TMI Blog2016 (4) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as well as the comparables. Before us assessee has submitted a working which is based on market rate of return of 12.26% used by the TPO while granting working capital adjustment compared with 7.57% rate of return for Indian treasury bills. Based on this working assessee has computed the risk adjustment as under:- Particulars Percentage Market Interest Rate (As per TPO Order PB Pg.286) (A) 12.26% Risk Free interest (B) 7.57% Risk Premium (OA-B) 4.69% Proportion of Risk Premium Rate to Total Market Interest (D=C/A) 38.25% Average PLI of Comparables (as per AO final order) (E) for market return (PB 224) 22.56% Less: Adjustment of Risk Premium out of Market return (F=E*D) (22.56%*38.25%) 8.63% Adjusted Risk free PLI of comparables (G=E-F) 13.93% Tested Party PLI (para 1 5. 1 of TPO order) 10.24%. Without commenting on the correctness of the computation of adjustment requested by assessee we set aside this ground to the file of ld. TPO for fresh consideration in accordance with law after granting proper opportunity to the assessee for supporting its claim. Non including the forex gain or loss of the assessee as operating cost or operating income - Held that:- Forex gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1.1. Rejecting the scientifically run search process of the assessee without cogent reason. 3.1.2. Rejecting the search process of the assesse was bad in law in view of the facts the final set of comparables of the Ld. TPO had 5 of the originally chosen comparables by the assesse. 3.1.3. Carrying out a new search process based on erroneous filters 3.1.4. Cherry Picking the comparables 3.2. The TPO as well as the DRP and consequently the AO have grossly erred in law and on facts and in the circumstances of the case for the choice of comparable companies by erroneously: 3.2.1. Determining the ALP of the international transactions of the assessee related to project management services (PMS), marketing support services (MSS) and corporate services that are support services in nature by treating and comparing them to high-end technical services, which is not in line with Rule 10B(2)(b), such that it does not satisfy the Functions performed, Assets employed and Risk assumed (FAR) Tests. 3.2.2. Ignoring the fact that the AE service segment of the assessee constitutes of more than 90% i.e. substantially and predominantly comprising of support services and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with facilities in 14 countries. Its core gas turbine technology has created one of the broadcast product ranges of aero engines in the world with 54,000 engines in service with 600 airlines, 4000 corporate and utility operators and more than 160 armed forces, powering bot fixed wing and rotary aircraft. In addition more than 70 navies use Rolls-Royce propulsion. Rolls-Royce International Limited, UK (RRIL) is a private limited company registered in the United Kingdom. It is engaged in formation of policies and strategies for the development of business opportunities in specific countries and provides marketing, research and commercial information service to its associated enterprises. Rolls-Royce India Pvt. Ltd. A subsidiary of Rolls-Royce Overseas Holding Limited, operates in India primarily in the power generation and oil and gas markets, with a range of reciprocating engines covering gas engines, HFO engines and crude oil engines. In the oil and gas sector, Rolls-Royce engines are used for running very large pumps to drive crude oil through pipelines running several hundred miles and also providing electrical power for such pumping stations. Similarly, for power generation, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ld. Transfer Pricing Officer for determination of arm s length of international transactions. Ld. TPO on examination out of 13 comparables selected by the assessee rejected 8 comparables on various factors and updated search further selected and retained in final analysis total of 19 comparables whose average PLI is 27.46% and computed arm s length price of ₹ 384455373/- against priced charged by the assessee of ₹ 333193056/- and proposed an adjustment of ₹ 51262317/-. Consequently draft assessment order dated 12.02.2015 was framed which was challenged before DRP by filing an objection on 09.04.2015. Ld. DRP held that the service segment of the assessee includes mix of technical, project management and marketing support services. Therefore it cannot be said that all the services provided by the assessee are very high end services. On this observation it directed to include one comparable and further with respect to 8 comparables included by TPO it directed to exclude 3 comparables selected by TPO and retained 5 further comparables selected by TPO. It further directed to rectify arithmetic error in computing margins of2 comparables i.e. Ashok Leyland and HSCC.I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services