Bergen Engines India Pvt. Ltd., New Delhi V. ACIT, Circle- 4(2), New Delhi

ITA 7802/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1183 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2013-2014
• Appeal Filed On: 27-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: PALLAVI DINODIA
• Keywords: Related party transaction; Capital asset; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Wholly owned subsidiary; Set aside; Capital Gains
• Section: 271(1)(c); 234B; 115JB; 201; 43; 48; 72; 13; 22; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANTMEMBER ITA NO.7802/DEL./2017 ASSESSMENT YEAR: 2013-14 M/S. BERGEN ENGINES INDIA PVT. LTD., 2 ND FLOOR, 52-B, OKHLA INDUSTRIAL ESTATE, PHASE-3, OKHLA, NEW DELHI VS. ACIT, CIRCLE-4(2), NEW DELHI PAN : AAECB7223M (APPELLANT) (RESPONDENT) APPELLANT BY MS. PALLAVI DINODIA, AR RESPONDENT BY SHRI SANJAY I. BARA, CIT(DR) DATE OF HEARING 29.01.2020 DATE OF PRONOUNCEMENT 27.04.2020 ORDER PER O.P. KANT, A.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST FIN AL ASSESSMENT ORDER DATED 27/10/2017 PASSED BY THE ASS ISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-4(2), NEW DELHI [IN SHORT THE ASSESSING OFFICER] PURSUANT TO THE DIRECTION OF TH E LEARNED DISPUTED RESOLUTION PANEL (DRP) FOR ASSESSMENT YEAR 2013-14, RAISING FOLLOWING GROUNDS: 1. THAT THE LEARNED TPO AND CONSEQUENTLY DRP/AO HAS ERRED IN LAW AND ON FACTS IN THE CIRCUMSTANCES OF THE CASE IN CO NFIRMING THE ADDITION ON ACCOUNT OF ARMS LENGTH PRICE UNDER SEC TION 92CA(3) OF 2 ITA NO.7802/DEL./2017 THE INCOME TAX ACT AMOUNTING TO RS.4,74,72,605/- ON WHOLLY ILLEGAL, ERRONEOUS AND UNTENABLE GROUNDS. TRADING DIVISION 2. THAT THE HONBLE DRP AND CONSEQUENTLY TPO/AO HAS EARNED IN LAW IN CONFIRMING THE ADJUSTMENT OF RS.4,19,13,043/- IN TRADING SEGMENT OF ASSESSEE. 3. THAT THE LEARNED TPO AS WELL AS THE DRP AND CONS EQUENTLY THE AO HAVE GROSSLY ERRED IN LAW AND ON FACTS AND IN THE C IRCUMSTANCES OF THE CASE IN ERRONEOUSLY: 2.1 REJECTING THE SCIENTIFICALLY RUN SEARCH PROCESS OF THE ASSESSEE WITHOUT ANY REASONS. 2.2 REJECTING THE ASSESSEES COMPARABLES FOR THE TR ADING SEGMENT OF THE ASSESSEE WITHOUT GIVING ANY COGENT REASONS. 2.3 CARRYING OUT A FRESH SEARCH PROCESS, AND NOT GI VING THE ASSESSEE SUCH SEARCH PROCESS USED AGAINST THE ASSESSEE, WHIC H IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 2.4 CHERRY PICKING THE COMPARABLES. 4. THE LEARNED TPO AS WELL AS THE DRP AND CONSEQUEN TLY THE AO HAVE GROSSLY ERRED IN LAW AND ON FACTS IN CHOOSING NEW C OMPARABLE COMPANIES WHICH WERE DIFFERENT FROM THE ASSESSEE BO TH IN THE TYPE OF NATURE OF ACTIVITIES AND THE FUNCTIONS PERFORMED , WHICH IS AGAINST THE RULES OF COMPARABILITY UNDER RULE 10B(2) OF THE IT RULES. 5. THE LEARNED TPO/AO HAS EARNED IN LAW IN NOT DECI DING UPON EXCLUSION OR INCLUSION OF MCNALLY SAYAJI FOR NOT IN CLUDING IN FINAL LIST OF COMPARABLE IN SPITE OF SPECIFIC DIRECTION OF HON BLE DRP. 6. THAT THE HONBLE DRP HAS EARNED ON THE FACTS OF THE CASE IN ALLEGING THAT THE ASSESSEE SEEKS EXCLUSION OF ONLY COMPARABL E WITH HIGHER MARGIN. 7. THAT THE LEARNED TPO HAS ERRED IN LAW AND ON FAC TS OF ASSESSEES CASE BY COMPUTING RPT TO SALES RATIO OF 21% IN CASE OF MAHINDRA AUTOMOTIVE DISTRIBUTORS PRIVATE LIMITED WITHOUT SHA RING THE CALCULATION OF THE SAME WITH THE ASSESSEE, AND CONS EQUENTLY NOT EXCLUDING THE SAME FROM FINAL LIST OF COMPARABLES A LTHOUGH AS PER THE ASSESSEE THE RPT OF THIS COMPARABLE WAS 29% AND WAS LIABLE TO BE REJECTED AS PER TPOS FILTER OF 25% RPT. 8. WITHOUT PREJUDICE TO ABOVE GROUND, THE LEARNED A O/TPO AND THE LEARNED DRP GROSSLY ERRED IN LAW IN RE-COMPUTING TH E PLI OF ASSESSEE FOR TRADING SEGMENT UNDER TNMM FROM 11.60% TO 1.33 % BY NOT APPRECIATING THAT GOODWILL ACQUIRED AND AMORTIZED V IA DEPRECIATION AND PRIOR PERIOD EXPENSES IS AN EXCEPTIONAL AND NON -OPERATING ITEM WHICH REQUIRED TO BE TREATED AS NON OPERATING AS AC CEPTED BY TPO 3 ITA NO.7802/DEL./2017 HIMSELF IN THE ORDER OF ON PAGE 30 TO TREAT GOODWIL L WRITE OFF AS NON OPERATING. 9. HONBLE DRP HAS ERRED IN LAW IN MERELY FOLLOWIN G LAST YEAR DRP ORDER FOR NOT ACCEPTING CONTENTION OF THE ASSESSEE FOR TREATING GOODWILL WRITTEN OFF AND PRIOR PERIOD EXPENSES ARE AS NON-OPERATING. 10. THAT THE LEARNED DRP HAS EARNED IN LAW IN NOT APPRECIATING ALTERNATE ADJUSTMENT CLAIMED BY THE ASSESSEE TO TRE AT THE DEPRECIATION COST OF ASSESSEE AS WELL AS COMPARABLE S AS NON- OPERATING TO ENABLE FAIR COMPARISON. 11. THE ORDER PASSED BY THE LEARNED AO/TRO/DRP BASE D ON CONJECTURES AND SERVICES IS AGAINST THE TRANSFER PRICING REGULA TIONS AND RULES AND IS PRAYED TO BE QUASHED. 12. THAT THE PROPOSED ADDITION OF RS.4,19,13, 043/- IS BAD IN LAW AND IS PRAYED TO BE DELETED. SUPPORT SERVICE SEGMENT 13. THAT THE HONBLE DRP AND CONSEQUENTLY TPO/AO HA S ERRED IN LAW IN CONFIRMING THE ADJUSTMENT OF RS.26,58,897/- IN SUPP ORT SERVICE SEGMENT OF THE ASSESEE. 14. THAT THE HONBLE DRP HAS ERRED IN LAW IN NOT AD JUDICATING ON THE GROUND OF NON-CONSIDERATION BY THE TPO OF COST PLUS METHOD(CPM) APPLIED BY THE ASESSEE AS THE MOST APPROPRIATE METH OD (MAM) FOR BENCHMARKING OF INTERNATIONAL TRANSACTION OF PROVIS ION OF SUPPORT SERVICES WITHOUT GIVING ANY REASON. 15. THE LD. TPO AS WELL AS DRP AND CONSEQUENTLY THE AO HAVE GROSSLY ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN ERRONEOUSLY REJECTING THE COMPARABLE SELECTED THROU GH SCIENTIFICALLY RUN SEARCH PROCESS, WITHOUT ANY REASONS. 16. THAT THE LEARNED TPO HAS ERRED IN LAW NOT IN GI VING THE ASSESSEE THE DETAILS OF FRESH SEARCH PROCESS SO THAT ASSESSEE MA Y SUBMIT ITS OBJECTION, WHICH IS AGAINST THE PRINCIPLE OF NATURA L JUSTICE. 17. THE HONBLE DRP HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE NEW COMPARABLE COMPANIES CHOSEN BY THE TPO WHICH WE RE DIFFERENT FROM THE ASSESSEE BOTH IN THE NATURE OF ACTIVITIES AND THE FUNCTIONS PERFORMED, WHICH IS AGAINST THE TENET OF COMPARABIL ITY UNDER RULE 10B(2) OF THE IT RULES. 18. THAT THE HONBLE DRP HAS ERRED ON THE FACTS OF THE ASSESSEES CASE IN THE ALLEGING THAT THE ASSESSEE SEEKS EXCLUSION O F ONLY COMPARABLE WITH HIGHER MARGINS. 4 ITA NO.7802/DEL./2017 19 THAT THE HONBLE DRP HAS ERRED ON FACTS IN NOT APPRECIATING THAT THE ASSESSEE IS LOW END NOT-RISK BEARING IN ITS SUPPORT SERVICE SEGMENT AND COMPARABLE SHOULD BE SELECTED ACCORDINGLY. 20. THAT THE LEARNED TPO HAS ERRED IN LAW TREATING THE PRIOR PERIOD EXPENSES AS OPERATING IN NATURE SINCE THEY ARE EXTR A ORDINARY AND ONE TIME. 21. WITHOUT PREJUDICE TO THE ABOVE, THE HONBLE DR P HAS EARNED IN LAW IN NOT ALLOWING THE RISK MANAGEMENT TO THE ASSESSEE AS PER RULE 10(3) IN SPITE OF MATHEMATICAL CALCULATION GIVEN BY THE A SSESSEE. 22. THAT THE ADDITION OF RS.26,58,897/- IS BAD IN L AW AND IS PRAYED NOT BE UPHELD. TECHNICAL SERVICE SEGMENT 23. THAT THE HONBLE DRP AND CONSEQUENTLY TPO/AO HA S ERRED IN LAW IN CONFIRMING THE ADJUSTMENT OF RS.29,00,665/- IN TECH NICAL SERVICE SEGMENT OF THE ASSESSEE. 24. THE LD. TPO AND CONSEQUENTLY THE DRP AS WELL AS AO HAS ERRED IN LAW AND ON THE FACT OF THE ASSESSEES CASE BY RE-CO MPUTING THE PLI OF THE ASSESSEE FOR TECHNICAL SERVICE UNDER TNMM IN NO T ACCEPTING THE ASSESSEES CLAIM THAT AMORTIZATION OF GOODWILL AND PRIOR PERIOD EXPENSES ARE NON-OPERATING/EXTRAORDINARY EXPENSES A S STATED BY TPO HIMSELF IN THE ORDER ON PAGE NO. 30. 25. THAT THE HONBLE DRP HAS EARNED IN LAW IN SUST AINING THE REJECTION OF ASSESSEES COMPARABLE BY THE TPO WITHOUT ANY COGEN T REASONS AND WITHOUT APPRECIATING FAR ANALYSIS DONE. 26. THAT THE LEARNED TPO HAS EARNED IN LAW IN CONDU CTING FRESH SEARCH PROCESS FOR OBTAINING NEW COMPARABLES AND NOT GIVIN G THE ASSESSEE THE DETAILS OF FRESH SEARCH PROCESS SO THAT ASSESSE E MAY SUBMIT ITS OBJECTION, WHICH IS AGAINST THE PRINCIPLE OF NATURA L JUSTICE. 27. THAT THE HONBLE DRP HAS ERRED IN LAW IN NOT EX CLUDING COMPARABLES OBJECTED BY THE ASSESSEE WHICH WERE DIFFERENT FROM THE ASSESSEE BOTH IN NATURE OF ACTIVITIES AND THE FUNCTIONS PERF ORMED, WHICH IS AGAINST THE TENET OF COMPARABILITY UNDER RULE 10B(2 ) OF THE IT RULES. 28. THAT HONBLE DRP ERRED ON FACTS OF THE CASE IN ALLEGING WITHOUT ANY BASIS THAT THE ASSESSEE HAS OBJECTED TO THE COMPARA BLES HAVING HIGHER MARGINS. 29.THAT THE LEARNED TPO HAS ERRED ON FACTS BY NOT E XCLUDING HSCC INDIA LIMITED BY ALLEGING THAT IT HAS SERVICE INCOME OF 9 9.34% WITHOUT GIVING ANY CALCULATION OF THE SAME. 5 ITA NO.7802/DEL./2017 30. WITHOUT PREJUDICE TO GROUND 27, THE LEARNED TPO HAS ERRED ON FACTS IN NOT COMPUTING THE CORRECT PLI OF HOLTEC COUNSELT ING AND ACROPETAL TECHNOLOGIES. 31. THAT THE LEARNED TPO CONSEQUENTLY DRP AS WELL A S AOHAS ERRED IN LAW IN IGNORING THE INTERNAL TNMM FOR BENCHMARKING TRANSACTIONS IN TECHNICAL SERVICE SEGMENT. 32. THAT THE ADDITION OF RS.29,00,665/- IS BAD IN L AW AND SPREAD NOT BE UPHELD. OTHERS 33. THAT THE LEARNED AO HAS ERRED IN LAW IN MAKING ADDITION OF TRANSFER PRICING ADJUSTMENT OF RS.4,74,72,605/- IN BOOK PROF IT AS PER MAT PROVISIONS WHICH IS NOT WARRANTED AS SECTION 115 JB IS COMPLETE CODE IN ITSELF. 34. THAT THE LEARNED AO HAS ERRED IN LAW IN COMPUTI NG DEMAND OF RS.91,37,310/- ON WRONGLY COMPUTED BOOK PROFITS WHI CH IS NOT AS PER PROVISIONS OF SECTION 115 JB. 35. THAT THE PENALTY PROCEEDINGS INITIATED UNDER SE CTION 271(1)(C) ON ONLY ILLEGAL AND UNTENABLE GROUNDS SINCE THERE WAS NO CONCEALMENT OF ANY INCOME NON-SUBMISSION OF INACCURATE PARTICUL ARS OF INCOME, NOR ANY DEFAULT ACCORDING TO LAW BY THE ASSESSEE. 36. THAT THE INTEREST CHARGED UNDER SECTION 234B AN D 234C OF THE ACT IS ON WHOLLY, ILLEGAL AND UNTENABLE GROUNDS AND IS PRA YED NOT TO BE HELD. 37. THAT EACH GROUND IS INDEPENDENT OF AND WITHOUT PREJUDICE TO THE OTHER GROUNDS RAISED HEREIN. 38. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER , CHANGE VARY OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OR RAISE AN ADDITIONAL GROUND IF IT BECOME NECESSARY TO DO SO IN THE INTER EST OF JUSTICE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY WAS INCORPORATED ON 03/10/2011. THE ASSESSE E COMPANY IS A SUBSIDIARY OF BERGEN ENGINE AS, NORWA Y. PURSUANT TO A RESOLUTION PASSED BY ITS BOARD OF DIRECTORS IN FEBRUARY 2012, THE DIESEL POWER BUSINESS OF ROLLS-ROYCE INDIA PRI VATE LIMITED WAS PURCHASED THROUGH A SLUMP SALE BY IT AND SINCE THE ACQUISITION OF SAID BUSINESS, THE ASSESSEE COMPANY IS ENGAGED IN 6 ITA NO.7802/DEL./2017 SUPPLY OF SPARE PARTS AND OTHER EQUIPMENT USED BY E NGINE BASED POWER PLANTS AND OIL AND GAS PUMPING SYSTEM AND ALS O PROVIDE TECHNICAL SERVICES IN RELATION THERETO. THE ASSESSE E COMPANY ALSO RENDERS MARKET SUPPORT SERVICES AND PROJECT MANAGEM ENT SERVICES TO ITS OVERSEAS ASSOCIATED ENTERPRISES (AE S). 2.1 IN ITS TRANSFER PRICING STUDY FILED, THE ASSESS EE REPORTED FOLLOWING INTERNATIONAL TRANSACTION FOR THE YEAR UN DER CONSIDERATION: CLASS OF TRANSACTIONS TOTAL VALUE OF TRANSACTION (RS.) REIMBURSEMENT EXPENSES 20091 PURCHASE OF TRADED GOODS 21004900 PROVISION OF PROJECT MANAGEMENT SUPPORT SERVICE 10656118 PROVISION OF MARKET SUPPORT SERVICES 43350872 SALE OF GOODS 759600830 RECEIPT OF SERVICES 7383455 PROVISION OF TECHNICAL SERVICES 18395849 DEFERRED REVENUE SERVICES 99501455 ISSUE OF EQUITY SHARES 1049499997 SHARE APPLICATION PAID MONEY PENDING ALLOTMENT 10314944 2.2 THE LEARNED TRANSFER PRICING OFFICER (TPO) IN O RDER DATED 30/09/2016 PROPOSED TRANSFER PRICING ADJUSTMENT OF 4,82,75,453/-(SUBSEQUENTLY REDUCED TO 4,74,72,605/-AFTER THE DIRECTION OF THE LEARNED DRP) ON ACCOUNT OF ADJUSTM ENT IN EACH OF THE FUNCTIONAL SEGMENT OF THE ASSESSEE NAMELY - TRA DING, SUPPORT SERVICE AND TECHNICAL SERVICE, HAVING DETAILS AS UN DER: INTERNATIONAL TRANSACTION AMOUNT(RS.) ADJUSTMENT BY TPO MOST APPROPRIATE METHOD (MAM) BY THE ASSESSEE REMARKS SALE OF TRADED GOODS 75,96,00,830 4,19,13,043 TNMM NO DISPUTE ON MAM PROVISION OF 5,40,06,990 26,58,897 CPM TPO CHANGED 7 ITA NO.7802/DEL./2017 PROJECT MANAGEMENT SERVICE (PMS) & MARKET SUPPORT SERVICE (MSS) IT TO TNMM PROVISION OF TECHNICAL SERVICES 1,83,95,849/ - 29,00,665 TNMM NO DISPUTE ON MAM TOTAL ADJUSTMENT 4,74,72,605 2.3 AGGRIEVED WITH THE TRANSFER PRICING ADJUSTMENTS MADE FINALLY ON THE DIRECTIONS OF THE LD DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOV E. 3. THE GROUND NOS. 1, 2, 11 AND 12 ARE GENERAL IN N ATURE AND THEREFORE, WE ARE NOT REQUIRED TO ADJUDICATE UPON S PECIFICALLY, ACCORDINGLY SAME ARE DISMISSED AS INFRUCTUOUS. 4. THE GROUND NOS. 3 TO 10 OF THE APPEAL RELATE TO TRANSFER PRICING ADJUSTMENT TO TRADING SEGMENT I.E. SALE OF TRADED GOODS. 4.1 THE ASSESSEE IN ITS TRANSFER PRICING STUDY HAS SUBMITTED FUNCTION, ASSETS AND RISK (FAR) ANALYSIS OF THE TRA NSACTION OF THE ASSESSEE FOR SEGMENT OF TRADED GOODS AS UNDER: PURCHASE OF TRADED GOODS BACKGROUND: BEIPL TRADES IN SPARE PARTS USED IN ENG INES USED IN POWER GENERATION IN THE ENERGY INDUSTRY. IT HAS IMP ORTED SUCH GOODS TO BE SOLD TO THIRD PARTIES FROM ITS AE DURING THE YEAR. IN THIS REGARD, FUNCTIONS UNDERTAKEN BY THE BEIPL HAVE BEEN ARTICUL ATED BELOW: (A) FUNCTIONS: NATURE OF FUNCTION BEIPL AE PROCUREMENT YES BEIPL IS RESPONSIBLE FOR PURCHASING THE TRADED GOODS FROM ITS AE BASED ON THE CONFIRMED REQUISITION TO BE RAISED ON IT BY THE CUSTOMERS IN NO THE AE IS RESPONSIBLE TO DISPATCH GOODS TO BEIPL ON RECEIPT OF THE PURCHASE THE ORDER FROM IT. THE AE DOES NOT TAKE ANY FUNCTIONS IN RELATION 8 ITA NO.7802/DEL./2017 INDIA. ON RECEIPT OF THE PURCHASE ORDER, THE ASSOCIATED ENTERPRISES DISPATCH THE GOODS. TO THE TRANSACTION OF PROCUREMENT OF THE TRADED GOODS. RESEARCH & DEVELOPMENT NO BEIPL DOES NOT UNDERTAKE R&D AND THEREFORE, DOES NO FUNCTION IN RELATION THERETO YES AES CARRY OUT THE FUNCTION OF R&D FOR SUPPLYING GOODS TO BEIPL INVENTORY MANAGEMENT YES IT IS THE RESPONSIBILITY OF BEIPL TO WAREHOUSE THE GOODS ONCE THEY ARRIVE IN INDIA TILL THE TIME THEY ARE SOLD TO ULTIMATE CUSTOMER. ALL FUNCTIONS REGARDING WAREHOUSING; MAINTAINING AND MOVING OF THE GOODS ARE PERFORMED BY BEIPL. NO AE IS ONLY RESPONSIBLE TO DISPATCH GOODS AS PER THE REQUIREMENT OF BEIPL QUALITY CONTROL LIMITED BEIPL TO SOME EXTENT IS RESPONSIBLE FOR ENSURING THAT THE TRADED GOODS MEET THE SPECIFIED QUALITY STANDARDS. YES THE QUALITY CONTROL OF THE GOODS PURCHASED BY BEIPL IS THAT OF THE AE. (B) ASSETS ALL THE ASSETS EMPLOYED BY BEIPL AFTER DEPRECIATION (AS PER BOOKS OF ACCOUNT) ARE INTEGRAL PART OF BUSINESS OF BEIPL WHI CH HELPSIT IN CARRYING OUT THE TRADING AND SERVICE ACTIVITIES AND ARE NOT EXCLUSIVELY USED FOR THE INTERNATIONAL TRANSACTION OF PURCHASE OF TRADED GOODS. REFER PARA 5.3 FOR THE DETAILS OF TANGIBLE AND INTA NGIBLE ASSETS EMPLOYED BY THE COMPANY ON 31 ST MARCH, 2013. (C) RISKS RISK PROFILING OF BEIPL VIS--VIS ITS AES IS PROVI DED IN THE TABLE BELOW:- RISK CATEGORY AND DESCRIPTION EXPOSURE TO BEIPL EXPOSURE TO AES MARKET RISK: MARKET RISK ARISES FOR A BUSINESS DUE TO THE UNCERTAINTY IN THE STRUCTURE OF THE MARKET, DEMAND PATTERNS AND NEEDS OF CUSTOMERS NO BEIPL PURCHASE GOODS ON CONFIRMED ORDER; HENCE IT IS NOT EXPOSED TO THE MARKET RISK. YES THE AES ARE EXPOSED TO RISK IN THIS REGARD AS THEY SUPPLY GOODS BASED ON THE DEMAND RAISED ON THEM BY BEIPL 9 ITA NO.7802/DEL./2017 COSTS, PRICING ETC. MARKET RISK REPRESENTS STANDARD RISK BORNE BY ANY ENTERPRISE IN MARKET DRIVEN TRANSACTIONS. PRODUCT LIABILITY AND QUALITY RISK: NO BEIPL IS NOT EXPOSED TO THIS RISK SINCE THE TRADED GOODS PURCHASED BY IT FROM ITS AES ARE BACKED BY PROPER WARRANTY. YES THE AES ARE RESPONSIBLE FOR THE DEFICIENCY QUALITY OF THE PRODUCES PURCHASED FROM THEM. CREDIT/COLLECTION RISK: THIS IS THE RISK ARISING WHEN A FIRM SUPPLIES ITS PRODUCTS OR SERVICES TO A CUSTOMER IN ADVANCE OF ITS PAYMENT NO BEIPL IS NOT EXPOSED TO CREDIT OR COLLECTION RISK AS THEY ARE PURCHASING THE GOODS FROM THE AES. LIMITED THE AES ARE THE PARTIES SELLING THE TRADED GOODS IN THE TRANSACTION. THEREFORE, THE AES BEAR THE RISK OF COLLECTION OF AMOUNT DUE FROM BEIPL. FOREIGN CURRENCY RISK: THE RISK ARISES FROM ANY ADVERSE FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES, WHICH COULD HAVE A NEGATIVE IMPACT ON THE PROFITABILITY OF THE COMPANY. YES BEIPL DEALS WITH ITS AES IN FOREIGN CURRENCY. SO, BEIPL IS EXPOSED TO FOREIGN EXCHANGE RISK ON ACCOUNT OF FLUCTUATIONS IN FOREIGN CURRENCY IN RELATION TO INR. THEREFORE, BEIPL BEARS THIS RISK. NO AE IS NOT EXPOSED TO ANY RISK ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION SINCE THE INVOICES RAISED BY THEM ARE IN THEIR LOCAL CURRENCY; THEY DO NOT HAVE RISK ON THIS ACCOUNT. INVENTORY RISK: THIS COVERS THE RISK OF THEFT, BREAKAGE ARISING OUT OF STOCKING AND WAREHOUSING OF THE PRODUCTS, AND OBSOLESCENCE ARISING OUT OF TECHNOLOGICAL UP- GRADATION AND ENHANCEMENT ETC. YES BUT LIMITED AFTER THE GOODS ARE IMPORTED BY BEIPL, ANY RISK SUCH AS THEFT, OBSOLESCENCE, MARKET RISK ARISING OUT OF STOCKING AND WAREHOUSING THE IMPORTED PRODUCTS IS BORNE BY BEIPL. IN MOST CASES BEIPL IMPORTS THE GOODS ONLY AFTER A CONFIRMED ORDER IS PLACED BY THE CUSTOMER AND THEREFORE, THE GOODS ARE DISPATCHED TO THE CUSTOMER AS SOON AS THEY ARE IMPORTED AND THUS, THE INVENTORY RISK OF BEIPL IS SUBSTANTIALLY REDUCED. NO THE AES ARE NOT EXPOSED TO THIS RISK AS THEY ARE SUPPLYING GOODS BEING TRADED BY BEIPL AFTER A CONFIRMED ORDER HAS BEEN RAISED ON THEM. RESEARCH & NO YES 10 ITA NO.7802/DEL./2017 DEVELOPMENT RISK: THIS RISK ARISES WHEN THE RESEARCH AND DEVELOPMENT ACTIVITIES FOR NEW AND EXISTING PRODUCTS HAS NOT BEEN CARRIED OUT PROPERTY BEIPL IS NOT RESPONSIBLE FOR ANY R&D ACTIVITIES OF THE TRADED GOODS PURCHASES BY IT; THEREFORE, IT IS NOT EXPOSED TO THIS RISK. ALL RESEARCH AND DEVELOPMENT ACTIVITIES ARE DONE BY THE AES. THEREFORE, THE RISK ON ACCOUNT OF SUCH ACTIVITIES IS BORNE BY IT. CHARACTERIZATION FOR TRANSFER PRICING PURPOSES IN VIEW OF THE ABOVE ANALYSIS OF THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND THE RISKS ASSUMED BY BEIPL FOR THE INTERNATIONAL TRANSACTION OF PURCHASE OF TRADED GOODS, IT CAN BE CHARACTERIZED AS A ROUTINE DISTRIBUTOR OF SP ARE PARTS OF ENGINES THAT ASSUMES LOWER THAN STANDARD RISK ASSOCIATED WI TH CARRYING OUT SUCH FUNCTIONS. THEREFORE, BEIPLS FUNCTIONS IN REL ATION TO THE INTERNATIONAL TRANSACTION OF PURCHASE OF TRADED GOO DS ARE LESS RISKY AS COMPARED TO OTHER PLAYERS IN THE INDUSTRY. AE ON THE OTHER HAND IS ENGAGED IN COMPLEX OPERATION OF MANUFACTURING OF GO ODS, THUS IS EXPOSED TO HIGHER RISK THAN BEIPL WITH RESPECT OF T HIS PARTICULAR TRANSACTION. 4.2 THE ASSESSEE BENCHMARKED ITS INTERNATIONAL TRAN SACTION OF PURCHASE OF TRADED GOODS THROUGH TRADING SEGMENT USING RESALE PRICE METHOD (RPM) AS MOST APPROPRIATE METHOD (MAM) . ACCORDING TO THE ASSESSEE, THE RPM IS TYPICALLY ADO PTED FOR TRANSACTION RELATING TO DISTRIBUTION OF FINISHED PR ODUCTS OR OTHER GOODS INVOLVING NO OR LITTLE VALUE ADDITION AND THU S THIS METHOD IS APPROPRIATE WHERE THE RESELLER DOES NOT MAKE SUBSTA NTIAL VALUE ADDITION TO THE VALUE OF THE PRODUCT. THE ASSESSEE SUBMITTED THAT IT IMPORTED GOODS FOR SUBSEQUENT SALES TO 3 RD PARTIES IN INDIA WITHOUT DOING SUBSTANTIAL VALUE ADDITION THEREFORE RPM HAS BEEN CONSIDERED AS MOST APPROPRIATE METHOD FOR THE PURPO SE OF THE BENCHMARKING THE TRANSACTION OF PURCHASE OF THE SPA RE PARTS. THE ASSESSEE RELYING ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF NOKIA INDIA (P) LTD VERSUS DCIT IN ITA NO. 242/DEL/2010, PRAYED THAT ITS GROSS MARGIN OF 38.71 %, BEING 11 ITA NO.7802/DEL./2017 HIGHER THAN THE PROFIT LEVEL INDICATOR OF 15.50% OF THE COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE, THE INTERNATIONAL TRANSACTION IS AT ARMS LENGTH. 4.3 THE LEARNED TPO REJECTED THE RPM AS MOST APPROP RIATE METHOD DUE TO FOLLOWING REASONS: (A) THE COMPARABLES SHOULD BE DEALING IN RESALE OF PROPERTIES/SERVICES WHICH ARE SIMILAR IN NATURE AND VALUE AS FAR AS POSSIBLE. IF THE TESTED PARTY DEALS IN BR ANDED GOODS, THE COMPARABLE ENTITIES SHOULD ALSO BE DEALI NG IN BRANDED GOODS. IF THE VALUE OF THE GOODS SOLD BY TH E TESTED PARTY AND THE COMPARABLES DIFFERS SIGNIFICANTLY, TH E COMPARABILITY MAY SUFFER. (B) WHERE A COMPARABLE IS ENJOYING A MONOPOLY OR EXCLUS IVE RIGHTS TO SELL IN THE MARKET OR FACES NO COMPETITIO N IN ITS MARKET, THE COMPARABILITY SUFFERS AS THE CONDITIONS/CIRCUMSTANCES OF SALE SHOULD ALSO BE COMPARABLE. THE RESALE PRICE MARGIN CANNOT BE COMPA RED IN THOSE CASES ALSO WHERE ONE OF THE PARTIES IS MAK ING RESALE USING ITS INTANGIBLE ASSETS SUCH AS MARKETIN G NETWORK WHILE THE OTHER PARTY HAS NO SUCH INTANGIBL E. (C) THE FUNCTIONS PERFORMED WHICH AFFECT THE RESALE PRI CE MARGIN SHOULD ALSO BE SIMILAR OR IT SHOULD BE POSSI BLE TO MAKE ADJUSTMENT FOR SUCH DIFFERENCES (D) THE RELIABILITY OF THE RPM MAY BE AFFECTED IF THERE ARE MATERIAL DIFFERENCES IN THE WAYS THE ASSOCIATED ENTERPRISES AND THE INDEPENDENT ENTERPRISES CARRY O UT THEIR BUSINESSES. THE DIFFERENCES INCLUDE EFFECT OF MANAGEMENT EFFICIENCY ON LABELS AND RANGE OF THE 12 ITA NO.7802/DEL./2017 INVENTORY MAINTENANCE, MARKETING DISTRIBUTION AFFOR DS ETC. (E) THE RESALE PRICE MARGIN MAY BE INFLUENCED BY THE LE VEL OF THE ACTIVITIES PERFORMED BY THE RESELLER I.E. FULL RISK OF OWNERSHIP TOGETHER WITH FULL RESPONSIBILITY FOR AND THE RISK INVOLVED IN ADVERTISING, MARKETING, DISTRIBUTION AN D THE ENDING OF THE GOODS. (F) THE ACCOUNTING TREATMENT OF THE TAXPAYER AND THE COMPARABLE COMPANIES IN RESPECT OF CERTAIN INDIRECT EXPENSES MAY ALSO DISTORT THE GROSS MARGIN. APART F ROM COST OF THE FUNCTIONS, THERE ARE CERTAIN COST LIKE DISCOUNT ON INSURANCE WHICH ARE RELATED TO THE RESALE AND WH ICH MAY OR MAY NOT BE ACCOUNTED FOR AS COST OF THE GOOD S SOLD , THEREFORE TREATMENT OF SUCH COST, IS ALSO MATERI AL IN THE COMPUTATION OF THE GROSS PROFIT. (G) IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, THE RE ARE CERTAIN EXPENSES LIKE SALARY AND WAGES, TRAVELLING AND CONVEYANCE, FREIGHT OUTWARD EXPENSES, WHICH ARE DIR ECTLY CONNECTED WITH THE SELLING AND DISTRIBUTION FUNCTIO N, HOWEVER NEITHER THE ASSESSEE NOR IN THE CASE OF THE COMPARABLE SAME HAVE BEEN CONSIDERED FOR COMPARABIL ITY. 4.4 IN VIEW OF THE ABOVE OBSERVATIONS, THE LEARNED TPO REJECTED THE RPM APPLIED BY THE ASSESSEE AS MOST APPROPRIATE METHOD. THE LEARNED TPO CONSIDERED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD DUE TO THE RE ASON THAT IT TAKES CARE OF ALL THE ABOVE LIMITATIONS IN THE CASE OF THE RPM. THE LEARNED TPO ALSO RELIED ON THE ORDER OF THE LEARNED DRP IN THE 13 ITA NO.7802/DEL./2017 CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2012-13 FO R ADOPTING THE TNMM AS THE MOST APPROPRIATE METHOD. BEFORE THE LD. TPO, THE ASSESSEE AGREED FOR APPLYIN G TNMM AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TR ANSACTION OF SALE OF TRADED GOODS. THE ASSESSEE COMPUTED PROFIT LEVEL INDICATOR OF 11.60% IN ITS TRADING SEGMENT AND BENCHMARKED IT WITH THE AVERAGE PROFIT LEVEL INDICATOR OF (2.08%) OF COMPAR ABLES SELECTED BY IT IN THE ENGINEERING INDUSTRY, WHICH WERE ALSO ENGAGED IN THE TRADING FUNCTIONS. THE TPO REJECTED THOSE COMPARABL ES DUE TO REASONS AS UNDER: SL. NO. NAME OF THE COMPANY REMARKS OF THE TPO 1. BATLIBOI LTD. DOES NOT PASS FILTER APPLIED BY T HE TPO. HENCE REJECTED. 2. KIRLOSKAR OIL ENGINES LTD. DOES NOT PASS FILTER APPLIED BY THE TPO. HENCE REJECTED. 3. GREAVES COTTON DOES NOT PASS FILTER APPLIED BY THE TPO. HENCE, REJECTED. 4.5 THE LEARNED TPO, RE-COMPUTED THE PROFIT LEVEL I NDICATOR OF THE ASSESSEE AT 1.33% BY TREATING GOODWILL AMORTI ZED AS AN OPERATING EXPENSE, WHICH WAS TREATED BY THE ASSESSE E AS NON- OPERATING WHILE COMPUTING THE PROFIT LEVEL INDICATO R. THE LEARNED TPO REJECTED THE COMPARABLES SELECTED BY THE ASSESS EE AND MADE AFRESH SEARCH AND PROPOSED FOLLOWING COMPARABLES: S.NO. COMPARABLE COMPANIES OP/OI (%) 1. JULLUNDUR MOTOR AGENCY (DELHI) LTD . 3.68 2. MAHINDRA AUTOMOBILE DISTRIBUTOR PVT. LTD. 26.99 3. PAE LTD. - 2.02 4. STANES MOTORS (SOUTH INDIA) LTD. - 3.56 AVERAGE 6.27 14 ITA NO.7802/DEL./2017 4.6 THE DIFFERENCE IN THE PROFIT LEVEL INDICATOR OF THE ASSESSEE AS COMPUTED BY THE ASSESSEE AND THE TPO IS SUMMARISED AS UNDER: PARTICULARS GOODWILL AS NON-OPERATING GOODWILL AS OPERATING DIFFERENCE REMARKS SALE OF PRODUCTS 1,19,13,86,406 1,19,13,86,406 OTHER OPERATING REVENUE L 2,73,09,872 2,73,09,872 OTHER INCOME 2,71,932 2,71,932 FOREX GAIN 57,27,991 57,27,991 TOTAL OPERATING REVENUE 1,22,46,96,201 1,22,46,96,201 PURCHASE OF STOCK IN TRADE 88,40,99,564 88,40,99,564 CHANGE IN INVENTORY 48,25,200 48,25,200 EMPLOYEE BENEFIT 3,01,34,150 3,01,34,150 DEPRECIATION 11,71,87,930 11,71,87,930 OTHER EXPENSES 5,81,31,994 17,24,04,953 -11,42,72,959 GOODWILL AMORTIZED TOTAL OPERATING COST (OC) 1,09,43,78,838 1,20,86,51,797 NET OPERATING PROFIT (OP) 13,03,17,363 1,60,44,404 OP/OC 11.91% 1.33% 4.7 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT GOODWILL AMORTIZATION EXPENSES NEED TO BE EX CLUDED FOR COMPUTING THE PROFIT LEVEL INDICATOR DUE TO FOLLOWI NG REASONS: - IN THIS REGARD IT IS SUBMITTED THAT PURSUANT TO THE RESOLUTION PASSED BY BOARD OF DIRECTORS IN FEB., 20 12, THE DIESEL POWER BUSINESS OF ROLLS ROYCE INDI PVT. LTD. WAS PURCHASED BY THE ASSESSEE THROUGH A SLUMP SALE. - THE BUSINESS PURCHASE CONSIDERATION WAS RS.103.5 CRORES. THE NET ASSETS ACQUIRED WERE OF RS.43.72 CR ORE. THE EXCESS OF THE BUSINESS PURCHASE CONSIDERATION O F RS.59.78 CRORE OVER THE VALUE OF ASSETS PURCHASED WA S RECOGNIZED AS GOODWILL IN THE BOOKS OF THE ASSESSEE . THIS GOODWILL ON ACCOUNT OF BUSINESS PURCHASED WAS TO BE AMORTIZED OVER A PERIOD OF 5 YEARS AS PER NOTE 35 O F AUDITED FINANCIALS. 15 ITA NO.7802/DEL./2017 - THUS THE CREATION OF GOODWILL IN THE BOOKS OF THE A SSESSEE IS DUE TO AN EXTRA-ORDINARY EVENT OF BUSINESS PURCH ASE IN AY 2012-13 AND THE CONSEQUENT WRITE OFF IN 5 YEARS I S THE REFLECTION AND EFFECT OF THIS IN THE P/L A/C OF THE ASSESSEE. - THUS, YOUR HONOURS WOULD APPRECIATE THAT THE AMORTIZATION OF SUCH GOODWILL ARISING ON BUSINESS PURCHASE IS AN EXTRA-ORDINARY EVENT THAT NEEDS TO B E ADJUSTED FOR WHILE COMPUTING THE PLI OF THE ASSESSE E COMPANY FROM ROUTINE BUSINESS OPERATION. IT IS SETT LED LAW THAT EXTRA ORDINARY EXPENSES ARE NOT A PART OF THE ROUTINE OPERATIONS OF A COMPANY. WHEREAS NORMAL DEPRECIATIO N FOR ASSETS EMPLOYED MAY BE AN OPERATION EXPENSE BUT AMORTIZATION OF GOODWILL CANNOT BE TREATED AS OPERA TING COST. - THE LD. TPO ALSO IN ITS ORDER ON PG. 30 HAS GIVEN LIST OF INCOMES AND EXPENSES WHICH ARE TO BE TREATED AS NON - OPERATING IN NATURE AND THAT LIST INCLUDES AMORTIZA TION OF GOODWILL. THUS, YOUR HONOURS WOULD OBSERVE FROM THE ABOVE MENTIONED FACT THAT THE LD. TPO HAS HIMSELF ACCEPTED IN HIS COMMENTS THAT AMORTIZATION OF GOODW ILL IS A NON-OPERATING EXPENSES AS PER THE DISCUSSIONS, THEREFORE, FINALLY TREATING THE SAME AS OPERATING I S CONTRARY AND SELF-CONTRADICTORY STAND OF THE LD. TP O, WHICH IN ANY CASE IS NOT IN ACCORDANCE WITH THE LAW AND PRAYED NOT TO BE UPHELD. NECESSARY ADJUSTMENT MADE BY THE ASSESSEE OF TREATING THE AMORTIZATION OF GOODWI LL AS AN EXCEPTIONAL AND NON-OPERATING ITEM IS PRAYED TO BE UPHELD. - FURTHER THE OPERATING ASSETS THAT GENERATE REVENUE AND ARE INTRINSIC TO THE DAY TO DAY WORKING/FUNCTIONING OF A COMPANY AND ARE USED FOR THE CARRYING OUT OF BUSINE SS ARE RELEVANT FOR ESTABLISHING COMPARABILITY UNDER RU LE 10B(2), I.E., FAR ANALYSIS RULE. ONCE, AS PER THE FAR ANALYSIS THE ASSETS USED THAT ESTABLISH COMPARABILI TY ARE SIMILAR THEN THE EFFECT OF DEPRECIATION ON THE PLI OF THE COMPARABLES AND THE ASSESSEE WILL ALSO BE SIMILAR. IN THE PRESENT CASE, THE ASSET BASE OF THE ASSESSEE HAS AN ASSET OF THE NATURE OF GOODWILL WHICH IS NOT SIMILA R TO THE ASSETS USED BY THE COMPARABLES AS CHOSEN WITH THE ASSESSEE OR THE TPO. - THE AMORTIZATION OF GOODWILL, WHICH WAS THE DIFFERE NCE BETWEEN THE COSTS OF ACTUAL PHYSICAL/TANGIBLE ASSET S 16 ITA NO.7802/DEL./2017 PURCHASED AND THE PRICE PAID FOR ACQUIRING A RUNNIN G BUSINESS REPRESENTS AN INTANGIBLE ASSETS PURCHASED. GOODWILL IS AN INTANGIBLE RATHER INVISIBLE ASSET WH ICH CANNOT BE BROUGHT INTO FAR ANALYSIS WHILE COMPARING T HE FINANCIAL RESULTS OF THE ENTITIES SINCE THE CONTRIB UTION OF INTANGIBLES CANNOT BE COMPUTED. THE PURPOSE OF TP ANALYSIS IS TO COMPARE THE LIKE WITH LIKE. ANY EXCE PTIONAL ITEM WHICH EFFECTS THE COMPARISONS IN AN OPEN MARKE T ARE REQUIRED TO BE IGNORED/EXCLUDED, IT IS RESPECTFULLY SUBMITTED. - IN CASE OF FEDERAL MOGUL AUTOMOTIVE PRODUCTS INDIA PVT. LTD. [TS-110-ITAT-2015-DEL-TP], HONBLE DELHI ITAT UPHELD THE EXCLUSION OF EXTRAORDINARY PROVISIONS AN D NON- OPERATING ITEMS FOR COMPUTING THE PLI. - IT IS SUBMITTED THAT MERGERS, ACQUISITIONS, DEMERGE RS, A PIN-OFF, BUSINESS REORGANIZATIONS ETC. ARE EXTRA OR DINARY EVENTS AND EFFECTS THE NORMAL PROFITABILITY OF THE COMPANY, THUS NEED TO BE ADJUSTED TO REFLECT THE TR UE COMPARABILITY. RELIANCE IS PLACED ON THE CASE OF AME RICAN EXPRESS INDIAN PVT. LTD. [TS-517-ITAT-2015(DEL)-TP] IN WHICH IT WAS HELD THAT- THE FACTOR OF AMALGAMATION OF MERGER OR ACQUISITIO N ETC. HAS ITS OWN IMPLICATION ON THE FINANCIAL RESUL TS OF THE COMPANY AS THESE ARE ABNORMAL FINANCIAL CHARACTERISTICS WHICH DISTORT THE NORMAL PROFITABIL ITY. - WHEN THE AICPA PUBLISHED ARB 43, RESTATEMENT AND REVISION OF ACCOUNTING RESEARCH BULLETINS NOS. 1-42, I N 1953, THE FOLLOWING ITEMS, WHEN MATERIAL, WERE SPEC IFIED AS ALLOWED TO BE EXCLUDED FROM NET INCOME IF THE INCLUSION WOULD CAUSE USERS TO DRAW MISLEADING CONCLUSIONS FROM AN ANALYSIS OF NET INCOME:- NON RECURRING AMOUNTS SPECIFICALLY RELATED TO PRIOR YEARS OPERATIONS, SUCH AS ELIMINATING PREVIOUSLY ESTABLISHED RETAINED EARNINGS RESERVES OR ADJUSTING PAST INCOME TAXES; AMOUNTS RESULTING FROM UNUSUAL SALES OF ASSETS NOT OF THE TYPE IN WHICH THE COMPANY COMMONLY DEALS; LOSSES FROM DISASTERS NOT COMMONLY INSURED AGAINST (E.G. WARS, RIOTS, AND EARTHQUAKES), UNLESS SUCH LOSSES ARE A RECURRENT BUSINESS HAZARD; 17 ITA NO.7802/DEL./2017 LOSSES FROM COMPLETELY WRITING OFF INTANGIBLES, SUC H AS GOODWILL OR TRADEMARKS; AND AMOUNTS FROM WRITING OFF UNAMORTIZED BOND DISCOUNTS, BOND PREMIUMS, OR BOND ISSUE EXPENSES WHEN THE RELATED DEBT IS RETIRED OR REFUNDED BEFORE MATURITY. - HONBLE DRP HAS IN PARA 4.6 PG. 11 RELIED ON ITS OWN JUDGMENT IN ASSESSEES CASE IN AY 2012-13 AND HAS UPHELD THE TREATMENT OF TPO OF TREATING THE GOODWIL L WRITE OFF AS OPERATING BY STATING THAT WHEN DEPRECIATION IS CLAIMED ON AN ASSET YEAR AFTER YEAR, THIS EXPENDITU RE CEASES TO BE EXTRAORDINARY IN NATURE. - IN THIS REGARD, IT IS SUBMITTED THE LD. DRP FAILED T O APPRECIATE THAT GOODWILL WHICH IS A RESULT OF AN ACQUISITION OF BUSINESS IN THE BOOKS OF THE ASSESSEE IS NOT ROUTINE ASSET CREATED BY A FICTION OF LAW. IT I S NOT AN ASSET ON WHICH DEPRECIATION IS CHARGED YEAR AFTER Y EAR, IN FACT, IT IS AMORTIZATION OF ITS VALUE OVER A FIXED AMORTIZATION PERIOD. THE LD. DRP HAS FAILED TO APPRE CIATE THE DIFFERENCE BETWEEN DEPRECIATION AND AMORTIZATIO N, IT IS RESPECTFULLY SUBMITTED. - IT IS TO BE APPRECIATED THAT THE TREATMENT OF DEPRE CIATION IN COMPUTATION OF TAXABLE INCOME UNDER THE ACT, IS DIFFERENT FROM THE COMPUTATIONAL MECHANISM FOR PLI FOR THE DETERMINATION OF ARMS LENGTH PRICE GIVEN IN CH APTER X WHICH ARE SPECIAL PROVISIONS. THUS, CLAIMING OF DEPRECIATION ON GOODWILL ACCOUNTED FOR DUE TO A BUS INESS PURCHASE UNDER INCOME TAX ACT CANNOT CHANGE THE EXTR A ORDINARY NATURE OF GOODWILL AMORTIZED IN THE AUDITED FINANCIALS AS PER THE COMPANIES ACT, USED FOR THE COMPUTATION OF PLI, AND SHOULD BE ADJUSTED AS A NON - OPERATING/NON-REOCCURRING EXPENSE. - THE PLI OF THE ASSESSEE IN TRADING SEGMENT AFTER TA KING AMORTIZATION OF GOODWILL AS NON-OPERATING WILL BE 1 1.91% (TABLE 2 ABOVE) WHICH IS MORE THAN THE PLI OF 4 COMPARABLES CHOSEN BY THE TPO OF 6.27%(PAGE 39 OF TPOS ORDER), THUS THE TRANSACTION OF SALE OF TRADE D GOODS OF THE ASSESSEE ARE AT ALP. ALTHOUGH THE ASSESS EE IS SEPARATELY CHALLENGING THE COMPARABLE AND OTHER ISSUES, HOWEVER, WITHOUT PREJUDICE TO SUCH CHALLENG ED THE ALP ADJUSTMENT MADE BY THE TPO IN TRADING SEGMENT IS PRAYED TO BE DELETED ON THIS GROUND ONLY. 18 ITA NO.7802/DEL./2017 - IN THE LIGHT OF ABOVE FACTS AND PROVISIONS, IT IS T HUS PRAYED THAT THE GOODWILL AMORTIZATION OF RS.11,42,72,959/- MAY PLEASE BE TREATED AS NON- OPERATING AND PLI OF THE ASSESSEE BE RESTORED TO 11 .91%. 5. WITH REFERENCE TO GROUND NO. 10 OF THE APPEAL SE EKING DEPRECIATION ADJUSTMENT DUE TO DIFFERENT ASSET BASE , THE LEARNED COUNSEL IN ITS WRITTEN SUBMISSION SUBMITTED AS UNDE R: - ALTERNATELY, IT IS REQUESTED THAT THE WHOLE AMOUNT OF DEPRECIATION OF THE ASSESSEE AS WELL AS COMPARABLES MAY PLEASE BE ADJUS TED AS NON- OPERATING SO AS TO ENABLE FAIR COMPARISON OF ADJUST ED PLI OF THE ASSESSEE AND THE COMPARABLES ON ACCOUNT OF DIFFEREN CE IN THE ASSET BASE OF THE ASSESSEE AND THE COMPARABLES. BY NEUTRA LIZING THE EFFECT OF DEPRECIATION FROM THE PLI OF THE ASSESSEE AS WELL A S THE COMPARABLES, THE PLIS WILL BE AT PART AND COMPARABLE . NAME OF THE COMPANY (RS. IN CRORES) DEPRECIATION/AMORTIZED EXPENSE 2013 TOTAL EXPENSE 2013 %AGE A B C BERGEN ENGINES ASSETS OTHER THAN GOODWILL 0.84 131.29 0.63% GOODWILL 11.42 131.29 8.69 BERGEN ENGINES (TOTAL) 12.26 131.29 9.34% JULLUNDUR MOTORS 0.64 334.86 0.19% MAHINDRA AUTOMOBILE DISTRIBUTOR 0 61.76 0.00% PAE LTD. 0.69 138.65 0.50% STANES MOTOR SOUTH INDIA 0.11 13.93 0.79% AVERAGE (COMPARABLES) 0.37% - YOUR HONOUR WOULD APPRECIATE THE IN CASE OF TRADING COMPANIES, THE ASSET BASE IS VERY LOW. SINCE FUNCTIONALLY THE TPO AND DR P ARE OF THE VIEW THAT THE COMPARABLES ARE CORRECT THEN A DIFFERENCE IN TH EIR ASSET BASE UNDER RULE 10B(2) SHOULD BE ADJUSTED AS PER RULE 10B(3), WHEREBY AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION, IF REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. - HONBLE DRP DID NOT APPRECIATE (PAGE 11 OF DRPS ORDER PARA 4) THAT THE CALCULATION FURNISHED BEFORE IT DEMONSTRATES THAT HOW THE 19 ITA NO.7802/DEL./2017 DISPROPORTIONATE ASSETS CAUSE DISPROPORTIONATE DEPR ECIATION WHICH IMPACTS THE PLI REQUIRING REASONABLE ACCURATE ADJUS TMENT FROM BOTH ASSESSEE AS WELL AS COMPARABLES FOR THE ASSETS USED BY THEM. YOUR HONOUR WOULD APPRECIATE THAT THE COMPARABILITY ANAL YSIS IS REQUIRED TO PASS THE TEST OF FAR ANALYSIS I.E. FUNCTIONS PERFOR MED, ASSETS EMPLOYED AND RISK ASSUMED. THERE IS A CLEAR AND DEMONSTRATIV E DIFFERENCE IN ASSET BASE OF THE ASSESSEE AND THESE COMPARABLE, WHICH NE ED A DEFINITE ADJUSTMENT AS PER RULES. - RELIANCE IN THIS REGARD IS PLACED ON FOLLOWING JU DICIAL PRECEDENTS: SABIC RESEARCH AND TECHNOLOGY PVT. LTD. (1065/AHD/2 012) SIEMENS HEALTHCARE DIAGNOSTICS LTD. VS. ACIT (152 I TD 155) SCHEFENACKERMOTHERSON LIMITED (123 TTJ 509) THE T AXPAYER IN BOTH THE ASSESSMENT YEAR SHOWED BEFORE THE REVENUE AUTHO RITIES THAT PROFIT SHOWN BY THE TAXPAYER SATISFIES ARMS LENGTH REQUIR EMENT ON RATIO OF CASH PROFIT TO SALES IF UNIFORMLY APPLIED. AS THE D EDUCTION OF DEPRECIATION IS LEADING TO WIDE DIFFERENCES, THE SA ME SHOULD BE EXCLUDED. M/S. QUAL CORE LOGIC LIMITED VS. DEPUTY CIT (ITA 8 93/HYD./2011)- THE OBJECT AND PURPOSE OF TRANSFER PRICING IS TO COMPARE LIKE WITH THE LIKE, AND TO ELIMINATE DIFFERENCES, IF ANY, BY SUIT ABLE ADJUSTMENT IS TO BE SEEN. THEREFORE, THERE WAS JUSTIFICATION ON THE PART OF THE ASSESSEE IN PLEADING THAT PROFITS ARE TAKEN WITHOUT DEDUCTIO N OF DEPRECATION AS DEPRECIATION WAS LEADING TO LARGE DIFFERENCE IN MAR GINS FOR VARIOUS REASONS. MENTOR GRAPHICS PRIVATE LIMITED VS. DCIT (112 TTJ 4 08) - HENCE TO BRING THE COMPARABILITY UNDER RULE 10B, TH E PROFIT LEVEL INDICATOR OUGHT TO HAVE BEEN TAKEN AFTER ADJUSTING FOR DIFFERENCE IN ASSETS USED THROUGH DEPRECIATION IMPACT IN P/L A/C, ACCORDINGLY PRAYED BEFORE YOUR HONOUR. IF SO DONE, NO ALP ADJUSTMENT W ILL BE MADE IN THIS SEGMENT. 5.1 WITH REFERENCE TO GROUND 3 TO 7 REGARDING REJEC TION OF THE ASSESSEES COMPARABLES AND FRESH SEARCH PROCESS AND CHOOSING NEW COMPARABLES, THE ASSESSEE SUBMITTED AS UNDER: - THE LD. TPO:- O REJECTED THE COMPARABLES CHOSEN BY THE ASSESSEE O CONDUCTED A FRESH SEARCH PROCESS O CHOSE A NEW SET OF COMPARABLE FOR BENCHMARKING THE TRANSACTION OF SALE OF TRADED GOODS OF THE ASSESSEE . A. REJECTION OF COMPARABLES OF THE ASSESSEE - THE ASSESSEE OF COMPARABLES OF THE ASSESSEE I) BATLIBOI LTD. II) MCNALLY SAYAJI 20 ITA NO.7802/DEL./2017 - THE TPO OBJECTED TO ONE OF THE TWO COMPARABLES I.E. BATLIBOI LTD, WHICH WAS FOR SALE OF TRADED GOODS, SUMMARILY STATING THAT IT DOES NOT PASS THE FILTER APPLIED BY THE TPO . - MCNALLY SAYAJI WAS NOT DISPUTED BY THE TPO AND IN F ACT NOT EVEN COMMENTED UPON BY TPO (PAGE 4 PARA 4.4 OF TPO S ORDER) AND THUS SHOULD HAVE BEEN RETAINED IN THE FI NAL SET OF COMPARABLES FOR BENCHMARKING THE TRANSACTION OF SAL E OF TRADED GOODS. - THE HONBLE DRP (PAGE 9 IN PARA 4.5.2 OF ITS ORDER) DIRECTED THE TPO TO COMMENT ON THIS COMPARABLE IN THE FINAL ORDER WITH REASONS OF REJECTION OR SELECTION. - HOWEVER, TPO DID NOT FOLLOW THE DRP DIRECTIONS IN TH IS REGARD AND GAVE NO REASONING IN ITS FINAL ORDER AND REMAIN SILENT ON THE DIRECTIONS OF THE DRP WHICH ARE BINDING ON TPO/AO - THEREFORE, THE FINAL ORDER OF THE TPO NOT FOLLOWING ALL THE DIRECTIONS OF THE DRP SHOULD BE ANNULLED. B. FRESH SEARCH PROCESS CONDUCTED BY THE LD. TPO - THE LD. TPO PROCEEDED TO CONDUCT A NEW THE SEARCH P ROCESS FOR BENCHMARKING THE SALE OF TRADED GOODS. - THE TPO HAD ALSO APPLIED A FRESH SEARCH PROCESS AND OBTAINED 4 COMPARABLES TO BENCHMARK THE TRANSACTION OF SALE OF TRADED GOODS NAMELY JULLUNDUR MOTOR, MAHINDRA AUTOMOBILE DISTRIBUTOR, PAE LTD. AND STANES MOTORS. - THE TPO DID NOT PROVIDE THE SEARCH PROCESS USED FOR OBTAINING THE ABOVE SAID COMPARABLES SO AS TO ENABLE THE ASSE SSEE TO SUBMIT DETAILED OBJECTIONS. THE ASSESSEE SPECIFICAL LY OBJECTED TO THIS BEFORE TPO THROUGH WRITTEN SUBMISSION. C. OBJECTIONS TO THE NEW SET OF COMPARABLES OF THE LD. TPO (I) NOT EXCLUDING MAHINDRA AUTOMOBILE FROM FINAL LI ST OF COMPARABLE. - AMONG 4 COMPARABLES CHOSEN BY TPO FOR TRADING SEGM ENT OF THE ASSESSEE, THE PLI OF MAHINDRA AUTOMOBILE DISTRIB UTOR PVT. LTD. IS AN OUTLIER FROM OTHER 3 COMPANIES. YOUR HON OUR WOULD NOTICE THAT THE PLI OF MAHINDRA AUTOMOBILE IS 26.99 % WHILE OF OTHER 3 COMPANIES. YOUR HONOUR WOULD NOTICE THAT TH E PLI OF MAHINDRA AUTOMOBILE IS 26.99% WHILE OF OTHER 3 COMPA NIES IS RANGING FROM (0.39)% TO (3.56)%. THIS CLEARLY SHOWS THAT THE COMPANY IS EARNING MORE THAN ORDINARY NET PROFITS T HAN THE OTHER TRADING COMPANIES. WHILE ANALYZING THE ANNUAL REPORT OF MAHINDRA AUTOMOBILE FOR THE YEAR UNDER CONSIDERATIO N, YOUR HONOUR WOULD NOTICE FROM THE FACE OF THE P/L THAT D URING THE YEAR THE COMPANY PAID EXCISE DUTY ON SALE OF PRODUC TS 12% TO 13% (APPROX). THIS SHOWS THAT THE MAHINDRA AUTOMOBI LE IS NOT 21 ITA NO.7802/DEL./2017 PURELY TRADING COMPANY AND ITS REVENUE COMPRISE OF AN ACTIVITY WHICH AMOUNTS TO MANUFACTURE SUCH THAT EXC ISE DUTY IS PAYABLE ON IT. THE DIFFERENCE IN THE FUNCTIONS P ERFORMED BY IT ON ACCOUNT OF EXCISE DUTY PAID SHOWS THAT IT IS EARNING MORE PROFIT THAT THE PURE TRADING COMPANIES CHOSEN BY TH E LD. TPO. HENCE, THIS IS NOT COMPARABLE TO THE ASSESSEES TRA DING SEGMENT IN QUESTION. - THE QUANTITATIVE FILTER APPLIED BY THE LD. TPO FOR OBTAINING THIS COMPARABLE IS TRADING INCOME >50%, THAT MEANS THE TPO HAS SELECTED COMPANIES WHICH ARE NOT PURELY TRADING AND MAY HAVE MANUFACTURING SALE OR SERVICE INCOME ALSO, WHICH HAD LED TO THE SELECTION OF MAHINDRA AUTOMOBILE. TH IS FILTER IS THE PRINCIPAL FILTER IN DECIDING WHICH DOMAIN OF TH E COMPANIES ARE TO BE SELECTED OUT OF WHICH FURTHER QUALITATIVE ANALYSIS IS CARRIED OUT. BY APPLYING THIS INCORRECT FILTER, THE TPO HAS DISTORTED THE BASIS OF SEARCH PROCESS USED TO OBTAI N COMPARABLE FOR TRADING SEGMENT OF THE ASSESSEE. HEN CE WHOLE OF THE SEARCH PROCESS SHOULD BE ANNULLED WHICH INCL UDES MAHINDRA AUTOMOBILE ALSO. - MOREOVER, THE RPT OF MAHINDRA AUTOMOBILE IS MORE THA N 29% THUS ON THIS ACCOUNT ALSO, IT SHOULD BE EXCLUDED FR OM THE FINAL LIST OF COMPARABLES AS PER THE CRITERIA GIVEN BY TP O ITSELF, I.E. TO EXCLUDE COMPANIES HAVING RPT MORE THAN 25%. - THE HONBLE DRP (IN PARA4.5.1 AT PAGE 9 OF ITS ORDE R) DIRECTED THE TPO TO RE-EXAMINE THE CALCULATION OF 29% OF THE RPT AS PER THE OBJECTION OF THE ASSESSEE ON THIS COMPARABLE AS PER THE DETAILS GIVEN IN PB 253-255 SUBMITTED BEFORE THE DRP , TO CROSS VERIFY THE CLAIM AND WORKING OF THE ASSESSEE IN THE LIGHT OF FILTERS USED BY TPO AND APPROVED BY DRP. - HOWEVER, TPO DID NOT COMMENT UPON THE WORKING OF TH E ASSESSEE ON PB 253-255 AS DIRECTED BY THE DRP, AND DISPOSED THE DIRECTIONS JUST BY STATING THAT THE RPT IS 21%. THE TPO NEITHER GAVE ANY REASON FOR NOT CONSIDERING ASSESSEES CALCULATION NOR GAVE ITS OWN BASIS OF DE RIVING 21% RPT. - THE ASSESSEE FURTHER FILED AN APPLICATION UNDER SEC TION 154 REQUESTING FOR THE CORRECTION OF MISTAKE APPARENT F ROM RECORD. IN RESPONSE TO WHICH, THE TPO REJECTED THE SAME BY STATING THAT THIS IS NOT AN ISSUE SUBJECT TO RECTIFICATION. - IT IS THUS PRAYED THAT, MAHINDRA AUTOMOTIVE BE EXCLU DED FROM THE FINAL LIST OF COMPARABLE SINCE ITS IS NEITHER F UNCTIONALLY SIMILAR TO THE ASSESSEES TRADING FUNCTION NOR DOES IS PASS THE RPT FILTER OF 25% SINCE IT HAS RPT OF 29%. 22 ITA NO.7802/DEL./2017 - IF MAHINDRA AUTOMOBILE IS EXCLUDED FROM FINAL LIST O F COMPARABLE, THE REVISED PLI OF THE TPOS COMPARABLE S SHALL BE (0.63)% AS: PARTICULARS (TPOS COMPARABLES) PLI % AS DETERMINED BY TPO (OP/OI) JULLUNDUR MOTOR AGENCY (DELHI) 3.68 PAE LTD. -2.02 STANES MOTORS (SOUTH INDIA) LTD. -3.56 AVERAGE -0.63 - IF THIS COMPANY IS EXCLUDED, THE ASSESSEE WILL BE A T ALP EVEN IF NO OTHER OBJECTION IS ENTERTAINED ON COMPARABLE OR OTHER ISSUES. - IF THE COMPARABLE OF THE ASSESSEE NAMELY, MCNALLY S AYAJI IS RETAINED IN THE FINAL LIST ALONG WITH THE OTHER 3 C OMPARABLES CHOSEN BY THE LD. TPO, THE PLI WOULD BE AS FOLLOWS : PARTICULARS (TPOS COMPARABLES) PLI % AS DETERMINED BY TPO(OP/OI) JULLUNDUR MOTOR AGENCY (DELHI) 3.68 PAE LTD. -2.02 STANES MOTORS (SOUTH INDIA) LTD. -3.56 MCNALLYSAYAJI - 039 AVERAGE - 0.57 - THUS IT IS PRAYED THAT THE MAHINDRA AUTOMOBILE BE E XCLUDED FROM FINAL LIST OF COMPARABLES AND ASSESSEES OWN COMPARABLE NAMELY MCNALLYSAYAJI BE RETAINED IN THE FINAL LIST (II) OBJECTIONS TO THE OTHER COMPARABLES SELECTION BY THE TPO - THE ASSESSEE FILED ITS OBJECTIONS IN RESPECT OF OTH ER 3 COMPARABLES ALSO SELECTION BY THE TPO THROUGH FRESH SEARCH PROCESS. - THE COMPANIES SELECTED BY THE TPO ARE ENGAGED IN AUTOMOTIVE SECTOR AND FUNCTIONALLY DIFFERENT FROM T HE TRADING SEGMENT OF THE ASSESSEE IN WHICH ASSESSEE IS SELLIN G SPARE PARTS OF ENGINES USED BY ENGINEERING INDUSTRY. - THE DETAILED OBJECTIONS FILED BEFORE TPO AS WELL AS BEFORE DRP ARE GIVEN IN PB 245-252. HONBLE DRP IN PARA 4.5 OF ITS ORDER 23 ITA NO.7802/DEL./2017 UPHELD THE COMPARABLE SELECTED BY TPO WITHOUT PASSI NG A SPEAKING ORDER BY STATING THAT TPO HAS GIVEN DETAIL ED REASONS FOR SELECTING COMPARABLE. THE INDIVIDUAL OB JECTIONS OF THE ASSESSEE HAVE NOT BEEN CONSIDERED AND DISCUSSED BY DRP IN ITS ORDER. - THE DRP IN PARA 2 & 4 OF ITS ORDER HAS WRONGLY ALLE GED THAT THE ASSESSEE SEEKS EXCLUSION OF COMPARABLE SHOWING HIGHER MARGINS, WHICH AN INCORRECT REASONING. THE ASSESSEE OBJECTED TO ALL 4 COMPARABLE ON THE BASIS OF FUNCTIONAL COMP ARABILITY, IRRESPECTIVE OF THEIR LOW MARGIN OR HIGH MARGIN, BU T MAHINDRA AUTOMOBILE IN PARTICULAR FAILS TO TEST BOTH ON BOTH FUNCTIONAL DISSIMILAR AND RPT. 5.2 THE ASSESSEE FURTHER SUMMARISED ITS PRAYER IN R ESPECT OF ADJUSTMENT IN TRADING SEGMENT AS UNDER: IT IS, THEREFORE, PRAYED THAT:- I) THE TPO FINAL ORDER DATED SHOULD BE ANNULLED AS IT HAS NOT FOLLOWED BINDING DIRECTIONS OF DRP U/S 144C(13). II) ADJUSTMENTS OF WRITE-OFF OF GOODWILL BE GRANTED TO THE ASSESSEE, OR ALTERNATIVELY THE DEPRECIATION CHANGE BE EXCLUDED FROM BOTH ASSESSEE AS WELL AS COMPARABLES. III) MAHINDRA AUTOMOTIVE DISTRIBUTOR PVT. LTD. WHICH HAS SUPER NORMAL PROFIT, OBTAINED THROUGH INCORRECT FIL TER AND HAS RPT OF 29% SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE AS PER HE FILTER APPLIED BY THE TPO HIMS ELF OF 25% RPT TRANSACTION. IV) MCNALLY SAYAJI BE INCLUDED IN FINAL LIST OF COMPARA BLE AS PER THE DIRECTED OF THE DRP V) THE SEARCH PROCESS CARRIED OUT BY THE TPO MAY BE HO LD AS INVALID AND THE RESULTS DECLARED BY ASSESSEE IN ITS TP ANALYSIS MAY BE UPHELD. 5.3 THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDER OF THE LOWER AUTHORITIES AND ON THE ISSUE OF EXCLUSION OF THE COMPARABLE M/S MAHINDRA AUTO MOBILE DISTRIBUTOR SUBMITTED THAT THE COMPARABLE QUALIFIED RELATED PARTY TRANSACTION (RPT ) FILTER BEING 24 ITA NO.7802/DEL./2017 21% OF THE TOTAL TRANSACTIONS, AND THUS FOLLOWING T HE DIRECTION OF LEARNED DRP, THE COMPARABLE HAS BEEN RETAINED. 6. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE RELEVANT METAL ON RECORD . BEFORE US, THE ASSESSEE HAS SUBMITTED THAT IF THE COMPARABLE M /S MAHINDRA AUTO MOBILE DISTRIBUTOR IS EXCLUDED FROM THE SET OF THE COMPARABLES, THE ASSESSEE WILL BE AT ARMS LENGTH P RICE ( ALP) AND OTHER OBJECTION OF THE ASSESSEE MIGHT NOT REQUIRED TO BE ENTERTAINED. 6.1 ONE OF THE MAIN OBJECTIONS OF THE ASSESSEE FOR INCLUDING M/S MAHINDRA AUTO MOBILE DISTRIBUTER IS THAT DURING THE YEAR THE COMPANY PAID EXCISE DUTY ON SALE OF THE PRODUCTS OF 12% TO 13% APPROXIMATELY AND IN VIEW OF THE SAME THE COMPANY I S NOT PURELY TRADING AND ITS REVENUE COMPRISE OF AN ACTIVITY WHI CH AMOUNT TO MANUFACTURE SUCH THAT EXCISE DUTY IS PAYABLE ON IT. THUS, THERE IS DIFFERENCE IN FUNCTION PERFORMED BY IT ON ACCOUNT O F THE EXCISE DUTY PAID SO THAT IT IS EARNING MORE PROFIT THAN TH E PURE TRADING COMPANIES CHOSEN BY THE LEARNED TPO. HENCE THIS IS NOT COMPARABLE TO THE ASSESSEES TRADING SEGMENT. 6.2 ON VERIFICATION OF THE ANNUAL REPORT OF THE COM PANY M/S MAHINDRA AUTO MOBILE DISTRIBUTOR, WHICH WAS MADE AV AILABLE DURING THE COURSE OF HEARING, WE FIND THAT IN PROFI T AND LOSS ACCOUNT OF THE PAYMENT OF THE EXCISE DUTY IS REPORT ED. WE FIND THAT NO FURTHER DETAIL IN RESPECT OF THE EXCISE DUT Y PAID BY THE COMPANY IS AVAILABLE IN THE ANNUAL REPORT. THE EXCI SE DUTY IS PRIMARILY PAYABLE ON THE MANUFACTURING ACTIVITY AND IN ABSENCE OF ANY DETAIL, THE COMPANY CANNOT BE TREATED AS PURE T RADER OF PRODUCTS. IN SUCH CIRCUMSTANCES, THE COMPANY BECOME FUNCTIONALLY DIFFERENT FROM THE TRADING SEGMENT OF ASSESSEE. THE 25 ITA NO.7802/DEL./2017 FUNCTIONAL DIFFERENCE ITSELF IS SUFFICIENT TO EXCLU DE THE COMPANY FROM THE SET OF THE COMPARABLES, AND WE ARE NOT EXA MINING OTHER GROUNDS LIKE RPT FILTER ETC FOR REJECTION OF THE CO MPANY. 6.3 ACCORDINGLY, WE DIRECT THE LEARNED TPO/AO TO E XCLUDE THE COMPANY FROM THE SET OF THE COMPARABLES AND RE-COMP UTE THE AVERAGE PLI OF THE COMPARABLES AND IF THE PLI OF T HE ASSESSEE IS FOUND TO BE MORE THAN THE AVERAGE PLI OF THE COMPAR ABLES, NO ADJUSTMENT WOULD BE REQUIRED IN THE TRADING SEGMENT OF THE ASSESSEE. AS THE ASSESSEE HAS ALREADY SUBMITTED THA T IF M/S MAHINDRA AUTO MOBILE DISTRIBUTOR IS EXCLUDED FROM T HE SET OF THE COMPARABLE, THE ASSESSEE WOULD BE AT ARMS LENGTH P RICE, AND OTHER OBJECTION WOULD NOT BE REQUIRED TO BE ENTERTA INED. ACCORDINGLY, WE ARE NOT ADJUDICATING ON THE OTHER O BJECTIONS RAISED BY THE ASSESSEE IN RELATION TO THE ADJUSTMEN T TO THE TRANSACTION OF THE SALE OF GOODS, BECAUSE SAME ARE RENDERED MERELY ACADEMIC. 6.4 THE GROUND NO. 4 OF THE APPEAL IS ACCORDINGLY A LLOWED AND OTHER GROUNDS RELATED TO TRADING SEGMENT ARE NOT AD JUDICATED BEING RENDERED ACADEMIC. 8. THE GROUND NO. 13 TO 22 ARE RELATED TO ADJUSTMEN T TO PROVISION FOR SUPPORT SERVICE SEGMENT (MARKETING SU PPORT SERVICES AND PROJECT MANAGEMENT SUPPORT SERVICES). 9. THE GROUND NO. 13 AND 22 BEING GENERAL IN NATURE , WE ARE NOT REQUIRED TO ADJUDICATE SPECIFICALLY. 10. THE GROUND NO. 14 IS IN RESPECT OF CHANGE IN MO ST APPROPRIATE METHOD FROM COST PLUS METHOD (CPM) TO TRANSACTIONAL NET MARGIN METHOD (TNMM) BY THE TPO F OR DETERMINATION OF ALP OF THE SUPPORT SERVICE SEGMENT . 26 ITA NO.7802/DEL./2017 10.1 THE ASSESSEE IN ITS TRANSFER PRICING STUDY APP LIED CPM AS MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIO NAL TRANSACTION OF PROVISION OF SUPPORT SERVICES I.E PM S AND MSS. THE ASSESSEE DETERMINED ITS GROSS PROFIT AT 26.18% AND THE GROSS PROFIT MARGIN OF THE COMPARABLES WAS DETERMINED AT 7.48% ON THREE YEARS AVERAGE. ACCORDING TO THE ASSESSEE , TH E LEARNED TPO APPLIED TNMM AS MOST APPROPRIATE METHOD WITHOUT GIV ING ANY REASON FOR DISREGARDING THE CHOICE OF THE CPM AS MA M ADOPTED BY THE ASSESSEE FOR THE SUPPORT SERVICE SEGMENT . 10.2 BEFORE US, THE ASSESSEE IN ITS WRITTEN SUBMISS ION, SUBMITTED AS UNDER: - IT IS SUBMITTED THAT IT IS NOT OPEN TO THE TPO TO CHOOSE A DIFFERENT MAM FOR DETERMINING THE ALP WITHOUT ASSIGNING ANY COGENT RE ASONS. RELIANCE IS PLACED ON ALUMECO INDIA EXTRUSION LTD. [TS-491-HC-2 014-(TEL&AP)-TP] WHEREIN IT WAS HELD THAT WHERE ASSESSEE HAD CHOSEN MOST APPROPRIATE METHOD, TPO MUST RECORD REASON FOR REJECTION OF SUC H METHOD. THE TRIBUNAL DID NOT FIND ANY SUBSTANCE IN ANY OF T HE TRANSFER PRICING OFFICERS MULTIPLE ARGUMENTS FOR ARGUMENTS FOR REJECTION OF ASSESSEES INTERNAL COST PLUS METHOD AND ADOPTION O F EXTERNAL TRANSACTION NET MARGIN METHOD. IN OTHER WORDS, IT W AS FOUND BY THE TRIBUNAL THAT THE DECISION OF THE TRANSFER PRICING OFFICER WAS ABSOLUTELY ARBITRARY AND IRRATIONAL AND HENCE IT SE T ASIDE THE ORER OF THE TRANSFER PRICING OFFICER. WE DO NOT FIND ANY EL EMENT OF LAW FOR CONSIDERATION IN THESE APPEALS. - RELIANCE IS ALSO PLACED ON LOREAL INDIA PVT. LTD. [TS-716-ITAT-2011 (MUM)] AND DIC INDIA LTD. [TS-753-ITAT-2016(KOL)-TP ]. - PARA 9- THE LEARNED CIT(A) GAVE A CATEGORICAL FINDI NG THAT THE COST PLUS METHOD ADOPTED BY THE ASSESSEE IS BASED ON THE FUNCTIONS PERFORMED AND NOT ON THE BASIS OF TYPES OF PRODUCT MANUFACTURED, AS NORMALLY THE PRICING METHODS GET PRECEDENCE OVER P ROFIT METHODS. THE CIT(A) OBSERVED THAT EVEN ACCORDING TO THE OEC D GUIDELINES THE PREFERRED METHOD IS THAT THE METHOD REQUIRES COMPUT ATION OF ALP DIRECTLY BASED ON GROSS MARGIN, OVER OTHER METHODS WHICH REQUIRE COMPUTATION OF ALP IN AN INDIRECT METHOD BECAUSE, C OMPARING GROSS MARGINS EXTINGUISHES THE NEED FOR MAKING ADJUSTMENT S IN RELATION TO DIFFERENCES IN OPERATING EXPENSES, WHICH COULD BE D IFFERENT FROM ENTERPRISE TO ENTERPRISE. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES OF THE CASE, WE ARE OF THE VIEW THAT THE CIT(A) RIGHTLY UPHELD T HE CONTENTION OF THE 27 ITA NO.7802/DEL./2017 ASSESSEE. WE, THEREFORE, FIND NO INFIRMITY IN THE O RDER OF CIT(A) ON THIS COUNT AND THE SAME IS HEREBY CONFIRMED. - THIS GROUND OF THE LD. TPO NOT CONSIDERING THE CPM METHOD AS THE MAM WAS RAISED BEFORE DRP ALSO IN GROUND 2. HOWEVER, TH E DRP DID NOT ADJUDICATE ON THIS OBJECTION SPECIFICALLY AND DID N OT DISCUSS IT IN ITS ORDER. - THE DRP IN PARA 5.3 OF ITS ORDER BY REFERRING TO IT S AY 2012-13 ORDER, LHELD THAT TNMM IS MOST APPROPRIATE METHOD IN THIS CSE. DRP FAILED TO APPRECIATE THAT IN AY 2012-13, THE ISSUE OF SELECT ION OF MOST APPROPRIATE METHOD WAS IN RESPECT OF TRANSACTION OF PURCHASE OF TRADED GOODS, AND NOT FOR THE SUPPORT SERVICES SEGMENT. TH E ISSUES FOR AY 2012-13 ARE ENTIRELY DIFFERENT FROM THOSE IN AY 201 3-14, AND ARE NOT RELEVANT IN THE YEAR UNDER CONSIDERATION. THUS, THE DRP FINDINGS OF AY 2012-13 ARE NOT RELEVANT FOR ADJUDICATING ISSUES UN DER THIS YEAR. THE RELIANCE OF THE DRP ON ITS EARLIER ORDER TO FORM OP INION ON CHOICE OF METHOD IN THIS CASE IS NOT WARRANTED AND PRAYED TO BE ANNULLED. - ACCORDINGLY, IT IS PRAYED THAT THE CPM BE ACCEPTED AS THE MAM FOR BENCHMARKING THE TRANSACTION OF SUPPORT SERVICES SE GMENT. - WITHOUT PREJUDICE, IT IS ACCEPTED THAT THE CPM IS M ORE SUITED TO THE TRANSACTION OF RENDERING OF SERVICES THAN THE TNMM. RELIANCE IS PLACED ON THE OECD GUIDELINES (PARA 2.45) AND GUIDANCE NOT E ON TRANSFER PRICING ISSUED BY ICAI IN 2017(PARA 6.20), WHEREIN THE CPM IS SAID TO BE ORDINARILY APPROPRIATE IN THE FOLLOWING SITUATIONS: (I) WHERE SEMI- FINISHED GOODS ARE TRANSFERRED BETW EEN ASSOCIATES; OR (II) WHERE THERE IS LONG TERM BUYING AND SELLING AR RANGEMENTS; OR (III) IN THE CASE OF THE PROVISION OF SERVICES; OR (IV) JOINT FACILITY ARRANGEMENTS; (V) CONTRACT MANUFACTURING PARTICULARLY WHERE THESE ARE OF SUBSIDIARY OR PERIPHERAL NATURE. - FURTHER, RELIANCE IS PLACED ON THE DECISION OF LOR EAL INDIA PVT. LTD. (SUPRA)- THE CIT(A) OBSERVED THAT EVEN ACCORDING T O THE OECD GUIDELINES THE PREFERRED METHOD IS THAT THE METHOD REQUIRES COMPUTATION OF ALP DIRECTLY BASED ON GROSS MARGIN, OVER OTHER M ETHODS WHICH REQUIRE COMPUTATION OF ALP N AN INDIRECT METHOD BECAUSE, CO MPARING GROSS MARGINS EXTINGUISHES THE NEED FOR MAKING ADJUSTMENT S IN RELATION TO DIFFERENCES IN OPERATING EXPENSES, WHICH COULD BE D IFFERENT FROM ENTERPRISE TO ENTERPRISE. 10.3 FURTHER, THE GROUND NO. 15, 16 AND 19 HAVE BEE N RAISED BY THE ASSESSEE IN RESPECT OF THE EXCLUSION OF THE COM PARABLES OF THE ASSESSEE. 10.4 BEFORE US, IN ITS WRITTEN SUBMISSION, THE ASSE SSEE SUBMITTED AS UNDER: 28 ITA NO.7802/DEL./2017 - THE LD. TPO ALSO REJECTED THE COMPARABLES SELECTE D BY THE ASSESSEE FOR BENCHMARKING ITS SUPPORT SERVICES NAMELY DENAVE IND IA, MAHINDRA LOGISTIC AND TVS LOGISTIC WITHOUT GIVING ANY COGENT REASONS (TPO PAGE 41). - IT IS NOT OPEN TO THE TPO TO REJECT COMPARABLES O F THE ASSESSEE WITHOUT FUNCTIONAL ANALYSIS OF THE SAME. RELIANCE IS PLACED ON ROCHE PRODUCTS INDIA PVT LTD. VS. ACIT [TS-154-ITAT-2016-MUM-TP] THE COMPARABLES SELECTED BY THE ASSESSEE SHOULD NOT BE IGNORED LIGH TLY, UNLESS AND UNTIL IT CAN BE PROVED THAT THE VERABLES SELECTED BY IT WERE FUNCTIONALLY OR OTHERWISE DIFFERENCE FROM THE JOB DONE BY IT. - THE ASSESSEE IN ITS SUPPORT SERVICE SEGMENT IS EN GAGED IN PROVIDING LOW AND RISK FREE SERVICES LIKE CO-ORDINATION IN PROCUR EMENT, ATTENDING MEETING ON BEHALF OF CLIENT ETC. THE ASSESSEE IN IT S SUPPORT SERVICE SEGMENT IS RISK FREE SERVICE PROVIDER AS HELD BY HO NBLE ITAT IN CASE OF ROLLS-ROYCE INDIA PVT. LTD. (ASSESSEES BUSINESS BE FORE IT WAS PURCHASED BY IT) AS EVIDENT FROM AGREEMENTS OF THE ASSESSEE A ND ORDER OF ITAT. THE SAME IS ALSO EVIDENT FROM NOTE 35 OF AUDITED FINANC IALS. - THUS THE COMPARABLE SHOULD BE SELECTED WHICH ARE ENGAGED IN PROVIDING LOW END RISK FREE SUPPORT SERVICES. - HONBLE DRP ON 3 RD PARA PG. 12 OF ITS ORDER MENTIONED THAT THE ASSESS EE HAS RE-ITERATED ITS SUBMISSION MADE BEFORE THE TPO AND THUS DID NOT ADJUDICATE ON ASSESSEES OBJECTIONS IN DETAIL AND D ISPOSED THE SAME IN NON-SPEAKING AND AD-HOC MANNER. HONBLE DRP ALSO ME NTIONED THAT FILTERS APPLIED BY THE TPO HAVE BEEN ACCEPTED BY VA RIOUS ITAT DECISIONS, BUT DID NOT EXPLAIN/STATE WHAT THOSE DECISIONS ARE AND HOW THEY ARE APPLICATION TO THE FACTS OF THE ASSESSEES CASE. SU CH A CASUAL APPROACH BY THE DRP IN DISPOSING OFF THE ASSESSEES OBJECTIO NS IN UN-CALLED FOR AND PRAYED TO BE ANNULLED. 10.5 IN THE GROUND NO. 17 AND 18, THE ASSESSEE HAS OBJECTED SELECTION OF VARIOUS COMPARABLES BY THE LEARNED TPO . THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT IF ITS GROU NDS RELATED TO EXCLUSION OF THE CERTAIN COMPARABLES SELECTED BY TH E LEARNED TPO UNDER THE SEGMENT, IS CONSIDERED, THE PROFIT LEVEL INDICATOR OF THE ASSESSEE OF SUPPORT SERVICE SEGMENT WOULD BE MORE T HAN THE AVERAGE PLI OF THE COMPARABLES AND NO ADJUSTMENT WO ULD BE REQUIRED AND OTHER GROUNDS IN RELATION TO SUPPORT S ERVICE SEGMENT MAY NOT BE REQUIRED TO ADJUDICATE. 10.6 ACCORDINGLY, WE TAKE UP ARGUMENTS OF THE PARTI ES IN RELATION TO EACH COMPARABLE FOR ADJUDICATION. THE FUNCTION, ASSET AND RISK (FAR) ANALYSIS OF THE ASSESSEE IN RELATION TO PROVI SION OF PROJECT 29 ITA NO.7802/DEL./2017 MANAGEMENT AND MARKETING SUPPORT SERVICES AS AVAILA BLE ON PAGE 49 TO 51 OF THE PAPER-BOOK, IS REPRODUCED AS UNDER: III. PROVISION OF PROJECT MANAGEMENT AND MARKETING SUPPORT SERVICES BACKGROUND: BEIPL PROVIDES CERTAIN SPECIFIC SERVICE S TO ITS AE AS PER AN AGREEMENT ENTERED INTO BY THE TWO PARTIES NAMELY PR OJECT MANAGEMENT SERVICES AND MARKETING SUPPORT SERVICES. THESE SERV ICES PROVIDED BY BEIPL ARE IN THE NATURE OF SUPPORT SERVICES. THE AE IS TH E RECEIVER OF THESE SERVICES AND PERFORMS NO FUNCTION IN THIS REGARD. THE FUNCTI ONS PERFORMED BY BEIPL ARE EXPLAINED AS UNDER: (A) FUNCTIONS NATURE OF FUNCTION BEIPL AE MARKET SUPPORT YES BEIPL INCURS EXPENDITURE FOR MEETING THE PROSPECTIVE CUSTOMERS AT VARIOUS LOCATIONS ON BEHALF OF ITS AES AND USES ITS MANPOWER FOR THE SAME. NO AE PERFORMS NO FUNCTION IN THIS REGARD PROJECT SUPPORT YES BEIPL PROVIDES SUPPORT SERVICES LIKE ADMINISTRATIVE SERVICE, HUMAN RESOURCE SERVICE FOR THE SPECIFIC PROJECT, ENSURING RESOURCE AVAILABILITY AT CORRECT TIME. ALSO INCURS EXPENDITURE FOR CO- ORDINATING WITH VARIOUS CUSTOMERS ON BEHALF OF AE. THE ADMINISTRATIVE OPERATIONS PERFORMED BY THE COMPANY ARE IN THE NATURE OF OFFICE UTILITIES, TRAVELLING AND CONVEYANCE, TELECOMMUNICATIONS, ETC. NO AE PERFORMS NO FUNCTION IN THIS REGARD. WITH REGARD TO THESE SUPPORT SERVICES, AE DOES NOT PERFORM ANY FUNCTION FOR THE PERFORMANCE OF ANY SERVICE MENTIONED ABOVE. AE ONLY COMPENSATE BEIPL THE COST INCURRED IN PROVIDING SUPPORT SERVICES ALO NG WITH MARK-UP COMMENSURATE WITH THE RISK UNDERTAKEN. 30 ITA NO.7802/DEL./2017 (B) ASSETS ALL THE ASSETS EMPLOYED BY BEIPL AFTER DEPRECIATION (AS PER BOOKS OF ACCOUNT) ARE INTEGRAL PART OF BUSINESS OF BEIPL WHICH HELPS IT IN CARRYING OUT THE TRADING AND SERVICE ACTIVITIES AND ARE NOT EXCLUSIVELY USED FOR THE INTERNATIONAL TRANSACTION OF PROVISION OF SUPPORT SERVICES. REFER PARA 5.3 FOR THE DETAILS OF TANGIBLE AND INTANGIBLE ASSETS EMPLOYED BY THE COMP ANY ON 31 ST MARCH, 2013. (C) RISKS RISK PROFILING OF BEIPL VIS--VIS ITS AES IS PROVI DED IN THE TABLE BELOW:- RISK CATEGORY AND DESCRIPTION EXPOSURE TO BEIPL EXPOSURE TO AES MARKET RISK MARKET RISK ARISES DUE TO UNCERTAINTY/FALL IN THE DEMAND OF THE SERVICES. NO BEIPL IS NOT EXPOSED TO THE MARKET RISKS SINCE IT RENDERS SERVICES TO ITS AES ONLY YES AE BEARS ALL THE MARKET RISK IN RESPECT OF THIS TRANSACTION AND BEIPL IS NOT HELD LIABLE FOR ANY SERVICE FAILURE. SERVICE LIABILITY RISK THIS RISK ARISES OUT OF ANY SHORTFALL IN THE QUALITY OF SERVICES BEING RENDERED NO BEIPL BEARS NO RISK OF SHORTFALL IN SERVICE QUALITY AS THE RISK WILL REMAIN WITH THE AE ONLY AND BEIPL WILL REMAIN HARMLESS FROM ANY LIABILITY. YES AES BEAR ALL THE RISK ON ACCOUNT OF SHORTFALL IN SERVICE QUALITY. FOREIGN EXCHANGE RISK THE RISK ARISES FROM ANY ADVERSE FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES, WHICH COULD HAVE A NEGATIVE IMPACT ON THE PROFITABILITY OF THE COMPANY. YES FOR THE BILLS RAISED IN FOREIGN CURRENCY BEIPL IS EXPOSED TO THE RISK OF FOREIGN CURRENCY FLUCTUATIONS. HOWEVER THERE IS NO RISK FOR BILLS RAISED IN INR YES FOR THE BILLS RAISED IN INR THE AES ARE EXPOSED TO THE FOREIGN CURRENCY FLUCTUATION RISK. CREDIT RISK THIS IS THE RISK ARISING WHEN A FIRM SUPPLIES ITS PRODUCTS OR SERVICES TO A CUSTOMER IN ADVANCE OF ITS PAYMENT. NO. BEIPL IS RENDERING SERVICE TO ITS ASSOCIATED ENTERPRISES WHICH HAVE HIGH CREDITWORTHINESS THEREFORE IT BEARS NO OR NEGLIGIBLE RISK. NO. THE AES MAKE PAYMET TO BEIPL IN RELATION TO THE SERVICES AVAILED BY THEM AND THUS, ARE NOT EXPOSED TO ANY CREDIT RISK. CHARACTERIZATION 31 ITA NO.7802/DEL./2017 THE ABOVEMENTIONED CONTRACTUAL TERMS OF THE AGREEME NT WHICH DIVIDES THE RISK AND BENEFIT BETWEEN ASSESSEE AND THE AE CLEARLY SHO WS THAT THE ASSESSEE BEARS VIRTUALLY NO RISKAT ALL WHILE PERFORMING ANY OF ITS FUNCTIONS UNDER THE AGREEMENT. ALL THE POSSIBLE RISKS ARISING FROM THE PROVISION OF SERVICES REMAIN WITH THE AE AND NO COST ON ACCOUNT OF SUCH RISK IS ATTRIBUTABLE TO THE ASSESSEE. THEREFORE, BEIPLS FUNCTIONS IN RELATION TO THE IN TERNATIONAL TRANSACTION OF PROVIDING SUPPORT SERVICES HAVE NO RISK AS COMPAR ED TO OTHER PLAYERS IN THE INDUSTRY. AE ON THE OTHER HAND BEARS ALL THE RISK A SSOCIATED WITH RECEIPT OF PMS & MSS SERVICES DUE TO ANY SERVICE FAILURES ON T HE PART OF BEIPL IT BEING RESPONSIBLE TO THE ULTIMATE CUSTOMER. 10.7 THUS, THE ASSESSEE HAS CHARACTERIZED ITSELF AS NO RISK ENTITY HAVING ENGAGED IN PROVIDING PMS AND MSS SERVICES TO ITS ASSOCIATED ENTERPRISES. 10.8 WE FIND THAT THE LEARNED TPO SELECTED 13 COMPA RABLES WITH AVERAGE MARGIN PLI OF 12.89% AND COMPUTED THE ADJUS TMENT TO 34,61,745/-. THE LEARNED DRP DIRECTED TO EXCLUDE TH E COMPARABLE NAMELY M/S JUST DIAL LTD WHICH RESULTED IN AVERAGE MARGIN PLI OF THE REMAINING COMPARABLES AT 11.32 % AND RESULTANT ADJUSTMENT TO 26,58,897/-. 11. THE COMPARABLES OBJECTED BY THE ASSESSEE ARE DI SCUSSED AS UNDER: APTICO LTD. 12. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED T HAT THE COMPANY IS FUNCTIONALLY DIFFERENT. THE LEARNED COUN SEL SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVIDING CONSULTANC Y SERVICES PARTICULARLY IN THE FIELD OF ENERGY MANAGEMENT, AS AGAINST THE ASSESSEE UNDER THE HEAD PMS AND MSS PROVIDED SUP PORT SERVICES TO AE SUCH AS LIASIONING ACTIVITIES, COORD INATION WITH CUSTOMERS, LOGISTICS ETC., IN THE OIL AND GAS SECTO R . HE SUBMITTED THAT THE COMPANY ALSO NEED TO BE EXCLUDED BEING A G OVERNMENT OF INDIA UNDERTAKING. HE SUBMITTED THAT COORDINATE BEN CH OF THE 32 ITA NO.7802/DEL./2017 TRIBUNAL IN THE CASE OF ROLLS ROYCE INDIA PRIVATE LIMITED ( PREDECESSOR IN BUSINESS OF THE ASSESSEE BEFORE BUSI NESS PURCHASE IN FEBRUARY 2012) EXCLUDED THE APTICO LTD. BEING NO T COMPARABLE TO THE ASSESSEE SUPPORT SERVICE SEGMENT. THE LEARNE D COUNSEL ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF MICROSOFT CORPORATION INDIA PRIVATE LIMITED [ TS-323-ITAT-201 9(DEL)-TP], WHEREIN APTICO LTD HAS BEEN EXCLUDED FROM THE FINAL LIST OF THE COMPARABLE BEING A GOVERNMENT COMPANY. 12.1 THE LEARNED DR, ON THE OTHER HAND, REFERRED TO PARA-5.4 OF THE LEARNED DRP AND SUBMITTED THAT FUNCTION OF THE COMPANY IS BROADLY SIMILAR TO THE SUPPORT SERVICE SEGMENT OF T HE ASSESSEE. THE LEARNED DR ALSO REFERRED TO REVENUE FROM OPERAT IONS OF THE COMPANY AND SUBMITTED THAT COMPANY IS ENGAGED IN DI VERSE ACTIVITIES INCLUDING PROJECT RELATED SERVICES, INFR ASTRUCTURE AND PLANNING DEVELOPMENT, WHICH ARE BROADLY SIMILAR TO THE ASSESSEE. 12.2 WE HAVE HEARD SUBMISSION OF THE BOTH THE PARTI ES ON THE ISSUE IN DISPUTE. AS FAR AS FUNCTIONS OF THE COMPAN Y IS CONCERNED, FROM NOTE -15 OF THE ANNUAL REPORT( AVAILABLE ON PA GE 28 OF ANNUAL REPORT OF THE COMPANY), WHICH IS HAVING DETA ILED OF REVENUE FROM OPERATIONS, WE FIND THAT MAIN REVENUE HAS BEEN EARNED FROM MICRO-ENTERPRISE DEVELOPMENT AND SKILL DEVELOPMENT AND EDPS. THE RELEVANT DETAILED OF REVENUE FROM VAR IOUS OPERATIONS IS REPRODUCED AS UNDER: REVENUE AND OPERATIONS AS AT 31 ST MARCH, 2013 AMOUNT (RS.) AS AT 31 ST MARCH, 2012 AMOUNT (RS.) REVENUE FROM BUSINESS SERVICES: 1.MICRO ENTERPRISES DEVELOPMENT 1,21,07,772 61,65,005 2. SKILL DEVELOPMENT & EDPS 5,85.32,425 342,16,979 3. TOURISM INFRASTRUCTURE DEVELOPMENT 69,09,433 61,59,508 4. RESEARCH STUDIES 43,28,748 82,90,233 5. PROJECT RELATED SERVICES, 3,46,34,748 3,44,61,535 33 ITA NO.7802/DEL./2017 INFRASTRUCTURE PLANNING & DEVELOPMENT 6. ENVIRONMENT MANAGEMENT 13,76,967 24,90,956 7. ENERGY RELATED SERVICES 34,65,414 62,26,342 8.CLUSTER DEVELOPMENT 23,75,286 4,51,06,106 9.ASSET RECONSTRUCTION & MANAGEMENT SERVICES 81,80,532 81,12,649 TOTAL 13,15,11,325 15,12,29,313 12.3 FROM THE ABOVE, IT IS CLEAR THAT MAIN REVENUE IS FROM SKILL DEVELOPMENT AND ENTREPRENEURSHIP DEVELOPMENT AND TR AINING PROGRAM, WHICH IS DISTINCT FROM THE FUNCTION OF THE SUPPORT SERVICES IN THE FIELD OF PROJECT MANAGEMENT AND MAR KETING SUPPORT PROVIDED BY THE ASSESSEE. THE SUPPORT SERVI CES RENDERED BY THE ASSESSEE I.E. LIASIONING AND LOGISTIC ETC AR E OF VERY BASIC LEVEL AND DONT REQUIRE HIGHLY SKILLED MANPOWER, WH EREAS THE SKILL DEVELOPMENT AND ENTREPRENEURSHIP DEVELOPMENT REQUIR E SPECIAL KNOWLEDGE AND MANPOWER. 12.4 FURTHER, AS FAR AS OBJECTION OF THE COMPANY BE ING A GOVERNMENT COMPANY, THE LEARNED TPO HIMSELF ON PAGE 52 OF THE TRANSFER PRICING ORDER, HAS MENTIONED THAT THE COMP ANY IS A TECHNICAL CONSULTANT ORGANIZATION PROMOTED JOINTLY BY ALL INDIA FINANCIAL INSTITUTIONS (IDBI, IFCI, ICICI), INDUSTR IAL DEVELOPMENT CORPORATION OF ANDHRA PRADESH AND COMMERCIAL BANKS. FURTHER THE LEARNED COUNSEL REFERRED TO THE COMMENTS OF THE CONTROLLER AND AUDITOR GENERAL (CAG) OF INDIA UNDER SECTION 61 9(4) OF THE COMPANIES ACT ON THE ACCOUNTS OF THE APTICO LTD, FOR THE YEAR ENDING ON 31/03/2013. IT IS EVIDENT THAT COMPANY BE ING A PROMOTED BY PUBLIC SECTOR UNDERTAKINGS, IS AKIN TO GOVERNMENT COMPANY. WE FIND THAT THE COMPANY HAS BEEN EXCLUDED BY THE TRIBUNAL IN THE CASE OF ROLLS-ROYCE INDIA PRIVATE LIMITED (IN ITA NO. 1310/DEL/2015 FOR ASSESSMENT YEAR 2010-11). THE ASSESSEE 34 ITA NO.7802/DEL./2017 HAS ACQUIRED THE VERY SAME UNDERTAKING OF THE ROLLS -ROYCE INDIA PRIVATE LIMITED IN A SLUMP-SALE. THE FINDING OF THE TRIBUNAL(SUPRA) IS REPRODUCED AS UNDER: 36. THE SECOND COMPARABLE, INCLUSION OF WHICH IS D ISPUTED BY THE ASSESSEE, IS APTICO LTD. IN THE SYNOPSIS FILED BY T HE ASSESSEE IT IS MENTIONED THAT THE SERVICES PROVIDED INCLUDE BUT NO T LIMITED TO THE DOMAINS OF PROJECT REPORT PREPARATION, TECHNO ECONO MIC STUDIES, FEASIBILITY STUDIES, MICRO ENTERPRISE DEVELOPMENT, SKILL DEVELOPMENT, PROJECT MANAGEMENT CONSULTING, INDUSTRIAL CLUSTER DEVELOPMENT, ENVIRONMENTAL MANAGEMENT CONSULTING, ENERGY MANAGEM ENT CONSULTING, MARKET & SOCIAL RESEARCH AND ASSET REC ONSTRUCTION MANAGEMENT SERVICES. THIS COMPANY WAS PROMOTED JOIN TLY BY ALL INDIA FINANCIAL INSTITUTIONS (IDBI, IFCI, ICICI), S TATE INDUSTRY DEVELOPMENT CORPORATIONS (APIDC, APSFC) AND COMMERC IAL BANKS (ANDHRA BANK, INDIAN BANK, STATE BANK OF INDIA, SYN DICATE BANK). 37. FROM A BARE PERUSAL OF THE SERVICES RENDERED BY APITCO LTD., IT IS CLEAR THAT IT IS IMPARTING CONSULTANCY IN ENT IRELY DIFFERENT FIELD AND IS NOT COMPARABLE TO THE FUNCTIONS PERFORMED BY DIFFERENT SERVICE SEGMENTS OF ASSESSEE. WE, THEREFORE, DIRECT ION FOR EXCLUSION OF THIS COMPARABLE FROM THE LIST OF COMPARABLES. 12.5 IN THE CASE OF MICROSOFT CORPORATION INDIA PRI VATE LIMITED (SUPRA), THE COMPANY HAS BEEN EXCLUDED ON THE GROUN D OF BEING A GOVERNMENT COMPANY, RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S SHELL INDIA MARKET P LTD VS ACIT [ T S-430-ITAT- 2014-MUM-TP] . THE TRIBUNAL IN THESE DECISIONS HAS HELD THE GOVT. COMPANIES AS NOT COMPARABLE TO THE PRIVATE CO MPANIES PRIMARILY DUE TO DIFFERENT RISK UNDERTAKEN AND THE COMMERCIAL PURPOSE OF PRIVATE COMPANIES AS COMPARED TO SOCIAL OBJECTIVE OF GOVT. COMPANIES. 12.6 IN VIEW OF THE ABOVE, THE COMPANY BEING FUNCTI ONALLY DIFFERENT FROM THE SUPPORT SERVICE SEGMENT OF THE A SSESSEE AND ALSO BEING A GOVERNMENT COMPANY, THE LEARNED AO/TPO IS DIRECTED TO EXCLUDE THE COMPANY FROM THE SET OF THE FINAL COMPARABLES. 35 ITA NO.7802/DEL./2017 AXIS INTEGRATED SYSTEMS LTD: 13. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED T HAT THE COMPANY WAS ENGAGED IN PROVIDING VARIOUS EXPERT SER VICES LIKE DGFT, CUSTOMS/EXCISE AND SERVICE TAX -RELATED SERVI CES, WHICH REQUIRE EXPERT EYES OF HIGHER-LEVEL AND CAN BE PERF ORMED BY A TECHNICAL PERSON, IN CONTRAST TO THE SUPPORT SERVI CES OF RAISING INVOICES, COORDINATION WITH CUSTOMERS, LOGISTICS ET C. IN THE OIL AND GAS SECTORS, WHICH ARE BASICALLY A LOW-END SERVICE HAVING NO RISK AND THUS THE COMPANY IS NOT FUNCTIONALLY SIMILAR TO THE ASSESSEE. THE LD. COUNSEL RELIED ON THE DECISION OF THE TRIBU NAL, MUMBAI BENCH IN THE CASE OF TRAVELEX INDIA PRIVATE LIMITED IN ITA NO. 8192/ MUM/2010 FOR ASSESSMENT YEAR 2006-07. 13.1 THE LEARNED DR, ON THE OTHER HAND, RELIED ON T HE FINDING OF THE LEARNED TPO/DRP AND SUBMITTED THAT FUNCTION OF THE COMPANY ARE PRIMARILY COMPARABLE TO THE ASSESSEE. 13.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE OF EXCLUSION/RETENTION OF THE COMPANY AS COMPARABLE . AS FAR AS FUNCTIONS OF THE COMPANY ARE CONCERNED, THE LEARNED TPO HIMSELF HAS MENTIONED THAT THE COMPANY IS ENGAGED IN PROVID ING SERVICES RELATED TO DIRECTOR GENERAL OF FOREIGN TRADE (DGFT) , CUSTOMS/EXCISE AND SERVICE TAX -RELATED SERVICES. C LEARLY THESE SERVICES ARE IN THE NATURE OF THE CONSULTANCY OR SE RVICES OF EXPERT NATURE AND CANNOT BE COMPARED WITH ROUTINE SUPPORT SERVICES OF RAISING INVOICES, COORDINATION WITH CUSTOMERS, LOGI STICS ETC. THE COMPANY BEING FUNCTIONALLY DISSIMILAR TO THE SUPPOR T SERVICE SEGMENT OF THE ASSESSEE, WE DIRECT THE LEARNED AO/T PO TO EXCLUDE THE COMPANY FROM THE SET OF THE FINAL COMPA RABLES. 36 ITA NO.7802/DEL./2017 BVG INDIA LTD. 14. THE COUNSEL REFERRED TO DISCLOSURE IN BOARD OF DIRECTORS REPORT EXPLANATORY ( PAGE 4 OF THE ANNUAL REPORT) W HEREIN CLAUSE 3 , THE OPERATIONS OF THE COMPANY HAVE BEEN MENTION ED. HE SUBMITTED THAT COMPANY WAS AWARDED CONTRACT OF RUNN ING AND MAINTAINING 937 AMBULANCES ACROSS THE MAHARASHTRA A ND PROVIDE TIMELY HELP IN EMERGENCY MEDICAL SITUATION. HE SUB MITTED THAT THE COMPANY ALSO EXTENDED ITS OPERATION IN SOLID WA STE MANAGEMENT. THE SERVICES PROVIDED BY THE COMPANY NO T ONLY INCLUDE ROUTINE SERVICES OF FACILITY MANAGEMENT, ME CHANIZED HOUSEKEEPING AND SHOP FLOOR CLEANING BUT SPECIALIZE D SERVICES OF LAND FILLING, SOLID WASTE MANAGEMENT, SERIES TREATM ENT PLANT, EMERGENCY MEDICAL SERVICES, FACTORY CONSTRUCTION, O UTDOOR ADVERTISEMENT ETC. THEREFORE, THE COMPANY CANNOT BE COMPARED WITH THE SUPPORT SERVICE SEGMENT OF THE ASSESSEE. 14.1 ON THE CONTRARY, THE LEARNED DR RELIED ON THE FINDING OF THE LOWER AUTHORITIES. 14.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE. ON PERUSAL OF THE ANNUAL REPORT (PAGE - 3) OF THE COMPANY, IT IS EVIDENT THAT THE COMPANY WAS ENGAGED IN FACILITY MANAGEMENT SERVICES, HOUSEKEEPING SERVICES ALONG WI TH SERVICES OF SOLID WASTE MANAGEMENT INCLUDING ORGANIC AND INO RGANIC WASTE MANAGEMENT, SEWAGE TREATMENT PLANTS FOR GOVERNMENT ENTITIES. THIS FACT HAS ALSO BEEN RECORDED BY THE LEARNED TPO . CLEARLY, THE SERVICES OF THE SOLID WASTE MANAGEMENT AND SEWAGE T REATMENT PLANT, CANNOT BE COMPARED WITH SUPPORT SERVICE OF R AISING INVOICES AND OTHER LOGISTIC SERVICES RENDERED BY TH E ASSESSEE TO ITS ASSOCIATED ENTERPRISES. THERE IS NO SEPARATE SEGMEN T OF ROUTINE LOW-END SERVICES AVAILABLE IN THE ACCOUNTS OF THE C OMPANY. IN 37 ITA NO.7802/DEL./2017 VIEW OF THE BASKET OF SERVICES RENDERED BY THE COMP ANY, IT CANNOT BE COMPARED FUNCTIONALLY WITH THE SUPPORT SERVICE S EGMENT OF THE ASSESSEE. THIS COMPANY BEING FUNCTIONALLY DISSIMILA R AT ENTITY LEVEL, WE DIRECT THE LEARNED AO/TPO TO EXCLUDE THE COMPANY FROM THE FINAL SET OF THE COMPARABLES. KILLICK AGENCIES AND MARKETING LTD . 15. THE LEARNED COUNSEL REFER TO PAGE 48 AND 49 OF THE COMPENDIUM OF THE ANNUAL REPORT AND SUBMITTED THAT THE COMPANY IS ENGAGED IN MARKETING OF SPECIALIZED PRO PULSION SYSTEMS, MARINE ENGINES, SHIP LIGHTING AND NAVIGATI ON LIGHTING, DREDGE EQUIPMENT AND DEFENSE ACROSTIC PRODUCTS, WHI CH IS IN CONTRAST TO MARKETING SUPPORT SEGMENT OF THE ASSESS EE. HE SUBMITTED THAT THE ASSESSEE IS NOT A MARKETING COMP ANY. 15.1 ON THE CONTRARY, THE LEARNED DR RELIED ON THE FINDING OF THE LOWER AUTHORITIES. 15.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES. WE FIND THAT THE LEARNED TPO HAS RECORDED THAT THE COMPANY IS PI ONEER IN BRINGING NEW PRODUCTS AND TECHNOLOGIES TO INDIA STA RTING WITH KEROSENE LAMP AND VARIOUS OTHER PRODUCTS LIKE TOAST ER, PRESSURE COOKERS, SLOTTED ANGLES ETC AND THEIR SUCCESSFUL PR OMOTION. WE DO NOT UNDERSTAND, HOW THIS COMPANY CAN BE FUNCTIONALL Y SIMILAR TO THE SUPPORT SERVICE SEGMENT OF THE ASSESSEE. IN PRO FIT AND LOSS ACCOUNT, REVENUE FROM OPERATIONS OF 4,14,80,772/-HAS BEEN SHOWN. ON PERUSAL OF THE DIRECTORS REPORT ( ANNUAL REPORT PAGE 2), WE FIND THAT DURING THE YEAR THE COMPANY HAS SH OWN INCOME OF COMMISSION FROM DREDGE SALES TO GOVERNMENT OF MA HARASHTRA AND JAMMU AND KASHMIR, SHIP LIGHTING BUSINESS. IN V IEW OF SPECIALIZED SERVICES RENDERED BY THE COMPANY, IT CA NNOT BE 38 ITA NO.7802/DEL./2017 CONSIDERED FUNCTIONALLY SIMILAR TO THE SUPPORT SERV ICE SEGMENT OF THE ASSESSEE. THIS COMPANY BEING FUNCTIONALLY DISSI MILAR AT ENTITY LEVEL , WE DIRECT THE LEARNED AO/TPO TO EXCLUDE FRO M FINAL SET OF THE COMPARABLES. MARKETING CONSULTANT AND AGENCIES. 16. THE LEARNED COUNSEL SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVIDING ADVERTISEMENT SERVICES THROUGH VARIOUS SOURCES LIKE PERIODICALS, NEWSPAPER, RADIO AND TELEVISION. ACCOR DING TO THE LEARNED COUNSEL, THE ASSESSEE IS A MARKETING SUPPO RT SERVICE COMPANY AND NOT A MARKETING COMPANY. HE SUBMITTED T HAT COMPANY BEING SIMILAR TO JUST DIAL LTD WHICH HAS BEEN EXCLUDED BY THE LEARNED DRP AND THUS IT MIGHT ALSO BE REJECT ED ON THE SAME CRITERIA AS JUST DIAL LTD. HE ALSO REFERRED TO ANNUAL REPORT OF THE COMPANY AND SUBMITTED THAT THIS A GOVERNMENT OF INDIA UNDERTAKING AS WELL AS ENGAGED IN SALE OF PRODUCTS AND FAILED TO PASS THE FILTER OF PRODUCTS TO SERVICE RATIO. 16.1 THE LEARNED DR ON THE OTHER AND SUBMITTED THAT GOVERNMENT ORGANIZATION ALSO PLAYS A LEVEL PLAYING FIELD WITH PRIVATE SECTOR AND CANNOT BE EXCLUDED JUST ON THE GROUND THAT IT IS A GOVERNMENT ORGANIZATION. ON THE FILTER OF THE PRODUCT TO SERVI CE RATIO, THE LEARNED DR SUBMITTED THAT LEARNED TPO HAS MENTIONED THAT THE COMPANY PASSES ALL THE FILTERS. 16.2 WE HAVE HEARD THE RIVAL SUBMISSION OF THE PART IES AND PERUSED THE RELEVANT MATERIAL ON RECORD. ON PERUSAL OF THE ANNUAL REPORT OF THE COMPANY, IT IS EVIDENT THAT COMPANY I S A GOVERNMENT COMPANY. FURTHER ON PERUSAL OF THE PROFI T AND LOSS ACCOUNT OF THE COMPANY, WE FIND THAT THE COMPANY HA S SHOWN REVENUE FROM SALE OF THE PRODUCTS AT 49,65,37,078/-AND REVENUE 39 ITA NO.7802/DEL./2017 FROM SALE OF THE SERVICES OF 97,89,74,969/-. FROM THESE FIGURES OF SALE OF PRODUCTS AND SERVICES THE RATIO OF THE S ERVICES AND PRODUCTS WORKS OUT TO 65% AND 35% RESPECTIVELY. THE SALE OF PRODUCT IS A SIGNIFICANT ACTIVITY AND THUS COMPANY CANNOT BE COMPARED WITH THE SUPPORT SERVICE SEGMENT OF THE AS SESSEE AT ENTITY LEVEL. IN ABSENCE OF SEGMENTAL RESULT OF SER VICES OF THE COMPANY, IT BEING FUNCTIONALLY DISSIMILAR AT ENTITY LEVEL WITH THE SUPPORT SERVICE SEGMENT OF THE ASSESSEE, WE DIRECT THE LEARNED AO/TPO TO EXCLUDE THE COMPANY FROM THE FINAL SET OF THE COMPARABLES. KESTONE INTEGRATED MARKETING SERVICE PRIVATE LIMITE D: 17. THE LEARNED COUNSEL REFERRED TO THE NOTES TO TH E FINANCIAL STATEMENT FOR THE YEAR UNDER CONSIDERATION AND SUBM ITTED THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING MANPOWER, EVENT MANAGEMENT AND INFRASTRUCTURE SUPPORT SERVICE S, WHICH CANNOT BE COMPARED WITH THE LOW-END SERVICES OF SUP PORT SERVICE SEGMENT OF THE ASSESSEE. 17.1 THE LD. DR, ON THE OTHER HAND, RELIED ON THE F INDING OF THE LEARNED TPO/DRP. 17.2 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE PROFIT AND LOSS ACCOUNT INCOME HAS BEEN SHOWN FROM OPERATIONS. THE RELEVANT PART O F NOTES TO THE FINANCIAL STATEMENT OF THE COMPANY IS REPRODUCED AS UNDER: 1. BACKGROUND KESTONE INTEGRATED MARKETING SERVICES PRIVATE LIMIT ED (THE COMPANY) WAS INCORPORATED ON FEBRUARY 03, 1997 UND ER THE COMPANIES ACT, 1956. THE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF CL EDUCATE LIMITED. THE COMPANY IS ENGAGED IN THE B USINESS OF PROVIDING MANPOWER, EVEN MANAGEMENT AND INFRASTRUCT URE SUPPORT SERVICES. 40 ITA NO.7802/DEL./2017 17.3 IN VIEW OF THE SERVICES OF THE EVENT MANAGEMEN T AND INFRASTRUCTURE SUPPORT SERVICES RENDERED BY THE COM PANY, IT CANNOT BE COMPARED FUNCTIONALLY WITH THE SUPPORT SE RVICE SEGMENT OF THE ASSESSEE AND THUS BEING FUNCTIONALLY DISSIMILAR, WE DIRECT THE LEARNED AO/TPO TO EXCLUDE THE COMPANY FROM THE FINAL SET OF THE COMPARABLES. GOLDMINE ADVERTISING LTD: 18. THE LEARNED COUNSEL REFERRED TO ANNUAL REPORT O F THE COMPANY AND SUBMITTED THAT SERVICE SALES OF THE COM PANY INCLUDE SPACE MEDIA, RADIO ADVERTISING, HOLDING, DESIGNING, TV ADVERTISING SALES, PRINT SALES ETC. AND THIS COMPANY BEING IN M EDIA ADVERTISEMENT, CANNOT BE COMPARED WITH SUPPORT SERV ICES SEGMENT INCLUDING MARKETING SUPPORT OF THE ASSESSEE . 18.1 ON THE CONTRARY, THE LEARNED DR RELIED ON THE FINDING OF THE LEARNED TPO/DRP. 18.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES. IN THE PROFIT AND LOSS ACCOUNT, REVENUE HAS BEEN SHOWN FROM SALE OF SERVICES AT RS.127,48,55,307/-. FURTHER BELOW THE PROFIT AND LOSS ACCOUNT IN FOOTNOTES, FURTHER BREAKUP OF THE REVENUE HAS BE EN SHOWN AS UNDER: (A) SPACE MEDIA : 997334654 RADIO ADVERTISING : 17942280 HOARDING: 53707532 DESIGNING: 62387426 T.V . ADVERTISING SALES:124955162 PRINT SALES: 13086017OTH ER: 5442136 18.3 IN VIEW OF THE STREAM OF THE REVENUE SHOWN BY THE COMPANY, IT IS EVIDENT THAT IT IS A FULL-FLEDGED MEDIA ADVER TISEMENT COMPANY AND IT CANNOT BE COMPARED WITH THE SUPPORT SERVICE INCLUDING MARKETING SUPPORT SEGMENT OF THE ASSESSEE. THE COMP ANY BEING 41 ITA NO.7802/DEL./2017 FUNCTIONALLY DISSIMILAR, WE DIRECT THE LEARNED AO/T PO TO EXCLUDE THE COMPANY FROM THE FINAL SET OF THE COMPARABLES. 19. IN VIEW OF THE GROUND NO. 17 AND 18 OF THE APPE AL RELATED TO EXCLUSION OF THE COMPARABLES SELECTED BY THE LEARNE D TPO ADJUDICATED BY US, THE GROUND NO. 21 OF CONSIDERING RISK ADJUSTMENT IN SUPPORT SERVICE SEGMENT IS RENDERED M ERELY ACADEMIC AND ACCORDINGLY, WE ARE NOT ADJUDICATING U PON THE SAME. THE GROUND IS DISMISSED ACCORDINGLY. 20. THE GROUND NO. 23 TO 32 ARE IN RELATION TO ADJU STMENT TO PROVISION OF TECHNICAL SERVICES. 21. THE GROUND NO. 23 AND 32 ARE GENERAL IN NATURE THEREFORE, WE ARE NOT REQUIRED TO ADJUDICATE UPON. 22. IN GROUND NO. 27 TO 29, THE ASSESSEE HAS RAISE D THE ISSUE OF EXCLUSION OF COMPARABLES SELECTED BY THE LEARNED TP O IN TECHNICAL SERVICE SEGMENT. 23. THE FUNCTION, RISK AND ASSET (FAR) ANALYSIS OF THE TECHNICAL SERVICE SEGMENT OF THE ASSESSEE AVAILABLE ON PAGE 5 1 TO 53 OF THE PAPER-BOOK IS REPRODUCED AS UNDER : PROVISION FOR TECHNICAL SERVICES BACKGROUND: IN ADDITION TO PROVIDING SPARE PARTS AN D EQUIPMENTS FOR DIESEL ENGINES USED IN THE POWER GENERAL AND ENERGY INDUSTRY. IT IS ALSO PROVIDES ANCILLARY SERVICES OF OPERATIONAL AND MAINTENANCE TO ITS AE. THE FUNCTIONS PERFORMED BY BEIPL IN REGARD TO THIS INTERNATIONAL TRANSACTION ARE AS FOLLOWS: (A) FUNCTIONS NATURE OF FUNCTION BEIPL AE INSTALLATION OF ENGINES AND PROJECT SUPPLIES YES BEIPL PERFORMS THE FUNCTION OF INSTALLING GOODS AND EQUIPMENTS AT SPECIFIED LOCATION OF THE AE. NO SINCE THE AE IS ON THE RECEIVING AND OF THE SERVICES IT DOES NOT HAVE ANY ROLE IN THE INSTALLATION FUNCTION. SUPERVISION & MAINTENANCE YES BEIPL PROVIDE SUPERVISION & NO AES DO NOT HAVE ANY ROLE TO PLAY IN THE 42 ITA NO.7802/DEL./2017 MAINTENANCE PERSONNEL AT SITE TO KEEP A CHECK ON THE PROPER OPERATION OF THE PLANT. FUNCTION OF SUPERVISION. THEY RECEIVE THE O&M SERVICES FROM BEIPL AND AS SUCH DO NOT PERFORM ANY FUNCTION. REPAIR WORK YES REPAIR OF ENGINE GENERATING SETS UPON RECEIPTS OF VARIATION ORDER FROM THE CUSTOMER. NO AES DOE NOT HAVE ANY ROLE TO PLAY IN THE FUNCTION OF REPAIR AND OVERHAUL. SERVICE QUALITY YES SINCE BEIPL IS THE PROVIDER OF SERVICES IT NEEDS TO KEEP A CHECK ION THE QUALITY OF SERVICES BEING PROVED. NO AE DOES NOT HAVE ANY FUNCTIONS TO PERFORM SINCE IT IS ON THE RECEIVING END OF THE SERVICES BEING PROVIDED BY BEIPL (B) ASSETS ALL THE ASSETS EMPLOYED BY BEIPL AFTER DEPRECIATION (AS PER BOOKS OF ACCOUNT ) ARE INTEGRAL PART OF BUSINESS OF BEIPL WH ICH HELPS IT IN CARRYING OUT THE TRADING AND SERVICE ACTIVITIES AND ARE NOT EXCLUSIVELY USED FOR THE INTERNATIONAL TRANSACTION OR PROVISION OF TECHNICAL SERVICES. REFER PARA 5.3 FOR THE DETAILS OF TANGIBLE AND INTANGIBLE ASSETS E MPLOYED BY THE COMPANY ON 31 ST MARCH, 2013. (C) RISKS RISK PROFILING OF BEIPL VIS-A0VIS ITS AES PROVIDED IN THE TABLE BELOW: RISK CATEGORY AND DESCRIPTION EXPOSURE TO BEIPL EXPOSURE TO AES MARKET RISK: MARKET RISK ARISES FOR A BUSINESS DUE TO THE UNCERTAINTY IN THE STRUCTURE OF THE MARKET, DEMAND PATTERNS AND NEEDS OF CUSTOMERS COSTS, PRICING ETC. MARKET RISK REPRESENTS STANDARD RISK BORNE BY ANY ENTERPRISE IN MARKET DRIVEN TRANSACTIONS YES, LIMITED BEIPL BEARS THE MARKET RISK IN RESPECT OF SERVICES RENDERED. HOWEVER, SINCE THEY ARE RENDERED TO THE AE, THE RISK IS MINIMAL. YES THIS RISK IS BORNE BY THE AE, SINCE THEY ARE RESPONSIBLE TO THE ULTIMATE CUSTOMER. SERVICE NO YES 43 ITA NO.7802/DEL./2017 LIABILITY/PERFORMANCE RISK: RISKS ASSOCIATED WITH SERVICE FAILURES, INCLUDING NOT MEETING THE GENERALLY ACCEPTED/REGULATORY STANDARDS INFLUENCES THE PRICE CHARGED IN A PARTICULAR TRANSACTION. BEIPL DOES NOT HAVE ANY CONTRACTUAL LIABILITY FOR LOSSES OR DAMAGES FOR SERVICE FAILURES AND THE COST OF REWORK (IF ANY) WOULD BE RECOVERABLE FROM THE AES. ACCORDINGLY, IN ECONOMIC SUBSTANCE, THE ASSESSEE COMPANY DOES NOT BEAR ANY SERVICE LIABILITY RISK. THE AES ARE RESPONSIBLE FOR ANY FAILURE OR DAMAGES RELATED TO SERVICE PERFORMANCE. MANPOWER RISK MANPOWER RISK ASSOCIATED WITH RISK OF LOSING ITS TRAINED PERSONNEL AS WELL AS EMPLOYING UNTRAINED OR INEFFICIENT EMPLOYEES. YES, LIMITED BEIPL, TO SOME EXTENT HAS THE RISK OF RECRUITING AND RETAINING KEY PERSONNEL. HOWEVER, THIS RISK OF MINIMAL. NO AE IS NOT AT ALL EXPOSED TO THIS RISK MARKET RISK: MARKET RISK ARISES FOR A BUSINESS DUE TO THE UNCERTAINTY IN THE STRUCTURE OF THE MARKET, DEMAND PATTERNS AND NEEDS OF CUSTOMERS COST., PRICING ETC. MARKET RISK REPRESENTS STANDARD RISK BORNE BY ANY ENTERPRISE IN MARKET DRIVEN TRANSACTIONS. YES, LIMITED BEIPL BEARS THE MARKET RISK IN RESPECT OF SERVICES RENDERED, HOWEVER, SINCE THEY ARE RENDERED TO THE AE, THE RISK IS MINIMAL. YES THIS RISK IS BORNE BY THE AE, SINCE THEY ARE RESPONSIBLE TO THE ULTIMATE CUSTOMER. TECHNOLOGICAL RISK THIS RISK ARISES IF THE MARKET IN WHICH THE COMPANY OPERATES IN SENSITIVE TO INTRODUCTION OF NEW PRODUCTS AND TECHNOLOGIES. YES BEIPL BEARS RISK ON THIS ACCOUNT AS IT IS ALSO PROVIDING TECHNICAL SERVICES TO ITS AE AND MAY FACE LOSS OF POTENTIAL REVENUES DUE TO INEFFICIENCIES ARISING FROM OBSOLETE INFRASTRUCTURE AND TOOLS. NO AE DOES NOT BEAR ANY RISK ON THIS ACCOUNT BECAUSE IT IS RECEIVING THE SERVICE. CREDIT/COLLECTION RISK: THIS IS THE RISK ARISING WHEN A FIRM SUPPLIES ITS PRODUCTS OR SERVICES TO A CUSTOMER IN ADVANCE NO BEIPL IS RENDERING SERVICE TO ITS ASSOCIATED ENTERPRISES WHICH HAVE HIGH NO. THE AES MAKE PAYMENT TO BEIPL IN RELATION TO THE SERVICES AVAILED BY 44 ITA NO.7802/DEL./2017 OF ITS PAYMENT CREDITWORTHINESS THEREFORE IT BEARS NO OR NEGLIGIBLE RISK. THEM AND THUS, ARE NOT EXPOSED TO ANY CREDIT RISK. FOREIGN CURRENCY RISK: THE RISK ARISES FROM ANY ADVERSE FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES, WHICH COULD HAVE A NEGATIVE IMPACT ON THE PROFITABILITY OF THE COMPANY YES BEIPL RAISE INVOICES IN FOREIGN CURRENCY. SO, THEY ARE EXPOSED TO FOREIGN EXCHANGE RISK ON ACCOUNT OF FLUCTUATIONS IN FOREIGN CURRENCY IN RELATION TO INR. THEREFORE, BEIPL BEARS THIS RISK. NO NO RISK ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS ARISES FOR THE AE. 24. THE ASSESSEE UNDER THE SEGMENT HAS CLAIMED TO H AVE PROVIDED ANCILLARY SERVICES OF OPERATION AND MAINTE NANCE TO ITS AES. THE ASSESSEE HAS CHARACTERIZED ITSELF AS A TEC HNICAL SERVICE PROVIDER THAT ASSUMES STANDARD RISK WITH CARRYING O F SUCH BUSINESS ACTIVITY . 24. THE LEARNED TPO AFTER REJECTING ASSESSEES COMP ARABLES, CONDUCTED A FRESH SEARCH PROCESS AND OBTAINED ITS O WN SET OF 10 COMPARABLES. OUT OF WHICH THE ASSESSEE OBJECTED FIV E COMPARABLES, WHICH ARE DISCUSSED AS UNDER: HOLTEC COUNSELING: 25. THE LD. COUNSEL SUBMITTED THAT THE COMPANY IS R ENDERING COMMISSIONING OF GREENFIELD, EXPANSION OF CEMENT AS WELL AS CAPTIVE POWER PLANT/WASTE HEAT RECOVERY BASED PLANT S. THE LD. COUNSEL REFERRED TO ANNUAL REPORT, WHEREIN THE COMP ANY HAS BEEN CLAIMED TO BE PRIMARILY ENGAGED IN THE BUSINES S OF RENDERING ENGINEERING CONSULTANCY SERVICES. THE LEARNED COUNS EL SUBMITTED THAT THE COMPANY HAS BEEN EXCLUDED BY THE TRIBUNAL DELHI BENCH IN THE CASE OF BECHTEL INDIA PRIVATE LIMITED [ TS-6 02-ITAT- 45 ITA NO.7802/DEL./2017 2015(DEL)-TP] DUE TO FUNCTIONALLY DIFFERENT FROM TH E COMPANIES ENGAGED IN PROVIDING ENGINEERING SERVICES. 25.1 THE LEARNED DR ON THE OTHER HAND RELIED ON THE FINDING OF THE LEARNED TPO. 25.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE. THE LD TPO HIMSELF HAS MENTIONED THAT COMPANY IS EN GAGED IN PROVIDING ENGINEERING CONSULTANCY SERVICES. IN THE ANNUAL REPORT, AT NOTE 20, FOOTNOTE 32 , IT IS MENTIONED THAT THE COMPANY IS PRIMARILY ENGAGED IN THE BUSINESS OF RENDERING ENGI NEERING CONSULTANCY SERVICES. THE FUNCTION OF THE CONSULT ANCY CANNOT BE COMPARED WITH FUNCTION OF THE PROVIDING ANCILLARY S ERVICES OF OPERATION, REPAIR AND MAINTENANCE OF PLANTS. 25.3 ACCORDINGLY, WE DIRECT THE LEARNED AO/TPO TO E XCLUDE THE COMPANY FROM THE SET OF THE COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITY. MITCOIN 26. THE LEARNED COUNSEL SUBMITTED THAT THE COMPANY IS ENGAGED IN CONSULTANCY OF PROJECT FEASIBILITY REPORTS TO IT S CLIENTS. THE COMPANY COMMISSIONED VARIOUS POWER PLANTS AND PROVI DED CONSULTANCY TOWARDS SOLAR POWER PROJECT, ENGINEERIN G AND PROJECT MANAGEMENT CONSULTANCY ETC. , THUS COMPANY IS FUNCT IONALLY DIFFERENT FROM THE TECHNICAL SERVICE SEGMENT OF THE ASSESSEE. 26.1 THE LD. DR RELIED ON THE ORDER OF THE LOWER AU THORITIES AND SUBMITTED THAT ENGINEERING SERVICES RENDERED BY THE COMPANY ARE AKIN TO TECHNICAL SUPPORT SERVICE SEGMENT OF THE AS SESSEE. 26.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES. LD. TPO HIMSELF HAS MENTIONED THAT THE COMPANY HAS BEEN PRO MOTED BY LEADING FINANCIAL INSTITUTIONS AND PUBLIC SECTOR CO MMERCIAL BANKS 46 ITA NO.7802/DEL./2017 AND CONTAINS 12 DIVISIONS AND DEDICATED WORKFORCE. ON PERUSAL OF THE ANNUAL REPORT ( PAGE -5) , WE FIND THAT VARIOUS DIVISIONS OF THE COMPANY INCLUDE POWER DIVISION, ENERGY AND CARBON S ERVICE DIVISION, ENVIRONMENT MANAGEMENT AND ENGINEERING DI VISION, BANKING AND FINANCE DIVISION, INFRA-CONSULTING GROU P, SECURITIZATION DIVISION, ENTREPRENEURSHIP AND VOCAT IONAL TRAINING DIVISION, E-SCHOOL DIVISION, BT AND PHARMA DIVISIO N ETC. THUS COMPANY IS ENGAGED IN PROVIDING DIVERSE SERVICES AN D NO SEPARATE SEGMENT INFORMATION IS AVAILABLE IN ANNUAL REPORT. CLEARLY, THE COMPANY CANNOT BE COMPARED FUNCTIONALLY WITH THE TE CHNICAL SUPPORT SERVICE SEGMENT OF THE ASSESSEE AT ENTITY L EVEL. THE COMPANY BEING FUNCTIONALLY DISSIMILAR, WE DIRECT TH E LEARNED AO/TPO TO EXCLUDE THE COMPANY FROM THE FINAL SET OF THE COMPARABLES UNDER TECHNICAL SERVICE SEGMENT. HSCC(INDIA) LTD. : 27. THE COUNSEL SUBMITTED THAT THE COMPANY DEALS IN PROVIDING CONSULTANCY SERVICES IN HEALTHCARE SECTOR AND ALSO PROVIDE RANGE OF SERVICES IN THE FIELD OF CONSTRUCTION OF HOSPITA LS, LABORATORIES ETC. THE LEARNED COUNSEL ALSO SUBMITTED THAT THE CO MPANY FAILS FILTER OF THE SERVICE INCOME MORE THAN 75% OF TOTAL INCOME. THE COUNSEL SUBMITTED THAT COMPANY IS A GOVERNMENT OF I NDIA UNDERTAKING. HE SUBMITTED THAT TRIBUNAL PUNE BENCH IN THE CASE OF BEHR INDIA LTD [TS-320-ITAT-2017(PUNE)-TP] HAS H ELD THAT PUBLIC SECTOR COMPANY WORKS AS PER THE GOVERNMENT P OLICIES AND SOCIAL OBLIGATION AND THUS THE RISK PROFILE AND FUN CTIONS ARE DISTINCT AND DISSIMILAR FROM THE CAPTIVE SERVICE PR OVIDERS. HE ALSO SUBMITTED THAT HONBLE SUPREME COURT IN THE CASE OF INTERNATIONAL SOS SERVICES INDIA PRIVATE LIMITED [T S-493-SC-2018- 47 ITA NO.7802/DEL./2017 TP] HAS UPHELD THAT GOVERNMENT OF INDIA UNDERTAKING CANNOT BE INCLUDED AS A COMPARABLE. 27.1 THE LEARNED DR, ON THE OTHER HAND, RELIED ON T HE FINDING OF THE LEARNED TPO/DRP. 27.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES. WE FIND THAT THE LEARNED TPO HIMSELF HAS MENTIONED THE FACT THAT THE COMPANY WAS ENGAGED IN RENDERING COMPREHENSIVE RANGE OF PRO FESSIONAL CONSULTANCY SERVICES IN HEALTHCARE AND OTHER SOCIAL SECTORS IN INDIA AND ABROAD, WHICH HAS BEEN UTILIZED BY VARIOU S ORGANIZATIONS BOTH IN PUBLIC AND PRIVATE SECTORS, C ENTRAL GOVERNMENT DEPARTMENTS ETC. THE ACCOUNTS OF COMPANY HAVE BEEN AUDITED BY THE AUDITORS APPOINTED BY THE CONTROLLER AND AUDITOR GENERAL OF INDIA (CAG). IN PROFIT AND LOSS ACCOUNT, REVENUE HAS BEEN SHOWN MAINLY FROM CONSULTANCY FEE. THE FUNCTIO N OF THE CONSULTANCY CANNOT BE COMPARED WITH THE TECHNICAL S ERVICE SEGMENT OF THE ASSESSEE, AND ACCORDINGLY, WE DIRECT THE LEARNED AO/TPO TO EXCLUDE THE COMPANY FROM THE FINAL SET OF THE COMPARABLES ON FUNCTIONAL DISSIMILARITY. ACROPETAL TECHNOLOGIES: 28. THE LEARNED COUNSEL SUBMITTED THAT THE COMPANY IS INTO IT SECTOR PROVIDING ENTERPRISES DEVELOPMENT, SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES TO ITS CUSTOMERS W HICH IS FUNCTIONALLY DIFFERENT FROM THE TECHNICAL SERVICE S EGMENT OF THE ASSESSEE, WHICH IS ENGAGED IN PROVIDING SERVICES OF OPERATION AND MANAGEMENT OF PLANTS. THE LEARNED COUNSEL ALSO SUBM ITTED THAT ANNUAL REPORT OF THE SAID COMPANY HAS NOT BEEN PROV IDED TO THE ASSESSEE. 48 ITA NO.7802/DEL./2017 28.1 THE LEARNED DR RELIED ON THE FINDING OF THE LE ARNED TPO/DRP. 28.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES. THE LEARNED TPO HAS MENTIONED THAT THE COMPANY IS ENGAGED IN TH REE SEGMENT, NAMELY ENGINEERING DESIGN SERVICE SEGMENT, INFORMAL TECHNOLOGY SEGMENT AND HEALTHCARE SEGMENT. FOR THE PURPOSE OF THE COMPARABILITY ANALYSIS, ONLY THE ENGINEERING DE SIGN SERVICE SEGMENT HAS BEEN CONSIDERED. THE LEARNED TPO ON PAG E 72 OF THE TRANSFER PRICING ORDER DATED 30/09/2016HAS REPRODUC ED THE TABLE OF SEGMENTAL RESULT OF THE COMPANY, HOWEVER O N BEING ASKED TO PROVIDE THE ANNUAL REPORT, THE LEARNED DR COULD NOT PRODUCE THE SAME DESPITE SUFFICIENT TIME PROVIDED TO HIM FO R MAKING THE ANNUAL REPORT AVAILABLE BEFORE THE BENCH . IN ABSEN CE OF ANNUAL REPORT OF THE COMPANY, NEITHER IT CAN BE COMPARED F UNCTIONALLY WITH THE ASSESSEE NOR THE OPERATING RESULT OF THE C OMPANY CAN BE CONSIDERED AS A RELIABLE. ACCORDINGLY, WE RESTORE I SSUE OF COMPARABILITY OF THE COMPANY BACK TO THE AO/TPO TO PROVIDE THE ANNUAL REPORT OF THE COMPANY TO THE ASSESSEE AND TH EN DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING AD EQUATE OPPORTUNITY TO THE ASSESSEE. CERTIFICATION ENGINEERING AND INTERNATIONAL LTD (CE IL): 29. THE LEARNED COUNSEL SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVIDING CERTIFICATION SERVICES AND QUALITY CHE CK SERVICES, WHICH ARE IN CONTRAST TO THE SERVICES RENDERED BY T HE ASSESSEE PROVISION THE NATURE OF THE REPAIR AND OVERALL OF E NGINES USED IN OIL AND GAS GENERATING PLANTS. HE ALSO SUBMITTED TH AT CEIL THE GOVERNMENT OF INDIA UNDERTAKING HAVING DIFFERENT RI SK AND REWARDS IN RENDERING SERVICES OF MANAGING QUALITY A ND SAFETY. IN SUPPORT OF THE CONTENTION THAT GOVERNMENT COMPANIES CANNOT BE 49 ITA NO.7802/DEL./2017 COMPARED WITH PRIVATE SECTOR COMPANIES, THE LEARNED COUNSEL RELIED ON THE DECISIONS IN THE CASE OF M/S SHELL IN DIA MARKETS PVT. LTD VS ACIT [TS-430-ITAT-2014-MUM-TP], BEHR INDIA LT D [TS- 320-ITAT-2017(PUN)-TP], INTERNATIONAL SOS SERVICES INDIA LTD (SUPRA), MICROSOFT CORPORATION INDIA PVT. LTD.[TS-3 23-ITAT- 2019(DEL)-TP]. 29.1 THE LEARNED DR, ON THE OTHER HAND, RELIED ON T HE FINDING OF THE LOWER AUTHORITIES. 29.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE. IN THE PROFIT AND LOSS ACCOUNT , THE CO MPANY HAS SHOWN REVENUE FROM ITS OPERATION. THE LEARNED TPO H AS NOTED THAT THE COMPANY IS ENGAGED IN PROVIDING CERTIFICAT ION AND QUALITY CHECKING BY VIEW OF VARIOUS PROCESSES OF PHYSICAL S URVEY AND TESTS DURING PROCUREMENT, FABRICATION, EXAMINATION, INSTA LLATION AND COMMISSIONING ETC. THE ACTIVITY OF CERTIFICATION AN D QUALITY CHECK IS DISTINCT FROM THE FUNCTION OF THE ASSESSEE OF TE CHNICAL SERVICE SEGMENT AND THUS WE DIRECT THE LEARNED AO/TPO TO EX CLUDE THE COMPANY FROM THE SET OF THE FINAL COMPARABLES BEING FUNCTIONALLY DISSIMILAR TO THE TECHNICAL SERVICE SEGMENT OF THE ASSESSEE. 30. IN VIEW OF OUR ADJUDICATION ON THE OBJECTION OF THE COMPARABLES SELECTED BY THE TPO, THE OTHER GROUND N O. 24, 25,26, 30 AND 31 OF THE APPEAL ARE RENDERED ACADEMIC. ACCO RDINGLY, WE ARE NOT ADJUDICATING THOSE GROUNDS AND DISMISS THE SAME IS INFRUCTUOUS. 31 IN THE GROUND NO. 33 AND 34, THE ASSESSEE HAS CH ALLENGED TRANSFER PRICING ADDITION MADE UNDER THE MAT PROVIS IONS. 31.1 THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS MADE TRANSFER PRICING ADDITIO N OF 4,74,72,605/- TO PROFIT UNDER THE MAT PROVISIONS. H E SUBMITTED 50 ITA NO.7802/DEL./2017 THAT NO TRANSFER PRICING ADDITION CAN BE MADE UNDER MAT PROVISIONS SINCE SECTION 115JB OF THE ACT IS A COMP LETE CODE IN ITSELF. IN SUPPORT, HE PLACED RELIANCE ON THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES (2002) SC 255 ITR 273. HE ALSO SUBMITTED THAT IN THE DRAFT ORDER DATE D 05/12/2016, THE ASSESSING OFFICER COMPLETED ASSESSMENT UNDER NO RMAL PROVISIONS AND ACCEPTED THE PROFIT AND THUS THE ADD ITION NOT PROPOSED IN THE DRAFT ORDER CANNOT BE MADE IN THE F INAL ORDER. IN SUPPORT OF THE CONTENTION HE RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT( CHENNAI) VS S ANMINA SCI INDIA P LTD. [TS-643-HC-2017-MAD]. 31.2 THE LEARNED DR, ON THE OTHER HAND, RELIED ON T HE ORDER OF THE LOWER AUTHORITIES. 31.3 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. ACCORDING TO THE PROVI SION OF SECTION 115JB OF THE ACT, THE BOOK PROFIT FOR THE PURPOSE O F THE PROVISION MEANS THE NET PROFIT SHOWN IN THE PROFIT AND LOSS A CCOUNT FOR THE RELEVANT YEAR AS INCREASED BY ITEMS LISTED IN EXPLA NATION-1. THE LIST OF THE ITEMS IN EXPLANATION-1 IS REPRODUCED AS UNDER: EXPLANATION 1.FOR THE PURPOSES OF THIS SECTION, ' BOOK PROFIT' MEANS THE PROFIT AS SHOWN IN THE STATEMENT OF PROFIT AND LOSS FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED B Y (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND THE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEV ER NAME CALLED, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC ; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF S UBSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PRO POSED ; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38 ) THEREOF) OR SECTION 11 OR SECTION 12 APPLY; OR 51 ITA NO.7802/DEL./2017 ( FA) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO INCOME, BEING SHARE OF THE ASSESSEE IN THE INCOME OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS, ON WHICH NO INCOME-TAX IS PAYABLE IN A CCORDANCE WITH THE PROVISIONS OF SECTION 86 ; OR ( FB) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO INCOME ACCRUING OR ARISING TO AN ASSESSEE, BEING A FOREIGN COMPANY, FR OM, (A) THE CAPITAL GAINS ARISING ON TRANSACTIONS IN S ECURITIES; OR (B) THE INTEREST, ROYALTY OR FEES FOR TECHNICAL SE RVICES CHARGEABLE TO TAX AT THE RATE OR RATES SPECIFIED IN CHAPTER XII, IF THE INCOME-TAX PAYABLE THEREON IN ACCORDANCE WIT H THE PROVISIONS OF THIS ACT, OTHER THAN THE PROVISIONS OF THIS CHAPTER , IS AT A RATE LESS THAN THE RATE SPECIFIED IN SUB-SECTION (1); OR ( FC) THE AMOUNT REPRESENTING NOTIONAL LOSS ON TRANSF ER OF A CAPITAL ASSET, BEING SHARE OF A SPECIAL PURPOSE VEHICLE, TO A BUSI NESS TRUST IN EXCHANGE OF UNITS ALLOTTED BY THE TRUST REFERRED TO IN CLAUSE (XVII) OF SECTION 47 OR THE AMOUNT REPRESENTING NOTIONAL LOSS RESULTING FROM ANY CHANGE IN CARRYING AMOUNT OF SAID UNITS OR THE AMOUNT OF LOSS ON TRANSFER OF UNITS REFERRED TO IN CLAUSE (XVII) OF S ECTION 47 ; OR ( FD) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO INCOME BY WAY OF ROYALTY IN RESPECT OF PATENT CHARGEABLE TO TAX UNDE R SECTION 115BBF ; OR (G) THE AMOUNT OF DEPRECIATION, (H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION T HEREFOR, (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET, (J) THE AMOUNT STANDING IN REVALUATION RESERVE RE LATING TO REVALUED ASSET ON THE RETIREMENT OR DISPOSAL OF SUCH ASSET, (K) THE AMOUNT OF GAIN ON TRANSFER OF UNITS REFERR ED TO IN CLAUSE (XVII) OF SECTION 47 COMPUTED BY TAKING INTO ACCOUNT THE COST OF THE SH ARES EXCHANGED WITH UNITS REFERRED TO IN THE SAID CLAUSE OR THE CARRYING AMOUNT OF THE SHARES AT THE TIME OF EXCHANGE WHERE SUCH SHARES ARE CARRIED AT A VALUE OTHER THAN THE COST THROUGH STAT EMENT OF PROFIT AND LOSS, AS THE CASE MAY BE; IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE STATEMENT OF PROFIT AND LOSS OR IF ANY AMOUNT REFERRED TO IN CLA USE (J) IS NOT CREDITED TO THE STATEMENT OF PROFIT AND LOSS, AND AS REDUCED BY, (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROV ISION (EXCLUDING A RESERVE CREATED PROFIT AND LOSS), IF ANY SUCH AMOUN T IS CREDITED TO THE STATEMENT OF PROFIT AND LOSS: 31.4 IT IS CLEAR THAT TRANSFER PRICING ADDITION IS NOT INCLUDED IN THE ABOVE LIST AND, THEREFORE, THE ASSESSING OFFICE R IS NOT JUSTIFIED IN CONSIDERING THE TRANSFER PRICING ADDITION FOR TH E PURPOSE OF COMPUTATION OF THE BOOK PROFIT UNDER THE PROVISIONS OF SECTION 52 ITA NO.7802/DEL./2017 115JB OF THE ACT. ACCORDINGLY, WE ALLOW THE GROUND OF THE ASSESSEE IN THIS REGARD. 32 THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL, 2020. SD/- SD/- ( SUDHANSHU SRIVASTAVA ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH APRIL, 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