Bechtel India (P) Ltd. v. Dy. CIT

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The Tax Publishers2015 TaxPub(DT) 5137 (Del-Trib) : (2015) 174 TTJ 0197 : (2015) 127 DTR 0217 Bechtel India (P) Ltd. v. Dy. CIT INCOME TAX ACT, 1961 --Transfer pricing--Computation of ALPSelection of comparables--The assessee-Betchell India (BIPL) was 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 was 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 only provides engineering design services exclusively to its overseas AEs and the assessee had less complex operations, bore lesser share of risk. The assessee company was a captive service provider, providing engineering design and related services to its AEs to support the overseas office's turnkey project execution by applying Transactional Net Margin Method (TNMM), the appellant's PLI was 12.57 per cent by taking OP/FOR 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 per cent, the final adjustment was captured as Rs. 6,22,45,957, whereby the TPO proposed margin of 32.47 per cent without providing adjustment towards working capital, risk and ideal capacity. Assessee contended that TPO seleted NTPC Electrical Supply Co. Ltd. (NTPCES) without any basis and the DRP had not considered the issue of Related Party Transactions (RPT), even though specific objections were raised by the assessee. NTPCES was a 100 per cent government owned company subsidiary to the National Thermal Power Corporation (NTPC). Counsel further pointed out that NTPCES was also mandated to take up consultancy and other assignments in the area of electric distribution management system and the company was also operating in a single segment of providing consultancy, project management and supervision services. *Held:* In the present case, the NTPCES was sheltered by its holding company NTPCE and Government companies and departments awarded/entrusted various projects/contracts for rural electrification, distribution of power and project management consultancy, therefore, NTPCES lost the tag of comparability with the assessee-Bechtell India.It could not be ignored that the NTPCES was also enjoying settlement of all employees from the holding company NTPC at cost and the benefits received from the holding company and related party transactions (RPT) were not monetised in the annual report and in absence of specific data in this regard, NTPCES could not 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 were directed to delete the same. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2015 TaxPub(DT) 5137 (Del-Trib) : (2015) 174 TTJ 0197 : (2015) 127 DTR 0217

Bechtel India (P) Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPSelection of comparables--The assessee-Betchell India (BIPL) was 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 was 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 only provides engineering design services exclusively to its overseas AEs and the assessee had less complex operations, bore lesser share of risk. The assessee company was a captive service provider, providing engineering design and related services to its AEs to support the overseas office's turnkey project execution by applying Transactional Net Margin Method (TNMM), the appellant's PLI was 12.57 per cent by taking OP/FOR 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 per cent, the final adjustment was captured as Rs. 6,22,45,957, whereby the TPO proposed margin of 32.47 per cent without providing adjustment towards working capital, risk and ideal capacity. Assessee contended that TPO seleted NTPC Electrical Supply Co. Ltd. (NTPCES) without any basis and the DRP had not considered the issue of Related Party Transactions (RPT), even though specific objections were raised by the assessee. NTPCES was a 100 per cent government owned company subsidiary to the National Thermal Power Corporation (NTPC). Counsel further pointed out that NTPCES was also mandated to take up consultancy and other assignments in the area of electric distribution management system and the company was also operating in a single segment of providing consultancy, project management and supervision services. Held: In the present case, the NTPCES was sheltered by its holding company NTPCE and Government companies and departments awarded/entrusted various projects/contracts for rural electrification, distribution of power and project management consultancy, therefore, NTPCES lost the tag of comparability with the assessee-Bechtell India.It could not be ignored that the NTPCES was also enjoying settlement of all employees from the holding company NTPC at cost and the benefits received from the holding company and related party transactions (RPT) were not monetised in the annual report and in absence of specific data in this regard, NTPCES could not 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 were directed to delete the same.