Pr. Commissioner Of Income Tax vs. Bechtel India Pvt. Ltd. - (High Court of Delhi) (09 Nov 2022)

High Court under Section 260-A of the IT Act would interfere only if it finds that the reasoning given by the authorities below is perverse

MANU/DE/4440/2022

Direct Taxation

Present Income Tax Appeal has been filed challenging the order passed by the Income Tax Appellate Tribunal ('ITAT'). The issue urged by the Revenue concerns the exclusion of three companies i.e. Certification Engineering International Ltd., HSCC India Ltd. and Mitcon Consultancy and Engineering Services Ltd. from the list of comparable companies for the purpose of determining Arm's Length Price of the international transactions between the assessee and its associated enterprises.

The assessee company incorporated on 21st April, 1994, is a wholly owned subsidiary of Bechtel Corporation USA. During the year under consideration, the assessee company was engaged in the business of export of customized electronic data to its overseas group companies.

Learned counsel for the Revenue states that, the ITAT has erred in excluding Certification Engineering International Ltd. and HSCC India Ltd. on the ground that the same are government undertakings without considering that being a government undertaking does not ipso facto lead to enhanced profitability of a company. The ITAT has erred in excluding Mitcon Consultancy & Engineering Services Ltd. from the final list of comparables on the ground of functional dissimilarity without considering that TNMM is less sensitive to minor differences in functional profile and the assessee company and this company are broadly functionally similar.

The Karnataka High Court in the case of PCIT vs. Softbrands India Pvt. Ltd. has held that the issue of comparables is a question of fact and not the question of law. Further, the High Court under Section 260-A of the Income Tax Act, 1961 (IT Act) would interfere only if it finds that the reasoning given by the authorities below is perverse.

Consequently, the ITAT excluded Certification Engineering International Ltd. and HSCC India Ltd. not only on the ground that these companies were government undertaking, but also on ground of functional dissimilarities with the assessee company. The ITAT excluded the Mitcon Consultancy & Engineering Services Ltd. on the ground of functional dissimilarity with the assessee company as well on the ground that the same comparable was excluded by ITAT in assessee's own case for the Assessment Year 2011-12. Accordingly, no substantial question of law arises for consideration in the present appeal. Appeal dismissed.

Tags : COMPARABLE COMPANIES EXCLUSION