M/S. BECHTEL INDIA PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

PER CHANDRAMOHAN GARG, J.M.

This appeal by the assessee has been preferred against the order of DCIT,

Circle 2(1), New Delhi dated 6.1.2014 passed u/s 143(3) r/w section 144C of

the Income Tax Act, 1961 (for short the Act) in pursuance to the directions of

the Dispute Resolution Panel-I (DRP), New Delhi dated 26.11.2013 u/s 144C(5)

of the Act for AY 2009-10.

submitted that the assessee does not want to press ground no. 1, 2, 3.6, 3.7, 3.8

ITA No.882/D/2014 Asstt.Year: 2009-10 and 4, therefore, we dismiss the same as not pressed. Remaining grounds for

adjudication read as under:- “3. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. Dispute Resolution Panel ("DRP") erred in making an addition of Rs. 57,46,70,024/- to the returned income of the Appellant by re-computing the arm's length price of the international transactions under section 92 of the Act. Thus, in passing the order, the Ld. AO/Ld. TPO/Ld. DRP erred in: 3.1 Rejecting the comparable companies set adopted by the Appellant in its transfer pricing documentation on the basis of additional/modified quantitative filters which lacked valid and sufficient reasoning. 3.2 Ignoring the comparable set proposed by Appellant as a result of fresh benchmarking study without assigning any reasoning. 3.3 Accepting companies which were functionally not comparable to the Appellant in terms of Functions, Assets and Risk profile. 3.4 Including companies with high/supernormal margins in the comparable set adopted. 3.5. Including government held enterprises in the final comparable set adopted. 3.6 Not providing the benefit of economic adjustment on account of difference in working capital profile and thus not following the binding directions of Hon'ble DRP. 3.7 Denied the benefit of economic adjustments on account of difference in risk profile in arriving at the arm's length mean margin. 3.8 Considered reimbursements as part of the operating cost and recomputed the profit margin of the Appellant. Further, the Ld. TPO did not follow a consistent approach by not considering reimbursement received as part of operating revenue on the same principle. Further, the Ld. DRP has not given its directions against the specific plea raised by the Appellant on the said issue. 5. That in the facts and circumstances of the case and in law, the Ld. AO erred in disallowing the loss of INR 21,80,46,325/- incurred by the assessee on re-measuring the foreign exchange forward contract i.e. 'Mark to Market Losses' as on balance sheet date. 2

ITA No.882/D/2014 Asstt.Year: 2009-10 5.1 That the Ld. AO erred in holding that the Mark to Market losses in respect of re-measuring the foreign exchange forward contract as on balance sheet date are notional and contingent in nature. 5.2 That the Ld. AO erred in placing reliance on Instruction No. 3/2010 dated 23 March 2010 issued by the Central Board of Direct Taxes, as this instruction is issued with respect to assessees trading in forex-derivatives. Also, the instruction is issued after the year under consideration. Thus, accordingly the same is not applicable to the assessee. Further, the said this Instruction is ultra vires to the scope of section 119 of the Income-tax Act, 1961 being prejudicial to the interest of the assessee. 5.3 That the Ld. AO erred in holding that Mark to Market losses in respect of re-measuring the foreign exchange forward contract as on balance sheet date is not allowable as the forward contracts have not been taken for the purpose of business on raising of export invoice but taken without due exposure. 5.4 That the Ld. AO erred in disregarding the order passed by the Hon'ble Delhi Bench of the Income Tax Appellate Tribunal in the Appellant's own case for the assessment year 2008-09 reported as Bechtel India (P.) Ltd. vs. ACIT [2013] 33 taxmann.com 213 wherein the mark to market losses in respect of foreign exchange forward contracts as on the balance sheet date was allowed to the Appellant. 6. That the Ld. AO has erred in charging interest under section 234B, 2340 and 244A of the Act amounting to INR 13,40,39,006. 7. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act.”

Ground no. 3 to 3.5 of the assessee

carefully perused the relevant material placed on record.

in making an addition of Rs. 57,46,70,024 to the returned income of the 3

ITA No.882/D/2014 Asstt.Year: 2009-10 assessee by recomputing ALP of the international transaction u/s 92 of the Act.

Ld. Counsel further contended that the TPO was not justified in rejecting the

comparable companies set adopted by the Appellant in its transfer pricing

documentation on the basis of additional/modified quantitative filters which

lacked valid and sufficient reasoning. Ld. Counsel further contended that the

TPO was not correct in ignoring the comparable set proposed by Appellant as a

result of fresh benchmarking study without assigning any reasoning and

accepting companies which were functionally not comparable to the Appellant

in terms of Functions, Assets and Risk profile. Ld. counsel vehemently

contended that TPO/DRP and the AO were incorrect on facts and in law in

including companies with high/supernormal margins in the comparable set

adopted for benchmarking impugned transaction of the assessee and in

including government held enterprise in the final comparable set adopted for

benchmarking international transaction of the assessee and for making

impugned said addition to the returned income of the assessee by recomputing

the ALP of the alleged international transaction u/s 92 of the Act.

submitted that the assessee company is a captive service provider, providing

engineering design and related services to its Associated Enterprises (AEs) to

support the overseas office’s turnkey project execution. Referring to Paper

Book pages 382-481, ld. Counsel submitted that as per brief overview of the

academic analysis conducted in the TP study, a provision of engineering design 4

ITA No.882/D/2014 Asstt.Year: 2009-10 related service revenue was Rs.43.46 crore and by applying Transactional Net

Margin Method (TNMM), the appellant’s PLI was 12.57% by taking OP/OR as

PLI after undertaking adjustment for ideal capacity and foreign exchange

fluctuation and after considering the margin of comparable in TP study i.e. -

4.49%, the final adjustment was captured as Rs.6,22,45,957/-, whereby the TPO

proposed margin of 32.47% without providing adjustment towards working

capital, risk and ideal capacity. Ld. Counsel further pointed out that after ld.

DRP ruling, the margin after providing working capital adjustment was 15.34%

wherein risk and ideal capacity adjustment was not provided by DRP/TPO for

making impugned addition.

17.6.2015 spread over 7 pages submitted that in the Transfer Pricing study, the

assessee selected 7 comparables while the TPO accepted that the assessee is in

the business of providing engineering support services and accepted TNMM as

MAM and OP/TC as PLI the assessee as a tested party. Ld counsel submitted

that the assessee mainly disputes selection of Certification Engineers

International Ltd. (CEIL) and NTPC Electrical Supply CO. Ltd. (NTPCES)

without any basis and the DRP has considered the issue of Related Party

Transaction (RPT) even though specific objections were raised by the assessee.

Ld. counsel further pointed out that the TPO applied this filter mechanically by

taking into account monetary transaction between the holding company and

CEIL by ignoring various non-monetary benefits like free or level-basis of 5

ITA No.882/D/2014 Asstt.Year: 2009-10 office facilities and secondments of employees by the holding company. Ld.

Counsel contended that in the case of NTPCES, ld. DRP failed to note that this

company does not even discuss RPT in its relevant annual report and it is

pertinent to note that Schedule 9 of annual report clearly states that the amount

payable to NTPC under the head current liability as on 31.3.2009 was Rs.12.87

crores which alone is 18% of its operating revenue.

these two impugned companies, the DRP has ignored the material difference in

functional, geographical location of party and related party transaction (RPT)

and the sole criteria adopted by the ld. DRP for treating NTPCES and CEIL as

suitable comparables is only with Bechtel India Private Ltd. These two

companies employ high-end technological and engineering resources and

personnel. Ld. Counsel vehemently contended that the DRP erred in analyzing

the function of these entities in terms of resources employed and failed to

consider the wide variation in skills and qualification of employees. In the light

of broad functional profile of these companies which cannot be held as

comparable for benchmarking international transaction of the present assessee

company for the year under consideration, ld. Counsel pointed out that if these

companies viz. CEIL and NTPCES are deleted from the final set of

comparables, then the international transaction of the assessee would fall within

the ambit of zero adjustment and, therefore, the same may kindly be deleted

from the final set of comparables adopted by the ld. TPO/DRP and AO. Ld. 6

ITA No.882/D/2014 Asstt.Year: 2009-10 counsel in the written submissions submitted a table highlighting the difference

between the assessee company and the impugned comparable i.e. NTPCES and

CEIL which is being reproduced below for the sake of clarity and transparency

in our findings:-

Sr. Bechtel India NTPCES CEIL No. Pg. 810/Vol.IV Pg. 765/Vol.-IV Operating 1. Rs. 178.36 Cr. Rs.71.72 Cr. Rs. 24.75 Cr. Revenue 2. Status Private Government company 100% Government Company. Till company- subsidiary of National Thermal 1994, it was a division of incorporated Power Corporation (NTPC), Engineers India Ltd. (EIL), ( in 1994 as which is a Government a government company) 100% company. from which it was subsidiary of demerged as a 100% Bechtel subsidiary company. Corporation, USA. 3. Function As per website NTPC. Com: The company was formed on August 21, 2002. It is a wholly Rendering owned subsidiary company of Engineering a NTPC with the objective of Third Party Inspection support making a foray into the (TPI), & Certification olf service business of distribution and equipment supplied by including supply of electrical power, as a vendors and fabrication or related sequel to reforms initiated in installation work of design and the power sector. The Contractors of ONGC drawings as company was also mandated under a MOU between EIL per to take up consultancy and & ONGC dt. 11/4/1985 on specifications other assignments in the area nomination basis. (Ref. Pg. of foreign of Electrical Distribution 765-773, 803-805/Vol.-IV). AEs. Management System. (Copy of Terms of MOU are not screenshot at Annexure 1A) known. Also carries on As per Schedule 17 of AR (pg. similar TPI & Certification 843 of Vol.-IV/AR) The work independently for company is operating in a other PSUs. single segment, that is, providing consultancy, project management and supervision services.” Extracts from AR: It executes turnkey contracts for XIth Plan electricity supply projects entrusted/awarded to

ITA No.882/D/2014 Asstt.Year: 2009-10 it by government companies and Departments. Has JV for retain distribution of power in Kerala. It is “Entrusted the work of rural electrification of 4107 villages” Pan India Rural electrification under Rajiv Gandhi Grameen Vidyutikarna Yojana (RGGVY)-Achieved electrification of 4107villages execution of Turn Key Projects, providing third party inspection services. JV for retail distribution of power & Project Management Consultancy to Discoms and Power generating companies. Its functional profile is similar to Bechtel USA, holding company (Pg.1/DRP order). The contracts/projects ‘entrusted’ (Pg. 811/Vol.- IV). (Ref. Pg. 810-812, 835-838, 843/Vol.-IV.) 4. Geographical International- Domestic customers-Nil export Domestic customers- Market 100% Insignificant export of exporter of service. service. 5. Forex Yes Nil Insignificant Forex earning Fluctuation 3.75% of operating Risk revenue. (Schd. 3(3) at pg. 803/Vol.-IV 6. RPT (DRP has 100% 1)RPT not reported in A.R 1)RPT declared are only failed to Transactions mainly with monetary transactions consider related parties (other with Holding Co. only objection) Government Company/Govt. (19.60%) Transactions with Departments) other AEs like ONGC, IOCL Schd. 9 of A.R current Liability etc. not quantified, (Pg. i)“Amount payable to NTPC 215/Vol-II/DRP Ltd. Rs. 12.87 crores (Pg. submission) 835/IV.) ii) Schd. 17, Notes on SCHEDULE J Accounts: “5) All the employees of the (Notes on accounts) company are on secondment from the Holding Company, “5) The jobs awarded by “9) The common services ONGC on nomination being utilized by the Company basis are being governed for it’s office at NOIDA are by the MOU signed provided without any charges between EIL & ONGC

ITA No.882/D/2014 Asstt.Year: 2009-10 by the Holding Company. “(Pg. dated 11/4/1985. 844/Vol-IV) 6) The company has a All employees on secondment Memorandum of from NTPC at cost. Understanding with Benefits received from Holding Engineers India Ltd. (The company not monetised in the Holding Company) for A.R. providing manpower Revenues are from services, office space and Government companies/ facilities etc. The MOU Departments, which must be provides level basesd fixed considered as related parties. man hour/man-day rates Reliance placed on ITAT order for EIL employees, in Thyseen Krupp Pg. 678 at inclusive of overheads and 694/Vol-III. Note: fixed annual cost towards Contracts/projects for rural space, infrastructure and electrification schemes ‘ facilities etc. provided by entrustesd’/ sanctioned to EIL. NTPCES under Rajiv Gandhi Vidyutidaran Yojana are not The company also has a awarded under open tender Memorandum of as per CVC Circular dt. Understanding with 3/3/2007. Engineers India Limited for providing manpower services to EIL at actual cost plus 10% margin.” CEO’s salary paid by EIL. Ref. (804/Vol-IV) Note: Contracts awarded to CEIL by ONGC on ‘nomination basis’ under MOU with EIL are not entered into open tender as per CVC Circular dated 3/3/2007.

NTPCES and CEIL with the assessee company i.e. Bechtel India Pvt. Ltd. As

per aforesaid contention of the assessee, both these companies are not a suitable

comparable for benchmarking international transaction of the assessee Bechtel

ITA No.882/D/2014 Asstt.Year: 2009-10 India Pvt. Ltd., therefore, the AO/TPO may be directed to delete the same from

the final set of comparables. Ld. Counsel also pointed out that after deletion of

these impugned comparables, the international transaction of the assessee

company would fall within 5% + - limit and there would be no requirement of

making any transfer pricing adjustment to the returned income of the assessee.

TPO/AO rightly held that impugned two companies are suitable comparable for

benchmarking international transaction of the assessee company as functional

profile of these companies are similar to the assessee company and mere

pointing out some micro differences do not lose the title of comparability with

the assessee company. Ld. AR also contended that the assessee company

rendering engineering design, project support including design as per

specification of foreign AE and impugned two companies NTPCES and CEIL

are also rendering services in the similar field, therefore their suitability and

comparability cannot be challenged on the frivolous and petty grounds.

Adjudication of comparability of NTPCES with the assessee company

it appropriate to consider the issue of comparability of NTPCES and CEIL one

by one with the assessee company Bechtel India Pvt. Ltd. Ld. Counsel

reiterating its written submissions and comparability table therein submitted that

the assessee company is a private company incorporated in 1994 as 100%

subsidiary of Bechtel Corp USA. Elaborating the functional profile of the 10

ITA No.882/D/2014 Asstt.Year: 2009-10 assessee company, ld. Counsel submitted that the main function of the assessee

company is rendering engineering support services by way of preparing and

supplying designs and drawings as per the specifications of the foreign AEs i.e.

Bechtel Corporation USA. Ld. Counsel further pointed out that the assessee

company is securing operating revenue of Rs.178.36 crore from its 100% export

of services to its AE having forex fluctuation risk and 100% related party

transactions (RPT) and DRP has failed to consider these important factual

aspects while rejecting the objections of the assessee company to the

comparability of NTPCES.

owned company subsidiary to the National Thermal Power Corporation

(NTPC). Ld. Counsel further pointed out that NTPCES was formed on

21.8.2002 is wholly owned subsidiary of NTPC with the objective of making a

foray into the business of distribution and supply of electric power as a sequel to

reforms initiated in the power sector. Ld. Counsel also submitted that NTPCES

was also mandated to take up consultancy and other assignments in the area of

electric distribution management system and the company is also operating in a

single segment of providing consultancy, project management and supervision

services.

for XIth Plan electricity supply projects entrusted/awarded to it by government

companies and departments under joint venture for retaining distribution of 11

ITA No.882/D/2014 Asstt.Year: 2009-10 power in Kerala. Ld. counsel further pointed out that this company was also

entrusted the work of rural electrification of 4107 villages under Rajiv Gandhi

Grameen Vidutikarana Yojana (RGGVY) for achieving electrification of these

villages and execution of Turn Key Projects providing third party inspection

service. Ld. Counsel also pointed out as per page observations in the DRP

order, NTPCES also got joint venture assignment for retail distribution of power

management consultancy to DISCOMs and power generating company. Ld.

counsel also pointed out that NTPCES has all domestic customers specially

government companies and department having no export services and the same

cannot be held as comparable with the assessee company having 100% export

of services outside India to its AE only.

RPT with its AE whereas RPT of NTPCES has not been reported in the annual

report and this company has undertaken transaction mainly with the related

parties such as government companies and government departments. Ld.

Counsel also pointed out that as per annual report of the NTPCES during the

financial period under consideration the amount of Rs.12.87 crore was payable

to the NTPC Ltd. and as per notes on account, all the employees of NTPCES

are on settlement from the holding company and the NTPCES was utilising

common services for its office at Noida provided without any charges by the

holding company. Ld. Counsel vehemently contended that all the employees of

NTPCES are on secondment from the holding company at cost and benefits 12

ITA No.882/D/2014 Asstt.Year: 2009-10 received from holding NTPCES are not monetised in the annual report. Placing

reliance on the judgment of ITAT in the case of Thyseen Krupps India (Pvt.)

Ltd. vs ACIT (2013) 33 Taxman.com 107 (Mumbai Tribunal). Ld. Counsel

submitted that when a comparable has two segments and its revenue from

comparable segment is complete in itself and is not influenced by inter-segment

revenue, comparability in such a case has to be examined at segmental level and

not entity level. Ld. counsel also pointed out para 12.8.1 and 12.8.2 of the

order of the ITAT in the case of Thyseen Krupps (supra) and submitted that if

related party transactions are much more, then the filter of 25%, is not a suitable

comparable and therefore, the order for the exclusion of the same would be

appropriate.

applying the filters by taking companies whose income is less than Rs.5 crore as

the analysis would not lead to a proper comparability and moreover their low

cost/sales base makes their result unreliable. Ld. counsel also pointed out that

companies whose revenue from engineering support services is less than 75% of

the total operative revenue should be excluded. The ld. Counsel also pointed

out that the ld. DRP in its order dated 16.12.2014 for AY 2005-06 has

concluded that NTPCES is not functionally comparable with the assessee

Bechtel India. He took us through operative para at pages 5-6 of the DRP order

(supra).

ITA No.882/D/2014 Asstt.Year: 2009-10 15. Replying to the above, ld. DR pointed out that business profile of the

assessee company as taxpayer recorded by the DRP in para 3 page 2 of the DRP

order and submitted that the assessee company has less complex o NTPCES and

CEIL operations and was accordingly selected as a tested party for the TP

analysis. Ld. DR supporting the observations of the DRP submitted that

NTPCES is into services requiring high end technology and engineering

advances, therefore, this company is functionally quite similar to the assessee

Bechtell. Ld. DR also pointed out that as per annual report of the NTPCES the

assessee company also has similar functional profile, therefore, the DRP was

right in upholding the conclusion of the TPO in this regard wherein NTPCES

was included in the final set of comparables.

that the business and functional profile of assessee company as tax payer, as

noted by the DRP reads as under:- “Business Profile of Bechtel India as per taxpayer:

• Bechtel Corporation, USA (‘hereinafter referred to as Bechtel USA') set up a subsidiary company in India viz BIPL in April 1994 to render engineering support service in respect of engineering designs and drawings, BIPL executes engineering designs and drawings for various overseas group entities to support the overseas offices' turnkey project execution. Presently, BIPL undertakes engineering design and related services for its overseas group companies. '

• The development of the Arm's length Price ('ALP') by the taxpayer recognizes that BIPL performs contract engineering design services for its group companies. BIPL leverages on all the valuable intellectual Property (‘IP') Right 14

ITA No.882/D/2014 Asstt.Year: 2009-10 ('IPRs') [know-how, copyrights, etc] and other commercial processes, methodologies, etc. belonging to its AEs. Further, the Group is involved in complex operations of marketing, bidding for projects, providing turnkey solutions, project management and adhering to delivery timelines. BIPL provides engineering design services exclusively to its overseas AEs. Based on above, BIPL has less complex operations, bears lesser share of risks and was accordingly selected as the tested party for the analysis .”

In view of rival submissions of both the sides, at the very outset, we note that the assessee Betchell India (BIPL) is a private company incorporated in India in April 1994 as Bechtell Corporation, USA. Admittedly and undisputedly, as per business and functional profile of the assessee company, the assessee company is rendering support services of engineering design and drawing, execution of engineering designs and drawing for various overseas group entities to support the overseas offices in turnkey project execution. The assessee company also undertakes engineering design and relates services for its overseas group companies. From the aforesaid business and functional profile it is amply clear that the assessee company performs contract engineering design services for its group companies. BIPL leverages on all the valuable intellectual Property (‘IP') Right ('IPRs') and other commercial processes, methodologies, etc. belonging to its AE i.e. Bechtell Corporation USA. The DRP has also recorded that the entire Group is involved in complex operations of marketing, bidding for projects, providing turnkey solutions, project management and adhering to delivery timelines. The assessee company only provides engineering design services exclusively to its overseas AEs and the assessee has less complex operations, bears lesser share of risk.

Ld. DR has not disputed and could not demolish this fact that as per website of NTPC.com the NTPCES is a wholly owned subsidiary company of NTPC with the objective of making a foray into the business distribution and supply of electrical power as a sequel to reform initiated in the power sector. We further note that undisputedly NTPCES was also mandated to take up consultancy and other assignments in the area of electrical distribution management system. From page 843 of volume 4 of assessee’s paper book, NTPCES is operating in a 15

ITA No.882/D/2014 Asstt.Year: 2009-10 single segment i.e. providing consultancy, project management and supervision services.

However, ld. DR has pointed out that except micro dissimilarities the main business and functional profile of the assessee company is quite similar to NTPCES but he could not demolish this factum that the NTPCES executed turnkey contracts for 11th plan electricity supply projects awarded to it by the Government companies and electrical departments which also includes activity of distribution of power in Kerala. Undisputedly, the NTPCES was also provided work contract of rural electrification of 4107 villages, execution of turnkey projects and also provided third party inspection services. While the NTPCES is also rendering services for retail distribution of power and management consultancy to DISCOMs and other power generating companies, then its functionality with the asessee company cannot be held as comparable. We are also not in agreement with the conclusion of the DRP/TPO that the functional profile of NTPCES is similar to Bechtell Corporation USA i.e. holding company because we have to compare comparability of assesee company and not its holding company.

Turning to the issue of geographical markets of both the companies, undisputedly assessee company having international transactions only with AE exporting 100% services to Bechtell Corporation USA whereas the NTPCES has nil exports having 100% domestic customers who are government companies and departments. We cannot also ignore this fact that the assessee Bechtell has 100% related party transaction with its AE and RPT have not been reported in the annual report of the NTPCES. It cannot be ignored that the contracts purchased for rural electrification schemes essential to NTPCES under Rajiv Gandhi Grameen Vidutikarana Yojana (RGGVY) were not awarded under open tender as per CVC Circular dated 3.3.2007 and on specific query from the Bench. Ld. DR could not point out any fact demolishing this factum.

When we consider the ratio laid down by ITAT Mumbai in the case of Thyssenkrupp India (P) Ltd. vs ACIT (Mumbai) we note that the ITAT Mumbai has categorically held that when the related party transactions are much more than the filter of 25%,

ITA No.882/D/2014 Asstt.Year: 2009-10 then the same should be excluded. The relevant observations of the Tribunal at page 694 read as under:- “12.8.1 Next is the case of Engineers India Limited, which was included by the TPO at his own. The learned Counsel for the assessee contended that this case should be ignored because it is a Government Undertaking. It was further pointed out that most of its customers of the 'Turnkey project division' are related parties, being, other Public Sector Undertakings, which is much more than the filter of 25%. The learned Departmental Representative, however, accentuated that the TPO was right in including this case in the list of comparables.

12.8.2 We find it as undisputed that Engineers India Limited is a Government company. It has several segments which also include Turnkey project'. Page 700 of the paper book is a copy of annual report of Engineers India Limited on turnkey project. It can be seen that the revenue has arisen from completing Paraxylene Plant of IOCL and further that company is engaged in execution of other unit of IOCL's Panipat Naphtha Cracker Project. In our considered opinion, this case should not have been included in the list of final comparables for two reasons. First reason is that profit motive is not a relevant consideration in case of Government undertakings. Many Government Undertakings even operate on losses in furtherance of the social obligations of the government. The second reason is that Engineers India Limited earned income from turnkey project by successfully completing the project of IOCL and other Public Sector Undertakings. In that sense of the matter, the related party transactions are much more than the filter of 25%. We, therefore, order for the exclusion of this case from the list of comparables.”

in that case, Engineers India Ltd. earned income from turnkey projects by 17

ITA No.882/D/2014 Asstt.Year: 2009-10 successfully completing the project of IOCL and other public sector undertaking

and the related party transaction were much more than the filter of 25%,

therefore, the order for exclusion of Engineers India Ltd. was passed by the

Tribunal. In the present case, the NTPCES was sheltered by its holding

company NTPCES and government companies and departments

awarded/entrusted various projects/contracts for rural electrification,

distribution of power and project management consultancy, therefore, NTPCES

loses the tag of comparability with the assessee Bechtell India. We also find it

appropriate to mention that it cannot be ignored that the NTPCES is also

enjoying settlement of all employees from the holding company NTPCS at cost

and the benefits received from the holding company and related party

transactions (RPT) are not monetised in the annual report and in absence of

specific data in this regard, NTPCES cannot be held as comparable with the

assessee company. Therefore, AO/TPO was not justified in including NTPCES

in the final set of comparables for benchmarking impugned international

transaction of the assessee company and they are directed to delete the same.

We order accordingly.

Adjudication of comparability of CIEL with the assessee company

assessee company Bechtell India submitted that the CIEL is not functionally

similar to the assessee company due to its special features and monopoly based

contract awarding privileges granted by ONGC and other government 18

ITA No.882/D/2014 Asstt.Year: 2009-10 companies. Ld. Counsel strongly contended that the CIEL is a government

company and it was a division of Engineers India Ltd. till 1994 from which it

was demerged as a 100% subsidiary company of Engineers India Ltd. (EIL).

Ld. Counsel pointed out that CIEL undertakes third party inspection and

certification of equipment supplied by the vendors and fabrication and

installation work of contracts of ONGC under MOU between EIL and ONGC

dated 11.4.1985 on nomination basis. Referring to page 365 to 773 and 803 to

805 Volume IV of assessee’s paper book submitted that the terms of said MOU

are not known and open to the public domain and hence it can be safely inferred

that the CIEL is enjoying the benefits of awarding of contact work on

nomination basis without any open tender from its holding company EIL and

other government companies. Ld. Counsel also pointed out that the CIEL also

carries on similar Third party inspection (TPI) and certification work

independently for other public sector undertaking and it cannot be compared

with assessee Bechtell India who is rendering only engineering support services

including related drawing and design, as per specification of foreign AE. Ld.

Counsel vehemently contended that the assessee Bechtell India is providing

primary engineering support services along with design and drawings as per

specification of the foreign associated enterprise which clearly denotes primary

and preparatory work for intuition of execution of work contract whereas the

CIEL provides services of third party inspection (TPI) and certification of

equipment supplied by the vendors and fabrication and installation of work 19

ITA No.882/D/2014 Asstt.Year: 2009-10 contracts of ONGC which is a service rendered after commissioning and

installation of project.

domestic government companies and PSU having insignificant export of

services whereas the assessee Bechtell India is exporter of 100% services to its

AE. Ld. Counsel also pointed out that the assessee Bechtell India receives its

remuneration/revenues from its AE in foreign exchange having forex

fluctuation risk whereas the CIEL having insignificant forex earning of 3.75%

of operating revenue as per Schedule III at page 803 of Volume IV of paper

book of the assessee. Ld. Counsel vehemently contended that the related party

transaction (RTP) are 100% in the case of asessee Bechtell India whereas the

RTP of CIEL are only monetary transaction with the holding company having

19.60% transaction with ONGC, IOCL etc. which are not quantified. Ld.

Counsel also pointed out that the jobs awarded by ONGC on nomination basis

are being governed by the MOU or by holding company dated 11.4.1985.

rural electrification schemes sanctioned to NTPCES are not awarded under open

tender as per CVC Circular dated 3.3.2007 and hence, this company having

privilege of awarding contracts and job on nomination basis without any open

tender cannot be held as functionally comparable with the assessee company.

design, project support and procurement services also has objects like project 20

ITA No.882/D/2014 Asstt.Year: 2009-10 monitoring and control and construction services. Thus, functionally it is no

different from Certification Engineers International Ltd. (CEIL). Ld. DR also

pointed out that unlike the 1980s, government companies now carry on business

in an environment of open competition and therefore price paid by one PSU or

government company to another for goods or services represents Arms’s Length

Price (ALP). Ld. CIT DR contended that in this situation of open market

environment, MOU between EIL and ONGC referred to in the annual report of

CIEL for FY 2008-09 pertaining to AY 2009-10 has no relevance.

person holding voting shares of 26% in a company is considered to be its AE

u/s 92A(2)(b), therefore, RPT filter of 25% of total revenue is justified,

therefore, RPT filter of 25% without recognizing non-monetized benefits

flowing from holding company to CEIL/NTPCES has been correctly applied.

Ld. CIT DR strongly contended that the transactions between two government

companies or public sector undertakings should not be considered to be related

party transactions because shares in government companies are held by the

President of India merely in the name and no effective control is exercised by

him. Ld. CIT DR lastly submitted that no adverse inference needs to be drawn

from non-disclosure of transactions between two state-controlled enterprises as

no such requirement is prescribed in AS-18. Ld. DR finally submitted the

action of the AO/TPO by inclusion of CIEEL in the final set of comparables for

benchmarking of impugned international transactions of the assessee company. 21

ITA No.882/D/2014 Asstt.Year: 2009-10 23. Ld. Counsel of the assessee also placed rejoinder to the aforesaid

submissions and contentions of the ld. CIT DR and submitted that the ld. DRP

has duly noted the business functions of the assessee and have reproduced the

same at page 2 of its order u/s 144C (5) of the Act. Ld. Counsel of the assessee

vehemently contended that the ld. DRP agrees that the conclusion of the ld.

TPO that the assessee Bechtel India is primarily engaged in rendering

engineering support services by way of procuring and supplying design and

drawings as per specifications of the AE by using the IPR supplied by the AE

Bechtel Corporation USA. Ld. Counsel further pointed out that it is for this

reason that the DRP upheld the two filters applied by the AO for the purpose of

selecting comparables viz. (i) companies having revenue of less than Rs. 5 crore

from rendering support services and; (ii) revenue from engineering support

services is less than 75% of total operating revenue. Ld. Counsel also

canvassed another submission that the ld. TPO/DRP have applied aforesaid two

filters for selecting comparables because they accept that the primary business

of the assessee company is of procuring design and drawings for AE enabling

them to execute engineering products for clients outside India. Ld. Counsel

contended that the ld. TPO/DRP have wrongly rejected the assessee’s objection

regarding inclusion of CIEL on altogether different basis i.e. the issue regarding

functional non-comparables; is also not acceptable that in the cases of TNMM

analysis one examines the comparables at a very broad level unlike CUP

analysis where exact similarity is required. Ld. Counsel has also drawn our 22

ITA No.882/D/2014 Asstt.Year: 2009-10 attention towards relevant part of the DRP order available at page 48 of the

assesse’s paper book wherein sole criterion adopted by the DRP for treating

NTPCES and CIEL s comparable to the assessee is that like Bechtel India, these

two companies employ high-end technology and handling sources and

personnel.

with the assessee Bechtel India not only due to aforesaid reasons but related

party transaction declared by CIEL withholding company are only 19.60% and

transaction with other AE/government companies and departments like ONGC,

IOCL etc. are not quantified. To support this contention he has drawn our

attention towards assessee’s paper book Volume II page 215 the submission of

the assessee before DRP. Ld. Counsel parted with the argument that the

AO/DRP/TPO should be directed to delete CIEL from the final set of

comparables which is clearly functionally different with the assessee company.

the very outset, let us deal with the issue of related party transactions (RPT).

Ld. DR relying on the TPO’s observations submitted that since the person

holding voting shares of 26% in a company is considered to be its AE u/s

92A(2)(b) of the Act, thereafter RPT filter of >25% of total revenue is justified.

Ld. DR further pointed out that RPT filter of 25% without recognising non-

monetized benefits flowing from the holding company CIEL/NTPCES has been

correctly applied. Ld. DR has also contended and reiterated that the transaction 23

ITA No.882/D/2014 Asstt.Year: 2009-10 between two government companies should not be considered to be RPT

because shares in government companies are hold by the President of India

merely in his name and there is no effective control exercised by him and they

cannot be treated as related parties. To support this contention, ld. DR has

placed reliance on the decision of ITAT Delhi in the case of Nokia India (P)

Ltd. vs DCIT reported as 214-TII-224-ITAT-DEL-TP and ahs drawn our

attention towards para no. 15 and 16 of this order and submitted that after

considering the ratio of all relevant judgments and orders, the ITAT Delhi

categorically held that the percentage of RPT to make a company as ineligible

for comparison should be taken as more than 25% and not 15% as suggested on

behalf of the assessee.

assessee that 25% filter is not an appropriate filter for RPT and this test cannot

be applied mechanically as if it has statutorily provided without exception. Ld.

Counsel placing reliance on the decision of ITAT in the case of Motorola

Solutions India (P) Ltd. in ITA No.5637/D/11 submitted that the RPT filter

must not exceed 15%. Ld. Counsel vehemently contended that prerequisite of

arriving at ALP with the transaction of tested party should be benchmarked with

the uncontrolled transaction under Rule 10B(1)(e)(ii) of the Rules. Finally, ld.

counsel submitted that the filter should be restricted to 15% of the total revenue.

On careful consideration of above submissions, we are of the view that the

ITAT Delhi in the case of Nokia India (P) Ltd. (supra) held that in principle if 24

ITA No.882/D/2014 Asstt.Year: 2009-10 any company though functionally comparable but is more than specific

percentage of RTP, then the same should be ignored by treating as a controlled

transaction. The Tribunal in this order further held that the percentage of RPT

to make the company as ineligible for comparison should be taken as more than

25% and it was held that a company can be considered as incomparable if its

RPT exceeds 25%. The relevant operative part of this order in para 15 and 16

read as under:-

“15. The assessee has relied on the decision of BMW India Pvt. Ltd. vs. Addl. CIT (ITA No. 5354/D/2012) dated 16th August, 2013. The assessee has filed following additional written submissions to consider the judgment of BMW India P. Ltd. (supra) while deciding the issue relating to AMP on behalf of the assessee: "Subject: Additional Written Submission to consider the judgment of BMW India Pvt. Ltd. vs. Addl. CIT (I.T.A .No.-5354/DeIl2012) while deciding the issue relating to advertising, marketing and promotion ("AMP") on behalf of the Appellant. This is with respect to Motorola Solutions India Private Limited ("MSILP") appeal no. ITA 56371 Dell 2011 for Assessment Year ("AY") 2007-08. The hearings for the same were concluded on July 18, 2013 and the order was reserved on that date. The matter is now awaiting pronouncement of the decision by Your Honours. In the meantime the'!' Bench of the Hon'ble Income Tax Appellate Tribunal ("Tribunal"), New Delhi has pronounced its decision in the case of BMW India Pvt. Ltd. vs. Addl.. CIT (I.T.A .No.- 5354/DeI/2012 for AY 2008-09) ("BMW India order"). The said order was passed on August 16, 2013. Your Honours attention may kindly be drawn to the following: As mentioned in the BMW India order, BMW India acted as a distributor of motor vehicles and parts. During the year under consideration in the order, under the Transactional Net Margin method ("TNMM") applied by BMW India its operating profit margin was higher than the operating profit margin of the comparable companies. During the transfer pricing assessment proceedings, the Ld. Transfer pricing Officer ("TPO"), had alleged that BMW India had incurred excessive AMP expenses vis a vis the comparable companies and therefore, should have been reimbursed by the BMW Group for the excessive AMP spend based on the bright line analysis along with a mark-Up. The Hon'ble Dispute Resolution panel ("DRP") confirmed the additions made by the Ld. TPO. On appeal by BMW India to the Hon'ble Tribunal, the Hon'ble Tribunal pronounced its decision on various issues related to AMP. As already 25

ITA No.882/D/2014 Asstt.Year: 2009-10 mentioned above, BMW India was a distributor during the year considered in the order. On these facts, the Hon'ble Tribunal held that this case is distinguishable from the decision of the Special Bench in L.G. Electronics case ("Special Bench") as the fact under consideration in BMW India is the remuneration model of a distributor and not that of a licensed manufacturer. The relevant text of the decision has been provided hereunder: (Para 6.20, page 50 of BMW India order):

Quote On examination of contemporary Guidelines/jurisprudence on the subject, we are of the view that a distributor is rewarded by the entity for whom the distributor works and the rewards are guaranteed upto an extent and the risk component vis-a-vis a manufacturer is necessarily very less. The rewards can be and generally are based on pricing adjustments and can also be compensated over and above that if greater services are rendered and pricing adjustments have not covered the cost of routine services rendered. Generally speaking the remuneration model for a distributor is reward-based and rewards are based on the quantity of sales.

Unquote The second point pronounced by the Hon'ble Tribunal was that during the year under consideration in the order, BMW India's operating profit margin was higher than that of the comparables. The comparable companies set and their margins were not disputed by the Ld. TPO and the Hon'ble DRP. Hence, the Hon'ble Tribunal held that the compensation for AMP services was embedded in the pricing arrangement of the contract goods itself and that no further compensation was required to be made by the Associated Enterprise ("AE"). In other words, BMW India had received compensation for AMP expenses through premium pricing which was demonstrated through its higher profit margins. The relevant text of the Hon'ble Tribunal ruling in case of BMW India is provided here below(Para 6.25, 6.26 page 53, 55 of BMW India order): Quote We hold that in the facts of the present case the assessee has demonstrated that the compensation for the higher services was embedded in the pricing arrangement of the contract goods itself It is seen that the comparables identified by the assessee and accepted by the TPO as having similar intensity functions have earned profit at the gross and net levels far below the profits both at gross and net levels as achieved by the assessee. In the circumstances as evidenced from record, we are inclined to agree with the submissions advanced on behalf of the assessee that no further compensation was required to be made by the AE as the same has already been received. Thirdly, the Hon'ble Tribunal in BMW India order provided that BMW India was rewarded by price adjustments to earn profits which included the cost of AMP with mark up. It held that the tax department cannot insist that the mode of compensation received by BMW India from its AE necessarily had to be direct compensation and that pricing adjustment was not acceptable.

The relevant text of the Hon'ble Tribunal ruling in case of BMW India is provided here below(Para 6.27, page 56 of BMW India order):

Quote The claim of the assessee has merit as the assessee with the AE can agree to be rewarded/ remunerated by price adjustments to earn profits

ITA No.882/D/2014 Asstt.Year: 2009-10 which include the cost of rendering services with profit. The department cannot insist in the absence of any provision under the Act that the mode of compensation to the assessee by the foreign AE necessarily has to be directed compensation and pricing adjustment is not accepted. Unquote The Hon'ble Tribunal further held that (Para 6.26, page 55 of BMW India order): Quote In support of the remuneration model of the assessee who is a distributor rewarded by way of price adjustments to ensure profitability upto mutually accepted terms is a well- recognized and well-accepted method for compensating a distributor. Unquote Further, on the issue of the mark up the Hon'ble Tribunal in the BMW India order held as under (Para 6.28, page 58 of BMW India order):

Quote We hold that in the facts of the present case there was no occasion for the AE to further compensate the assessee for the services rendered towards building the brand of the AE as the same already stood factored in the pricing adjustment of the contract goods. As such the occasion to consider the applicability of mark-up does not arise. Unquote The Hon'ble Tribunal, in para no. 6.27 of the BMW India order has also mentioned that the Special Bench has accepted that there are diverse nature of facts, business models and peculiar terms and conditions of different assesses and there cannot be any straight jacket formula.

Applicability to MSIPL As provided in the detailed hearings and submissions provided, MSIPL for the relevant year under consideration also acted as a distributor of mobile handsets, walkie-talkies and telecom equipment. During the year under consideration, under the TNMM analysis the operating profit margin on sales (OP/Sales) of MSIPL was higher than that of the comparable companies. This has been mentioned in para 1 of page 1 of the written submission filed with Your Honours on May 20, 2013 and again on para 5 of page 133 of the written submission filed with Your Honours on May 20,2013. The Ld. TPO did not have any dispute relating to the TNMM analysis conducted by the Appellant. The only dispute was on the matter of AMP expenses. The Ld. TPO based on the bright line analysis held that MSIPL should have been reimbursed by the AE for the excess AMP expenses incurred by it along with a mark-up. The Appellant filed an appeal before the Hon'ble Tribunal. The grounds related to AMP issue are covered in grounds nos. 2.1 to 2.10 and 3. (The details have been mentioned in para 4-43 of page 2-23 of the written submission filed with Your Honours on May 20, 2013 and again in para 8 of page 133-138 of the written submission filed with Your Honours on May 20, 2013.) In this regard we humbly submit that the decision in case of BMW India order also applies to MSIPL, as the facts of MSIPL are similar to that in the BMW India order. Hence, we humbly submit that the decision rendered in the BMW case has a direct bearing on the AMP issue. This has been summarized as under:

1.BMW India is a distributor of motor vehicles and related parts. MSIPL is also a distributor. Hence, what is relevant for consideration is the remuneration model of a distributor in both the cases.

ITA No.882/D/2014 Asstt.Year: 2009-10 2.BMW India's operating margin was higher than that of the comparables. Similarly, MSIPL also operated at a higher net operating margin than that of the comparables. This is demonstrative of the fact that the compensation for the alleged higher services was embedded in the pricing arrangement of the contract goods itself and that no additional remuneration was required from the AEs. In other words, like it has been held in the BMW India order, the compensation for the alleged excess AMP expenses was received through premium pricing which can also be demonstrated through its higher profit margins.

In the BMW India order, the Hon'ble Tribunal has held that the department cannot insist that pricing adjustment cannot be accepted as mode of compensation. Herein, it may be reiterated, that MSIPL has already received the said pricing adjustment through credit notes as a cost credit! purchase price adjustment from its AEs. This has been mentioned in para no 18 of page 11 of the written submission filed with Your Honours on May 20, 2013 and in para 8(1) of page 134 of the written submission filed with Your Honours on May 20, 2013."

15.1 Thus, the main contention of assessee is that remuneration model in case of Distributor towards AMP Expenses is different from the compensation model in case of License Manufacturer. Therefore, before considering the application of BMW's case to assessee's case, it is necessary that the business profile of assessee's case viz-a-viz BMW's case with reference to LG's Spl. Bench case is to be considered. Admittedly, the decision in the LG's case has been rendered in regard to AMP Expenses and for quantification of AMP Expenses also detailed guidelines have been laid down in the case of LG. 15.2 In case of LG Electronics brief facts were as under: "The factual matrix of the case is that L.G. Electronics Inc. (hereinafter called as ―LGKǁ), is a Korean based company, engaged in the business of manufacture, sale and distribution of electronic products and electrical appliances such as television, audio/video equipments, washing machines, refrigerators and air- conditioners etc. Pursuant to the approval of the Govt. of India, conveyed vide letter dated 29-1-1997, LGK was permitted to establish a wholly owned subsidiary in India. L.G. Electronics India Pvt. Ltd. (hereinafter called as ―LGIǁ), that is the assessee in question, was incorporated in 1997 as a wholly owned subsidiary of LGK. An agreement was entered between LGK and LGI on 10th March 1997, as per which both entered into a mutual foreign collaboration agreement. Thereafter a Technical assistance and royalty agreement was entered into between these two entities on 1-7- 2001 by which LGI, in the capacity of a licensee, obtained a right to use the technical information, designs, drawings and industrial property rights for the manufacture, marketing, sale and services of the agreed products from the LGK i.e. the licensor."

ITA No.882/D/2014 Asstt.Year: 2009-10 administrative support services to its group company. In the case of BMW the factual matrix was as under: 2.4 "A perusal of the same shows that the TPO took note of the facts that the BMW Group has global operations in 3 segments namely Automobiles, Motorcycles and Financial Services. The parent company of the group is BMW AG i.e. the associated enterprise (hereinafter referred to as the "AE") which is headquartered in Munich, Germany and is primarily engaged in the manufacturing of automobiles and motorcycles. The major car brands manufactured by BMW AG are stated to be BMW, Mini and Rolls-Royce. The TPO takes note of the fact that the assessee had undertaken the following international transactions:

2.5 Referring to the Transfer Pricing Study of the assessee, the TPO observed that the assessee described its activities as that of a distributor. The TPO referred to the Importation Agreement between the parent company BMW AG and the assessee and observed that the same had been entered into w.e.f. 01.01.2006 and it stated that the assessee had the following duties in regard to marketing and promotion of the products of the parent company:

"2.2. Responsibility in the Contract Territory BMW India represents the interest of BMW AG in the Contract Territory. It is responsible for the sale promotion and the full utilization of the market potential for the Contract Goods in the Contract Territory.

It is further responsible for ensuring the provision of the best possible customer service and adequate stocks of original BMW parts in the Contract Territory. Furthermore, BMW India undertakes the following functions in the Contract Territory in accordance with the laws of the contracting territory:

• Establishment and supervision of an efficient BMW distribution network; • Performance of an adequate advertisement and sales promotion as well as public and media relations.

• Collection, evaluation and communication of market information to BMW AG.

ITA No.882/D/2014 Asstt.Year: 2009-10 3. Scope of the Activity of BMW India 3.1 BMW India will meet its responsibility for the promotion of sales and the full utilization of the market potential for the Contract Goods by applying its best efforts and adequate resources toward effective sales promotion and advertising for the Contract Goods including available optional equipment and accessories."

DR because there is no straitjacket formula given in either section 92A(2)(b) or

in Rule 92A(2)(b) or in Rule 10B of the Rules for applying filter to the related

party transactions, however, it is a well-settled proposition that if any company

is functionally comparable with the taxpayer but at the same time it is more than

a specific percentage of RTP, then the same should be ignored by treating it as a

controlled transaction and hence, the view taken by the ITAT Delhi in the case

of Nokia India Pvt. Ltd. (supra) is a balanced view supported by various orders

of the Tribunal on the issue. Therefore, we are inclined to accept the contention

of the ld. CIT DR that a company should be considered as non-comparable only

if its RPT exceeds 25%.

assessee Bechtel India with CIEL. We have already noted the functional profile

of the taxpayer assessee in para 16 as stated above. That the functional profile

of CIEL has been submitted by the ld. Counsel of the assessee which explains

the details of services offered by CIEL, area of certification expertise and

another important area of energy efficiency audit functions by the assessee

CIEL. The relevant operative part reads as under:-

ITA No.882/D/2014 Asstt.Year: 2009-10 “4. Services Offered by CEIL: CEIL is India's leading Certification and Inspection agency for offshore Oil & Gas Process & Well platforms, Petro-chemical Refineries, Submarine and Cross country Pipelines etc. CEIL provides services designed to suit project requirements throughout the life span of a plant / facility from concept to commissioning, revamping and health check. It promotes Safety, Quality and Reliability throughout the design and operating life of all types of equipment, structures, pressure vessels, pipelines and rotating machinery. The services cover all types of capital goods and equipment during manufacture and erection stages for oil & gas and general engineering sectors, encompassing;

~ Review of Detailed Engineering ~ Independent Analysis and Review of Designs/Drawings ~Conformance of Materials & Equipments to National/International Codes - ~ Review and Approval of Inspection Test Plans ~Review of Installation, Pre-commissioning and Commissioning Procedures ~ Third Party Inspection Services / Pre-shipment Inspection ~ Supervision of Site Construction for cross country water / gas pipelines ~ PMC Services for Infra structure projects of Municipalities ~ HAZOP Studies / Quantitative Risk Analysis ~ Mitigation Measures Report with recommendations to reduce the risk factor is issued after studying the above.

5.7 Energy Efficiency Audit In addition to Certification Services, CEIL also carries out Energy Audit, Base Line Verification of energy intensive facilities e.g. pumping stations, municipal lighting, and commercial buildings as per client's requirements. CEIL is also prepared to provide Energy Service Contracting services (ESCO) for rehabilitation / replacement of energy inefficient equipments / appliances and to be paid back from affected savings in energy consumption. 6. Areas of Certification Expertise: CEIL avails a total synergetic support of its parent company EIL which has skilled and experienced professionals located at Head Office and spread across India and abroad who are fully conversant with national and international codes backed by over 31

ITA No.882/D/2014 Asstt.Year: 2009-10 4 million man hours of experience. It has on its roll Engineers qualified by various recognized NDT bodies like ASNT, ISNT and QMS. CEIL's expertise covers Design Verification, Quality Services and Commissioning Assistance on: ~ High pressure Reactors, Pressure Vessels, Columns, Heat Exchangers, Reformers of carbon steel, stainless steel, alloy steels & non ferrous materials ~ Clad Columns, Storage Tanks, Horton Spheres, Mounded Tanks ~ Equipment for Combustible / Explosive Classifications, Occupational Safety and Hazardous Area Classifications ~ Instrument Air / Plant Air Systems, Air Drying Plants, Gas dehydration units ~ Heating, Ventilation and Air Conditioning (HVAC) Systems ~ Line Pipes, Pipe Coating and Piping Appurtenances ”

engineering support services including related design and drawing as per

specification of its foreign AE Bechtel Corporation USA cannot be compared

with a company which is engaged in the functions of third party inspections

(TPI), certification of equipment supplied by vendors & installation of work of

contractors of ONGC and other government departments and private sector

undertakings. The CIEL having domestic consumers, government companies

and public sector undertaking having insignificant export surplus cannot be

compared with the assessee Bechtel India which is 100% exporter of services to

its AE Bechtel Corporation, USA.

having regard to its data mentioned in the financial results filed along with

ITA No.882/D/2014 Asstt.Year: 2009-10 return of income and annual report which is a primary resource and general

information in the annual report is more accurate and this fact has not been

controverted by the ld. CIT DR. From the functional profile of assessee Bechtel

India and functional profile of CIEL as reproduced hereinabove, it is amply

clear that the CIEL carries on business of certification and third party inspection

of equipments provided by a contractor and obviously certification and TPI

functions are dissimilar form the business of rendering engineering support

services including related design and drawing as per specifications of foreign

AE and by using intangibles/IPR of parent company.

testing/assessing and auditing of the work done by the high-end technocrats

which conforms to specifications prescribed in the contract; meets quality

standard of work and material; meets safety standards; meets environmental

standards and satisfactory works, plant commissioning and installation of

various works and projects for the employer like ONGC. The CIEL certifies the

work of the contractor that the employer accepts the work undertaken as per

specifications of the contract and then makes the payment. Per contra, the

business functional profile of assessee company is to perform the work of

preparing and supplying design and drawings given by its parent Bechtel

Corporation USA. In this modus operandi this work is outsourced by the non-

resident AE to the assessee Bechtel India which carry out the work as per

specifications given by the outsourcing company AE. We may also point out 33

ITA No.882/D/2014 Asstt.Year: 2009-10 that the revenue of CIEL form export of surplus is 3% which is insignificant and

the income from export of services by the asessee Bechtel India is 100% of

operating income as there is no domestic client, thus, as per Rule 10B(2)(d) of

the Rules, the comparability test also fails on this count.

the functions of assessee Bechtel India are quite dissimilar with CIEL which

was wrongly taken by the TPO as a suitable comparable for benchmarking of

impugned international transaction undertaken by the assessee during the

relevant financial period. The functional dissimilarity as well as distinction in

the geographical market in the light of foreign exchange fluctuation risk of the

assessee company coupled with below 25% RPT undertaken by the CIEL, we,

therefore, decline to agree with the conclusion of the AO/DRP/TPO that the

CIEL is a suitable comparable for the purpose of proposed TP adjustment made

by the authorities below. Functional dissimilarity and other aspects cannot be

ignored and these factors clearly demonstrate that CIEL should not have been

included in the final set of comparables for making transfer pricing adjustment

pertaining to the impugned international transactions of the assessee company

and we order to exclude the same from the final set of comparables. It is

ordered accordingly.

Corporate issue of Mark to Market losses Ground no. 5 to 5.4

written submissions dated 17.6.2015 pointed out that the assessee claimed mark 34

ITA No.882/D/2014 Asstt.Year: 2009-10 to market losses of Rs.21.80 crore on foreign exchange forward contracts as on

31.3.09 which was wrongly disallowed. Ld. Counsel of the assessee further

pointed out that the AO erred in holding that the Mark to Market losses in

respect of re-measuring the foreign exchange forward contract as on balance

sheet date are notional and contingent in nature which are not allowable. Ld.

Counsel vehemently pointed out that the AO further erred in placing reliance on Instruction No. 3/2010 dated 23rd March 2010 issued with respect of assessees

trading in forex derivatives and these instructions were issued after completion

of financial period under consideration, thus, the same was not applicable to the

assessee and further said instruction is ultra vires to the scope of section 119 of

the Act.

Market losses in respect of re-measuring the foreign exchange forward contract

as on balance sheet date is not allowable as the forward contracts have not been

taken for the purpose of business on raising of export invoice but taken without

due exposure. Ld. counsel has further drawn our attention towards order of

ITAT in assessee’s own case for AY 2008-09 reported as Bechtel India Pvt.

India Ltd vs ACIT(2013) 33 Taxman.com 213 (Delhi Tribunal) and

submitted that the mark to market losses in respect of foreign exchange forward

contracts as on the balance sheet date was allowed to the assessee. Ld. counsel

of the assessee also took us through the written submissions dated 13.6.15 filed

on 17.6.15 which read as under:- 35

ITA No.882/D/2014 Asstt.Year: 2009-10 “Schedule XIII - A. Significant Accounting Policies:- “ iv) Foreign exchange transactions Foreign exchange transactions are recorded at the exchange rate prevailing at the date of transaction. Realized gains and losses on foreign exchange transactions during the year are recognized in the Profit and Loss Account. Foreign currency monetary assets and liabilities are translated to India Rupees at year end rates and any resulting gain/loss on such translation is also recognized in the Profit and Loss Account. v) Forward foreign exchange contracts The company enters into forward foreign exchange contracts with the bankers to mitigate the risks associated with foreign exchange fluctuations associated with the accounts receivable and forecasted sales transactions. Any premium or discount arising at the inception of the forward exchange contract, which have been taken on underlying transaction, is recognized as expenses/income over the life of the contract and exchange differences arising on such forward exchange contract is recognized in the Profit and Loss account in the reporting period in which the exchange rate changes. The fair value of forward foreign exchange contracts, which have been taken to cover foreign exchange risk in respect of probable forecasted transactions, being the difference between the contracted rate and forward rate at the Balance Sheet date, are recognized in the profit and loss account. " (Pg. 470 & 476/Vol.II) The following table sums up the facts :- Rs. In Crores (Rs. In Cr.) (rounded) a. All 9 foreign exchange forward contracts (F.C) were entered 119.50 With authorized bank on 6.8.2008 maturing every successive Month starting from 3.4.2009 to 4.12.2009 b. Export sales booked during Financial Year 2008-09 178.36 Financial year 2007-08 159.23 c. Receivables as on 31.3.2009 71.64 Receivables as on 31.3.2009 41.61 d. Foreign exchange (USD) actually received in Financial Year 2008-09 156.72 36

ITA No.882/D/2014 Asstt.Year: 2009-10 Financial year 2007-08 167.31 e. Value of Unexpired FCs as on 31.3.2009 119.50 Value of unexpired FCs as on 31.3.2008 96.00 f. Invoices raised by 6.8.2008 (pg. 362/P.B. Vol.-II) 58.09 g. All 9 contracts were ultimately settled through delivery of contracted Rs. 119.50 crores worth of U.S. dollars. Ref : a) Pg. 61-66 of P.B. Vol.-I b) Pg. 355 of P.B. Vol.II c) Pgs. 751-753 of P.B. Vol. IV d) Draft assessment order for A.Y. 2010-11 Pg. 754/PB Vol.-4. e) Assessment order u/s 143(3)/144C dated 30.1.2015 for A.Y. 2010-11 (para 6 at Annexure 1) 4. Ld. DRP : i) Ignores accounting policy followed by assesee for Pg. 462-476 & 450- foreign exchange (forward) transactions. 51/P.B.Vol.-II, AS 11 & AS 30 read with AS 1.

ii) The DRP ignores the judgment of Hon'b1e Delhi High Court in Virtual Soft Systems Ltd. (341 ITR 593) brought to its notice. It has been held therein that:- "10 .... the fact that the opinion of the Institute of Chartered Accountants of India was expressed in a Guidance Note which had not attained a mandatory status, would not provide a basis to the Assessing Officer to disregard the books of account of the assessee and in effect method of accounting for leases, followed by the assessee. " iii) The action of the Ld. DRP is illegal in not following the order of the Hon'ble Tribunal for A.Y. 2008-09 without distinguishing it on facts. As held by the Hon'b1e Supreme Court in C1T Vs. Ralson Industries Ltd. (288 ITR 322), "where an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of natural justice”. It is significant to note the DRP's order dt. 26.11.2013 is appealable u/s 253(1)(d) of the Act and was not binding on the Department. iv) Holds Supreme Court decision in Woodward Governor is not applicable. Pg. 382/P.B.Vol.-II v) Follows CBDT Instruction no. 3/2010.

ITA No.882/D/2014 Asstt.Year: 2009-10 vi) DRP selectively quotes guidelines issued by RBI. It ignores the Foreign Exchange Management (Foreign exchange derivative contracts) Regulations, 2000 readwith Schedule 1 of the Regulation-4. The said Schedule states that a forward fore. contract can be booked by an authorized dealer on the basis of reasonable estimate after verifying the documentary evidence. (Ref. Pgs. 728-733 of PB Vol.-IV). vii) The Chart at Pg. 751/Vol.-IV, which summaries, the year-wise position of forex booked/ receivables etc. is at Annexure-2A. viii) The DRP verifies FIRCs and does not dispute that all the FCs were ultimately selected through delivery of contracted amount of US dollars. (Para 3.7.1 at Pg. 36 of DRP order at Pg. 65 of P13 Vol.-I). 5. The Ld. DRP alleges that the FCs were not taken out by the assessee for business purpose. This bald allegation is not substantiated by the DRP. Further, the allegation made by the Ld. DRP is self- contradictory. In the preceding assessment year, the Ld. AO had disallowed similar Mark to Market accounting of loss on unmatured FCs on the last date of accounting year; i.e., 31.3.2008. However, this loss has been allowed by the AOIDRP in the succeeding assessment year 2009-10 on cash basis. Thus, the DRP admits that foreign exchange forward contracts are not speculative and they are also for' business purpose. The facts this year are same as in the preceding A.Y. 2008-09. Similarly, actual loss on the FC on maturity have been allowed in the succeeding assessment year 2010-11. (Tile chart summarizing the effect of the orders is at (Pg. 753/Vol.- IV Annexure 2B) 6. Findings of the Hon'ble Tribunal in A.Y. 2008-09:- i) Forex fluctuation loss on unexpired FCs booked on 31.3.2008 is covered by the Hon'ble Supreme Court decision in the case of Woodward Governer (312 ITR 254) ii) The assessee follow mercantile system and the loss is booked on a scientific basis in the ordinary course of business. iii) The loss has been incurred for hedging of foreign currency fluctuation involved in export sales; which is a business decision to safeguard its interest. 38

ITA No.882/D/2014 Asstt.Year: 2009-10 iv) This loss is not notional and it is business loss. It has to be allowed following the Hon'ble Supreme Court in Woodward Governer case. CBDT Instruction no. 3 duly noted by Tribunal (Pg. 365/Vol.- II) Transactions not speculative u/s 43(5):- 7. Alternatively; the DRP, after examining all the invoices raised by the assessee on AEs, holds the FCs' to be speculative transactions as It found that the aggregate amount of 'invoices raised' did not cover the exposure as per the FCs booked by the assessee with Bank of America on 6th August 2008. According to DRP, the assessee should have booked the FCs only after it had raised an invoice and only to the extent of amount as per each and everyone of the hundreds of invoices raised by the assessee under continuous service contracts with the AEs, which normally run for several months overlapping more than one financial year. The sample FCs and corresponding invoices, which run into hundreds, are at Pgs. 737-743 of Vol.-IV. The Ld. DRP has failed to appreciate that it would be not only unpractical, but will also be extremely costly proposition to take out forward contract for everyone of the hundreds of invoices issued to the AE under each of the service contracts (Ref. TP Study at Pg. 582/Vol.-III). It is for this reason that the RBI regulations clearly provide that where the amount is not ascertainable the forward contract may be taken on the basis reasonable estimate expected export receipts. 8. The Ld. ORP has erred in treating clauses of proviso to section 43(5) as sub-sections of that section. It has thus erred in law in applying proviso (b) and (d) to section 43(5) of the Act. The proviso merely excepts transactions, which are other-wise speculative under main without first ascertaining as to whether the FC transactions are speculative as per section 43(5). 9. The Ld. DRP, after verifying all the Forex Inward Remittance Certificates (FIRC), admits that all Forward Contracts were

ITA No.882/D/2014 Asstt.Year: 2009-10 ultimately settled through the delivery of prescribed quantity of US dollars on the due date. This was brought to the notice of ORP vide letter dt. 12.11.2013 at Pg. 354IVol.-IJ. Hence, the settlement of FCs through actual delivery of US dollars have been wrongly treated as speculative transactions u/s 43(5) of the Act. 10. DRP holds that FCs are covered by "section 43 (5)(b)" and "section 43 (5)(d)". Apparently, reference is to the proviso (b) and (d) to section 43(5) of the Act. Thus, the Ld. DRP has erred in invoking the proviso to section 43(5) without bringing the transaction into the fold of main section. There is no dispute that all forward contracts were "ultimately" settled through delivery of the underlying commodity, i.e., U.S. dollars. The Ld. D.R.P. itself has recognised this fact as may be seen from the Tables at Pg. 32 & 37 of ORP order (Pg. 61& 66IVol-f). This being the undisputed factual position, the impugned transactions clearly do not fall within the meaning of the term 'speculative transaction' as defined in section 43(5) of the Act. It may be noted that for the purpose of section 43(5), it is not necessary, or even relevant, that the forward contract is settled within the accounting year. What is relevant is that it is ultimately settled through delivery of the commodity contracted for. Further, as held by the Apex Court, if the transaction satisfies the condition of 'actual delivery' of the contracted commodity, the transaction cannot be held to be speculative. (Ref. Devenport and Co. P. Ltd. Vs. CIT (1975) 100 ITR 715 (SC) at Pg. 759/vol.-IV). Proviso to Sec. 43(5) not applicable:- 11. Since the main section 43(5) of the Act is not applicable to the facts of the case, the Ld. ORP erred in law in invoking. the proviso to that section. The ORP's action of invoking the proviso to Sec. 43(5) is manifestly erroneous. It is settled law that- if a contract is ultimately settled by way of actual delivery (as opposed to constructive delivery) of the underlying commodity, it is not speculative. (Ref. Davenport & Co. P. Ltd. Vs. CIT 100 ITR 715,

ITA No.882/D/2014 Asstt.Year: 2009-10 SC). Also see the Hon'ble Tribunal in London Star Diamond Co. Vs. DCIT [2013J 38 Taxmann.com 338 (Mum. Trib). 12. Considering the fact that all the FCs are ultimately settled through delivery of US dollars. it's clear that the decisions of the Tribunal/ High Court relied on to by the DRP are not relevant as all those decisions deal with a situation where contract is cancelled because of non-delivery of dollars and settlement is reached by paying the difference between the contracted price and the price of the commodity on the date of settlement. AO/DRP in A.V. 2010-11:- 13. In the succeeding A.Y. 2010-11, the actual loss incurred was Rs. 15.75 crores and the remaining amount of Rs. 6.05 crores was offered to tax by the assessee in its return for A. Y. 20 10-11, which is accepted by the AO. (Re .Pg. 753 & 754I Vol.-IV). The DRP has also not interfered with the decision of the AO. Thus we have a situation where AO/DRP have treated FCs to be non- speculative transaction entered into by the assessee company for business purpose in the immediately preceding and succeeding year.” 35. Ld. DR supporting the action of the AO/DRP submitted that the assessee

company does not specify the test of transaction that have been excluded under

the extant provision as deemed speculative transaction because it had not clearly

demonstrated that the transactions were in respect of raw material or

merchandise; the assessee is not a member and the assessee company failed to

demonstrate that the transaction in question were ‘has in’ transactions in

absence of details of forex forward contracts which were not linked to the

trade/export. Ld. CIT DR further pointed out that the assessee is not a member

of a forward market or an exchange and it is not the business of the assessee 41

ITA No.882/D/2014 Asstt.Year: 2009-10 company to undertake foreign exchange forward contracts. Ld. CIT DR further

pointed out that forward contracts on certain dates could have been of higher

value than the export receivables and as such, the assessee did not demonstrate

rupee to rupee and date specific correlation between the FCs and the export

invoices, specially when few forward contracts cancelled before the maturity

dates clearly demonstrate the characteristics of speculation activity. Placing

reliance on the decision of Hon’ble Bombay High Court in the case of CIT vs

Badridas Gauridu Pvt. Ltd. (2004) 134 Taxman 376 (Bombay) submitted

that this aspect/issue needs to be examined in details so as to consider the nature

of such losses to adjudicate the allowability and in that case the matter was set

aside by the Tribunal on this issue as the assessee had not furnished requisite

details to the AO.

Bahrain and Kuwait in ITA No. 4404 & 1883/Mum/2004 the Special Bench of

ITAT Mumbai while holding that mark to market losses in respect of forward

foreign exchange contracts debited to profit and loss account is allowable and at

the same time, CBDT Instruction No. 3/2010 mandates that instruction from

CBDT were either not pointed out to the ITAT or was subsequent to this order.

Ld. CIT DR also vehemently contended that the question in the said case was

whether mark to market loss was a real loss or a notional loss and the issue of

speculation u/s 43(5) was not before the Tribunal and hence benefit of the

Special Bench order for claiming allowability cannot be extended to the 42

ITA No.882/D/2014 Asstt.Year: 2009-10 assessee. Ld. CIT DR also pointed out that the special bench order was passed

in the case of assessee bank and assessee of the present case is an engineering

service provider assessee so the business profile varies substantially.

rejoinder to the written reply and submissions of the DR on the issue of mark to

market losses, ld. Counsel submitted that the contentions of the ld. CIT DR are

misconceived, that the assessee fails to satisfy any of the clauses of the proviso

to section 43(5) of the Act, therefore, mark to market loess of forward contracts

are not allowable being speculation losses. Ld. Counsel strongly contended that

merely the ld. CIT DR reiterating the view as expressed by the ld. DRP and the

DRP has ignored the main provisions of section 43(5) of the Act as the revenue

has to show as to how the present case is covered by the definition of

speculative transaction as defined in section 43(5) of the Act. Ld. Counsel also

pointed out that the assessee accounts for forward contract loss based upon a

consistency followed by accounting policy as stated in its final audited

statement and since all forward contracts are settled by the actual delivery of

contracted amount, therefore, it is not a speculative transaction u/s 43(5) of the

Act. Ld. counsel also pointed out that the assessee accounts for forward

contract loss based upon consistency, followed by accounting policy as stated in

its final audited statement and since all forward contracts are settled by the

actual delivery of contracted amount, therefore, it is not a speculative

ITA No.882/D/2014 Asstt.Year: 2009-10 transaction u/s 43(5) of the Act and there is no question of applicability of

proviso to the said provision.

Placing reliance on the judgement of Hon’ble Supreme Court in the 38.

case of Devenport & Co. Pvt. Ltd. vs CIT 100 ITR 715 submitted that a

transaction which is otherwise speculative would not be a speculative

transaction within the meaning of Explanation (2) if actual delivery of the

commodity or the scrips has taken place. Ld. Counsel lastly pointed out that in

the similar set of facts and circumstances, the issue has already been decided in

favour of the assessee by the Tribunal for AY 2008-09 in assessee’s own case

(supra).

very outset, we find it appropriate to reproduce written reply of the ld. CIT DR

on the issue of mark to market losses, written submissions of the assessee as

already reproduced herein above. The relevant written submissions of the ld.

CIT DR read as under: -

“Synopsis of DR submissions Date of submission: 09/0712014 Name of Assessee: Bechtel India P Limited

AY: 2009-10 ITA No.: 882/D/2014 May the Hon'ble 'I' Bench be pleased to consider:

ITA No.882/D/2014 Asstt.Year: 2009-10 Note on Forex Hedging Losses: The company's case does not satisfy the test of transactions that have been excluded under the extant provisions as deemed speculative transactions as: - it had not clearly demonstrated that the hedging transactions were with respect to raw materials or merchandise: - the assessee is not a member of a forward market or an exchange. - The Company failed to demonstrate that the transactions in question were hedging transactions as no details were furnished. -the details of forex forward contracts were not linked to the trade/export. -FCs on certain dates could have been of higher value than the export receivables. As such, the assessee did not demonstrate rupee-to-rupee and date-specific correlation between the FCs and the export invoices. - Apparently few Forward Contracts cancelled before the maturity date. which was a characteristic of speculation activity or there were any alterations. In view of the above, the following submissions are made: A. Forward Contracts are to be treated as commodity as held in 38 taxmann.com 338 (Mumbai-Trib.). Reliance on the decision or the Bombay High Court in the case of CIT v. Badridas Gauridu Pvt Ltd 2004 134 Taxrnan 376 (Bombay) and UT v. Soorajmull Nagarmull [1981] 129 ITR 169 (Cal) in the case of London Star Diamond Company (I) P. Ltd v. DCIT [2013] 38 taxrnann.com 338 (Mumbai- Trib.). Relevant extract of para 19 of the judgment reads as under:

"Para /9. The above------- .Although there is decision of the Tribunal where it is held that the FCs are not commodities, considering the judgment of Hon’ble High court of Calcutta in the case of Sooraj Mull Magarmull supra, which was followed by the judgment of jurisdictional High Court in the case of Badridas Gauridu Pvt Ltd (supra), needs to be followed by us. The principle of "judicial discipline" assumes importance and therefore, the "commodity" includes the forward contract'. Thus, in principle, the forward contracts, being commodity, should fall in the definition of ‘speculation transaction' and the same is subjected to fulfilment of other conditions specified in sub-section (5) of section -43 of the Act. Having held so, we shall now examine if the impugned contracts/transactions constitute "hedging transactions" and covered by the exclusion provisions of clause (a) to the proviso to section 43(5) of the Act. " Further, the paras 34, 35 & 36 of the order need to be examined in details so as to consider the nature of such losses which require 45

ITA No.882/D/2014 Asstt.Year: 2009-10 detailed examination to see the allowabilty. In this case, the matter was set aside by IT AT on this issue as the assessee had not furnished requisite details to the AO.

Mumbai Tribunal - S. Vinodkumar Diamonds Pvt. Ltd. v. Addl CIT (2013- TIOL-452- ITAT -MUM) has held such transactions to be Speculative in nature. Assessee was in the business of manufacturing and export of diamonds and claimed deduction for loss in tax return on account of exchange rate fluctuations, including loss on forward contracts squared up during the year and marked-to-market losses on outstanding contracts at the year end. The Assessing Officer (' AO') and the CIT(A) disallowed the loss and treated the loss as 'speculation loss', relying on an instruction and circular issued by the Central Board of Direct Taxes (CBDT) regarding this matter (Instruction No.] 3 of 2010dated 23 March 2010 and Circular No.23 of 1960 dated 12 September 1960).

In this case, ITAT Mumbai has drawn a distinction between hedging transaction and speculative transaction, observing that 'speculative transaction' is a contract for purchase or sale of any commodity, stocks or shares that is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scrip & on the other hand, a hedging transaction is a contract entered into to protect against possible price fluctuations in the commodity / goods traded by the assessee. ITA T has formulated seven tests to determine a hedging transaction as a non speculative transaction For the purpose of clause (a) of proviso to section 43(5) of the Act. The ITAT Mumbai noted that as the assessee was a dealer in diamonds, hence only forward contracts in diamonds could be treated as hedging contracts. Further, the forward contracts for foreign exchange were closed without actual delivery. Assessee was also unable to establish that booking and cancellation of forward contracts of foreign exchange were in respect of specified export or import. Hence, the loss on forward contract on cancellation and marked-to- market on outstanding contracts as on year end on hedging foreign exchange risk was held to be a speculative contract.

B. Explanation to S. 37(1) inserted by the Finance Act 1998 with retrospective effect from 1-4-1962 reads as under:

"Explanation - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have 46

ITA No.882/D/2014 Asstt.Year: 2009-10 been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." The forex derivative contracts entered into in excess of the underlying foreign exchange exposure of the assessee are apparently in violation of the guidelines of RBl and FEMA and therefore hit by Explanation to S. 37(1).

This explanation impliedly leads us to the conclusion that such losses on FCs are not allowable to the assessee. CBDT has also issued Instruction No. 03/20 I 0, dated 23-3-2010 to assessing officers regarding the loss on account of currency derivatives. The crux of the said instruction is as under:

(I) In respect of MTM losses debited to Profit and Loss account, the AssessingOfficers are instructed to disallow the same while computing the taxable income.

(2) In respect of actual or crystallized losses, the Assessing Officers are instructed to verify whether the losses are on account of speculative transaction as specified u/s.43(5) and decide in accordance with law.

The above instructions render claims of deduction for mark to mark losses provided for in the books in respect of open contracts untenable. However, to be fair, it may also be pointed out that in the case DCIT v. Bank of Bahrain and Kuwait, (ITA Nos. 4404 & 1883/Mum./2004 reported in www.itatonline.org) the Special Bench of Mumbai ITAT, while holding that MTM losses in respect of forward foreign exchange contracts debited to profit and loss account is allowable, has made the following observations:

(i) A binding obligation accrued against the assessee the minute it entered intoforward foreign exchange contracts. (ii) A consistent method of accounting followed by the assessee cannot be disregarded only on the ground that a better method could be adopted. (iii) The assessee has consistently followed the same method of accounting in regard to recognition of profit or loss both, in respect of forward foreign exchange contract as per the rate prevailing on March 31. (iv) A liability is said to have crystallised when a pending obligation on thebalance sheet date is determinable with reasonable certainty. The considerations for accounting the income are entirely on different footing. 47

ITA No.882/D/2014 Asstt.Year: 2009-10 (v) As per AS-II, when the transaction is not settled in the same accounting period as that in which it occurred, the exchange difference arises over more than one accounting period. (vi) The forward foreign exchange contracts have all the trappings of stock-in- trade. (vii) In view of the decision of the Supreme Court in the case of Woodward Governor India (I) P. Ltd., the assessee's claim is allowable. (viii) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit. This creates a situation where on one hand a Special Bench decision allows MTM losses, while on the other hand CBDT Instruction mandates disallowance. Apparently, the instruction from CBDT was either not pointed out to the ITAT or was subsequent to this order. Also, the question in the said case was whether MTM loss was a real loss or notional loss and the issue of speculation under 43(5) was not an issue before the ITA T. On this background, the benefit of this Special Bench order for claiming allowability of MTM losses despite the instruction to the contrary by the CBDT is not available especially due to the facts that the assessee failed to discharge its onus on giving real time data. Besides, the assessee in our case is Engg. Service exporter whereas this AB order was rendered for a bank, so the business profile varies substantially. C. Recent: RBI in order to regulate the currency market volatility has allowed the trading in currency future and forward on April 20,2007. As there was difficulty in managing the currency future along depending on FOREX with other derivatives traded in Security exchange market depending on SENSEX, therefore, RBI and SEBI formed a standing committee to analyze the trade in currency forward and future market around the world and thus laying down the guideline to introduce and manage the exchange traded currency future market in India. The committee submitted the report on May 29,2008 . RBI and SEBI are now cooperating and working together to manage this segment of future and option trading in India. Various currency derivatives have been introduced by NSE and MCX to make Indian Securities market globally competitive and larger. The issue therefore calls for detailed adjudication and is not covered in favour of the assessee.”

of the assessee to the written reply/submissions of the ld. CIT DR dated

ITA No.882/D/2014 Asstt.Year: 2009-10 19.6.2015 which were placed before us on 26.6.15. For the sake of clarity in

our findings, rejoinder to the written submissions of the ld. CIT DR is being

reproduced below:- “BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH 'I-1' NEW DELHI Bechtel India Private Limited ITA No.882/Del12014 Assessment Year: 2009-10 Rejoinder to the Written Submission of the Learned Departmental Representative (Ld. DR) in respect of the 'Mark to Market' loss of Rs. 21.80 crores as on 31.03.2009 on the foreign exchange forward contracts (FCs) It is humbly submitted that this Rejoinder may kindly be read along with the Corporate Tax Submission dated 17.06.2015 submitted before your Honours Rejoinder: l. The Ld. CIT (DR) has emphasized that the assessee fails to satisfy any of the clauses of the proviso to section 43(5) of the Act. Therefore, marked to market losses on FCs are not allowable, being speculation losses. This contention is misconceived. The Ld. CIT (DR) merely reiterates the same view as expressed by the Ld. DRP. Both the Ld. DRP &CIT(DR) have ignored the main provision of section 43(5) . They have in the first place, failed to show as to how the impugned case is covered by the definition of 'speculative transaction' as defined in section 43(5) of the Act. All the contentions of the Ld. CIT(DR) have already been met in our submission dated 17.06.2015. The relevant provisions of section 43(5) which defines the term "speculative transaction" reads as under: .. (5) "speculative transaction" meansa transaction in which a contract for the purchase or sale 0/ any commodity. including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in

ITA No.882/D/2014 Asstt.Year: 2009-10 respect 0/ his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations: or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange: shall not be deemed to be a speculative transaction. "[Emphasis supplied] The facts of our case are:- i. The assessee is an exporter of services for which it receives consideration in US Dollars through direct remittance into its bank account. ii. In India, US dollars is not money but commodity which can be sold or bought in Indian rupees, which is the only legal tender in India. iii. The rate of US Dollars fluctuates against the INR. In order to protect its business against the fluctuations in US Dollars vis-a- vis INR, the assessee hedges its foreign currency export receivables and forecasted sales transactions by entering into FCs with its Bank. IV. The assessee accounts for the FCs based upon a consistently followed accounting policy as stated in its audited financial statements (Pg 1 of Corporate Tax Submission dated 17.06.2015). V. FCs were taken from the authorized dealer Bank in terms of the FEMA regulations notified by the RBI. The RBI regulations (The Foreign Exchange Management (Foreign exchange derivative contracts) Regulations, 2000 read with, Schedule 1 of the Regulation-4-Ref. pgs., 728-733 of PE Vol.-IV clearly provide that where the amount is not ascertainable the forward contract may be taken on the basis reasonable estimate expected export receipts. The said Schedule states that a forward forex contract can be booked by an authorized dealer on the basis of reasonable estimate after verifying the documentary evidence. The bank after satisfying itself in terms of the FE MA regulations has issued the FCs. The facts are not in dispute at all. The matter has already been 50

ITA No.882/D/2014 Asstt.Year: 2009-10 discussed at Point No. 7 of our submission dated 17.06.2015 before, your Honours. Thus, there is no requirement for demonstrating rupee-wise and date-specific correlation of export receivables for being not considered as a speculative, transaction.

VI. It is an undisputed fact that all FCs were ultimately settled by delivery of contracted US dollars. The Ld. DRP has verified all the Foreign Inward Remittance Certificates (FIRC) for receipt of US dollars against respective FC and it is not disputed that all the FCs were ultimately settled through delivery of contracted amount of US dollars (Para 3.7.1 of DRP order at Pg 65 of PB Vol.1). Since, all FCs are settled by actual delivery of the contracted amount of US dollars, it is not a speculative transaction under section 43(5). Since it is not a speculative transaction under section 43(5), there is no question of applicability of proviso to section 43(5) of the Act. Reliance in this regard is placed on the following: • Hon'ble Supreme Court in the case of Davenport & Co. P. Ltd. v. CIT, reported in (100 ITR 715), wherein the Apex Court has held as under: “For income-tax purposes speculative transaction means what the definition of that expression in Expln. 2 says. Whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of this Explanation. The definition of 'delivery' in S. 2(2) of the Sale of Goods Act which has been held to include both actual and constructive or symbolical delivery has no bearing on the definition of 'speculative transaction' in the Explanation. A transaction which is otherwise speculative would not be a speculative transaction within the meaning of Expln. 2 if actual delivery of the commodity or the scrips has taken place; on the other hand, a transaction which is not otherwise speculative in nature may yet be speculative according to Expln. 2 if there is no actual delivery of the commodity or the scrips. The Explanation does not invalidate speculative transactions which are otherwise legal but gives a special meaning 10 that expression for purposes of income-tax only. "[Emphasis supplied] • In the case of Commercial Motors Ltd. v. Dy. CIT [2013J 218 taxmann.com 69(AII.)it was held that" .... the word "periodically" or "ultimately" makes it clear that the provisions of section 43(5) are applicable where a part of the contract or the entire contract has been settled otherwise than by actual delivery of the goods".

ITA No.882/D/2014 Asstt.Year: 2009-10 • Also in the case of R. Chinnaswami Chettiar v. CIT [1974J 96 ITR 353 (Mad.) it was noted that "the emphasis in section 43(5) of the Act is on the words. "periodically or ultimately settled otherwise than by actual delivery". The word "settled" is Used in this part of the section without any restriction as to whether if was before breach or after breach. Whether the settlement was before or after breach of the contract is immaterial if actual delivery of the goods is absent. In fact, even in cases where the contract is highly speculative and amounts to a wagering contract, it was settled by actual delivery, for the purpose of section 43(5), it is not a speculative transaction. Thus the section dispenses with all other formalities except that there must be actual delivery or transfer of the commodity when the contract is settled. [Emphasis supplied]

vii. It has been clearly demonstrated beyond doubt that the FCs were taken for hedging against foreign exchange fluctuations in the normal course of export business as has already been held in favor of the assessee on similar facts in the earlier year i.e. AY 2008-09 by the Hon'ble Delhi IT AT (Pg.365 of the PB Vol. II).

ITA No.882/D/2014 Asstt.Year: 2009-10 estimate export receipts as discussed above. It is undisputed that the value of FCs is more than the export sales and export receivables. Thus, it cannot be said that entering into FCs is in violation of the RBI guidelines and the allegation that it is hit by explanation to section 37(1) is misplaced.

ITA No.882/D/2014 Asstt.Year: 2009-10 41. At the very outset, we observe that undisputedly, the assessee company is

exclusively exporting engineering design services to its non-resident AE for

which it receives consideration in foreign exchange by way of direct remittance

to its bank in India. During the relevant previous year, the assessee entered into

9 foreign exchange forward contracts on 6.8.2008 with au authorised dealer of

the bank in order to protect the value of anticipated sale proceeds receivables

from its AE in the form of foreign exchange i.e. USD. The first of 9 contracts

would mature on 3.4.2009, therefore contract would start maturing every

succceding month and the last contract would mature on 4.12.2009.

Undisputedly, the total value of forward contract was Rs. 19.50 crore and in

accordance with its method of accounting, the assessee booked loss of Rs.21.8

crore on the unexpired contracts as on 31.3.09 being the difference in the INR

value of USD as on 31.3.09 with the value of which contracts were agreed to be

settled.

said claim of the assessee on the ground that the loss booked and claimed by the

assessee is a notional loss which is not allowable. Ld. Counsel has drawn our

attention towards Schedule XIII of the significant accounting policies of the

assessee and submitted that where the company enters into forward foreign

exchange contract with the bankers to mitigate the risk associated with the

foreign exchange fluctuation which is further associated with the accounts

receivables and amount forecasted sales transactions. It was also pointed out 54

ITA No.882/D/2014 Asstt.Year: 2009-10 that the fair value of forward foreign exchange contract which have been taken

to cover foreign exchange risk in respect of probable forecasted transaction

have a difference between the contracted rate and forward rate at the balance

sheet date are recognised in the P&L account. He has drawn our attention

towards assessee’s paper book Volume II pages 470 to 476 to support this fact.

Ld. Counsel also pointed out that in assessee’s own case for AY 2008-09 ITA

Delhi ‘I’ Bench order dated 8.3.2013 as in ITA No. 5895/D/2012 and allowed

similar claim of the assessee in regard to foreign exchange forward contract,

therefore, he submitted that the issue is squarely covered in favour of the

assessee by the order of the Tribunal in assessee’s own case for the relevant

assessment period.

submitted that as per CBDT Instruction No. 03/2010 dated 23.3.10 the AO

recording losses on account of currency derivatives and as per these said

instructions in respect of MTM losses debited to P&L account, AO instructed to

disallow the same while computing the taxable income. Ld. CIT DR further

submitted that as per said instructions in respect of actual crystallized loss, the

AO is instructed to verify whether the losses are on account of speculative

transaction as specified u/s 43(5) of the Act and to decide in accordance with

them. Therefore, above instructions render claim of deduction for mark to

market losses provided for in the books in respect of open contracts untenable.

Ld. CIT DR also contended that the claim of national loss is not allowable and it 55

ITA No.882/D/2014 Asstt.Year: 2009-10 is also relevant to examine that whether at the time of booking loss, the contract

was completed and performed by way of actual physical delivery of foreign

exchange, otherwise the same has to be treated as speculative transaction and

notional loss thereon cannot be claimed as allowable.

Kuwait (supra), Special Bench of ITAT while holding the MTM losses in

respect of foreign exchange contracts debited to P&L account has held as

allowable with certain observation but this creates a situation where on the other

hand special bench decision allows MTM loss while on the other hand CBDT

instructions mandates disallowance. It was also contended on behalf of the

revenue that the instructions from CBDT (supra) was either not pointed out to

the special bench or was subsequent to this order and the question in the said

case was whether MTM loss was a real loss or a notional loss and the issue of

speculation u/s 43(5) was not an issue before the Special Bench, therefore, the

same was not considered. Ld. CIT DR further contended that in this

background of aforesaid facts and issues before the Special Bench, the Bench of

ratio of the Special Bench order for claiming allowability of MTM losses

despite the instructions to the contrary by the CBDT is not available due to the

fact that the assessee failed to discharge its onus on giving real time data

regarding its claim, specially to demonstrate that the contracts were finalised

and performed by way of actual physical delivery of foreign exchange resulting

into booked/claimed losses therefrom. Ld. CIT DR finally prayed that the issue 56

ITA No.882/D/2014 Asstt.Year: 2009-10 is not covered in favour of the assessee and this issue calls for detailed

adjudication in the light of CBDT Circular No. 03/2010 (supra) and other

relevant provisions of the Act.

synopsis of the ld. CIT DR on 29.6.15 as reproduced hereinabove. Ld. Counsel

submitted that the contention of the ld. CIT DR emphasising that the assessee

fails to satisfy any of the clauses of the proviso to section 43(5) of the Act,

therefore, mark to market losses on forward contracts are not allowable being

speculative losses and this contention is misconceived. Ld. Counsel further

pointed out that as per relevant provisions of section 43(5) which defines the

term speculative transaction, means transaction in which a contract for the

purchase or sale of any commodity including stocks and shares periodically or

ultimately settled otherwise than by actual delivery or transfer of the commodity

or scrips. Ld. Counsel summarising his main argument also contended that the

assessee is an exporter of services for which it receives consideration in USD

through direct remittance into its bank accounts. In India USD is not a money

but commodity which can be sold or bought in Indian rupee and the rate of USD

fluctuations against INR, therefore, in order to protect its business losses against

fluctuations in USD vis-a-vis INR, the assessee has as its foreign currency

receivable and forecasted sales transaction by entering into forward contracts

with its banks. Ld. Counsel pointed out that the assessee accounts for forward

contract based upon a consistently followed accounting policy as stated in its 57

ITA No.882/D/2014 Asstt.Year: 2009-10 audited financial statement and forward contracts were undertaken from the

authorised dealer bank in terms of FEMA regulations notified by the RBI and as

per RBI regulations where the amount is not ascertainable, the forward contract

may be taken on the basis of reasonable estimates expected export receipts.

submitted that it is undisputed fact that all forward contracts were ultimately

settled by delivery of contracted USD and this fact was verified by the DRP,

therefore, the same cannot be terms as speculative transaction u/s 43(5) of the

Act and therefore, there is no question of applicability of proviso to section

43(5). Ld. Counsel further pointed out that case laws relied by ld. CIT DR are

in the context of cancellation of forward contracts and settlement of contract

through payment of difference between the value of foreign exchange in

contract rate in INR and prevailing rate on the date of settlement. Ld. Counsel

further contended that reliance placed by the ld. CIT DR on these judgements is

wholly misplaced perhaps he lost sight of the undisputed fact that none of the

forward contracts of the assessee were cancelled and all forward contracts were

fully honoured by delivery of contracted USD. This fact was also verified by

the ld. DRP in their order at page 3.7.1 at page 65 of paper book volume I of the

assessee. Ld. Counsel also contended that CBDT instruction dated 23.3.2010

(supra) are not binding on the appellate authorities and the decision of Special

Bench Mumbai in the case of DCIT vs Bank of Bahrain and Kuwait (supra)

dated 13.8.2010 was passed in later time against the issuance of CBDT 58

ITA No.882/D/2014 Asstt.Year: 2009-10 instruction. Lastly, ld. Counsel vehemently contended that the revenue is

harping on the baseless and incorrect propositions which have been settled by

the ITAT Delhi in assessee’s own case for AY 2008-09 on the similar set of

facts and circumstances and hence the issue is squarely covered in favour of the

assessee by this order of the Tribunal.

‘I’ Bench in assessee’s own case for AY 2008-09 (supra) wherein the issue of

mark to market losses has been decided in favour of the assessee with following

observations:-

“8. Coming to the corporate additions i.e. disallowance of loos, it clearly emerges from the record that the assessee in respect of foreign exchange realization follows mercantile system of accounting and not cash system of accounting. The loss has been incurred for hedging of foreign currency fluctuation involved in sales invoices on the basis of forward contracts, which is a business decision to safeguard its interest. The loss has been incurred on the basis of scientific method in the ordinary course of business. The loss being based on a scientific method in the ordinary course of business. The loss being based on a scientific method, on the basis of contractual liability with banks and on mercantile system has to be allowed to the assessee following Hon'ble Supreme Court judgment in the Case of Woodward Governor India P. Ltd. 312 ITR 254. Our view is further fortified by the fact that DRP in its own order in subsequent year has itself held that the issue about the loss on mercantile system is pending dispute in A.Y. 2008-09. Therefore, the allowability of the loss on actual payment in A. Y. 2009-10 has been made subject to the allowability of the loss for A.Y. 2008- 09. This stand of the DRP itself negates the observations of assessing officer that it is a notional loss and establishes that it is a business loss incurred by the assessee on mercantile system which method is consistently followed by the assessee. Under these circumstances, we are inclined to allow the foreign

ITA No.882/D/2014 Asstt.Year: 2009-10 exchange fluctuation loss to assessee in this year. This ground of the assessee is allowed.”

assessee with following submission and contentions:- "5.1 During the previous year 2007-08, the appellant entered into foreign exchange forward contracts with banks in order to hedge foreign currency fluctuation and incurred a (net) foreign exchange loss of Rs. 20,55,724/- as a result of “marking to market” the forward contracts that were outstanding on March 31, 2008. 5.2. Ld. Counsel for the assessee Shri Sandeep Chaufla contends that: (i) There is no dispute about the incurrence of this loss as in the subsequent year the AO after due verification has allowed these losses; (ii) Similarly, there is no dispute on the method of accounting followed by the assessee is mercantile as the AO has recorded this fact in the assessment order. (iii) It is not disputed that these losses have been recognised by the assessee in accordance with applicable accounting standards/policies in this regard. (iv) The AO has raised only dispute that this loss is not allowable as deduction in the year of incurrence computed under mercantile system by following the accounting standards in this respect or at the time of realization of export proceeds on maturity of forward contracts.”

less similar to the present AY 2009-10 and the assessee booked mart to market

loss of Rs.21.80 crore as on 31.3.09 being difference in the INR value of the

USD as on 31.3.09 and the value of which the hedging contract was agreed to

be settled. We further note that the assessee is following mercantile system of

account for recognition of this loss in its financial statements. When we see the

ITA No.882/D/2014 Asstt.Year: 2009-10 order of the DRP para 3.7.1, then it is amply clear that the ld. DRP has alleged

that the forward contracts are not fully supported by the underlying support

invoice both in terms of the amount as well as the tenure. DRP has drawn the

table in this appeal and thereafter noted that out of 9 forward contracts, the

assessee has only used 4 forward contract fully and the assessee has not used

these forward contracts immediately but started using them against the sale

invoice after the lapse of time of few months. Ld. DRP further noticed that

contract no. 1461 was used for the first time on 31.10.08 for a nominal sum of

USD 632 and thereafter in November for USD 144247 and balance in

December 2008 for USD 2755121. Thus, it shows that there was no underlying

asset for this contract from 6.8.2008 till 31.10.08. The entire forward contract

could be utilised only by 31.12.08. For the sake of clarity in our conclusion

para 3.7.1 of the ld. DRP order is being reproduced below:-

“3.7.1 Without prejudice to the above, in case the higher appellant authorities' grants relief to the assessee on account of its claim discussed above, the relevant issue for consideration would be to what extent the claim made by the assessee is admissible? This for the reason that in this case, the FCs are not fully supported by the underlying export invoices both in terms of the amount as well as the tenor.

Thus, an attempt was made by the Panel to ascertain as to what extent and how the assessee has used these FCs? The said position is given in the table below:

ITA No.882/D/2014 Asstt.Year: 2009-10 DETAIL OF OUTSTANDING FORWARD COVERS AS ON 31ST MARCH, 2009, FOR WHICH INVOICING DONE TILL MARCH, 2009 Contract Contract Contract Invoice Invoice Invoice Underlying FIRC No. FIRC No. Date Value Date Amt. Amt.- Assets as Date (US $) USD INR at 31.03.09 146164 6-Aug-08 2,900,000 Oct-08 632 31,640 YES 156473 2-Apr-09 Nov-08 144,247 7,208,024 YES Dec-08 2,755,121 131,942,759 YES

146166 6-Aug-08 2,900,000 Oct-08 (5,001) (250,495) YES 157124 4-May-09 Nov-08 33, 1,627 YES Dec-08 512,400 24,538,846 YES Jan-09 2,392,577 116,877,386 YES Mar-09 (9) (452) YES

146167 6-Aug-08 3,000,000 Jan-09 830,550 40,572,363 YES 157869 4-Jun-09 Feb-09 2,169,380 108,230,382 YES Mar-09 70 3,567 YES 146169 6-Aug-08 3,100,000 3,100,000 Jan-09 637 YES 158594 3-Jul-09 Feb-09 1,041,624 YES Mar-09 2,057,739 YES

146171 6-Aug-08 828,047 Mar-09 828,047 42,296,660 YES 159290 4-Aug-09 12,728,047 12,728,047 628,559,352 Grand Sub-Total Total 146171 6-Aug-08 2,271,953 Beyond NO 159290 4-Aug-09 31.3.09 146173 6-Aug-08 3,200,000 Beyond NO 159930 4-Sep-09 31.3.09 146174 6-Aug-08 3,300,000 Beyond NO 160558 1-Oct-09 31.3.09 146175 7-Aug-08 3,000,000 Beyond NO 161236 4-Nov-09 31.3.09 146176 7-Aug-08 3,100,000 Beyond NO 162068 4-Dec-09 31.3.09 Sub-Total 14,871,953 GRAND TOTAL 27,600,000

It can be seen that out of the 9 FCs, the assessee has used only 4 FCs fully. The assessee has not used these FCs immediately but started using them against the sales invoices after a lapse of time of few months. To elaborate it further, it is noticed that the contract no. 146164 was used for the first time in 31st October 2008 for nominal sum of US$ 27,55,121. Thus, it is evident that there was no underlying asset for this contract from 6.8.2008 till 31st October 2008. The entire FC could be utilized only by 31st December 2008. Likewise the contract no. 146167 and 146169 taken on 6.8.2008 have been started to be used by the assessee from

ITA No.882/D/2014 Asstt.Year: 2009-10 January 2009 onwards. Thus, there was no underlying asset for these contracts from 6.8.2008 till 31.12.2008. Out of the firth FC bearing no. 146171 only a small part of US$8.28 (total US$31 lakh) has been used by 31st March 2009 while the remaining 4FCs were not utilized at all till 31.03.2009.” 50. There is no observation of the ld. DRP in para 3.7.1 which support the

contention of the assessee that all forward contracts were duly honoured by

delivery of contracts under USD. In this situation, in principle, we agree that in

view of the ratio laid down by Hon’ble Supreme Court in the case of

Woodward Governer (312 ITR 254), while the assessee is following mercantile

system of accounting, the loss suffered by the assessee by fluctuation in the

foreign exchange as on the date of balance sheet is an item of expenditure u/s

37(1) of the Act. Under this proposition and dicta of Hon’ble apex court, and

facts emerging from the DRP order, we find it appropriate that the issue requires

detailed examination and verification and calculation on scientific basis at the

end of the AO/DRP in the light of relevant proposition and provisions of the

Act. Therefore, relying on the said propositions and following the judgement of

Hon’ble apex court in the case of Woodward Governor (312 ITR 254), we

restore this issue to the file of AO/DRP for a fresh adjudication after factual

analysis and examination of the impugned transactions after affording due

opportunity of hearing for the assessee and without being prejudiced by the

earlier orders.

ITA No.882/D/2014 Asstt.Year: 2009-10 51. Accordingly, ground no. 5 to 5.4 of the assessee are allowed for statistical

purposes in the manner as indicated above. Ground no. 6 being consequential

and ground no. 7 being premature are dismissed.

pricing issue and partly allowed for statistical purposes on the corporate ground

of mark to market losses.

Order pronounced in the open court on 14.10.2015.

Sd/- Sd/-

( S.V. MEHROTRA ) ( CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 14th OCTOBER 2015 ‘GS’