TMI Blog2016 (5) TMI 1375X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Revenue : Sh. Sanjay Kumar, Sr. DR ORDER Per Prashant Maharishi, A. M. 1. This is appeal filed by the assessee against the order u/s 143(3) rws 144C of the Act dated 30.01.2015 passed by ACIT, Circle-15(1), New Delhi in pursuance of direction of Dispute Resolution panel u/s 144C(5) dated 12.11.2014 for the Assessment Year 2010-11. 2. The assessee has raised the following grounds of appeal:- 1. the Learned Assessing Officer ( the Ld. AO )/ Hon'ble Dispute Resolution Panel ( DRP ) has erred in assessing the income of the Appellant at ₹ 16,026,230 as against the returned income of ₹ 3,967,748. 2. the Ld. AO grossly erred in law by referring the case to the Ld. Transfer Pricing Officer ('TPO') for determination of arm's length price contrary to the instruction issued by the Central Board of Direct Taxes ('CBDT) and therefore the transfer pricing order is void. 3. the Ld. AO/Ld. TPO erred on facts and in law by making a transfer pricing addition of ₹ 57,41,9837- to the income of the Appellant and holding that the international transactions pertaining to provision of marketing support services do not satisfy t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act read with Rule 8D of Income tax Rules, 1962 ( Rules ) as he failed to appreciate:- (a) that no investments have been made by appellant out of borrowed funds; (b) that no new investments have been made during the subject year; (c) that appellant has not earned any exempt income on its investments during the subject year; (d) that investments have been made in the financial year 2006-07 for controlling stake in Group concern and not for earning any dividend income; (e) that no administrative cost, directly/indirectly have been incurred by appellant during the year in connection with its investment 3.3. excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 3.4. not providing appropriate economic adjustments as provided under Rule 10B of the Income-tax Rules, 1962 in respect of the difference in the risk profile of the comparable companies and the Appellant 3.5. disregarding multiple year/prior years' data used by the Appellant in the TP documentation and holding that current year (i.e. FY 2009-10) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has worked out its margin to 8.14% therefore using the multiple year data of comparables assessee has submitted the transfer pricing study report concluding that its international transactions are at arm s length. 5. The ld TPO after perusing the TP study report of the assessee rejected the economic analysis of the assessee and selected different comparables and taken the PLI as PBIT divided by cost and calculated the arm s length price of the transaction at ₹ 51285690/- and proposed an adjustment u/s 92CA of the Act of ₹ 5741983/-. Therefore, draft assessment order was passed by the Assessing Officer on 28.02.2014 making an adjustment on account of transfer pricing of ₹ 5741983/-. A further disallowance u/s 14A of the act was also made of ₹ 6316500/-, and therefore, total income was determined at ₹ 16026631/-. Against this draft assessment order appellant filed objection in Form 35A before the Dispute Resolution Panel. The ld DRP has passed direction u/s 144C of the Act and based on that final assessment order was passed on 30.01.2015 wherein the addition on account of transfer pricing adjustment of ₹ 5741983/- and disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion about the product portfolio of LG Chem, Korea to the potential customers in India. However, the functions are limited to providing information. LGCI does not secure orders, negotiate prices or enters into contract with the customers. In the case of advance technical queries, these are directed to the AE's technical people. LGCI merely acts as a facilitator for its AE while performing these marketing activities. d) Providing information on potential customers LGCI conducts surveys/studies on potential customers with due consideration to market standing, past performance and profitability, foreign collaborations, proposed business plans etc. LGCI sends periodical reports to LG Chem, Korea on any available market information with respect to customers. It follows up the correspondence between the AE and customers in the territory. e) Forwarding the inquiries/sales order LGCI forwards the inquiries received by it relating to the products and all the sales orders solicited by LGCI from identified customers to LG Chem, Korea for its evaluation. f) Contacting the customers to obtain feedback on behalf of AE LGCI contacts the customers of its AE o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange risk and manpower risk. Therefore, it is submitted that it is a limited risk entity compared to its AE. 14. The assessee was shown to be owning limited tangible assets and does not have any intangible assets of its own. 15. Based on above FAR analysis assessee was characterized as a routine service provider exposed to less than normal risk associated with its business. Based on this assessee was selected as a tested party and transaction net marginal method was considered as the most appropriate method. In its TP study report it has selected four comparables and PLI of OP/TC. This study report was rejected by TPO and he selected his own comparable and PLI of PBIT/cost. The brief comparisons of the comparables selected by assessee and TPO are tabulated as under:- Sl. No. Comparable As per PLI of assessee of OP/TC As per PLI of TPO of PBIT/cost Remarks 1. IDC India Ltd. 12.79 14.85 Assessee as well as TPO both accepted this comparable 2. Hansa Vision Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the ld. DR on the inclusion of this company as comparable merely on the fact that the assessee treated it as comparable in its TP study analysis. If the assessee inadvertently includes a company in its accept reject Matrix, which is, in fact, not comparable, he has a right to agitate before the authorities that such comparable may be excluded. It is for revenue to counter the claim of the assessee and prove otherwise. If, however, the comparable turns out to be functionally dissimilar, then, there can be no rationale in continuing to treat it as comparable despite the functional dissimilarities. Matter of prime importance is comparability analysis The Special Bench of the Tribunal in the case of DCIT vs. Quark Systems (P) Ltd. (2010) 132 TTJ (Chd) (SB) 1, has held that an assessee is entitled to raise a claim for the first time before the tribunal even through an additional ground that a company was wrongly included in the list of comparables. Therefore we are of the considered opinion that the objection taken by the ld. DR is unacceptable. Before us the assessee has placed annual report of this comparable which is at Page 57-98 of the paper book filed by the assessee. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to its director s report at Page No. 57, segment reporting as per accounting standard 17 at page Nos. 80 to 82 also, we hold that this comparable is functionally dissimilar and therefore directed to excluded. b. HCCA Business Services Pvt. Ltd. The ld TPO has included this comparable holding it functionally similar. Assessee objected it that it is part of BPO industry, which requires significant employee skill and also own significant intangible assets which contributes to 52.91% of its block of assets. Ld TPO rejected holding that this comparable offers a wide range of service such as payroll processing, compensation structuring etc. and therefore it is comparable. Regarding the employee skill ld TPO was of the view that this contention has not been substantiated and further regarding intangibles he submitted that it constitutes only 11.67% of its sales. Ld DRP upheld the contention of the ld TPO. Before us ld AR reiterated the same contentions raised before the lower authorities and ld DR gave the same reasoning which was given by the ld TPO. Ld. DR also submitted that this comparable was included by the assessee in its initial T P Analysis we reject this submission f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No. 749/2014 [ 61 Taxmann.com118 (Del) ]has held as under:- 23. In the contest of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 21. In absence of any exempt income received or receivable by the assessee during the year , respectfully following the decision of Hon ble Delhi High Court we delete the disallowance of ₹ 6316500/- made by the Assessing Officer u/s 14A of the Act. Therefore, ground No. 5 of the appeal is allowed. 22. As we have already allowed ground No.5 of the appeal the ground No.4 and Ground No.5.1 and Ground No.6 with respect disallowance u/s 14A are dismissed. 23. Ground Nos. 7 and 8 of the appeal are with respect to initiation of penalty proceedings and charging of interest u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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