TMI Blog2020 (4) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... that are not expected to pay during the year and hence directly relate to business operations of assessee and should be considered as operating while computing operating margins of comparables. Risk adjustment -There is no quarrel that the assessee has a cost plus business model operating in a low risk or almost risk mitigated environment as compared to the comparable companies who are independent service providers and bear significant risks. - ITA No. 1701/DEL/2015 - - - Dated:- 7-2-2020 - Shri N.K. Billaiya, Accountant Member, And Shri N.K. Choudhary, Judicial Member For the Assessee : Shri Sumit Mangal, Adv, Shri Devashish Poddar, Adv For the Revenue : Shri Dinesh Antil, Sr. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, This appeal by the assessee is preferred against the assessment order dated 30.01.2015 framed u/s 143(3) r.w.s 144C of the Income tax Act, 1961 [hereinafter referred to as 'The Act' for short] pertaining to assessment year 2010-11. 2. The grievances of the assessee can be summarised into the following parts: 1. TP adjustment by including and excluding some comparables objected to by the assessee. 2. Treatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No benchmarking required 42,870,136 Total 179,619,507 6. In order to bench mark the aforementioned international transactions, the appellant was selected as the tested party and TNMM was chosen as the most appropriate method with operating profit/operating cost being used as the profit level indicator. The assessee worked out the following set of companies undertaking comparable activities vis a vis the provision of marketing support services by the assessee: Name of the company Operating profits on operating costs (%) Average operating profits on operating costs (%) 2009 2008 2007 Access India Advisors Ltd. NA 6.62% 45.97% 34.77% Asian Business Exhibition Conference Ltd. NA 19.52% 15.85% 18.10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cyber Media Research Ltd. 14.85 Global Procurement Consultants Ltd. 37.19 HCCA Business Services Pvt. Ltd. 20.05 ICRA Management Consulting Services Ltd. 1.94 Quadrant Communication Ltd. 13.11 TSR Darashaw Ltd 41.15 Cameo Corporate Services Ltd 8.26 Arithmetic mean 22.08% 11. Objections were raised before the DRP and pursuant to the DRP s directions dated 12.12.2014, the TPO, vide order dated 28.01.2015 provided working capital adjustment to the comparables selected by the TPO for bench marking the international transactions of the appellant and computed the revised additions as under: S No. Name of Company Adjusted OP/OC (in %) 1. Apitco Ltd. 28.63 2. Cameo Corporate Service Ltd. 4.72 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nergy related services, cluster development, asset reconstruction and management services and emerging areas. 18. The co-ordinate bench in the case of Adidas Technical Services (P) Ltd 69 Taxmann.com 401 has, for the diversified activities of Aptico Ltd, has excluded this company. The relevant findings of the co-ordinate bench read as under: 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 chance, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TNMM. 7.6 In view of the foregoing discussion, we find that the functionally similarity of Apitco Limited is lacking on entity level with the assessee company. As such, we order for its exclusion from the final set of comparables. 20. It is pertinent to mention here that segmental information of this company is not available in its Annual Report for F.Y. 2009-10. Assuming that even some of the services provided by Aptico Ltd can be considered comparable to the appellant, then also, due to lack of segmental data, this company has to be rejected. Considering the facts in totality, we direct the TPO to exclude Aptico Ltd from the final set of comparables. Global Procurement Consultants Ltd [GPCL] 21. The ld. counsel for the assessee argued that GPCL is functionally different as it is not engaged in providing procurement support services but is, in fact, engaged in providing consulting services and review of procurement processes for various projects funded by the World Bank. 22. Dismissing the contentions of the assessee, the TPO referred to the Annual Report of this company but that Annual Report pertains to F.Y. 2010-11 and cannot be used for F.Y. 2009-10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g liquidated damages as appropriate. Provide for inspection. Advance/stage/final payments. Ensure performance test covered. Ensure warranty is implemented. Shipping: Arrange by most appropriate method. Consolidate/ containerize. Arrange to site if necessary. Distribute documentation. Payment and Accounting : Prepare withdrawal application. Authorise. Record Report Co-ordination: All the time, between the parties. Know how Transfer: Training though state of the art tallor made training modules and Hands - on transfer of expertise. GPCL has entered into on MOU with administrative staff college of India to provide comprehensive training on procurement for capacity building of project implementating agencies. Bid Support Services: Advice to Export Community on care and approach to be taken in submission of bids in international funded projects, so that success rate is better and bids are not rejected for want of compliance with procurement guidelines. Further, the Careers Empanelment page of the web ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iency and effectiveness of procurement and implementation service to help attain desired institutional and corporate objectives. The