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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 ..... CI 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 global telecom network. The company has established itself as a local network facilities based competitor in more than 21 countries throughout Europe, North and South America and the Asia-Pacific region. 3. The assessee company was established with an objective of rendering marketing support services to the parent company. The services provided are as follows: (a) market development; (b) providing information on potential customers; (c) liaisoning with potential customers for disseminating information regarding the products of the associated enterprises (AE's) and for obtaining feedback from potential customers; and (d) exploring new service lines/ventures for AEs in India. The assessee was compensated for all its costs, plus a pre-agreed mark-up thereon. During the year the assessee entered into the following internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 year data is permissible by virtue of Proviso to the said rule; (iii) Proviso is applicable only when the pre-conditions laid down in the Proviso are met; (iv) The facts contained in the prior year's data which could have an influence on the determination of transfer price in relation to the international transactions have neither been identified nor considered; (v) The facts making it inevitable to take recourse to the Proviso rather than to the main provisions are not discernible in the instant case even after a diligent study of all the aspects and circumstances of the case as are available on record." He concluded that in the absence of existence of any exceptional circumstances necessitating recourse to the Proviso to Rule 4(4) having been demonstrated, use of multiple year data has no sanction of law. Thus he considered data for the year 2004 only. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 own level the assessee has forgotten the fact that these alleged comparables have already been considered and rejected by it for specific reasons. Thereafter at para 7.6 the TPO concluded as follows. "7.6. In the circumstances the final set of comparables and consequent arm's length PLI is computed by taking the comparables which were selected by the assessee in original TP study after undertaking FAR study. The arm's length PLI is computed in the following. Sl.No. Name OP/TC margin for the F.Y. 2003-04 1. Basant Raj International Ltd. 28.00% 2. Engineers India Ltd. 37.41% 3. Priya International Ltd. 3.16% 4. RITES Limtied 34.96% 5. TCE Consulting Engineers Ltd. 11.68% 6. Ujjwal Ltd. 4.03% 7. Water & Power Consultancy Services Ltd. 20.25% Average : 19.92% 10. Aggrieved the assessee carried the matter in appeal. 11. Before the First appellate authority the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not holding the order passed by the ld.ACIT, Circle 17(1) as being contrary to the facts, law and the principles of natural justice. 2. That the Commissioner of Income Tax (Appeals) erred in law in not holding that the Assessing Officer did not meet the preconditions for making reference to the TPO u/s 92CA(1) of the Income Tax Act, 1961 and in not providing the respondent an opportunity of 'being heard' before referring the transfer pricing issues to the TPO. 3. That the Commissioner of Income Tax (Appeals) erred in law and on facts in not accounting for differences in risks assumed by the respondent vis-à-vis comparable companies, while determining the arm's length price for its international transaction. 4. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the TPO's approach of using data beyond the due data despite the fact that such data was not available to the respondent at the time of preparing its T.P. documentation and maintaining such documentation by the required due date. 6. That the Commissioner of Income Tax (Appeals) did not adjudicate on whether the TPO has erred in no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee before the Commissioner of Income Tax (Appeals) and the conclusions drawn by the Commissioner of Income Tax (Appeals) and argued that the Revenue nowhere pointed out any infirmity in the findings of the Commissioner of Income Tax (Appeals) that these 4 comparables are functionally different from that of the assessee. 18. Both the parties submitted that for the Assessment Year 2005-06 the T.P.O. as well as the Commissioner of Income Tax (Appeals) relied on their findings for the Assessment Year 2004-05 and hence the arguments are the same. 19. Rival contentions heard. On a careful consideration of the arguments of both parties and on a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows. 20. The sole issue that arises for our adjudication is whether the Commissioner of Income Tax (Appeals) was right in excluding 4 comparables chosen by the assessee in its T.P. study and accepted by the T.P.O in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors. Services offered include market intelligence, feasibility studies, planning/project formulation, field investigations and testing, engineering design, contract management, quality assurance & management and human resource development. Apart from the Indian sub-continent, WAPCOS renders consultancy services in over 30 developing countries. 22. In its contentions before the Commissioner of Income Tax (Appeals) the assessee argued that these 4 comparable companies are not functionally comparable for the following reasons. "Functionally not comparable Engineers India Ltd. Engineers India Ltd. was established in 1965 and is engaged in provision of engineering and related technical services for petroleum refineries and other industrial projects. The company has diversified into other fields such as pipelines, petrochemicals, oil and gas processing, offshore structures and platforms, fertilizers, metallurgy and power. EIL now provides a complete range of project services in these fields and has emerged as Asia's leading design and engineering company. Services provided by the company include feasibility studies, project management, planning and scheduling, cost engineering, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and management services to Fenoco the concessionaire for Atlantic part of railways in Colombia. 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 assurance & management and human resource development. The company has identified its business activity into two business segment i.e. Consultancy & Engineering projects and Lump Sum Turnkey projects (As per the Annual Report for financial year 2003-04). WAPCOS has been providing consultancy services in all facets of Water Resources, Power and Infrastructure Sectors in India and Abroad. "Main fields of the company cover Irrigation, Water Management, Drainage, Ground Water Exploration, Development, Flood Control, Reclamation and River Management, Dam and Reservoir, Power Engineering; Hydro Power Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the function coupled with the technical expertise required in providing engineering consultancy, the same activity cannot be considered comparable to function of providing marketing support services due to functional differences, differences in industry and difference in market dynamics. The services provided by the Appellant are functionally different vis-à-vis the business operations of TIL, RITES, WAPCOS and TCE. High Risk bearers As supported by OECD guidelines also, functional comparability of the companies will have to be considered in conjunction with the risk and return profile of the companies being selected for determining arm's length price. Risk and return profile of the companies engaged in similar industry is likely to be same and this provides a good approximation to judge whether or not a company can be considered as comparable. EIL, RITES, WAPCOS and TCE operate in engineering consultancy industry, the risks and returns vary significantly from those of the marketing support services company operating on a cost plus model. Moreover, engineering consultancy being a high risk activity, the returns from such business shall be comparatively higher to the rou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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