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

ITA 6779/DEL/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6930 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 21-04-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 23-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A M GOVIL
• Assessee Lawyers: RAHUL K MITRA; VINAY VERMA; ADITYA ANAND
• Keywords: Related party transaction; Transfer pricing; Rectification of order; Opportunity of being heard; Principle of natural justice; International transaction; Working capital adjustments; Wholly owned subsidiary
• Section: 234B; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH.L.P.SAHU, ACCOUNTANT MEMBER I.T.A .NO.-6779/DE L/2015 (ASSESSMENT YEAR-2011- 12) BECHTEL INDIA PVT.LTD., 418, NARANG HOUSE, 21, K.G.MARG, NEW DELHI-110001. PAN-AAACB0298A (APPELLANT) VS DCIT, CIRCLE-4(2), NEW DELHI. (RESPONDENT) APPELLANT BY SH. RAHUL K.MITRA, CA & SH. VINAY VERMA, CA & SH. ADITYA ANAND, CA RESPONDENT BY SH. A.M. GOVIL, CIT(DR) DATE OF HEARING 21.04.2016 DATE OF PRONOUNCEMENT 14 .07.2016 O R D E R PER DIVA SINGH, JUDICIAL MEMBER BY THE PRESENT APPEAL FILED BY THE ASSESSEE THE COR RECTNESS OF THE ORDER DATED 30.11.2015 PASSED BY THE ASSESSING OFFICER U/S 143 (3) R.W.S 144C OF THE INCOME TAX ACT, 1961 HAS BEEN ASSAILED ON THE FOLLOWING GR OUNDS:- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ LD. TRANSFER PRICING OFFICER ('TPO')/ LD. DISPU TE RESOLUTION PANEL ('DRP') ERRED IN MAKING AN ADDITION OF INR 25,92,72 ,701/- TO THE RETURNED INCOME OF THE APPELLANT BY RE-COMPUTING TH E ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO ALL THREE SEGMENTS OF THE APPELLANT, VIZ. ENGINEERING DESIGN AND RELATED SERV ICES ('EDS'), FINANCIAL ACCOUNTING SUPPORT SERVICES ('FAS') AND IT INFRASTR UCTURE SUPPORT SERVICES ('IT INFRA'), UNDER SECTION 92 OF THE ACT. THUS, IN PASSING THE ORDER, THE LD. AO / LD. TPO / LD. DRP ERRED IN: I.T.A .NO.-6779/DEL/2015 PAGE 2 OF 50 1.1. REJECTING THE COMPARABLE COMPANIES SELECT ED BY THE APPELLANT IN ITS TRANSFER PRICING DOCUMENTATI ON ON THE BASIS OF ADDITIONAL/MODIFIED QUANTITATIVE FILTERS WHICH LACK ED VALID AND SUFFICIENT REASONING; 1.2. ACCEPTING COMPANIES WHICH WERE FUNCTIONALLY NO T COMPARABLE TO THE APPELLANT; 1.3. INCLUDING GOVERNMENT HELD ENTERPRISES AND ENTERPRISES ASSOCIATED WITH GOVERNMENT AS COMPARABLES TO THE APPELLANT; 1.4. NOT CONSIDERING THE CORRECT COMPUTATION OF/OPE RATING MARGINS OF CERTAIN COMPARABLES; 1.5. DENYING THE BENEFIT OF ECONOMIC ADJUSTMENTS ON ACCOUNT OF DIFFERENCE IN RISK PROFILE IN ARRIVING AT THE ARM'S LENGTH MARGIN; 1.6. ACCEPTING HIGH TURNOVER COMPANIES AND THEREBY IGNORING THE IMPACT OF ECONOMIES OF SCALE; AND 1.7. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO/ LD. TPO/LD. DRP ERRED IN SELECTING THE CURRENT YEAR (I.E. FINANCIAL YEAR 2010-11) DATA FOR COMPARABILITY DESP ITE THE FACT THAT AT THE TIME OF PREPARATION OF TRANSFER PRICING DOCUMENTATION BY THE APPELLANT, THE COMPLETE DATA FOR FINANCIAL Y EAR 2010-11 WAS NOT AVAILABLE WITHIN THE PUBLIC DOMAIN. 2. THAT WITHOUT PREJUDICE TO THE ABOVE, IF COMPARAB LES SELECTED THE LD. AO/ LD. TPO/LD. DRP THAT DO NOT MEET THE PARAME TERS OF FUNCTIONAL COMPARABILITY ARE ACCEPTED, THEN ON GROUND OF CONSI STENCY THE COMPARABLES SELECTED BY THE APPELLANT THAT ARE REJE CTED BY LD. AO/ LD. TPO/LD. DRP ON ACCOUNT OF FUNCTIONAL COMPARABILITY; MUST ALSO BE ACCEPTED. 3. THAT THE LD. AO/ LD. TPO/LD. DRP GROSSLY ERRED I N REJECTING THE SEGMENTAL ACCOUNTS FURNISHED BY THE APPELLANT IN IT S TP DOCUMENTATION. IN DOING SO, LD. AO/ LD. TPO/LD. DRP HAS ERRED IN: 3.1. CONSIDERING LIABILITIES WRITTEN BACK AND PRO VISIONS AS NON- OPERATING IN NATURE; 3.2. NOT CONSIDERING THE FACT THAT THERE WAS NO SE RVICE RENDERED BY THE APPELLANT TO THE AES IN RELATION TO ITS INTERNATION AL TRANSACTION FOR 'REIMBURSEMENT OF EXPENSES RECEIVED1; 3.3. BY ROUTING THE REIMBURSEMENT RECEIVED THROUGH THE SEGMENTAL ACCOUNTS (BOTH AS REVENUE AND EXPENSE) DISREGARDING THE FACT THAT THE SAME IS NOT PART OF PROFIT & LOSS ACCOUNT OF TH E APPELLANT; AND 3.4. DISREGARDING THE ALLOCATION UNDERTAKEN BY TH E APPELLANT IN THE RESPECTIVE SEGMENTS AND ALLOCATING THE SAME BASED O N AN INAPPROPRIATE ALLOCATION KEY (REVENUE BASE). 4. THAT THE LD. AO/LD. TPO ERRED IN NOT FOLLOWING T HE DIRECTIONS OF THE LD. DRP THAT SEGMENTAL MARGINS MUST BE APPLIED AND CONSIDERED CONSISTENTLY ACROSS ALL SEGMENTS (I.E. EDS, FAS AND IT INFRA SEGMENTS) OF THE APPELLANT. 4.1. THAT WITHOUT PREJUDICE TO THE ABOVE, IF THE S EGMENTAL ACCOUNTS WERE TO BE REDRAWN BY THE LD. TPO / LD. AO IN LINE WITH THE DIRECTION OF THE LD. DRP, THE ADJUSTMENTS IN THE SEGMENTS FAS AN D IT INFRA WOULD BE REDUCED TO NIL. 5. THAT THE LD. AO/LD. TPO/LD. DRP ERRED IN ENHANCI NG THE INCOME OF THE APPELLANT BY INR 10,58,456 BY IMPUTING INTER EST ON RECEIVABLES I.T.A .NO.-6779/DEL/2015 PAGE 3 OF 50 FROM THE AES BEYOND THE CREDIT PERIOD OF THE APPELL ANT ON AN AD HOC BASIS. IN DOING SO, THE LD. AO/ LD. TPO/LD. DRP HAS GROSSLY ERRED IN: 5.1. SELECTING AN AD HOC CREDIT PERIOD AND INTERES T RATE WHILE COMPUTING THE ADDITION; AND 5.2. COMPLETELY DISREGARDING THE DETAILED SUBMISSI ONS EXPLAINING THAT SUCH ADJUSTMENTS ARE NOT MANDATED UNDER THE FACTS A ND CIRCUMSTANCES OF THE CASE. 6. THAT THE LD. AO HAS ERRED IN CHARGING INTEREST U NDER SECTION 234B AND 234C OF THE ACT AMOUNTING TO INR 5,16,24,544 AN D INR 10,61,745 RESPECTIVELY. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.AO HAS ERRED IN INITIATING PENALTY PROCEEDIN GS UNDER SECTION 271(1)(C) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DE LETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR DURING THE COURSE OF THE PROCEEDINGS BEFORE THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THE INTEREST OF THE NATURAL JUSTICE. TH E AFORESAID GROUNDS ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OT HER. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESS EE INCORPORATED ON 21.04.1994 IS A WHOLLY OWNED SUBSIDIARY OF BECHTEL CORPORATION USA. DURING THE YEAR, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSIN ESS OF EXPORT OF CUSTOMIZED ELECTRONIC DATA IN THE FORM OF DESIGNS, DRAWINGS, C ALCULATIONS AND OTHER RELEVANT DATASHEET RELATING TO PROJECT ENGINEERING AND COMME RCIAL SOLUTIONS FOR POWER PLANT, REFINERY, PETROCHEMICAL PLANT ETC. 2.1. THE FOLLOWING INTERNATIONAL TRANSACTIONS WERE DIS CLOSED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION :- NO. NATURE OF TRANSACTION METHOD VALUE OF TRANSACTI ON 1. PROVISION OF ENGINEERING DESIGN AND RELATED SERVICES TNMM 1,31,40,40,147 2. PROVISION OF FINANCIAL AND ACCOUNTING SUPPORT SERVICES TNMM 5,05,29,404 3. PROVISION OF IT INFRASTRUCTURE SUPPORT SERVICES TNMM 14,98,35,385 4. REIMBURSEMENT OF EXPENSES (PAID) TNMM 5,07,26,04 6 5. REIMBURSEMENT OF EXPENSES (RECEIVED) CUP 10,78,4 5,266 I.T.A .NO.-6779/DEL/2015 PAGE 4 OF 50 2.2. FOR THESE SEGMENTS, THE ASSESSEE SUBMITTED THE FOL LOWING RESULTS:- PARTICULARS PROVISION OF ENGINEERING DESIGN AND RELATED SERVICES PROVISION OF FINANCIAL SUPPORT SERVICES PROVISION OF IT INFRASTRUCTURE SUPPORT SERVICES SALES/OPERATING INCOME 1,315,983,754 50,643,980 150,096,464 LESS: OPERATING EXPENSES 1,187,312,426 45,823,336 131,290,369 OPERATING PROFIT 128,671,328 4,820,644 18,806,095 AVERAGE PLI 10.84% 10.52% 14.32% 3. THE THREE SEGMENTS WERE CONSIDERED BY THE TPO SEPAR ATELY. QUA THE ENGINEERING DESIGN SEGMENT , HE ACCEPTED THE ASSESSEES SELECTION OF TNMM AS THE MOST APPROPRIATE METHOD AND ALSO THE PLI OF OP/ TC. THE PLI OF THE COMPANY ARRIVED AT 9.12% BY THE ASSESSEE WAS RECALCULATED B Y THE TPO AT 8.98% ON COST. THE AVERAGE PLI OF THE 11 COMPARABLES AT 12.57% IN ITS TP STUDY WAS NOT ACCEPTED BY THE TPO AND A SHOW CAUSE NOTICE WAS ISSUED TO TH E ASSESSEE. 3.1. CONSIDERING THE REPLY, THE TRANSFER PRICING OFFICE R DISCARDED THE APPROACH FOLLOWED BY THE ASSESSEE AND REQUIRED THE ASSESSEE TO CARRY OUT A FRESH SEARCH. REJECTING 7 OUT OF THE 11 COMPARABLES OFFERED BY TH E ASSESSEE IN THE FRESH SEARCH HE INTRODUCED A FEW MORE AND CONSIDERING THE AVERAG E OP/TC OF 30.19% OF THE FOLLOWING 18 COMPARABLES HELD THAT THE ADJUSTMENT F OR ARMS LENGTH PRICE WAS WARRANTED:- S. NO. COMPANY NAME OP/ TC (%)* 1. ACROPETAL TECHNOLOGIES LTD (ENGINEERING DESIGN SERVI CES SEG) 14.26% 2. ASHOK LEYLAND PROJECT SERVICES LIMITED 24.70% 3. BENGAL SREI INFRASTRUCTURE DEVELOPMENT LTD 42.14% 4. CADES DIGITECH PVT. LTD. 5.78% 5. CERTIFICATION ENGINEERS INTERNATIONAL LTD 78.45% 6. GLOBAL PROCUREMENT CONSULTANTS LIMITED 30.86% I.T.A .NO.-6779/DEL/2015 PAGE 5 OF 50 7. GUJARAT INDUSTRIAL & TECHNICAL CONSULTANCY ORG LTD 7.89% 8. IBI CHEMATUR (ENGINEERING & CONSULTANCY) LTD 25.96% 9. INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD 14.78% 10. KITCO LTD 27.48% 11. MAHINDRA CONSULTANTS ENGINEERS LTD 30.92% 12. MITCON CONSULTANCY & ENGINEER SERVICES LTD 40.19% 13. NTPC ELECTRIC SUPPLY COMPANY LTD 18.01% 14. PALLAVAN TRANSPORT CONSULTANCY SERVICES LTD 25.59% 15. REC POWER DISTRIBUTION CO. LTD. 39.44% 16. RITES LTD 58.27% 17 T C E CONSULTING ENGINEERS LTD 29.29% 18 USHA HYDRO DYNAMICS LTD 29.45% MEAN 30.19% 4. IN THE FINANCIAL AND ACCOUNTING SUPPORT SERVICE SEGMENT THE TPO ACCEPTED SELECTION OF TNMM AS THE MOST APPROPRIATE METHOD AS WELL AS THE SELECTION OF OP/TC AS THE PLI. THE ASSESSEES PLI W AS RE-COMPUTED AND ITS CLAIM OF THE TRANSACTION BEING AT ARMS LENGTH ON THE BASIS OF THE AVERAGE PLI OF THE 9 COMPARABLES AT 11.10% WAS FAULTED WITH REQUIRING TH E ASSESSEE TO CARRY OUT A FRESH SEARCH. 4.1. IN THE FRESH SEARCH THE ASSESSEE OFFERED 9 COMPAR ABLES OUT OF WHICH 4 WERE REJECTED BY THE TPO ON THE GROUNDS OF FAILING THE F ILTER APPLIED AND FUNCTIONAL DISSIMILARITY. THE AVERAGE OP/TC MARGIN OF 25.98% OF THE FOLLOWING 8 COMPARABLES WHICH INCLUDED COMPANIES INTRODUCED BY THE TPO WAS WORKED OUT: - S.NO. COMPANY NAME OP/TC (%)* 1. ACCENTIA TECHNOLOGIES LTD. 29.18% 2. ACROPETAL TECHNOLGOIES LTD. (ENGINEERING DESIGN SERVICE SEG) 14.36% 3. E4E HEALTHCARE BUSINESS SERVICES PVT.LTD. 9.77% 4. ECLERX SERVICES LTD. 56.82% 5. INFOSYS BPO LTD. 17.86% 6. JINDAL INTELLICOM PVT.LTD. 13.70% 7. TCE E-SERVE LTD. 69.31% I.T.A .NO.-6779/DEL/2015 PAGE 6 OF 50 8. MICROGENETICS SYSTEMS LTD -3.20% MEAN 25.98% 5. CONSIDERING THE BENCHMARKING OF INFRASTRUCTURE SUPPORT SERVICE SEGMENT THE TPO ACCEPTING THE ASSESSEES APPROACH OF TAKING TNMM AS THE MOST APPROPRIATE METHOD AND ALSO ACCEPTING THE PLI OF OP /TC REJECTED THE ASSESSEES CLAIM THAT THE TRANSACTION WAS AT ARMS LENGTH PRI CE. THE TP STUDY IN REGARD TO AVERAGE PLI OF 12.57% OF THE 5 COMPARABLES SELECTED WHEN COMPARED TO ASSESSEES OP/TC OF 18.32% WAS REJECTED. THE ASSESSEES OP/TC MARGIN WAS AGAIN RE- CALCULATED AND THE ASSESSEE WAS REQUIRED TO CARRY O UT A FRESH SEARCH. 5.1. REJECTING ALL THE 5 COMPARABLES SO OFFERED IN THE FRESH SEARCH, THE TPO SELECTED THE FOLLOWING FINAL LIST OF COMPARABLE HAV ING OP/TC OF 23.55% TO HOLD THAT THE TRANSACTION WAS NOT AT ARMS LENGTH: - S.NO. COMPANY NAME OP/TC (%)* 1. ACROPETAL TECHNOLOGIES LTD. (INFORMATION TECHNOL OGY SERVICES SEGMENT) 22.06% 2. AKSHAY SOFTWARE TECHNOLOGIES LTD. 0.86% 3. CELSTREAM TECHNOLOGIES PRIVATE LTD. 13.20% 4. E-INFOCHIPS INDIA PRIVATE LTD. 56.44% 5. EVOKE TECHNOLOGIES PRIVATE LTD. 8.11% 6. E-ZEST SOLUTIONS LTD. 39.98% 7. IGATE GLOBAL SOLUTIONS LTD. 23.71% 8. INFOSYS LTD. 43.39% 9. LARSEN & TURBO INFOTECH LTD. 18.40% 10. LGS GLOBAL LTD. 14.11% 11. MINDTREE LTD. 10.29% 12. PERSISTENT SYSTEMS & SOLUTIONS LTD. 21.51% 13. PERSISTENT SYSTEMS LTD. 23.08% 14. R S SOFTWARE (INDIA) LTD. 16.20% 15. SANKHYA INFOTECH LTD. (SOFTWARE DEVELOPMENT SER VICE SEGMENT) 26.20% 16. SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 24.33% 17. TATA ELXSI LTD. 12.94% 18. THIRDWARE SOLUTION LTD. 18.30% 19. WIPRO TECHNOLOGY SERVICES LTD. 54.42% MEAN 23.55% I.T.A .NO.-6779/DEL/2015 PAGE 7 OF 50 6. THE ASSESSEE CARRIED THESE ISSUE BEFORE THE DRP NO T ONLY ON THE GROUNDS OF COMPARABILITY BUT ALSO ON THE GROUND THAT WORKING CAPITAL ADJUSTMENT WERE NOT PROVIDED. THE TPO WAS ALSO ASSAILED ON THE GROUND THAT CONTRARY TO FACTS HE REDREW THE SEGMENTAL ON THE FOLLOWING GROUNDS:- - TREATING REIMBURSEMENT OF EXPENSES RECEIVED AS PART (I.E. PART OF BOTH EXPENSE AND INCOME) OF PROFIT & LOSS (P&L); - REALLOCATION OF CERTAIN EXPENSES (WHICH WERE NOT ACTUALS) BASED ON THE REVENUE OF EACH SEGMENT; AND - TREATING PROVISION/LIABILITIES WRITTEN BACK AS NO N-OPERATING IN NATURE. 6.1. THE ARGUMENT WAS PUT UP THAT IF THE TPOS STAND IS ACCEPTED THEN FOLLOWING POSITION WOULD EMERGE:- S.NO. NATURE OF INTERNATIONAL TRANSACTION TESTED PARTYS MARGIN AS PER SEGMENTAL REDRAWN BY THE LD.TPO ARMS LENGTH MARGIN DETERMINED BY LD.TPO ADJUSTMENT U/S 92CA 1. PROVISION OF EDS 8.98% 30.19% 27,39,32,965 2. PROVISION OF FAS SERVICES 10.52% 25.98% 70,84,25 9 3. PROVISION OF IT INFRA SERVICES 14.32% 23.55% 1,21,12,787 4. RECEIVABLES N.A. N.A. 33,16,088 TOTAL 29,64,46,099 6.2. IT WAS SUBMITTED THAT THE ABOVE COMPUTATION HAS NO T BEEN COMPUTED BY THE TPO, AS IT HAS BEEN COMPUTED ON THE BASIS OF THE MA RGINS OF THE OTHER 2 SEGMENTS. THE SAID ISSUE WAS STATED TO BE PENDING BEFORE THE ASSESSING OFFICER BY WAY OF RECTIFICATION APPLICATION. BY WAY OF THE SYNOPSIS F ILED IN THE PRESENT PROCEEDINGS, IT HAS BEEN SUBMITTED THAT THE DIRECTION OF THE DRP HO LDING THAT THE MARGIN RESULTS MUST BE CONSIDERED CONSISTENTLY ACROSS THE SEGMENTS HAS NOT BEEN CARRIED OUT. THE TPO HAS ALSO BEEN FAULTED FOR NOT CONSIDERING T HE REVISED MARGIN FROM THE I.T.A .NO.-6779/DEL/2015 PAGE 8 OF 50 REDRAWN SEGMENTAL ACCOUNTS. HIS SUO MOTO ACTION OF PASSING RECTIFICATION ORDER UNDER SECTION 154 WHEREIN SELECTIVE CORRECTION OF M ARGINS OF ENGINEERING DIVISION SEGMENT HAS BEEN ASSAILED. THE RESULTANT INCREASE TO 21.57% AND 18.06% IN THE FINANCIAL ACCOUNT SEGMENT AND IT INFRASTRUCTURE IT HAS BEEN ASSAILED HAS BEEN IGNORED BY THE TPO. 6.3. THE TPO WAS ALSO ASSAILED ON THE GROUND THAT THE B ENEFIT OF ECONOMIC ADJUSTMENTS (WORKING CAPITAL AND RISK ADJUSTMENTS) WAS NOT GRANTED TO THE ASSESSEE WHILE COMPUTING THE ARMS LENGTH MARGINS O F THE RESPECTIVE SEGMENTS OF THE COMPANY. THE FACT THAT IT WAS REQUESTED FOR IT WAS SUBMITTED IS EVIDENT FROM INTERNAL PAGES 85 TO 87 OF THE TPO. 6.4. ADDRESSING THE ORDER OF THE TPO IT WAS FURTHER SUBM ITTED THAT THE TPO AT INTERNAL PAGES 88 TO 100 AND 113 MADE AN ADJUSTMENT ON ACCOUNT OF PERIOD OF DELAY IN RECEIPT OF PAYMENTS FROM AES BY IMPUTING A N INDIAN BASED INTEREST AT THE RATE OF 10.84% PER ANNUM FOR THE PERIOD OF DELAY IN RECEIPT OF PAYMENTS FROM AES BEYOND 60 DAYS. 6.5. AS A RESULT OF THESE ACTIONS, IT HAS BEEN SUBMITTE D THAT THE FOLLOWING ADJUSTMENTS WERE PROPOSED IN THE TRANSFER PRICING O RDER POST RECTIFICATION UNDER SECTION 154:- S.NO. NATURE OF INTERNATIONAL TRANSACTION TESTED PARTYS MARGIN AS PER SEGMENTAL REDRAWN BY THE LD.TPO ARMS LENGTH MARGIN DETERMINED BY LD.TPO ADJUSTMENT U/S 92CA 1. PROVISION OF EDS 8.98% 30.19% 27,39,32,965 2. PROVISION OF FAS SERVICES 10.52% 25.98% 70,84,25 9 3. PROVISION OF IT INFRA SERVICES 14.32% 23.55% 1,21,12,787 4. RECEIVABLES N.A. N.A. 33,16,088 I.T.A .NO.-6779/DEL/2015 PAGE 9 OF 50 TOTAL 29,64,46,099 6.6. THESE ISSUES IT WAS SUBMITTED WERE CARRIED BEFORE THE DRP. INVITING ATTENTION TO THE SYNOPSIS FILED IT WAS SUBMITTED TH AT THE DRP QUA THE EDS SEGMENT DIRECTED THE EXCLUSION OF THE FOLLOWING COMPARABLE S:- - ASHOK LEYLAND PROJECT SERVICES LTD. - BENGAL SRE1 INFRASTRUCTURE DEVELOPMENT LTD. - NTPC ELECTRIC SUPPLY COMPANY LTD. - PALLAVAN TRANSPORT CONSULTANCY SERVICES LTD. 6.7. THE DRP ALSO DIRECTED THE INCLUSION OF A COMPARABL E SELECTED BY THE ASSESSEE -ARVIND ACCEL LIMITED. 6.8. CONSIDERING THE FAS AND IT INFRA SUPPORT SERVICES: IT WAS SUBMITTED THE DRP ACCEPTED THE APPROACH AND THE COMPARABLE SELECT ED BY THE TPO . 6.9. IT WAS SUBMITTED THAT THE DRP ALSO DIRECTED THE TP O TO PROVIDE WORKING CAPITAL ADJUSTMENT. HOWEVER, RISK ADJUSTMENT WAS D ENIED TO THE ASSESSEE. 6.10. REFERRING TO INTERNAL PAGE 37 OF THE DRPS ORDER I T WAS SUBMITTED THAT THE DRP DIRECTED THE TPO TO CONSISTENTLY APPLY THE SEGM ENT RESULTS FOR ALL THE THREE SEGMENTS WHICH DIRECTION HAS NOT BEEN CARRIED OUT. THE RELEVANT EXTRACT RELIED UPON IS REPRODUCED HEREUNDER:- 4.7. ALLOCATION OF OVERHEAD COSTS IN HIS ORDER, THE TPO HAS REPRODUCED THE SHOW CAUS E NOTICE WHICH ALSO HAS THE CALCULATION FOR THE ASESSEES PL I (OP/OC). FOR THE ENGINEERING DESIGN SEGMENT, THIS CALCULATION IS GIV EN ON PAGE 6 OF THE TPOS ORDER. THE ASSESSEE HAS CONTENDED THAT THE T PO HAS ALLOCATED OVERHEAD EXPENSES ACROSS DIFFERENT SEGMENTS, ON THE BASIS OF SEGMENTAL REVENUE, WHEREAS THE ASSESSEE HAD ALLOCATED THESE E XPENSES ON THE BASIS OF ALLOCATION KEYS, SUCH AS TOTAL HOURS SPENT BY PERSONNEL, PAYROLL COST, ETC. THE ASSESSEE ARGUED THAT THE TPO HAD FO LLOWED AN INCONSISTENT APPROACH BECAUSE THE SAME REVENUE BASE D ALLOCATION WAS NOT DONE BY THE TPO FOR THE OTHER SEGMENTS-FAS SEGM ENT AND IT INFRA I.T.A .NO.-6779/DEL/2015 PAGE 10 OF 50 SEGMENT. THE SUBMISSIONS OF THE ASSESSEE AND THE F ACTS HAVE BEEN CAREFULLY CONSIDERED. THE ASSESSEE HAS NOT PRODUCE D ANY EVIDENCE IN SUPPORT OF ITS ALLOCATION KEYS AND THE BASIS FOR AL LOCATION OF OVERHEAD COSTS ACROSS DIFFERENT SEGMENTS. THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM AND CONTROVERT THE BASIS OF ALLOCATION US ED BY THE TPO. CONSIDERING THE FACTS, THE TPOS DECISION TO ALLOCA TE THESE EXPENSES ON THE BASIS OF SEGMENTAL REVENUE IS JUSTIFIED AND IS UPHELD. THERE IS NO REASON FOR NOT APPLYING THIS CONSISTENTLY ACROSS DI FFERENT SEGMENTS, AND THE TPO IS DIRECTED TO APPLY THIS ALLOCATION CONSIS TENTLY IN THE OTHER SEGMENTS-FAS SEGMENT AND IT INFRA SEGMENT, ALSO. 6.11. REFERRING TO PAGE 74 TO 81 OF THE DRPS ORDER IT W AS SUBMITTED THAT THE DRP DIRECTED THE TPO/AO TO USE 6 MONTH LIBOR PLUS 300 B ASIS POINTS AS THE INTEREST RATE WHILE COMPUTING THE INTEREST ON INTERCOMPANY R ECEIVABLES. 7. PURSUANT TO THE DRPS DIRECTION IT WAS SUBMITTED T HE AO IN THE FINAL ORDER QUA ENGINEERING DESIGN SEGMENT ADOPTED THE FOLLOWING 15 COMPARABLES COMPANIES:- S.NO. COMPANY NAME WC ADJUSTED OP/TC 1. ACROPETAL TECHNOLOGIES LTD (ENGINEERING DESIGN SERV ICES) 14.26% 2. KITCO LTD 28.79% 3. T C E CONSULTING ENGINEERS LTD 28.97% 4. CADES DIGITECH PVT LTD. 2.83% 5. CERTIFICATION ENGINEERS INTERNATIONAL LTD 71.97% 6. GLOBAL PROCUREMENT CONSULTANTS LIMITED 29.32% 7. GUJARAT INDUSTRIAL & TECHNICAL CONSULTANCY ORG LTD 8.67% 8. IBI CHEMATUR (ENGINEERING & CONSULTANCY) LTD 26.87% 9. INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD 10.63% 10. MAHINDRA CONSULTANTS ENGINEERS LTD 30.32% 11. MITCON CONSULTANCY & ENGINEER SERVICES LTD 43.58% 12. REC POWER DISTRIBUTION CO. LTD. 31.00% 13. RITES LTD. 58.27% 14. USHA HYDRO DYNAMICS LTD 25.40% 15. ARVIND ACCEL LTD. 2.47% MEAN 27.56% I.T.A .NO.-6779/DEL/2015 PAGE 11 OF 50 7.1. THE GRIEVANCE OF THE ASSESSEE IN THE PRESENT PROCE EDINGS, IT WAS SUBMITTED PERSISTS QUA 9 OF THE COMPARABLES WHICH HAVE BEEN M ENTIONED AT SERIAL NO. 2, 3, 5, 6, 8, 11, 12, 13 AND 14 IN THE ABOVE TABLE. 7.2. IN THE SAID BACKGROUND, INVITING ATTENTION TO GROU ND NO. 1, IT WAS SUBMITTED THAT WITH RESPECT TO THE ENGINEERING DESIGN AND RELATED SERVICES SEGMENT THE ASSESSEE ACTS AS A CAPTIVE SERVICE PROVIDER AND IS REQUIRED TO CARRY OUT THE DETAILED ENGINEERING DESIGN AND DRAWING ON THE BASIS OF SPEC IFICATIONS AND REQUIREMENTS PROVIDED BY THE AES. THE ASSESSEE IS ALSO INVOLVED IN THE INTERNAL PROJECT PLANNING, SCHEDULING, PROJECT MANAGEMENT, MONITORING PROGRESS , REPORTING ETC. FOR THE SCOPE OF WORK OUTSOURCED BY AES. EXCLUSION OF THE ABOVE COMPARABLES IT WAS SUBMITTED HAS BEEN REQUESTED ON THE BASIS OF THE FOLLOWING SE TTLED BROAD PARAMETERS BY WAY OF CONSISTENT ORDERS OF THE ITAT IN ASSESSEES OWN CASE AS PER ORDERS IN 2004-05, 2005-06 & 2009-10 AND 2010-11 AYS, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK FILED:- (A) GOVERNMENT OWNED ENTERPRISES OR THE ENTERPRISES AFFILIATED WITH GOVERNMENT PROJECTS ARE NOT COMPARABLE AND MU ST BE REJECTED FOR DETERMINING THE ARMS LENGTH MARGINS; AND (B) COMPARABLES WHICH ARE FUNCTIONALLY DIFFERENT TO THE BUSINESS OF THE APPELLANT MUST BE REJECTED. 7.3. ACCORDINGLY ON THE BASIS OF THESE PARAMETERS THE E XCLUSION OF THE FOLLOWING 5 FOLLOWING COMPARABLES WAS SOUGHT. APART FROM THAT SPECIFIC FACTS SUPPORTING THE PRAYER ARE ALSO BROUGHT OUT IN THE FOLLOWING CHART- S.NO. COMPANIES SELECTED IN THE FINAL ORDER APPELLANTS CONTENTIONS 1. CERTIFICATION ENGINEERING INTERNATIONAL LTD. - REJECTED IN APPELLANTS OWN CASE FOR AY 2009-10 (ITA NO.882/DEL/2014) [REFER PARA 32 ON PAGE NO.575 OF THE PAPER BOOK FOR ORDER OF HONBLE ITAT] I.T.A .NO.-6779/DEL/2015 PAGE 12 OF 50 (OP/TC=71.97%) (REFER PAGE NO.290 AND 291 OF THE APPEAL SET FOR LD.DRP DIRECTIONS) - SIGNIFICANT RELIANCE ON PROJECTS FROM THE GOVERNMENT AND GOVERNMENT UNDERTAKING - FUNCTIONALLY DISSIMILAR- RELATED TO CERTIFICATION, RE-CERTIFICATION, SAFETY AUDIT AND HSE MANAGEMENT SYSTEMS FOR OFFSHORE AND ONSHORE OIL & GAS FACILITIES. (REFER PAGE NOS.100 TO 104 OF THE APPEAL SET FOR SUBMISSION FILED BEFORE THE LD.DRP). 2. RITES LTD. (OP/TC=58.27%) (REFER PAGE NO.293 OF THE APPEAL SET FOR LD.DRP DIRECTIONS) - REJECTED IN APPELLANT OWN CASE FOR AY 2004- 05 AND AY 2005-06 (ITA NO.1476/DEL/2015 AND ITA NO.1477/DEL/2015) (REFER PAGE 521 AND 522 FOR AY 2004-05; 535 AND 536 FOR AY 2005-06 OF THE PAPERBOOK FOR ORDER OF THE HONBLE ITAT) - GOVERNMENT UNDERTAKING - FUNCTIONALLY DISSIMILAR- PROVIDES CONSULTANCY IN VARIOUS AREAS SUCH AS AIRPORT, TRANSPORT, HIGHWAYS, INDUSTRIAL ENGINEERING, PORT AND WATER RESOURCES, AMONG OTHERS. - COST OF SALES INCLUDES COST OF FINISHED GOODS. (REFER PAGE NOS.125 TO 132 OF THE APPEAL SET FOR SUBMISSION FILED BEFORE THE LD.DRP). 3. KITCO LTD. (OP/TC=28.79%) - REJECTED IN APPELLANT OWN CASE FOR AY 2010- 11 (ITA NO.1478/DEL/2015) [REFER PAGE 614 TO 616 OF THE PAPER BOOK FOR ORDER OF THE HONBLE ITAT] - GOVERNMENT UNDERTAKING. - THE COMPANY IS RENDERING SERVICES MAJORLY TO THE GOVERNMENT OR GOVERNMENT OWNED ENTERPRISES. 4. TCE CONSULTING ENGINEERING LTD. (OP/TC=28.97%) (REFER PAGE NO.293 OF THE APPEAL SET FOR LD.DRP DIRECTIONS) - REJECTED IN APPELLANTS OWN CASE FOR AY 2010-11 (ITA NO.1478/DEL/2015) {REFER PAGE NO.617 OF THE PAPER BOOK FOR ORDER OF THE HONBLE ITAT}. - INVOLVED IN ACTIVITIES BEYOND ENGINEERING DESIGN WHICH BIPL PROVIDES. - ENGAGED IN ACTIVITIES THAT EXTENDS FROM CONCEPT TO COMMISSIONING WHEREAS BIPL PROVIDES SERVICES UNDER THE AEGIS OF ITS OVERSEAS. THE DIVERSIFIED FUNCTIONS OF THIS COMPANY INCLUDE PRE- PROJECT ACTIVITIES, PROCUREMENT ASSISTANCE, PROJECT MANAGEMENT, COMMISSIONING AND COORDINATION, INSPECTION, CONSTRUCTION AND SUPERVISION. - NO SEGMENTATION AVAILABLE IN THE ANNUAL REPORT OF THE COMPANY WHICH PROVIDES PROFITABILITY FOR THE ENGINEERING DESIGN SEGMENT. (REFER PAGE NOS.117 TO 121 OF THE APPEAL SET FOR SUBMISSION FILED BEFORE THE LD.DRP). 5. IBI CHEMATUR (ENGINEERING & - REJECTED IN APPELLANTS OWN CASE FOR AY 2010-11 (ITA NO.1478/DEL/2015) I.T.A .NO.