expertise of this company is available to various sectors including power, water resources, transportation, industries, etc. Its services have been outlined in the Annual report. From such services rendered by this company, it can be noticed that it is conducting Independent Procurement Review of multilaterally funded projects spread across the globe. It also undertakes Procurement audits, this company is providing full time advice on procurement and contract related aspects to several agencies across the globe. For example, in Georgia, it provided advice on procurement and contract related services to Municipal Development Fund (MDF), Republic of Georgia. In Iran, this company provided procurement advisory services to international forums, such as, Bam Reconstruction Office of Ministry of Housing, Tehran. In Guyana, this company was selected through an international competitive process in assisting the Government of Guyana in 'strengthening of its procurement administration undei Technical Assistance Credit from the World Bank. In India, it provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, disaster management, business continuity and compliance with SOX guidelines. It is the say of the ld. counsel for the assessee that this company is engaged in providing business process outsourcing services that are akin to an IT enabled service provider and not to a market/business service provider like the assessee. 29. At the very outset, we have to state that considering the activities of this company, vis a vis those of the appellant, this company cannot be considered as a good comparable. For this reason, ITAT Bangalore in the case of Electronics for Imaging India [P] Ltd 70 Taxmann.com 299, has excluded this company by holding as under: 41. 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. 42. The DRP after considering the annual repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e direct for exclusion of this company from the final set of comparables. TSR Darashaw Ltd 32. The ld. counsel for the assessee vehemently stated that this company is functionally different and cannot be compared with the business profile of the assessee. 33. On the other hand, the ld. DR supported the findings of the TPO. 34. On perusal of the Annual Report of this company, we find that this company operates in three different segments, namely: (a) Registrar and Transfer Agent Activity, (b) Record Management Activity and (c) Payroll and Trust Fund Activity. No segmental data is available. For similar reasons, the co-ordinate bench in the case of Trend Micro India Pvt Ltd [supra] has excluded this company. The relevant findings read as under: 9.1 The assessee objected to the inclusion of this company by arguing that the business segments of this company are, Registrar and Transfer Agent activity; Records management activity; and Payroll and trust fund activity. Not convinced with the assessee's submissions, the TPO treated it as comparable on entity level against which the assessee is before us. 9.2 Having heard the rival submissions and perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. ITO [2013] 35 taxmann.com 422/[2014] 146 ITO 580 (Delhi). In our considered opinion TSR Darashaw Ltd. cannot be taken as a comparable as 57.4% of its income is from share registry services segment. This shows the functional profile of the assessee is different. 36. Considering the diversified three segments of this company, in the light of the decision of the co-ordinate benches [supra], we direct the TPO to exclude this company from the final set of comparables. 37. Now we will deal with the inclusion of two comparables. In house Production Limited 38. The ld. counsel for the assessee vehemently stated that this company was erroneously excluded by the TPO whereas this company fulfills all the criteria of comparability with the assessee. The ld. counsel for the assessee further stated that even segmental data is available for healthcare division. Therefore, this company can be compared with that of the assessee on the basis of segmental data. 39. Per contra, the ld. DR read the observations of the TPO for excluding this company. 40. We find that the main reason for excluding this company given by the TPO is that it also runs a knowledge process outso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for comparison are functionally comparable to that of the tested party. 44. We find force in the contention of the ld. counsel for the assessee. We are of the considered view that if the functions are comparable with those of the assessee, then the companies cannot be excluded as they fail to pass the employee cost filter. Considering the business profile of the assessee, and in particular the marketing support services provided by it to its AE, we do not find any merit in applying employee cost filter of 25%. We, therefore, direct the TPO to include all those companies which are otherwise functionally comparable but fail to pass the employee cost filter. 45. Last argument put forth by the ld. counsel for the assessee relates to the treatment of certain items as non-operating while computing margins of comparables which are foreign exchange gain/ loss, bank charges and provision for doubtful debts. 46. In our considered opinion, forex gain/loss arise in normal course of business due to realization of export proceeds, settlement of import payables or adjustment of customer advances at a different rate than the rate at which it was booked, and should be considered as o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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