Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 4684 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 7 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-07-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
K
Assessment Year
2008-2009
Appeal Filed On
27-12-2012
Judgement Text
1 IN THE INCOME-TAX APPELLATE TRIBUNAL K BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 7701/MUM/2012 (ASSESSMENT YEAR 2008-09 ) MOTT. MACDONALD CONSULTANTS (INDIA) PVT. LTD. 44, KHANNA CONSTRUCTIONS HOUSE, DR. R.G. THANDANI MARG, MUMBAI-400018 . PAN: AABCM0834G VS. ACIT CIRCLE-2(2) MUMBAI. APPELLANT RESPONDE NT APPELLANT BY : MISS. AARTI VISSANJI (AR) RESPONDENT BY : SHRI SAURABH DESHPANDE AND SHRI MANJUNATH KARKIHALLI( SR.DRS) DATE OF HEARING : 10.05.2019 DATE OF PRONOUNCEMEN T : .07.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ASS ESSMENT ORDER DATED 29.11.2012 UNDER SECTION 143(3) R.W.S. 144C(13) PAS SED IN PURSUANCE OF DIRECTION OF DISPUTE RESOLUTION PANEL-1, (HEREINAFT ER REFERRED AS THE DRP) MUMBAI DATED 28.09.2012 FOR ASSESSMENT YEAR 2 008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : THE GROUNDS MENTIONED HEREUNDER ARE WITHOUT PREJUDI CE TO ONE ANOTHER. 1) THE LEARNED HON'BLE DRP-I MUMBAI ERRED IN CONFIR MING THE ADJUSTMENTS MADE OF RS. L,53,81,054/- BY LEARNED TR ANSFER PRICING OFFICER I (9), MUMBAI AND ACCEPTED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(2), MUMBAI. ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 2 2) THE LEARNED HON'BLE DRP-I MUMBAI ERRED IN CONFIR MING THE ARMS LENGTH PRICE (ALP) BY USING TRANSACTIONAL NET MARGI N METHOD (TNMM) AND REJECTING THE COST PLUS METHOD (CPM) USED BY TH E APPELLANT COMPANY FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE (ALP). 3) THE LEARNED HON'BLE DRP-I MUMBAI ERRED IN CONFIR MING THE DIRECTIONS OF THE LEARNED TRANSFER PRICING OFFICER REJECTING N ON ASSOCIATED ENTERPRISE (AE) COMPARABLES. 4) THE LEARNED HON'BLE DRP-I MUMBAI ERRED IN CONFIR MING THE DIRECTIONS OF THE LEARNED TRANSFER PRICING OFFICER WHICH FOLLO WED 'PICK AND CHOOSE' OUT OF THE COMPANIES SELECTED FOR TRANSACTIONAL NET MARGIN METHOD (TNMM). 5) THE LEARNED HON'BLE DRP-I MUMBAI ERRED IN CONFIR MING THE DIRECTIONS OF THE TRANSFER PRICING OFFICER WHICH DID NOT CONSI DER THE EARLIER TRANSFER PRICING REPORTS AND ALSO IGNORED THE DIRECTIONS OF ASSESSMENT YEAR 2007- 08 OF THE TRANSFER PRICING OFFICER WHEREIN COST PLU S METHOD (CPM) HAS BEEN ACCEPTED AS MOST APPROPRIATE METHOD (MAM) FOR SIMILAR SET OF TRANSACTIONS ENTERED INTO WITH ASSOCIATED ENTERPRIS E (AE). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS WH OLLY SUBSIDIARY OF MOTT. MACDONALD INTERNATIONAL LTD. USA. THE ASSESSEE IS P ROVIDING HIGH END ENGINEERING SERVICES TO ITS ASSOCIATE ENTERPRISES ( AE). THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2008 -09 ON 27.09.2008 DECLARING NIL INCOME AFTER SET OFF OF BUSINESS LOSS OF RS. 4.56 CRORE (APPROX). THE ASSESSEE ALONG WITH RETURN OF INCOME FURNISHED REPORT IN FORM NO. 3CEB REPORTING INTERNATIONAL TRANSACTION W ITH ITS AE. THE RETURN WAS SELECTED FOR SCRUTINY. THE ASSESSING OFF ICER MADE A REFERENCE UNDER SECTION 92CA(1) TO TPO VIDE REFERENCE DATED 3 0.10.2009 FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) REPORTED IN FORM NO. 3CEB. AS PER REPORT UNDER FORM 3CEB, THE ASSESSEE PROVIDE D SERVICES OF RS. ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 3 23,79,77,981/- TO ITS AE. THE ASSESSEE ALSO RENDERE D SERVICES WORTH RS. 1.07 CRORE TO NON-AES. IN TRANSFER PRICING STUDY F URNISHED BY ASSESSEE, THE ASSESSEE SELECTED COST PLUS METHOD (CPM) AS MOS T APPROPRIATE METHOD TO BENCH MARKED THE INTERNATIONAL TRANSACTIO N. THE ASSESSEE HAS SHOWN MARGIN WHILE TRANSACTING WITH AES AT 20.04% O N COST, WHILE THE COST PLUS MARGIN EARNED IN COMPARABLE TRANSACTION W ITH UNRELATED PARTY AT 12.16% ON COST AND CLAIMED THE ASSESSEE IS INTERNAT IONAL TRANSACTION AT ARMS LENGTH. THE ASSESSEE ALSO CONTENDED THAT NATU RE OF SERVICES RENDERED BY THE ASSESSEE TO ITS AE ARE SIMILAR TO T HE SERVICES RENDERED TO THE UNRELATED PARTIES AND THEREFORE INTERNAL UNCONT ROLLED TRANSACTION CAN BE USED TO TEST THE TRANSACTION WITH AE. THE TPO NO TED THAT DURING THE YEAR THE ASSESSEE EXECUTED FOUR PROJECTS FOR NON-AE SEGMENTS. THE TPO DISCUSSED THE EXECUTION OF ALL FOUR PROJECT IN PARA 7.1 OF ITS ORDER AND CONCLUDED THAT THERE IS SIGNIFICANT DIFFERENCE IN F UNCTIONS PERFORMED, ASSET DEPLOYED AND RICK ASSUMED IN RESPECT OF PROJE CT OF UNRELATED PARTIES AND THE SERVICES PERFORMED BY THE ASSESSEE. FURTHER THERE ARE SIGNIFICANT VOLUME DIFFERENCE AE AND NON-AE SEGMENTS. THE AE SE GMENT IS 95% AND NON-AE SEGMENT IS ONLY 5%. THE PROJECTS OF UNR ELATED PARTIES HAVE FACED PROBLEM IN RESPECT OF FUNDING AND ENVIRONMENT CLEARANCE AND ECONOMIC ADJUSTMENT IS REQUIRED. THE AE SEGMENT PU RELY CATERS OUTSIDE INDIA PROJECTS AND THE UNRELATED PARTY CATERS DOMES TIC MARKET. THEREFORE, THE TPO CONCLUDED THAT BENCHMARKING BY APPLYING CPM BY TAKING COST ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 4 PLUS MARGIN IN THE AE SEGMENT AND NON-AE SEGMENT IS NOT APPROPRIATE. THUS, THE TPO REJECTED CPM AS MOST APPROPRIATE METH OD. 3. THE ASSESSEE ALSO BENCH MARKED THE INTERNATIONAL TR ANSACTION BY USING THE TRANSACTION NET