Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 1114 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-12-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Assessment Year
2013-2014
Appeal Filed On
04-12-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: I-1, NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.7234/DEL./2017 ASSESSMENT YEAR: 2013-14 M/S. BECHTEL INDIA PVT. LTD., 418, NAURANG HOUSE, 21 K.G. MARG, NEW DELHI VS. ADDL. CIT, SPECIAL RANGE-2, NEW DELHI PAN :AAACB0298A (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST FIN AL ASSESSMENT ORDER PASSED BY THE LD. ADDITIONAL COMMI SSIONER OF INCOME-TAX, SPECIAL RANGE-2, NEW DELHI [IN SHORT T HE LD. ASSESSING OFFICER] FOR ASSESSMENT YEAR 2013-14, PUR SUANT TO THE DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL (DRP) . THE GROUNDS RAISED IN THE APPEAL ARE REPRODUCED AS UNDER: 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO / LD. TRANSFER PRICING OFFICER (TPO) / LD. DIS PUTE RESOLUTION PANEL (DRP) ERRED IN MAKING AN ADDITION OF INR 27 ,32,88,151 TO THE RETURNED INCOME OF THE APPELLANT BY RE-COMPUTIN G THE ARMS APPELLANT BY SHRI NISHANT SAINI, AR RESPONDENT BY SHRI SURENDER PAL, CIT(DR) DATE OF HEARING 02.12.2020 DATE OF PRONOUNCEMENT 18.12.2020 2 ITA NO.7234/DEL./2017 LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTA INING TO ENGINEERING DESIGN AND RELATED SERVICES SEGMENT OF THE APPELLANT, UNDER SECTION 92 OF THE ACT. IN PASSING THE ORDER, THE LD. AO / LD. TPO / LD. DRP ERRED IN: 1.1. REJECTING COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN ITS TRANSFER PRICING DOCUMENTATION ON THE BASIS OF ADDITIONAL/MODIFIED QUANTITATIVE FILTERS WHICH LACK ED VALID AND SUFFICIENT REASONING; 1.2. ACCEPTING COMPANIES WHICH ARE FUNCTIONALLY NOT COMPARABLE; 1.3. INCLUDING ENTERPRISES OWNED OR AFFILIATED BY G OVERNMENT AND HAVING SIGNIFICANT RELIANCE ON GOVERNMENT PROJECTS; 1.4. COMPLETELY IGNORING THE ORDERS PASSED BY HONB LE HIGH COURT, HONBLE INCOME TAX APPELLATE TRIBUNAL AND LD. DRP I N THE APPELLANTS OWN CASE FOR PREVIOUS YEARS, BY ACCEPTI NG COMPARABLES DIRECTED TO BE EXCLUDED FOR BENCHMARKIN G THE ENGINEERING DESIGN SERVICE RENDERED BY THE APPELLAN T; 1.5. NOT APPRECIATING THE FACT THAT THE REVENUE AUT HORITIES HAVE ACCEPTED THE EXCLUSION OF CERTAIN COMPARABLES BY NO T APPEALING AT HIGHER FORUM; AND 1.6. ERRONEOUSLY RELYING ON THE ORDERS OF LD. DRP F OR PRIOR YEARS IN RESPECT OF FUNCTIONS PERFORMED BY THE APPELLANT IN THE IMPUGNED SEGMENT. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ LD. TPO ERRED IN NOT FOLLOWING THE BINDING DIRE CTIONS OF THE LD. DRP FOR THE SUBJECT YEAR. IN DOING SO, T HE LD. AO/ LD. TPO ERRED IN: 2.1. INCLUDING COMPARABLES NAMELY CERTIFICATION ENG INEERING INTERNATIONAL LIMITED AND HOLTEC COUNSELTING PRIVAT E LIMITED IN THE FINAL SET OF COMPARABLE COMPANIES; 2.2. NOT CORRECTING THE MARGINS OF COMPARABLE COMPA NIES; 2.3. NOT COMPUTING THE MARGINS OF COMPARABLES AND T HE APPELLANT BY CONSIDERING FOREIGN EXCHANGE GAIN/ LOSS AS OPERATIN G IN NATURE; AND 2.4. DENYING WORKING CAPITAL ADJUSTMENT IN ARRIVING AT THE ARMS LENGTH MARGIN. 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 DISREGARDING THE ALLOCATION UNDERTAKEN BY THE AP PELLANT IN THE RESPECTIVE SEGMENTS AND ALLOCATING THE SAME BASED O N AN INAPPROPRIATE ALLOCATION KEY (REVENUE BASE). 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ LD. TPO/LD. DRP ERRED IN SELECTING THE CURRENT YEAR (I.E. FINANCIAL YEAR 2012-13) 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 2012-13 WAS NOT AVAILABLE WITHIN THE PUBLIC DOMAIN. 3 ITA NO.7234/DEL./2017 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO / LD. TPO / LD. DRP ERRED IN MAKING AN ADDITION OF INR 50,94,089/- TO THE RETURNED INCOME OF THE APPELLANT BY IMPUTING INTEREST ON RECEIVABLES FROM THE ASSOCIATED ENTERPR ISES BEYOND CREDIT PERIOD OF THE APPELLANT ON AN AD HOC BASIS, UNDER SECTION 92 OF THE ACT. THUS, IN PASSING THE ORDER, THE LD. AO / LD. TPO / LD. DRP GROSSLY ERRED IN: 5.1. RE-CHARACTERIZING THE RECEIVABLES DUE AFTER A CERTAIN CREDIT PERIOD AS UNSECURED LOANS ADVANCED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES; 5.2. NOT APPRECIATING THAT WORKING CAPITAL ADJUSTME NT HAS BEEN ACCEPTED BY THE LD. DRP AND THAT THE ARMS LENGTH P RICE DETERMINATION FOR OUTSTANDING RECEIVABLES IS SUBSUM ED WITHIN THE ARMS LENGTH PRICE DETERMINATION OF THE PRINCIPAL I NTERNATIONAL TRANSACTION ITSELF; 5.3. COMPLETELY DISREGARDING THE ORDERS PASSED BY T HE HONBLE SUPREME COURT, HONBLE HIGH COURT AND HONBLE INCOM E TAX APPELLATE TRIBUNAL IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2010-11 WHICH IS SQUARELY APPLICABLE IN THE IN STANT CASE AS WELL, THUS VIOLATING THE PRINCIPAL OF JUDICIAL DISC IPLINE; AND 5.4. SELECTING AN AD HOC INTEREST RATE OF LIBOR PLU S 400 BASIS POINTS WHILE COMPUTING THE ADDITION. 