and market support services. The major contention of ld. TPO is that market support services is not routine services in the form of passive business support but rendering market support services. On perusal of the marketing services the assessee provide services such as maintenance of client relationship, identification of new clients, assistance in formulation of market and business strategy and coordination with respect to customer compliant services. On going through the order of TPO wherein a show cause notice dated 23.12.2014 we do not find in para no.4 a single word which shows that the assessee is asked to show cause at any point that assessee is not a low risk or non -risk bearing service provider. In para no.6 of the order of the TPO at page No.12 that various services provided by the assessee are not routine services but rendering market support services. This observation has not been substantiated by TPO how it changes the risk profile of the assessee which remains undisputed. Ld. DR also could not point out that what are the changes in the risk profile mentioned by the assessee and which has also been considered by coordinate bench comparable to this year. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o of ITAT order for AY 2010-11. 4. IBI Chematur (Engineering Consultancy) Ltd. IBI Chematur (Engineering Consultancy) Ltd. is a joint venture company promoted in association with Chematur Engineering AB, Sweden to render engineering and consultancy services in field of Petrochemicals, Fine chemicals Chemicals, Cosmetics, Pharmaceutical s, Industrial Explosives Waste acid recovery. Hence highly technical. See profile on PB Pg.263-266. Also approved under the Software Technology Park scheme of the Gol as a 100% EOU. M/s Verizon (India) Pvt. Ltd. Vs JCIT [ITA No:4187/Del/2010], Engineering consultancy activity, given the complexity of the function coupled -with the technical expertise required in providing engineering consultancy, the same activity cannot be considered comparable to function of providing marketing support services due to functional differences, differences in industry and difference in market dynamics, Actis Advisers Pvt. Ltd. vs Addl. Commissioner of Income Tax [TS-181 -ITAT-2013-DEL-TP]Covered by ratio of ITAT order for AY 2010-11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofile of the assessee company which is providing basic co-ordination and support services to its AEs. Thus, not functionally comparable as per Rule 10B(2) and prayed to be rejected. 10B(2) 8. MMTV Ltd. MMTV is a Malayalam language news channel and has a presence in various media like print, radio, online and television. Ld. TPO has rejected the assesee'scomparable Entertainment Network (India) Ltd. for being operating a radio channel and thus being functionally different (PB Pg.110). On the same basis of functionally difference between rendering support services and running and operating an infotainment network channel, the comparable MMTV should also be rejected as functionally different as per Rule 10B(2). 9. Ashok Leyland Project Services Ltd. The company assists investment entities of the group in successfully identifying and implementing projects in India, provides specialized inputs to assist in the profitable and economic implementation of projects, provides negotiated equity on behalf of Hinduja Group as a commitment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables regarding its suitability. However we feel that the paramount importance shall be on Rule 10B (2) of the Income Tax Rules 1962 which is as under:- (2) For the purposes of sub-rule (1), the comparability of an international transaction 55c[or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opsis filedby the assessee, is as under: 1. KITCO, the first technical consultancy organization(TCO) in India, was established in 1972 by IndustrialDevelopment Bank of India, other national and state levelfinancial institutions, Govt. of Kerala and 7 Public SectorBanks for rendering services to Entrepreneurs, Govt.Departmental PSUs, Local Bodies, etc. Presently, SmallIndustries Development Bank of India (SIDBI) is the primeshareholder with 49% shares of the company. 2. The aim of setting up of TCO, which had the blessing ofGovt. of India and the Reserve Bank of India, was to provideprofessional technical consultancy assistance to banks byappraisal of projects for priority sector lending and toentrepreneurs in the 5MB Sector by way of preparation ofProject Reports Market Studies and conducting trainingprogrammes for entrepreneurship development. Subsequentlysimilar TCOs were set up in almost all the states with one of theNational Financial Institutions (IDBI, IFCI or ICICI) as theprime shareholder. 