LINDE ENGINEERING INDIA PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

Brief facts of the case are that the assessee has a worldwide reputation as a manufacturer of industrial equipment and process plant as well as procedure of industrial gases; that as per the TP report, the assessee had provided personnel to render design engineering services at sites defined as EOU segment, namely, engineering and technical consultancy segment; that the audit report of the assessee states that the business of the assessee is a chemical engineering and plant construction; that as per the TP study, the assessee has expertise in planning project management and construction of eternity plants; and that it has competence in the construction of Corio Zeneca pharmaceuticals and environmental plants that provide it with the excellent growth prospectors.

In the previous year relevant for the assessment year 2009-10, the assessee entered into certain international transactions, namely, purchase of materials from the AE, sale of materials to AE, rendering of services to the AE, services received from the AE, reimbursement of expenses received and reimbursement of expenses paid. Assessee applied TNMM as the most appropriate method with the OP/OC as PLI to benchmark the international transactions and reached the margin at 23%. Assessee selected six comparables and average margin of comparables was computed at 20% and, therefore, held that the international transactions of EOU segment is at the arm’s-length.

The entities selected by the assessee are Artefacts Projects Limited, Harrismaa Consultants Ltd, Kirloskar Consultants Ltd, L&T Vadel Engineers Pvt. Ltd, Mahindra Consulting Engineers Pvt. Ltd and Wapcos Ltd. Ld. Transfer Pricing Officer (Ld. TPO) however, while applying the filter of 25% RPT and turnover less than one crore 75% income less than service income and pickup only M/s Kirloskar Consultants Ltd and M/s Mahindra Private Limited and rejected the other four entities. Ld. TPO, at the same time, picked up three comparables as good comparables out of the accept and reject matrix as per the search undertaken by the assessee in the TP study, and included HSCC (India) Ltd, Skil Infrastructure Ltd, and TCE consulting Engineers Ltd to calculate the average margin at 45.22 percent and proposed an addition of Rs. 3, 78, 94, 928/-on account of transfer pricing adjustment.

Assessee challenged the functional profile of the companies included by the Ld. TPO before the Ld. CIT(A) but could not succeed in appeal on this aspect. Assessee, therefore, preferred this appeal before us aggrieved by the inclusion of Skil infrastructure Ltd on several grounds, but confined, during the arguments, to the extent of assailing it on the ground of it and not fitting in RPT filter criteria.

It is submitted by the Ld. AR that at the time of assessment as well as the first appellate proceedings, the financials of the company “Skil Infrastructure Ltd” were not available and that is the reason why the assessee was not in a position to challenge the non-comparability of this entity with the assessee. He further submitted that the assessee and the Ld. TPO were on the same page insofar as the RPT filter is concerned at 25%, and such a fact is to be found from the impugned order also at page No. 4 where the Ld. CIT(A) clearly noted that the filter of 25% RPT was applied, and as a matter of fact the entity Artefacts Projects Limited selected by the assessee was rejected by the Ld. TPO on this ground. Ld. AR, therefore, prayed that for not passing through the RPT filter, the entity “Skil Infrastructure Ltd” has to be excluded from the list of comparables to benchmark the international transactions.

Per contra, Ld. DR submitted that it is a fact that the assessee did not agitate the non-suitability of this particular entity to be compared against the assessee either before the Ld. TPO or before the Ld. CIT(A) and therefore, the authorities below had no opportunity to look at this aspect. He submitted that it is a question of fact to be verified by the competent authorities. He, however, fairly conceded that if it is found that this particular entity is not suitable for comparison with the assessee, the Ld. TPO will take a call on this aspect. He, therefore, prayed that an opportunity should be granted to the Ld. TPO to verify the suitability of this entity for comparison with the assessee before deleting the same.

Ld. AR, fairly conceded the request of the Ld. DR and submitted that he is no objection if the matter is remanded to the file of the learned Assessing Officer/Ld. TPO for verification as to whether this particular entity passes through the RPT filter or not.

We have gone through the record in the light of the submissions made on either side. It is an admitted fact that there is no dispute between the assessee and the Revenue as to the applicability of 25% RPT filter. By drawing our attention to page No. 85 of the paper book, Ld. AR demonstrated that the entity “Skil infrastructure Ltd” is a 62.93%. Revenue desires only the verification of this fact at the end of the Ld. TPO for which the assessee has no objection. Since the Revenue fairly concedes that such verification has a bearing on the retraining or deleting this entity from the list of the comparables and consequently on the transfer pricing adjustment, we find that, in order to determine the just tax liability of the assessee, it is imperative that this fact needs to be verified by the Ld. TPO.

We, therefore, set aside the impugned order and while accepting the request of the Revenue, remand issue to the file of the learned Assessing Officer/Ld. TPO for verification of the suitability of the entity “Skil Infrastructure Ltd” for comparison with the assessee on the aspect of RPT filter. Assessee is free to submit all their contentions before the learned Assessing Officer/ Ld. TPO and the learned Assessing Officer/Ld. TPO is free to take a fresh view on this aspect.

Appeal of the assessee is accordingly allowed for statistical purpose. Pronounced in the open court immediately after the conclusion of hearing or virtual mode on this the 15th day of June, 2021.