Income Tax Appellate Tribunal Bangalore Ingersoll Rand International (India) ... vs Acit, Bangalore on 25 October, 2019 IN THE INCOME TAX APPELLATE TRIBUNAL "A" BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER IT(TP)A Nos. & Assessment Appellant Respondent Years 1557/Bang/2012 M/s. Ingersoll Rand (India) Assistant Commissioner 200809 Ltd., Plot No. 35, KIADB of Income Tax, Industrial Area, Bidadi, Circle 11(4), Bengaluru562109. Bengaluru. PAN : AABCI 3371 E 259/Bang/2014 do Deputy Commissioner 200910 of Income Tax, Circle 11(4), Bengaluru. Assessee by : Shri. K. R. Vasudevan, Advocate Revenue by : Shri. C. H. Sundar Rao, CIT(ITAT)(DR), Bengaluru Date of hearing : 21.10.2019 Date of Pronouncement : 25.10.2019 ORDER Per G. Manjunath, Accountant Member These two appeals filed by the assessee are directed against the directions of DRP, Bengaluru, issued under section 144C(8) of the Income Tax Act, 1961, dated 16.08.2012, in turn which has arisen out of draft assessment order passed by the AO under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 dated 12.12.2011 and they pertains to Asst. Years 200809 and 200910. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed off, by this consolidated order. IT(TP)A Nos. 1557/Bang/2012 and 259/Bang/2014 Page 2 of 26 2. IT(TP)A No. 1557/Bang/2012 The assessee has raised the following grounds: Transfer Pricing 1. That the order of the learned Assistant Commissioner of Incometax, Circle 11(4), Bangalore ('Assessing Officer' or 'AO') to the extent prejudicial to the Appellant, is bad in law, contrary to facts and circumstances of the case and liable to be quashed. 2. The learned AO and the learned Dispute Resolution Panel (Tanen erred in facts and law in confirming the action of the learned Deputy Commissioner of Income Tax (Transfer Pricing V), Bangalore ("Transfer Pricing Officer" or "TPO") of making an adjustment to the transfer price of the Appellant in respect of its design and engineering services provided to Associated Enterprises by Rs.136,799,658, holding that the international transactions do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 (the 'Act') and thereby grossly end in; 2.1. Upholding the rejection of comparability analysis of the Appellant in the Transfer Pricing ("TP") documentation without appreciating the contentions, arguments, and evidentiary data furnished by the Appellant during the course of the proceedings, and confirming the fresh comparability analysis as adopted by the learned TPO; 2.2. Ignoring the limited risk nature of the design and engineering services provided by the Appellant as detailed in the TP documentation and in upholding the conclusion of the learned TPO that the services rendered by the Appellant as high end Knowledge Process Outsourcing (`KPO') services; 2.3. Upholding the selection of companies with functional dissimilarity and having abnormal/fluctuating profit margins such as Mold Tek Technologies Ltd., Coral Hub Ltd and Eclerx Services Pvt Ltd. 2.4. Upholding the inclusion of the following nonoperating/extraordinary costs from the cost base while computing the net profit margin of the Appellant: a. Overrun of lease rentals and associated costs: Rs.1,427,373 b. Training expenses: Rs.4,075,409 IT(TP)A Nos. 1557/Bang/2012 and 259/Bang/2014 Page 3 of 26 c. Depreciation on assets capitalized: Rs.4,706,672; and, d. Prior period items Rs.1,075,000 2.5. In modifying the lower limit for sales turnover filter from Rs. 1 crore to Rs.10 crore without providing any empirical analysis and therby rejecting Accuspeed Engineering Design Services Ltd. and Chakkilam Infotech Ltd which ar