112 10. THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT GRANTING 100% OF THE ELIGIBLE PROFIT AS DEDUCTION U/S 10A(1A), AND CONFI RMING THE DEDUCTION AT 90%, WHICH WAS SO CLAIMED BY THE COMPANY INADVER TENTLY. 5. FROM THE ABOVE GROUNDS OF OBJECTIONS RELATING TO T RANSFER PRICING FOLLOWING ISSUES EMERGE WHICH REQUIRES CONSIDERATIO N OF THE DRP FOR ISSUE OF DIRECTION UNDER SECTION 144C OF THE ACT. ISSUE I WHETHER AO/TPOS ACTION BY APPLYING VARIOUS FILTER S, IS RIGHT IN REJECTING FEW OF TAXPAYERS COMPARABLES AN D INCLUDING NEW COMPARABLES WITHOUT GOING INTO THE FUNCTIONALLY ASP ECT. ISSUE II WHETHER AO/TPO IS RIGHT IN DENYING ANY ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL, RISK ETC. WHILE WORKING OUT THE AVERAGE MARGINS OF THE COMPARABLES. ISSUE III WHETHER AO/TPO IS RIGHT IN DENYING ANY ADJUSTMENT O N ACCOUNT OF RISK WHILE WORKING OUT THE AVERAGE MARGI NS OF THE COMPARABLES. EACH OF THE ISSUE IS DISCUSSED HEREINAFTER. 6. ISSUE I WHETHER AO/TPOS ACTION BY APPLYING VARIOUS FILTER S, IS RIGHT IN REJECTING FEW OF TAXPAYERS COMPARABLES AN D INCLUDING NEW COMPARABLES. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 39 OF 112 6.1 WITH REGARD TO THE ABOVE ISSUE THE TAXPAYER'S HAS MADE THE DETAILED SUBMISSION CONTENDED THAT TPO WAS WRONG IN USING FO LLOWING FILTERS TO REJECT THE COMPARABLES SELECTED BY THEM AND INTRODUCING NE W COMPARABLES. REJECTING COMPANIES WHOSE TURNOVER WAS LESS THAN RS .5.00 CRORE REJECTING COMPANIES HAVING RPT OF 25% AND MORE REJECTING COMPANIES WITH DIFFERENT FINANCIAL YEAR E NDING. NOT REJECTING THE COMPANIES HAVING HIGH TURNOVER FI LTER/SUPER PROFIT REJECTING COMPANIES WHERE EXPORT REVENUES IS LESS T HAN 75% OF TOTAL INCOME. REJECTING THE FILTER USED BY THE TAXPAYER OF R & D TO SALES MORE THAN 3% FILTER REJECTING THE FILTER USED BY THE TAXPAYER OF AMP EX PENSES TO SALES MORE THAN 3% FILTER. 6.2 HAVING GONE THROUGH THE TAXPAYERS SUBMISSIONS AND AO/TPOS ORDER AND JUDICIAL PRONOUNCEMENTS ON THE ISSUE OF USE OF VARIOUS FILTER, THE PANELS VIEW ON VARIOUS OBJECTIONS RAISED BY THE TAXPAYER A RE AS UNDER:- TURNOVER FILTER OF RS.5.00 CRORE APPLIED BY TPO WITH REGARD TO THE USE OF TURNOVER FILTER, THIS PAN EL IS OF THE VIEW THAT THERE IS NO ARBITRARY SELECTION OF LIMIT OF RS.5.00 CRORES, THE LIMIT HAS BEEN CHOSEN AFTER KEEPING IN MIND THE COMPANIES (AU DITORS REPORT) ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 40 OF 112 ORDER, 2003 AS PER WHICH THE AUDITOR HAS TO MAKE SP ECIFIC COMMENTS IN RESPECT OF 33 ITEMS. THE ORDER IS APPLICABLE TO COMPANIES ABOVE TURNOVER OF RS. 5 CRORES. HENCE, AUDIT COMPLIANCE R EQUIREMENTS ARE DEFINITELY BETTER IN THESE COMPANIES RESULTING IN B ETTER RELIABILITY OF THEIR RESULTS. ERGO, THE TURNOVER FILTER HAS RIGHTLY BEEN SELECTED BY THE TPO. FURTHER, THIS PANEL IS ALSO OF THE VIEW THAT THE RE LIABILITY OF THE FINANCIAL DATA FOR COMPANIES WITH LOW LEVELS OF SALES/OPERATI NG INCOME CAN BE SIGNIFICANTLY REDUCED BECAUSE THE SAME PERSONS ARE OFTEN BOTH MAJOR SHAREHOLDERS AND ALSO THE KEY EMPLOYEES, THEREBY OB LITERATING THE ECONOMIC DISTINCTION BETWEEN PROFITS AND SALARIES. ALSO THE COMPANIES HAVING VERY SMALL TURNOVER ARE TO BE EXCLUDED BECAU SE THE MARGINS EARNED BY THESE COMPANIES FLUCTUATE TO EXTREMES BEC AUSE OF THE NARROW BASE. SUCH COMPANIES LACK COMPETITIVE STRENG TH, LACK OPERATIONAL EFFICIENCIES AND ALSO LACK HUMAN RESOUR CES AND SO GIVE SKEWED RESULTS. FURTHER, BECAUSE OF SMALLER SIZE, T HESE COMPANIES TEND TO ESCAPE THE EYES OF THE REGULATORS AND ALSO MANAG ED PERSONALLY BY PROMOTERS INSTEAD OF BEING PROFESSIONALLY MANAGED, THEREFORE THEY ARE ALSO NOT TRUE REPRESENTATIVE OF INDUSTRY AND THEIR RESULTS DO NOT HAVE ECONOMIC SIGNIFICANCE. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 41 OF 112 IN VIEW OF THE ABOVE DISCUSSION THIS DRP HAS NO HES ITATION IN UPHOLDING THIS TURNOVER FILTER USED BY THE TPO INST EAD OF FILTER OF RS.1 CRORE USED BY THE TAXPAYER. REJECTING COMPANIES HAVING RPT OF 25% AND MORE FOR THE PURPOSE OF COMPARABILITY ANALYSIS, THE INTE RNATIONAL TRANSACTION SHOULD BE COMPARED WITH UNCONTROLLED TRANSACTION. T HEREFORE, THE COMPARABLES COMPANIES HAVING MORE THAN 25% RELATED PARTY TRANSACTIONS COULD NOT BE TREATED AS OPERATING IN U NCONTROLLED ENVIRONMENT AND RPT COULD HAVE SUBSTANTIAL IMPACT O N MARGINS OF SUCH COMPANIES. THE TAXPAYER HAS ARGUED THAT THERE IS NO RATIONAL BASIS FOR APPLYING THE THRESHOLD LIMIT OF 25% OF SA LES. THE AR HAS REFERRED TO THE NUMBER OF ITAT DECISION IN THIS REG ARD. THIS PANEL HAS CAREFULLY CONSIDERED THE ABOVE OBJEC TIONS OF THE TAXPAYER, BUT ARE NOT INCLINED TO INTERFERE IN THE TPO'S ACTION IN THIS REGARD. CASES HAVING SOME RPT CAN BE TAKEN AS COMPA RABLE AS THEY DO NOT MATERIALLY AFFECT THE PRICE/MARGINS. THIS VI EW HAS BEEN UPHELD BY VARIOUS ITATS INCLUDING ITAT, DELHI. IN THE CASE OF SONY INDIA LTD. ITAT, DELHI DID NOT LAY DOWN ANY THRESHOLD LIMIT FOR APPLYING RPT FILTER. THIS WAS C LARIFIED BY ITAT, DELHI ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 42 OF 112 IN THEIR SUBSEQUENT DECISION IN THE CASE OF GLOBAL LOGIC INDIA P. LTD. (2011 TII-35- ITAT-DEL-TP). REFERENCE MAY ALSO BE MADE TO ITAT, HYDERABAD'S DEC ISION IN THE CASE OF ADPP LTD. (2011-TII-44-ITAT-HYD-TP) AND DELOITTE CONSULTING INDIA P. LTD ITA NO. 1082/HYD/2010 DATED 22.07.2011. IN THE AFORESAID DECISIONS ALSO THRESHOLD LIMIT OF 25% WAS ACCEPTED BY THE ITAT. IN THE CASE OF ST MICROELECTRONICS (2011- TII-63-ITAT-DEL- TP) ALSO THIS LIMIT HAS BEEN IMPLIEDLY UPHELD. THE RATIONALE OF 25% THRESHOLD LIMIT IS BASED ON SE CTION 92A(2)(A) AND (B) WHEREIN A LIMIT OF LESS THAN 26% IS FIXED. THER EFORE, THIS PANEL DECLINES TO INTERFERE WITH THE STAND TAKEN BY THE T PO IN THIS REGARD. REJECTING COMPARABLES HAVING DIFFERENT ACCOUNTING Y EAR ON THE COMPARABLES MAINTAINING ACCOUNTS IN TERMS OF PERIOD OTHER THAN THE FINANCIAL YEAR HAS BEEN CONSIDERED AND DRP IS OF FOLLOWING VIEW. SO FAR AS THE ISSUE OF REQUIREMENT OF DATA PERTAINI NG TO THE FINANCIAL YEAR AS PROVIDED IN RULE 10B(4) IS CONCERNED, THOUG H THERE IS NO IMPEDIMENT IN LAW TO USE DATA EVEN IF THE COMPARABL ES DO NOT MAINTAIN THEIR ACCOUNTS IN TERMS OF FINANCIAL YEAR, THE SAME IS CORRECT. HOWEVER, RULE 10B(4) IS NOT TO BE READ IN ISOLATION . THIS RULE HAS BEEN ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 43 OF 112 PROVIDED FOR THE PURPOSE OF DETERMINATION, ANALYSIS AND BENCHMARKING OF INTERNATIONAL TRANSACTION WITH AN APPROPRIATE CO MPARABLE IN UNCONTROLLED TRANSACTIONS FOR THE PURPOSE OF DETERM INATION OF ARM'S LENGTH PRICE (ALP). SO, THE DETERMINING FACTORS IN THE VIEW OF THE DRP ARE:- (I) WHETHER THE TAXPAYER/ THE DEPARTMENT WILL BE A BLE TO IDENTIFY AN UNCONTROLLED COMPARABLE TO BENCHMARK AN INTERNAT IONAL TRANSACTION OF THE TAXPAYER WHO IS MAINTAINING DATA AND ACCOUNTS IN TERMS OF FINANCIAL YEAR. (II) WHETHER THE TAXPAYER/ THE DEPARTMENT WILL BE ABLE TO CARRY OUT SUCH ADJUSTMENTS SO AS TO MAKE THE UNCONTROLLED TRA NSACTIONS MATERIALLY IDENTICAL WITH THAT OF THE TAXPAYER IF S UCH COMPARABLE IS NOT MAINTAINING ITS ACCOUNTS FINANCIAL YEAR WISE . (III) WHETHER THE TAXPAYER/ THE DEPARTMENT WILL BE ABLE T O APPLY SUCH FILTERS TO BE APPLIED TO PUBLICLY AVAILABLE DA TA SO AS TO BRING OUT ONLY THOSE COMPANIES WHICH ARE BROADLY FU NCTIONALLY SIMILAR TO THAT OF THE TAXPAYER IF THE COMPARABLE I S NOT MAINTAINING ITS ACCOUNT FINANCIAL YEAR WISE. IN CASES OF COMPANIES, THE DATA IN RESPECT OF WHICH ARE AVAILABLE PUBLICLY AND WHICH MAINTAIN ACCOUNTS OTHER THAN IN TERMS OF THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 44 OF 112 FINANCIAL YEAR, FOLLOWING ADJUSTMENTS ARE REQUIRED TO BE CARRIED OUT IN ORDER TO BRING THE DATA AT PAR WITH THAT OF THE TAX PAYER: (I) APPORTION THE DATA FROM PRECEDING OR SUBSEQUENT PERIOD SO AS TO MAKE DATA EQUIVALENT TO THE FINANCIAL YEAR AVAILABLE FOR COMPARISON WITH THE INTERNATIONAL TRANSACTION. (II) WHILE APPORTIONING SUCH DATA, ADEQUATE CARE NE EDS TO BE TAKEN SO THAT THE PROFIT LEVEL INDICATORS ARE COMPUTED COMPARABLY . FURTHER, FOR THE DETERMINATION OF PROFIT LEVEL INDI CATORS, CERTAIN ENTRIES HAVING BEARING ON THE COST AND INCOME ARE- INTEREST , PROVISIONS, LOSSES/ GAINS ON ACCOUNT OF FOREIGN EXCHANGE, ETC, WHICH NORMALLY AS PER THE BUSINESS PRACTICE ARE ACCOUNTED FOR AT THE END OF THE ACCOUNTING YEAR. UNDER BOTH THE SITUATIONS, WHETHER THE DATA PERTAINING TO THE PERIOD PRIOR TO THE ACCOUNTING YE AR OR SUBSEQUENT TO THE ACCOUNTING YEAR ARE INTEGRATED WITH THE RELEVAN T PORTION OF THE ACCOUNTING YEAR OF THE COMPARABLE, THE SAME GIVES A LOPSIDED PICTURE OF THE ACCOUNTS SO FAR AS THE FINANCIAL YEAR DATA I S CONCERNED. SINCE, THERE IS NO REQUIREMENT AS PER COMPANY LAW OR AS PE R ACCOUNTING STANDARDS THAT THE DA'TA PERTAINING TO A PARTICULAR QUARTER NEEDS TO BE CLOSELY COMPARTMENTALIZED BY PROVIDING FOR VARIOUS PROVISIONS ETC. FOR EACH QUARTER, THE VALIDITY OF SUCH DATA FOR THE PUR POSE OF COMPARABILITY WILL BE A MATTER OF QUESTION MARK. ALSO, SOME OF TH E COMPANIES ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 45 OF 112 PROVIDE FOR DEPRECIATION AT THE END OF THE ACCOUNTI NG PERIOD. APPORTIONMENT OF SUCH DEPRECIATION ON PRORATA BASIS TO A PARTICULAR QUARTER OR MONTH WILL BE A DIFFICULT PROPOSITION. MOST IMPORTANT MANY OF THE COMPANIES MAINTAINING AC COUNTS OTHER THAN ON FINANCIAL YEAR BASIS DO NOT KEEP SUCH DATA IN PUBLIC DOMAIN. SUCH INACCESSIBILITY OF VITAL INFORMATION IN PUBLIC DOMAIN MAY NOT RENDER THE COMPARISON THE WARRANTED JUDICIOUS EFFEC T CREATES A HURDLE WHEREIN THE EFFORT REQUIRED TO SEARCH FOR SUCH COMP ARABLES DATA FOR THE FINANCIAL YEAR IS NOT COMMENSURATE WITH THE RES ULT. IN ADDITION, IN ORDER TO REACH AT SUCH UNCONTROLLED COMPARABLES, THE TAXPAYER AS WELL AS THE TPO APPLY CERTAIN FILTERS I N ACCORDANCE WITH THE PROVISIONS OF RULE 10B E.G. THE FILTER OF EXPORT IN COME/ REALIZATION IS APPLIED FOR COMPARISON OF AN INTERNATIONAL TRANSACT ION INVOLVING EXPORT OF GOODS AND SERVICES; FILTER OF RELATED PARTY TRAN SACTION IS APPLIED FOR THE PURPOSE OF IDENTIFYING ONLY THOSE COMPARABLES W HICH ARE FUNCTIONING IN A RELATIVELY UNCONTROLLED ENVIRONMEN T. IT IS DIFFICULT TO APPORTION INFORMATION REQUIRED FOR APPLYING SUCH FI LTERS IF THE ACCOUNTING PERIOD IS NOT CONGRUENT TO THE ACCOUNTIN G PERIOD OF THE TAXPAYER. IN ORDER TO CARRY OUT FAR ANALYSIS, TAXPAY ERS AND THE TPOS APPLY THE FILTER OF NETWORTH. GENERALLY, NETWORTH O F A COMPANY IS DETERMINED ON THE LAST DAY OF THE ACCOUNTING YEAR. THEREFORE, ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 46 OF 112 APPORTIONMENT OF DATA WILL AGAIN LEAD TO LOPSIDED I NDICATOR FOR COMPARABILITY ANALYSIS. RULE 10C (2)(C) PROVIDES FOR THE REQUIREMENT OF TH E AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPL ICATION OF THE METHOD IN THE LIGHT OF THE DISCUSSIONS MADE IN THE ABOVE PARAGRAPHS, THE RELIABILITY OF SUCH DATA IS A QUESTION MARK AND AS SUCH THE REQUIREMENT OF THE RULE WILL NOT BE FULFILLED IF THE COMPARABLE DOES NOT MAINTAIN ITS ACCOUNTS IN TERMS OF FINANCIAL YEAR. IT WILL ALSO BE VERY DIFFICULT TO CARRY OUT ADJUSTM ENTS, ASSUMPTIONS, CLASSIFICATIONS, ETC, OF SUCH COMPARABLES TO BRING THE TRANSACTIONS AT PAR WITH THE INTERNATIONAL TRANSACTIONS IN SUCH SIT UATIONS. HENCE, IN VIEW OF THE ABOVE, THE DRP IS OF THE CONS IDERED VIEW THAT TPO IS RIGHT IN REJECTING THOSE COMPARABLE COMPANIE S WHO ARE MAINTAINING ACCOUNTS IN TERMS OF PERIOD OTHER THAN THE FINANCIAL YEAR, FOR THE PURPOSE OF DETERMINATION OF ALP. NOT REJECTING THE COMPANIES HAVING HIGH TURNOVER FI LTER/SUPER PROFIT THE TAXPAYER HAS OBJECTED TO INCLUSION OF HIGH TURN OVER/HIGH MARGIN COMPANIES IN THE SET OF COMPARABLES. WE HAVE CAREFU LLY CONSIDERED THE ARGUMENTS OF THE TAXPAYER. FOR THE PURPOSE OF TRANS FER PRICING ANALYSIS, THE COMPARABLES ARE SELECTED WHICH HAS SI MILAR FUNCTIONAL ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 47 OF 112 PROFILE. THE PROFIT MARGIN OF ANY COMPANY IS NOT AN INDICATOR OF ITS FUNCTIONAL PROFILE. UNLESS, THE TAXPAYER IS ABLE TO POINT OUT ANY FUNCTIONAL DIFFERENCES, THERE IS NO REASON TO EXCLU DE A HIGH PROFIT MARGIN COMPANY FROM THE SET OF COMPARABLES. FURTHER, HIGH TURNOVER IS NO CRITERIA TO DETERMINE THE FUNCTIONAL COMPARABILITY. BIGGER SIZE MAY RESULT INTO HIGHER R EVENUE AND NOT NECESSARILY HIGHER MARGINS. IN THIS HIGHLY COMPETIT IVE ENVIRONMENT, CUSTOMER IS VERY DEMANDING AND REFUSES TO PAY HIGHE R RATES IF HE CAN OBTAIN SIMILAR SERVICES FROM OTHER SMALLER VENDORS HAVING NO BRAND AND SMALL TURNOVER. WHAT MATTERS MOST IN THE SERVICE SE CTOR IS THE FUNCTIONAL SIMILARITY, NATURE OF SERVICES RENDERED, AND NOT THE BRAND OR SIZE OF THE COMPANY. IN THE CASE OF SYMANTEC SOFTWARE SOLUTIONS P. LTD. (2011-TII-60-ITAT- MUM-TP) WHICH WAS RELATED TO MARKET SUPPORT SEN/ICE THE ITAT HAS OBSERVED AS UNDER:- (I) IT IS NOT SHOWN THAT HIGH OR LOW TURNOVER INFLUENCE S THE MARGINS OF THE COMPARABLES. (II) TAXPAYER'S OBJECTION WAS GENERAL IN NATURE AND NO SPECIFIC FACT WAS BROUGHT ON RECORD TO SHOW THAT DUE TO DIFFERENC E IN TURNOVER COMPARABLES BECAME NON COMPARABLES; IT-COULD NOT BE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 48 OF 112 DEMONSTRATED AS TO WHO THE DIFFERENCE IN TURNOVER I NFLUENCED THE RESULTS OF COMPARABLES. (III) THE ACCEPTED ECONOMIC PRINCIPLES AND COMMERCIAL PRA CTICE IN A HIGHLY COMPETITIVE MARKET ONE CAN SURVIVE ONLY BE K EEPING LOW MARGIN BUT HIGH TURNOVER. (IV) SIMILARLY, LOW TURNOVER DOES NOT NECESSARILY MEAN H IGH MARGIN. (V) THEREFORE, UNLESS AND UNTIL IT IS SHOWN THAT TURNOV ER MAKES UNDUE DIFFERENCE ON THE MARGINS, IT IS NOT A GENERA L RULE TO EXCLUDE SUCH COMPARABLES. UNDER THE INCOME TAX ACT, IF THERE ARE MORE THAN ON E COMPARABLE THEN THE ARITHMETIC MEAN OF THE MARGINS OF THE COMP ARABLES IS TAKEN TO CALCULATE THE ALP UNDER TNMM. IN A SET OF FUNCTI ONALLY COMPARABLE COMPANIES, THERE COULD BE COMPANIES WITH LOW MARGIN AS WELL AS HIGH MARGINS. WHAT IS MATERIAL IS THE FUNCTIONAL COMPARA BILITY. MOREOVER, WHILE TAKING ARITHMETIC MEAN, SUCH DIFFERENCES WILL ULTIMATELY AVERAGE OUT. COMPARABLES CANNOT BE REJECTED SIMPLY BECAUSE THEY ARE LOSS OR HIGH PROFIT MAKING COMPARABLES. SUCH CASES CAN BE E XCLUDED ONLY IF THERE ARE PECULIAR ECONOMIC CIRCUMSTANCES. THIS VIE W IS NOW ALSO SUPPORTED BY THE OECD IN ITS REVISED 2010 GUIDELINES . FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARA IS EXTRACTED BEL OW. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 49 OF 112 '3.63 EXTREME RESULTS MIGHT CONSIST OF LOSSES OR UNU SUALLY HIGH PROFITS. EXTREME RESULTS CAN AFFECT THE FINANCIAL INDICATORS THAT ARE LOOKED AT IN THE CHOSEN METHOD (E.G. THE GROSS MARGIN WHEN APPLY ING A RESALE PRICE, OR A NET PROFIT INDICATOR WHEN APPLYING A TR ANSACTIONAL NET MARGIN METHOD). THEY CAN ALSO AFFECT OTHER ITEMS, E .G. EXCEPTIONAL ITEMS WHICH ARE BELOW THE LINE BUT NONETHELESS MAY REFLECT EXCEPTIONAL CIRCUMSTANCES. WHERE ONE OR MORE OF THE POTENTIAL C OMPARABLES HAVE EXTREME RESULTS, FURTHER EXAMINATION WOULD BE NEEDE D TO UNDERSTAND THE REASONS FOR SUCH EXTREME RESULTS. THE REASON MI GHT BE A DEFECT IN COMPARABILITY, OR EXCEPTIONAL CONDITIONS MET BY AN OTHERWISE COMPARABLE THIRD PARTY. AN EXTREME RESULT MAY BE EX CLUDED ON THE BASIS THAT A PREVIOUSLY OVERLOOKED SIGNIFICANT COMP ARABILITY DEFECT HAS BEEN BROUGHT TO LIGHT, NOT ON THE SOLE BASIS THAT T HE RESULTS ARISING FROM THE PROPOSED COMPARABLE' MERELY APPEAR TO BE VERY DIFFERENT FROM THE RESULTS OBSERVED IN OTHER PROPOSED 'COMPAR ABLES'. 3.64 AN INDEPENDENT ENTERPRISE WOULD NOT CONTINUE LOSS-GENERATING ACTIVITIES UNLESS IT HAD REASONABLE EXPECTATIONS OF FUTURE PROFITS. SEE PARAGRAPHS 1.70 TO 1.72. SIMPLE OR LOW RISK FUNCTIONS IN PART ICULAR ARE NOT EXPECTED TO GENERATE LOSSES FOR A LONG PERIOD OF TIME. THIS DOES NOT MEAN HOWEVER THAT LOSS- MAKING TRANSACTIONS CAN NEVER BE COMPARABLE. IN ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 50 OF 112 GENERAL, ALL *RELEVANT INFORMATION SHOULD BE USED A ND THERE SHOULD NOT BE ANY OVERRIDING RULE ON THE INCLUSION OR EXCLUSIO N OF LOSS-MAKING COMPARABLES. INDEED, IT IS THE FACTS AND CIRCUMSTAN CES SURROUNDING THE COMPANY IN QUESTION THAT SHOULD DETERMINE ITS STATU S AS A COMPARABLE, NOT ITS FINANCIAL RESULT. 3.65 GENERALLY SPEAKING, A LOSS-MAKING UNCONTROLLE D TRANSACTION SHOULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ES TABLISH WHETHER OR NOT IT CAN BE A COMPARABLE CIRCUMSTANCES IN WHICH LOSS-MAK ING TRANSACTIONS/ENTERPRISES SHOULD BE EXCLUDED FROM TH E LIST OF COMPARABLES INCLUDE CASES WHERE LOSSES DO NOT REFLECT NORMAL BU SINESS CONDITIONS, AND WHERE THE LOSSES INCURRED BY THIRD PARTIES REFL ECT A LEVEL OF RISKS THAT IS NOT COMPARABLE TO THE ONE ASSUMED BY THE TAXPAYE R IN ITS CONTROLLED TRANSACTIONS. LOSS-MAKING COMPARABLES THAT SATISFY THE COMPARABILITY ANALYSIS SHOULD NOT HOWEVER BE REJECTED ON THE SOLE BASIS THAT THEY SUFFER LOSSES. 3.66 A SIMILAR INVESTIGATION SHOULD BE UNDERTAKEN FOR POTENTIAL COMPARABLES RETURNING ABNORMALLY LARGE PROFITS RELA TIVE TO OTHER POTENTIAL COMPARABLES.' EVEN ITAT. MUMBAI IN THE CASE OF EXXON MOBIL COMPANY INDIA PVT LTD (2011-TII-68-ITAT-MUM-TP) HAS HELD AS UNDER: ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 51 OF 112 NOW, COMING TO THE ALTERNATIVE ARGUMENTS OF THE TA XPAYER THAT ABNORMAL PROFIT MAKING UNIT IS ALSO TO BE ELIMINATE D ON THE SAME ANALOGY ON WHICH LOSS MAKING UNITS ARE EXCLUDED, WE, IN PRI NCIPLE, DO NOT DISPUTE THIS PROPOSITION. THE VARIOUS CASE LAWS RELIED UPON BY THE TAXPAYER LAY DOWN THAT A COMPARABLE CANNOT BE ELIMINATED JUST BE CAUSE IT IS A LOSS MAKING UNIT. SIMILARLY, A HIGHER PROFIT MAKING UNIT CANNOT ALSO BE AUTOMATICALLY ELIMINATED JUST BECAUSE THE COMPARABL E COMPANY EARNED HIGHER PROFITS THAN THE AVERAGE THE REASON FOR REJE CTING THE TWO LOSS MAKING UNITS IS NOT JUST BECAUSE THEY WERE LOSS MAK ING UNITS BUT FOR THE REASONS WHICH ARE ALREADY STATED IN THE PRECEDING P ARAGRAPHS. IF SIMILAR REASONS EXISTED IN THE HIGHER PROFIT MAKING UNIT, T HEN, IT IS FOR THE TAXPAYER TO BRING OUT THOSE REASONS AND SEEK EXCLUS ION OF THE SAME. A GENERAL ARGUMENT THAT, YOU HAVE TO EXCLUDE UNITS WH ICH HAVE HIGH PROFIT RANGE, IN CASE YOU EXCLUDE UNITS WHICH HAVE MADE LO SS IS A GENERAL SUBMISSION WHICH CANNOT BE ACCEPTED. IN OTHER WORDS , AS A GENERAL PRINCIPLE, BOTH LOSS MAKING UNIT AND HIGH PROFIT MA KING UNIT CANNOT BE ELIMINATED FROM THE COMPARABLES UNLESS, THERE ARE S PECIFIC REASONS FOR ELIMINATING THE SAME WHICH IS OTHER THAN THE GENERA L REASON THAT A COMPARABLE HAS INCURRED LOSS OR HAS MADE ABNORMAL P ROFITS. THUS, THIS GROUND IS DISMISSED.' ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 52 OF 112 THUS, IN ORDER TO EXCLUDE THE EXTREME RESULT CASES THERE SHOULD *BE EITHER A DEFECT IN COMPARABILITY OR EXCEPTIONAL CON DITIONS FACED BY THE COMPARABLES. IN THE PRESENT CASE, THE TAXPAYER HAD SOUGHT EXCLUSION OF CERTAIN COMPARABLES WITHOUT DISPUTING THE FUNCTIONA L COMPARABILITY OR SHOWING ANY EXCEPTIONAL CIRCUMSTANCES. MOREOVER, IF HIGH PROFIT MAKING CASE IS TO BE EXCLUDED THEN LOGICALLY LOSS/LOW PROF IT MARGIN CASES ARE ALSO REQUIRED TO BE EXCLUDED. THIS WOULD MEAN INTRODUCIN G THE CONCEPT OF INTER-QUARTILE RANGE WHICH IS NOT PROVIDED UNDER TH E INDIAN LAW. WITHOUT PREJUDICE TO ABOVE, IN THE CASE OF SAPLABS INDIA LTD [2010-TII- 44- ITAT-BANG-TP], THE HON'BLE ITAT HAS HELD THAT I F CASES OF ABNORMAL MARGIN ON THE HIGH SIDE ARE TO BE REMOVED THEN THOS E ON THE LOWER SIDE (HAVING MARGIN LOWER THAN THE TAXPAYER) ALSO SHOULD BE REMOVED. THE TAXPAYER HAS RELIED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. TO DERIVE SUPPORT ON ITS CLAIM THAT SINCE THEIR TURNOVER IS RS.25 CRORES, TH EREFORE, THE COMPARABLES WHICH ARE HAVING HIGH TURNOVER VIZ. EIL, SHOULD NOT BE CONSIDERED AS COMPARABLE. THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF AGNITY INDIA TECHNOLOGIES P, LTD. HAS BEEN BASED ON THE DECISION OF DELHI BENCH OF THE ITAT IN THE SAME CASE IN ITA NO. 3856/DEL/2010 WHEREIN ON PAGE 5, ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 53 OF 112 PARA 3.3 OF THE ORDER, THE AR OF THE TAXPAYER HAD S UBMITTED A TABLE DIFFERENTIATING THE RISK PROFILE, NATURE OF SERVICE S, OWNERSHIP OF BRANDED/ PROPRIETARY PRODUCT, SITUS OF SERVICES RENDERED, EX PENDITURE ON ADVERTISING/ SALES PROMOTION AND BRAND BUILDING AND EXPENDITURE ON RESEARCH AND DEVELOPMENT. BASED ON THAT TABLE, THE ITAT ON PAGE 10 PARA 5.2 HAD OBSERVED: 'IT IS ARGUED THAT THE CASE OF THE TAXPAYER IS NOT COMPARABLE WITH INFOSYS TECHNOLOGIES LTD, THE REASONS BEING THAT TH E LATTER IS GIANT IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUMES ALL RISKS, LEADING TO HIGHER PROFIT. ON THE OTHER HAND, THE TAXPAYER IS A CAPTIVE UNIT OF ITS PARENT COMPANY IN THE USA AND IT ASSUMES ONLY LIMIT ED CURRENCY RISK. HAVING CONSIDERED THESE POINTS, WE ARE OF THE VIEW THAT THE CASE OF AFORESAID INFOSYS AND THE TAXPAYER ARE NOT COMPARAB LE AT ALL AS SEEN FROM THE FINANCIAL DATA ETC OF THE TWO COMPANIES ME NTIONED EARLIER IN THIS ORDER. THEREFORE, WE ARE OF THE VIEW T HAT THI S CASE IS REQUIRED TO BE EXCLUDED. THIS FACTUAL FINDING OF THE ITAT HAS BEEN CONFIRME D BY HONBLE HIGH COURT WITH THE OBSERVATION THAT THE REVENUE DID N OT CONTROVERT SUCH FINDING. HOWEVER, IT IS SEEN THAT DECISIONS HAVE BE EN GIVEN ON THE FACTS WHERE NO ANALYSIS WAS MADE BY THE DEPARTMENT THAT I N CASE OF SERVICE COMPANIES, MARGINS DO NOT DEPEND ON TURNOVER AND SC ALE OF THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 54 OF 112 COMPANY. WHERE IN SUCH AN ANALYSIS HAS BEEN GIVEN A ND HAS BEEN SHOWN THAT TURNOVER IS NOT A COMPARABILITY CRITERIO N IN IT INDUSTRY. WHERE SUCH AN ANALYSIS HAS BEEN MADE, THE TRIBUNALS HAVE RULED THAT TURNOVER IS NOT A COMPARABILITY CRITERION. THE LIST OF SUCH DECISIONS IS AS UNDER:- -ORDER DT. 01.03.13 OF ITAT, MUMBAI IN WILLIS PROCE SSING SERVICES (INDIA) LTD. (ITA NO.8772/MUM/2010) -ORDER DT. 28.02.13 OF IJAJ MUMBAI IN CAPGEMINI IND IA PRIVATE LIMITED VS. ACIT (ITA NO.7861/MUM/2011)- IN THIS CASE, ALL THE DECISIONS QUOTED BY TAXPAYER HAVE BEEN DISCUSSED AND YET TRIBUNAL AR RIVED AT A DIFFERENT DECISION- PARA 5.3,5 AND 5.3.6 OF THE ORDER -ORDER DT. 26.04 2013 OF ITAT, MUMBAI IN VODAFONE I NDIA SERVICES PVT. LTD. (ITA NO. 7140/MUM/2012 AND ITA NO. 7097/MUM/20 12) - PARA 24.3.3 OF THE ORDER IT IS PERTINENT TO MENTION HERE THAT WHEN ONE EXAMI NES THE PROFITABILITY TREND OF INFOSYS LTD. OVER THE YEARS FROM THE TIME WHEN IT WAS A SMALL COMPANY, IT CAN BE SEEN THAT THE MARGIN HAS ALMOST REMAINED CONSTANT OVER THE YEARS EVEN WHEN THE TURNOVER HAS INCREASED SUBSTANTIALLY:- IT CAN BE SEEN FROM THE ABOVE FIGURES THAT THE TURN OVER DOES NOT HAVE EFFECT ON MARGINS OF COMPANIES IN SERVICE INDUSTRY. APART FROM ABOVE, THIS WHICH WERE TAKEN BY VARIOUS TAXPAYERS AND TPOS WHIL E CARRYING OUT COMPARABILITY ANALYSIS OF SERVICE INDUSTRY SECTOR. THE FOLLOWING TABLE WILL ALSO MAKE IT CLEAR THAT THERE IS NO CORRELATION BET WEEN TURNOVER AND PROFITABILITY:- ITA NO. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 55 OF 112 IT CAN BE SEEN FROM THE ABOVE FIGURES THAT THE TURN OVER DOES NOT HAVE EFFECT ON MARGINS OF COMPANIES IN SERVICE INDUSTRY. APART FROM ABOVE, THIS DRP ALSO TOOK A RANDOM SAMPLE OF COMPARABLES WHICH WERE TAKEN BY VARIOUS TAXPAYERS AND TPOS WHIL E CARRYING OUT COMPARABILITY ANALYSIS OF SERVICE INDUSTRY SECTOR. THE FOLLOWING TABLE WILL ALSO MAKE IT CLEAR THAT THERE IS NO CORRELATION BET WEEN TURNOVER AND NO. -654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. IT CAN BE SEEN FROM THE ABOVE FIGURES THAT THE TURN OVER DOES NOT HAVE DRP ALSO TOOK A RANDOM SAMPLE OF COMPARABLES WHICH WERE TAKEN BY VARIOUS TAXPAYERS AND TPOS WHIL E CARRYING OUT COMPARABILITY ANALYSIS OF SERVICE INDUSTRY SECTOR. THE FOLLOWING TABLE WILL ALSO MAKE IT CLEAR THAT THERE IS NO CORRELATION BET WEEN TURNOVER AND AS REGARDS THE TAXPAYERS ARGUMENT THAT SOME OF THE COMPARABLES INCLUDED BY TPO HAVE HIGH TURNOVER AND SOME OTHERS HAVE HIGH PROFITABILITY, IT IS STATED THAT AS PER PROVISO TO SECTION 92C(2) WHEN MORE THAN ONE PRICE IS DETERMINED THEN T PRICES SHALL BE THE ARM'S LENGTH PRICE. THEREFORE, WHEN THERE IS A ROBUST SET OF SEVERAL COMPARABLES, SUCH SET: OBVIOU SLY CONTAINS COMPARABLES HAVING LOW MARGIN, NORMAL MARGIN AND AL SO HIGH MARGIN CASES. THE ARITHMETICAL MEAN O CASES INCLUDING LOSS OR HIGH PROFIT MAKING, LOW TUR NOVER, HIGH TURNOVER, ITA NO. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 56 OF 112 AS REGARDS THE TAXPAYERS ARGUMENT THAT SOME OF THE COMPARABLES INCLUDED BY TPO HAVE HIGH TURNOVER AND SOME OTHERS HAVE HIGH PROFITABILITY, IT IS STATED THAT AS PER PROVISO TO SECTION 92C(2) WHEN MORE THAN ONE PRICE IS DETERMINED THEN T HE ARITHMETICAL MEAN OF SUCH PRICES SHALL BE THE ARM'S LENGTH PRICE. THEREFORE, WHEN THERE IS A ROBUST SET OF SEVERAL COMPARABLES, SUCH SET: OBVIOU SLY CONTAINS COMPARABLES HAVING LOW MARGIN, NORMAL MARGIN AND AL SO HIGH MARGIN CASES. THE ARITHMETICAL MEAN O F SUCH PRICES TAKES CARE OF ALL KINDS OF CASES INCLUDING LOSS OR HIGH PROFIT MAKING, LOW TUR NOVER, HIGH TURNOVER, NO. -654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. AS REGARDS THE TAXPAYERS ARGUMENT THAT SOME OF THE COMPARABLES INCLUDED BY TPO HAVE HIGH TURNOVER AND SOME OTHERS HAVE HIGH PROFITABILITY, IT IS STATED THAT AS PER PROVISO TO SECTION 92C(2) WHEN HE ARITHMETICAL MEAN OF SUCH PRICES SHALL BE THE ARM'S LENGTH PRICE. THEREFORE, WHEN THERE IS A ROBUST SET OF SEVERAL COMPARABLES, SUCH SET: OBVIOU SLY CONTAINS COMPARABLES HAVING LOW MARGIN, NORMAL MARGIN AND AL SO HIGH MARGIN F SUCH PRICES TAKES CARE OF ALL KINDS OF CASES INCLUDING LOSS OR HIGH PROFIT MAKING, LOW TUR NOVER, HIGH TURNOVER, ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 57 OF 112 LOW END-HIGH OR END ACTIVITY, ETC. THUS, REMOVING A COMPARABLE FROM SUCH A SET SIMPLY ON THE GROUND OF HIGH PROFIT MAKI NG WOULD NEITHER BE AS PER THE ACT AND NOR WOULD IT RESULT IN A REPRESE NTATIVE SET. WITHOUT PREJUDICE TO THE ABOVE, IF HIGH PROFIT MAKI NG COMPARABLES ARE TO BE REMOVED THEN CONSEQUENTLY LOSS OR LOW PROFIT MAKING COMPANIES ARE ALSO REQUIRED TO BE EXCLUDED. THIS VIEW HAS BEE N UPHELD BY THE ITAT, BANGALORE IN THE CASE OF SAP LABS (SUPRA). TH IS WOULD, HOWEVER, MEAN THE IMPLIED APPLICATION OF INTER-QUARTILE RANG E CONCEPT WHICH IS NOT PERMISSIBLE UNDER THE ACT, THE ACT MANDATES USE OF ARITHMETICAL MEAN. IN THIS CONNECTION REFERENCE MAY. BE MADE TO ITAT, MUMBAI'S DECISION IN THE CASE OF DIEAGEO INDIA PRIVATE LIMIT ED (2011-TII-94- ITAT-MUM-TP). SIMILARLY, IN THIS CASE, FOLLOWING QU ARK SYSTEMS DECISION IT WAS ARGUED THAT COMPARABLES SHOWING LOS S OF 9.98% AND PROFIT OF 37.48% SHOULD BE EXCLUDED. REJECTING THE TAXPAYERS ARGUMENT, THE ITAT HELD AS UNDER: AS EVIDENT FROM THE ABOVE DISCUSSIONS, COMPARABLES SHOWING EXCEPTIONALLY HIGH PROFITS AND LOSSES HAVE BEEN HEL D TO BE EXCLUDABLE FROM THE LIST OF COMPARABLES NOT ONLY BECAUSE OF TH E HIGH PROFITS OR LOSSES, BUT ON ACCOUNT OF FACTORS LIKE HIGH INTRA A E TRANSACTIONS AND LACK OF FUNCTIONAL COMPARABILITY. IN THIS VIEW OF T HE MATTER, MERELY BECAUSE AN TAXPAYER HAS MADE HIGH PROFIT OR HIGH LO SS, THAT CANNOT BE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 58 OF 112 A GROUND ENOUGH FOR ITS EXCLUSION FROM COMPARABLES. UNDOUBTEDLY, THERE IS SOME MERIT IN EXCLUDING COMPARABLES AT THE TOP END OF THE RANGE AND AT THE BOTTOM END OF THE RANGE, BUT, IN T HE ABSENCE OF ANY PROVISIONS TO THIS EFFECT IN THE TRANSFER PRICING R EGULATIONS, AS IS THE PRACTICE UNDER US TRANSFER PRICING REGULATION 1.482 BY PROVIDING FOR INTER-QUARTILE RANGE EXCLUDING CASES IN FIRST AND F OURTH QUARTILE, THIS CANNOT BE ADOPTED AS A PRACTICE. NOTHING MORE THAN THE FACT OF HIGHER PROFITS OR LOSSES HAS BEEN POINTED OUT BY THE TAXPA YER. WE ARE, THEREFORE, NOT PERSUADED TO UPHOLD THIS OBJECTION E ITHER.' IN ADDITION TO ABOVE THE TAXPAYER HAS ALSO REFERRED TO CERTAIN ITAT DECISIONS IN' SUPPORT OF ITS CONTENTION. THESE DECI SIONS HAVE BEEN PERUSED. FIRSTLY, ALL THESE DECISIONS WERE GIVEN ON THEIR OWN FACT PATTERN. IN FACT, IN SOME OF THE CASES THE TPO HAD EXCLUDED LOSS MAKING COMPARABLES SIMPLY BECAUSE THEY WERE INCURRI NG LOSSES IN A SINGLE YEAR. ON THE SAME ANALOGY, THE ITAT REMOVED SUPERNORMAL PROFIT MAKING COMPANIES. IN OTHER DECISIONS ITATS D ID NOT REJECT THEM ONLY ON THE GROUND OF MARGINS. SECONDLY, THE ITATS IN SEVERAL DECISIONS HAVE HELD THAT A LOSS MAKING COMPARABLE C ANNOT BE REJECTED SIMPLY ON THE GROUND THAT IT HAD INCURRED LOSSES. A S DISCUSSED ABOVE, THE SAME LOGIC HAS TO BE EXTENDED TO THE HIGH PROFI T MAKING CASES ALSO. THIRDLY, THE BENEFIT OF REVISED OECD GUIDELINE S WAS NOT AVAILABLE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 59 OF 112 IN THESE DECISIONS. LASTLY, ITAT, MUMBAI IN THE CAS E OF EXXON MOBILE COMPANY INDIA PVT LTD, DIAGEO INDIA P LTD AND BP IN DIA SERVICES PRIVATE LIMITED (SUPRA) HAVE HELD THAT LOSS OR PROF IT CANNOT BE A CRITERION FOR ACCEPTANCE/ REJECTION OF A COMPARABLE . THESE DECISIONS HAVE BEEN GIVEN AFTER DULY CONSIDERING QUARK'S DECI SION. IT MAY ALSO BE MENTIONED THAT THE TAXPAYERS MARGIN IS NOT BEING COMPARED WITH THE MARGINS OF THESE HIGH-MARGIN C OMPARABLES ALONE THESE COMPARABLES ARE ONLY WHICH CONTAINS EVEN LOW MARGIN CASES. THE MARGIN OF THE TAXPAYER IS BEING FINALLY COMPARE D WITH THE AVERAGE MARGIN OF THE COMPARABLES FINALLY SELECTED IN THIS ORDER. HENCE, FROM THE ABOVE DISCUSSIONS, IT IS MORE THE A MPLY CLEAR THAT HIGH TURNOVER AND PROFITABILITY IN A SERVICE INDUSTRY HA S NO CORRELATION AT ALL, THEREFORE THE TAXPAYER'S RELIANCE ON AGNITY TECHNOL OGIES (SUPRA) AND THEREBY ARGUING THAT THE HIGH TURNOVER COMPARABLES SHOULD BE REMOVED DOES NOT CUT MUCH ICE, ERGO, NO COMPARABLE C AN BE REJECTED MERELY ON THE BASIS OF MARGINS AND TURNOVER FOR THE PURPOSE OF COMPARABILITY ANALYSIS AND PANEL DECLINES TO INTERF ERE WITH THE STAND TAKEN BY THE TPO IN THIS REGARD. REJECTING COMPANIES WHERE EXPORT REVENUES IS LESS T HAN 75% OF TOTAL INCOME ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 60 OF 112 THE TAXPAYER IS PROVIDING ENGINEERING AND TECHNICAL SERVICES, THEREFORE IN ORDER TO SELECT SIMILAR COMPARABLE WHICH ARE IN THE ENGINEERING AND TECHNICAL SERVICES, TPO HAS SELECTED THIS FILTER. A S PER RULE 10B(2), IT IS IMPORTANT TO JUDGE ANY INTERNATIONAL TRANSACTION KE EPING IN MIND THE CONDITIONS PREVAILING IN THE MARKETS' WHILE DECIDI NG THE COMPARA'BLE CASES. THE DRP IS OF THE CONSIDERED VIEW THAT BY US ING THIS FILTER, TPO HAS NARROWED DOWN THE SEARCH FOR COMPARABLES. THEREFORE, THE ABOVE FILTER IS LOGICAL AND AS PER R ULES AND IT ENSURES FURTHER REFINEMENT OF FUNCTIONAL PROXIMITY IN FAR AN ALYSIS. DRP THUS DOES NOT FIND ANY INFIRMITY IN THE ORDER OF THE TPO USING THE FILTER OF REJECTING THE COMPANIES WITH LESS THAN 75% EARNING FROM ENGINEERING AND TECHNICAL SERVICES OF THEIR TOTAL OPERATING REV ENUE, IS CORRECT. REJECTING THE FILTER USED BY THE TAXPAYER OF R & D TO SALES MORE THAN 3% FILTER REGARDING APPLICATION OF FILTER OF R&D EXPENSES IN EXCESS OF 3% WHICH IS USED BY THE TAXPAYER BUT NOT ACCEPTED BY THE TPO DURING THE COMPARABILITY ANALYSIS, WE HAVE GIVEN CAREFUL CONSI DERATION TO THE CONTENTIONS OF BOTH. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 61 OF 112 REGARDING APPLICATION OF R&D/SALES>3% FILTER, IT IS SEEN THAT SPENDING ON R&D DOES NOT NECESSARILY RESULT IN CREATION OF I PR. THE R&D ACTIVITY MAY BE WITH RESPECT TO IMPROVING PROCESSES WITH RES PECT TO DELIVERY OF SERVICES RATHER THAN CREATION OF INTANGIBLE. FURTHER ON THE APPLICATION OF R&D/SALES>3% FILTER, COMPANIES WITH IP PRODUCTS DID NOT NECESSARILY GET REJECTED. SIMILARL Y, CERTAIN COMPANIES WHICH WERE OTHERWISE PURELY PROVIDING ENGINEERING A ND RELATED SERVICES GETS REJECTED. THE TAXPAYER HAD ALSO NOT D EMONSTRATED THAT COMPANIES HAVING EXPENDITURE GREATER THAN 3% ON R&D WERE NECESSARILY CREATING IP PRODUCTS. IN THIS RESPECT, DRP IS IN AGREEMENT WITH THE ARGUM ENT OF THE TPO THAT THERE ARE OTHER QUANTITATIVE FILTERS WHICH WOU LD MORE APPROPRIATELY SEGREGATE COMPANIES WHICH WERE RENDERING COMPARABLE SERVICES AS THAT OF THE TAXPAYER. REJECTING THE FILTER USED BY THE TAXPAYER OF AMP EX PENSES TO SALES MORE THAN 3% FILTER AS DISCUSSED ABOVE, SIMILARLY DRP FEELS THAT THIS F ILTER OF AMP IS NOT BE APPROPRIATE FILTER FOR A SERVICE INDUSTRY AS COMPAR ED TO MANUFACTURING INDUSTRY WHEREIN SUBSTANTIAL MARKETING EXPENDITURE LEAD TO CREATION OF INTANGIBLES. FURTHER TAXPAYER HAS ALSO NOT DEMONSTR ATED THAT HOW ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 62 OF 112 SERVICE COMPANIES HAVING EXPENDITURE MORE THAN 3% O F AMP CREATES MARKETING INTANGIBLES. THEREFORE, THIS DRP IS IN AG REEMENT WITH THE TPO THAT THIS FILTER IN THE PRESENT CASE DOES NOT S UBSTANTIALLY HELP IN COMPARABILITY ANALYSIS. 6.3 FURTHER, APART FROM THE ABOVE DISCUSSION IT IS SEE N THAT AMONG OTHERS, TAXPAYER IS AGGRIEVED FROM THE EXCLUSION OF PETRON ENGINEERING CONSTRUCTION LTD. IT IS SEEN THAT THIS COMPANY IS E NGAGED IN INSTALLATION, CONSTRUCTION AND COMMISSIONING OF PRO JECTS AS AGAINST THE TAXPAYERS BUSINESS OF PROVIDING ENGINEERING AND CO NSULTING SERVICES, THEREFORE THIS COMPANY IS FUNCTIONALLY DIFFERENT FR OM THAT OF THE TAXPAYER. HENCE, PANEL FEELS THAT THE SAID COMPANY HAS RIGHTLY BEEN EXCLUDED FOR THE PURPOSE OF COMPARABILITY ANALYSIS. 6.4 AS REGARDS TAXPAYER'S OBJECTION TO THE INCLUSION O F 2 COMPANIES NAMELY EIL AND MAHINDRA CONSULTANCY ENGINEERS LTD. IS CONCERNED, IT IS SEEN THAT EVERY COMPANY TRIES TO PUT ITS BEST FA CE BOTH IN ITS WEBSITE AS WELL AS IN ANNUAL REPORT. ANY PERSON CAN PICKUP CERTAIN KEYWORDS FROM THE WEBSITE AND ANNUAL REPORT AND MAY ARGUE TH AT IT IS PROVIDING A SOPHISTICATED SERVICE, HAS CERTAIN PATENTS, HAS S PECIALIZED IN CERTAIN AREAS, HAS OBTAINED EXCELLENCE IN CERTAIN AREAS. HO WEVER, WHAT NEEDS TO BE SEEN WHETHER THAT IS THE SUBSTANTIAL ACTIVITY OF THAT COMPANY OR IT IS JUST AN AREA WHICH COMPANY WANTS TO DEVELOP AND DO BETTER WORK. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 63 OF 112 FURTHER, UNDER TNMM 1 IT IS NOT POSSIBLE TO FIND COMPANIES PROVIDING EXACTLY SIMILAR SERVICES AS THAT OF TAXPAYER BECAUS E THERE WILL NOT BE AN INDEPENDENT COMPANY IN THE MARKET WHICH IS PROVIDIN G ONLY SAME TECHNICAL SUPPORT. FROM THE ABOVE DISCUSSION CONSIDERING THE FACT THAT BOTH THE ABOVE MENTIONED COMPANIES ARE ENGAGED IN THE FIELD OF ENG INEERING DESIGN AND CONSULTANCY WHICH BROADLY FALLS IN THE SAME CAT EGORY AS THAT OF THE TAXPAYER AND FURTHER CONSIDERING THE FACT THAT IN T NMM NET PROFIT MARGIN ARE COMPARED TO APPROPRIATE BASE AND IT ACCE PTS VIDE RANGE OF FUNCTIONAL SIMILARITIES AND APPLICATION OF RULE 10B IS TO BE CARRIED OUT AND, BUT ON A BROADER PROSPECTIVE, THEREFORE THIS D RP OVERRULES THE OBJECTION RAISED BY THE TAXPAYER IN THIS BEHALF AND BOTH THESE COMPANIES MENTIONED ABOVE ARE HELD TO BE THE SUITAB LE COMPARABLE IN THE TAXPAYER'S CASE FOR THE PURPOSE OF COMPARABILIT Y ANALYSIS. 6.5 IN VIEW OF THE ABOVE DISCUSSIONS, THE DRP HOLDS TH AT ON ACCOUNT OF ABOVE FILTERS THE FOLLOWING COMPARABLES HAVE RIG HTLY BEEN REJECTED/ACCEPTED. SIMON INDIA LTD. WITH REGARD TO THIS COMPARABLE THE TAXPAYER SUBMITT ED THAT TPO HAS WRONGLY CONSIDERED PURCHASES MADE FOR RESALE AND HAS WRONGLY ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 64 OF 112 CONCLUDED THAT THIS COMPARABLE IS NOT PROVIDING ANY SERVICES. THE TAXPAYER PRODUCED THE FINANCIALS WHEREIN RS.2,04,84 ,73,624 IS CONSIDERED AS PURCHASE EXPENSES AND THUS TAXPAYER P LEADED THAT IT IS A VALID COMPARABLE. ON GOING THROUGH THE FINANCIALS SO PRODUCED (SCHEDU LE 14 OF ANNUAL REPORT), IT IS FOUND THAT THE PURCHASES MADE FOR TH E RE SALES ARE TO THE TUNE OF RS.72,31,46,052 (WHICH IS 28% OF THE TOTAL OPERATING INCOME) AND THUS, SINCE THE SERVICE INCOME IS LESS THAN 75% , HENCE, AS DISCUSSED ABOVE IT DOES NOT QUALIFY THE FILTER. THUS FROM THE ABOVE DISCUSSION THIS COMPANY IS NOT A VALID COMPARABLE. IOT DESIGN AND ENGINEERING THE TPO HAS REJECTED THIS COMPANY ON THE GROUND THA T THE ANNUAL DATA IS NOT AVAILABLE. THE TAXPAYER DURING THE COUR SE OF THIS PROCEEDINGS STATED THAT THE DATA IS AVAILABLE IN PU BLIC DOMAIN THEREFORE, TPO HAS WRONGLY NOT INCLUDED THIS AS A C OMPARABLE. THIS PANEL ON GOING THROUGH THE INFORMATION FINDS T HAT THE DATA FROM THE WEBSITE OF MINISTRY OF CORPORATE AFFAIRS HAS BE EN MADE AVAILABLE BY THE TAXPAYER AND IS NOT ACCOMPANIED BY THE ANNUA L REPORT, DIRECTORS REPORT ETC., THEREFORE, ABOUT THE FUNCTIONALITY NO COMMENTS CAN BE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 65 OF 112 OFFERED, HENCE, IN THE VIEW OF THIS PANEL, THIS COM PANY CANNOT BE TAKEN AS A VALID COMPARABLE. HOWEVER, TAXPAYER IS DIRECTE D TO PROVIDE THE COMPLETE ANNUAL REPORT, DIRECTORS REPORT AND FINAN CIALS AND TPO THEN IS DIRECTED TO TAKE A CALL ACCORDINGLY ABOUT THE IN CLUSION/EXCLUSION OF THIS COMPANY AS A COMPARABLE. ENGINEERS INDIA THE TAXPAYER PRIMARILY WANTS THIS COMPARABLE TO BE EXCLUDED ON ACCOUNT OF RPT MORE THAN 25% FUNCTIONALLY DIFFERENT PREDOMINANTLY RENDERING SERVICE TO GOVERNMENT COMPA NIES THIS PANEL HAS GONE THROUGH THE TPO'S COMMENTS ON T HE ABOVE GROUNDS AND ALSO DURING THE PROCEEDINGS THE TAXPAYE R WAS REQUESTED TO BRING THE DATA RELATING TO RPT BUT INSPITE OF TH E OPPORTUNITY THE DATA RELATING TO RPT WAS NOT MADE AVAILABLE SHOWING THAT IT IS MORE THAN 25%. AS REGARDS THE ARGUMENTS RELATING TO CATE RING TO GOVERNMENT SECTOR/PSU, THIS PANEL IS OF THE VIEW TH AT IN TODAYS ECONOMIC WORLD THE GOVERNMENT COMPANIES/PSU S WORK AS PER THE MARKET FORCES AND EIL HAS NO ADVANTAGE ON THIS SCORE AND FURTHER AS MENTIONED ABOVE THAT IN A SERVICE INDUSTRY THERE IS NO DIRECT CO ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 66 OF 112 RELATION BETWEEN PROFITABILITY AND HIGH TURNOVER, A CCORDINGLY, THIS PANEL HOLDS THAT EIL IS A VALID COMPARABLE. MAHINDRA CONSULTING ENGINEERS LTD. WITH REGARD TO THE INCLUSION OF THIS COMPANY AS A C OMPARABLE, THE TAXPAYER HAS MADE SIMILAR OBJECTIONS AS WERE MADE I N THE EARLIER YEAR, SINCE THERE HAS BEEN NO CHANGE IN THE OPERATION IN THE CURRENT YEAR VIS-A-VIS LAST YEAR, ACCORDINGLY, AS HELD IN THE LA ST YEAR THIS DRP HOLDS THAT IT IS A VALID COMPARABLE FOR THE CURRENT YEAR ALSO. 7. ISSUE II WHETHER AO/TPO IS RIGHT IN DENYING ANY ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL, WHILE WOR KING OUT THE AVERAGE MARGINS OF THE COMPARABLES. 7.1 WITH REGARD TO THE ABOVE, THE TAXPAYER MADE BOTH ORAL AS WELL AS WRITTEN SUBMISSIONS, THE GIST OF WHICH IS AS UND ER:- NO ADJUSTMENT HAVE BEEN UNDERTAKEN BY THE LD. AO TO THE MARGINS OF THE COMPARABLES SELECTED BY THE TPO TO A CCOUNT FOR DIFFERENCES IN THE WORKING CAPITAL AND RISK PROFILE OF THE COMPANIES AND THE TAXPAYER. IN THIS REGARD, IT IS SUBMITTED THAT THE INDIAN TRA NSFER PRICING REGULATIONS RULE 10B(3) READ WITH RULE 1QB(1)(E) RE COGNIZE THAT ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 67 OF 112 APPROPRIATE ADJUSTMENTS SHOULD BE MADE TO ELIMINATE MATERIAL EFFECT OF DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTIONS AND THE COMPARABLES TRANSACTIONS TO ESTABLISH COMPARABILITY . 7.2 THIS DRP HAS CONSIDERED THE TAXPAYERS CONTENTION WITH REGARD TO THE ADJUSTMENTS ON ACCOUNT OF WORKING CAPITAL AN D ALSO THE ARGUMENTS OF THE TPO. WORKING CAPITAL IS MEASURED BY TRADE RECEIVABLES/DE BTORS, TRADE PAYABLES/CREDITORS AND INVENTORIES. INTEREST COST W ILL BE HIGH IF THE TRADE RECEIVABLE/DEBTORS TIME CYCLE IS LARGE. INTER EST COST WILL BE LOW IF THE COMPANY CAN PAY ITS LIABILITIES AFTER A LARGER PERIOD OF GAP THEN PAY IT IN A SHORTER PERIOD. HOLDING OF INVENTORY HAS AL SO INTEREST COSTS. IF INVENTORY TURNOVER IS FOR A SHORTER PERIOD, INTERES T COST WILL BE LOWER. THUS ALL PARAMETERS NAMELY TRADE DEBTORS, TRADE CRE DITORS AND INVENTORIES DO AFFECT THE OVERALL RESULTS OF THE CO MPANY. IN ORDER TO COVER THE INTEREST COST, THE MARGIN MAY SEEM TO BE HIGH IN ABSOLUTE TERM, BUT WHEN INTEREST COST IS ACCOUNTED FOR, THE MARGIN CHANGES ITS LUSTER. THEREFORE, WORKING CAPITAL REQU IREMENTS DO AFFECT THE MARGINS OR PRICES, COSTS OR PROFITS BECAUSE THI S IS A IMPLICIT COST WHICH IS RECOVERED/RECOVERABLE FROM THE CUSTOMERS. THEREFORE, THIS DRP IS OF THE OPINION THAT IN VIEW OF THE RULE 10B( 3) AND IN ORDER, TO IMPROVE THE COMPARABILITY, IN THE-FACTS OF THE PRES ENT CASE, WHILE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 68 OF 112 COMPARING THE MARGINS OF TESTED PARTY WITH THAT OF THE COMPARABLES, ADJUSTMENT BE MADE FOR WORKING CAPITAL FOR WHICH TH E RELIABLE DATA IS TO BE PROVIDED BY THE TAXPAYER. 7.2.2 THE TPO HAS STATED THAT THE TAXPAYER HAS NOT DEMON STRATED THAT THERE IS A DIFFERENCE IN THE LEVELS OF WORKING CAPITAL EMPLOYED BY IT VIS-3-VIS THE COMPARABLES WHICH AFFECT PRICES AND C ONSEQUENTLY PROFITS. WITH REGARD TO THIS OBJECTION, AS DISCUSSED ABOVE T HAT HOLDING OF INVENTORIES, TRADE DEBTOR/ CREDITORS, TRADE RECEIVA BLE/PAYABLE HAS ALWAYS AN INTEREST COST. THEREFORE THERE IS DEFINITELY A CONNECTION IN THE LEVEL OF WO RKING CAPITAL AND THE PRICE AT WHICH ONE IS WILLING TO OFFER ITS SERVICES/GOODS. HENCE, THIS GROUND OF REJECTING TAXPAYER'S CLAIM OF WORKING CAPITAL ADJUSTMENT BY T HE TPO IS NOT TENABLE. 7.2.3 TPO HAS ALSO REFERRED TO OECD GUIDELINES WHICH STA TE THAT ONLY REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE. IN. TH IS RESPECT, TPO HAS RAISED THE ISSUE OF UNRELIABLE DATA AND HAS POI NTED OUT THAT MONTHLY DATA OF COMPARABLES AS WELL AS SEGMENTAL DA TA IS NOT AVAILABLE FOR MAKING REASONABLY ACCURATE WORKING CAPITAL ADJU STMENT. MONTHLY DATA IN RESPECT OF COMPARABLES WOULD NOT BE AVAILAB LE. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 69 OF 112 THIS DRP IS OF THE VIEW, THAT THE AVERAGE OF OPENIN G AND CLOSING BALANCE OF THE INVENTORIES AND OF TRADE RECEIVABLE/ PAYABLE, TRADE DEBTORS/CREDITORS, FOR THE RELEVANT YEAR MAY BE ADO PTED WHICH MAY BROADLY GIVE THE REPRESENTATIVE LEVEL OF WORKING CA PITAL OVER THE YEAR. EVEN IF THERE IS SOME DIFFERENCE WITH RESPECT TO THE REPRESENTATIVE LEVEL, IT WILL NOT AFFECT THE COMPARABILITY AS THE SAME METHOD WILL BE APPLIED TO ALL CASES. SAME IS THE CASE WITH SEGMENT AL DATA. 7.2.4 HENCE, FROM THE ABOVE DISCUSSION THE TPO IS DIRECT ED TO GIVE WORKING CAPITAL ADJUSTMENT USING THE OECD METHODOLOG Y GIVEN AT IT IN ANNEX TO CHAPTER III AND APPLY SBI PRIME LENDING RA TE (AS ON 30 TH JUNE OF THE RELEVANT FINANCIAL YEAR) AS THE INTERES T RATE. IT HAS BEEN A GENERAL MATTER OF OBSERVATION BY THIS PANEL THAT IN MANY OF THE CASES THE TAXPAYERS DO NOT STRICTLY FOLLOW T HE GUIDELINES PROVIDED BY OECD FOR THE COMPUTATION OF WORKING CAPITAL ADJUS TMENT. FOR EXAMPLE IN SOME OF THE CASES IT HAS BEEN OBSERVED T HAT INSTEAD OF TAKING INTO ACCOUNT ONLY TRADE CREDITORS THE TAXPAY ERS ALSO TAKE INTO ACCOUNT CREDITS RECEIVED FROM VARIOUS GROUP CONCERN S OR LOANS ETC. SIMILARLY, CREDITORS ON ACCOUNT OF CAPITAL ITEMS AR E ALSO OBSERVED TO BE INCLUDED IRI MANY CASES. SINCE, THIS PRACTICE IS NO T IN ACCORDANCE WITH ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 70 OF 112 THE GUIDELINES, THE TPO AND THE TAXPAYER ARE DIRECT ED TO TAKE FOLLOWING INTO CONSIDERATION WHILE WORKING OUT THE WORKING CA PITAL ADJUSTMENT:- COMPUTE THE AVERAGE OF OPENING AND CLOSING BALANCES OF INVENTORIES, TRADE DEBTORS/RECEIVABLES, TRADE CREDI TORS/PAYABLES OF BOTH THE TESTED PARTY AND THE COMPARABLES, ON REVENUE AC COUNT ONLY WORK OUT THE NET WORKING CAPITAL RATIO (IN PERCENTA GE) AFTER DIVIDING THE NET WORKING CAPITAL BY OPERATING COST/ SALES OR SUCH DENOMINATOR (AS IS USED IN THE PLI) BOTH FOR THE TE STED PARTY AND THE COMPARABLES, DETERMINE THE DIFFERENCE BETWEEN THE TESTED PARTY'S RATIO WITH THAT OF EACH COMPARABLES. THEREAFTER MULTIPLY THE ABOVE DIFFERENCE BY INTERES T RATE I.E. SBI PRIME LENDING RATE AS ON 30 TH JUNE OF THE RELEVANT FINANCIAL YEAR. LASTLY, THESE ADJUSTMENTS ARE TO BE ADDED TO THE PR OFIT MARGIN OF COMPARABLE COMPANIES AS FINALLY DETERMINED IN ACCOR DANCE WITH THE DIRECTIONS OF THIS PANEL. 7.2.5 IN ALLOWING THE WORKING, CAPITAL ADJUSTMENT, THIS DRP CARRIES STRENGTH FROM THE FOLLOWING JUDICIAL DECISIONS. MENTOR GRAPHICS (109 ITD 101) SONY INDIA (288 ITR 52 (DELHI- ITAT) ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 71 OF 112 PHILIPS SOFTWARE (26 SOT 226) (BANGALORE- ITAT) 8. ISSUE III WHETHER AO/TPO IS RIGHT IN DENYING ANY ADJUSTMENT ON ACCOUNT OF RISK, WHILE WORKING OUT TH E AVERAGE MARGINS OF THE COMPARABLES. 