TMI Blog2015 (7) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... xygen Ltd. [1999 (12) TMI 107 - ITAT DELHI-D] as held that the use of cars by directorsemployees of a company cannot be characterized as user for non-business purpose and, hence, no part of such car expenses can be disallowed. The Hon’ble Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT (2001 (7) TMI 70 - GUJARAT High Court ) has held that once the directors of the assessee company are entitled to use the vehicles of the company for personal use as per the terms and conditions of their appointment, it cannot be said that there was a personal use of cars. The Hon’ble High Court further held that such user of vehicles by the employees of the company cannot even be considered as ‘non-business user”. There are innumerable judgments on this point holding that there can be no disallowance of depreciation or other expenses on maintenance of the vehicles used by the directors/employees by treating it as personal user or non-business user of the company. We fail to see any rationale in treating the amount of depreciation on cars as for personal use, when admittedly these have been provided to employees. A company is a separate legal entity distinct from its directors or em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational transaction of rendering marketing support services. The Hon’ble Delhi High Court in CIT VS. Verizon India (P.) Ltd. [2013 (7) TMI 699 - DELHI HIGH COURT] has held that Marketing services provided by companies cannot be compared with Engineering services provided by assessee. This company has also been held by the tribunal to be incomparable in its order for the immediately preceding assessment year passed in the case of the assessee itself. As such, this company is also directed to be excluded from the list of comparables. Vimta Labs Ltd. is not functionally comparable with the assessee. Spectrum of the services rendered by this company covers analytical food and drugs; clinical reference lab services to address the specialties and central lab services for clinical trials; clinical trials phase-I-IV and BA/BE studies; pre-clinical safety assessments; and environmental assessments. A cursory look at the nature of services provided by this company divulges that the same is functionally dissimilar from the assessee. How a company conducting clinical trials on foods and drugs can be considered as comparable with the assessee undertaking marketing support services, is any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., and ICRA Management Consulting Services Ltd. The Revenue is not in appeal before us. In such circumstances, we are unable to remedy the situation to the advantage of the Revenue inasmuch as it is the TPO who has accepted the comparability of these two companies with the assessee’s marketing support services. As such, our hands are tied to hold that the two surviving companies in the final list of comparables which are, in fact, not comparable, be also excluded and a fresh determination of the ALP be done. - ITA No.5766/Del/2011 - - - Dated:- 30-6-2015 - Shri R.S. Syal and Shri A.T. Varkey, JJ. For the Petitioner : Shri Nageshwar Rao, Advocate For the Respondent : Shri Bhaskar Goswami, Sr. DR ORDER PER R.S. SYAL, AM: This appeal by the assessee emanates from the final assessment order passed by the Assessing Officer (AO) u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called the Act ) on 24.10.2011 in relation to the assessment year 2007-08. 2. The first effective issue raised in this appeal is against the disallowance of depreciation on ITG Networking equipments by ₹ 1,20,89,521 by reducing the rate of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be no disallowance of depreciation or other expenses on maintenance of the vehicles used by the directors/employees by treating it as personal user or non-business user of the company. We fail to see any rationale in treating the amount of depreciation on cars as for personal use, when admittedly these have been provided to employees. A company is a separate legal entity distinct from its directors or employees. As such, there can be no question of treating the use of vehicles by the directors/employees as a personal use by the company. Similar issue has also been decided by the Tribunal in the assessee s own case for the preceding year in its favour. The relevant discussion has been made in paras 5 and 6 of the Tribunal order. We, therefore, order for the deletion of disallowance of depreciation on such vehicles. 6. The next issue is the disallowance of ₹ 1,28,88,973/- towards running and maintenance expenses of the vehicles used by the employees of the assessee company. The AO, following the direction of the Dispute Resolution Panel (DRP), held that 50% of running and maintenance expenses of the vehicles were to be disallowed for non-business purpose. 7. After co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee reported five international transactions in Form No. 3CEB which include Provision of marketing support services with the transacted value of ₹ 549,96,89,240/-. Apart from that, the assessee also reported international transaction of Provision of product support services and Provision of Microsoft Consulting Solutions Services , etc. The assessee adopted the Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking its international transactions. The entire controversy in the present appeal rotates around the determination of the arm s length price of the international transaction of Provision of marketing support services. With the help of certain comparables chosen, the assessee tried to demonstrate that this international transaction was at arm s length price (ALP). For proving this, the assessee adopted Profit level indicator (PLI) of Operating Profit to Total Cost (OP/TC). On a reference made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO), the latter shortlisted nine comparables with their average OP/TC at 25.32%. By applying this benchmark, the TPO proposed transfer pricing adjustment in respect of Provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TSR Darashaw (Segmental) 33.90% 2. TCF Consulting Engineers Ltd. 18.04% 3. Vimta Labs Ltd. 26.34% 4. Water Power Consultancy Services (India) Ltd. (WAPCOS) 32.92% 15. Before examining the comparability of the above four companies, it is essential to consider the functional profile of the assessee under this transaction. The assessee provided Marketing support services to MS Corp and affiliate entities in return for service fees. The assessee did not undertake sale of Microsoft software, but, only created awareness and promoted sale of Microsoft products in India. The Marketing support services undertaken by the assessee include : Expanding the markets for Microsoft retain products in India through local print electronic advertising, promotional campaigns, anti-piracy drives, etc; and Performing other activities which includes: i. Dissemination of information to potential customers; ii. Commenting on any development in the territory affecting the industry in which MCIPL functions; iii. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn around to contend its incomparability. 17. We are not inclined to uphold the objection taken by the ld. DR on the inclusion of this company as comparable merely on the fact that the assessee treated it as comparable in its TP study report. It goes without saying that there can be no estoppel against correctness. If the assessee inadvertently includes a company in its final set of comparables, which is, in fact, not comparable, he has a right to agitate before the authorities that this company may be excluded. This right of the assessee does not, in any manner, prejudice the powers of the authorities to examine the comparability of the company which is sought to be excluded. If, on making such an analysis, the authorities find that the company so agitated as functionally incomparable, is comparable, then there can be no reason to exclude the same. If, however, the company turns out to be functionally dissimilar from the assessee, then, there can be no rationale in continuing to treat it as comparable despite the functional variation. The crux is that what really matters is the actual comparability and not the wrong view canvassed by the assessee in the original reporting. Wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This company is operating only in one segment, namely, engineering consultancy services. It is axiomatic that there can be no comparison of this company with the assessee s international transaction of rendering marketing support services. The Hon ble Delhi High Court in CIT VS. Verizon India (P.) Ltd. (2014) 360 ITR 342 (Del) has held that Marketing services provided by companies cannot be compared with Engineering services provided by assessee. This company has also been held by the tribunal to be incomparable in its order for the immediately preceding assessment year passed in the case of the assessee itself. As such, this company is also directed to be excluded from the list of comparables. iii. Vimta Labs Ltd.: 21. The TPO included this company in the set of comparables by noticing that it has been so used as comparable with the assessee since the AY 2002-03. He further supported his finding by noticing that this company was providing similar services as provided by the assessee. 22. We do not find any force in the functional comparability of this company with the assessee. Spectrum of the services rendered by this company covers analytical food and drugs; clinical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t forth by the ld. DR. He submitted that the TPO did not properly consider the nature of the `Marketing support services provided by the assessee and also accepted some companies chosen by the assessee as comparable which were, in fact, not comparable. He invited our attention towards the only remaining two companies in the list of comparables, namely, IDC India Ltd., and ICRA Management Consulting Services Ltd. It was stated that these two companies are not comparable with the assessee s marketing support service segment. In the backdrop of the above arguments, it was requested that the entire issue of determination of the ALP of the international transaction of `Provision of marketing services should be set aside and the matter be remitted to the TPO for a de novo adjudication by considering an altogether fresh set of comparables. 27. We find force in the submission advanced by the ld. DR to the extent of improper examination of the case done by the authorities in not properly appreciating the nature of services performed by the assessee in this international transaction, which led to the acceptance of improper comparables selected by the assessee. It is however, clear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a de novo adjudication. It is patent that the assessee in the instant appeal is aggrieved against the inclusion of the afore discussed four companies from a total set of six companies. It has no issue with the inclusion of IDC Ltd., and ICRA Management Consulting Services Ltd. The Revenue is not in appeal before us. In such circumstances, we are unable to remedy the situation to the advantage of the Revenue inasmuch as it is the TPO who has accepted the comparability of these two companies with the assessee s marketing support services. As such, our hands are tied to hold that the two surviving companies in the final list of comparables which are, in fact, not comparable, be also excluded and a fresh determination of the ALP be done. We are, ergo, leaving this issue here only with the hope that a better and more wiser analysis will be done by the TPOs in the days to come. 30. The assessee has raised an additional ground reading as under:- That on the facts and in the circumstances of the case, an expense of ₹ 207,549 disallowed by the Learned Assessing Officer as prior period expenses should be allowed as an expense in AY 2007-08 since it pertains to the said AY. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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