M/s. BG India Energy Pvt. Ltd., New Delhi v. ACIT, Gurgaon

ITA 6486/DEL/2012 | 2008-2009
Pronouncement Date: 04-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 648620114 RSA 2012
Assessee PAN AAACB7268C
Bench Delhi
Appeal Number ITA 6486/DEL/2012
Duration Of Justice 3 year(s) 9 month(s) 4 day(s)
Appellant M/s. BG India Energy Pvt. Ltd., New Delhi
Respondent ACIT, Gurgaon
Appeal Type Income Tax Appeal
Pronouncement Date 04-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I1
Tribunal Order Date 04-10-2016
Date Of Final Hearing 20-09-2016
Next Hearing Date 20-09-2016
Assessment Year 2008-2009
Appeal Filed On 31-12-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.S. SYAL ACCOUNTANT MEMBER AND SHRI KULDIP SINGH JUDICIAL MEMBER ITA NO.6486/DEL./2012 (ASSESSMENT YEAR : 2008-09) BG INDIA ENERGY PRIVATE LIMITED VS. ACIT CIRCLE 1 7 TH FLOOR WORLD TRADE TOWER GURGAON. BARAKHAMBA LANE CONNAUGHT PLACE NEW DELHI. (PAN : AAACB7268C) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI VISHAL KALRA & VIVEK BANSAL ADVOCATES AND MS. SAHIBA TANDON CA REVENUE BY : SHRI AMRENDRA KUMAR CIT DR DATE OF HEARING : 20.09.2016 DATE OF ORDER : 04.10.2016 O R D E R PER KULDIP SINGH JUDICIAL MEMBER : APPELLANT M/S. BG INDIA ENERGY PRIVATE LIMITED (FO R SHORT THE ASSESSEE COMPANY) BY FILING THE PRESENT APPE AL SOUGHT TO SET ASIDE THE IMPUGNED ORDERS DATED 29.10.2012 06.09.2 011 AND 03.09.2012 PASSED BY THE AO/TPO/DRP UNDER SECTION 1 43 (3) READ WITH SECTION 144C OF THE INCOME-TAX ACT 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2008-09 ON THE GROUNDS INTE R ALIA THAT :- ITA NO.6486/DEL./2012 2 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD AO ERRED IN ASSESSING THE INCOME OF THE APPELLAN T UNDER THE NORMAL PROVISIONS OF THE ACT AT RS.65 356 841 AGAIN ST AN INCOME OF RS.29 003 875 DECLARED IN THE RETURN BASED ON T HE DIRECTIONS RECEIVED FROM HON'BLE DISPUTE RESOLUTION PANEL ('DR P'). 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/DRP HAS ERRED IN UPHOLDING THE ADJUSTMENT M ADE BY THE LEARNED TRANSFER PRICING OFFICER ('TPO') OF RS.36 3 52 966 ON ACCOUNT OF BUSINESS SUPPORT SERVICES RENDERED BY TH E APPELLANT TO ITS ASSOCIATED ENTERPRISES ('AE') ALLEGING THAT THE TRANSACTIONS BETWEEN THE APPELLANT AND ITS AE WERE NOT AT ARM'S LENGTH IN TERMS OF SECTION 92F(II) OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/DRP/TPO HAS ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT WHICH WAS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULE S 1962 ('RULES') FOR ESTABLISHING THE ARM LENGTH'S PRICE O F THE INTERNATIONAL TRANSACTIONS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/DRP/TPO HAS FAILED TO PLACE ANY MATERIAL OR DOCUMENTS ON RECORD TO REJECT THE ECONOMIC ANALYSIS CONDUCTED BY THE APPELLANT AND HAS THEREOF FAILED TO COMPLY WITH THE PROVISION S LAID DOWN IN SECTION 92C(3) OF THE ACT. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/DRP/TPO HAS ERRED IN CONSIDERING 'REIMBURSEM ENTS' AS PART OF THE OPERATING COST WHILE COMPUTING THE OPE RATING MARGIN OF THE APPELLANT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/DRP/TPO HAS ERRED IN COMPUTING THE OPERATING MARGIN OF THE APPELLANT BY NOT INCLUDING 'PROVISIONS FOR LIAB ILITIES NO LONGER REQUIRED WRITTEN BACK' AS AN OPERATING INCOME. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/DRP/TPO HAS ERRED BY NOT APPRECIATING AND CO RRECTLY INTERPRETING FUNCTIONS PERFORMED ASSETS UTILIZED A ND RISKS ASSUMED BY THE APPELLANT AND UNDERTAKEN A FRESH SEARCH TO M ODIFY THE SET OF COMPARABLE COMPANIES SELECTED BY THE APPELLANT. IN DOING SO THE AO/DRP/TPO HAS ERRED IN :- REJECTING ELEVEN COMPARABLE COMPANIES SELECTED BY T HE APPELLANT WITHOUT APPRECIATING AND UNDERSTANDING T HE ANALYSIS UNDERTAKEN BY THE APPELLANT ADDING SIX ADDITIONAL COMPARABLE COMPANIES TO THE S ET OF COMPARABLE COMPANIES SELECTED BY THE APPELLANT THA T ARE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT. ITA NO.6486/DEL./2012 3 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/DRP/TPO HAS ERRONEOUSLY CONSIDERED THE SEGME NT OF 'CONSULTANCY AND ENGINEERING PROJECTS' IN CASE OF W ATER AND POWER CONSULTANCY SERVICES (I) PRIVATE LIMITED AS COMPARA BLE TO THE APPELLANT INSTEAD OF TAKING COMPANY AS A WHOLE. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AOI TPO HAS ERRED IN REJECTING THE COMPANIES TH AT WERE HELD COMPARABLE BY THE DRP IN THE CASE OF APPELLANT FOR AY 2007-08 AND THE DRP HAS FURTHER ERRED IN UPHOLDING THE REJE CTION OF SUCH COMPARABLES FOR THE AY 2008-09. 9.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE DRP HAS ERRED IN PASSING A NON-SPEAKING AND LA CONIC ORDER UNDER SECTION 144C OF THE ACT FOR REJECTING SUCH CO MPARABLES. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE. CA SE AND IN LAW THE AO/DRP/TPO HAS ERRED IN REJECTING THE CLAIM OF THE APPELLANT WITH REGARD TO APPROPRIATE RISK ADJUSTMENTS WHILE R E-COMPUTING THE OPERATING MARGINS OF THE COMPARABLE COMPANIES. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE AO/DRP/TPO HAS ADOPTED A FLAWED APPROACH BY USI NG SINGLE YEAR DATA AS AGAINST MULTIPLE YEAR DATA USED BY THE APPELLANT IN ITS TRANSFER PRICING ANALYSIS THEREBY IGNORING THE PRO VISIONS OF RULE 10B(4) OF THE RULES WHICH ALLOWS USE OF MULTIPLE YE AR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATI ON OF THE ARM'S LENGTH PRICE AS DEFINED UNDER SECTION 92F OF THE ACT. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE AO/DRP/TPO HAS ERRED IN NOT ALLOWING THE APPELL ANT THE BENEFIT OF 5 PERCENT RANGE AS PROVIDED IN THE PROVI SO TO SECTION 92C OF THE ACT. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS IN C HARGING INTEREST UNDER SECTION 2348 234C AND 234D OF THE ACT. 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE : THE ASSESSEE COMPANY BG INDIA ENERGY PVT. LTD. (BGIEPL) WAS INCO RPORATED ON 24.04.1998 AS 99.98% SUBSIDIARY OF BRITISH GAS A SIA PACIFIC HOLDINGS PTE. LTD. (BGAPH) SINGAPORE ENGAGED IN P ROVISION OF PROJECT SUPPORT SERVICES TO VARIOUS PROJECTS PROMOT ED BY BG GROUP ITA NO.6486/DEL./2012 4 IN INDIA. ASSESSEE COMPANY IS PROVIDING SERVICES T O BRITISH GAS ASIA PACIFIC HOLDING PTE. LIMITED (BGAPH) AND BRITI SH GAS EXPLORATION AND PRODUCTION INDIA LIMITED (BGEPIL). THE PRIMARY BUSINESS OF THE GROUP IS DISCOVERY EXTRACTION TRA NSMISSION DISTRIBUTION AND SUPPLY OF NATURAL GAS TO EXISTING AND DEVELOPING MARKETS AROUND THE WORLD. THE ASSESSEE BGIEPL IS PROVIDING SUPPORT SERVICES TO THE BG GROUP IN INDIA IN THE CO URSE OF ITS OPERATION AND IS COMPENSATED AT THE COST PLUS 8% BA SIS FOR THE SERVICES RENDERED TO BG GROUP ENTITIES. 3. THE ASSESSEE COMPANY ENTERED INTO INTERNATIONAL TRANSACTION DURING THE YEAR UNDER ASSESSMENT AS UNDER :- NO. DESCRIPTION OF TRANSACTION METHOD PLI VALUE (IN RS.) 1. PROJECT SUPPORT SERVICES TNMM NET OPERATING PROFIT MARGIN 315 842 932 2. PURCHASE OF ASSET NA NA 1 537 197 3. REIMBURSEMENT MADE TO AES NA NA 87 932 398 4. REIMBURSEMENTS RECEIVED FROM AES NA NA 94 701 444 4. FOR PROVIDING PROJECTS SUPPORT SERVICES THE ASS ESSEE HAS BENCHMARKED THE SAME BY USING TRANSACTIONAL NET MAR GIN METHOD (TNMM) AND PROFIT LEVEL INDICATOR (PLI) USED AS OPE RATING PROFIT/ OPERATING COST (OP/OC) AND ARRIVED AT THE NET PROFI T RATIO BASIS ON COST AT 11.30%. ITA NO.6486/DEL./2012 5 5. ASSESSEE COMPANY IN ITS TP REPORT CHOSEN 15 COMP ARABLES. TPO NOTICED FROM THE WORKING OF THE MARGINS ATTACHE D TO THE TP REPORT THAT NO WORKING CAPITAL OR RISK ADJUSTMENT H AS BEEN MADE TO THE MARGIN NOR THE TRANSACTION RELATING TO REIMBURS EMENT OF EXPENSES HAVE BEEN BENCHMARKED BY THE ASSESSEE. AS SESSEE ON THE BASIS OF ITS TP STUDY CONCLUDED THAT SINCE THE OPER ATING MARGIN EARNED BY THE ASSESSEE COMPANY ON THE TOTAL COST IS 11.30% AS COMPARED TO 6.96% OF THE COMPARABLES ITS INTERNATIO NAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) ARE AT ARMS LENGTH. 6. TPO ALSO NOTICED THAT FROM FORM 3CEB AND TP REPO RT THAT FROM THE RECEIPT OF PROJECT SUPPORT SERVICES ANOTH ER TRANSACTION HAS ALSO TAKEN PLACE BETWEEN THE ASSESSEE AND ITS AES DESCRIBED AS REIMBURSEMENT RECEIVED BY THE ASSESSEE FROM ITS AES WHICH IS AS UNDER :- NAME OF THE AES DESCRIPTION OF THE TRANSACTION TOTAL AMOUNT BRITISH GAS ASIA PACIFIC HOLDINGS PVT. LTD. RECOVERY OF EXPAT INCOME TAX PAYMENT 48 196 554 RECOVERY OF SALARY RELOCATION AND OTHER EXPENSES 37 770 554 BRITISH GAS EXPLORATION & PRODUCTION INDIA LTD. RECOVERY OF SALARY AND OTHER EXPENSES 8 734 336 TOTAL RS.94 701 444 ITA NO.6486/DEL./2012 6 7. TPO FURTHER NOTICED THAT TO EXPEDITE THEIR ACTIV ITIES IN INDIA AES HAVE SECONDED THEIR EMPLOYEES TO INDIA WHOSE TA X PAYMENTS ARE MADE BY THE ASSESSEE. ASSESSEE HAS ALSO INCURR ED EXPENSES IN THE NATURE OF SALARY RELOCATION TRAVEL AND OTHER EXPENSE SON BEHALF OF THE AES WHICH HAS BEEN REIMBURSED BY THE AES TO THE ASSESSEE WITHOUT ANY MARKUP. TPO HAS NOT ACCEPTED THE PROVI SION CONTAINED IN THE AGREEMENT BETWEEN THE ASSESSEE AND ITS AES FOR NOT CHARGING MARKUP ON ALLEGED REIMBURSEMENT EXPEND ITURE. TPO NOTICED THAT IN SUCH SITUATION NO INDEPENDENT PAR TY WOULD PROVIDE ANY SERVICES TO ANY THIRD PARTY WITHOUT ANY MARKUP. 8. ASSESSEE COMPANY FURNISHED UPDATED MARGIN OF THE COMPARABLES AT THE INSTANCE OF TPO AT 2.86% AS AGAI NST UNADJUSTED MARGIN AT 7.78%. 9. ON THE BASIS OF FILTERS ADOPTED BY THE TPO ASSE SSEE SELECTED 15 COMPARABLES OUT OF WHICH ONLY 3 COMPARABLES HAV E BEEN KEPT IN THE FINAL SET OF COMPARABLES CHOSEN BY THE TPO. SO TPO PROPOSED 15 COMPARABLES HAVING AVERAGE MARGIN OF 22 .24% TO WORK OUT THE TP ADJUSTMENT. AFTER ENTERTAINING DET AILED OBJECTIONS RAISED BY THE ASSESSEE COMPANY TPO PROCEEDED TO CO NSIDER 11 COMPARABLES HAVING AVERAGE MARGIN OF 20.38%. FOR W ORKING CAPITAL ADJUSTMENT MARGIN OF COMPARABLES CAME TO B E 18.32% AND THEREBY MADE ADJUSTMENT OF RS.3 72 95 703/-. ITA NO.6486/DEL./2012 7 10. ASSESSEE COMPANY CARRIED THE MATTER BY FILING OBJECTIONS U/S 144C (5) OF THE ACT BEFORE THE DISPUTE RESOLUTION P ANEL (DRP) WHICH HAS DISPOSED OFF THE OBJECTIONS AND DIRECTED TO PASS THE NECESSARY ASSESSMENT ORDER. FEELING AGGRIEVED THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY CHALLENGING THE IMPU GNED ORDER PASSED BY AO/TPO/DRP BY WAY OF PRESENT APPEAL. 11. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 2 3 & 4 12. GROUNDS NO.1 2 3 & 4 ARE GENERAL IN NATURE TO BE COVERED AND DISCUSSED UNDER SUBSEQUENT GROUNDS HENCE NEED NO SPECIFIC ADJUDICATION. GROUNDS NO.7 8 & 9 13. UNDISPUTEDLY THE ASSESSEE COMPANY IS A COST PL US ENTITY TO BE REIMBURSED AT COST PLUS 8% FOR RENDERING SERVICE S TO BG GROUP ENTITIES (AES). THERE IS NO DISPUTE AS TO THE USE OF TNMM AS MOST APPROPRIATE METHOD AND PLI USED AS OP/OC. THE ASSE SSEE COMPANY ON THE BASIS OF INDEPENDENT AGREEMENT WITH ITS AES IS RENDERING BUSINESS SUPPORT SERVICE. ASSESSEE COMPA NY ENTERED INTO ITA NO.6486/DEL./2012 8 INTERNATIONAL TRANSACTION WITH ITS AES DURING THE Y EAR UNDER ASSESSMENT AS UNDER :- NAME OF THE AES DESCRIPTION OF THE TRANSACTION TOTAL AMOUNT BRITISH GAS ASIA PACIFIC HOLDINGS PVT. LTD. RECOVERY OF EXPAT INCOME TAX PAYMENT 48 196 554 RECOVERY OF SALARY RELOCATION AND OTHER EXPENSES 37 770 554 BRITISH GAS EXPLORATION & PRODUCTION INDIA LTD. RECOVERY OF SALARY AND OTHER EXPENSES 8 734 336 TOTAL RS.94 701 444 14. ASSESSEE COMPANY HAS BENCHMARKED ITS INTERNATIO NAL TRANSACTION BY USING TNMM AND THE PLI USED AS OP/OC AND CALCULATED ITS OPERATING PROFIT AT AN ENTITY LEVEL AS NET PROFIT RATIO BASED ON COST AT 11.30%. ASSESSEE COMPANY CHOSEN 1 5 COMPARABLES OUT OF WHICH LD. TPO REJECTED 11 COMPAR ABLES AND INCLUDED 7COMPARABLES. TPO TO BENCHMARK THE INTERN ATIONAL TRANSACTION HAD CHOSEN 11 COMPANIES AS FINAL SET OF COMPARABLES. TPO ON THE BASIS OF THE TP ANALYSIS WORKED OUT THE ARITHMETIC MEAN OF THE MARGINS OF THE COMPARABLES AT 18.32% AS AGAINST ASSESSEES OPERATING MARGIN OF 11.30% AND THEREBY M ADE TP ADJUSTMENT OF RS.3 72 95 703/- 15. THE LD. AR FOR THE ASSESSEE CONTENDED THAT THE TPO HAS ERRED IN REJECTING THE 11 COMPARABLES CHOSEN BY THE ASSESSEE COMPANY FOR BENCHMARKING THE INTERNATIONAL TRANSACT IONS ON THE ITA NO.6486/DEL./2012 9 GROUND THAT THE COMPARABLE COMPANY IS ENGAGED IN HI GH END CONSULTANCY SERVICES/ENGINEERING SERVICES WHEREAS A SSESSEE COMPANY IS INTO PROVIDING LOW END SERVICES TO ITS A ES. 16. ASSESSEE COMPANY PROVIDED THE DETAIL OF FUNCTIO NS PERFORMED AVAILABLE AT PAGE 271 OF THE PAPER BOOK WHICH ARE AS UNDER :- ASSISTANCE IN OBTAINING INFORMATION REGARDING INDUS TRIAL AND COMMERCIAL MATTERS AND TECHNOLOGICAL DEVELOPMEN TS WHICH INTEREST BG GROUP PLC ESPECIALLY IN CONNECTI ON WITH UPCOMING PROJECTS IN THE OIL GAS AND ENERGY SECTOR AND TELECOM PROJECTS; PROVISION OF INFORMATION CONCERNING INDIAN GOVERNME NT POLICIES REGARDING TRADE AND INDUSTRY ALONG WITH EX PERT TECHNICAL ASSESSMENT AND EVALUATION OF SUCH DEVELOP MENTS; ASSISTANCE IN THE MONITORING OF THE GROUP'S EXISTIN G ASSETS / INVESTMENTS AND ONGOING PROJECTS IN INDIA AND IDENT IFYING AND DEVELOPING SUITABLE BUSINESS OPPORTUNITIES IN I NDIA; EVALUATION OF PROSPECTIVE CUSTOMERS ESPECIALLY IN CONNECTION WITH UPCOMING UPSTREAM PROJECTS IN INDIA ; ALLOWING BG GROUP'S EMPLOYEES ENGAGED IN VARIOUS PROJECT DEVELOPMENT / ALLIED ACTIVITIES IN INDIA TO USE ITS FACILITIES DURING THEIR STAY IN INDIA; PROVISION OF COORDINATION AND SUPPORT SERVICES IN R ELATION TO CONTRACTS WITH INDIAN CUSTOMERS LEGAL MATTERS REG ULATORY MATTERS AND PUBLIC RELATIONS; SHARING RESOURCES AND FACILITIES WITH BG GROUP PLC' S AFFILIATED OPERATIONAL AND PROJECT COMPANIES IN IND IA (INCLUDING SECONDMENT OF ITS PERSONNEL); AND ARRANGING TO DISBURSE PAYMENTS IN INDIA ON BEHALF O F BG GROUP PLC INTER ALIA IN CONNECTION WITH THE DEVELOP MENT OF VARIOUS PROJECTS (INCLUDING TAX PAYMENTS OF BG EXPA TRIATE EMPLOYEES IN INDIA). ITA NO.6486/DEL./2012 10 17. LD. TPO NOTICED FROM FORM 3CEB AND TP REPORT TH AT APART FROM RECEIPT OF PROJECT SUPPORT SERVICES THE ASSES SEE COMPANY HAS ALSO RECEIVED REIMBURSEMENT FROM ITS AES WITHOUT CH ARGING ANY MARKUP ON ALLEGED REIMBURSEMENT WHICH ARE AS UNDER :- NAME OF THE AES DESCRIPTION OF THE TRANSACTION TOTAL AMOUNT BRITISH GAS ASIA PACIFIC HOLDINGS PVT. LTD. RECOVERY OF EXPAT INCOME TAX PAYMENT 48 196 554 RECOVERY OF SALARY RELOCATION AND OTHER EXPENSES 37 770 554 BRITISH GAS EXPLORATION & PRODUCTION INDIA LTD. RECOVERY OF SALARY AND OTHER EXPENSES 8 734 336 TOTAL RS.94 701 444 18. TPO OBSERVED THAT THE ASSESSEE COMPANY WAS REND ERING SEVERAL SERVICES TO AES BUT THE EXPENSES SEEMED TO HAVE BEEN SPLIT INTO HEADS OF COST AND REIMBURSEMENT EXPENSES W HICH SEEMS TO BE INEXTRICABLY LINKED TO THE MANDATE IT HAS BEEN G IVEN BY ITS AES. SO THE BIFURCATION SEEMS TO BE ARTIFICIAL AS NO IN DEPENDENT PARTY WOULD HAVE AGREED TO SUCH TERMS WHERE IT INCURS EXP ENSES ON BEHALF OF OTHER WITHOUT ANY RETURN ON THE SAME. 19. LD. AR FOR THE ASSESSEE COMPANY CONTENDED THAT THE LD. TPO HAS ERRONEOUSLY MADE TWO FOLD ADJUSTMENT - ONE : TA KEN RS.94.70 CRORES AS COST AND TWO : ALSO TAKEN RS.94.70 CRORES AS INCOME WHICH CANNOT BE TAKEN FOR BOTH PURPOSES. LD. AR FO R THE ASSESSEE ITA NO.6486/DEL./2012 11 FURTHER CONTENDED THAT EMPLOYEES COST SHOWN BY THE ASSESSEE DOES NOT INCLUDE RS.94.70 CRORES AND IT SHOULD BE EXCLUD ED FROM EXPENDITURE AS WELL AS INCOME. 