Sepco1 Engineering (India) Private Limited vs Deputy Commissioner Of Income Tax, Circle-23(2), Delhi

“Appeal under section 253(1) of the Income-tax Act, 1961 ("the Act") against the order dated January 29, 2020 (received on February 01, 2020) passed under section 143(3) read with sections 144C of the Act by the Deputy Commissioner of Income Tax, Circle 23(2), New Delhi ("AO") for assessment year ("AY") 2016-17.

1.

That on the facts and circumstances of the case and in law, the Transfer Pricing Officer ("TPO") erred in making and the AO/ Commissioner of Income Tax, Appeal ("CIT(A)") have erred in upholding the Transfer Pricing ("TP") adjustment of INR 17,96,524 in respect of the international transactions with its associated enterprises ("AE's").

2.

Transfer Pricing adjustment amounting to INR 17,96,524 in relation to international transaction:

2.1

That on the facts and circumstances of the case and in law, the AO/TPO/ CIT(A) have erred in making an upward TP adjustment of INR 17,96,524 in respect of the international transaction, alleging that the same were not at arm's length and determining the ALP.

2.2

That on the facts and circumstances of the case and in law, the CIT(A)/ TPO have erred in rejecting the benchmarking analysis adopted by the Appellant, wherein aggregated Transactional Net Margin Method ("TNMM") has been adopted as the appropriate method for benchmarking the international transaction relating to payment of royalty.

2.3

That on the facts and circumstances of the case and in law, the CIT(A)/ TPO have erred in ignoring the benchmarking analysis using Transactional Net Margin Method (“TNMM”), submitted by the Appellant for benchmarking the international transactions.

2.4

That on the facts and circumstances of the case and in law, the CIT(A)/TPO have erred arbitrarily in inclusion and exclusion of comparable companies as per TP Study ignoring the functional profile and quantitative filter qualifications. The grounds in relation to comparable as under:

For inclusion of comparable excluded by Ld. TPO/CIT(A):

2.5

That on the facts and circumstances of the case and in law, the CIT(A)/TPO have rejected the claim of working capital adjustment.

3.

That on the facts and circumstances of the case and in law, the AO has erred in levying interest under sections 234B and 234C of the Act.

4.

That on the facts and circumstances of the case and in law, the AO has erred in initiating penalty under section 271(1)(c) of the Act.”

In this regard, the Appellant respectfully brings your kind attention to the rejection of one of the comparable companies selected in the TP study, namely NBCC (India) Limited, which has been excluded by the L.d. TPO on the ground that it is a government company. The relevant observation in this regard is contained at Page 155 of the TP Order forming part of Paper Book 1 and is reproduced below for ready reference:

5.

NBCC(India) It is a government company and FAR is different from Ltd. the assessee company. Hence, it is not a suitable comparable.

Accordingly, it is submitted that Kitco is also a government company with public sector ownership and operates under a distinct mandate and operating framework. Therefore, if NBCC (India) Limited has been rejected on the ground of being a government company, then on the same basis and for the sake of consistency, Kitco should also be rejected from the set of comparables. The comparability analysis must be applied uniformly, and companies cannot be selectively included or excluded on the same ownership criterion. Accordingly, it is prayed that consistent standards be applied and appropriate directions be issued while finalizing the set of comparables for determination of the Arm's Length Price.

In this regard reliance is placed on the Hon'ble Delhi High Court's ruling in the case of Thyssen Krupp Industries India Pvt Ltd [TS-134-HC-2016(BOM)-TP], the Hon'ble High Court held that the government company could not be considered to be comparable for the reason that contracts between Public Sector undertakings are not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc. Relevant extract is as under:

4. Re question (b) :-

(a)

The grievance of the respondent assessee before the Tribunal was that M/s Engineers India Ltd. has been erroneously introduced as a comparable by the TPO for determining the ALP of the respondent assessee's International Transactions. The impugned order of the Tribunal records the fact that the Engineering India Ltd. is a Government Company and its annual report indicates that a substantial part of its revenue in execution of turnkey projects arose out of executing projects of public sector undertakings. In the circumstances, the impugned order of the Tribunal holds that the Engineers India Ltd. could not be considered to be comparable for the reason that contracts between Public Sector undertakings are not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc. Thus, it is not comparable. Moreover, from the annual report, it is clear that the revenue earned in executing turnkey project for other public sector undertakings was much more than the filter of 25%, which has been applied by the TPO in his order under Section 92CA(3) of the Act, while taking TRF Ltd. as a comparable on the ground that its related party transaction was not in excess of 25% of its total turnover. Thus, applying consistent filter of 25% or less of related party transaction alone to be considered comparable, Engineers India Ltd. could not be considered to be comparable.

