BERGEN ENGINES INDIA PVT. LTD.,NEW DELHI vs. ACIT, CIRCLE- 4(2), NEW DELHI

This appeal by the assessee is directed against final assessment order dated 27/10/2017 passed by the Assistant Commissioner of Income-tax, Circle-4(2), New Delhi [in short ‘the Assessing Officer’] pursuant to the direction of the learned Disputed Resolution Panel (DRP) for assessment year 2013-14, raising following grounds: 1. That the learned TPO and consequently DRP/AO has erred in law and on facts in the circumstances of the case in confirming the addition on account of arms’ length price under section 92CA(3) of the Income Tax Act amounting to Rs.4,74,72,605/- on wholly illegal, erroneous and untenable grounds.

Trading Division

2. That the Hon’ble DRP and consequently TPO/AO has earned in law in confirming the adjustment of Rs.4,19,13,043/- in trading segment of assessee.

3. That the learned TPO as well as the DRP and consequently the AO have grossly erred in law and on facts and in the circumstances of the case in erroneously:

2.1 Rejecting the scientifically run search process of the assessee without any reasons. 2.2 Rejecting the assessee’s comparables for the trading segment of the assessee without giving any cogent reasons. 2.3 Carrying out a fresh search process, and not giving the assessee such search process used against the assessee, which is against the principle of natural justice. 2.4 Cherry picking the comparables.

4. The learned TPO as well as the DRP and consequently the AO have grossly erred in law and on facts in choosing new comparable companies which were different from the assessee both in the type of nature of activities and the functions performed, which is against the rules of comparability under Rule 10B(2) of the IT Rules.

5. The learned TPO/AO has earned in law in not deciding upon exclusion or inclusion of McNally Sayaji for not including in final list of comparable in spite of specific direction of Hon’ble DRP.

6. That the Hon’ble DRP has earned on the facts of the case in alleging that the assessee seeks exclusion of only comparable with higher margin.

8. Without prejudice to above ground, the learned AO/TPO and the learned DRP grossly erred in law in re-computing the PLI of assessee for trading segment under TNMM from 11.60% to 1.33% by not appreciating that Goodwill acquired and amortized via depreciation and prior period expenses is an exceptional and non-operating item which required to be treated as non operating as accepted by TPO

himself in the order of on page 30 to treat Goodwill write off as non operating.

9. Hon’ble DRP has erred in law in merely following last year DRP order for not accepting contention of the assessee for treating Goodwill written off and prior period expenses are as non-operating.

10. That the learned DRP has earned in law in not appreciating alternate adjustment claimed by the assessee to treat the depreciation cost of assessee as well as comparables as non- operating to enable fair comparison.

11. The order passed by the learned AO/TRO/DRP based on conjectures and services is against the transfer pricing regulations and rules and is prayed to be quashed.

12. That the proposed addition of Rs.4,19,13, 043/- is bad in law and is prayed to be deleted.

Support Service Segment

14. That the Hon’ble DRP has erred in law in not adjudicating on the ground of non-consideration by the TPO of Cost Plus Method(CPM) applied by the asessee as the most appropriate method (MAM) for benchmarking of international transaction of provision of support services without giving any reason.

15. The Ld. TPO as well as DRP and consequently the AO have grossly erred in law and on facts and in the circumstances of the case in erroneously rejecting the comparable selected through scientifically run search process, without any reasons.

16. That the learned TPO has erred in law not in giving the assessee the details of fresh search process so that assessee may submit its objection, which is against the principle of natural justice.

19 That the Hon’ble DRP has erred on facts in not appreciating that the assessee is low end not-risk bearing in its support service segment and comparable should be selected accordingly.

20. That the learned TPO has erred in law treating the prior period expenses as operating in nature since they are extra ordinary and one time.

21. Without prejudice to the above, the Hon’ble DRP has earned in law in not allowing the risk management to the assessee as per Rule 10(3) in spite of mathematical calculation given by the assessee.

22. That the addition of Rs.26,58,897/- is bad in law and is prayed not be upheld.

Technical Service Segment

23. That the Hon’ble DRP and consequently TPO/AO has erred in law in confirming the adjustment of Rs.29,00,665/- in technical service segment of the assessee.

24. The Ld. TPO and consequently the DRP as well as AO has erred in law and on the fact of the assessee’s case by re-computing the PLI of the assessee for technical service under TNMM in not accepting the assessee’s claim that amortization of goodwill and prior period expenses are non-operating/extraordinary expenses as stated by TPO himself in the order on page no. 30.

29.That the learned TPO has erred on facts by not excluding HSCC India limited by alleging that it has service income of 99.34% without giving any calculation of the same.

30. Without prejudice to Ground 27, the learned TPO has erred on facts in not computing the correct PLI of Holtec Counselting and Acropetal Technologies.

Others

37. That each ground is independent of and without prejudice to the other grounds raised herein.

Class of Transactions Total Value of Transaction (Rs.) Reimbursement expenses 20091 Purchase of traded goods 21004900 Provision of project management support service 10656118 Provision of market support services 43350872 Sale of goods 759600830 Receipt of services 7383455 Provision of Technical services 18395849 Deferred revenue services 99501455 Issue of equity shares 1049499997 Share application paid money pending allotment 10314944 2.2 The learned Transfer Pricing Officer (TPO) in order dated 30/09/2016 proposed transfer pricing adjustment of ₹4,82,75,453/-(subsequently reduced to₹ 4,74,72,605/-after the direction of the learned DRP) on account of adjustment in each of the functional segment of the assessee namely - trading, support service and technical service, having details as under:

International Amount(Rs.) Adjustment Most Remarks transaction by TPO appropriate method (MAM) by the assessee Sale of 75,96,00,830 4,19,13,043 TNMM No dispute on Traded Goods MAM Provision of 5,40,06,990 26,58,897 CPM TPO changed Project it to TNMM Management Service (PMS) & Market Support Service (MSS) Provision of 1,83,95,849/- 29,00,665 TNMM No dispute on Technical MAM Services Total 4,74,72,605 adjustment 2.3 Aggrieved with the transfer pricing adjustments made finally on the directions of the Ld DRP, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

“Purchase of traded goods” Background: BEIPL trades in spare parts used in engines used in power generation in the energy industry. It has imported such goods to be sold to third parties from its AE during the year. In this regard, functions undertaken by the BEIPL have been articulated below:

(a) Functions: Nature of Function BEIPL AE Procurement Yes No BEIPL is responsible for The AE is responsible to purchasing the traded dispatch goods to BEIPL goods from its AE based on receipt of the on the confirmed purchase the order from requisition to be raised it. The AE does not take on it by the customers in any functions in relation

India. On receipt of the to the transaction of purchase order, the procurement of the associated enterprises traded goods. dispatch the goods. Research & No Yes Development BEIPL does not AEs carry out the undertake R&D and function of R&D for therefore, does no supplying goods to function in relation BEIPL thereto Inventory Management Yes No It is the responsibility of AE is only responsible to BEIPL to warehouse the dispatch goods as per goods once they arrive in the requirement of BEIPL India till the time they are sold to ultimate customer. All functions regarding warehousing; maintaining and moving of the goods are performed by BEIPL. Quality Control Limited Yes BEIPL to some extent is The quality control of the responsible for ensuring goods purchased by that the traded goods BEIPL is that of the AE. meet the specified quality standards.

(b) Assets

All the assets employed by BEIPL after depreciation (as per books of account) are integral part of business of BEIPL which helpsit in carrying out the trading and service activities and are not exclusively used for the international transaction of purchase of traded goods. Refer para 5.3 for the details of tangible and intangible assets employed by the company on 31st March, 2013.

(c) Risks Risk profiling of BEIPL vis-à-vis its AE’s is provided in the table below:-

Risk Category and Exposure to BEIPL Exposure to AEs Description Market Risk: No Yes Market risk arises for a BEIPL purchase goods The AEs are exposed to business due to the on confirmed order; risk in this regard as uncertainty in the hence it is not exposed they supply goods based structure of the market, to the market risk. on the demand raised on demand patterns and them by BEIPL needs of customer’s costs, pricing etc. Market risk represents standard risk borne by any enterprise in market driven transactions. Product Liability and No Yes Quality Risk: BEIPL is not exposed to The AEs are responsible this risk since the traded for the deficiency quality goods purchased by it of the produces from its AEs are backed purchased from them. by proper warranty. Credit/Collection Risk: No Limited This is the risk arising BEIPL is not exposed to The AEs are the parties when a firm supplies its credit or collection risk selling the traded goods products or services to a as they are purchasing in the transaction. customer in advance of the goods from the AEs. Therefore, the AEs bear its payment the risk of collection of amount due from BEIPL. Foreign Currency Risk: Yes No The risk arises from any BEIPL deals with its AEs AE is not exposed to any adverse fluctuations in in foreign currency. So, risk on account of foreign currency BEIPL is exposed to foreign exchange exchange rates, which foreign exchange risk on fluctuation since the could have a negative account of fluctuations in invoices raised by them impact on the foreign currency in are in their local profitability of the relation to INR. currency; they do not company. Therefore, BEIPL bears have risk on this this risk. account. Inventory Risk: Yes but limited No This covers the risk of After the goods are The AEs are not exposed theft, breakage arising imported by BEIPL, any to this risk as they are out of stocking and risk such as theft, supplying goods being warehousing of the obsolescence, market traded by BEIPL after a products, and risk arising out of confirmed order has obsolescence arising out stocking and been raised on them. of technological up- warehousing the gradation and imported products is enhancement etc. borne by BEIPL. In most cases BEIPL imports the goods only after a confirmed order is placed by the customer and therefore, the goods are dispatched to the customer as soon as they are imported and thus, the inventory risk of BEIPL is substantially reduced. Research & No Yes Development Risk: BEIPL is not responsible All research and This risk arises when for any R&D activities of development activities the research and the traded goods are done by the AEs. development activities purchases by it; Therefore, the risk on for new and existing therefore, it is not account of such activities products has not been exposed to this risk. is borne by it. carried out property

Characterization

For transfer pricing purposes in view of the above analysis of the functions performed, assets employed and the risks assumed by BEIPL for the international transaction of purchase of traded goods, it can be characterized as a routine distributor of spare parts of engines that assumes lower than standard risk associated with carrying out such functions. Therefore, BEIPL’s functions in relation to the international transaction of purchase of traded goods are less risky as compared to other players in the industry. AE on the other hand is engaged in complex operation of manufacturing of goods, thus is exposed to higher risk than BEIPL with respect of this particular transaction.”

4.2 The assessee benchmarked its international transaction of ‘purchase of traded goods’ through trading segment using Resale Price Method (RPM) as most appropriate method (MAM). According to the assessee, the RPM is typically adopted for transaction relating to distribution of finished products or other goods involving no or little value addition and thus this method is appropriate where the reseller does not make substantial value addition to the value of the product. The assessee submitted that it imported goods for subsequent sales to 3rd parties in India without doing substantial value addition therefore RPM has been considered as most appropriate method for the purpose of the benchmarking the transaction of purchase of the spare parts. The assessee relying on the decision of the coordinate bench of the Tribunal in the case of Nokia India (P) Ltd versus DCIT in prayed that its gross margin of 38.71%, being higher than the profit level indicator of 15.50% of the comparable companies chosen by the assessee, the international transaction is at arm’s length. 4.3 The learned TPO rejected the RPM as most appropriate method due to following reasons: (a) The comparables should be dealing in resale of properties/services which are similar in nature and value as far as possible. If the tested party deals in branded goods, the comparable entities should also be dealing in branded goods. If the value of the goods sold by the tested party and the comparables differs significantly, the comparability may suffer. (b) Where a comparable is enjoying a monopoly or exclusive rights to sell in the market or faces no competition in its market, the comparability suffers as the conditions/circumstances of sale should also be comparable. The resale price margin cannot be compared in those cases also where one of the parties is making resale using its intangible assets such as marketing network while the other party has no such intangible. (c) The functions performed which affect the resale price margin should also be similar or it should be possible to make adjustment for such differences (d) The reliability of the RPM may be affected if there are material differences in the ways the Associated Enterprises and the independent enterprises carry out their businesses. The differences include effect of management efficiency on labels and range of the inventory maintenance, marketing distribution affords etc. (e) The resale price margin may be influenced by the level of the activities performed by the reseller i.e. full risk of ownership together with full responsibility for and the risk involved in advertising, marketing, distribution and the ending of the goods. (f) The accounting treatment of the taxpayer and the comparable companies in respect of certain indirect expenses may also distort the gross margin. Apart from cost of the functions, there are certain cost like discount on insurance which are related to the resale and which may or may not be accounted for as cost of the goods sold , therefore treatment of such cost, is also material in the computation of the gross profit. (g) In the profit and loss account of the assessee, there are certain expenses like salary and wages, travelling and conveyance, freight outward expenses, which are directly connected with the selling and distribution function, however neither the assessee nor in the case of the comparable same have been considered for comparability.

4.4 In view of the above observations, the learned TPO rejected the RPM applied by the assessee as most appropriate method. The learned TPO considered Transactional Net Margin Method (TNMM) as the most appropriate method due to the reason that it takes care of all the above limitations in the case of the RPM. The learned TPO also relied on the order of the learned DRP in the case of the assessee for assessment year 2012-13 for adopting the TNMM as the most appropriate method. Before the Ld. TPO, the assessee agreed for applying TNMM as the most appropriate method for benchmarking the transaction of sale of traded goods. The assessee computed profit level indicator of 11.60% in its trading segment and benchmarked it with the average profit level indicator of (2.08%) of comparables selected by it in the engineering industry, which were also engaged in the trading functions. The TPO rejected those comparables due to reasons as under:

Sl. No. Name of the company Remarks of the TPO 1. Batliboi Ltd. Does not pass filter applied by the TPO. Hence rejected. 2. Kirloskar Oil Engines Does not pass filter applied by the Ltd. TPO. Hence rejected. 3. Greaves Cotton Does not pass filter applied by the TPO. Hence, rejected.

4.5 The learned TPO, re-computed the profit level indicator of the assessee at 1.33% by treating ‘goodwill’ amortized as an operating expense, which was treated by the assessee as non- operating while computing the profit level indicator. The learned TPO rejected the comparables selected by the assessee and made afresh search and proposed following comparables:

S.No. Comparable Companies OP/OI (%) 1. Jullundur Motor Agency (Delhi) Ltd. 3.68 2. Mahindra Automobile Distributor Pvt. 26.99 Ltd. 3. PAE Ltd. -2.02 4. Stanes Motors (South India) Ltd. -3.56 Average 6.27 4.6 The difference in the profit level indicator of the assessee as computed by the assessee and the TPO is summarised as under: Particulars Goodwill as Goodwill as Difference Remarks Non-operating Operating Sale of products 1,19,13,86,406 1,19,13,86,406 Other Operating 2,73,09,872 2,73,09,872 Revenue l Other Income 2,71,932 2,71,932 Forex gain 57,27,991 57,27,991 Total Operating 1,22,46,96,201 1,22,46,96,201 Revenue Purchase of 88,40,99,564 88,40,99,564 stock in trade Change in 48,25,200 48,25,200 inventory Employee 3,01,34,150 3,01,34,150 benefit Depreciation 11,71,87,930 11,71,87,930 Other expenses 5,81,31,994 17,24,04,953 -11,42,72,959 Goodwill amortized Total Operating 1,09,43,78,838 1,20,86,51,797 cost (OC)

Net Operating 13,03,17,363 1,60,44,404 profit (OP)

OP/OC 11.91% 1.33% 4.7 Before us, the learned Counsel of the assessee submitted that ‘goodwill’ amortization expenses need to be excluded for computing the profit level indicator due to following reasons: “ - In this regard it is submitted that pursuant to the resolution passed by board of directors in Feb., 2012, the Diesel Power Business of Rolls Royce Indi Pvt. Ltd. was purchased by the assessee through a Slump sale. - The Business Purchase consideration was Rs.103.5 crores. The net assets acquired were of Rs.43.72 crore. The excess of the Business Purchase consideration of Rs.59.78 crore over the value of assets purchased was recognized as goodwill in the books of the assessee. This Goodwill on account of Business Purchased was to be amortized over a period of 5 years as per note 35 of audited financials.

- Thus the creation of Goodwill in the books of the assessee is due to an extra-ordinary event of Business Purchase in AY 2012-13 and the consequent write off in 5 years is the reflection and effect of this in the P/L A/c of the assessee. - Thus, your honours would appreciate that the amortization of such goodwill arising on Business Purchase is an extra-ordinary event that needs to be adjusted for while computing the PLI of the assessee company from routine business operation. It is settled law that extra ordinary expenses are not a part of the routine operations of a company. Whereas normal depreciation for assets employed may be an operation expense but amortization of goodwill cannot be treated as operating cost. - The Ld. TPO also in its order on Pg. 30 has given list of incomes and expenses which are to be treated as non- operating in nature and that list includes amortization of goodwill. Thus, your honours would observe from the above mentioned fact that the Ld. TPO has himself accepted in his comments that amortization of goodwill is a non-operating expenses as per the discussions, therefore, finally treating the same as operating is contrary and self-contradictory stand of the Ld. TPO, which in any case is not in accordance with the law and prayed not to be upheld. Necessary adjustment made by the assessee of treating the amortization of goodwill as an exceptional and non-operating item is prayed to be upheld. - Further the operating assets that generate revenue and are intrinsic to the day to day working/functioning of a company and are used for the carrying out of business are relevant for establishing comparability under Rule 10B(2), i.e., FAR analysis rule. Once, as per the FAR analysis the assets used that establish comparability are similar then the effect of depreciation on the PLI of the comparables and the assessee will also be similar. In the present case, the asset base of the assessee has an asset of the nature of Goodwill which is not similar to the assets used by the Comparables as chosen with the assessee or the TPO. - The amortization of goodwill, which was the difference between the costs of actual physical/tangible assets purchased and the price paid for acquiring a running business represents an intangible assets purchased. Goodwill is an intangible rather invisible asset which cannot be brought into FAR analysis while comparing the financial results of the entities since the contribution of intangibles cannot be computed. The purpose of TP analysis is to compare the like with like. Any exceptional item which effects the comparisons in an open market are required to be ignored/excluded, it is respectfully submitted. - In case of Federal Mogul Automotive Products India Pvt. Ltd. [TS-110-ITAT-2015-DEL-TP], Hon’ble Delhi ITAT upheld the exclusion of extraordinary provisions and non- operating items for computing the PLI. - It is submitted that mergers, acquisitions, demergers, a pin-off, business reorganizations etc. are extra ordinary events and effects the normal profitability of the company, thus need to be adjusted to reflect the true comparability. Reliance is placed on the case of American Express Indian Pvt. Ltd. [TS-517-ITAT-2015(DEL)-TP] in which it was held that-

“The factor of amalgamation of merger or acquisition etc. has its own implication on the financial results of the company as these are abnormal financial characteristics which distort the normal profitability.”

- When the AICPA published ARB 43, Restatement and Revision of Accounting Research Bulletins Nos. 1-42, in 1953, the following items, when material, were specified as allowed to be excluded from net income if the inclusion would cause users to draw misleading conclusions from an analysis of net income:- • Non recurring amounts specifically related to prior years’ operations, such as eliminating previously established retained earnings reserves or adjusting past income taxes; • Amounts resulting from unusual sales of assets not of the type in which the company commonly deals; Losses from disasters not commonly insured against (e.g. wars, riots, and earthquakes), unless such losses are a recurrent business hazard; ./2017 • Losses from completely writing off intangibles, such as goodwill or trademarks; and • Amounts from writing off unamortized bond discounts, bond premiums, or bond issue expenses when the related debt is retired or refunded before maturity. - Hon’ble DRP has in para 4.6 Pg. 11 relied on its own judgment in assessee’s case in AY 2012-13 and has upheld the treatment of TPO of treating the goodwill write off as operating by stating that when depreciation is claimed on an asset year after year, this expenditure ceases to be extraordinary in nature. - In this regard, it is submitted the ld. DRP failed to appreciate that Goodwill which is a result of an Acquisition of Business in the books of the assessee is not routine asset created by a fiction of law. It is not an asset on which depreciation is charged year after year, in fact, it is amortization of its value over a fixed amortization period. The Ld. DRP has failed to appreciate the difference between depreciation and amortization, it is respectfully submitted. - It is to be appreciated that the treatment of depreciation in computation of taxable income under the Act, is different from the computational mechanism for PLI for the determination of arm’s length price given in Chapter X which are special provisions. Thus, claiming of depreciation on Goodwill accounted for due to a Business purchase under Income Tax Act cannot change the extra ordinary nature of Goodwill amortized in the Audited Financials as per the Companies Act, used for the Computation of PLI, and should be adjusted as a non- operating/non-reoccurring expense. - The PLI of the assessee in trading segment after taking amortization of goodwill as non-operating will be 11.91% (Table 2 above) which is more than the PLI of 4 comparables chosen by the TPO of 6.27%(page 39 of TPO’s order), thus the transaction of Sale of Traded Goods of the assessee are at ALP. Although the assessee is separately challenging the comparable and other issues, however, without prejudice to such challenged the ALP adjustment made by the TPO in trading segment is prayed to be deleted on this ground only.

- In the light of above facts and provisions, it is thus prayed that the goodwill amortization of Rs.11,42,72,959/- may please be treated as non- operating and PLI of the assessee be restored to 11.91%.

Name of the (Rs. In Crores) Company Depreciation/Amortized Total expense %age expense 2013 2013 A B C Bergen Engines Assets other than 0.84 131.29 0.63% Goodwill Goodwill 11.42 131.29 8.69 Bergen Engines 12.26 131.29 9.34% (Total)

Jullundur Motors 0.64 334.86 0.19% Mahindra 0 61.76 0.00% Automobile Distributor PAE Ltd. 0.69 138.65 0.50% Stanes Motor 0.11 13.93 0.79% South India Average (Comparables) 0.37%

- Your honour would appreciate the in case of trading companies, the asset base is very low. Since functionally the TPO and DRP are of the view that the comparables are correct then a difference in their asset base under Rule 10B(2) should be adjusted as per Rule 10B(3), whereby an uncontrolled transaction shall be comparable to an international transaction, if reasonably accurate adjustments can be made to eliminate the material effects of such differences. - Hon’ble DRP did not appreciate (Page 11 of DRP’s Order – para 4) that the calculation furnished before it demonstrates that how the disproportionate assets cause disproportionate depreciation which impacts the PLI requiring reasonable accurate adjustment from both assessee as well as comparables for the assets used by them. Your Honour would appreciate that the comparability analysis is required to pass the test of FAR analysis i.e. functions performed, assets employed and risk assumed. There is a clear and demonstrative difference in asset base of the assessee and these comparable, which need a definite adjustment as per rules. - Reliance in this regard is placed on following judicial precedents: • Sabic Research and Technology Pvt. Ltd. (1065/Ahd/2012) • Siemens Healthcare Diagnostics Ltd. Vs. ACIT (152 ITD 155) • SchefenackerMotherson Limited (123 TTJ 509) –“The taxpayer in both the assessment year showed before the revenue authorities that profit shown by the taxpayer satisfies arm’s length requirement on ratio of cash profit to sales if uniformly applied. As the deduction of depreciation is leading to wide differences, the same should be excluded.” • M/s. Qual Core Logic Limited Vs. Deputy CIT (ITA 893/Hyd./2011)- “The object and purpose of transfer pricing is to compare like with the like, and to eliminate differences, if any, by suitable adjustment is to be seen. Therefore, there was justification on the part of the assessee in pleading that profits are taken without deduction of deprecation as depreciation was leading to large difference in margins for various reasons.” • Mentor Graphics Private Limited Vs. DCIT (112 TTJ 408) - Hence to bring the comparability under Rule 10B, the profit level indicator ought to have been taken after adjusting for difference in assets used through depreciation impact in P/L A/c, accordingly prayed before your honour. If so done, no ALP adjustment will be made in this segment.”

5.1 With reference to ground 3 to 7 regarding rejection of the assessee’s comparables and fresh search process and choosing new comparables, the assessee submitted as under: - The Ld. TPO:- o Rejected the comparables chosen by the assessee o Conducted a fresh search process o Chose a new set of comparable for benchmarking the transaction of Sale of Traded Goods of the assessee. a. Rejection of Comparables of the assessee - The assessee of Comparables of the assessee i) Batliboi Ltd. ii) Mcnally Sayaji

- The TPO objected to one of the two comparables i.e. Batliboi Ltd, which was for sale of traded goods, summarily stating that it does not pass the filter applied by the TPO. - Mcnally Sayaji was not disputed by the TPO and in fact not even commented upon by TPO (page 4 para 4.4 of TPO’s order) and thus should have been retained in the final set of comparables for benchmarking the transaction of sale of traded goods. - The Hon’ble DRP (Page 9 in para 4.5.2 of its order) directed the TPO to comment on this comparable in the final order with reasons of rejection or selection. - However, TPO did not follow the DRP directions in this regard and gave no reasoning in its final order and remain silent on the directions of the DRP which are binding on TPO/AO - Therefore, the final order of the TPO not following all the directions of the DRP should be annulled. b. Fresh Search Process conducted by the Ld. TPO - The Ld. TPO proceeded to conduct a new the search process for benchmarking the sale of traded goods. - The TPO had also applied a fresh search process and obtained 4 comparables to benchmark the transaction of sale of traded goods namely Jullundur Motor, Mahindra Automobile Distributor, PAE Ltd. and Stanes Motors. - The TPO did not provide the search process used for obtaining the above said comparables so as to enable the assessee to submit detailed objections. The assessee specifically objected to this before TPO through written submission. C. Objections to the New Set of Comparables of the Ld. TPO (i) Not excluding Mahindra Automobile from final list of comparable. - Among 4 comparables chosen by TPO for trading segment of the assessee, the PLI of Mahindra Automobile Distributor Pvt. Ltd. is an outlier from other 3 companies. Your honour would notice that the PLI of Mahindra Automobile is 26.99% while of other 3 companies. Your honour would notice that the PLI of Mahindra Automobile is 26.99% while of other 3 companies is ranging from (0.39)% to (3.56)%. This clearly shows that the company is earning more than ordinary net profits than the other trading companies. While analyzing the annual report of Mahindra Automobile for the year under consideration, your honour would notice from the face of the P/L that during the year the company paid excise duty on sale of products 12% to 13% (approx). This shows that the Mahindra Automobile is not purely trading company and its revenue comprise of an activity which amounts to manufacture such that excise duty is payable on it. The difference in the functions performed by it on account of excise duty paid shows that it is earning more profit that the pure trading companies chosen by the Ld. TPO. Hence, this is not comparable to the assessee’s trading segment in question. - The quantitative filter applied by the ld. TPO for obtaining this comparable is “trading income >50%”, that means the TPO has selected companies which are not purely trading and may have manufacturing sale or service income also, which had led to the selection of Mahindra Automobile. This filter is the principal filter in deciding which domain of the companies are to be selected out of which further qualitative analysis is carried out. By applying this incorrect filter, the TPO has distorted the basis of search process used to obtain comparable for trading segment of the assessee. Hence whole of the search process should be annulled which includes Mahindra Automobile also. - Moreover, the RPT of Mahindra Automobile is more than 29% thus on this account also, it should be excluded from the final list of comparables as per the criteria given by TPO itself, i.e. to exclude companies having RPT more than 25%. - The Hon’ble DRP (in para4.5.1 at page 9 of its order) directed the TPO to re-examine the calculation of 29% of the RPT as per the objection of the assessee on this comparable as per the details given in PB 253-255 submitted before the DRP, to cross verify the claim and working of the assessee in the light of filters used by TPO and approved by DRP. - However, TPO did not comment upon the working of the assessee on PB 253-255 as directed by the DRP, and disposed the directions just by stating that the RPT is 21%. The TPO neither gave any reason for not considering assessee’s calculation nor gave its own basis of deriving 21% RPT. - The assessee further filed an application under section 154 requesting for the correction of mistake apparent from record. In response to which, the TPO rejected the same by stating that this is not an issue subject to rectification. - It is thus prayed that, Mahindra Automotive be excluded from the final list of comparable since its is neither functionally similar to the assessee’s trading function nor does is pass the RPT Filter of 25% since it has RPT of 29%.

- If Mahindra Automobile is excluded from final list of comparable, the revised PLI of the TPO’s comparables shall be (0.63)% as: Particulars (TPO’s comparables) PLI % as determined by TPO (OP/OI) Jullundur Motor Agency (Delhi) 3.68 -2.02 PAE Ltd. -3.56 Stanes Motors (South India) Ltd. -0.63 Average - If this company is excluded, the assessee will be at ALP even if no other objection is entertained on comparable or other issues. - If the comparable of the assessee namely, Mcnally Sayaji is retained in the final list along with the other 3 comparables chosen by the Ld. TPO, the PLI would be as follows”: Particulars (TPO’s comparables) PLI % as determined by TPO(OP/OI) 3.68 Jullundur Motor Agency (Delhi) -2.02 PAE Ltd. -3.56 STanes Motors (South India) Ltd. -039 McnallySayaji -0.57 Average - Thus it is prayed that the Mahindra Automobile be excluded from final list of comparables and assessee’s own comparable namely McnallySayaji be retained in the final list (ii) Objections to the other comparables selection by the TPO - The assessee filed its objections in respect of other 3 comparables also selection by the TPO through fresh search process. - The companies selected by the TPO are engaged in automotive sector and functionally different from the trading segment of the assessee in which assessee is selling spare parts of engines used by engineering industry. - The detailed objections filed before TPO as well as before DRP are given in PB 245-252. Hon’ble DRP in para 4.5 of its order upheld the comparable selected by TPO without passing a speaking order by stating that TPO has given detailed reasons for selecting comparable. The individual objections of the assessee have not been considered and discussed by DRP in its order. - The DRP in para 2 & 4 of its order has wrongly alleged that the assessee seeks exclusion of comparable showing higher margins, which an incorrect reasoning. The assessee objected to all 4 comparable on the basis of functional comparability, irrespective of their low margin or high margin, but Mahindra Automobile in particular fails to test both on both functional dissimilar and RPT.

5.2 The assessee further summarised its prayer in respect of adjustment in trading segment as under:

“It is, therefore, prayed that:- i) The TPO final order dated should be annulled as it has not followed binding directions of DRP u/s 144C(13). ii) Adjustments of write-off of goodwill be granted to the assessee, or alternatively the depreciation change be excluded from both assessee as well as comparables. iii) Mahindra Automotive Distributor Pvt. Ltd. which has super normal profit, obtained through incorrect filter and has RPT of 29% should be excluded from the list of comparable as per he filter applied by the TPO himself of 25% RPT transaction. iv) McNally Sayaji be included in final list of comparable as per the directed of the DRP v) The search process carried out by the TPO may be hold as invalid and the results declared by assessee in its TP analysis may be upheld.

5.3 The learned DR, on the other hand, relied on the order of the lower authorities and on the issue of exclusion of the comparable M/s Mahindra Auto Mobile distributor submitted that the comparable qualified related party transaction (RPT) filter being 21% of the total transactions, and thus following the direction of learned DRP, the comparable has been retained.

10.1 The assessee in its transfer pricing study applied CPM as most appropriate method to benchmark the international transaction of provision of support services i.e PMS and MSS. the assessee determined its gross profit at 26.18% and the gross profit margin of the comparables was determined at 7.48% on three years average. According to the assessee , the learned TPO applied TNMM as most appropriate method without giving any reason for disregarding the choice of the CPM as MAM adopted by the assessee for the support service segment . 10.2 Before us, the assessee in its written submission, submitted as under: - It is submitted that it is not open to the TPO to choose a different MAM for determining the ALP without assigning any cogent reasons. Reliance is placed on Alumeco India Extrusion Ltd. [TS-491-HC-2014-(TEL&AP)-TP] wherein it was held that where assessee had chosen most appropriate method, TPO must record reason for rejection of such method. The Tribunal did not find any substance in any of the Transfer Pricing Officer’s multiple arguments for arguments for rejection of assessee’s internal Cost Plus Method and adoption of external Transaction Net Margin Method. In other words, it was found by the Tribunal that the decision of the Transfer Pricing Officer was absolutely arbitrary and irrational and hence it set aside the orer of the Transfer Pricing Officer. We do not find any element of law for consideration in these appeals. - Reliance is also placed on L’oreal India Pvt. Ltd. [TS-716-ITAT-2011 (Mum)] and DIC India Ltd. [TS-753-ITAT-2016(Kol)-TP]. - Para 9- The learned CIT(A) gave a categorical finding that the Cost Plus Method adopted by the assessee is based on the functions performed and not on the basis of types of product manufactured, as normally the pricing methods get precedence over profit methods. The CIT(A) observed that even according to the OECD guidelines the preferred method is that the method requires computation of ALP directly based on gross margin, over other methods which require computation of ALP in an indirect method because, comparing gross margins extinguishes the need for making adjustments in relation to differences in operating expenses, which could be different from enterprise to enterprise. On careful consideration of the facts and circumstances of the case, we are of the view that the CIT(A) rightly upheld the contention of the assessee. We, therefore, find no infirmity in the order of CIT(A) on this count and the same is hereby confirmed. - This ground of the Ld. TPO not considering the CPM method as the MAM was raised before DRP also in Ground 2. However, the DRP did not adjudicate on this objection specifically and did not discuss it in its order. - The DRP in para 5.3 of its order by referring to its AY 2012-13 order, lheld that TNMM is most appropriate method in this cse. DRP failed to appreciate that in AY 2012-13, the issue of selection of most appropriate method was in respect of transaction of Purchase of Traded Goods, and not for the Support services segment. The issues for AY 2012-13 are entirely different from those in AY 2013-14, and are not relevant in the year under consideration. Thus, the DRP findings of AY 2012-13 are not relevant for adjudicating issues under this year. The reliance of the DRP on its earlier order to form opinion on choice of method in this case is not warranted and prayed to be annulled. - Accordingly, it is prayed that the CPM be accepted as the MAM for benchmarking the transaction of Support services segment. - Without prejudice, it is accepted that the CPM is more suited to the transaction of rendering of services than the TNMM. Reliance is placed on the OECD Guidelines (Para 2.45) and Guidance Note on Transfer Pricing issued by ICAI in 2017(Para 6.20), wherein the CPM is said to be ordinarily appropriate in the following situations: (i) where semi- finished goods are transferred between associates; or (ii) where there is long term buying and selling arrangements; or (iii) in the case of the provision of services; or (iv) joint facility arrangements; (v) contract manufacturing particularly where these are of subsidiary or peripheral nature. - Further, reliance is placed on the decision of L’oreal India Pvt. Ltd. (supra)- “The CIT(A) observed that even according to the OECD guidelines the preferred method is that the method requires computation of ALP directly based on gross margin, over other methods which require computation of ALP n an indirect method because, comparing gross margins extinguishes the need for making adjustments in relation to differences in operating expenses, which could be different from enterprise to enterprise.”

