TPO directed to exclude five functionally dissimilar comparables from transfer pricing adjustment for mining support services

ITAT Delhi ruled in favor of the assessee on two issues. First, regarding TP adjustment, the tribunal directed TPO to exclude five comparables (Aptico Ltd., Info Edge India Ltd., MMTV Ltd., TSR Darashaw Ltd., and Global Procurement Consultants Ltd.) as they were functionally dissimilar to the assessee's marketing, supervising and support services for mining/meteorological/metals minerals processing industry. Second, on TDS u/s 195, the tribunal dismissed Revenue's appeal, upholding that no tax deduction was required from payments to foreign entity as the payee was not liable to tax under DTAA provisions.

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Issues Involved:
1. Adjustment to international transactions pertaining to rendering of marketing support services (MSS).
2. Inclusion and exclusion of certain comparables in determining the arm's length price.
3. Disallowance under section 40(a)(i) for non-deduction of tax on payment to Outotec Oyj.

Issue-wise Detailed Analysis:

1. Adjustment to International Transactions Pertaining to Rendering of Marketing Support Services (MSS):
The Tribunal addressed the adjustment of Rs. 50,26,689/- made by the TPO to the international transactions related to MSS. The TPO had added nine comparables to the four selected by the assessee, resulting in an average OP/TC of 19.29%, leading to an upward adjustment. The Tribunal noted that the assessee used TNMM as the most appropriate method and considered four comparables with an average margin of 11.20%. The Tribunal found that the TPO's fresh search and addition of nine comparables were not justified.

2. Inclusion and Exclusion of Certain Comparables in Determining the Arm's Length Price:
The Tribunal examined the inclusion of four comparables challenged by the assessee: Aptico Ltd., Info Edge (India) Ltd., MMTV Ltd., and TSR Darashaw Ltd. The Tribunal referred to various decisions where these comparables were held to be not comparable due to functional dissimilarities. For instance, MMTV Ltd. was excluded as it was engaged in television broadcasting with significant intangibles, making it functionally different from the assessee. Similarly, Aptico Ltd. provided technical consultancy services, which were not comparable to MSS. Info Edge (India) Ltd. and TSR Darashaw Ltd. were also excluded based on their distinct functional profiles. The Tribunal directed the TPO to exclude these comparables from the list.

3. Disallowance under Section 40(a)(i) for Non-Deduction of Tax on Payment to Outotec Oyj:
The Tribunal addressed the addition of Rs. 1,62,88,677/- made by the Assessing Officer for non-deduction of tax on payments made to Outotec Oyj. The assessee argued that the payments were not taxable under the India-Finland DTAA as they did not qualify as fees for technical services (FTS). The DRP had deleted the addition, noting that the services were managerial in nature and did not "make available" any technology or know-how. The Tribunal upheld the DRP's decision, referencing the Kolkata Bench's ruling in Outotec Oyj vs. DCIT, which held that the amounts received did not qualify as FTS under the DTAA. The Tribunal concluded that when the payee is not liable to tax, the question of deduction of tax does not arise, and dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the exclusion of certain comparables and upheld the deletion of the disallowance under section 40(a)(i). The appeal filed by the Revenue was dismissed. The decision was pronounced in the open court on 23.10.2019.

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