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Income Tax Appellate Tribunal, DELHIBENCH ‘I’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee and revenue against the order dated 18.05.2017 passed by the CIT(A)-38, New Delhi for Assessment Year 2009-10. 2. The assessee has raised the following grounds of appeal:-
ITA No. 5724/Del/2017 UOP India Pvt. Ltd “Transfer Pricing Matter - Provision of Market Support Services 1. On facts and in law, the Learned Additional Director of Income Tax, Transfer Pricing Officer -II(4) (‘Ld. TPO’) and Learned Deputy Commissioner of Income Tax, Circle 18(1), New Delhi (‘Ld. AO’) have erred in adding, and the Learned Commissioner of Income Tax (Appeals)-38, New Delhi (‘Ld. CIT(A)’) erred in confirming the addition of a new company (i.e. HCCA Business Services Private Limited) as comparable to the Appellant, disregarding the fact that the Functions, Assets and Risk (‘FAR’) profile of this company is entirely different from that of Appellant’s business, thereby violating the provisions of Rule 10B(2) of the Income Tax Rules, 1962 (‘the Rules’).
On facts and in law, the Ld. TPO and Ld. AO erred in adding, and the Ld. CIT(A) erred in confirming the addition of a new company (i.e. Killick Agencies & Marketing Limited) as comparable to the Appellant, disregarding the fact that the FAR profile of this company is entirely different from that of the Appellant’s business, thereby violating the provisions of Rule 10B(2) of the Rules.
3. On facts and in law, the Ld. TPO and Ld. AO erred in rejecting, and Ld. CIT(A) erred in confirming the rejection of a company (i.e. Cyber Media India Online Limited) as comparable to the Appellant, disregarding the fact that the FAR profile of this company is same as that of the Appellant’s business, thereby violating the provisions of Rule 10B(2) of the Rules.
4. On facts and in law, the Ld. TPO and Ld. AO erred in rejecting, and the Ld. CIT(A) erred in confirming the rejection of a company (i.e. Times Innovative Media Ltd.) as comparable to the Appellant, merely on the basis of the losses incurred by the said comparable company, thereby violating the provisions of Rule 10B(2) of the Rules.
5. On facts and in law the Ld. AO and Ld. TPO have erred in not granting and the Ld. CIT(A) has erred in confirming the action of Ld. AO and Ld. TPO, of not granting the benefit of the 5% variation as per the proviso to section 92C(2) of the Act to the Appellant.
6. On facts and in law, the Ld. AO and Ld. TPO have erred in disregarding and the Ld. CIT(A) has erred in confirming the action of Ld. AO and Ld. TPO, of disregarding prior years' data used by the Appellant to benchmark its international transactions, in its TP Documentation for the year and holding that current year (i.e. FY 2008-09) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of ITA No. 5724/Del/2017 UOP India Pvt. Ltd
preparing its TP Documentation, and grossly misinterpreting the requirement of 'contemporaneous' data in the Rules to necessarily imply current year data, thereby breaching the principles of natural justice and 'impossibility of performance'. 7. On the facts and in the circumstances of the case, the Ld. AO erred in initiating penalty proceedings u/s 271 (l)(c) of the Act. 8. On the facts and in the circumstances of the case, the Ld. AO erred in levying interest under section 234B of the Act.”
The revenue has raised the following grounds of appeal:-
(i) Whether the CIT(A) was justified in rejecting high margin comparables contested by the taxpayer and allowing to retain other low margin comparable in the final set of the TPO not opposed by the taxpayer, which were discharging similar nature of functions even while ignoring the decision of the Hon’ble Supreme Court in the case of Mumbai International Airport (P) Ltd. Vs. Golden Chariot Airport with regard top the “Doctrine of Election” and the “Doctrine of Approbation and Reprobation”, wherein it has been laid down that a litigant cannot change and choose its stand to suit its convenience. (ii) Whether the CIT (A) as justified in laying down stringent standards of comparability and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian law and the international jurisprudence recognise the reality that there cannot be an exact comparable in a given situation without any differences without appreciating that such stringency will defeat the purpose of flexibility provided in comparability analysis for determination of ALP. (iii) Whether the CIT (A) in the facts and circumstances of the case and in law, was justified in not considering the facts presented by the Ld. TPO in its original order New Grounds of appeal [Additional Specific Grounds of Appeal (i) The Ld. CIT(A) has erred in directing to exclude the comparable namely, M/s Mitcon Consultancy Services by holding that functional profile & economic activities of the assessee are very different from this comparable. The Id. CIT(A) has also erred in ignoring that fact that the assessee had admitted that this comparable is broadly engaged in the similar business of technical consultancy and engineering services deriving revenue worth 57% from the consultancy segment. (ii) The Ld. CIT(A) has erred in concluding that the comparable namely. M/s L&T Ramboll Consulting Engineers Ltd. is ITA No. 5724/Del/2017 UOP India Pvt. Ltd functionally different to the assessee’s business ignoring the fact that the revenue of this comparable for F.Y. 2008-09 is from Engineering Services Consultancy only, as per the available financials and the annual report of this comparable. (iii) The Ld. CIT(A) should have also removed the comparable namely M/s. Onward Technology Ltd as this comparable can also be considered to be functionally different since, it is predominantly in automobile engineering segment. If the assessee is allowed to remove M/s Mitcon Consultancy Services and M/s L&T Ramboll Consulting Engineers Ltd. on the grounds of functional dissimilarity, then, on the same analogy, M/s Onward Technologies Ltd. should also have been removed. (iv) There is a one-time loss of Rs. 8 Crore due to past even, Hon’ble ITAT may kindly direct exclusion of this loss in calculation of OP/TC margin of Onward Technologies Ltd. as evident from annual report (Page no.66). (v) The Ld. CIT(A) has erred in directing the AO/TPO to include the comparable namely, M/s Indiacom Ltd in the final list of comparables without appreciating the fact that it was excluded by the TPO as a comparable on the ground that it has a different financial year ending (ending on 31st December) and the quarterly audited financials for this comparable are not available in public domain and the assessee has also failed in providing the same. The Ld. CIT(A) has also erred in not appreciating the provision of Rule 10B(4) of I.T. Rules mandating to consider data only for relevant F.Y. Comparative analysis. (vi) The Ld. CIT(A) has erred holding that the comparable namely, M/s GPCL should not be included as a comparable on the basis that M/s. GPCL has global presence, without appreciating the fact that this comparable passes all the filters applied by the TPO and its global presence does not affect its eligibility for determination of the Arm’s Length Price.”
UOPIPL was incorporated in the year 1999 as a wholly owned subsidiary of a US based company namely, UOP LLC that operates in the refining, petrochemical and gas processing industry. During FY 2008-09, UOPIPL rendered technical services, market support services and facilities and administrative support services to Honeywell group entities. UOPIPL
ITA No. 5724/Del/2017 UOP India Pvt. Ltd also undertakes independent transactions with Indian customers for sale of equipment.
International Transactions which are undertaken by the Assessee during AY 2009-10:-
Nature of UOPIPL Comparable Sr. No. Transactions Value (in INR) Method Applied margin companies Margin Provision of 1 412,089,091 technical services Availing of facility 2 and administration 476,171 Transactional 15.50% services Net Margin 15.93% (+/-5% Availing of Method range lies between 3 technical services 39,132,682 (‘TNMM’) 10.13% to 21.72%) Provision of market 4 support services 199,943,991 TNMM 10.47% 9.66%
During AY 2009-10, the above transactions were examined by the Transfer Pricing Officer (‘TPO’) during the Transfer Pricing (‘TP’) assessment proceedings. The TPO, in his TP order, confirmed that the pricing of the Appellant’s various international transactions meets the arm’s length standard except for certain international transaction. The TPO made the following adjustment:
Nature of Transactions TP adjustment (in INR) Provision of engineering, technical & inspection (‘ET&I’) services 150,430,504 Provision of market support services 23,392,078 Total TP adjustment 173,822,582
Pursuant to the TP order and the AO order, the Assessee preferred an appeal before the CIT(A) against these adjustments and the CIT(A) allowed partial relief, on some of the arguments raised by the Assessee. Thereafter, both the Assessee and the Department filed their appeals before the Tribunal against the adjustment made by Ld. AO/ Ld. TPO and relief granted by CIT(A) to the Assessee, respectively.
