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Income Tax Appellate Tribunal, DELHI BENCH ‘I-2’,
Before: SHRI N. K. BILLAIYA, & MS. SUCHITRA KAMBLE
Date of hearing: 23/01/2019 Date of Pronouncement: 30/01/2019 ORDER PER N. K. BILLAIYA, ACCOUNTANT MEMBER:
This appeal by the Revenue is preferred against the order dated 28.10.2015 framed u/s 144C(5) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] pertaining to A.Y 2011- 12.
The grievances of the revenue read as under :
(i) “On the facts and in the circumstances of the case, the DRP-2 erred in directing AO to complete the assessment as per observations made by DRP in the order which resulting in reducing the addition to Rs.3,87,54,545/- in place of original recommended ALP of Rs.6,55,34,938/- for the International transactions undertaken the assessee company with its associate/parent enterprise.
(ii) On the facts and in the circumstances of the case, the DRP-II erred in directing TPO to exclude below mentioned companies from the final set of comparables : i) Bengal S R E Infrastructure Devp. Ltd. ii) Certification Engineers International iii) Indus Technical & Financial Ltd. iv) Pallavan Transport Consultancy Consultants Ltd. v) Usha Hydro Dynamics Ltd. Services Ltd. Vi) Rites Ltd. vii) NTPC Electric Supply Company Ltd.”
The sum and substance of the grievance of the Revenue is that the DRP erred in excluding seven comparables on the ground that all of them are government companies and are, therefore, not good comparables.
The assessee company is engaged in providing design and engineering services property, environment, transport and infrastructure sectors. The assessee provides services to transform the built environment and restore the natural environment and its expertise ranges from environmental remediation to urban planning from engineering iconic buildings to designing sustainable transport networks and from developing the energy sources of the future to enabling new ways to extracting essential resources.
The comparables finally selected for bench marking the international transactions relating to engineering services are as follows:
No Company Name OP/OC (%) 1 Ashok Leyland Project Services Ltd. 24.70% 2 Bengal S R E I Infrastructure Devp. Ltd. 42.14% 3 Certification Engineers International Ltd. 78.45% 4 Global Procurement Consultants Ltd. 30.86% 5 Indus Technical & Financial Consultants Ltd. 14.78% 6 Kitco Ltd. 27.48% 7 Mahindra Consulting Engineers Ltd. 30.92% 8 Mitcon Consultancy & Engg. Services Ltd. 40.19% 9 Pallavan Transport Consultancy Services Ltd. 25.59% 10 T C E Consulting Engineers Ltd. 29.29% 11 Usha Hydro Dynamics Ltd. 29.45% 12 Gujarat Industrial & Technical Consultancy Org 7.89% 13 IBI Chematur (Engineering & Consultancy) Ltd. 25.96% Ltd. 14 Rites Ltd. 58.27% 15 NTPC Electric Supply Company Ltd. 18.01% Average 32.27%
Accordingly, the ALP of the international transaction related to engineering services is computed as under:
Operating Cost 18,88,60,313 OP/OC % 32.27 Arm’s Length Price (ALP) 24,98,05,536 Price shown in the international 18,42,70,598 Shortfall being adjustment u/s 6,55,34,938 transactions 92CA 7. Aggrieved by this, the assessee carried the matter before the DRP.
After considering the facts and objections of the assessee, the DRP directed the TPO and directions of the DRP can be understood from the following chart:
Comparable TPO Assessee DRP 1 Ashok Leyland The company is The company This is a good Project involved in is in the comparable in Services provision of business of view of similar consultancy Wind Energy services and project services. limited which are in the Project service FAR. nature . of segment of the technical services company is engaged in and thus is the business of comparable to the assisting investment Assessee. activities in successfully identifying and implementation of projects in India. Bengal S R E Bengal SRE is Bengal SRE is engaged This is to be Infrastructure engaged in provision in the business of excluded as it is Devp. Limited of infrastructure preparation of project a Government advisory and related reports on Sewage, Company with services which) are storm Water Drainage, FAR ' not in the nature of Transportation etc. It comparable. technical services is a govt company. and thus is comparable to the Assessee. 3 Certification This Company is This is to be Engineers mainly providing excluded as it is CEIL is engaged in International consultancy and a Government provision of inspection Limited engineering services Company with and certification which are in the FAR not services. nature of technical comparable. CEIL is a government services and thus is owned entity. comparable to the Assessee. 4 Global GPC is engaged in GPC provides valuation, This is a good Procurement provision of consultancy and comparable in Consultants procurement financial advisory view of similar Limited management services. FAR. services to GPC acts as a client government representative in department and taking the their project responsibility of execution agencies procurement by which are in the providing procurement nature of technical related advisory services services. and thus is comparable to the Assessee. 5 Indus Technical & This company The company is owned This is to be Financial provides consultancy by the Government. excluded as it is Consultants services in the a Government nature of technical Company with services and thus is FAR not comparable to the comparable. Assessee. 6 Kitco Limited The company is KITCO is engaged in This is a good engaged in providing ~ project comparable in engineering and consultancy, detailed view of similar infrastructure engineering and project FAR. activities which are execution, technical in the nature of services, environmental technical services engineering and HRD and thus is consultancy. comparable to the Assessee. 7 Mahindra The company is The company is This is a good Consulting engaged in various engaged in provision of comparable in Engineers engineering and consultancy services in view of similar Limited infrastructure the areas of special FAR. activities which are economic zones, water in the nature supply and sewerage technical services etc. and thus is comparable to the Assessee. 8 Mitcon Mitcon is engaged in The company provides This is a good Consultancy provision of technical consultancy in comparable in Engineering engineering services Power division, Energy view of similar Services in the nature of and Carbon service FAR. Limited technical services division, Banking & and thus is Finance division etc. comparable to the Assessee. Pallavan Pallavan is engaged Pallavan is one of the in1 Transport consultancy transport undertakings This is to be Consultancy services in the owned and controlled excluded as it is Services Limited nature of technical" by Tamil Nadu a Government services and thus is Government. Company with comparable to the FAR not Assessee. comparable. i 10 TCE Consulting TCE is engaged in The company is engaged This is a good 9. Engineers project engineering in providing concept to comparable in Limited services which is in commissioning services view of similar the nature of site selection study, FAR. technical services site investigation study, and thus is technology selection comparable to the studies, feasibility and Assessee. detailed project reports, electrical system studies, due diligence reports, etc. Usha Hydro Usha is engaged in Usha is engaged in the This is not a Dynamics various services business of hydrojet good comparable 11 Limited which are cleaning of machines due to technical in nature and retubing of differences in and thus is turbine condensers FAR. It should comparable to the and heat exchangers. be excluded. Assessee. 12 IB1 Chematur The company is IB1 Chematur is This is a good (E&C) engaged in engaged in diversified comparable in engineering design activities since apart view of similar and other services from detailed FAR. in the nature of engineering, the technical services company also provides and thus is project planning and comparable to the management services, Assessee. erection supervision services
Procurement assistance, etc. 13 NTPC Electric The company is The company is engaged This is to be Supply engaged in project in the business of excluded as it is management generation of a Government Limited services which is in electricity and allied Company with the nature of activities. NTPC is FAR not technical services owned by the comparable. and thus is Government. comparable to the Assessee. 14 Rites Limited Rites consultancy The company provides This is to be services segment consultancy in areas excluded as it is has been such as Airports, a Government considered, in which transport, highways, Company with Rites is involved in industrial engineering FAR not provision of etc. Rites is a comparable. technical services, Government owned and thus is enterprise and comes comparable to the under the Ministry of Assessee. Railways
Aggrieved by this, the Revenue is before us.
The ld. DR strongly contended that without assigning any specific reason, the DRP has held that the aforesaid comparables are either government companies or functionally not comparable. It is the say of the ld. DR that without assigning any specific reasons, the DRP erred in excluding the seven comparables.
Per contra, the ld. counsel for the assessee supporting the findings of the DRP pointed out that in assessee’s own case for assessment year 2011-12, the Tribunal has excluded KITCO Ltd for the very same reason given by the DRP for excluding the 7 comparables. The ld. counsel for the assessee pointed out that the order of the Tribunal was assailed before the Hon'ble High Court which declined to admit the same and the appeal of the Revenue was dismissed.
