Fluor Daniel India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 973/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7374 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 25-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: PRASOON MANGAL ADVS
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Initiation of penalty proceedings
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: BENCH I-1, NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 973/DEL/2016 AY: 2011-12 FLUOR DANIEL INDIA PVT. LTD. B 9, LGF GREEN PARK (MAIN) NEW DELHI 110 016 PAN: AAACF0927G VS . A CIT CIRCLE 9(1), ROOM NO.194 C.R.BUILDING I.P.ESTATE NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI: S.P.SINGH, MANONEET DALAL, YISHU GOEL & PRASOON MANGAL, ADVS RESPONDENT BY : SH. SANJAY I BARA, CIT, D.R. DATE OF HEARING : 09/01/2019 DATE OF PRONOUNCEMENT : 17/01/2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST FINAL ASSESSMENT ORDER DATED 29/01/16 PASSED BY LD.AO UND ER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (THE ACT) ON FOLLOWING GROUNDS OF APPEAL: 1. THE LD. ASSESSING OFFICER (AO) / LD. TRANSFER PRICING OFFICER (TPO) ERRED ON FACTS AND IN LAW BY MAKING AN ADJU STMENT TO THE ARMS LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANSACTIONS ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 2 WHICH RESULTED IN THE ENHANCEMENT OF RETURNED INCOM E OF THE APPELLANT BY INR 7,44,04,229. 2. THAT THE REFERENCE MADE BY THE LD. AO SUFFERS FR OM JURISDICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS EXPEDIENT AND NECESSARY TO REFER THE MATTER TO THE LD. TPO FOR COMPUTATION OF THE ARMS LENGTH PRICE, AS R EQUIRED UNDER SECTION 92CA(1) OF THE ACT. 3. THE LD. AO/LD. TPO/ LD. DISPUTE RESOLUTION PANEL (DRP) ERRED ON FACTS AND IN LAW IN MAKING AN UPWARD ADJUSTMENT TO THE ARMS LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANS ACTION IN RELATION TO PROVISION OF ENGINEERING DESIGN SERVICES AMOUNTI NG TO INR 7,44,04,229 BY: 3.1. REJECTING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN ITS TRANSFER PRICING DOCUMENTATION; 3.2. ACCEPTING COMPANIES, WHICH ARE NOT COMPARABLE TO TH E APPELLANT IN TERMS OF FUNCTIONS, ASSETS AND RISKS; 3.3. ERRONEOUSLY IGNORING COMPARABLE COMPANIES, OBTAINED BY WAY OF A FRESH SEARCH, PROVIDED BY THE APPELLANT AS A RESPONSE TO THE SHOW CAUSE NOTICE; AND 3.4. NOT GRANTING AN ECONOMIC ADJUSTMENT FOR THE RISK MI TIGATED ENVIRONMENT IN WHICH THE APPELLANT OPERATES. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. AO/ LD. TPO ERRED IN NOT EXAMINING THE VALI DITY OF INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) (C) O F THE ACT. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME O F HEARING OF THIS APPEAL AS THEY MAY BE ADVISED. THAT, THE ABOVE GROU NDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. BRIEF FACTS OF CASE ARE AS UNDER: 2. ASSESSEE FILED ITS RETURN OF INCOME ON 29/11/11 DEC LARING TOTAL INCOME OF RS.19,87,61,183/-. THE RETURN WAS REVISED ON 30/11/11 DECLARING TOTAL INCOME OF RS.19,87,61,183/ -. THE CASE WAS SELECTED FOR SCRUTINY, AND NOTICE UNDER SECTION 143 (2) OF THE ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 3 ACT, FOLLOWED BY NOTICES UNDER SECTION 142 (1), ALO NG WITH QUESTIONNAIRE WAS ISSUED TO ASSESSEE. IN RESPONSE T O STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED DETAILS AS CALLED FOR. 2.1. LD.AO OBSERVED THAT ASSESSEE IS ENGAGED IN THE BUS INESS OF PROVIDING ENGINEERING AND DESIGN SERVICES. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT ASSESS EE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES (AES), AND ACCORDINGLY REFERENCE WAS MA DE TO TRANSFER PRICING OFFICER (TPO) IN RESPECT OF INTERN ATIONAL TRANSACTION ENTERED INTO BY ASSESSEE FOR COMPUTING ITS ALP. 2.2. UPON RECEIPT OF REFERENCE, LD.TPO ISSUED NOTICE TO ASSESSEE FOR FILING DETAILS REGARDING INTERNATIONAL TRANSACT ION UNDERTAKEN BY ASSESSEE, WHICH WAS COMPLIED BY FILING DOCUMENTA TION UNDER RULE 10 D ALONG WITH OTHER DETAILS AS CALLED FOR. 2.3. LD.TPO OBSERVED THAT ASSESSEE IS A SUBSIDIARY OF U S COMPANY, BY THE NAME, FLUOR CORPORATION AND DANIEL INTERNATIONAL. IT WAS OBSERVED THAT ASSESSEE WAS ENGAGED IN PROVIDING ENGINEERING AND DESIGN SERVICES. THE INTE RNATIONAL TRANSACTION UNDERTAKEN BY ASSESSEE WITH ITS AES AS UNDER: SL. NO. INTERNATIONAL TRANSACTION AMOUNT (IN RS.) 1. PROVISION OF SERVICES 1,224,193,283 2. RECEIPT OF SERVICES 45,276,486 3. TRAINING COSTS 4,960,379 4. PAYMENT OF SOFTWARE CHARGES 47,515,618 5. REIMBURSEMENTS RECEIVED 21,037,547 2.4. ASSESSEE USED TNMM AS MOST APPROPRIATE METHOD AN D COMPUTED MARGIN BY USING OP/OC AS PLI. IN ITS COMPA RABILITY ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 4 ANALYSIS ASSESSEE CONSIDERED FOLLOWING 8 COMPARABLE S WITH AN AVERAGE OF 6.99% AND ASSESSEE HAD WORKED OUT ITS OW N MARGIN TO BE 12.70%. SL. NO. NAME OF THE COMPANY REMARK OF THE TPO 1. ACROPETAL TECHNOLOGIES LTD. (ENGINEERING DESIGN SERVICES SEGMENT) THIS IS A SUITABLE COMPARABLE. 2. CONSULTING ENGINEERING SERVICES INDIA PVT.LTD. DATA FOR THE CURRENT YEAR IS NOT AVAILABLE IN THE PUBLIC DOMAIN. HENCE, NOT A SUITABLE COMPARABLE. 3. DEVELOPMENT CONSULTANTS LTD. DATA FOR THE CURREN T YEAR IS NOT AVAILABLE IN THE PUBLIC DOMAIN. HENCE, NOT A SUITABLE COMPARABLE 4. ENGINEERING PROJECTS (INDIA) LTD. THIS COMPANY I S IN CONSTRUCTION BUSINESS OF MANY SPHERES. HENCE, NOT A SUITABLE COMPARABLE. 5. KITCO LTD. THIS IS A SUITABLE COMPARABLE. 6. KLG SYSTEL LTD. (LIFE CYCLE SOLUTIONS SEGMENT) THIS COMPANY FAILS SERVICE INCOME FILTER (28.19%) AND THIS COMPANY AS PER DISCLOSURE MADE IN ANNUAL REPORT IS IN COMPUTER SOFTWARE & HARDWARE. HENCE, NOT A SUITABLE COMPARABLE. 7. PROJECT AND DEVELOPMENT INDIA LIMITED. THIS IS A SUITABLE COMPARABLE. 8. SIMON INDIA LIMITED THIS COMPANY IS ENGAGED IN CONSTRUCTION CONTRACT WHICH ARE FUNCTIONALLY DIFFERENT FROM THE TAX PAYER AND FAILS SERVICE FILTER ALSO (4.09%). HENCE, NOT A SUITABLE COMPARABLE. 2.5. LD.TPO HAS NOT DISPUTED REGARDING FUNCTIONAL PR OFILE OF ASSESSEE, MOST APPROPRIATE METHOD USED AND PLI IN R ESPECT OF SERVICE RENDERED BY ASSESSEE. ONLY DISPUTE RAISED B Y LD.TPO IS IN RESPECT OF COMPARABLES, CHOSEN BY ASSESSEE. HE THUS , BY APPLYING ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 5 VARIOUS FILTERS, REJECTED CERTAIN COMPARABLES FROM ASSESSEES LIST AND INCLUDED 2 NEW COMPARABLES, DETAILS OF WHICH AR E AS UNDER: SL. NO. NAME OF THE COMPANY OP/OC FOR FY 2010 - 11 1. ACROPETAL TECHNOLOGIES LTD. (SEGMENT) 14.36% 2. ACCUSPEED ENGINEERING SERVICES INIDA LTD. 10.37% 3. CADES DIGITECH PRIVATE LIMITED 5.47% 4. KITCO LIMITED 27.48% 5. PROJECT AND DEVELOPMENT INDIA LTD. 39.32% 6. MAHINDRA CONSULTING ENGINEERS LTD. 30.92% 7. T C E CONSULTING ENGINEERS LTD. 29.29% ARITHMETIC MEAN 27.46% 2.6. LD.TPO THUS DETERMINED AVERAGE MEAN TO BE 27.46%. LD.TPO THUS PROPOSED AN ADJUSTMENT OF RS.10,05,97,6 32/- AFTER DETERMINING THE ALP OF INTERNATIONAL TRANSACTIONS A T RS.1,34,21,10,505/-. 2.7. AGGRIEVED BY ADJUSTMENT PROPOSED BY LD.TPO, ASSESS EE RAISED OBJECTIONS BEFORE DRP. THE DRP THOUGH UPHELD APPROACH ADOPTED BY LD.TPO AND COMPARABLES SELECTED BY HIM, ALLOWED BENEFIT OF WORKING CAPITAL ADJUSTMENT. ON GIVING EF FECT TO DIRECTIONS OF DRP, ARITHMETIC MEAN OF COMPARABLES REDUCED TO 20.07%, PURSUANT TO WHICH, ADJUSTMENT REDUCED TO RS.7,44,04,229/-. 2.8. LD.AO UPON RECEIPT OF ORDER OF DRP, PASSED FINAL ASSESSMENT ORDER BY MAKING ADDITION OF RS.7,44,04,2 29/-IN HANDS OF ASSESSEE. ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 6 2.9. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE IS IN APPEAL BEFORE US NOW. 3. GROUND NO.1& 2 RAISED BY ASSESSEE ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 4. GROUND NO. 3 IS IN RESPECT OF COMPARABLES DISPUTED BY ASSESSEE HAVING BEEN INCLUDED/EXCLUDED BY LD.TPO. 4.1. BY THIS GROUND, ASSESSEE IS DISPUTING INCLUSION OF FOLLOWING COMPARABLES: KITCO LTD., TCE CONSULTING ENGINEERS LTD., PROJECT AND DEVELOPMENT INDIA LTD., MAHINDRA CONSULTING ENGINEERS LTD., 4.2. ASSESSEE IS DISPUTING EXCLUSION OF FOLLOWING COMPAR ABLE: TISMO TECHNOLOGY SOLUTIONS PVT.LTD., 5. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FAR OF ASSESSEE. (I) FUNCTIONS: ASSESSEE PROVIDES ENGINEERING DESIGN AND RELATED SE RVICES TO FLUOR GROUP, PURSUANT TO SPECIFIC CLIENT CONTRACTS, WHICH ARE EXECUTED ON PROJECT BY PROJECT BASIS. IN TP STUDY, IT HAS BEEN SUBMITTED THAT CONTRACT REQUIRE ONE FLUOR ENTITY TO LEAD THE PROJECT (ALSO REFERRED TO AS PRIME CONTRACTOR) AN D OTHER FLUOR AFFILIATES IN VARIETY OF JURISDICTIONS, TO ASSIST I N PERFORMING WORK ON THE PROJECT (ALSO REFERRED TO AS SUB-CONTRACTORS ). AT PAGE 35 OF PAPER BOOK VOLUME 1 OF TRANSFER PRICI NG STUDY, CATEGORISES ASSESSEE AS PROVIDING ENGINEERING DESIG N AND RELATED SERVICES. IT HAS BEEN SUBMITTED THAT ONCE A CONTRAC T HAS BEEN AWARDED BY ULTIMATE CUSTOMER, FLUOR AFFILIATES MAY SUB-CONTRACT DIFFERENT TASKS SUCH AS ENGINEERING DESIGN, PROCURE MENT, ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 7 COMMISSIONING ETC. TO DIFFERENT GROUP COMPANIES DEP ENDING UPON THEIR CORE COMPETENCY. FINAL SERVICE PROVIDED TO EN D-USER, GENERALLY REQUIRES INTEGRATION OF DIFFERENT SERVICE S, SUB-CONTRACTED TO DIFFERENT GROUP COMPANIES. THE ENGINEERING DESIG N ACTIVITIES SUB-CONTRACTED TO ASSESSEE, ARE THUS PART OF THE TO TAL CONTRACT AWARDED TO THE FLUOR AFFILIATES BY AN UNRELATED PAR TY. BRIEFLY, FUNCTIONS PERFORMED BY ASSESSEE (MORE PART ICULARLY DETAILED AT PAGE 35-37) ARE AS UNDER: A . BUSINESS DEVELOPMENT : AS THE AFFILIATE IS RESPONSIBLE FOR ALL MARKETING EFFORTS FOR ENGINEERING DESIGN AND RELATE D SERVICES RENDERED BY ASSESSEE, AND ASSESSEE HAS NO ROLE TO P LAY, VIS-A-VIS BUSINESS DEVELOPMENT. B . ENGINEERING DESIGN SERVICES : ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING DETAILED ENGINEERING AND DESI GN SERVICES TO ITS AFFILIATE WHICH IS A PART OF TOTAL CONTRACT AWA RDED TO THE AFFILIATE. ASSESSEE PROVIDES SAID SERVICES ON COST PLUS BASIS. C . INVOICING, COLLECTION AND DELIVERY : IT IS THE RESPONSIBILITY OF FLUOR AFFILIATE TO REALISE PROJECT COMPENSATION FRO M THE CUSTOMERS. ASSESSEE IS NOT ENGAGED IN ANY FORM OF DISTRIBUTION, INVOICING, COLLECTION, ORDERING OR DELIVERY VIS-A-VIS END-USER. ALL THE ENGINEERING DESIGN ACTIVITIES CARRIED OUT BY AS SESSEE ARE PART OF LARGER PROJECT LED BY ITS AFFILIATE. D. MARKETING AND SALES: FLUOR AFFILIATES ARE SOLELY RESPONSIBLE FOR DETERMINING THE OVERALL MARKETING STRATEGY OF THE G ROUP. THE PRIMARY ROLE OF ASSESSEE IS TO PROVIDE ENGINEERING DESIGN AND RELATED SERVICES TO ITS AFFILIATE. ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 8 E . SUPPORT SERVICES : ASSESSEE PROVIDES BACK-OFFICE SUPPORT SERVICE IN THE NATURE OF BANK RECONCILIATION, TRANS BILLING, CASH RECEIPT, INTERCOMPANY RECONCILIATION ETC. TO ITS A FFILIATE. OTHER ROUTINE FUNCTIONS PERFORMED BY ASSESSEE ARE: PROVIDING INPUT ON STRATEGIC POLICIES RELATING TO A SSESSEE FINANCE AND ACCOUNTING, IT AND LEGAL WHEREIN ASSESS EE IS RESPONSIBLE FOR PERFORMING DAY-TO-DAY FINANCIAL MAT TERS AND DEALS WITH LOCAL TAX AND REGULATORY ISSUES HUMAN RESOURCE MANAGEMENT: RECRUITMENT, SOFT SKILLS TRAINING, EMPLOYEES EVALUATION RELATED FUNCTIONS AR E PERFORMED BY ASSESSEE. (II) ASSETS EMPLOYED : ASSESSEE UTILISES ROUTINE TANGIBLES LIKE COMPUTERS AND PERIPHERALS, OFFICE PREMISES, COMMUNICATION FACILIT IES ETC. FOR THE PURPOSE OF ITS BUSINESS. IT DOES NOT OWN ANY SIGNI FICANT INTANGIBLES AND DOES NOT UNDERTAKE ANY SIGNIFICANT RESEARCH AND DEVELOPMENT ON ITS ACCOUNT THAT LEADS TO THE DEVELO PMENT OF NON- ROUTINE INTANGIBLES. ASSESSEE USES INTANGIBLES, PRO CESS, KNOW- HOW, METHODOLOGIES, OPERATING/QUALITY STANDARDS ETC . DEVELOPED/OWNED BY ITS AFFILIATES. ACCORDINGLY ASSE SSEE HAS BEEN CHARACTERISED AS NOT OWNING ANY SIGNIFICANT NON-ROU TINE INTANGIBLES. (III) RISKS ASSUMED: ASSESSEE IS REMUNERATED ON HOURLY RATES FROM APRIL, 2010 TO JULY,2010 AND WAS REMUNERATED ON A COST PLUS BASIS FOR THE REST OF THE YEAR. THUS ASSESSEE IS NOT EXPOSED TO MARKET RISK, SERVICE ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 9 LIABILITY RISK, CREDIT RISK, PRICE RISK, CAPACITY U TILISATION RISK. IT IS THUS EXPOSED TO THE MANPOWER RISK AS IT IS RESPONSI BLE FOR RETAINING SKILLED AND TRAINED WORKFORCE TO CARRY OU T ITS ACTIVITIES AND FOREIGN EXCHANGE RISK AS THE REMUNERATION IS RE CEIVED BY ASSESSEE IN FOREIGN CURRENCY. 6. THUS BASED UPON THE ABOVE FAR, ASSESSEE IS CHARACTE RISED AS PERFORMING ENGINEERING DESIGN SERVICES AS A SUB CON TRACTOR TO FLUOR AFFILIATE, EXPOSED TO LIMITED RISK ASSOCIATED WITH CARRYING OUT SUCH BUSINESS. 7. ON THE BASIS OF ABOVE, WE SHALL COMPARE FAR UNDERT AKEN BY THE COMPARABLES DISPUTED BY ASSESSEE FOR BEING INCLUDED/EXCLUDED AS THE CASE MAY BE. 8. BEFORE WE PROCEED TO EXAMINE COMPARABLES, SEVERAL D ECISIONS OF VARIOUS TRIBUNALS HAVE BEEN CITED BY PARTIES REG ARDING ITS INCLUSION /EXCLUSION BY SUBMITTING THAT, THESE COMP ARABLES SHOULD BE EXCLUDIBLE/INCLUDIBLE BASED ON THOSE DECI SIONS. WE ARE OF THE VIEW THAT EACH DECISION HAS RENDERED PARTICU LAR COMPARABLE EXCLUDIBLE/INCLUDIBLE, BASED ON FACTS OF THAT CASE, AS WELL AS FAR OF ASSESSEE WHOSE ISSUES ARE DECIDED. W E ARE ALSO AWARE ABOUT PRECEDENT VALUE OF THOSE DECISIONS, WHI LE DECIDING COMPARABLES REGARDING ITS SUITABILITY. HOWEVER, WE FEEL, PARAMOUNT IMPORTANCE SHALL BE ON RULE 10B (2) OF IN COME TAX RULES 1962 WHICH IS AS UNDER: (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARAB ILITY OF AN INTERNATIONAL TRANSACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH RE FERENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSF ERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 10 ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, B Y THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS AR E FORMAL O R IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EX PLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND B ENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE R ESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAP ITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MA RKETS ARE WHOLESALE OR RETAIL. 9. THEREFORE IT MAY SO HAPPEN THAT, A COMPARABLE ENGAG ED IN SIMILAR BUSINESS WHICH IS HAVING SIMILAR FAR MAY BE INCLUDED, THOUGH SAME MIGHT HAVE BEEN HELD TO BE NOT INCLUDIB LE BY COURTS/TRIBUNALS IN OTHER CASES. FURTHER, CONTRACTU AL TERMS AS WELL AS HOST OF OTHER FACTORS STATED IN ABOVE SUB-R ULE, MAY DETERMINE COMPARABILITY ANALYSIS. THUS IN OUR OPINI ON, IF DIFFERENCE ARISING ON COMPARABILITY ANALYSIS DOES N OT AFFECT PRICE OR PROFITABILITY OF COMPARABLE, OR IF IT CAN BE REA SONABLY ADJUSTED, SAME SHOULD BE TAKEN AS GOOD COMPARABLE FOR COMPARA BILITY ANALYSIS. THEREFORE, IT SHOULD NOT BE ASSUMED THAT, IF A COMPARABLE IS HELD TO BE EXCLUDIBLE IN ONE CASE, IT SHALL ALWAYS BE EXCLUDED IN DECISIONS TO FOLLOW SUBSEQUENTLY. THUS, WHILE DECIDING COMPARABILITY, DECISIONS CITED DEFINITELY WOULD BE PERUSED FROM THIS ANGLE BY US. 10. KITCO LTD. LD.TPO INCLUDED THIS COMPARABLE INTO THE FINAL LIST , AS IT PROVIDES ENGINEERING AND DESIGNS SERVICES TO ITS CUSTOMERS. ON THE CONTRARY LD.COUNSEL SUBMITTED BEFORE US THAT IT IS NOT A FIT COMPARABLE AS IT IS A GOVERNMENT OWNED AND THE SHAR ES OF THIS ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 11 COMPANY ARE PRIMARILY HELD BY PUBLIC SECTOR FINANCI AL INSTITUTIONS/PUBLIC SECTOR BANKS OWNED OR CONTROLLE D BY THE CENTRAL AND STATE GOVERNMENT. HE ALSO PLACED RELIAN CE UPON VARIOUS DECISIONS OF THIS TRIBUNAL AS WELL AS HONB LE HIGH COURTS IN SUPPORT OF ITS EXCLUSION. LD.CIT DR HOWEVER SUBMITTED THAT, IN THE PROCESS OF COMPARABILITY ANALYSIS RULE 10 B (2) HAS TO BE CONS IDERED AND MERELY BECAUSE A PARTICULAR COMPANY IS OWNED BY GOV ERNMENT WOULD NOT LEAD TO ITS EXCLUSION UNDER LESS FUNCTION AL DISSIMILARITY IS ESTABLISHED. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES AND THE LIGHT OF THE RECORDS PLACED BEFORE US. FUNCTIONAL PROFILE OF THIS COMPANY, AS SUBMITTED BY ASSESSEE, AND AS PER ANNUAL REPORT PLACED AT PAGE 277-309 OF PAPER BOOK IS AS UNDER: KITCO, THE FIRST TECHNICAL CONSULTANCY ORGANIZATION (TCO) IN INDIA, WAS ESTABLISHED IN 1972 BY INDUSTRIAL DEVELO PMENT BANK OF INDIA, OTHER NATIONAL AND STATE LEVEL FINANCIAL INSTITUTIONS, GOVT. OF KERALA AND 7 PUBLIC SECTOR BANKS FOR RENDE RING SERVICES TO ENTREPRENEURS, GOVT. DEPARTMENTAL PSUS, LOCAL BO DIES, ETC. PRESENTLY, SMALL INDUSTRIES DEVELOPMENT BANK OF IND IA (SIDBI) IS THE PRIME SHAREHOLDER WITH 49% SHARES OF THE COMPAN Y. WOULD KITCO SUCCESSFULLY IMPLEMENTED PROJECTS LIKE COCHIN INTERNATIONAL AIRPORT LTD., , COCHIN SPECIAL ECONOM IC ZONE, ETC AND IS INVOLVED IN IMPLEMENTING A MULTIMODAL MOBILI TY HUB AT COCHIN, ALL OF WHICH ARE FIRST OF ITS KIND IN THE C OUNTRY IN THEIR OWN RESPECT. KITCO SUCCESSFULLY IS STATED TO HAVE C OMPLETED ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 12 PHASE-1 OF CIAL GOLF COURSE & COUNTRY CLUB AND GHAL LAH WENTWORTH GOLF COURSE AT MUSCAT, SULTANATE OF OMAN, THEREBY ESTABLISHING ITSELF IN AN AREA, WHICH WAS CONSIDERE D TO BE THE FORTE OF EUROPEAN CONSULTANTS. THE PRESTIGIOUS OVER SEAS ASSIGNMENTS COMPLETED BY KITCO INCLUDE TECHNICAL EV ALUATION OF ELECTRICAL POWER DISTRIBUTION NETWORK AT KING ABDUL AZIZ INTERNATIONAL AIRPORT, JEDDAH. IT IS ALSO OBSERVED THAT THIS COMPANY IS WORKING IN DIVISIONS LIKE INFRASTRUCTURE , TOURISM, AVIATION, IT SERVICES, HRD, FINANCIAL SERVICES ETC. WHICH ARE DISSIMILAR TO THE FUNCTIONAL PROFILE OF THE ASSESSE E COMPANY. SNAPSHOT ENCLOSED. IN OUR CONSIDERED OPINION THIS COMPANY IS INVOLVED IN EXECUTING HUGE PROJECTS WITH A MOTIVE TO EARN PROFITS. WE THE REFORE REJECT THE ARGUMENT OF LD.COUNSEL THAT SINCE THIS COMPANY IS OWNED BY GOVERNMENT IT CANNOT BE CONSIDERED TO BE A FIT COMP ARABLE. HOWEVER WE OBSERVE THAT FUNCTIONS PERFORMED, RISKS ASSUMED AND ASSETS OWNED BY THIS COMPANY IS HUGE AND FAST A S COMPARED TO THAT OF ASSESSEE WHO IS ACTING AS A SUB CONTRACT OR FOR ITS AE, RENDERING ENGINEERING AND DESIGN SERVICES AND IS RE MUNERATED ON COST PLUS BASIS. WE THEREFORE REJECT THIS COMPANY AS IT DOES NOT SAT ISFY THE FUNCTIONALITY TEST WITH THAT OF ASSESSEES. (II) PROJECT AND DEVELOPMENT INDIA LTD: LD.TPO INCLUDED THIS COMPARABLE INTO THE FINAL LIST , AS IT PROVIDES ENGINEERING AND DESIGNS SERVICES TO ITS CUSTOMERS. ON THE CONTRARY LD.COUNSEL SUBMITTED BEFORE US THAT IT IS NOT A FIT COMPARABLE AS IT IS FUNCTIONALLY DISSIMILAR. ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 13 ON THE CONTRARY LD. CIT DR PLACED RELIANCE UPON THE OBSERVATIONS OF LD. TPO/DRP. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. FUNCTIONAL PROFILE OF THIS COMPANY, AS SUBMITTED BY ASSESSEE, AND AS PER THE ANNUAL REPORT PLACED AT PAGE 396-479 OF PAPER BOOK IS AS UNDER: UNDER ENGINEERING AND CONSULTANCY DIVISION THIS COM PANY HAS PLAYED A VITAL ROLE IN DEVELOPMENT OF FERTILISER IN DUSTRIES IN INDIA. IT IS STILL MAINTAINING STRENGTH IN THE SECTOR AND IS READY TO TAKE UP NEW CHALLENGES IN EXECUTING THE BROWNFIELD, GREE NFIELD, REVAMP AND EXPANSION PROJECTS OF MANY FERTILISER UN ITS IN COUNTRY. LD.COUNSEL SUBMITTED THAT THE SERVICES REN DERED BY THIS COMPANY ARE DIRECTLY TO ITS CLIENTS AND NOT ON A SU B-CONTRACT BASIS. FROM THE ABOVE, IT IS EVIDENT THAT THIS COMPARABLE IS NOT FUNCTIONALLY COMPARABLE DUE TO DIFFERENCE IN FUNCTI ONS PERFORMED BY THIS COMPANY WITH THAT OF ASSESSEE, IN OUR VIEW THIS COMPANY CANNOT BE COMPARED WITH LIMITED FUNCTIONS PERFORMED BY ASSESSEE, BECAUSE IT IS THE NATURE OF SERVICES REND ERED AND NOT PER SE RENDERING OF SERVICES THAT IS RELEVANT IN AC CEPTING OR REJECTING IT AS COMPARABLE. THEREFORE, WE DIRECT EXCLUSION OF THIS COMPARABLE F ROM THE LIST OF COMPARABLES. (III) TCE CONSULTING ENGINEERS LTD. LD.TPO INCLUDED THIS COMPARABLE INTO THE FINAL LIST , AS IT PROVIDES ENGINEERING AND DESIGNS SERVICES TO ITS CUSTOMERS. ON THE ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 14 CONTRARY LD.COUNSEL SUBMITTED BEFORE US THAT IT IS NOT A FIT COMPARABLE AS IT IS FUNCTIONALLY DISSIMILAR. ON THE CONTRARY LD. CIT DR PLACED RELIANCE UPON THE OBSERVATIONS OF LD. TPO/DRP. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. IT IS SUBMITTED THAT THIS COMPANY IS ENGAGED IN PRO VIDING HIGH- END TECHNICAL SERVICES. PROFILE SUBMITTED BY THE AS SESSEE AT PAGE 310-395 OF PAPER BOOK VOLUME 1 SHOWS THAT IT SUCCES SFULLY MANAGED COMPLEX ENGINEERING PROJECTS ACROSS INFRAST RUCTURE SPECTRUM AND IS ASSOCIATED WITH PRESTIGIOUS URBAN I NFRASTRUCTURE FACILITIES SUCH AS AIRPORTS, RAILWAYS AND METROPOLI S ENGINEERING CONSULTING PROJECTS. THEREFORE, IN OUR VIEW IT IS APPARENT THAT THIS COM PANY IS ENGAGED IN PROVIDING HIGH END ENGINEERING CONSULTING SERVIC ES WHICH IS NOT COMPARABLE WITH LIMITED FUNCTIONS PERFORMED BY ASSESSEE. THEREFORE WE DIRECT TO EXCLUDE THIS COMPARABLE. (IV) MAHINDRA CONSULTING ENGINEERS: LD.TPO INCLUDED THIS COMPARABLE INTO THE FINAL LIST , AS IT PROVIDES ENGINEERING AND DESIGNS SERVICES TO ITS CUSTOMERS. ON THE CONTRARY LD.COUNSEL SUBMITTED BEFORE US THAT IT IS NOT A FIT COMPARABLE AS IT IS FUNCTIONALLY DISSIMILAR. ON THE CONTRARY LD. CIT DR PLACED RELIANCE UPON THE OBSERVATIONS OF LD. TPO/DRP. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 15 IT HAS BEEN SUBMITTED THAT THIS COMPANY IS ENGAGED IN SERVICES WHICH ARE HIGHLY TECHNICAL. FUNCTIONAL PROFILE IS P LACED AT PAGE NO.271, 272 OF THE PAPER BOOK AND OBJECTIONS BEFORE THE LD. TPO AT PAGE 480-498 OF PAPER BOOK VOLUME 1. IT IS OBSER VED FROM THE FUNCTIONAL PROFILE THAT THIS COMPANY IS PART OF 'MA HINDRA PARTNERS'. IT DOES NOT SHOW FUNCTIONAL PROFILE OF M AHINDRA CONSULTING ENGINEERS. HOWEVER IT SHOWS THAT THIS CO MPANY IS ENGAGED IN PROVIDING SERVICES AND HAS PROVED ITS CA PABILITY TO EXECUTE INNOVATIVE PROJECTS AND TO PENETRATE INTO N EW AREAS OF OPERATION. IT IS FURTHER SUBMITTED THAT IT IS ENGAG ED IN PROVIDING INFRASTRUCTURE ENGINEERING AND CONSULTING SERVICES. THEREFORE IT IS APPARENT THAT IT IS FUNCTIONALLY DIFFERENT. WE THEREFORE DIRECT TO EXCLUDE THIS COMPANY, IN VIE W OF HIGHLY TECHNICAL CAPABILITIES OF EXECUTING INFRASTRUCTURE DEVELOPMENT PROJECTS VIS-A-VIS THAT OF ASSESSEE WHO IS RENDERING ENGINEERING AND RELATED SERVICES AS A SUB-CONTRACT LIMITED TO S PECIFIC FUNCTIONS AS PER THE REQUIREMENT OF ITS AFFILIATE. (V) TISMO TECHNOLOGY SOLUTIONS LTD : LD.TPO REJECTED THIS COMPARABLE ONLY DUE TO NON-AVA ILABILITY OF FINANCIALS AT THE TIME OF TRANSFER PRICING PROCEEDI NGS. LD.AR HOWEVER SUBMITTED THAT THE FINANCIAL DATA IS NOW AV AILABLE ON THE CAPITAL IN DATABASE AND ITS MARGIN CALCULATION. HE ALSO SUBMITTED THAT THIS COMPANY PASSES THROUGH ALL FILTERS THAT H AS BEEN APPLIED BY LD.TPO AND DETERMINED IN THE COMPARABLES . HE THUS REQUESTED FOR REMANDING THIS COMPARABLE B ACK TO LD.TPO FOR VERIFICATION OF THE FINANCIALS. LD.SR.DR DID NOT OBJECT FOR THE REQUEST ADVANCED BY LD.AR. ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 16 CONSIDERING THE SUBMISSIONS ADVANCED BY BOTH SIDES, WE ARE OF CONSIDERED OPINION THAT THIS COMPARABLE DESERVES TO BE REMANDED BACK TO LD.TPO FOR VERIFICATION OF THE FINANCIALS T HAT ARE AVAILABLE AFTER APPLYING RELEVANT FILTERS. NEEDLESS TO SAY TH AT ASSESSEE IS TO BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCI PLES OF NATURAL JUSTICE. 11. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STAN DS ALLOWED AS DISCUSSED ABOVE . 12. GROUND NO. 4 RAISED BY ASSESSEE IS PREMATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 13. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JANUARY, 2019. (R.K.PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUD ICIAL MEMBER DT. 17 TH JANUARY, 2019 GMV ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 17 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT - TRUE COPY - BY ORD ER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO. 973/DEL/2016 AY-2011-12 FLUOR DANIEL INDIA PVT.LTD. VS. ACIT 18 S.NO. DETAILS DATE 1 DRAFT DICTATED ON DRAGON 10/01/19 2 DRAFT PLACED BEFORE AUTHOR 11/01/19 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 16/01/19 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 16/01/19 5 APPROVED DRAFT COMES TO THE SR. PS/PS 6 KEPT FOR PRONOUNCEMENT & ORDER UPLOADED ON: 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER