TaxTMI 
TaxTMI 
2018 (4) TMI 1772
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....sale support services to Genzyme International. During F.Y. 2008-09, the assessee conducted various activities as per the arrangement with the AEs like procurement of market information, collecting, analyzing and reporting relevant market information, participation in creation of market analyses and market strategies, providing advice with respect to economic, financial, political and business environment and business practices and promote the products produced by the AE based on the instruction to be received from the AE. For rendering above services, the assessee was remunerated on cost plus 5% basis. 3. The TPO noted that the international transactions undertaken by the assessee with its AE during the F.Y. are as under :- S. No. Associated Enterprise Transaction Arm's length price (as determined by the assessee) (Lacs) Method adopted 1. Genzyme Corporation Massachussets Share Application Money 101654726 2. Genzyme International Merges Corporation, USA Share Application Money 920101 3. Genzyme Corporation Massachussets Rendering of services 84519535 CPM 4. Genzyme Corporatio....
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.... Fund Services Private Ltd. 46.75% 7 HCCA Business Services Pvt. Ltd. 20.89% AVERAGE 18.18 8. During the course of DRP proceedings, it was observed that the assessee owns intangibles to the tune of Rs. 3,90,00,000/- and the depreciation/deferred revenue to be apportioned for financial year 2008-09 on them apparently have not been included in the expenditure taken into account for the calculation of the profit margin. They noted from the profit and loss account read with schedule 3, 9 and 10 that expenditure related to depreciation is Rs. 41,65,900/- and does not include depreciation on intangibles. The DRP noted that the same however has been taken in the computation of income read with Form 3CD, appendix 2 at a value of Rs. 87,90,592/- claimed at the rate of 25% on such technical knowhow. The same according to the DRP should have been included in cost base for computing arm's length profit. However, the TPO has computed arm's length profit on cost base of Rs. 7,99,18,837/- which does not include Rs. 87,90,592/- claimed as depreciation by the assessee which resulted in lesser adjustment. 9. Accordingly, the assessee was served a notice dated 09.10.....
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....icing documentation maintained by the Appellant. 3. On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in not providing any reasons to show that the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the income of the Appellant. 4. On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in not allowing the use of multiple year data as prescribed under Rule 108(4) of the Rules read with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, for determining the arm's length price of international transactions of the Appellant. Incorrect rejection of com parables by the learned TPO 5 On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in rejecting comparable companies selected in the transfer pricing documentation not appreciating that their functions, assets and risk profile was comp....
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....se Notice dated II January 2013. Adjustments as per Rule 10B of Income-tax Rules, 1962 ('the Rules') 12 On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in not allowing relevant adjustments as per the provisions of Rule 10B(I) and Rule 10B(3). Incorrect enhancement of cost base for computing the Arm's Length Profit 13 On the facts and circumstances of the case, and in law, the Hon'ble DRP erred in directing the learned TPO to enhance the Appellant's cost base for computing the Arm's Length Profit by an amount of Rs. 87,90,592/- being the amount of depreciation claimed on intangible assets by the Appellant only under Section 32 of the Act and ignoring book depreciation as used for computation of PLI (Profit Level Indicator) for the comparables. Other Grounds: 14 On the facts and circumstances of the case, and in law, the Hon'ble DRP, the learned AO and the learned TPO have not allowed the assessee the benefit envisaged in the proviso to Section 92C(2) of the Act. 15 On the facts and circumstances of the....
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.... the Delhi Bench of the Tribunal in the case of Yum! Restaurants (India) Pvt. Ltd. vide ITA No.6168/Del/2012, he submitted that the Tribunal in the said decision has held that Choksi Laboratories Ltd. is engaged in chemical testing services which are highly technical and therefore cannot be compared with that of the assessee company. 13. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Roche Products (India) Pvt. Ltd. vs. ACIT vide ITA No.7035/Mum/2012, he submitted that Choksi Laboratories Ltd. was excluded from the list of comparables on account of its investment in providing testing services for various products and was also offering services in the field of pollution-control. 14. Referring to the decision of the Delhi Bench of the Tribunal in the case of Ciena India Pvt. Ltd. vide ITA No.3324/Del/2013, he submitted that giving similar reasoning Choksi Laboratories Ltd. was excluded from the list of comparables. He accordingly submitted that Choksi Laboratories Ltd. should be excluded from the list of comparables. 15. So far as WAPCOS Ltd. is concerned, he submitted that the above company is a Government of India undertaking and engaged in pr....
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....ly incomparable company cannot be included in the list of comparables since the assessee is into business of provision of routine marketing support services. Referring to page 151 of the Annual Report Compendium, he submitted that the above company formulated and applied for copyrighting its financial statement proprietary process under the title "SpiceC by Basiz" to the Registrar of Copyrights, Government of India and was awarded the copyrights on 08.04.2008. Therefore, it develops and owns unique intangibles/intellectual property/process which cannot be compared with the assessee as the former would derive significant advantage from this unique proprietary process vis-àvis the assessee which does not own any intangible and merely performs routine market support services. Referring to page 141 of the Annual Report Compendium, he drew the attention of the Bench to the significant R&D activities undertaken by Basiz to develop its own proprietary intellectual property and technical know-how. Referring to the same pages, he submitted that the company has developed intellectual property that accounts for 60% of its total asset base. Further, the company has earned abnormal profi....