We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. There is no quarrel that all the 7 comparable companies excluded by the DRP are either government companies having significant revenue from government or they are functionally different.
In assessee’s appeal exclusion of KITCO Ltd was prayed for on the ground that it is a government owned company and the Tribunal accepted the contention of the assessee and drawing support from the decision from the decision of the Hon'ble High Court of Bombay in the case of ThyssenKrupp Industries India Pvt. Limited in ITA No. 2218/2013 excluded KITCO Ltd from the list of final set of comparables. We find that the appeal of the Revenue was dismissed by the Hon'ble High Court of Delhi in ITA No. 935/2017. The relevant findings of the Hon'ble High Court read as under:
“Any inclusion or exclusion of a comparable per se cannot be treated as a question of law unless it is demonstrated to the court that the Tribunal or any other lower authority took into account irrelevant consideration or excluded relevant factors in ALP determination that impact significantly”
Let us now consider each comparable company.
Bengal SREI
This company offers Transaction Advisory, Policy Advisory and Capacity Building, encompassing the entire gamut of Industrial and Urban infrastructure for projects like Jawaharlal Nehru National Urban Renewal Mission Programme of the Government of India and similar assignments from West Bengal Tourism Development Corporation Ltd. This company was formed as a joint venture with the West Bengal Industrial Development Corporation which is a Government of West Bengal undertaking. Most of the Revenue comes from government and functions performed by this company are also not comparable with that of the assessee. Exclusion is upheld.
This company is providing services related to certification, re- certification, safety audit and Health and Safety management systems, inspection of equipment and installations in the Hydrocarbon Industry to central government and state owned enterprises. 100 percent shares are held by Engineers India Ltd. and its nominees and 80.40% shares of Engineers India limited are held by President of India and rest are held by government controlled bodies. Being a government company, the Revenue comes from Government and is functionally not comparable with the assessee. Exclusion is upheld.
The FAR of this company is not at all comparable with that of the assessee since this company is into financial consultancy. Further, this company fails the TPO’s own filter of rejection of companies where Revenue is less than Rs. 1 crore. Further, this company has diversified sources of income and segmental accounts are not available. This company has been rightly excluded by the DRP.
Pallavan Transport Consultancy Services Limited
100% of the shares of this company are held by the Governor and nominees on behalf of the Government of Tamil Nadu. This company provides consultancy with respect to traffic, transportation, software development to state government undertaking and bodies which include Tamil Nadu State Health Transport Department, Chennai Police, Digitization of records for various government bodies, vehicle tracking systems for state transport and civil aviation plan for Tamil Nadu. The Revenue is from government and has been right excluded by the DRP.
Usha Hydro Dynamics Limited
This company’s major around 92% is from cleaning activities which is not the business of the assessee and is also engaged in trading business. This company was rejected as good comparable by the co- ordinate bench in the case of Bechtel India Pvt. Ltd in ITA No. 6779/DEL/2015. FAR of this company is not comparable with that of the assessee and is, therefore, rightly excluded by the DRP.
This is a Government of India undertaking. This company is functionally dissimilar as this company provides consultancy with respect to public utilities like airport, transport, highways, industrial engineering, port and water resources among others and cost of sales includes cost of finished goods. This company was rejected as good comparable by the co-ordinate bench in the case of Bechtel India Pvt. Ltd in and in the case of Boeing International Corporation ITA No. 1127/DEL/2015. The DRP has rightly excluded this company.
NTPC Electric Supply Company
100% shares are held by government owned PSU-NTPC. This company is undertaking implementation of turnkey Rajiv Gandhi Gramin Vidyutikaran Yojana Projects, turnkey execution of sub-stations for utilities, project management, consultancy for provision of supply of electricity in 5 km area around NTPC power projects. The significant revenue is from government and, therefore, rightly excluded by the DRP.
Considering the facts of the case in totality, we do not find any reason to interfere with the findings of the DRP.
In the result, the appeal of the revenue in is dismissed.