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TMI Blog2013 (4) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... ng appropriate method the appellant shifted from Cost Plus Method to Transaction Net Margin Method (TNMM). c) The comparables selected by the appellant were on random basis that too not selected on methodical way. d) The appellant could have selected more comparables from companies available in India apart from the selected companies. e) The above such selection by the appellant would give biased results and the same was selected with an intention to show low and negative Profit Level Indicator (PLI). f) The comparables chosen by the TPO was most appropriate particularly as the appellant has also suggested similar comparables. g) The PROWESS is the only public domain and comparables selected there from are an acceptable one and comparables from any other sources are not acceptable. 3. The DRPITPO/AO erred in rejecting the approach adopted for the transfer pricing analysis and contemporaneous documentation maintained by the appellant. 4. The DRP has erred in upholding the comparables chosen by the TPO for determining Arm's Length Price. 5. The DRP/TPO/AO has erred in not considering that the expenses incurred ₹ 77,56, 037 in shifting of office from Adyar to Perungu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e steel frame for manufacture and design engineering section which develops the connection patterns for ht steel section. Therefore, the TPO rejected the comparables relied on by the assessee. The TPO further observed that Cost Plus Method cannot be adopted as there was no standard formula adopted by the company to determine the gross profit. The TPO held that comparable Uncontrolled Price (CUP) method, Resale Price Method(RPM), Profit Split Method (PSM) and Cost Plus Method (CPM) are not appropriate methods for determining ALP. He concluded that Transaction Net Margin Method (TNMM) was to be adopted. The TPO proceeded to choose comparables using Prowess and Capitaline data bases and found that IOT Design and Engineering Ltd.(Percentage of profit to cost 10.48%) and L&T Valdel Engineering Ltd.(Percentage of profit to cost 24.12%), data can be relied in the case of the assessee for determining the ALP. The TPO also chose the profit level indicator which is operating profit/operating cost. The TPO arrived at the arithmetic mean of the PLI of the comparables at 17.30%. According to the calculation of TPO, PLI of the assessee company was 3.23% and arrived at adjustment of ALP at ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to do with the basic/primary design function. Connecting design was about identifying how the two steel pieces (members) like column, beam, plates etc. are connected based on the primary design information provided to the assessee. The view of the TPO was that the assessee was executing designing function in Architectural and Engineering activities and related technical consultancy services was based on that understanding. The choice of the comparables was also on that basis by the TPO. It was submitted that TPO did not reveal the analysis made in choosing the particular comparables i.e IOT Design and Engineering Ltd. and L&T Valdel Engineering Ltd. It was submitted that the assessee analysed the functions performed by these companies with the public documents filed before the Registrar of Companies and their websites and found that these companies were performing basic/architectural design/primary design function and also as Engineering Procurement Contractor/Engineering Procurement Contract Management. But the TPO could not appreciate the same. 5. The ld. A.R of the assessee further submitted before the DRP that the industries chosen for selecting the comparables being archit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit (Loss) before tax/sales % (PLI) -9.33% 4.34% Arithmetic Mean - 2.50% 7. He therefore, argued before the DRP that the TPO was not justified in making the addition of ₹ 2,54,30,779/- to the ALP. 8. After considering the submissions of the assessee, the DRP confirmed the addition made of ₹ 2,54,30,779/- towards ALP adjustment. 9. We have considered the rival submissions, perused the orders of the lower authorities and materials available on record. In the instant case, the assessee is a company providing connection design services, which is identifying how two steel pieces column, beam, plates etc. are connected based on primary design provided to the assessee. In the previous year relevant to the assessment year under appeal, the assessee reported sales of connection design service to its AEs at ₹ 18.65 crores. In the light of the above transactions entered into with the AEs, the question of determining the ALP was referred to the TPO u/s 92CA(1) of the Act. 10. The assessee has adopted the cost plus method as the appropriate method to arrive at the ALP. According to the DRP, the assessee filed a very detailed transfer pricing study report before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected to inclusion of even M/s L&T Valdel Engineering Ltd, on the grounds of functional dissimilarity. " 14. After this, the DRP dismissed the appeal of the assessee by observing as under: "23. The Panel considered the objections of the assessee in detail, including its rejoinder on the TPO's report. The Panel also considered the report of the TPO. The objection of the assessee was on the choice of the comparables by the TPO. Though initially, the assessee stated that it had selected costplus method but eventually came round to accepting the TNMM. Actually, the assessee had also adopted the TNMM, though it was saying it to be cost-plus method. That apart, the objection was on the comparables selected by the assessee. The assessee initially selected its comparables saying that the assessee was a KPO and so the comparables was to be KPO only. But later on when the TPO rejected the same and selected comparables which were in design and construction, the assessee came out with its own comparables which were working on oil and refinery engineering services with the help of 3D modeling tool PDS, having detailed more than 20,000 tons of steel for the fabrication of structural stee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion can often be considered biased, and hence may give biased results. The Panel decided to not consider them. 26. On the balance, the selection of the comparables as done by the TPO was found appropriate, particularly also because the assessee also came round to suggest similar comparables. The Panel therefore decided not to interfere with the order of the TPO." 15. Before us, the ld. A.R of the assessee submitted that the two companies whose data were relied on by the DRP were functionally different from the assessee-company and therefore, their data cannot be relied upon for determining the ALP of the transactions of the assessee. He further submitted that the companies namely, M/s Zamil Steel Engineering India Pvt. Ltd and M/s Blackstone Group Technologies Pvt. Ltd., whose data were provided by it to the DRP were functionally comparable as because segment reporting for engineering section was available in the financial data of those companies and DRP should have adopted the data of the said two companies to determine the ALP of the assessee's transactions. 16. On the other hand, the ld. CIT/DR supported the orders of the lower authorities. 17. We find that the DRP has dism ..... X X X X Extracts X X X X X X X X Extracts X X X X
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