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.... 20. So far as rejection of the comparables selected by the assessee are concerned, ld. counsel for the assessee submitted that the Cyber Media India Online Limited was rejected by the TPO on the ground that it was engaged in event management which though being service by itself cannot be compared to marketing support service function. He submitted the DRP in its directions has accepted an event management company, Keystone Integrated Marketing Services Private Limited which earns majority of its income from providing event management functions. He submitted that Cyber Media India Online Limited is engaged in providing advertising and marketing services including event management, relationship and fulfillment management in various forms of media to its clients and thereby also directly promotes the brands by incurring expenses. Therefore, going by the logic of the DRP by accepting Keystone Integrated Marketing Services Private Limited as a comparable, by the same logic Cyber Media India Online Limited also should be included in the list of comparables. 21. So far as ICRA Management Consulting Services Limited is concerned, he submitted that the above company is functionally si....
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....stant case has used only the segmental results pertaining to service segment which is performing business support services. Therefore, it has rightly been retained by the ld. DRP. 26. So far as Basiz Fund Services Private Limited is concerned, he submitted that as per the Annual Report of the above company it is into provision of marketing support services and preparation of financial reports, providing fund accounting services, to fund administrators, insurance companies, prime brokers and private equity funds etc. Therefore, the functional profile of the above company is comparable to the functional profile of the assessee company. Merely because it has earned high profit the same cannot be the basis for reject the company. 27. So far as HCCA Business Services Private Limited is concerned, he submitted that it was rightly retained by the DRP since it provide support services in areas of HR Operations and administrations, Accounting Services, Management of labour and legal compliances, etc. which qualify to be as market/business support services. 28. So far as Cyber Media India Online Limited is concerned, he submitted that the company is online media company, promoted by....
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....he Tribunal following the decision of the Mumbai Bench of the Tribunal in the case of M/s Thyssen Krup Industries India Pvt. Ltd. in ITA No.6460/Mum/2010 and Delhi Bench of the Tribunal in the case of M/s Avaya India Private limited in ITA No.5150/Del/2010 are excluding Government companies from the list of comparables. Further, WAPCOS is providing engineering consultancy and undertake turnkey contracts. We, therefore, find force in the arguments of the ld. counsel for the assessee that it cannot be compared with that of the assessee company which is purely in the nature of marketing support services. We, therefore, direct the TPO to exclude WAPCOS Limited from the list of comparables. 33. So far as Basiz Fund Services Private Limited is concerned, we find from the website of the company that it provides services such as financial reporting, NAV support services, investment accounting, SEC filling and legacy conversion services, etc. Further, it has formulated and applied for copyrighting its financial statement proprietary process under the title "SpiceC by Basiz" to the Registrar of Copyrights, Government of India and was awarded the copyrights on 08.04.2008. Further, it perfo....
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....eting support services. It is seen that it has developed software for rendering payroll services and such software development expenses constitutes approximately 21% of the total operating cost which is verifiable from page 165, 166 & 177 of the Annual Report Compendium. 37. We find the Bangalore Bench of the Tribunal in the case of M/s Aruba Networks India Pvt. Ltd. (supra) has directed the TPO to exclude HCCA by observing as under :- "32. The learned counsel submitted that HCCA Business Services is engaged in Payroll processing. Therefore this company is functionally different from the Appellant and should be rejected. Reliance is placed on ITAT decision in the case of DCIT v. M/s Electronics for Imaging India Pvt. Ltd. IT(TP)A No.212/Bang/2015-AY 10-11, wherein it is held as under : (1) HCCA Business Services Pvt. Ltd. 13. The assessee objected against inclusion of this company in the list of comparables on the ground that this company is engaged in providing payroll process services and therefore it is functionally different. In support of its contention, the assessee referred to Notes to the Accounts wherein the company's operations comprise of pa....
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....ny as a comparable." 40. We find from page 209 of the Annual Report Compilation that the Cyber Media India Online Limited is engaged in providing advertising and marketing services (including event management, relationship and fulfillment management) in various forms of media to its clients and thereby, also directly promotes the brand by incurring expenses. 41. Therefore, we find merit in the argument of the ld. counsel for the assessee that going by the same logic taken by the DRP in the case of Keystone Integrated Marketing Service (P) Ltd. Cyber Media India Online Limited should be included in the list of comparables. We accordingly direct the TPO to include this company in the list of comparables. 42. Now, coming to inclusion of ICRA Management Consulting Services Limited is concerned, we find the same was rejected on account of RPT filter exceeding 25%. However, it is the submission of the ld. counsel for the assessee that the RPT is only 14.03%. We, therefore, restore the issue to the file of the Assessing Officer/TPO with a direction to verify the RPT filter and if the assessee fulfills the RPT filter criteria then to retain this company as comparable. The first is....