TaxTMI 
TaxTMI 
2013 (8) TMI 753
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....ansactions do not satisfy the arm's length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO's action - including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed and doing so has selected certain companies whose activities are in no way similar to appellant's characterization (as business support Services/ Marketing Support Services Provider) by the Ld. TPO himself. 2. The Ld. DRP and the Ld. AO erred in law in disallowing an amount of Rs. 7,00,000/- on account of club entrance charges. 3. The Ld. DRP and the Ld. AO erred in law in reducing depreciation allowance by Rs. 63,787/- during the year on items such as Docking stations and Rack 42u by holding that such items form part of 'plant and machinery' depreciable @ 15% and not 'Computers' which are depreciable @ 60%. The Ld. DRP and the Ld. AO erred in facts and in law by arbitrary disallowing the depreciation amounting to 45% of the opening written down value of the block computers without any basis and without appreciating that t....
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...., screen, review, conduct due-diligence, carry out investment analysis and research, report on new opportunities for the possible investment by the funds managed by the AE, and advise on such particular factors relating thereto as Actis India considers relevant for consideration by the AE; (ii) In its capacity as advisor, recommend for consideration by the AE from time to time, the purchase or sale of particular investments or proposed investments, and recommend to the AE from time to time regarding the amount and the terms for the proposed purchase/ sale; (iii) Monitor and evaluate the progress of all investments and report on such progress to AE as Actis India may consider appropriate; (iv) Advise in relation to any guarantees, indemnities, covenants, or undertakings in favour of third parties as may be given by the funds managed by the AE in connection with or for the purposes of the acquisitions, holding or disposal of any investment; (v) Advise and report to the AE, on any rights exercisable in relation to any investment; (vi) Provide such other services to the AE as may reasonably be required in order to preserve and promote the interests of the funds managed b....
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....company Margin (OP/TC) % Working Capital Adjusted (OP/TC)% 1 Apitco Limited 49.35% 46.40% 2 Best Mulyankan Consultants Limited 12.85% 2.65% 3 Choksi Laboratories Limited 29.20% 28.09% 4 ICRA Management Consulting Services Limited 4.18% 1.85% 5 IDC (India) Limited 15.48% 15.88% 6 Indus Technical & Financial Consultants Limited 14.56% 17.56% 7 Rites Limited (Seg) 25.77% 36.28% 8 Technical Chemise (India) Limited 7.32% 12.76% 9 Vapi Waste & Effluent Management co. 18.53% 9.23% 10 WAPCOS Limited (Seg) 40.37% 60.09% Average 21.76% 23.08% 3.7 This resulted in final TP Adjustment by averaging the e mark-up on cost of 23.08% after adjusting for working capital difference, it was higher than the mark up on cost of 9.25%1 earned by the assessee during FY 2007-08. Ignoring objections, the Ld. TPO proposed an adjustment of Rs. 54,944,194 to the income of the assessee on the basis whereof the draft assessment order u/s 144C(1) of the Act was issued by assessing officer. 3.8 Assessee carried the matter before DRP which overruled the assessee's....
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....ojects segment The segment of the company is engaged in high-end consultancy and working on engineering projects. Further, the company's main strength lies in its technical expertise, and it works as a technical consultancy organization. (i) Vapi Waste & Effluent Management Co. Limited: It is a functionally different comparable. The company deals in the infrastructure sector and is engaged in undertaking high end technical services and project implementation on varied nature of infrastructure projects. The company's revenue streams include effluent treatment, common solid waste treatment and management, etc. This is evident from the annual report of the company for the FY 2007-08. The relevant extract of the annual report of the company is as under: Operations: During the year under review your company has successfully continued with its activities of effluent treatment and common solid waste management Cluster projects: The Ministry of Commerce & Industries, Government of India, though Department of Industries Policy & Promotion ('DIPP') has approved the Vapi Chemical Cluster Project cost at Rs. 5431 crores under the Industrial Infrastructure ....
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....ase of Verizon India Private Limited, wherein the ITAT has specifically held that a company engaged in rendering engineering consultancy is exposed to higher risks because of its nature of business and cannot be compared with routine marketing support service, by following observations: "We agree with the view of the First Appellate Authority that EIL, Rites, Wapsos and TCE are engineering companies and provide end-to-end solutions and whereas the appellant company provides marketing support services to the parent company, which is in the nature of support service and hence not functionally comparable. She rightly concluded that the risk profile is vastly different and hence on this count also they are not comparable." ii) WAPCOS 4.7 The Assessee submits that WAPCOS Limited is a "MINI RATNA" Public Sector Enterprise and is engaged in providing high end technical consultancy services mainly in the nature of the engineering services in the field of water resources, power and infrastructure sectors in India and Abroad. 4.8 The facts of foreign projects handled by the company clearly indicate that the company in involved in design, engineering kind of activities. These fact....
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....ion of the Appellant which were not raised at any point of time during the course of the DRP proceedings. The relevant extract of the DRP order is provided below for ready reference: "According to the Assessee "WAPCOS is a "Mini Ratna" public sector enterprise under the aegis of the Union Ministry of Water Resources. WAPCOS has been providing consultancy services in 4 centers i.e. water resources, power and infrastructure. Apart from India, the company is providing its consultancy services in 40 other countries. Broadly functionally similar being in services sector. According to the assessee economic factors pending a pay revision is effecting its results. We have examined the issue and find pay revision occurs in normal course and cannot be treated as an extraordinary circumstance affecting comparability analysis. Hence in view of DRP it can be retained as a comparable.' 4.13 Assessee contends that its submissions before the Ld. TPO and DRP were unambiguous to the effect that WAPCOS cannot be functionally compared to a Company engaged in rendering business/ marketing support services since the revenue generated by them through the consultancy and engineering projects ....
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....en two independent enterprises, compensation usually will reflect the functions that each enterprise performs (taking into account assets used and risks assumed). Therefore, in determining whether controlled and uncontrolled transactions or entities are comparable, a functional analysis is necessary." 4.17 The Special Bench of the ITAT on the similar type of issue in the case of Aztec (I.T.A. No.584/Bangalore/2006) held as under: "Before we go into each one of these methods, the fundamental requirement in any of the method selected, is the selection of "comparables", for benchmarking international transactions. This selection of a comparable should be based on functional, asset, and risk analysis of both the parties and transactions." 4.18 The ld. AR submitted that DRP with respect to WAPCOS (Segment) has not controverted its contentions raised during the course of the DRP proceedings. 4.19 The resultant arithmetic mean of the comparable companies (after excluding WAPCOS (Segmental) and Vapi comes to as under: Sr.No. Company name Working capital adjusted margins TPO/RP's OP/TC 1. Best Mulyankayan Consultants Ltd. 11.84% 11.84% 2.....
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.... market consultancy provider and independent high-tech engineering end to end solutions provider have been explained in detail before the TPO/DRP and in written submissions. In view of the above submissions and case laws it is pleaded that these two comparables deserves to be excluded from T.P. working. 4.23 Apropos addition on account of excess depreciation on computer peripherals - Rs. 258,110, ld. Counsel contends: 4.23.1 Assessee as earlier claimed depreciation on computer and peripherals @ 60%. Assessing officer however made disallowance of Rs. 258,110/- on 45% of the total opening written down value of the block of computers as on April 1, 2007 on the premise that the same contain items in nature of plant and machinery entitled for depreciation @ 15% only. 4.23.2 Further, DRP has reduced depreciation allowance by Rs. 63,787/- during the year on items such as Docking stations and Rack 42u by holding that such items form part of 'Plant and machinery' depreciable @ 15% and not 'Computers' which are depreciable @ 60%. It is pleaded that depreciation on the same items has been allowed by the Ld. AO himself in the Assessment Year 2005-06 and 2006-07. 4.2....
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.... that it carried no risk is not a correct argument. It is to be borne in mind that it carries elements of risk. 5.2 Coming to the issue of exclusion of these two comparables, ld. CIT (DR) relies on the following judgments: (i) M/s Bayer Material Science P. Ltd. Vs. Addl. CIT -ITA no.7977/Mum/2010 - order dated 16-12 2011. (ii) ITA no. 7894/Mum/2010 - M/s Symantec Software Solutions Pvt.Ltd. Vs. ACIT - order dated 31-5-2011. (iii) TA no. 1082/Hyd/2010 - DCIT Vs. M/s Deloitte Consulting India Pvt. Ltd. - order dated 22-7-2011. for the proposition that the comparables cannot be excluded merely on the basis of turn over or some marginal difference of functionality. Determination of ALP is a work of estimate and the assessee is in marketing consultancy, so are the functions of Vapi and WAPCOS, which have been held as comparables on reasonable basis. Therefore, the TPO and DRP rightly applied these comparables. 5.3 Apropos corporate additions, reliance is placed on the orders of lower authorities. 6. We have heard rival contentions and perused the material available on record. Apropos assessee's contention that assessee is in merely functional advisory consultanc....