8.2 HAVING GONE THROUGH THE TAXPAYER'S SUBMISSION IN T HIS REGARD AND HAVING CONSIDERED THE FACTS AND EVIDENCES ON RE CORDS AND CASE LAWS RELIED UPON BOTH BY THE TPO AND TAXPAYER IN TH IS REGARD, THIS DRP AGREES THAT FOR THE PURPOSE OF MEANINGFUL COMPARISO N, TRANSFER PRICING PROVISIONS DO PRESCRIBE THAT THE 'REASONABLE AND AC CURATE ADJUSTMENTS' BE MADE ONLY IF THEY ENHANCE COMPARABI LITY. BUT AT THE SAME TIME SUCH DATA MUST BE RELIABLE AND ROBUST AND THERE SHOULD BE NO SCOPE FOR MECHANICAL ADJUSTMENTS. AS REGARDS ADJUSTMENT SOUGHT, IT IS SEEN THAT NO CL AIM FOR WORKING CAPITAL HAS BEEN MADE BEFORE THE TPO AND THEREFORE NO SUCH CLAIM CAN BE ENTERTAINED NOW. WITH REGARD TO THE RISK ADJUSTM ENT, TPO HAS DISCUSSED IN DETAIL IN HIS ORDER AS TO WHY THIS ADJ USTMENT CANNOT BE CARRIED OUT. THE PANEL HAS CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE TAXPAYER. AS PER RULE 10B (2) AN D 10B (3) OF INCOME TAX RULES, 1962, INDIAN TRANSFER PRICING PRO VISIONS PRESCRIBE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 72 OF 112 ONLY FOR 'REASONABLE ACCURATE ADJUSTMENT AND FURTH ER ADJUSTMENT TO THE MARGINS OF COMPARABLES CAN BE MADE ONLY IF THEY ENHANCE COMPARABILITY. BUT AT THE SAME TIME THE DATA FOR TH E SAME MUST BE RELEVANT RELIABLE AND ROBUST. RISK ADJUSTMENT AS A GENERAL RULE CANNOT BE ALLOWED UNLESS IT IS CLEARLY SHOWN THAT THE COMP ARABLES HAD ACTUALLY UNDERTAKEN SUCH RISK AND HOW THE SAME MATERIALLY AF FECTED THEIR MARGINS THE REVISED OECD GUIDELINES OF 2010 HAS ALSO STATED IN PARA 3.54 AS UNDER:- ENSURING THE NEEDED LEVEL OF TRANSPARENCY OF COMPAR ABILITY ADJUSTMENTS MAY DEPEND UPON THE AVAILABILITY OF AN EXPLANATION OF ANY ADJUSTMENTS PERFORMED THE REASONS FOR THE ADJUSTMEN TS BEING CONSIDERED APPROPRIATE, HOW THEY WERE CALCULATED HO W THEY CHANGED THE RESULTS FOR EACH COMPARABLE AND HOW THE ADJUSTM ENT IMPROVES COMPARABILITY. ISSUES REGARDING DOCUMENTATION OF CO MPARABILITY ADJUSTMENTS ARE DISCUSSED IN CHAPTER V.' EVEN THE VARIOUS JUDICIAL DECISIONS ON THE ISSUE OF ADJUSTMENTS AND EVEN OECD GUIDELINES, IMPRESSES UPON TIME AND AGAIN THAT THE ADJUSTMENT SHOULD BE 'REASONABLE ACCURATE ADJUSTMEN T'. FROM THE ABOVE GUIDELINES, IT CAN BE SEEN THAT UNLE SS IT IS SHOWN THAT HOW THE RISK ADJUSTMENT WOULD CHANGE THE RESULT OF EACH COMPARABLE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 73 OF 112 AND HOW THE SAME WOULD IMPROVE THE COMPARABILITY AN D UNLESS ADEQUATE REASONS ARE GIVEN FOR SUCH ADJUSTMENTS, NO ADJUSTMENT CAN BE ALLOWED TO THE TAXPAYER. IN THE PRESENT CASE, EX CEPT POINTING OUT VARIOUS RISKS, THE TAXPAYER HAS NOT SHOWN WITH EVID ENCE AS TO WHETHER EACH OF THE RISK WAS ACTUALLY UNDERTAKEN OR NOT BY THE COMPARABLES AND IF SO, HOW THESE RISKS AFFECTED EACH OF THEM AN D WHETHER SUCH ADJUSTMENT WOULD IMPROVE THE COMPARABILITY. MECHANICAL ADJUSTMENT CANNOT BE MADE TO THE MARGINS OF THE COMPARABLES WITHOUT KNOWING WHICH RISKS WERE TAKEN BY THE ENTITY CONCERNED AND HOW ITS PROFITABILITY WAS AFFECTED. P ROBABILITY OF RISK AND CERTAINTY OF RISK ARE TWO DIFFERENT ASPECTS AND CAN NOT BE EQUATED FOR THE PURPOSE OF ADJUSTMENTS. THE SIGNIFICANT OF RISK DEPENDS ON ITS ECONOMIC SIGNIFICANCE, LIKELIHOOD OF ITS REALIZATIO N AND PREDICTABILITY. ALL THESE REQUIRES ROBUST AND RELIABLE DATA, BOTH FOR T HE TAXPAYER AND THE COMPARABLES IN THE ABSENCE OF WHICH RISK ADJUSTMENT S CANNOT BE CONSIDERED FOR ENHANCING COMPARABILITY. THUS THE OB JECTION IS REJECTED. IN THE VARIOUS JUDICIAL PRONOUNCEMENTS THE RISK ADJ USTMENT HAS NOT BEEN ALLOWED BY THE ITATS. SOME OF THESE DECISIONS ARE DISCUSSED BELOW: VEDARIS TECHNOLOGY 2010-TII-10-ITAT-DEL-TP: NO RIS K ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 74 OF 112 ADJUSTMENT TO BE ALLOWED EVEN ON AD HOC BASIS PARTI CULARLY WHEN THE SAME HAS NOT BEEN QUANTIFIED; MARUBENI INDIA PRIVATE LTD (2011-TII-36-ITAT-DEL-T P) IN WHICH IT WAS HELD THAT AS THE TAXPAYER FAILED TO BRING AN Y EVIDENCE ON RECORD TO SHOW THAT THERE WAS ANY DIFFERENCE IN RISK PROFI LES OF COMPARABLE COMPANIES AND SINCE THE TAXPAYER FAILED TO FILE THE DETAILS EXHIBITING RISK BORNE BY COMPARABLES, NO RISK ADJUSTMENT CAN B E GIVEN, EVEN ON AD HOC BASIS. ADP PRIVATE LIMITED (2011-TII-44-ITAT-HYD-TP) WHER EIN THE ITAT HELD THAT THERE IS NO THUMB RULE FOR ALLOWANCE OF RISK ADJUSTMENT SYMANTEC SOFTWARE SOLUTIONS PVT. LTD. (2011-TII-60 -ITAT- MUM-TP): THE ITAT HELD THAT; UNTIL AND UNLESS IT IS SHOWN THAT THE DIFFERENCE I N FUNCTION AND RISK RESULTS IN DEFLATION OR INFLATION OF FINANCIAL RESULTS OF THE COMPARABLES, IT IS NOT A GENERAL RULE TO GRANT IT A S A STANDARD ADJUSTMENT. THE TAXPAYER COULD NOT SHOW HOW SUCH DIFFERENCE IN RISK AND FUNCTIONS AFFECTED THE RESULTS OF THE COMPARABLES. ST MICRO ELECTRONICS (2011-TII-63-ITAT-DEL-TP): THE TAXPAYERS CLAIM THAT IT WAS A RISK FREE CAPTIVE SEN/ICE PROVI DER AND HENCE CANNOT BE COMPARED WITH COMPARABLES WHO WERE FULL ENTREPRE NEURS WAS NOT ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 75 OF 112 ACCEPTED BY THE ITAT. EXXON MOBIL COMPANY INDIA PVT. LTD. (2011-TII-68-IT AT-MUM- TP): THE ITAT HELD THAT SINCE WORKING CAPITAL ADJUS TMENT HAS BEEN GIVEN AND THE TAXPAYER HAS NOT WORKED OUT THE RISK ADJUSTMENT, NO ADJUSTMENT CAN BE GRANTED ON THIS ACCOUNT. THEREFORE, FOR THE REASONS MENTIONED ABOVE, THIS PA NEL DECLINES TO INTERFERE WITH THE ACTION OF TPO IN THIS REGARD. 9. THE TAXPAYER HAS ALSO SUBMITTED BEFORE THE PANEL T HAT, THERE WERE CERTAIN CALCULATION MISTAKES WHILE CALCULATING THE MARGINS. IN THIS REGARD THE TAXPAYER IS DIRECTED TO PROVIDE ALL THE BACKUP DETAILS WITH WORKING TO THE TPO SO THAT IT MAY ASCERTAIN AS TO W HERE TPO FAULTED IN THE CALCULATION AND FURTHER TPO IS DIRECTED TO CONS IDERED THE SAME WHILE WORKING OUT THE MARGINS OF THE TESTED PARTY A S WELL AS OF THE COMPARABLES, CORPORATE MATTER OBJECTION NO. 6 10.1 THIS GROUND OF OBJECTION IS REGARDING PROPOSED DIS ALLOWANCE OF RS.75,000/- ON ACCOUNT OF PROVISIONS FOR EXPENSES. 10.2 THE DRAFT ASSESSMENT ORDER SHOWS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE TAXP AYER HAS CLAIMED ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 76 OF 112 PRINTING & STATIONARY EXPENSES AT RS.5,60,854/-. TH E DETAILS OF THESE EXPENSES WERE CALLED FOR AND THE AO NOTED THAT THE TAXPAYER HAS CLAIMED EXPENSES OF RS.75,000/- AS ON 31.3.2010 AS PROVISION FOR EXPENSES. THE TAXPAYER WAS REQUIRED TO EXPLAIN AS T O HOW THE PROVISIONS ARE ALLOWABLE AS DEDUCTION. IN COMPLIANC E THERETO THE AR OF THE TAXPAYER STATED THAT IN THE ASSESSMENT YEAR THI S PROVISION HAS BEEN REVERSED AND THE AMOUNT HAS BEEN OFFERED FOR T AXATION. THE TAXPAYER ALSO FILED COPY OF ACCOUNT AND PERUSAL THE REOF REVEALED THAT THIS AMOUNT WAS REVERSED ON 9.4,2010. AFTER CONSIDE RING ALL THE FACTS OF THE CASE THE AO HELD THAT THE EXPENSES HAVE BEEN CLAIMED ON PROVISION BASIS AND THE TAXPAYER THEREBY REDUCED IN COME TO THE EXTENT OF RS,75,000/- IN AY 2010-11, HENCE AO PROPOSED TO DISALLOW RS.75,000/- AND ADDED IT TO THE TOTAL INCOME. 10.3 THE LD. AR OF THE TAXPAYER HAS SUBMITTED THAT THE PROVISION WAS MADE IN THE MONTH OF MARCH 2010. THE AO MISUNDE RSTOOD THE ACCOUNTING ENTRY FOR BOOKING OF EXPENSES ON ACCRUAL BASIS. ATTENTION IS DRAWN TO THE REPLY DATED 31.1.2014 ADDRESSED TO THE ASSESSING OFFICER WHERE IT HAS BEEN EXPLAINED THAT THE PROVISION WAS MADE IN RESPECT OF THE FOLLOWING INVOICES RELATING TO THE MONTH OF MAR CH 2010: CANON INDIA P. LIMITED RS.46,757/- SS STATIONERS RS.32,005/- ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 77 OF 112 REFERRING TO THE ACCOUNT OF PRINTING AND STATIONARY FOR APRIL 2010 (I.E. THE SUBSEQUENT PERIOD) IT IS BROUGHT OUT THAT THE P ROVISION WAS REVERSED ON 9.4.2010 AND ONLY NET AMOUNT REMAINED T O BE CLAIMED IN THE FINANCIAL YEAR 2010-11. IT IS THEREFORE, REQUES TED TO DELETE THE PROPOSED ADDITION. 10.4 THE PANEL HAS EXAMINED THE MATTER. FROM THE SUBMIS SIONS OF THE TAXPAYER IT IS EVIDENT THAT PROVISION OF RS.75, 000/- MADE ON 31.03.2010 IS WITH REFERENCE TO THE BILLS OF SS STA TIONERS AND CANON INDIA P. LIMITED. AS AGAINST THE TOTAL OF SUCH BILL S AT RS.78,762/-, THE TAXPAYER MADE A PROVISION OF RS.75,000/- ON ESTIMAT E BASIS. THUS, IT CANNOT BE SAID THE PROVISION SO MADE OF RS.75,000/- DURING FY 2009- 10 WAS EXCESSIVE OR UNSUPPORTED BY THE CORRESPONDIN G CLAIMS. THE AO HAS DISALLOWED THE CLAIM ONLY FOR THE REASON THAT I T WAS REVERSED ON 9.4.2010 WITHOUT REALIZING THAT BY DEBITING TOTAL S UM OF RS.78,762/- CORRESPONDING TO THESE INVOICES AND SIMULTANEOUSLY CREDITING RS.75,000/- ON ACCOUNT OF REVERSAL OF THE SAID PROV ISION, THE TAXPAYER HAS CLAIMED THE EXPENDITURE ON THIS ACCOUNT AS UNDE R: DURING FY 2009-10 RS.75,000/- DURING FY 2010-11 RS. 3,762/- ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 78 OF 112 UNDER THESE FACTS, IT IS EVIDENT THAT THERE IS NO F LAW IN THE CLAIM MADE BY THE TAXPAYER. THE AO IS DIRECTED TO DELETE THE A DDITION PROPOSED BY HIM ON THIS ACCOUNT. 10.5 THIS GROUND OF OBJECTION IS DISPOSED-OFF ACCOR DINGLY. OBJECTION NO. 7 11.1 THIS GROUND OF OBJECTION IS ABOUT DISALLOWANCE/ADD ITION OF INCOME FROM OTHER SOURCES. 11.2 THE DRAFT ASSESSMENT ORDER SHOWS THAT THE AO FOUND THAT THE TAXPAYER EARNED INCOME FROM FDR INTEREST AT RS. 29, 74,264/-. AS PER PROVISIONS OF LAW WHILE CALCULATING DEDUCTION U/S 1 0A OF THE ACT, THIS AMOUNT OF FDR INTEREST SHOULD SEPARATELY BE ADDED I N THE INCOME AS 'INCOME FROM OTHER SOURCES'. IN THE INSTANT CASE TH E TAXPAYER HAS CLAIMED DEDUCTION U/S 10A OF THE ACT FOR RS. 2,65,6 0,262/- AND WHILE DOING SO THIS AMOUNT OF INTEREST WAS NOT ADDED AS I NCOME FROM OTHER SOURCES. THE TAXPAYER WAS REQUIRED TO SHOW CAUSE AS TO WHY THIS INCOME BE NOT SEPARATELY ADDED AS INCOME FROM OTHER SOURCES. AFTER- CONSIDERING THE REPLY OF THE TAXPAYER, THE AO HELD THAT THE INCOME FROM INTEREST CANNOT BE TREATED AS INCOME DERIVED F ROM THE UNDERTAKING SO AS TO QUALIFY FOR DEDUCTION U/S 10A OF THE ACT. THE TAXPAYER HAS ALSO ADMITTED THAT WHILE CALCULATING T OTAL INCOME, THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 79 OF 112 INCOME FROM INTEREST HAS TO BE DISCLOSED SEPARATELY AS INCOME FROM OTHER SOURCES AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA. THUS THE AO HELD THAT THE TAXPAYER H AS AVAILED BENEFIT U/S 10A ON ENHANCED AMOUNT BY RS. 29,74,264/-. THIS INCOME IS SEPARATELY ADDED IN THE TOTAL INCOME AS INCOME FROM OTHER SOURCES. 11.3 THE LD. AR OF THE TAXPAYER HAS SUBMITTED THAT THE TAXPAYER HAS SHOWN INTEREST INCOME OF RS.29,74,264/- SEPARATELY IN THE PROFIT & LOSS ACCOUNT AND THE SAME HAS NOT BEEN CONSIDERED A S ELIGIBLE PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A AMOU NTING TO RS. 2,65,60,262/-. THIS FACT IS CLEAR FROM ANNEXURE -1 FILED ALONGWITH LETTER DATED 31.01.2010 (PB 149). THE AO : HAS, BY MISTAKE, INCLUDED THE INCOME OF RS.29,74,264 TWICE WHILE COMPUTING THE TO TAL INCOME (FIRSTLY, THE TAXPAYER HAS ITSELF OFFERED THE SAME AS TAXABLE IN ITS RETURN OF INCOME AND SECONDLY, THE AO HAS MADE THE ADDITION A GAIN). THE TAXPAYER NEVER CLAIMED BENEFIT OF EXEMPTION U/S 10A IN RESPECT OF THE SAID INTEREST INCOME. IT IS THEREFORE, SUBMITTED TH AT THE DISALLOWANCE MADE BY THE AO MAY BE DELETED. 11.4 THE PANEL HAS EXAMINED THE MATTER. THE ALLEGATION OF THE AO HAS BEEN THAT THE TAXPAYER HAS CLAIMED DEDUCTION U/ S 10A OF RS.2,65,60,262/- BUT WHILE DOING SO INTEREST OF RS. 29,74,264/- WAS ADDED THEREBY CLAIMING EXCESS DEDUCTION. THE PANEL HAS PERUSED THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 80 OF 112 TAXPAYER'S LETTER DATED 31.1:.2014 SUBMITTED TO THE AO WHERE RECONCILIATION OF TAXABLE INCOME BETWEEN STPI AND O THERS HAS BEEN MADE (PB 148-149). A PERUSAL OF THE RECONCILIATION SHOWS THAT INTEREST ON BANK DEPOSITS OF RS.29,74,264/- HAS BEEN CREDITE D UNDER THE COLUMN FOR OTHERS AND THE NO INCOME FROM BANK DEP OSIT IS TAKEN TO THE STPI UNIT. ACCORDINGLY, THE PANEL OBSERVES THAT THE TAXPAYER ITSELF HAS EXCLUDED THE SAID INTEREST FROM BANK DEPOSITS F OR COMPUTING ADMISSIBLE DEDUCTION U/S 10A OF THE ACT. IN THIS SC ENARIO, THE PANEL IS OF THE VIEW THAT THERE WAS NO VALID REASON WITH THE AO TO HOLD OTHERWISE. IT APPEARS THAT THE AO HAS NOT DULY APPR ECIATED TO THE CONTENTION OF THE TAXPAYER AND PASSED HIS VERDICT U NILATERALLY. THE PANEL THEREFORE, DIRECTS THE AO TO MAKE COMPUTATION OF TOTAL INCOME SEPARATELY FOR STPI UNIT AND 'OTHERS' WHEREIN INTER EST FROM BANK DEPOSITS SHOULD BE TAKEN UNDER THE COLUMN 'OTHERS'. IN THIS PROCESS, THE ADDITION ON THIS ACCOUNT SEPARATELY PROPOSED BY THE AO WILL BE DULY TAKEN CARE OF AND NO SEPARATE ADDITION COULD B E MADE. 11.5 THE GROUND OF OBJECTION IS DISPOSED OFF ACCORDINGL Y. OBJECTION NO. 8 12.1 THIS GROUND OF OBJECTION IS ABOUT PROPOSED ADDITIO N OF RS.24,01,433/- ON ACCOUNT OF DISALLOWANCE OF U/S 40 A(2)(B) OF THE ACT. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 81 OF 112 12.2 THE DRAFT ASSESSMENT SHOWS THAT THE AO HAS OBSERVE D AS UNDER: 'DURING THE YEAR UNDER REFERENCE TAXPAYER COMPANY H AS CHARGED RS.1,60,09,554/- ON ACCOUNT OF RENTAL EXPENSES FROM HTIPL HOLDING COMPANY. THE AO TAXPAYER COMPANY IS CHARGING MARKUP ON ALL THE SERVICES @ 12.5% BUT IN THIS TRANSACTION THE TAXPAY ER COMPANY DID NOT CHARGED ANY MARKUP; THEREFORE THE TAXPAYER WAS REQU IRED TO SHOW CAUSE AS TO WHY THE MARKUP AMOUNT ON OFFICE SPACE B E NOT ADDED IN THE INCOME AS INCOME FROM OTHER SOURCES , IN COMPLI ANCE THERETO THE TAXPAYER FILED ITS WRITTEN REPLY DETAILED BELOW: THE SAID AMOUNT OF RS. 1,60,09,554/- IS THE AMOUNT CHARGED WITHOUT ANY MARK-UP TOWARD OFFICE SPACE NOT BEING CURRENTLY USED BY HTIPL FROM M/S HALDOR TOPSOE A/S (WHICH IS A RELATED PART Y-BEING THE HOLDING COMPANY OF HTIPLS PARENT COMPANY), THE SAID SPACE H AD BEEN ACQUIRED BY HTIPLS FOR FUTURE EXPANSION. ACCORDINGL Y, THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AS T HE SAME IS PART AND PARCEL OF BUSINESS OPERATIONS OF HTIPL. I HAVE CONSIDERED ALL THE FACTS OF THE CASE, PLEA O F THE TAXPAYER AND OF THE VIEW THAT THE TAXPAYER COMPANY IS INCURRING EXP ENDITURE AT RS.5,81.07,010/- ON ACCOUNT OF RENT EXPENSE BUT CHA RGING FROM THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 82 OF 112 PARENT COMPANY AT RS.1,60,09,554/- NO BASIS FOR CHA RGING OF RENTAL EXPENSES HAS BEEN GIVEN. EVEN THE TAXPAYER COMPANY I S CHARGING MARK-UP ON OTHER SERVICES @ 12.5%. SINCE, THERE IS NO BASIS FOR CHARGING RENTAL EXPENSES AND THE EXPENSES INCURRED ON ACCOUNT OF RENT ARE CLEARLY COVERED BY THE PROVISION OF SECTION 40A (2)(B) OF THE ACT. AFTER CONSIDERING ALL THE FACTS OF THE CASE, NO BAS IS FOR CHARGING RENTAL EXPENSES, AND ALSO MARK-UP CHARGED BY THE TAXPAYER COMPANY. THE EXPENSES ON ACCOUNT OF RENT EXPENSES CLAIMED BY THE TAXPAYER TO THE EXTENT OF 15% OF RS. 24,01,433/- IS HEREBY DISALLOW ED U/S 40A(2)(B) OF THE ACT.' 12.3 THE LD. AR OF THE TAXPAYER HAS SUBMITTED THAT THE PROVISIONS OF SECTION OF 40A(2)(B) UNDER WHICH ADDITION HAS BE EN MADE BY AO ARE NOT APPLICABLE IN THE PRESENT CASE, AS NO PAYME NT IN RESPECT OF RENT HAS BEEN MADE BY THE TAXPAYER TO ANY RELATE D PERSON AS SPECIFIED U/S 40A(2)(B). MOREOVER, THE OBSERVATION OF THE AO THAT NO MARGIN HAS BEEN CHARGED ON THE SAID PAYMENT FROM TH E PARENT COMPANY IS ALSO IRRELEVANT. THIS ISSUE RELATES TO C ALCULATION OF MARGIN WHICH HAS ALREADY BEEN DEALT WITH IN TRANSFER PRICI NG ORDER BY THE TPO. 12.4 THE PANEL HAS EXAMINED THE MATTER. ON PERUSAL OF T HE DETAILS OF OFFICE RENT EXPENSES (PB 150) IT IS SEEN THAT THE T AXPAYER HAS TAKEN ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 83 OF 112 OFFICE PREMISES OF STPI FROM M/S BHL FOREX AND FINL EASE LIMITED WHEREAS OTHER AREA HAS BEEN TAKEN FROM MS NASEEMA L ONE, WASIM AHMED BHATT, VINAY NAGRATH AND NEERA VINAY NAGRATH. NONE OF THE PREMISES HAVE BEEN TAKEN ON RENT FROM THE RELATED P ARTY SPECIFIED U/S 40A(2)(B). IT IS FURTHER SEEN THAT TOTAL RENT PAID FOR STPI UNIT IS RS.4,20,97,547/- WHEREAS FOR THE OTHER AREA IT IS R S. 1,60,09,554/-. THUS, THE AO HAS APPARENTLY CONSIDERED THE RENT FOR OTHER AREA' AND COMPUTED THE DISALLOWANCE U/S 40A(2)(B) @15% OF THE SAID SUM OF RS. 1,60,09,554/-. PRIMA-FACIE WHEN RENT HAS NOT BE EN PAID TO A RELATED PARTY, THE PANEL FAILS TO UNDERSTAND AS TO HOW SUCH DISALLOWANCE CAN BE PROPOSED BY THE AO U/S 40A(2)(B ) OF THE ACT. NO SUCH MENTION HAS BEEN MADE ABOUT PAYMENT TO ANY REL ATED PARTY IN THE ANNUAL ACCOUNTS AS WELL. RATHER NO TRANSACTION ON ACCOUNT OF RENT HAS BEEN DISCLOSED IN THE RELATED PARTY TRANSACTION S. CONSIDERING THE FACTS IN TOTALITY, THE PANEL HOLDS THAT THE AO HAS PROPOSED THE SAID DISALLOWANCE WITHOUT DUE REASONING AND THEREFORE, H E IS DIRECTED TO DELETE THE PROPOSED ADDITION. SO FAR AS THE ISSUE, OF CHARGING OF MARGIN FROM THE PARENT COMPANY IS CONCERNED, THE AO HAS NOT BROUGHT OUT ANY SOUND LOGIC TO MAKE IT SUSTAINABLE. MOREOVE R, THIS ISSUE WAS WITHIN THE DOMAIN OF THE TPO WHO HAS DONE THE NEEDF UL INTO THE MATTER OF ADJUSTMENTS. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 84 OF 112 12.5 THE GROUND OF OBJECTION IS DISPOSED OFF ACCORDINGL Y. OBJECTION NO. 9 13.1 THE TAXPAYER HAS RAISED OBJECTIONS HOLDING THAT AO HAS ERRED IN PROPOSING TO INITIATE PENALTY PROCEEDINGS U/S 271 ( 1 )(C) OF THE ACT. 13.2 OBJECTION REGARDING LEVYING OF PENALTY UNDER SECTI ON 271(1)(C) OF THE ACT, FOR CONCEALMENT OF INCOME, IS CONSEQUEN TIAL IN NATURE. THE PENALTY HAS NOT BEEN LEVIED YET AND THEREFORE, THER E IS NO CAUSE OF ANY GRIEVANCE. 13.3 THE GROUND OF OBJECTION IS DISPOSED OFF ACCORDINGL Y. OBJECTION NO. 10 14.1 THIS GROUND RELATES TO THE CLAIM OF DEDUCTION U/S 10A @100% INSTEAD OF 90% CLAIMED BY THE TAXPAYER. 14.2 THE DRAFT ASSESSMENT ORDER SHOWS THAT THE AO HAS N OT MADE ANY CHANGE TO THE AMOUNT OF DEDUCTION CLAIMED U/S 1 0A. IN THE COMPUTATION OF TOTAL INCOME, THE TAXPAYER HAD CLAIM ED DEDUCTION U/S 10A ON STPI UNIT AS UNDER: NET INCOME OF STPI UNIT 2 90% OF PROPORTIONATE INCOME 2 DEDUCTION U/S 10A 2 ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 85 OF 112 THUS, AO HAS INDIRECTLY PROPOSED TO ALLOW DEDUCTION U/S 10A AT RS.2,65,60,262/-. 14.3 THE LD. AR OF THE TAXPAYER HAS SUBMITTED THAT THE TAXPAYER HAS IN ITS RETURN OF INCOME INADVERTENTLY CLAIMED 90% O F THE PROFITS RELATING TO STPI UNIT AS DEDUCTION U/S 10A INSTEAD OF 100% ALLOWABLE TO IT. THE AO ACCORDINGLY ALLOWED THE SAME AT 90%. BEFORE THE DRP, THE TAXPAYER BY WAY OF THIS OBJECTION HAS CLAIMED T HE DEDUCTION AT HIGHER AMOUNT BEING @ 100%. IT IS SUBMITTED THAT TH E TAXPAYER HAS MADE A LEGAL MISTAKE IN CLAIMING DEDUCTION @90% INS TEAD OF 100%. FOR THIS LEGAL CLAIM, THE TAXPAYER RELIED ON THE FO LLOWING CASES: CIT V. PRUTHVI BROKERS AND SHAREHOLDERS P. LTD [201 2] 349 ITR 336 (BOMBAY) CIT V. JAI PARABOLIC SPRINGS LTD. [2008] 306 ITR 42 (DELHI) 14.4.1 THE PANEL HAS CONSIDERED THE MATTER. FROM THE FACT S MENTIONED ABOVE IT IS CLEAR THAT THE TAXPAYER HAS C LAIMED DEDUCTION TO THE EXTENT OF 90% OF ADMISSIBLE DEDUCTION U/S 10A I N THE COMPUTATION OF TOTAL INCOME. NO ACTION HAS BEEN TAKEN BY THE TA XPAYER TO MAKE ANY AMENDMENT TO THE TOTAL INCOME BY FILING A REVISED C OMPUTATION OF INCOME WITHIN THE TIME PERMITTED U/S 139(4) OF THE ACT. EVEN NO CLAIM WAS MADE BEFORE THE AO DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. THE TAXPAYER HAS MADE THE CLAIM THAT I T IS ENTITLED FOR ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 86 OF 112 100% OF DEDUCTION U/S 10A FOR THE FIRST TIME BEFORE THIS PANEL. NEEDLESS TO REITERATE THAT THE SAID CLAIM HAS BEEN FILED BEYOND THE TIME TO FILE REVISED RETURN OF INCOME U/S 139(4), T HEREFORE, IS TO BE CONSIDERED AS THE BELATED CLAIM SUPREME COURT OF INDIA IN THE CASE OF GOETZE (INDIA ) LTD, 157 TAXMANN 1 WAS SEIZED OF A SIMILAR ISSUE. IN THAT CA SE AFTER THE RETURN WAS FILED, THE TAXPAYER SOUGHT TO CLAIM A DEDUCTION BY WAY OF A LETTER BEFORE THE AO. THE SAID CLAIM WAS BEYOND THE TIME P ERMITTED U/S 139(4) OF THE ACT. THE DEDUCTION WAS DISALLOWED BY THE AO ON THE GROUND THAT THERE WAS NO PROVISION UNDER THE ACT TO MAKE AN AMENDMENT IN THE RETURN OF INCOME BY MAKING APPLICA TION AT THE ASSESSMENT STAGE. THE CIT(A) ALLOWED THE TAXPAYER A PPEALS BUT TRIBUNAL ALLOWED THE DEPARTMENT'S APPEAL. IN SUPREM E COURT, THE TAXPAYER RELIED UPON THE JUDGMENT IN NATIONAL THERM AL POWER COMPANY LTD. 229 ITR 183 HON'BLE SUPREME COURT HELD AS UNDER: '4. THE DECISION IN QUESTION IS THAT THE POWER OF T HE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961, IS TO ENTE RTAIN FOR THE FIRST TIME A POINT OF LAW PROVIDED THE FACT ON THE BASIS OF WHICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DOES NOT IN ANY WAY RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVISED RE TURN. IN THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 87 OF 112 CIRCUMSTANCES OF THE CASE, WE DISMISS THE CIVIL APP EAL. HOWEVER, WE MAKE IT DEAR THAT THE ISSUE IN THIS CASE IS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POW ER OF THE INCOME- TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE INC OME TAX ACT, 1961. THERE SHALL BE NO ORDER AS TO COSTS.' THUS, THE SUPREME COURT IN THE ABOVE CASE HELD THAT AN AO COULD ENTERTAIN A CLAIM ONLY IF MADE IN THE RETURN/REVISE D RETURN OF INCOME AND NOT OTHERWISE. AS IN THE CASE OF THE TAXPAYER A LSO, THE FACTS ARE IDENTICAL TO THE REPORTED DECISION, THE AO CANNOT B E FAULTED. MOREOVER, THE PROCEEDINGS BEFORE THE PANEL ARE COVERED IN THE CHAPTER-XIV OF THE ACT TITLED 'PROCEDURE FOR ASSESSMENT AND THERE FORE, A NEW PLEA OF THE TAXPAYER CANNOT BE CONSIDERED BY THE PANEL. 14.4.2 SO FAR AS THE SUBMISSION OF THE TAXPAYER WITH REFE RENCE TO THE DECISIONS IN 349 ITR 336 AND 306 ITR 42 ARE CONCERN ED, THE PANEL IS OF THE VIEW*THAT THESE DECISIONS DO NOT RENDER ANY ASSISTANCE TO IT. THE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKER S AND SHARE P. LIMITED HELD THAT THE JURISDICTION OF APPELLATE AUT HORITY TO ENTERTAIN A FRESH CLAIM HAS NOT BEEN NEGATED BY THE SUPREME COU RT IN THE CASE GOETZE INDIA. FURTHER, THE SUPREME COURT HELD THAT THE ISSUE IN THE CASE WAS LIMITED TO THE POWER OF THE AO AND THAT TH E JUDGMENT DOES NOT NOR IMPINGE UPON THE POWER OF THE ITAT U/S 254 OF THE ACT. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 88 OF 112 LIIKEWISE, THE DELHI HIGH COURT IN THE CASE OF JAI PARABOLIC (SUPRA) HAS COMMENTED UPON THE POWERS OF THE APPELLATE AUTHORIT IES AS AGAINST THE ASSESSING OFFICER. AS MENTIONED ABOVE, THE PRES ENT PROCEEDINGS BEFORE THE PANEL ARE UNDER CHAPTER XIV OF THE ACT A ND THEREFORE, THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF GO ETZE (INDIA) (SUPRA) WOULD BE SQUARELY APPLICABLE. 14.4.3 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CAS E IN TOTALITY, THE CLAIM OF THE TAXPAYER CANNOT BE ACCEP TED BY THE PANEL. 14.5 THE GROUND OF OBJECTION IS DISPOSED OFF ACCORDINGL Y. 15. THE TAXPAYER HAS CITED IN ITS SUBMISSION VARIOUS J UDICIAL PRONOUNCEMENTS WHICH HAVE BEEN CONSIDERED BY THIS P ANEL. THESE ARE DISTINGUISHABLE FROM THE FACTUAL MATRIX IN THE CASE OF THE TAXPAYER. ACCORDINGLY, A DETAILED DESCRIPTION OF SUCH ANALYSI S IS NOT BEING MENTIONED IN THIS ORDER. (4) THE AO PASSED AFORESAID ASSESSMENT ORDER DATED 04.1 2.2014 MAKING ADDITION OF RS. 3,20,93,274 ON ACCOUNT OF TRANSFER PRICING A DJUSTMENTS. RELEVANT PORTION OF THE ASSESSMENT ORDER IS AS UNDER: ASSESSEE FILED RETURN OF INCOME DECLARING A INCOM E OF RS. 43,58,900/- ON 30.09.2009. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 30.08.2010. AGAIN NOTICE U/S 143(2) ALONG WITH QUES TIONNAIRE UNDER SECTION 142(1) WAS ISSUED ON 07.08.2012. IN RESPONSE TO NOTICES, SH. Y OGESH JAIN, C.A./AUTHORIZED REPRESENTATIVE APPEARED FROM TIME T O TIME AND FILED THE REQUISITE DETAILS WHICH WERE PLACED ON RECORD AND THE CASE WA S DISCUSSED. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 89 OF 112 ASSESSEE IS ENGAGED IN THE BUSINESS IN PROVIDING IT ENABLED ENGINEERING CONSULTING SERVICES. DURING THE COURSE OF HEARING AR HAS PRODU CED BOOKS OF ACCOUNT WHICH HAVE BEEN TEST CHECKED. 1. ADDITION ACCOUNT OF TRANSFER PRICING ADJUSTMENT A REFERENCE WAS MADE TO TPO -1(2), TO DETERMINE THE ARMS LENGTH PRICE; IN RESPECT OF INTERNATIONAL TRANSACTIONS) UNDERTAKEN BY THE ASSE SSEE BY THE ASSESSEE DURING THE F.Y. 2009-10. IN RESPONSE TO NOTICE U/S. 92CA, MR. AHISH GUPTA AND MR. PRASHUKA JAIN THE , THE AUTHORIZED REPRESENTATIVE OF ASSESSEE COMPANY A PPEARED. THE TRANSFER PRICING DOCUMENTATION CONTAINING FUNCTIONAL ECONOMIC ANALYS IS PRESCRIBED UNDER RULE 10D OF THE INCOME TAX RULES WAS SUBMITTED AND PLACED ON TH E RECORD. THE TPO VIDE ITS ORDER DATED 17.01.2014 PROPOSED AD JUSTMENT OF RS. 3,26,30,317/- BY HOLDING AS UNDER:- 6.1 ADJUSTMENT TO RISKS AFTER CAREFULLY CONSIDERING THE FACTS OF THE CASE A ND THE SUBMISSIONS OF THE TAXPAYER, I AM NOT INCLINED TO ACCEPT THE ASSESSEES CLAIM OF R ISK ADJUSTMENT. RISK ADJUSTMENT AS A GENERAL RULE CANNOT BE ALLOWED UNLESS IT IS CLEARLY SHOWN THAT THE COMPARABLES HAD ACTUALLY UNDERTAKEN SUCH RISK AND HOW THE SAME MATE RIALLY AFFECTED THEIR MARGINS. THE REVISED OECD GUIDELINES OF 2010 HAS ALSO STATED IN PARA 3.52 AS UNDER:- ' ENSURING THE NEED LEVEL OF TRANSPARENCY OF COMPAR ABILITY OF ADJUSTMENTS MAY DEPEND UPON THE AVAILABILITY OF AN EXPLANATION OF ANY ADJU STMENTS PERFORMED, THE REASONS FOR THE ADJUSTMENTS BEING CONSIDERED APPROPRIATE, HOW T HEY WERE CALCULATED, HOW THEY CHANGED THE RESULTS FOR EACH COMPARABLES AND HOW TH E ADJUSTMENT IMPROVES COMPARABILITY, ISSUE REGARDING DOCUMENTATION OF COM PARABILITY ADJUSTMENTS ARE DISCUSSED IN CHAPER V. FROM THE ABOVE GUIDELINES IT CAN BE SEEN THAT UNLES S IT IS SHOWN THAT HOW THE RISK ADJUSTMENT WOULD CHANGE THE RESULT OF EACH COMPARAB LE AND HOW THE SAME WOULD IMPROVE THE COMPARABILITY AND UNLESS ADEQUATE REASO NS ARE GIVEN FOR SUCH ADJUSTMENT, NO ADJUSTMENT CAN BE ALLOWED TO THE TAXPAYER. IN TH E PRESENT CASE, EXCEPT GIVING PROPORTION OF VARIOUS RISKS BORNE, THE TAXPAYER HAS NOT SHOWN WITH EVIDENCE AS TO WHETHER EACH OF THE RISK WAS ACTUALLY UNDERTAKEN OR NOT BY THE COMPARABLES AND IF SO, HOW THESE RISKS AFFECTED EACH OF THEM AND WHETHER S UCH ADJUSTMENT WOULD IMPROVE THE COMPARABILITY. MECHANICAL ADJUSTMENT CANNOT BE MADE TO THE MARGINS OF THE COMPARABLES WITHOUT KNOWING WHICH RISK WAS TAKEN BY THE ENTITY CONCERNE D AND HOT ITS PROFITABILITY WAS AFFECTED. PROFITABILITY OF RISK AND CERTAINTY OF RI SK ARE TWO DIFFERENT ASPECTS AND CANNOT BE EQUATED FOR THE PURPOSE OF ADJUSTMENT. IN MY VIE W ASSESSEE CANNOT BE COMPARED TO A RISK FREE SECURITY. EVEN OTHER METHODOLOGY, WHETH ER ADHOC ADJUSTMENT AS IN CASE OF SONY INDIA, CAPM OR SHARPE RATIO ( WHICH IS A MEASU RE OF EXCESS RETURN ON RISK UNDERTAKEN BY AN ENTITY INVESTING IN A PARTICULAR A SSET), AS APPLIED Y HYDERABAD ITAT IN THE CASE OF ADP PRIVATE LTD. ARE BASED ON RETURN OF CAPITAL WHICH IS NOT THE PLI ADOPTED BY THE ASSESSEE AND THE TPO. ALL THIS REQUIRES ROBU ST AND RELIABLE DATA, BOTH FOR THE ASSESSEE AND THE COMPARABLE IN THE ABSENCE OF WHICH RISK ADJUSTMENT CANNOT BE CONSIDERED FOR ENHANCING COMPARABILITY. THUS CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 90 OF 112 7. ASSESSEE MAY OBJECT ON THE COMPUTATION MARGIN OF THIS COMPARABLE COMPANY. IN THIS REGARD IT IS TO MENTION HERE THAT MARGIN HA S BEEN COMPUTED IN ACCORDANCE WITH THE PRINCIPLES GOVERNING THE TREATMENT OF AN ITEM A S OPERATING AND NON-OPERATING HAS BEEN FOLLOWED WHICH WAS ISSUED IN CBDT NOTIFICATION SO 2810(E) DATED. 19.09.2013, EXTRACT OF THE SAME IS PRODUCED BELOW:- (QUOTE) (J) OPERATING EXPENSE' MEANS THE COSTS INCURRED IN THE PREVIOUS YEAR BY THE ASSESSEE IN RELATION TO THE INTERNATIONAL TRANSACTI ON DURING THE COURSE OF ITS NORMAL OPERATIONS INCLUDING DEPRECIATION AND AMORTIZATION EXPENSES RELATING TO THE ASSETS USED BY THE ASSESSEE, BUT NOT INCLUDING THE FOLLOWING, N AMELY; (I) INTEREST EXPENSES; (II) PROVISIONS FOR UNASCERTAINED LIABILITIES; (III) PRE-OPERATING EXPENSES; (IV) LOSS ARISING ON ACCOUNT OF FOREIGN CURRENCY FLUCTU ATIONS; (V) EXTRAORDINARY EXPENSES; (VI) LOSS ON TRANSFER OF ASSETS OR INVESTMENTS; (VII) EXPENSES ON ACCOUNT OF INCOME TAX; AND (VIII) OTHER EXPENSES NOT RELATING TO NORMAL OPERATIONS O F THE ASSESSEE; (K) OPERATING REVENUE MEANS THE REVENUE EARNED BY THE ASSESSEE IN THE PREVIOUS YEAR IN RELATION TO THE INTERNATIONAL TRAN SACTION DURING THE COURSE OF ITS NORMAL OPERATIONS BUT NOT INCLUDING THE FOLLOWING, NAMELY: (I) INTEREST INCOME; (II) INCOME ARISING ON ACCOUNT OF FOREIGN CURRENCY FLUCT UATIONS; (III) INCOME ON TRANSFER OF ASSETS OR INVESTMENTS: (IV) REFUNDS RELATED TO INCOME- TAX; (V) PROVISIONS WRITTEN BACK; (VI) EXTRAORDINARY INCOMES; AND (VII) OTHER INCOMES NOT RELATING NORMAL OPERATING OF THE ASSESSEE; (UNQUOTE) PROVISIONS FOR DOUBTFUL DEBTS PROVISIONS FOR DOUBTFUL DEBTS WAS CONSIDERED PART O F OPERATING EXPENSES ONLY WHEN THE SAME EXPENSES ARE INCURRED EVERY YEAR FOR THE LAST THREE YEARS UPTO AND INCLUDING THE FY 2009-10 AND THESE EXPENSES ARE INCURRED AT ALMOS T CONSISTENT LEVEL IN TERMS OF ITS RATIO WITH THE TURNOVER. OTHERWISE, THE SAME IS EXC LUDED FROM OPERATING EXPENSES TREATING THE SAME EXPENSE AS EXTRAORDINARY OR RESTR ICTED TO THE EXTENT OF REASONABLE BASED ON THE THREE YEAR FIGURES. THUS PROVISION FOR DOUBTFUL DEBTS ARE ALLOWED PROVIDED A COMPANY FOLLOWS A CONSISTENT APPROACH TO MAKE PRO VISIONS EVERY YEAR. OTHERWISE, SUCH EXPENSES BECOMES EXTRA ORDINARY AND THUS IS EX CLUDED FROM OPERATING EXPENSES. 8. FOLLOWING THE DISCUSSIONS IN THE PRECEDING PARAS THE FINAL SET OF COMPARABLES GOING TO BE USED IN THE CASE OF ASSESSEE ARE LISTED BELOW:- SI. NO. NAME OP/OC ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 91 OF 112 1. MAHINDRA CONSULTING ENGINEERS LIMITED 23.50 2. TCE CONSULTING ENGINEERS LIMITED 25.88 3. ENGINEERS INDIA 67.77 4. MUKAND ENGINEERS LIMITED 12.87 5. PROJECT AND DEVELOPMENT INDIA LIMITED 23 09 6. UB ENGINEERING LIMITED 9.71 AVERAGE 26.33 9. COMPUTATION OF ARMS LENGTH PRICE: OPERATING COST 223,767,776 ARMS LENGTH PRICE AT A MARGIN OF26.33% 282,685,831 PRICE RECEIVED 250,055,515 105% OF INTERNATIONAL TRANSACTION 262,558,290 PROPOSED ADJUSTMENT U/S92CA 32,630,317 THUS THE ABOVE DIFFERENT OF RS. 3,26,30,317/- IS TR EATED AS TRANSFER PRICING ADJUSTMENT FOR THE FY 2009-10. NO ADVERSE INFERENCE IS DRAWN IN RESPECT OF THE OTH ER INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE FY 2009-10. T HE ASSESSEE WAS AFFORDED REASONABLE OPPORTUNITY OF BEING HEARD. THEREFORE, AN ADDITION OF RS. 3,26,30,317/- WAS MAD E TO THE INCOME OF THE ASSESSEE BEING DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE. DR AFT ORDER U/S. 143(3) RWS 144(C) OF THE I.T. ACT, 1%1 WAS PASSED ON 31.01.2014. PENALTY PROCEEDINGS U/S 271(L)(C) OF THE IT ACT, WERE ALSO INITIATED ON THIS POINT FOR FURNISHI NG INACCURATE PARTICULARS OF INCOME. IN RESPONSE, TO THE DRAFT ORDER THE ASSESSEE FILED AN APPEAL BEFORE THE DRP-I, NEW DELHI AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE AO . IN RESPONSE TO WHICH THE LD. DRP- I ISSUED DIRECTIONS ON 25.09.2014 U/S 144C (5) FOR AY 2010-11 WITH SOME SPECIFIC DIRECTIONS. HOWEVER, TILL DATE NO ORDER HAS BEEN PA SSED BY THE TPO. SINCE, THE FINAL ASSESSMENT ORDER IN THE CASE IS GETTING BARRED BY L IMITATION ON 30.11.2014, THEREFORE, FINAL ORDER IS HEREBY PASSED AND AN ADDITION OF RS. 3,26,30,317/- IS HEREBY MADE ON ACCOUNT OF DIFFERENCE OF ARM'S LENGTH PRICE SUBJECT TO RECTIFICATION ORDER IN ACCORDANCE WITH THE OUTCOME OF THE ORDER OF TRANSFER PRICING O FFICER. SINCE, I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME, THEREFORE, PENALTY PROCEEDINGS U/S 271(L)(C) IS INITIATED SEPARATELY. (ADDITION RS. 3,26,30,317/-) ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 92 OF 112 IN VIEW OF THE ABOVE DISCUSSION, THE TOTAL INCOME/L OSS OF THE ASSESSEE COMPANY IS COMPUTED AS UNDER: INCOME AS DECLARED BY THE ASSESSEE RS. 43,58,900/- ADDITIONS 1. ADDITION MADE BY TPO AS DISCUSSED ABOVE RS. 3,26,30,317/- TOTAL INCOME RS. 3,69,89,217/- ROUNDED OFF RS. 3,69,89,220/- ASSESSED AS ABOVE AT TOTAL INCOME OF RS. 3,69,89,22 0/-. ISSUE NECESSARY FORMS. CHARGE INTEREST U/S 234B AND 234D AS APPLICABLE UNDER INCO ME TAX ACT, 1961. PENALTY PROCEEDINGS U/S 271(L)(C) HAVE BEEN INITIATED SEPAR ATELY. (5) AGGRIEVED, THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID ASSESSMENT ORDER DATED 04.12.2014. DURING THE APPEL LATE PROCEEDINGS THE ASSESSEE FILED APPLICATION FOR ADMISSION OF ADDITIONAL GROUN D VIDE LETTER DATED 14.06.2018. THE ADDITIONAL GROUND IS AS UNDER: THE LEARNED DCIT (AFTER INCORPORATING LD. DRPS OR DER) HAS ERRED IN NOT GRANTING 100% OF THE ELIGIBLE PROFIT AS DEDUCTION U/S 10A(1A), AN D CONFINING THE DEDUCTION AT 90% ONLY. (5.1) DURING THE APPELLATE PROCEEDINGS THE ASSESSEE ALSO FILED PAPER BOOK CONTAINING THE FOLLOWING PARTICULARS: S.NO. PARTICULARS 1 COPY OF ORDER U/S 92CA DATED 17.01.2014 PASSED BY TPO FOR AY 2010-11 2 COPY OF DRAFT ASSESSMENT ORDER DATED 31.01.2014 P ASSED BY AO FOR AY 2010-11 3 COPY OF OBJECTIONS FILED BEFORE DRP (IN FORM 35A) FOR AY 2010-11 4 COPY OF SUBMISSIONS DATED 22.09.2014 FILED BEFORE DRP FOR AY 2010-11 5 COPY OF DIRECTIONS GIVEN BY HONBLE DRP-I U/S 144 C(5) DATED 25.09.2014 6 COPY OF LETTER NO. L/72 DATED 14.11.2014 FILED WITH TPO FOR GIVING APPEAL EFFECT TO DRPS ORDER 7 COPY OF ORDER DATED 26.11.2014 PASSED BY TPO GIVING APPEAL EFFECT TO DRP ORDER FOR AY 2010-11 ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 93 OF 112 8 COPY OF ORDER U/S 143(3) DATED 27.11.2014 READ WITH RECTIFICATION ORDER U/S 154 DATED 04.12.2014 PASSED BY AO FOR AY 2010-11 9 COPY OF LETTER NO. L/40 DATED 31.12.2013 FILED WI TH TPO 10 COPY OF AUDITED ACCOUNTS FOR THE YEAR ENDED 31.0 3.2010 11 COPY OF REPORT U/S 10A IN FORM 56F DATED 25.09.2 010 12 COPY OF COMPUTATION OF INCOME FOR FY 2009-10 (AY 2010-11) 13 COPY OF ORDER DATED 02.05.2017 PASSED BY HONBLE IT AT, NEW DELHI FOR AY 2009-10 IN THE CASE OF ASSESSEE 14 COPY OF RELEVANT EXTRACT OF LETTER L/161 DATED 28.0 8.2017 FILED WITH TPO FOR GIVING APPEAL EFFECT TO ITAT ORDER FOR AY 2009-10 IN THE C ASE OF ASSESSEE 15 COPY OF APPEAL EFFECT ORDER U/S'254 DATED 30.01.201 8 PASSED BY TPO FOR AY 2009-10 IN THE CASE OF ASSESSEE 16 COPY OF RELEVANT EXTRACT OF ANNUAL REPORT OF MAHIND RA CONSULTING ENGINEERS LTD. FOR FY 2009-10 AND PROFILE OF THE COMPANY DOWNLOADED FR OM THE WEBSITE 17 COPY OF RELEVANT EXTRACT OF ANNUAL REPORT OF ENG INEERS INDIA LTD. FOR FY 2009-10 18 COPY OF PRINTOUT OF THE PROFILE FROM THE WEBSITE OF PETRON ENGINEERING CONSTRUCTION LTD. 19 COPY OF RECTIFICATION APPLICATION DATED 17.07.20 18 FILED WITH TPO 20 COPY OF RAMPGREEN SOLUTIONS PVT. LTD. V C1T [2015] 60 TAXMANN.COM 355 (DELHI HIGH COURT) 21 COPY OF THYSSENKRUPP INDUSTRIES INDIA (P.) LTD. V. ADDL. CIT. [2013] 33 TAXMANN.COM 107 (MUMBAI - TRIB.) 22 COPY OF BECHTEL INDIA (P.) LTD. V. DCIT [2016] 6 6 TAXMANN.COM 6 (DELHI - TRIB.) 23 COPY OF AT & T COMMUNICATION SERVICES INDIA (P.) LT D. V. ACIT [2018] 91 TAXMANN.COM 58 (DELHI - TRIB.) 24 COPY OF CIT V. AGNITY INDIA TECHNOLOGIES (P.) LTD. [2013] 36 TAXMANN.COM 289 (DELHI HIGH COURT) 25 COPY OFPR. CIT V. NEW RIVER SOFTWARE SERVICES (P.) LTD. [2017] 85 TAXMANN.COM 302 (DELHI HIGH COURT) 26 COPY OF BLACKROCK SERVICES INDIA (P.) LTD. V. ACIT [2018] 93 TAXMANN.COM 251 (DELHI - TRIB.) 27 COPY OF KOB MEDICAL TEXTILES (P.) LTD. V. DCIT [201 7] 81 TAXMANN.COM 223 (CHENNAI - TRIB.) 28 COPY OF NOKIA INDIA (P.) LTD. V. DCIT [2018] 91 TAXMANN.COM 288 (DELHI - TRIB.) 29 COPY OF FINASTRA SOFTWARE SOLUTIONS (INDIA) (P.) LT D. V. ACIT [2018] 93 TAXMANN.COM 460 (BANGALORE - TRIB.) 30 COPY OF RELEVANT EXTRACT OF SONY INDIA (P.) LTD. V. DCIT [2008] 114 ITD 448 (DELHI TRIB.) 31 COPY OF SONY MOBILE COMMUNICATIONS INTERNATIONAL AB V. DDIT [2016] 69 TAXMANN.COM 404 (DELHI - TRIB.) 32 COPY OF ELI LILY & CO. (INDIA) LTD. V. ACIT [201 8] 98 TAXMANN.COM 380 (DELHI - TRIB.) ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 94 OF 112 (5.2) DURING THE APPELLATE PROCEEDINGS THE ASSESSEE ALSO FILED A SYNOPSIS IN SEVEN PAGES, RELEVANT PORTION OF WHICH IS REPRODUCED AS UNDER: BRIEF BACKGROUND HALDOR TOPSOE INDIA PVT. LTD. (ASSESSEE) IS A WHOLL Y OWNED SUBSIDIARY OF HALDOR TOPSOE INTERNATIONAL A/S, (HTIAS), WHICH IS A DENMA RK BASED COMPANY. THE PARENT COMPANY I.E., HTIAS IS A SUBSIDIARY OF HALDO R TOPSOE A/S, DENMARK (HTAS). ACCORDINGLY, HTAS IS THE ULTIMATE ACTIVE HOLDING CO MPANY OF ASSESSEE. THE SERVICES OF THE ASSESSEE ARE BEING CAPTIVELY CONSUM ED BY HTAS. THE ASSESSEE IS RENDERING SERVICES TO INDUSTRIES OPERATING IN (1) F ERTILIZER, (2) PETRO-CHEMICAL, AND (3) REFINERY AND OIL & GAS SECTOR. HENCE, THE ASSES SEE HAD SELECTED THOSE ENGINEERING COMPANIES WHICH WERE ALSO RENDERING SER VICES TO THE INDUSTRIES IN FERTILIZER, PETRO-CHEMICAL, REFINERY AND OIL & GAS SECTOR. DURING THE FY 2009-10 THE ASSESSEE GOT TRANSFER PRI CING STUDY DONE ACCORDING TO WHICH THE MARGIN OF COMPARABLE COMPANIES WAS 14.45% (REFER PAGE 2 OF PB). THE ACTUAL MARGIN OF THE ASSESSEE FOR FY 2009- 10 W AS 11.75%. THE LD. TPO HAS INITIALLY CALCULATED THE MARGIN OF THE COMPARABLE COMPANIES @ 26.33%. THE LD. DCIT (AFTER INCORPORATING THE HONB LE DRPS ORDER) AFTER GIVING RELIEF FOR WORKING CAPITAL ADJUSTMENT HAS COMPUTED THE MARGIN OF COMPARABLE COMPANIES @ 26.09% (REFER PAGE 87 OF PB). IT MAY BE NOTED THAT THIS IS 2 ND YEAR OF TRANSFER PRICING ASSESSMENT, IN THE PRECEDING YEAR I.E., AY 2009-10. AN ADDITION TO INC OME WAS MADE BY LD. TPO / AO. HOWEVER, AFTER THE HONBLE ITAT ORDER , THE SAME GO T REDUCED TO NIL. GROUND 1(A) THE LEARNED DCIT (AFTER INCORPORATING LD. DRPS ORD ER! HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 3.20.93.274 ON ACCOUNT OF ADJUSTMEN T IN VALUE OF INTERNATIONAL TRANSACTION, ON ACCOUNT OF FOLLOWING: (A) SELECTING 2 NEW COMPARABLE COMPANIES BRIEF FACTS THE LD. TPO HAS SELECTED FOLLOWING 2 AND ADDED THE SAME TO THE LIST OF FINAL COMPARABLE COMPANIES : M/S ENGINEERS INDIA LTD. (MARGIN - 67.77%) M/S MAHINDRA CONSULTING ENGINEERS LTD. (MARGIN - 23 .50%) THE DETAILED FACTUAL ARGUMENTS WERE SUBMITTED TO TH E HONBLE DRP (REFER PAGE 49 TO 55 OF PB). OUR SUBMISSIONS REGARDING THE COMPARABLE COMPANIES ARE AS FOLLOWS: REGARDING ENGINEERS INDIA LTD. [EIL]: OBSERVATIONS OF LD. TPO / HONBLE DRP ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 95 OF 112 THE LD. TPO HAS INCLUDED THIS COMPANY IN THE FINAL LIST OF COMPARABLES AND DISCUSSED ABOUT IT AT PARA 5 (7INTERNAL PAGE 11 TO 13 OF THE ORDER) (REFER PAGE 11 TO 13 OF THE PB). THE LD. DRP HAS DISCUSSED THIS ISSUE AT PAGE 16 OF ITS ORDER (REFER PAGE 71 OF THE PB). APPELLANTS SUBMISSION FIRST GROUND - GOVT ENTITY & RELATED PARTY TRANSACTIONS > 25% : THE FIRST GROUND FOR EXCLUSION IS THAT EIL IS RENDE RING SERVICES TO OTHER GOVERNMENT COMPANIES AND HAD EXECUTED MOST OF THE PROJECTS IN THE CONSULTING & ENGG. DIVISION WITH GOVT. ENTITIES AND THEREFORE, ITS REL ATED PARTY TRANSACTIONS ARE MORE THAN 25%. THE ASSESSEE IS RENDERING ENGINEERING SERVICES TO I NDUSTRIES OPERATING IN (1) FERTILIZER, (2) PETROCHEMICAL, AND (3) REFINERY AND OIL & GAS SECTOR. EIL IS A LARGE GOVT. COMPANY PRIMARILY RENDERING EN GINEERING SERVICES TO PUBLIC SECTOR COMPANIES. DIRECTORS REPORT OF EIL FOR F.Y. 2009-10 (REFER PAGE 180 TO 193 OF THE PB) GIVE DETAILS OF MAJOR JOBS DONE BY EIL DURING THE Y EAR. THE SAID REPORT (AT INTERNAL PAGES 15 TO 16) GIVES DETAILS OF MAJOR ACTIVITIES I N THE FIELDS OF ENGINEERING AND PROCESS DESIGN & DEVELOPMENT. DETAIL OF SUCH PROJECTS WAS ALSO SUBMITTED TO LD. DRP (REFER PAGE 54 TO 55 OF THE PB). A PERUSAL OF THE SAID DETAIL WILL SHOW THAT EIL IS RENDERING SERVICES PREDOMINANTLY TO GOVERNMENT COMPANIES AND, THEREFORE, RELATED PARTY TRANSACTIONS ARE OBVIOUSLY MUCH MORE THAN 25%. HONBLE MUMBAI ITAT IN THE CASE OF THYSSENKRUPP IND USTRIES INDIA (P.) LTD. V. ADDL. CIT. [2013] 33 TAXMANN.COM 107 (MUMBAI - TRIB .) AFFIRMED BY HONBLE BOMBAY HIGH COURT IN [2016] 68 TAXMANN.COM 248 (BOMBAY), HAS HE LD AS UNDER ON THE BASIS OF ANNUAL REPORT OF EIL (REFER PARA 12.8.2 AT PAGE 33 OF THE COMPILATION OF CA SES): THE SECOND REASON IS THAT ENGINEERS INDIA LIMITED EARNED INCOME FROM TURNKEY PROJECT BY SUCCESSFULLY COMPLETING THE PROJECT OF IOCL AND OTH ER PUBLIC SECTOR UNDERTAKINGS. IN THAT SENSE OF THE MATTER, THE RELATED PARTY TRANSACTIONS ARE MUCH MORE THAN THE FILTER OF 25%. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES. IT MAY BE MENTIONED THAT IN THE ABOVE CASE ALTHOUGH NO FINANCIAL DETAILS OF TRANSACTIONS WITH OTHER GOVERNMENT COMPANIES WERE A VAILABLE, THE HONBLE ITAT ON THE BASIS OF DIRECTORS REPORT ETC. CONCLUDED THAT TRANS ACTION WITH GOVERNMENT COMPANIES WAS MORE THAN 25% AND, HENCE, EIL WAS NOT A COMPARABLE COMPANY. THIS DECISION OF HONBLE MUMBAI ITAT HAS BEEN FOLLO WED BY HONBLE ITAT DELHI IN THE CASE OF BECHTEL INDIA (P.) LTD. V. DCIT [2016] 66 TAXMANN.C OM 6 (DELHI - TRIB.) (PARA 12.4 AT PAGE 43 & 44 OF THE COMPILATION OF CASES) AT & T COMMUNICATION SERVICES INDIA (P.) LTD. V. AC IT [2018] 91 TAXMANN.COM 58 (DELHI - TRIB.) (PARA 30 AT PAGE 56 & 57 OF THE COMPILATION OF CASES) HONDA TRADING CORP. (INDIA) (P.) LTD. V. DCIT [2014 ] 44 TAXMANN.COM 333 (DELHI - TRIB.) FURTHER, HONBLE ITAT DELHI IN THE CASE OF ELI LILY & CO. (INDIA) LTD. V. ACIT [2018] 98 TAXMANN.COM 380 (DELHI - TRIB.) (PARA 16 AT PAGE 128 OF THE COMPILATION OF ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 96 OF 112 CASES) FOLLOWING THYSSENKRUPP (SUPRA) HAS DISCUSSED THE CO MPARABLE - ENGINEERS INDIA LTD. AND HAS GIVEN THE VARIOUS REASONS FOR REJECTIO N OF EIL AS A COMPARABLE COMPANY. SECOND GROUND - SCALE & SIZE OF THE COMPANY : THE TOTAL TURNOVER OF EIL WAS 1984.10 CRORES, AS AGAINST THE APPELLANT TURNOVER O F 25 CRORES . THUS EILS TURNOVER IS 80 TIMES THE TURNOVER OF APPELLANT COMPANY. EVEN IF TU RNOVER OF CONSULTING AND ENGINEERING SEGMENT IS CONSIDERED, THE SAME IS 1055.33 CRORES, I.E. APPX 42 TIMES THE TURNOVER OF APPELLANT COMPANY (REFER PAGE 202 OF THE PB). THE APPELLANT DID NOT OWN ANY INTANGIBLES, HAS NOT INCURRED ANY EXPENDITURE OFN R & D ETC. IN SUPPORT OF THE PROPOSITION THAT COMPANY WITH VE RY HIGH TURNOVER SHOULD NOT BE CONSIDERED AS COMPARABLE, WE PLACE RELIANCE ON THE FOLLOWING CASES: CIT V. AGNITY INDIA TECHNOLOGIES (P.) LTD. [2013] 36 TAXMANN.COM 289 (DELHI HC) ( PARA 5 & 6 AT PAGE 59 & 60 OF THE COMPILATION OF CASES) PR. CIT V. NEW RIVER SOFTWARE SERVICES (P.) LTD. [ 2017] 85 TAXMANN.COM 302 (DELHI HC) (PARA 12 AT PAGE 63 OF THE COMPILATION OF CASES) SONY MOBILE COMMUNICATIONS INTERNATIONAL AB V. DDIT [2016] 69 TAXMANN.COM 404 (DELHI - TRIB.) (PARA 6.3 AT PAGE 120 OF THE COMPILATION OF CASES) UNITED HEALTH GROUP INFORMATION SERVICES (P.) LTD. V. DCIT [2018] 90 TAXMANN.COM 423 (DELHI - TRIB.) KEYSTROKE PRO INDIA (P.) LTD. V. ITO [2018] 93 TAX MANN.COM 189 (DELHI - TRIB.) ST-ERICSSON INDIA (P.) LTD. V. ADDL. CIT [2017] 79 TAXMANN.COM 207 (DELHI - TRIB.) IN ALL THESE CASES, IT HAS BEEN HELD THAT A GIANT C OMPANY IN TERMS OF RISK PROFILE, NATURE OF SERVICES, NUMBER OF EMPLOYEES, O WNERSHIP OF BRANDED PRODUCTS AND BRAND RELATED PROFITS, ETC., COULD NOT BE COMPARED WITH ASSESSEE WHICH WAS SIMPLY A CAPTIVE UNIT RENDERING SERVICES TO ITS AE ALONE W ITHOUT ACQUIRING ANY INTELLECTUAL PROPERTY. IN LIGHT OF THE ABOVE, IT IS SUBMITTED THAT EIL CAN NOT BE SELECTED AS A COMPARABLE COMPANY. THE LD. TPO HAS RELIED ON THE FOLLOWING MUMBAI ITAT DECISIONS IN SUPPORT OF THE PROPOSITION THAT HIGH TURNOVER IS NOT THE SO LE GROUND FOR EXCLUSION : CAPGEMINI INDIA (P.) LTD. V. ACIT SYANTEC SOFTWARE SOLUTIONS PVT. LTD. (2011-TII-60I TAT-MUM-TP) WILLS PROCESSING (ITA NO. 429 & 457/ MUMBAI/ 2012) WE WOULD LIKE TO SUBMIT THAT ALL THE 3 JUDGEMENTS W ERE DELIVERED IN 2013. THERE ARE SCORES OF DECISIONS DELIVERED IN LATER YEARS HO LDING THAT HIGH TURNOVER IS A VERY RELEVANT CONSIDERATION. FURTHER, AS AGAINST THE MUMBAI TRIBU NAL, WE ARE PLACING OUR RELIANCE ON JURISDICTIONAL DELHI HIGH COURT AND DELHI TRIBUNAL. THIRD GROUND - ABNORMAL MARGIN: THE AVERAGE MARGIN OF THE CONSULTING AND ENGINEERING INDUSTRY FOR FY 2009-10 IS 9.79% (TAKEN FROM THE PROWESS SOFTWARE), THE CONSULTING AND ENGINEERING DIVISION OF EIL HAS A MARGIN OF 67.77% WHICH IS CLEARLY AN EXTREMELY HIGH MARGIN COMPARED TO AVERAG E INDUSTRY MARGIN. IN LIGHT OF THE ABOVE, IT IS SUBMITTED THAT EIL CANNOT BE SELECTED AS A COMPARABLE COMPANY. FOURTH GROUND SEGMENTAL ACCOUNTS NOT AVAILABLE: WE WOULD LIKE TO SUBMIT THAT ONLY SEGMENTAL TURNOVER AND PROFIT OF T HE EIL IS AVAILABLE IN THE AUDITED ACCOUNTS. HOWEVER, NO SEGMENTAL BREAK UP OF EXPENSE S ARE AVAILABLE IN THE AUDITED ACCOUNTS AND FURTHER THERE IS SOME UNALLOCABLE EXPE NDITURE FOR WHICH NO JUSTIFICATION WAS PROVIDED BY LD. TPO WHILE CALCULATING THE MARGINS (REFER PAGE 216 OF THE PB). ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 97 OF 112 IT IS ALSO SUBMITTED THAT THE AUDITED ACCOUNTS DO N OT CONTAIN THE SEGMENTAL PROFIT & LOSS ACCOUNT AND BALANCE SHEET. THEREFORE, IT IS NOT POS SIBLE TO COMPUTE THE WORKING CAPITAL ADJUSTMENT IN CASE OF EIL. IT MAY ALSO BE NOTED THA T THE LD. TPO, WHILE GIVING EFFECT TO THE HONBLE DRPS ORDER HAS MADE THE WRONG CALCULATION OF WCA. HE HAS COMPUTED THE WCA ADJUSTMENT USING THE SEGMENTAL PROFITS BUT THE FIGU RES OF DEBTORS, CREDITORS AND INVENTORY WERE TAKEN FROM THE CONSOLIDATED BALANCE SHEET (REF ER PAGE 89 AND 194 OF THE PB). SINCE SEGMENTAL ACCOUNTS ARE NOT AVAILABLE, THEREFORE, EI L CANNOT BE TAKEN AS A SUITABLE COMPARABLE COMPANY. IN SUPPORT OF THIS PROPOSITION, RELIANCE IS PLACED ON THE FOLLOWING CASES: BLACKROCK SERVICES INDIA (P.) LTD. V. ACIT [2018] 9 3 TAXMANN.COM 251 (DELHI - TRIB.) (REFER PARA 28 AT PAGE 74 OF COMPILATION OF CASES) MESSE DUSSELDORF INDIA (P.) LTD. V. DCIT [2018] 90 TAXMANN.COM 159 (DELHI - TRIB.) IN VIEW OF THE ABOVE, IT IS HUMBLY PRAYED THAT EIL CANNOT BE TAKEN AS A COMPARABLE COMPANY AND, THEREFORE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. REGARDING MAHINDRA CONSULTING ENGINEERS LTD. [MAHI NDRA! ; OBSERVATIONS OF LD. TPO /HONBLEDRP THE LD. TPO HAS INCLUDED THIS COMPANY IN THE FINAL LIST OF COMPARABLES (REFER PAGE 18 OF PB). THE HONBLE DRP HAS DISCUSSED THIS COMPARABLE AT PAGE 1 7 OF ITS ORDER DATED 29.09.2014 (REFER PAGE 72 OF PB). THE HONBLE DRP HAS ADDED THIS COMPARABLE ON T HE BASIS OF THE ADDITION MADE BY THE TPO IN THE CURRENT YEAR AS WEL L AS THE IMMEDIATE PRECEDING YEAR. APPELLANTS SUBMISSION THIS ISSUE IS COVERED IN THE ASSESSEES OWN CASE BY HO NBLE IT AT ORDER FOR IMMEDIATELY PRECEDING YEAR FOR AY 2009-10 (REFER P AGE 147 OF THE PB). THE HONBLE ITAT HAS HELD THAT ALTHOUGH MAHINDRAS FUNC TIONS ARE SIMILAR TO THAT OF THE APPELLANT, HOWEVER DUE TO OUTSOURCING THE WORK BY MAHINDRAS HAS REMANDED BACK THIS COMPARABLE TO LD. TPO /AO TO CHECK THE OUTSOURCING EXPENSES AND EXCLUDE THE SAME FROM THE FINAL LIST OF COMP ARABLE COMPANIES, IF SUBSTANTIATED (REFER PAGE 148 OFPB) HOWEVER, THE LD. TPO WHILE GIVING EFFECT TO ITAT O RDER FOR AY 2009-10 HAS NOT EXAMINED THIS ISSUE OF OUTSOURCING OF EXPENSES AND INSTEAD HAS GIVEN ITS OBSERVATIONS AGAIN ONLY ON FUNCTIONAL SIMILARITY OF MAHINDRA, TH EREBY INCLUDED THE SAME IN THE FINAL LIST OF COMPARABLES (REFER PAGE 163 TO 164 OF THE PB). THE APPELLANT HAS NOT PREFERRED APPEAL AGAINST THE SAID APPEAL EFFECT ORDER DUE TO THE FAC T THAT THE MARGIN OF THE ASSESSEE COMES WITHIN THE RANGE OF 5% IN AY 2009-10. DURING AY 2010-11 ALSO, THE EXPENSES INCURRED BY T HE APPELLANT AND MAHINDRA ON PERSONNEL AND SUB-CONSULTANCY COSTS DURING FY 2009- 10 ARE GIVEN BELOW (REFER PAGE 115 AND 174 OF THE PB): ___________________________________________________ ______________________(IN LAKHS) ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 98 OF 112 PARTICULARS ________________________ HTIND (APPELLANT) _____ MAHINDRA TOTAL EMPLOYEE & SUB-CONSULTANCY COSTS 1000.44 452. 02 SUB CONSULTANCY COSTS 0.00 68.90 % OF SUB-CONSULTANCY COSTS 0% 15.24% FROM THE ABOVE, IT WILL BE SEEN THAT WHILE ASSESSEE IS RENDERING SERVICES BY EMPLOYING ITS OWN EMPLOYEES WHEREAS ROUGHLY 16% OF THE ACTIVITY C ARRIED OUT BY MAHINDRA HAS BEEN OUTSOURCED. THEREFORE, ITS BUSINESS MODEL IS DIFFER ENT FROM APPELLANT AND, HENCE, CANNOT BE SELECTED AS A COMPARABLE COMPANY. IN SUPPORT OF THE ABOVE PROPOSITION, RELIANCE IS PLACED ON HONBLE DELHI HIGH COURT JUDGEMENT IN THE CASE O F RAMPGREEN SOLUTIONS PVT. LTD. V CIT. [2015] 60 TAXMANN.COM 355 (AT PARA 38 - REFER PAGE 16 OF COMPILATION OF CASES) ON ACCOUNT OF DIFFERENT BUSINESS MODEL, NAMELY, MORE O F OUTSOURCING THAN IN-HOUSE SERVICES. WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED THAT MA HINDRA HAS BEEN SPECIFICALLY EXCLUDED BY THE HONBLE DELHI TRIBUNAL AS THE COMPA RABLE COMPANY IN VIEW OF HIGHLY TECHNICAL CAPABILITIES OF EXECUTING INFRASTRUCTURE DEVELOPMENT PROJECTS IN THE FOLLOWING CASES: ROLLS-ROYCE INDIA (P.) LTD. V. DCIT [2016] 69 TAXMA NN.COM 426 (DELHI - TRIB.) ALCATEL-LUCENT INDIA LTD. V. DCIT [2017] 88 TAXMANN .COM 157 (DELHI - TRIB.) GROUND 1(B) THE LEARNED DCIT (AFTER INCORPORATING LD. DRPS ORDE R) HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 3,20,93,274 ON ACCOUNT OF ADJUSTMENT IN VALUE OF INTERNATIONAL TRANSA CTION ON ACCOUNT OF FOLLOWING: (B) REJECTING 4 COMPARABLE COMPANIES SELECTED BY THE AS SESSEE BRIEF FACTS THE LD. TPO OF REJECTING FOLLOWING COMPARABLE COMPA NIES SELECTED BY THE APPELLANT: CENTRAL MINE PLANNING & DESIGN INSTITUTE LTD. (MARG IN - 4.63%) IOT DESIGN & ENGG. LTD. (MARGIN - 14.42%) SIMON INDIA LTD. (MARGIN - 15.28%) PETRON ENGINEERING CONSTRUCTION LTD. (MARGIN -11.41 %) THE FIRST THREE COMPARABLE COMPANIES ARE NOT PRESSE D. OUR SUBMISSIONS REGARDING REMAINING 1 COMPANY IS GIVEN BELOW: REGARDING PETRON ENGINEERING CONSTRUCTION LTD.: THE LD. TPO AT PARA 4.3.2 (AT INTERNAL PAGE 10 OF ITS ORDER) (REFER PAGE 10 OF THE PB). THE LD. TPO HAS REJECTED THIS COMPARABLE ON THE GRO UND THAT SOURCE OF REVENUE IS NO SIMILAR TO THAT OF ASSESSEE AND HENCE FUNCTIO NALLY DISSIMILAR. THE HONBLE DRP HAS NOT DISCUSSED THIS COMPARABLE IN ITS ORDER DATED 25.09. 2014. THIS ISSUE IS COVERED IN THE ASSESSEES OWN CASE BY HO NBLE ITAT ORDER FOR IMMEDIATELY PRECEDING YEAR FOR AY 2009-10 (REFER P AGE 151 OF THE PB). THE TPO, PURSUANT TO HONBLE TRIBUNALS DECISION WHILE GIVING APPEAL EFFECT TO THE ITAT ORDER HAS INCLUDED THE PETRON IN THE FINAL LIST OF COMPAR ABLES (REFER PAGE 166 OF THE PB). WE WOULD AGAIN LIKE TO SUBMIT THAT THE COMPANY IS NOT FUNCTIONALLY DISSIMILAR. AS ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 99 OF 112 CAN BE SEEN FROM THE PROFILE OF PETRON DOWNLOADED F ROM ITS WEBSITE (REFER PAGE 219 OF THE PB), IT IS WORKING IN THE SAME SECTOR AS THE APPELLANT N AMELY IN THE FIELD OF REFINERY, PETROCHEMICAL & FERTILIZER. IN VIEW OF THE ABOVE, IT IS HUMBLY PRAYED THAT PET RON ENGINEERING CONSTRUCTION LTD SHOULD BE SELECTED AS A SUITABLE COMPARABLE AND BE ADDED IN THE LIST OF FINAL COMPARABLES. GROUND 1(C) THE LEARNED DCIT (AFTER INCORPORATING LD. DRPS ORDE R) HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 3,20.93,274 ON ACCOUNT OF ADJUSTMENT IN VALUE OF INTERNATIONAL TRANSACTION, ON ACCOUNT OF FOLLOWING: (C) REJECTING ADJUSTMENT IN MARGIN DUE TO DIFFERENT RISK PROFILE OF COMPARABLE COMPANIES BRIEF FACTS APPELLANT VIDE LETTER NO. L/40 DATED 31.12.2013 SU BMITTED BEFORE LD. TPO THAT IT IS A CAPTIVE SERVICE PROVIDER TO ITS AE - HALDOR T OPSOE A/S. IT OPERATES IN A RISK-INSULATED ENVIRONMENT, SINCE IT OPERATES ON A COST-PLUS MODEL AND IS COMPENSATED FOR ALL THE COSTS BORNE BY IT. THE LEVELS OF RISK BORNE BY THIRD- PAR TY COMPARABLES (WHICH ARE ENTREPRENEURS) ARE MUCH MORE THAN THOSE OF HT1PL. IT WAS ALSO SUBM ITTED THAT DIFFERENCE IN RISK PROFILE OF THE APPELLANT AND COMPARABLE COMPANIES ARE ON ACCOU NT OF THE VARIOUS RISK INCLUDING MARKET RISK, SERVICE LIABILITY RISK, RESEARCH & DEV ELOPMENT RISK, CREDIT RISK, MANPOWER RISK, TECHNOLOGICAL OBSOLESCENCE RISK, ETC. ACCORDINGLY, AN ADJUSTMENT FOR DIFFERENCE IN RISK PROFILE (I.E. CAPTIVE SERVICE PROVIDER VS. ENTREPRENEUR) IS CALLED FOR (REFER PAGE 101 TO 102 OF THE PB). THE APPELLANT CLAIMED RISK ADJUSTMENT OF 5.25%. TH E ADJUSTMENT ON ACCOUNT OF A DIFFERENCE IN RISK PROFILE WAS COMPUTED BY SUBTRACT ING THE RISK-FREE BANK RATE FROM THE PRIME LENDING RATE. DURING THE PREVIOUS YEAR RELEVA NT TO ASSESSMENT YEAR 2010-11, SUCH DIFFERENCE WORKED OUT TO APPX. 5.25% (I.E. 11.75% L ESS 6.50%) [REFER PAGE 102 OF THE PB], THE APPELLANT HAS SUBMITTED THE BRIEF NOTE ON THE R ISK ADJUSTMENT TO THE LD. TPO (REFER PAGE 106 TO 108 OF THE PB). TPOS OBSERVATION THE LD. TPO HAS DISCUSSED THIS ISSUE IN PARA 6 (INT ERNAL PAGE 16 TO 17) OF ITS ORDER DATED 17.01.2014 (REFER PAGE 16 TO 17 OF THE PB). DRPS OBSERVATION THE LD. DRP HAS DISCUSSED THIS MATTER IN PARA 8 (IN TERNAL PAGE 19 TO 21) OF ITS ORDER DATED 29.09.2014 (REFER PAGE 74 TO 76 OF THE PB). THE HONBLE DRP HAS HELD THAT MECHANICAL ADJUSTMENT CANNOT BE MADE TO THE MARGINS OF THE COM PARABLES WITHOUT KNOWING WHICH RISKS WERE TAKEN BY THE ENTITY CONCERNED AND HOW IT S PROFITABILITY WAS EFFECTED. THE HONBLE DRP HAS HELD THAT IT WAS THE ONUS OF THE TAXPAYER T O SHOW WITH THE EVIDENCE AS TO WHETHER EACH OF THE RISK WAS ACTUALLY UNDERTAKEN OR NOT BY THE COMPARABLES AND IF SO HOW THESE RISKS EFFECTED EACH OF THAT AND WHERE SUCH ADJUSTME NT WOULD IMPROVE THE INCOMPARABILITY. APPELLANTS SUBMISSION THIS ISSUE IS COVERED IN THE ASSESSEES OWN CASE BY HON BLE ITAT ORDER ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 100 OF 112 FOR IMMEDIATELY PRECEDING YEAR FOR AY 2009-10. THE HON BLE DELHI TRIBUNAL HAS RESTORED THE MATTER TO THE FILE OF LD. TPO / AO TO COMP UTE THE RISK ADJUSTMENT (REFER PAGE 152 TO 154 OF THE PB). THE APPELLANT HAS MADE ITS SUBMISSIONS IN RELATION TO RISK ADJUSTMENT TO THE LD. TPO PURSUANT TO THE ITATS ORDER FOR AY 2009-10 (REFER PAGE 158 TO 160 OF THE PB). HOWEVER, THE LD. TPO HAS NOT ACCEPTED THE APPELLANT S SUBMISSION IN GIVING APPEAL EFFECT TO THE ITAT ORDER (REFER PAGE 164 TO 166 OF THE PB) THE LD. TPO HAS AGAIN PRODUCED THE SAME ARGUMENTS WHICH HAS BEEN MENTIONED IN THE LD. TPOS ORIGINAL ORDER DATED 17.01.2014 (REFER PAGE 16 TO 17 OF THE PB) AND FINALLY DENIED TH E RISK ADJUSTMENT TO THE APPELLANT DESPITE OF HAVING THE CLEAR DIRECTIONS F ROM THE HONBLE TRIBUNAL. WE WOULD FURTHER LIKE TO SUBMIT THAT THIS ONUS PLAC ED BY HONBLE DRP ON THE APPELLANT IS AN ONUS WHICH PLACES AN IMPOSSIBILITY ON THE SHOULDERS OF THE APPELLANT IN AS MUCH AS THE APPELLANT HAS NO MEANS TO ASCERTAIN LIK E RISKS ACTUALLY UNDERTAKEN BY THE VARIOUS COMPARABLES. IT IS SUBMITTED THAT THE DRP T HUS ERRED IN LAW IN PLACING THE ONUS ON THE APPELLANT IN VIEW OF THE CELEBRATED MAXIM LEX NON LEGIT IMPOSSIBILIA . THEREFORE, IT IS NOT PRACTICALLY POSSIBLE TO CALCULATE THE ADJUST MENT ON ACCOUNT OF EACH RISK FACTOR FOR EVERY COMPARABLE COMPANY. IN THIS CONNECTION, WE WOULD LIKE TO SUBMIT THAT T HERE ARE SCORES OF JUDGEMENTS ON THIS ISSUE. HOWEVER, WE PLACE RELIANCE ON THE FOLLO WING LATEST DECISIONS WHEREIN THE RISK ADJUSTMENT HAS BEEN GRANTED IN CASE OF CAPTIVE SERV ICE PROVIDER: NOKIA INDIA (P.) LTD. V. DCIT [2018] 91 TAXMANN.CO M 288 (DELHI - TRIB.) (REFER PARA 7.4 AT PAGE 91 OF COMPILATION OF CASES) DCIT V. APPLIED MICRO CIRCUITS INDIA (P.) LTD. [20 17] 88 TAXMANN.COM 276 (PUNE - TRIB.) CAPCO IT SERVICES INDIA (P.) LTD. V. ITO [2017] 79 TAXMANN.COM 214 (BANGALORE - TRIB.) STARENT NETWORKS (INDIA) (P.) LTD. V. ACIT [2018] 90 TAXMANN.COM 367 (PUNE - TRIB.) MSC SOFTWARE CORPORATION INDIA (P.) LTD. V. ACIT [ 2017] 80 TAXMANN.COM 55 (PUNE - TRIB.) FURTHER RELIANCE IS PLACED ON THE FOLLOWING LATEST JUDICIAL DECISIONS OF VARIOUS TRIBUNALS WHERE AN ADHOC RISK ADJUSTMENT HAS BEEN G RANTED: SONY INDIA (P.) LTD. V. DCIT [2008] 114 ITD 448 (D ELHI-TRIB) : 20% ADHOC ADJUSTMENT OF PROFIT I.E., APPX. 2% -3% (REFER PARA 132 AT PAGE 113 OF COMPILATION OF CASES) KOB MEDICAL TEXTILES (P.) LTD. V. DCIT [2017] 81 TA XMANN.COM 223 (CHENNAI - TRIB.) : 2% ADHOC ADJUSTMENT (REFER PARA 6 AT PAGE 81 OF COMPILATION OF CASES) FINASTRA SOFTWARE SOLUTIONS (INDIA) (P.) LTD. V. A CIT [2018] 93 TAXMANN.COM 460 (BANGALORE - TRIB.) - 1 % ADOC (REFER PARA 40 AT PAGE 104 OF COMPILATION OF CASES) THE LD. TPO HAS RELIED ON THE FOLLOWING CASES IN S UPPORT OF NON-ALLOWANCE OF RISK ADJUSTMENT: ADP PRIVATE LIMITED (200-TII-44-ITAT-HYD TP) ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 101 OF 112 SYMANTEC SOFTWARE SOLUTIONS PVT. LTD. (201 L-TII-6 0-ITAT-MUM TP) ST MICRO ELECTRONICS (201 L-TII-60-ITAT-DEL TP) VEDARIS TECHNOLOGY (2010-TII-10-ITAT-DEL TP) WE WOULD LIKE TO SUBMIT THAT ALL THESE JUDGEMENTS WERE DELIVERED IN YEAR 2011. THERE ARE LOT OF JUDGEMENTS AS MENTIONED ABOVE WHIC H HAVE BEEN DELIVERED AFTER THESE DECISIONS OF THE TRIBUNAL WHEREIN THE RISK ADJUSTME NT HAS BEEN GRANTED IN CASE OF CAPTIVE SERVICE PROVIDERS. WE SUBMIT THAT LATER DECISIONS O F THE TRIBUNALS SHOULD BE FOLLOWED AS AGAINST THE OLDER DECISIONS. IN ANY CASE, THIS ISSU E IS DIRECTLY COVERED BY ASSESSEES OWN CASE IN AY 2009-10. THEREFORE, FOLLOWING THE WELL S ETTLED PRINCIPLE OF CONSISTENCY, THE RISK ADJUSTMENT SHOULD BE GRANTED TO THE APPELLANT . (6) AT THE TIME OF HEARING BEFORE US, LD. COUNSEL FOR A SSESSEE REITERATED THE SUBMISSIONS MADE IN THE AFORESAID SYNOPSIS IN SUPPO RT OF THE ORIGINAL GROUNDS OF APPEAL. IN RESPECT OF THE ADDITIONAL GROUND OF APPE AL THE LD. COUNSEL FOR ASSESSEE RELIED ON AFORESAID LETTER DATED 14.06.2018, RELEVA NT PORTION OF WHICH IS REPRODUCED AS UNDER: 1. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS : THE APPELLANT FILED ITS RETURN OF INCOME ON 30.09.2 010 DECLARING TOTAL INCOME OF RS. 43,58,900. IN THE SAID RETURN OF INCOME, THE APPELL ANT HAS CLAIMED DEDUCTION U/S 10A AS FOLLOWS: - NET INCOME OF STPI UNIT :RS. 2,95,11,402 - 90% OF PROPORTIONATE INCOME ON EXPORT TURNOVER :RS . 2,65,60,262 - DEDUCTION U/S 10A :RS. 2,65,60,262 THE REPORT OBTAINED U/S 10A IN FORM 56F DATED 25.09 .2010 AND ITS DETAILED CALCULATION WAS FILED WITH THE LD. AO AT THE TIME O F ASSESSMENT PROCEEDINGS. THE LD. AO HAD PASSED THE DRAFT ASSESSMENT ORDER DATED 31.01.2 010 ALLOWING THE BENEFIT OF SECTION 10A AND ALLOWED THE CLAIM OF THE APPELLANT OF RS. 2 ,65,60,262 (BEING 90% OF THE AMOUNT OF THE INCOME). THE ASSESSEE WHILE FILING ITS OBJECTIONS WITH HONB LE DISPUTE RESOLUTION PANEL [DRP] REALIZED THAT WHILE COMPUTING TOTAL INCOME, THE SAID DEDUCTION U/S 10A WAS INADVERTENTLY CLAIMED AT 90% OF THE ELIGIBLE PROFIT OF THE UNDERTAKING (I.E. 90% OF RS. 2,95,11,402) INSTEAD OF 100% OF THE ELIGIBLE PROFIT AS CONTEMPLATED IN SECTION 10A OF THE INCOME-TAX ACT. THE RELEVANT PROVISION OF SECTION 10A IS REPRODUCED BELOW FOR READY REFERENCE: 10A(1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB- SECTION (1), THE DEDUCTION, IN COMPUTING THE TOTAL INCOME OF AN UNDERTAKING, WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO ANY ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 102 OF 112 ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003, IN ANY SPECIAL ECONOMIC ZONE, SHALL BE (I) HUNDRED PER CENT OF PROFITS AND GAINS DERIVED F ROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR C OMPUTER SOFTWARE, AS THE CASE MAY BE, AND THEREAFTER, FIFTY PER CENT OF SUCH PROFITS AND GAIN S FOR FURTHER TWO CONSECUTIVE ASSESSMENT YEARS, AND THEREAFTER; THE ASSESSEE RAISED AN OBJECTION BEFORE THE HONBLE DR P-1 AS FOLLOWS THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT GRANTING 100% OF THE ELIGIBLE PROFIT AS DEDUCTION U/S 10A(1A), AND CONFIRMING THE DEDUCTION AT 90%, WHICH WAS SO CLAIMED BY THE COMPANY INADVERTENTLY. THE HONBLE DRP-1 HAS DISCUSSED THIS OBJECTION AT PARA 14.4. LTO 14.4.2 OF ITS ORDER DATED 25.09.2014. THE HONBLE DRP HAS REJECTED THE CLAIM OF THE APPELLANT IN LIGHT OF THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. 157 T AXMANN 1 AND STATED THAT ... THE TAX PAYER HAS MADE THE CLAIM THAT IS ENTITLED F OR 100% DEDUCTION U/S 10A FOR THE FIRST TIME BEFORE THIS PANEL .. AND ....THE PROCEEDINGS BEFORE THE PANEL ARE COVERED IN THE CHAPTER X-IV OF THE ACT TITLED 'PROC EDURE FOR ASSESSMENT AND THEREFORE, A NEW PLEA OF THE TAX PAYER CANNOT BE CONSIDERED BY THE PANEL.... THEREAFTER, THE LD. AO PASSED THE FINAL ASSESSMENT ORDER DATED 24.12.2014 ALLOWING DEDUCTION OF THE 90% OF THE ELIGIBLE PROFITS (ON TH E BASIS OF THE DRAFT ASSESSMENT ORDER). THE APPELLANT FILED APPEAL BEFORE HONBLE DELHI TRI BUNAL AGAINST THE SAID ASSESSMENT ORDER. HOWEVER, THE APPELLANT INADVERTENTLY / ERRON EOUSLY HAS NOT CHALLENGED THIS LEGAL GROUND WHILE FILING SUCH APPEAL. 2. UNDER THE CIRCUMSTANCES, THE ASSESSEE COMPANY RA ISES THE FOLLOWING ADDITIONAL GROUND: THE LEARNED DCIT (AFTER INCORPORATING LD. DRP S O RDER) HAS ERRED IN NOT GRANTING 100% OF THE ELIGIBLE PROFIT AS DEDUCTION U/S 10A(1A ), AND CONFINING THE DEDUCTION AT 90% ONLY. 3. IT IS RESPECTFULLY SUBMITTED THAT THE AFORESAID ADDITIONAL GROUND RAISES A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ALREADY ON REC ORD OF ASSESSMENT PROCEEDINGS. THEREFORE, THE APPELLANT MAY BE ALLOWED TO RAISE TH E AFORESAID ADDITIONAL GROUND OF THE APPEAL WHICH MAY KINDLY BE ENTERTAINED IN THE INTER EST OF JUSTICE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF IN DIA LTD. V. CIT, 187 ITR 688 (SC) AND ALSO IN THE CASE OF NATIONAL THERMAL POWER CORPORAT ION V. CIT, 229 ITR 383 (SC). (6.1) THE LD. CIT(DR) DID NOT OBJECT TO ADMISSION OF THE ADDITIONAL GROUND OF APPEAL IN VIEW OF THE ASSESSEES CONTENTION THAT RELEVANT FACTS FOR ADJUDICATION OF THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 103 OF 112 ADDITIONAL GROUND OF APPEAL ARE ALREADY ON RECORD O F ASSESSMENT PROCEEDINGS. THEREFORE, THE ADDITIONAL GROUND OF APPEAL IS ADMIT TED. (7) IN GROUND 1(A) OF APPEAL, THE ASSESSEE HAS OBJECTE D TO SELECTION OF TWO NEW COMPARABLES, NAMELY: ENGINEERS INDIA LTD. (EIL FOR SHORT) AND MAHINDRA CONSULTING ENGINEERS LTD. (MAHINDRA FOR SHORT). (7.1) AS FAR AS THE COMPARABLE OF EIL IS CONCERNED, THE L D. COUNSEL FOR ASSESSEE CONTENDED THAT THIS WAS A GOVERNMENT ENTITY AND REL ATED PARTY TRANSACTIONS EXCEEDED 25%. HE SUBMITTED THAT MUMBAI BENCH OF ITA T, IN THE CASE OF THYSSENKRUPP INDUSTRIES INDIA (P.) LTD. VS. ADDL. C IT. [2013] 33 TAXMANN.COM 107 (MUMBAI TRIB.) AFFIRMED BY HONBLE BOMBAY HIGH COURT IN [2016] 68 TAXMANN.COM 248 (BOMBAY), HAS HELD : THE SECOND REASON IS THAT ENGINEERS INDIA LIMITED EARNED INCOME FROM TURKEY PROJECT BY SUCCESSFULLY COMPLETING THE PROJECT OF IOCL AND OTHER PUBLIC SECTOR UNDERTAKINGS. IN THAT SENSE OF THE MATTER, THE RELATED PARTY TRANSACTIONS ARE MUCH MORE THAN THE FILTER OF 25%. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES. THE LD. COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT THIS DECISION OF MUMBAI BENCH OF ITAT HAS BEEN FOLLOWED BY CO-ORDINATE BENCHES OF ITAT, DELHI IN THE CASES OF BECHTEL INDIA (P.) LTD VS. DCIT [2016] 66 TAXMANN.COM 6 (DELHI-TRIB.) , AT & T COMMUNICATION SEVICES INDIA (P.) LTD. VS. ACIT [2018] 91 TAXMANN.COM 58 (DELHI-TRIB.) AND HONDA TRADING CORP. (INDIA) (P.) LTD. VS. DCIT [2014] 44 TAXMANN.COM 33 3 (DELHI-TRIB.) . THE LD. ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 104 OF 112 COUNSEL ALSO RELIED ON THE DECISION OF CO-ORDINATE BENCHES OF ITAT, DELHI IN THE CASE OF ELI LILY & CO. (INDIA) LTD. VS. ACIT [2018] 98 TAXM ANN.COM 380 (DELHI- TRIB.) GIVING THE VARIOUS REASONS FOR REJECTION OF EIL AS A COMPARABLE COMPANY. MOREOVER, THE LD. COUNSEL FOR ASSESSEE SUBMITTED TH AT THE SCALE AND SIZE OF EIL WAS NOT COMPARABLE WITH THE SCALE AND SIZE OF THE ASSES SEE. HE SUBMITTED THAT THE TOTAL TURNOVER OF EIL WAS 1984.10 CRORES, AS AGAINST THE A PPELLANT TURNOVER OF 25 CRORES (I.E. EILS TURNOVER IS 80 TIMES THE TURNOVER OF APP ELLANT COMPANY) AND FURTHER THAT EVEN, IF TURNOVER OF CONSULTING AND ENGINEERING SEG MENT IS CONSIDERED, THE SAME IS 1055.33 CRORES, I.E. APPX 42 TIMES THE TURNOVER OF APPELLANT COMPANY. THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT THE ASSESSEE DI D NOT OWN ANY INTANGIBLES, AND HAS NOT INCURRED ANY EXPENDITURE ON R&D ETC. HE REL IED ON CIT VS. AGNITY INDIA TECHNOLOGIES (P.) LTD. [2013] 36 TAXMANN.COM 289 (D ELHI HC), PR. CIT VS. NEW RIVER SOFTWARE SERVICES (P.) LTD. [2017] 85 TAX MANN.COM 302 (DELHI HC), SONY MOBILE COMMUNICATIONS INTERNATIONAL AB VS . DDIT [2016] 69 TAXMANN.COM 404 (DELHI-TRIB.), UNITED HEALTH GROUP INFORMATION SERVICES (P.) LTD. VS. DCIT [2018] 90 TAXMANN.COM 423 (DELHI -TRIB.), KEYSTROKE PRO INDIA (P.) LTD. VS. ITO [2018] 93 TAXMANN.COM 189 ( DELHI-TRIB.) AND ST- ERICSSON INDIA (P.) LTD. VS. ADDL. CIT [2017] 79 TA XMANN.COM 207 (DELHI- TRIB.) FOR THE PROPOSITION THAT COMPANY WITH VERY HIGH TU RNOVER SHOULD NOT BE CONSIDERED AS A COMPARABLE. HE FURTHER SUBMITTED TH AT A GIANT COMPANY IN TERMS OF RISK PROFILE, NATURE OF SERVICES, NUMBER OF EMPLOYE ES, OWNERSHIP OF BRANDED PRODUCTS ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 105 OF 112 AND BRAND RELATED PROFITS, ETC., COULD NOT BE COMPA RED WITH ASSESSEE WHICH WAS SIMPLY A CAPTIVE UNIT RENDERING SERVICES TO ITS AE A LONE WITHOUT ACQUIRING ANY INTELLECTUAL PROPERTY. THE LD. COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT EIL HAD AN ABNORMALLY HIGH MARGIN AT 67.77% WHICH WAS EXTREMEL Y HIGH COMPARED TO AVERAGE MARGIN OF CONSULTING & ENGINEERING INDUSTRY, WHICH W AS 9.79% AND HE CONTENDED THAT EIL CANNOT BE SELECTED AS A COMPARABLE IN VIEW OF THE ABNORMALLY HIGH PROFIT MARGINS. THE LD. COUNSEL FOR ASSESSEE ALSO SUBMITTE D THAT THE AUDITED ACCOUNTS OF EIL DO NOT CONTAIN SEGMENTAL PROFIT AND LOSS ACCOUNT AND BALANCE SHEET DUE TO WHICH IT WAS NOT POSSIBLE TO COMPUTE THE WORKING CAPITAL ADJUSTMENT IN THE CASE OF EIL. RELYING ON BLACKROCK SERVICES INDIA (P.) LTD. VS. ACIT [2018] 93 TAXMANN.COM 251 (DELHI-TRIB.) AND MESSE DUSSELDORF INDIA (P.) LTD. VS. DCIT [2018] 90 TAXMANN.COM 159 (DELHI-TRIB.) , THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT EIL CANNOT BE TAKEN AS A SUITABLE COM PARABLE COMPANY IN THE ABSENCE OF ITS SEGMENTAL ACCOUNTS. (7.2) THE LD. CIT(DR), IN RESPONSE, SUBMITTED THAT ALTHO UGH EIL, A PUBLIC SECTOR UNDERTAKING, HAD RENDERED SERVICES TO OTHER GOVERNM ENT COMPANIES AND TO GOVERNMENT ENTITIES; AND IN THAT SENSE HAD A SUBSTA NTIALLY HIGH RATIO OF RELATED PARTY TRANSACTIONS, YET EIL HAD TO COMPETE WITH OTHER PRIV ATE SECTOR COMPANIES AND ENTITIES TO REMAIN IN BUSINESS. THEREFORE, HE CONTENDED THAT THE FACT THAT EIL HAD SUBSTANTIALLY HIGH RELATED PARTY TRANSACTIONS, WAS NOT RELEVANT. FURTHER, HE SUBMITTED THAT MERELY ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 106 OF 112 BECAUSE EIL HAD HIGH PROFITABILITY OR BECAUSE ITS SC ALE AND SIZE WAS LARGE; EIL CANNOT BE REJECTED AS A COMPARABLE. (7.2.1) HOWEVER, THE LD. CIT(DR) FAILED TO BRING ANY DISTI NGUISHABLE FACTS TO OUR NOTICE IN RESPECT OF THE ASSESSEE IN APPEAL BEFORE US, TO MAKE US CONSIDER ANY DEPARTURE FROM VIEW ALREADY TAKEN BY CO-ORDINATE BE NCHES OF ITAT, DELHI IN RESPECT OF EIL AS A COMPARABLE, IN THE AFORESAID PRECEDENTS, NAMELY BECHTEL INDIA (P.) LTD VS. DCIT (SUPRA) , AT & T COMMUNICATION SEVICES INDIA (P.) LTD. VS. AC IT (SUPRA), HONDA TRADING CORP. (INDIA) (P.) LTD. VS. DCIT (SUPRA), ELI LILY & CO. (INDIA) LTD. VS. ACIT (SUPRA),BLACKROCK SERVICE S INDIA (P.) LTD. VS. ACIT (SUPRA), AND MESSE DUSSELDORF INDIA (P.) LTD. VS. DCIT (SUPRA) . AS NO MATERIAL DIFFERENCES ON FACTS HAVE BEEN BROUGHT FOR OUR CONS IDERATION BY THE LD. CIT(DR), THEREFORE, RESPECTFULLY FOLLOWING THE PRECEDENTS IN THE CASES OF BECHTEL INDIA (P.) LTD VS. DCIT (SUPRA) , AT & T COMMUNICATION SEVICES INDIA (P.) LTD. VS. AC IT (SUPRA), HONDA TRADING CORP. (INDIA) (P.) LTD. VS. DCIT (SUPRA), ELI LILY & CO. (INDIA) LTD. VS. ACIT (SUPRA), BLACKROCK SERVIC ES INDIA (P.) LTD. VS. ACIT (SUPRA) AND MESSE DUSSELDORF INDIA (P.) LTD. VS. DCIT (SUPRA) ; WE ALSO HEREBY HOLD THAT EIL IS NOT TO BE INCLUDED AS A COMPARABLE IN THE CASE OF THE ASSESSEE IN APPEAL BEFORE US. (7.3) AS REGARDS, COMPARABLE OF MAHINDRA, THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY ORDER OF CO-O RDINATE BENCH OF ITAT, DELHI IN ASSESSEES OWN CASE VIDE ORDER DATED 02/05/2017 IN ITA NO. 2133/DEL/2014 FOR AY ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 107 OF 112 2009-10; WHEREIN ITAT HAS REMANDED BACK THIS COMPAR ABLE TO LD. TPO/AO TO CHECK THE OUTSOURCING EXPENSES WITH THE DIRECTIONS TO EXC LUDE THIS COMPARABLE IF THE ASSESSEE IS ABLE TO SUBSTANTIATE ITS CLAIM THAT MOS T OF THE WORK CARRIED OUT BY MAHINDRA WAS OUTSOURCED WHEREAS THE ASSESSEE HAD NOT OR MIN IMAL OUTSOURCING. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THIS YEAR ALSO THE FACTS ARE SIMILAR. HE DREW OUR ATTENTION TO THE FACT THAT WHILE ASSESS EE IS RENDERING SERVICES BY EMPLOYING ITS OWN EMPLOYEES WHEREAS ROUGHLY 16% OF THE ACTIVITY CARRIED OUT BY MAHINDRA HAS BEEN OUTSOURCED. THEREFORE, ITS BUSINE SS MODEL IS DIFFERENT FROM APPELLANT AND, HENCE, CANNOT BE SELECTED AS A COMPA RABLE COMPANY. HE FURTHER SUBMITTED THAT MAHINDRA HAS BEEN SPECIFICALLY EXCLU DED BY THE HONBLE DELHI TRIBUNAL AS THE COMPARABLE COMPANY IN VIEW OF HIGHLY TECHNIC AL CAPABILITIES OF EXECUTING INFRASTRUCTURE DEVELOPMENT PROJECTS IN THE CASES OF ROLLS-ROYCE INDIA(P.) LTD. VS. DCIT [2016] 69 TAXMANN.COM 426 (DELHI-TRIB.) AND ALCATEL-LUCENT INDIA (P.) LTD. VS. DCIT [2017] 788 TAXMANN.COM 157 (DELH I-TRIB.) . ON THE OTHER SIDE, THE LD. CIT(DR) SUBMITTED THAT THIS ISSUE MAY BE REMANDED BACK TO TPO/AO FOR THIS YEAR ALSO, AS WAS DONE BY CO-ORDINATE BENCH OF ITAT, DELHI IN ASSESSEES OWN CASE FOR AY 2009-10. AS NEITHER SIDE [NEITHER THE L D. COUNSEL FOR ASSESSEE, NOR THE LD. CIT(DR)] HAS BROUGHT ANY MATERIAL FACTS TO OUR ATTENTION TO DISTINGUISH FACTS AND CIRCUMSTANCES OF THIS YEAR FROM AY 2009-10; WE RESP ECTFULLY FOLLOW THE ORDER OF CO- ORDINATE BENCH OF ITAT, DELHI IN ASSESSEES OWN CAS E FOR AY 2009-10 AND SET ASIDE THIS ISSUE REGARDING COMPARABLE OF MAHINDRA TO THE FILE OF TPO/AO FOR FRESH ORDER, ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 108 OF 112 WITH THE DIRECTION TO EXCLUDE MAHINDRA AS A COMPARA BLE IF THE ASSESSEE IS ALSO TO SUBSTANTIATE ITS CLAIM THAT MOST OF THE WORK CARRIE D OUT BY MAHINDRA WAS OUTSOURCED WHEREAS THE ASSESSEE HAD NOT OR MINIMAL OUTSOURCING . (8) IN GROUND 1(B) OF APPEAL THE ASSESSEE OBJECTED TO REJECTION OF FOUR COMPARABLES SELECTED BY THE ASSESSEE, NAMELY CENTRAL MINE PLANNING & DESIGN INSTITUTE LTD., IOT DESIGN & ENGG. LTD., SIMON INDI A LTD. AND PETRON ENGINEERING CONSTRUCTION LTD. (8.1) AT THE TIME OF HEARING BEFORE US LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT IN RESPECT OF THE FIRST THREE OF THESE FOUR COMPARA BLES, THE APPEAL WAS NOT PRESSED. HE INFORMED THAT THE APPEAL WAS BEING PRESSED ONLY IN RESPECT OF PETRON ENGINEERING CONSTRUCTION LTD. HE SUBMITTED THAT THE DISPUTED ISSUE REGARDING SELECTION OF PETRON ENGINEERING CONSTRUCTION LTD. AS A COMPARABLE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF CO-ORDINATE BENC H OF ITAT, DELHI IN ASSESSEES OWN CASE FOR AY 2009-10. HE REFERRED TO THE FOLLOW ING RELEVANT PORTION OF ORDER DATED 02.05.2017 OF CO-ORDINATE BENCH OF ITAT, DELH I IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO. 2133/DEL/2014 REGARDING PETRON ENGINEERING CONSTRUCTION LTD. : . WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO FUNCTIONAL DISSIMILARITY BETWEEN THE TESTED PARTY AND THE COMPARABLE AS BOTH OF THEM ARE PROVIDING SIMILAR SERVICES ALTHOUGH THE SECTORS MIGHT BE A LITTLE DIF FERENT AND THE LD. TPO WAS WRONG IN EXCLUDING IT. WE DIRECT THE INCLUSION OF THIS CO MPARABLE IN THE FINAL SET OF ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 109 OF 112 COMPARABLES. ON THE OTHER SIDE THE LD. CIT(DR) RELIED ON THE OR DER OF THE LOWER AUTHORITIES. (8.1.1) HOWEVER, THE LD. CIT(DR) FAILED TO BRING ANY MATERI AL FACTS TO OUR ATTENTION TO DISTINGUISH THE FACTS AND CIRCUMSTANCES OF THIS YEAR WITH AY 2009-10. (8.2) IN THE ABSENCE OF ANY MATERIAL FACTS BROUGHT TO OU R NOTICE BY EITHER SIDE TO DISTINGUISH THE FACTS AND CIRCUMSTANCES OF THIS YEA R WITH AY 2009-10, WE RESPECTFULLY FOLLOW THE ORDER OF CO-ORDINATE BENCH OF ITAT, DELH I IN ASSESSEES OWN CASE FOR AY 2009-10 AND DIRECT THE INCLUSION OF PETRON ENGINEERING CONSTRUCTION LTD. AS A COMPARABLE. (9) THE SECOND GROUND OF APPEAL IS AGAINST INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF I.T. ACT. HOWEVER, ON PERUSAL OF SECTI ON 253 OF I.T. ACT IT IS FOUND THAT INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF I.T. ACT IS NOT APPEALABLE. THEREFORE, THIS GROUND OF APPEAL IS NOT MAINTAINABL E. ACCORDINGLY, SECOND GROUND OF APPEAL IS DISMISSED, BEING NOT MAINTAINABLE. (10) COMING TO THE ADDITIONAL GROUND OF APPEAL, THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT THE ADDITIONAL GROUND OF APPEAL RAIS ES A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ALREADY ON RECORD OF ASSESSMENT PROCEEDINGS. HE RELIED ON THE ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 110 OF 112 CASES OF JUTE CORPORATION OF INDIA LTD. VS. CIT 187 ITR 688 (SC) AND NATIONAL THERMAL POWER CORPORATION VS. CIT 229 ITR 383 (SC) IN SUPPORT OF PRAYER FOR ADMISSION OF THE ADDITIONAL GROUND OF AP PEAL. THE LD. CIT(DR) DID NOT OPPOSE THE ADMISSION OF THE ADDITIONAL GROUND OF AP PEAL. HOWEVER, HE SUBMITTED THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE A O FOR VERIFICATION WITH RECORDS. IN NATIONAL THERMAL POWER CO. LTD. VS. CIT 229 ITR 383 (SC), THE HONBLE SUPREME COURT HELD: WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHICH ARE ON REC ORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTI ON IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. RESPECTFULLY FOLLOWING NATIONAL THERMAL POWER CO. LTD. VS. CIT (SUPRA) , WE ADMIT THE ADDITIONAL GROUND OF APPEAL AND REST ORE THIS ISSUE TO THE FILE OF THE AO FOR FRESH ORDER IN ACCO RDANCE WITH LAW AFTER VERIFICATION OF FACTS FROM ASSESSMENT RECORDS. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/12/2018 SD/- SD/- (BHAVNESH SAINI) (ANADEE N ATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26/12/2018 POOJA/- COPY FORWARDED TO: 1. APPELLANT ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 111 OF 112 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI ITA NO.-654/DEL/2015. HALDOR TOPSOE INDIA PVT. LTD., NEW DELHI. PAGE 112 OF 112 DATE OF DICTATION ON COMPUTER IN CHAMBER OF MEMBER, COMPLETED IN 21.12.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER