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TMI Blog2015 (11) TMI 1562X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the appellant company which is engaged in engineering design and drawing for various overseas AEs to support overseas offices on turnkey project execution basis. Webcam Consultancy Service Indi Ltd - perusal of the P & L account statement for the year ended 31.03.2005, which has otherwise not been reproduced above, which has otherwise not been disputed by the TPO, which shows that income to the sales income is more than 75% i.e. 99.38%. So, apparently TPO ha arbitrarily rejected this comparable in transfer pricing. So, we are of the considered view that the matter is required to be restored to the TPO regarding this issue. Engineers India Ltd. is company is ordered to be excluded from the list of comparables as the Government companies cannot be taken as comparables for TP by following the law laid down by Hon'ble Jurisdictional High Court in M/s. Avaya India Pvt. Ltd. [2011 (2) TMI 1294 - ITAT DELHI] and M/s. Thyussen Krupp Industries India Pvt. Ltd. [2013 (11) TMI 930 - ITAT MUMBAI] M/s. Steewards Lloyed India Ltd. - TPO has rejected the companies on the sole ground that these companies fall in service filter and has service income to sales income ratio of less than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 92 of the Act. Thus, in passing the order, the Ld. AO / Ld. TPO / Ld. DRP erred in: 1.1 Rejecting the comparable companies adopted by the Appellant in its transfer pricing documentation on the basis of additional/modified quantitative filters which lacked valid and sufficient reasoning. 1.2 Accepting companies which were functionally not comparable to the Appellant. 1.3 Including companies with high/supernormal margins as comparables. 1.4 Including government held enterprises as comparables. 1.5 Not considering the correct computation of operating margins of certain comparables. 1.6 Denying the benefit of economic adjustments on account of idle capacity and difference in risk profile in arriving at the arm's length margin. 1.7 In selecting the current year (i.e. financial year 2004-05) data for comparability despite the fact that at the time of preparation of Transfer Pricing Documentation by, the Appellant, the complete data for financial year 2004-05 was not available within the public domain. 2. That without prejudice to the above, if comparables selected the Ld. AO/TPOIDRP that do not meet the parameters of func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and companies having different financial year ending (i.e. March 31st, 2004) and data of the company does not fall 12 months period i.e. 01.04.2003 to 31.03.2004, that the companies which are functionally different from the taxpayer and that the companies which are having peculiar economic circumstances, have also been excluded. 4. The TPO offered on the basis of aforesaid filters/criteria, selected 5 companies as final comparables, which are tabulated below: Company Name OP/OC HSCC (India) Ltd 50.64 Holtec Consulting Pvt. Ltd. 36.01 NTPC Electric Supply Co. Ltd. 3.5 Rites Ltd. 34.19 TCE Consulting Engineers Ltd. 22.95 Average 29.46 Your claim far adjustment on account of Idle capacity is not acceptable as it is not in compliance with Rule l0B (3). Foreign exchange fluctuation has been considered to be nonoperating expenses in view of recently issue safe harbor guidelines. As per details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction determined as 20.23% and consequently, made Transfer pricing by adding an amount of ₹ 9,22,55,795/-. 7. We have heard Ld. authorized representatives of both the parties and have gone through the material placed on record in the light of the facts and circumstances of the present case. 8. At the very outset, Ld. A.R. contended that except ground No.1 read with gourds 1.1, 1.2, 1.3 , 1.4 and 2, rest of the grounds are of academic nature and as such need no adjudication. 9. In consonance with the directions passed by Ld. TPO/DRP, A.O. has adopted the following final comparables: S.No. Company Name Working capital adjusted (OP/Total Cost) 1 Holtec Consulting Pvt. Ltd. 37.71% 2 Rites Ltd. 32,63% 3 TCE Consulting Engineers Ltd. 21,96% 4 UB Engineering Ltd 1.95% 5 Tata Projects Ltd 6.88% Mean 20.23% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inventory in its books nor has large portion of its cost as sub-contracting cost. So, it cannot be taken as a comparable in any case. 14. RITES Ltd., taken as comparable by DRP/TPO: The taxpayer filed detailed objections to the different orders against inclusion of aforesaid company as comparable. The crux of the same is lying at pages 73-75 of the appeal set. Major objection raised by the taxpayer is that the comparable company is engaged in providing services in the areas of engineering consultancy, traffic studies, exports of locomotives and maintenance of the locomotives, construction and project management for railway track, electrification together with traffic and software consultancy assignments. More so, its income from non consultancy services is less than 75% and this filter is applied by the TPO himself. 15. On other hand, the appellant company is engaged in engineering design and drawing for various overseas AEs to support overseas offices on turnkey project execution basis. Similarly, the cost of export sales and supply services constitutes merely 35.86% of the total cost. So keeping in view the fact that comparable company i.e. RITES Ltd. taken by TPO is funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessee would like to mention that the company is engaged functionally comparable to the Assessee and hence it should be considered as a comparable 17. The A.O. has merely rejected M/s. Webcham Services (India) Ltd. on the sole ground that its services income to sales income is less than 75%. However, from the bare perusal of the P L account statement for the year ended 31.03.2005, which has otherwise not been reproduced above, which has otherwise not been disputed by the TPO, which shows that income to the sales income is more than 75% i.e. 99.38%. So, apparently TPO ha arbitrarily rejected this comparable in transfer pricing. So, we are of the considered view that the matter is required to be restored to the TPO regarding this issue. 18. The appellant also sought exclusion of Engineers India Ltd., a Government company form the list of comparables on the ground that profit motive is not relevant consideration in case of Government undertakings by relying on the judgements cited as M/s. Thyssen Krup Industries India Pvt. Ltd. in I.T.A. No. 6460/Mum/2012 New Delhi M/s. Avaya India Private Ltd. in I.T.A. No. 5150/Del/2010 (supra) and contended that the Government comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 21. To compute the idle capacity cost, the assessee company reduced the difference between the potential billable hours and the actual billed hours. It made an appropriate adjustment to salary and allowances etc. and recomputed its margin @ 3.85% on costs and placed reliance on the orders passed by ITAT where capacity utilization adjustment has been provided. HCL Technologies BPO Services Ltd., Vs. ACIT, CC-2 (I.T.A. No. 5071/De1l2010) DCIT Vs Claas India Pvt. Ltd. (ITA No. I 783/Dell20 II) Global Turbine Services Inc. (ITA No. 3484/De1/2011) DCIT vs. Innodata Isogen India Pvt Ltd (ITA N05390/Del/201 0) Google India Private Limited (ITA No. 1170/Bang/2011) DCIT vs Petro Araldite Private Limited [TS-201-1TAT-2013(Mum)-TP] Mis Fiat India Private Limited [ITA No. 1 8481Mum/2009] Globa[ Vantedge (P) Ltd. vs DC IT [20[0 37 SOT I] 22. However, Ld. DRP has summarily decided the issue by merely relying its direction issued in the immediately preceding year (Assessment Year 2004-05) without going into the merits of the facts of the case and submissions made by the A.O. The ratio of aforesaid rulings relied upon by the assessee is that capital utilization ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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