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TMI Blog2023 (1) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... two (2) of its associated enterprises/AE's (i) TICB and (ii) EDTICB. And for the sub-contract work carried out by the AE's, they were remunerated by the assessee which according to the TPO was excessive. The TPO noted the International transactions entered by the PE/Assessee with TICB and EDTICB during the year as under: - S. No. Particulars of Transactions Name of the AE Amount (Rs.) 1 Execution of EPC Project Tecnimont ICB Pvt. Ltd., Mumbai 181,3178,052 2 Execution of EPC Project Engineering & Design Tecnimont ICB Pvt. Ltd., Mumbai 16,54,65,445 Total 197,86,43,497 3. According to the TPO, though the assessee was directed to furnish the TP study determination of Arm's Length Price (ALP) of the transactions between the PE with TICB and EDTICB which come within the ambit of International transaction as defined u/s 92B of the Act, the assessee failed to produce the same. Therefore, he proceeded to benchmarking the international transactions of the PE with the two Indian AE's with his own TP analysis to find out whether the transactions carried out by it with TICB and EDTICB have been at Arm's Length or not. The TPO noted that the assessee is exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before us. 5. The Ld. AR assailing the action of the TPO/DRP/AO regarding the adjustment ordered by in respect of the International transactions with the AE's viz TICB and EDTICB, brought to our notice, that both AE's income was also scrutinized and the ALP adjustments ordered by TPO/DRP/AO which was ultimately held by the Tribunal to be at Arm's Length which will be discussed (infra). Taking note of this development, the assessee has raised revised ground no. 6 which according to him, if decided would take care of the main grievance of the assessee. Since revenue does not object, we take up revised ground no. 6 which reads as under: - "Ground no. 6 - Adjustment to procurement cost of the appellant (Mirror Transaction Approach) "6. Without prejudice to the above, erred in adjusting the procurement cost of the appellant even though the same transaction (being sub-contracting income) has been accepted at arm's length in the hands of the associated enterprises of the appellant and thereby being mirror transaction, no transfer pricing adjustment is warranted in the hands of the appellant." 6. At the outset, the Ld. AR brought to our notice that the scrutiny assessment u/s 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egment A 189,236,555 II Total operating cost of AE segment as per statement at pg. 161 of paperbook Add: Non-allocable cost allocated to Non-AE bidding 2,018,403,555 20,665,942 Revised total cost of AE segment B 2,039,069,497 Operating Margin of AE Segment (OP/OC) (A/B) 9.28% ALP Margin in cost as per TPO set of comparables Arm's Length profit of AE Segment @ 13.18% C D + B * C 13.18 268,749.360 Arm's Length Value of sale B + D 2,307,818,857 Actual value of AE sales E 2,227,800,765 95% of E 105% of E 2,116,410,727 2,339,190,803 T.P. Adjustment NIL From the above calculation it can be seen that the difference between ALP determined by the Ld. TPO in respect of AE transactions and ALP charged by the assessee is less than 5%. Therefore, benefit of proviso will be applicable to the assessee and after providing such benefit, no addition is left to be made. Accordingly, addition of Rs. 24,09,18,616/- is deleted. 8.1 As we have deleted the adjustment for the reasons discussed above, the other grounds taken by the assessee in regard to this adjustment have become academic and it was submitted by Ld. AR th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the set of companies selected by the assessee as comparables are in the BPO services and, therefore, not comparable with the services of the assessee which is in the nature of KPO. It is pertinent to note that the TPO has not undertaken the exercise of comparing the actual functions and business profile of the assessee with the comparables selected by the assessee but the rejection of the comparables selected by the assessee is based only on the ground of BPO and KPO services. In the recent decision of SB of this Tribunal in the case of M/s Maersk Global Centres Vs. ACIT (supra), the Special Bench has considered and decided this issue in para 78 as under:- "To sum up, we hold that the potential comparables of ITES sector level can be selected by applying broad functional test at first stage and although the comparables so selected can be put to further test, depending on facts of each case, by comparing the specific functions performed in the international transactions with that of uncontrolled transactions to attain the relatively equal degree of comparability as discussed above, the classification of ITES into low-end BPO services and high-end KPO services for compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore bench in Philips Software Centre Pvt. Ltd Vs ACIT (11 9 TT J 721). Assessee also submitted updated margins of comparable pertaining to FY 2007-08 which works out to 15.31%." 12. It is clear that after submitting the updated margins of the comparables, the objection of using multiple year data ceased to exist. Once the criteria adopted by the TPO for rejecting the comparable of the set of companies selected by the assessee is not found proper then the comparability has to be analysed on the basis of real nature of the business activities of the assessee as well as the comparables and further where the segmental data are used then the only business activity of the particular segment of comparable has to be compared with the business activity of the assessee. We find that the business profile of the six comparables selected by the assessee and particularly the segment of engineering design services are similar to that of the assessee's services provided to the AEs, therefore, when the International transaction of the assessee company in respect of of the services provided to the AEs are similar to the business profile of the comparables and a particular segment of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus large size of comparable would give better and adequate representation of uncontrolled price in turn a proper and more realistic price can be determined to compare with the price of international transaction. Thus, by considering the total no of comparables comprising assessee's as well as TPO's and mean margin thereof, we find that assessee's international transactions are at arm's length and, therefore, no adjustment is called for." 9. In the light of the aforesaid development in the case of AE's, the Ld AR of the assessee asserted that since the Tribunal held (supra) that the payments received by the two (2) AEs from the assessee (PE) was at Arm's Length, the necessary corollary is that no adjustment is required in the hands of the assessee, since the payments in question made by the assessee PE to the AE's cannot then be held to be not at Arm's Length. And therefore prayed that the adjustments made by the AO by passing the impugned order should be deleted and for that proposition relied on the decision by the Co-ordinate bench of this Tribunal in Bangalore decided in the case of U.E Development India Pvt. Ltd. Vs. DCIT in IT(TP)A. No. 1506/Bang/2012 for the AY. 2008-09 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of ALP in the hands, of the assessee before it. It cannot give directions to consider the issue in the hands of an assessee whose case is not it is for the relevant TPO AO to take action in accordance with law in the light of facts and circumstances of the case before them applying their mind Independently and not on the directions of DRP or any other authority in another case, Therefore, the relevant ground of appeal on this issue is allowed." 11. And in the aforesaid case [UE Development Indian Pvt. Ltd. Vs. DCIT (supra)] the Tribunal held that where the TPO has accepted the transaction to be at ALP in the hands of the AE, then he cannot take a different stand in the case of the other party to the transaction and consequently deleted the addition in that case which decisions of the Tribunal was challenged by the revenue before the Hon'ble Karnataka High Court in ITA. No.949/2017 in the case of PCIT Vs. M/s. UE Development India Pvt. Ltd. wherein the question of law framed by revenue reads as under: - "whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that in mirror transactions ALP adjustments cannot be done, ie. if one transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 30.08.20i3 (Supra) and asst. year 2009-10 vide order dated 5/5/2017 (Supra). In this factual view of the matter, and following the aforesaid decisions at the coordinate benches of the Tribunal (supra), we hold that where the TPO has accepted the transaction to be at ALP in the hands of | the AE, then he cannot take a different stand in the case of the other party to the transaction, ie, the assessee therein in the case on hand and accordingly set aside the orders at the AO/TPO on this issue. Consequently, the grounds raised by the assessee are allowed as indicated above. 5. In the result, the assessee's appeal for asst. year 2008-09 is allowed." 13. And thereafter the Hon'ble High Court was pleased to dismiss the appeal of the revenue holding that there was no substantial question of law. 14. Having heard both the parties and after perusal of the records, we note that the payments made by the assessee PE to its AE's i.e. assessee with TICB and EDTICB were held to be at Arm's Length by this Tribunal (supra); and since the same international transaction of the instant assessee's procurement cost (being sub-contracting income for the AE's i.e. of assessee viz TICB and EDTICB) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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