Provision of ET&I Services
ITA No. 5724/Del/2017 UOP India Pvt. Ltd The services provided by the Appellant to its overseas AEs include, Engineering services mainly cover provision of engineering design specifications to the customers, Technical services include technical advisory services consisting of examining the physical fitness of the unit, witnessing the pressure testing and loading of absorbents & catalysts in the unit, advising the customers in the initial operations of the unit, inspection services for the equipment during fabrication & construction of the unit. The transactions pertaining to provision and availing ET&I services and availing of facility and administration services are aggregated for the purpose of benchmarking.
Objections by Department Rejection of new companies introduced by the TPO by the CIT(A)
Sr. Name of TPO’s Ld. CIT(A)’s order Respondent’s Case laws No the contentions contentions . companies Mitcon This After careful 1 ❖ Functionally - Delhi Consultanc company is perusal of the TP dissimilarity High Court y engaged in order and the judgment ■ Services technical submissions of As per in case of consultanc appellant, it is company’s website case WSP y and clear that the (httD://www.mitconind Consultant engineering functional profile ia.com/) and annual s India Pvt services. and economic Report, this company Ltd (ITA The entire activities of is engaged in providing 935/2017) income is appellant are very multiple services such held that from different from as banking & financial Mitcon consultanc that of Mitcon services, textiles, Consultanc y. This Consultancy market research, infra y & company Services. Hence, consulting, wind power Engineerin can be AO/TPO is generation, g Services used as a directed to decentralized power Ltd. is comparable exclude Mitcon generation projects, deriving . Consultancy energy and carbon less than The ld. Services from the consultancy service, 75% C1T(A) has list of etc. Having read the revenue also erred comparables in above, the Appellant from in ignoring the ET&I submits that these consultanc that fact segment. services are different y services- that the from what the a assessee Appellant is engaged reasonable had ITA No. 5724/Del/2017 UOP India Pvt. Ltd admitted into. basis for that this its ■ Only 57% of comparable exclusion. the entire revenue of is broadly the company is earned engaged in from consultancy the similar income is considered, business of while the Company technical earns approximately consultanc 43% of the revenues y and from income from engineering vocational training services programme, IT deriving training, income from revenue laboratories and other worth income. 57% from the ❖ Non-availabilitv consultanc of Segmental accounts y segment. *The segmental accounts of this company are not available in public domain, which makes it difficult to analyse or select a particular segment of this company, if found comparable to the Appellant’ s business activities - as the company’s entire operations cannot be considered comparable to that of the Appellant.
In view of the judgment of the Hon’ble Jurisdictional High Court the same is directed to the excluded L&T This is a ❖ 2. Appellant has Functionally Ramboll leading also argued that dissimilarity Consulting multi- segmental Engineers disciplinary ❖ Company is information of the Indian engaged in providing a Ltd Company is not consultanc vast range of available in the y firm. The consultancy services public domain. company is covering the whole Accordingly, Ld. engaged in spectrum of AO/ Ld. TPO is engineering infrastructure projects. directed to consultanc The company is a exclude this y. This can diversified company company from be used as which is engaged in the final list of a ITA No. 5724/Del/2017 UOP India Pvt. Ltd comparable comparables in providing different . the ET&I types of services like segment. Field Studies and Data Collection, Mathematical Modelling, Geotechnical Studies, Feasibility Studies, Privatization Studies/Advisory Services, Supervision and Quality Control etc.
Functionally dissimilar and hence, needs to be excluded
Acceptance of a company, previously selected by TPO himself in the TP Order, by the CIT(A)
Sr. Name of the Ld. TPO’s Ld. CIT(A)’s Ld. CIT(A)’s Remark No. companies contentions order order
Onward The professional Not Department On examination of Technologies and consultancy discussed as cannot build a the functional we Ltd segment can be no new case in an hold that this is not used as arguments appeal before a right comparable comparable. were raised ITAT owing to functional by the dissimilarity. The ❖ Technically, The Ld. CIT(A) department tribunal cannot should have also the before the ignore the removed the department CIT(A)’s functional comparable cannot argue against this dissimilarity and namely M/s on the company. consider it as a right Onward comparable comparable. Technology Ltd. already as this accepted by comparable can the TPO. This also be company was considered to be selected by the functionally TPO in its different since, order and now it is department predominantly cannot change in its position by arguing automobile towards engineering excluding the segment. same. There is a one- ❖ Functionally time loss of Rs. similarity 8 crore due to past event. The annual
ITA No. 5724/Del/2017 UOP India Pvt. Ltd
Hon’ble 1TAT report shows may kindly that the direct exclusion Onward EDS of this loss in business is calculation of primarily OP/TC margin of engaged in Onward applying Technologies physical laws Ltd. as evident and principal of from annual engineering in report (Page the design, no.66) development, and utilization of machine, materials, instruments, structures, processes, and systems. EDS involved with mechanical engineering skills and the services offering extends from early stages of idea generation, through engineering design and analysis, virtual stimulation, documentation and conversion, prototyping and testing, knowledge- based engineering and PLM solutions. As per the annual report, the sales & other income as shown in the profit and ITA No. 5724/Del/2017 UOP India Pvt. Ltd loss accounts includes the value of sales reversal of Rs.80,313,553 towards ongoing pilots conducted at the behest of one of Company’s major offshore customer. Therefore, these sales reversals are arising in normal course of business and should not be considered as non- operating.
Provision of Market Support Services The market support services provided by the Appellant to its overseas AE include the activities undertaken by the Appellant to promote the use of:
— UOP equipment by petroleum refineries, petrochemical facilities; — UOP Processes; and — UOP ET&I Services.
3.2 Appellant’s contention and objections Acceptance of few new companies introduced by the TPO The Appellant has provided below a comparative chart of the companies selected by TPO and upheld by C1T(A) along with its objections/ contentions on the same: Sr. Name of Ld. TPO’s Ld. CIT(A)’s order Appellant’s Case laws No. the contentions contentions Companies
ITA No. 5724/Del/2017 UOP India Pvt. Ltd
1 HCCA The annual report Appellant has argued that HCCA Business of the company has is functionally different at it is a Services been perused. The leading service provider in the Pvt. Ltd. company is dealing entire gamut of HR operations in HR operations and administration. It also offers and administration. specialised services for certified Therefore, this processes, data security policies, company can be confidentiality, disaster used as a management business continuity, comparable. etc. All these services are clearly in the nature of business services. Hence, Ld. AO/Ld. TPO is correct in including HCCA Business Services Private Limited as a comparable in the marketing support services segment.
Owing to the function dissimilarities such as HR functions, payroll processing, compensation structuring, level management and the allied activities, this comparable is directed to be excluded. 2 Killick Does not fulfill the Agencies & Mktg. Limited Does not fulfill the requirement of RPT filter of 25% whereas, the company had RPT 64 % ❖ 1 Cyber Media As per the annual From the above ■ Delhi ITAT in case of Functionally India Online report, the snapshot it is crystal Limited company is into clear that the similarity Genzyme India Pvt Ltd providing functional profile of [TS-339-ITAT- ■ Further, the software support Cyber Media India 2018(DEL)-TP1 for AY annual report & services to its Online Ltd. is 2009-10 \ held that the shows that clients. So, it is different from that company is engaged ) the Company not functionally of appellant. Hence, in providing advertising operates in a action of Ld. AO/Ld. and marketing services single TPO to treat it ( including event business management, segment of relationship online Media comparable to as not comparable is The annual and fulfilment the taxpayer. upheld. report of the management) in various Company forms of media to its shows that the clients and thereby, also (Refer page 107 (Refer page 41 & 42 Company directly promotes the of paperbook for of paperbook for operates as an brand by incurring relevant extract relevant extract of information expenses. We of TPO order) CIT(A) order) technology accordingly direct the information TPO to include this website. company in the list of Also, the comparables. principal product/servic e lines of the ITA No. 5724/Del/2017 UOP India Pvt. Ltd
Company are defined as relation & fulfilment income, management consulting and advertisement income.
{Refer pages 230 to 232 of paperbook for relevant extract of CIT (A) submission and 1356& 1360 for annual report)
This company is involved in advertising and marketing services, event management, relationship management, hence cannot be considered as right comparable in the instant case.
2 Times The company is This company has Functionally similarity Bombay High Innovative making persistent been excluded by Court in the Unacceptable filtration Media losses. Therefore, TPO on the ground case of CIT vs criterion. Limited it will not be a that it is a company Goldman Sachs good comparable. making persistent Nowhere in the OECD (India) losses so, it is not guidelines provided Securities Pvt. functionally that revenue trend is a Ltd.(Income Tax (Refer page 108 comparable to the determinant of Appeal No. 2222 of paperbook for comparable. taxpayer. This of 2013) held relevant extract appears to be a Loss and competition that only of TPO order) valid reason for are normal incidents of persistently loss holding that it will business making unit not be a good The company is cannot be said comparable. Hence, earning operating as comparable. profit in 1 out of 3 the decision of TPO Mumbai ITAT is upheld year ruling in case of AC1T vs. MOL Maritime (India) Pvt Ltd [TS- 416-ITAT- 2020(Mum)-TP] held that the company can be considered as a and ground of (.Refer pages 234 to comparable if it appeal 15 is partly 239 of paperbook for has not suffered allowed. relevant extract of CIT persistent losses.
ITA No. 5724/Del/2017 UOP India Pvt. Ltd
(Refer page 42 of (A) submission) paperbook for relevant extract of Accented in AY 2008- CIT(A) order) 09 The Company has been accepted by the Ld. TPO during the TP assessment proceedings of the earlier years i.e. AY 2008-09. We have gone through the segmental information at page NO. 1384 of the Paper Book and find that the comparable is a persistently loss making company, hence, cannot be included.
1 Global The annual report It is seen that GPCL has a Functionally The Procurement also mentions that global presence across dissimilarity Decision of Consultants the Company is several continents and the ld Company deal Limited engaged in countries. The arguments CIT(A) is exclusively with management of appellant have affirmed procurement services. This considerable force that related services - company is also GPCL should not be in CIS countries, found to be included as a comparable Eastern Europe functionally similar. in market support services and emerging segment. Hence, Ld. economies in the AO/Ld. TPO is directed to African continent. exclude The company caters to areas as diverse as Health, Education, Agriculture, Transportation, Mining, Communication, Energy, Water Resources and other key sectors. ■ Consulting activities such as financial advisory services, environmental audits, third party assessments/ inspections 1 Indiacom It's a December The TPO has excluded this Functionally Delhi High ending company. comparable on the ground similarity Limited Court So, it will not be that it has a different Broadly functional decision in used as a financial year ending, i.e. comparable case of CIT its financial year ends on company vs.
ITA No. 5724/Del/2017 UOP India Pvt. Ltd
■ Unacceptable comparable. 31st December. On all Mckinsey other counts this company filtration Knowledge is a suitable comparable criterion. (Refer Centre India (Refer page 107 of and has been selected by pages 232 to 234 Pvt. Ltd. paperbook for the appellant in its own TP of paperbook for [TS- 672- relevant extract of study. If quarterly accounts relevant extract HC- TPO order) are available, Ld. AO/Ld. of CIT (A) 2015(DEL)- TPO is directed to take submission and TP] held accounts for the 12th 1425, 1431 & that if the month period i.e. 1433 for annual comparable 01.04.2008 to 31.03.2009 report) is for Indiacom Ltd. and functionally include it in the final list of same as Accented in AY comparables. that of 2008-09 tested party The Company has then same (Refer page 42 of paper been accepted by cannot be book for relevant extract of the Ld. TPO rejected CIT(A) order) during the TP merely on assessment the ground proceedings of that data for the earlier years entire i.e. AY 2008-09. financial year is not available. If from the available data on record, the results in financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparable s have different financial year endings. We have gone through the functional profile at page No. 581 of the paper book and compared it to the functional profile of the comparable, Indiacom Ltd. which provides printing, publishing, and advertising services. The Company offers printing services for telephone directories as well as offers advertising space within telephone
ITA No. 5724/Del/2017 UOP India Pvt. Ltd directories. Indiacom serves customers throughout India. Hence, we hold that it is not functionally comparable for the instant year.
In a nutshell, we hold that the following comparables are directed to be excluded:- • Mitcon Consultancy Services • L&T Ramboll Consulting Engineers Ltd • Onward Technologies Ltd • HCCA Business Services Pvt. Ltd • Killick Agencies & Mktg. Limited • Cyber Media India Online Limited • Times Innovative Media Limited • Global Procurement Consultants Limited • Indiacom Limited
In the result, the appeal of the assessee and revenue are partly allowed.
Order Pronounced in the Open Court on 03/03/2023.