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2016 (2) TMI 115 - ITAT MUMBAI

2016 (2) TMI 115 - ITAT MUMBAI - TMI - Transfer pricing adjustment - excluding Asian Business Exhibition and Conferences Limited as comparable by DRP - Held that:- The business model of the assessee and Asian Business Exhibition and Conferences Limited are totally different. While assessee undoubtedly is providing support services to its overseas AEs, Asian Business Exhibition and Conferences Limited is primarily and fundamentally engaged in event management. Thus, under no circumstances it can .....

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and the assessee are against the final assessment order passed u/s. 143(3) r.w.s 144C of the Act in pursuance to the directions of Dispute Resolution Panel (DRP), Mumbai. At first, we will deal with the departments appeal in ITA 22/M/15. Only substantive ground raised by the department is as under:- 1. "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel erred in rejecting the comparable viz. Asian Business Exhibition and Conferenc .....

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ort and business support services and software development services in relation to re-insurance, underwriting and actuarial activities to its associated enterprises overseas. The assessee is a wholly owned subsidiary of Reinsurance group of America. During the relevant previous year, assessee had entered into international transactions with its Associated Enterprises (A.E.) on account of provision of software development and I.T. Services and provision of business and market support services. Th .....

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sessee, it was noticed that assessee has bench marked the Arm s Length Price(ALP) of the software development and I.T. support services to its A.E. by selecting Transaction Net Margin Method (TNMM) as most appropriate method with operating profit to operating cost as Profit Level Indicator (PLI). Considering itself as the tested party, assessee has conducted search in the data bases for selecting comparables and had short listed twenty one companies as comparables with arithmetic mean margin of .....

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price charged to AE was found to be within arm s length. 5. TPO after analyzing the T.P. report of the assessee, however, was not satisfied with the same for the reason that the assessee had selected comparable companies by taking multiple year data and segmental accounts provided were not audited. He also observed, software development and I.T. support services segment is only 4% of the total turnover of the assessee. He, therefore, called upon the assessee to explain as to why it should not b .....

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ne of ₹ 16,17,50,508/- whereas the revenue earned form the activity of Software Development and IT support services is to the tune of ₹ 67,36,584/-. Thus the predominant revenue is from providing Business Support Services to AEs being 96% of the revenue. 6. Thus, on the aforesaid basis TPO aggregated both the segments i.e. business support services and software development services by treating it as single segment and proceeded to benchmark the ALP of the international transaction in .....

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so assessee considered multiple year data instead of current year s data. Out of 14 comparable selected, relevant data for A.Y.2009-10 in respect of 3 comparables are not available. Further, two comparables are persistently loss making. He, therefore, rejecting the T.P. study report of the assessee undertook a search himself to find comparables and short listed 7 companies. One amongst them being Asian Business Exhibition and Conference Limited. The average arithmetic mean of the comparables sel .....

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P, amongst other issues, assessee objected to selection of certain comparables including Asian Business Exhibition and Conferences Limited. As far as assessee s objection with regard to selection of comparable companies is concerned, the DRP while considering the comparability of Asian Business Exhibition and Conferences Limited found it to be functionally different from the assessee as it is primarily engaged in event management, relating to exhibition and events, sponsorship, delegates attendi .....

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s considered in the T.P. Study, it has to be included as a comparable. Accordingly, DRP directed the assessing officer to remove Asian Business Exhibition and Conferences Limited from the list of comparables. Since, DRP found that after removal of Asian Business Exhibition and Conferences Limited assessee s margin comes within +/- 5% of other comparables it did not decide assessee s objections in respect of other comparables. Further, the DRP also directed the assessing officer to retain the two .....

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d departmental representative, though, agreed that the company is an event management company but at the same time it is submitted, the other comparable companies which were selected and not objected by the assessee are also functionally different. Therefore, when the assessee has no objection with regard to those companies it cannot object to selection of Asian Business Exhibition and Conferences Limited. He submitted, the basis on which the DRP excluded Asian Business Exhibition and Conference .....

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P. Study of assessee. 10. The learned counsel referring to the annual report of Asian Business Exhibition and Conferences Limited submitted, the directors report of the company make it clear that it is engaged in organizing exhibitions and conferences. Further, referring to schedule 12 of the profit and loss account of the company learned counsel submitted the income earned is from exhibition and events, sponsorship, delegates attending conference/events and entry fees charged from visitors for .....

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parable, that cannot be the only reason to reject assessee s objection with regard to selection of the company as a comparable. In this context he relied upon the following decisions: 1. M/s. Stream International Services Pvt. Ltd. V/s. ADIT (IT) 7(2) in ITA No. 8997/M/10 dated 11.01.2013. 2. M/s. Shell India Markets Pvt. Ltd. V/s. The ACIT in ITA 193/M/13 dated 10.12.2014. 11. We have considered the submission of the parties and perused the relevant material on record. On perusal of the order p .....

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l as notes to the accounts reveals, revenue earned by the company is from sponsorship, delegates attending conferences, events and entry fees charged from visitors for visiting exhibition, sale of stall place etc. 12. Thus, on overall analysis of facts and materials placed on record it is very much clear that the business model of the assessee and Asian Business Exhibition and Conferences Limited are totally different. While assessee undoubtedly is providing support services to its overseas AE s .....

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