TaxTMI 
TaxTMI 
2012 (8) TMI 590
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....ternational transaction in the nature of marketing support services, consultancy services and low end services to group companies. 2. Use of contemporaneous data Erred in computing the arm's length price using the financial information of the comparable companies available at the time of assessment, although such information was not available at the time when the Appellant complied with these regulations. 3. Use of multiple year data Erred in considering the operating margins earned by comparable companies based only on the financial data pertaining to the year ended 31 March 2007, and rejecting the financial data of comparable companies for prior two years, which is permitted in terms of Rule 10(B)(4) of Income Tax Rules, 1962. 4. Application of turnover filter for identification of comparable companies Erred in rejecting the application of turnover filter for identification of comparable companies, thereby, accepting comparable companies without considering their scale of operations and turnover. 5. Exclusion of certain companies from the set of comparables Erred on facts and in law by rejecting some of the comparables selected by the Assessee, without provid....
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.... Rs.2,598,415 incurred for travel pertaining to Singapore visit without verifying the details as directed by the Hon'ble DRP. - in disallowing the travelling expenses incurred in foreign currency of Rs.6,000,000, without appreciating that the said expenses were incurred wholly and exclusively for the purposes of business and hence allowable under section 37(1) of the Act. 13. Double disallowance in respect of marketing and travelling expenses Without prejudice to the ground No.11 and 12, erred in disallowing marketing and travelling expenditure incurred in foreign currency without appreciating the fact that the assessee is a captive unit and invoices its group companies on a cost plus basis. Hence, all the expenditure incurred by the assesses, including travelling and marketing expense incurred in foreign currency, in effect on the basis/ part of its invoice/revenue. Accordingly, it the expenditure disallowed on the ground that the same is not incurred wholly and exclusively for the purpose of business, recovery of the said cost through invoicing should also not be taxed. Without prejudice to the ground No.11 and 12 above, erred on facts and in law by effecting double d....
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.... 2005-06. The details are as under:- Sr. No. Company Name OP/TC FY-2004-05 FY-2005-06 2 year WA Prowess-database 1 Ace Software Exports Ltd. 14.55% 7.00% 10.68% 2 Cosmic Global Ltd. 18.75% 16.48% 17.33% 3 Cyber Media Events Ltd. 0.48% 9.22% 2.66% 4 Cyber Media India Online Ltd. 16.42% 34.30% 26.30% 5 Firstsource Solutions Ltd. 7.33% 12.67% 10.27% 6 IDC (India) Ltd. 11.71% 14.49% 13.34% 7 Transworks Information Services Ltd. 5.69% 23.25% 15.59% Prowess-Segmental 8 R Systems International Ltd. 5.46% 15.46% 10.53% Capitaline-database 9 Empire Industries Ltd.(Seg) 0.81% 15.79% 9.24% 75th Percentile 14.55% 16.48% 15.59% 50th Percentile (Median) 7.33% 15.46% 10.68% 25th Percentile 5.46% 12.67% 10.27% Absolute Maximu....
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....usion and inclusion of comparables has been sought by ld. A.R as follows: (I) Exclusion:- 4.1 Through Ground No.6 assessee has expressed the grievance over inclusion of CMC Ltd. which has significant related parties transactions (RPT). It is the case of Ld. A.R that CMC Ltd. should be excluded from the list of comparables as it has 58.82% RPT. To support such contention reliance has been placed on page 169 of the paper book. According to the said document out of total revenue of Rs. 994,31,42,000/- the RPT is Rs. 584,85,76,000/- which is 58.82%. Ld. A.R submitted that such contention was not only raised before T.P.O but also before Ld. DRP and Ld. DRP without appreciating the facts and contentions of the assessee has simply confirmed the action of TPO by observing that the Tribunal in the case of assessee in earlier year has confirmed the addition. Ld. A.R submitted that such issue was never decided by the Tribunal in earlier year. Ld. A.R also placed reliance on the following decisions: a) Sony India (P) Ltd. V/s DCIT (2008) 114 ITD 448 (Delhi); wherein the ITAT has expressed an opinion that an entity can be taken as uncontrolled if its related party transaction did not e....
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....NR 34.9 lacs to INR 221.32 Lacs) over operating profit for FY 2005-06, which is clearly exceptional in nature. (Refer Annexure 4; Page 464 to 468 of this submission providing margin computation and relevant extract of profit and loss account of TSR). While this company was considered as comparable for AY 2006-07 (operating margin : 11.33 per cent), it ought not to be considered as comparable for AY 2007-08 since it has earned super normal profits for the year under consideration. c) CMC Limited : Operating margins earned by CMC Limited i.e. 31.74% are more than two times the average operating margins of the other comparable companies identified by the ld. TPO (Refer Annexure 5; page 469 to 473 of this submission providing margin computation and relevant extract of profit and loss account of CMC Limited). Separately, also as mentioned in Ground No.6 it is functionally different as compared to Appellant and has substantial related party transaction. Hence, this company earning super normal profit; being functionally not comparable to assessee and having significant related party transactions should be excluded while arriving at the ALP. 4.4 It was further submitted by ld. A.R t....
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....per book where copy of additional submissions dated 28/6/11 is placed. He submitted that as per decision of M/s. Sony India (Pvt.) Ltd. (supra) it was held that the loss and competition are normal incidents of the business and merely on above factors, exclusion cannot be justified. Ld. A.R also relied upon the following decisions for similar proposition. a) Technimount ICB Private Limited V/s ACIT in ITA No.7098/Mum/2010)Mumbai ITAT; b) Quark System Private Limited (2010) 30 SOT 307 (Chd) (SB), Chandigarh ITAT Special Bench 4.8 Relying upon the aforementioned arguments Ld. A.R submitted that the addition made with respect to transfer pricing is required to be deleted. 5. On the other hand, referring to the comparable selected by the assessee in its TP report and comparable relied upon by the assessee in earlier years and also the comparables relied upon by TPO in earlier years Ld. DR has submitted the following chart: Sr. No. Name of the company Asst. Year Decision 1 Cosmic Global Limited 2007-08 Accepted 2 Cyber Media Events Limited 2007-08 Accepted 3 Cyber Media India Online Limited 2007-08 Accepted 4 First Source ....
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....Stock variance 31.3.2007 31.3.2006 Closing stock 24,78,108 87,22,844 Less :Opening stock 87,22,844 14,59,130 (42,44,736) 52,63,714 From the above figures, it was pointed out by him that the aforementioned concern is maintaining opening and closing stock and is apparently engaged in the development of software. As against that the assessee company is engaged in providing marketing services, low end support services and consultancy services. Therefore, Ld. D.R submitted that this company cannot be compared with the assessee company. Therefore, he pleaded that rejection of this comparable should be sustained. 5.2. Coming to the Empire Industries Limited, he referred to the profit and loss account of the said comparable for the year ending 31.3.2007 and pleaded that segmental accounts of this company are also available in annual report. He submitted that this company has four segments viz : (1) Manufacturing ; (ii) Trading and Indenting (iii) Educational Programmes and (iv) others. He submitted that result of trading and indenting segment may be compared with the business activity of the assessee company and that may be accepted as a compar....
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....7 the assessee had raised the objection regarding arbitrary rejection of comparable companies and in ground -5 the assessee has raised objection about inclusion of certain companies in the set of comparables and these grievances of the assessee are also reflecting in para 3.5 of the order of the DRP, wherein it has been clearly mentioned that CMC Ltd. could not be taken as comparable as it has 58.82% related party transactions and it is also mentioned that an application has been filed before TPO under section 154 of the Act. Similarly, it has been mentioned that CMC Ltd., ICC International Agriculture Ltd. & TSR Darashaw Ltd should be excluded from comparables as they are earning significantly higher operating margin than the average margin. It is also mentioned that the TPO has wrongly rejected three comparables as they are loss making companies. Apart from the aforementioned specific objections various other grounds were also taken by the assessee to assail the adjustment. Ld. DRP has upheld the adjustment with the following observations: "3.6 We have considered the draft order and the assessee's submissions, we find that in A.Y. 2006-07, the Hon'ble ITAT has adjudicated a....
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....n as comparable. Similarly, even leaving aside CMC Ltd. which is sought to be excluded on account of significant related parties transactions, the other comparables, ICC International Agricultural Ltd. & TSR Darashaw Ltd. are required to be excluded on account of significantly higher operating margins which are stated to be 82.92% and 78.29% respectively. It can be seen from the list of comparables selected by TPO that none of the other parties except these two parties and CMC Ltd. have margin of more than 26.67%. If out of 13 comparables except three comparables do not have margin of the magnitude which ICC International Agricultural Ltd. & TSR Darashaw Ltd. have then there is a merit in the contention of the assessee that these comparables should not be taken as comparable on account of their having super normal profits unless it is demonstrated that these super normal profits have earned by those companies in normal routine of its activities. No such material has been brought on record by TPO to show that these super normal profits earned by these companies were in accordance with normal activities of their business. The contention of the assessee that the loss making compani....
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....duct marketing seminar in other countries to educate distributors and resellers about its products and marketing strategy to be adopted for the sale of these products. The assessee being marketing arm of Symantec Products in India has to lay these expenditure for popularizing and developing market in India for Symantec products. The AO did not accept such submissions of the assessee. He noted that the assessee has incurred expenditure on hoardings erected in Colombo, event launched in Srilanka, Advertising in daily news paper in Srilanka etc. Therefore, AO observed that these expenditure with no stretch of imagination can help in the business of the assessee company which is a separate legal entity and there is no justification for incurring these expenditure. In this manner a sum of Rs.1,27,12,134/- has been disallowed. 8.1 Ld. A.R submitted before us the following details with respect to the aforementioned expenses. S.No. Particulars Amount (Rs.) Nature of expenses. 1. Expenditure on account of advertisement in various magazines & web-sites published in India. 1,19,52,869 Symantec group as a whole has engaged Oracle Pty., Australia to provide services i....
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....tec Group had an arrangement for availing publication services from Oracle Pvt. Ltd. The said arrangement benefited the assessee in the following manner: -The Appellant can avail competitive rates, favourable credit terms and long-term bookings, given the volume of work assigned to the service provider by all the entities across the Asia Pacific region; -Keeping a one point co-ordinator/ service provider brings consistency in the advertisements, which is essential to have uniformity in approach; -Common co-ordinator / service provider can influence and get better terms and conditions from the publications in various countries. 8.3 Referring to the marketing expenses of Rs. 7,59,265/- incurred for organizing seminars outside India, the Ld. A.R referred to pages 332 to 336 of the Paper Book-1 and it was submitted that these conferences and seminars are organized outside India to educate resellers and distributors regarding the product. Therefore, Ld. A.R submitted that these expenses had in fact incurred for promoting assessee's business of providing marketing services in India, therefore, these expenses are incurred wholly and exclusively for the purpose of business . It....
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....red wholly and exclusively for the purpose of business of the assessee. All the relevant details were filed. Total traveling expenses incurred in foreign currency for the year are Rs. 70,22,867/-. He referred to details enclosed at pages 365 to 379 of paper book and submitted that without application of mind a sum of Rs. 60.00 lac has been disallowed. He submitted that these expenses have been incurred on the seminar / training organized by the group companies outside India on global basis and during the year seminar / training outside India were largely held on account of launch of new products as follows: - Backup Exec, version 11 ['BE 11'] - Backup Exec & Backup System Recovery ['BE & BSR'] - Enterprise Vault ['EV'] - Storage foundation, version 5 ['SF 5.0'], - Enterprise Messaging Management ['EMM'] etc. He submitted that these details are filed at page 389 to 409 of the Paper Book-1. He submitted that similar expenses are being incurred by the assessee from assessment year 2005-06 to 2011-12 and reference in this regard was made to chart placed at page 486 of the Paper Book to show that these expenses are being incurred by the assessee on year to year basi....
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.... contention Ld. A.R has relied on the following decisions: - DCIT vs. M/s. Hind Rectifies Ltd. (ITA No.4456/Mum/1998(Mum ITAT) (enclosed at Page 148 to 151 of Paper Book II) - STS Chemicals Ltd. vs. DCIT (ITA No.1234/Mum/1998) (Mum ITAT) (enclosed at Page 152 to 154 of Paper Book-II) Alternatively, Ld. A.R submitted as under: "In view of the above and without prejudice to the grounds on merits of the case discussed above, the learned AO has erred in levying additional interest of Rs.8,10,809 [Rs.1,23,97,841 - Rs. 1,15,87,032]. Accordingly, the Appellant prays before your Honours that the learned AO should be directed to re-compute the interest under section 234B of the Act for the period from payment of self assessment tax till the date of assessment order considering self assessment tax after reducing the interest liability of Rs. 5,02,865/- under section 234B of the Act as per the return of Income." 8.7 On the other hand, Ld. D.R submitted that the expenses have rightly been disallowed by the AO as these are incurred in foreign currency and assessee could not bring any material on record to show that these expenses were actually incurred by the assessee f....
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....disallowance cannot be sustained. Therefore, it is considered just and proper to restore this issue to the file of Ld. DRP to ascertain the fact that whether all these expenses have been reimbursed and also the fact that whether the claim of the assessee is right that most of the expenses have been incurred on the media covering Indian territory and are expenses incurred by the assessee wholly and exclusively for the purpose of the business. Therefore, we restore this issue to the file of DRP with a direction to bring all these facts on record and redecide this issue after giving the assessee a reasonable opportunity of hearing. Ground No.11 of the assessee is allowed for statistical purposes in the manner aforesaid. 8.9 Coming to Ground No.12 the disallowance has been sustained by Ld. DRP except a sum of Rs. 47,49,719/-, which is found to be incurred in respect of countries other than Singapore where AE of the assessee is situated. The ground of sustaining such disallowance is that assessee did not have any purpose to travel, the countries like USA, UK, Hong Kong , Sri Lanka etc. Even the relief granted by Ld. DRP has not been allowed by the AO. On these facts it is the submiss....