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TMI Blog2016 (9) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Pronouncement 27.09.2016 an addition of Rs. 30,43,842 allegedly on account of difference in the arm's length price of the 'international transaction' of provision of risk consultancy services on the basis of the order passed under section 92CA(3) of the Act by the TPO. 2.1 That the DRP/TPO erred on facts and in law in rejecting the Transfer Pricing Documentation alleging that the appellant has not provided complete information/documents for the purpose of determination of arm's length price of the international transactions. 2.2 That the DRP/TPO erred on facts and in law in inadvertently characterizing the business of the appellant, as provider of 'financial advisory services' and also erred in comparing the appellant with the companies engaged in the business of stock broking and trading of shares. 2.3 The DRP/TPO erred on facts and in law in rejected the internal TNMM applied by the appellant in the Transfer Pricing Documentation allegedly holding that: (i) The segmental accounts are not available in the annual report. (ii) The internal TNMM, applied by the appellant, is a ort of CUP and accordingly, strictly comparability is required for applying CUP can be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate risk adjustment to establish comparability on account of the appellant being a low-risk-bearing captive service provider as opposed to the comparable companies who were independent service providers. 3. That the DRP/AO erred on facts and in law in disallowing an amount of Rs. 1,43,951 on account of interest on late deposit of TDS allegedly holding the same to be of penal nature. 4. That the Assessing Officer erred on facts and in law in levying interest u/s 234A, 234B and Section 234D of the Act. The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal." 2. Addressing the grounds raised, it was submitted by the Ld.AR that considering the peculiar facts and circumstances of the case although the assessee is confident that it would succeed in its prayer for seeking inclusion of comparables which have not been included and also seeking the exclusion of comparables which have been wrongly included and thus as far as the addition sustained by way of making an adjustment is concerned the judicial precedent is predominantly in its favour. However, it was his submission that it would be appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al advisory". Referring to the said page and the discussion which carries on to page 67 it was his submission that as a result of non-appreciation of the assessee's activity the comparable selection process of the TPO is full of flaws. As an illustration, attention was invited to appeal set page 126 internal page 73 of the TPO's order wherein the following comparable companies have been selected by the TPO:- Sl No. Name of the Company OP/OC 1 ICRA Management Consulting Services Ltd. 1.94 2 Ajcon Global Services Ltd. 32.88 3 Future Cap. Inv. 17.61 4 Ladderup Corporate Advisory Pvt. Ltd. 15.07 5 Pushpak Financial Services Ltd. 76.72 6 Apitco Ltd. 40.09 7 Cyber Media research Ltd. 14.85 8 Global Procurement 37.19 9 HCCA Business Services Pvt. 20.05 10 TSR Darashaw Ltd. 41.15 29.75 6.1. Referring to the companies mentioned at serial No. 3 and 5, it was submitted that their very names namely "Future Investment" and "Pushp Financial Services" suggests that they were dealing in stocks and shares. Similarly the company mentioned at Sl.No. 10 "TSR Darashaw limited" is again dealing in stocks and shares. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The companies listed in Schedule 2 to this Agreement ("Service Provider") Background A. The Sellers and Service Providers listed in Schedules 1 and 2 are all direct and indirect subsidiaries of Control Risks Group Holdings Limited ("CRGHL"). B. Service Providers are engaged in the provision of crisis and security consultancy, outsourced security management, crisis response, investigative services, forensics and other risk management consultancy services (' the Consultancy Services') in the territory in which they operate ("Territory")." (emphasis provided) 6.5. Attention was also invited to pages 32 to 84 of the paper book which is the transfer pricing documentation. Specific attention was invited to page 38 and 39 of the same so as to highlight the Objective and the Company Overview which would throw light on the activities of the tax payer. The relevant extracts of the same are reproduced hereunder from the said pages in the paper book:- II. Overview of Group Objective The documentation requirements of the Income tax Rules ("the Rules') obliges an assessee to, inter alia, provide description of its ownership structure, profile of the multinational group of which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted the TPO has drawn a wrong conclusion and has proceeded to select the comparable. On account of this mistake which has occurred it was submitted remand was requested for. In order to facilitate the correct appreciation of facts, it was his submission that the assessee has filed a petition under Rule 29 seeking permission to place additional evidence on record. 6.7. Reading from the said petition, it was his submission that the TPO has inadvertently considered the business of the assessee as a provider of financial advisory services and has erred consequently in comparing the assessee with companies engaged in the business of stock-broking and companies having different revenue streams such as revenue from sale of shares and brokerages whereas the assessee on the other hand is a company which provides crisis and security consultancy, outsourced security management, crisis response, investigator services, forensics and other risk management consultancy services and this fact is evidence from the distribution and Sale Agreement dated 06/01/2010 entered into by the assessee with its Associated Enterprises. Copy of the re-dacted Agreement with a client was attached as additional ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l ITAT); and Y.W.C. A of India Vs. IAC: 29 ITD 620 (Del ITAT). 6.9. Accordingly, it was his submission that by allowing the prayer of the assessee, the issue may be remanded. 