TMI Blog2017 (4) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... saction of marketing support service and technical support service, however, the issue of consistency was not addressed by the Ld. DRP . Similarly, on the issue of following the rule of consistency in respect of rejection of the comparables in both the segments, the Ld. counsel has submitted that FAR analysis of the assessee as well as comparables was similar in earlier years and therefore there was no reason for rejection of the comparables chosen by the assessee. On the other end, the Ld. CIT(DR) contended that the AO/TPO has given reasons for rejection of the comparables chosen by the assessee. In our opinion, issue before us is if the comparables chosen by the assessee in earlier years were having FAR analysis similar to FAR analysis in year under consideration, how the same were accepted by the TPO in earlier years but rejected in the current year. If there is no change in the FAR analysis of the comparables and the assessee in earlier years viz-a-viz current year, then the rule of consistency demands that comparables chosen by the assessee should be accepted. We find that in absence of records of earlier years, the Ld. CIT(DR) could not address on the issue, and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Hon ble DRP has committed gross errors in confirming the order passed u/s 92CA(3) of the Act by the learned Transfer Pricing officer (the learned TPO ) proposing a transfer pricing adjustment to the actual value of the international transactions of the Appellant with its associated enterprises and only granting a partial relief thereof. 4) That, on the fact and the circumstances of the case and in law, the learned TPO/Hon ble DRP has grossly erred in not accepting the economic analysis of the Appellant for international transactions related to (a) provision of marketing and after sales support services; (b) Technical services (Reliance and others); and (c) Bharti IVR business segments and re-determining the arm s length price ( ALP ) which is not in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ( the Rules ) and also suffers from mistakes apparent from record. 4.1 That, on the facts and circumstances of the case and in law, the learned TPO/Hon ble DRP has erred in (a) rejecting the data used by the Appellant which was available to it at the relevant time and proceeding to use the data whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in not allowing a risk adjustment to the Assessee on account of the fact that the Appellant is remunerated on a cost plus basis for the international transaction related to provision of marketing and after sales support services to associated enterprise irrespective of the outcome of the services provided and hence undertakes no market risk, service liability risk, credit and collection risk as against comparable companies that are the full-fledged risk taking entrepreneurs. 10) 10. That without prejudice, on the facts and circumstances of the case and in law, the learned AO/ TPO has made apparent mistakes in calculation of the operating margin of certain companies as well as in the working capital computation while calculating working capital adjusted margin of the comparable companies in respect of the international transactions. 11) That without prejudice, on the facts and circumstances of the case and in law, the learned AO / TPO / Hon ble DRP has erred in not allowing the benefit of downward adjustment of 5 percent, as provided in the Proviso to section 92C of the Act, from the ALP of the international transactions as determined by them. 12) 12. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nature of Transaction Approach of taxpayers Value of transaction Method PLI 1. Availing of technical services (for providing technical services to Reliance Others) TNMM OP/OR ₹ 503,120,607 2. Provision of marketing and after sales support services TNMM OP/OC ₹ 3,198,610,466 3. Import of telecommunication equipment for BSNL contract TNMM OP/OR ₹ 133,082,754 4. Import of components and availing of technical services for Bharti IVR contract TNMM OP/OR ₹ 4,599,982,641 5. Reimbursement of expenses to AEs BNR NA ₹ 327,634,879 6. Reimbursement of expenses from AEs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59.16 37.17 3. IBI Chematur 13.54 7.39 0.00 100.00 43.94 0.00 20.66 17.12 4. Indus Technical Financial Consultants Ltd. 1.45 0.83 0.72 98.62 27.74 NA 6.78 6.35 5. L T Ramboll Cons 24.46 16.94 0.39 100.00 51.52 0.00 41.79 29.47 6. Mahindra Consulting Engineers Ltd. 8.48 3.50 0.00 99.07 38.62 0.08 25.75 20.48 7. MN Dastur 162.82 99.75 0.00 100.00 42.14 9.49 7.42 6.91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables and average PLI of those comparables was arrived at 8.97% adopting weighted average of the current year and the immediately preceding two years. The average PLI of the comparables being less than the assessee company, no adjustment was made to the price of the international transaction of marketing and sales support services. The ld. TPO, bifurcated the transactions relating to provision for marketing and after sales support services in two parts i.e. technical support services and business support services on the ground that marketing support services provided by the assessee were not general in nature and required specialization and technical expertise. The assessee submitted list of employees is required by the Ld. TPO and from which, he concluded that 15% of the employees were providing technical support services and rest were providing business support services. The Ld. TPO, accordingly allocated the revenue and cost for both the technical support services and business support services for the year under consideration as under: Particulars Amount (Rs.) Total revenue under marketing and after sales support serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 162.82 99.75 0.00 100.00 42.14 9.49 7.42 7.42 8. Rites 582.84 609.75 0.19 100.00 40.37 6.12 24.83 24.83 9. Semac Ltd. 34.68 14.60 0.22 97.31 43.22 NA 25.22 25.22 10. TCE Consulting Engineers Ltd. 319.05 116.47 0.66 98.29 50.10 0.05 27.20 27.20 11. WAPCOS Ltd. 223.92 75.21 0.41 100.00 27.92 0.00 25.57 25.57 12. Zipper Trading Enterprises Ltd. 1.02 1.04 1.16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.00 100.00 51.36 13.88% 20.12 20.12 6 Kiliick Agencies Mkfg. Ltd. 1.39 0.48 0.83 99.29 38.66 #N/A 29.48 29.48 7 Orient Engineering Commercial Co. Ltd. 1.41 3.77 0.00 87.58 44.44 #N/A 34.47 34.47 8 TSR Darashaw. 