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TMI Blog2015 (4) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... l transaction of: 'Sale of services' with the value of Rs. 15,05,91,025. The Transactional Net Margin Method (TNMM) was employed as the most appropriate method to demonstrate that this international transaction was at arm's length price (ALP). The assessee was compensated at cost plus 3% mark-up, which was claimed as arm's length price because of the similar pattern adopted by its holding company across the globe for compensating the other AEs for performing similar activities. The TPO examined the nature of activities carried out by the assessee on pages 5-7 of his order dated 8.10.2008. It was concluded that major part of the assessee's income was from its AEs on account of R&D activities. As the assessee had not given any comparable uncontrolled transactions, the TPO carried out search for finding some external comparable uncontrolled transactions. In this process, the following three companies were chosen as comparables, after due notice to the assessee :- Name of the Company OP/TC i) National Research Development Corporation Ltd. (5.80%) ii) Panacea Biotech 17.17% iii) Suven Life Science 14.26% Average 8.54% 4. Considering the above as arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining their comparability or otherwise. i) Indian Tourism Development Corporation (ITDC). 8.1. Before deciding the comparability of this company, it is of foremost importance to consider the functional profile of the assessee. In this regard, it is noticed that the assessee entered into Research and Service Agreement (hereinafter also called 'the Agreement') with Honda R&D Company Ltd., Japan on 1.8.2003. Article 1 of this Agreement stipulates that the Japanese company is engaged in research and development activities relating to certain products to be manufactured and marketed by Honda Motor Company Ltd., or its licensees. The Japanese company sub-contracted a portion of the R&D activities to the assessee. This Article further lists out the following services to be rendered by the assessee to its parent company:- (1) Market research, information-gathering and analysis; (2) Design research and concept-making; (3) Product planning and proposals to R&D; (4) Study, analysis and development of the products referred to above; (5) Technical consultation about R&D's designated products; (6) Arrangement for the purchase of goods and samples, and export and import processing for R&D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 1, there remains absolutely no doubt that the assessee was mainly engaged in performing services qua the R&D activity dealing with design, research, product planning, study, analysis and development of the products, apart from doing market research and information-gathering, which is again nothing but connected with its major activity of undertaking research for its Associated enterprise. Article 2 manifests about the services to be rendered in filing and processing of applications for patents, utility models, designs, trademarks, and copyrights. It is but natural that only if some designs, models etc. are made by the assessee described in the Agreement as 'Work Results', that they would need registration for the purpose of trademark and copyright etc. The above narration of the activities carried out by the assessee amply divulges that it was engaged in the research and development activity on behalf of its holding company, which is again only a R&D company of the group. 8.6. The ld. AR vehemently argued that the stipulations in the Agreement were not decisive of the actual services rendered by the assessee to its AE. To buttress his point of view that the assessee was only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usefulness of the products and other relevant angles from the prospective of the prospective customers. The fact that the assessee was involved in the core R&D activity gets fortified from page 107 of the paper book for the AY 2007-08, on which the ld. AR has placed great reliance. This page gives manpower status. There are two divisions. Under the Motorcycle division, the assessee has given the number of personnel working in each department, such as, Styling Design (8), Marketing Research (4), Engineering Design (5), Testing (4), and Administration (9). Under the Power Products division, the number of employees are: Marketing Research (1), Testing (2) and Engineering Design (2). When we consider the description of the Departments, such as, Styling Design, Marketing Research, Engineering Design, Testing and Administration, there remains no doubt whatsoever that the entire focus of the assessee's activity is on research and development for the products to be manufactured by its group concerns. Notwithstanding the contents of the Agreement, the material towards which the ld. AR has drawn our attention, also shows that the assessee is engaged only into research and development connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as a comparable company to qualify for inclusion in the final set of comparables for determining the ALP of the assessee's international transaction. The impugned order on this issue is set aside. ii. National Research Development Corporation Ltd., Panacea Biotech and Suven Life Science 9. Now we are left with the other three companies, namely, National Research Development Corporation Ltd., Panacea Biotech and Suven Life Science, which were considered by the TPO as comparable. On this issue, we find that no reasons have been given in the impugned order for not considering these three companies as comparable. What to talk of giving any reasons for their exclusion, the ld. CIT(A) failed to even discuss the comparability or otherwise of these three companies. The ld. CIT(A) appears to have gone by the remand report alone overlooking the original order passed by the TPO on 8.10.2008 in which these three companies were considered as comparable. It goes without saying that the remand proceedings are in addition to and not in substitution of the original proceedings. Once the TPO selected the three companies in his original order, which were not adversely commented in the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company was operating from the same premises as that of the L.O., whose assets were purchased and put to use on 30.09.2004. After recording this submission, the ld. CIT(A) returned a finding that the assessee produced invoices raised by Writer Relocations which had transported the assets from New Delhi to Gurgaon. It is beyond our comprehension as to how the assets could have required transfer from New Delhi to Gurgaon, when no physical movement of assets was required as per the assessee's version since the assessee and LO were operating from the same premises. It is further worth noting that though the ld. CIT(A) called for a remand report from the AO on the question of comparables, but he did not consider it expedient to admit the additional evidence on this issue without seeking the comments of the AO. In our considered opinion, the Department has also rightly challenged the admission of additional evidence by the ld. CIT(A) in contravention of the provisions of Rule 46A of IT Rules. As the fact about the date of putting to use of such assets is not borne out from the material on record, we consider it necessary to set aside the impugned order on this issue and remit th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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