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2015 (9) TMI 65 - ITAT DELHI

2015 (9) TMI 65 - ITAT DELHI - TMI - Transfer pricing adjustment - Selection of comparable Capital Trust Ltd. as selected by assessee denied by CIT(DR) - Held that:- The assessee was in the business of repair services, computer hardware and software related services, erection, commissioning and installation services. Capital Trust Ltd. was, inter alia, imparting consultancy to foreign banks not having any branches or representative offices in India. The assessee’s contention is that this consult .....

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siderable force in the argument of ld. CIT(DR) that since the consultancy segment is very meager as compared to the overall activities carried on by assessee, therefore, it cannot be held that merely because segmental details are provided, therefore, the financial consultancy to foreign bank assumes significance. We, accordingly, confirm the assessment order of AO on the issue in question. - Decided against assessee - ITA no. 5927/Del/2010 - Dated:- 21-8-2015 - SHRI S.V. MEHROTRA AND SHRI A.T. V .....

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appeal: On the facts and circumstances of the case and in law, the Learned Assessing Officer ("the Ld. AO") has erred in passing the assessment order dated 20 October 2010 u/s 143(3) read with section 144C of the Income Tax Act, 1961 ('the Act') in conformity with the directions of the Hon'ble Dispute Resolution Panel ("DRP") vide letter dated 8 September 2010 and adjustments made by the Learned Transfer Pricing Officer ('the Ld. TPO') in his order dated .....

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the addition of ₹ 3,028,346/-, the Hon'ble DRP and Ld. AO 1 TPO have grossly erred in not appreciating that the Appellant had prepared the detailed contemporaneous Transfer Pricing documentation bona fide and in compliance with the Act and Income Tax Rules 1962 ('the Rules') and selected uncontrolled comparable companies based on a detailed Functional Asset and Risk (FAR) analysis following a methodical benchmarking process. 3. the Hon'ble DRP and Ld. AO 1 TPO have grossly .....

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sidered as comparables by the Appellant, without providing sufficient basis for rejecting them . The Hon'ble DRP and Ld. TPOI AO have wrongly rejected companies mostly on grounds of being persistently loss making. 5. the Hon'ble DRP adjustment to the and Ld. TPO 1 AO have erred by not applying a working capital results of the companies selected by the Ld. TPO to account for differences between the working capital requirements of the appellant visa- vis these companies. 6. the Hon'ble .....

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Section 92F of the Act. 8. That the Ld. AO has further erred in law and on facts in levying interest under section 2348 of the Act. 9. The Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. 2. Ground no. 3 was not pressed at the hearing. Accordingly, ground no. 3 stands dismissed being not pressed. Ground no. 9 is premature and stands dismissed accordingly. 3. Ground nos. 1,2 and 4 to 7: Brief facts of the case are that the assessee company, in the relevant a .....

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Method used By assessee Method used By assessee 1. Provision of pre-sales and post-sales support services TNMM 51,703,483 2. Receipt of support services TNMM 5,703,177 3. Payment of interest on ECB loan TNMM 96,406 4. Reimbursement of expenses TNMM 575,409 Total 58,078,475 3.2. The assessee had applied TNMM as the most appropriate method for benchmarking the ALP and the PLI was OP/TC. There is no dispute on this. 3.3. Ld. TPO considered the comparables selected by the assessee in the TP report, .....

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ust Ltd., having arithmetic mean of -9.18%, from the set of comparables. 3.4. The main dispute in the present appeal is regarding exclusion of this comparable, which the assessee has taken as ground no. 4 of its grounds of appeal. This comparable was rejected by ld. TPO on the ground that it was functionally not comparable and was incurring persistent losses. The main reasons for rejecting this comparable by ld. TPO was as under: i. This company was not incurring occasional loss, but persistent .....

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services rendered to foreign banks was very different from the business of the assessee, because assessee was engaged in the provision of pre sales and post sales technical and marketing support services to its AEs, which included market research, collection & supply of information concerning products and services for communication interception, digital video security, surveillance and enterprise business intelligence, whereas Capital Trust, on the other hand, provided services to foreign ba .....

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ersistent loss making companies were to be rejected from the set of comparables but Capital Trust Ltd., was wrongly rejected because ld. TPO failed to take into consideration the fact that in AY 2005-06, this company earned a profit margin of 26.23%. 4.1. Ld. counsel referred to page 390 of the PB, wherein P&L A/c of Capital Trust Ltd. for the period ended 31-3-2006 is contained to point out that the company, inter alia, had earned income from management consultancy fee. 4.2. Ld. counsel fur .....

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held that Capital Trust Ltd. s consultancy segment is similar to that of Nortel India, which was rendering ITE services like assessee and, therefore, this comparable should not be rejected merely on the ground of incurring persistent losses and functionally not comparable. He referred to para 7 of the said decisions, which is reproduced hereunder: 7. We have heard the rival contentions and perused the material available on record. Apropos Capital Trust comparable, the TPO has observed that prima .....

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rom the facts on record and argument advanced before us, it emerges that the functional profile of Capital Trust Limited s consultancy segment is similar to that of Nortel India the same needs to be included in the final comparables for working the ALP. The AO will accordingly apply this comparable while working out the ALP, this ground of assessee is allowed. 4.4. Ld. counsel also relied on the decision of ITAT Pune Bench A dated 9-10-2014 in the case of M/s Bobst India Pvt. Ltd. (rendered in I .....

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observed that merely because a comparable is making loss, it cannot be excluded from the list of comparable for the purpose of computation of arm's length price. ITAT, Mumbai 'K' Bench in the case of Advance Power Display Systems Limited vs. ACIT held that persistent loss making company cannot be considered as good comparable for the purpose of determining ALP. ITAT, Hyderabad 'A' Bench in the case of Brigade Global Services Private Limited vs. ITO held that in case there is .....

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y to the total turnover, it cannot be said that the consultancy was one of the main functions being carried out by the Capital Trust Ltd. 6. We have considered the rival submissions and have perused the record of the case. The assessee was in the business of repair services, computer hardware and software related services, erection, commissioning and installation services. Capital Trust Ltd. was, inter alia, imparting consultancy to foreign banks not having any branches or representative offices .....

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