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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 ..... d the international transaction to be at Arm s Length Price in the hands of AE, then the international transaction that the assessee had with the AE s to be also at Arm s Length Price and therefore no adjustment was warranted in the facts and circumstances of the case. So we allow the ground of the assessee s appeal and direct deletion of Arm s Length Price made as per the impugned order. - I.T.A. No.691/Mum/2013 - - - Dated:- 30-9-2022 - SHRI B. R. BASKARAN, AM AND SHRI ABY T. VARKEY, JM For the Assessee : Shri M. P. Lohia/ Shri Pranav Gandhi For the Revenue : Ms. Vatsalaa Jha (DR) ORDER PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Assessing Officer (hereinafter AO ) dated 30.11.2012 passed u/s 143(3) read with section 144C(1) of the Income Tax Act, 1961 (hereinafter the Act ). 2. At the outset, the Ld. AR of the assessee brought to our notice that the only issue is regarding the Transfer Pricing Adjustment made by the AO pursuant to the Dispute Resolution Panel (DRP) direction. According to the Ld. AR, the assessee is a Foreign Company incorporated at Milan, Italy and it has a project office in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty for the purpose of his TP analysis. Thus, it was observed by TPO as under: - Particulars of Transactions Amount (Rs.) Operating Income 282,25,82,535 Operating Cost 270,32,13,303 Net Profit/Operating Profit (OP) 11,93,69,232 PLI (OP/OI) 4,22% 4. According to the TPO, the assessee had submitted that it has retained a profit margin of 5% on the Indian portion of the contract which was sub-contracted to the AEs, for execution. However, according to the TPO, going by the industry margins available for the year under consideration, 5% margin as shown by the assessee appears to be very low and hence according to him it needs to be justified by the assessee with proper explanation along with comparable study pertaining to its margin for determining the ALP. And thereafter, he made search in the database available in the public domain. And as a result of which, a set of five (5) companies, which are engaged in the business of execution of projects was compiled with their respective fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e main issue that whether for bench marking the international transactions, segmental results are relevant or result at entity level are relevant, the issue is covered by the aforementioned decision of Tribunal. However, question has been raised regarding audited segmental accounts submitted by the assessee. We do not find any specific defect in the submissions made by the assessee before Ld. TPO and Ld. DRP that its entire work depends on the man hours and it is maintaining a system known as TMA which generates monthly reports for the purpose of tracking man hours. The assessee has even given the details regarding the man hours utilized by it for the purpose of each project and on the basis of such system the assessee has prepared the segmental accounts. Out of total loss of EPC Division on account of AE bidding activity of a sum of Rs.11,18,16,580/-, objection can be raised only in respect of allocation of other expenses which is a total sum of Rs.2,06,65,942/- and which is in the nature of job work; consulting fee and service charge; staff welfare; rent; rate and taxes; repairs; insurance postal and telegraph; traveling and conveyance; electricity water and gas; hire charges for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment have become academic and it was submitted by Ld. AR that they should be treated as academic. In the result, Ground No.1 of the assessee s appeal is allowed and Ground No.2 to 6 are dismissed as having become infructuous. 8. The Ld. AR also brought to our notice that in respect of the other AE i.e. EDTICB also, the TPO/DRP/AO made certain adjustments which was also deleted by the Tribunal in that AE s hands i.e M/s. Tecnimont ICB Pvt. Ltd. (Successors to Engineering design Tecnimont ICB Pvt. Ltd.) ITA. No.7576/Mum/2012 for AY. 2008-09 vide order dated 27.06.2014 wherein the Tribunal was pleased to delete the adjustments made by the department by holding as under: - 9. We have considered the rival submissions and carefully perused the relevant materials on record. We have given our deep thought on the issue of comparability of the companies selected by the assessee as well as by the TPO. The business profile of the assessee has been recorded by the TPO at page 22 of its order as under:- It was submitted that assessee is primarily engaged in providing engineering design support services to its AE's. The AE's of the assessee are in the business of execu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of ITES into low-end BPO services and high-end KPO services for comparability analysis would not be fair and proper. The first question referred to this Special Bench is whether for the purpose of determining the arm s length price of international transactions of the assessee company providing back office support services to their overseas associated enterprises, companies performing KPO functions should be considered as comparable ? . In our opinion, the answer to this question will depend on the facts and circumstances of each case inasmuch as if the assessee company, on the basis of its own functional profile, is found to have provided to its AE the low end back office support services like voice or data processing services as a whole or substantially the whole, the companies providing mainly high-end services by using their specialized knowledge and domain expertise cannot be considered as comparables. 11. Thus it is clear that the classification of Information Technology Enables Services (ITES) into low end BPO services and high end KPO services for comparability analysis is not just and proper, and, therefore, the action of the TPO in rejecting the comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e similar to the business profile of the comparables and a particular segment of the comparable then the rejection of the comparables selected by the assessee is not proper and justified. Without going into the comparbility of the companies selected by the TPO, if we consider the alternative submission of the assessee that the comparables selected if as well as the five comparables of the TPO after the DRP order rejecting one out of six comparables, the mean margin of eleven companies comprising six selected by the assessee and five of the TPO comes to 23.53%. The assessee has given the details of the operating profit of all the eleven companise comprising the six comparables selected by the assessee and five of the TPO as under:- Margin of comparable companies as documented in the transfer pricing study of EDTICB plus the companies adopted by the learned TPO: Sr. No. Name of the Company Operating Profit/operating cost 1 Rolta India Limited (Seg) 49% 2 Infotech Enterprise Limited (Seg) 15.38% 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dated 14.06.2017 wherein the similar issue rose up in that case and the relevant ground of appeal reads as under: - On the facts and in the circumstances of the case, the Ld. TPO has missed an obvious fact viz, that when a transaction has been handled in a particular manner in the case of one of the parties to the transaction, the same transaction in the case of the other party has to be the exact converse. In the instant case for the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transaction is treated as at Arm s Length, no adjustment can be made on the other related corresponding transaction of the AE without appreciating that this stand is against the provisions of Section 92(3) of the Act? 12. And the Hon ble High Court noted the Tribunal decision as under: - 3.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronounce cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) has been accepted as Arm s Length for the AE s and the same being mirror transaction cannot be considered excessive in the hands of the assessee/appellant. Therefore, on the same reasoning/ratio of the decision of the Tribunal (Banglore) in UE Development India Pvt. Ltd. (supra) which has been upheld by Hon ble High Court (supra), we hold that where the Tribunal has accepted the international transaction to be ..... 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