-6779/DEL/2015 PAGE 13 OF 50 CONSULTANCY) LTD. (OP/TC=26.87%) (REFER PAGE NO.291 OF THE APPEAL SET FOR LD.DRP DIRECTIONS) [REFER PAGE NO.617 OF THE PAPER BOOK FOR ORDER OF THE HONBLE ITAT]. - INVOLVED IN ACTIVITIES BEYOND ENGINEERING DESIGN WHICH BIPL PROVIDES. - ALSO PROVIDES PROJECT PLANNING, MANAGEMENT SERVICES, PROCUREMENT ASSISTANCE, PROJECT MANAGEMENT, COMMISSIONING AND COORDINATION, INSPECTION, CONSTRUCTION AND SUPERVISION ETC. - NO SEGMENTATION AVAILABLE IN THE ANNUAL REPORT OF THE COMPANY WHICH PROVIDES PROFITABILITY FOR THE ENGINEERING DESIGN SEGMENT. - UNDERTAKES SUBSTANTIAL R&D ACTIVITIES (R&D EXPENSES APPROXIMATELY 4% OF TURNOVER) (REFER PAGE NOS.122 TO 125 OF THE APPEAL SET FOR SUBMISSION FILED BEFORE THE LD.DRP) 7.4. IN THE CASE OF RITES LTD. MENTIONED AT SL.NO.13 IT WAS SUBMITTED THAT THE DIRECTIONS OF THE DRP DIRECTING THE TPO TO CONSIDER THE CORRECT MARGIN HAVE NOT BEEN COMPLIED WITH. THE EXCLUSION OF THIS COMPARABL E WAS ALSO SOUGHT ON THE BASIS OF PAST PRECEDENT IN ASSESSEES OWN CASE. 7.5. APART FROM THE ABOVE SIX COMPARABLES AS HAVING BEE N WRONGLY SELECTED BY THE TPO AND RETAINED BY THE DRP, THE EXCLUSION OF REC POWER DISTRIBUTION COMPANY LIMITED IT WAS SUBMITTED IS SOUGHT ON SIMILAR REASONING NA MELY THAT IT IS A WHOLLY OWNED SUBSIDIARY OF REC LTD. A NAVRATNA CPSE UNDER MINISTRY OF POWER . REC LTD. IT WAS SUBMITTED 60% HOLDING THEREIN WAS BY T HE STATE AND CENTRAL GOVERNMENTS AS PER INFORMATION AVAILABLE ON THE SIT E OF ( WWW.MONEYCONTROL.COM ). REFERRING TO THE OBJECTIONS BEFORE THE DRP AND THE SYNOPSIS FILED IT WAS SUBMITTED IT IS NOT ONLY FUNCTIONALLY DISSIMILAR BUT EVEN THE ANNUAL REPORT WOULD SHOW THAT QUA THE ACTIVITIES OF DEVELOP, CONSTRUCT, OWN, OPERATE, DISTRIBUTE AND MA INTAIN 66 KV AND BELOW VOLTAGE CLASS ELECTRIFICATION/DISTRIBUTI ON ELECTRIC SUPPLY LINES/DISTRIBUTION SYSTEM. NO SEGMENTATION WAS AVAI LABLE - I.T.A .NO.-6779/DEL/2015 PAGE 14 OF 50 ( HTTP://WWW.INDIAMART.COM/RECPOWER-DISTRIBUTION/ABOU TUS.HTML ) & (ANNUAL REPORT). THE SAID COMPANY IT WAS SUBMITTED HAS NO SEGMENTATION FOR THE SERVICES OF INSPECTION AND CONSULTANCY PROVIDED. THE SE RVICES PROVIDED RANGE FROM THIRD PARTY INSPECTION OF WORKS AND MATERIALS AS WE LL AS PROJECTS IN HIGH VOLTAGE DISTRIBUTION SEGMENTS AND VARIOUS STATE ELECTRICITY BOARDS. ACCORDINGLY IT WAS SUBMITTED THAT EXCLUSION OF RITES IS SUPPORTED NOT ONLY BY THE FACT THAT IT RENDERS SERVICES LARGELY TO GOVERNMENT/GOVERNMENT ENTERPRIS ES AND NOT IN THE FREE MARKET BUT IT ALSO DERIVES BENEFIT OUT OF ITS PARENTAL REL ATION WITH THE GOVERNMENT IN GETTING CONTRACTS FROM THE (STATE OR CENTRE) DERIVE S GOVERNMENT ITSELF AND OTHER GOVERNMENT UNDERTAKING AND THUS IS GETTING THE BENE FIT OF AN IMPLICIT GUARANTEE LEADING TO A PREFERENTIAL TREATMENT IN OBTAINING CO NTRACTS FROM GOVERNMENT/GOVERNMENT UNDERTAKINGS. THIS PROTECTION AND PREFERENTIAL TREATMENT IT WAS SUBMITTED INEVITABLY IMPACTS THE PROFIT MARG INS OF THE SAID COMPARABLE AND IT CANNOT BE SAID TO BE INDICATIVE OF A FREE MARKET ECONOMY WHERE THE OTHER COMPARABLES AND THE ASSESSEE OPERATES. RELIANCE ACCORDINGLY WAS PLACED ON CHEMTEX GLOBAL ENGINEERING PRIVATE LIMITED ITA NO. 3590/MUM/2010 WHERE GOVERNMENT OWNED COMPANIES HAVE BEEN REJECTED DUE T O THIS SPECIFIC REASON:- 25. EVEN WITH REGARD TO THE COMPARABLE COMPANIES W HICH ARE TAKEN INTO CONSIDERATION BY THE AO/TPO THE LEARNED CIT(A) HAS CORRECTLY HELD THAT RITES LIMITED IS A GOVERNMENT OF INDIA ENTERPRISE AND CONSIDERING THE NATURE OF THE CONTRACTS AND THE IMPLICIT GUARAN TEE PROVIDED BY THE GOVERNMENT OF INDIA, ETC. RITES LIMITED CANNOT BE T AKEN AS A COMPARABLE CASE AND HENCE THE LEARNED CIT(A) WAS JUSTIFIED IN EXCLUDING THE SAME. [EMPHASIS SUPPLIED] 7.5.1. RELYING ON THE SAME, IT WAS SUBMITTED THE NATURE OF CONTRACTS AND THE IMPLICIT GUARANTEE, THE COMPARABLE (IN THIS CASE RI TES LIMITED) CANNOT BE ACCEPTED. I.T.A .NO.-6779/DEL/2015 PAGE 15 OF 50 THE SAID REASONING IT WAS SUBMITTED IS EQUALLY TRUE FOR REC POWER DISTRIBUTION LTD. WHICH HAS MOST OF ITS CONTRACTS FROM GOVERNMENT OF INDIA THUS IMPACTING THE REVENUE AND PROFITABILITY. APART FROM THAT REC POWE R DISTRIBUTION IS A 100% GOVERNMENT OWNED UNDERTAKING. THUS IT WAS ARGUED TH AT THIS CASE SQUARELY COVERS THE ASSESSEE'S CONTENTIONS THAT THESE COMPARABLES O UGHT BE EXCLUDED. 7.5.2. RENDERING SERVICES MAJORLY TO GOVERNMENT/GOVERNMENT ENTERPRISES IT WAS SUBMITTED IS A PRINCIPLE FOLLOWED IN ASSESSEES OWN CASE FOR AY 2009-10 (SUPRA), WHEREIN THE TRIBUNAL HAS REJECTED A COMPARABLE ON T HIS ISSUE. ACCORDINGLY REC POWER DISTRIBUTION, (BEING AN INDIRECT GOVERNMENT O WNED UNDERTAKING) IT WAS SUBMITTED DESERVES TO BE EXCLUDED. RELIANCE WAS ALS O PLACED ON THE RULING OF M/S THYSSENKRUPP INDUSTRIES INDIA PRIVATE LIMITED ITA N O. 6460/MUM/2012 WHERE THE FOLLOWING WAS HELD: WE FIND IT AS UNDISPUTED THAT ENGINEERS INDIA LIM ITED IS A GOVERNMENT COMPANY. IT HAS SEVERAL SEGMENTS WHICH ALSO INCLUDE 'TURNKEY PROJECT', PAGE 700 OF THE PAPER BOOK IS A COPY OF ANNUAL REPO RT OF ENGINEERS INDIA LIMITED ON TURNKEY PROJECT. IT CAN BE SEEN THAT THE REVENUE HAS ARISEN FROM COMPLETING PARAXYLENE PLANT OF IOCL AND FURTHE R THAT COMPANY IS ENGAGED IN EXECUTION OF OTHER UNIT OF IOCL'S PANIPA T NAPHTHA CRACKER PROJECT. IN OUR CONSIDERED OPINION' THIS CASE SHOUL D NOT HAVE BEEN INCLUDED IN THE LIST OF FINAL COMPARABLES FOR TWO R EASONS. FIRST REASON IS THAT PROFIT MOTIVE IS NOT A RELEVANT CONSIDERATION IN CASE OF GOVERNMENT UNDERTAKINGS. MANY GOVERNMENT UNDERTAKINGS EVEN OPE RATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERN MENT. THE SECOND REASON IS THAT ENGINEERS INDIA LIMITED EARNED INCOM E FROM TURNKEY PROJECT BY SUCCESSFULLY COMPLETING THE PROJ ECT OF IOCL AND OTHER PUBLIC SECTOR UNDERTAKINGS. IN THAT SENSE OF THE MATTER, THE RELATED PARTY TRANSACTIONS ARE MUCH MOR E THAN THE FILTER OF 25%. WE, THEREFORE ORDER FOR THE EXCLUSIO N OF THIS CASE FROM THE LIST OF COMPARABLES. (EMPHASIS SUPPLIED) 7.5.3. ACCORDINGLY RELYING ON THE SAID ORDER IT WAS SUBMIT TED THAT THE COMPARABLE BEING CONSIDERED NAMELY (ENGINEERS INDIA LIMITED) HAD BEEN REJECTED ON THE I.T.A .NO.-6779/DEL/2015 PAGE 16 OF 50 GROUND THAT IT WAS WORKING FOR GOVERNMENT / PUBLIC SECTOR UNDERTAKINGS AND SINCE - RFC POWER DISTRIBUTIONS TRANSACTIONS WERE ALSO L ARGELY WITH OTHER GOVERNMENT OWNED ENTERPRISES, THE TRANSACTIONS TANTAMOUNT TO R ELATED PARTY TRANSACTIONS. ACCORDINGLY IT WAS ARGUED THAT THE SAID COMPARABLE CANNOT BE ACCEPTED AS THE TRANSACTIONS ARE NOT UNCONTROLLED. 7.6. APART FROM SEEKING THE EXCLUSION OF THE ABOVE 6 CO MPARABLES THE INCLUSION OF THE FOLLOWING 2 COMPANIES WAS SOUGHT ON THE GROUND THAT THEY WERE FUNCTIONALLY SIMILAR AND HAVE BEEN WRONGLY REJECTED BY THE TPO. EVEN IN THE EARLIER YEARS THE TPO IT WAS SUBMITTED HAD REJECTED THESE COMPARABLES AND ONLY ON THE DIRECTION OF THE ITAT/AND/OR THE DRP HAVE BEEN INCLUDED :- S.NO. COMPANY REJECTED IN THE FINAL ORDER APPELLANTS CONTENTIONS 1. UB ENGINEERING LTD. (OP/TC=8.43%) (REFER PAGE NO.297 AND 298 OF THE APPEAL SET FOR LD.DRP DIRECTIONS) - FUNCTIONALLY SIMILAR -PROVIDES SERVICES PERTAINING TO EPC PROJECTS, INFRASTRUCTURE, ON- SITE FABRICATION OF STRUCTURE, INSTALLATION, TESTIN G AND COMMISSIONING OF ELECTRICAL AND MECHANICAL EQUIPMENT. (REFER PAGE NOS.91 TO 94 OF THE APPEAL SET FOR SUBMISSION FILED BEFORE THE LD.DRP) - FOR AY 2004-05, AY 2005-06 & AY 2010-11 THE LD.DRP ACCEPTED THIS COMPANY AS A COMPARABLE WHICH IS PALPABLY EVIDENT FROM THE ORDER OF THE HONBLE TRIBUNAL. (REFER PAGE 518 & 519 OF THE PAPERBOOK FOR THE ITAT ORDER FOR AY 2004-05) (REFER PAGE 532 AND 534 OF THE PAPERBOOK FOR THE ITAT ORDER FOR AY 2005-06) (REFER PAGE 532 AND 534 OF THE PAPERBOOK FOR THE ITAT ORDER FOR AY 2010-11) 2. ACCUSPEED ENGINEERING SERVICES INDIA LTD. (OP/TC=11.29%) (REFER PAGE NO.296 TO 298 OF THE APPEAL SET - ACCEPTED IN APPELLANT OWN CASE BY THE HONBLE TRIBUNAL FOR AY 2010-11 (I.T.A.NO.1478/DEL/2015) (REFER PAGE NO.618 OF THE PAPERBOOK FOR ORDER OF THE HONBLE ITAT). - ENGAGED IN PROVIDING COST EFFECTIVE ENGINEERING SOLUTIONS AND SERVICES COVERING DESIGN, DETAILED ENGINEERING, PROJECT CONSTRUCTION & MANAGEMENT TO THE CLIENTS. (REFER PAGE NOS.87 TO 89 OF THE APPEAL SET FOR I.T.A .NO.-6779/DEL/2015 PAGE 17 OF 50 FOR LD.DRP DIRECTIONS) SUBMISSION FILED BEFORE THE LD.DRP) 7.7. THE EXCLUSION OF THE FOLLOWING 3 COMPARABLES COMPA NIES WAS SOUGHT ON THE GROUND THAT THESE COMPANIES WERE PALPABLY DIFFERENT FROM THE ENGINEERING DESIGN SEGMENT OF THE ASSESSEE:- S.NO. COMPANY SELECTED IN THE FINAL ORDER APPELLANTS CONTENTIONS 1. USHA HYDRO DYNAMICS LTD. (OP/TC=25.40%) (REFER PAGE NO.293 OF THE APPEAL SET FOR LD.DRP DIRECTIONS) - ENGAGED IN THE BUSINESS OF CLEANING OF VARIOUS MACHINES AND EQUIPMENT FOR VARIOUS INDUSTRIES - ALSO ENGAGED IN TRADING ACTIVITIES. (REFER PAGE NO.122 OF THE APPEAL SET FOR THE SUBMISSION FILED BEFORE THE LD.DRP). 2. MITCON CONSULTANCY & ENGINEERING SERVICES LTD. (OP/TC=43.58%) (REFER PAGE NO.292 OF THE APPEAL SET FOR LD.DRP DIRECTIONS) - FUNCTIONALLY DISSIMILAR: RENDERS VOCATIONAL TRAININGS, IT TRAININGS AND LABORATORY SERVICES FROM WHICH IT EARNS 40% (APPROX.) OF ITS REVENUE. - GOVERNMENT AFFILIATE COMPANY - QUALIFIED FINANCIALS: ANNUAL ACCOUNTS OF THE COMPANY WERE QUALIFIED IN RELATION TO BALANCES OF SUNDRY DEBTORS, LOANS AND ADVANCES AND SUNDRY CREDITORS AND STRENGTHENING OF THE INTERNAL AUDIT SYSTEM FOR THE YEAR UNDER CONSIDERATION. - NON AVAILABILITY OF SEGMENTAL PROFITABILITY. (REFER PAGE NOS.111 TO 114 OF THE APPEAL SET FOR THE SUBMISSION FILED BEFORE THE LD.DRP) 3. GLOBAL PROCUREMENT CONSULTANTS LIMITED (OP/TC=29.32%) (REFER PAGE NO.291 OF THE APPEAL SET FOR THE LD. DRP DIRECTIONS) - GOVERNMENT AFFILIATE COMPANY - FUNCTIONALLY DISSIMILAR: ENGAGED IN DIVERSIFIED ASSIGNMENTS RELATED TO VALUATION, CONSULTANCY AND FINANCIAL ADVISORY SERVICES. (REFER PAGE NOS.104 TO 107 OF THE APPEAL SET FOR THE SUBMISSION FILED BEFORE THE LD.DRP) I.T.A .NO.-6779/DEL/2015 PAGE 18 OF 50 7.8. ACCORDINGLY IT WAS SUBMITTED THAT IN CASE THE ASSE SSEE SUCCEEDS IN ITS PRAYER THEN THE FINAL LIST OF COMPATIBLES WOULD BE AS UNDE R :- S.NO. COMPANY NAME WC ADJUSTED OP/TC 1. ACROPETAL TECHNOLOGIES LTD. (ENGINEERING DESIGN SERVICES) 14.26% 2. ARVIND ACCEL LTD. 2.47% 3. CADES DIGITECH PVT.LTD. 2.84% 4. GUJARAT INDUSTRIAL & TECHNICAL CONSULTANCY ORG LTD. 8.67% 5. INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. 10. 63% 6. ACCUSPEED ENGINEERING SERVICES INDIA LTD. 11.29% 7. UB ENGINEERING LIMITED 8.43% 8. MAHINDRA CONSULTING ENGINEERS LIMITED 30.32% MEAN 11.11% 8. THE LD. SR. DR ON THE OTHER HAND VEHEMENTLY ARGUED FOR RETAINING THE COMPARABLES. IT WAS HIS SUBMISSION THAT IN THE MET HOD LIKE TNMM AS LONG AS BROAD COMPARABILITY IS ESTABLISHED THEN EXCLUSION O N MICRO DIFFERENCES CANNOT BE ARGUED. THE SELECTIVELY PICKING APART THE LIST OF COMPARABLE IT WAS SUBMITTED SHOULD NOT BE ALLOWED. 8.1. ADDRESSING THE SPECIFIC OBJECTIONS IT WAS HIS SUBM ISSION THAT GOVERNMENT OWNED ENTERPRISES OR ENTERPRISES AFFILIATED WITH GO VERNMENT PROJECTS SHOULD NOT BE EXCLUDED. IT WAS HIS ARGUMENT THAT ADMITTEDLY THE GOVERNMENT COMPANIES ARE ENTRUSTED WITH WORKS IN AREAS WHERE DUE TO HUGE UNP ROFITABLE COSTS THE PRIVATE ENTERPRISE DOES NOT WANT TO ENTER THUS THE ARGUMENT FOR THEIR EXCLUSION IT WAS SUBMITTED IS WITHOUT ANY BASIS. THE WORK ENTRUSTED TO THESE GOVERNMENT COMPANIES IT WAS SUBMITTED ADMITTEDLY IS NOT PROFIT DRIVEN AS THE AIM IS DEVELOPMENT AND SOCIAL BENEFITS. THUS THE INCLUSIO N OF THESE COMPANIES WHERE THEIR CREATION AND FUNCTIONING IS ONLY MOTIVATED B Y DEVELOPMENT AGENDA AND IF, I.T.A .NO.-6779/DEL/2015 PAGE 19 OF 50 EVEN THEN THEY ARE ABLE TO SHOW A PROFIT THEN BY NO STANDARDS THEY SHOULD BE CONSIDERED FOR EXCLUSION. THE ASSESSEE IT WAS SUBMI TTED HAS NO SUCH LAUDABLE AIMS AND IS OPERATING PURELY FOR PROFITS THUS IT CANNOT CLAIM TO SAY THAT IT IS EARNING LESS PROFIT THAN THE COMPANIES WHO ARE GUIDED BY NOBLE A IMS OF SOCIAL AND ECONOMIC DEVELOPMENT. ACCORDINGLY IT WAS HIS SUBMISSION THAT A COMPARABLE SHOULD NOT BE EXCLUDED ON THIS COUNT. 8.2. IT WAS ALSO HIS ARGUMENT THAT WHEN A METHOD LIKE T NMM IS ACCEPTED THEN THE ASSESSEE CANNOT ARGUE ON THE BASIS OF THESE MIC RO MINOR DIFFERENCES IN THE PROFILES OF THE COMPANIES AND PRAY FOR THEIR EXCLUS ION. THE EXERCISE OF SELECTING COMPARABLE WHOSE OP/TC MARGIN ADMITTEDLY WAS HIGHE R THAN WHAT WAS ACCEPTABLE TO THE ASSESSEE FOR EXCLUSION WAS STRONG LY OPPOSED ESPECIALLY KEEPING IN MIND THAT FOR SOME OF THE COMPARABLE AS IN THE CASE OF KITCO LTD , IT WAS HIS SUBMISSION THAT THE ISSUE IS AGITATED FOR THE FIRST TIME BEFORE THE ITAT. OBJECTING TO THE PRAYER FOR ITS EXCLUSION IT WAS HIS STRONG OBJECTION THAT FIRSTLY THIS PRAYER WAS NEVER BEFORE THE TPO; SECONDLY NO OBJECTIONS WE RE RAISED FOR ITS EXCLUSION EVEN BEFORE THE DRP; AND THIRDLY EVEN BEFORE THE ITAT TH E ASSESSEE HAS NOT MADE ANY EFFORT TO POINT OUT THAT THE PRAYER IS BEING MADE B EFORE THE ITAT THE FIRST TIME. FURTHER IT WAS ALSO HIS OBJECTION THAT THE ASSESSEE HAS NOT CARED TO PRAY FOR ADMISSION OF ANY ADDITIONAL GROUND AS NO SUCH PRAYE R HAS BEEN MADE. ACCORDINGLY IT WAS HIS PRAYER THAT THE GENERALISTIC ARGUMENTS O F REMOVING COMPARABLE ON PAST PRECEDENCE OR SOME DECISION IN SOME OTHER CASE MAY NOT BE ACCEPTED. THE SELECTION OF COMPARABLES WHEREIN THE ASSESSEE HAS FULLY PARTI CIPATED IT WAS SUBMITTED CANNOT BE OUTRIGHTLY CHANGED AT THE APPELLATE STAGE MERELY RELYING ON PRECEDENT I.T.A .NO.-6779/DEL/2015 PAGE 20 OF 50 ACCEPTING ARGUMENTS WHERE EVEN THE SIMILARITY OF FA CTS HAS NOT BEEN CARED TO BE ESTABLISHED BY THE ASSESSEE. THE ARGUMENTS IT WAS SUBMITTED CANNOT BE ACCEPTED AS THE FACTS MAY DIFFER FROM YEAR TO YEAR IN THE CA SE OF THE ASSESSEE OR THE COMPARABLE OR IN THE PRECEDENT CITED AND THE PRAYER FOR EXCLUSION OF A COMPARABLE IT WAS SUBMITTED WOULD PRESUME THAT THE SAME LEVEL OF HAIR SPLITTING IS DONE VIS-- VIS THE ASSESSEE AS THE TESTED PARTY AND THE ASSESS EE IN THE PRECEDENT CITED. NO SUCH EFFORT IT WAS SUBMITTED HAS BEEN MADE TO ESTAB LISH THESE FACTS QUA EACH COMPARABLE. THE ISSUES IT WAS SUBMITTED HAVE BEEN DECIDED ON THE BASIS OF FACTS ON RECORD AND THE CONSISTENT FINDINGS ON RECORD IN REGARD TO THE COMPARABLES WAS HEAVILY RELIED UPON. 9. THE LD. AR IN REPLY FAIRY CONCEDED THAT THE EXCLUS ION OF KITCO LTD. WAS REQUESTED FOR, FOR THE FIRST TIME BEFORE THE ITAT I N THE FACTS OF THE PRESENT CASE. HOWEVER, INVITING ATTENTION TO THE ORDER OF THE ITA T IN 201011 ASSESSMENT YEAR ORDER DATED 21.12.2015 IN ITA NO. 1478/DEL/2015, IT WAS SUBMITTED THAT THE POSITION WAS IDENTICAL IN THE FACTS OF THAT CASE AL SO. INVITING ATTENTION TO THE COPY OF THE SAID ORDER FILED IN THE PAPER BOOK, IT WAS SUBM ITTED THAT THE EXCLUSION OF THE SAID COMPARABLE WAS SOUGHT FOR THE FIRST TIME BEFOR E THE ITAT AND IT WAS ALLOWED. ACCORDINGLY IT IS ONLY ON THE BASIS OF THE SAID PRE CEDENT THAT THIS PRAYER HAS BEEN MADE. THE RELEVANT EXTRACT FROM THE ORDER OF THE CO -ORDINATE BENCH AT INTERNAL PAGE 9 TO 11 OF 2010-11 AY IS REPRODUCED HEREUNDER FOR READY-REFERENCE:- KITCO LTD. 12.1. THE COMPANY WAS ESTABLISHED IN 1972 BY INDUS TRIAL DEVELOPMENT BANK OF INDIA, OTHER NATIONAL AND STATE LEVEL FINAN CIAL INSTITUTIONS, GOVERNMENT OF KERALA AND 7 PUBLIC SECTOR BANKS FOR RENDERING SERVICES TO GOVERNMENT DEPARTMENTS, PUBLIC SECTOR UNDERTAKINGS (PSUS), LOCAL I.T.A .NO.-6779/DEL/2015 PAGE 21 OF 50 BODIES, ENTREPRENEURS, ETC. THE COMPANYS MAIN FUNC TIONS ARE TO RENDER PROFESSIONAL TECHNICAL CONSULTANCY ASSISTANCE TO BA NKS (APPRAISAL OF PROJECTS IN PRIORITY SECTORS) AND TO ENTREPRENEURS OPERATING IN SME SECTOR (PREPARATION OF PROJECT REPORT, MARKET STUDIES AND CONDUCTING TRAINING PROGRAMS). HOWEVER, OVER THE YEARS KITCO HAS EVOLV ED INTO A MULTIFUNCTIONAL AND MULTI-DISCIPLINARY ORGANIZATION AND HAS STARTED OFFERING CONSULTANCY SERVICE FROM CONCEPT TO COMMI SSIONING. AS PORTFOLIO OF SERVICES OFFERED BY KITCO CURRENTLY INCLUDES THE FOLLOWING: PROJECT CONSULTANCY; DETAILED DESIGN ENGINEERING AND PROJECT EXECU TION; TECHNICAL SERVICES; ENVIRONMENTAL ENGINEERING; AND HRD CONSULTANCY 12.2. THE ASSESSEE FAIRLY SUBMITS THAT KITCO IS A 1 00% GOVERNMENT OWNED UNDERTAKING, RENDERING SERVICES PRIMARILY TO CENTRAL/STATE GOVERNMENT UNDERTAKING AND PSUS. IT IS NOT IN DISPU TE THAT MOST OF THE CLIENTS OR PROJECTS UNDERTAKEN BY THIS COMPANY ARE EITHER FOR STATE GOVERNMENT OR GOVERNMENT RUN INSTITUTIONS. THE MAJO RITY REVENUE (AND PROFITABILITY) OF THIS COMPANY COMES FROM GOVERNMEN T (STATE OR CENTER) RUN PROJECTS AND THAT THE COMPANY DERIVES BENEFIT OUT O F ITS PARENTAL RELATION WITH THE GOVERNMENT IN GETTING CONTRACT. IN OTHER W ORDS, THE COMPANY IS GETTING THE BENEFIT OF PREFERENTIAL TREATMENT IN OB TAINING CONTRACTS FROM GOVERNMENT/GOVERNMENT UNDERTAKINGS. THIS INEVITABLY IMPACTS THE PROFIT MARGINS OF THE SAID COMPARABLE AND CANNOT BE SAID T O BE INDICATIVE OF A FREE MARKET ECONOMY WHERE THE OTHER COMPARABLES AND THE ASSESSEE OPERATES. 12.3. IN THIS REGARD THE ASSESSEE PLACED ITS RELIAN CE ON THE RULING OF M/S THYSSENKRUPP INDUSTRIES INDIA PRIVATE LIMITED ITA N O. 6460/MUM/2012 WHEREIN IT HAS BEEN HELD ASUNDER: WE FIND IT AS UNDISPUTED THAT ENGINEERS INDIA LIMI TED IS A GOVERNMENT COMPANY. IT HAS SEVERAL SEGMENTS WHICH A LSO INCLUDE TURNKEY PROJECT PAGE 700 OF THE PAPER BOOK IS A C OPY OF ANNUAL REPORT OF ENGINEERS INDIA LIMITED ON TURNKEY PROJEC T. IT CAN BE SEEN THAT THE REVENUE HAS ARISEN FROM COMPLETING PA RAXYLENE PLANT OF IOCL AND FURTHER THAT COMPANY IS ENGAGED I N EXECUTION OF OTHER UNIT OF IOCLS PANIPAT NAPHTHA CRACKER PROJEC T. IN OUR CONSIDERED OPINION THIS CASE SHOULD NOT HAVE BEEN INCLUDED IN THE LIST OF FINAL COMPARABLES FOR TWO REASONS. FIRST RE ASON IS THAT PROFIT MOTIVE IS NOT A RELEVANT CONSIDERATION IN CASE OF G OVERNMENT UNDERTAKINGS. MANY GOVERNMENT UNDERTAKINGS EVEN OPE RATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT. THE SECOND REASON IS THAT ENGINEERS INDIA LIMITED E ARNED INCOME FROM TURNKEY 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 T HE FILTER OF I.T.A .NO.-6779/DEL/2015 PAGE 22 OF 50 25%. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES. [EMPHASIS SUPPLIED] 12.5. IN THE ABOVE RULING, THE COMPARABLE M/S. ENGI NEERS INDIA LIMITED WAS REJECTED PRIMARILY ON THE GROUND THAT IT WAS WO RKING FOR GOVERNMENT/PUBLIC SECTOR UNDERTAKINGS AND SINCE THE COMPANY ALSO BEING A GOVERNMENT OWNED ENTERPRISE; THE TRANSACTIO NS TANTAMOUNT TO RELATED PARTY TRANSACTIONS. THE SAME IS TRUE FOR TH E SAID COMPARABLE AS KITCO LTD., TRANSACTIONS ARE PRIMARILY WITH GOVERNM ENT OWNED ENTERPRISES. APPLYING THE PREPOSITION LAID DOWN IN THE CASE OF M/S THYSSENKRUPP INDUSTRIES INDIA PRIVATE LIMITED (SUPR A), WE HOLD THAT KITCO LTD., CANNOT BE ACCEPTED AS A COMPARABLE COMP ANY. HENCE THE SAME IS DIRECTED TO BE ELIMINATED. 10. NOT CONVINCED WITH THE ARGUMENT THE LD.CIT DR SUBM ITTED THAT THE FACT THAT ITS EXCLUSION WAS AGITATED BEFORE THE ITAT FOR THE FIRST TIME IS NOT COMING OUT OF THIS ORDER AND THE PRAYER FOR EXCLUSION OF THE SAID COMP ARABLE DE HORSE THE GROUND WAS OBJECTED TO. 11. IN VIEW OF THE FACT THAT THE HEARING IN THE APPEAL SPILLED OVER ON 3 DIFFERENT DATES. THE LD. AR SOUGHT PERMISSION TO RAISE AN AD DITIONAL GROUND AND ON THE NEXT DATE THE LD.AR FILED A PETITION SEEKING ADMISS ION OF ADDITIONAL GROUND REQUESTING FOR EXCLUSION OF KITCO LTD ON THE REASON ING THAT AN IDENTICAL PRAYER HAD BEEN ACCEPTED BY THE CO-ORDINATE BENCH IN 201011 A SSESSMENT YEAR. 11.1. THE PRAYER WAS OPPOSED BY THE LD.CIT DR. 12. WE HAVE HEARD THE RIVALS SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE TRANSFER PRICING APPRO ACH OF THE ASSESSEE WAS SET ASIDE BY THE TRANSFER PRICING OFFICER NOT ONLY ON THE GRO UNDS THAT THE TAXPAYER HAD USED MULTIPLE YOUR DATA BUT ALSO ON THE GROUNDS OF THE F ILTERS APPLIED ETC. WERE CONSIDERED TO BE INAPPROPRIATE FILTERS AND AFTER ID ENTIFYING THE CORRECT FILTERS I.T.A .NO.-6779/DEL/2015 PAGE 23 OF 50 ACCORDING TO HIM A FRESH SEARCH WAS REQUIRED TO BE CARRIED OUT AND AFTER MODIFYING THE OUTCOME OF THE SAME RESULTED IN THE PASSING OF THE TPOS ORDER DATED 29.01.2015. PURSUANT TO THE DRAFT ORDER BEING PASSE D BY THE ASSESSING OFFICER, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP AND AL SO RECTIFICATION PETITION U/S 154 BEFORE THE TPO. IN PURSUANCE TO THE DRPS ORDER D ATED 28.10.2015, THE FINAL ASSESSMENT ORDER UNDER SECTION 143(3)/144C DATED 30 .11.2015 HAS BEEN PASSED. IT IS THE CORRECTNESS OF THIS ORDER WHICH IS UNDER CHALLENGE IN THE PRESENT PROCEEDINGS ON THE BASIS OF THE GROUNDS RAISED. 12.1. BEFORE WE ADDRESS THE COMPARABLES SELECTED WHOSE RE TENTION AND EXCLUSION HAS BEEN CHALLENGED, WE CONSIDER IT APPROPRIATE TO FIRST ADDRESS THE FUNCTIONAL PROFILE CONSIDERED BY THE DRP WHICH HAS NOT BEEN CH ALLENGED IN THE PRESENT PROCEEDINGS BEFORE US BY WAY OF ANY GROUND OR ARGUM ENT. THE DRP AS PER INTERNAL PAGE 22 TO 25 QUA THIS SEGMENT HAS HELD THE ASSESSE E TO BE ENGAGED IN PROVIDING HIGH-END ENGINEERING DESIGN SERVICES AND PROCUREMEN T AND CONSTRUCTION MANAGEMENT SERVICES DESCRIBED AS EPC (ENGINEERING P ROCUREMENT CONSTRUCTION COMPANY). THE RELEVANT EXTRACT FROM THE DRPS ORDE R IS REPRODUCED HEREUNDER:- 4.3 FUNCTIONAL PROFILE 1) BEFORE CONSIDERING THE APPROPRIATENESS OF THE C OMPARABLES USED, IT IS NECESSARY TO CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE. THE ASSESSEE WAS ASKED TO FILE A COPY OF THE AGREEMENTS WITH ITS AES REGARDING THE SERVICES RENDERED. THE ASSESSEE HAS F ILED A COPY OF ITS GLOBAL MASTERS SERVICES AGREEMENT. THIS AGREEMENT C ONTAINS THE FOLLOWING INFORMATION REGARDING SERVICES RENDERED: SCOPE OF SERVICES MEANS THE DESCRIPTION OF THE SERV ICES TO BE PERFORMED AND THE DELIVERABLES TO BE PROVIDED BY BI PL AS SET OUT IN A WORK ORDER AND ANY AGREED VARIATIONS. SERVICES MEANS THE SERVICES PROVIDED OR TO BE PROVI DED BY BIPL AS SET OUT IN THE SCOPE OF SERVICES OF A WORK ORDER AN D ANY AGREED VARIATION....... WORK ORDER MEANS A PROJECT-SPECIFIC AGREEMENT UNDER WHICH BIPL WILL PERFORM SERVICES FOR A BECHTEL COMPANY, CONTAI NING A SCOPE I.T.A .NO.-6779/DEL/2015 PAGE 24 OF 50 OF SERVICES, SCHEDULE OF CHARGES, SCHEDULE OF PERFO RMANCE, AND OTHER APPLICABLE TERMS AS EXECUTED BY BIPL AND BCOR P IN ACCORDANCE WITH THE PROVISIONS OF CLAUSE 2 THEREOF, 2. WORK ORDERS - 2.1 WHEN A BECHTEL COMPANY WISHES TO ENGAGE BIPL TO PERFORM CERTAIN ENGINEERING DESIGN SERVICES IN CONNECTION W ITH A PARTICULAR PROJECT, SUCH BECHTEL COMPANY WILL SUBMIT TO BIPL A DESCRIPTION OF THE DESIRED SERVICES AND APPLICABLE PRIME CONTRACT REQUIREMENTS IN SUFFICIENT DETAIL SO THAT BIPL CAN PREPARE A WOR K ORDER. 2.2 FURTHER, WHEN A BECHTEL COMPANY WISHES TO ENGAG E BIPL TO PERFORM OTHER SERVICES, SUCH BECHTEL COMPANY WILL S UBMIT TO BIPL A DESCRIPTION OF THE DESIRED SERVICES IN SUFFICIENT DETAIL SO THAT BIPL CAN PREPARE A WORK ORDER. 2.3 BIPL WILL PRESENT THE PROPOSED WORK ORDER TO TH E REQUESTING BECHTEL COMPANY, BIPL AND THE REQUESTING BECHTEL CO MPANY WILL DISCUSS AND FINALIZE THE TERMS OF THE WORK ORDER, I NCLUDING A SCOPE OF SERVICES, SCHEDULE OF CHARGES, SCHEDULE OF PERFORMANCE, AND OTHER APPLICABLE TERMS. EACH WORK ORDER WILL BE GOVERNED BY THE TERMS AND CONDITIONS OF THIS AGREEMENT EXCEPT T O THE EXTENT OTHERWISE EXPRESSLY AGREED IN THE WORK ORDER TO ACC OMMODATE THE REQUIREMENTS OF THE PARTICULAR PROJECT. WHEN THE WO RK ORDER HAS BEEN FINALIZED BY BIPL AND THE REQUESTING BECHTEL C OMPANY, BIPL AND BCORP (AS ADMINISTRATIVE AGENT OF THE REQUESTIN G BECHTEL COMPANY) SHALL EXECUTE THE WORK-ORDER. 2) THE ASSESSEE FAILED TO FURNISH ANY FURTHER DE TAILS SUCH AS WORK ORDER, ETC. REGARDING THE NATURE OF SERVICES RENDER ED. 3) THE ASSESSEE'S TP STUDY GIVES THE FOLLOWING INF ORMATION ABOUT THE ASSESSEE: (I) BIPL WAS FORMED TO: CARRY ON ENGINEERING DESIGN, DRAFTING, PROJECT MONITORING AND CONTROL, PROJECT SUPPORT, PROCUREMENT SERVICES AND CONSTRUCTION SERVICES; CREATE A MULTIDISCIPLINE ENGINEERING CENTER F OR THE GROUP'S PROJECTS AND TO PROVIDE ADMINISTRATION AND PROCESSI NG SERVICES TO GROUP ENTITIES; ESTABLISH A STRONG LOCAL ENGINEERING PRESENCE FOR PROJECTS IN INDIA; PROVIDE FINANCIAL AND MANAGEMENT ACCOUNTING SE RVICES; DEVELOP A COST-EFFECTIVE RESOURCE BASE FOR PROJ ECTS WORLDWIDE THROUGH ASSOCIATIONS WITH MAJOR INDIAN PRODUCERS AN D EQUIPMENT MANUFACTURERS AND ALSO PROVIDING PROCUREMENT SERVIC ES FOR OTHER GROUP ENTITIES; AND PROVIDE OUT-SOURCED SERVICES TO OVERSEAS GROUP ENTITIES. (II) OVER THE LAST 15 YEARS, BIPL HAS BEEN ASSOCIAT ED WITH A NUMBER OF INTERNATIONAL AND NATIONAL PROJECTS. BIPL HAS SERVICED POWER, PETROLEUM, CHEMICALS, MINING AND METAL PROJE CTS I.T.A .NO.-6779/DEL/2015 PAGE 25 OF 50 WORLDWIDE. IN INDIA, IT HAS PROVIDED SUPPORT TO PR OJECTS LIKE RELIANCE REFINERY AND THE DABHOL POWER PROJECT. BIPL HAS DEVELOPED ITS EXPERTISE IN SUCH SERVICES B Y ENGAGING ENGINEERS. THE WORK RELATING TO PREPARATION OF ENGI NEERING DESIGNS, DRAWINGS, ETC IS BASED ON CUSTOMIZED/ SPEC IFIC PROJECT REQUIREMENTS OF THE ASSOCIATED GROUP COMPANIES ENGA GED IN DIFFERENT PROJECTS. ENGINEERING PERSONNEL WORK IN A COMPLETELY AUTOMATE D ENVIRONMENT USING THE LATEST COMPUTER AIDED DESIGN ('CAD') AND 3D MODELING SOFTWARE, INTEGRATING THE GROUP'S GLOBA L, AND MULTI- BUSINESS ENGINEERING EXPERTISE THROUGH DEDICATED WA N LINK. BIPL IS AN ISO 9001: 2OOO COMPANY. BIPL PRIMARILY PROVIDES TECHNICAL SUPPORT SERVICES IN RESPECT OF ENGINEERING DESIGN AND DRAWINGS TO OTHER GROUP ENTI TIES BOTH WITHIN AND OUTSIDE INDIA. IT ALSO PROVIDES IT INFRA STRUCTURE AND FINANCIAL AND ACCOUNTING SUPPORT SERVICES TO ITS GR OUP ENTITIES. (III) AS A PART OF ITS BUSINESS OPERATIONS, BIPL PR OVIDES ENGINEERING DESIGN AND RELATED SERVICES WHICH ARE CLOSELY LINKE D WITH THE PERFORMANCE OF ENGINEERING, CONSTRUCTION AND TURNKE Y PROJECT EXECUTION INDUSTRY. COMPANIES SEEKING FINANCE TO B UILD LARGE FACILITIES SUCH AS POWER PLANTS, REFINERIES, AND ST EEL MILLS ARE GENERALLY REQUIRED BY THE DEBT PROVIDERS OR EQUITY INVESTORS TO OBTAIN A LUMP SUM TURNKEY ENGINEERING, PROCUREMENT, AND CONSTRUCTION CONTRACT WITH A CREDIT-WORTHY CONTRACT OR HAVING SATISFACTORY INDUSTRY-RELATED EXPERIENCE AND CAPABI LITIES. SUCH A CONTRACTOR IS AN EPC COMPANY. THE EPC CONTRACTOR IS REQUIRED TO PROVIDE SINGLE SOURCE PROCESS AND SCHEDULE GUARANTE ES TO MINIMIZE THE RISKS TO THE CLIENT AND ITS INVESTORS. IN THE EPC INDUSTRY, A DIFFERENT MARKET ENVIRONMENT EXISTS FROM MANY OTHER INDUSTRIES. EPC COMPANIES ARE RESPONSIBL E FOR DESIGNING, CONSTRUCTING AND MANAGING ALL ISSUES ASS OCIATED WITH MAJOR PROJECTS INCLUDING CHEMICAL PLANTS, POWER PLA NTS AND OTHER LARGE FACILITIES. IN THE GLOBAL MARKET, RISK IS PUS HED ONTO THE EPC INDUSTRY VIA FIXED PRICE CONTRACTS. THE FACILITY OW NERS WANT A LOWER COST, BUT WANT THE EPC CONTRACTOR TO ASSUME M ORE RISK AND MEET A TIGHTER SCHEDULE. EPC COMPANIES DERIVE REVENUES FROM EXECUTING PROJEC TS FOR CLIENTS ON A COST- REIMBURSABLE, OR LUMP SUM BASIS. THEY COMPLETE ENTIRE WORK FROM INITIAL FEASIBILITY STUDIES, TO DETAILED ENGINEERING, AND CONSTRUCTION AND OPERATIO NS MANAGEMENT OF THE ACTUAL PROJECT FACILITIES. ENGINEERING 1. DETERMINE ALL FACILITY, EQUIPMENT, AND MATERIAL REQ UIREMENTS 2. PRODUCE ALL TECHNICAL DELIVERABLES REQUIRED TO EXEC UTE THE PROJECT 3. REVIEW VENDOR PROPOSALS 4. ENSURE SAFETY DESIGN. I.T.A .NO.-6779/DEL/2015 PAGE 26 OF 50 PROCUREMENT: 1. GLOBALLY SOURCE MATERIAL & EQUIPMENT FROM PROV EN MANUFACTURERS 2. MANAGE LOGISTICS OF DELIVERING MATERIAL & EQUI PMENT TO SITE 3. EXPEDITING DELIVERY TO ENSURE PROJECT IS COMPLE TED AS SCHEDULED CONSTRUCTION: 1. ENSURE FACILITY IS COMPLETED ON TIME, IN BUDGE T AND TO SPECIFICATION 2. PROVIDE A RANGE OF SERVICES FROM OVERALL CO NSTRUCTION MANAGEMENT TO ACTUAL CONSTRUCTION AND COMMISSIONI NG SERVICES 4) IT IS APPARENT FROM THE ABOVE THAT THE ASSESSES IS ENGAGED IN PROVIDING HIGH-END ENGINEERING DESIGN SERVICES AND PROCUREMENT AND CONSTRUCTION MANAGEMENT SERVICES. COMPANIES PROVIDI NG THESE SERVICES ARE COMMONLY REFERRED TO AS EPC (ENGINEERING PROCUR EMENT CONSTRUCTION) COMPANIES. IT IS WITH THIS BACKGROUND THAT THE FUNC TIONAL SIMILARITY OF COMPARABLES IS REQUIRED TO BE EXAMINED. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 12.2. ADDRESSING THE GROUNDS RAISED AND THE SUBMISSIONS O F THE PARTIES BEFORE THE BENCH, WE ARE OF THE VIEW THAT THE PRAYER OF THE AS SESSEE MADE IN SUPPORT OF I.T.A .NO.-6779/DEL/2015 PAGE 27 OF 50 GROUND NO.1.3 CONSIDERING THE PRECEDENT CITED DESER VES TO BE ALLOWED. WE FIND THAT THOUGH THE ARGUMENTS ADVANCED BY THE LD.CIT DR APPEAR TO BE CONVINCING HOWEVER IN THE FACE OF THE FACTS AND SUBMISSIONS CO NSIDERED IN THE PRECEDENT CITED, WE FIND THAT THE ASSESSEE HAS ESTABLISHED THAT THOS E COMPARABLES WHICH HAD GOVERNMENT HOLDINGS/AFFILIATED OR CONTROLLED ENJOYE D PREFERENTIAL TREATMENT IN OBTAINING CONTRACTS OR BENEFITS DERIVED OUT OF THE PARENTAL RELATION WHICH FACT SUCCESSFULLY ESTABLISHES THE IMPACT OF THESE FACTS ON THE NET PROFITABILITY OF THE GOVERNMENT OWNED/CONTROLLED OR AFFILIATED COMPANIES . THUS THESE COMPANIES CANNOT BE SAID TO INDICATIVE OF A COMPARABLE OPERAT ING IN A FREE MARKET ECONOMY. THUS, THERE IS STRONG JUSTIFICATION FOR THEIR EXCLU SION FROM THE LIST OF COMPARABLE COMPANIES. ACCORDINGLY THE EXCLUSION OF SUCH COMP ARABLE COMPANIES FROM THE LIST OF COMPARABLE COMPANIES ON FACTS IS FOUND TO BE JU STIFIED. 12.3. HAVING SO SAID, WE FIND THAT WHEN OUT OF THE TOTAL 15 COMPARABLES CONSIDERED POST DRP, EXCLUSION OF SIX IS SOUGHT ON THE GROUNDS OF PAST PRECEDENT AND ON THE GROUND THAT THESE COMPANIES AFFILIATED/OWNED OR CO NTROLLED BY THE GOVERNMENT NEED TO BE EXCLUDED IT CASTES A DOUBT ON THE PROCES S OF SELECTION AND RETENTION OF THE COMPARABLES COMPANIES. WHEN THIS FACT IS READ ALONGWITH THE FACT THAT WHEN SEVEN OUT OF THE ELEVEN COMPARABLES OFFERED BY THE ASSESSEE ARE REJECTED BY THE TPO AND ELEVEN MORE INTRODUCED BY HIM TOTALING 18 I N ALL ARE REDUCED BY 4 ON THE DIRECTIONS OF THE DRP ON THE PRAYER OF THE ASSESSEE AND ONE COMPARABLE IS DIRECTED TO BE INCLUDED AGAIN AT THE INSTANCE OF THE ASSESSE E THE DOUBT CONVERTS INTO A CERTAINTY. THE CERTAINTY IS FURTHER CONVERTED INTO A HARD REALITY WHEN IT IS COUPLED WITH THE PRAYER TO FURTHER INCLUDE TWO COMPARABLE COMPANIES WHICH HAD BEEN I.T.A .NO.-6779/DEL/2015 PAGE 28 OF 50 EXCLUDED BY THE TPO IN THE EARLIER YEARS AS IN THE PRESENT YEAR AND ON THE STRENGTH OF THE PRECEDENT AVAILABLE BY WAY OF DIRECTIONS IN EARLIER YEARS BY THE APPELLATE AUTHORITIES THE COMPARABLES IT IS PLEADED MAY BE IN CLUDED. THE ENTIRE GAMUT OF FACTS AND EVENTS UNINHIBITEDLY DEMONSTRATE THAT IN THE PROCESS OF SELECTION OF COMPARABLES BOTH THE TAX PAYER AS WELL AS THE TAX A UTHORITIES HAVE FAULTED. HOWEVER, WE FIND THAT EVEN IF THESE CORRECTIONS SO REQUESTED ARE CONSIDERED EVEN THEN THE GRIEVANCE REMAINS QUA THIS LIST OF 15 COMP ARABLES POST DRP AS THERE STILL EXISTS A PRAYER FOR FURTHER REQUEST FOR REDUCING TH IS LIST BY EXCLUDING THE FOLLOWING 3 COMPARABLES ON THE GROUNDS OF BEING PALPABLY DIF FERENT FROM EDS NAMELY USHA HYDRODYNAMICS LTD; MITCOM CONSULTANCY & ENGINEERING SERVICES LTD. AND GLOBAL PROCUREMENT CONSULTANT LTD. THE REQUEST PRIMA FACI E DOES NOT APPEAR TO BE MAINTAINABLE BECAUSE AS OPPOSED TO EDS THE PROFIL E OF THE TAX PAYER AS ON RECORD IN THE PRESENT PROCEEDINGS HAS BEEN ACCEPTED AS EP C AND AS OBSERVED THERE IS NO CHALLENGE TO THIS FINDING EITHER BY ANY ARGUMENT ON FACTS NOR BY WAY OF ANY GROUND. HOWEVER, THE PRAYER IN VIEW OF THE SUBSEQUENT FINDI NG IS NOT RELEVANT AS WE FIND THAT IN THE PECULIAR FACTS OF THE PRESENT CASE THE ENTIRE EXERCISE OF SELECTION OF COMPARABLES HAS TO BE DONE AGAIN. AS CONSIDERING T HE ARGUMENTS OF THE ASSESSEE IN SUPPORT OF ITS PRAYER AND THE DEPARTMENTAL STAND THEREON, WE FIND THAT THERE CAN BE NO TWO OPINIONS ON THE FACT THAT IT IS UNEQUIVOC ALLY DEMONSTRATED ON THE FACE OF THE RECORD THAT THE EXERCISE OF PROPOSAL AND SELECT ION PROCESS OF COMPARABLES BY THE ASSESSEE AND THE TAX AUTHORITIES HAS NOT BEEN C ARRIED OUT AS PER SETTLED LEGAL PRECEDENTS. NAMELY GOVERNMENT RELATED, PROTECTED/AF FILIATED/FAVOURED COMPANIES RENDERING CERTIFICATION/INSPECTION SERVICES ETC. CANNOT BE SAID TO BE COMPANIES I.T.A .NO.-6779/DEL/2015 PAGE 29 OF 50 COMPARABLE TO AN ASSESSEE WHO OPERATES IN FREE MARK ET CONDITIONS. THUS, IDEALLY SUCH COMPANIES SHOULD NEVER HAVE BEEN SELECTED. SI MILARLY COMPANIES TRADING IN PRODUCTS AND GOODS OR PROVIDING VOCATIONAL TRAINING AS GOVERNMENT AFFILIATES ALSO CANNOT BE SAID TO BE FUNCTIONALLY SIMILAR TO EPC. THESE ISSUES ARE WELL SETTLED BY NOW AND SELECTION CONTRARY TO THIS SETTLED POSITION ADMITTEDLY EITHER BY WAY OF PROPOSAL BY THE ASSESSEE OR BY WAY OF RETENTION/SEL ECTION BY THE TPO WAS NOT CORRECT. IN SUPPORT OF THE PARTIES, WE TAKE NOTE OF THE FACT THAT AT THE TIME OF PREPARATION OF THE TRANSFER PRICING STUDY OR PASSI NG OF THE TPOS ORDER ON 29.01.2015 THE ASSESSEE AND THE TPO DID NOT HAVE TH E BENEFIT OF THE JUDICIAL PRECEDENT IN ASSESSEES OWN CASE WHICH IS HEAVILY R ELIED UPON BY THE LD.AR. LET ALONE THE TPO EVEN THE DRP OR THE AO AT THE STAGE O F FINAL ASSESSMENT ORDER DID NOT HAVE THE BENEFIT OF THESE ORDERS AS THE ORDER O F THE ITAT IN 200405 AY IS DATED 20.11.2015; IN 200506 AY IT IS DATED 23.09.2 015 AND THE ORDER FOR 200910 AY IS DATED 14.10.2015 AND IN 2010-11 AY IT IS PRON OUNCED ON 27.12.2015. THE ORDER OF THE TPO ON THE OTHER HAND IS DATED 29.01.2 015 AND THE ORDER OF THE DRP IS DATED 28.10.2015. ACCORDINGLY, WE DEEM IT APPRO PRIATE TO NOT ATTEMPT A PATCH WORK EXERCISE AT THIS STAGE WHERE ADMITTEDLY THE EN TIRE EXERCISE HAS BEEN MISGUIDED IN THE PECULIAR FACTS AND CIRCUMSTANCES O F THE CASE BY ADDRESSING THE COMPARABLE SELECTED OR LEFT OUT AND RESTORE THE ISS UE BACK TO THE FILE OF THE TPO TO CONSIDER THE ISSUE DENOVO AND PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEI NG HEARD. I.T.A .NO.-6779/DEL/2015 PAGE 30 OF 50 12.4. THE DECISION TO RESTORE IS FURTHER SUPPORTED BY TH E FACT THAT AS PER THE STAND OF THE PARTIES THE RECTIFICATION PETITION DATED 14. 12.2015 IS STILL PENDING BEFORE THE AO. 12.5. WE FURTHER FIND THAT QUA THIS SEGMENT THE DRPS DI RECTION TO THE TPO TO APPLY THE SEGMENT RESULTS FOR ALL THE 3 SEGMENTS CO NSISTENTLY HAS ALSO ADMITTEDLY NOT BEEN CARRIED OUT LEADING TO THE GRIEVANCE OF TH E ASSESSEE EXPRESSED BY GROUND NO. 3 AND 4 ALONGWITH THEIR SUB-GROUNDS. FOR THE S AID PURPOSES, RELIANCE HAS BEEN PLACED ON LUMMUS TECHNOLOGY HEAT TRANSFER BV ITA NO.6227/DEL/ 2012. THE PRAYER OF THE ASSESSEE BEING THAT SEGMENTAL P&L ACC OUNT HAS BEEN PREPARED USING REASONABLE AND SPECIFIC ALLOCATION BASIS BY THE ASS ESSEE. 12.5.1. WITHOUT PREJUDICE TO THE ABOVE PRAYER ON THE SAID ISSUE IT IS ALSO REQUESTED THAT IF THE REVISED SEGMENTAL MARGINS ARE CONSIDERED THE MARGINS IN THE EDS SEGMENT WOULD MEET THE ARMS LENGTH STANDARD IF THE GRIEVANCE QUA THE COMPARABLES ARE ACCEPTED; AND THE MARGINS IN THE OT HER TWO SEGMENTS I.E. FAS AND IT INFRA WOULD MEET THE ARMS LENGTH CRITERION EVEN AFTER CONSIDERING THE COMPARABLES CONSIDERED BY THE TPO/DRP AND THE RECTI FICATION APPLICATION. ACCORDINGLY IN THE LIGHT OF THESE FACTS AND SUBMISS IONS IT HAS BEEN REQUESTED THAT SHOULD THE SEGMENTATION OF THE TPO BE ACCEPTED AND CONSIDER THE MARGINS OF THE ASSESSEE IN ALL THE THREE SEGMENTS SATISFIES THE AR MS-LENGTH CRITERIA. THE SAID ARGUMENT HAS BEEN RAISED WITHOUT PREJUDICE TO THE F ACT THAT CERTAIN COMPARABLE IS IN THE OTHER 2 SEGMENTS I.E. FAS AND IT INFRA ARE F UNCTIONALLY STATED TO BE DISSIMILAR AND HAVE BEEN REJECTED BY THE TRIBUNAL I N ASSESSEES OWN CASE IN 2010- 11 ASSESSMENT YEAR. I.T.A .NO.-6779/DEL/2015 PAGE 31 OF 50 12.6. IT IS ALSO SEEN THAT THE TAXPAYER HAS ALSO REQUEST ED FOR WORKING CAPITAL ADJUSTMENT, RISK ADJUSTMENT IN THE COMPARABLES RELY ING ON PAST PRECEDENT. ALTHOUGH, WE FIND THAT NO WORKING THEREOF HAS BEEN PLACED BEFORE US BUT EVEN OTHERWISE, WE FIND IN THE PECULIAR FACTS OF THE CAS E THAT IN VIEW OF THE DECISION TAKEN THE ISSUE IS NOT REQUIRED TO BE ADDRESSED AT THIS STAGE. SUFFICE IT TO SAY THAT IF IT ALL ANY WORKING CAPITAL ADJUSTMENTS OR RISK ADJU STMENTS IN THE COMPARABLES PROPOSED BY THE TPO IS WARRANTED THE TAXPAYER SHOUL D BE ABLE TO SUPPORT ITS CLAIM BY WAY OF JUSTIFYING THE EXTENT OF ADJUSTMENTS REQU ESTED AS THE LAW CONTEMPLATES THAT ADJUSTMENT IS TO BE REQUESTED FOR BY THE ASSE SSEE AND SUPPORTED BY WAY OF PLACING NECESSARY JUSTIFICATION IN SUPPORT OF ITS P RAYER. 