KSSIIPL VEL JV,PURI vs. ACIT CIRCLE-5(1), BHUBANESWAR

(ननधाारण वषा / Assessment Year : 2014-2015) KSSIIPL VEL JV, Vs The ACIT, Circle-5(1), VKC & Associates, Bhubaneswar Company Secretaries, D-38, LGF(L/S), South Extension, Part-II, New Delhi-110049 PAN No. :AABAK 2765 L (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. ननधााररती की ओर से /Assessee by : Ms. Pooja Dhalwani, CA राजस्व की ओर से /Revenue by : Shri Sanjay Kumar, CIT-DR सुनवाई की तारीख / Date of Hearing : 29/08/2024 घोषणा की तारीख/Date of Pronouncement : 29/08/2024 आदेश / O R D E R Per Bench : This is an appeal filed by the assessee against the order of the ld. CIT(A)-2, Bhubaneswar, passed in I.T. Appeal No.Bhubaneswar- 2/10968/2017-18, for the assessment year 2014-2015.

However, the Ld. Transfer Pricing Officer ("Ld. TPO"), rejected the arm's length price calculated by the appellant following TNMM Method and interalia rejecting KSSIIPL as 'tested party' based on following observations: a) Based on Functional, Assets and Risk Analysis [FAR Analysis], the appellant does not undertake any significant function and does not assume any business risk, whereas selected the AE, KSSIIPL, as the tested party who undertakes all functions and assume significant risks. b) The 'tested party' should be the least complex of the transacting entities in terms of intensity of functions performed and risks assumed. c) Hence, entity undertaking all functions and related risks should not be considered as tested party since, by virtue of their complex functional and risk profiles, their margins fluctuate heavily with the vagaries of the economy, thus making comparability analysis extremely difficult and unreliable. d) Further, in selection of entity as a tested party, availability of reliable and authentic data requiring fewest adjustment should also be factored while undertaking arm's length analysis. Accordingly, Ld. TPO, rejected the AE, KSSIIPL, as a tested party. Relevant para of the order of Ld. TPO, has been reproduced hereunder: In the instant case, KSSIIPL's account has significant third paTh) transactions, whose profitability would have direct nexus on the profitability of KSSIIPL's transaction with the assessee. Any analysis which is based on the aggregate approach instead of transaction-by-transaction approach would vitiate the essence of transfer pricing analysis. The actual margin earned by KSSIIPL while transacting with the assessee would be difficult to verify and authenticate and will have always leave room for subjectivity with respect to consideration of actual total costs incurred and corresponding margin earned. In this regards, appellant submit. that Rule 10B(1)(e) of the Income Tax Rules provides that while calculating arm's length price by TNMM, the net profit margin realised by the enterprise from an international transaction or a specified domestic transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base . Accordingly, as per transactional net margin method, the tested party can be either the seller/service receiver or the buyer / service provider. In the former case, the tested financial indicator is generally the net profit on costs or the net profit on assets. In the latter case, the tested financial indicator is generally the net profit on sales. Further As explained in para 3.18 of the 2010 OECD Guidelines, the choice of the tested party should be consistent with the functional analysis of the transaction. As a general rule, the tested party is the one to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be found, i.e. it will most often be the one that has the less complex functional analysis. Therefore, it is contended that the tested party is usually the participant in a transaction for which profitability can be ascertained most reliably and for which reliable data on comparable can be found. The tested party will also typically be the party with the least intangibles. In the given case of the appellant, it is submitted that, the appellant performs very limited function in execution of the project, therefore it hasn't been able to identify similar third-party arrangement for comparison of transaction under consideration. Hence, appellant cannot be taken as tested party. It seems to be no doubt that the entity with the least complex functions should be adopted as the tested party if reliable data for transfer pricing comparison is available. In the instant case of the appellant due to its limited functional profile and further it exists only for the limited purpose comprising of the single contract. It is highly subjective to use the financial data of the appellant for comparison of Arm's Length Margin. Therefore, based on the above discussion, we submit that the Ld. TPO has wrongly rejected KSSIIPL (AE of the appellant) as tested party and treated appellant as tested party. • Ground No. 3 - Rejecting use of multiple year data for selection of comparable in determining the arm's length price: As per Rule 10B(4) of the Income Tax Rules, the data to be used in analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be the data relating to the financial year in which the international transaction or the specified domestic transaction has been entered into. Provided that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared.