(Refer Page no. 6 to 7 of case law paper book)

Direct Case laws for Kitco

In this regard reliance is placed on the coordinate bench's ruling in the case of Bechtel India Pvt Ltd [TS-638-ITAT-2015 (DEL)-TP] wherein the Hon'ble Delhi Tribunal, excluded Kitco on the ground that the transactions of Kitco is primarily with the government owned entities. Relevant extract is as under:

12.5

In the above ruling, the comparable M/s. Engineers India Limited was rejected primarily on the ground that it was working for government/public sector undertakings and since the company also being a government owned enterprise; the transactions tantamount to related party transactions. The same is true for the said comparable as Kitco Ltd., transactions are primarily with government owned enterprises. Applying the preposition laid down in the case of M/s ThyssenKrupp Industries India Private Limited (supra), we hold that Kitco Ltd., cannot be accepted as a comparable company. Hence the same is directed to be eliminated.

(Refer Page No. 18 of case law paper book)

The Appellant has also placed its reliance of the coordinate bench's ruling in the case of AT & T Communication Services India Private Limited [TS-127-ITAT-2018(DEL)-TP), wherein the Hon'ble Delhi Tribunal, excluded Kitco on the ground that it is 100% government undertaking.

32.

By applying the decision rendered by the coordinate Bench of the Tribunal in Bechtel India Private Limited (supra) and Hon'ble Bombay High Court in Thyseen Krupp Industries India (P.) Ltd. (supra), the coordinate Bench of the Tribunal in case of WSP Consultants India Pvt. Ltd. in ITA No.344/Del/2016 ordered to exclude Kitco, a 100% Government undertaking.

(Refer Page No. 50 to 51 of case law paper book)

In addition to the above, it is respectfully submitted that Kitco derives a substantial portion of its revenue from Government and State-run projects and operates across a wide spectrum of diversified service verticals, including infrastructure, tourism, aviation, urban planning, process engineering, human resource development, management and financial consultancy, technical services, seaports, and environmental engineering. The breadth of its service offerings and project profile demonstrates that it is functionally diversified and operates under a Government-driven mandate, which materially distinguishes it from the Appellant's functional profile. Refer screenshots from website and Annual Report of Kitco on Page 760 of Paper book 1 which is also reproduced below:

1. Corporate Information

1.1

of the per Energy Sd KITCO Limited (formerly Kerala Ishutrial and Technical Consultancy Organization LAM), estalised in 1972, is Engineering, Management & Project comultancy firm in lodia. Some of the other fields where KITCO is a propeyer Skill Certification and Placement Services. The Company is also a dedicated Mediuza Enterprise (SME) sector. At present KITCO in having 10 dinisie vir faste opany is also a dedicated provider of professional technical cancy sent to fall a Engineering. Hunain Resonce Development. Management and Financial Consultancy. Technical Services. Seaports and E Engineering. KITCO is the only consultancy organization in the state having ELA accreditation. The strength of KITCO is a core tem of well qualified and experienced professionals in various branches of engineering and in management, media, marketing, economics, finance etc ambering more than 288.

KITco Ltd

10.

In regard to the inclusion of Kitco Ltd. as a comparable, the learned ITAT examined the Kitco Ltd.'s functional profile and held that the same was not comparable.

11.

It is material to note that the Assessee had also raised an objection that the Kitco Ltd. was owned by the Government. However, the learned ITAT did not accept that the ownership of the company could be a ground for finding the same as uncomparable. The relevant extract of the learned ITAT's decision is set out below:

‘KITCO, the first Technical Consultancy Organization (TCO) in India, was established in 1972 by Industrial Development Bank of India, other national and state level financial institutions, Govt. of Kerala and 7 Public Sector Banks for rendering services to Entrepreneurs, Govt. Departmental PSUs, Local Bodies, etc. Presently, Small Industries Development Bank of India (SIDBI) is the prime shareholder with 49% shares of the company.