18.71 19.67 0.45 100.00 50.80 0.00 26.98 26.98 9 ICRA Management Consulting Services Ltd. 18.91 18.32 0.35 93.43 51.20 8.09% -3.24 -3.24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to the draft assessment order before the Ld. DRP on 29/04/2013. The Ld. DRP after taking into account submission filed on behalf of the assessee and hearing the Authorized Representative of the assessee, issued direction to the Assessing Officer under section 144C(5) of the Act on 20/12/2013. The Assessing Officer, in compliance to the direction of the Ld. DRP , recomputed the transfer pricing adjustment at ₹ 11, 69, 39, 450/-and passed the impugned assessment order on 30/01/2014 assessing the total income at ₹ 58,43,50,870/-. Further, on the request for rectification, the Ld. DRP on 30/10/2014, rectified its direction directing to re-compute that adjustment in respect of technical services (reliance on the segment) and accordingly the ld. TPO, also recomputed that adjustment. Aggrieved with the direction of the Ld. DRP and the consequent impugned assessment order, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 3. Before us, the Ld. counsel of the assessee submitted that grounds No. 1 to 3 are general in nature. Accordingly, we are not required to adjudicate upon those grounds and same are dismissed as infructuous. The issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ld. TPO followed in earlier years. The Ld. counsel also submitted a chart showing status of companies selected as comparable by the TPO in the year under consideration for marketing support services vis- -vis position of the TPO in earlier years as under: 5. In respect of technical service segment, the learned counsel submitted that there is no change in facts/function or any other details compared to earlier and later years before the year covered in present appeal, however, the Ld. AO/TPO adopted a completely different stand in the year under consideration. He submitted that when relevant facts/FAR for current year remain same as in earlier and later years, both the assessee and the comparables, there is no justification to adopt completely different stand. Accordingly, he submitted that the comparables selected by the ld. TPO need to be excluded. Without prejudice to this claim, the Ld. counsel prayed for exclusion of comparables, namely, Archohm Consultant, Engineers India Ltd, IBI Chematur, L T Ramboll Cons, Rites Ltd, TCE Consulting Engineers Ltd., Wapcos, Zipper Trading Enterprises Ltd, as the same would result in deletion of the TP adjustment. The ld. Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that marketing and after sales support services provided in the year under consideration as well as in earlier assessment year were pursuant to the same service agreement dated01/07/2000 and thus there was no question of change in the functions performed by the assessee in the assessment year under consideration viz-a-viz earlier assessment year in respect of the services. The Ld. CIT(DR) could not address on this issue before us in absence of records of earlier years. In the case of Thomas Cook (India) limited (supra), the TPO had accepted the same comparables in earlier years, however rejected in the relevant year. The coordinate bench of the Tribunal in the said case observed as under: 7.3. We find that the assessee was engaged in travel industry primarily providing travel and tour services, that the travel and related segment activities of the assessee included two IT.shandling of inbound tourists and handling of out bound tourists, that both the transactions were aggregated for the purpose of bench - marking analysis, that the assessee-company was selected as tested part, that TNMM was adopted as most appropriate method, that the profit level indicator (PLI) used was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principle of res judicata is not applicable to tax matters as each year is separate and distinct, nevertheless where facts are identical from year to year, there has to be uniformity and in treatment. In the case under consideration we find that the TPO/DRP has not proved that there was a change in the facts, as compared to earlier years and even if they existed same were not brought on record. In short, the TPO/DRP has failed to prove the justification for deviating from the decision taken earlier. 9. Though in our opinion, if there is a change in functions carried out, assets employed and risk taken (FAR analysis) of the comparables in the year under consideration viz-a-viz earlier years, the comparables selected in earlier year might be rejected in the year under consideration, but following the observation of the Tribunal in the Thomas Cook (India) limited (supra) , the TPO should assign reasons as what are the differences in the FAR analysis of the comparables as compared to the earlier years, which led to rejection of those in the current year. The departmental authorities (i.e. ld. TPO/DRP) are required to bring on record the salient feature of the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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