Appellant submit that, according to the business cycle, industry profile and economic conditions of the appellant, a two-three years data is appropriate rather than the use of a single year data while analyzing the comparability of an uncontrolled transaction. Therefore, the appellant used average of three year's data to calculate operating margins of comparable companies. After that, arithmetic mean of such operating margins is used to arrive at arm's length price. As per proviso to sub-rule 4 of rule 10B of the Rules, a taxpayer is required to use relevant financial year's data or 2 years' data prior to relevant financial year, as appropriate. / applicable in its/his/her case. In addition to above, 2010 OECD Guidelines in para 3.75 to 3.79, provide further clarification / guidance for understanding relating to use of multiple year data. The same are discussed hereunder: Para 3.75 to 3.79 of the OECD Guidelines: "3.75 In practice, examining multiple year data is often useful in a comparability analysis, but it is not a systematic requirement. Multiple year data should be used where they add value to the transfer pricing analysis. It would not be appropriate to set prescriptive guidance as to the number of years to be covered bt) multiple year analyses. 3.76 In order to obtain a complete understanding of the facts and circumstances surrounding the controlled transaction, it generally might be useful to examine data from both the year under examination and prior years. The analysis of such information might disclose facts that may have influenced (or should have influenced) the determination of the transfer price. 3.77 Multiple year data 'Will also be useful in providing information about the relevant business and product life cycles of the comparables. Differences in business or product life cycles may have a material effect on transfer pricing conditions that needs to be assessed in determining comparability. T71e data from earlier years may show whether the independent enterprise engaged in a comparable transaction was affected by comparable economic conditions in a comparable manner, or whether different conditions in an earlier year materially affected its price or profit so that it should not be used as a comparable. 3.78 Multiple year data can also improve the process of selecting third party comparables e.g. by identifying results that may indicate a significant variance from the underlying comparability characteristics of the controlled transaction being reviewed, in some cases leading to the rejection of the comparable, or to detect anomalies in third party information. 3.79 The use of multiple year data does not necessarily imply the use of multiple year averages. Multiple year data and averages can however be used in some circumstances to improve reliability of the range. See paragraphs 3.57-3.62 for a discussion of statistical tools." Here, appellant reiterate its contention that the purpose of using multiple year data is to ensure that the outcome for the relevant year is not unduly influenced by abnormal factors. In attempting to determine an arm's length outcome for international dealings or specified domestic transactions between associated enterprises, the results of anyone year may be distorted by differences in economic or market conditions and the features and operations of the enterprise affecting the controlled or uncontrolled dealings. Participants in an industry may not be uniformly affected by business and product cycles, and therefore differences between dealings may reflect differences in circumstances, not the effects of non-arm's length dealing. Ld. TPO, in TP order stated that Rule 10B(4) mandate use of only contemporaneous financial data to benchmark the transaction and select the comparables. Against this, appellant contend that as discussed above proviso to Rule 10B(4) of the Rules provide use of relevant financial year's data or 2 years' data prior to relevant financial year if such data reveals facts that could have material effect on the determination of transfer prices in relation to the transactions being compared. Looking at the business model and business cycle of the appellant and comparables selected by the appellant in TP Documentation, the data may have been affected in vary sense from economic or market conditions or any other abnormal factors. Therefore, while selecting comparables it is appropriate to use data of more than one financial year. From the above it is submitted by the appellant that the Ld. TPO as well as Ld . CIT(A) erroneously rejected use multiple year data and wrongly restrict the right given by the act for choosing option for use of multiple year data, wherever appropriate. • Ground No. 4, 5 & 6 - Inappropriate selection of comparable in determining the arm's length price In the order under section 92CA(3), Ld. TPO rejected KSSIIPL (AE of the Appellant) as tested party and treated the Appellant itself as tested party. However, Ld. TPO while taking comparables, considered the comparables as given in the TP Documentation, as submitted by the appellant in the assessment proceedings. With regards, to the same, appellant contend that the comparables given in the TP Ld. TPO, are comparables for KSSIIPL (AE of the Appellant) and not comparables for KSSIIPL VEL JV, which the Ld. TPO treated as tested party. Appellant further contend that all the companies included in the TP documentation and further taken by the Ld. TPO as comparables are engaged in the execution of engineering projects and are functionally similar to KSSIIPL. Whereas, KSSIIPL VEL JV does not perform any function to execute the EPC Project but only acts as a mere facilitator for the EPC Project. Accordingly, the companies chosen as comparables for KSSIIPL that are engaged in full execution of the EPC Project cannot be taken as comparables to KSSIIPL VEL JV. Hence, for taking KSSIIPL VEL JV as tested party, Ld. TPO had to identify comparables which are not performing any other function apart from the just acting as a project contractor. Therefore it has been submitted by the appellant that the Ld. TPO erred in selecting comparables while calculating arm's length price taking KSSIIPL VEL JV as tested party. In the Order, Ld. TPO, discussed regarding application of modified filters or criteria leading towards selecting proper comparables functionally similar to that of appellant. Those are as follows: a) Companies who have more than 25% of related party transactions, (sales as well as expenditure combined) of the operating revenues & Expenditure (combined) are excluded. d) Companies having different financial year ending (i.e. not March 31,2014) or data of the company does not fall within 12 months i.e. 01-04-2013 to 31- 03-2014 are rejected. b) Companies who have diminishing revenue / persistent loss for the period under consideration are excluded. c) Companies having negative net worth are excluded. Out of comparables selected by the appellant as per TP study report, following comparables has been accepted by the Ld. TPO on the basis of above filters: Company OP/OC C & C Construction Limited 11.27% Gillanders Arbuthnot & Co. Ltd. 2.51% Hindustan Construction Company Ltd. 13.34% JMC Projects (India) Ltd. 8.50% Punj Lloiyd Ltd. 6.41% U B Engineering Ltd. 3.43% Tata Projects Ltd (segmental) 9.03% Average Margin 7.78% And, rejected following two comparables for the reasons cited by the Ld. TPO as under: Company Reasons by Ld. TPO for rejection Consolidated The company having diminishing revenue / Construction persistent loss for the period under Consortium Ltd. consideration. Shriram EPC Ltd. The company having diminishing revenue / persistent loss for the period under consideration.