12.7. ACCORDINGLY, IN VIEW OF THE ABOVE DETAILED REASONI NG ON FACTS ADDRESSING THE VARIOUS PECULIAR FACTS AND CIRCUMSTANCES OF THE CAS E IT IS DEEMED APPROPRIATE TO RESTORE THE ISSUE BACK TO THE TPO TO DECIDE THE SAM E AFRESH BY WAY OF A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSES SEE A REASONABLE OPPORTUNITY OF BEING HEARD. 13. ADDRESSING THE FINANCIAL ACCOUNTING SUPPORT SERVICE SEGMENT , WE FIND THAT THE TPO REJECTED 4 OUT OF THE 9 COMPARABLES PR OPOSED BY THE TAXPAYER AND ULTIMATELY ADOPTED 8 COMPARABLES HAVING AN OP/TC OF 25.98% WHICH COMPARED WITH THE RECOMPUTED OP/TC OF 21.57% COMPARED TO ASS ESSEES ORIGINAL OP/TC OF 21.80% WAS CONSIDERED TO BE WARRANTING ADJUSTMENT F OR ARMS LENGTH PRICE. THE DRP IT IS SUBMITTED DID NOT MAKE ANY CHANGES IN THE COMPARABLES SELECTED BY THE TPO. I.T.A .NO.-6779/DEL/2015 PAGE 32 OF 50 13.1. THE ASSESSEE SEEKS EXCLUSION OF ACCENTIA TECHNOLOGIES LTD. ON THE GROUND THAT IT HAS BEEN REJECTED IN ASSESSEES OWN CASE FO R 2010-11 ASSESSMENT YEAR. RELIANCE HAS BEEN PLACED UPON THE DECISION OF THE H ONBLE HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS (TS 387HC 2015 (DEL) TP ( SPECIFIC PARAS 29, 31, 33 TO 35) FOR THE PROPOSITION THAT THE KPO I.E. KNOWLEDGE P ROCESS OUTSOURCING COMPANY CANNOT BE COMPARED TO A LOW-ENDED IT ENABLE D SERVICE PROVIDER. IT HAS ALSO BEEN URGED THAT IT HAS SIGNIFICANT AMOUNT OF B RANDS; IPR AND GOODWILL AND THE LACK OF SEGMENTAL INFORMATION HAS FURTHER BEEN CITED AS A GROUND FOR ITS EXCLUSION. 13.2. EXCLUSION OF ECLERX SERVICES LTD HAS BEEN REQUESTED ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY. THE PRAYER IT IS SUBMITT ED IS ALSO SUPPORTED BY THE DECISION OF THE HONBLE JURISDICTION HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS (CITED SUPRA) AMONGST VARIOUS OTHER ORDERS OF THE I TAT. 13.3. THE EXCLUSION OF TCSE SERVE LIMITED HAS BEEN SOUGHT ON THE GROUNDS THAT IT HAS BEEN REJECTED IN ASSESSEES OWN CASE IN 2010 -11 ASSESSMENT YEAR, RELIANCE IS PLACED ON THE ORDER OF THE ITAT. 13.4. THE LD.AR SUBMITS THAT IF THESE 3 COMPARABLES ARE EXCLUDED THEN THE O P/TC OF THE 5 COMPARABLES WHICH REMAINED WOULD WORK OUT TO 10.20%. WHEN IT IS COMPARED WITH THE MARGINS OF THE ASSESSEE OF 10.29% (OR 21.57%, IF REDRAWN SEGMENTAL ACCOUNT IS CONSIDERED), THE TRANSACTION I T WAS SUBMITTED WOULD SATISFY THE ARMS-LENGTH CRITERIA. IN SUPPORT OF THE SAID P RAYER THE FOLLOWING CHART HAS BEEN PLACED BEFORE US:- S.NO. COMPANY NAME WC ADJUSTED OP/TC 1. ACROPETAL TECHNOLGOIES LIMITED (EDS SEGMENT) 12. 68% I.T.A .NO.-6779/DEL/2015 PAGE 33 OF 50 2. INFOSYS B P O LTD. 17.15% 3. JINDAL INTELLICOM PVT.LTD. 12.61% 4. E4E HEALTHCARE BUSINESS SERVICES PVT.LTD. 10.21% 5. MICROGENETICS SYSTEMS LTD. -1.60% MEAN 10.20% 14. THE LD. CIT DR RELIES UPON THE ORDER OF THE AUTHORITIES BEL OW, NO DISTINGUISHABLE FACT OR CIRCUMSTANCE WAS BROUGHT TO THE NOTICE OF THE BENCH. 15. CONSIDERING THE SUBMISSION OF THE PARTIES BEFORE T HE BENCH, WE DEEM IT APPROPRIATE TO FIRST ADDRESS THE FUNCTIONAL PROFIL E OF THE ASSESSEE ON THE BASIS OF RECORD. WE FIND THAT THE SAME HAS BEEN ADDRESSED I N INTERNAL PAGES 38 AND 39 OF THE DRP HOLDING THAT THE ASSESSEE IS A HIGH END KPO IN THIS SEGMENT. THE RELEVANT EXTRACT IS REPRODUCED HEREUNDER:- 5.1 FUNCTIONAL PROFILE 1) BEFORE CONSIDERING THE APPROPRIATENESS OF THE C OMPARABLES USED, IT IS NECESSARY TO CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE, THE ASSESSEE'S TP STUDY GIVES THE FOLLOWING INFORMATION ABOUT THE ASSESSEE IN THIS SEGMENT: BIPL IS ALSO ENGAGED IN PROVIDING FINANCIAL AND ACC OUNTING SUPPORT SERVICES TO ITS GROUP ENTITIES. WITHIN THIS SEGMENT, THE COMPANY PRIMARILY PERFORMS SERVICES RELATED TO ACCO UNTS PAYABLE MANAGEMENT, PAYROLL PROCESSING, INVOICE PROCESSING, MAKING PAYMENT TO SUPPLIERS AND THE HANDLING OF RELATED QU ERIES. ITS FUNCTIONS ARE BROADLY OUTLINED AS UNDER: INVOICE PROCESSING: UNDER THIS PROCESS, SCANN ED INVOICES RAISED ON BECHTEL GROUP COMPANIES ARE PROVIDED TO B IPL. THE FINANCIAL AND ACCOUNTING SUPPORT SERVICES TEAM AT B IPL IS RESPONSIBLE FOR UPLOADING THE INFORMATION PRESENTED IN THE SCANNED INVOICES ON THE IN-HOUSE DATABASE OF THE BE CHTEL GROUP. THIS TEAM ALSO PROVIDES SUPPORT IN PROCESSING EMPLO YEE PAYROLL PROCESSING AND REIMBURSEMENTS FOR THE BIPL EMPLOYEE S. HELP DESK SUPPORT: UNDER THIS FUNCTION, BIPL P ROVIDES QUERY MANAGEMENT AND TROUBLESHOOTING SUPPORT TO THE GROUP COMPANIES WITH RESPECT TO THEIR SUPPLIER MANAGEMENT FUNCTIONS . ACCOUNT CLOSING AND MANAGEMENT REPORTING: THE FUNCTION SUPPORTS GENERAL LEDGER ACCOUNTS MANAGEMENT, ANALYS IS AND CLOSURE, REPORTING, BANK RECONCILIATIONS, INTER-OFF ICE RECONCILIATIONS AND BILLING AND COLLECTION PROCESSES. I.T.A .NO.-6779/DEL/2015 PAGE 34 OF 50 TAX ADVISORY SERVICES: THIS FUNCTION INVOLVES PROVIDING ADVICE TO THE GROUP ENTITIES WITH RESPECT TO EFFECTIVE AND EFFICIENT TAX MANAGEMENT. MANAGEMENT OF FUNDS: UNDER THIS FUNCTION, BIPL ADVISES BECHTEL GROUP ENTITIES ON POTENTIAL INVESTMENT OPPO RTUNITIES. IT ALSO MONITORS THE PERFORMANCE OF INVESTMENTS WITH A VIEW TO PROTECT THE ASSETS OF BIPL AS WELL AS THE GROUP ENTITIES. THE U LTIMATE DECISION MAKING AUTHORITY WITH RESPECT TO INVESTMENTS LIES W ITH THE GROUP ENTITIES. IT IS ALSO RESPONSIBLE FOR-MANAGING THE F INANCE, INSURANCE AND TREASURY FUNCTIONS FOR SOME OF THE BECHTEL GROU P, ENTITIES. 2) THE ASSESSEE IS ENGAGED IN PROVIDING ENGINEE RING DESIGN AND OTHER SERVICES. IN THIS SEGMENT IT PROVIDES FINANCIAL SER VICES INCLUDING THE FOLLOWING: TAX ADVISORY SERVICES: THIS FUNCTION INVOLVES PROVIDING ADVICE TO THE GROUP ENTITIES WITH RESPECT TO EFFECTIVE AND EFFICIENT TAX MANAGEMENT. MANAGEMENT OF FUNDS: UNDER THIS FUNCTION, BIPL ADVISES BECHTEL GROUP ENTITIES ON POTENTIAL INVESTMENT OPPO RTUNITIES. IT ALSO MONITORS THE PERFORMANCE OF INVESTMENTS WITH A VIEW TO PROTEST THE ASSETS OF BIPL AS WELL AS THE GROUP ENTITIES. T HE ULTIMATE DECISION MAKING AUTHORITY WITH RESPECT TO INVESTMEN TS LIES WITH THE GROUP ENTITIES. IT IS ALSO RESPONSIBLE FOR MAN AGING THE FINANCE, INSURANCE AND TREASURY FUNCTIONS FOR SOME OF THE BE CHTEL GROUP ENTITIES. 3) CONSIDERING THE FACTS AND THE DESCRIPTION OF SER VICES GIVEN ABOVE, IT IS CLEAR THAT THE ASSESSEE IS A HIGH-END KPO IN THIS SEGMENT. 15.1. WE FIND THAT IN THE PRECEDENT RELIED UPON THE DISCU SSION ON THE FUNCTIONAL PROFILE DOES NOT BRING OUT WHETHER THE SEGMENT WAS HELD TO BE A HIGH END KPO:- 13.2. IN THE FA SEGMENT, THE FUNCTIONS OF THE APPE LLANT COMPANY ARE, INVOICE PROCESSING, HELP DESK SUPPORT, ACCOUNT CLOS ING AND MANAGEMENT REPORTING, TAX ADVISORY SERVICES, MANAGEMENT OF FUN D. THE ASSESSEE CONTENDED THAT THE LD.TPO/DRP HAS ACCEPTED CERTAIN COMPARABLES, WHICH PERFORM ALTOGETHER DIFFERENT FUNCTIONS AS COM PARED TO ASSESSEES FAS AND IT INFRA SEGMENT, AND HAVE EXTRA-ORDINARY C IRCUMSTANCES BASED ON WHICH THEY SHOULD NOT BE INCLUDED. 15.2. ACCORDINGLY WE FIND THAT RELIANCE PLACED ON THE FO LLOWING FINDING IS OF NO RELEVANCE:- 13.3. WE WOULD NOW EXAMINE EACH OF THE COMPARABLE COMPANY IN DISPUTE TO ARRIVE AT A CONCLUSION. I.T.A .NO.-6779/DEL/2015 PAGE 35 OF 50 COMPARABLES INCLUDED BY THE LD.TPO/DRP BUT DISPUTED BY THE ASSESSEE: 1) TCS E-SERVE INTERNATIONAL LIMITED & TCS E-SERVE LIMITED THIS COMPANY HAS BEEN SELECTED BY THE LD.TPO AS A C OMPARABLE. THIS COMPANY UNDERTAKES, CUSTOMER SERVICE, TRANSACTION P ROCESSES, COLLECTIONS, RISK MANAGEMENT, AND ANALYTICS, AND HA S CREATED A LOT OF APPLICATIONS WHICH ARE IN THE NATURE OF INTELLECTUA L PROPERTY IN TERMS OF RECONCILIATION SOFTWARE, FUND TRANSFERS, ETC. THE C OMPANY ALSO UNDERTAKES SOFTWARE TESTING AND VALIDATION ACTIVITI ES. POSSESSION OF INTELLECTUAL PROPERTY RIGHTS HAS TO BE FACTORED IF SUCH A COMPANY IS TO BE TAKEN AS COMPARABLE. THIS CANNOT BE DONE UNLESS THE RE IS APPROPRIATE DATA. FURTHER, FROM THE TP STUDY WE OBSERVE THAT, T HIS COMPANY IS A WHOLLY OWNED SUBSIDIARY OF TCS E SERVE INTERNATIONA L LTD. DURING THE YEAR UNDER CONSIDERATION, THIS COMPANY HAS MADE PAY MENTS TOWARDS USE OF TATA BRAND. CONSEQUENTIALLY USE OF THE TCS BRAND HAS SUBSTANTIALLY INCREASED THE OPERATING PROFITS POST ACQUISITION. HENCE WE ARE OF THE OPINION THAT THIS COMPANY CANNO T BE TAKEN AS A COMPARABLE. WE THEREFORE DIRECT TO EXCLUDE THIS COM PARABLE. (EMPHASIS PROVIDED) 2) ACCENTIA TECHNOLOGIES LIMITED THIS COMPANY HAS BEEN INCLUDED BY THE LD.TPO AS A C OMPARABLE. FUNCTIONALLY, ACCENTIA TECHNOLOGIES LTD., IS INTO D EVELOPMENT OF SOFTWARE PRODUCTS FOR HEALTHCARE. IT IS SUBMITTED BY THE LD. AR THAT ACCENTIA TECHNOLOGIES LTD IS ALSO ENGAGED INTO DIVERSIFIED A CTIVITIES SUCH AS KNOWLEDGE PROCESS OUTSOURCING(KPO), LEGAL PROCESS O UTSOURCING(LPO), DATA PROCESS OUTSOURCING(DTO), HIGH END SOFTWARE SE RVICES. IT IS ALSO SUBMITTED BY THE LD.AR THAT SEGMENTAL INFORMATION I N RESPECT OF THIS COMPANY IS NOT AVAILABLE. IT HAS BEEN FURTHER BROUGHT TO OUR NOTICE THAT THIS COMPANY HAS BEEN REJECTED BY THE L D.TPO IN THE EARLIER YEAR. THE COMPANY HAS ALSO HAD BUSINESS RESTRUCTURING DUR ING THE YEAR UNDER CONSIDERATION THEREBY GIVING RISE TO EXTRAORDINARY CIRCUMSTANCES. FOR ALL THESE REASONS WE DIRECT THE ASSESSING OFFI CER TO EXCLUDE THIS COMPANY AS A COMPARABLE. (EMPHASIS PROVIDED) 15.3. ACCORDINGLY IN THE LIGHT OF THE FINDINGS AVAILABLE ON RECORD, WE FIND THAT THE PRAYER TO EXCLUDE ACCENTIA TECHNOLOGIES LTD. ON THESE FACTS CANNOT BE ALLOWED AS FUNCTIONAL PROFILE AS PER RECORD HAS BEEN HELD TO B E THAT OF A KPO. THE JUDICIAL PRECEDENT AS LAID DOWN IN THE CASE OF RAMPGREEN SOL UTIONS WHICH HOLDS THAT A KPO CANNOT BE SAID TO BE COMPARABLE TO A LOW END IT ENA BLED SERVICE PROVIDER IS NOT OF I.T.A .NO.-6779/DEL/2015 PAGE 36 OF 50 ANY HELP TO THE ASSESSEE AS PER FACTS ON RECORD. T HE FACT THAT THE ASSESSEES FINANCIAL AND ACCOUNTING SUPPORT SERVICE SEGMENT AS PER RECORD HAS BEEN HELD TO BE A HIGH END KPO HAS NOT BEEN ASSAILED BY ANY A RGUMENT OR GROUND IN THE PRESENT PROCEEDINGS AS THE LD.AR HAS STRAIGHT AWAY PROCEEDED TO ADDRESS THE COMPARABLES WITHOUT FIRST ADDRESSING THE FUNCTIONAL PROFILE. RELIANCE PLACED ON PRECEDENT WHERE THE ASSESSEES PROFILE WAS TAKEN AS LOW END ITES AND NOT A HIGH END KPO AS IN THE CASE AT HAND IS OF NO HELP. THE FINDING OF FACTS ARRIVED AT ON RECORD HAS NOT BEEN ASSAILED BY WAY OF ANY ARGUMENT . 15.4. SIMILARLY WE FIND THAT THE ARGUMENTS FOR EXCLUSION OF ECLERX SERVICES LTD. IN THE FACE OF THE FUNCTIONAL PROFILE QUA THIS SEGMENT OF THE ASSESSEE AS THAT OF A HIGH END KPO REMAINING UNASSAILED ON RECORD. WE FIND TH AT RELIANCE PLACED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF RAMPGREEN SOLUTIONS IS NOT OF MUCH HELP. A KPO IS UNDERSTOOD AS THE HIGHER EN D OF ITES IN TERMS OF VALUE ADDITION. ITES ENCOMPASSES A WIDE SPECTRUM OF SERV ICES THAT USE INFORMATION TECHNOLOGY BASED DELIVERY WHICH COULD INCLUDE RENDE RING HIGHLY TECHNICAL SERVICES BY QUALIFIED TECHNICAL PERSONNEL INVOLVING ADVANCED SKILLS AND KNOWLEDGE, SUCH AS ENGINEERING, DESIGN AND SUPPORT. WHEREAS ON THE OT HER END OF THE SPECTRUM ITES WOULD ALSO INCLUDE VOICE BASED CALL CENTRES THAT RE NDER ROUTINE CUSTOMER SUPPORT FOR THEIR CLIENTS AS WERE THE FACTS BEFORE THE HON BLE HIGH COURT. IN VIEW THEREOF, WE FIND THAT THE PRAYER OF THE ASSESSEE CANNOT BE ALLOWED. 15.5. CONSIDERING THE ARGUMENTS FOR AND AGAINST THE EXCL USION OF TCSE SERVICE LTD. WE FIND THAT NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE IN ORDER TO REBUT THE PRECEDENT THAT THE ASSOCIATION OF THE SAI D COMPARABLE WITH TATA BRAND I.T.A .NO.-6779/DEL/2015 PAGE 37 OF 50 HAS IMPACTED ITS BARGAINING POWER TO NEGOTIATE PREM IUM CONTRACTS AND THUS ESTABLISHED FUNCTIONAL DISSIMILARITY. IN THE ABSEN CE OF ANY REBUTTAL ON FACTS AND CONSIDERING THE JUDICIAL PRECEDENT CITED AND CONSID ERING THE COPY OF THE ANNUAL REPORTS WHICH ARE FOUND ON RECORD THE COMPARABLE IS DIRECTED TO BE EXCLUDED. 