6. THAT THE LD. AO HAS ERRED IN CHARGING INTEREST U NDER SECTION 234B OF THE ACT AMOUNTING TO INR INR 4,06,44,495/-. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDI NGS UNDER SECTION 271 (L)(C) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DE LETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEA L EITHER BEFORE OR DURING THE COURSE OF THE PROCEEDINGS BEFO RE THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THE INTEREST OF TH E NATURAL JUSTICE. THE AFORESAID GROUNDS ARE MUTUALLY EXCLUSI VE AND WITHOUT PREJUDICE TO EACH OTHER. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY WAS INCORPORATED ON 21/04/1994 AS A WHOLLY OWNED SUBSIDIARY OF BECHTEL CORPORATION USA. THE ASSESS EE WAS ENGAGED IN EXPORT OF CUSTOMERS ELECTRONIC DATA TO I TS ASSOCIATED ENTERPRISES (AES). THE ASSESSEE FILED RETURN OF INC OME FOR THE YEAR UNDER CONSIDERATION ON 12/11/2013, DECLARING TOTAL INCOME OF 49,63,12,880/-. THE RETURN OF INCOME FILED BY THE A SSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTI CES UNDER THE 4 ITA NO.7234/DEL./2017 INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WERE ISSU ED AND COMPLIED WITH. IN VIEW OF THE INTERNATIONAL TRANSACTIONS ENT ERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES, THE MATTE R OF DETERMINATION OF ARMS-LENGTH PRICE OF THOSE INTERN ATIONAL TRANSACTIONS WAS REFERRED TO THE LD. TRANSFER PRICI NG OFFICER (TPO). THE LD. TPO PROPOSED TRANSFER PRICING ADJUSTMENT OF 28,63,66,332/- IN HIS ORDER DATED 30/08/2016. CONSE QUENTLY, THE LD. ASSESSING OFFICER ISSUED DRAFT ASSESSMENT O RDER ON 29/11/2016 PROPOSING THE TRANSFER PRICING ADJUSTMEN T. AGGRIEVED, THE ASSESSEE FILED OBJECTIONS BEFORE THE LD. DRP, WHO ISSUED CERTAIN DIRECTIONS TO THE ASSESSING OFFICER. PURSUANT TO THE DIRECTION OF LD. DRP, THE ASSESSING OFFICER PASSED THIS IMPUGNED FINAL ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUC ED ABOVE. 3. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILED P APER-BOOKS AND OTHER DOCUMENTS ELECTRONICALLY. BOTH THE PARTIE S APPEARED BEFORE US THROUGH VIDEOCONFERENCING FACILITY. 4. ALL THE GROUNDS RAISED ARE IN RELATION TO TWO TRAN SFER PRICING ADJUSTMENTS. THE GROUNDS NOS. 1 TO 4 ARE RELATED TO ADJUSTMENT MADE TO INTERNATIONAL TRANSACTION OF ENGINEERING D ESIGN AND RELATED SERVICES. THE GROUND NO 5 RELATES TO INTE RNATIONAL TRANSACTION OF INTEREST ON OUTSTANDING RECEIVABLES . 5. BRIEF FACTS QUA THE ISSUE IN DISPUTE ARE THAT DURI NG THE YEAR THE ASSESSEE HAS PROVIDED SERVICES TO ITS ASSOCIATE D ENTERPRISES UNDER THE FOLLOWING THREE SEGMENTS: (A) ENGINEERING DESIGN AND RELATED SERVICES (B) FINANCIAL AND ACCOUNTING SUPPORT SERVICES (C) INFORMATION TECHNOLOGY INFRASTRUCTURE SUPPORT SERVI CES 5 ITA NO.7234/DEL./2017 5.1 THE SUMMARY OF THE ECONOMIC ANALYSIS OF THE INTERN ATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION WITH ITS AES IS SUMMARISED BELOW: NATURE OF INTERNATIONAL TRANSACTIONS VALUE (IN 1NR CRORES) MOST APPROPRIATE METHOD PROFIT LEVEL INDICATOR (PLI) BIPLS MARGIN MARGIN OF COMPARABLE S IN TP STUDY UPDATED MARGINS OF COMPARABLE S PROVISION OF ENGINEERING DESIGN AND RELATED SERVICES 241.96 TRANSACTION AL NET MARGIN METHOD (TNMM) OPERATING PROFIT / OPERATING COST (OP/OC) 14.00% 13.87% 10.02% PROVISION OF FINANCIAL AND ACCOUNTING SUPPORT SERVICES 8.94 TNMM OP/OC 17.7% 12.03% 12.59% PROVISION OF INFORMATION TECHNOLOGY INFRASTRUCTURE SUPPORT SERVICES 27.44 TNMM OP/OC 18.8% 11.88% -2.26% REIMBURSEMENT OF EXPENSES (PAID) 1 4.21 TNMM OP/OC NOT APPLICABLE (NA) REIMBURSEMENT OF EXPENSES (RECEIVED) 20.55 COMPARABLE UNCONTROLLE D PRICE METHOD NA NA 5.2 THE FUNCTIONS, ASSETS AND RISK (FAR) ANALYSIS OF T HE ASSESSEE HAS BEEN REPRODUCED BY THE LEARNED TPO IN PARA 2.2 OF HIS ORDER. ACCORDING TO THE FAR ANALYSIS, AFTER AWARDING THE C ONTRACT TO THE ASSOCIATED ENTERPRISES BY THEIR CUSTOMERS, WORK OF VARIOUS ENGINEERING DESIGNS AND DRAWINGS REQUIRED FOR THE P ROJECT, ARE ASSIGNED TO THE ASSESSEE. THE ASSESSEE EMPLOYS ENGI NEERS HAVING QUALIFICATION AND EXPERIENCE IN THE FIELD OF PLANT LAYOUT DESIGN, ELECTRICAL DESIGN, INSTRUMENTATION DESIGN, PIPING D ESIGN, CIVIL DESIGN AND MECHANICAL DESIGNS ETC. THE ASSESSEE HAS WIDE AREA (WAN) LEASED IT CABLE INFRASTRUCTURE, WHICH CONNECT S ASSESSEES COMPUTERS AND SERVERS TO AES COMPUTERS AND SERVERS. THE ENGINEERING DESIGNS AND DRAWINGS ARE DEVELOPED USIN G 6 ITA NO.7234/DEL./2017 COMPUTERS/COMPUTING DEVICES/SOFTWARE AND ARE TRANSM ITTED TO AES USING THE WAN LINKS. VARIOUS DIVISIONS OF THE AS SESSEE LIKE DESIGN AND PIPING DIVISION, CIVIL STRUCTURE DIVISIO N, ELECTRICAL DIVISION, CONTROL SYSTEM DIVISION, MECHANICAL DIVIS ION, PROCESS DIVISION ETC. WORK IN INTEGRATED MANNER FOR THE PRO JECTS ASSIGNED BY THE AES. THE ASSESSEE ALSO PROVIDED PROCUREMENT SUPPORT AND CONSTRUCTION SUPPORT SERVICES TO THE AES. 5.3 THE ARMS-LENGTH PRICE OF THE INTERNATIONAL TRANSA CTION OF ENGINEERING DESIGN AND RELATED SERVICES WAS DETER MINED BY THE ASSESSEE APPLYING TRANSACTIONAL NET MARGIN METHOD ( TNMM) TAKING OPERATING PROFIT TO TOTAL COST (OP/TC) RATIO AS PROFIT LEVEL INDICATOR (PLI). THE PLI OF THE ASSESSEE COMPANY WA S WORKED OUT AT 14% WHEREAS THE AVERAGE PLI OF THE 7 COMPARABLES WAS ARRIVED AT 13.87 % . 