Now, the Ld. TPO, in show cause notice proposed to treat above calculated Simple Arithmetical Mean of 7.78% as arm's length margin for comparison of underlying transactions. In response to the notice appellant filed detailed reply on 08.08.2017 and submitted as under: As per Rule 10B(2) of the Income Tax Rules, for the purposes of comparability of an International Transaction or a specified Domestic Transaction with an uncontrolled transaction as method specified in sub-rule 1 of rule 10B, shall be judged with reference to the following points: i). The specific characteristics of the property transferred or services provided in either transaction; ii). The functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; iii). The contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; iv). Conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.

None of the points mentioned as per rule 10B(2), as discussed above, provide that the comparables should be rejected for the reason of diminishing revenue / persistent loss for the period under consideration. The filters selected by Ld. TPO should be out of the points/factors described in the rule. However, Ld. TPO created filters from outside the scope of the act and rejected two comparables for the reason that they suffered loss in the period under consideration. Appellant further like to submit regarding functions/activities performed by Consolidated Construction Consortium Ltd. & Shriram EPC Ltd. I Consolidated Construction Consortium Ltd: As per the financial data and annual report available in public domain of this company and on perusal of the revenue from operations and other factors, it can be seen that the company is engaged in providing services similar to the tested party i.e. AE of the Appellant. Hence, the company is an integrated turnkey construction service provider having pan India presence with expertise in construction design, engineering, procurement, construction and project management and also provide construction allied services such as Mechanical & Electrical, Plumbing, Fire Fighting, Heating, ventilation and air conditioning, interior fit out services and glazing solutions. Shriram EPC Limited: From perusal of the financial data and annual report for the year under consideration, it is clear that the company is engaged in providing services similar to the tested party i.e. AE of the Appellant. Therefore, Company provides end-to-end solutions to engineering challenges, offering multi- disciplinary design, engineering, procurement, construction and project management services. Based on above, it is clear that the reason given by the Ld. TPO is not true and the rejection is solely based on the factor that the above two companies suffered loss in the year under comparison. Further the criteria of rejecting comparables as listed out in rule 10B(2) of the Rules, do not discuss/ provide as while selecting comparables, reference shall be made to the profitability or loss factor. Hence, rejecting comparables merely on the basis of the fact that they incurred loss in the year under comparison is unlawfull and should reversed. In addition to above, however, while passing order, Ld. TPO revised his search process and identified additional corn parables that passes through all the filters listed in show cause notice. These are reproduced hereunder:

Company PLI (OP/OR) Ashoka Highways (Durg) Ltd. 38.00 OB Infrastructure Ltd. 35.72 Essel Infraprojects Ltd. 25.53 IRB Infrastructure Ltd. 22.39 JKM Infra Projects Ltd. 14.58 J Kumar Infraprojects Ltd. 14.41 GVR Infra Projects Ltd. 14.35 Max Infra India Ltd. 11.67 PBA Infrastructure Ltd. 10.04 (Table - 2) With respect to the above, appellant contend that, once the comparables have been identified in the TP Documentation and also accepted by the TPO in first show cause notice issued, there after revision of search process and identification of new comparables is intended only to create hardship on the appellant. Further, no details regarding how the search process carried out and no backup of the comparables selected has been provided by the Ld. TPO to the appellant. In this situation the appellant has relied on the information available from public domain and contended as under: Ashok Highways (Durg) Ltd.: The company is engaged in providing service in relation to design, engineering, finance, construction of four lane duel carriageway road from end of Durg bypass to Chattisgarh/ Maharashtra Border which is a part of Raipur - Nagpur section of NH-6 (presently NH- 53) in the State of Chattisgarh [consisting section from Km 322.400 to 405.000] and operation and maintenance of the same for entire concession period of 20 years on Built, Operate and Transfer (BOT) Toll basis in [an 2008. Commercial operation date of the project falls in the year 2012. From the above, it is submitted that the business model of the company is not similar to that of the tested party i.e. the appellant since the above company operate on Built, Operate and Transfer (BOT) Toll basis and had revenue from the source which is different from the source of revenue of the tested party. Therefore, this cannot be selected as comparables for computing arm's length margin for comparison of underlying transaction. Further, the appellant contends that the new set of comparables selected by Ld. TPO [as mentioned in Table 2 above] are very much high and inflationary. The arm's length margin should be representative of the normal profit margin under normal market and economic situation of the comparable entities. Therefore, arm's length price computed by the above high and inflationary margin is wrong and hardship on the appellant. • Ground no. 7 - This ground is general in nature. It is submitted accordingly.

21. The assessee had referred to the decision of the Delhi Tribunal in Ranbaxy Laboratories Limited which was distinguished by observing that the said decision had proceeded on the basis of OECD guidelines. The Tribunal further went on to observe that the determination of least complex party and functions performed by the AE outside the Country are not available on record and it is not AE and its capital employed and the complexity of the functions performed by it. It is further observed that in the absence of any such documentation with regard to assumption of risk, complex functions, the capital employed, etc., the decision in Ranbaxy Laboratories Limited cannot be applied in the case of the assessee unless it is established with material evidence that the AE outside the Country performed least complex operation with a minimum risk. The Tribunal further has observed that the assessee miserably failed to establish functional risk assumed by the AE and in the absence of any material on record with regard to the risk assumed by the AE, the assessee has to be taken as tested party for the purpose of transfer pricing adjustment. Thus, the assessee was non-suited on the ground that they have failed to establish functional risk assumed by the AE outside the Country. This finding appears to be factually incorrect as could be seen from the grounds raised

before the Tribunal as well as the grounds which were canvassed before the TPD and specifically raised in the objections filed before the DRP.

22. The Tribunal had distinguished the decision in Ranbaxy Laboratories Limited on the ground that the Delhi Bench of the Tribunal has proceeded on the basis of the OECD guidelines. However, we find in paragraph 25 of the judgment of the Tribunal the principles that emerge in selection of tested party has been culled out wherein it has been held that the tested party normally should be the least complex party to the controlled transaction and that there is no bar for selection of tested party either local or foreign party and neither the Act nor the guidelines on transfer pricing provides so and the selection of tested party is to further the object of comparability analysis by making it less complex and requiring fewer adjustment. Therefore, we do not agree with the reasons given by the Tribunal for not considering the decision in Ranbaxy Laboratories Limited' In the case of Ranbaxy Laboratories Ltd. v.Add/. CITin of 2007 in the decision dated 22-1-2008, Hon'ble ITAT Delhi held;, "5B ..... The tested party normally should be the party in respect of which reliable data for comparison is easily and readily available and fewest adjustments in computations are needed. It may be local or foreign entity i.e. one party to the transaction. The object of transfer pricing exercise is to gather reliable data, which can be considered without difficulty by both the parties i.e. taxpayer and the revenue. It is also true that generally least of the complex controlled taxpayer should be taken as a tested party. But where comparable almost comparable, controlled and-uncontrolled transactions or entities are available, it may not be right to eliminate them from consideration because they look to be complex. If the taxpayer wishes to take foreign AE as tested party, then it must ensure that it is such an entity for which the relevant data for comparison is available in public domain or is furnished to the tax administration. "

Kolkata Bench of the Hon'ble Tribunal m Development Consultants Pvt Ltd. v. Dy. CIT 92008) SOT 455 (Kol) held; " We agree with the view that in order to determine the most appropriate method for determining the arm's length price, it is first necessary to select the 'tested party' and the tested party will be the least complex of the controlled taxpayer and will not own valuable intangible property or unique assets that distinguish it from potential uncontrolled comparables. " Appellant has submitted that the appellant does not perform any other function apart from subcontracting the ECP project, the appellant was unable to identify that there exist similar third-party arrangements due to limited data available in public domain. Hence due to lack of reliable data, the appellant cannot be selected as tested party for benchmarking the underlying transaction. Submissions of the appellant are not correct as the appellant and its AE both are engaged in similar activities. Subcontract services availed by the appellant to its AE are the same as are provided by the appellant to Bhubaneswar Expressway Private Ltd i.e civil construction services. It does not make much difference whether services to Bhubaneswar Expressway Private Ltd have been provided by the appellant directly or have been provided through subcontracting to its AE. The nature of the services remains civil construction services and not of providing or availing subcontract services as is being canvassed by the appellant. Thus, selection of Associated Enterprise by the appellant as 'Tested Party' fails all the tests laid down under the statute as well as by various courts. The AE is neither the least complicated nor, it is possible to precisely identify the net profit margin realised by the AE from the specified domestic transaction. On the contrary, there is no disputing the fact that least complex functions have been performed by the appellant as compared to its AE and net profit margin from specified domestic transaction realised by the appellant can be deduced with full accuracy as the entire profit earned by the appellant is the profit realised from specified domestic transactions alone. From the financials of the AE it can be seen that during the relevant financial year, revenue of the AE from operations have been declared at INR 1010.45 cr, whereas the revenue of the AE from specified domestic transaction is only INR 133.40 Cr. Thus, revenue from specified domestic transaction constitute a mere 13% of Gross revenue of the AE. Therefore, from the Net profit margin of the AE , net profit margin accruing to the AE from Specified domestic transaction can not be deduced. In view of the above, it is submitted that selection of AE as 'Tested party' has been rightly rejected by the Ld TPO and rightly so upheld by Ld CIT(A) which may please be confirmed.

