Veolia India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6770/DEL/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6236 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 23-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Assessee Lawyers: RAGHUNATH CA MS SHWETA GUPTA
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 144C; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-2 B ENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 6770/DEL/2015 [A.Y 2011-12] VEOLIA INDIA PVT LTD VS. THE DY. C.I.T [EARLIER KNOWN AS VEOLIA WATER [I] PVT LTD CIRCLE 26(1) B 1, MARBLE ARCH, 9, PRITHIVIRAJ ROAD NEW DELHI NEW DELHI PAN: AABCV 7389 R ITA NO. 6693/DEL/2015 [A.Y 2011-12] THE DY. C.I.T VS. VEOLIA INDIA PVT LTD CIRCLE 26(1) [EARLIER KNOWN AS VEOLIA WATER [I] PVT LTD NEW DELHI B 1, MARBLE ARCH, 9, PRITHIVIRAJ ROA D NEW DELHI PAN: AABCV 7389 R (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI RAGHUNATH , CA MS. SHWETA GUPTA, CA DEPARTMENT BY : MS. NIDHI SHARMA S R. DR DATE OF HEARING : 09.10.2019 DATE OF PRONOUNCEMENT : 11.10.2019 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THE ABOVE TWO CAPTIONED CROSS APPEALS BY THE ASSESS EE AND REVENUE ARE PREFERRED AGAINST THE ORDER DATED 29.10 .2015 FRAMED U/S 143(3) R.W.S 144C OF THE INCOME-TAX ACT, 1961 [HERE INAFTER REFERRED TO AS 'THE ACT'] PERTAINING TO ASSESSMENT YEAR 2011-12 . SINCE BOTH THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOS ED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. 2. GRIEVANCE OF THE ASSESSEE IS TWO-FOLD FIRSTLY, THE ASSESSEE IS AGGRIEVED BY THE TRANSFER PRICING ADJUSTMENT OF RS. 53,68,398/- AND, SECONDLY, THE ASSESSEE IS AGGRIEVED BY THE ADDITION TOWARDS CONTRACT REVENUE RECOGNISED UNDER ACCOUNTING STANDARD [AS] 7. 3. GRIEVANCE OF THE REVENUE RELATES TO PARTIAL RELI EF GIVEN BY THE DISPUTE RESOLUTION PANEL [DRP] AGAINST THE ADDITION TOWARDS CONTRACT REVENUE RECOGNISED UNDER AS-7. 3 4. WE WILL FIRST ADDRESS TO THE COMMON GRIEVANCE IN VOLVED IN BOTH THE APPEALS RELATING TO ADDITION TOWARDS CONTRACT R EVENUE RECOGNISED UNDER AS-7. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEES CORE ACTIVITIES ARE IN THE FIELD OF WATER SUPPLY, DISTRI BUTION, TREATMENT, MANAGEMENT, OPERATION & MAINTENANCE, ETC. ITS ACTIV ITIES, INTER-ALIA, INVOLVES CONSTRUCTION, CAPACITY AUGMENTATION, INSTA LLATION AND COMMISSIONING OF VARIOUS TYPES OF WATER INFRASTRUCT URE FACILITIES I.E., SEWERAGE TREATMENT PLANT, WATER TREATMENT PLANT ETC . THE ASSESSEE ALSO PERFORMS OPERATION AND MAINTENANCE OF SUCH FAC ILITIES. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E EXECUTED TWO CONTRACTS, NAMELY, PROJECT KANHAN AND PROJECT DEMO ZONE. THE SCOPE OF WORK IN PROJECT KANHAN RELATES TO CONSTRUCTION O F WATER TREATMENT PLANT OF 240 MLD AND IN PROJECT DEMO ZONE, WORK ON REHABILITATION AND IMPLEMENTATION OF UNINTERRUPTED WATER SUPPLY AND RE DUCTION OF UFW WITH IMPROVEMENT IN LEVEL OF SERVICES TO CUSTOMERS IN THE PILOT AREA OF DHARAMPETH ZONE OF NMC IS DONE. 4 5. THE ASSESSEE FOLLOWS THE METHOD PRESCRIBED IN AS -7 TO MEASURE THE EXTENT OF ACTIVITY COMPLETED AT THE END OF EACH YEAR VIZ. THE PROPORTION OF CONTRACT COSTS ACTUALLY INCURRED TILL THE BALANCE SHEET DATE OVER THE TOTAL ESTIMATED BUDGETED CONTRACT COS TS. 6. THE QUARREL IS IN RESPECT OF THE NON-ACCEPTANCE BY THE ASSESSING OFFICER OF THE BUDGETED CONTRACT COSTS CONSIDERED B Y THE ASSESSEE FOR THE PURPOSES OF COMPUTING THE PERCENTAGE OF COMPLET ION OF CONTRACT ACTIVITY AT THE BALANCE SHEET DATE AND THE CONTRACT REVENUE TO BE RECOGNIZED AS INCOME UNDER THE PERCENTAGE COMPLETIO N METHOD IN COMPLIANCE WITH AS - 7. 7. DISREGARDING THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE, THE BUDGETED CONTRACT COSTS HAVE BEEN COMPUTED BY T HE AO IN AN INDIRECT METHOD WITH REFERENCE TO THE GROSS MARGIN OF 6.97% REPORTED BY THE TAX AUDITOR IN THE TAX AUDIT REPORT. THE AO, ACCORDINGLY, MADE ADDITIONS IN RESPECT OF PROJECT KANHAN AT ARS. 4,35 ,49,020/- AND PROJECT DEMO ZONE AT RS. 2,90,308/-. 5 8. OBJECTIONS WERE RAISED BEFORE THE DRP AND THE DR P DIRECTED THE ASSESSING OFFICER TO ALSO ADD OTHER OPERATING EXPEN SES TO THE BUDGETED CONTRACTS COSTS WORKED OUT BY THE ASSESSING OFFICER AND TO RE-COMPUTE THE CONTRACT REVENUE TO BE RECOGNIZED AS INCOME ON THIS BASIS. FOLLOWING THE DIRECTIONS OF THE DRP, THE ASSESSING OFFICER REWORKED OUT CONTRACT REVENUE AND ADDITIONS GOT REDUCED TO RS. 2 1,70,078/- FOR PROJECT KANHAN AND TO RS. 4,051/- FOR PROJECT DEMO ZONE. 9. BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFO RE US. 10. THE REPRESENTATIVES OF BOTH THE SIDES WERE HEAR D AT LENGTH AND THE CASE RECORDS CAREFULLY PERUSED. THE ENTIRE QUAR REL CAN BE SUMMARISED AS UNDER: ASSESSEES METHOD (PROJECT SPECIFIC METHOD BASED ON COSTS INCURRED IN THE SPECIFIC CONTRACT): ESTIMATED BUDGETED CONTRACT COSTS = ACTUAL CONTRACT COSTS (BOTH DIRECT AND OTHER OPERATING COSTS) INCURRED TILL THE BALANCE SHEET DATE + ESTIMATED SIMILAR COSTS TO COMPLETE THE CONTRACT. THE ASSESSEE HAS ESTIMATED THE COSTS TO COMPLETE HAVING REGARD TO FACTORS SUCH AS ACTIVITIES ALREADY COMPLETED, ACTIVITY REMAINING TO BE 6 COMPLETED, TIME REQUIRED TO COMPLETE, PAST EXPERIENCE OF COSTS ALREADY INCURRED, CUSTOMER EXPECTATIONS, SCOPE CHANGES AND OTHER RELEVANT FACTORS. AOS METHOD (INDIRECT METHOD WITH REFERENCE TO GROS S MARGIN) ESTIMATED BUDGETED CONTRACT COSTS = CONTRACT REVENUE MINUS GROSS PROFIT BASED ON THE COMPANYS GROSS MARGIN OF 6.97% REPORTED BY THE TAX AUDITOR. THE LD. AO HAS, THEREFORE, ESTIMATED THE BUDGETED COSTS IN AN INDIRECT MANNER BY ADOPTING THE GROSS MARGIN OF 6.97% RESPECTING ALL ACTIVITIES OF THE COMPANY INCLUDING ALL THE CONTRACTS . DRPS METHOD (HYBRID METHOD A VARIATION OF THE AO S METHOD W.R.T GROSS MARGIN AND BY ADDING OTHER OPERATING EXPENSES ) ESTIMATED BUDGETED CONTRACT COSTS = CONTRACT REVENUE MINUS GROSS PROFIT BASED ON THE GROSS MARGIN OF 6.97% REPORTED BY THE TAX AUDITOR + OTHER OPERATING EXPENSES 11. RECOGNITION OF CONTRACT REVENUE AS PER AFORESAI D THREE METHODS IS TABULATED AS UNDER: 7 PROJECT KANHAN (AMOUNTS ARE IN RS. ) ASSESSEE'S METHOD AO'S METHOD (DRAFT ASSESSMENT ORDER) AS PER DRP'S DIRECTIONS (FINAL ASSESSMENT ORDER) (1) NAME OF THE PROJECT KANHAN KANHAN KANHAN (2) CONTRACT VALUE 683,899,283 683,899,283 683,899,283 (3) TOTAL ESTIMATED I.E. BUDGETED COST 680,067,402 636,231,502 677,739,286 (4) TOTAL COST INCURRED TILL 31 MARCH 2011 628,193,537 628,193,537 28,193,537 (5) PERCENTAGE OF COMPLETION (%) = (4)/(3) 92.37% 98.74% 92.69% (6) CUMULATIVE CONTRACT REVENUE TILL 31 MARCH 2011 = (2) X (5) 631,733,132 675,282,152 633,903,211 (7) CUMULATIVE CONTRACT REVENUE TILL 31 MARCH 2010 391,647,050 391,647,050 391,647,050 (8) CONTRACT REVENUE FOR THE FY 2010-11 (AY 2011-12 )= (6) - (7) 240,086,082 283,635,102 242,256,161 (9) ADDITION FOR ALLEGED SHORT RECOGNITION OF CONTR ACT REVENUE 43,549,020 2,170,079 (10) RELIEF AS PER DIRECTIONS OF THE DRP 41,378,941 PROJECT DEMO ZONE (AMOUNTS ARE IN RS.] ASSESSEE'S METHOD AO'S METHOD (DRAFT ASSESSMENT ORDER) AS PER DRP'S DIRECTIONS (FINAL ASSESSMENT ORDER) (1) NAME OF THE PROJECT DEMO ZONE DEMO ZONE DEMO ZONE (2) CONTRACT VALUE 260,234,060 260,234,060 260,234,060 (3) TOTAL ESTIMATED I.E. BUDGETED COST 242,384,620 242,095,747 242,384,620 (4) TOTAL COST INCURRED TILL 31 MARCH 2011 221,099,477 221,099,477 221,099,477 (5) PERCENTAGE OF COMPLETION (%) = (4)/(3) 91.22% 91.33% 91.22% (6) CUMULATIVE CONTRACT REVENUE TILL 31 MARCH 2011 = (2) X (5) 237,381,459 237,671,767 237,381,458 (7) CUMULATIVE CONTRACT REVENUE TILL 31 MARCH 2010 202,335,107 202,335,107 202,335,107 (8) CONTRACT REVENUE FOR THE FY 2010 - 11 (AY 2011 - 12)= (6) - (7) 35,046,352 35,336,660 35,042,300 (9) ADDITION FOR ALLEGED SHORT RECOGNITION OF CONTR ACT REVENUE 290,308 4,051 (10) RELIEF AS PER DIRECTIONS OF THE DRP 286,257 8 12. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESS EE THAT FOR COMPUTING THE GROSS MARGIN OF 6.97%, DEDUCTION HAS BEEN GIVEN ONLY FOR PROJECT EXPENSES VIZ. MATERIAL COST, SUB-CONTRACT EXPENSES, TECHNICAL FEE, RATES AND TAXES AND CERTAIN OTHER DIRECT COSTS. TH E LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSING OFFICER HAS NOT CONSIDERED MANY ITEMS OF OTHER COSTS THAT HAVE TO BE INCURRED FOR C ONTRACT EXECUTION VIZ. PAYROLL COST OF THE ASSESSEES PERSONNEL EXECU TING THE CONTRACT, TRAVEL AND STAY, EXTERNAL CONSULTANTS AND PROFESSIO NAL CHARGES, INSURANCE, VEHICLE HIRE, ETC. 13. HOWEVER, WE FIND THAT THIS INFIRMITY HAS BEEN C ORRECTED BY THE DRP BY DIRECTING THE ASSESSING OFFICER TO ALSO CONS IDER OTHER OPERATING EXPENSES TO THE BUDGETED COSTS AND THE SAME HAS BEE N FOLLOWED BY THE ASSESSING OFFICER. THEREFORE, NO ADVERSE INFERENCE IS CALLED FOR. 14. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY STA TED THAT ADOPTION OF GROSS MARGIN OF 6.97% FROM TAX AUDIT REPORT IS E RRONEOUS IN AS MUCH AS THE MARGIN OF EACH CONTRACT HAS TO BE CONSIDERED SEPARATELY AND THE MARGIN OF 6.97% CANNOT BE UNIFORMLY APPLIED TO ALL CONTRACTS BECAUSE EACH CONTRACT HAS ITS OWN PROFITABILITY. 9 15. IT IS THE SAY OF THE LD. DR THAT SIMILAR ISSUE AROSE IN A.Y 2009-10 AND THE TRIBUNAL IN ITA NO. 4027/DEL/2013 VIDE ORDE R DATED 23.11.2015 HAS RESTORED THE ISSUE TO THE FILE OF TH E ASSESSING OFFICER FOR PASSING THE ASSESSMENT ORDER AFTER CONSIDERING THE DETAILS/ EVIDENCES SUBMITTED BY THE ASSESSEE PERTAINING TO B UDGETED COSTS OF BOTH THE PROJECTS AND THE REVENUE RECOGNISED THEREF ROM. SINCE THE FACTS AND ISSUES ARE IDENTICAL, THE LD. DR PRAYED F OR A SIMILAR DIRECTION. 16. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT IN SUBSEQUENT A.Y VIZ., 2015-16, THE ADDITIONAL CIT HAS ISSUED DI RECTIONS U/S 144 OF THE ACT FOLLOWING THE DIRECTIONS OF THE DRP GIVEN I N A.Y 2011-12 [WHICH IS THE YEAR UNDER CONSIDERATION]. 17. WE HAVE CONSIDERED THE ORDER OF THE CO-ORDINATE BENCH IN ITA NO. 4027/DEL/2013 AND HAVE ALSO THE BENEFIT OF THE DIRECTIONS U/S 144A OF THE ACT GIVEN BY THE ADDITIONAL COMMISSIONE R FOR A.Y 2015-16. WE HAVE ALSO CONSIDERED THE ASSESSMENT ORDER FOR A. Y 2015-16 WHICH HAS BEEN FRAMED PURSUANT TO THE DIRECTIONS OF THE A DDITIONAL CIT U/S 144 OF THE ACT. WE HAVE ALSO THE BENEFIT OF THE AS SESSMENT ORDER FOR A.Y 2016-17 IN WHICH YEAR ALSO THE ASSESSING OFFICE R HAS CONSIDERED THE 10 DIRECTIONS OF THE DRP FOR A.Y 2011-12 [YEAR UNDER A PPEAL] AND THE DIRECTIONS OF THE ADDITIONAL CIT U/S 144 OF THE ACT FOR A.Y 2015-16. 18. CONSIDERING THE ORDERS OF THE CO-ORDINATE BENCH AND THE ASSESSMENT ORDERS OF SUBSEQUENT YEARS, WE FIND THAT THE ASSESSING OFFICER HAS BEEN CONSISTENT IN ACCEPTING THE METHOD OLOGY OF THE ASSESSEE ADOPTED CONSISTENTLY FOLLOWING AS 7. CO NSIDERING THE FACTS OF THE CASE IN TOTALITY IN LIGHT OF THE ORDERS MENT IONED HEREINABOVE, WE DO NOT FIND ANY MERIT IN THE APPEAL FILED BY THE RE VENUE. WE ALSO DO NOT FIND ANY MERIT IN THE METHODOLOGY ADOPTED BY TH E DRP WHILE DISMISSING THE APPEAL OF THE REVENUE. WE DIRECT TH E ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 21,70,079/- FOR PROJE CT KANHAN AND RS. 4,051/- FOR PROJECT DEMO ZONE. ACCORDINGLY, GROUND NO 3 WITH ALL ITS SUB GROUNDS OF THE ASSESSEES APPEAL IS ALLOWED AND GROUND NO. 1 OF THE REVENUE IS DISMISSED. 19. GROUND NO. 2 IN ASSESSEES APPEAL WITH ITS SUB GROUNDS RELATES TO TRANSFER PRICING ADJUSTMENT. 11 20. FACTS ON RECORD SHOW THAT THE ASSESSEE IS ENGAG ED IN THE PROVISION OF CONSULTANCY AND ADVISORY SERVICES INCL UDING PROJECT CONSTRUCTION AND EXECUTION THEREOF IN THE FIELD OF WATER MANAGEMENT INDUSTRY. THE APPELLANT ALSO PROVIDES CERTAIN SUPPO RT AND CONSULTANCY SERVICES TO ITS GROUP COMPANIES. 21. THE INTERNATIONAL TRANSACTIONS WITH ITS AES CAN BE UNDERSTOOD FROM THE FOLLOWING CHART: ASSOCIATED ENTERPRISES(AES) DESCRIPTION OF TRANSACTION AMOUNT (IN RS.) METHOD APPLIED VEOLIA EAU - CGE (PROJECT OFFICE, BANGALORE) RENT RECEIVED 2,804,145 TRANSACTION NET MARGIN METHOD (TNMM) FEES CHARGED FOR DEPLOYMENT OF PERSONNEL 26,593,313 TNMM PURCHASE OF USED ITEMS OF FIXED ASSETS 149,990 COMPARABLE UNCONTROLLED PRICE (CUP) REIMBURSEMENT MADE TO THE AE 220,900 COST PLUS METHOD(CPM) REIMBURSEMENT RECEIVED FROM AE 6,920,000 CPM VEOLIA WATER INDIA AFRICA RENDERING OF CONSULTANCY SERVICES 74,193,695 TNMM VEOLIA EAU - CGE, FRANCE REIMBURSEMENT RECEIVED FROM AE 8,346,512 CPM CHARGES LEVIED BY THE AE FOR CORPORATE GUARANTEE PROVIDED 1,287,693 CUP INSURANCE CHARGES RECOVERED BY THE AE 64,060 CPM VEOLIA WATER MENA CHARGES LEVIED BY THE AE FOR CORPORATE GUARANTEE 370,619 CUP 12 ASSOCIATED ENTERPRISES(AES) DESCRIPTION OF TRANSACTION AMOUNT (IN RS.) METHOD APPLIED PROVIDED VEOLIA ENVIRONMENT CAMPUS REIMBURSEMENT MADE TO THE AE 547,856 CPM ELGA LABWATER UK RENDERING OF SERVICES 2,802,792 TNMM TOTAL 377,127,671 22. FOR THE PURPOSES OF COMPUTATION OF ARMS LENGTH PRICE OF ABOVE TRANSACTIONS, THE ASSESSEE, IN ITS TRANSFER PRICING STUDY RELIED UPON TNMM AND CONSIDERED OPERATING PROFIT EARNED FROM IN TERNATIONAL TRANSACTION BY OPERATING COST AS THE RELEVANT PROFI T LEVEL INDICATOR [PLI]. THE PLI OF THE COMPANY WAS ARRIVED AT 10.90% ON COST AND WHEN COMPARED WITH PLI OF THE COMPARABLES AT 8.55%, THE ASSESSEE REPORTED INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. 23. THE FOLLOWING COMPANIES WERE CONSIDERED AS COMP ARABLES BY THE ASSESSEE: S. NO. NAME OF THE COMPANY OP/OC BUSINESS PROFILE OF THE COMPARABLES SELECTED 1 ABSOTHERM FACILITY MANAGEMENT PVT. LTD. 4.02% IT IS ENGAGED IN PROVIDING FACILITY MANAGEMENT AND PROJECT CONSULTANCY SERVICES. 2 COALITION DEVELOPMENT SYSTEMS (INDIA) PVT. LTD. 9.52% IT IS ENGAGED IN PROVIDING BUSINESS INTELLIGENCE SERVICES INCLUDING 13 S. NO. NAME OF THE COMPANY OP/OC BUSINESS PROFILE OF THE COMPARABLES SELECTED ANALYTICS AND INSIGHT SERVICES. 3 CYBER MEDIA RESEARCH LTD. 10.24% IT IS ENGAGED IN PROVIDING MARKET RESEARCH, CONSULTANCY AND ADVISORY SERVICES. 5 I C R A MANAGEMENT CONSULTING SERVICES LTD. 15.61% IT IS ENGAGED IN PROVIDING MANAGEMENT CONSULTANCY AND ANALYTICAL SERVICES. 6 RADIANT HOSPITALITY SERVICES PVT. LTD. 3.35% IT IS ENGAGED IN PROVIDING INTEGRATED FACILITIES SERVICES. ARITHMETIC MEAN 8.55% APPELLANTS MEAN 10.90% 24. THE TPO ACCEPTED ONLY TWO COMPARABLES TAKEN BY THE ASSESSEE, NAMELY, CYBER MEDIA RESEARCH LTD AND ICRA MANAGEMEN T CONSULTING SERVICES LTD. AND REJECTED ALL THE OTHER FOUR COMPA RABLES. THE TPO SUGGESTED NEW SET OF COMPARABLES AS UNDER: S. NO. NAME OF THE COMPANY OP/OC (%) 1 APITCO LTD 25.17 2 CAMEO CORPORATE SERVICES LTD. 12.4 3 C D S L VENTURES LTD. 69.25 4 CYBER MEDIA RESEARCH LTD. 10.6 5 GLOBAL PROCUREMENT CONSULTANTS LTD. 30.86 14 S. NO. NAME OF THE COMPANY OP/OC (%) 6 T S R DARASHAW LIMITED 28.91 7 ICRA MANAGEMENT CONSULTING SERVICES LTD. 16.14 8 KILLICK AGENCIES & MKTG. LTD. 8.47 AVERAGE 25.23% 25. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP. AFTER CONSIDERING THE FACTS, THE DRP WAS OF THE OPINION THAT CDSL VEN TURES LTD AND GLOBAL PROCUREMENT CONSULTANTS LTD ARE NOT GOOD COM PARABLES AND DIRECTED THE TPO TO REMOVE THE SAME FROM THE FINAL SET OF COMPARABLES. 26. FOLLOWING THE DIRECTIONS OF THE DRP, FINAL SET OF COMPARABLES TAKEN BY THE TPO AND CONSEQUENT ADJUSTMENT IS AS UN DER: S. NO. NAME OF THE COMPANY PROPOSED AS COMPARABLE OP/OC (%) 1 APITCO LTD. 25.17 2 CAMEO CORPORATE SERVICES LTD. 12.4 3 KILLICK AGENCIES & MARKETING LTD. 8.47 4 CYBER MEDIA RESEARCH LTD. 10.6 5 ICRA MANAGEMENT CONSULTING SERVICES LTD. 16.14 15 6 TSR DARASHAW LTD. 28.91 AVERAGE 16.94% PARTICULARS AMOUNT IN INR OPERATING COST 8,88,92,319 ARMS LENGTH MARGIN 16.94% ARMS LENGTH PRICE (ALP) 103,950,677 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS 98,582,279 SHORTFALL BEING ADJUSTMENT U/S 92CA 5,368,398 27. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY ARGUED FOR EXCLUSION OF FOUR COMPARABLES. WE WILL ADDRESS EAC H SUCH COMPARABLE. APITCO LTD. 28. THE ANNUAL REPORT OF THIS COMPANY IS PLACED AT PAGES 471 TO 505 OF THE PAPER BOOK. WE FIND THAT THIS COMPANY IS A TECHNICAL CONSULTANCY ORGANIZATION WHICH PROVIDE SERVICES TO THE ENTREPRENEURS AND BE A CATALYST FOR THE ECONOMIC GROWTH OF THE CO UNTRY. SERVICES OF THIS COMPANY INCLUDE PROJECT REPORT PREPARATION, TE CHNO ECONOMIC 16 STUDIES, FEASIBILITY STUDIES, MICRO ENTERPRISE DEVE LOPMENT, SKILL DEVELOPMENT, PROJECT MANAGEMENT CONSULTANCY, INDUST RIAL CLUSTER DEVELOPMENT, ENVIRONMENTAL MANAGEMENT CONSULTING, E NERGY MANAGEMENT CONSULTING, MARKET AND SOCIAL RESEARCH A ND ASSET RECONSTRUCTION MANAGEMENT SERVICES. WE FIND THAT TH E MAJOR REVENUE ARISES FROM CLUSTER DEVELOPMENT, PROJECT RELATED SE RVICES AND ENTREPRENEURSHIP DEVELOPMENT & TRAINING. 29. THE REVENUE FROM CLUSTER DEVELOPMENT IS 41.43%. CONSIDERING THE NATURE OF ACTIVITIES OF APTICO LTD, VIS A VIS THE BUSINESS PROFILE OF THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT APTICO LTD IS INVOLVED IN CARRYING OUT MULTIPLE ACTIVITIES THAT A RE NOT COMPARABLE TO MARKET SUPPORT SERVICES. 30. APTICO LTD WAS ALSO EXCLUDED BY THE CO-ORDINATE BENCH IN KOBELCO CRANES INDIA PVT. LTD. VS. ITO, ITA NO. 802/DEL/201 6 FOR A.Y 201-12. THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER: 8.3. A CAREFUL PERUSAL OF THE OPERATIONS CARRIED OU T BY APITCO LIMITED DECIPHERS THAT THIS COMPANY IS PROVI DING SERVICES IN THE NATURE OF PROJECT REPORT PREPARATIO N, TECHNICAL AND ECONOMIC STUDIES, FEASIBILITY STUDIES , MICRO 17 ENTERPRISE DEVELOPMENT, SKILL DEVELOPMENT, PROJECT MANAGEMENT CONSULTING, INDUSTRIAL CLUSTER DEVELOPME NT, ENVIRONMENTAL MANAGEMENT CONSULTING, ENERGY MANAGEMENT CONSULTING, MARKET AND SOCIAL RESEARCH A ND ASSET RECONSTRUCTION MANAGEMENT SERVICES. NO SEGMENT - WISE PROFITABILITY DATA OF THESE SERVICES IS AVAILA BLE. THE TPO HAS CONSIDERED THIS COMPANY AS COMPARABLE ON EN TITY LEVEL. WE FIND THAT THERE IS A TINY RESEMBLANCE OF SOME OF THE FUNCTIONS PERFORMED BY THIS COMPANY WITH THE OV ERALL ACTIVITIES UNDERTAKEN BY THE APPELLANT. UNDER SUCH CIRCUMSTANCES, WE FAIL TO APPRECIATE AS TO HOW ALL THE ABOVE LISTED SERVICES TAKEN TOGETHER AS ONE UNIT CA N BE CONSIDERED AS COMPARABLE WITH THE SERVICES PROVIDED BY THE APPELLANT AS LISTED ABOVE. 31. CONSIDERING THE BUSINESS PROFILE OF THE ASSESSE E, WE DO NOT FIND APTICO LTD AS A GOOD COMPARABLE AND ACCORDINGLY DIR ECT THE TPO TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPARABLES. CAMEO CORPORATE SERVICES LTD 32. THE ANNUAL REPORT OF THIS COMPANY IS PLACED AT PAGES 506 TO 543 OF THE PAPER BOOK. WE FIND THAT THIS COMPANY HAS B EEN ESTABLISHED AS BUSINESS PROCESS OUTSOURCING (BPO) SERVICE PROVIDER , PROVIDING SERVICES TO A WIDE RANGE OF CLIENTS. ITS MAIN BUSINESSES ARE IN THE AREAS OF 18 DOCUMENT MANAGEMENT, MEDICAL TRANSCRIPTION, DATA CO NVERSION AND REGISTRY & SHARE TRANSFER. IT PROVIDES SOLUTIONS IN INSURANCE, BANKING, HEALTHCARE, TELECOM, FINANCIAL & ACCOUNTING, EDUCAT ION AND MEDIA & PUBLISHING SERVICES. THIS COMPANY ALSO PROVIDES SER VICES IN CUSTOMER CARE, TRANSACTION PROCESSING AND DATA PROCESSING AN D ALSO I.T ENABLED SERVICES. 33. A PERUSAL OF THE BUSINESS PROFILE OF THIS COMPANY SHOWS THAT THIS COMPANY IS INVOLVED IN IT ENABLED SERVICES/BPO SERVICES AND ON THIS COUNT ITSELF, CANNOT BE CONSIDERED AS A GOOD COMPAR ABLE WITH THE BUSINESS PROFILE OF THE ASSESSEE. IN OUR UNDERSTAND ING, ITES COMPANIES USE INFORMATION TECHNOLOGY THAT ENABLES THE BUSINES S BY IMPROVING THE QUALITY OF SERVICE WHICH CANNOT BE CONSIDERED FOR C OMPARING WITH THE SERVICE PROVIDED BY THE ASSESSEE TO ITS AES. WE, A CCORDINGLY, DIRECT THE TPO TO EXCLUDE THE SAME FROM THE FINAL SET OF C OMPARABLES. TSR DARASHAW LTD 34. THE ANNUAL REPORT OF THIS COMPANY IS PLACED AT PAGES 544 TO 573 OF THE PAPER BOOK. WE FIND THAT THIS COMPANY IS ON E OF INDIA'S LEADING BUSINESS PROCESS OUTSOURCING (BPO) ORGANIZATION CER TIFIED UNDER THE ISO 19 9001:2000 GUIDELINES HAVING A TOTAL INDUSTRY EXPERI ENCE OF OVER 35 YEARS. THIS COMPANY HAS STATE-OF-THE-ART I.T. CAPAB ILITIES WITH WELL TRAINED HR WHICH ARE THE KEY REQUIREMENTS FOR HANDL ING BPO ACTIVITIES. THIS COMPANYS MAIN BUSINESS PRODUCTS ARE PAYROLL & EMPLOYEES TRUST FUND ADMINISTRATION & MANAGEMENT, R & T FOR SHARES, DEBENTURES AND FD, CATEGORY I REGISTRAR BY SEBI, RECORDS MANAGEMEN T, TRANSACTION / DOCUMENT PROCESSING FOR SECURITIZATION, LOANS ETC. 35. THESE SERVICES SPEAK FOR THEMSELVES AND BY ANY STRETCH OF IMAGINATION CANNOT BE COMPARED WITH SERVICES PROVID ED BY THE ASSESSEE. 36. THE TPO HAS HIMSELF OBSERVED THAT THIS COMPANY IS INVOLVED IN BPO SERVICES. THEREFORE, WE FAIL TO UNDERSTAND WHY THIS COMPANY WAS SELECTED IN THE FINAL SET OF COMPARABLES. CONSIDER ING THE BUSINESS PROFILE OF THE ASSESSEE, VIS A VIS WITH THAT OF TSR DARASHAW, WE DO NOT FIND THIS COMPANY AS A GOOD COMPARABLE AND, ACCORDI NGLY, DIRECT THE TPO TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPA RABLES. 20 KILLICK AGENCIES & MARKETING LTD. 37. THE ANNUAL REPORT OF THIS COMPANY IS PLACED AT PAGES 574 TO 585 OF THE PAPER BOOK. WE FIND THAT THIS COMPANY MARKE TS MARINE EQUIPMENT LIKE SPECIALIZED PROPULSION SYSTEMS, MARI NE ENGINES, SHIP LIGHTING & NAVIGATION LIGHTING SYSTEMS, DREDGES AND DREDGE EQUIPMENT, SHIP BUILDING PRESSES, RESCUE BOATS AND SPECIALIZED DAVITS, REVERSE OSMOSIS WATER SYSTEMS AND SPECIAL ACOUSTIC COMMUNICATION EQUIPMENT FOR DEFENSE. THIS COMPANY IS INVOLVED IN EXPORTS OF MICRO SWITCHES, ENGINEERING ITEMS, ACOUSTICS ITEMS & HEAD SETS. THE ANNUAL REPORT OF THIS COMPANY SUGGESTS THAT THIS COMPANY B OASTS OF ITS ROLE IN PROMOTION OF THE DREDGERS AND DREDGING EQUIPMENT BY LEADING MANUFACTURERS. THERE IS NO DOUBT THAT THIS COMPANY IS ENGAGED IN MARKETING SERVICES AND ON THIS COUNT ALONE, CANNOT BE CONSIDERED AS A GOOD COMPARABLE VIS A VIS THE ASSESSEE. WE, ACCORD INGLY, DIRECT THE TPO TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPA RABLES. 38. THE LD. DR, SUPPORTING THE ABOVE COMPARABLES, H AD VEHEMENTLY ARGUED THAT TNMM METHOD ADOPTED BY THE ASSESSEE AT THE ENTITY LEVEL ITSELF SHOWS THE ASSESSEE IS TAKING INTO CONSIDERAT ION THE OVERALL 21 OPERATING MARGIN AND, THEREFORE, THERE CANNOT BE AN Y DEFECT IN THE FINAL SET OF COMPARABLES CHOSEN BY THE TPO. 39. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF TH E LD. DR. WE ARE OF THE CONSIDERED VIEW THAT THE COMPARABLES SHOULD BE ON SAME PLATFORM AS THAT OF THE BUSINESS ACTIVITIES OF THE ASSESSEE AND ANY DEVIATION THEREFROM, WILL MAKE THE COMPARABLE A BAD COMPARABLE. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, QUA THE COMPARABLES, WE DIRECT THE TPO TO EXCLUDE THE COMPARABLES AS MENTIO NED HEREINABOVE FROM THE FINAL LIST OF COMPARABLES. THUS, GROUND N O. 2 WITH ALL ITS SUB GROUNDS RAISED BY THE ASSESSEE IS ALLOWED. 40. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 6770/DEL/2015 IS ALLOWED AND THAT OF THE REVENUE IN ITA NO. 6693/DEL/2015 IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.10. 2019 . SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH OCTOBER, 2019 22 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION 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.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE 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 RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER