TaxTMI 
TaxTMI 
2016 (2) TMI 1171
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....of the Hon'ble Dispute Resolution Panel ('DRP') is bad in law in as much as failed to appreciate the facts involved and the applicable law thereon. Part I - Transfer Pricing Grounds 2. That on facts and in law, the DRP has erred in confirming that TPO has discharged his statutory onus by establishing that the conditions specified in clause (a) to (d) of Section 92C (3) of the Act have been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price himself. 3. That on facts and in law, the DRP and TPO/AO have erred in making I upholding an upward adjustment of Rs. 64,21,85,866 in respect of the international transactions of the Appellant pertaining to provision of marketing support services and regional guest employee services to its Associated Enterprises (UAEs"). 3.1 That on the facts and in law, the DRP and TPO/ AO have erred, in law and facts, by treating market support services segment and regional guest employee services segment as similar segments without conducting a proper FAR (Functional Asset and Risk) analysis and benchmarking the RGE segment w....
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....ances of the case and in law, the DRP and AO have erred both in facts and law by disallowing 50% of running and maintenance expenditure amounting to Rs. 1,51,00,500 with respect to the vehicles that were used for the purpose of the business of the Appellant. 6. That on the facts and circumstances of the case and in law, the DRP and AO have erred in treating repair and maintenance expense of Rs. 207,549 as expenses pertaining to prior years. 7. That on the facts and in the circumstances of the case, the AO has erred in charging interest under section 2348, 234C and 234D and initiating penalty under section 271 (1 )(c) of the Act as consequences of the additions made in the assessment order passed u/s 143(3) read with section 144C( 5) of the Act. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal." 2. Addressing the same it was submitted by the Ld. AR that although various grounds have been raised in the present appeal, however, the assessee in the facts of the present case would address only cert....
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.... TPO are extracted hereunder from the synopsis filed:- • IDC India Limited; • ICRA Management Consulting Services Ltd; • Vimta Labs Limited; • Water and Power Consultancy Services India Limited; • TCE Consulting Engineers Limited. (the grievance is posed to the last three comparables) 4.2. It was submitted that the ITAT in the facts of the assessee's case has directed exclusion of these three specific comparables on the reasons as captured in the synopsis filed. The specific reasons justifying their exclusion is extracted from the synopsis itself so as to ensure that nothing is left out:- TCE Consulting Engineers Limited "Functionally Different- Hon'ble ITAT has rejected it as a comparable in Appellant's own case for AY 2006-07 by stating that it is engaged rendering engineering consultancy services (Covered under Ground 7.6 of Appeal for AY 2006-07 ITAT verdict covered in Para 15 to 1 9 of the judgement) Vimta Labs Ltd. ("Vimta") Functionally Different- Hon'ble ITAT has rejected Vimta (erroneously mentioned as Vinita Labs in ITAT AY 2006- 07 judgement) as a comparabl....
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....• Consultancy services in supporting the development of client server applications; • Assist customers in the successful development of Microsoft technology, both directly and through service providers; and • Provide training through authorized training centres to assist customers in the operation of Microsoft software. 6.1. The assessee in the year under consideration returned an income on 30.09.2008 of Rs. 181,63,97,089/- which was revised on 25.03.2010 at Rs. 145,30,74,639/-. 6.2. The assessee i.e. Microsoft Corporation India Pvt. Ltd. (hereinafter referred to as "MCIPL") having been incorporated as a private company in India in July 1988 was converted to a wholly owned subsidiary of MS Corp. in January 1996. MCIPL is engaged in the business of providing services in supporting the development of client server applications, to assist customers in the successful development of Microsoft technology, both directly and through service providers and to provide training through authorized training centres to assist customers in the operation of Microsoft licensed software. During the financial year under consideration, MCIPL was engaged in the prov....
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.... states that Microsoft India provides marketing support to its group companies. These services are rendered as per terms set out in the respective agreements. It is further stated that Microsoft India is compensated for such services with a fee which is equal to actual expenses plus an amount equal to 15% in respect to services rendered to Microsoft Pte. Ltd. Singapore (referred to as "MO") and 10% in respect to services rendered to Microsoft Ms. Corp. During FY 2007-08, Microsoft India has rendered the following support services to the following entities:- Associated Enterprise Amount (INR) Microsoft Corporation 59,295,468 Microsoft Operations Pte. Ltd. Singapore 6,085,904,633 Total 6,14,52,00,101 6.6. Accordingly a show cause notice was issued to the assessee based on the FAR analysis conducted taking into consideration the past position of the assessee. For ready-reference, the same is reproduced hereunder from the TPO's order itself:- 6.2. Show cause notice to the assessee "From the analysis of the functional profile of the assessee, FAR analysis conducted and on the basis of study material available on the website of the a....
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....er:- "Public sector enterprise was set up to channelize India expertise in Water Power Infrastructure and allied sectors for the benefit of developing countries and is now recognized amongst the top ranking consultancy organizations of the world in these sectors. The spectrum of services included Preliminary Investigations /Reconnaissance Feasibility, studies/planning/project formulation field investigation and testing, Engineering Designs, Drawing and ............................process, contract Management and construction supervision, operation and maintenance institutional Human Resource Development (source wwww.wapcos..) The assessee has again selected this comparable in AY 20003-04 commenting that the said company performs comparable functions as under:- "WAPCOS provides consulting services in the domestic and international water and power sectors. Service offered include market intelligence, feasibility studies, planning/project formulation, field investigations and testing, engineering designs, contract management, quality assurance & management and human resource development. Apart from the Indian sub-continent, WAPCOS renders consultancy services in over....
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....imta Labs is also selected as functionally comparable to the assessee for the purpose of benchmarking its international transaction. This company was treated as comparable company since AY 2002-03. Therefore, the company is considered as a comparable and is being taken this year also." 7. The issue was agitated by the assessee before the DRP wherein the objection No.3 was posed objecting to the TPO's finding that the assessee was providing high marketing services. The said objection was decided by the DRP in assessee's favour. This fact is evident from the following extract of Objection No.3 made by the assessee and the reason of the DRP in deciding the issue in favour of the assessee:- 4.3. "Ground No.3:This issue had arisen last year too before the DRP. The contentions of the assessee which are as follows had been examined by the DRP. • Creating awareness of Microsoft products in India through seminars, conferences, limited advertising in public media, promotional campaigns Etc. • Expanding the markets for Microsoft retail products in India through local print and electronic advertising, promotional campaign, antipiracy drives, etc; ....
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....challenged except the determination of PLI of the comparables. Here again, the assessee has confined itself to challenging the inclusion of five new companies by the TPO in the final list of comparables. We are, therefore, restricting ourselves in examining the comparability or otherwise of the five new companies introduced by the TPO in the final list of comparables. 13. Before embarking upon making an analysis of comparability, it is sine qua non to first ascertain the correct nature of the assessee's activity under the segment of 'Provision of marketing support services.' The assessee's Transfer pricing study report indicates that the assessee, a wholly owned subsidiary of Microsoft Corporation, provided marketing support services mainly to Microsoft Corporation Pte Ltd., Singapore and a small portion of revenue arose from services rendered to Microsoft Corpn., UK. The assessee was compensated for such services with actual costs incurred with a mark-up of 15% for services rendered to Microsoft Corporation Pte Ltd., Singapore and 10% for services rendered to Microsoft Corpn., UK. All the operating expenses, depreciation, realized foreign exchange gain/loss and bank charg....
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.... big advertisement campaigns, customer interface and provision for training and back-up for use of products and softwares. In this regard, it is firstly relevant to note that we are dealing with the AY 2006-07 and the relevant financial year ends on 31.3.2006. All the clippings referred to by the TPO relate to subsequent years. Be that as it may, it can be seen that the inference drawn by the TPO that the assessee is not only engaged in the dissemination of information, but also providing high-end marketing services leading to creation of marketing intangible for its AE, is not correct. It can be seen from the clipping dated 24th November, on page 19 of the TPO's order that Microsoft Corporation India Pte Ltd., announced the availability of the Get Genuine Solutions (GGS) for Windows, Vista through which customers were able to legalise their counterfeit or unlicensed Windows XP Professional PCs under GGS by simply 'place(ing) an order with their reseller to legalise their counterfeit software.' From the above, it is clear that the assessee is nowhere engaged in the actual selling of the products to the customers directly. It is simply providing marketing support services by creatin....
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....ny was providing similar services as provided by the assessee. 19.2. We do not find any force in the functional comparability of this company with the assessee. It can be seen from the Annual report of this company, a copy of which is available at page 155 of the third paper book, that the spectrum of the services rendered by this company covers analytical food and drugs; clinical reference lab services to address the specialties and central lab services for clinical trials; clinical trials phase-I-IV and BA/BE studies; pre-clinical safety assessments; and environmental assessments. On a cursory look at the nature of services provided by this company, it transpires that the same is functionally dissimilar from that of the assessee. How a company conducting clinical trials on foods and drugs can be considered as comparable with the assessee undertaking marketing support services, is anybody's guess. This company being in the nature of business totally alien to that of the assessee, cannot be considered as a comparable. We, therefore, direct the exclusion of this company from the list of comparables." 9. It is further seen that the Co-ordinate Bench vide its order dated 3....
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....usiness totally alien to that of the assessee, cannot be considered as a comparable. Similar view has been taken by the Tribunal in the case of the assessee for the immediately preceding assessment year. We, therefore, direct the exclusion of this company from the list of comparables. iv. WAPCOS: 23. This company was considered by the TPO as comparable on the reason of its inclusion in the list of comparables for the AYs 2002-03 and 2003-04. 24. We find that this company operates in two segments, namely, `Consultancy & engineering products' and 'Lumpsum turnkey projects'. It is noticed that the TPO has considered only `Consultancy and engineering products segment' for the purposes of comparison and has not taken into consideration the other segment of `Lumpsom turnkey projects'. The company, under the alleged comparable segment, provides consultancy services, such as, pre-feasibility report of hydroelectric projects, field investigation drilling of tube wells, etc. From the above description of the activities performed by the company under this segment, it is vivid that the same is engaged in providing engineering and consultancy services, which can be no....
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....nd perusing the relevant material on record, we find that this issue is squarely covered by the above referred judgments of the Hon'ble Gujarat High Court and the Tribunal order passed by the Delhi Bench. The same analogy which applies for not making any disallowance on account of depreciation for personal or non business use, equally applies for not warranting any disallowance on account of running and maintenance expenses of the vehicles used by the employees of the company. We, therefore, order for the deletion of the addition." 11.2. The issue came up for consideration in 2007-08 assessment year again and the Co-ordinate Bench vide order dated 30.06.2015 in ITA No.5766/Del/2011 again taking the facts and circumstances as identical concluded the issue in assessee's favour as would be evident from the following para:- 4. "The next issue is against the disallowance of depreciation on company owned vehicles amounting to Rs. 1,85,45,102/-. 5. After considering the rival submissions and perusing the relevant material on record, we find it as an undisputed fact that the company provided vehicles to its employees for their use for which the purchase price was paid ....