Submissions in respect of Gr No 3- The appellant has taken multiple year data of the comparables selected by it for determining the Arm's length PLI. Weighted mean of the profit margins of the comparables for the relevant financial year and 2 preceding years has been taken by the appellant as net profit margin ( after making working capital adjustments) of the comparable. This has been done by the appellant for all the comparables selected by the appellant. In this regard it is submitted that provisions of sub Rule 4 of Rule 10B as it stood at the relevant point of time read as under: " Rule 10B (4)- The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into : Provided that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared." The appellant has not given any rationale for taking multiple year data for all the comparables. The appellant has merely reiterated the provisions which provide for use of multiple year data. However, use of multiple year data is not automatic but only in certain specified conditions. Since, the appellant has not given any reason for choosing multiple year data, the TPO has rightly rejected multiple year data when cotemporaneous data was very much available and no reasons whatsoever for choosing multiple year data have been specified by the appellant in respect of any of the comparables. Sub Rule 4 to Rule 10 of the Income Tax Rules prescribes for adoption of multiple year data only when such data reveals facts which could have an influence on the determination of transfer price in relation to the transactions being compared. Mere submission of the appellant that data may have been affected in vary sense from economic or market conditions or any other abnormal factors, clearly shows that no case has been made out by the appellant for adoption of multiple year data. It is also submitted that even the proviso to Rule 1 OB( 4) is not applicable for transactions entered into after 01.04.2014 as the Rule 10B(4) was amended and proviso was made absolutely inapplicable. Thus, it is evident that even prior to 01.04.2014, the intention of the legislature was to consider only contemporaneous data for the purpose of examining compliance with arm's length standards, however certain leeway was provided for using data of 2 preceding years under certain specified conditions. However, at no point of time, the use of multiple year data was made absolute law as has been treated by the appellant. Since, existence of conditions precedent for taking multiple year data into account has not been TPO or before AO or before the Ld CIT(A) or in the present proceedings, the use of multiple year data has to be disapproved. Therefore, the related ground of appeal of the appellant deserves to be dismissed. It is prayed accordingly. Submissions in respect of Gr No 4, 5&

6. In these grounds, the appellant has challenged the rejection of comparables namely, Consolidated Construction Consortium Ltd and Shriram EPC Limited by the Ld TPO. In the written submissions, the appellant has submitted that both the comparables namely Consolidated Construction Consortium Ltd and Shriram EPC Limited, chosen by the appellant have been rejected by the Ld TPO for the following reasons; Submissions of the appellant in this regard are completely false as is evident from the reasons given by the Ld TPO in his order at pg 12 which reads as under: “The company having diminishing revenue/persistent loss for the period under consideration" "Shriram EPC Ltd- The company is involved in design and implementation of turnkey environmental projects like water and sewage treatment plants, underground drainage system, water distribution etc. Hence the company is engaged in dissimilar activity. Consolidated Construction Consortium Ltd- The Company is engaged in dissimilar activity. On the basis of data available in public domain this can also clear that the function of the company is not similar to the function of tested party; " CCCL ,professionalism is a combination of competence, technology, skill and dedication, unified and strengthened by a code of ethics. It is this special professionalism that has won for us many prestigious projects in a variety of market segments and encourages us to aim for greater challenge all the time." Therefore, contention of the appellant that the 2 comparable have been rejected for the reason of diminishing revenue/persistent loss is not correct. Evidently, the comparables have been rejected for functional dissimilarities. Therefore, order of the Ld TPO be upheld on this issue also. It is prayed accordingly. So far as the ground related to the selection of new comparables by TPO is concerned, in the written arguments, the appellant has submitted that once the comparables have been identified in the TP documentation and also accepted by the TPO in the first show cause notice issued, there after revision of search process and identification of new comparables is intended only to create hardship on the appellant. The appellant has further submitted that no details regarding how the search process carried out and no backup of the comparables selected has been provided by the Ld TPO. Submissions of the appellant in this regard are without any basis. The selection of fresh comparables was done by the Ld TPO by following the due procedure and by providing adequate opportunity to the appellant. Ld TPO in his order at Pgs 10-11 has elaborately discussed all the objections raised by the appellant in this regard. It is also submitted that all the fresh comparables selected by the Ld TPO were identified by the appellant but were rejected on some or the other pretext. In this regard reference can be made to the comparables search report of the appellant which is part of the TP documentations enclosed in the paper Book by the appellant, The details of comparables selected by the TPO and corresponding entry in the search report carried out by the appellant is tabulated as under: Sr Name of the New Comparable Reference in search report of No the assessee 1. Ashoka Highway (Durg) Ltd Sr No 499 (Accept reject matrix Pg 9, PB Pg 86) 2. JKM Infra Projects Ltd Sr No 2625 (Accept reject matrix Pg 42, PB Pg 119) 3. J Kumar Infraprojects Ltd Sr No 2629 (Accept reject matrix Pg 42, PB Pg 119) 4. Max Infra Ltd Sr No 3416 (Accept reject matrix Pg 55, PB Pg 132) 5 PBA infrastructure Ltd 3994 Sr No 3994 (Accept reject matrix Pg 64 PB Pg 141) Thus, it is evident that submissions of the appellant in this regard are totally false and misleading. All these comparables were identified by the appellant himself in the search database. Filters applied by the appellant are same in respect of comparables selected by the appellant and the TPO. These comparables were rejected by the appellant for identical reason i.e 'functionally different". Ld TPO at Pg 11 of the order has mentioned as to how the comparables are not functionally different. It may not be out of place to mention here that in all 9 other functionally similar comparables were identified by the Ld TPO and after considering in detail the submissions of the appellant 4 comparables were dropped on finding functional dissimilarity. The appellant has not mentioned as to how the observations of the Ld TPO in this regard are not correct. So far as allegation of the appellant that no details regarding search process and no backup of the comparables selected by TPO has been provided, is concerned, it is evident that all comparables are coming from the search carried out by the appellant only and back up of the comparables are already with the appellant as appellant could not have rejected them without looking into back up documents. Thus, all the allegations of the appellant are baseless and misleading. It is therefore submitted that addition of fresh comparables to the list of comparables selected by the appellant which have been accepted by the TPO, is very much in accordance with law and has rightly been upheld by the Ld CIT(A). It is therefore submitted that computation of Arm's length PLI at 11.60% which is calculated as under, has been made by the Ld TPO strictly following the statutory provisions of the Income Tax Act and Rules mad thereunder which has rightly been confirmed by the Ld CIT(A).