20. AS PER BUSINESS SUPPORT AGREEMENT AVAILABLE A T PAGE 240 OF THE PAPER BOOK THE ASSESSEE COMPANY IS TO PROVI DE SERVICES ON A NON-EXCLUSIVE BASIS TO BGIEPL TO THE FOLLOWING EF FECT :- 1.1 EVALUATING PROSPECTIVE CUSTOMERS OF BGEPIL ESP ECIALLY IN CONNECTION WITH UPCOMING UPSTREAM PROJECTS IN INDIA . 1.2 ALLOWING BGEPILS EMPLOYEES ENGAGED IN VARIOUS PROJECT DEVELOPMENT / ALLIED ACTIVITIES IN INDIA TO USE ITS FACILITIES DURING THEIR STAY IN INDIA. 1.3 PROVIDING SERVICES TO BGEPIL WHICH WOULD BE I N THE NATURE OF COORDINATION AND SUPPORT SERVICES IN RELA TION TO BGEPIL'S CONTRACTS WITH INDIAN CUSTOMERS. 1.4 SHARING FACILITIES WITH THE BGEIPL'S AFFILIATE D OPERATIONAL & PROJECT COMPANIES IN INDIA. 1.5 PROVIDING SUPPORT SERVICES TO BGELPL IN RELATI ON TO LEGAL MATTERS. 1.6 ASSIST BGEPIL IN REGULATORY MATTERS AND PUBLIC AFFAIRS/ RELATIONS. 21. SO FAR AS INTERNATIONAL TRANSACTION RELATING TO BUSINESS SUPPORT SERVICE IS CONCERNED IT COVERS UNDER CLAU SE 1.3 OF THE AGREEMENT (SUPRA) I.E. PROVIDING SERVICES TO BGEPIL WHICH WOULD BE IN THE NATURE OF COORDINATION AND SUPPORT SERVICES IN RELATION TO BGEPIL'S CONTRACTS WITH INDIAN CUSTOMER S . 22. LD. AR FOR THE ASSESSEE WHILE ARGUING ON GROUND S NO.7 8 & 9 RESTRICTED HIS ARGUMENTS TO THE ISSUE OF ERRONEOU S SELECTION OF ITA NO.6486/DEL./2012 12 COMPARABLES BY THE TPO. ASSESSEE COMPANY SOUGHT TO EXCLUDE 4 COMPARABLES VIZ. RITES LIMITED (RITES) WATER & POW ER CONSULTANCY SERVICES (INDIA) LTD. (WAPCOS) CHOKSI LABORATORIES LIMITED (CHOKSI) AND APITCO LIMITED (A PITCO) WHICH ARE DISCUSSED AS UNDER. APITCO LIMITED (APITCO) 23. TPO INCLUDED THIS COMPARABLE IN THE FINAL SET O F COMPARABLES FOR BENCHMARKING INTERNATIONAL TRANSACTIONS BY OBSE RVING THAT THE ASSESSEE COMPANY INVOLVED IN THE PROJECT DEVELOPMEN T SHARING OF RESOURCES AND FACILITIES AND OTHER RELATED MATTERS INCLUDING PUBLIC RELATIONS WHICH ARE SIMILAR TO THE FUNCTION CARRIED OUT BY APITCO. 24. HOWEVER LD. AR FOR THE ASSESSEE BY RELYING UPO N PAGES 3 TO 18 OF THE ANNUAL REPORT OF APITCO CONTENDED THAT CO MPARABLE COMPANY IS PROVIDING SERVICES INTO TURNKEY IMPLEMEN TATION OF VARIOUS PROJECTS PROJECT RELATED SERVICES AND INFR ASTRUCTURE PLANNING ENTREPRENEURIAL AND SKILL DEVELOPMENT AND SERVICES RELATED TO BID PROCESS MANAGEMENT AND NPA SOLUTIONS WHEREAS ASSESSEE COMPANY IS PROVIDING LOW END BUSINESS SUPP ORT SERVICES TO ITS AES SUCH AS ASSISTANCE IN OBTAINING INFORM ATION REGARDING INDUSTRIAL MATTERS AND TECHNOLOGY DEVELOPMENT AND D OES NOT PROVIDE TURNKEY SOLUTIONS ENTREPRENEURIAL SKILL DE VELOPMENT ITA NO.6486/DEL./2012 13 SERVICES NOR IT IS EXPOSED TO MARKET FORCES AS IT I S MERELY PROVIDING SUPPORT TO ITS AES ONLY. 25. BARE PERUSAL OF THE FUNCTIONAL PROFILE OF THE A PITCO GOES TO PROVE THAT THE SAME IS INTO TURNKEY IMPLEMENTATION PREPARING REPORTS AND IS DIRECTLY INTO CORE ACTIVITIES ETC. I.E. END TO END SERVICE PROVIDER WHEREAS THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER AND IS NOT INTO ANY CORE ACTIVITIES. HENCE WE FIN D APITCO NOT AS A VALID COMPARABLE AND SAME IS ORDERED TO BE EXCLUD ED. CHOKSI LABORATORIES LTD. (CHOKSI) 26. TPO INCLUDED THIS COMPARABLE IN THE FINAL SET O F COMPARABLES FOR BENCHMARKING ON THE GROUND THAT THIS COMPARABLE PROVIDES ANALYSIS CALIBRATION POLLUTION CONTROL AND CONSUL TANCY SERVICES TO A BROAD SPECTRUM OF INDUSTRIES WHICH AMOUNTS TO SU PPORT SERVICES TO ITS CLIENTS TO HELP THEM CONDUCTING THEIR BUSINE SS. WHEREAS ASSESSEE COMPANY IS PROVIDING LOW END SUPPORT SERVI CES SUCH AS ASSISTANCE IN OBTAINING INFORMATION REGARDING INDUS TRIAL AND COMMERCIAL MATTERS AND TECHNOLOGICAL DEVELOPMENTS EVALUATION OF PROSPECTIVE CUSTOMERS ETC. HOWEVER ASSESSEE COMP ANY HAVE OPPOSED THIS COMPARABLE ON THE GROUND THAT SINCE TH IS COMPARABLE IS INTO PROVIDING TESTING SERVICES FOR VARIOUS PROJ ECTS AND ALSO RENDERS SERVICES IN THE FIELD OF POLLUTION CONTROL THIS IS ITA NO.6486/DEL./2012 14 FUNCTIONALLY DIFFERENT AND RELIED UPON THE DECISION RENDERED BY ITAT DELHI BENCH I IN CASE OF CIENA INDIA (P.) LTD. VS. DCIT (2015) 57 TAXMANN.COM 329 (DELHI TRIB) . COORDINATE BENCH WHILE DECIDING THE ISSUE OF COMPARABILITY CHOKSI WI TH CIENA INDIA (P.) LTD. (SUPRA) A BUSINESS SUPPORT SERVICE PROVIDER OBSERVED AS UNDER :- 15. THE TPO VISITED THE WEBSITE OF THIS COMPANY AN D NOTICED THAT IT WAS ENGAGED IN PROVIDING ANALYSIS CALIBRA TIONS POLLUTION CONTROL AND CONSULTANCY SERVICES TO A BROAD SPECTR UM OF INDUSTRIES. BY CONSIDERING SUCH NATURE OF SERVICES PROVIDED BY THIS COMPANY THE TPO HELD THAT THESE WERE SIMILAR TO THE SERVICE S PROVIDED BY THE ASSESSEE TO ITS AE. WE HAVE GONE THROUGH THE AN NUAL REPORT OF THIS COMPANY WHICH IS AVAILABLE ON PAGES 2370 ONWA RDS OF THE PAPER BOOK. NOTE NO. 8 TO PART B - 'NOTES FORMING P ART OF THE ACCOUNTS' - PROVIDES THAT THIS COMPANY IS A COMMERC IAL TESTING HOUSE ENGAGED IN TESTING OF VARIOUS PRODUCTS AND AL SO OFFERS SERVICES IN THE FIELD OF POLLUTION CONTROL AS ALLIE D ACTIVITY. PARA 2 OF THE ANNEXURE TO THE AUDITOR'S REPORT ALSO CLARIFIES THAT THIS IS A COMPANY ENGAGED IN RENDERING SERVICES 'FOR TESTING PURPOSES.' FROM THE ABOVE DESCRIPTION OF THE NATURE OF SERVICES CAR RIED ON BY THIS COMPANY IT IS EVIDENT THAT IT IS BASICALLY ENGAGED IN PROVIDING TESTING SERVICES FOR VARIOUS PRODUCTS AND ALSO OFFE RS SERVICES IN THE FIELD OF POLLUTION CONTROL. AS AGAINST THIS THE SE RVICES PROVIDED BY THE ASSESSEE ARE PURELY IN THE NATURE OF IDENTIFYIN G CUSTOMERS FOR ITS AES AND PROVIDING TECHNICAL SUPPORT SERVICES TO THE IR CUSTOMERS. WE FAIL TO APPRECIATE AS TO HOW MARKETING SUPPORT S ERVICES CAN BE EQUATED WITH TESTING SERVICES. WHEN WE PERUSE SCHED ULE OF FIXED ASSETS OF THIS COMPANY IT CAN BE SEEN THAT THE MAJ OR ASSET IS 'INSTRUMENTS.' IT IS WITH THE HELP OF THESE INSTRUM ENTS THAT THE COMPANY IS PROVIDING SERVICES IN THE NATURE OF TEST ING OF VARIOUS PRODUCTS. BY NO STANDARD THIS COMPANY CAN BE CONSI DERED AS COMPARABLE WITH THE ASSESSEE COMPANY. WE THEREFORE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LES. 27. SO KEEPING IN VIEW THE FUNCTIONAL PROFILE OF T HE CHOKSI VIS--VIS ASSESSEE COMPANY THE SAME ARE FUNCTIONAL LY DISSIMILAR CHOKSI BEING INTO PROVIDING SERVICES IN THE NATURE OF TESTING OF VARIOUS PRODUCTS WHEREAS ASSESSEE COMPANY IS INTO P ROVIDING ITA NO.6486/DEL./2012 15 PURELY BUSINESS SUPPORT SERVICES. SO WE HEREBY OR DER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LES. RITES LIMITED (RITES) 28. TPO CHOSEN THIS COMPARABLE FOR BENCHMARKING INT ERNATIONAL TRANSACTIONS BY OBSERVING THAT THIS ENTITY IS INVOL VED IN THE BUSINESS OF CONSULTANCY AND HAS USED THIS SEGMENT ONLY. HOW EVER FUNCTIONAL PROFILE OF THIS COMPANY AVAILABLE AT PA GE 75 OF THE PAPER BOOK SHOWS THAT IT IS ENGAGED IN CONSULTANCY EXPORT AND LICENCE OF RAILWAY EQUIPMENT AND RUNNING RAILWAY SY STEMS ON CONCESSION AND IS PROVIDING HIGH END ENGINEERING/CO NSULTANCY SERVICES MAINLY IN INFRASTRUCTURE SECTOR AND IT IS A GOVERNMENT OF INDIA UNDERTAKING ENGAGED IN PROVIDING END TO TO EN D SOLUTIONS TO TURNKEY PROJECTS. 29. LD. AR CONTENDED THAT ASSESSEE COMPANY IS NOT I NTO HIGH END CONSULTANCY SERVICES AND MONITORING OF ONGOING PROJECTS FOR ITS AES HENCE NOT COMPARABLE WITH THE RITES. 30. ASSESSEE COMPANY RELIED UPON THE DECISION RENDE RED BY ITAT DELHI BENCH H IN CASE OF DCIT VS. MCI COM INDIA (P.) LTD. (2012) 25 TAXMANN.COM 520 (DELHI) . COORDINATE BENCH ON THE BASIS OF FUNCTIONAL PROFILE OF THE RITES VIS-- VIS APPELLANT IN THAT CASE WHO WAS INTO PROVIDING MARKETING SUPPORT SERVICES HELD ITA NO.6486/DEL./2012 16 THE SAME TO BE FUNCTIONALLY DIFFERENT BY MAKING FOL LOWING OBSERVATIONS :- AS IS EVIDENT FROM THE DESCRIPTION OF THE ENGINEER ING CONSULTANCY ACTIVITY GIVEN THE COMPLEXITY OF THE FUNCTION COU PLED WITH THE TECHNICAL EXPERTISE REQUIRED IN PROVIDING ENGINEERI NG CONSULTANCY THE SAME ACTIVITY CANNOT BE CONSIDERED COMPARABLE T O FUNCTION OF PROVIDING MARKETING SUPPORT SERVICES DUE TO FUNCTIO NAL DIFFERENCES DIFFERENCES IN INDUSTRY AND DIFFERENCE IN MARKET DY NAMICS. THE SERVICES PROVIDED BY THE APPELLANT ARE FUNCTIONALLY DIFFERENT VIS-- VIS THE BUSINESS OPERATIONS OF TIL RITES WAPCOS A ND TCE. 31. SO IN VIEW OF THE DIVERGENT FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY VIS--VIS COMPARABLE COMPANY (RITE S) AND IN VIEW OF FINDINGS RETURNED BY THE COORDINATE BENCH C ITED AS MCI COM INDIA (P.) LTD. (SUPRA) WE ARE OF THE CONSIDERED VIEW THAT THE RITES CANNOT BE A VALID COMPARABLE FOR BENCHMARKING INTERNATIONAL TRANSACTION FOR ASSESSEE COMPANY SO THE SAME IS ORDERED TO BE EXCLUDED. WATER & POWER CONSULTANCY SERVICES (INDIA) LTD. (WAPCOS) 32. ASSESSEE COMPANY SOUGHT TO EXCLUDE THIS COMPARA BLE FOR BENCHMARKING OF ITS INTERNATIONAL TRANSACTION ON TH E GROUNDS INTER ALIA THAT WAPCOS IS A GOVERNMENT UNDERTAKING INVOLV ED IN TURNKEY PROJECTS PROVIDING END TO END ENGINEERING SERVICES FOR VARIOUS DOMESTIC AND INTERNATIONAL PROJECTS WHEREAS ASSESSEE COMPANY IS PROVIDING LOW END SUPPORT SERVICES SUCH AS ASSISTANCE IN OBTAINING INFORMATION REGARDING INDUSTRIAL AND C OMMERCIAL ITA NO.6486/DEL./2012 17 MATTERS AND TECHNOLOGICAL DEVELOPMENTS EVALUATION OF PROSPECTIVE CUSTOMERS ETC. 33. HOWEVER WE ARE OF THE CONSIDERED VIEW THAT TPO HAS CHOSEN THIS COMPARABLE MERELY ON THE GROUND THAT TH IS COMPARABLE WAS PROPOSED BY ASSESSEE ALSO AND SEGMENTAL DATA WA S DISCUSSED IN THE NOTE REGARDING THE COMPARABLES CHOSEN BY THE AS SESSEE COMPANY WHICH WILL BE USED FOR THE PURPOSE OF COMPA RISON ONLY WITHOUT APPLYING HIS MIND. RATHER CRYPTIC OBSERVAT ION HAS BEEN MADE BY THE TPO WHILE SELECTING THIS COMPARABLE SO WE DIRECT RE- EXAMINATION OF THIS COMPARABLE BY THE TPO AFTER PRO VIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 34. SO WE ARE OF THE CONSIDERED VIEW THAT THE MATT ER IS REQUIRED TO BE REMITTED TO THE TPO FOR FRESH BENCHMARKING BY EXCLUDING APTICO CHOKSI AND RITES AND BY RE-EXAMINING WAPCOS BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. SO GROUNDS NO.7 8 & 9 ARE DETERMINED IN FAVOUR OF THE ASSESSEE COMPANY. GROUND NO.5 35. LD. AR FOR THE ASSESSEE CONTENDED THAT THE TPO HAVE ERRED IN INCLUDING THE REIMBURSEMENT TO THE TUNE OF RS.9 47 01 444/- RECEIVED BY THE ASSESSEE FROM ITS AES FOR COMPUTING THE OPERATING MARGIN (OP/TC) OF THE ASSESSEE COMPANY. UNDISPUTED LY ASSESSEE ITA NO.6486/DEL./2012 18 COMPANY RECEIVED THE FOLLOWING EXPENSES ALLEGEDLY R ECOVERED BEING THE ACTUAL COST INCURRED BY THE ASSESSEE :- NAME OF THE AES DESCRIPTION OF THE TRANSACTION TOTAL AMOUNT BRITISH GAS ASIA PAC IFIC HOLDINGS PVT. LTD. RECOVERY OF EXPAT INCOME TAX PAYMENT 48 196 554 RECOVERY OF SALARY RELOCATION AND OTHER EXPENSES 37 770 554 BRITISH GAS EXPLORATION & PRODUCTION INDIA LTD. RECOVERY OF SALARY AND OTHER EXPENSES 8 734 336 TOTAL RS.94 701 444 36. LD. AR FOR THE ASSESSEE CONTENDED THAT SO FAR A S RECOVERY OF SALARY AND RELATED EXPENSES FROM AES IS CONCERNED THE ASSESSEE COMPANY HAS SETTLED ITS EMPLOYEES TO DIFFERENT BG G ROUP ENTITIES WORLDWIDE WHO WORKED UNDER THE SUPERVISION AND CON TROL OF BG GROUP ENTITIES BUT THEY REMAINED ON THE PAYROLL OF THE ASSESSEE COMPANY AND THEIR SALARY AND RELOCATION EXPENSES W ERE PAID BY THE ASSESSEE COMPANY SUBSEQUENTLY REQUIRED FORM AES ON COST TO COST BASIS. THE LD. AR FOR THE ASSESSEE FURTHER CONTEND ED THAT SO FAR AS RECOVERY OF EXPAT INCOME-TAX PAYMENT FROM BGAPH IS CONCERNED THE ASSESSEE COMPANY HAS PAID INCOME-TAX PAYMENT OF THE EMPLOYEES OF BGAPH WORKING IN INDIA AMOUNTING TO RS.4 81 96 554/- AS BGAPH HAS NO PRESENCE IN INDIA AND THIS AMOUNT WAS RECOVERED BY THE ASSESSEE COMPANY FROM B GAPH. ITA NO.6486/DEL./2012 19 37. TPO WHILE COMPUTING THE OP/TC FOR BENCHMARKING INTERNATIONAL TRANSACTION ADDED THE AMOUNT OF REIMB URSEMENT/ RECOVERIES RECEIVED BY THE ASSESSEE COMPANY FORM IT S AE TO BOTH THE COST AND REVENUE RESULTING INTO LOWERING THE MA RGIN OF THE ASSESSEE COMPANY FROM 11.30% TO 8.24% WHICH IS ALSO UPHELD BY THE LD. DRP. 38. PERUSAL OF THE P&L ACCOUNT STATEMENT AVAILABLE AT PAGE 405 OF PAPER BOOK-1 SHOWS THAT EXPENDITURE OF THE ASSE SSEE COMPANY UNDER THE HEAD ON ACCOUNT OF EMPLOYEE COST GENERAL AND ADMINISTRATIVE EXPENSES AND DEPRECIATION AMOUNTING TO RS.26 19 84 014/- DOES NOT INCLUDE THE AMOUNT OF RS .9 47 01 444/- BEING RECOVERY OF THE ACTUAL COST INCURRED BY THE A SSESSEE COMPANY. TPO MADE TWO FOLD ADJUSTMENT - ONE : TAKEN THE AMOU NT OF RS.94.70 CRORES AS COST AND TWO : TAKING THE AMOUNT OF RS.94.70 CRORES AS INCOME ALSO WHICH CANNOT BE TAKEN FOR BOT H THE PURPOSES. WHEN WE PERUSE THE BUSINESS SUPPORT AGREEMENT AVAI LABLE AT PAGE 240 OF THE PAPER BOOK-1 ENTERED INTO BETWEEN ASSES SEE COMPANY AND BGEPIL IT IS APPARENT ON THE RECORD THAT THE S ERVICES TO BGEPIL WOULD ALSO IN THE NATURE OF COORDINATE AND S UPPORT SERVICES IN RELATION TO BGEPIL CONTRACT WITH INDIAN CUSTOMER. 39. IDENTICAL ISSUE HAS ALREADY BEEN DEALT WITH IN ASSESSEES OWN CASE CITED AS M/S. BRITISH GAS INDIA PVT. LTD. VS. DCIT (ITA ITA NO.6486/DEL./2012 20 NO.2240/DEL/2006 & ITA NO.2041/DEL/2009 QUA AY 2002 -03 & AY 2003-04 RESPECTIVELY) ORDER AVAILABLE AT PAGE 426 OF THE PAPER BOOK 1 WHEREIN THE MATTER WAS RESTORED TO THE AO FOR FURTHER EXAMINATION AND VERIFICATION TO ASCERTAIN AND DETER MINE THE REAL NATURE OF THE TRANSACTION. DURING THE YEAR UNDER A SSESSMENT ALSO THE AO HAS FAILED TO EXAMINE AND VERIFY THE NATURE AND PURPOSE OF THESE EXPENSES VIS--VIS NATURE OF SERVICES RENDERE D BY THE ASSESSEE TO WORK OUT AS TO WHETHER THESE SERVICES ARE DIRECT LY RELATABLE TO THE SERVICES RENDERED BY THE ASSESSEE COMPANY TO ITS GR OUP COMPANY IN WHICH 8% MARKUP WAS RECEIVABLE. 40. MOREOVER WHEN NO SERVICES WERE RENDERED BY THE ASSESSEE COMPANY TO THE AES NO MARKUP WAS REQUIRED TO BE CH ARGED ON SUCH REIMBURSEMENT. SERVICE AGREEMENT REMAINED THE SAME IN BOTH THE AYS VIZ. 2004-05 AND 2008-09. SO FOLLOWING TH E DECISION RENDERED BY THE AFORESAID COORDINATE BENCH WE DETE RMINE GROUND NO.5 IN FAVOUR OF THE ASSESSEE AND RESTORE THE MATT ER BACK TO THE AO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.6 41. LD. AR FOR THE ASSESSEE AFTER ARGUING FOR SOMET IME ON THIS GROUND STATED AT BAR THAT HE DOES NOT WANT TO PRESS THIS GROUND AND AS SUCH THE SAME IS DETERMINED AGAINST THE ASSESSE E. ITA NO.6486/DEL./2012 21 GROUND NO.7 42. GROUND NO.7 IS NOT PRESSED BY THE LD. AR FOR TH E ASSESSEE CONSEQUENTLY GROUND NO.7 IS DISMISSED HAVING NOT B EEN PRESSED BY THE ASSESSEE COMPANY. GROUNDS NO.10 11 & 12 43. LD. AR FOR THE ASSESSEE COMPANY FAIRLY CONCEDED THAT HE DOES NOT WANT TO PRESS GROUNDS NO.10 11 & 12 AND C ONSEQUENTLY GROUNDS NO.10 11 & 12 ARE DISMISSED HAVING NOT BEEN PRESSED BY THE ASSESSEE COMPANY GROUND NO.13 44. GROUND NO.13 NEEDS NO ADJUDICATION AS THE SAME IS CONSEQUENTIAL IN NATURE. HOWEVER TPO SHALL PROVID E BENEFIT OF -/+ 5% AS PER PROVISION CONTAINED U/S 92C OF THE ACT I F ANY. 45. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE WE HE REBY PARTLY ALLOW THE PRESENT APPEAL FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY 4 TH OF OCTOBER 2016. SD/- SD/- (R.S.S SYAL) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 4 TH DAY OF OCTOBER 2016 TS ITA NO.6486/DEL./2012 22 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.