Would KITCO successfully implemented projects like Cochin International Airport Ltd., Cochin Special Economic Zone, etc and is involved in implementing a multimodal Mobility Hub at Cochin all of which are first of its kind in the country in their own respect. KITCO successfully is stated to have completed Phase-l of CIAL Golf Course & Country Club and Ghallah Wentworth Golf Course at Muscat, Sultanate of Oman, thereby establishing itself in an area, which was considered to be the forte of European Consultants. The prestigious overseas assignments completed by KITCO include technical evaluation of electrical power distribution network at King Abdul Aziz International Airport, Jeddah. It is also observed that this company is working in divisions like infrastructure, tourism, aviation, IT services, HRD, financial services etc. which are dissimilar to the functional profile of the assessee company. Snapshot enclosed.

In our considered opinion this company is involved in executing huge projects with a motive to earn profits. We therefore reject the argument of Ld. Counsel that since this company is owned by government it cannot be considered to be a fit comparable. However, we observe that functions performed, risks assumed and assets owned by this company is huge and fast as compared to that of assessee who is acting as a sub-contractor for its AE, rendering engineering and design services and is remunerated on cost plus basis.

We therefore reject this company as it does not satisfy the functionality test with that of assessee's"

12.

We find no infirmity with the aforesaid decision. Undisputedly, Kitco Ltd. was working in divisions like infrastructure, tourism, aviation, IT services, HRD and financial services, which were not similar to the functions performed by the Assessee. As noted above, the Assessee was engaged in engineering and design services.

52.

So, in view of the matter, we are of the considered view that Kitco firstly being a Government of India undertaking rendering services to Central and State undertakings and PSUs and as such, substantial revenue of this company is from Government/State or centre run projects and it is into diversified activities of business qua which segmental financials are not available, is not a suitable comparable vis-à-vis the taxpayer which is a routine provider of design engineering services along with supervisory support services to its AE, hence ordered to be excluded.

4.2.2 Crux Consultants Private Limited ('Crux')

Annual report is not available for year under consideration i.e. FY 2015-16

5.

The aforesaid statement is readily acceptable to the counsel for the petitioner who has pressed the prayer for inspection of record which is stated to be in possession of the respondent 2 & 3, Be that it may, We dispose of this petition by declaring the meeting dated 09.01.2017 as illegal. However, the liberty is granted to the R1 Company to convene fresh meeting in accordance with the provisions of the Companies Act, 2013. It shall not be bar to consider the appointment of respondent 4 Director/Additional Director by taking out properly circulated agenda. The application of the petitioner for inspection of records shall be favourably considered by the Board as he is Director and holder of 33% shares in the respondent 1 company. The petition is disposed of with the aforesaid observation.

➤ Softbrands India (P.) Ltd. vs. DCIT [2016] 73 taxmann.com 231 (Bang - Trib.)

It is clear from the above reasons recorded by the TPO that the Annual Report of this company is not available for the year under consideration and further the notice issued under Section 133(6) of the Act was also not responded by the company to submit the information. Therefore, there was no information available regarding the basic facts and revenue details of this company. The assessee has not filed any record before us even the Annual Report of this company is not available. Accordingly, we do not find any merit or substance in the objections raised by the assessee against the rejection of this company by the TPO.

The TPO held that it is involved in technical consultancy and project engineering. Whereas, as noted by the Commissioner (Appeals), this company is engaged in development of steel industry and its annual report is not available in the public domain. What has been referred to is the extract from the website of this company that the company is engaged in the development of steel industry. In absence of any annual report, these services cannot be held to be similar to the services in which assessee has been engaged into. What is available is only the functional statement but nowhere management discussion, director’s report, etc. were available, hence it is difficult to analyse the FAR of the said company. On this ground alone, this company has to be excluded from the lsit of comparables. [Para 17] (Refer Page No. 137 of case law paper book)

We concur with the finding of DRP while repelling the objection regarding extra-ordinary event taking place for this comparable, but for a different reason, ie the relevant extra ordinary event took place in the preceding Financial Year Le FY 2008-09. However, we concur with the submissions advanced by Ld AR that the Director's Report and Notes to Account for this comparable are not available in public domain, Ld. DR has not been able to controvert this fact. Since sufficient information for this comparable is not available, we direct exclusion of this company as a comparable.

4.2.3 DRA Consultants Limited ('DRA')

Fails Employee Cost Filter (15%)

f)

Companies that have employee cost that is less than 25% of sales: The rationale for this filter is that companies that are engaged in providing services similar to yours will respire a minum level of expenditure as personnel expense. Employees cost constitutes the major component of cost in any service sector. Very low employee cost, vez, less than 25% of total sales, indicates that company is either engaged in some other business or it laas outsourced the service functions to a third party, ie, it is not rendering services on its own. Such companies cannot be treated as functionally comparable to the assessee,

DRA is engaged in various projects with Government authorities with diversified set of activities which are grossly distinguishable for limited engineering and consulting support provided the appellant as under

i.

Providing Consultancy Services for Fully Built 40 No's Electric Buses under DHI FAME II Scheme of Nagpur Municipal Corporation

ii.

Women Special Tejaswini Electric Buses for Nagpur Urban Region.

iii.

Project Management Consultancy for Pressurised Water Supply System in 60% area of Pimpri-Chinchwad Municipal Corporation

iv.

Project Management Services for Sourcing of water from Andra Dam and Bhama Askhed Dam for Pimpri Chinchwad City

V. Project Management Consultancy Services for Water Supply and Sewerage Improvement Works for Indore Municipal Corporation under AMRUT Yojana

vi.

Consulting Services for reduction of Non-Revenue Water for Vishakhapatnam City under Smart City Mission

vii.

Consultancy Services for Urban Water Supply Improvement Project for the Tier-Il viii. Towns (Cluster-A & E) of Madhya Pradesh

viii.

Consultancy Services for Improvement and Rejuvenation of the existing Water Supply & Sewerage System & Preparation in Indore Municipal Corporation area & other related viii. works etc.

ix.

Consulting Services for AMRUT Mission Management Unit (AMMU) in Chhattisgarh

x.

Providing Consultancy Services for Additional Work of Preparation of DPR (Pre-Feasibility and Transaction Advisory Services) for Nagpur City Through PPP for Urban Transport Services

xi.

Implementation of 24x7 Water Supply Project for Nagpur City through PPP

xii.

Pre-feasibility Study and Transaction Advisory Services for Implementation of North & South Zone 200 Mld capacity Sewerage Treatment Plant Project in Nagpur through PPP.

xiii.

Improvement and revamping the existing Water Supply System for Continuous (24×7) Water Supply for Ahmedabad Municipal Corporation

xiv.

Improvement and Revamping the existing Water Supply System for New Delhi Municipal Corporation

XV. Project Management Consultancy for Improvement in Service Level for Water Supply in Mehrauli Project Area and Vasant Vihar Project Area.

Accordingly, it is clearly evident that the DRA provides diversified business activities which are different from the Appellant which provides routine engineering or consultancy company.

Corrected Margins to be considered (32.98% computed by ld. TPO)

Without prejudice to the above submissions, the Appellant has also recomputed the margins of DRA based on the figures reported in its financial statements. Upon verification of the financial statements, the Appellant noted a difference in the weighted average margin (WAVG) as compared to the margin adopted by the Ld. TPO. Accordingly, the margins have been recomputed using the audited and publicly available financial data to ensure correctness and consistency in the benchmarking analysis. The detailed computation of the corrected margins is produced below for your ready reference.

It is therefore respectfully submitted to consider the corrected margins of DRA for the purpose of determination of the arm's length price. (Refer Page 781 to 828 of Paper book 1 for Annual Report of DRA for FY 2014-15 and FY 2015-16).

4.2.4 Mahindra Consulting Engineers Limited ('Mahindra')

Mahindra is a multidisciplinary engineering consultancy organization providing Engineering, Project Advisory Services and Infrastructure Consulting. Mahindra offers wide range of services in both domestic and international market right from project conceptualization, market demand, feasibility studies, planning, design, engineer

Notes forming part of the financial statements for the year ended 31st March, 2016

1. Corporate Information

Mahindra Consulting Engineers Limited (MACE) is a multidisciplinary engineering consultancy organization providing Engineering, Project Advisory Services and Infrastructure Consulting. The sectors of operation covers urban infrastructure, industrial infrastructure, water and wastewater, environment, transportation sector, tourism infrastructure, renewable energy, sustainable development studies, buildings and structures, industrial plants and systems, agribusiness and food infrastructure, social infrastructure, institutional studies. The company offers wide range of services in both domestic and international market right from project conceptualization, market demand, feasibility studies, planning, design, engineering, project management, Public Private Partnership (PPP) transaction advisory etc across several sectors. The clientele base includes Central Government, State Government, Public Sector Undertakings, Infrastructure Development Agencies, Private Sector, Financial Institutions, International Consulting firms, etc.

In this regard reliance is placed on the Hon'ble Delhi High Court's ruling in the case of Fluor Daniel India (P.) Ltd. (Supra), wherein the business and functional profile of Mahindra was examined in detail and it was held that it is engaged in providing infrastructure engineering and consulting services, having capability to execute innovative projects, market penetration strategy accordingly should not be compared to routine engineering company. The relevant extract from the judgment is as under:

(IV) Mahindra Consulting Engineers:

Ld. TPO included this comparable into the final list, as it provides engineering and designs services to its customers. On the contrary Ld.Counsel submitted before us that it is not a fit comparable as it is functionally dissimilar.

On the contrary Ld. CIT DR placed reliance upon the observations of Ld. TPO/DRP. We have perused submissions advanced by both sides in the light of records placed before US

It has been submitted that this company is engaged in services which are highly technical. Functional profile is placed at page no.271, 272 of the Paper Book and objections before the Id. TPO at page 480-498 of Paper Book volume 1. It is observed from the functional profile that this company is part of Mahindra Partners'.

It does not show functional profile of Mahindra Consulting Engineers. However it shows that this company is engaged in providing services and has proved its capability to execute innovative projects and to penetrate into new areas of operation. It is further submitted that it is engaged in providing infrastructure engineering and consulting services. Therefore, it is apparent that it is functionally different.

We therefore direct to exclude this company, in view of highly technical capabilities of executing infrastructure development projects vis-a-vis that of assessee who is rendering engineering and related services as a subcontract limited to specific functions as per the requirement of its affiliate."

(Refer Page No. 58 of case law paper book)

In this regard reliance is also placed on the coordinate bench's ruling in the case of Alcatel-Lucent India Ltd. vs. Income-tax Officer, Ward 1(4), New Delhi [2018] 92 taxmann.com 427 (Delhi -Trib.) [06-04-2018), wherein the Hon'ble Delhi Tribunal, examined the business profile and revenue classification of Mahindra Consulting and it was held that although it earns income from 'Consultancy' however actual source is from diversified business and cannot be compared to routine engineering or consultancy company. Relevant extract is as under:

i) Mahindra Consulting Engineers Ltd.

14.

The TPO included this company in the list of comparables without any discussion in his order. The Id. CIT(A) upheld the inclusion, against which the assessee has approached the Tribunal.

15.

We have examined the Annual report of this company, a copy of which has been placed in the paper book. It can be seen from the Director's report that the company provided consultancy services in the areas of Special Economic Zones, water supply and sewage, solid waste management, urban infrastructure, agro infrastructure, social infrastructure, port and harbor and offshore terminal and industrial infrastructure etc. This company also worked on innovative projects like centre of excellence of horticulture, dedicated offshore terminal for coal handling. The above description of the consultancy services rendered by this company divulges that the same are quite diverse in nature. As against this, the assessee is providing services of installation and post-implementation of telecommunication equipments along with after-sales support and maintenance. It is apparent that nature of services rendered by the assessee is quite different from those rendered by Mahindra Consulting Engineers Ltd. The mere nomenclature of rendering 'Consultancy services' does not make two companies comparables. An assessee selling cars cannot be compared with another assessee selling electronics simply on the ground that both are making some 'sales'. To ensure comparability, we need to see the nature of products sold. Sale of cars and electronics can't be compared because of difference in functions, assets employed and risks assumed. Comparability can be established only w.r.t. the nature of goods sold. Similar is the position qua 'Consultancy services. One needs to examine the nature of consultancy services rendered by two companies so as to decide on their comparability. When we examine the nature of consultancy services rendered by the assessee, the same are found to be quite different from those rendered by Mahindra Consulting Engineers Ltd. We, therefore, order for the exclusion of this company from the list of comparables.

(Refer Page No. 163 of case law paper book)

Further, the Appellant would like to submit that the Mahindra entity forms part of the reputed Mahindra Group and similarly benefits from strong brand recognition, established market presence, and group synergies.

In this regard reliance is placed on the following rulings wherein companies having huge brand cannot be considered as fit comparable

➤ In this regard reliance is placed on recent coordinate bench's ruling in the case of Netradyne Technology India Pvt. Limited [TS-533-ITAT-2025 (Bang)-TP], wherein it was held that comparable having huge brand value have an added advantage in gaining new clients and extracting new work from existing clients, accordingly, should be excluded from comparability. The relevant extract is as under:

22.

We also direct to exclude the above comparable selected by the Id TPO for one more reason. All these companies are a part of renowned conglomerate and has huge brand value in the market of ITes/software development. These brands do have an added advantage in gaining new clients, extracting/mining new work from existing clients and larger pitch before public and Private sector. This is due to the intangible (whether recorded in books or not) of these brands. Thus, this makes a lot of different in asset size of the comparable with a captive service provider working on cost plus basis of remuneration.

23.

Therefore, respectfully following the decision of the coordinate bench in assessee's own case in earlier year, we direct the learned transfer pricing officer to remove all these above companies from comparability analysis. In view of this, we direct the Id. AO to exclude the above comparables.

(Refer Page No. 177 of case law paper book)

➤ Reliance is also placed on Hon'ble Delhi high Court's ruling in the case of B.C. Management Services (P.) Ltd. [2018] 89 taxmann.com 68 (Delhi), wherein Hon'ble Delhi high Court excluded companies having high brand value which impacted the profitability. The relevant extract is as under.

"13.

The exclusion of second comparable ICRA Techno Analytics Ltd. was on the basis that it had engaged itself in processing and providing software development and consultancy and engineering services/web development services. The reasons for execution were functional dissimilarities and that segmental data were unavailable. Again the findings of the ITAT are reasonable and based on record. The third comparable that the AO/TPO excluded is TCS E-serve. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld. The assessee was aggrieved by the inclusion of Accentia a Software Development Company. The Revenue is aggrieved by the exclusion of Accentia from the TP analysis. The DRP had directed its deletion. We observe that the ITAT has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concemed, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector.

(Refer Page No. 185 to 186 of case law paper book)

Accordingly, it is clearly evident that the nature and scope of services performed by Mahindra are materially different from those undertaken by the Appellant, both in terms of functional profile and scale of operations. Further, Mahindra, being part of a well-established and reputed business group, enjoys significant brand value, strong market presence, and group-driven business advantages, which materially influence its revenue generation capacity, risk profile, and profitability. Such brand-led intangibles and market positioning are not comparable to the Appellant's relatively limited-risk and routine service profile. In view of the functional dissimilarity coupled with the impact of brand intangibles and scale, Mahindra fails the comparability criteria and ought to be excluded from the final set of comparables for the purpose of determining the Arm's Length Price.

Corrected Margins to be considered (17.21% computed by Ld. TPO)

Without prejudice to the above submissions, the Appellant has also recomputed the margins of Mahindra based on the figures reported in its financial statements. Upon verification of the financial statements, the Appellant noted a difference in the weighted average margin (WAVG) as compared to the margin adopted by the Ld. TPO. Accordingly, the margins have been recomputed using the audited and publicly available financial data to ensure correctness and consistency in the benchmarking analysis. The detailed computation of the corrected margins has been re produced below for your ready reference.

It is therefore respectfully submitted to consider the corrected margins of Mahindra for the purpose of determination of the arm's length price. (Refer Page 1374 to 1434 of Paper book 2 for Annual Report of Mahindra for FY 2014-15 and FY 2015-16).”

"13.

The exclusion of second comparable ICRA Techno Analytics Ltd. was on the basis that it had engaged itself in processing and providing software development and consultancy and engineering services/web development services. The reasons for execution were functional dissimilarities and that segmental data were unavailable. Again the findings of the ITAT are reasonable and based on record. The third comparable that the AO/TPO excluded is TCS E-serve. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld. The assessee was aggrieved by the inclusion of Accentia a Software Development Company. The Revenue is aggrieved by the exclusion of Accentia from the TP analysis. The DRP had directed its deletion. We observe that the ITAT has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concemed, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector.”

12.5

In the above ruling, the comparable M/s. Engineers India Limited was rejected primarily on the ground that it was working for government/public sector undertakings and since the company also being a government owned enterprise; the transactions tantamount to related party transactions. The same is true for the said comparable as Kitco Ltd., transactions are primarily with government owned enterprises. Applying the preposition laid down in the case of M/s ThyssenKrupp Industries India Private Limited (supra), we hold that Kitco Ltd., cannot be accepted as a comparable company. Hence the same is directed to be eliminated.