TaxTMI 
TaxTMI 
2015 (9) TMI 801
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....o the income of the appellant on account of 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 ente....
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....arable companies. 2.10 That the assessing officer/ DRP erred 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 withou....
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....sallowance is made. 5. That the assessing officer erred on facts and in law in levying interest 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 charge....
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....mission of Rs. 1.15 crores i.e. @ of 5%. It can be seen that as the parties were related to each other therefore they opted to reduce the commission as a mutual arrangement so that the assessee does not have to pay taxes on the increased 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 or....
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.... this regard is placed on the following decisions: * Varian India Private Limited vs. ADIT (ITA 160/Mum/2013) * DSM Anti-Infective India Ltd vs ACIT (ITA/Chd/2011) * Mitsubishi Corporation India Pvt Ltd vs. DCIT (ITA No 5042/Del/2011 7.2. It was submitted that if the allocation of expenses in 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 &nbs....
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....panies selected by the TPO should be rejected: S.No Company Name Reasons for rejections 1. British Metal Corpn India Private Limited The company provides agency services for non-ferrous metals,' precious. metals, fertilizers and cooking coal. These products are- completely different from the products for which assessee 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 marketi....
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....p; 3. Balmer Lawrie & Co. Ltd. 3.80 4. Balurghat Technologies Ltd. 1.93 5. Bonjour Bonheur Forex Spot Pvt. Ltd. 0.84 0.96 Not in base set 6. Cyber Media Events Limited 6.07 7.87 8.43 7. DLF Services Limited 8.47 9.47 9.47 8. IDC (India) Limited 8.47 15.67 15.34 9. Indo Asia Leisure Services Ltd. 3.50 1.43 Not in base set 10. Kerala Travels Interserve Ltd. 8.54 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 1....
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....estion in T.M.M. Sankaralinga Nadar and Bros. Vs. CIT [1929] 4 ITC 226. After dealing with the contention, the Full Bench expressed the following opinion (p.242). The principle to be deduced from these two cases is that where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions, if decided by a court on a reference made to it would be res judicata in that the same question cannot 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 accept....
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....ame was not accepted or considered by them without giving any reason. After considering the correct margins the revised arithmetic mean of the comparable companies is as follows : No. Company Name OP/TC 1. P L World ways Ltd. 4.52% 2. 'Publicity Society of India Limited' 37.14% 3. ICC International Agencies Limited 11.83% 4. British Metal Corporation (India) Pvt. Ltd. 62.96% 5. Priya International Limited (Indenting Segment) 82.19% Arithmetic mean 39.73% Alternatively without prejudice, the revised TP adjustment after considering the correct arithmetic mean would be as follows: Particulars Incorrect adjustment in the AO order Adjustment after correct margin as per 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 r....
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.... commission from air ticket sold and also transactional fees from its customer for sale of holiday packages. This function is totally different from the functions carried out by the appellant and therefore, this company should be excluded for the purposes of comparison while determine the arm's length price of the international transaction in question. (iv) Publicity Society of India Ltd. This company was selected as comparable by the Transfer Pricing Officer. It is contended that this company cannot be included in the list of comparables as it is engaged in the business of publication of news papers and publications. To demonstrate this fact, the appellant had filed the annual financial statement of this company. We find substance in the submissions made by the learned Counsel for the appellant and 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 appellan....
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....eceiving services from Metso India: (i) The appellant, under its project engineering segment, is engaged in diversified activities, including, (a) Bulk Material Handling (b) activities such as stock reclaimer, Wagon Tippler & designing for engineering services (c) supply of equipments / materials and (d) erection and commissioning of the plant! projects. (ii) Since the appellant is engaged in diversified activities, in order to facilitate and manage delivery of goods and services on time, while handling multiple projects simultaneously, it is necessary for the appellant to delegate some part of the" design and drawing work to outside agency, on requirement basis. This is also required to avoid penalties/damages claimed by the customers on delay in delivery of goods and services. (iii) Since Metso Mumbai has requisite expertise 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 or....
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.... - Voltamp Transformers (P) Limited v. CIT: 129 ITR 105 (Guj.) - CIT v. Aditya Medisales Ltd.: ITA No. 559/2009 (Guj.) - CIT v. Gopala Polyp last Ltd. : ITA NO. 26512009 (Guj.) - JCIT v. ITC Ltd.: 112 ITD 57 (Kol.)(SB) - Jagdamba Rollers Flour Mill Ltd. vs ACIT: 117 ITD 260(TM) (Nag.) - Aradhana Beverages & Foods Co. (P.) Ltd vs. DCIT:51 SOT 426 (Del) - S.K. Engg vs. JCIT: 103 ITD 97 (Bang.) - Rangoon Chemical Works (P) Limited: 100 Taxman163 (Ahd.) (Mag) - Kinetic Honda Motor Ltd V. JCIT 77 ITD 393 - Shyam Oil Cake Ltd V. ACIT: 83 TTJ 414 (Jd.) - Vikshara Trading & Investment (P) Limited: 61 TTJ 6 (Ahd.) - Beta Naphthol (P) Limited: 50 TTJ 375 (Ind.) In the instant case, the assessing officer has failed to bring on record any corroborative evidence to establish that the price paid to Metso Minerals for receipt of professional services was unreasonable and excessive. 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....
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....s to whether the expenditure is excessive or unreasonable in relation to any one of the three requirements prescribed. This opinion has to be formed by the Assessing Officer based on the material evidence available on the record. The Assessing Officer is duty bound to bring on record the comparable fair market value of the services rendered to say that the value paid by the assessee is excessive or unreasonable. We find no evidence on record to notice that the Assessing Officer made efforts in this direction. He simply made disallowance based on the surmises and conjectures. 12. We may also refer to the scope of Section 40A(2) as explained by the CBDT in Circular No. 6P, dated 06.07.1968. The CBDT clarified that while examining the reasonableness of expenditure the Assessing Officer is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check 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 cons....
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....However, Citi Bank directed the appellant to sought information from the assessing officer. 16.2 Further, the AIR furnished by Citi Bank was also in the name of Vijay Dhar whose address is stated to be that of the appellant. The appellant requested Citi Bank as well as assessing officer to furnish the relevant details, however, both did not accepted the request and did not furnish any detail to the appellant. In these circumstances, the apprehension of AD that the said transaction is unexplained-is incorrect . 16.3 The DRP vide its order dated 26.12.2013 has however directed the AO to furnish the detail of entries regarding the credit card transaction to the appellant and then decided upon "the" tax liability u/s. 69C of the Act for unexplained credit. The DRP held as follows: "The assessee has submitted that detail of transactions was not supplied to him and the A 0 has not established that entries are not recorded in 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 off....
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....ordingly, this ground of appeal is restored to the file of the Assessing Officer. ITA No. 1205/Del/2014 17. This appeal filed by the Revenue against the direction of the Hon'ble Dispute Resolution Panel for deletion of two comparables chosen by the Transfer Pricing Officer , namely Killick Agencies Marketing Ltd. and Cox and Kings (India) Ltd. The Hon'ble DRP rejected these two comparables applying the filter of related party transactions. Indisputably, Killick Agencies Marketing Ltd. had 64.12% and M/s Cox and Kings (India) Ltd. had 109.9% of related party transactions. In view of the fact that these comparables had high percentage of related party transactions, the Hon'ble DRP had rejected the same as comparables. 18. Section 92 provides that the income arising from international transactions is to be computed, having regard to arm's length price. Section 92F(ii) defines "arm's length price" to mean a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. To compute ALP the results of the international transaction are bench marked against comparable uncontrolled transaction. The man....