Facts of the Case

The present appeal was filed by the Revenue before the Delhi High Court challenging the order of the Income Tax Appellate Tribunal (ITAT) dated 18.12.2020 for Assessment Year 2013–14.

The assessee, M/s Bechtel India Pvt. Ltd., is a wholly owned subsidiary of Bechtel Corporation, USA, engaged in providing customized electronic data and engineering design services to its associated enterprises abroad.

The dispute arose in relation to determination of Arm’s Length Price (ALP) under transfer pricing provisions, specifically regarding exclusion of certain companies from the list of comparables by the ITAT.

Issues Involved

  1. Whether the ITAT was justified in excluding:
    • Certification Engineering International Ltd.
    • HSCC India Ltd.
    • Mitcon Consultancy & Engineering Services Ltd.

from the list of comparables for ALP determination.

  1. Whether such exclusion gives rise to a substantial question of law under Section 260A of the Income Tax Act, 1961.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in excluding government companies (Certification Engineering International Ltd. and HSCC India Ltd.) merely on the basis of their status as government undertakings.
  • Being a government entity does not automatically affect profitability.
  • Mitcon Consultancy & Engineering Services Ltd. was wrongly excluded despite broad functional similarity.
  • Under TNMM (Transactional Net Margin Method), minor functional differences should not lead to exclusion of comparables.

Respondent’s Arguments (Assessee)

  • The excluded companies were functionally dissimilar to the assessee’s business of engineering design and data services.
  • Government undertakings operate under different economic conditions and contractual frameworks.
  • Precedents in assessee’s own case for earlier years had consistently excluded these companies.
  • The ITAT had undertaken detailed functional analysis before exclusion.

Court’s Findings / Order

  1. Functional Dissimilarity Justified Exclusion
    • Certification Engineering International Ltd. was engaged in certification, inspection, and audit services.
    • HSCC India Ltd. derived income from consultancy, procurement, and project management.
    • Mitcon Consultancy earned revenue from consultancy and vocational training.
      These activities were materially different from the assessee’s engineering design services.
  2. Consistency with Earlier Years
    • The ITAT followed its own orders in assessee’s earlier assessment years, which had already been upheld by the High Court.
  3. Comparables Selection is a Question of Fact
    • Relying on PCIT vs Softbrands India Pvt. Ltd., the Court held that selection of comparables is a factual exercise.
  4. No Substantial Question of Law
    • The Court emphasized that under Section 260A, interference is permissible only when findings are perverse.
    • Since no perversity was demonstrated, the appeal was dismissed.

Important Clarifications

  • Government companies can be excluded, not merely due to ownership, but due to functional and operational differences.
  • Transfer pricing comparability analysis is fact-intensive, and High Courts will not interfere unless findings are perverse.
  • Consistency in judicial approach across assessment years is an important factor.
  • TNMM does not override the need for functional similarity.

 Sections Involved

  • Section 92C – Arm’s Length Price
  • Section 92CA – Transfer Pricing Officer
  • Section 260A – Appeal to High Court

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH09112022ITA4392022_103740.pdf

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