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TMI Blog2012 (10) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... JJ. J.S. Ahalwat for the Appellant. N. Venkatram, Ms. Sikha Gupta and Rohit Tiwari for the Respondent. ORDER J. Sudhakar Reddy, Accountant Member - Both these appeals are filed by the Revenue and are directed against separate orders of the CITA)-XX, New Delhi dt. 30.6.2010 for the Assessment Year 2004-05 and dt. 24.3.2011 for the Assessment Year 2005-06. The Cross Objections are filed by the assessee. As the issues arising in these appeals as well as the Cross Objections are identical, for the sake of convenience they are heard together and disposed of by way of this common order. 2. The facts in brief: The assessee M/s Verizon (India) P. Ltd. is a wholly owned Subsidiary of MCI WorldCom Asia P. Ltd. (hereinafter referred to as MCI), a Hongkong based Private Limited Company. The Holding Company MCI WorldCom Asia P. Ltd. is a preeminent global communication company for the digital generation, operating in more than 65 countries with 2000 revenues of approximately 540 billion. WorldCom provides the innovative technologies and services which primarily include high quality, long distance, internet data and international communication services across a seamless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighted Average of the 3 years. 7. The T.P.O. was of the view that for analyzing comparability of uncontrolled transaction with international transaction data for the year other than the year in which international transactions have been entered into has to be taken into account and the existence of exceptional circumstances as enjoined upon by the Proviso, the comparability does not conform to the provisions and hence a show cause notice was served on the assessee. The assessee filed his reply supporting use of multiple year data. It opposed the using of data of only the F.Y. 2003-04. Without prejudice it submitted that if the data pertaining to 2003-04 only is used, a fresh opportunity must be provided to carry out a fresh search and identify additional comparables. The T.P.O. rejected the contentions of the assessee by holding as follows. "6.3. The submissions of the assessee have been duly considered. I do not find any merit in the submissions of the assessee for the following reasons: (i) Sub-rule (4) of Rule 10B in unequivocal terms provides for use of data pertaining to the year in which the international transaction has been entered into; (ii) Use of multiple ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Experiences persistent operating losses Mahindra Acres Consulting Engineers Ltd. - Experiences persistent operating losses Tata Share Registry - Non-comparable services. At para 7.5 the TPO observed as follows:- "7.5. A very strange behaviour has been exhibited by the assessee. Does it want to say that the FAR study undertaken by it at the time of preparing the TP documents was non compes mentis or it tantamount to superssio veri. The alter selection of the comparables is not objective. No FAR study has been undertaken. When these comparables were duly not considered by the assessee how they have become comparable all of a sudden. The discernable fact is that the net operating margins of these new comparables are in the negative ranging from -34.60% in the case of Tata Share Registry to 0.01%.in the case of Mahindra Acres. Only one of the comparable namely Educational Consultant has an operating margin of 4.64%. Since the only motive of the assessee in the comparables filed later is to somehow adjust the average PLI to its own level, the same cannot be accepted. In its desperation to adjust the Arm's Length PLI to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 88,83,674/- on account of arm's length price by: i. Wrongly holding that out of the seven companies chosen by the TPO as functionally comparable to the assessee company, only three companies were functionally comparable and the remaining four companies were functionally non-comparable. ii. Ignoring the observation in the order u/s 92(A)(3) that the final set of seven comparables chosen by the TPO were the same comparables selected by the assessee itself in the original FAR/TP report. iii. By wrongly taking the arm's length average OP/TC at 11.73% on the basis of only three comparables instead of 19.92% as computed by the TPO on the basis of seven comparables. iv. Wrongly accepting that the assessee's operating means margin of 6.59% tell within +/- 5% of the arithmetic means of the comparable price and thereby holding the assessee's international transactions with the Associated Enterprises to be at arm's length." 14. The assessee filed Cross Objections on the following grounds. "1. That the ld.CIT(A)-XV, New Delhi erred in not holding the order passed by the ld.ACIT, Circle 17(1) as being contrary to the facts, law and the principles of natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax (Appeals) was at error in holding that the 4 comparables selected by the assessee and accepted by the TPO, are not functionally comparable. He emphasized the fact that, it was the company in its T.P. Report, made a functional analysis of the comparables and has come to a conclusion that these 4 companies are comparable. He submitted that the assessee had raised objections before the Commissioner of Income Tax (Appeals) on its own findings and the Commissioner of Income Tax (Appeals) was in error in attempting such grounds and thereafter adjudicating the issue in its favour. He relied on the assessee's analysis in the T.P. study as well as the order of the TPO and submitted the assessee cannot aprobate and reprobate. 16. Ld. Counsel for the assessee Mr. N. Venkatraman, Sr. Advocate on the other hand submitted that the assessee cannot be estopped from pleading before the First Appellate authority that the comparables chosen were wrong. He relied on the following case laws. i. Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448 (Delhi) ii. Mentor Graphics (Noida) (P.) Ltd. v. Dy. CIT [2007] 109 ITD 101 (Delhi) 17. On merits he relied on the submissions made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national governments and other apex organizations. In India, their clients range from state governments, public sector undertakings and corporations to industrial establishments and private enterprises. The company provides services such as pre-project planning involving project identification, feasibility studies and project appraisal, project support activities comprising surveys, environmental impact assessment, geo-technical and other investigations, project preparation activities of detailed engineering, design, tender documentation, bid evaluations and economic and financial evaluations. TCE Consulting Engineers Ltd. TCE Consulting Engineers Ltd., a Tata Group company is engaged in the provision of engineering services such as operation and design engineering, upgradation and renovation services, survey and filed investigation services etc. Water and Power Consultancy Services (India) Ltd. (WAPCOS) WAPCOS provides consulting in the domestic and international water and power sectors. Services offered include market intelligence, feasibility studies, planning/project formulation, field investigations and testing, engineering design, contract management, quality assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ients range from state governments, public sector undertakings and corporations to industrial establishments and private enterprises. The company provides services such as pre-project planning involving project identification, feasibility studies and project appraisal, project support activities comprising surveys, environmental impact assessment, geo-technical and other investigations, project preparation activities of detailed engineering, design, tender documentation, bid evaluations and economic and financial evaluations. The Company is primarily a consultancy organisation rendering consultancy services in all facets of transportation. Major areas of operations are:- Consultancy services Export of rolling stock, equipment and spares Leasing of railway rolling stock and equipment Further, the company renders its services in the fields of engineering design, construction and project management for railway tracks and electrifications together with traffic and software consultancy assignments. As per the Annual Report for FY 2003-04, RITES has rendered services to Ethiopia, Uganda, Tanzania, Botswana, Sudan and Mozambique. The company also continued rendering advisory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neering services are being provided for the 1x60 MW unit Phase III expansion. All these projects are core engineering projects of domestic as well international repute which stress on the fact that TCE is an engineering consultancy provider engaged in high end engineering projects. TCE operates under a single reportable business segment, namely: Engineering Consultancy Services. Your Honour would appreciate that the above mentioned companies are primarily engaged in providing engineering consultancy and undertake turnkey contracts on a regular basis. The inherent factors of this industry i.e. marketing strategies, competitive edge, level of technological development, operational efficiency, competence and effectiveness of management, cash flow trends and potential, liquidity, financial flexibility, government policies, sensitivity to possible changes in business/economic circumstances affect the functioning of these companies. As is evident from the description of the engineering consultancy activity, given the complexity of the function coupled with the technical expertise required in providing engineering consultancy, the same activity cannot be considered comparable to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Authority that EIL, Rites, Wapsos and TCE are engineering companies and provide end-to-end solutions and whereas the assessee company provides marketing support services to the parent company, which is in the nature of support service and hence not functionally comparable. She rightly concluded that the risk profile is vastly different and hence on this count also they are not comparable. This factual conclusions are not disputed by the Ld. D.R. 24. On these facts we find no infirmity in the Commissioner of Income Tax (Appeals) admitting a ground by the assessee, wherein it argued that the comparables selected by it in the T.P. return are erroneous. 25. Coming to the case laws on the matter, in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 the Chandigarh Special Bench of the Tribunal held that the assessee is not estopped from pointing out a mistake in the assessment, for such mistake is the result of evidence adduced by the tax payer. In this case also the assessee has demonstrated that prima facie there is a mistake in its taking all these comparables. Thus on both counts we uphold the findings of the Commissioner of Income Tax (Appeals). 26. Both the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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