ORDER

Per Pramod Kumar (Vice President):

1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 31^st January 2014, passed by the Assessing Officer under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for the assessment year 2009-10.

2. Grievances raised by the assessee are as follows:

1) The learned Assessing Officer erred in passing a conformity order accepting adjustment made by the learned Transfer Pricing Officer 1(9), Mumbai and also the directions of the learned Hon’ble DRP-I, Mumbai.

2) The Hon’ble DRP-I Mumbai erred in confirming the action of the learned Transfer Pricing Officer 1(9) of arriving Arm’s Length Price by using TNMM Method and rejecting the CPM Method used by the appellant company for the purpose of determining ALP.

3) The Hon’ble DRP-I Mumbai erred in confirming the order of the learned Transfer Pricing Officer and rejecting Non AE Comparables selected by the appellant.

4) The Hon’ble DRP-I Mumbai erred in confirming the order of the learned Transfer Pricing Officer which followed “pick and choose” out of the companies selected for TNMM.

5) The Hon’ble DRP-I Mumbai erred in Confirming the adjustments made of Rs. 1,80,00,639/- by learned Transfer Pricing Officer I (9), Mumbai however subject to certain relief.

6) The Hon’ble DRP-I Mumbai erred in not objecting to the benchmarking the International Transaction by the learned Transfer Pricing Officer of “purchase of raw materials & components” even though the assessee is not engaged in any such business but is in the business of providing engineering services.

7) The learned Assessing Officer/Transfer Pricing Officer erred in not passing an order giving effect to the directions of Hon’ble DRP-I to re-determine the mean PLI.

3. To adjudicate on these grievances, which we will take up together, only a few material facts need to be taken note of. The assessee before us is a company, engaged in the business of, inter alia, providing engineering consultancy services relating to oil and gas sector. On 30^th September 2009, the assessee filed its income tax return disclosing a taxable income of Rs 1,88,86,910 which was picked up for scrutiny assessment under section 143(3). In the ensuing scrutiny assessment proceedings, the Assessing Officer noted that the assessee has also shown international transactions, with its UK based associated enterprise- namely Matt McDonald UK, for providing engineering consultancy services for Rs 23,06,24,942. A reference under section 92CA(1) was, in this backdrop, made to the Transfer Pricing Officer for ascertainment of arm’s length price. The TPO noted that the benchmarking of these transactions, as arm’s length transactions, was done by the assessee on the basis of cost plus method. It was also noted that, according to the assessee, while the cost plus margin earned by the assessee, from these transactions, worked out to 17.91% on cost, the cost plus margin, on similar transaction, was 7.36% on cost. It was on the basis of this comparison that the intra AE transactions by the assessee were claimed to be at an arm’s length price. The TPO, however, did not accept this claim of the assessee. He was of the view that while the volume of transactions with AE was Rs 23.06 crores, the transactions with non AEs (i.e. independent enterprises was only Rs 12.08 crores. According to the TPO, “thus, there is significant volume difference between AE and non-AE segments”. The TPO further observed that “there is significant difference in functions performed, assets deployed and risks taken in respect of projects taken from the related parties and the services performed for the AE” even though he did not elaborate this stand any further. The next objection taken by the TPO, against adoption of cost plus method, was that “the projects with unrelated party have suffered because of the problem faced by client in respect of funding and environment clearance”. Finally, the TPO’s objection was that “some projects