AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 801
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....the alleged difference in the arm's length price of the international transaction of marketing support services undertaken by the appellant with its associated enterprises. 2.1 That the assessing officer/DRP erred on facts and in law in recharacterizing the transaction of provision of marketing support services undertaken by the appellant as commission agent services, by misinterpreting the following clauses of the agreement: (i) The assessee is under no obligation to increase the turnover of its AE. (ii) The assessee shall not be responsible for acting as mediator between its foreign AE and its customers. (iii) There is no responsibility towards the customer neither there is any clause of obligation towards any after sales service. (iv) The assessee has no obligation for recovery from the customers. (v) The assessee does not have any authority to execute contract. (vi) The payment mode is fixed percentage of sale value of goods. 2.2 That the assessing officer/ORP erred on facts and in law in not appreciating that in terms of Marketing Support Services agreement entered by the appellant with its associated enterprise, the scope of services provided by the appell....
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....d on facts and in law in considering British Metal Corpn. India Private Limited, Priya International Limited and Publicity Society of India Ltd. as part of the comparable companies for bench marking of international transaction of market support services when these companies were not considered as comparable in the previous years nor in the subsequent years. 2.11 Without prejudice, that the assessing officer/ DRP erred on facts and in law in considering incorrect profit margin of certain comparable companies: Name of the company Margin considered by TPO Actual margin PL Worldways Ltd. 39.60% 4.52% Publicity Society of India Ltd. (Seg.) 71.17% 37.14% 3. That the assessing officer/DRP erred on facts and in law in making an ad- hoc disallowance of 50% of the professional fees of Rs. 60,29,221 paid by the appellant to Metso Minerals (Mumbai) Private Limited ('Metso Mumbai') invoking section 40A(2)(a) of the Act. 3.1 That the assessing officer/DRP erred on facts and in law in making arbitrarily disallowance of 50 percent of the professional fees paid to Metso Mumbai without giving any cogent basis and on the basis of his/its conjecture and surmises. 3.2 T....
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.... under Section 2348 and Section 234C of the Act. 2. Briefly stated the facts of the case are that the appellant [Mesto Minerals (India) Pvt. Ltd.] is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing and trading of mineral processing equipment. The return of income for the assessment year 2009-10 was filed on 27th September, 2009, disclosing taxable income of Rs. 10,73,56,150/-. The case was selected for scrutiny assessment. Since the appellant reported international transaction in its report in form 3CEB, a reference under Section 92CA(3) was made to Transfer Pricing Officer (TPO)-1(3), New Delhi. 3. It is reported that during the year under consideration, the appellant entered into the following international transactions with its AEs: (i) Purchase of raw materials; (ii) Purchase of spare parts: (iii) Purchase of machinery; (iv) Purchase of fixed assets; (v) Provision of market support services; and (vi) Reimbursement of expenses 4. In support of the appellant's claim that the price charged by it for the service rendered to its AE was at arm's length, the appellant filed a report in Form 3CEB as requir....
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....ased commission. As a matter of convenience since the parties are associated with each other they revised the agreement and reduced the commission from 10% to 5%." The TPO rejected the comparables selected by the appellant by holding that none of comparables selected by the appellant were functionally comparable as the appellant mere commission agent and therefore he proceeded to select his own comparables and selected the following comparables earning commission income: S. No. Company Name OP/TC 1. Killick Agencies & Marketing Ltd. (seg) 29.24% 2. ' P LWorldways Ltd. 39.60% 3. Publicity Societyof India Ltd. (seg) 71.17% 4. Cox & Kings 69.81% 5. ICC International Agencies Limited 11.83% 6. British Metal Corporation (India) 62.96% 7. Priya International Limited (Indenting Segment) 82.19% Arithmetic mean 52.40% Accordingly, the TPO vide his order dated 8th January, 2013 passed an order under section 92CA(3) of the Act determining the arm's length price at Rs. 5,87,64,787/-. Subsequently, this order was rectified under Section 154 of the Act vide his order dated 26th February, 2014 determining the adjustments at Rs. 4,85,04,301/-.....
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....proportion of the gross margin is done, it results in allocation of only Rs. 2,71,47,935 towards agency/marketing support service activity and OP/OC ratio of the commission/marketing support segment at 354.58%. Without prejudice, it was submitted that if the expenses are allocated in the proportion of gross margins, the transfer pricing adjustment in respect of agency service functions and marketing service functions taking OPITC of comparable companies adopted by TPO, would be nil. Income from Market Support Services Total income from market support 12,34,09,807 12,34,09,807 Cost for market support (on basis of allocation done on the basis of GP Ratio) Total aggregate cost 2,71,47,935 2,71,47,935 Arm's length agency/ marketing support servi (considering a mark-up of 53.55% as taken by the - after DRP Order) (A) 4,16,85,654 (153.55% of171,271,47,935) Marketing support and Agency service income the appellant (B) 12,34,09,807 It is clear from the above working, after making the correct allocation of expenses, the value of international transaction from marketing support services at Rs. 12,34,09,807 is more than the arm&#....
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....provides marketing- support services. 2. Priya International The company is engaged in provision of commission agency and trading of chemicals. As per the animal report of the company, . the company is engaged In providing' . agency services for sale of chemicals which forms part of the indenting services. The chemical business is completely different market business which cannot be compared with the provision of marketing . support services in'the heavy machinery business. Further, in the annual report of the company- there is an unallocated segment for which complete details are not available. 3. PL Worldways Limited The company provides a wide gamut of travel related services viz. Corporate travel solutions, holiday travel, event management, conferences, cruises and air charters, which are entirely different from the marketing support services rendered by the appellant. As per the annual report of the company, the company not only earns commission from air tickets sold but also earns transaction fees from its customer for sale of holiday packages and other travel solutions. 4. Publicity Society of India Limited The company is a newspaper publication company engaged in p....
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.... 7.84 Not in base set 11. Mid Day Multimedia Ltd. -5.08 -1.05 Not in base set 12. Officer Care Services Ltd. 4.72 13. Overseas Development & Employment Promotion Consultants Ltd. 9.88 7.21 Persistent losses during FY 2006 and 2007 14. Pearl International Tours and Travels Ltd. -3.28 4.06 2.91 15. Sharyans Resourses Ltd. 3.21 3.33 Different business profile Financial Service prove 16. Trade Wings Ltd. 17.36 15.61 8.52 17. Travel Corporation(India) Ltd. 22.58 20.15 18.01 18. A2Z Maintenance & Engineering Service Pvt. Ltd. Not in base set 0.99 0.99 19. Ambal's Advertisers (India) Ltd. Turnover less than 1 Crores 0.77 Insufficinet information Director's report and company profile not available 20. Appolo Sindoori Hotels Ltd. RPT to Sales Ratio 85% 0.31 0.27 21. India Tourism Development Corporation Ltd. Persistent Losses -0.92 0.64 22. Times Innovative Media Ltd. Persistent Losses 0.37 2.15 23. Balmer Lawrie & Co. Ltd. Average 8.19 5.82 6.21 From the above table it would be* appreciated that the comparables selected in the transfer pricing documentation in FY 2008-....
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....nnot be subsequently agitated." The Supreme Court in the recent decision in the case of Excel Industries Limited 358 ITR295, following its earlier decision supra reiterated the law in this regard. Reliance is" also' placed on' the forgoing decisions, wherein the aforesaid settled principles as to consistency were applied in respect of the issues relating to transfer pricing: (i) Giesecke & Devrient India Private Limited vs. DCIT (ITA No.5400/De1/2010) 72. The Assessee in its submission has stated that TPO has accepted the bench marking analysis of the Assessee in immediately preceding year (i.e. AY 2006-07) and immediately succeeding year (AY 2008-09) and has not drawn any adverse inference with regard to the international transaction pertaining to CVPS distribution business ... xxx ... 73. We have considered the submission of both the parties and find considerable force in arguments of Ld. Counsel for the Assessee that there being no change in business profile of the Assessee, the comparables accepted in AY 2006-07 and AY 2008-09 could not be ignored ... xxx ... " (ii) The Hon'ble Delhi Tribunal in the case of McCann Erickson . India Pvt. Ltd. vs. Addl. CIT (....
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....er appellant Operating cost of the assessee (as per TP Order) 111,959,693 111,959,693 Arm's length margin- OP/OC 53.55% 39.73% Arm's length price (A) 171,914,109 171,914,109 Price shown in international transaction (B) 123,409,807 123,409,807 Transfer Pricing adjustment 48,504,302 33,029,233 Without prejudice, Transfer Pricing adjustment, to be sustained, if any, should be restricted to Rs. 3,30,29,233. On the other hand, learned Sr. DR relied on the orders of the lower authorities. 8. We have heard the rival submissions and perused the material on record. At the first instance, we shall now deal with the comparables chosen by the Transfer Pricing Officer: (i) British Metal Corpn. Indian Pvt. Ltd. This company was selected as comparable by the Transfer Pricing Officer. Before us, the appellant objected to inclusion of this company as comparable on the ground that this company provides agency services for nonferrous metals, precious metals, fertilizers, and cooking coal and whereas the appellant provides market supporting services for which it earns commission in respect of equipment for minerals and rock processing. The appellant also brought on record ....
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....d therefore, this company should be excluded for the purposes of comparison while determine the arm's length price of the international transaction in question. 8.1 Learned Counsel for the appellant submitted before us that if the above aforesaid comparables are excluded from the list of the comparables chosen by the transfer pricing officer then the profit margin of the appellant would well within + 5 per cent range of the arithmetic mean of the remaining comparables companies and therefore the price received by the appellant would be considered as at arm's length. He prayed for a limited direction to the Transfer Pricing Officer on the lines set out above and determine the arm's length price. It also submitted that the other issues raised by the appellant in the grounds of appeal need not be gone into. 8.2 We are of the view that the prayer sought for by learned counsel for the appellant is acceptable and accordingly, the Transfer Pricing Officer is directed to compute the arm's length price after excluding the comparable companies dealt with in this order. Accordingly, the ground nos. 2 to 2.11 are disposed of. 9. Ground nos. 3 to 3.6 relate to challenge of addition on accoun....
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....tise to render such services on time to time basis with fundamental quality of goods and services, it is incumbent upon the appellant to engage Metso Mumbai for rendering such services. (iv) Further, since Metso Mumbai is group entity of the appellant, confidentiality and secrecy of the products for which the drawings are made are kept secret. In order to substantiate its claim and corroborate the aforesaid, the appellant, during the course of assessment proceedings vide submission dated 25.02.2013 submitted the following documents: 1) The details of projects for which services were availed from Metso Minerals. The number of hours spent by Metso Mumbai on each was also submitted; 2) Copy of invoices issued by Metso Mumbai; 3) Name projects for which the appellant company has rendered services to Metso Mumbai; 4) Copy of invoices raise by the appellant for rendition of services to Metso Mumbai; 5) Details of the qualified engineers of the both companies who have rendered the professional work of engineering and designing services. The DRP vide its order dated 26.12.2013 rejected the objection of the appellant against the addition made by the assessing officer allegedly holdi....
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..... The AO/DRP have merely made bald allegations without any supporting evidence with respect to excessiveness of the payments made as compared to the 'market value'. Reliance in this regard is also placed on the decision of the Hon'ble Tribunal in the appellant's own case for assessment year 2007-08 (ITA No 4414/Del/2012) wherein the Hon'ble Tribunal while deleting similar addition made by the assessing officer held as under: "12. In view of the foregoing reasons, we are of the considered opinion that the case of the assessee does not fall in any of the three situations contemplated by section 40A(2)(a) of the Act. Once a payment is held to be not excessive or unreasonable having regard to the fair market value of the services or the legitimate needs of the business or the benefit derived by or accruing to the assessee, there can be no question of making or sustaining any disallowance u/s 40A(2) of the Act. We, therefore, order for the deletion of the addition sustained in the first appeal. " In view of the above, it was submitted that the disallowance of Rs. 30,14,610 being professional charges paid to Metso Mumbai made by the assessing officer may be direct....
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....heck evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. 13. In CIT Vs. Edward Keventer (P.) Ltd. [1972] 86 ITR 370, the Calcutta High Court considering identical provision in 1922 Act, it was held that the section places two limitations in the matter of exercise of the power. The section enjoins the Assessing Officer in forming any opinion as to the reasonableness or otherwise of the expenditure incurred must take into consideration (i) the legitimate business needs of the company and (ii) the benefit derived by or accruing to the company. The legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the Assessing Officer to dictate what the business needs of the company should be and he is only to judge the legitimacy of the business needs of the company from the point of view of a prudent businessman. The benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The term "benefit" to a....
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....books of accounts. In the view of this, DRP directs the AO to furnish detail of entries regarding credit card transaction to the assessee and then decide upon its taxability U/S 69C of the Act. The objection is disposed of accordingly. " The assessing officer while passing the final order dated 28.02.2014 did not followed the direction of the DRP and did not re-verified the AIR of the Citi Bank and upheld the adjustment of Rs. 207,137 /- by holding that there was paucity of time so as to verify the AIR of Citi Bank. Reliance is placed on the recent decision of the Mumbai Tribunal in case of Threadneedle Investment Fund ICVC Asia Fund Mumbai (ITA 8016/Mum/2011) where in it has been held that onus does not shifts on assessee if a transaction is reported in AIR. The Tribunal held as follows: " .......just because an AIR report was generated indicating the PAN No. of assessee, the onus does not shift completely to assessee. It is the responsibility of A O to examine complete details before asking for reconciliation and whether the transactions were indeed undertaken or not. The AIR report also does not contain any authentication but since it is generated by the Department, credit w....