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TMI Blog2018 (1) TMI 1722X X X X Extracts X X X X X X X X Extracts X X X X ..... interested in pressing grounds no.2.1,3.1,3.2,4.1,5.1 and 5.2 only. Therefore, we are dismissing the remaining grounds. 3.Ground no.2.1 is about addition of Rs.8.04 crores. During the assessment proceedings, the AO found the assessee entered into International Transactions (IT.s) with its Associated Enterprises (AE.s).He made a reference to the Transfer Pricing Officer(TPO) to determine the Arm's Length 1402/M/13(09-10) Price(ALP)of the IT.s. The TPO observed that the assessee has entered into following IT.s with its AE: He found that assessee had selected six comparables and that for benchmarking the IT.s it had applied entity level TNMM. The TPO directed the assessee to submit a copy of the agreement entered in to between the assessee and the AE. After going through the agreement, the TPO observed that the assessee was providing complete marketing support starting from formulation of marketing strategies, preparation of business plans, communication network plans, formulation of pricing schedule and marketing support plans, that it was also responsible for providing necessary services and supporting infrastructures to ensure the utilisation levels of Abacus system and Abacus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 21/11/2012, he issued a show cause to the assessee rejecting the TP documentation and giving it a set of 13 comparables to be consider for benchmarking purposes. After considering the objections of the assessee, he selected eight comparables in the final list of comparables namely -Aptico Ltd. (AL), Choksi Laboratories Ltd. (CLL), Genins India TPA Ltd. (GITL), Rites Ltd. (Rites) WAPCOS Ltd. (WL), Best Mulyankayan Consultants Ltd. (BMCL), ICRA Management Consulting Services Ltd. (ICRA-M) and Technicom-Chemie (India)Ltd.(TCIL). 3.1. Aggrieved by the order of the TPO/AO, the assessee filed objections before the DRP. After considering the available material, it held that there were pertinent defects in the economic analysis undertaken by the assessee, that it had done the benchmarking its IT.s with that of 'Commission Agents', rather than with companies providing 'Consultancy and business Support services', that it was promoting CRS offered by parent company in India, that to promote the CRS offered by Abacus Singapore it would undertake advertisement and promotion activities, that it would provide support to subscribers of CRS like training to users, computer hardware support, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that it was justified in identifying the comparables who were providing commission agent/business agent services, that if five of the comparables, selected by the TPO, were excluded the OP to cost would come down to 3.10 % which would be lower than the OP to the cost of assessee i.e. 5.87%. He referred to the page no 81 and 82 of the paper book and stated that the assessee had carried out FAR analysis, that the TPO and the DRP were not justified in rejecting the TP study report, that a sub distribution agreement, dated 06/06/1996, had been entered into between the AE and the assessee, that as per the agreement the assessee was obliged to formulate and implement the marketing strategy in India as well as to formulate the pricing schedule in respect of the amount to be charged to the Travel Agents, that as a part of its business the assessee decided to offer incentive schemes to the Travel Agents of India, that the aforesaid functions were carried out by the assessee as a part of its commission agency/business agency services offered to the AE, that it was not functioning as a independent service agent, that if out of the eight comparables, selected by the TPO, five were excluded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sen Krupp Industries India Private Limited (Income Tax Appeal No.2218 of 2013, dated 28/03/2016). Referring to WL, the AR stated that it was a public sector undertaking and was not providing MSS and was an government enterprise. 3.3. Supporting the order of the TPO and the DRP, the Departmental Representative (DR) contended that the assessee was not merely in MSS, that it was providing various services, that AL was a valid comparable, as it was also providing consultancy like the assessee, that Ciena India Private Ltd., Avya India Pvt.Ltd. and BG India Energy Pvt.Ltd. were not providing MSS, that while applying TNMM broad functionality had to be applied, that the services provided by CLL were akin to MSS, that the TPO had considered consultancy segment only as far as Rites and WL are concerned, that both were government companies but were driven by profit motives, that just because they were government entities they could not be excluded from the list of valid comparables, that the comparables selected by the TPO were engaged in the business of providing support services and consultancy services like the assessee. 