TMI Blog2016 (8) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 20.10.2009 passed by ADIT, Circle 2(1), New Delhi for the Assessment Year 2006-07 on the following grounds of appeal: That on the facts and circumstances of the case, and in law; 1. That the Assessment Order passed in pursuance to the directions issued by the Learned Dispute solution Panel ('Ld. DRP') is a vitiated order as the Ld. DRP erred both on facts and in law in confirming the addition made by the Ld. Assessing Officer ('AO') to the appellant's income by issuing the order without appropriate application of mind; 2. The Ld. DRP erred both on facts and in law in upholding the upward adjustment to the operating margin of the Service segment of the appellant, made by the Ld. TPO, and confirming the addition of ₹ 19,98,418 to the income of the appellant by holding that its international transaction under the service segment of the appellant does not satisfy the arm's length principle envisaged under the Act. In doing so the Ld. DRP has grossly erred in agreeing with the Ld. TPO's action of: 2.1. disregarding the ALP, as determined by the appellant in the Transfer Pricing ('TP') documentation maintained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of manufacturing and trading cigarettes and other tobacco product internationally. The assessee is into trading of Malbaro brand of cigarettes and tobaccos in India and is operating in India through a branch. The Indian branch is engaged in trading of cigarettes/tobacco leaves and is providing representation and logistics / marketing support services to / on behalf of the group entities. 2.1 The international transaction entered into by the assessee is as follows: S.N. Nature of transaction Method Used by assess ee Value of transaction 1 Purchase of Cigarettes Method PLI 45,382,050 2 Export of tobacco leaves 130,687,923 3 Services rendered TNMM OP/TC 31,889,661 2.2 The assessee treated itself as tested party in the TP report for the purpose of T P analysis. The assessee used Transactional Net Margin Method (TNMM) as the Most App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment Media Ltd. -13.24% 11 Contract Advertising India Pvt. Ltd. 21.07% 12 Fortune Communications Pvt. Ltd. Data not available Mean 6.36% 2.4 Out of the above 12 comparable companies, Ld. TPO selected 7 comparables to benchmark marketing and representative services which are as under: S.No. Name of the company OP/TC(%) 1 Cyber Media Events Ltd. 9.42% 2 Educational Consultants (India) Ltd. 2.72% 3 Priya International Ltd. (Indenting Segment) 22.58% 4 Tata Services Ltd. 6.35% 5 Hindustan Housing Co. Ltd. 9.68% 6 IDC (India) Ltd. 14/49% 7 Empire Industries Ltd. (Trading Indenting Segment) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competition. Promotional activities include, in certain instances and where permitted by law, allowances, the distribution of incentive items, price promotions and other discounts. The product development, innovation / R D and production and brand development are undertaken by the Group Cos. PM India, on the other hand is engaged in the business of import trading of cigarettes, imported from Group Cos. And export of tobacco leaves to Group Cos. Apart from this, it also provides representation services to / on behalf of the overseas Group Cos. Accordingly, the Indian entity performs routine functions in the value chain of the group. Functions performed by Group Cos Functions Performed 4.3.1 Trademark Owner: Group Cos own the rights to various 'trademarks, trade names and other commercial and product intangibles. Group Cos exploit these rights in a variety of ways, such as licensing them to related and unrelated parties for the production and sale of cigarettes, as well as having cigarettes produced under contract manufacturing arrangements. 4.3.2 Manufacturer: Group Cos manufacture, market, sell and distribute quality cigarettes in more than 160 cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g paragraphs: Class I : Trading of cigarettes and tobacco leaves 4.3.11 PM India has entered into a distribution agreement with Philip Morris Products S.A., a company registered in Switzerland. PM India undertakes the following functions pertaining to its distribution activities: 4.3.12 Import and Resale: PM India imports cigarettes from Philip Morris Products S.A. and resells to distributors who are its customers in India. This function includes taking orders from distributors and placing them with manufacturers, shipment tracking, clearance of goods through local customs, invoicing etc. PM India does not maintain any warehouses/depots for rendering these services. The imported cigarettes are directly sent to distributors' warehouses. PM India has appointed two distributors, one distributor is responsible for sales and distribution in the North and Central India and the other distributor is responsible for sales and distribution in the western and southern parts of India. These distributors undertake the storage and logistics function, maintain sales force and are responsible for appointing dealers and retailers in their territories and pushing sales th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Trusts Ltd.:- This company has been selected by the assessee, which is rejected by Ld. TPO as it has incurred losses. The Ld. A.R. submitted that this company provides services to a foreign bank, which has developed correspondent relationship of foreign bank with Indian Banks, providing assistance to facilities operations between foreign banks, promoting the services offered by foreign banks and canvassing for documentary credit business, referring trade finance proposals, assisting foreign banks in country review, monitoring of business investment opportunities in India. 3.1 The DRP has upheld the rejection of this company as comparable by holding that the foreign consultancy segment has miniscule proportion of total revenue. 3.2 On perusal of financial statement of the company placed at pages 1-32 of the Paper Book, it is observed that the functional profile of this company under foreign consultancy segment is similar to the market support segment of the assessee before us. Ld. A.R. placed reliance on the decision of this Tribunal in the case of Nortel Network India Pvt. Ltd. Vs ACIT in I.T.A. No. 4765/Del/2011, where the said comparable has been included in the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Ld. A.R. submitted that this company is functionally not similar with that of the assessee. He submitted that the activities performed by this company is more of the knowledge process and requires extremely skilled personnel for the same. The company is also into research and survey activities including a very high level management consultancy. The assessee has placed reliance upon the decision of Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. Vs CIT in I.T.A.No. 102/2015 wherein the Hon'ble Court has held that where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purpose of TP analysis. He also placed reliance upon the decision of this Tribunal in the case of Microsoft Corporation India Pvt. Ltd. VS DCIT in I.T.A. No. 5766/Del/2011 wherein this company has been characterized as an information technology, research and advisory firm. Further, it has been held that his company earns its income in the form of research and survey. 5.1 We have perused the above details placed in the Paper Book and the judgements relied upon by the Ld. A.R. It is also observed from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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