TaxTMI 
TaxTMI 
2016 (5) TMI 1375
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....th price contrary to the instruction issued by the Central Board of Direct Taxes ('CBDT) and therefore the transfer pricing order is void. 3. the Ld. AO/Ld. TPO erred on facts and in law by making a transfer pricing addition of Rs. 57,41,9837- to the income of the Appellant and holding that the international transactions pertaining to provision of marketing support services do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred by: 3.1. rejecting comparability analysis undertaken by the Appellant in the TP documentation for determining the Arm's Length Price ('ALP') and modifying comparability analysis based on application of the following additional revised filters: a. excluding companies whose data is not available for the FY 2009-10; b. excluding companies who have employee cost less than 25% of the sales; c. excluding companies whose revenue from service activity is less than 75% of the total operating revenues; and rejecting, in particular, the following filters applied by the Appellant: d. accepting companies having ratio of other operating income (....
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....are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 3.4. not providing appropriate economic adjustments as provided under Rule 10B of the Income-tax Rules, 1962 in respect of the difference in the risk profile of the comparable companies and the Appellant 3.5. disregarding multiple year/prior years' data used by the Appellant in the TP documentation and holding that current year (i.e. FY 2009-10) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 4. the Ld. AO/TPO has grossly erred in making an illusionary disallowance on the pretext of expenditure to have been incurred for earning exempt income and on the other hand considering all expenses to have been incurred for earning taxable income while determining arm's length price of the international transactions. The Appellant has filed a rectification application u/s 154 of the Act with the Hon'ble DRP for adjudicating this contention of the Appellant. 5. the Ld. AO has erred in disallowing Rs. 6316,500 under section 14A o....
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....er disallowance u/s 14A of the act was also made of Rs. 6316500/-, and therefore, total income was determined at Rs. 16026631/-. Against this draft assessment order appellant filed objection in Form 35A before the Dispute Resolution Panel. The ld DRP has passed direction u/s 144C of the Act and based on that final assessment order was passed on 30.01.2015 wherein the addition on account of transfer pricing adjustment of Rs. 5741983/- and disallowance u/s 14A of Rs. 6316500/- was retained and total assessed income was determined at Rs. 16026231/-. Against this order, the assessee is in appeal before us. Transfer Pricing Adjustment 6. Ground no 1 is general in nature and therefore same is dismissed. 7. Ground no 2 is not pressed and hence dismissed. 8. Ground No 3 is related to transfer pricing issues and ld AR of the assessee submitted that other than ground No. 3.2 other grounds are not pressed, therefore ground No. 3.1 and 3.3 to 3.5 are dismissed. 9. Ground NO. 3.2 of the appeal is against including certain companies by ld TPO and upheld by ld DRP as comparable for determining Alp of the International transaction of the appellant. 10. Before us, ld AR of the app....
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....any available market information with respect to customers. It follows up the correspondence between the AE and customers in the territory. e) Forwarding the inquiries/sales order LGCI forwards the inquiries received by it relating to the products and all the sales orders solicited by LGCI from identified customers to LG Chem, Korea for its evaluation. f) Contacting the customers to obtain feedback on behalf of AE LGCI contacts the customers of its AE on a regular basis to obtain their inputs on the quality and efficiency of products as supplied by the AE vis-a-vis the competitors in India and gives the resultant feedback to its AE. g) Providing marketing assistance ^1 LGCI provides marketing assistance to LG Chem, Korea based on the instructions received by the AE. The marketing assistance is provided with an objective to promote the products of LG Chem, Korea in India. LGCI acts as a communication channel for AE's customers for all commercial and technical problems and does not carry out any repairs or supply of goods. As explained above, the marketing activities undertaken by LGCI for promoting LG Chem Korea'....
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....IT/cost. The brief comparisons of the comparables selected by assessee and TPO are tabulated as under:- Sl. No. Comparable As per PLI of assessee of OP/TC As per PLI of TPO of PBIT/cost Remarks 1. IDC India Ltd. 12.79 14.85 Assessee as well as TPO both accepted this comparable 2. Hansa Vision Pvt. Ltd. 3.63 NA Rejected by TPO 3. Empire Industries Ltd. 11.60 NA Rejected by TPO 4. Entertainment Network India Ltd. 0.22 NA Rejected by TPO 5. Cameo Corp. Serv. NA 8.26 Included by TPO 6. HCCA Business Services Pvt. Ltd. NA 20.05 Included by TPO 7. TSR Darashaw Ltd NA 41.15 Included by TPO Average 7.06 21.08 Assessee's PLI 8.14 International transaction ( INR) 48843515 48843515 ALP determined by Assessee and TPO (INR) 48843515 51285690 Adjustment (INR) Nil 5741983 16. Before us ld AR of the assessee contested two comparables selected by TPO which are at Sl. NOs. 6 and 7 of above table which are considered as und....
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..... 144.18 from record management business and balance from payroll outsourcing out of total revenue of Rs. 2007 lacs. Assessee has submitted that this comparable is a business process outsourcing organization and is primarily engaged in the handling of BPO services. We do not find any observation of ld TPO, ld DRP and ld DR before us which says that BPO industry comparable can be taken as functionally comparable with the limited risk market support service provider. Further, ld AR has relied upon decision in the case of Microsoft Corporation India Pvt. Ltd. Vs. DCIT in ITA No.5766/Del/2011 for AY 2007-08 of the coordinate bench where it has been held that TSR Darashaw Ltd. was held to be not comparable with market support service provider as under:- "18. Coming to the merits of comparability, we find that this company has three segments, which inter alia include: 'Pay Roll and Trust Fund activity (Pay Roll).' It is this segment which has been considered by the assessee as comparable. This company on an overview is a broking and investment banking house. Its other segments are : 'Registrar and Transfer Agent activity (R&D)' and 'Records management activit....
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....37533159/- and further the nature of services produced by the assessee before ld TPO shows that it is engaged in pay roll processing and compensation structure. In the decision cited before us of the coordinate bench in case of Microsoft Corporation India Pvt. Ltd. Vs. DC IT (Supra) at para No. 18 it is held that marketing support services and payroll activity are way apart from each other. In view of this we direct the exclusion of this comparable. 17. In view of the above we allow ground No. 3.2 of the appeal and direct exclusion of the above two comparables namely TSR Darashaw Ltd. and HCCA Business Services Pvt. Ltd. Corporate Tax Issues 18. The ground No. 4 and ground No. 5 of appeal are with respect to disallowance u/s 14A of Rs. 6316500/- made by the ld Assessing Officer applying the provisions of Rule 8D of the Income Tax Rules, 1962. 19. The brief facts of these grounds are that the assessee has made investment of Rs. 126,33,00,000/- in its subsidiary LG Polymer India Pvt. Ltd. On query by the ld AO , assessee submitted reply vide letter dated 03.10.2013 stating that the investment is made in subsidiary and therefore, no disallowance are made. Ld Assessing Offi....