TMI Blog2019 (1) TMI 2018X X X X Extracts X X X X X X X X Extracts X X X X ..... have been given by the TPO is not contemplated or authorised - Thus we are of the considered opinion that corporate management charges should be allowed as such - we direct the AO to delete the adjustment. Adjustment made in business support segment - Comparable selection - HELD THAT:- Rejection of companies as functionally different from the assessee business. - ITA No. 4123/DEL/2015 - - - Dated:- 28-1-2019 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For the Assessee : Shri Ved Jain, Adv, Shri Rishabh Jain, CA, Shri Ashish Goel, CA, Shri Kislaya Parashar, Adv For the Revenue : Shri H.K. Choudhary, CIT- DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, This appeal by the assessee is preferred against the order dated 27.01.2015 framed u/s 143(3) r.w.s 144C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] pertaining to A.Y 2010-11. 2. The assessee is aggrieved by the adjustments made on three counts viz: (i) relating to payment of corporate management charges, (ii) relating to business support segment, and (iii) relating to designing services and market services support segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied CUP as the most appropriate method, determining the ALP of this transaction of payment of management charges as NIL and proposed the upward adjustment of Rs. 1,62,85,589/-. 6. The matter was objected to before the DRP but without any success. 7. Before us, the ld. AR pointed out that an identical issue arose in A.Y 2009-10 and the Tribunal has considered the same in ITA No. 1882/DEL/2014. The counsel prayed for similar treatment. 8. Per contra, the ld. D.R strongly opposed the contention of the ld. AR and pointed out that the facts of the year under consideration are distinguishable from the facts of A.Y 2009-10. 9. We have given a thoughtful consideration to the orders of the authorities below and the submissions made by the respective representatives. We find that the TPO has verbatim lifted the findings given in A.Y 2009-10 in so far as this issue is concerned and nowhere has he whispered about any distinguishing fact. Therefore, we do not find any force in the contention of the ld. DR. We find that the Tribunal in assessee s own case in ITA No. 1882/DEL/2014 had considered an identical issue. 10. The relevant findings of the Tribunal read as under: 10. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0B(1) says that for the purposes of Section 92C(2), the ALP shall be determined by any one of the five methods, which is found to be the most appropriate method, and goes on to lay down the manner of determination of the ALP under each method. The five methods recognized by the rule are (i) comparable uncontrolled price method (CUP), (ii) re-sale price method, (iii) cost plus method, (iv) profit split method and (v) transactional net marginal method (TNMM). The manner by which the ALP in relation to an international transaction is determined under CUP is prescribed in clause (a) of the sub-rule (1) of Rule 10B. The following three steps have been prescribed: - (a) comparable uncontrolled price method, by which, (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties' characterization of the transaction and re-characterise it in accordance with its substance. An example of this circumstance would be an investment in an associated enterprise in the form of interest-bearing debt when, at arm's length, having regard to the economic circumstances of the borrowing company, the investment would not be expected to be structured in this way. In this case it might be appropriate for a tax administration to characterize the investment in accordance with its economic substance with the result that the loan may be treated as a subscription of capital. The second circumstance arises where, while the form and substance of the transaction are the same, the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner and the actual structure practically imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. 19. There is no reason why the OECD guidelines should not be taken as a valid input in the present case in judging the action of the TPO. In fact, the CIT (Appeals) has referred to and applied them and his decision has been affirmed by the Tribunal. These guidelines, in a different form, have been recognized in the tax jurisprudence of our country earlier. It has been held by our courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur. We may refer to a few of these authorities to elucidate the point. In Eastern Investment Ltd. v. CIT, (1951) 20 ITR 1, it was held by the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act makes the position stronger. 20. In the case of Sassoon J. David Co. Pvt. Ltd. v. CIT, (1979) 118 ITR 261 (SC), the Supreme Court referred to the legislative history and noted that when the Income Tax Bill of 1961 was introduced, Section 37(1) required that the expenditure should have been incurred wholly, necessarily and exclusively for the purposes of business in order to merit deduction. Pursuant to public protest, the word necessarily was omitted from the section. 21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred wholly and exclusively for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above. 22. Even Rule 10B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion without taking possession of the product or title to the goods. In its TP study report, the assessee has used 7 comparables. The margin of the assessee is at 13 whereas, those of the comparables was 11.37 and hence transaction was treated at Arm s length. The TPO accepted one comparable of the assessee and rejected six comparables and further added 8 new comparables resulting into 9 comparables where the average mean margin was taken at 23.25%. When the matter was agitated before the DRP, the DRP confirmed all the 9 comparables taken by the TPO. 14. Before us, the ld. counsel for the assessee prayed for the exclusion of the following five comparables: i) Global Procurements Consultants Ltd ii) TSR Darashaw Ltd iii) HCAA Business Services Pvt Ltd iv) Aptico Ltd v) Quippo Valuers and Auctionee Ltd 15. We will now consider each comparable. Global Procurements Consultants Ltd TSR Darashaw Ltd 16. We find that these comparables were excluded by the Tribunal in assessee s own case in assessment year 2009-10. The relevant findings of the co-ordinate bench read as under: Global Procurement Consultants Ltd 27. This comparable has been included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the Profit and Loss Account of this company, it is evident that the operations carried out by this company is providing services in the nature of project report preparation, technical and economic studies, feasibility studies, micro enterprise development, micro enterprise development, skill development, project management consulting, industrial cluster development, environmental management consulting, energy management consulting, market and social research and asset reconstruction management services. Further, no segmental wise profitability data of these services is available. Thus, this is engaged in profit high end diversified activities, agency services and is functionally different from that of the appellant company. We, accordingly, direct for exclusion of this company on functional dissimilarity. v) Quippo Valuers and Auctioneers Ltd 20. The Annual Report of this company shows that it is engaged in sale of construction and earthmoving equipment through auctions and also by means of innovative disposal methodologies; execution of live auction for financial institutions in the eastern part of the country and provision of valuation services to a number of clie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces segment is similar to the services provided by the assessee. Therefore, this segment should be considered a good comparable on the basis of segmental reporting. We, accordingly, direct the Assessing Officer/TPO to consider the soft ware development and services for the purpose of comparability. Ground Nos. 2.7 to 2.13 are partly allowed. 26. Respectfully following the findings of the co-ordinate bench [supra] we direct the TPO/Assessing Officer to consider these two companies as good comparables in the finalist of comparables. 27. Exclusion of the following companies: (1) Engineers India (2) IBI Chematur Ltd (3) Mahindra Consulting Engineers Ltd (4) RITES Ltd (5) TCE Consulting Engineers Ltd 28. We find that in the immediately preceding assessment year 200910, the TPO himself has rejected these companies from the final list of comparables. The relevant findings of the TPO in assessment year 2009-10 are at pages 52 to 54 of his order. Since these companies were never considered as good comparables by the TPO himself, the same are directed to be excluded from the final list of comparables. KITCO Ltd. 29. This company is a 100% government owned u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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