TMI Blog2017 (12) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax, Circle 26 (2), New Delhi ('Learned AO') under section 143(3) read with section 144C of the Income Tax Act, 1961 ('the Act'), on the directions of the Hon'ble Dispute Resolution Panel ('DRP') is bad in law, in as much as it failed to appreciate the facts involved and the applicable law thereon. 2. That on facts and in law, the learned AO has erred in making an addition of ₹ 63,54,367 to the income of the Appellant on account of Transfer Pricing ( TP ) adjustment. 3. That on facts and in law, the learned AO/DRP has erred in upholding the rejection of TP documentation of the Appellant by the Transfer Pricing Officer ( TPO ). 4. That on facts and in law, the learned AO/DRP has erred in not rejecting the fresh analysis made by the TPO and use of inappropriate filters to find the comparables. 5. That on facts and in law, the learned AO/DRP has erred in upholding the rejection of use of multiple year data by the Appellant. 6. That on facts and in law, the learned AO/DRP has erred in rejection of comparables adopted by the Appellant and retaining the new comparables adopted by the TPO. 7. That on facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is in challenge before us on several grounds. 3. The assessee is engaged in providing various business support services to its AEs such as logistics, regulatory support, export of marketing collaterals, IT support, Corporate Accounting etc. 4. The assessee, in its TP documentation, i.e., T.P. study report, has used Transaction Net Margin Method (TNMM) as the most appropriate method and used operating profit (OP) / total cost (TC) as the profit level indicator (PLI). The assessee has used 8 comparables with an average margin of 9.54% using the multiple year data and compared it with margin of the assessee at 9.73% and has submitted that its international transactions are at arm's length. The Id. TPO rejected the transfer pricing documentation of the assessee and applying its own filter, selected 10 comparables with an average PLI of 25.64% and taking into consideration the PLI of OP/OC, i.e., operating profit/operating cost, determined the ALP of international transaction of ₹ 6,91,02,834/- at ₹ 7,93,07,703/-and proposed an adjustment of ₹ 1,02.04,869/-. 5. Grounds No. 1 to 4 of appeal are stated to be covered and general and, therefore, they are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 159-192 of paper book no. 2. In our view, the information available on the MCA website should be considered as being available in public domain for the reason that anyone can access and download such information. On the comparability of the company, the TPO has noted that the company is providing technical support services, procurement services, training and management services etc. Such services are in the nature of business support services and are comparable to the services performed by the assessee. Our view is further supported by the decision of the Coordinate Bench in the case of Eli Lilly Co. (India) P. Ltd. vs. ACIT (supra) where, on the identical facts, on the said comparable, EDCIL (India) Ltd., the coordinate Bench has held as under: 30. Having considered the rival submissions -we find that the aforesaid company was held to be valid comparable in our own order for Assessment year 2009-10 by holding as under: 19. We have heard the rival submissions and, perused the material on record. In the present case, the assessee wants inclusion of EDCIL. a government company, in the final set of comparable s adopted by TPO/DRP. The assessee inter-alia submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there being no change in the facts for the instant assessment year, the AO/DRP is directed to include EDCIL in the final set of comparable companies. Reliance in this regard is placed on the following observation of the Mumbai Bench of the Tribunal in the case of ACIT vs. NGC Network India (P) Ltd. 10 Taxmann.com 140 wherein it has been held as under: These comparables and the method of computation of arm's length price has been accepted by the department in the subsequent assessment year i.e. 2004- 05. Therefore in our view comparables selected by the assessee have to be adopted for the purpose of computation of transfer pricing adjustments this year also. 31. Following the same EDCIL is held to be functionally comparable to the appellant and therefore included in the final set of comparable companies. Therefore, following the order of coordinate Bench we also hold that EDCIL being functionally similar as per its business profile which remains uncontroverted by the Revenue, requires to be included. 10. The assessee has also challenged the selection of certain companies by the TPO which are not comparable to the assessee as per FAR analysis. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., the coordinate Bench has held as under: 8.3. We first take up the case of Apitco Ltd. (a) Apitco Ltd.:- Apitco Ltd. is a Public Sector Undertaking providing various support services for the development of tourism industry. Later the functional profile of the company had undergone a change, and it is now engaged in providing technical consultancy relating to asset reconstruction companies, management services, micro enterprise development, skill development etc. This is a government company. The fact that its operations are mainly based on the policy requirements of the government and the fact that it is a preferred company of the Government of India for entrustment of works, cannot be ignored. Be it as it may, in our considered opinion, the functional profile of this company is different from that of the assessee company and hence the same should be excluded from the list of comparable companies -while computing the ALP. Therefore, following the