10.3 Further, the Ground No. 15, 16 and 19 have been raised by the assessee in respect of the exclusion of the comparables of the assessee. 10.4 Before us, in its written submission, the assessee submitted as under:

- The Ld. TPO also rejected the comparables selected by the assessee for benchmarking its support services namely Denave India, Mahindra Logistic and TVS Logistic without giving any cogent reasons (TPO page 41). - It is not open to the TPO to reject comparables of the assessee without functional analysis of the same. Reliance is placed on Roche Products India Pvt Ltd. Vs. ACIT [TS-154-ITAT-2016-Mum-TP] “the comparables selected by the assessee should not be ignored lightly, unless and until it can be proved that the verables selected by it were functionally or otherwise difference from the job done by it.” - The assessee in its support service segment is engaged in providing low and risk free services like co-ordination in procurement, attending meeting on behalf of client etc. The assessee in its support service segment is risk free service provider as held by Hon’ble ITAT in case of Rolls-Royce India Pvt. Ltd. (assessee’s business before it was purchased by it) as evident from agreements of the assessee and order of ITAT. The same is also evident from Note 35 of audited financials. - Thus the comparable should be selected which are engaged in providing low end risk free support services. - Hon’ble DRP on 3rd para Pg. 12 of its order mentioned that the assessee has re-iterated its submission made before the TPO and thus did not adjudicate on assessee’s objections in detail and disposed the same in non-speaking and ad-hoc manner. Hon’ble DRP also mentioned that filters applied by the TPO have been accepted by various ITAT decisions, but did not explain/state what those decisions are and how they are application to the facts of the assessee’s case. Such a casual approach by the DRP in disposing off the assessee’s objections in un-called for and prayed to be annulled.”

10.5 In the ground No. 17 and 18, the assessee has objected selection of various comparables by the learned TPO. The learned Counsel of the assessee submitted that if it’s grounds related to exclusion of the certain comparables selected by the learned TPO under the segment, is considered, the profit level indicator of the assessee of support service segment would be more than the average PLI of the comparables and no adjustment would be required and other grounds in relation to support service segment may not be required to adjudicate. 10.6 Accordingly, we take up arguments of the parties in relation to each comparable for adjudication. The function, asset and risk (FAR) analysis of the assessee in relation to provision of project management and marketing support services as available on page 49 to 51 of the paper-book, is reproduced as under:

“iii. Provision of Project Management and Marketing Support Services” Background: BEIPL provides certain specific services to its AE as per an agreement entered into by the two parties namely Project Management Services and marketing Support Services. These services provided by BEIPL are in the nature of support services. The AE is the receiver of these services and performs no function in this regard. The functions performed by BEIPL are explained as under:

(a) Functions Nature of function BEIPL AE Market support Yes No BEIPL incurs AE performs no function expenditure for meeting in this regard the prospective customers at various locations on behalf of its AEs and uses its manpower for the same. Project support Yes No BEIPL provides support AE performs no function services like in this regard. administrative service, human resource service for the specific project, ensuring resource availability at correct time. Also incurs expenditure for co- ordinating with various customers on behalf of AE. The administrative operations performed by the company are in the nature of office utilities, travelling and conveyance, telecommunications, etc.

With regard to these support services, AE does not perform any function for the performance of any service mentioned above. AE only compensate BEIPL the cost incurred in providing support services along with mark-up commensurate with the risk undertaken.

(b) Assets All the assets employed by BEIPL after depreciation (as per books of account) are integral part of business of BEIPL which helps it in carrying out the trading and service activities and are not exclusively used for the international transaction of provision of support services. Refer para 5.3 for the details of tangible and intangible assets employed by the company on 31st March, 2013.

(c) Risks Risk profiling of BEIPL vis-à-vis its AE’s is provided in the table below:-

Risk Category and Exposure to BEIPL Exposure to AEs Description Market Risk No Yes Market risk arises due to BEIPL is not exposed to AE bears all the market uncertainty/fall in the the market risks since it risk in respect of this demand of the services. renders services to its transaction and BEIPL is AEs only not held liable for any service failure.

Service Liability Risk No Yes This risk arises out of BEIPL bears no risk of AEs bear all the risk on any shortfall in the shortfall in service account of shortfall in quality of services being quality as the risk will service quality. rendered remain with the AE only and BEIPL will remain harmless from any liability. Foreign Exchange Risk Yes Yes The risk arises from any For the bills raised in For the bills raised in adverse fluctuations in foreign currency BEIPL INR the AEs are exposed foreign currency is exposed to the risk of to the foreign currency exchange rates, which foreign currency fluctuation risk. could have a negative fluctuations. However impact on the there is no risk for bills profitability of the raised in INR company. Credit Risk No. No. This is the risk arising BEIPL is rendering The AEs make paymet to when a firm supplies its service to its associated BEIPL in relation to the products or services to a enterprises which have services availed by them customer in advance of high creditworthiness and thus, are not its payment. therefore it bears no or exposed to any credit negligible risk. risk.

Characterization The abovementioned contractual terms of the agreement which divides the risk and benefit between assessee and the AE clearly shows that the assessee bears virtually no riskat all while performing any of its functions under the agreement. All the possible risks arising from the provision of services remain with the AE and no cost on account of such risk is attributable to the assessee. Therefore, BEIPL’s functions in relation to the international transaction of providing support services have no risk as compared to other players in the industry. AE on the other hand bears all the risk associated with receipt of PMS & MSS services due to any service failures on the part of BEIPL it being responsible to the ultimate customer.”

10.7 Thus, the assessee has characterized itself as no risk entity having engaged in providing PMS and MSS services to its Associated Enterprises. 10.8 We find that the learned TPO selected 13 comparables with average margin PLI of 12.89% and computed the adjustment to ₹34,61,745/-. The learned DRP directed to exclude the comparable namely M/s Just Dial Ltd which resulted in average margin PLI of the remaining comparables at 11.32 % and resultant adjustment to ₹ 26,58,897/-.

Aptico Ltd.

12.5 In the case of Microsoft Corporation India Private limited (supra), the company has been excluded on the ground of being a government company, relying on the decision of the Tribunal in the case of M/s Shell India Market P Ltd Vs ACIT [ TS-430-ITAT- 2014-Mum-TP] . The Tribunal in these decisions has held the Govt. Companies as not comparable to the private companies primarily due to different risk undertaken and the commercial purpose of private companies as compared to Social objective of Govt. Companies. 12.6 In view of the above, the company being functionally different from the support service segment of the assessee and also being a Government Company, the Learned AO/TPO is directed to exclude the company from the set of the final comparables.

Axis Integrated Systems Ltd: 13. the Learned Counsel of the assessee submitted that the company was engaged in providing various expert services like DGFT, customs/excise and service tax -related services, which require expert eyes of higher-level and can be performed by a technical person, in contrast to the support services of raising invoices, coordination with customers, logistics etc. in the oil and gas sectors, which are basically a low-end service having no risk and thus the company is not functionally similar to the assessee. The Ld. Counsel relied on the decision of the Tribunal, Mumbai bench in the case of Travelex India private limited in Mum/2010 for assessment year 2006-07. 13.1 The learned DR, on the other hand, relied on the finding of the learned TPO/DRP and submitted that function of the company are primarily comparable to the assessee. 13.2 We have heard rival submission of the parties on the issue of exclusion/retention of the company as comparable. As far as functions of the company are concerned, the learned TPO himself has mentioned that the company is engaged in providing services related to Director General of Foreign Trade (DGFT), customs/excise and service tax -related services. Clearly these services are in the nature of the consultancy or services of expert nature and cannot be compared with routine support services of raising invoices, coordination with customers, logistics etc. The company being functionally dissimilar to the support service segment of the assessee, we direct the Learned AO/TPO to exclude the company from the set of the final comparables.

BVG India Ltd.

Killick Agencies and Marketing Ltd.

Marketing Consultant and Agencies.

Kestone Integrated Marketing Service Private Limited: 17. The Learned Counsel referred to the notes to the financial statement for the year under consideration and submitted that the company is engaged in the business of providing manpower, event management and infrastructure support services, which cannot be compared with the low-end services of support service segment of the assessee. 17.1 The Ld. DR, on the other hand, relied on the finding of the learned TPO/DRP. 17.2 We have heard the rival submission and perused the relevant material on record. In the profit and loss account income has been shown from operations. The relevant part of notes to the financial statement of the company is reproduced as under: “1. Background Kestone integrated Marketing Services Private Limited (“the Company”) was incorporated on February 03, 1997 under the Companies Act, 1956. The company is a wholly owned subsidiary of CL Educate Limited. The company is engaged in the business of providing manpower, even management and infrastructure support services.

17.3 In view of the services of the event management and infrastructure support services rendered by the company, it cannot be compared functionally with the support service segment of the assessee and thus being functionally dissimilar, we direct the Learned AO/TPO to exclude the company from the final set of the comparables.

Goldmine Advertising Ltd: 18. The learned Counsel referred to Annual Report of the company and submitted that service sales of the company include space media, radio advertising, holding, designing, TV advertising sales, print sales etc. and this company being in media advertisement, cannot be compared with support services segment including marketing support of the assessee. 18.1 On the contrary, the learned DR relied on the finding of the learned TPO/DRP. 18.2 We have heard rival submission of the parties. In the profit and loss account, revenue has been shown from sale of services at Rs.127,48,55,307/-. Further below the profit and loss account in footnotes, further breakup of the revenue has been shown as under: “(A) Space Media : 997334654 Radio Advertising : 17942280 Hoarding: 53707532 Designing: 62387426 T.V. Advertising Sales:124955162 Print Sales: 13086017Other: 5442136”

18.3 In view of the stream of the revenue shown by the company, it is evident that it is a full-fledged media advertisement company and it cannot be compared with the support service including marketing support segment of the assessee. The company being functionally dissimilar, we direct the Learned AO/TPO to exclude the company from the final set of the comparables.

(b) Assets

All the assets employed by BEIPL after depreciation (as per books of account ) are integral part of business of BEIPL which helps it in carrying out the trading and service activities and are not exclusively used for the international transaction or provision of technical services. Refer para 5.3 for the details of tangible and intangible assets employed by the company on 31st March, 2013. (c) Risks Risk profiling of BEIPL vis-a0vis its AE’s provided in the table below: Risk Category and Exposure to BEIPL Exposure to AEs Description Market Risk: Yes, Limited Yes Market risk arises for a BEIPL bears the This risk is borne by business due to the market risk in respect the AE, since they uncertainty in the of services rendered. are responsible to the structure of the market, However, since they ultimate customer. demand patterns and are rendered to the needs of customer’s AE, the risk is costs, pricing etc. minimal. Market risk represents standard risk borne by any enterprise in market driven transactions Service No Yes

Liability/Performance BEIPL does not have The AEs are Risk: any contractual responsible for any Risks associated with liability for losses or failure or damages service failures, damages for service related to service including not meeting failures and the cost performance. the generally of rework (if any) accepted/regulatory would be recoverable standards influences from the AEs. the price charged in a Accordingly, in particular transaction. economic substance, the assessee company does not bear any service liability risk. Manpower Risk Yes, Limited No Manpower risk BEIPL, to some extent AE is not at all associated with risk of has the risk of exposed to this risk losing its trained recruiting and personnel as well as retaining key employing untrained or personnel. However, inefficient employees. this risk of minimal. Market Risk: Yes, Limited Yes Market risk arises for a BEIPL bears the This risk is borne by business due to the market risk in respect the AE, since they uncertainty in the of services rendered, are responsible to the structure of the market, However, since they ultimate customer. demand patterns and are rendered to the needs of customer’s AE, the risk is cost., pricing etc. minimal. Market risk represents standard risk borne by any enterprise in market driven transactions. Technological risk Yes No This risk arises if the BEIPL bears risk on AE does not bear any risk on this account market in which the this account as it is because it is receiving the company operates in also providing service. sensitive to introduction technical services to of new products and its AE and may face technologies. loss of potential revenues due to inefficiencies arising from obsolete infrastructure and tools. Credit/Collection Risk: No No. This is the risk arising BEIPL is rendering The AEs make when a firm supplies its service to its payment to BEIPL in products or services to associated enterprises relation to the a customer in advance which have high services availed by of its payment creditworthiness them and thus, are therefore it bears no or not exposed to any negligible risk. credit risk. Foreign Currency Risk: Yes No The risk arises from BEIPL raise invoices in No risk on account of any adverse foreign currency. So, foreign exchange fluctuations in foreign they are exposed to fluctuations arises currency exchange foreign exchange risk for the AE. rates, which could have on account of a negative impact on fluctuations in foreign the profitability of the currency in relation to company INR. Therefore, BEIPL bears this risk.

Holtec Counseling: 25. The Ld. Counsel submitted that the company is rendering commissioning of Greenfield, expansion of cement as well as captive power plant/waste heat recovery based plants. The Ld. Counsel referred to Annual Report, wherein the company has been claimed to be primarily engaged in the business of rendering engineering consultancy services. The learned Counsel submitted that the company has been excluded by the Tribunal Delhi bench in the case of Bechtel India private limited [ TS-602-ITAT- 2015(DEL)-TP] due to functionally different from the companies engaged in providing engineering services. 25.1 The learned DR on the other hand relied on the finding of the learned TPO. 25.2 We have heard rival submission of the parties on the issue. The Ld TPO himself has mentioned that company is engaged in providing engineering consultancy services. In the Annual Report, at note 20, footnote 32 , it is mentioned that the company is primarily engaged in the business of rendering engineering consultancy services. The function of the consultancy cannot be compared with function of the providing ancillary services of operation, repair and maintenance of plants. 25.3 Accordingly, we direct the Learned AO/TPO to exclude the company from the set of the comparables on account of functional dissimilarity.

MITCOIN 26. The learned Counsel submitted that the company is engaged in consultancy of project feasibility reports to its clients. The company commissioned various power plants and provided consultancy towards solar power project, engineering and project management consultancy etc. , thus company is functionally different from the technical service segment of the assessee. 26.1 The Ld. DR relied on the order of the lower authorities and submitted that engineering services rendered by the company are akin to technical support service segment of the assessee. 26.2 We have heard rival submission of the parties. Ld. TPO himself has mentioned that the company has been promoted by leading financial institutions and public sector commercial banks and contains 12 divisions and dedicated workforce. On perusal of the Annual Report ( page -5) , we find that various divisions of the company include power division, energy and carbon service division, environment management and engineering division, banking and finance division, Infra-consulting group, securitization division, entrepreneurship and vocational training division, E-school division, BT and Pharma division etc. Thus company is engaged in providing diverse services and no separate segment information is available in Annual Report. Clearly, the company cannot be compared functionally with the technical support service segment of the assessee at entity level. The company being functionally dissimilar, we direct the Learned AO/TPO to exclude the company from the final set of the comparables under technical service segment.

HSCC(India) Ltd. : 27. The Counsel submitted that the company deals in providing consultancy services in healthcare sector and also provide range of services in the field of construction of hospitals, laboratories etc. The learned Counsel also submitted that the company fails filter of the service income more than 75% of total income. The Counsel submitted that company is a Government of India undertaking. He submitted that Tribunal Pune bench in the case of Behr India Ltd [TS-320-ITAT-2017(Pune)-TP] has held that public sector company works as per the government policies and social obligation and thus the risk profile and functions are distinct and dissimilar from the captive service providers. He also submitted that Hon’ble Supreme Court in the case of international SOS services India private limited [TS-493-SC-2018- TP] has upheld that government of India undertaking cannot be included as a comparable. 27.1 The Learned DR, on the other hand, relied on the finding of the Learned TPO/DRP. 27.2 We have heard rival submission of the parties. We find that the learned TPO himself has mentioned the fact that the company was engaged in rendering comprehensive range of professional consultancy services in healthcare and other social sectors in India and abroad, which has been utilized by various organizations both in public and private sectors, central government departments etc. The accounts of company have been audited by the auditors appointed by the Controller and Auditor General of India (CAG). In profit and loss account, revenue has been shown mainly from consultancy fee. The function of the consultancy cannot be compared with the technical service segment of the assessee, and accordingly, we direct the Learned AO/TPO to exclude the company from the final set of the comparables on functional dissimilarity.

Acropetal Technologies: 28. The learned Counsel submitted that the company is into IT sector providing Enterprises development, software development and product development services to its customers which is functionally different from the technical service segment of the assessee, which is engaged in providing services of operation and management of plants. The Learned Counsel also submitted that Annual Report of the said company has not been provided to the assessee.

28.1 The Learned DR relied on the finding of the Learned TPO/DRP. 28.2 We have heard rival submission of the parties. The learned TPO has mentioned that the company is engaged in three segment, namely engineering design service segment, informal technology segment and healthcare segment. For the purpose of the comparability analysis, only the engineering design service segment has been considered. The Learned TPO on page 72 of the Transfer Pricing order dated 30/09/2016has reproduced the table of segmental result of the company, however on being asked to provide the Annual Report, the Learned DR could not produce the same despite sufficient time provided to him for making the Annual Report available before the bench . In absence of annual report of the company, neither it can be compared functionally with the assessee nor the operating result of the company can be considered as a reliable. Accordingly, we restore issue of comparability of the Company back to the AO/TPO to provide the Annual Report of the Company to the assessee and then decide the issue in accordance with law after providing adequate opportunity to the assessee. Certification Engineering and International Ltd (CEIL): 29. The learned Counsel submitted that the company is engaged in providing certification services and quality check services, which are in contrast to the services rendered by the assessee provision the nature of the repair and overall of engines used in oil and gas generating plants. He also submitted that CEIL the government of India undertaking having different risk and rewards in rendering services of managing quality and safety. In support of the contention that government companies cannot be compared with private sector companies, the Learned Counsel relied on the decisions in the case of M/s Shell India Markets Pvt. Ltd Vs ACIT [TS-430-ITAT-2014-Mum-TP], Behr India Ltd [TS- 320-ITAT-2017(Pun)-TP], International SOS Services India Ltd (supra), Microsoft Corporation India Pvt. Ltd.[TS-323-ITAT- 2019(DEL)-TP]. 29.1 The Learned DR, on the other hand, relied on the finding of the lower authorities. 29.2 We have heard rival submission of the parties on the issue in dispute. In the profit and loss account , the company has shown revenue from its operation. The learned TPO has noted that the company is engaged in providing certification and quality checking by view of various processes of physical survey and tests during procurement, fabrication, examination, installation and commissioning etc. The activity of certification and quality check is distinct from the function of the assessee of technical service segment and thus we direct the Learned AO/TPO to exclude the company from the set of the final comparables being functionally dissimilar to the technical service segment of the assessee.

31.4 It is clear that transfer pricing addition is not included in the above list and, therefore, the Assessing Officer is not justified in considering the transfer pricing addition for the purpose of computation of the book profit under the provisions of section 115JB of the Act. Accordingly, we allow the ground of the assessee in this regard. 32 The appeal of the assessee is accordingly allowed for statistical purposes. Order pronounced in the open court on 27th April, 2020.