2019 (1) TMI 2038 - AT - Income Tax

TP Adjustment - comparable selection - Info Edge (India) Ltd. Media Reserarch Users Council MMTV LTD Power Systems Operation Corpn. Ltd. and TSR Darashaw - HELD THAT - From the annual reports of each of the comparables contested by the Revenue it can be seen that comparables are functionally dissimilar to the assessee company. These comparables are considered in case of Adobe Systems India Pvt. Ltd 2018 (7) TMI 741 - ITAT DELHI for the same Assessment Year 2011-12 and from the perusal of the Tribunal s order it can be seen that these comparables are functional different than assessee s company. The assessee company is engaged in provisions of marketing support services to Teijin-Japan and other group companies while the comparables are functionally different from the assessee companies which can be seen from the Annual reports of each of the comparables. The DRP has given proper direction for excluding these comparables contested by the Revenue. The Ld. DR also was not able to demonstrate that the functional profile of these comparables is similar to that of assessee company. Therefore the appeal filed by the Revenue is dismissed

Summary

Issues Involved:
1. Direction by DRP-2 to AO regarding reduction of addition on account of arm’s length price.
2. Direction by DRP-2 to TPO to exclude certain companies from the final set of comparables.

Detailed Analysis:

Issue 1: Direction by DRP-2 to AO regarding reduction of addition on account of arm’s length price
The Revenue filed an appeal against the Assessment Order dated 20.10.2015, where the Dispute Resolution Panel (DRP-2) directed the Assessing Officer (AO) to complete the assessment per its observations, resulting in a reduction of Rs. 1,19,41,815/- on account of the proposed addition of arm’s length price of the international transaction with its associated enterprises. The DRP-2's directive led to a significant reduction in the addition proposed by the AO.

Issue 2: Direction by DRP-2 to TPO to exclude certain companies from the final set of comparables
The DRP-2 directed the Transfer Pricing Officer (TPO) to exclude five companies from the final set of comparables. These companies were:
1. Info Edge (India) Ltd.
2. Media Research Users Council
3. MMTV Ltd.
4. Power Systems Operation Corporation Ltd.
5. TSR Darashaw Pvt. Ltd.

The Revenue contested this exclusion, arguing that the TPO had provided a detailed discussion justifying the inclusion of these companies. However, the DRP-2 found these companies functionally dissimilar to the assessee, Teijin India, which is engaged in providing marketing support services to Teijin Japan and other Teijin Group companies.

Analysis of Comparables:

1. Media Research Users Council (MRUC):
- DRP-2 found MRUC functionally different as it is a not-for-profit body conducting media research, which fails the export income filter and has an abnormal profit margin.
- The Tribunal upheld this exclusion, noting MRUC's distinct functional profile and its role in media research, which is not comparable to the marketing support services provided by the assessee.

2. Info Edge (India) Ltd.:
- DRP-2 excluded this company, noting its involvement in high-end diversified services like recruitment, matrimony, real estate, and education, which are not comparable to the assessee's marketing support services.
- The Tribunal supported this exclusion, referencing previous cases (Adobe Systems India Pvt. Ltd. and Rolls-Royce India Pvt. Ltd.) where Info Edge was found functionally different due to its online portal activities and significant intangibles.

3. MMTV Ltd.:
- DRP-2 excluded MMTV Ltd. due to its engagement in television broadcasting and related operations, which are functionally different from the assessee’s services.
- The Tribunal upheld this exclusion, emphasizing MMTV’s distinct business operations and significant intangibles.

4. Power Systems Operation Corporation Ltd.:
- DRP-2 excluded this government-owned company due to its functional differences, high related party transactions (RPT filter 48.20%), and failure to meet the export turnover filter.
- The Tribunal agreed with this exclusion, noting the company’s distinct business model and operational scope.

5. TSR Darashaw Pvt. Ltd.:
- DRP-2 excluded TSR Darashaw Pvt. Ltd. as it provides IT-enabled services like share registry, transfer services, and payroll management, which are functionally different from the assessee’s marketing support services.
- The Tribunal upheld this exclusion, referencing prior decisions where TSR Darashaw was found functionally different in similar contexts.

Conclusion:
The Tribunal, after reviewing the annual reports and functional profiles of the contested comparables, upheld the DRP-2’s directions to exclude these companies from the final set of comparables. The Tribunal found that these companies were functionally dissimilar to the assessee, which is engaged in providing marketing support services. Consequently, the appeal filed by the Revenue was dismissed. The order was pronounced in the Open Court on 25th January 2019.