Hyundai Rotem Company, Delhi V. ACIT (International Taxation), New Delhi

ITA 7569/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2655 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2015-2016
• Appeal Filed On: 13-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Depreciation; Transfer pricing; International transaction; Rule of consistency
• Section: 234B; 144C; 72; 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.7569/DEL/2019 ASSESSMENT YEAR: 2015-16 HYUNDAI ROTEM COMPANY, N-3, 3 RD FLOOR, SOUTH EXTENSION, PARK NO.1, DELHI. VS. ACIT (INTERNATIONAL TAXATION), NEW DELHI. TAN/PAN: AABCK6367L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJAN VOHRA, AR. RESPONDENT BY: SHRI SANJAY I- BARA, CIT-D.R. DATE OF HEARING: 04 12 2019 DATE OF PRONOUNCEMENT: 02 03 2020 O R D E R PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 29.08.2019 , PASSED U/S.143(3) R.W.S. 144C PASSED IN PURSUANCE OF DIREC TION GIVEN BY DRP VIDE ORDER DATED 03.07.2019 U/S.144C(5) FOR THE ASSESSMENT YEAR 2015-16. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/ LEARNED DEPUTY COMMISSIONER OF INCO ME-TAX (TRANSFER PRICING OFFICER) - 2(1 )(1) (LD. TPO) O N FACT AND IN LAW HAS: GENERAL GROUNDS I.T.A. NO.7569/DEL/2019 2 1. ERRED IN COMPUTING A TRANSFER PRICING ADJUSTMEN T OF INR 2,75,74,335/- TO THE TOTAL INCOME OF THE APPELLANT, ON ACCOUNT OF ARMS LENGTH PRICING OF THE INTERNATIONAL TRANSACTI ON PERTAINING TO SUPPORT SERVICES ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE (AE); CONSISTENT APPROACH NOT FOLLOWED 2. ERRED IN NOT TAKING COGNIZANCE OF THE PROVISION S OF THE INDIA KOREA DOUBLE TAXATION AVOIDANCE AGREEMENT THEREBY N OT ADOPTING A CONSISTENT APPROACH AS ALSO UPHELD BY TH E HON'BLE ITAT IN APPELLANTS OWN CASE IN AY 2010-11 AND AY 2 012-13; CHARACTERIZATION OF FUNCTIONAL PROFILE 3. ERRED IN MISUNDERSTANDING THE APPELLANTS BUSIN ESS MODEL AND FUNCTIONAL AND RISK PROFILE THEREBY NOT ACCEPTI NG THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN AC CORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, AND MODIFYING THE ECONOMIC ANALYSIS FOR THE DETERMINATION OF ARM S LENGTH PRICE (ALP) OF THE APPELLANTS INTERNATIONAL TRAN SACTIONS; COMPARABLE COMPANIES 4. ERRED IN CONSIDERING COMPANIES FUNCTIONALLY DIF FERENT AS COMPARABLE, TO BENCHMARK THE INTERNATIONAL TRANSACT ION OF SUPPORT SERVICES PROVIDED BY THE APPELLANT TO ITS A E THAT IS. 1) MITCON CONSULTANCY & ENGINEERING SERVICES LIMITED, 2) KILLICK AGENCIES & MARKETING LIMITED AND 3) MAHINDRA CONSUL TING ENGINEERS LIMITED; 5. ERRED IN REJECTING THE COMPARABLES WHICH WERE S ELECTED BY THE APPELLANT IN THE TRANSFER PRICING STUDY AFTER A DET AILED FUNCTIONAL AND ECONOMIC ANALYSIS ON THE GROUND THAT IT IS FUNC TIONALLY NOT COMPARABLE SUCH AS 1) CONCEPT PUBLIC RELATIONS INDI A LIMITED AND 2) MCI MANAGEMENT (INDIA) LIMITED; I.T.A. NO.7569/DEL/2019 3 6. WITHOUT PREJUDICE TO ABOVE , ERRED IN COMPUTING INCORRECT MARGIN OF COMPARABLE COMPANY I.E. MAHINDRA CONSULTI NG ENGINEERS LIMITED; RISK ADJUSTMENT 7. ERRED IN NOT ALLOWING SUITABLE ADJUSTMENTS TO A CCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VI S-A-VIS THE COMPARABLES DISREGARDING THE FACT THAT RISK ADJUSTM ENT HAS BEEN ALLOWED BY THE HONBLE DELHI BENCH OF THE INCOME TA X APPELLATE TRIBUNAL IN THE APPELLANTS OWN CASE FOR AY 2011-12 AND 2012- 13; LEVY OF INTEREST UNDER SECTION 234B OF THE ACT 8. ERRED IN LEVY OF INTEREST UNDER SECTION 234B OF THE ACT OF RS.77,07,273; LEVY OF INTEREST UNDER SECTION 234C OF THE ACT 9. ERRED IN LEVY OF INTEREST UNDER SECTION 234C OF THE ACT OF RS.2,13,435 2. THE FACTS IN BRIEF ARE THAT HYUNDAI ROTEM COMPAN Y IS A SOUTH KOREAN COMPANY AND IS A PART OF HYUNDAI MOTOR GROUP AND IT IS ENGAGED IN PRODUCING ALL KINDS OF R AILWAY VEHICLES, SUCH AS ELECTRIC MULTIPLE UNIT, HIGH SPEE D TRAINS, LIGHT RAIL VEHICLES, LOCOMOTIVES AND PASSENGER COAC HES, CAR MANUFACTURING SYSTEMS AND ENVIRONMENT PLANTS. IT PR OVIDES RAIL BUSINESS SOLUTIONS THROUGHOUT THE WORLD, RANGI NG FROM MANUFACTURE OF ROLLING STOCK TO THE SUPPLY OF TURNK EY RAIL SYSTEMS. ITS BUSINESS SCOPE INCLUDES NOT ONLY ADVAN CED DEFENCE INDUSTRY PRODUCTS BUT ALSO PRODUCTION AND S UPPLY OF INDUSTRIAL PLANTS AND ENVIRONMENT FRIENDLY FACILITI ES. THE ROTEM HAS SET UP PROJECT OFFICES IN INDIA WHICH ARE ;- I.T.A. NO.7569/DEL/2019 4 (I) RS1 PO (II) RS3 PO (III) BMRCL PO (IV) HM PO (V) RS 10 PO THESE PROJECT OFFICES WERE SET UP IN INDIA FOR CARR YING OUT LIAISING AND COORDINATION ACTIVITIES ON BEHALF OF T HE HO IN INDIA. THE DETAILS OF PROJECT OFFICES OF ROTEM WERE AS UNDER: 2.4.1 ROTEM RS1 PO ROTEM, ALONG WITH MC AND MELCO FORMED A CONSORTIUM TO EXECUTE CONTRACT RSI WITH DMRC FOR DESIGN, MANUFACTURE, SUP PLY, TESTING AND COMMISSIONING OF PASSENGER ROLLING STOCK FOR MASS R APID TRANSPORT SYSTEM PHASE 1 AT NEW DELHI. THE CONTRACT WITH DMRC CONSISTS OF BOTH ON-SITE SERVICES AND OFF-SHORE SUPPLIES - OFFSHORE WORK CONSISTS OF COMPLETE MANUFACTURE OF 1 5 CORRIDOR TRAINS AND SUPPLY TO DMRC ONSITE WORK CONSISTS OF LOCAL MANUFACTURE/ASSEMBLY OF 45 TRAINS. ACCORDINGLY, ROTEM - RSI PO WAS SET UP IN THE YEAR 2001 WITH THE OBJECTIVE OF COORDINATION AND SUPERVISION OF ONSITE PORTION OF THE DMRC CONTRACT. HOWEVER, THE ONSITE ACTIVITIES WERE NEITH ER PERFORMED BY ROTEM NOR BY ROTEM - RSI PO SINCE, IT WAS SUBCONTRA CTED TO BEML. ROTEM - RSI PO WAS IN CHARGE OF GETTING THE ONSITE PORTION OF WORK DONE BY BEML AND OTHER SUB-CONTRACTORS. FOR THIS PU RPOSE, ROTEM - RSI PO WAS COORDINATING WITH BEML AND DMRC TO ENSUR E THAT ASSEMBLY OF TRAINS IS AS PER QUALITY STANDARDS AND WITHIN AGREED TIMEFRAME. IN THIS CONNECTION, ROTEM - RSI PO DOES NOT EMPLOY ANY SIGNIFICANT ASSETS TO ENABLE IT TO CARRY OUT THE AS SEMBLY OF TRAINS ON ITS OWN. ACCORDINGLY, THE ENTIRE ASSEMBLY WAS SUB-CONTR ACTED TO THIRD I.T.A. NO.7569/DEL/2019 5 PARTIES SUCH AS BEML, WHICH HAVE REQUISITE ASSETS, EXPERTISE TO PERFORM THE NECESSARY FUNCTIONS. HOWEVER, DURING FY 2014-15, THE ACTIVITIES OF ROTEM WERE RESTRICTED TO MAINTENANCE AND TROUBLE-SHOOTING SERVICES UNDER DLP . THE DLP SERVICES HAVE BEEN RENDERED BY ROTEM THROUGH ROTEM - RSI PO. THE PROJECT OFFICE FOR THIS PURPOSE HAS EMPLOYED ENGINE ERS AND FITTERS, IN ADDITION TO ADMINISTRATIVE STAFF. FURTHER, THE ROTE M HEAD OFFICE HAS ENGAGED OUTSOURCING COMPANIES TO CARRY OUT MINOR MO DIFICATIONS, SUCH AS REPLACEMENT OF COMPONENTS OF DOORS OF ROLLING ST OCK, AS REQUIRED BY DMRC. THE ROLE OF ENGINEERING STAFF IS TO OVERVIEW THE REPLACEMENT/MODIFICATION JOB BEING UNDERTAKEN BY OU TSOURCING COMPANIES AND LIAISE WITH DMRC PERSONNEL IN RELATIO N TO MAINTENANCE AND TROUBLE SHOOTING IN RELATION TO ROLLING STOCK S UPPLIED UNDER CONTRACT RSI. 2.4.2 ROTEM - RS3 PO FOR THE PURPOSE OF BIDDING FOR THE CONTRACT RS3 OF DMRC, BIDS FOR WHICH WERE INVITED BY DMRC UNDER INTERNATIONAL COMP ETITIVE BIDDING FOR THE MASS RAPID TRANSPORT SYSTEM - PHASE II CONT RACT / TENDER RS3 FOR DESIGN, MANUFACTURE, SUPPLY, TESTING, COMMISSIO NING, TRAINING AND TRANSFER OF TECHNOLOGY OF 156 STANDARD GAUGE EMUS O R ROLLING STOCK; MC, ROTEM, MELCO AND BEML FORMED A CONSORTIUM AND T HE CONTRACT WAS LATER AWARDED TO MRMB CONSORTIUM VIDE CONTRACT AGREEMENT DATED OCTOBER 19, 2007. IN CONNECTION WITH CONTRACT RS3, ROTEM HAS BEEN CHO SEN AS THE TECHNICAL LEADER OF THE PROJECT AND IS RESPONSIBLE FOR DETAILED DESIGN DEVELOPMENT, MANUFACTURE, SUPPLY, TESTING, AND COMM ISSIONING OF MECHANICAL PORTION OF THE ROLLING STOCK; MELCO IS R ESPONSIBLE FOR THE DETAIL DESIGN DEVELOPMENT, MANUFACTURE, SUPPLY OF T HE PROPULSION EQUIPMENTS AND OTHER POSSIBLE ELECTRICAL EQUIPMENTS OF THE ROLLING STOCK; AND BEML IS RESPONSIBLE FOR THE LOCALIZATION WORKS. FURTHER, MC I.T.A. NO.7569/DEL/2019 6 AS CONSORTIUM LEADER IS RESPONSIBLE FOR