TaxTMI 
TaxTMI 
2018 (1) TMI 671
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....der u/s .154 of the Act for the year under appeal and computed the income of the assessee at Rs .29 .17 crores .Second appeal(ITA/2183/Mum/ 2015)has been filed against the said rectification order .As both the appeals are interlinked, so, we are adjudicating them together . ITA/1766/Mum/2015: 2 .First Effective Ground of appeal (GOA-2) is about addition made on account of Marketing Service Fee(MSF)and expenses on incentives to travel agents .During the assessment proceedings, the AO found the assessee entered into International Transactions (IT .s)with its Associated Enterprises(AE .s) .He made a reference to the Transfer Pricing Officer(TPO) to determine the Arm's Length Price(ALP)of the IT .s .He vide his order dated 29/01/2014, proposed adjustment of Rs .2 .78 crores to the income of the assessee .After receiving the order of the TPO, the AO issued a draft assessment order to the assessee, who challenged it before the DRP . 2.1 .During the TP proceedings, the TPO observed that the assessee has entered into following IT .s with its AE: SN Nature of International Transaction Value in Rs. Method used 1 Provision of marketing services 19, 78, 14, 045/- ....
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.... marketing support services should not be made in similar way and you'll the same comparable is used in its own case for the assessment year 2009 - 10 . The assessee in its letter dated 19/08/2013 objected for use of the comparable set of the earlier year . He observed that the updated margin of the comparable is for the period under consideration had been adapted for calculation of adjustments, that the assessee had not brought up any additional evidence to prove that the fresh comparability on the same search criteria as adopted by him in the earlier year would result in addition/deletion of any particular comparable, that the comparable is used to steer were functionally comparable, that the basis of compilation of TP documents by the assessee was same as had been followed in previous years .Vide letter dated 16/01/2014 the assessee was given another show cause to consider 10 new comparables, selected by the TPO, along with the comparables selected for last assessment year . After considering the submission of the assessee, the AO selected following comparables for marketing support services/commission agency: Sr.No. Name of the Company ....
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....;that it formulated marketing strategies, trashing schedule for equipments, that it introduced competitive incentive schemes, that it also introduced software packages capable of existing independently of the Abacus system, that the assessee not only provided marketing services but also provided consultancy as well as implements/supports, that the TPO had rightly rejected the comparables selected by the assessee, that it was not a mere commission agent/business agent, that out of 10 comparable selected by the TPO eight comparables were engaged in the provision of marketing/ promotion/ consultancy/ various support services, that they were functionally comparable, that while selecting comparable for benchmarking the a LP the business model of the comparable entities could only be broadly similar with that of the tested party, that there was no reason to interfere with the selection of the first eight comparables, as listed by the TPO . With regard to Accentia Technologies Ltd . and Vishal Information Technologies Ltd ., the DRP observed that the services provided by them were in the field of business process outsourcin....
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....selected a final set of 10 comparables, that out of the 10 eight were from the last years comparables, that he adapted operational profit/operational cost as PLI, that while calculating the PLI, he excluded foreign exchange gain on the ground that it was not an operating income, he also reworked the margins (OP/OC) of the assessee and arrived at the margin of 15 .77%, that margin of the comparables selected by the TPO was 23 .03% as against the margin of the assessee of 15 .77% . 2.5 .We further find that while deciding the appeal filed by the assessee (1402/Mum/2013, AY . 2009-10, dtd .03 .12 .2018 ), the Tribunal had dealt with the similar issue, that it had held that all the eight comparables appearing in the final list of comparable were not valid comparables and had allowed the appeal of the assessee as under: "3......... . . the TPO held that the ALP computed by the assessee was not reliable .He therefore invoke the provision of section 92C(3) .Vide order sheet entry, dated 21/11/2012, he issued a show cause to the assessee rejecting the TP documentation and giving it a set of 13 comparables to be consider for benchmarking purposes .After c....
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....during the year it had recorded total revenue of Rs . 1 145 .71 lakhs from major 10 segments namely skill development (Rs .322 .59 lakhs), tourism and research studies(Rs .207 .44 lakhs), project related services(Rs .180 . 06 lakhs), micro-enterprises development(Rs .117 .83 lakhs), cluster development(Rs .97 .14 lakhs), asset reconstruction and management services(Rs .78 .03 lakhs), energy-related services (Rs . 50 .87 lakhs), entrepreneurship development and training(Rs .30 .78lakhs), environment management (Rs . 10 lakhs), infrastructure planning and development (Rs .7 .99 lakhs) .Considering the profile of AL, we are of the opinion that it has to be rejected from the list of valid comparables . As per the website maintained by CLL .it is a leading analysis and research group providing complete solution for improving quality in process, products and services, that it provides contract laboratory services including pharmaceutical analysis, food and beverages analysis, water analysis, construction material analysis, environment management services, clinical research and consultancy .It is also engaged in testing of various products and offer services in ....
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....ng project and lump sum turnkey projects was Rs . 10644 . 78 lakhs and Rs . 9 862 .5 lakhs respectively for the year under consideration .It can safely be held that WL is basically engaged into project engineer -ing consultancy and therefore not comparable to the functional profile of the assessee . Here we would like to mention that Rites and WL have not been excluded by us from the list of valid comparables because they are government undertakings .We have compared the functional profile of the assessee and these two comparables .We find that there is no similarity between the functions performed by the assessee and these two entities . We also find that in Ceina India Private Limited, the Tribunal had held that it was functional-ly dissimilar to a company providing MSS .In the case of Avaya India Private Limited(ITA/ 146/Del/2013, dated17/06/2016), the Tribunal had held that AL was not a valid comparable for determining the ALP for MSS, that similar conclusion was raised by the Tribunal in the case B .G . India Energy Private Limited (ITA/6486/Del/2012, dated 04/10/2016) . 3.5 .Considering the above, we are of the opinion that all the five comparables-i .e . AL....
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....e annual accounts, that the approval was given by the RBI for receiving the ECB loan, that the loan was taken for working capital requirements .He relied upon the cases of Woodward Governer India Private Ltd .(312 ITR 254) Oil and Natural Gas Corporation Ltd . (322 ITR 180) . The DR left the issue to the discretion of the Bench . 5.2 .We have heard the rival submissions and perused the material before us .We find that the AO on one hand would tax gain on FE earnings but would not allow loss arising on FE loss .In our opinion, the stand taken by the AO is not justified in any manner .If the gains of FE fluctuation had to be taxed then the loss arising out of such fluctuation has to be allowed .We find that the honorable Supreme Court, in the case of Oil and Natural Gas Corporation (supra)has held that the loss claimed by the appellant on account of fluctuation in the rate of FE as on the date of the balance-sheet was allowable as expenditure under section 37(1) of the Act . Respectfully, following the above mentioned two judgments of the honorable Apex court, relied upon by the assessee, we decide ground number four in favour of the assessee ." ....
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...., the basic question to be decided is as to whether the transaction in question was at arm's length .Had two independent entities entered into such an transaction what would have happened in normal course of business has to be seen to determine the ALP .Provision of section 92 were introduced to prevent the misuse of proximity of the AE .s to manage their affairs in a manner that could lead to payment of less taxes that are due to the Sovereign .Had the incentive in an open market been initiated by an assessee for its benefit, it would bear the cost of such an scheme .Why any other entity would pay for it .The AE decided to pay Rs .32 .61 crores to the assessee out of Rs .34 .61 crores, for a scheme that was claimed to be introduced by assessee on its own .The Departmental authorities have taken note of the fact that the entire capital of the assessee would be wiped out had it not been paid Rs .32 .61 crores by the AE .In our opinion, it was a clear case of reimbursement by the AE of the expenditure incurred by the assessee .For the incentive scheme it should have charged full amount to its AE i .e .Rs .34 .61 crores .If the agents would use the software of the AE it would result i....