TaxTMI 
TaxTMI 
2018 (4) TMI 1772
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....al. 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 Corporation Massachussets Reimbursement of Expenses (received) 6734187 4. He noted that the assessee in....
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.... 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 09.10.2013 requiring it to show cause why enhancement of upward TP adjustment should not be made. The assessee replied that company was incorporated on 21.11.2007. During F.Y. 2007-08, it incurred expenditure of Rs. 3.9 crores to acquire knowhow relating to ....
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....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 comparable to the Appellant. 6 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 fresh comparables selected by the Appellant based on the filters applied by the learned TPO in his show cause notice witho....
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....nhancement 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 case, and in law, the DRP, the learned AO and the learned TPO have erred on the facts and in law in initiating penalty proceeding under sections 274 read with see 271 (1)( c) of the Act and levying interest under section 234A, 2348. 234C and 234D of the Act. Relief a) The Appellant prays that the addition made by the learned AO and TPO and upheld by the learned DRP be deleted. b) The Appellant craves....
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....ndia) 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 providing high end technical engineering services in the field of water, power and infrastructure sectors. It is a capital intensive company which performs specialized engineering functions and assumes significant risk. The WAPCOS identifies new areas of research and development assignment every year, sponsors research work in educational institutions and ties up with leading R&D organizations, which can be verified from page 82 of the Ann....
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....evelops 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 profits i.e. 15% for the year ending 31st March, 2007, 101% for the year ending 31st March, 2008 and 44.63% for the year ending 31st March, 2009. Referring to the following decisions, he submitted that Basiz Fund Services Private Limited was excluded from the list of comparable on account of developing its own intellectual property/assets etc. :- (i) Rolls Royce Marin India Pvt. Ltd. (ITA No.1384/Mum/2014. (ii) Global Logic India Pvt. Ltd. vs. DCIT (ITA No.122/Del/2013. (iii....
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....m 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 similar. ICRA is a management consulting firm, offers, business support services like risk management, process consulting, regulation & reforms and development consulting along five verticals namely infrastructure, banking & finance, corporate advisory and energy group. This company deals in a single business segment of provision of consultancy services and thereby, broadly similar to support functions of the assessee. He submitted that the above company was accepted as comparable by the TPO in the succeeding ass....
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....herefore, 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 the Cyber Media. The company is the provider of IT-related news, information and services to the vast community of IT-savvy individuals and a value transformation platform for the IT vendors, solutions providers, services companies and individual. The support services differ entirely from that of the assessee company. Therefore, it was rightly rejected by the TPO/DRP. 29. So far as ICRA Management Consulting Services Limited is concerned, he submitted that it was rejected by the DRP on account of RPT filter. However, he ha....
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....e 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 performs significant R&D activities to develop its own proprietary intellectual property and technical know-how. We find merit in the argument of the ld. counsel for the assessee that the above company cannot be included in the list of comparables. 34. We further find the Mumbai Bench of the Tribunal in the case of Rolls Royce Marine India Pvt. Ltd. (supra) has directed the Assessing Officer/TPO to exclude Basiz Fund on account of functional dissimilarity. The Delhi Bench of the Tribunal in the case of Global Logic India Pvt. Ltd. (supra)....
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....his 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 payroll processing services is mentioned and hence it is not possible to give the quantitative details of sales and certain information separately. 14. The DRP after considering the annual report noted that except the Note 2.14, there is no other observation in the annual report from which it can be established that the company is engaged in marketing and sales support services comparable to the assessee. Accordingly, the DRP directed the AO to exclude the said company from the comparables. 15. We have heard the ld. DR as well as ld. AR and considered the relevant mat....
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....ed 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 issue raised by the assessee is accordingly allowed. 43. So far as second issue is concerned, the same relates to incorrect enhancement of cost base for computing the arm's length price. It is the submission of the ld. counsel for the assessee that it has incurred an expenditure of Rs. 3.90 crores during the financial year 2007-08 for acquisition of certain know-how relating to business of marketing and promotion. The entire amount of INR 3.90 crores are completely charged to Profit & Loss Account in financial year itself. It is also his submission that after filing the complete written synopsis on 26....