7. Considering the peculiar facts and circumstances of the case the Ld. Sr. DR who initially had submitted that the fresh evidence may not be taken into consideration. However, considering the fact that the evidence on record would assist the Revenue in correctly characterising the taxpayer and the issue is not to be decided at this stage and has to go back, it was his submission that he would have no objection if it is admitted and restored to the TPO. 8. We have heard the rival submissions and perused the material available on record. We find on considering the comparables selected and on considering the discussion carried out by the TPO in his order that the conclusions drawn qua the characterization need to be re-addressed. We find from the discussion carried out in internal page 12 para 5.4 of the TPO that a general discussion of the employee profile for providing business services like accounting, reporting, market support etc. has been undertaken and in para 5.5 the TPO has proceeded to consider that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for a three year period following the acquisition and the two promoters for five years. In a whistle blower made allegations that (" ") supplier to and a company reportedly owned by a member of family, was manufacturing equipment. The whistle blower, in speaking of the other suppliers understood that had been placing orders for sub-assemblies used in the manufacturing of from other suppliers. Initial research on the Ministry of Corporate Affairs ("MCA") did not reveal a listing for this company; however we note that sole proprietorship and partnership firms are not required to register with the MCA. Commissioned Control Risks to undertake research into and to establish any initial evidence relating to this matter. Research indicated and is manufacturing and perhaps exporting equipment, while MCA records revealed and both and hold Director positions in at least some of the group of companies. As a result both parties may be in breach of the non-compete agreement signed with. Subsequently would now like to acquire further evidence linking to The following summarizes Control Risks proposed approach (' the Services'). To accept this approach and instruct Control Risks to proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te filings including incorporation details and financial information are not available in the public domain. However, Control Risks understands that the Client has initiated the financial due diligence process and may have additional background information. The following summarises Control Risks' proposed approach ('the Services'). To accept this approach and instruct Control Risks to proceed with this assignment, please sign and return a copy of the client acceptance form attached at the end of this document. All of Control Risks' research is conducted in strict confidence so as not to jeopardise the Client, the subjects of our research, or any other party. Control Risks agrees to maintain the confidentiality of all confidential or proprietary information received from the Client. Scope For this assignment, Control Risks proposes a multi-phased approach. The first phase will involve comprehensive public record research to identify the profile of the subjects and establish the existence of any immediate red flags. In the second phase Control Risks will undertake discreet source enquiries to build on and develop information obtained during the first phase a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o? part of the public record. * Assess the professional reputation and perceived integrity of the principals, including their track record with other partners, associates and suppliers. Have they been involved in any disputes / litigation? if so, what was their approach and what was the outcome? * Have there been any allegations or instances of bribe solicitation or payment? If so, what was the nature of any such allegations or instances? This is particularly important in the context of extra-territorial legislation, including the UK Bribery Act and US FCPA. * Conduct discreet enquiries with regulatory agencies and government authorities in India to establish whether the subjects have come under investigation, including for financial irregularities, where possible. In addition Control Risks will seek to: * Confirm or refute any allegations identified in Phase I. * Identify any significant commercial, political or family connections maintained by the principals and (heir importance to UBM. Other lines of enquiry may emerge during the course of our investigation, and would be discussed with (he Client as required. Methodology Public records Public records include pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of justice once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Once it is found that the party intending to lead evidence bfore the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that this evidence would have material bearing on the issue which needs to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect." (emphasis provided) 8.4. We further find our conclusion supported by a decision of the Co-ordinate Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature and has the same character at service tax and it is not in nature of any penalty or fine allowable as expenses u/s 37 of the Income Tax Act 1961. The submission of the assessee has been considered by not acceptable fully. The interest paid on late deposit of service tax is accepted and allowed. However, the interest paid on late deposit of TDS amounting to Rs. 1,43,951/- not allowable. Hence, added to the income. In this case a draft of the proposed order of assessment was passed and sent to the assessee. The assessee filed objections before the Dispute Resolution panel (DRP) against the variation proposed to be made in the draft order. The Dispute Resolution panel has in para 114 of its order dated 14/11/2014 while holding that the claim of interest u/s 201(1A) is not an allowable deduction has held the following:- " The interest u/s 201(A) has been levied holding the taxpayer to be in default and therefore it cannot be said that it was merely compensatory in nature. The explanation below section 37(1) was introduced retrospectively to clarify the position where otherwise disallowable expenditure were claimed as deduction u/s 37(1) and not to allow the claims in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred wholly and exclusively for the purposes of business is allowable as deduction, provided the same was not incurred for the purpose of any offence or which is prohibited by law. The payment made by taxpayer on account of interest on late deposit of TDS was compensatory in nature. The same was not in the nature of. penalty for said default. Reliance in this regard is placed on the decision of Karnataka High Court in the case of CIT v Oriental Insurance Co. Ltd: 315 ITR 102, wherein, it has been held that interest paid under section 201(1A) of the Act for late deposit of TDS is compensatory to government treasury and not penal in nature. It is further submitted that the interest partakes the character of principal in respect of which the same is paid. The amount of TDS, being part of a particular payment is allowable as deduction in the return of income as expenses incurred for the purposes of business. Therefore, the amount of interest paid in respect of late deposit of. TDS also partakes the character of an expense, which is allowable as expenditure under section 37(1) of the Act. 11.4. The Panel has examined the matter. Hon'ble Supreme Court in the case of Bharat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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