Pr. Commissioner Of Income Tax-1 v. M/S Bechtel India Pvt. Ltd

Signature Not Verified $~73 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 439/2022 PR. COMMISSIONER OF INCOME TAX-1 ..... Appellant Through:Mr.Sanjay Kumar, Sr.StandingCounsel for the Revenue. versus M/S BECHTEL INDIA PVT. LTD...... Respondent Through:None Through: Date of Decision: 09[th]November, 2022 CORAM:HON’BLE MR. JUSTICE MANMOHAN HON’BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMOHAN, J: 1.Present Income Tax Appeal has been filed challenging the order dated18[th]December, 2020 passed by the Income Tax Appellate Tribunal(‘ITAT’) in ITA No. 7234/Del./2017 for the Assessment Year 2013-14. 2.The issue urged by the Revenue concerns the exclusion of threecompanies i.e. Certification Engineering International Ltd., HSCC IndiaLtd. and Mitcon Consultancy & Engineering Services Ltd. from the list ofcomparable companies for the purpose of determining Arm’s Length Priceof the international transactions between the assessee and its associatedenterprises. 3.The assessee company incorporated on 21[st]April, 1994, is a whollyowned subsidiary of Bechtel Corporation USA. During the year underconsideration, the assessee company was engaged in the business of exportof customized electronic data to its overseas group companies. 4.Learned counsel for the Revenue states that the ITAT has erred inexcluding Certification Engineering International Ltd. and HSCC India Ltd.on the ground that the same are government undertakings withoutconsidering that being a government undertaking does not ipso facto lead toenhanced profitability of a company. 5.He states that the ITAT has erred in excluding Mitcon Consultancy &Engineering Services Ltd. from the final list of comparables on the groundof functional dissimilarity without considering that TNMM is less sensitiveto minor differences in functional profile and the assessee company and thiscompany are broadly functionally similar. 6.Having perused the impugned order and the paper book, this Courtfinds that the ITAT excluded abovementioned three companies from list ofcomparable on the basis of detailed reasons after analysing and comparingthe profiles of the said companies with the assessee company. 7.The ITAT with respect to comparable Certificate EngineeringInternational Ltd., based on its annual report, observed that operations ofthe comparable company mainly include certification activities, third-partyinspection activities, safety audit and ERDMP audits, and accordinglyrejected this comparable on the ground being functionally dissimilar withthe assessee company. 8.The ITAT relied on the order of its Co-ordinate Bench in assessee’sown case for Assessment Year 2009-10 in ITA No. 882/Del./2014, wherein the comparable Certificate Engineering International Ltd. was excluded bythe ITAT on the same ground of being functionally dissimilar with theassessee company. 9.With respect to comparable HSCC India Ltd., the ITAT uponperusing profit and loss statement for the year under consideration,observed that the main revenue of the comparable company is of Rs.33.79crores which has been shown in the directors report as consultancy incomefrom designing and engineering, project management and procurement ofmedical equipment, drugs and pharmaceutical etc. The ITAT observed thatthe activity of providing consultancy cannot be held functionally similar tothe activity of preparing engineering design and drawings and therefore, thecompany is functionally dissimilar with the assessee. 10.The ITAT further observed that HSCC India Ltd. is also a governmentundertaking and earns revenue from government contracts, and accordinglyrejected the same as comparable relying on its Co-ordinate Bench’s Orderin assessee’s own case for the Assessment Year 2009-10, whereingovernmentcontrolledenterpriseswereexcludedfromthelistofcomparable companies. 10.The ITAT further observed that HSCC India Ltd. is also a governmentundertaking and earns revenue from government contracts, and accordinglyrejected the same as comparable relying on its Co-ordinate Bench’s Orderin assessee’s own case for the Assessment Year 2009-10, whereingovernmentcontrolledenterpriseswereexcludedfromthelistofcomparable companies. 11.Despite specific directions passed by this Court in the case of PCITvs. Casio India Company Pvt. Ltd. directing the IncomeTax Department to disclose whether the appeal to High Court againstorder(s) relied upon by the ITAT have been filed and the stage of the saidappeals, the Revenue in the present appeal has failed to disclose the statusof appeals (if any) in assessee’s own case for the Assessment Years 2009-10, 2010-11 & 2011-12. 12.With respect to Mitcon Consultancy & Engineering Services Ltd, theITAT upon perusing its annual report observed that the main revenue hasbeen shown from consultancy fee (Rs.26.45 Crores) and income fromvocational training (Rs.14.27 crores), which are functionally different fromthe assessee’s activity of providing engineering design and drawingservices and accordingly excluded Mitcon Consultancy & EngineeringServices Ltd. from the final list of comparables for being functionallydissimilar with the assessee company. 13.The ITAT also relied on the order of its Co-ordinate Bench in ITANo. 6779/Del./2015 in assessee’s own case for the Assessment Year 2011-12, wherein the ITAT excluded the Mitcon Consultancy & EngineeringServices Ltd. as comparable on same ground of being functionallydissimilar with the assessee company. 14.This Court, in Revenue’s appeal being ITA 655/2019 in assessee’sown case for the Assessment Year 2011-12, vide the order dated 19[th]July,2019 confirmed the order of the ITAT in ITA No. 6779/Del./2015.15.Further,theKarnatakaHighCourtinthecaseof PCITvs. Softbrands India Pvt. Ltd. [2018 SCC OnLine Kar 2330] has held thatthe issue of comparables is a question of fact and not the question of law.Further, the High Court under Section 260-A of the Act would interfereonly if it finds that the reasoning given by the authorities below is perverse.The relevant portion of the said judgment is reproduced hereinbelow:- “43. The contention raised before us that in view of somedifferent views taken by the Tribunal by different Benches atdifferent places, the present appeals under Section 260-A of theAct deserve to be entertained and admitted by this Court forlaying down certain Guidelines about the Filters or Most Appropriate Method to be adopted for determination of the‘Arm's length price’, does not, in our considered opinion fallswithin the parameters of the substantial question of law. None ofthe sides was able to point out any perversity in the Orders ofthe Appellate Tribunal in this regard. 44. This Court cannot be expected to undertake the exercise ofcomparison of the comparables itself which is essentially a factfindingexercise.NeitherthesufficientDatanorfactualinformations nor any technical expertise is available with thisCourt to undertake any such fact finding exercise in the saidappeals under Section 260-A of the Act. This Court is onlyconcerned with the question of law and that too a substantialone, which has a well defined connotations as explained aboveand findings of facts arrived at by the Tribunal in these type ofassessments like any other type of assessments in other regularassessment provisions of the Act, viz. Sections 143, 147 etc. arefinal and are binding on this Court. While dealing with theseappeals under Section 260-A of the Act, we cannot disturb thosefindings of fact under Section 260-A of the Act, unless suchfindings are ex-facie perverse and unsustainable and exhibit atotal non-application of mind by the Tribunal to the relevantfacts of the case and evidence before the Tribunal. 45. Otherwise if the High Court takes the path of making sucha comparative analysis and pronounces upon the questions asto which Filter is good and which comparable is reallycomparable case or not, it will drag the High Courts into awhirlpool of such Data analysis defeating the very purpose andpurport of the provisions of Section 260-A of the Act. Thereforewhat we observed above appears to us to be the sustainable viewthat the key to the lock for entering into the jurisdiction of HighCourt under Section 260-A of the Act is the existence of a-substantial question of law involved in the matter.The key of exfacie perversity of the findings of the Tribunal duly establishedwith the relevant evidence and facts. Unless it is so, no other key-or for that matter, even the inconsistent view taken by theTribunal in different cases depending upon the relevant facts Signature Not Verified available before it cannot lead to the formation of a substantialquestion of law in any particular case to determine the aspects ofdetermination of ‘Arm's Length Price’ as is sought to be raisedbefore us.” (emphasis supplied) 16.Consequently,theITATexcludedCertificationEngineeringInternational Ltd. and HSCC India Ltd. not only on the ground that thesecompanies were government undertaking, but also on ground of functionaldissimilarities with the assessee company. The ITAT excluded the MitconConsultancy & Engineering Services Ltd. on the ground of functionaldissimilarity with the assessee company as well on the ground that the samecomparable was excluded by ITAT in assessee’s own case for theAssessment Year 2011-12, and the said order of the ITAT was confirmedby this Court in ITA No. 655/2019. 17.Accordingly, no substantial question of law arises for consideration inthe present appeal and the same is dismissed. MANMOHAN, J MANMEET PRITAM SINGH ARORA, J NOVEMBER 09, 2022 KA