16. ADDRESSING IT INFRASTRUCTURE SUPPORT SERVICES SEGMENT THE LD. AR HAS SUBMITTED THAT THE ASSESSEE IS STATED TO BE A CAPTI VE SERVICE PROVIDER AND ENGAGED IN PROVISION OF VARIOUS SERVICES IN THE NATURE OF S OFTWARE AND HARDWARE SUPPORT SERVICES, NETWORK SERVICES, INFRASTRUCTURE MANAGEME NT, ROUTINE SOFTWARE DEVELOPMENT AND MONITORING AND MANAGING VARIOUS IT COMPONENTS SUCH AS SERVERS, NETWORKS, STORAGE EQUIPMENT, MESSAGING ETC FOR THE REQUIREMENTS OF AES. 16.1. THE ORIGINAL SEARCH CARRIED OUT BY THE TAXPAYER IN ITS TP STUDY BY USING MULTIPLE YEAR DATA WAS OBJECTED TO BY THE TPO. THE ASSESSEE WAS REQUIRED TO CARRY OUT A FRESH SEARCH WHEREIN ALL THE 5 COMPARABLES PR OPOSED BY THE ASSESSEE WERE REJECTED ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY . THE TPO ACCORDINGLY PROPOSED 19 COMPARABLES HAVING AVERAGE OP/ TC OF 23.55%. 17. THE COMPARABLES SELECTED BY THE TPO WERE RETAINED BY THE DRP LEADING TO THE GRIEVANCE POSED BEFORE THE TRIBUNAL SEEKING EXC LUSION OF THE FOLLOWING 7 COMPARABLES :- (I) INFOSYS LTD.; (II) WIPRO TECHNOLGOY SERVICES LIMITED; (III) ACROPETAL TECHNOLOGIES LIMITED (INFORMATION TECHNOL OGY SERVICE); (IV) SANKYA INFOTECH LTD.(SEG); (V) SASKEN COMMUNICATION TECHNOLOGIES LTD.; (VI) E-INFOCHIPS INDIA PVT. LTD.; AND (VII) E-ZEST SOLUTIONS LTD. I.T.A .NO.-6779/DEL/2015 PAGE 38 OF 50 18. A PERUSAL OF THE SYNOPSIS FILED SHOWS THAT THE INC LUSION OF SANKYA INFOTECH LTD.(SEG) AND SASKEN COMMUNICATION TECHNOLOGIES LTD. IS OBJECTED TO BEFORE THE ITAT FOR THE FIRST TIME AS NO REFERENCE TO THE OBJE CTIONS BEFORE THE DRP HAS BEEN MADE. THE EXCLUSION OF THE REMAINING 5 HAS BEEN SO UGHT ON THE GROUNDS WHICH WE PROPOSE TO ADDRESS SEPARATELY HEREUNDER:- (I) INFOSYS LTD IS SOUGHT TO BE EXCLUDED ON THE GROUNDS THAT IT H AS BRAND PROFITS AND OWNS SIGNIFICANT TANGIBLES; THAT THERE IS SIGNIFICANT EXPENDITURE ON RESEARCH AND DEVELOPMENT FOR DEVELOPING NEW PRODUCT S AND INNOVATIVE TECHNOLOGY; THAT THERE IS SIGNIFICANT ADVERTISEMENT AND MARKETI NG EXPENDITURES RESULTING IN NON-ROUTINE MARKETING INTANGIBLES; OWNERSHIP OF BRA NDED/PROPRIETARY PRODUCTS LIKE FINACLE; INFOSYS ACTIVE DESK, ;INFOSYS IPROWE; INFO SYS MCONNECT AND DIVERSIFY PRODUCT PORTFOLIO; INCOMPARABLE SCALE OF OPERATIONS THE VARIOUS GROUNDS ON THE BASIS OF WHICH THE SAID COMPARABLE HAS BEEN REJECTE D IN VARIOUS RULINGS OF THE ITAT. (II) THE EXCLUSION OF WIPRO TECHNOLOGIES SERVICES LTD. IS SOUGHT ON THE GROUNDS OF EXTRAORDINARY CIRCUMSTANCES RESULTING ON ACCOUNT OF AN OVERALL BUSINESS DEAL WHEN CITI TECHNOLOGY SERVICES LTD WAS ACQUIRED BY WIPRO LTD DURING JANUARY 2009 AS A RESULT OF WHICH WIPRO LTD SIGNED A MASTER SERVICE AGREEMENT WITH CITIGROUP FOR THE DELIVERY OF SERVICES FOR A P ERIOD OF 6 YEARS WITH GUARANTEED REVENUE OF US DOLLARS 500 MILLION. ACCORDINGLY, IT HAS BEEN ARGUED THAT REGARDLESS OF THE COST INCURRED/SERVICES PERFORMED BY WTI IS M INIMUM GUARANTEED REVENUE OF US DOLLARS 500 MILLION HAS TO FLOW FROM CITIGROUP C OMPANIES TO WTS WHICH IT HAS BEEN STATED CAN LEAD TO ABNORMALLY HIGH PROFIT MARG INS FOR WTS. ACCORDINGLY THE I.T.A .NO.-6779/DEL/2015 PAGE 39 OF 50 BUSINESS MODEL OF WTS WAS STATED TO BE VERY DIFFERE NT FROM THAT OF THE TAXPAYER AND HENCE IT WAS STATED TO BE IN COMPARABLE. RELIA NCE HAS BEEN PLACED ON VARIOUS DECISIONS OF THE ITAT FOR ITS EXCLUSION. (III) ACROPETAL TECHNOLOGIES LTD .S EXCLUSION HAS BEEN SOUGHT ON THE GROUND THAT IT FAILS EMPLOYEE COST TO TOTAL COST FI LTER WHICH IS STATED TO BE LESS THAN 25% AND EMPLOYEE COST RATIO IN THIS CASE IS 15.30%. THE SAID PRAYER IT HAS BEEN STATED WAS BEFORE THE DRP ALSO. (IV) EXCLUSION OF SANKHYA INFOTECH LTD IS SOUGHT ON THE GROUNDS THAT IT IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN E-LEARNI NG ACTIVITIES AND TRAINING SOLUTIONS AND IT IS ALSO STATED THAT THE COMPANY IS ENGAGED I N DEVELOPMENT AS IT IS ENGAGED IN DEVELOPMENT OF SIMULATION AND VIRTUAL TRAINING P RODUCTS. RELIANCE AGAIN HAS BEEN PLACED UPON INTEGRAL DECISION AND SYSTEMS INDIA (P.) LTD. VS DC IT [TS-629- ITAT-2011 (JPR)]; AND NTT DATA INDIA ENTERPRISE APP LICATION SERVICES PVT.LTD. VS ACIT [TS-293-ITAT-2013 (HYD.)]. HOWEVER, NO EFFORT TO DEMONSTRATE THAT FACTS QUA THE PRECEDENT AND THE ASSESSEE WERE PARI-MATERIA WERE MADE. (V) EXCLUSION OF SASKEN COMMUNICATIONS TECHNOLOGIES LTD , RELIANCE WAS PLACED AGAIN ON THE ORDERS OF THE ITAT INCLUDING MO TOROLAS SOLUTIONS INDIA PRIVATE LIMITED VERSUS ACIT (48 TAXMAN.COM 248) ON THE GROU NDS THAT IT WAS FUNCTIONALLY DIFFERENT AS THE COMPANY IS ENGAGED IN RENDERING TE STING, SATELLITE COMMUNICATION AND DIFFERENT SERVICES. FURTHER THE COMPANY WAS STA TED ALSO TO BE ENGAGED IN PRODUCTION OF SOFTWARE PRODUCTS AND ALSO INCURRING SIGNIFICANT MARKETING AND ADVERTISEMENT EXPENSES UNLIKE THE ASSESSEE. I.T.A .NO.-6779/DEL/2015 PAGE 40 OF 50 (VI) EXCLUSION OF E-INFOCHIPS INDIA PRIVATE LIMITED WAS SOUGHT ON THE GROUND THAT IT HAD DIVERSIFIED SERVICES WHICH INCLU DED APPLICATION SOFTWARE; E- COMMERCE; MOBILITY; BI AND VISUALISATION; FIRMWARE AND SYSTEM SOFTWARE; BROAD DESIGN; ASIC/SOC/FPGA SERVICES; MECHANICAL AND INDU STRIAL DESIGN. IT WAS ALSO STATED THAT SEGMENTAL DATA WAS ALSO NOT AVAILABLE, THESE SUBMISSIONS WERE STATED TO BE FILED BEFORE THE DRP ALSO. (VII) EXCLUSION OF E-ZEST SOLUTIONS HAS BEEN REQUESTED ON THE GROUND THAT IT IS FUNCTIONALLY DISSIMILAR HAVING DIVERSIFIED SERVI CES LIKE PRODUCT ENGINEERING SERVICES OUTSOURCED PRODUCT DEVELOPMENT SERVICES WH ICH INCLUDES PRODUCT DESIGNING AND DEVELOPMENT PRODUCT FEATURE ENHANCEME NT, PRODUCT PLATFORM MIGRATION SOFTWARE PRODUCT TESTING LICENSE AND JUDG EMENT ETC. THE EXCLUSION OF THE SAID COMPARABLE WAS ALSO SUPPORTED BY PLACING RELIA NCE ON VARIOUS ORDERS OF THE ITAT AND THE SUBMISSIONS FILED BEFORE THE DRP. 18.1. THE LD. AR HAS SUBMITTED THAT IN CASE THE PRAYER O F THE ASSESSEE IS ACCEPTED AND THE 7 COMPARABLES AS REQUESTED ARE EXCLUDED THE N THE OP/TC OF THE FOLLOWING REMAINING 12 COMPARABLES WOULD BE 15.50% AND WOULD BE WELL WITHIN THE OP/TC OF 14.14% OR 18.06% IF REDRAWN SEGMENTAL ACCOUNT IS CONSIDERED:- SL.NO. COMPANY NAME WC ADJUSTED OP/TC 1. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 2.68% 2. CELSTREAM TECHNOLOGIES PRIVATE LIMITED 14.35% 3. EVOKE TECHNOLOGIES PRIVATE LTD. 9.36% 4. IGATE GLOBAL SOLUTIONS LTD. 23.93% 5. LARSEN & TURBO INFOTECH LTD. 19.50% 6. LGS GLOBAL LTD. 12.42% 7. MINDTREE LTD. 10.29% 8. PERSISTENT SYSTEMS & SOLUTIONS LTD. 22.24% 9. PERSISTENT SYSTEMS LTD. 22.82% 10. R S SOFTWARE (INDIA) LTD. 17.16% 11. TATA ELXSI LTD. 12.94% I.T.A .NO.-6779/DEL/2015 PAGE 41 OF 50 12. THIRDWARE SOLUTION LTD. 18.30% MEAN 15.50% 19. THE LD.CIT DR RELIES UPON THE ORDERS OF THE TAX AU THORITIES AND HIS STAND THAT MICRO DIFFERENCES IN THE COMPARABLES IN A TNMM CANNOT BE A GROUND FOR EXCLUSION. IT WAS ALSO HIS STAND THAT TNMM PRE-SUP POSED A BROAD COMPARABILITY AND A SELECTION OF FAIRLY LARGE NUMBER OF COMPARABL E COMPANIES WOULD ADDRESS THE MICRO DIFFERENCE, IF ANY. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. WE FIND THAT BEFORE WE ADDRESS THE SPECIFI C REQUEST IT IS APPROPRIATE TO FIRST ADDRESS THE FUNCTIONAL PROFIT OF THE ASSESSEE QUA T HE SEGMENT AS PER RECORD. THE DRP AS PER INTERNAL PAGE 47 AND 48 HAVE HELD THE AS SESSEE TO BE A KPO ENGAGED IN SOFTWARE DEVELOPMENT. THE RELEVANT FINDING STANDIN G UNASSAILED ON RECORD IS REPRODUCED HEREUNDER:- 6.1 FUNCTIONAL PROFILE 1) BEFORE CONSIDERING THE APPROPRIATENESS OF THE C OMPARABLES USED, IT IS NECESSARY TO CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE. THE ASSESSEE'S TP STUDY GIVES THE FOLLOWING INFORMATION ABOUT TINE ASSESSEE IN THIS SEGMENT; FUNCTIONS PERFORMED BY BIPL BIPL HAS SET UP AN OFFSHORE CENTRE AT GURGAON. PRES ENTLY, BIPL HAS A TEAM OF 600 PEOPLE APPROXIMATELY WHO ARE ENGA GED IN PROVIDING IT INFRASTRUCTURE SUPPORT SERVICES. THE C ENTRE IS USED TO MONITOR AND MANAGE VARIOUS IT INFRASTRUCTURE COMPON ENTS SUCH AS SERVERS, NETWORKS, STORAGE EQUIPMENT, MESSAGING ETC . THE CENTRE IS INTEGRATED WITH THE GROUP COMPANIES CENTRE TO EN SURE SEAMLESS DELIVERY OPERATIONS BETWEEN THE TWO LOCATIONS. THE IT INFRASTRUCTURE SUPPORT SERVICES TYPICALLY INVOLVE P ERFORMING THE FOLLOWING SERVICES: DATA CENTRE AND SYSTEMS MANAGEMENT, INFRASTRUCTURE MANAGEMENT, WEB HOSTING AND INTERNET ACCESS, DESKTOP SOLUTIONS, MESSAGING SERVICES, PROGRAM MANAGEMENT, I.T.A .NO.-6779/DEL/2015 PAGE 42 OF 50 HARD-WARE AND SOFTWARE MAINTENANCE AND MONITORING , NETWORK MANAGEMENT, INCLUDING VPN SERVICES, SERVICE DESK CAPABILITIES, PHYSICAL SECURITY, NETWORK SECURITY, RISK MANAGEMENT, 'AND REGULAR ADMINISTRATION. FOR THIS FUNCTION, THE GROUP COMPANIES SPECIFY THE BASIC REQUIREMENTS AND BLPL IS RESPONSIBLE FOR UNDERTAKING THE ROUTINE ACTIVITIES IN LINE WITH THE SAME. THE DETAILS OF THE SERVICES PERFORMED BY BIPL WITH RESPECT TO IT INFRASTRUCTURE SUPPORT SERVICES ARE GIVEN BELOW: MONITORING SERVICES: REMOTE MONITORING AND MAN AGEMENT OF THE WINDOWS BASED SERVERS AND MACHINES, NETWORK SERVICES: REMOTE MONITORING AND MANAGEMENT OF THE VARIOUS NETWORK COMPONENTS LIKE ROUTERS, SWITCH ES, FIREWALLS; MESSAGING SERVICES: MANAGING THE MAILBOXES AND USER ACCOUNTS INCLUDING THE SERVERS LIKE LOTUS NOTES, ET C; BASE ADMINISTRATION: MAINTAINING THE VARIOUS DATABA SES AND CARRYING OUT ADMINISTRATION ACTIVITIES; NET-WORK SERVICES: BIPL PROVIDES A-*VARIETY OF NETW ORK SERVICES TO HELP GROUP COMPANIES SHARE INFORMATION MORE EFFECTIVELY. IT ENABLES THE GROUP COMPANIES TO ENJO Y GREATER MOBILITY AND REAL-TIME DATA ACCESS, EXTEND AND LEVE RAGE EXISTING INFRASTRUCTURE AND ENHANCE SERVICE DELIVER Y WITH THE HELP OF WIRELESS SERVICES. IT ALSO PROVIDES TEC HNOLOGY EXPERTISE PERTAINING TO NEW INFRASTRUCTURE IMPLEMEN TATION, AN UPGRADATION OR EXPANSION, OR CONTINUING SUPPORT. SERVICE DESK: TAKING INCOMING VOICE CALLS FROM THE GROUP COMPANIES. THE GROUP COMPANIES CAN CALL UP AND LOG IN THEIR COMPLAINTS FOR ANY PROBLEMS AT THE HELP DESK/ SERVICE DESK. IN ADDITION TO THE ABOVE, IT IS ALSO INVOLVED IN SO FTWARE DEVELOPMENT/ ENHANCEMENT OF SOFTWARE. THIS INVOLVES ROUTINE DEVELOPMENT OF THE SOFTWARE FOR USE-WITHIN THE BECH TEL GROUP. SOFTWARE DEVELOPMENT INVOLVES STEPS LIKE REQUIREMEN T ANALYSIS, TESTING, MODIFICATION TO THE EXISTING SOFTWARE AND MAINTENANCE AND ENHANCEMENT OF THE SOFTWARE. 2). THE ASSESSEE IS ENGAGED IN PROVIDING ENGINEERIN G DESIGN AND OTHER SERVICES. AS PER TP STUDY, IN THIS SEGMENT, T HE ASSESSEE PROVIDES IT SERVICES INCLUDING THE FOLLOWING: IT IS ALSO INVOLVED IN SOFTWARE DEVELOPMENT/ ENHANC EMENT OF SOFTWARE. THIS INVOLVES ROUTINE DEVELOPMENT OF THE SOFTWARE FOR USE WITHIN THE BECHTEL GROUP. SOFTWARE DEVELOPMENT INVOLVES STEPS LIKE REQUIREMENT ANALYSIS, TESTING, MODIFICAT ION TO THE EXISTING SOFTWARE AND MAINTENANCE AND ENHANCEMENT O F THE SOFTWARE. I.T.A .NO.-6779/DEL/2015 PAGE 43 OF 50 3) CONSIDERING THE FACTS AND THE DESCRIPTION OF SER VICES GIVEN ABOVE, IT IS CLEAR THAT IN SEGMENT, THE ASSESSEE IS A KPO AND IS ALSO ENGAGED IN SOFTWARE DEVELOPMENT. 20.1. NO CHALLENGE TO THIS FINDING IS AVAILABLE EITHER BY WAY OF ANY GROUND OR ARGUMENT. 20.2. WE FIND THAT THE PRAYER FOR EXCLUSION OF SANKHYA INFOTECH LTD. AND SASKEN COMMUNICATIONS TECHNOLOGIES LTD BY THE ASSESSEE HAS NOT BEEN AGITATED BEFORE THE DRP AND THE ARGUMENTS ARE BEING ADVANCED BY THE ASSESSEE FOR THE FIRST TIME. ACCORDINGLY IN THE ABSENCE OF ANY OBJECTION FROM TH E REVENUE FOR AGITATING THE ISSUE FOR THE FIRST TIME, WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE TPO TO CONSIDER THE OBJECTIONS ON THE BASIS OF FACTS AN D EVIDENCES AND PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSES SEE A REASONABLE OPPORTUNITY OF BEING HEARD. 