TMI Blog2019 (11) TMI 1777X X X X Extracts X X X X X X X X Extracts X X X X ..... ty level revenue from financials which are of diverse segments and services; that it has established state of the art infrastructure over the last 12 months and it has selected new Global Payroll ERP application called RAMCO for its fast growing payroll business, is not a suitable comparable vis- -vis the taxpayer who is a routine business support service provider, hence ordered to be excluded. Aptico being into diversified business activities with no segmental information available and being into providing high end consultancy services is not a suitable comparable vis- -vis the taxpayer who is a routine business support service provider, hence ordered to be excluded for benchmarking the international transactions. Foreign exchange gain or loss on account of international transactions entered with its AE - TPO had not considered foreign exchange gain or loss as the case may be by treating the same non-operative income of the taxpayer by treating the PLI of the taxpayer as well as the comparables - HELD THAT:- By now, it is settled principle of law that foreign exchange gain or loss on account of international transactions entered with its AE in the ordinary course of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in assessing the income of the appellant for the relevant assessment year at INR 2,28,58,370, as against returned income of INR 98,77,683. 2. That on the facts and circumstances of the case and in law, the AO/ Transfer Pricing Officer ( TPO ) have erred in making transfer pricing adjustments and the Dispute Resolution Panel ( DRP ) further erred in upholding the adjustment in respect of the international transaction pertaining to business support services, alleging the same to be not at arm's length in terms of the provisions of sections 92C(1) and 92C(2) of the Act, read with Rule 100 of the Income-tax Rules, 1962 ( the Rules ). 3. That on the facts and circumstances of the case and in law, the DRP / AO / TPO have erred, in arbitrarily rejecting certain functionally comparable companies identified by the Appellant on a subjective basis, inter alia, using unreasonable comparability criterion. 3.1 That on the facts and circumstances of the case and in law, the DRP / AO / TPO have grossly erred in re-characterising business of the appellant as marketing support services without appreciating that the appellant has been engaged in providing business support serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. Facilitating communication among Exxon Mobil group entities and / or its affiliates, foreign companies, Indian companies and government authorities. Attending and coordinating meetings among Exxon Mobil group entities and/or affiliates and other foreign and Indian companies to prevent misunderstanding due to language barriers. Handling administrating matters with respect to meetings and travel arrangement; and Generally acting as liaison among Exxon Mobil group entities and/or its affiliates and other foreign companies and their Indian customers and government authorities. 3. During the year under assessment, the taxpayer entered into international transactions with its AE as under :- Sl. No. Nature of transaction Method applied Value of International Transaction 1 Provision of Market Survey and related advisory Services. TNMM 11,62,42,507 2 Receipt of Shared Services - 3,47,884 3 Reimbursement of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Global Procurement Consultants Ltd. 36.16 4 HCCA Business Services Pvt. Ltd. 20.56 5 Quadrant Communications Ltd. 15.13 6 TSR Darashaw Limited (Amt in lakhs) 41.35 Average 26.81 10. Consequently, ld. TPO computed the arm s length price of international transactions as under :- Particulars Amount (Rs.) Operating Cost (OC) 10,19,03,000 Arm s Length Margin (%) 26.81% Arm s Length Price (126.81% of OC) 12,92,23,194 Price received 11,62,42,507 Adjustment 1,29,80,687 GROUND NO.1 11. Ground No.1 is general in nature and does not require any adjudication. GROUNDS NO.2, 3 4 12. At the very outset, ld. AR for the taxpayer in order to compress the controversy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility Studies, Micro Enterprise development, Skill Development, Project Management Consulting, Industrial Cluster Development, Environment Management Consulting, Energy Management consulting, Market Social Research and Asset Reconstruction Management Services. 17. Coordinate Bench of the Tribunal in Philip Morris Services India S.A. vs. DDIT (supra) examined the suitability of Aptico as a comparable vis- -vis routine business support service provider and found the same non-comparable on the ground that Aptico is engaged in providing high end technical services to other Government companies and public sector undertakings; that it is into diversified business. Aforesaid order passed by the Tribunal has been affirmed by the Hon ble High Court reported in (2019) 102 taxmann.com 376 (Delhi) by returning following findings :- 14. Ld. AR brought to our notice that the Apitco Ltd. was rejected by a catena of decisions rendered by different Benches of this Tribunal including a coordinate Bench of this Tribunal in Ciena India (P) Ltd. v. DCIT in ITA No. 2948 and 3224/del/2013 following which in Avaya India Private Limited versus DCIT in ITA No.146/del/2013. He also placed relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be taken as a suitable comparable. 