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TMI Blog2020 (2) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the following: 1) Selecting 6 new comparable companies which were not selected by the assessee 2) Rejecting 4 comparable companies selected by the assessee l(b) The learned DCIT (after incorporating Ld. DRP's order) has erred on facts and in law in rejecting adjustment in margin due to different risk profile of comparable companies. 2. The learned DCIT (after incorporating Ld. DRP's order) has erred on facts and in law in not granting 100% of the eligible profit as deduction u/s 10A(lA). The learned DCIT has restricted the deduction at 90% instead of 100% as provided in section 10A(lA). 3. The learned DCIT (after incorporating Ld. DRP's order) has erred on facts and in law in initiating penalty proceedings u/s 271(1)(c)." 3. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Haldor Topsoe India Pvt. Ltd. (HTIPL), the taxpayer is fully owned subsidiary of the Topsoe Group (with 99.9% shares being held by Haldor Topsoe International A/S (HTIAS), which is ultimate active holding company of the taxpayer, and 1 share being held by another group company, Subconcinent Ammonia Investment Company Aps). The taxpayer provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les has been reduced from 27.06% to 24.90%. Thereafter TPO has given effect to the order passed by the ld. DRP and recomputed the ALP of international transactions at Rs. 3,25,52,475/-. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 9. Undisputedly, there is no change in the business model of the taxpayer during the year under assessment. The taxpayer is a wholly owned subsidiary of HTIAS, a Danish company. The ld. TPO has not disputed the margin of the taxpayer at 12.28% nor has disputed the TNMM as OP/OC as PLI as MAM applied by the taxpayer to benchmark the international transactions. 10. It is the case of the taxpayer that it has rendered services to industry operating in fertilizer, petro-chemical and refinery and oil & gas sector and accordingly selected engineering companies as comparables which were also rendering services to the industry in fertilizer, petro-chemical, refinery and oil & gas s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies from the final list of comparables whose revenue is less than 75% of the total income. However, when we examine profit and loss account of the Mitcon available at page 44 of the paper book revenue earned by the Mitcon from consultancy fee during the year under assessment comes to 55.65%, which is less than the filter of 75% applied by the TPO. 20. Co-ordinate bench of Tribunal examined the suitability of Mitcon in Granite Services International (P.) Ltd. (supra) vis-àvis a routine engineering and technical assistant service Provider and order to exclude the same by returning following findings :- "20. So far as Mitcon Consultancy and Engineering Services Ltd., is concerned we find this company provides services to the banking division, entrepreneurship and vocational training division, E-schools and BT and Pharma sector. Revenue earned by the company from services other than consultancy is approx. 43% of the total revenue. Milton also owns fixed assets such as wind turbine generators and therefore, has a high fixed asset to sales ratio of 34.09%. We find this company was rejected by the Tribunal in assessee's own case Granite Services International (P) Ltd. v. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been excluded as a comparable on the grounds that there is substantial outsourcing of work in case of Mahindra which makes its business model dissimilar to the taxpayer. 20. In AY 2010-11, Mahindra has been excluded as a comparable on the ground that most of the work carried out by the Mahindra was outsourced whereas taxpayer has not outsourced its work. Moreover, Mahindra has a different profit recognition method vis-à-vis the taxpayer who is a 100% captive service provider. 21. Coordinate Bench of the tribunal in case of DCIT vs. Terex India (P.) Ltd. (2019) 104 taxmann.com 281 (Delhi-Trib.), a technical service provider excluded Mahindra on account of different method of revenue recognition vis-à-vis the taxpayer by returning following findings :- "d) Mahindra Consulting & Engg. Services Ltd.: We have perused the financial statements of the company placed at Paper Book pages 491 - 509. On going through the same, we note that this company is engaged in providing a variety of services, only one of which is engineering services and segmental information about the Engineering Services is not available. Further, this company recognizes its revenue on percenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rganization with experienced professionals like health planners and economists, doctors, biomedical engineers, computer experts pharmacists, architects and public health engineers etc. So the function of HSCC are dissimilar to taxpayer who is a routine engineering consultancy service provider, hence we order to exclude the same from final list of comparable to the benchmark of international transactions." 24. So, following the decision of the coordinate Bench of the Tribunal in taxpayer's own case in AY 2012-13 (supra) and on the grounds inter alia that it is a Mini Ratna, Category-1 of Government of India company and subsidiary of NBCC (India) Ltd.; and that it is functionally dissimilar being into healthcare and social sector as against the taxpayer who is providing technical services to companies in fertilizer, petro-chemical, refinery and oil & gas industries, etc.; that HSCC fails service filter of 75% applied by the TPO to exclude the company whose revenue from services is less than 75% of the total operating cost. Since HSCC's total revenue from services is 69.08% it fails service filter applied by the taxpayer and is liable to excluded on this score also. Consequently, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, it is rendering services predominantly to Government companies thus having large number of related party transactions leading to earning of abnormally high margin of 72.37% as against average margin of consulting and engineering industry at 11.21%. 27. Furthermore, when we examine the functional profile of Certification, available at page 182 of the paper book, it shows that its activities are confined to recertification, safety audit and HSE management systems for offshore and onshore oil & gas facilities and it also undertakes third party inspection of equipments and installations in the hydrocarbon and other quality sensitive sectors of the industry which is dissimilar to taxpayer's profile who is providing technical consultancy services in the field of fertilizer, petro-chemical, refinery and oil & gas industries etc. 28. In view of the law laid down by Hon'ble Delhi High Court in the case of Rampgreen Solution vs. CIT 60 taxmann.com 355 (Delhi), comparable needs to be functionally similar with the controlled comparable transactions or entities and mere broad similarity is not sufficient. 29. Furthermore, business model of Certification vis-à-vis taxpayer is diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that since there is no change in the business model during the year under assessment, Petro is a suitable comparable vis-à-vis the taxpayer on ground of functional similarity, hence we order to include Petron by the TPO/AO in the final set of comparables for benchmarking the international transactions. M/S. CHEMTEX GLOBAL ENGINEERS PVT. LTD. (CHEMTEX) 34. This is taxpayer's comparable rejected by the TPO on the ground that it fails service filter and RPT filter and on the ground that annual repot of this comparable is not available in the public domain. Ld. AR for the taxpayer contended that now financials of Chemtex are available in the public domain and requested for restoring the matter to TPO. Since annual reports/financials of Chemtex are now available in the public domain, this issue is restored to TPO/AO for reconsideration after providing opportunity of being heard to the taxpayer. GROUND NO.1(b) 35. TPO/DRP have made addition of Rs. 3,25,52,475/- on account of adjustment in the value of international transaction (while increasing the margin of comparable companies to 24.90% as against actual margin of 12.28% of the taxpayer by rejecting the adjustment in marg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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