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TMI Blog2019 (10) TMI 1581X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee are accordingly allowed for statistical purposes. - SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For the Appellant : Shri Pradeep Dinodia, Advocate, For the Respondent : Ms Nidhi Sharma, Sr. DR ORDER PER R.K. PANDA, AM: This appeal filed by the assessee is directed against the order dated 20.12.2016 of the Assessing Officer passed u/s 143(3)/144C/92CA(4) of the IT Act, 1961, relating to assessment year 2012-13. 2. The grounds of appeal raised by the assessee read as under:- 1. That the DRP/AO has erred in law and on facts in the circumstances of the case in confirming the addition of Rs.7,26,52,018/- on account of transfer pricing adjustment u/s 92CA(3) and non-TP disallowances on wholly illegal, erroneous and untenable grounds. 2. The order of assessment is bad in law. Transfer Pricing Adjustment 3. That the Ld. DP/AO has erred in law in confirming the addition of Rs.5,97,94,267/- u/s 92CA(3). 4. That the Ld. DRP has erred in law in disposing off the objection of the assessee in summary manner without analyzing and appreciating the facts of the assessee s case. 5. The learned AO s order based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which has been selected comparable of the assessee for last 2 years. 7. That the Ld. TPO and consequently DRP/AO has erred in law and on facts in not including assessee comparables namely Office Care Services Ltd and Vatika Marketing Ltd in final list of comparables stating them to be low end and functionally different. 8. Without prejudice to the above, the AE service segment of the assessee is prayed to be segregated into 2 segments namely, Technical Segment and Business Support Segment (including Project Management Services, Corporate services Market Support services) and ALP of each segment be determined separately with separate set of comparables as all information to the effect in on records. 9. That the proposed addition of Rs.5,97,94,267/- is bad in the law and is prayed to be deleted. 3. Ground Nos.1 to 4 being general in nature are dismissed. Ground of appeal No. 5 to 7 relate to inclusion/exclusion of certain comparables. 4. Facts of the case, in brief, are that the assessee is a subsidiary of Rolls Royce Overseas Holding Limited and operates in India primarily in the power generation and oil and gas markets with a range of reciprocating engines cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.46 3 HSCC (India) Ltd. 48.83 4 ICRA Management Consulting Services Ltd. 6.62 5 Info Edge (India) Ltd. 56.79 6 Kitco Ltd. 37.97 7 Tata Consulting Engineers Ltd. 19.47 Average 30.66 6. Rejecting the submissions of the assessee that it was providing simple business support services and not high end marketing support services and, therefore, the comparables should be taken from the segment broadly classified as Business support services and observing that in the past also the same approach was adopted by him has been followed, the TPO finally adopted the following comparables for benchmarking the international transaction in support services:- S.No Company Name OP/OC 1. Apitco Ltd. 20.46 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices and the comparables should be selected which assumes low or no risk. He submitted that there is no change in facts of the case during the year under consideration. He submitted that the revenue in support service segment is Rs.42.62 crores while in technical service it is Rs.5.27crores. Thus, 89% of total service income is from rendering support service. So far as the allegation of the TPO that the services provided by the assessee are high end support services, he submitted that the Tribunal has already given a finding in assessee s own case that the assessee is a non-risk bearing service provider. It is also evident from the support service agreement, copy of which is placed at page 222 to 243 of the paper book. Now, coming to the various comparables selected by the TPO, the ld. counsel filed the following chart:- S. No. Company Name Business Profile Reliance placed for rejection 1. Aptico Ltd. Imparting consultancy in entirely different field and is not comparable to functions performed by the assessee (PB Pg.313) Covered by ITAT order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sia, rendering comprehensive range of professional consultancy services in health-care and other social sectors, in India and abroad. The services of HSCC s being government of India enterprise, have been utilized by various organization, both in Public and Private Sectors, Central Government Department, State Governments as also international agencies like the World Bank, WHO, among others for their projects in India and abroad. It undertakes various IT projects and Procurement projects as evident from the website of the company. Hence highly technical. See profile on PB Pg. 307-310. Copy of relevant extract of financials enclosed as Annexre-1 The company is a Govt. of India Undertaking providing high quality professional services. Considering these facts, ITAT in case of Shell India Markets Pvt. Ltd. [TS- 430-ITAT-2014 (MUM)- TP] held that the company was not functionally comparable and directed its exclusion. Reliance is placed on International SOS Services India P Ltd. [TS 493-SC-2018-TP] in which judgement of Delhi HC in same case has been upheld and it has been held that Government of India Undertaking cannot be included as a comparable. Reliance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 5.61 crore. He submitted that the TPO had applied turnover criteria for obtaining comparables of above Rs.1 crore as per page 12 of the TPO s order. Therefore, the TPO cannot artificially reject this criteria and apply any turnover test for rejecting this company. He submitted that the DRP in para 10 of the order has upheld the exclusion of this comparable for being functionally different. Since there is no abnormal business circumstances in the year under consideration so as to warrant exclusion of Cyber Media Research Services from the final list of comparables when it was a good comparable in the last two years, therefore, he submitted that this company should be included in the final list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case of Trend Micro India Pvt. Ltd. [TS-556-ITAT-2015 (DEL)- TP], he submitted that the Tribunal in the said decision has held that the Revenue cannot challenge own comparables absent CIT(A)/DRP directions. 12. So far as the exclusion of assessee s comparables, namely Office Care and Vatika Marketing from the final list of comparables are concerned, he submitted that both the companies are functionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded. She submitted that she has no objection if these comparables are restored to the file of TPO/A.O. for verification of the functionality test and the FAR analysis. 14. We have considered the rival arguments made by both the sides. So far as the companies Aptico Ltd. and Kitco Ltd. are concerned, we find the Tribunal in assessee s own case, vide ITA No.6336/Del/2015, order dated 22nd April, 2016 for assessment year 2011-12, has directed the TPO for exclusion of the companies holding that they are functionally different and they are not comparable with that of the assessee. The relevant observations of the Tribunal at para 15-16 of the order reads as under:- 15. We have carefully considered the rival contentions. Comparable No.1 Apitco Ltd. and no 2. Kitco Ltd. are submitted to functionally not comparable and further it is submitted that they have been considered by the coordinate bench in the order of the assessee for A.Y. 2010-11 in assessee's own case as under:- 36. The second comparable, inclusion of which is disputed by the assessee, is Apitco Ltd. In the synopsis filed by the assessee it is mentioned that the services provided include but not limited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allah Wentworth Golf Course at Muscat, Sultanate of Oman, thereby establishing itself in an area, which was considered to be the forte of European Consultants. The prestigious overseas assignments KITCO so far has completed include the technical evaluation of electrical power distribution network at King Abdul Aziz International Airport, Jeddah. 4. All its clients are either central government, state government, PSU etc. Snapshot enclosed. 5. It is working In divisions like infrastructure, tourism, aviation, IT services, HRD, financial services etc. which are dissimilar to the functional profile of the assessee company. Snapshot enclosed. 39. From the above submissions it is evident that this comparable is not functionally comparable with the assessee because it is the nature of services rendered and not per se rendering of services is relevant in accepting or rejecting a company as comparable. Therefore, we direct exclusion of this comparable from the list of comparables. 16. In view of above finding of coordinate bench for exclusion of Aptico and Kitco Ltd. holding that they are functionally different Rolls Royce India Private Limited V DCIT ITA No 6636 Del 2015 A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discussed the issue and has directed the A.O./TPO to exclude this company from the list of comparables. The relevant observation of the Tribunal reads as under:- 17. Regarding TCE Consulting Engineers Ltd. it is submitted that it is also engaged in providing highly technical services. The profile submitted by the assessee shows that it has successfully managed complex engineering projects across the infrastructure spectrum and also associated with prestigious urban infrastructure facilities such as Airports, Railway and Aerotropolis engineering consulting projects. Therefore it is apparent that this company is engaged in providing high end engineering consulting services which is not comparable with the functional analysis of the assessee. Therefore we direct to exclude this comparable. 18. Respectfully following the order of the Tribunal in assessee s own case and in absence of any contrary material brought to our notice, we direct the A.O./TPO to exclude this company from the list of comparables. 19. So far as HSCC (India) Ltd. is concerned, we find the Tribunal in assessee s own case for the immediately preceding assessment year at para 24 of the order has discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l that in subsequent year the turnover has gone up to Rs.5.61 crore. Further, the TPO has applied the turnover criteria of more than Rs.1 crore and, therefore, it is the submission of the ld. counsel that the TPO should not have artificially rejected this criteria and applied another turnover test for rejecting this comparable. We find force in the above argument of the ld. counsel. However, the submission of the ld. counsel that the turnover of the above comparable company has gone up in the subsequent year and that it passes all the filters of the TPO needs verification at the level of A.O./TPO. We, therefore, remit this issue to the file of A.O./TPO with a direction to verify as to whether the turnover has gone up to Rs.5.61 crore in the subsequent year as against Rs.3.33 crore in the current year and, if the same is found to be correct, then, this company should be included in the list of comparables. 22. So far as Office Care Services Ltd. is concerned, it is the submission of the ld. counsel for the assessee that this company is engaged in providing house keeping support services for offices and homes, electrical maintenance work, civil management, manpower support service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of the assessee in subsequent year. 12. That the Hon ble DRP has erred in law in not appreciating that the condition of Sec 36(l)(vii) read with Sec 36(2) has already been complied with to claim the allowance of unbilled revenue write off. 13. That the Hon ble DRP and consequently Ld. AO has grossly erred in law and on facts, in the circumstances of the appellant s case in confirming the addition of security deposit written off amounting to Rs. 12,98,441/- merely on the basis of assumptions, surmises and conjectures. 14. That the Hon ble DRP has erred in law in holding that the claim of security deposit write off shall be allowed only if it was received against contract earned by the assessee in the course of its business. Common Grounds 15. That the penalty proceedings initiated u/s Sec 271(l)(c ) are on wholly illegal and untenable grounds since there was no concealment of any income nor submission of inaccurate particulars of income, nor any default according to law by the assessee. 16. That the interest charged u/s Sec 234B and 234C of the Act is on wholly illegal and untenable grounds and is prayed not to be upheld. 17. That each ground is independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be allowed only if a contra entry of Rs.1,15,59,310/- is found credited again during the year under consideration. Since, the contra reversal entry is allowable subject to the same amount being credited during FY 201-12, the claim of the assessee is not allowed in the absence of credit amount booked in the accounts. In view of this, the amount of Rs. 1,15,59,310/- on account of unbilled revenue written off shall be disallowed. Since, I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(1)(c) are being initiated separately. 30. Aggrieved with such order of the A.O./TPO/DRP, the assessee is in appeal before the Tribunal. 31. The ld. counsel for the assessee submitted that due to certain small error, the Assessing Officer has repeated the addition, however, the fundamental principle is same and since the assessee in the preceding year has offered the amount to taxation and in the current year it has reversed the same, therefore, this being a contra entry, the addition is uncalled for. He accordingly submitted that the addition made by the Assessing Officer should be deleted. 32. The ld. DR, on the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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