PROJECT CO- ORDINATION, COMMERCIAL MANAGEMENT, CONTRACT ADMINISTRATION, LEG AL ADMINISTRATION, PROVIDING BANK GUARANTEES AND COLLECTING PAYMENTS F ROM DMRC. FOR THE PURPOSE OF COORDINATION AND ADMINISTRATIVE SUPPORT IN CONNECTION WITH RS3 CONTRACT, ROTEM HAS ESTABLISHED A PROJECT OFFICE ('ROTEM - RS3 PO,R) AT NEW DELHI, INDIA WITH THE PR IOR APPROVAL OF RESERVE BANK OF INDIA. FOR THIS CONTRACT, ROTEM - R S3 PO UNDERTAKES ONLY LIAISONING ACTIVITIES (UNDER INSTRUCTIONS OF R OTEM HEAD OFFICE) BETWEEN MRMB CONSORTIUM AND DMRC AS A REPRESENTATIV E AND ON BEHALF OF ROTEM. AS EVIDENT FROM ROLE DEFINED, IN THE CONTRACT RS3 F OR FY 2014-15, ROTEM ONLY UNDERTAKES THE SUPPLY OF COMPONENTS TO B EML AND IS NOT INVOLVED IN ONSITE ACTIVITIES. THE ONSITE ACTIVITIE S OF TESTING AND COMMISSIONING IN INDIA ARE UNDERTAKEN BY BEML AS AN INDEPENDENT MEMBER TO MRMB CONSORTIUM. HOWEVER, BEING THE TECHN ICAL LEADER, DMRC HAS ENTRUSTED ROTEM WITH RESPONSIBILITY OF SUP ERVISION OF ONSITE TESTING AND COMMISSIONING WORK BEING UNDERTAKEN BY BEML IN INDIA. THOUGH ROTEM IS NOT RESPONSIBLE FOR ONSHORE ACTIVIT IES, BEING A MEMBER TO THE CONTRACT OF MRMB CONSORTIUM WITH DMRC AND SUPPLIER OF COMPONENTS TO BEML, ROTEM HAS A VESTED INTEREST IN THE DEVELOPMENTS OF THE DISCUSSIONS OF BEML WITH DMRC. ROTEM - RS3 PO UNDER THE INSTRUCTIONS OF ROTEM PARTICIPATES IN THE DISCUSSIONS BETWEEN THE MRMB CONSORTIUM AND DMRC. ROTEM - RS3 P O MERELY ACTS AS A COMMUNICATION CHANNEL BETWEEN ROTEM (IN T HE ROLE OF MEMBER TO MRMB CONSORTIUM) AND DMRC EVEN THOUGH THE MEETINGS MAY PERTAIN TO THE ONSITE PORTION OF THE CONTRACT R S3. BEING A REPRESENTATIVE OF THE MEMBER OF MRMB CONSORTIUM, RO TEM - RS3 PO ENABLES ROTEM TO ACQUIRE FIRST HAND INFORMATION OF COMMUNICATION BETWEEN DMRC AND BEML AND DEVELOPMENTS IN THIS REGA RD. IT THEREFORE FACILITATES COORDINATION BETWEEN THE ACTIVITIES UND ERTAKEN BY BEML AND DMRC OFFICIALS. I.T.A. NO.7569/DEL/2019 7 IN ADDITION TO ADMINISTRATIVE STAFF, ROTEM - RS3 PO HAS EMPLOYED MANAGERIAL STAFF AND ENGINEERS. THE ROLE OF MANAGER S IS PRIMARILY TO UNDERTAKE LIAISONING AND COORDINATION ACTIVITIES, W HEREAS, ENGINEERING STAFF IS REQUIRED TO OVERVIEW THE TESTING AND COMMI SSIONING ACTIVITIES. FURTHER, THE ADMINISTRATIVE TEAM BASED AT NEW DELHI ALSO COORDINATES THE PROCESS OF LOGISTICS I.E. TRANSPORTATION OF TRA INS, INSURANCE ETC. FROM BEML MANUFACTURING FACILITY AT BANGALORE TO DMRC DE POTS AT DELHI. 2.4.3 BMRCL PO IN JANUARY 2007, BMRCL FLOATED A TENDER FOR DESIGN, MANUFACTURE, SUPPLY, TESTING AND COMMISSIONING OF PASSENGER ROLL ING STOCK INCLUDING TRAINING OF ITS PERSONNEL AND SUPPLY OF SPARES, AND OPERATION AND MAINTENANCE MANUALS FOR 50 TRAIN SETS, EACH TRAIN C ONSISTING OF 2 DRIVING MOTOR CARS AND 1 TRAILER CAR TOTALING 150 C ARS ('2RS-DM CONTRACT')- ROTEM IN CONSORTIUM WITH MC, MELCO AND BEML (JOINTLY 'BRMM CONSORTIUM') HAD PART ICIPATED IN THE PRE-QUALIFICATION BID INVITED BY BMRCL AND SUBMITTE D A TENDER WHICH WAS LATER AWARDED BY BMRCL TO THE CONSORTIUM IN 200 9. UNDER THE CONTRACT, BEML HAS BEEN APPOINTED AS THE CONSORTIUM LEADER AND IS RESPONSIBLE FOR SUPPLY OF EMUS TO BMRCL WHIL E ROTEM/ MELCO/ MC ARE RESPONSIBLE FOR SUPPLYING EQUIPMENTS/ MATERIALS TO BEML. BEML IS RESPONSIBLE FOR CORRESPONDING WITH BM RCL ON BEHALF OF THE CONSORTIUM AND LOCAL MANUFACTURING, T&C OF ROLL ING STOCK AT BEML FACTORY. ROTEM IS RESPONSIBLE FOR DESIGN, DEVELOPME NT, MANUFACTURE, SUPPLY T&C OF ITS PORTION OF ROLLING STOCK, TRAININ G OF PERSONNEL, SUPPORT AND SUPERVISION OF QUALITY OF MANUFACTURING, ASSEMB LY, T&C AND INTEGRATION OF THE METRO CARS TO BE PRODUCED BY BEM L. MELCO HAS ASSIGNED ITS INDIVIDUAL SCOPE OF WORK UNDER THE 2RS -DM CONTRACT OF BMRCL TO ROTEM. ACCORDINGLY, ROTEM ASSUMES THE RIGH TS AND OBLIGATIONS OF MELCO UNDER THE CONTRACT AND BEARS T HE RESPONSIBILITY FOR SUPPLY OF ELECTRICAL WORKS. I.T.A. NO.7569/DEL/2019 8 2.4.4 HM PO HM FLOATED A TENDER FOR DESIGN, MANUFACTURE, SUPPLY , TESTING AND COMMISSIONING OF ROLLING STOCK FOR THE 72 KM RAIL S YSTEM ON ELEVATED STRUCTURES FROM MIYAPUR TO L.B NAGAR; JUBILEE BUS S TATION TO FALAKNUMA; AND NAGPOLE TO SHILPARAMAM CORRIDORS IN HYDERABAD. ROTEM PARTICIPATED IN THE PREQUALIFICATION BID INV ITED BY HM AND SUBMITTED A TENDER WHICH WAS LATER AWARDED TO ROTEM IN SEPTEMBER 2012. UNDER THE CONTRACT, ROTEM IS RESPONSIBLE FOR SURVEY , INVESTIGATION, SUPERVISION OF ON-SITE AND OFF- SITE OPERATIONS, DE SIGN, MANUFACTURE, SUPPLY, TESTING AND COMMISSIONING OF ROLLING STOCK, SUPPLY OF EQUIPMENTS AND MATERIALS. UNDER HM CONTRACT, THE PROJECT OFFICE IS RESPONSIBL E FOR RENDERING CO- ORDINATION AND SUPPORT SERVICES TO ITS HEAD OFFICE. 2.4.5 ROTEM - RS10 PO DURING THE YEAR 2013, ROTEM ENTERED INTO A CONTRACT WITH DMRC FOR DESIGN, MANUFACTURE, SUPPLY, TESTING, COMMISSIONING AND TRAINING OF 486 STANDARD GAUGE CARS FOR PHASE-ILL OF MASS RAPID TRANSPORT SYSTEM PROJECT. LINDER THE AFORESAID CONTRACT A MAXIMUM OF 120 CARS CAN BE MANUFACTURED EFFFSHORE AND THE REMAINING CARS WOULD NEED TO BE MANUFACTURED IN INDIA. FOR THE PURPOSE OF COORDINAT ION AND ADMINISTRATIVE SUPPORT IN CONNECTION WITH THE RS-10 AT NEW DELHI, INDIA. 3. THUS, AS PER DETAILS CONTAIN IN TP STUDY REPORT, THE FUNCTIONAL PROFILE OF THE POS WERE TREATED TO BE AD MINISTRATIVE AND COORDINATIVE FUNCTION WITHOUT IMPLYING SIGNIFIC ANT RISKS SUCH AS MARKET RISK, CONTRACTUAL RISK, CREDIT AND C OLLECTION RISK AND FOREIGN EXCHANGE RISK AND WERE HIGHLIGHTED TO BE LOW SERVICES. FUNCTIONS PERFORMED BY THE PROJECT OFFICE S UNDER I.T.A. NO.7569/DEL/2019 9 VARIOUS PROJECT OFFICES PERFORMING VARIOUS CONTRACT S HAVE DISCLOSED FOLLOWING FUNCTIONS IN THE TP STUDY REPOR T AND THE RISK UNDERTAKEN: 4.1.2 FUNCTIONS PERFORMED THE PURPOSE OF THIS SECTION IS TO IDENTIFY ECONOMIC ALLY IMPORTANT ACTIVITIES PERFORMED BY EACH OF THE RELATED PARTIES AND TO EXP LAIN THE SIGNIFICANCE THAT EACH FUNCTION HAS IN CREATING VALUE FOR BUSINE SS. THIS SECTION PROVIDES A BROAD OVERVIEW OF THE VARIOUS FUNCTIONS PERFORMED BY ROTEM - POS IN RELATION TO THE IDENTIFIED INTERNATIONAL TRA NSACTION. RS1 CONTRACT - SINCE, THE MAJOR PORTION OF SUPPLY OF ROLLING STOCK UNDER CONTRACT RSI HAS BEEN COMPLETED, THE CONSORTIUM IS SERVING THE DLP IN CONNECTION WITH TH E CONTRACT RSI. DURING FY 2014-15, ROTEM - RS 1 PO WA S RESPONSIBLE FOR UNDERTAKING AFTER SALES ACTIVITIES UNDER DLP. FOR T HIS PURPOSE, NO SIGNIFICANT FUNCTION HAS BEEN PERFORMED BY ROTEM HE AD OFFICE AND ROTEM - RS 1 PO WAS RESPONSIBLE FOR LIAISONING AND COORDINATING THE PROCESS OF AFTER SALES ACTIVITIES. IN LIGHT OF THE ABOVE AND BASED ON OUR DISCUSSIONS WITH ROTEM - RSI PO, SUMMARIZED BELOW IS AN ANALYSIS OF FUNCTIONS PERFOR MED, THE RISKS ASSUMED, AND THE ASSETS EMPLOYED BY THE TRANSACTING ENTITIES, IN RELATION TO THE INTERNATIONAL TRANSACTION - LIAISONING AND COORDINATION ROTEM - RS 1 PO LIAISE WITH DMRC TO UNDERSTAND THEI R REQUIREMENT AND DEFECTS IDENTIFIED BY DMRC IN THE COMPONENTS SUPPLI ED BY ROTEM. SUBSEQUENTLY, THE DEFECTS, IF ANY, IDENTIFIED BY DM RC ARE COMMUNICATED TO ROTEM HEAD OFFICE. THE DEFECTS, SUCH AS REPLACEMENT OF COMPONENTS OF D OORS OF ROLLING STOCK, IF ANY, IS UNDERTAKEN BY THE OUTSOURCING COMPANIES IDENTIFIED BY ROTEM HEAD OFFICE. THE PROCEDURE FOR REPLACEMENT IS DEMON STRATED BY ROTEM HEAD OFFICE TO THE OUTSOURCING COMPANIES AND ROTEM - RSI PO'S ROLE IS RESTRICTED TO SUPERVISION OF ACTIVITIES OF OUTSOURC ING COMPANIES. THE ENTIRE I.T.A. NO.7569/DEL/2019 10 MAINTENANCE ACTIVITIES IN INDIA IN RELATION TO THE ROLLING STOCK SUPPLIED TO DMRC IS PERFORMED UNDER THE SUPERVISION OF CHIEF MA INTENANCE ENGINEER OF ROTEM - RSI PO WHO HAS BEEN APPROVED BY DMRC. MAINTENANCE AND TROUBLE SHOOTING BASED ON THE REQUIREMENT OF DMRC, ROTEM - RSI PO HA NDLES ROUTINE