PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Haldor Topsoe India Pvt. Ltd. (hereinafter referred to as the taxpayer) by filing the present appeal sought to set aside the impugned order dated 29.12.2015 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C(13) of the Income-tax Act, ITA No.985/Del./2016 2 1961 (for short the Act) qua the assessment year 2011-12 on the grounds inter alia that :- l(a) The learned DCIT (after incorporating Ld. DRP's order) has erred on facts and in law in making addition of Rs.3,25,52,475 on account of adjustment in value of international transaction (by increasing the margin of comparable companies to 24.90% as against actual margin of 12.28% of the assessee), on account of the following:

1) Selecting 6 new comparable companies which were not selected by the assessee

2) Rejecting 4 comparable companies selected by the assessee l(b) The learned DCIT (after incorporating Ld. DRP's order) has erred on facts and in law in rejecting adjustment in margin due to different risk profile of comparable companies.

2. The learned DCIT (after incorporating Ld. DRP's order) has erred on facts and in law in not granting 100% of the eligible profit as deduction u/s 10A(lA). The learned DCIT has restricted the deduction at 90% instead of 100% as provided in section 10A(lA).

3. The learned DCIT (after incorporating Ld. DRP's order) has erred on facts and in law in initiating penalty proceedings u/s 271(1)(c)."

3. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Haldor Topsoe India Pvt. Ltd. (HTIPL), the taxpayer is fully owned subsidiary of the Topsoe Group (with 99.9% shares being held by Haldor Topsoe International A/S (HTIAS), which is ultimate active holding company of the taxpayer, and 1 share being held by another group company, Subconcinent Ammonia Investment Company Aps). The taxpayer provides engineering services (including preparation ITA No.985/Del./2016 3 of engineering packages, equipment designs, etc.) and technical assistance services (including providing engineers for supervision) to HTAS for their global projects (including projects in India). The key efforts of the taxpayer are in developing basic engineering design packages based on Topsoe technologies for ammonia, methanol, hydrogen, hydrogen + carbon-monoxide, SNG, DME, hydro-processing technologies including naphta treaters, VGO/Diesel hydro-treaters, hydrocrackers, environmental technologies for abatement of Nox, Sox etc. for Topsoes global market.

4. During the year under transactions, the taxpayer entered into international transactions with its AE as under :- International Transactions Amount (in Rs.)

1 Engineering & Technical Assistance service rendered 28,92,94,708

2 Reimbursement of Expenses (Received) 98,798

3 Reimbursement of Expenses (Paid) 36,345

5. The taxpayer is engaged in activity defined as technical consultancy of engineering services, which can be classified as technical engineering service provider. The taxpayer in order to benchmark its international transactions qua technical support services provided to the Associated Enterprises (AE) applied Transactional Net Margin Method (TNMM) with Operating Profit/ ITA No.985/Del./2016 4 Total Cost (OP/TC) as Profit Level Indicator (PLI) as the Most Appropriate Method (MAM), arrived at its own margin at 12.28% on cost. The taxpayer in its TP study selected 9 comparables with margin of 11.42% and found its international transactions at arms length.

6. Ld. TPO after applying various filters discussed in para 3.1 & 4 of the TP order rejected 6 comparables chosen by the taxpayer out of 9 comparables and introduced 6 new comparables and computed their margin at 27.06% and proceeded to compute the Arms Length Price (ALP) of international transactions as under :- Computation of Arms Length Price Operating Cost 258,062,524 Arms Length Price at a margin o 27.06% 327,894,243 Price Received 289,761,617 105% of International Transaction 304,249,698 Proposed adjustment u/s 92CA 38,132,626 Thus the above difference of Rs.3,81,32,626/- is treated as transfer pricing adjustment for the FY 2010-11.

7. Assessee carried the matter before the ld. DRP by filing objections who has given partial relief and the margin of the comparables has been reduced from 27.06% to 24.90%. Thereafter TPO has given effect to the order passed by the ld. DRP and recomputed the ALP of international transactions at ITA No.985/Del./2016 5 Rs.3,25,52,475/-. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal.

8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

9. Undisputedly, there is no change in the business model of the taxpayer during the year under assessment. The taxpayer is a wholly owned subsidiary of HTIAS, a Danish company. The ld. TPO has not disputed the margin of the taxpayer at 12.28% nor has disputed the TNMM as OP/OC as PLI as MAM applied by the taxpayer to benchmark the international transactions.

10. It is the case of the taxpayer that it has rendered services to industry operating in fertilizer, petro-chemical and refinery and oil & gas sector and accordingly selected engineering companies as comparables which were also rendering services to the industry in fertilizer, petro-chemical, refinery and oil & gas sector. It is also not in dispute that the taxpayer is a 100% captive unit of HTIAS.

11. By filing the present appeal, the taxpayer has only challenged exclusion and inclusion of certain comparables by the ld. TPO for benchmarking the international transactions, which we would discuss ground-wise as under. ITA No.985/Del./2016 6 GROUND NO.1(a)

12. The taxpayer by filing the present appeal sought exclusion of

6 comparables chosen by the ld. TPO to benchmark the international transactions qua provision of technical support services rendered viz. (i) M/s. Ashok Leyland Project Services Ltd., (ii) M/s. Mitcon Consultancy & Engg. Services Ltd., (iii) M/s. Mahindra Consulting Engineers Ltd., (iv) M/s. HSCC (India) Ltd., (v) M/s. Bengal SREI Infrastructure Development Limited, and (vi) M/s. Certification Engineers International Ltd., suitability thereof vis--vis the taxpayer is being examine one by one as under. M/S. ASHOK LEYLAND PROJECT SERVICES LTD.

13. The exclusion of its comparable by the ld. AR for the taxpayer has not been pressed during the course of arguments. M/S. MITCON CONSULTANCY & ENGINEERING SERVICES LTD. (MITCON)

14. The taxpayer challenged Mitcon before the ld. TPO on the ground that Mitcon is engaged in rendering consultancy services in the area of power plant, banking, finance & market research, ISO/Quality assurance, energy & carbon securitization & financial restructuring, biotechnology & pharmaceutical, IT training, environment management etc. and as such functionally dissimilar. ITA No.985/Del./2016 7 However, TPO/DRP have retained this comparable without disposing of the objections raised by the ld. CIT (A) by recording observations that, Mitcon is engaged in various technical consultancy which are in the nature of technical services.

15. Ld. AR for the taxpayer challenging the inclusion of Mitcon in the final set of comparables contended that in taxpayers own case for AY 2012-13 vide order dated 19.11.2019, Mitcon was excluded by the Tribunal.

16. Perusal of the order (supra) passed by the Tribunal shows that Mitcon has been excluded by the Tribunal from the final set of comparables on ground of functional dissimilarity and to exclude the company whose revenue from the services is less than 75% of the total income by returning following findings :-

19. When we examine para 4.5 at page 5 and 6 of the TPO order. The Ld. TPO himself applied the filters to exclude companies from the final list of comparables whose revenue is less than 75% of the total income. However, when we examine profit and loss account of the Mitcon available at page 44 of the paper book revenue earned by the Mitcon from consultancy fee during the year under assessment comes to 55.65%, which is less than the filter of 75% applied by the TPO.

20. Co-ordinate bench of Tribunal examined the suitability of Mitcon in Granite Services International (P.) Ltd. (supra) vis-- vis a routine engineering and technical assistant service Provider and order to exclude the same by returning following findings :-

20. So far as Mitcon Consultancy and Engineering Services Ltd., is concerned we find this company provides services to the banking division, entrepreneurship and vocational training division, E-schools and BT and Pharma sector. Revenue earned by the company from services other than consultancy is approx. 43% of the ITA No.985/Del./2016 8 total revenue. Milton also owns fixed assets such as wind turbine generators and therefore, has a high fixed asset to sales ratio of 34.09%. We find this company was rejected by the Tribunal in assessees own case Granite Services International (P) Ltd. v. Asstt. CIT [2017] 87 taxmann.com 24 (Delhi-Trib) by observing as under :-

7. Similarity, in respect of Mitcon Consultancy and Engineering Services Limited and Rites Ltd. it is submitted that both these companies have multi dimensional functionality and mostly serving the related parties, and apart from that the segmental data is not available. On facts, Ld. DR does not dispute the same. We, therefore, hold that these two companies also cannot be comparables to the assessee company.

21. In view of the matter, we are of the considered view that Mitcon is not a suitable comparable vis--vis taxpayer on account of functional dissimilarity as it is providing solution in power, energy efficiency, renewable energy, climate change and environmental management sectors besides training courses & skill based training programmes. And on the ground that it fails TPOs filters of 75% revenue earning from services whereas Mitcon is having revenue from consultancy fee is only 55.65%, hence, we order to exclude Mitcon from the final set of comparable for benchmarking the international transaction.

17. When TPO himself has adopted the filter to exclude company whose revenue is less than 75% of the total operating revenue, Mitcon fails this filter because as per profit & loss account, revenue of Mitcon from services is only 60% which is below the filter of 75% adopted by the TPO/DRP.

18. More-so, Mitcon is functionally dissimilar to the taxpayer as it is providing solution in power, energy efficiency, renewable energy, climate change and environmental management sector etc.. Since there is no change in the business model of the taxpayer than AY 2012-13, following the order passed by the coordinate Bench ITA No.985/Del./2016 9 of the Tribunal in AY 2012-13, Mitcon is not a suitable comparables, hence ordered to be excluded from the final set of comparables. M/S. MAHINDRA CONSULTING ENGINEERS LTD. (MAHINDRA)

19. Ld. TPO/DRP included Mahindra as a comparable vis--vis taxpayer despite raising objection by the taxpayer that it is functionally dissimilar. Ld. AR for the taxpayer contended that Mahindra has been excluded as a comparable vis--vis the taxpayer in taxpayers own case in AYs 2009-10 & 2010-11. Perusal of the order passed by the coordinate Bench of the Tribunal in taxpayers own case for AY 2009-10, available at page 126 of the paper book, shows that Mahindra has been excluded as a comparable on the grounds that there is substantial outsourcing of work in case of Mahindra which makes its business model dissimilar to the taxpayer.

20. In AY 2010-11, Mahindra has been excluded as a comparable on the ground that most of the work carried out by the Mahindra was outsourced whereas taxpayer has not outsourced its work. Moreover, Mahindra has a different profit recognition method vis--vis the taxpayer who is a 100% captive service provider. ITA No.985/Del./2016 10

21. Coordinate Bench of the tribunal in case of DCIT vs. Terex India (P.) Ltd. (2019) 104 taxmann.com 281 (Delhi-Trib.), a technical service provider excluded Mahindra on account of different method of revenue recognition vis--vis the taxpayer by returning following findings :-

d) Mahindra Consulting & Engg. Services Ltd.: We have perused the financial statements of the company placed at Paper Book pages 491 509. On going through the same, we note that this company is engaged in providing a variety of services, only one of which is engineering services and segmental information about the Engineering Services is not available. Further, this company recognizes its revenue on percentage completion method, as stated in the notes to accounts which is different than the method of revenue recognition being followed by the assessee company. The revenue recognition method impacts the profit of an enterprise and as such a company cannot be compared with another company in case where methods of revenue recognition are different. Further, this company has been held to be not a good comparable by the ITAT Delhi Bench in the case of Alcatel-Lucent India Ltd. v. ITO in ITA Nos. 2154 & 2209/Del/2014 dated 06.04.2018 and in the case of Alcatel- Lucent India Ltd. v. DCIT in ITA No. 6856/Del/2015 dated 06.11.2017. Taking into consideration all the above facts, we are of the view that this company is not a good comparable with that of the assessee company and, accordingly, we direct the AO to exclude this comparable.

22. In view of what has been discussed above, Mahindra is not a suitable comparable on account of substantial outsourcing of its work; having different profit recognition method vis--vis the taxpayer, who is a 100% captive service provider, hence ordered to be excluded subject to verification of facts as to the percentage of outsourcing of work by Mahindra by the AO/TPO. ITA No.985/Del./2016 11 HSCC (INDIA) LTD. (HSCC)

23. HSCC has been retained as a comparable by the TPO/DRP despite objections raised by the taxpayer on the ground that HSCC is providing consultancy services in the field of healthcare and social sector. However, suitability of HSCC has already been examined by the coordinate Bench of the Tribunal in taxpayers own case for AY 2012-13 (supra) and ordered to be excluded on the grounds inter alia that it is a Mini Ratna, a Government of India Category-1 company and a subsidiary of NBCC (India) Ltd.; that it has earned unusually high margin of 48.91%; and that it is functionally dissimilar by returning following findings :- 23.1 Suitability of HSCC as a comparable vis--vis a routine engineering and consultancy provider has been examined by the Coordinate Bench of Tribunal in case of Terex India (P) Ltd. (supra) available at page 16 to 44 of the paper book wherein it has been ordered to be excluded being a Government of India Enterprise as major part of its business is from the Government itself.

24. Even functional profile of HSCC is dissimilar to taxpayer as it is also into providing health services being a multi disciplinary organization with experienced professionals like health planners and economists, doctors, biomedical engineers, computer experts pharmacists, architects and public health engineers etc. So the function of HSCC are dissimilar to taxpayer who is a routine engineering consultancy service provider, hence we order to exclude the same from final list of comparable to the benchmark of international transactions. ITA No.985/Del./2016 12

24. So, following the decision of the coordinate Bench of the Tribunal in taxpayers own case in AY 2012-13 (supra) and on the grounds inter alia that it is a Mini Ratna, Category-1 of Government of India company and subsidiary of NBCC (India) Ltd.; and that it is functionally dissimilar being into healthcare and social sector as against the taxpayer who is providing technical services to companies in fertilizer, petro-chemical, refinery and oil & gas industries, etc.; that HSCC fails service filter of 75% applied by the TPO to exclude the company whose revenue from services is less than 75% of the total operating cost. Since HSCCs total revenue from services is 69.08% it fails service filter applied by the taxpayer and is liable to excluded on this score also. Consequently, we order to exclude HSCC as a comparable from the final list of comparables. M/S. BENGAL SREI INFRASTRUCTURE DEVELOPMENT LTD. (BENGAL SREI)

25. The taxpayer sought exclusion of Bengal SREI on the ground that it is a joint venture between West Bengal Industrial Development Corporation Ltd., an undertaking of Government of West Bengal having shareholding of 49% and Bengal SREI having 51%, having substantial transactions with AE and has earned high margin of 37.57% in the current year; that it is functionally ITA No.985/Del./2016 13 dissimilar to the taxpayer being into project advisory and transaction advisory; that it has different business model as the expenses incurred by the taxpayer on employee and amount paid to vendors/service providers is 0.97% as against 36.26% of Bengal SREI, meaning thereby 36.26% of the activities carried out by the Bengal SREI has been outsourced. In taxpayers own case in AYs 2009-10 & 2010-11 (supra), Mahindra has been excluded on account of substantial outsourcing of its work and the same proposition applies to Bengal SREI also. So, keeping in view the functional dissimilarity and the fact that it is a joint venture of West Bengal Government having substantial transaction with its AE earning high margin of 37.57% and has outsourced its substantial function, it is not a suitable comparable vis--vis the taxpayer, hence ordered to be excluded. M/S. CERTIFICATION ENGINEERS INTERNATIONAL LTD. (CERTIFICATION)

26. The taxpayer sought exclusion of Certification again on the same ground that it is a Government entity having abnormal margin which is rendering services predominantly to the Government companies thus having large number of related party transactions with Government entities. Ld. AR for the taxpayer brought on record the fact that consulting and engineering industry ITA No.985/Del./2016 14 for AY 2010-11 has shown average margin of 11.21% as per Prowess Software whereas margin of Certification is 72.37% which is abnormally high margin compared to average industry margin. This fact has not been controverted by the ld. DR for the Revenue. On account of related party transactions, Honble Bombay High Court in case of Thyssenkrupp Industries India (P.) Ltd. vs. Addl. CIT (2013) 33 taxmann.com 107 (Mumbai-Trib.) has excluded Engineers India Ltd., a public sector undertaking on account of related party transactions which were more than 25% whereas in case of Certification, it is rendering services predominantly to Government companies thus having large number of related party transactions leading to earning of abnormally high margin of 72.37% as against average margin of consulting and engineering industry at 11.21%.

27. Furthermore, when we examine the functional profile of Certification, available at page 182 of the paper book, it shows that its activities are confined to recertification, safety audit and HSE management systems for offshore and onshore oil & gas facilities and it also undertakes third party inspection of equipments and installations in the hydrocarbon and other quality sensitive sectors of the industry which is dissimilar to taxpayers profile who is ITA No.985/Del./2016 15 providing technical consultancy services in the field of fertilizer, petro-chemical, refinery and oil & gas industries etc.

28. In view of the law laid down by Honble Delhi High Court in the case of Rampgreen Solution vs. CIT 60 taxmann.com 355 (Delhi), comparable needs to be functionally similar with the controlled comparable transactions or entities and mere broad similarity is not sufficient.

29. Furthermore, business model of Certification vis--vis taxpayer is different because Certification outsourced 35% of its activities during the year under assessment as compared to 0.97% by the taxpayer. In taxpayers own case for AYs 2009-10 & 2010-11 (supra), this comparable has been rejected on account of substantial outsourcing of its activities by a company, hence ordered to be excluded from the final set of comparables. COMPARABLE SOUGHT TO BE INCLUDED FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS QUA PROVION OF TECHNICAL SUPPORT SERVCIES

30. Initially, the taxpayer sought to include 4 comparables selected in its TP study viz. (i) Central Mine Planning & Design Institute Ltd., (ii) Toyo Engineering Ltd., (iii) Petron Engineering Construction Ltd., and (iv) Chemtex Global Engineers Pvt. Ltd. However, during the course of arguments, ld. AR for the taxpayer ITA No.985/Del./2016 16 has not pressed inclusion of Central Mine Planning & Design Institute Ltd. and Toyo Engineering Ltd. and left with only two comparables viz. Petron Engineering Construction Ltd. and Chemtex Global Engineers Pvt. Ltd. for inclusion in the final set of comparables. PETRON ENGINEERING CONSTRUCTION LTD. (PETRON)

31. Ld. TPO rejected Petron chosen by the taxpayer as comparable on account of functional dissimilarity. Ld. DRP confirmed the rejection of Petron by the TPO.

32. However, ld. AR for the taxpayer brought to the notice of the Bench that Petron has been included as a comparable in taxpayers own case for AY 2009-10, 2010-11 & 2011-12 (supra) and pursuant to the Tribunals order, TPO has included Petron in the final set of comparables in AY 2009-10. In AY 2009-10, comparability of Petron vis--vis taxpayer was examined by the coordinate Bench of the Tribunal by returning following findings :- We are of the considered opinion that there is no functional dissimilarity between the tested party and the comparable as both of them are providing similar services although the sectors might be a little different and the Ld. TPO was wrong in excluding it. We direct the inclusion of this comparable in the final set of comparables.

33. Similarly, in AY 2010-11, Petron has been accepted as suitable comparable vis--vis taxpayer in its own case, copy ITA No.985/Del./2016 17 available at pages 196 to 306 of the paper book. So, following the decision of the coordinate Bench of the Tribunal in taxpayers own case for AYs 2009-10, 2010-11 & 2012-13 (supra), we are of the considered view that since there is no change in the business model during the year under assessment, Petro is a suitable comparable vis--vis the taxpayer on ground of functional similarity, hence we order to include Petron by the TPO/AO in the final set of comparables for benchmarking the international transactions. M/S. CHEMTEX GLOBAL ENGINEERS PVT. LTD. (CHEMTEX)

34. This is taxpayers comparable rejected by the TPO on the ground that it fails service filter and RPT filter and on the ground that annual repot of this comparable is not available in the public domain. Ld. AR for the taxpayer contended that now financials of Chemtex are available in the public domain and requested for restoring the matter to TPO. Since annual reports/financials of Chemtex are now available in the public domain, this issue is restored to TPO/AO for reconsideration after providing opportunity of being heard to the taxpayer. GROUND NO.1(b)

35. TPO/DRP have made addition of Rs.3,25,52,475/- on account of adjustment in the value of international transaction ITA No.985/Del./2016 18 (while increasing the margin of comparable companies to 24.90% as against actual margin of 12.28% of the taxpayer by rejecting the adjustment in margin due to different risk profile of the comparable companies). So, it is contended by the ld. AR for the taxpayer that since the taxpayer is a captive service provider of its AE it operates in risk-insulated environment on cost plus model and is compensated for all the costs incurred by it whereas risk borne by the third party comparables are much more than those of the taxpayer. The taxpayer claimed the risk adjustment of 5.25% and sought adjustment on account of difference in the risk profile by substracting the risk free bank rate from the prime lending rate during the previous year relevant to AY 2010-11 which is 5.25%.

36. It is brought to the notice of the Bench by the ld. AR for the taxpayer that this issue is covered in favour of the taxpayer by the order passed in its own case for AYs 2009-10, 2010-11 & 2012-13 (supra). Perusal of the orders passed by the coordinate Bench of the Tribunal in AYs 2009-10, 2010-11 & 2012-13 (supra) in taxpayers own case shows that this has been restored to TPO/AO to decide afresh in view of the contentions raised by the taxpayer which is pending adjudication. So, following the decisions rendered by the coordinate Bench of the Tribunal, we are of the considered view that this identical issue of this year is also required ITA No.985/Del./2016 19 to be restored to TPO/AO to decide afresh after providing an opportunity of being heard to the taxpayer as there is no change in the business model of the taxpayer during the year under assessment. The taxpayer is directed to bring on record evidence to prove the risk adjustment vis--vis comparables in the light of the decisions of the coordinate Bench of the Tribunal in cases of Mentor Graphics (Noida) Pvt. Ltd. vs. DCIT order dated 02.11.2007 and DCIT vs. Hellosoft India Pvt. Ltd. order dated 15.01.2013. Consequently, ground no.1(b) is determined in favour of the taxpayer for statistical purposes. GROUND NO.2

37. The taxpayer challenged the impugned order passed by AO/TPO/DRP restricting the deduction at 90% instead of 100% as provided in section 10A(1A) of the Act on the ground that the taxpayer has inadvertently claimed deduction at 90% of the eligible profit of the undertaking instead of 100% of the eligible profit. In AY 2010-11, identical issue was also raised by the taxpayer as additional ground which was allowed as per order dated 26.12.2018 and restored the issue back to the AO for passing order afresh in accordance with law.

38. Since this is a mistake apparent on record on the part of the taxpayer, this issue is required to be restored back to the AO to ITA No.985/Del./2016 20 decide afresh keeping in view the provisions contained u/s 10A(1A) of the Act. Consequently, the AO is directed to decide the issue afresh after providing an opportunity of being heard to the taxpayer. So, ground no.2 is determined in favour of the taxpayer for statistical purposes. GROUND NO.3

39. Ground No.3 being premature needs no specific findings.

40. Resultantly, the appeal filed by the taxpayer is allowed for statistical purposes. Order pronounced in open court on this 31st day of January, 2020. Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 31st day of January, 2020. Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A). 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.