Sr Comparable PLI (Operating No profit/operating cost) 1 C & C Construction Ltd 11.27% 2 Gillanders Arbuthnot & Co Ltd 2.51% 3 Hindustan Construction Company Ltd 13.34% 4 JMC Projects ( India) Ltd 8.50% 5 Punj Lloyd Ltd 6.41% 6 U B Engineering Ltd 3.43% 7 Tata Projects Ltd (Segmental) 9.03% 8 Ashoka Highway (Durg) Ltd 38.00 % 9 JKM Infra Projects Ltd 14.58% 10 J Kumar Infraprojects Ltd 14.41% 11 Max Infra Ltd 11.67 12 PBA infrastructure Ltd 10.04% Average PLI 143.19/12 11.93% (computed by TPO at 11. 60%)

It is therefore submitted that Arms' length price of the specified domestic transaction has been rightly computed by the Ld TPO at 118,12,48,776/ against the transaction value of Rs 133,40,87,018/ resulting into downward adjustment of Rs.15,33,16,226/ which has rightly been confirmed by the Ld CIT(A). Thus, the appeal of the assessee being devoid of merits deserves to be dismissed in entirety.

4.0 On perusal of the TPSR submitted, section 4.2.3 & 4.2.4 elaborates the functions performed by the assessee and its related party i.e KSSIIPL. Based on perusal of the same, it can be inferred that KSSIIPL performs the following critical functions as part of transaction with assessee Strategic management functions Corporate services Functional specification and requirement analysis Project management; and Quality control On the other hand, the assessee is only engaged in limited project management activity. Further, it has been provided that KSSIIPL also assumes most of the business risks critical to business operation with assessee i.e business risks , utilization risks and service liability risks. The only risks which presumably is assumed by assessee is credit risks which is also passed on to KSSIIPL. Hence , based on the functional and risk analysis submitted by assessee, it can be squarely conducted that all critical functions and related business risks are assumed by KSSIIPL. Based on the above functional and risks analysis, the assesse as part of the TPSR has considered KSSSIIPL as the tested party to conclude on the arm’s length nature of the assessee’s payment transaction. In doing so, the assessee himself has contradicted in undertaking appropriate analysis. On the one hand, it has been detailed that assessee does not undertake any significant function and also does not assume any business risks however, has erred in selecting KSSIIPL as the tested party who undertakes all functions and assume significant risks ie. entrepreneur profile. It is an accepted law that the 'tested party should be the least complex of the transacting entities, Le., the simpler entity in terms of intensity of functions performed and risks assumed. Accordingly, the tested party would also earn routine but steady return. As a general rule, entity undertaking all functions and related risks should not be considered as tested party since, by virtue of their complex functional and risk profiles, their margins fluctuate heavily with the vagaries of the economy, thus making comparability analysis extremely difficult and unreliable. The assessee has also undertaken a detailed analysis to map owner of the functions and corresponding risks however, has gone astray in selecting the tested party for arm's length analysis. Further, in addition to selection of entity having least complex operation in terms of functional, asset and risks analysis, availability of reliable and authentic data requiring fewest adjustment should also be factored while undertaking arm's length analysis. In the KSSIPL's accounts has significant third party transactions, whose profitability would have direct nexus on the profitability of KSSIIPL's transaction with the assessee. Any analysis which is based on the aggregate approach instead of transaction-by-transaction approach would vitiate the essence of transfer pricing analysis. The actual margin earned by KSSIIPL while transacting with the assessee would be difficult to verify and authenticate and will have always leave room for subjectivity with respect to consideration of actual total costs incurred and corresponding margin earned. Considering the above fact, the undersign rejects KSSIIPL as tested party and considers assessee who is undertaking very limited functions and precisely no risks and whose financial data are available requiring fewer or no adjustment for undertaking arm's length analysis.

17. The AE has significant third party transaction and in the TP study report assessee has compared the average PLI with overall operating margin of AE and no operating margin from the specified domestic transactions carried with the appellant was worked out. This is clear violation of Rule 10B(e) in IT Rules 1962. Moreover, tested party should be the one which has less complex Financial analysis. In the instant case, appellant has only worked for his principal and no services were rendered for any other party. On the contrary, AE has gross revenue of 1010.45 crore, out of which only 133.40 crore was from specified domestic transactions, which is approx. 13% of gross revenue, thus having more complex financial analysis. Therefore, we are in agreement with the TPO in choosing the assessee as the tested party.

before the Tribunal as well as the grounds which were canvassed before the TPD and specifically raised in the objections filed before the DRP.

22. The Tribunal had distinguished the decision in Ranbaxy Laboratories Limited on the ground that the Delhi Bench of the Tribunal has proceeded on the basis of the OECD guidelines. However, we find in paragraph 25 of the judgment of the Tribunal the principles that emerge in selection of tested party has been culled out wherein it has been held that the tested party normally should be the least complex party to the controlled transaction and that there is no bar for selection of tested party either local or foreign party and neither the Act nor the guidelines on transfer pricing provides so and the selection of tested party is to further the object of comparability analysis by making it less complex and requiring fewer adjustment. Therefore, we do not agree with the reasons given by the Tribunal for not considering the decision in Ranbaxy Laboratories Limited' 19. With regard to the assessee's contention that no break up and other working was provided with respect to the additional comparable identified by the TPO, we see that the TPO has picked up those comparables only from the TP Study report provided by the assessee for which necessary break up must be available with the assessee. Further before applying such comparables an opportunity was also provided through show cause notice to the assessee. Therefore, we find no error in the order of the TPO in not providing such break up analysis to the assessee which infact was already available with it.

21. From the TP study report, nowhere the appellant is able to satisfy us as to why one year i.e. current year data is not appropriate. In other words merely saying that according to business cycle, industry profile and economic conditions of the appellant, three years data is more appropriate without specifically pointing out us to how all these factors effects adversely if only current year data is taken. Moreover, statute also restricts the use of multiple year data for the specified domestic transactions carried out on or after 1.4.2014. In view of these facts we are in fully agreement with TPO of that only current year data is to be considered for analysis.

"Shriram EPC Ltd- The company is involved in design and implementation of turnkey environmental projects like water and sewage treatment plants, underground drainage system, water distribution etc. Hence the company is engaged in dissimilar activity.

Consolidated Construction Consortium Ltd- The Company is engaged in dissimilar activity. On the basis of data available in public domain this can also clear that the function of the company is not similar to the function of tested party; " CCCL, professionalism is a combination of competence, technology, skill and dedication, unified and strengthened by a code of ethics. It is this special professionalism that has won for us many prestigious projects in a variety of market segments and encourages us to aim for greater challenge all the time."