TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 1155
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....stances of the case and in law, the AO/DRP has erred, in upholding the adjustment made by the learned Transfer Pricing Officer ("TPO") of Rs. 36,352,966 on account of business support services rendered by the Appellant to its Associated Enterprises ("AE") alleging that the transactions between the Appellant and its AE were not at arm's length in terms of section 92F(ii) of the Act. 3. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred in rejecting the economic analysis undertaken by the Appellant which was in accordance with the provisions of the Act read with the Income-Tax Rules, 1962 ("Rules") for establishing the arm length's price of the international transactions. 4. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has failed to place any material or documents on record to reject the economic analysis conducted by the Appellant and has thereof failed to comply with the provisions laid down in section 92C(3) of the Act. 5. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred in considering 'reimbursements', as part of the operating cost, while computing the operati....
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....r section 92F of the Act. 12. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred in not allowing the appellant the benefit of 5 percent range as provided in the Proviso to Section 92C of the Act. 13. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred, in law and on facts, in charging interest under section 2348, 234C and 234D of the Act." 2. Briefly stated the facts of this case are : the assessee company BG India Energy Pvt. Ltd. (BGIEPL) was incorporated on 24.04.1998 as 99.98% subsidiary of British Gas Asia Pacific Holdings Pte. Ltd. (BGAPH), Singapore, engaged in provision of project support services to various projects promoted by BG Group in India. Assessee company is providing services to British Gas Asia Pacific Holding Pte. Limited (BGAPH) and British Gas Exploration and Production India Limited (BGEPIL). The primary business of the Group is discovery, extraction, transmission, distribution and supply of natural gas to existing and developing markets around the world. The assessee, BGIEPL, is providing support services to the BG Group in India in the course of its operation and is compensated at the c....
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....s for not charging markup on alleged reimbursement expenditure. TPO noticed that in such situation, no independent party would provide any services to any third party without any markup. 8. Assessee company furnished updated margin of the comparables at the instance of TPO at 2.86% as against unadjusted margin at 7.78%. 9. On the basis of filters adopted by the TPO, assessee selected 15 comparables, out of which only 3 comparables have been kept in the final set of comparables chosen by the TPO. So, TPO proposed 15 comparables having average margin of 22.24% to work out the TP adjustment. After entertaining detailed objections raised by the assessee company, TPO proceeded to consider 11 comparables having average margin of 20.38%. For working capital adjustment, margin of comparables came to be 18.32% and thereby made adjustment of Rs. 3,72,95,703/-. 10. Assessee company carried the matter by filing objections u/s 144C (5) of the Act before the Dispute Resolution Panel (DRP) which has disposed off the objections and directed to pass the necessary assessment order. Feeling aggrieved, the assessee has come up before the Tribunal by challenging the impugned order passed by AO/TPO/D....
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....- * Assistance in obtaining information regarding industrial and commercial matters and technological developments which interest BG Group Plc, especially in connection with upcoming projects in the oil, gas and energy sector and telecom projects; * Provision of information concerning Indian Government policies regarding trade and industry along with expert technical assessment and evaluation of such developments; * Assistance in the monitoring of the Group's existing assets / investments and ongoing projects in India and identifying and developing suitable business opportunities in India; * Evaluation of prospective customers especially in connection with upcoming upstream projects in India; * Allowing BG Group's employees engaged in various project development / allied activities in India to use its facilities during their stay in India; * Provision of coordination and support services in relation to contracts with Indian customers, legal matters, regulatory matters and public relations; * Sharing resources and facilities with BG Group Plc's affiliated operational and project companies in India (including secondment of its personnel); and ....
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....ort services to BGElPL in relation to legal matters. 1.6 Assist BGEPIL in regulatory matters and public affairs/ relations." 21. So far as international transaction relating to "Business Support Service" is concerned, it covers under clause 1.3 of the Agreement (supra) i.e. "Providing services to BGEPIL, which would be in the nature of coordination and support services in relation to BGEPIL's contracts with Indian customers". 22. Ld. AR for the assessee while arguing on Grounds No.7, 8 & 9 restricted his arguments to the issue of erroneous selection of comparables by the TPO. Assessee company sought to exclude 4 comparables viz. Rites Limited (RITES), Water & Power Consultancy Services (India) Ltd. (WAPCOS), Choksi Laboratories Limited (CHOKSI) and Apitco Limited (APITCO), which are discussed as under. APITCO LIMITED (APITCO) 23. TPO included this comparable in the final set of comparables for benchmarking international transactions by observing that the assessee company involved in the project development, sharing of resources and facilities and other related matters including public relations which are similar to the function carried out by APITCO. 24. However, ld. A....
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....ad spectrum of industries. By considering such nature of services provided by this company, the TPO held that these were similar to the services provided by the assessee to its AE. We have gone through the Annual report of this company, which is available on pages 2370 onwards of the paper book. Note no. 8 to Part B - 'Notes forming part of the accounts' - provides that this company is a commercial testing house engaged in testing of various products and also offers services in the field of pollution control as allied activity. Para 2 of the Annexure to the auditor's report also clarifies that this is a company engaged in rendering services 'for testing purposes.' From the above description of the nature of services carried on by this company, it is evident that it is basically engaged in providing testing services for various products and also offers services in the field of pollution control. As against this, the services provided by the assessee are purely in the nature of identifying customers for its AEs and providing technical support services to their customers. We fail to appreciate as to how marketing support services can be equated with testing service....
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....by the Appellant are functionally different vis-à- vis the business operations of TIL, RITES, WAPCOS and TCE." 31. So, in view of the divergent functional profile of the assessee company vis-à-vis comparable company (RITES) and in view of findings returned by the coordinate Bench cited as MCI Com India (P.) Ltd. (supra), we are of the considered view that the RITES cannot be a valid comparable for benchmarking international transaction for assessee company, so the same is ordered to be excluded. WATER & POWER CONSULTANCY SERVICES (INDIA) LTD. (WAPCOS) 32. Assessee company sought to exclude this comparable for benchmarking of its international transaction on the grounds inter alia that WAPCOS IS A Government undertaking involved in turnkey projects, providing end to end engineering services for various domestic and international projects whereas assessee company is providing low end support services, such as, assistance in obtaining information regarding industrial and commercial matters and technological developments, evaluation of prospective customers, etc. 33. However, we are of the considered view that TPO has chosen this comparable merely on the ground that ....
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....nt of reimbursement/ recoveries received by the assessee company form its AE to both the cost and revenue resulting into lowering the margin of the assessee company from 11.30% to 8.24% which is also upheld by the ld. DRP. 38. Perusal of the P&L account statement, available at page 405 of Paper Book-1, shows that expenditure of the assessee company under the head on account of employee cost, general and administrative expenses and depreciation amounting to Rs. 26,19,84,014/- does not include the amount of Rs. 9,47,01,444/- being recovery of the actual cost incurred by the assessee company. TPO made two fold adjustment - one : taken the amount of Rs. 94.70 crores as cost and two : taking the amount of Rs. 94.70 crores as income also which cannot be taken for both the purposes. When we peruse the business support agreement, available at page 240 of the Paper Book-1, entered into between assessee company and BGEPIL, it is apparent on the record that the services to BGEPIL would also in the nature of coordinate and support services in relation to BGEPIL contract with Indian customer. 39. Identical issue has already been dealt with in assessee's own case cited as M/s. British Gas ....