MARGIN METHOD (TNMM) ON THE BAS IS OF 19 COMPARABLE SELECTED BY ASSESSEE. THE ASSESSEE SUBMI TTED THAT AVERAGE OPERATING MARGIN OF COMPARABLE COMPANIES ARE 10.48% AGAINST OPERATING PROFIT MARGIN OF ASSESSEE AT 20.9%. THE ASSESSEE HA S SELECTED THE FOLLOWING 19 COMPARABLE: SL.NO. NAME OF COMPARABLE COMPANY 1 AGILE ELECTRIC TECHNOLOGIES PVT. LTD. 2 ALPHAGEO INDIA LTD. 3 ARTEFACT PROJECTS LD. 4 ASHOK LEYLAND PROJECTS SERVICES LTD. 5 BENGAL SREI INFRASTRUCTURE DEVELOPMENT LTD. 6 CETHAR CONSULTING ENGINEERS PRIVATE LTD. 7 GEOLOGGING INDUSTRIES LTD. 8 ICRA MANAGEMENT CONSULTING SERVICES LTD. 9 I-DESIGN ENGINEERING SOLUTIONS LTD. 10 KIRLOSKAR CONSULTANTS LTD. 11 L&T SARGEANT AND LUNDY LTD. 12 L&T VAIDEL ENGINEERING LTD. 13 MAHINDRA CONSULTING ENGINEERS LTD. 14 MAHINDRA ENGINEERING SERVICES LTD. 15 RELIANCE INFRASTRUCTURE AND CONSULTANTS LTD. ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 5 16 SAIPEM INDIA PROJECTS SERVICES LTD. 17 SIMON INDIA LTD. 18 T C E CONSULTING ENGINEERS LTD. 19 VERITAS (INDIA) LTD. 4. DURING THE TP PROCEEDING, THE TPO EXCLUDED 8 COMPAR ABLE AND ACCEPTED 11 COMPARABLE. THE TPO REJECTED AGILE ELECTRIC TECH NOLOGY PVT. LTD., ASHOK LEYLAND PROJECTS SERVICES LTD., GEOLOGGING IN DUSTRIES LTD., ICRA MANAGEMENT CONSULTANTS SERVICES LTD., RELIANCE INFR ASTRUCTURE AND CONSULTANT LTD., SAIPEM INDIA PROJECTS SERVICES LTD ., SIMON INDIA LTD. AND VERITAS (INDIA) LTD. THE TPO HAS TAKEN THE FOLL OWING FINAL SET OF COMPARABLE FOR THE PURPOSE OF BENCH MARKING AND ARR IVED AT THE FOLLOWING FINAL SET OF COMPARABLE: SR. NO. NAME OF THE COMPANY OP/OC 1 ALPHAGEO (INDIA) LTD. 40.52% 2 ARTEFACT PROJECTS LTD. 30.30% 3 BENGAL SREI INFRASTRUCTURE DEV. LTD. 44.00% 4 CETHAR CONSULTING ENGINEERS LTD. 35.46% 5 I - DESIGN ENGINEERING SOLUTIONS LTD. 32.60% 6 KIRLOSKAR CONSULTANTS LIMITED 28.83% 7 L&T SARGENT & LUNDY LTD. 12.71% 8 L&T VALDEL ENGINEERING LTD. 23.87% 9 MAHINDRA CONSULTING ENGINEERS LTD. 28.69% 10 MAHINDRA ENGG. SERVICES LTD. 27.72% 11 TCE CONSULTING ENGINEERS LIMITED. 27.48% AVERAGE 30.20% ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 6 5. ON THE BASIS OF ABOVE SET OF COMPARABLE, THE TPO DE TERMINED THAT THE MARGIN EARNED BY ASSESSEE WAS 22.62% WHILE AVERAGE MARGIN EARNED BY 11 COMPARABLE COMPANIES IS 30.22%. THE 8 COMPARABLE EX CLUDED BY TPO WERE HAVING NEGATIVE PROFIT LEVEL INDICATOR (PLI) O R HAVING PLI OF LESS THAN 20%. ON THE BASIS OF THE ABOVE ALP OF PURCHASE OF R AW-MATERIAL AND COMPONENTS, THE TPO COMPUTED ALP AT RS. 25,33,59,03 5/- AS AGAINST RS. 23,79,77,891/- AND SUGGESTED ADJUSTMENT OF RS. 1,53 ,81,054/- VIDE ITS ORDER DATED 19.10.2011 PASSED UNDER SECTION 92CA(3). ON R ECEIPT OF REPORT OF TPO THE ASSESSING OFFICER PASSED DRAFT ASSESSMENT O RDER UNDER SECTION 143(3) R.W.S. SECTION 144C ON 21.12.2011. 