TMI Blog2018 (12) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment u/s 92CA(3) of the Income-tax Act, 1961 ( Act ) made by the Learned Assistant Director of Income-tax, Transfer Pricing Officer - 1(4) ( Ld. TPO ), by holding that the international transactions with associated enterprises ( AEs ) does not satisfy the arm s length principle ( ALP ) envisaged under the Act and in doing so have grossly erred in: 1.1 disregarding the fact that the spends to third party vendors are pass through in nature and are recovered fully from the AEs on whose behalf such payments are made and therefore the appellant does not assume any risk of non-payment by the customer/AEs. 1.2 disregarding the fact that these payments made to third party vendors do not represent any value adding activity undertaken by the appellant and therefore should not be considered for the purpose of determining the appellant s operating profitability; 1.3 Total Adjustment Amount = INR 6,369,110 = 6,046,056 (recomputed TP adjustment) + 323,054 (adjustment already made by the appellant) disregarding the ALP as determined in the TP documentation maintained by the appellant in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ( Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of JBB U.S. The assessee company s benchmarking approach is summarized below: Particulars Marketing Support Services Page Reference in Paper Book 2 No. of comparables 5 877 Comparables Mean OP/TC margin 12.60% 877 Appellant s OP/TC margin 6.971% 884 The assessee company incurred certain advertising and brand promotion expenses while rendering marketing support services to JBB U.S. These expenses were reimbursed by JBB, U.S to the assessee company on cost-tocost basis without any mark-up. Such expenses were in the nature of passthrough expenses as the assessee company submitted that it is just acting as a conduit between the associated enterprise and the third party vendors. There is no cogent nexus with its market support services activity. The Transfer Pricing Officer ( TPO ) rejected the economic analysis submitted by the assessee company and undertook a fresh search using arbitrary quantitative and qualitative filters and arrived at an NCP of 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that this comparable company is functionally dissimilar as it is engaged in highly technical services which includes Asset Reconstruction and Management Services, Projects Related services, Micro Enterprise Development, Infrastructure, Planning and Development, research studies Tourism, Skill Development, Environment Management, Entrepreneurship Development Training, Cluster Development, Energy Related Services, Emerging areas etc. The Ld. AR submitted that the Marketing Support Agreement clearly sets out the scope of services rendered by the assessee company. The services are restricted to provision of marketing support to assist in the Duty Free Sales division of the assessee company. The Ld. AR submitted that it has been held in a plethora of case of various Tribunals that the instant comparable is engaged in rendering high end technical consultancies and therefore not comparable to companies engaged in the rendering mere support services. The Ld. AR relied upon the following decisions: a) Avaya India P. Ltd. Vs. DCIT (ITA No. 146/Del/2013) b) Ciena India P. Ltd. Vs. DCIT (ITA No. 3324/Del/2013) 6.2 The Ld. DR relied upon the order of the TPO and the directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f pollution control as an allied activity. On the contrary, the assessee company, under the MSS segment, is engaged in providing marketing support services to JBB U.S to promote the duty-free sales of international brands of liquor products of JBB U.S. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable. 6.7 WAPCOS Ltd. (Segment) :- The Ld. AR submitted that this comparable company is functionally dissimilar as the company is engaged in high-end consultancy and works on engineering projects. Accordingly, the segment of the company is functionally not comparable as it undertakes high-end technical consultancy services, as against the routine support services undertaken by the assessee company. The Company is a Government of India Undertaking. It has the support and backing of the government which makes it incomparable to the Assessee company as the functions profiles of the entities is completely different. The business profile of government owned undertakings is dissimilar to that of the entities operating in free market/ uncontrolled environment. Therefore, such undertakings cannot be selected as comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12 We have heard both the parties and perused all the relevant material available on record. From the Annual Reports it can be seen that this comparable company is functionally dissimilar. This comparable company is engaged in the business of rendering market research and management consulting services in the field of IT, telecommunications and consumer technology. Whereas under the MSS segment, the assessee company is engaged in providing marketing support services to JBB U.S to promote the duty-free sales of international brands of liquor products of JBB U.S. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable. 6.13 Rediff.com : - The Ld. AR submitted that this comparable company is functionally comparable as the Company is an internet destinations focusing on India and the global Indian community. Its websites consist of interest specific channels relevant to Indian interests such as cricket, astrology, movies, content on various matters like news and finance, search facilities, ecommerce, broadband wireless content etc. It is engaged in the business of online advertising and fee based services. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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