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TMI Blog2016 (11) TMI 1575X X X X Extracts X X X X X X X X Extracts X X X X ..... at, he was not pressing grounds 15 16 assailing rejection of idle capacity adjustment. Accordingly these two grounds are dismissed as not pressed. 3. Facts apropos are that assessee an engineering services provider had filed its return for the impugned assessment year disclosing income of C3,31,83,584/- under normal provision and C6,37,96,564/- u/sec. 115JB of the Act. Since assessee had entered into international transaction with its Associated Enterprises exceeding a value of C15,00,00,000/- a reference was made to the ld. Transfer Pricing Officer (hereinafter referred to the TPO ) by the Assessing Officer. Profile of the assessee has been summarized by the ld. TPO at para 3 5 of the order dated 22.01.2015 and this is reproduced hereunder:- Saipem India is engaged in providing engineering and allied services. During the financial year 2010-11. Saipem India exported engineering service and paid technical service charge to its AEs belonging to the Saipem Group. Under the Engine ring services segment. the main activities of Saipem India could be categorised as follows: . Project Management; . Engineering ; . Procurement services and; . Sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.98% Arithmetic mean(%) -0.92% Assessee has worked out its own Profit Level Indicator as under:- Particulars Engineering and Allied services Income Service Income 1,426,613,672 Other Income 15,890,156 Total Operating Cost 1,442,503,828 Expenditure:- Personal Expenses 829,043,265 Other Operating and Administrative expenses 504,751,396 Depreciation 35,855,723 Finance Charges 1,152,404 Less: Idle time cost (Being idle capacity in respect of personal and rental cost) 95,505,056 Total Operating cost 1,274,997,732 Operating/Net profit 167,506,096 Operating profit/operating cost 13.14% The profit leve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport services for buildings were also functionally comparable. However, ld. TPO was of the opinion that M/s. Desien Private Ltd and M/s. Blue Star Design Engineering Ltd were not all comparable to the assessee. 8. The final comparables the selected by ld. TPO and average PLI worked out by him read as under:- Name of the comparable Margin in % M/s. Mahindra Consulting Engineers Ltd 29.52 M.N. Dastur Company (P) Ltd 3.13 Toyo Engineering India Ltd, 13.98 Kirloskar Consultants Ltd -1.35 Average 11.32 Ld. TPO applied average PLI of 11.32% of the comparables on the operative cost of the assessee and worked out an upward adjustment of C8,34,73,835/-. The work out made by the ld. TPO is reproduced hereunder:- Assessee s Financials:- Operating Cost : 137,08,02,788 Operating Profit : 7,17,01,040 Operating Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have been examined and applicability of filters and functional similarity could have been looked into. So objections of the assessee on this issue are not accepted . Thereafter assessment was completed in accordance with ld. DRP directions. 10. Before us, ld. Authorised Representative, strongly assailing the orders of the lower authorities submitted that M/s. Mahindra Consulting Engineers Ltd was not comparable to the functional profile of the assessee. As per ld. Authorised Representative profile of the assessee was captured in its transfer pricing study for the relevant assessment year. Relying on the paper book page no.220 and 221, ld. Authorised Representative submitted that assessee was engaged in engineering services relating to oil and gas industry for offshore and onshore projects. As per ld. Authorised Representative engineering services done by the assessee was only in the onshore process systems and offsite services related to oil and gas, chemical and petrochemical and refinery. As per ld. Authorised Representative, other activities of the assessee which was considered by the ld. TPO to be comparable with the activities of M/s. Mahindra Consulting Enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the ld. Authorised Representative in the event M/s. Mahindra Consulting Engineers Ltd was considered as a good comparable, then M/s. Desein Private Ltd and M/s.Blue Star Design Engineering Ltd also should come in the list. 13. Per Contra, ld. Departmental Representative strongly assailing on the orders of the lower authorities submitted that in TNMM analysis perfect tallying of functional profile was not necessary. According to him, functional profile of both assessee as well as M/s. Mahindra Consulting Engineers Ltd were similar, since both were doing engineering consultancy. Taking us though the profiles of both the companies ld. Departmental Representative submitted that there was little that could differentiate these two. Viz-a-viz M/s. Stewarts Lloyds Ltd., Ld. Departmental Representative submitted that each assessment year was different. Just because the said company was considered to be good comparable in earlier years would not make it a good comparable for the subsequent year. According to him, assessee could not show that in the earlier years M/s. Stewarts Lloyds Ltd had any material cost similar to what was incurred by it during the relevant previous year. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petrochemical markets as well as a number of diversified Industrial ones, such as environment, infrastructure, marine terminals, etc. Saipem offers a complete range of project definition and execution services, particularly for the rnega- projects required by the market from feasibility and front end studies to design, engineering, procurement and field construction. Saipem mainly operates from four global engineering centres for onshore projects located in Milan and Fano In Italy, Paris, France and Chennai, India . It is to be noted that the above was the profile of Saipem group and not that of assessee company namely Saipem India Projects Ltd, as such. Functional profile of assessee is captured at paragraph 3 4 of ld. TPO which are reproduced hereunder:- Functions performed Saipem India covers the entire spectrum of upstream I downstream as well as onshore I offshore projects right from conceptual studies through detailed and field engineering . Saipem India also provides value a services like feasibility studies. estimation and proposals . procurement assistance services including market scouting. cost estimate. request for quotation, techn i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt plant P ID, PCS, PDMS, Autocad or Micro station. Saipem India uses 3D modelling through PDS or PDMS. Additional software and tools are added on project need basis together with adequate trainings for their personal. Saipem India renders services to both the group companies, which are its AEs as well as non- group or I third parties. These services are rendered from India (Off-site) as well as on-site and Saipem India is remunerated on an hourly basis I fixed price for the same. A reading of the above two profiles clearly show that M/s. Saipem group of which assessee was a part, was not only serving oil and gas but were into diversified industries like environment, infrastructure and marine terminals. Coming to the specific functions performed by the assessee captured above it clearly show that assessee was providing engineering and allied services not to oil and gas industries alone. It was giving support services for plant commissioning start up and performing test run. In such circumstances contention of the assessee that M/s. Mahindra Consulting Engineers Ltd was engaged in consultancy engineering of a totally different variety, which were not comparable to it cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in considering M/s. Mahindra Consulting Engineers Ltd as a good comparable. 16. Coming to the argument of the ld. Authorised Representative that if M/s. Mahindra Consulting Engineers Ltd is considered a good comparable then two other comparables suggested by the assessee during the course of proceeding before ld. TPO namely M/s.Desein Private Limited and M/s. Blue Star Design and Engineering Ltd also need to be considered, Ld. DRP had in its order clearly mentioned that assessee had failed to produce annual reports of these two companies which alone could have demonstrated the functional comparability of these companies with that of the assessee. Even before us, no records were produced to show that M/s.Desein Private Limited and M/s. Blue Star Design and Engineering Ltd were functionally comparable to the assessee. We, are therefore of the opinion that lower authorities were justified in not considering these two comparables. 17. Coming to the last limb of the argument of the ld. Authorised Representative that M/s. Stewarts Lloyds Ltd was unjustifiably rejected as a good comparable, we find that ld. TPO had considered the said company as a good comparable in the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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