3. KITCO has successfully implemented projects likeCochin International Airport Ltd., Titanium Sponge Project,International Marina, Cochin Special Economic Zone, etc andpresen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % EOU therefore it s pricing policy and profits are not comparable and therefore should be excluded. Before ld. DRP it also submitted that it has significant intangibles. We have carefully considered the rival contention with respect to this comparable based on the functional profile submitted before us at page no.263 to 266 it is apparent the profile pertainsabout IBI Group at page NO.263 and 264. At page no.263 the specialization of the company and its technologies offered to its respective clients are mentioned. At page 266 the list of clients of the comparables are mentioned. In view of this nothing has been produced before us to substantiate that this company is functionally not comparable with the assessee. Further the reasons that assessee is a registered as 100% EOU cannot be the reason for exclusion of a comparable as a registration of comparable as 100% EOU only gives it benefit with respect to indirect and direct taxation and nothing else. It does not change the functional profile of the comparable. Further even if it has impacted the prices charged by the comparable same is required to be shown that what is its impact on the PLI of the comparable. Therefore merely on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. TPO as well as DRP that this company is functionally not comparable in view of it engaged in management of online portals and also has major sources of revenue as advertisement income. Both the lower authorities rejected the contention of the assessee. We have carefully considered the rival contentions. It is apparent that the comparable selected by TPO is engaged in online portal activities such as employment website, matrimonial website and its major revenue is advertisement and subscriptions. It has diversified services such as recruitment related, real estate related, matrimonial related services and owns significant intangibles/websites such as naukri.com, 99 acre.com etc.Therefore this company is functionally different as it is providing an advertisement space as well as online portal based on subscription by the buyer and seller of the services compared to services provided by the assessee of marketing support services . In view of this we direct ld. TPO for exclusion of this comparable. 22. The next comparable is MMTV Ltd. Which is a Malayalam Language News Channel having presence in print media, radio and online television. Its main income is advertising income. Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as without giving proper opportunity to the assessee. The ld. TPO in its final order has taken PLI of HSCC at 86.58% whereas in the show cause notice it was proposed at 21.04% and further in case of Ashok Leyland Project Services Ltd. also working capital adjustment made by TPO has not been confronted which is in the show cause notice was 24.70% whereas in the final order it is 33.47%. Therefore we direct ld. TPO to grant proper opportunity of hearing and submission of its argument regarding adjustments made to the PLI of these comparables. 26. Regarding the risk adjustment assessee has raised a specific ground at ground no.3.2.5. assessee has contended that as it has been held by coordinate bench in AY 2010-11 in the case of the appellant that assessee is a risk free service providing entity and while the comparables proposed by TPO are providing high end technical services. This comparables assumes risk other than normal risk of business of providing marketing support services. In nutshell his argument was that in the selected and retained comparables the PLI should be adjusted according to the risk assumed by those comparables. Ld. DR relied on the orders of lower authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of tested party as well as comparables and the PLI should be determined accordingly. Regarding the treatment for provision for doubtful debts in para 55 at page 27 of the order coordinate bench has held that this provision be treated as part of operating expenditure. In view of this finding of the coordinate bench for AY 2010-11 in assessee s own case we direct the ld. TPO to work out PLI of comparables and the assessee on the similar lines following that order. In the result ground No.3.3.1 and 3.3.2 is allowed accordingly. 30. Ground No.3.3.3 of the appeal is against treatment of interest and bank changes as non-operating expenses. We do not find any objection raised by the assessee against the show cause notice which is placed at page No.122 at para 13 on this issue either before ld. TPO or before ld. DRP. As this issue is raised before us for the first time we reject the same. Therefore ground no.3.3.3 of the appeal is dismissed. 31. Ground no.4 of the appeal of the assessee is against non-granting of credit for advance tax of ₹ 783847/- and TDS of ₹ 70321/-. Assessee has submitted that the amount of advance tax has not been given credit because of err ..... X X X X Extracts X X X X X X X X Extracts X X X X
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