TECHNICAL ISSUES OCCURRING ON A DAY TO DAY BASIS. R OTEM - RSI PO UNDERTAKES MINOR TROUBLESHOOTING IN RELATION TO ROL LING STOCK SUPPLIED TO DMRC UNDER CONTRACT RSI. FOR THIS PURPOSE, ANY MATERIAL / EQUIPMENT REQUIRED IN THE COURSE OF THE MAINTENANCE ACTIVITIES ARE PROCURED BY THE OVERSEAS PURCHASE DEPARTMENT OF ROTEM HEAD OFFICE. THE PURCHASE DEPARTMENT DIREC TLY PLACE ORDERS WITH VENDORS FOR ANY SPARES/CONSUMABLES, AS MAY BE REQUIRED, AND SUCH MATERIAL IS DELIVERED BY THE VENDORS DIRECTLY TO TH E OUTSOURCING COMPANIES ENGAGED FOR CARRYING OUT THE REQUISITE MODIFICATION S. THE ROLE OF ROTEM - RSI PO IN THIS REGARD IS RESTRICTED TO COMMUNICATIO N OF THE DEFECTS TO ROTEM HEAD OFFICE; OBTAIN BUDGETARY SANCTIONS FROM HEAD OFFICE FOR SPARES/CONSUMABLES; AND SUPERVISION OF THE ACTIVITI ES BEING UNDERTAKEN BY OUTSOURCING COMPANIES ENGAGED BY ROTEM HEAD OFFI CE. THE FUNCTIONS PERFORMED BY ROTEM - RSI PO AND ITS A E, ARE SUMMARIZED IN THE TABLE BELOW TYPE OF FUNCTIONS ROTEM RS1 PO ROTEM LIAISONING AND COORDINATION YES NO MAINTENANCE AND TROUBLE SHOOTING YES LIMITED DURING FY 2014-15, IN RELATION TO RS3 PROJECT, ROTE M - RS3 PO HAS A FEW OTHER PERSONNEL WHO HAVE BEEN ENGAGED UNDER A MANPO WER SUPPLY ARRANGEMENT FROM AN OUTSOURCED AGENCY TO HANDLE MIN OR ISSUES. ROTEM DOES NOT RECEIVE ANY SEPARATE REMUNERATION FOR THE SERVICES RENDERED DURING DLP. THE FUNCTIONS PERFORMED BY ROTEM AND ROTEM - RS3 PO IN RELATION TO THE INTERNATIONAL TRANSACTION PERTAINING TO ADMINIS TRATIVE SUPPORT AND CO- ORDINATION SERVICES HAVE BEEN SUMMARIZED BELOW - CONTRACT EXECUTION I.T.A. NO.7569/DEL/2019 11 ALL THE ACTIVITIES RELATED TO ONSITE PORTION OF THE CONTRACT ARE TO BE PERFORMED BY BEML. IN RELATION TO CONTRACT RS3, ROT EM HAS BEEN APPOINTED AS TECHNICAL LEADER AND IS REQUIRED TO UN DERTAKE DETAILED DESIGN AND DEVELOPMENT OF THE MECHANICAL PORTION. F URTHER, IT IS ALSO RESPONSIBLE FOR THE MANUFACTURE, SUPPLY, TESTING AN D COMMISSIONING OF THE ACTIVITIES RELATING TO THE MECHANICAL PORTION OF TH E PROJECT IN KOREA. FOR FY 2014-15, ROTEM IS RESPONSIBLE FOR SUPPLYING MATERIAL TO BEML FOR USE IN ASSEMBLING OF EMUS IN INDIA. THE LOCAL ASSEM BLING IS UNDERTAKEN BY BEML AND ROTEM THROUGH ROTEM - RS3 PO SUPERVISE THE SITE AND DEPOT OPERATIONS IN CONNECTION WITH ONSITE TESTING AND COMMISSIONING WORK BEING UNDERTAKEN BY BEML IN INDIA. IN ADDITION , ROTEM - RS3 PO IS RESPONSIBLE FOR RENDERING SUPPORT SERVICES IN RELAT ION TO CUSTOM CLEARANCE OF SUPPLIES MADE FROM OUTSIDE INDIA AND ARRANGING F OR LOGISTICS. TESTING AND COMMISSIONING BASED ON THE REQUIREMENT OF DMRC, ROTEM - RS3 PO SU PERVISES THE ONSITE TESTING AND COMMISSIONING ACTIVITIES BEING U NDERTAKEN IN RELATION TO CONTRACT RS3. ROTEM - RS3 PO HANDLES ROUTINE TECHNI CAL ISSUES OCCURRING ON A DAY TO DAY BASIS UNDER THE TECHNICAL GUIDANCE PROVIDED BY ROTEM HEAD OFFICE. HOWEVER, THE PROJECT OFFICE UNDERTAKES ONLY MINOR TROUBLESHOOTING IN RELATION TO ROLLING STOCK. ANY C ONCERN IN RELATION TO ASSEMBLING IS TAKEN CARE-OFF BY BEML AND DESIGN ISS UES ARE HANDLED BY ROTEM HEAD OFFICE. LIAISONING/INTERFACING WITH DMRC ROTEM - RS3 PO IS INVOLVED IN LIAISONING AND INTERF ACING WITH THE DMRC OFFICIALS AND GENERAL CONSULTANTS APPOINTED BY DMRC . THIS ENTAILS VARIOUS ADMINISTRATIVE ACTIVITIES AND TECHNICAL MAT TERS TO BE COORDINATED FOR PROPER EXECUTION OF THE CONTRACT. ROTEM - RS3 PO ACTS AS THE COMMUNICATION LINK BETWEEN ROTEM AS A MEMBER TO MRMB CONSORTIUM AND DMRC REPRESENTING ROT EM UNDER INSTRUCTIONS OF HEAD OFFICE OF ROTEM. THE COST INCU RRED BY ROTEM - RS3 PO IN RELATION TO SUCH COORDINATION ACTIVITIES, ARE REIMBURSED BY ROTEM I.T.A. NO.7569/DEL/2019 12 HEAD OFFICE WITH AN APPROPRIATE MARK UP THEREON. AL L THE ACTIVITIES PERFORMED BY ROTEM - RS3 PO ARE SUPPORT ACTIVITIES WHICH FURTHER ARE CHARGED AT A COST PLUS MARK UP BASIS TO THE HEAD OF FICE. THE FUNCTIONS PERFORMED BY ROTEM - PO AND ITS AE, A RE SUMMARIZED IN THE TABLE BELOW TYPE OF FUNCTIONS ROTEM RS3 PO ROTEM CONTRACT EXECUTION NO YES TESTING AND COMMISSIONING LIMITED TO SUPERVISION NO LIAISIONING/INTERFACING WITH DMRC YES LIMITED BMRCL CONTRACT - THE FUNCTIONAL ROLE AND RESPONSIBILITIES OF BMRCL P O ARE LARGELY SIMILAR TO THOSE UNDER DMRC'S RS3 CONTRACT. THE FUNCTIONS PERFORMED BY ROTEM AND BMRCL PO IN RE LATION TO INTERNATIONAL TRANSACTION PERTAINING TO ADMINISTRAT IVE SUPPORT AND CO- ORDINATION SERVICES HAVE BEEN SUMMARIZED BELOW - CONTRACT EXECUTION IN RELATION TO THE 2RS-DM CONTRACT AWARDED BY BMRCL TO THE CONSORTIUM, ROTEM IS RESPONSIBLE FOR COORDINATING AND PROVIDING LOGISTICS SUPPORT IN CONNECTION WITH OFFSHORE SUPPLIES MADE BY ROTEM TO BEML IN RELATION TO MELCO'S ASSIGNED SCOPE OF WORK. ROTEM CONTINUES TO BE THE TECHNICAL LEADER OF THE PROJECT AND IS RESPONSIBLE FOR DETAIL ED DESIGN DEVELOPMENT, MANUFACTURE, SUPPLY, TESTING, AND COMMISSIONING OF MECHANICAL PORTION. THE LOCAL MANUFACTURING SUCH AS CAR BODY MANUFACTUR ING AND ASSEMBLY, AND BOGIE ASSEMBLY IS TO BE DONE BY BEML. BMRCL PO IS RESPONSIBLE FOR LIAISING WITH LOCAL SER VICE PROVIDERS IN CONNECTION WITH LOGISTICS SUPPORT AND UNDERTAKES RO UTINE ADMINISTRATIVE COMPLIANCES IN RELATION TO PAYMENT OF CUSTOM DUTIES ETC. ON BEHALF OF HEAD OFFICE. IN ADDITION, BMRCL PO IS RESPONSIBLE FOR LOCAL PROC UREMENT OF CERTAIN MATERIAL AND SUPPLY OF SAME TO BEML DIRECTLY. IN RE LATION TO THE LOCAL SUPPLIES BEING MADE BY BMRCL PO TO BEML, THERE IS N O SEPARATE CONSIDERATION RECEIVABLE FROM BMRCL IN THIS REGARD. THE PO IS PAID BY I.T.A. NO.7569/DEL/2019 13 BEML FOR SUCH LOCAL SUPPLIES OUT OF THE FIXED LUMP- SUM CONSIDERATION RECEIVED. SUPERVISION BMRCL PO IS RESPONSIBLE FOR CO-ORDINATING AND INTER FACING WITH SERVICE PROVIDERS IN CONNECTION WITH HANDLING CARGO AND OTH ER LOGISTICS, CUSTOMS CLEARANCE ETC. OF EQUIPMENT IMPORTED INTO INDIA AND TRANSPORTATION OF SAME TO THE ASSEMBLY SITES OF SUB-CONTRACTORS AND F URTHER TO BEML'S FACTORY FOR LOCAL ASSEMBLING OF EMUS. LIAISONING / INTERFACING BMRCL PO IS INVOLVED IN LIAISONING AND INTERFACING WITH BMRCL OFFICIALS AND BEML IN CONNECTION WITH THE ROTEMS SCOPE OF WO RK UNDER THE CONTRACT. THIS ENTAILS VARIOUS ADMINISTRATIVE ACTIV ITIES AND TECHNICAL MATTERS TO BE COORDINATED FOR PROPER EXECUTION OF T HE CONTRACT. BMRCL PO ACTS AS THE COMMUNICATION LINK BETWEEN ROT EM AS A MEMBER TO BRMM CONSORTIUM AND BMRCL REPRESENTING ROTEM UND ER INSTRUCTIONS OF ROTEM. THE COST INCURRED BY BMRCL PO IN RELATION TO SUCH COORDINATION ACTIVITIES, ARE REIMBURSED BY ROTEM WI TH AN APPROPRIATE MARK-UP THEREON. THE FUNCTIONS PERFORMED BY BMRCL PO AND ROTEM, ARE SUMMARIZED IN THE TABLE BELOW- TYPE OF FUNCTIONS BMRCL PO RO TEM CONTRACT EXECUTION LIMITED YES SUPERVISION YES LIMITED LIAISIONING/INTERFACING WITH DMRC LIMITED LIMITED HYDERABAD CONTRACT - THE FUNCTIONAL ROLE AND RESPONSIBILITIES OF HM PO A RE LARGELY SIMILAR TO THE OTHER CONTRACTS UNDERTAKEN BY ROTEM. THE FUNCTIONS PERFORMED BY HM PO HAVE BEEN SUMMARIZED BELOW - CONTRACT EXECUTION THE SCOPE OF WORK OF ROTEM (HEAD OFFICE) UNDER OFFS HORE SUPPLY IS MANUFACTURING, TESTING, INSPECTION AND SHIPPING OF 57 TRAIN CARS OF 3 CAR CONFIGURATION TO PORT IN INDIA. THE SCOPE OF WORK O F ROTEM (HEAD OFFICE) I.T.A. NO.7569/DEL/2019 14 UNDER ONSHORE SERVICES IS RELATED TO OVERSIGHT AND COORDINATION, INCLUDING INTEGRATED TESTING AND COMMISSIONING AND TRIAL RUNS , PROVIDING INFORMATION ON RECTIFICATION OF DEFECTS, CLEARING, FORWARDING, HANDLING, TRANSPORTATION TO SITE, RECEIPT AND UNLOADING/ HAND LING OF THE TRAINS AT SITE. THE PROJECT OFFICE MAINLY ACTS AS AN INTERFAC E BETWEEN ROTEM (HEAD OFFICE) AND THE END CUSTOMER. LOGISTIC SUPPORT HM PO IS RESPONSIBLE FOR COORDINATING AND PROVIDING LOGISTICS SUPPORT IN CONNECTION WITH OFFSHORE SUPPLIES MADE BY ROTEM. IT LIAISES WITH LOCAL SERVICE PROVIDERS IN CONNECTION WITH LOGISTICS SUPP ORT AND ALSO UNDERTAKES ROUTINE ADMINISTRATIVE COMPLIANCES ON A DAY-TO-DAY BASIS. THE ROLLING STOCK MANUFACTURED BY ROTEM IS DIRECTLY DELIVERED T O HM BY ROTEM-HO. HM PO'S ROLE IS RESTRICTED TO ONLY COORDINATION AND LOGISTIC SUPPORT. LIASIONING HM PO IS INVOLVED IN LIAISING AND INTERFACING WITH HM OFFICIALS IN CONNECTION WITH THE ROTEM'S SCOPE OF WORK UNDER THE CONTRACT. THIS ENTAILS VARIOUS ADMINISTRATIVE ACTIVITIES TO BE COO RDINATED FOR PROPER EXECUTION OF THE CONTRACT. IT IS ALSO RESPONSIBLE F OR LIASING WITH GOVERNMENT REPRESENTATIVES. THE COST INCURRED BY HM PO IN RELA TION TO SUCH COORDINATION ACTIVITIES, ARE REIMBURSED BY ROTEM WI TH AN APPROPRIATE MARK-UP THEREON. THE FUNCTIONS PERFORMED BY HM PO AND ROTEM, ARE SUM MARIZED IN THE TABLE BELOW TYPE OF FUNCTIONS HM PO ROTEM CONTRACT EXECUTION L IMITED YES LOGISTICS SUPPORT YES LIMITED LIAISIONING WITH HM YES LIMITED RS 10 CONTRACT- THE FUNCTIONAL ROLE AND RESPONSIBILITIES OF RS10 PO ARE LARGELY SIMILAR TO THE OTHER CONTRACTS UNDERTAKEN BY ROTEM. THE FUNCTI ONS PERFORMED BY RSIO PO HAVE BEEN SUMMARIZED BELOW - CONTRACT EXECUTION I.T.A. NO.7569/DEL/2019 15 UNDER THE RS-10 CONTRACT, A MAXIMUM OF 120 CARS CAN BE MANUFACTURED OFFSHORE AND THE REMAINING CARS NEED TO BE MANUFACT URED IN INDIA. FOR THE PURPOSE OF COORDINATION AND ADMINISTRATIVE SUPPORT IN CONNECTION WITH THE RSIO CONTRACT, ROTEM HAS ESTABLISHED A PROJECT OFFI CE I.E. ROTEM- RS 10 PO AT NEW DELHI, INDIA. ROTEM (HEAD OFFICE) HAS APPOIN TED A SUB-CONTRACTOR I.E. BEML LIMITED FOR MANUFACTURE OF BALANCE CARS I N INDIA ON 'JOB-WORK BASIS'. FOR FY 2014-15, ROTEM (HEAD OFFICE) IS RESPONSIBLE FOR SUPPLYING MATERIAL TO BEML FOR USE IN ASSEMBLING OF EMUS IN I NDIA. THE LOCAL ASSEMBLING IS UNDERTAKEN BY BEML. ROTEM - RSIO PO U NDERTAKES OVERSIGHT AND COORDINATION FOR THE ONSITE TESTING A ND COMMISSIONING WORK UNDERTAKEN BY BEML IN INDIA. THE RS-10 PO IS PRIMAR LY RESPONSIBLE FOR LIASONING AND COORDINATION ACTIVITIES UNDER THE PRO JECT. LOGISTIC SUPPORT RSIO PO IS RESPONSIBLE FOR COORDINATING AND PROVIDI NG LOGISTICS SUPPORT IN CONNECTION WITH OFFSHORE SUPPLIES MADE BY ROTEM. IT LIAISES WITH LOCAL SERVICE PROVIDERS IN CONNECTION WITH LOGISTICS SUPP ORT AND ALSO UNDERTAKES ROUTINE ADMINISTRATIVE COMPLIANCES ON A DAY-TO-DAY BASIS. THE ROLLING STOCK MANUFACTURED BY ROTEM IS DIRECTLY DELIVERED T O RSIO BY ROTEM. RSIO PO'S ROLE IS RESTRICTED TO ONLY COORDINATION A ND LOGISTIC SUPPORT. LIASIONING ROTEM - RSIO PO IS INVOLVED IN LIAISONING AND INT ERFACING WITH THE DMRC OFFICIALS AND GENERAL CONSULTANTS APPOINTED BY DMRC. THIS ENTAILS VARIOUS ADMINISTRATIVE ACTIVITIES AND TECHNICAL MAT TERS TO BE COORDINATED FOR PROPER EXECUTION OF THE CONTRACT. ROTEM - RSIO PO ACTS AS THE COMMUNICATION LINK BETW EEN THE HEAD OFFICE AND DMRC AND REPRESENTING ROTEM UNDER INSTRUCTIONS OF HEAD OFFICE OF ROTEM. THE COST INCURRED BY ROTEM - RSIO PO IN RELA TION TO SUCH COORDINATION ACTIVITIES, ARE REIMBURSED BY ROTEM HE AD OFFICE WITH AN APPROPRIATE MARK-UP THEREON. ALL THE ACTIVITIES PER FORMED BY ROTEM - I.T.A. NO.7569/DEL/2019 16 RSIO PO ARE SUPPORT ACTIVITIES WHICH FURTHER ARE CH ARGED AT A COST PLUS MARK-UP BASIS TO THE HEAD OFFICE. RSIO PO IS INVOLVED IN LIAISING AND INTERFACING W ITH RSIO OFFICIALS IN CONNECTION WITH THE ROTEM'S SCOPE OF WORK UNDER THE CONTRACT. THIS ENTAILS VARIOUS ADMINISTRATIVE ACTIVITIES TO BE COO RDINATED FOR PROPER EXECUTION OF THE CONTRACT. IT IS ALSO RESPONSIBLE F OR LIASIONING WITH GOVERNMENT REPRESENTATIVES. THE COST INCURRED BY RS IO PO IN RELATION TO SUCH COORDINATION ACTIVITIES, ARE REIMBURSED BY ROT EM WITH AN APPROPRIATE MARK-UP THEREON. THE FUNCTIONS PERFORMED BY RSIO PO AND ROTEM, ARE S UMMARIZED IN THE TABLE BELOW TYPE OF FUNCTIONS RS 10 PO ROTEM CONTRACT EXECUTION LIMITED YES LOGISTICS SUPPORT YES LIMITED LIAISIONING/ INTERFACING WITH DMRC YES LIMITED 4.1.3 RISK ANALYSIS 4.1.3.1 BUSINESS RISK BUSINESS RISK ARISES WHEN A FIRM IS SUBJECT TO ADVE RSE SALES CONDITIONS DUE TO EITHER INCREASED COMPETITION IN THE MARKETPL ACE, ADVERSE DEMAND CONDITIONS WITHIN THE MARKET, OR THE INABILITY TO D EVELOP MARKETS OR POSITION PRODUCTS TO SERVICE TARGETED CONSUMERS. ROTEM - POS ONLY PROVIDE ADMINISTRATIVE SUPPORT SER VICES TO ROTEM AND DO NOT ASSUME ANY SPECIFIC MARKET RISK. ROTEM I S RESPONSIBLE FOR GENERATING BUSINESS AND NONE OF BUSINESS RELATED DE CISIONS ARE MADE BY PEOPLE IN ROTEM - POS. ROTEM IS RESPONSIBLE FOR DEC IDING THE BUSINESS STRATEGY AND FUTURE GROWTH STRATEGY FOR THE COMPANY . ACCORDINGLY, BUSINESS RISK IS BORNE BY ROTEM. 4.1.3.2 CREDIT AND COLLECTION RISK WHEN A FIRM SUPPLIES PRODUCTS OR SERVICES TO A CUST OMER IN ADVANCE OF CUSTOMER PAYMENT, THE FIRM RUNS THE RISK THAT THE C USTOMER WILL FAIL TO MAKE PAYMENT. THIS RISK IS KNOWN AS CUSTOMER CREDIT RISK. I.T.A. NO.7569/DEL/2019 17 THE REVENUES OF ROTEM - POS ARE GENERATED FROM A SI NGLE ENTITY I.E. ROTEM, WHICH IS ITS HEAD OFFICE. ACCORDINGLY, ROTEM - POS DO NOT BEAR ANY SIGNIFICANT CREDIT AND COLLECTION RISK WHICH AN INDEPENDENT SERVICE PROVIDER WOULD HAVE BEEN EXPOSED TO WHILE DEALING W ITH INDEPENDENT CUSTOMERS. 4.1.3.3 FOREIGN EXCHANGE RISK EXCHANGE RATE RISK RELATES TO THE POTENTIAL VARIABI LITY OF PROFITS THAT CAN ARISE BECAUSE OF CHANGES IN FOREIGN EXCHANGE RATES. SUCH RISKS ARISE WHEN DOING BUSINESS IN ANY MARKET THAT IS AFFECTED BY INTERNATIONAL TRADE AND CAN ARISE EVEN IF A COMPANY DOES NOT CONDUCT AC TUAL TRANSACTIONS IN A FOREIGN CURRENCY. ROTEM - POS BILL ROTEM HO IN A CURRENCY WHICH IS DI FFERENT FROM ITS FUNCTIONAL CURRENCY. HOWEVER, GIVEN THE CURRENT CON TEXT AND KEEPING IN MIND THE CURRENT ECONOMIC SCENARIO; ROTEM - POS ARE NOT EXPOSED TO ANY SIGNIFICANT FOREIGN EXCHANGE RISK. BRIEFLY TABULATED ARE THE KEY RISKS, BORNE BY ROTEM - POS AND ROTEM IN RELATION TO THE ADMINISTRATIVE SUPPORT AND CO-ORDIN ATION SERVICES PROVIDED BY ROTEM - POS TO ROTEM HO TYPE OF RISKS ROTEM - POS ROTEM BUSINESS RISK NO YES CREDIT AND COLLECTION RISK NO YES FOREIGN EXCHANGE RISK NO YES 4.2 REIMBURSEMENT OF EXPENSES TO AE DURING THE YEAR, ROTEM CHARGED BACK CERTAIN OPERATI NG EXPENSES BORNE BY IT ON BEHALF OF ROTEM POS. THE DETAILS OF THE CHARGED BACK EXPENSES IS AS FOLLOWS:- ASSOCIATED ENTERPRISE CHARGED TO DESCRIPTION OF SERVICES AMOUNT (INR) ROTEM RS3 EXPENSES INCURRED BY ROTEM ON BEHALF OF PO 2,792,901 ROTEM BMRCL EXPENSES INCURRED BY ROTEM ON BEHALF OF PO 7600198 ROTEM HM PO EXPENSES INCURRED BY ROTEM ON BEHALF OF PO 3006724 ROTEM RS 10 REIMBURSEMENT OF SALARIES 7889194 I.T.A. NO.7569/DEL/2019 18 4.3 REIMBURSEMENT OF EXPENSES BY AE ROTEM POS INCURRED MISCELLANEOUS OPERATING EXPENS ES O BEHALF OF ROTEM AND CHARGED BACK THESE EXPENSES TO ROTEM. THE VALUE OF THE CHARGE BACK OF THESE EXPENSES IS AS FOLLOWS:- ASSOCIATED ENTERPRISE PAID BY DESCRIPTION OF SERVICES AMOUNT (INR) ROTEM RS 13 PAYMENT TO VE NDOR ON BEHALF OF ROTEM 21610500 ROTEM RS3 PO TAXES AND DUTIES PAID ON BEHALF OF ROTEM 17802178 ROTEM BMRCL PO TAXES AND DUTIES PAID ON BEHALF OF ROTEM 28603004 EXPENSES INCURRED ON BEHALF OF ROTEM 164553 ROTEM HM PO EXPENSES INCURRED ON BEHALF OF ROTEM 3156987 TAXES AND DUTIES PAID ON BEHALF OF ROTEM 1908619 ROTEM RS 10 PO TAXES AND DUTIES PAID ON BEHALF OF ROTEM 37363 EXPENSES INCURRED ON BEHALF OF ROTEM 1040750 PAYMENT TO VENDOR ON BEHALF OF HEAD OFFICE 832240005 TOTAL 906563959 4.4 ASSETS EMPLOYED THE WRITTEN DOWN VALUE OF ASSETS EMPLOYED BY ROTEM POS AFTER DEPRECIATION AS ON MARCH, 31 2015 ARE AS FOLLOWS TYPE OF ASSET AMOUNT ROTEM RS1 PO ROTEM RS3 PO BMRCL PO HM PO ROTEM RS 10 PO LEASEHOLD IMPROVEMENTS - - - - - FURNITURE A ND FIXTURES - - - 978212 155332 OFFICE EQUIPMENT - - - 16225 243959 COMPUTER - - - 182858 376229 VEHICLES - - - - - SOFTWARE - - - 1190311 1097408 4. IN THE TP STUDY REPORT, FOLLOWING INTERNATIONAL TRANSACTION WITH ITS AE WERE REPORTED:- I.T.A. NO.7569/DEL/2019 19 NO. NATURE OF TRANSACTION METHOD VALUE OF TRANSACTION (IN RS.) I. RENDERING OF ADMINISTRATIVE SUPPORT AND COORDINATIO N SERVICES BY ROTEM - RSI PO TNMM 4,987,110 II. RENDERING OF ADMINISTRATIVE SUPPORT AND COORDINATIO N SERVICES BY ROTEM - RS3 PO 118,342,532 III. RENDERING OF ADMINISTRATIVE SUPPORT AND COORDINATIO N SERVICES BY BMRCL PO 74,233,139 IV. RENDERING OF ADMINISTRATIVE SUPPORT AND COORDINATIO N SERVICES BY HM PO 170,522,202 V. RENDERING OF ADMINISTRATIVE SUPPORT AND COORDINATIO N SERVICES BY RS10 PO 152,994,500 VI. REIMBURSEMENT OF EXPENSES TO AE OTHER METHOD 906,563,959 VII. REIMBURSEMENT OF EXPENSES BY AE 21,289,017 5. IN ORDER TO BENCHMARK THE ADMINISTRATIVE SUPPORT SERVICES, THE ASSESSEE ADOPTED TNMM AS MOST APPROPR IATE METHOD AND OP/OC WAS TAKEN AS PLI. THE ASSESSEE SEL ECTED SIX COMPARABLE COMPANIES FOR ITS ARMS LENGTH ANALY SIS WHICH WAS DETERMINED FROM THE 35 TH PERCENTILE OF THE DATA SET AND ENDING ON 65 TH PERCENTILE OF DATA SET AND THE MEDIAN WAS ARRIVED AT 7.74%. THE COMPUTATION WAS DONE IN THE F OLLOWING MANNER: NO. NAME OF THE COMPANY WEIGHTED AVERAGE OP/OC% (I) CONCEPT PUBLIC RELATIONS INDIA LTD 4.24 (II) MCI MANAGEMENT (INDIA) LTD 5.33 (III) ICR A MANAGEMENT CONSULTING SERVICES LTD. 6.99 (IV) KEYSTONE INTEGRATED MARKETING SERVICES PVT. LTD 8.49 (V) INDIA TOURISM DEVELOPMENT CORPORATION LTD 8.55 (VI) E D C / L (INDIA) LTD. 4.50 35 TH PERCENTILE 6.99% MEDIAN 7.74% 65 TH PERCENTILE 8.49% I.T.A. NO.7569/DEL/2019 20 6. THE OPERATING MARGIN AT THE ENTITY LEVEL AT 10.7 9% WHICH AT THE UNIT-WISE PROFITABILITY WAS SHOWN AS UNDER: PARTICULARS RS1PO RS3PO BMRCLPO HMPO RS10 TOTAL OPERATING INCOME 49,87,110 11,83,42,532 7,42,41,851 17,05,22,202 15,29,94,500 52,10,88,195 OPERATING COST 45,75,330 10,24,09,499 6,80,28,801 15,64,01,003 13,81,69,867 46,95,84,500 OPERATING PROFIT 4,11,780 1,59,33,033 62,13,050 1,41,21,199 1,48,24,633 5,15,03,695 OP/OC 9.00% 15.56% 9.13% 9.03% 10.73% 10.97% 7. THE TPO ACCEPTED TWO OF THE COMPARABLES OF THE ASSESSEE, NAMELY, ICRA MANAGEMENT CONSULTING SERVIC ES LTD. AND KEYSTONE INTEGRATED MKTG. SERVICES PVT. LTD. AN D OTHER FOURS WERE REJECTED. THEREAFTER, THE LD. TPO HAD SE LECTED 5 MORE COMPARABLES WHOSE WEIGHTED AVERAGES OP/OC WERE AS UNDER: S. NO. COMPANY NAME OP/OC 2013 OP/OC 2014 OP/OC 2015 WTG. AVG. OP/OC 1 I C R A MANAGEMENT CONSULTING SERVICES LTD. 2.36 4.01 11.82 6.13% 2 KEYSTONE INTEGRATED MKTG. SERVICES PVT. LTD. 6.89 7.10 9.75 8.13% 3 MITCON CONSULTANCY & ENGINEERING SERVICES LTD. 34.84 25.06 10.35 22.82% 4 KILLICK AGENCIES & MKTG. LTD. 26.73 23.06 23.22 24.32% 5 WAPCOS LTD (SEG) NA 35.55 32.98 34.16% 6 HOLTEC CONSULTING PVT. LTD. 60.15 60.19 43.82 54.39% 7 H S C C (INDIA) LTD. 66.54 68.85 72.82 69.59% 8. ACCORDINGLY, THE TPO MADE ADJUSTMENT OF RS.6,26,99,255/- IN RESPECT OF PROVISION OF ADMINIS TRATIVE SUPPORT SERVICES. I.T.A. NO.7569/DEL/2019 21 9. AS HIGHLIGHTED BY THE LD. COUNSEL BEFORE US T HAT, THE LD. TPO IN HIS ORDER HAS TAKEN NOTE OF BUSINESS ACTIVIT IES OF THE HEAD OFFICE AND ARRIVED AT A PRESUMPTION THAT THE A CTIVITIES OF THE PROJECT OFFICE ARE TECHNICAL IN NATURE, SINCE T HE HEAD OFFICE OPERATES IN TECHNICAL ENVIRONMENT. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO HAS MISUNDERSTOOD T HE FACT, THOUGH WHILE THE CONTRACT WAS ENTERED INTO BY THE H EAD OFFICE WITH THIRD PARTIES, PURSUANT TO WHICH PROJECTS OFFI CE HAVE BEEN SET UP, CAN BE SAID TO BE TECHNICAL CONTRACTS, BUT THE FUNCTIONS PERFORMED BY THE PROJECT OFFICE WERE MERE LY RESTRICTED TO LIAISING AND COORDINATION. LATER ON, THE PROPOSED TP ADJUSTMENT WAS REDUCED TO RS.6,20,41,837/- BY TH E TPO VIDE ORDER DATED 28 TH DECEMBER, 2018 PASSED U/S.154 R.W.S. 92CA(3) AFTER AN APPLICATION FOR RECTIFICATION WAS FILED BY THE ASSESSEE. 10. BEING AGGRIEVED BY THE ADJUSTMENT AND ADDITI ON PROPOSED IN THE DRAFT ASSESSMENT ORDER, THE ASSESSE E FILED OBJECTION BEFORE THE DRP. THE LD. DRP VIDE ITS DIRE CTION DATED 3 RD JULY, 2019 EXCLUDED GOVERNMENT COMPANIES AND HOLDT ECH CONSULTANCY PVT. LTD. FROM THE SET OF COMPARABLES A ND AFTER GIVING EFFECT TO THE DRPS ORDER THE TRANSFER PRICI NG ADJUSTMENT WAS REDUCED TO RS.2,75,74,335/-. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, M R. RAJAN VOHRA, FIRST OF ALL, SUBMITTED THAT THE LD. TPO HAS COMPLETELY ERRED ON FACTS IN TAKING THE NATURE OF SERVICES AND FUNCTIONS OF HEAD OFFICE TO BE THAT OF FUNCTIONS PERFORMED BY THE PROJECT I.T.A. NO.7569/DEL/2019 22 OFFICERS. THE TECHNICAL CONSULTANCY SERVICES WERE N OT THE SAME AS SUPPORT SERVICES, BECAUSE IN SO FAR AS THE ASSES SEE THROUGH PROJECT OFFICES ARE CONCERNED WAS ENGAGED MERELY IN PROVISION OF LOW END AND SUPPORT SERVICES WHICH FALLS INTO TH E CATEGORY OF BUSINESS SUPPORT SERVICES AND CANNOT BE COMPARED WITH THE COMPANY ENGAGED IN RENDERING HIGH AND TECHNICAL CONSULTANCY SERVICES. THE CONTRACTS ENTERED INTO BY THE HEAD OFFICE CANNOT BE DETERMINATIVE FACTOR OF THE FUNCTI ONAL PROFILE OF THE PROJECT OFFICES. HE FURTHER BROUGHT ON RECOR D THAT IN THE EARLIER YEARS WHEN TRANSFER PRICING ADJUSTMENT WERE MADE, THE TPO HAS NOT DISPUTED THE FUNCTIONAL PROFILE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08, 2008-09, 2009-10, 2010-11 AND 2013-14. THUS, WHEN DEPARTMENT ITSELF IN ALL THE YE ARS HAS ACCEPTED THE FUNCTIONAL PROFILE OF THE PROJECT OFFI CE, THEN TPO IN THIS YEAR CANNOT TAKE A DIFFERENT STAND AND CHAN GE THE PROFILE OF THE ASSESSEE. HOWEVER, HE SUBMITTED THAT IN THE ASSESSMENT YEAR 2011-12, THE TPO HAS NOT ACCEPTED T HE ASSESSEES FUNCTIONAL PROFILE. HE FURTHER SUBMITTED THAT THE ASSESSEE IS MAINLY AGGRIEVED FOR EXCLUSION OR INCLU SION OF FOLLOWING COMPARABLE COMPANIES:- SR. NO NAME OF THE COMPANY ' MARGIN AS PER TP STUDY MARGINS CONSIDERED BY THE LD. TPO APPELLANTS REASON FOR EXCLUSION/ INCLU SION FROM SET OF COMPARABLE COMPARABLES TO BE EXCLUDED 1 KILLICK AGENCIES & MARKETING LIMITED NOT CONSIDERED COMPARABLE IN TP REPORT 24.32% FUNCTIONALLY DIFFERENT RULE OF CONSISTENCY I.T.A. NO.7569/DEL/2019 23 2 MITCON CONSULTANCY & ENGINEERING SERVICES LIMITED (MITCON) NOT CO NSIDERED COMPARABLE IN TP REPORT 22.82% FUNCTIONALLY DIFFERENT RULE OF CONSISTENCY 3 MAHINDRA CONSULTING ENGINEERS LTD . 22.80% FUNCTIONALLY DIFFERENT RULE OF CONSISTENCY INCORRECT MARGIN COMPUTATION COMPARAB LES TO BE INCLUDED 4 CONCEPT PUBLI C RELATIONS INDIA LIMITED 4.24% COMPANY EXCLUDED BY TPO AND ACCEPTED BY DRP FUNCTIONALLY SIMILAR 5 MCI MANAGEMENT (INDIA) LIMITED 5.33% COMPANY EXCLUDED BY TPO AND ACCEPTED BY DRP FUNCTIONALLY SIMILAR 12. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HER E IN THIS CASE RULE OF CONSISTENCY NEEDS TO BE FOLLOWED FOR T HE REASON THAT, IN AY 2013-14 AND AY 2012-13, THE APPELLANT H AD REJECTED KILLICK AGENCIES & MARKETING 'LIMITED, MI TCON CONSULTANCY & ENGINEERING SERVICES LIMITED AND MAHI NDRA CONSULTING ENGINEERS LIMITED AS A COMPARABLE AND TH E LD. TPO HAS ACCEPTED THE STAND OF THE APPELLANT AND REJ ECTED THEM AS COMPARABLE. THEREFORE, BASED ON THE RULE OF I.T.A. NO.7569/DEL/2019 24 CONSISTENCY, WHICH HAS BEEN UPHELD BY THE ITAT ALSO IN APPELLANTS OWN CASE PERTAINING TO AY 2010-11, AY 2 011-12 AND AY 2012-13, WHEREIN IT WAS HELD THAT WITHOUT AN Y CHANGE IN FUNCTIONALITY AND FINANCIAL DATA, INCLUSION/EXCL USION OF COMPARABLE CANNOT BE DONE, AS TPO HAD TO BRING SOME MATERIAL ON RECORD TO SHOW THAT WHY THESE COMPARABL ES ARE TO BE EXCLUDED/ INCLUDED IN THE YEAR UNDER CONSIDERATI ON. THIS FINDING WAS GIVEN WHILE ADJUDICATING FOR SOME OTHER COMPARABLE I.E. ICRA MANAGEMENT CONSULTANCY LIMITED FOR AY 2010-11; AND THEREFORE BY THIS LOGIC, ALL THE TH REE COMPARABLE SHOULD NOT BE INCLUDED IN THE FINAL LIST OF COMPARABLE COMPANIES. 13. LD. COUNSEL FURTHER SUBMITTED THAT, HERE IN THI S CASE, IF THREE COMPARABLE CHOSEN BY THE TPO ARE EXCLUDED THE N ASSESSEES MARGIN WOULD BE AT ARMS LENGTH AND HE P LEADED FOR EXCLUSION OF M/S. KILLICK AGENCIES AND MARKETIN G LTD.; MITCON CONSULTANCY AND ENGINEERING SERVICES LTD. AN D MAHINDRA CONSULTING ENGINEERS LTD. KILLICK AGENCIES AND MARKETING LIMITED (KILLICK) OPERATING MARGIN : 24.32% FUNCTIONAL DIFFERENCE 14. LD. COUNSEL SUBMITTED THAT THIS COMPANY ACTS AS AN AGENT FOR ITS FOREIGN PRINCIPALS FOR SALE OF DREDGE RS, DREDGING EQUIPMENT, STEERABLE RUDDER PROPELLERS, MARITIME AN D AVIATION LIGHTING, ACOUSTIC COMMUNICATION EQUIPMENT ETC. THE COMPANY ALSO PROVIDES AFTER SALES SERVICES AND IS I NVOLVED IN THE EXPORT OF MICRO SWITCHES, ENGINEERING ITEMS ETC . FURTHER, IT I.T.A. NO.7569/DEL/2019 25 WAS OBSERVED THAT THE COMPANY IS ENGAGED IN THE BUS INESS OF MARINE EQUIPMENT LIKE SPECIALIZED PROPULSION SYSTEM S, MARINE ENGINES, INDUSTRIAL & MARINE GEAR BOXES, BAL LAST WATER TREATMENT SYSTEM, SPECIAL PURPOSE SEA GOING VESSELS , INDUSTRIAL & MARINE EXHAUST SYSTEM, SHIP LIGHTING & NAVIGATION LIGHTING SYSTEMS, DREDGES AND DREDGE EQU IPMENT, SHIP BUILDING PRESSES, RESCUE BOATS AND SPECIALIZED DAVITS, REVERSE OSMOSIS WATER SYSTEMS ARC SPECIAL ACOUSTIC COMMUNICATION EQUIPMENT FOR DEFENSE. FURTHER, THE L D. TPO IN HER ORDER HAS HERSELF STATED THAT THIS COMPANY R ECEIVES INCOME IN THE FORM OF COMMISSION, WHICH IS NOT COMP ARABLE TO THE APPELLANT WHICH IS REMUNERATED ON A COST PLUS M ARK-UP BASIS. IT NEEDS TO BE APPRECIATED THAT THIS COMPANY ESSENTIALLY OPERATES AS A COMMISSION AGENT, THE FUNCTIONAL PROF ILE OF WHICH IS VERY DIFFERENT FROM A ROUTINE SUPPORT SERV ICE PROVIDER. REVENUE FROM OPERATIONS OF KILLICK IS MAI NLY COMMISSION INCOME WHICH IS APPROXIMATELY 89 PERCENT OF THE TOTAL REVENUE. PARTICULARS AMOUNT IN RS TOTAL INCOME 4,09,76,853 COMMISSION INCOME 3,64,52,724 % OF COMMISSION INCOME TO TOTAL INCOME 89% THUS, THIS COMPANY WOULD FUNCTIONALLY BE NOT COMPARABLE TO THE PROJECT OFFICES OF THE ASSESSEE W HICH ARE MERELY ENGAGED IN PROVIDING BUSINESS SUPPORT/LIAISI NG AND COORDINATION SERVICES. HE FURTHER SUBMITTED THAT IN FOLLOWING I.T.A. NO.7569/DEL/2019 26 CASES THE TRIBUNAL HAS FOUND THAT KILLICK AGENCIES AND MARKETING LTD. TO BE NON COMPARABLE WITH THE ENTITI ES PROVIDING BUSINESS SUPPORT SERVICES:- ELECTRONICS FOR IMAGING INDIA (P) LTD. (IT (TP) A NO 212/ BANG/2015) DATED 24 FEBRUARY 2016. 14. THE HONBLE ITAT HAS EXCLUDED KILLICK FOR SALES AND SUPPORT SERVICE PROVIDER AND HELD AS UNDER- FURTHER WE NOTE THAT THIS COMPANY IS ACTING AS AN AGENT FOR VARIOUS FOREIGN PRINCIPALS FOR SALE OF DREDGERS, DR EDGING EQUIPMENTS AND MACHINERIES. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP AND DIRECT THE AO TO EXCLUDE THIS COMPANY FROM THE COMPARABLES ITO V ALCON LABORATORIES PVT LTD (IT(TP)A NO 391/BANG/2015) DATED 21 NOVEMBER 2017. THE HONBLE ITAT HAS EXCLUDED KILLICK FOR SALES MA RKETING SUPPORT SERVICE PROVIDER AND HELD AS UNDER- 9. IN RESPECT OF REMAINING TWO COMPARABLES I.E. 1) HCCA BUSINESS SERVICES PVT. LTD. AND 2) KILLICK AGENCIES & MKTG. LTD., WE FIND THAT AS PER THE TRIBUNAL ORDER RENDER ED IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA), IT WAS HELD THAT THESE TWO ARE NOT GOOD COMPARABLES BECAUSE THESE ARE FUNCTIONALLY DIFFERENT. WE HAVE ALREADY N OTED THAT THIS TRIBUNAL ORDER IS APPLICABLE IN THE PRESENT CA SE. HENCE, HENCE, WE RESPECTFULLY FOLLOW THIS TRIBUNAL ORDER A ND HOLD THAT IN THE PRESENT CASE ALSO, THESE TWO COMPARABLES I.E . 1) HCCA BUSINESS SERVICES PVT. LTD. AND 2) KILLICK AGENCIES & MKTG. I.T.A. NO.7569/DEL/2019 27 LTD., ARE RIGHTLY EXCLUDED BY DRP FROM THE FINAL LI ST OF COMPARABLE. NI SYSTEMS (INDIA) PVT. LTD. IT (TP) A NO. 10491 BANG/2016) DATED 13 SEPTEMBER THE HONBLE ITAT HAS EXCLUDED KILLICK FOR MARKETIN G SUPPORT SERVICE PROVIDER AND HELD AS UNDER- '8.3.2 CONSIDERING THE FACTS OF THE MATTER AS LAID OUT ABOVE AND FOLLOWING THE AFORESAID DECISION OF THE CO-ORDI NATE BENCH IN THE CASE OF ELECTRONICS FOR IMAGING INDIA PVT. L TD., FOR ASST, YEAR 2010 11 (SUPRA) WE DIRECT THE AO/TPO TO EXCLUD E THIS COMPANY FROM THE LIST OF COMPARABLES ON GROUNDS OF IT BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CAS E ON HAND WHO WAS ONLY PROVIDING SALES AND MARKETING SUPPORT SERVICES.' ON A WITHOUT PREJUDICE BASIS, HE SUBMITED THAT EVEN IF ITS PROFILE IS CONSIDERED TO BE THAT OF A TECHNICAL SUP PORT SERVICE PROVIDER, THEN FOLLOWING JUDICIAL PRECEDENT KILLICK CANNOT BE CONSIDERED COMPARABLE TO A COMPANY ENGAGE D IN PROVISION OF TECHNICAL SERVICES VEOLIA INDIA PVT LTD (ITA NO. 6693/DEL/2015) DATED 11 OCTOBER 2019 THE HONBLE ITAT HAS EXCLUDED KILLICK FOR CONSULTAN CY AND ADVISORY SERVICE PROVIDER AND HELD AS UNDER- 'WE FIND THAT THIS COMPANY MARKETS MARINE EQUIPMENT LIKE SPECIALIZED PROPULSION SYSTEMS, MARINE ENGINES, SHI P LIGHTING & NAVIGATION LIGHTING SYSTEMS, DREDGES AND DREDGE EQUIPMENT, SHIP BUILDING PRESSES, RESCUE BOATS AND I.T.A. NO.7569/DEL/2019 28 SPECIALIZED DAVITS, REVERSE OSMOSIS WATER SYSTEMS A ND SPECIAL ACOUSTIC COMMUNICATION EQUIPMENT FOR DEFENS E. THIS COMPANY IS INVOLVED IN EXPORTS OF MICRO SWITCHES, E NGINEERING ITEMS, ACOUSTICS ITEMS & HEAD-SETS. THE ANNUAL REPO RT OF THIS COMPANY SUGGESTS THAT THIS COMPANY BOASTS OF ITS RO LE IN PROMOTION OF THE DREDGERS AND DREDGING EQUIPMENT BY LEADING MANUFACTURERS. THERE IS NO DOUBT THAT THIS COMPANY IS ENGAGED IN MARKETING SERVICES AND ON THIS COUNT ALO NE, CANNOT BE CONSIDERED AS A GOOD COMPARABLE VIS A VIS THE AS SESSEE. WE, ACCORDINGLY, DIRECT THE TPO TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPARABLES. ' MITCON CONSULTANCY & ENGINEERING SERVICES LIMITED (MITCON) MARGIN: 22.82% 15. LD. COUNSEL SUBMITTED THAT THE COMPANY HAS A TE CHNICAL CONSULTING TEAM AND IS ENGAGED IN PROVIDING TECHNIC AL CONSULTANCY SERVICES. FURTHER, THE COMPANY OPERATES IN VARIOUS SEGMENTS SUCH AS POWER DIVISION, ENERGY, TE XTILES ETC. IN LIGHT OF THE ABOVE, THE COMPANY IS NOT FUNCTIONA LLY COMPARABLE TO THE ASSESSEE WHO IS ENGAGED IN PROVID ING BUSINESS SUPPORT SERVICES. FURTHER, MITCON HAS RECE IVED GOVERNMENT GRANTS UNLIKE THE APPELLANT WHICH AFFECT S ITS PROFITABILITY AND HENCE CANNOT BE TAKEN AS A COMPAR ABLE FOR THE APPELLANT. FURTHER, MITCON WAS ALSO ENGAGED IN PROVIDING VOCATIONAL TRAINING AND IT COURSES OF MH CIT AND GE NERATES APPROX. 26% OF THE TOTAL REVENUE. THE LD. TPO HAS CHARACTERIZED THE FUNCTIONAL PROFILE OF THE ASSESSE E AS AN ENGINEERING SUPPORT SERVICE PROVIDER AND HENCE, PRO POSED I.T.A. NO.7569/DEL/2019 29 MITCON AS A COMPARABLE CONSIDERING ITS FUNCTIONAL P ROFILE. HOWEVER, WITHOUT PREJUDICE HE SUBMITTED THAT ITS P ROFILE IS THAT OF A BUSINESS SUPPORT SERVICE PROVIDER, IT WOU LD LIKE TO SUBMIT THAT EVEN IF THE ASSESSEE IS CONSIDERED AN ENGINEERING/TECHNICAL SUPPORT SERVICE PROVIDER, MIT CON SHOULD NOT BE CONSIDERED AS A COMPARABLE. RELIANCE HAS BEE N PLACED IN THIS REGARD ON THE FOLLOWING JUDGMENTS WHEREIN M ITCON HAS BEEN REJECTED AS A COMPARABLE FOR THE TAXPAYER HAVI NG A PROFILE OF AN ENGINEERING CONSULTANCY SERVICE PROVI DER: GRANITE SERVICES INTERNATIONAL (P) LTD V ACIT DATED 12 SEPTEMBER 2017 (ITA 532/DEL/2016) THE HONBLE ITAT HAS EXCLUDED MITCON FOR TECHNICAL SUPPORT SERVICE PROVIDER AND HELD AS UNDER:- SIMILARLY, IN RESPECT OF MITCON CONSULTANCY AND ENG INEERING SERVICES LIMITED AND RITES LTD. IT IS SUBMITTED THA T BOTH THESE COMPANIES HAVE MULTI-DIMENSIONAL FUNCTIONALITY AND MOSTLY SERVING THE RELATED PARTIES, AND APART FROM THAT TH E SEGMENTAL DATA IS NOT AVAILABLE. ON THIS ASPECT ALSO LD. AR S UBMITS THAT THESE TWO COMPANIES CANNOT BE GOOD COMPARABLES. ON FACTS, LD. DR DOES NOT DISPUTE THE SAME. WE, THEREFORE, HO LD THAT THESE TWO COMPANIES ALSO CANNOT BE COMPARABLES TO T HE ASSESSEE COMPANY. 23. THIS ORDER OF THE HON'BLE ITAT HAS NOT BEEN DISTURBED BY THE HIGH COURT EVIDENT FROM THE FOLLOW ING EXCERPT FROM THE ORDER PASSED BY THE HON'BLE DELHI HIGH COURT: I.T.A. NO.7569/DEL/2019 30 M/S GRANITE SERVICES INTERNATIONAL INDIA PVT. LTD. ITA 1413/2018 &ITA 1438/2018 (HC) '3. THE ISSUES SOUGHT TO BE URGED BY THE REVENUE IN BOTH THESE APPEALS CONCERN THE LEGALITY OF THE ITAT INCLUDING AND EXCLUDING CERTAIN COMPARABLES AND ALSO REMANDING CERTAIN COMP ARABLES TO THE TPO FOR THE PURPOSE OF DETERMINATION OF ARM' S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS INVOLVING THE R ESPONDENT- ASSESSEE. IN THE CONSIDERED VIEW OF THE COURT THE A BOVE ORDERS OF THE ITAT DO NOT GIVE RISE TO ANY SUBSTANTIAL QUE STION OF LAW.' 24. M/S. STEAG ENERGY JERVICES (I) PVT. LTD.. VS. A CIT, CIRCLE (ITA NO.835/DEL/2016) 26 APRIL 2019 (PAGE 92 6 OF LEGAL PAPERBOOK) 25. THE HONBLE ITAT HAS EXCLUDED MITCON FOR ENGINEERING AND TECHNICAL SOLUTION SERVICE PROVIDER ON ACCOUNT OF RECEIPT OF GOVERNMENT GRANTS AND FUNCTIO NAL DIFFERENCE AND HELD AS UNDER- ' 15. FURTHERMORE, WHEN WE EXAMINE SCHEDULE VIII FO RMING PART OF THE BALANCE SHEET, AVAILABLE AT PAGE 725 OF THE PAPER BOOK, IT SHOWS THAT MITCON HAS ALSO INCOME FROM WIND POWER G ENERATION TO THE TUNE OF RS. 51,91,068/-. FURTHERMORE, WHEN W E EXAMINE SCHEDULE II TO THE BALANCE SHEET AT PAGE 721 OF THE PAPER BOOK, IT SHOWS THAT MITCON HAS RECEIVED GRANTS FROM GOVER NMENT OF INDIA UNDER VARIOUS SCHEMES WHICH CERTAINLY AFFECTS ITS PROFITABILITY. 16. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE C ITED AS WSP CONSULTANTS INDIA (P.) LTD. (SUPRA) HAVING IDENTICA L BUSINESS PROFILE AS THAT OF THE TAXPAYER REJECTED MITCON ON THE GROUND THAT IT IS DERIVING LESS THAN 75% REVENUE FROM THE CONSULTANCY I.T.A. NO.7569/DEL/2019 31 SERVICES. 17. SO, WE ARE OF THE CONSIDER VIEW THAT MITCON IS NOT A SUITABLE COMPARABLE VIS-A-VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED ' 16. ACCORDINGLY, BASED ON THE ABOVE, MITCON SHOULD NOT BE CONSIDERED AS A COMPARABLE TO THE APPELLANT FOR THE COORDINATION AND LIAISING ACTIVITIES UNDERTAKEN BY THE APPELLANT. MAHINDRA CONSULTING ENGINEERS LTD. MARGIN 22.80%; RECTIFIED MARGIN -9.67% 17. THE COMPANY IS ENGAGED IN PROVIDING ENGINEERING CONSULTANCY SERVICES WHICH CANNOT BE COMPARED TO TH E LIAISING, ADMINISTRATIVE AND COORDINATION FUNCTIONS PERFORMED BY THE APPELLANT. FURTHER, UNLIKE THE APPELLANTS M ERCANTILE SYSTEM FOR RECOGNIZING REVENUE, MAHINDRA RECOGNIZES REVENUE AS PER ACCOUNTING STANDARD ('AS') - 7 I.E. ACCOUNTI NG FOR CONSTRUCTION CONTRACTS UNDER PERCENTAGE COMPLETION METHOD WHICH INVOLVES TECHNICAL ESTIMATES WITH RESPECT TO COST TO COMPLETION OF EACH CONTRACT/ACTIVITY . HENCE, THIS SYSTEM OF ACCOUNTING CAN BE CLEARLY DISTINGUISHED FROM THE AP PELLANTS SYSTEM OF ACCOUNTING WHICH RECOGNIZES REVENUE FROM ITS HO ON THE BASIS OF COST-PLUS AN ARMS LENGTH MARK-UP. IN SUPPORT HE RELIED UPON FOLLOWING CASES:- FUNCTIONALLY DIFFERENT FOR BUSINESS SUPPORT SERVICE PROVIDER 1. CISCO SYSTEMS TS-246-ITAT-2014(BANG) DATED 14 AU GUST 2014 I.T.A. NO.7569/DEL/2019 32 THE ITAT HAS EXCLUDED MAHINDRA FOR MARKETING, SALES SUPPORT AND MANAGEMENT SERVICE PROVIDER AND HELD AS UNDER: '53.20 MAHINDRA CONSULTING ENGINEERS LTD.: THIS COM PANY IS ENGAGED IN PROVIDING INFRASTRUCTURE CONSULTING. IN OUR VIEW, IT CANNOT BE REGARDED AS A COMPARABLE AS THE NATURE OF SERVICES PERFORMED AND THE INDUSTRY ARE ENTIRELY DIFFERENT. FUNCTIONALLY DIFFERENT FOR ENGINEERING SUPPORT SERV ICE PROVIDER FLUOR DANIEL INDIA (P.) LTD. (IT APPEAL NO. 973 (D ELHI) OF 2016) DATED 17 JANUARY 2019) THE HONBLE ITAT HAS EXCLUDED MAHINDRA FOR ENGINEERING AND DESIGN SERVIC E PROVIDER AND HELD AS UNDER- 'WE THEREFORE DIRECT TO EXCLUDE THIS COMPANY, IN VI EW OF HIGHLY TECHNICAL CAPABILITIES OF EXECUTING INFRASTRUCTURE DEVELOPMENT PROJECTS VIS-A-VIS THAT OF ASSESSEE WHO IS RENDERIN G ENGINEERING AND RELATED SERVICES AS A SUB-CONTRACT LIMITED TO S PECIFIC FUNCTIONS AS PER THE REQUIREMENT OF ITS AFFILIATE.' THIS ORDER OF THE ITAT HAS NOT BEEN DISTURBED BY T HE HIGH COURT IN ITA 665 OF 2019. DIFFERENT METHOD OF ACCOUNTING BEING FOLLOWED THE DELHI BENCH OF THE ITAT HAS IN THE CASE OF CI ENA INDIA PVT LTD VS ITO (ITA NO.1453/DEL/2014) HELD TH AT THIS COMPANY SHOULD BE EXCLUDED DUE TO THE FACT THAT IT FOLLOWS A DIFFERENT METHOD OF ACCOUNTING. HONEYWELL TURBO TECHNOLOGIES INDIA PVT LTD VS. DCI T (ITA NO. 377/PUN/2014) I.T.A. NO.7569/DEL/2019 33 18. ACCORDINGLY, BASED ON THE ABOVE, MAHINDRA CONSU LTING ENGINEERS LIMITED SHOULD NOT BE CONSIDERED AS A COM PARABLE TO THE APPELLANT FOR THE COORDINATION AND LIAISING ACTIVITIES UNDERTAKEN BY THE APPELLANT INCORRECT MARGIN COMPUTATION 19. WITHOUT PREJUDICE TO THE CONTENTION THAT THE FUN CTIONAL PROFILE OF MAHINDRA CONSULTING ENGINEERS LIMITED IS FUNCTIONALLY DISSIMILAR TO THE FUNCTIONAL PROFILE O F THE APPELLANT, IT IS SUBMITTED THAT THE LD. TPO HAS CON SIDERED INCORRECT MARGINS OF THIS COMPANY FOR THE PURPOSE O F PROPOSING TP ADJUSTMENT. THE APPELLANT HAD RAISED T HIS ISSUE BEFORE THE LD. TPO BY WAY OF A RECTIFICATION APPLIC ATION. HOWEVER, THIS WAS DISMISSED BY THE LD. TPO WITHOUT PROVIDING ANY COGENT REASONS FOR THE SAME. FURTHER, THE APPELLANT ALSO TOOK AN ADDITIONAL GROUND FOR RECTIF ICATION OF MARGIN OF MAHINDRA WHICH WAS NOT ADJUDICATED BY THE HONBLE PANEL OF THE DRP. 20. ON THE OTHER HAND, LD. CIT-DR SUBMITTED THAT IN SO FAR AS PRESENT PROFILE IS CONCERN, THE DRP HAS CONSIDER ED THE ASSESSEES CONTENTION AND HAS REJECTED THE SAME AFT ER DISCUSSING THE ISSUE THREADBARE AND LOOKING TO THE DESCRIPTION OF THE ACTIVITIES IT IS CLEAR THAT ASSE SSEE IS A PO AND REPRESENT THE PARENT COMPANY IN THE WORK OF THE CONSORTIUM WHICH IS ENTIRELY TECHNICAL, AND THEREFO RE, THE CONTENTION OF THE ASSESSEE THAT IT IS DEALING WITH ACTIVITIES AND TECHNICAL SERVICES, AND THEREFORE, IT IS ROUTINE AD MINISTRATIVE I.T.A. NO.7569/DEL/2019 34 SERVICES PROVIDER CANNOT BE ACCEPTED. REGARDING KIL LICK AGENCIES AND MARKETING LIMITED, HE SUBMITTED THAT T HIS PROVIDES PRINCIPAL AND BEST SALES SERVICES FOR EQUI PMENT TO ITS PRINCIPALS AND INSTALLATION OF EQUIPMENT ON BEHALF OF ITS PRINCIPALS WERE ESPECIAL TECHNICAL ENGINEERS WHICH REQUIRED THEREFORE FRA IS SIMILAR. WE DREW OUR ATTENTION TO PROFILE OF THE SAID COMPANY FROM THE ANNUAL REPORT WHICH IS PL ACED AT PAPER BOOK AT PAGES 754 AND 756. 21. REGARDING MITCONS CONSULTANCY SERVICES LIMITED, HE SUBMITTED THAT THE SAID COMPANY IS ALSO PROVIDING T ECHNICAL SERVICES AND HENCE IT IS FUNCTIONAL COMPARABLE WITH THE ASSESSEE AND HAS RIGHTLY BEEN INCLUDED BY THE DRP. 22. LASTLY, WITH REGARD TO MAHINDRA CONSULTING ENGI NEERING LTD. HE SUBMITTED THAT AS PER THE ANNUAL REPORT THI S COMPANY IS PROVIDING TECHNICAL SERVICES AND THEREFORE, IT I S THE FUNCTIONS OF OTHER PROFILES ARE SAME. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS W ELL AS MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARI NG. THOUGH MAINLY THREE COMPARABLES HAVE BEEN CHALLENGED FOR E XCLUSION BY THE LD. COUNSEL, HOWEVER ONE OF THE ISSUES WHICH HAVE BEEN RAISED BEFORE US IS, WHETHER THE FUNCTIONAL PROFILE OF THE PROJECT OFFICES CAN BE SAID TO BE TECHNICAL IN NATU RE, BECAUSE THE HEAD OFFICE OPERATES IN TECHNICAL ENVIRONMENT. FROM THE DETAIL FAR ANALYSIS AND THE FUNCTIONS CARRIED OUT B Y VARIOUS PROJECT OFFICES IN INDIA, WE FIND THAT THE PROJECT OFFICES HAVE I.T.A. NO.7569/DEL/2019 35 BEEN ESTABLISHED BY THE ASSESSEE TO EXECUTE CERTAIN CONTRACT WORK. THESE CONTRACTS HAVE BEEN ENTERED BY THE HEAD OFFICE WITH 3 RD PARTIES AND THE FUNCTIONING OF THE PROJECT OFFICE ARE MAINLY FOR LIAISING AND COORDINATION MAINTENANCE AN D TROUBLE SHOOTING AND IN SOME CASES TESTING AND COMMISSIONIN G LOGISTICS SUPPORT SUPERVISION ETC. HAS ALSO BEEN DO NE. IN SO FAR AS LIAISING AND COORDINATION FUNCTIONS ARE CONCERNE D IT IS MAINLY TO LIASE WITH DMRC TO UNDERSTAND FROM THEM A ND THE DEFECT POINTED OUT BY DMRC AND IS MAINLY INTERFACIN G BY THE DMRC OFFICIALS ON BEHALF OF HEAD OFFICE WHICH ENTAI LS VARIOUS ACTIVITIES IN TECHNICAL MATTERS BEFORE COORDINATING FOR PROPER EXECUTION OF THE CONTRACT. MAINTENANCE AND TROUBLES HOOTING ARE IN THE NATURE, WHETHER ANY MATERIAL EQUIPMENT I S REQUIRED IN THE COURSE OF MAINTENANCE ACTIVITIES WHICH ARE T O BE PROCURED BY OVERSEAS PURCHASE DEPARTMENT OF HEAD OF FICE AND TO PLACE ORDER WITH VENDORS ETC. TESTING AND COMMIS SIONING HAS BEEN STATED TO BE ROUTINE TECHNICAL ISSUE WHICH OCCURS ON DAY TO DAY BASIS UNDER THE TECHNICAL GUIDANCE OF RO TEM HEAD OFFICE. THE MAJOR TESTING AND COMMISSIONING IS DONE BY THE HEAD OFFICE ONLY. THE NATURE OF INTERNATIONAL TRANS ACTION HERE IN THIS CASE ARE RENDERING OF ADMINISTRATIVE SUPPOR T AND COORDINATING SERVICES BY THE PROJECT OFFICES. HERE IT IS NOT A CASE THAT ANY TRANSACTION UNDERTAKEN BY THE HEAD OF FICE VIS-- VIS THE OTHER AES ARE SUBJECT MATTER OF TP ANALYSIS , THEREFORE, THE FUNCTIONAL PROFILE OF THE PROJECT OFFICE NEEDS TO BE SEEN WHILE TESTING THE FAR AND THE COMPARABILITY ANALYSI S FOR THE PURPOSE OF TRANSFER PRICING. THIS FACT HAS BEEN CLE ARLY BROUGHT I.T.A. NO.7569/DEL/2019 36 OUT IN THE TP STUDY REPORT. FURTHER, AS POINTED OUT BY THE LD. COUNSEL, FUNCTIONAL PROFILE OF POS HAS BEEN CONSIST ENTLY ACCEPTED BY THE DEPARTMENT RIGHT FROM THE ASSESSMEN T YEAR 2007-08 TO ASSESSMENT YEAR 2013-14. IT HAS ALSO BEE N HIGHLIGHTED AND BROUGHT ON RECORD THAT THE TRIBUNAL IN ASSESSEES OWN CASE HAS ACCEPTED THE SIMILAR FUNCTI ONAL PROFILE IN THE ASSESSMENT YEAR 2010-11. THUS, IN TH IS YEAR WITHOUT THERE BEING ANY CHANGE OF FUNCTIONS OR IN M ATERIAL FACTS, FUNCTIONAL PROFILE CANNOT BE CHANGED. ACCORD INGLY, WE ACCEPTED THE CONTENTION OF THE LD. COUNSEL THAT THE TPO/DRP HAVE ERRED ON FACTS IN TREATING THE FUNCTIONAL PROF ILE OF THE HEAD OFFICE AS THE FUNCTIONS OF PROJECT OFFICE. 24. NOW COMING TO THE ABOVE THREE COMPARABLES FO R EXCLUSION, WE FIND THAT FIRST OF ALL, THESE THREE C OMPARABLE COMPANIES IN THE ASSESSMENT YEARS 2012-13 AND 2013- 14 HAVE BEEN REJECTED BY THE ASSESSEE AS COMPARABLE AN D THE LD. TPO HAS ACCEPTED THE STAND OF THE ASSESSEE. FURTHER , THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 AND 2011-12 AND 2012-13 HAS HELD THAT WITHO UT THERE BEING ANY CHANGE ANY IN FUNCTIONALITY AND CHA NGE IN FINANCIAL DATA, THE TPO CANNOT TAKE A DIFFERENT STA ND EITHER IN THE EXCLUSION OR FOR INCLUSION OF COMPARABLES IN TH E YEAR UNDER CONSIDERATION. THUS, PRIMA FACIE IN VIEW OF RULE OF CONSISTENCY THESE THREE COMPARABLES ARE LIABLE TO BE EXCLUDED. I.T.A. NO.7569/DEL/2019 37 25. HOWEVER, ON FURTHER ANALYSIS OF THE FUNCTIONAL PROFILES OF THE COMPARABLES AS HIGHLIGHTED BY THE LD. COUNSEL, WE FIND THAT IN THE CASE OF KILLICK AGENCIES AND MARKETING LTD., THIS COMPANY WAS ACTING AS AN AGENT FOR ITS FOREIGN PRIN CIPALS FOR SALE OF HEAVY EQUIPMENTS AND THIS COMPANY HAS ALSO PROVIDED AFTER SALE SERVICES. APART FROM THAT, IT IS ALSO IN VOLVED IN EXPORT OF ENGINEERING ITEMS ETC. FURTHER, THIS COMP ANY IS ALSO ENGAGED IN THE BUSINESS OF MARINE EQUIPMENT AND EST ABLISHED ENGINE EQUIPMENT AS HIGHLIGHTED BY THE LD. COUNSEL FROM ITS ANNUAL REPORT. MOREOVER, OUT OF THE TOTAL REVENUE 8 9% REVENUE IS FROM THE COMMISSION INCOME AND THEREFORE A COMPANY WHICH IS A COMMISSION AGENT CANNOT BE HELD TO BE A COMPARABLE COMPANY WHO IS PROVIDING BUSINESS SUPPOR T SERVICES. FURTHER, VARIOUS COORDINATING BENCHES AS NOTED ABOVE HAS EXCLUDED THIS COMPANY FROM THE ENTITIES E NGAGED THE MARKETING SUPPORT SERVICES. THUS, KILLICK AGENC IES AND MARKETING LTD. IS DIRECTED TO BE EXCLUDED. 26.. AS FAR AS MITCON CONSULTANCY SERVICES LTD., THIS COMPANY IS ENGAGED IN PROVIDING TECHNICAL CONSULTAN CY SERVICES AND OPERATES IN PROVIDING TECHNICAL CONSUL TANCY IN FIELD OF POWER ENERGY, TEXTILE ETC. SINCE WE HAVE A LREADY HELD THAT THE LD. TPO HAS WRONGLY CATEGORIZED THE FUNCTI ONAL PROFILE OF THE PROJECT OFFICE OF THE ASSESSEE AS AN ENGINEE RING SUPPORT SERVICE PROVIDER, THEREFORE, MITCON CONSULTANCY ENG INEERING SERVICES CANNOT BE HELD TO BE COMPARABLE, BECAUSE P ROJECT OFFICES HAVE BEEN PROVIDING LIAISING AND BUSINESS S UPPORT SERVICES. THUS, THIS COMPARABLE IS DIRECTED TO BE E XCLUDED. I.T.A. NO.7569/DEL/2019 38 27. LASTLY, AS REGARDS MAHINDRA CONSULTANCY EN GINEERING LTD., AGAIN THIS COMPANY IS PROVIDING ENGINEERING C ONSULTANCY SERVICES WHICH IS INCOMPARABLE TO LIAISING, ADMINIS TRATIVE AND COORDINATION FUNCTION PERFORMED BY THE POS OF THE A SSESSEE. THE NATURE OF SERVICES OF MAHINDRA CONSULTANCY ENGI NEERING LTD. INCLUDES PROVIDING INFRASTRUCTURE CONSULTANCY AND INFRASTRUCTURE DEVELOPMENT PROJECTS, THEREFORE, THI S COMPANY CANNOT BE HELD TO BE COMPARABLE. WITHOUT PREJUDICE THE LD. COUNSEL HAS ARGUED THAT THE TPO HAS WRONGLY COMPUTE D THE MARGIN OF THIS COMPARABLE ON 22.80, WHEREAS RECTIFY MARGIN 9.67. SINCE, WE HAVE ALREADY DIRECTED THE EXCLUSION OF THIS COMPANY, BECAUSE IT IS NOT COMPARABLE WITH THE FUNC TIONS CARRIED OUT BY THE PO, THEREFORE THIS WORK BECOMES PURELY ACADEMIC. 28. LASTLY, THE ASSESSEE VIDE GROUND NO.12 HAS A SKED FOR RISK ADJUSTMENT. HERE IN THIS CASE, THE ASSESSEE FOR RENDERING OF SUPPORT AND COORDINATION IS REMUNERATED AT COST PLUS BASIS. ON THE BASIS OF THE COST INCURRED IN THE PRO VISION OF SERVICES, IT OPERATES IN RISK MITIGATED SCENARIO, W HEREAS THE COMPARABLES SELECTED FOR THE COMPARABILITY ANALYSIS INCLUDES COMPANIES WHICH ARE FAIRLY WORKING IN DIVERSIFIED A REAS AND CARRY OUT ADDITIONAL FUNCTIONS LIKE MARKETING ETC. AND ARE TAKING MORE RISKS. HERE IN THIS CASE, AS NOTED IN T HE FAR ANALYSIS, THE POS ARE NEITHER TAKING ANY BUSINESS R ISK NOR CREDIT RISK OR COLLECTION RISK OR ANY KIND OF FOREI GN EXCHANGE RISK. THE RISK FACTORS LIKE MARKETING AND BUSINESS RISK ETC. WHICH ARE NORMALLY ASSOCIATED WITH ANY INDEPENDENT ENTITY I.T.A. NO.7569/DEL/2019 39 ARE MORE AS COMPARED TO THE ASSESSEE WHICH IS A RIS K MITIGATED ENTITY AND IS INSULATED FROM VARIOUS KIND OF RISK OPERATING AS A CAPITAL SERVICE PROVIDER. ACCORDINGL Y, WE AGREE WITH THE ASSESSEE THAT RISK ADJUSTMENTS ARE WARRANTE D IN CASE OF COMPARABLES ON ACCOUNT OF THE DIFFERENCE IN THE RISK PROFILE OF THE ASSESSEE VIS--VIS THE COMPARABLE COMPANIES. MOREOVER, IT HAS BEEN BROUGHT ON RECORD THAT THE TR IBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12 AND 2012-13 HAS ALLOWED THE RISK ADJUSTMENT TO THE NET MARGIN OF THE COMPARABLE IN ORDER TO ALIGN THE RISK PROFILE O F THE ASSESSEE. THE LD. COUNSEL HAS ALSO GIVEN THE QUANTI FICATION OF THE RISK ADJUSTMENT WHICH HAS BEEN PLACED IN THE PAP ER BOOK AT PAGES 447 TO 449, WHEREIN IT HAS GIVEN THE DIFFE RENCE BETWEEN THE BANK RATES AND SBI BASE RATES AND QUANT IFICATION FACTOR AS BEEN LAID DOWN BY THE SONY INDIA (P) LTD. VS. DCIT, 114 ITD 448. 29. ACCORDINGLY, WE DIRECT THE TPO TO EXAMINE TH E ASSESSEES QUANTIFICATION OF RISK ADJUSTMENT SPECIFI CALLY WHERE ASSESSEE HAS TAKEN THE DIFFERENCE BETWEEN BANK RATE S AND SBI BANK RATE AND THE QUANTIFICATION DONE BY THE ASSESS EE OF THE RISK ADJUSTMENT ON 10.50%, IS CORRECT OR NOT. WITH THIS DIRECTION THIS ISSUE IS REMANDED BACK TO THE TPO/AS SESSING OFFICER. 30. IN VIEW OF OUR ABOVE FINDINGS, THE OTHER GROU NDS ARE NOT ADJUDICATED. ACCORDINGLY, THE APPEAL OF THE ASSESSE E IS TREATED AS ALLOWED. I.T.A. NO.7569/DEL/2019 40 31. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MARCH, 2020. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND MARCH, 2020 PKK: