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TMI Blog2015 (12) TMI 1560X X X X Extracts X X X X X X X X Extracts X X X X ..... t be accepted as a comparable. IBI Chematur Ltd. company undertakes substantial R&D activities (R&D expense 5.41% of turnover) which is not a function performed by the assessee. Hence this company cannot be accepted as a comparable. Accuspeed Engineering Services India Limited and Development Consultants Private Limited - DRP has not given any reasons for rejecting these comparables. On examination of the papers on record, we are in agreement with the submissions of the ld. AR. Hence we direct the A.O to include this company as a comparable. M N Dastur & Co. Private Limited - It is relevant to note that the Ld. TPO/DRP has accepted M N Dastur & Co. Pvt. Ltd., as a comparable in the assessee’s own case for assessment year 2009-10. Under such circumstances, we direct the A.O to include this company as a comparable. Mott Macdonald Private Limited - this comparable company is involved in the provision of multi-disciplinary management and engineering consultancy services like business advice for development planning to engineering design to project management. It is engaged in planning, developing and delivering projects across many sectors such as energy, industry, water and environmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gmental information in respect of this company is not available. The company is also a 100% EOU, under STPI guidelines. We are therefore inclined to accept the contention of the assessee that this company should be excluded as a comparable. Hence we direct the Assessing Officer to do so. Omega Healthcare Management Services Pvt. Ltd. - the financial data of the company is available on the database. The ld. TPO however did not give proper opportunity to the assessee to substantiate the inclusion of this company as a comparable. The issue was carried further before the Ld.DRP, and the Ld.DRP also did not comment upon the economic analysis of the company. We therefore set aside this issue of selecting this company, to be considered by the TPO as a comparable, and to include the same in the event it satisfies all the filters applied by the ld.TPO. Techprocess Solutions Ltd. (Processing Services segment) - TPO has rejected the company on the ground that financial statement of the company was not available. The issue was carried further before the Ld.DRP, and the Ld.DRP also did not comment upon the economic analysis of the company. We therefore set aside this issue of selecting this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed by the assessee in the TP Study has been encapsulated in the table below: Nature of International Transaction Amount (In INR crores) Most Appropriate Method & Profit Level Indicator ('PLI') Results Appellant's PLI No. of Comparables Margin of Comparables in TP Study* Provision of engineering design and related services 114.38 Method: TNMM PLI: OP/TC 13.04% 6 11.79% Provision of FAS services 4.57 Method: TNMM PLI: OP/TC 15.00% 10 14.37% Provision of IT infrastructure support services 5.50 Method: TNMM PLI: OP/TC 17.56% 4 17.26% Reimbursement of expenses (paid) 0.07 Method: TNMM PLI: OP/TC Not applicable Reimbursement of expenses (received) 21.97 Method: TNMM PLI: OP/TC 5. The ld. TPO disagreed with the various filters used by the assessee in the TP study. The detailed submissions, workings and evidences provided during the course of the TP assessment proceedings, was considered by the ld. TPO, and thereafter he selected the final set of comparables based on the application of additional/modified filters in all three segments. The final comparable adopted by ld. TPO are as under: I. Engineering design and related services S. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. The DRP also directed the ld. TPO to include a comparable selected by the assessee being UB Engineering Limited if it passed the filters applied by the ld. TPO. Since the comparable was passing the filters, it was subsequently accepted in the final assessment order. II. IT infra support services and FAS services: The DRP accepted the approach and the comparable set considered by ld. TPO. All additional comparables proposed by the assessee in the fresh search were rejected. Also, the DRP accepted the approach of the ld. TPO which was to adopt the same set of comparables for both these segments. The DRP directed the ld. TPO/Ld. Assessing Officer to make working capital adjustment. The DRP also confirmed the TP adjustment made by the ld. TPO on account of interest on intercompany receivables. 9. Thus, pursuant to the DRP's directions, the ld. AO issued the final assessment order. Following are the arm's length margins as per TPO: Engineering design services S. No. Company Name Working Capital adjusted OP/TC 1. Kirloskar Consultants Ltd. 11.85% 2. Mahindra Consulting Engineers Ltd. 23.55% 3. TCE Consulting Engineers Ltd. 26.23% 4. IBI Chematur Ltd. 58.24% 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer Pricing Documentation by the Appellant, the complete data for financial year 2009-10 was not available within the public domain. 2. That without prejudice to the above, if comparables selected the ld. AO/TPO/DRP that do not meet the parameters of functional comparability are accepted, then the comparables selected by the Appellant that were rejected by ld. AO/TPO/DRP on account of functional comparability must also be accepted. 3. That on facts and circumstances of the case and in law, the ld. AO/ld. TPO/ld. DRP erred in making an addition of INR 3,10,93,116/- by imputing interest on receivables from the AEs beyond an adhoc credit period and applying an adhoc interest rate. 4. That the ld. AO has erred in charging interest u/s 234B of the Act amounting to INR 3,04,06,530/-. 5. That on the facts and in the circumstances of the case and in law, the ld. AO has erred in initiating penalty proceedings u/s 271(1)(c) of the Act. The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of appeal either before or during the course of the proceedings before the Hon'ble Income Tax Appellate Tribunal in the interest of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree market economy where the other comparables and the assessee operates. 12.3 In this regard the assessee placed its reliance on the ruling of M/s ThyssenKrupp Industries India Private Limited ITA No. 6460/Mum/2012 wherein it has been held asunder: "We find it as undisputed that Engineers India Limited is a Government company. It has several segments which also include 'Turnkey project' page 700 of the paper book is a copy of annual report of Engineers India Limited on turnkey project. It can be seen that the revenue has arisen from completing paraxylene plant of IOCL and further that company is engaged in execution of other unit of IOCL's Panipat Naphtha cracker project. In our considered opinion' this case should not have been included in the list of final comparables for two reasons. First reason is that profit motive is not a relevant consideration in case of Government undertakings. Many Government Undertakings even operate on losses in furtherance of the social obligations of the government. The second reason is that Engineers India Limited earned income from turnkey project by successfully completing the project of IOCL and other Public Sector Undertakings. In that sense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder, has rejected the said comparable based on its functional profile, holding that the comparable company is involved in software services. The Ld.AR submitted that this comparable company is not into software services, instead, is engaged in providing consultancy activities in Engineering solutions and services covering design, detailed engineering, project construction & management. The ld.AR submitted that this comparable company provides engineering design solutions, and other related services, which is functionally similar to that of the assessee. We observe that the DRP has not given any reasons for rejecting this comparable. On examination of the papers on record, we are in agreement with the submissions of the ld. AR. Hence we direct the A.O to include this company as a comparable. 5) Development Consultants Private Limited 12.9 The ld.TPO/DRP rejected the comparable company on the ground that it is functionally different, without providing any reason thereof. The Ld.AR submitted that this comparable company provides engineering consultancy services for the entire gamut of project engineering and other pertinent activities namely, vendors design and drawing review, det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee monitors and manages various IT Infrastructure components such as servers, networks, storage equipment, managing etc. The services include data centre and system management, infrastructure management, web hosting and internet excess, desktop solution etc. 13.2 In the FA segment, the functions of the appellant company are, invoice processing, help desk support, account closing and management reporting, tax advisory services, management of fund. The assessee contended that the ld. TPO/ DRP has accepted certain comparables, which perform altogether different functions as compared to assessee's FAS and IT Infra segment, and have extra-ordinary circumstances based on which they should not be included. 13.3 We would now examine each of the comparable company in dispute to arrive at a conclusion. Comparables included by the ld.TPO/DRP but disputed by the assessee: 1) TCS E-Serve International Limited & TCS E-serve Limited This company has been selected by the ld.TPO as a comparable. This company undertakes, customer service, transaction processes, collections, risk management, and analytics, and has created a lot of applications which are in the nature of intellectual propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in public domain. However, we find that the data can be extracted from the Capitaline database. The company is involved in the provision of offshore healthcare business outsourcing services, like medical coding, billing, accounts receivable management, claims processing, and healthcare revenue management. It also provides services to AR Management companies, and their hospital clients, for their credit balance account, regular accounts receivable and facility coding needs. It is noticed that this company is basically into ITES business. The ld. TPO has rejected the company on the ground that financial statement of the company was not available. However, the financial data of the company is available on the database. The ld. TPO however did not give proper opportunity to the assessee to substantiate the inclusion of this company as a comparable. The issue was carried further before the Ld.DRP, and the Ld.DRP also did not comment upon the economic analysis of the company. We therefore set aside this issue of selecting this company, to be considered by the TPO as a comparable, and to include the same in the event it satisfies all the filters applied by the ld.TPO. 2) Techprocess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest earned from fixed assets, the assessee has not earned any interest, on any advances paid to third parties. The ld.AR further submitted that being a captive undertaking, the assessee does not render similar services to any other concern. He submitted that, excess credit period arises, only when there is a standard credit period for the services sold at the same price to independent enterprises. He submitted that the cost of funds blocked in the credit period was inbuilt in the sale price. 14.10. The ld.AR relies on the judgment of Indo American Jewellery in ITA no. 5872/M/2009, wherein it has been held that the transaction of sale and lending are distinctly set out as per section 92 of the Act. The Tribunal further held that interest income is associated more with lending or borrowing of money and not with sale. The Tribunal further held while determining the ALP of sale transaction, all relevant aspects, including credit period allowed, are taken into consideration and that interest aspect is embedded in the sale price. The Tribunal held that there can be no separate international transaction of interest, on outstanding receivables and that early of late realization of the sa ..... 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