20.3. ADDRESSING THE ARGUMENTS ADVANCED FOR EXCLUSION OF THE REMAINING 5 COMPARABLES, WE FIND THAT THE ISSUE HAS BEEN AGITAT ED BEFORE THE DRP. WE FIND THAT THE JUDICIAL PRECEDENT JUSTIFYING THE EXCLUSIO N OF INFOSYS LTD. NOW IS A SETTLED ISSUE AS OWNERSHIP OF BRANDS AND PROPRIETARY PRODUC TS MAKES THE SAID COMPARABLE AN INCOMPARABLE AS THE BARGAINING POWER FOR HIGHER PROFITS STANDS ACCEPTED. NO REBUTTAL EITHER ON FACTS OR LAW QUA THE PRAYER FOR EXCLUSION OF THE SAID COMPANY HAS BEEN ADVANCED BY THE REVENUE. CONSIDERING THE FACTS AND ARGUMENTS THIS COMPARABLE IS DIRECTED TO BE EXCLUDED. 20.4. WE FIND THAT EXCLUSION OF WIPRO TECHNOLOGIES LTD. HAS BEEN REQUESTED ON THE BASIS OF JUDICIAL PRECEDENT WHEREIN A MASTER S ERVICE AGREEMENT BETWEEN CITI GROUP WITH WIPRO TECHNOLOGY GUARANTEEING MINIMUM RE VENUE OF US DOLLARS 500 I.T.A .NO.-6779/DEL/2015 PAGE 44 OF 50 MILLION FOR SIX YEARS HAS BEEN CITED. THE LD.CIT D R HAS PUT UP A SPIRITED DEFENSE SO AS TO ARGUE HOW THE GUARANTEE OF MINIMUM REVENU E OF 500 MILLION US DOLLARS CAN BE SAID TO IMPACT NET PROFITS AS IT ONLY GUARAN TEES MINIMUM WORK UPTO THE EXTENT AGREED. IT HAS BEEN HIS ARGUMENT THAT MINI MUM GUARANTEE OF A SPECIFIC AMOUNT OF REVENUE IS A MATTER OF FACT AND HOW IT CA N IMPACT PRICING SO AS TO IMPACT NET PROFITABILITY HAS TO BE ESTABLISHED AND WITHOUT THE SAID EXERCISE IT CAN NOT BE EXCLUDED IN A METHOD LIKE TNMM. THIS FACET IT WAS ARGUED NEEDS TO BE ESTABLISHED. CONSIDERING THE OVERALL FACTUAL MATRI X AND THE PRECEDENT CITED, WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE TO THE TPO THE ASSESSEE MAY DEMONSTRATE ITS CLAIM ON FACTS AS WHETHER THE ASPECT HAS BEEN C ONSIDERED IN ITS ENTIRETY IN THE PRECEDENT CITED HAS NOT BEEN ADDRESSED BY THE PARTI ES. 20.5. THE EXCLUSION OF ACROPETAL TECHNOLOGIES , WE FIND HAS ALSO BEEN AGITATED BEFORE THE DRP. THE ASSESSEE HAS ARGUED HIGH TURNO VER AS A GROUND FOR ITS EXCLUSION. THE DRP RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CHRYS CAPITAL HAS HELD THAT THE HONBLE HIGH COUR T EXPLAINING THE DECISION RENDERED IN AGNITY INDIA TECHNOLOGIES PVT.LTD. HAS CONCLUDED THAT PROFITS ARE NOT DEPENDENT ON HIGH TURNOVER AND THE SAID POSITION HA S NOT BEEN CONTROVERTED. BEFORE US THE EXCLUSION, WE FIND IS NOT SOUGHT ON T HIS GROUND AND EXCLUSION OF THE SAID COMPARABLE HAS BEEN SOUGHT ON THE GROUND THAT IT FAILS THE EMPLOYEE COST FILTER OF 25% AS THE EMPLOYEE COST RATIO IS STATED TO BE 15.30%. WE FIND THAT THIS FACTUAL ASPECT HAS NOT BEEN ARGUED BEFORE THE DRP . ACCORDINGLY IT IS DEEMED APPROPRIATE TO RESTORE THE ISSUE BACK TO THE TPO TO CONSIDER THE FACTS ON RECORD QUA THE FRESH LINE OF ARGUMENT ADVANCED BY THE ASSE SSEE AS ADMITTEDLY THE I.T.A .NO.-6779/DEL/2015 PAGE 45 OF 50 CORRECTNESS OF THE FACTS RELATABLE TO THIS ARGUMENT HAVE NOT BEEN TESTED EITHER BY THE TPO OR THE DRP. SINCE THE ARGUMENT HAS NOT BEE N ADVANCED THE OCCASION TO CONSIDER THE CORRECTNESS OF THE SAME OBVIOUSLY HAD NOT ARISEN. THE ISSUE IS RESTORED BACK TO THE TPO FOR FRESH ADJUDICATION. 20.6. THE EXCLUSION OF E-INFOCHIPS INDIA PVT.LTD. WE FIND WAS SOUGHT BEFORE THE DRP ON THE GROUND THAT IT FAILED THE SERVICE INCOME FILTER. THE SAID CLAIM ON FACTS WAS FOUND TO BE INCORRECT. ANNUAL REPORT WAS REFE RRED TO BY THE DRP WHICH SHOWED THAT SALE FROM SOFTWARE PRODUCT WAS ONLY 15% AND THE FINANCIALS OF THE COMPANY WERE THUS TAKEN AT THE ENTITY LEVEL AS THE FILTER OF 25% WAS FOUND TO BE NOT CROSSED. ACCORDINGLY, WE FIND THAT THE ASSERTI ONS MADE IN THE SYNOPSIS THAT SEGMENTAL DATA IS NOT AVAILABLE IS FOUND TO BE INCO RRECT. ON FACTS NO ARGUMENT ESTABLISHING THAT FACTS IN THE JUDICIAL PRECEDENT C ITED ARE IDENTICAL HAVE BEEN ADVANCED. THE COMPARABLE IS DIRECTED TO BE RETAINED . 20.7. THE FACTS FOR EXCLUSION OF E-ZEST SOLUTIONS SHOW THAT THE DRP AT PAGES 315 TO 316 (INTERNAL PAGES 53 & 54) HAS UPHELD THE FIND ING OF THE TPO AND HELD THAT THE SAID COMPANY IS PREDOMINANTLY ENGAGED IN SOFTWARE D EVELOPMENT SERVICES. THIS FINDING HAS NOT BEEN REBUTTED BY THE ASSESSEE AND NOTHING IN SUPPORT OF THE ARGUMENT THAT IT IS FUNCTIONALLY DISSIMILAR HAS BEE N PLACED BEFORE US. THE COMPARABLE ACCORDINGLY IS DIRECTED TO BE RETAINED. 21. THE CONCLUSIONS ARRIVED AT HAVE BEEN BASED ON THE FACTS AND ARGUMENTS AS PLACED BEFORE THE BENCH. THE CONCLUSIONS ARRIVED A T HAVE BEEN BASED ON ADMITTED FACTS ON RECORD AND THE SPECIFIC REASONING FOR A GREEING OR DISAGREEING WITH THE ARGUMENTS OF THE PARTIES HAVE BEEN ADDRESSED AS THE ISSUES ARE FACT DRIVEN AND I.T.A .NO.-6779/DEL/2015 PAGE 46 OF 50 JUDICIAL PRECEDENT REFERRED TO WHERE FACTS ARE NOT IDENTICAL THOUGH HAVE BEEN CONSIDERED BUT REFERENCE THERETO IS REFRAINED FROM AS THE CONCLUSIONS ON THE ISSUES ARE FACT BASED, FACT DRIVEN AND FACT-RIDDEN. 22. ALTHOUGH, WE HAVE ALREADY ADDRESSED THE ISSUE OF R EDRAWING THE SEGMENTAL AND THE ISSUE CONSIDERING THE SUBMISSIONS OF THE PA RTIES HAS BEEN RESTORED. HOWEVER, WE NOTE THAT THE ASSESSEE BEFORE US HAS AR GUED THAT THE REIMBURSEMENT OF EXPENSES RECEIVED HAS BEEN ROUTED THROUGH THE P& L ACCOUNT. IT HAS BEEN SUBMITTED THAT THE ASSESSEE HAS MERELY ACTED AS AN INTERMEDIARY BETWEEN THE AES AND THE SERVICE PROVIDERS FOR THE ADMINISTRATIVE CO NVENIENCE AND NO SERVICES HAVE BEEN PROVIDED BY THE ASSESSEE IN THIS RESPECT. REL IANCE HAS BEEN PLACED UPON THE JUDICIAL PRECEDENT THAT SERVICE PROVIDERS NEED NOT APPLY A MARK-UP ON REIMBURSEMENT OF EXPENSES RECEIVED, WHICH ARE PAID TO THIRD PARTIES:- NTT DATA FA INSURANCE SYSTEMS (INDIA) PRIVATE LIMIT ED (I.T.(TP).A NO.1311/BANG/2010) M/S FCG SOFTWARE SERVICES (INDIA) PVT.LTD. [IT(T.P) A NO.1242/BANG/2012] M/S COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT.LTD. [ ITA NO.114 & 2100/MDS/2011] HSBC ELECTRONIC DATA PROCESSING INDIA LTD. [ITA NO.247/HYD/2014] LG SOFT INDIA PVT.LTD. [IT(TP) NO.1121/BANG/2011] TESCO HINDUSTAN SERVICE CENTRE PVT.LTD. [IT(TP).A. NO.1317/BANG/2010] 22.1. WITHOUT PREJUDICE TO THE MAIN ARGUMENT THAT SEGMEN TAL ACCOUNT PREPARED IN THE TP STUDY IS APPROPRIATE THE ASSESSEE HAS REQUES TED THAT THE TPO MAY BE DIRECTED IN THE ALTERNATE IF THE ASSESSEE FAILS IN ITS MAIN PRAYER TO CONSIDER THE REVISED ALLOCATION METHODOLOGY IN THE CASE OF IT IN FRA AND FAS SEGMENT. ACCORDING TO THE CHART PLACED IN THE SYNOPSIS PAGE 27, IT SHO ULD BE MODIFIED AS UNDER:- I.T.A .NO.-6779/DEL/2015 PAGE 47 OF 50 S.NO. PARTICULARS EDS SEGMENT FAS SEGMENT IT INFRA SUPPORT SERVICE SEGMENT 1. AS PER TP STUDY - CONSIDERING PROVISIONS & LIABILITIES WRITTEN BACK AS OPERATING ITEM 10.84% 10.52% 14.32% 2. AS PER TP STUDY - CONSIDERING PROVISIONS & LIABILITIES WRITTEN BACK AS NON-OPERATING ITEM 10.69% 10.29% 14.14% 3. REVISED SEGMENTAL PROFITABILITY AS PER LD.TPO - REALLOCATING THE EXPENSES ON THE BASIS OF REVENUE; - INCLUDING REIMBURSEMENTS IN THE REVENUE AS WELL EXPENSES; AND - CONSIDERING PROVISIONS WRITTEN BACK AS NON-OPERATING ITEM 8.98% 21.57% 18.06% 22.2. AS OBSERVED THE ISSUE STANDS RESTORED IN THE LIGHT OF THE REQUEST OF THE PARTIES AS THE TPO IS FOUND TO HAVE NOT CARRIED OUT THE DIRECTION OF THE DRP FOR WHICH PURPOSE THE LD.CIT DR REQUESTED THAT IT MAY B E RESTORED. THE LD.AR HAS CANVASSED THAT THE TPO MAY BE DIRECTED TO CONSIDER BOTH THE MAIN AS WELL AS THE ALTERNATE ARGUMENTS BEFORE HIM. IN VIEW OF THE A BOVE THE TPO IS DIRECTED TO CONSIDER THE ISSUE AFRESH AND PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEI NG HEARD. 23. THE ASSESSEE HAS ALSO REQUESTED FOR ECONOMIC ADJUST MENTS ON ACCOUNT OF RISK ADJUSTMENT ACROSS THE COMPARABLES VIDE GROUND NO.1.5. THE SAID PRAYER IT HAS BEEN STATED HAS BEEN ACCEPTED IN THE CASE OF AS SESSEE BY THE ITAT IN 2004-05 AND 2005-06 ASSESSMENT YEARS. THE SAID ISSUE ACCOR DINGLY IS ALSO RESTORED TO THE TPO DIRECTING HIM TO CONSIDER THE CALCULATIONS WHI CH THE TAXPAYER MAY PROVIDE FOR THE COMPARABLES WHICH ARE ULTIMATELY SELECTED IN TH E FRESH SEARCH CARRIED OUT BY I.T.A .NO.-6779/DEL/2015 PAGE 48 OF 50 THE PARTIES IN THE EDA SEGMENT AND QUA THE COMPARAB LES RETAINED IN THE REMAINING TWO SEGMENTS. 24. ADDRESSING THE ISSUE ON ACCOUNT OF RECEIVABLES QUA WHICH GROUND NO. 5 READ WITH NO. 5.1 AND 5.2 HAS BEEN RAISED BY THE TAXPAYE R, WE FIND THAT RELIANCE HAS BEEN PLACED UPON THE PRECEDENT AS IS AVAILABLE IN A SSESSEES CASE IN 2010 11 ASSESSMENT YEAR. RELYING ON THE SAME IT HAS BEEN A RGUED THAT THE ADJUSTMENT ON ACCOUNT OF RECEIVABLES HAS BEEN STATED TO BE DELETE D. IT HAS BEEN SUBMITTED THAT THE ITAT HAS HELD THAT THE ASSESSEE IS A DEBT FREE COMPANY AND THAT IT IS NOT JUSTIFIABLE TO PRESUME THAT BORROWED FUNDS WOULD HA VE BEEN UTILIZED TO PASS ON THE FACILITY TO ITS AES. IT HAS BEEN ARGUED THAT THE IT AT RELYING ON KUSUM HEALTHCARE PRIVATE LIMITED TS 129 ITAT 2015 (DEL TP) HAS HELD THAT NO SEPARATE ADJUSTMENT IS WARRANTED ON ACCOUNT OF INTEREST ON R ECEIVABLES. ACCORDINGLY, THE TAXPAYER HAS PLACED THE FOLLOWING CONTENTIONS BEFOR E THE ITAT:- THE APPELLANT HUMBLY SUBMITS THAT WORKING CAPITAL ADJUSTMENT UNDERTAKEN TAKES INTO ACCOUNT THE IMPACT OF OUTSTAN DING RECEIVABLES ON THE PROFITABILITY AND ACCORDINGLY NO SEPARATE ADJUSTMENT IS WARRANTED ON ACCOUNT OF OUTSTANDING R ECEIVABLES. THE APPELLANT WOULD ALSO LIKE TO SUBMIT THAT THE IN TEREST COMPONENT IS EMBEDDED IN THE SALE PRICE AND COMMERC IAL CONSIDERATIONS NEEDS TO BE APPRECIATED I.E. TO ENSU RE A HEALTHY RELATIONSHIP AND TO MAINTAIN A LONG BUSINESS TRANSA CTION, SUCH COMPENSATION OR CHARGING OF INTEREST ARE BEING IGNO RED COMMONLY BY BUSINESS. IN THIS REGARD, THE APPELLANT WOULD LIKE TO PLACE R ELIANCE ON THE RECENT RULING PASSED BY HONBLE DELHI ITAT IN THE C ASE OF KUSUM HEALTHCARE PRIVATE LIMITED (SUPRA), WHEREIN IT WAS HELD THAT IF THE IMPACT OF THE CREDIT PERIOD WAS DULY FACTORED IN TH E WORKING CAPITAL ADJUSTMENT, WHILE DETERMINING THE ARMS LE NGTH PRICE, THEN NO SEPARATE OR FURTHER ADJUSTMENT FOR INTEREST ON THE RECEIVABLES, WAS WARRANTED IN THE HANDS OF THE TEST ED PARTY. 24.1. IT HAS ALSO BEEN SUBMITTED THAT:- I.T.A .NO.-6779/DEL/2015 PAGE 49 OF 50 FURTHER, IN THE CASE OF INFORMATION SYSTEMS RESOUR CE CENTRE PRIVATE LIMITED [TS-252-ITAT-2015 (MUM)-TP AND GOLD STAR JEWELLERY LTD. VS JCIT [ITA NO.6570/MUM./2012] ORDE R DATED 14.1.2015, THE HONBLE MUMBAI TRIBUNAL HAS FOLLOWED THE RULING OF THE HONBLE DELHI TRIBUNAL IN THE CASE OF KUSUM HEALTHCARE PRIVATE LIMITED (SUPRA) IN RELATION TO ADJUSTMENT M ADE ON ACCOUNTS OF RECEIVABLE OUTSTANDING FROM AES. NO INTEREST CHARGED BY THE AES FROM THE APPELLANT A ND ACCORDINGLY INTEREST CHARGED BY APPELLANT TO THE AE S DOES NOT MAKE BUSINESS SENSE. 25. THE LD.CIT DR RELIES UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 26. BEFORE CONSIDERING THE SUBMISSIONS OF THE PARTIES, WE FIRST PROPOSE TO ADDRESS THE FACTS. IT IS SEEN THAT THE ISSUE HAS B EEN CONSIDERED BY THE TPO AT EXTERNAL PAGE 88 TO 113 AND THE ISSUE HAS BEEN SUMM ED UP BY THE DRPS INTERNAL PAGES 75 TO 81 PARA 8.3 TO 8.3.3. THE DRP RELYING UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CIT VS COTTON NATURALS (I) PVT. LTD. (2015-TII-09-HC- DEC-TP) ON FACTS HAS RESTORED THE ISSUE HOLDING THA T NEITHER THE CURRENCY IN WHICH THE RECEIVABLES IS TO BE PAID NOR THE COMPUTATIONS OF THE RECEIVABLES HAVE BEEN PROVIDED. THE TPO WAS DIRECTED TO EXAMINE THE FACT S AND ASCERTAIN THE CURRENCY AND CONSIDER THE AGREEMENT ENTERED INTO BY THE ASSE SSEE WITH ITS AE IN TERMS OF THE DIRECTION GIVEN AT PAGES 80 AND 81 OF THE ORDER . IN VIEW OF THE SAME, THE ISSUE IS RESTORED TO THE TPO TO CONSIDER THE SAME AND THE FACTS AS ARGUED BY THE ASSESSEE BEFORE THE ITAT IN 2010-11 ASSESSMENT YEAR MAY BE DEMONSTRATED TO BE IN EXISTENCE IN THE YEAR UNDER CONSIDERATION ALSO BEFO RE THE TPO AS RELIANCE PLACED ON KUSUM HEALTHCARE PVT.LTD. QUA THE FACTS IN THE YEAR UNDER CONSIDERATION ALSO NEEDS TO BE ESTABLISHED. ACCORDINGLY THE ISSUE IS RESTORED BACK WITH THE ABOVE DIRECTION. I.T.A .NO.-6779/DEL/2015 PAGE 50 OF 50 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 TH OF JULY, 2016. SD/- SD/- (L.P.SAHU) (DIVA SING H) ACCOUNTANT MEMBER JUDICIAL MEMBER *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSI STANT REGISTRAR ITAT NEW DELHI