6. ON RECEIPT OF DRAFT ASSESSMENT, THE ASSESSEE EXERCI SED ITS OPTION TO FILE OBJECTION BEFORE THE DRP. THE OBJECTION OF ASSESSEE WAS DISMISSED BY DRP VIDE ITS ORDER DATED 28.09.2012 PASSED UNDER SECTIO N 144C(5). THE DRP CONCLUDED THAT TPO DULY ANALYZED THE COMPARABILITY OF COMPARABLE SELECTED BY ASSESSEE AND RIGHTLY EXCLUDED 8 OUT OF 19 COMPARABLE. IT WAS ALSO HELD THAT THE TPO REJECTED INTERNAL NON-AE COM PARABLE AS THERE WAS SIGNIFICANT VOLUME DIFFERENT IN AE & NON-AE SEGMENT . THE SUBMISSION OF ASSESSEE IS THAT DIFFERENCE IN THE VOLUME IS NOT SI GNIFICANT FOR TESTING THE INTERNATIONAL TRANSACTION WITH THE TRANSACTION THAT THE ASSESSEE RENDERED WITH THE UNRELATED PARTY WAS ALSO REJECTED. ON RECE IPT OF ORDER/ DIRECTION OF DRP DATED 28.09.2011, THE ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 7 ORDER UNDER SECTION 143(3) R.W.S. 144C(13). AGGRIEV ED BY THE ORDER OF FINAL ASSESSING OFFICER PASSED UNDER SECTION 143(3) RWS 1 44C(13) DATED 29.11.2012, THE ASSESSEE HAS FILED THE PRESENT APPE AL BEFORE THIS TRIBUNAL. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE (AR) FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRE SENTATIVE (DR) FOR THE REVENUE AND WITH THEIR ASSISTANCE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE LD. AR OF THE ASSESSEE SUBMITS T HAT ASSESSEE COMPANY IS ENGAGED IN ENGINEERING CONSULTANCY. DURING THE RELE VANT PERIOD UNDER CONSIDERATION THE ASSESSEE PROVIDED CONSULTANCY SER VICES TO ITS SUBSIDIARY IN OIL AND GAS PROJECTS AND ALSO INDEPENDENTLY PROVIDE S ENGINEERING CONSULTANCY SERVICES TO THIRD PARTIES. THE LD AR FO R THE ASSESSEE SUBMITS THAT THE TRANSACTION VALUE OF SERVICES TO AE DURING THE YEAR IS OF RS.23,79,77,981/- AND TO NON- AE IS OF RS.L,07,7 6,527/- AGGREGATING TO RS.25.47 CR. THE LD. AR FOR THE ASSESSEE SUBMITS THAT FOR BENCH MARKING THE TRANSACTION THE ASSESSEE ADOPTED CPM. THE MARGI N EARNED ON BASIS OF CPM ON TRANSACTIONS WITH AE IS 20.04% WITH NON-AE 1 2.16%. THE ASSESSEE ALSO BENCHMARKED THE INTERNATIONAL TRANSAC TIONS BY USING TRANSACTIONAL NET MARGIN METHOD (TNMM) ON BASIS OF 19 COMPARABLES SELECTED BY THE ASSESSEE. THE AVERAGE PROFIT LEVEL INDICATOR (PLI) OF 19 COMPANIES IS 14.28%. DURING THE ASSESSMENT THE ASS ESSING OFFICER MADE A REFERENCE TO TRANSFER PRICING OFFICER. DURING THE P ROCEEDING BEFORE THE TPO, THE TPO REJECTED CPM FOR BENCHMARKING INTERNATIONAL TRANSACTIONS ON THE ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 8 GROUND THAT PROJECTS UNDERTAKEN FOR AE AND NON-AE D IFFER. THE TPO ADOPTED SELECTED 11 COMPARABLE OUT OF 19 COMPARABLE S SUBMITTED BY ASSESSEE AND WORKED OUT PROFIT LEVEL INDICATOR (PL I) @ 30.20% AND SUGGESTED ADJUSTMENT OF RS.1,53,81,054. THE LD. DR P CONFIRMED THE ACTION OF TPO. 8. THE LD. AR FOR THE ASSESSEE SUBMITS THAT CPM IS THE MOST APPROPRIATE METHOD. CPM WAS ACCEPTED BY THE TPO FOR A.Y.2007-0 8 AND EARLIER YEARS AS WELL. THE PROJECTS WHERE THE ASSESSEE PROVIDED C ONSULTANCY SERVICES ARE OF LONG DURATION; SOME PROJECTS PERTAINING TO A.Y.2 007-08 HAVE EXTENDED TO A.Y.2008-09. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS THAT A STANDARD METHOD MUST BE FOLLOWED FOR DETERMINATION OF ALP. IT SHOULD NOT BE DISCARDED UNLESS REVENUE CAN DEMONSTRATE FALLACIES IN ITS APPLICATION; TRADITIONAL METHODS TO BE PREFERRED OVER TNMM. IN S UPPORT OF HER SUBMISSIONS THE LD. AR FOR THE ASSESSEE RELIED ON T HE DECISIONS IN ACIT V SONATA SOFTWARE (55 SOT 533), BIRLA SOFT INDIA LTD. V DCIT (44 SOT 664 (DEL.) AND ACIT VS MMS INDIA (P.) LTD. 123 TTJ 657 (PUNE) 9. IN ALTERNATE SUBMISSION THE LD . AR FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE SELECTED 19 COMPARABLE COMPANIES FROM PROWESS DATAB ASE AND THE AVERAGE MARGIN OF COMPARABLE WERE 10.48%. THE TPO ACCEPTED 11 COMPARABLES OUT OF 19 COMPARABLE. THE LD. TPO APPLIED RPT FILTE R OF 25%. IF SAME FILTER IS APPLIED TO OTHER COMPARABLE THE FIVE OTHER COMPA RABLE VIZ. 2,3,5,8 AND 10 OUGHT TO BE TO BE REJECTED AS RPT EXCEEDED 25%. THE LD AR FOR THE ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 9 ASSESSEE FURTHER SUBMITS THAT TRIBUNAL HAS ADOPTED TOLERANCE MARGIN @ 15% FOR RPT FILTER IN CASE OF SONY INDIA (P) LTD. 114 ITD 448,WILLS PROCESSING SERVICE (INDIA) P. LTD. 57 SOT 34 (URO) AND IN TAVANT TECHNOLOGIES INDIA P .LTD. (2017) 83 TAXMANN.COM 10 5 (BANG). 10. ON FUNCTIONAL DISSIMILARITY OF THE REMAINING 6 COMP ARABLES, THE LD. AR FOR THE ASSESSEE SUBMITS THAT COMPARABLE NO. 1, I.E. AL PHAEGO INDIA LTD. IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE. THE NATURE OF SERVICES PROVIDED BY ALPHAEGO INDIA LTD IS DIFFER, THEY PROV IDED SEISMIC SERVICES IN OIL AND GAS SECTOR; HOWEVER, THE ASSESSEE PROVID ED ENGINEERING CONSULTANCY SERVICES TO DELHI METRO PROJECT ETC. OT HER DIFFERENTIATING FEATURES IN ALPHAEGO INDIA LTD IS THAT MAJOR EXPENS ES ARE OF SURVEY AND DRILLING CHARGES AND HAS HIGH EMPLOYEE COSTS RS.12. 26 CRORE AS AGAINST ALPHAEGO'S COST IS RS. 4.63 CRORE AND IS A CAPI TAL INTENSIVE COMPANY, HAS HUGE FIXED ASSET BASE OF RS.109.48 CR. THE ASSESSE E IS AN EMPLOYEE INTENSIVE COMPANY GROSS BLOCK IS OF RS. 4.05 CRORE. FURTHER, THE LD. AR OF THE ASSESSEE ALSO ARGUED THAT COMPARABLE NO.1 I.E. ALPHAGEO INDIA LTD. IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. THIS COMPANY PROVIDES SERVICES OF SESMIC SURVEY SERVICES LTD. OF RS. 81.5 7 CRORE, WHEREAS THE ASSESSEE-COMPANY PROVIDED ENGINEERING CONSULTANCY S ERVICES OF RS. 25.47 CRORE. THE ASSESSEE IS A EMPLOYEE INTENSIVE COMPANY . MAJOR EXPENSES OF ALPHAGEO IN SURVEY AND DRILLING CHARGES OF RS. 35.3 5 CRORE. THIS COMPANY IS MORE CAPITAL INTENSIVE AND ITS GROSS BLOCK IS OF RS. 109.49 CRORE AND NET ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 10 BLOCK IS RS. 70.51 CRORE, HOWEVER, THE GROSS BLOCK OF ASSESSEE IS RS. 4.75 CRORE. THE LD. AR FOR THE ASSESSEE FINALLY SUBMITS THAT ARITHMETIC MEAN OF REMAINING 5 COMPARABLES IS 26.63% WITHIN 5% RANGE O F ASSESSEE'S MARGIN OF 22.62%. AND IF ASHOK LEYLAND PROJECT SERVICES, ICRA MANAGEMENT CONSULTING SERVICES LTD. ARE ACCEPTED AS COMPARABLE THE ARITHMETIC MEAN WOULD WORK OUT TO 21.95%. THE LD. AR FOR THE ASSESS EE PRAYED THAT THE MATTER MAY BE SENT BACK FOR CONSIDERATION BY ASSESS ING OFFICER/ TPO FOR BENCHMARKING IN VIEW OF THE ABOVE SUBMISSIONS. 11. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF THE AUTHORITIES BELOW. THE LD. DR FOR THE REVENUE FURTH ER SUBMITS THAT THE TRANSACTION OF ASSESSEE WITH ITS AE IS 95% AND WITH NON AE IS ONLY 5%. ALL AES OF ASSESSEE ARE OUTSIDE INDIA. GEOGRAPHICAL PO SITION PLAYS AN IMPORTANT ROLE IN DETERMINATION OF PRICE. THE LD. D R FOR THE REVENUE FURTHER SUBMITS THAT THE TPO CORRECTLY APPLIED THE RPT FILT ER OF 25%. FOR EXCLUSION OF L&T THE LD. DR SUBMITS THAT THERE WAS EXTRA ORDINARY EVENTS IN THE YEAR, THEREFORE, IT SHOULD BE REJECTED FROM THE FINAL SET OF COMPARABLE. THE LD. DR SUBMITS THAT L&T RECEIVED AS SUM OF RS. 4.04 CRORE FOR SERVICES AND OVERHEAD PROVIDED BY L&T SARGENT. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND PERUSED ALSO THE ORDERS OF THE LOWER AUTHORITIES CAREFULLY. THE ASSESSEE IN ITS TRANSFER PRICING STUDY AS REPORTED IN FORM-3CEB JUSTIFIED IT S ALP BY SELECTING ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 11 CPM AS MOST APPROPRIATE METHOD, WHEREIN THE TRANSAC TION WITH AE WAS SHOWN AT 20.04% AND WITH NON-AE AT 12.16%. THE ASSE SSEE ALSO PROVIDED ITS JUSTIFICATION FOR SELECTING CPM AS MOST APPROPR IATE METHOD. THE CPM WAS REJECTED BY TPO BY TAKING VIEW THAT THERE IS A SIGNIFICANT IN FUNCTION PERFORMED, ASSET DEPLOYED AND RISK ASSUMED IN RESPE CT OF PROJECT TAKEN FROM UNRELATED PARTY AND THE SERVICES PERFORMED TO AE. FURTHER, THERE IS SIGNIFICANT VOLUME DIFFERENT BETWEEN TWO SEGMENT I. E. AE SEGMENT AND NON-AE SEGMENT. THE PROJECT WITH UNRELATED PARTY HA VE SUFFERED BECAUSE OF PROBLEM FACED BY CLIENT IN RESPECT OF FUNDING AND E NVIRONMENT CLEARANCE AND ECONOMIC ADJUSTMENT IS REQUIRED TO BE MADE FOR THE LOSS CAUSED IN THE NON-AE SEGMENT. THE AE SEGMENT IS PURELY CATERS OU TSIDE INDIA PROJECT AND THAT MARKET CONDITION IN WHICH BUYER AND SELLER S OF THE SERVICES LOCATED IS AN IMPORTANT CONSIDERATION AND HAS A BEARING ON THE PROFIT MARGIN. THE ASSESSEE IN ADDITION TO CPM ALSO BENCHMARKED ITS IN TERNATIONAL TRANSACTION BY ADOPTING TNMM ON THE BASIS OF 19 COMPARABLES AT AVERAGE PLI AT 14.28%. THE LD. TPO WHILE MAKING ADJUSTMENT EXCLUDE D 8 COMPARABLE SELECTED BY ASSESSEE AND RETAINED ONLY 11 COMPARABL E AS RECORDED IN PARA 9 OF ITS ORDER, THE LD. TPO WORKING OUT PLI OF 11 COM PARABLE @ 30.20% AND SUGGESTED ADJUSTMENT OF RS. 1,53,81,054/-. THE ACTI ON OF TPO IN REJECTING CPM WAS CONFIRMED BY LD. DRP. THE LD. DRP ALSO CONF IRMED THE ADJUSTMENT SUGGESTED BY TPO AS WELL AS CONFIRMED TH E EXCLUSION OF 8 COMPARABLES. ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 12 13. THE LD. AR OF THE ASSESSEE VEHEMENTLY SUBMITTED THA T THE TPO APPLIED RPT FILTER BY APPLYING THE MARGIN OF 25%. IT WAS ALSO C ANVASSED THAT IF SAME FILTER IS APPLIED THEN 5 COMPARABLE VIZ. 2,3,5,8 &1 0 OUGHT TO HAVE BEEN REJECTED AS RPT EXCEED 25%. WE FIND CONVINCING FORC E IN THE SUBMISSION OF LD. AR OF THE ASSESSEE THAT MARGIN IN COMPARABLE NO. 2, 3, 5 & 10 ARE MORE THAN 25%. FURTHER, THE LD. AR OF THE ASSESSEE ALSO ARGUED THAT COMPARABLE NO.1 I.E. ALPHAGEO INDIA LTD. IS NOT FUN CTIONALLY COMPARABLE WITH THE ASSESSEE. THIS COMPANY PROVIDES SERVICES O F SESMIC SURVEY SERVICES LTD. OF RS. 81.57 CRORE, WHEREAS THE ASSES SEE-COMPANY PROVIDED ENGINEERING CONSULTANCY SERVICES OF RS. 25.47 CRORE . THE ASSESSEE IS AN EMPLOYEE INTENSIVE COMPANY. MAJOR EXPENSES OF ALPHA GEO IN SURVEY AND DRILLING CHARGES OF RS. 35.35 CRORE. THIS COMPANY I S MORE CAPITAL INTENSIVE AND ITS GROSS BLOCK IS OF RS. 109.49 CRORE AND NET BLOCK IS RS. 70.51 CRORE, HOWEVER, THE GROSS BLOCK OF ASSESSEE IS RS. 4.75 CR ORE. CONSIDERING BOTH THE CONTENTION OF ASSESSEE, WE DIRECT THE ASSESSING OFF ICER/TPO TO EXCLUDE COMPARABLE NO. 1,2,3,5 & 10 FROM THE FINAL LIST OF COMPARABLE ON THE BASIS OF RPT FILTER APPLIED BY TPO, AND DETERMINED THE AD JUSTMENT ACCORDINGLY. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/07/2019. SD/- SD/- G. S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 30.07.2019 ITA NO. 7701 MUM 2012-MOTT. MACDONALD CONSULT ANTS (INDIA) PVT. LTD. 13 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR K BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI
