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Siemens Technology Services Pvt. Ltd. (Successor to Siemens Corporate Finance Private Limited) Versus DCIT-7 (2) , Mumbai

2016 (5) TMI 1183 - ITAT MUMBAI

Transfer pricing adjustment - inclusion of ICRA as comparable - Held that:- If the TPO himself had included ICRA as a comparable in earlier and subsequent years there was no justification for not including the same for the year under consideration on the ground that it had suffered losses. As stated earlier, if the results of ICRA are considered for TP purposes, the case will fall within the range of ± 5% and the adjustment made by the TPO would not survive. Considering the peculiar facts and ci .....

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t. 18.12.13, of the Assessing Officer (AO) passed in pursuance of directions of DRP, dtd. l3.10.13, u/s. 143(3) r.w.s 144C(13) of the Act, the assessee has filed the present appeal. 2. Assessee-company, engaged in the business of rendering of services like corporate treasury, financial reporting and taxation services etc. to Siemens AG and its group companies, filed its return of income on 29.9.2009,declaring total income of ₹ 1.25 crores. The effective Ground of appeal is about making an .....

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(Rs.) Method of Benchmarking 1. Provision of business support services 10,76,17,066/- TNMM 2. Reimbursement of Corina Connectivity Charges 3,62,603/- TNMM 3. Reimbursement of Shared Accounting Services 10,87,237/- TNMM 4. Reimbursement of Spiridon monthly user fee 11,38,278/- TNMM 5. IT. charges and other expenses payable 21,04,324/- TNMM 6. Recovery of Expense 5,06,517/- Cost reimbursement It was submitted that the assessee had earned cost plus mark up of 5% upto September 2008 and 7% from Oct .....

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profitability of the enterprise on ALP basis as well as the ALP on the international transaction in terms of services rendered by it to the AE.s. It was claimed that weighted average NCP margin of six comparable companies based on figures of 3 years (FY. 2006-07 to 2008-09) worked out a range from 2% to 20.98% with an arithmetic mean of 10.24%, that the assessee fell within ± 5% range, that transaction was at arm's length. After considering the TP report, the TPO held that the assesse .....

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to give the margin after considering the account for the FY 2008-09.The assessee gave the following details: SN. Name of the company Updated PLI for FY.2007-08 (%) 1. Cyber Media Online Ltd. 9.15 2. HSCC (I) Ltd. 18.66 3. Educational Consultants (India) Limited 2.34 4. IDC (India) Limited 10.34 5. ICRA Management Consulting Services Ltd. -1.84 6. Indiacom Limited Nil Arithmetic mean 7.73 He directed the assessee to file justification as to how the company selected by it were functionally compar .....

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cted by the assessee, as comparable was to be considered for comparison. The TPO fixed the average mean at 12.38% and held that it was higher than assessee's PLI of 6.10%,that it did not fall within ± 5% range. He made the following adjustment: Details Amount in (Rs.) Operating expenses 10,14,29,000/- ALP profit at 12.38% 1,25,56,910/- ALP revenue 11,39,85,910/- Transfer price 10,76,17,066/- Adjustment 63,68,844/- He further observed that the assessee had not demonstrated what were th .....

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it, the assessee stated that the TPO had disregarded search comparable undertaken by it, that out of six comparables five comparables were rejected as functionally non comparables, that only one comparable was considered in the final set of comparable used for computing the TP adjustment, that the TPO had selected CCSPL as comparable, that it had determined the ALP in accordance with section 92C (1)(2) of the Act, that none of the conditions prescribed in section 92C(3) of the Act was satisfied .....

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ejecting the five comparables was fair and was in order, that for the purpose of comparability it is essential to consider the activity/functions performed by the company along with the other things, that the TPO had found defects in the TP study carried out by the assessee, that the TPO had rightly rejected the assessee's functional analysis, search process and the comparables on the basis of difference in functionality and organisational structure, that financial results of ICRA Management .....

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f ICRA was included as comparable it would be within the permissible limit of ±5%, that suffering of loss by ICRA should not result in exclusion of the company from comparable, that the TPO himself had included the result of ICRA while deciding the TP issues for earlier and subsequent year. He referred to the cases of Goldman Sachs (India) Securities Pvt. Ltd.(Income Tax Appeal No.2222 of 2013 dt.4.4.2016).The Departmental Representative(DR)supported the order/directions of the AO/DRP. 5. .....

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cept one,that he held that use of multiple year data was not justifiable, that he further held that the comparable selected by the assessee, including ICRA, were functionally different, that ICRA had reported loss of (-1.84%), that the TPO rejected the said comparable, that he conducted a fresh search identifying nineteen entities as comparables, that he retained one company only as comparable out of the 19 comparables, that he compared the operating profit with the total cost(OP/TC)of the remai .....

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ALP, as it had suffered loss during the year under consideration. But, for the subsequent and the earlier years the TPO himself had used the data of ICRA for determining the results. In our opinion, for determining ALP what is to be seen is the similarities of functions of the comparables not the commercial results. Profit and loss are the two sides of the same coin. So, if an assessee had suffered loss during a particular year it should not be excluded from the comparables' list. If ICRA wa .....

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fied in law in considering partly irrelevant material and in accepting Capital Trust Limited as a comparable and thereby ignoring accepted Transfer Pricing Audit practice that persistent loss making concerns are not to be considered as comparable in cases of profit making concerns? " The Hon'ble High Court had dealt the issue as under :- (a) The Respondent-Assessee urged before the Tribunal that the upward adjustment of ₹ 1.60 crores by the TPO pertaining to Business Support Servi .....

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