3.3.1. In the rejoinder, the AR stated that Tribunal orders relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discuss the comparables which have been contested before us. As per the annual report of AL, it derives its revenue from various sources, that during the year it had recorded total revenue of Rs.1145.71 lakhs from major 10 segments namely skill development (Rs. 322.59 lakhs), tourism and research studies (Rs.207.44 lakhs),project related services (Rs.180.06 lakhs), micro-enterprises development (Rs.117.83 lakhs), cluster development (Rs.97.14 lakhs), asset reconstruction and management services (Rs.78.03 lakhs), energy-related services (Rs.50.87 lakhs), entrepreneurship development and training (Rs.30.78 lakhs), environment management (Rs.10 lakhs), infrastructure planning and development (Rs.7.99 lakhs). Considering the profile of AL, we are of the opinion that it has to be rejected from the list of valid comparables. As per the website maintained by CLL.it is a leading analysis and research group providing complete solution for improving quality in process, products and services, that it provides contract laboratory services including pharmaceutical analysis, food and beverages analysis, water analysis, construction material analysis, environment management services, clinical r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning project and lump sum turnkey projects was Rs. 10644.78 lakhs and Rs. 9862.5 lakhs respectively for the year under consideration. It can safely be held that WL is basically engaged into project engineering consultancy and therefore not comparable to the functional profile of the assessee. Here we would like to mention that Rites and WL have not been excluded by us from the list of valid comparables because they are government undertakings. We have compared the functional profile of the assessee and these two comparables. We find that there is no similarity between the functions performed by the assessee and these two entities. We also find that in Ceina India Private Limited, the Tribunal had held that it was functionally dissimilar to a company providing MSS. In the case of Avaya India Private Limited (ITA/ 146/Del/2013, dated 17/06/2016), the Tribunal had held that AL was not a valid comparable for determining the ALP for MSS, that similar conclusion was raised by the Tribunal in the case B.G. India Energy Private Limited (ITA/6486/Del/2012, dated 04/10/2016). 3.5. Considering the above, we are of the opinion that all the five comparables-i.e. AL,CLL, GITL, Rites and WL, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order, that Yatra had filed a fresh statement of tax deducted at source, that the AO had not passed the rectifition order in that regard. Therefore in our opinion, the addition made by him of Rs. 1.14 lakhs, in respect of Yatra Online.com cannot be endorsed. Reversing the order of the FAA, we allow ground number 3.1. 4.3. As far as income of Rs. 6.64 lakhs is concerned we find that the assessee had claimed that there was dispute about the sum, that Arzoo had disputed the liability. The AO is directed to pass order u/s.154 of the Act within a month of receipt of this order. If he finds that claim made by the assessee about Arzoo.com is not supported by documentary evidences, he can add the disputed amount i.e. for Rs. 6.64 lakhs to the income of the assessee. But he will give credit to the taxes deducted at source as per AS 26.GOA 3.2 is allowed partly. 5. Foreign exchange loss is the subject matter of ground number four. During the assessment proceedings, the AO found that the assessee had claimed for exchange loss to the tune of Rs. 40.02 crores. After calling for details in that regard, he held that loss was not allowable. The DRP confirmed the order of the AO. 5.1. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght arose when it decided to give incentive to the dealers, that the agreement dated 6/6/1996 authorised the assessee to introduce incentive schemes, that it had the necessary authority, that it had entered into written agreements with the dealers prior to entering into agreement of 31/12/2008, that the claim of the assessee regarding the date /period of arising income in its hands was factually incorrect, that the assessee had incurred expenditure on providing incentive to the dealers of Rs. 34.16 crores, that it had only been compensated to only Rs. 32.61 crores, that the parent company had deducted Rs.2 crores due to the assessee, that on being confronted about the fact of receiving Rs. 2 crores form AE the assessee had not come up with any convincing explanation, that it had not explained reason of receiving Rs. 2.00 crores from the AE, that the agreement dated 31/12/2008 did not provide any detail or liability on assessee that it had incurred expenditure on behalf of parent company, as the agreement of 1996 provided for the same, that payment to dealers was purely on account of AE, that it had no relationship or link with the assessee, that it was not the liability of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had right to receive the amount. 6.3. We have heard the rival submissions and perused the material before us. We find that the had incurred an expenditure of Rs. 34.61 crores under the head MFS, that it received Rs. 32.61 crores form its AE, that payment was made to the agents as a part of incentive scheme introduced by it, that an agreement was entered into between the AE and the assessee in that regard, In our opinion, the basic question to be decided is as to whether the transaction in question was at arm's length. Had two independent entities entered into such an transaction what would have happened in normal course of business has to be seen to determine the ALP. Provision of section 92 were introduced to prevent the misuse of proximity of the AE.s to manage their affairs in a manner that could lead to payment of less taxes that are due to the Sovereign. Had the incentive in an open market been initiated by an assessee for its benefit, it would bear the cost of such an scheme. Why any other entity would pay for it. The AE decided to pay Rs. 32.61 crores to the assessee out of Rs. 34.61 crores, for a scheme that was claimed to be introduced by assessee on its own. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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