order of the coordinate Bench, we hold that Aptico Limited is functionally different from the assessee and is directed to be excluded from the list of comparables. (ii). TSR Darashaw Limited 15. This compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR that FAR analysis of TSR Darashaw Ltd. is similar to the assessee. The company sought to be included by the Id. DR is performing share registry services whereas the assessee performs logistics, IT support services etc. The functions involved, assets used and risks borne by these two entities will be completely different. We further draw support from the decision of the coordinate Bench in the case of Adidas Technical Services P. Ltd. vs. DCIT (supra), wherein on identical facts, TSR Darashaw Ltd. was excluded as a comparable, observing as under: (d) TSR Darashaw Ltd.:- The TPO included this company on the ground that the company is providing business out sourcing services to clients in India, These services are provided to local clients and not the foreign clients and hence they are not similar to ITES services. The TPO observed that ITES companies have the advantage of location savings, while the business service companies do not have advantage. Since in this case the services are predominantly provided in India, the company is a correct comparable. He also held that the assessee had not gone into the verticals or high end or low end distinctions while selecting the compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct the AO/TPO to exclude this comparable. The ld. DR could not controvert how the facts of the case of the assessee are different from the case above, and therefore, following the decision of coordinate Bench, we hold that TSR Darashaw Ltd. cannot be said to be providing business support services and is directed to be excluded from the list of comparables. (iii). Cameo Corporate Services Limited 19. This comparable was included by the TPO by holding that it was performing business services. He rejected the contentions of the assessee regarding its functional dissimilarity. The Id. DRP also rejected the objections of the assessee against the company's inclusion. 20. Before us, the learned AR relied on the extracts of the company's annual report given on page 23 of the TPO's order and submitted that like TSR Darashaw Ltd., this company is also primarily engaged in the business of registry and share transfer and was therefore not comparable to the assessee. He relied on the decision of the coordinate Bench in the case of Adidas Technical Services Pvt. Ltd. vs. DCIT (ITA No. 862/Del/2016). 21. The learned DR relied on the order of the TPO and ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income is available, there can be question of applying a service income filter. He therefore submitted that this comparable should be included in the list of comparables. 26. The Id. DR relied on para 11.2 of TPO's order and argued that once the assessee has accepted the 75% service income filter, the companies which fail this filter, cannot be accepted. He therefore submitted that the company should remain excluded from the list of comparables. 27. We have carefully considered the rival contentions. The short question to be answered regarding this comparable is that where a company reports a separate service segment in its Annual Report, is there a need to apply service income filter. In our view, there is no need of applying such a filter if the segmental data is being used for comparability analysis. Such filter is to be applied only if the entity level profit margin is being considered in the comparability analysis. In the present case, since the service segment of the comparable is being considered in the final analysis, the application of such filter is not required. We therefore direct the TPO to include this company in the list of comparables. (ii). Sportin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be rejected simply because of difference in revenue. Our view is supported by the decision of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. vs DCIT (supra), in which it was observed: 33. Such being the case, it is clear that exclusion of some companies \vhose functions are broadly similar and whose profile - in respect of the activity in question can be viewed independently from other activities-cannot be subject to a per se standard of loss making company or an abnormal profit making concern or huge or mega turnover company. As explained earlier, Rule JOB (2) guides the six methods outlined in clauses (a) to (f) of Ride 10B(1), -while judging comparability. Rule JOB (3j on the other hand indicates the approach to be adopted where differences and dissimilarities are apparent. Therefore, the mere circumstance of a company - otherwise conforming to the stipulations in Rule 10B (2) in all details, presenting a peculiar feature - such as a huge profit or a huge turnover, ipso facto does not lead to its exclusion. The TPO, first, has to be satisfied that such differences do not materially affect the price...or cost ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature and have been rightly excluded by the TPO from operating expenses. 40. In his written note, the Id. AR has submitted the following computation, which according to him is correct if bad debts and provision for doubtful debts are considered part of operation expenditure. Income from consultancy services 23,11,39,955 Other Income 10,34,40,416 Total income 33,45,80,371 Less: Non-operating income -Provision written back 97,69,066 -Interest on deposits 9,14,57391 -Interest on staff loans 2,45,839 Operating Income (A) 23,31,08,075 Total Expenditure 19,92,74,343 Less: Non-operating expenses -Provision for D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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