TMI Blog2018 (4) TMI 1772X X X X Extracts X X X X X X X X Extracts X X X X ..... rst issue raised by the assessee is accordingly allowed. Incorrect enhancement of cost base for computing the arm s length price - HELD THAT:- An amount of ₹ 3.90 crores was considered by the assessee for computing transfer prices in financial year 2007-08 itself for computing the tax depreciation and tax computation. The marketing fee paid was amortized only at the rate of 25% on WDV starting financial year 2007-08. It is also the submission of the ld. AR that in subsequent assessment years, the TPO has not added the tax depreciation to the cost base of the assessee company. The matter requires a re-look at the level of the DRP considering the past assessment year as well as subsequent assessment year of the assessee company on this issue. We, therefore, restore this issue to the file of the DRP with a direction to adjudicate the issue afresh after giving due opportunity of being heard to the assessee. Needless to say, the DRP shall decide the issue as per fact and law. The second issue raised by the assessee in the grounds of appeal is allowed for statistical purposes. - ITA No. 892/Del/2014 - - - Dated:- 20-4-2018 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI KUL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CPM 4. Genzyme Corporation Massachussets Reimbursement of Expenses (received) 6734187 4. He noted that the assessee in its TP documentation has used OP/TC as PLI and selected four comparables namely Santram Infrastructure Reality Ltd., Lurgi India Company Pvt. Ltd., Vision Technology India Ltd. and ICRA Management Consultancy Pvt. Ltd. with average profit level indicator of - 1.09%. As against this, the assessee has shown its own profit margin at 5.76% thereby demonstrating that its international transactions are at arm s length. 5. The TPO rejected all the comparables selected by the assessee and conducted a fresh search himself to identify new comparable companies. Based thereon, the TPO selected the following comparables and worked out OP/TC as PLI as under :- S. No. Company Name OP/OC% 1 I D C (India) Ltd. 10.46 2 Indus Technical Financial Consultants Ltd. 6.45 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. During the course of DRP proceedings, it was observed that the assessee owns intangibles to the tune of ₹ 3,90,00,000/- and the depreciation/deferred revenue to be apportioned for financial year 2008-09 on them apparently have not been included in the expenditure taken into account for the calculation of the profit margin. They noted from the profit and loss account read with schedule 3, 9 and 10 that expenditure related to depreciation is ₹ 41,65,900/- and does not include depreciation on intangibles. The DRP noted that the same however has been taken in the computation of income read with Form 3CD, appendix 2 at a value of ₹ 87,90,592/- claimed at the rate of 25% on such technical knowhow. The same according to the DRP should have been included in cost base for computing arm s length profit. However, the TPO has computed arm s length profit on cost base of ₹ 7,99,18,837/- which does not include ₹ 87,90,592/- claimed as depreciation by the assessee which resulted in lesser adjustment. 9. Accordingly, the assessee was served a notice dated 09.10.2013 requiring it to show cause why enhancement of upward TP adjustment should not be made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in not providing any reasons to show that the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the income of the Appellant. 4. On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in not allowing the use of multiple year data as prescribed under Rule 108(4) of the Rules read with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, for determining the arm's length price of international transactions of the Appellant. Incorrect rejection of com parables by the learned TPO 5 On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in rejecting comparable companies selected in the transfer pricing documentation not appreciating that their functions, assets and risk profile was comparable to the Appellant. 6 On the facts and circumstances of the case, and in law, the learned AO and the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in not allowing relevant adjustments as per the provisions of Rule 10B(I) and Rule 10B(3). Incorrect enhancement of cost base for computing the Arm's Length Profit 13 On the facts and circumstances of the case, and in law, the Hon'ble DRP erred in directing the learned TPO to enhance the Appellant's cost base for computing the Arm's Length Profit by an amount of ₹ 87,90,592/- being the amount of depreciation claimed on intangible assets by the Appellant only under Section 32 of the Act and ignoring book depreciation as used for computation of PLI (Profit Level Indicator) for the comparables. Other Grounds: 14 On the facts and circumstances of the case, and in law, the Hon'ble DRP, the learned AO and the learned TPO have not allowed the assessee the benefit envisaged in the proviso to Section 92C(2) of the Act. 15 On the facts and circumstances of the case, and in law, the DRP, the learned AO and the learned TPO have erred on the facts and in law in initiating penalty proceeding under sections 274 read with see 271 (1)( c) of the Act and levying inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al testing services which are highly technical and therefore cannot be compared with that of the assessee company. 13. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Roche Products (India) Pvt. Ltd. vs. ACIT vide ITA No.7035/Mum/2012, he submitted that Choksi Laboratories Ltd. was excluded from the list of comparables on account of its investment in providing testing services for various products and was also offering services in the field of pollution-control. 14. Referring to the decision of the Delhi Bench of the Tribunal in the case of Ciena India Pvt. Ltd. vide ITA No.3324/Del/2013, he submitted that giving similar reasoning Choksi Laboratories Ltd. was excluded from the list of comparables. He accordingly submitted that Choksi Laboratories Ltd. should be excluded from the list of comparables. 15. So far as WAPCOS Ltd. is concerned, he submitted that the above company is a Government of India undertaking and engaged in providing high end technical engineering services in the field of water, power and infrastructure sectors. It is a capital intensive company which performs specialized engineering functions and assumes significant risk. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmulated and applied for copyrighting its financial statement proprietary process under the title SpiceC by Basiz to the Registrar of Copyrights, Government of India and was awarded the copyrights on 08.04.2008. Therefore, it develops and owns unique intangibles/intellectual property/process which cannot be compared with the assessee as the former would derive significant advantage from this unique proprietary process vis- vis the assessee which does not own any intangible and merely performs routine market support services. Referring to page 141 of the Annual Report Compendium, he drew the attention of the Bench to the significant R D activities undertaken by Basiz to develop its own proprietary intellectual property and technical know-how. Referring to the same pages, he submitted that the company has developed intellectual property that accounts for 60% of its total asset base. Further, the company has earned abnormal profits i.e. 15% for the year ending 31st March, 2007, 101% for the year ending 31st March, 2008 and 44.63% for the year ending 31st March, 2009. Referring to the following decisions, he submitted that Basiz Fund Services Private Limited was excluded from the lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be compared to marketing support service function. He submitted the DRP in its directions has accepted an event management company, Keystone Integrated Marketing Services Private Limited which earns majority of its income from providing event management functions. He submitted that Cyber Media India Online Limited is engaged in providing advertising and marketing services including event management, relationship and fulfillment management in various forms of media to its clients and thereby also directly promotes the brands by incurring expenses. Therefore, going by the logic of the DRP by accepting Keystone Integrated Marketing Services Private Limited as a comparable, by the same logic Cyber Media India Online Limited also should be included in the list of comparables. 21. So far as ICRA Management Consulting Services Limited is concerned, he submitted that the above company is functionally similar. ICRA is a management consulting firm, offers, business support services like risk management, process consulting, regulation reforms and development consulting along five verticals namely infrastructure, banking finance, corporate advisory and energy group. This company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Report of the above company it is into provision of marketing support services and preparation of financial reports, providing fund accounting services, to fund administrators, insurance companies, prime brokers and private equity funds etc. Therefore, the functional profile of the above company is comparable to the functional profile of the assessee company. Merely because it has earned high profit the same cannot be the basis for reject the company. 27. So far as HCCA Business Services Private Limited is concerned, he submitted that it was rightly retained by the DRP since it provide support services in areas of HR Operations and administrations, Accounting Services, Management of labour and legal compliances, etc. which qualify to be as market/business support services. 