19. In view of what has been discussed above and following the aforesaid decision rendered by the coordinate Bench of the Tribunal, confirmed by the Hon ble High Court, we are of the considered view that Aptico being into diversified business activities with no segmental information available and being into providing high end consultancy services is not a suitable comparable vis- -vis the taxpayer who is a routine business support service provider, hence ordered to be excluded for benchmarking the international transactions. GLOBAL PROCUREMENT CONSULTANTS LIMITED (GPCL) 20. The taxpayer sought exclusion of GPCL from the final set of comparables for benchmarking the international transactions on the grounds inter alia that GPCL has different business profile; that its segmental financials are not available; that GPCL is permitted by Export Import Bank of India in association with leading Indian public sector and private sector consultancy organisation on the basis of public private entrepreneurship model; and relied upon the decision of the coordinate Bench of the Tribunal in Philip Morris Services India S.A. vs. DDIT (2018) 95 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP, Delhi in the case of travel security services (India) private Ltd for assessment year 2011-12 by holding that this company is functionality similar and should be deleted from the set of comparable companies rendering business support services. Further a coordinate Bench of this Tribunal in Kobelco Cranes India Private Limited vs. ITO in ITA No. 802/del/2016 excluded this company as comparable to the marketing support services. So also in Adidas technical services Ltd vs. DCIT in ITA No. 862/del/2016 and ITA No. 1233/del/2015 a coordinate Bench of this Tribunal excluded this Global Procurement Consultants Ltd., as a good comparable to the marketing support service providers on the ground of functionality similarity. 28. This profile of this Global Procurement Consultants Ltd., as narrated by the Ld. TPO himself speaks in unequivocal terms that this Global Procurement Consultants Ltd., is a company established by the government to serve the purpose of professional procurement and management services needs and also to provide combines management services required by the government departments or their project execution agencies to carry out the procurement in time bound and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues to be promising even in the current challenging environment and in line with the growth of the business, TSRDL has emerged stronger and has been able to retain its market share. TSRDL has now selected a new Global Payroll ERP application called RAMCO for its fast growing Payroll business, which is on par with similar applications in the business. This will enable TSRDL to be able to cater to various complexities of the payroll requirements of the clients. IT continues to be the key focus wherein the company has installed state of the art infrastructure over the last 12 months and has changed over to new and latest applications for its traditional business in Registry and Share Transfer business. 29. Furthermore, perusal of business outlook at page 465 shows that it has installed state of the art infrastructure over the last 12 months and has changed over to new and latest applications for its traditional business in Registry and share transfer business and it has been enabled it to cater to various complexities of the payroll requirements of the clients. Moreover, TSRDL has been selected as new Global Payroll ERP application called RAMCO for its fast growing payroll busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court confirmed the aforesaid exclusion of TSRDL as a comparable. 32. As per the ratio laid down by Hon ble Delhi High Court in Rampgreen Solutions Pvt. Ltd. vs. CIT ITA 102/2015 order dated 10.08.2015, the functions of a company is to be taken as comparable cannot be ignored. So, since functions of TSRDL are different vis- -vis the taxpayer, it cannot be taken as a suitable comparable. 33. In view of the facts and circumstances narrated above and following the aforesaid decision of the coordinate Bench of the Tribunal, confirmed by the Hon ble Delhi High Court, we are of the considered view that TSRDL is having different business profile vis- -vis the taxpayer who is a routine business support service provider; that TPO has taken entity level revenue from financials which are of diverse segments and services; that it has established state of the art infrastructure over the last 12 months and it has selected new Global Payroll ERP application called RAMCO for its fast growing payroll business, is not a suitable comparable vis- -vis the taxpayer who is a routine business support service provider, hence ordered to be excluded. GROUND NO.5 34. Ld. AR for the taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a contract. As the work undertaken under the said agreement was in relation to the development of software which. was the main business activity of its undertaking eligible for deduction under section 1 DB, the compensation received by the assessee on cancellation/termination of the said contract/agreement was integral part of its main business. There was, thus, a clear and direct nexus between the amount of Rs.83,06,011 received by the assessee as compensation for cancellation of the contract and the main business of software development of its undertaking and the said income forming part of the said main business 01 the undertaking was eligible for deduction under section 10B being derived from the said under-taking. For the application of words 'derived from; there should be a direct nexus between the income and the industrial under-taking and once such nexus is established, the said income certainly constitutes the income derived from such undertaking. As such, considering all the facts of the case, the amount of Rs.83,06,011 constituted its profit derived from the undertaking eligible for deduction under section 10B and the deduction under that section was rightly cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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