5.4 WHILE WORKING OUT THE PLI, THE ASSESSEE DID NOT RO UTE THE REIMBURSEMENT OF EXPENSES AMOUNTING TO 20,55,04,985/- THROUGH THE PROFIT AND LOSS ACCOUNT. THE LD. TPO W AS OF THE VIEW THAT REIMBURSEMENT OF EXPENSES SHOULD BE TREATED AS PART OF PROFIT AND LOSS ACCOUNT AND THEREFORE HE RE-COMPUTE D THE PLI OF THE ASSESSEE AT 11.45%. THE LEARNED TPO APPLIED VAR IOUS FILTERS FOR SELECTION OF THE COMPARABLES AND FINALLY SELECT ED 11 COMPARABLES WITH THE AVERAGE PLI OF 25.09%. THE LEA RNED TPO ACCORDINGLY COMPUTED ADJUSTMENT OF 27,32,88,151/- TO THE INTERNATIONAL TRANSACTION OF ENGINEERING AND RELAT ED SERVICES. 5.5 THE LEARNED DRP DIRECTED THE LEARNED AO/TPO TO EXC LUDE THE COMPANY HOLTEC CONSULTING PRIVATE LIMITED AS COMPARABLE RELYING ON THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06. THE LEARNED DRP ALSO DIREC TED FOR 7 ITA NO.7234/DEL./2017 GRANTING WORKING CAPITAL ADJUSTMENT, CONSIDERING FO REIGN EXCHANGE GAIN/LOSS AS OPERATING IN NATURE AND CONSI DERING CORRECT MARGIN COMPUTATION FOR SELECTED COMPARABLE COMPANIES. BASED ON THE DIRECTION OF THE LEARNED DRP, THE FINA L SET OF THE COMPARABLE COMPANIES AND THEIR WORKING CAPITAL ADJU STED PLI AS WORKED OUT BY THE LEARNED TPO IN RECTIFICATION ORDE R DATED 20/12/2017 IS REPRODUCED AS UNDER: S. NO. NAME OF COMPARABLE SUBMITTED BY APPELLANT (TP STUDY) INTRODUCED BY LD. TPO WORKING CAPITAL ADJUSTED OP/OC 1. IOT DESIGN AND ENGINEERING LIMITED --- -5.87% 2. KORUS ENGINEERING SOLUTIONS LIMITED --- -3.49% 3. CADES DIGITECH PRIVATE LIMITED --- 6.02% 4. SIMON INDIA LIMITED --- 8.62% 5. ALLCARGO LOGISTICS LIMITED --- 11.45% 6. NEILSOFT LIMITED --- 15.03% 7. MITCON CONSULTANCY & ENGINEERING SERVICES LIMITED --- 37.37% 8. CERTIFICATION ENGINEERING INTERNATIONAL LIMITED --- 35.44% '9. ACROPETAL TECHNOLOGIES LIMITED (EDS SEGMENT) --- 37.79% 10. HSCC (INDIA) LIMITED --- 52.32% MEAN 19.47% 5.6 THE LEARNED TPO RECOMPUTED THE ADJUSTMENT FOR PROVISIONING OF ENGINEERING DESIGN AND RELATED SERV ICES TO 15,23,01,077/-. 5.7 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITT ED THAT IF THREE COMPARABLES NAMELY CEIL, HSCC INDIA LTD. AND MITCOIN CONSULTANCY ARE EXCLUDED FROM THE SET OF THE COMPA RABLES, THE 8 ITA NO.7234/DEL./2017 ASSESSEES MARGIN WOULD BE AT PAR WITH THE AVERAGE MARGIN OF THE COMPARABLES AND NO ADJUSTMENT WOULD BE REQUIRED IN THE CASE OF THE ASSESSEE. 6. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE MATERIAL ON RECORD. THE ISSUE OF EXCLUSION/RETAINING OF THREE COMPARABLES ARGUED BY THE PARTIES IS ADJUDICATED AS UNDER: 7. CERTIFICATION ENGINEERING INTERNATIONAL LTD (CEI L) 7.1 BEFORE THE LEARNED TPO THE ASSESSEE SUBMITTED THAT CEIL IS FUNCTIONALLY DISSIMILAR IN VIEW OF THE ACTIVITIES O F CERTIFICATION, RE- CERTIFICATION, SAFETY AUDIT, HSE MANAGEMENT SYSTEM FOR OFFSHORE AND ONSHORE OIL AND GAS FACILITIES, THIRD-PARTY INS PECTION OF EQUIPMENT AND INSTALLATION IN HYDROCARBON AND OTHER SECTORS. THE ASSESSEE ALSO SUBMITTED THAT COMPANY WAS REJECTED B Y THE TRIBUNAL AS COMPARABLE IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 AND ASSESSMENT YEAR 2011-12 . THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED BEFORE US THAT THE LEARNED DRP THOUGH REJECTED THE COMPANY AS SUITABLE COMPARABLE, HOWEVER WHILE GIVING THE FINAL DIRECTIO N, RETAINED THE COMPANY AS COMPARABLE. THE LEARNED COUNSEL BEFORE U S SUBMITTED THAT COMPANY BEING GOVERNMENT COMPANY, AL SO CANNOT BE COMPARED WITH THE ASSESSEE. 7.2 THE LEARNED DR ON THE OTHER HAND RELIED ON THE OBS ERVATION OF THE LEARNED DRP. 7.3 WE HAVE HEARD SUBMISSION OF THE PARTIES. IN PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, AVAILABLE ON PAGE 462 9 ITA NO.7234/DEL./2017 OF THE PAPER-BOOK, WE FIND THAT COMPANY HAS SHOWN R EVENUE OF 28,43,13,270/- FROM OPERATIONS. ON PERUSAL OF PAGE 12 OF THE ANNUAL REPORT, AVAILABLE ON PAGE 444 OF THE PAPER-B OOK, WE FIND THAT OPERATIONS MAINLY INCLUDE CERTIFICATION ACTIVI TIES, THIRD-PARTY INSPECTION ACTIVITIES, SAFETY AUDIT AND ERDMP AUDIT S. THE RELEVANT PART OF MANAGEMENT DISCUSSION AND ANALYSIS IS REPRODUCED AS UNDER: DURING THE FINANCIAL YEAR COMPANY WAS ABLE TO MAINT AIN A HEALTHY ORDER BOOK AND SECURED BUSINESS WORTH AROUND RS. 27 .00 CRORES. IN THE CERTIFICATION ACTIVITIES THE COMPANY WAS ABL E TO SECURE FOUR MAJOR ORDERS DURING THE YEAR. THE COMPANY IS STRIVI NG HARD FOR FURTHER IMPROVING ORDER BOOK POSITION OF CERTIFICAT ION CONTRACTS IN THE CURRENT YEAR 2013-14. IN THE THIRD PARTY INSPECTION ACTIVITIES, THE COMPA NY SECURED MAJOR ORDERS FROM VADODARA MUNICIPAL CORPORATION, GUJARAT STATE PETRONET LTD., ONGC FOR MUMBAI HIGH ASSETS AND OTHER ESTEEME D CLIENTS, BESIDES SECURING SIZEABLE BUSINESS FROM VARIOUS STA TE GOVERNMENT ORGANIZATIONS ETC. THE COMPANY HAS MADE INROADS INTO THE HSE AREA FOR EXTERNAL SAFETY AUDIT AND ERDMP AUDIT. 7.4 IN VIEW OF THE ABOVE OBSERVATIONS, THE COMPANY CAN NOT BE COMPARED FUNCTIONALLY WITH THE ASSESSEE AND THEREFO RE REJECTED AS FUNCTIONALLY DISSIMILAR. WE MAY LIKE TO MENTION THA T COMPANY HAS BEEN REJECTED BY THE TRIBUNAL (ITA NO.882/DEL./2014 ) IN ASSESSMENT YEAR 2009-10 ALSO ON THE GROUND OF FUNCT IONAL DISSIMILARITY. THE RELEVANT FINDING OF THE TRIBUNAL IS REPRODUCED AS UNDER: 32. ON THE BASIS OF FOREGOING DISCUSSION, WE HAVE N O HESITATION TO HOLD THAT THE FUNCTIONS OF ASSESSEE BECHTEL INDIA A RE QUITE DISSIMILAR WITH CIEL WHICH WAS WRONGLY TAKEN BY THE TPO AS A S UITABLE COMPARABLE FOR BENCHMARKING OF IMPUGNED INTERNATION AL TRANSACTION UNDERTAKEN BY THE ASSESSEE DURING THE RELEVANT FINA NCIAL PERIOD. THE FUNCTIONAL DISSIMILARITY AS WELL AS DISTINCTION IN THE GEOGRAPHICAL 10 ITA NO.7234/DEL./2017 MARKET IN THE LIGHT OF FOREIGN EXCHANGE FLUCTUATION RISK OF THE ASSESSEE COMPANY COUPLED WITH BELOW 25% RPT UNDERTA KEN BY THE CIEL, WE, THEREFORE, DECLINE TO AGREE WITH THE CONC LUSION OF THE AO/DRP/TPO THAT THE CIEL IS A SUITABLE COMPARABLE F OR THE PURPOSE OF PROPOSED TP ADJUSTMENT MADE BY THE AUTHORITIES B ELOW. FUNCTIONAL DISSIMILARITY AND OTHER ASPECTS CANNOT B E IGNORED AND THESE FACTORS CLEARLY DEMONSTRATE THAT CIEL SHOULD NOT HAVE BEEN INCLUDED IN THE FINAL SET OF COMPARABLES FOR MAKING TRANSFER PRICING ADJUSTMENT PERTAINING TO THE IMPUGNED INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY AND WE ORDER TO EXCLUDE THE SA ME FROM THE FINAL SET OF COMPARABLES. IT IS ORDERED ACCORDINGLY . 7.5 FURTHER, IT IS UNDISPUTED THAT COMPANY IS A WHOLLY- OWNED SUBSIDIARY OF GOVERNMENT-OWNED ENTERPRISES NAMELY ENGINEERS INDIA LTD. THE CONTENTION OF THE ASSESSEE THAT GOV ERNMENT-OWNED ENTERPRISE SUBSTANTIALLY RELY ON GOVERNMENT PROJECT S AND, THEREFORE, BEING TRANSACTION IN THE NATURE OF RELAT ED PARTY, SAME NEED TO BE EXCLUDED. IN THE CASE OF THE ASSESSEE FO R ASSESSMENT YEAR 2009-10, 2010-11 AND 2011-12, THE TRIBUNAL HAS REJECTED GOVERNMENT-OWNED ENTERPRISES AS COMPARABLE. THE REL EVANT PART OF THE DECISION OF THE TRIBUNAL IN ITA NO. 882/DEL/ 2014 FOR ASSESSMENT YEAR 2009-10 IS REPRODUCED AS UNDER: 17. IN VIEW OF PROPOSITION LAID DOWN BY THE ITAT, MUMBAI, WE OBSERVE THAT IN THAT CASE, ENGINEERS INDIA LTD., EA RNED INCOME FROM TURKEY PROJECTS BY SUCCESSFULLY COMPLETING THE PROJ ECT OF IOCL AND OTHER PUBLIC SECTOR UNDERTAKING AND THE RELATED PAR TY TRANSACTION WERE MUCH MORE THAN THE FILTER OF 25%, THEREFORE, T HE ORDER FOR EXCLUSION OF ENGINEERS INDIA LTD. WAS PASSED BY THE TRIBUNAL. IN THE PRESENT CASE, THE NTPCES WAS SHELTERED BY ITS HOLDI NG COMPANY NTPCES AND GOVERNMENT COMPANIES AND DEPARTMENTS AWARDED/ENTRUSTED VARIOUS PROJECTS/CONTRACTS FOR RU RAL ELECTRIFICATION, DISTRIBUTION OF POWER AND PROJECT MANAGEMENT CONSULTANCY, THEREFORE, NTPCES LOSES THE TAG OF COM PARABILITY WITH THE ASSESSEE BECHTELL INDIA. WE ALSO FIND IT APPROP RIATE TO MENTION THAT IT CANNOT BE IGNORED THAT THE NTPCES IS ALSO E NJOYING SETTLEMENT OF ALL EMPLOYEES FROM THE HOLDING COMPANY NTPCS AT COST AND THE BENEFITS RECEIVED FROM THE HOLDING COMPANY AND RELA TED PARTY TRANSACTIONS (RPT) ARE NOT MONETISED IN THE ANNUAL REPORT AND IN 11 ITA NO.7234/DEL./2017 ABSENCE OF SPECIFIC DATA IN THIS REGARD, NTPCES CAN NOT BE HELD AS COMPARABLE WITH THE ASSESSEE COMPANY. THEREFORE, AO /TPO WAS NOT JUSTIFIED IN INCLUDING NTPCES IN THE FINAL SET OF C OMPARABLES FOR BENCHMARKING IMPUGNED INTERNATIONAL TRANSACTION OF THE ASSESSEE COMPANY AND THEY ARE DIRECTED TO DELETE THE SAME. WE ORDER ACCORDINGLY. 7.6 SIMILARLY, TRIBUNAL IN ASSESSMENT YEAR 2010-11 AND 2011- 12 HAS REJECTED COMPANY NAMELY KITCO LTD ON THE G ROUND OF RENDERING SERVICES TO GOVERNMENT UNDERTAKINGS. RESP ECTFULLY, FOLLOWING THE FINDING OF THE TRIBUNAL, THE COMPANY IS ALSO REJECTED ON THE GROUND OF BEING A GOVERNMENT CONTROLLED ENTE RPRISE. ACCORDINGLY, WE DIRECT THE LD. AO/TPO TO EXCLUDE TH E COMPANY FROM THE SET OF THE FINAL COMPARABLES. 8. HSCC INDIA LTD (HSCC): 8.1 BEFORE THE LEARNED TPO, THE ASSESSEE SUBMITTED THAT THE COMPANY WAS ENGAGED IN RENDERING SERVICES TO HEALTH CARE INDUSTRY IN RELATION TO HEALTHCARE FACILITY DESIGN, PROCUREMENT, LOGISTICS AND INSTALLATION, CONCEPTUALLY STUDY AND MANAGEMENT CONSULTANCY AND, THEREFORE, IT WAS FUNCTIONALLY DIS SIMILAR. THE LEARNED TPO, HOWEVER, FOUND THE COMPANY AS FUNCTION ALLY SIMILAR TO THE ASSESSEE. LEARNED DRP ALSO UPHELD THE FINDIN G OF THE LEARNED TPO. 8.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUB MITTED THAT COMPANY HAS BEEN REJECTED BY THE DRP IN ASSESS MENT YEAR 2004-05 AND 2009-10 ON THE GROUND OF FUNCTIONAL DIS SIMILARITY. HE FURTHER SUBMITTED THAT THE COMPANY IS OWNED BY T HE PRESIDENT OF INDIA AND EARNS REVENUE FROM GOVERNMENT CONTRACT AND, THEREFORE, IT NEED TO BE EXCLUDED IN VIEW OF THE FI NDING OF THE 12 ITA NO.7234/DEL./2017 TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10, 2010-11 AND 2011-12. 8.3 THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE OR DER OF THE LOWER AUTHORITIES. 8.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE. AS FAR AS ARGUMENT OF FUNCTIONAL DISSIM ILARITY IS CONCERNED, ON PERUSAL OF PROFIT AND LOSS STATEMENT FOR THE YEAR UNDER CONSIDERATION, AVAILABLE ON PAGE 414 OF THE P APER-BOOK, WE FIND THAT MAIN REVENUE OF 33.79 CRORES HAS BEEN SHOWN FROM CONSULTANCY FEE. UNDER THE HEAD DIRECTORS REPORT, O N PAGE 400 OF THE PAPER-BOOK, THE CONSULTANCY INCOME HAS BEEN SHO WN FROM DESIGNING AND ENGINEERING, PROJECT MANAGEMENT AND P ROCUREMENT OF MEDICAL EQUIPMENTS, DRUGS AND PHARMACEUTICAL ETC . THE ACTIVITY OF PROVIDING CONSULTANCY CANNOT BE HELD AS FUNCTIONALLY SIMILAR TO THE ACTIVITY OF PREPARING ENGINEERING DE SIGN AND DRAWINGS. THEREFORE, THE COMPANY IS NOT COMPARABLE BEING FUNCTIONALLY DISSIMILAR WITH THE ASSESSEE. WE NOTE THAT COMPANY HAS BEEN REJECTED ON THE GROUNDS OF THE FUNCTIONAL DISSIMILARITY BY THE LEARNED DRP IN ASSESSMENT YEAR 2009-10. THE COMPANY IS ALSO A GOVERNMENT UNDERTAKING AND EARNS REVENUE FRO M GOVERNMENT CONTRACTS, WHICH IS EVIDENT FROM PAGE 41 8 OF THE PAPER-BOOK. WE HAVE ALREADY EXCLUDED GOVERNMENT-CON TROLLED ENTERPRISES AS COMPARABLE WITH THE ASSESSEE IN PARA 7.6 OF THIS ORDER. ACCORDINGLY TO HAVE CONSISTENCY IN OUR DECIS ION, THIS COMPANY IS ALSO REJECTABLE ON THE GROUND OF BEING G OVERNMENT- OWNED ENTERPRISE. ACCORDINGLY, WE DIRECT THE LEARNE D AO/TPO TO EXCLUDE THIS COMPANY FROM THE SET OF THE FINAL COMP ARABLES. 13 ITA NO.7234/DEL./2017 9. MITCON CONSULTANCY & ENGINEERING SERVICES LTD.(M ITCON) 9.1 BEFORE THE LEARNED TPO AND THE DRP THE ASSESSEE SU BMITTED THAT COMPANY IS ENGAGED IN PROVIDING TECHNICAL CONS ULTANCY IN VARIOUS FIELDS LIKE POWER, ENERGY, ENVIRONMENT, BAN KING, FINANCE ETC. THE ASSESSEE SUBMITTED THAT INCOME HAS BEEN SH OWN FROM VOCATIONAL TRAINING PROGRAMS, IT TRAINING IN LABORA TORIES, WHICH IS NOT COMPARABLE TO ENGINEERING DESIGN SERVICES RENDE RED BY THE ASSESSEE. BEFORE US, THE LEARNED COUNSEL OF THE ASS ESSEE SUBMITTED THAT THE COMPANY HAS BEEN REJECTED AS COM PARABLE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2011-12 BEING FUNCTIONALLY DISSIMILAR. HE SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION ALSO THERE IS NO CHANGE IN THE FUNCTION OF THE COMPANY. HE ALSO SUBMITTED THAT THE COMPANY IS AFFILIATED WITH GOVERNMENT SINCE 35% OF ITS SHARES ARE HELD BY GOVERNMENT- OWNED ENTERPRISE, GOVERNMENT RELATED ENTERPRISE AND THEREFORE IT NEED TO BE EXCLUDED ON THIS GROUND ALSO. 9.2 THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE F INDING OF THE LOWER AUTHORITIES. 9.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED RELEVANT MATERIAL ON RECORD. ON PERUSAL OF THE ANNU AL REPORT OF THE COMPANY (PAGE 499 AND 520 OF THE PAPER-BOOK ) F OR THE YEAR UNDER CONSIDERATION, WE FIND THAT MAIN REVENUE HAS BEEN SHOWN FROM CONSULTANCY FEE (RS.26.45 CRORES) AND INCOME F ROM VOCATIONAL TRAINING (RS.14.27 CRORES), WHICH ARE FU NCTIONALLY DIFFERENT FROM THE ACTIVITY OF PROVIDING ENGINEERIN G DESIGN AND DRAWING SERVICES. THEREFORE, THE COMPANY IS FUNCTIO NALLY DISSIMILAR TO THE ASSESSEE. THE TRIBUNAL IN THE CAS E OF THE ASSESSEE FOR ASSESSMENT YEAR 2011-12 IN ITA NO. 14 ITA NO.7234/DEL./2017 6779/DEL./2015, ORDER DATED 20.08.2018, HAS REJECTE D THE COMPANY AS COMPARABLE OBSERVING AS UNDER: 31. THE PROFILE OF THIS COMPANY SUGGESTS THAT IT P ROVIDES TECHNICAL CONSULTANCY IN VARIOUS AREAS SUCH AS POWER DIVISION , ENERGY AND CARBON SERVICE DIVISION, BANKING AND FINANCE DIVISI ON. THIS COMPANY ALSO RENDERS VOCATION TRAININGS, IT TRAININGS AND L ABORATORY SERVICES FROM WHICH IT EARNS 40% (APPROX.) OF ITS REVENUE. FROM A SCREEN SHOT OF ITS PROFILE, WHICH IS ALSO AT PAGE 113 OF APPEAL SET, S HOWS THAT THE MINISTRY OF ENVIRONMENT AND FOREST, GOVERNMENT OF INDIA EXTENDE D ITS ACCREDITATION TO THE LABORATORY OF THIS COMPANY. IT IS FURTHER SEEN THAT THIS COMPANY HAS ALSO EXCLUSIVELY COMPLETED QCI-NABET ACCREDITATION PROCE SS MANDATORY FOR EIA CONSULTANTS. THE COMPANY HAS ALSO EXECUTED ENVIRONM ENT MONITORING ASSIGNMENTS FOR TACO GROUP, VOLKSWAGON, KIRLOSKAR BROTHERS. THI S COMPANY IS ALSO ENGAGED IN THE BANKING AND FINANCE, ENTREPRENEURSHIP AND VO CATIONAL TRAINING. IN OUR CONSIDERED OPINION, THE FUNCTIONAL PROFILE OF THIS COMPANY IS NOT AT ALL COMPARABLE WITH THE FUNCTION PERFORMED BY THE APPEL LANT COMPANY. THEREFORE, THIS COMPANY CANNOT BE A GOOD COMPARABLE. WE, ACCOR DINGLY, DIRECT FOR EXCLUSION OF MITCON CONSULTANCY AND ENGINEERING SERVICES FROM THE FINAL SET OF COMPARABLES. 9.4 IN VIEW OF THE ABOVE, WE DIRECT THE LEARNED AO/TPO TO EXCLUDE THE COMPANY FROM THE FINAL SET OF THE COMPA RABLES. 10. IN VIEW OF THE ABOVE FINDING, THE GROUND NO. 1 TO 4 OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 11. THE GROUND NO. 5 OF THE APPEAL RELATES TO TRANSFER PRICING ADJUSTMENT FOR INTEREST ON RECEIVABLES. 11.1 THE FACTS QUA THE ISSUE IN DISPUTE ARE THAT IN VI EW OF PAYMENTS AGAINST INVOICES RAISED BY THE ASSESSEE TO ASSOCIATED ENTERPRISES WERE RECEIVED WITH THE DELAY MORE THAN INDUSTRY STANDARD. THE LEARNED TPO PROPOSED A SEPARATE TRANS FER PRICING ADJUSTMENT RE-CHARACTERIZING THE OUTSTANDING RECEIV ABLES AS UNSECURED LOANS. HE APPLIED CUP METHOD FOR BENCHMAR KING THE TRANSACTION OF INTEREST ON RECEIVABLES AND USING SB I PRIME LENDING RATE, COMPUTED ADJUSTMENT FOR INTEREST ON RECEIVABL ES AMOUNTING TO 1,30,78,181/-. ON THE OBJECTIONS OF THE ASSESSEE, THE LEARNED 15 ITA NO.7234/DEL./2017 DRP NOTED THAT IN ASSESSMENT YEAR 2010-11, THE TRIB UNAL FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF KUSUM HEALTHCARE PRIVATE LIMITED (REPORTED IN TS-129-ITAT - 2015(DEL)-TP) HELD THAT NO SEPARATE ADJUSTMENT FOR INTEREST ON RECEIVABLE WAS WARRANTED WHEN WORKING CAPITAL ADJUS TMENT WAS ALREADY GRANTED TO THE ASSESSEE. THE LEARNED DRP FU RTHER NOTED THAT HONBLE DELHI HIGH COURT IN THE ASSESSEE OWN C ASE (ITA NO. 379/2016) FOR ASSESSMENT YEAR 2010-11 VIDE ORDER DA TED 21/07/2016 UPHELD THE ORDER OF THE TRIBUNAL HOLDING THAT THE ASSESSEE IS A DEBT FREE COMPANY AND THE QUESTION OF RECEIVING ANY INTEREST ON RECEIVABLE DID NOT ARISE. THE LEARNED D RP THEREAFTER NOTED THAT THE TRIBUNAL IN ASSESSMENT YEAR 2012-13 IN ORDER DATED 16/05/2017 RELYING ON THE DECISION OF THE TRI BUNAL IN THE CASE OF AMERIPRISE INDIA P LTD., 2015-TII-347-ITA T-DEL-TP HELD THAT WHEN THE EXPORT PROCEEDS ARE REALIZED WITHIN T HE YEAR, BUT BEYOND THE STIPULATED PERIOD OF THE AGREEMENT, THEN SAME WILL NOT COME WITHIN THE WORKING CAPITAL ADJUSTMENT AND REJE CTED THE CONTENTION OF THE ASSESSEE THAT INTEREST ON DELAYED PAYMENT OF RECEIVABLE GET SUBSUMED IN THE WORKING CAPITAL ADJU STMENT ALLOWED TO THE ASSESSEE. THE TRIBUNAL IN AY 2012-13 HELD THAT INTEREST ON DELAYED REALIZATION OF RECEIVABLES IS A SEPARATE INTERNATIONAL TRANSACTION AND THEREFORE REQUIRE BEN CHMARKING. THE TRIBUNAL APPLYING INTEREST RATE OF SIX MONTHS L IBOR +400 BASIS POINT ON RECEIVABLES, UPHELD THE TRANSFER PRI CING ADJUSTMENT OF INTEREST ON RECEIVABLES ACCORDINGLY. IN VIEW OF THE FINDING OF THE TRIBUNAL IN ASSESSMENT YEAR 2012-13, THE LEARNED DR P IN THE YEAR UNDER CONSIDERATION DIRECTED THE LEARNED TPO T O COMPUTE 16 ITA NO.7234/DEL./2017 THE ADJUSTMENT USING THE INTEREST RATE OF SIX MONTH OF LIBOR +400 BASIS POINT. 11.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE HAS REPEATED THE HISTORICAL BACKGROUND OF THE ISSUE IN DISPUTE AND SUBMITTED THAT SPECIAL LEAVE PETITION FILED BY THE REVENUE AGAINST THE ORDER OF THE HONBLE HIGH COURT FOR ASSESSMENT YEAR 2010-11 HAS BEEN REJECTED BY THE HONBLE SUPREME COURT ON 2 1/07/2017, WHICH IS AFTER THE ORDER OF THE TRIBUNAL FOR AY 201 2-13 DATED 16/05/2017 AND THEREFORE DECISION OF THE TRIBUNAL I N ASSESSMENT YEAR 2012-13 NEED NOT BE FOLLOWED. 11.3 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THE TRIBUNAL IN ASSESSMENT YEAR 2012-13 NOTED THE DECIS ION OF THE HONBLE HIGH COURT IN ASSESSMENT YEAR 2010-11 AND A FTER TAKING INTO CONSIDERATION THE EXPLANATION INSERTED BY WAY OF THE FINANCE ACT, 2012 TO SECTION 92B WITH RETROSPECTIVE EFFECT FROM 01/04/2002, HELD THAT ANY DELAY IN REALIZATION OF D EBT ARISING DURING THE COURSE OF THE BUSINESS IS LIABLE TO BE V ISITED WITH TP ADJUSTMENT ON ACCOUNT OF INTEREST INCOME SHORT CHAR GED OR UNCHARGED. IN VIEW OF THE LEARNED DR, THE LEARNED D RP IS JUSTIFIED IN FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2012-13. 11.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND RELEVANT MATERIAL ON RECORD INCLUDIN G THE DECISIONS CITED BY THE LEARNED COUNSEL OF THE ASSESSEE AS WEL L AS BY THE LEARNED DR. IN THE INSTANT CASE, THE LEARNED DRP HA S NOTED THE DECISIONS OF THE TRIBUNAL AND HIGH COURT IN THE EAR LIER YEARS. IN ASSESSMENT YEAR 2010-11 THE TRIBUNAL IN ITA NO.1478 /DEL/2015 PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF 17 ITA NO.7234/DEL./2017 KUSUM HEALTHCARE PRIVATE LIMITED (SUPRA) AND HELD T HAT IMPACT OF CREDIT PERIOD WAS DULY FACTORED IN WORKING CAPITAL ADJUSTMENT ALLOWED WHILE DETERMINING THE ARMS-LENGTH PRICE AN D, THEREFORE, NO SEPARATE ADJUSTMENT FOR INTEREST ON RECEIVABLES WAS WARRANTED IN THE HANDS OF THE TESTED PARTY. THE RELEVANT EXTR ACT OF THE DECISION OF THE TRIBUNAL IS REPRODUCED AS UNDER: 15.1 IT IS BROUGHT TO OUR NOTICE THAT THE ASSESSEE IS A DEBT FREE COMPANY. IN SUCH CIRCUMSTANCES IT IS NOT JUSTIFIABL E TO PRESUME THAT, BORROWED FUNDS HAVE BEEN UTILIZED TO PASS ON THE FA CILITY TO ITS AES. THE REVENUE HAS ALSO NOT BROUGHT ON RECORD THAT THE ASSESSEE HAS BEEN FOUND PAYING INTEREST TO ITS CREDITORS OR SUPP LIERS ON DELAYED PAYMENTS. 16. IN LIEU OF THE DISCUSSIONS AND THE RATIO LAID D OWN IN THE CASE OF KUSUM HEALTHCARE PVT. LTD., WE DIRECT THAT NO SE PARATE ADJUSTMENT FOR INTEREST ON RECEIVABLES ARE WARRANTE D IN THE HANDS OF THE ASSESSEE. GROUNDS NO. 3 OF THE ASSESSEES APPEA L IS THERE BY ALLOWED. 11.5 ON APPEAL BY THE REVENUE, AGAINST THE ABOVE ORDER OF THE TRIBUNAL, THE HONBLE DELHI HIGH COURT (ITA NO. 379 /2016) IN ORDER DATED 21/07/2016 DISMISSED THE APPEAL OBSERVI NG AS UNDER: 4. AS FAR AS QUESTION (B) CONCERNING THE ADJUSTMEN T FOR INTERST NO RECEIVABLES, THE COURT FINDS THAT THE ITAT HAS RETU RNED A DETAILED FINDING OF FACT THAT THE ASSESSEE IS A DEBT FREE CO MPANY AND THE QUESTION OF RECEIVING ANY INTEREST ON RECEIVABLES D ID NOT ARISE. CONSEQUENTLY, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION AS FAR AS THIS ISSUE IS CONCERNED. 11.6 THE ASSESSEE BROUGHT THE DECISION OF THE HONBLE HIGH COURT IN ASSESSMENT YEAR 2010-11, BEFORE THE TRIBUN AL IN ASSESSMENT YEAR 2012-13 BY WAY OF RAISING GROUND NO . 1.5 OF THE APPEAL, HOWEVER, THE TRIBUNAL AFTER CONSIDERING THE AMENDMENT BROUGHT INTO ACT BY WAY OF FINANCE ACT, 2012 AND OT HER DECISIONS 18 ITA NO.7234/DEL./2017 HELD THAT INTEREST ON DELAYED REALIZATION OF RECEIV ABLE IS A SEPARATE INTERNATIONAL TRANSACTION, WHICH REQUIRES SEPARATE BENCHMARKING. THE FINDING OF THE TRIBUNAL IN ASSESSMENT YEAR 2012 -13 IS REPRODUCED AS UNDER: 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RECORD OF THE CASE. THE ASSESSEE'S GRIE VANCE IS TWO-FOLD. FIRSTLY, WHEN WORKING CAPITAL ADJUSTMENT HAS BEEN M ADE, THEN, NO SEPARATE ADJUSTMENT IS REQUIRED TO BE MADE IN RESPE CT OF ACCOUNTS RECEIVABLES BECAUSE THE SAME GETS SUBSUMED IN THE W ORKING CAPITAL ADJUSTMENT. THE SECOND PLEA OF THE ASSESSEE IS THAT SINCE ITS FUNDS ARE ENTIRELY DEBT FREE, THEREFORE, NO ADJUSTMENT I S WARRANTED IN REGARD TO LATE REALISATION OF PROCEEDINGS FROM RECE IVABLES. THE ASSESSEE'S RELIANCE AS NOTED EARLIER, IS ON THE DEC ISIONS IN ITS OWN CASES FOR ASSESSMENT YEAR 2010-11 AND 2011-12. THE ISSUE HAS BEEN ELABORATELY CONSIDERED IN THE CASE OF AMERIPRI SE INDIA PVT. LTD. (SUPRA) AND, AGAIN, IN THE CASE OF MCKINSEY KNWLEDG E CENTRE PVT. LTD. (SUPRA). IN THE CASE OF TECHBOOKS INDIA INTERN ATIONAL PVT. LTD. VS. DCIT (SUPRA), TAKING NOTE OF THE EXPLANATION INSERTED B Y THE FINANCE ACT , 2012 TO SECTION 92B , IT WAS OBSERVED THAT THERE REMAINED NO DOUBT THAT APART FROM ANY SHORT-TERM OR LONG-TERM B ORROWING, ETC., OR EVEN ADVANCE PAYMENTS OR DEFERRED PAYMENTS, 'ANY OT HER DEBT ARISING DURING THE COURSE OF BUSINESS' HAD ALSO BEE N EXPRESSLY RECOGNIZED AS AN INTERNATIONAL TRANSACTION. IN THE SAID DECISION, THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. PATNI COMPUTER SYSTEMS WAS ALSO CONSIDERED, WHEREIN HON'BLE BOMBAY HIGH COURT SET ASIDE THE VIEW TAKEN BY THE T RIBUNAL IN VIEW OF AMENDMENT TO SECTION 92B . THE DECISION IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. WAS DULY CONSIDERED IN THE CAS E OF AMERIPRISE INDIA PVT. LTD. AND IT WAS OBSERVED FROM PARA 20 TO 23 AS UNDER:- THE LD. AR SUPPORTED THE IMPUGNED ORDER BY RELYING ON A TRIBUNAL ORDER DATED 31.3.2015 PASSED IN KUSUM HEALTHCARE PV T. LTD. VS. ACIT (ITA NO.6814/DEL/2014) IN WHICH IT HAS BEEN HE LD THAT NO ADDITIONAL IMPUTATION OF INTEREST ON THE OUTSTANDIN G RECEIVABLES IS WARRANTED IF THE PRICING/PROFITABILITY IS MORE THAN THE WORKING CAPITAL ADJUSTED MARGIN OF THE COMPARABLES. IN THE OPPOSITION, THE LD. DR RELIED ON A LATER ORDER DATED 6.7.2015 PASSED BY THE TRIBUNAL IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. (SUPR A), IN WHICH THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF THE DELAY ED REALIZATION OF INVOICES FROM AES HAS BEEN UPHELD. THE LD. DR CONTE NDED THAT THE ORDER IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. (SU PRA), HAS BEEN PASSED WITHOUT CONSIDERING THE AMENDMENT TO SECTION 92B CARRIED OUT BY THE FINANCE ACT , 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002, 19 ITA NO.7234/DEL./2017 WHICH HAS BEEN DULY TAKEN INTO ACCOUNT BY THE TRIBU NAL IN ITS LATER ORDER IN TECHBOOKS INTERNATIONAL PVT. LTD. (SUPRA). 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED AS HIGHL IGHTED ABOVE, THAT THE ASSESSEE ARGUED BEFORE THE TPO THAT INTEREST ON RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION. AT THIS STAGE, IT WOULD BE APPOSITE TO NOTE THAT THE FINANCE ACT , 2012 HAS INSERTED EXPLANATION TO SECTION 92B WITH RETROSPECTIVE EFFECT FROM 1.4.2002. CLAUSE (I ) OF THIS EXPLANATION, WHICH IS OTHERWISE ALSO FOR REMOV AL OF DOUBTS, GIVES MEANING TO THE EXPRESSION 'INTERNATIONAL TRAN SACTION' IN AN INCLUSIVE MANNER. SUB-CLAUSE (C) OF CLAUSE (I) OF T HIS EXPLANATION, WHICH IS RELEVANT FOR OUR PURPOSE, PROVIDES AS UNDE R:- ` EXPLANATION.--FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT-- (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHAL L INCLUDE-- (A) ............ (B) ........... (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS; 11.7 BUT BEFORE US THE LEARNED COUNSEL OF THE ASSESS EE HAS REFERRED TO THE DECISION OF THE HONBLE SUPREME COU RT DATED 21/07/2017, WHICH IS AFTER THE DECISION OF THE TRIB UNAL IN ASSESSMENT YEAR 2012-13. THE HONBLE SUPREME COURT HAS HELD AS UNDER: DELAY CONDONED. WE ARE IN AGREEMENT WITH THE HIGH COURT THAT AS FAR AS QUESTION-B CONCERNING ADJUSTMENT FOR INTEREST ON RECEIVABLES I S CONCERNED THE TRIBUNAL HAS RETURNED A FINDING OF FACT. CONSEQUENT LY, NO SUBSTANTIAL QUESTION OF LAW THEREFORE, RISES, ON THE FACTS OF T HIS CASE. THE SPECIAL LEAVE PETITION IS DISMISSED. 20 ITA NO.7234/DEL./2017 11.8 IN VIEW OF THE ORDER OF THE HONBLE SUPREME COURT , WHICH IS SUBSEQUENT TO THE ORDER OF THE TRIBUNAL IN ASSESSME NT YEAR 2012- 13, WE DIRECT THE LD. AO/TPO TO DELETE THE TRANSFE R PRICING ADJUSTMENT ON ACCOUNT OF THE INTEREST RECEIVABLES. THE GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALL OWED. 12. BEFORE US THE LEARNED COUNSEL OF THE ASSESSEE REFE RRED TO GROUND NO. 3 AND SUBMITTED THAT SEGMENTAL ACCOUNTS OF THE ASSESSEE MIGHT BE REDRAWAN. HE SUBMITTED THAT THE A SSESSEE HAD SUBMITTED BASIS OF COST ALLOCATION FOR THE SEGMENTA L PROFIT AND LOSS ACCOUNT ON VARIOUS ALLOCATION KEYS LIKE TOTAL HOURS SPENT BY THE PERSONAL, PAYROLL COST, HEAD COUNT, NUMBERS OF HOURS, HOWEVER WITHOUT TAKING DUE COGNIZANCE OF THE REASON ABLENESS OF THE BASIS, THE LEARNED TPO ALLOCATED THE EXPENSES O N REVENUE RATIO. HE SUBMITTED THAT IN ASSESSMENT YEAR 2010-11 ALSO THE ASSESSEE PREPARED SEGMENTAL PROFIT AND LOSS ACCOUNT USING ABOVE ALLOCATION KEYS, WHICH HAVE BEEN ACCEPTED BY THE LE ARNED TPO, THEREFORE IN THE YEAR UNDER CONSIDERATION ALSO HE S HOULD ACCEPT THE SEGMENTAL PROFIT AND LOSS ACCOUNT PREPARED USIN G ABOVE ALLOCATION KEYS. THE CONTENTION OF THE ASSESSEE THA T IF ABOVE ALLOCATION KEYS ARE APPLIED THEN MARGIN FROM RENDER ING ENGINEERING DESIGN AND RELATED SERVICES WOULD BE 14 %. 12.1 ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT IT WILL NOT BE PROPER TO DISTURB THE MARGIN OF THE OTHER SE GMENTS, WHICH HAVE BEEN ACCEPTED AT ARMS-LENGTH BY THE LEARNED T PO AND NO ADJUSTMENT HAS BEEN MADE TO THOSE SEGMENTS. 12.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE. BEFORE US THE LEARNED COUNSEL OF THE AS SESSEE SUBMITTED THAT IF THREE COMPARABLES, NAMELY, MITCO IN, CEIL AND 21 ITA NO.7234/DEL./2017 HSCC ARE EXCLUDED, THEN ITS MARGIN WOULD BE HIGH ER THAN THE MEAN MARGIN OF THE COMPARABLES AND NO ADJUSTMENT WO ULD BE REQUIRED. THE LEARNED COUNSEL IN ITS SYNOPSIS HAS C OMPUTED MEAN MARGIN OF COMPARABLES AFTER EXCLUDING ABOVE TH REE COMPARABLES AT 9.94%, WHEREAS THE LEARNED TPO HAS C OMPUTED THE MARGIN OF THE ASSESSEE AFTER ALLOCATING COST OF EXPENSES ON REVENUE BASIS AT 12.40%. THUS IT IS EVIDENT THAT NO ADJUSTMENT WOULD BE REQUIRED, EVEN IF THE COST ALLOCATION KEY AS APPLIED BY THE TPO IS MAINTAINED. IN SUCH CIRCUMSTANCES, THE A RGUMENTS OF THE ASSESSEE ARE RENDERED MERELY ACADEMIC, AND THER EFORE WE ARE NOT ADJUDICATING UPON THE SAME. THE GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED AS INFRUCT UOUS. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED PARTLY FOR THE STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2020. SD/- SD/- (SUCHITRA KAMBLE) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18 TH DECEMBER, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI
Mehul