28. So far as Cyber Media India Online Limited is concerned, he submitted that the company is online media company, promoted by the Cyber Media. The company is the provider of IT-related news, information and services to the vast community of IT-savvy individuals and a value transformation platform for the IT vendors, solutions providers, services companies and individual. The support services differ entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies from the list of comparables. Further, WAPCOS is providing engineering consultancy and undertake turnkey contracts. We, therefore, find force in the arguments of the ld. counsel for the assessee that it cannot be compared with that of the assessee company which is purely in the nature of marketing support services. We, therefore, direct the TPO to exclude WAPCOS Limited from the list of comparables. 33. So far as Basiz Fund Services Private Limited is concerned, we find from the website of the company that it provides services such as financial reporting, NAV support services, investment accounting, SEC filling and legacy conversion services, etc. Further, it has formulated and applied for copyrighting its financial statement proprietary process under the title SpiceC by Basiz to the Registrar of Copyrights, Government of India and was awarded the copyrights on 08.04.2008. Further, it performs significant R D activities to develop its own proprietary intellectual property and technical know-how. We find merit in the argument of the ld. counsel for the assessee that the above company cannot be included in the list of comparables. 34. We further find the Mumbai Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... galore Bench of the Tribunal in the case of M/s Aruba Networks India Pvt. Ltd. (supra) has directed the TPO to exclude HCCA by observing as under :- 32. The learned counsel submitted that HCCA Business Services is engaged in Payroll processing. Therefore this company is functionally different from the Appellant and should be rejected. Reliance is placed on ITAT decision in the case of DCIT v. M/s Electronics for Imaging India Pvt. Ltd. IT(TP)A No.212/Bang/2015-AY 10-11, wherein it is held as under : (1) HCCA Business Services Pvt. Ltd. 13. The assessee objected against inclusion of this company in the list of comparables on the ground that this company is engaged in providing payroll process services and therefore it is functionally different. In support of its contention, the assessee referred to Notes to the Accounts wherein the company s operations comprise of payroll processing services is mentioned and hence it is not possible to give the quantitative details of sales and certain information separately. 14. The DRP after considering the annual report noted that except the Note 2.14, there is no other observation in the annual report from which it can be establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the brand by incurring expenses. 41. Therefore, we find merit in the argument of the ld. counsel for the assessee that going by the same logic taken by the DRP in the case of Keystone Integrated Marketing Service (P) Ltd. Cyber Media India Online Limited should be included in the list of comparables. We accordingly direct the TPO to include this company in the list of comparables. 42. Now, coming to inclusion of ICRA Management Consulting Services Limited is concerned, we find the same was rejected on account of RPT filter exceeding 25%. However, it is the submission of the ld. counsel for the assessee that the RPT is only 14.03%. We, therefore, restore the issue to the file of the Assessing Officer/TPO with a direction to verify the RPT filter and if the assessee fulfills the RPT filter criteria then to retain this company as comparable. The first issue raised by the assessee is accordingly allowed. 43. So far as second issue is concerned, the same relates to incorrect enhancement of cost base for computing the arm s length price. It is the submission of the ld. counsel for the assessee that it has incurred an expenditure of ₹ 3.90 crores during the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was amortized only at the rate of 25% on WDV starting financial year 2007-08. It is also the submission of the ld. AR that in subsequent assessment years, the TPO has not added the tax depreciation to the cost base of the assessee company. In our considered opinion, the matter requires a re-look at the level of the DRP considering the past assessment year as well as subsequent assessment year of the assessee company on this issue. We, therefore, restore this issue to the file of the DRP with a direction to adjudicate the issue afresh after giving due opportunity of being heard to the assessee. Needless to say, the DRP shall decide the issue as per fact and law. The second issue raised by the assessee in the grounds of appeal is allowed for statistical purposes. 46. So far as other issues are concerned such as levy of interest under various sections of the I.T. Act and initiation of penalty proceedings u/s 271(1)(c) are concerned, the same were not argued by the ld. counsel for the assessee. Thus, these grounds are dismissed being mandatory and consequently in nature. 47. In the appeal, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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