TaxTMI 
TaxTMI 
2020 (10) TMI 664
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Associated Enterprises ("AEs"). 2. On facts and circumstances of the case and in law, the Hon'ble ClT(A) has erred in confirming the TPO's action of including "Design and engineering expenses", an expense wholly attributable to the non-AE activities of the Appellant, to compute the operating margin for AE transactions. In doing so, the CIT(A) erred in- 2.1. Ignoring the functions, asset and risk profile of the Appellant and violated the provisions of Rule 10B(1)(e) of the Income Tax Rules, 1962. 2.2. Disregarding the fact that the design and engineering expenses are incurred by the Appellant to provide services only to third parties /non-AEs and not to its AEs; and 2.3. Confirming the TPO's action of limiting the amount of design and engineering expenses to the extent of revenue from technical services (earned from non-AEs) which violates the provisions of Section 92C(3) and Section 92CA(3) of the Income Tax Act, 1961; 3. On facts and in law, the Hon'ble CIT(A) erred in confirming Apitco Limited, Global Procurement Consultants Limited and TSR Darashaw Limited as alleged comparables to the Appellant, disregarding the sig....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and reference was made u/s 92CA(1) of the Act to benchmark the Arm's Length Price of the international transaction undertaken by the assessee. The TPO has tabulated list of international transactions undertaken by the assessee at page 2 of the TPO's order. We are concerned with the provision of Ancillary Management Support Services segment only. The assessee was providing the said services to AEs on account of three segments:- (a) Marketing and Reservation System fund services; (b) Brand support services; and (c) Regional office services. 5. The assessee had entered into an Agreement with M/s. Continent Hotels INC for the provision of Ancillary Management Support Services with respect to hotels based in South West Asia region. The assessee received service fee based on the mark-up of 10% on service cost incurred for providing such services. The cost included costs and expenses of services incurred by the assessee company, directly or indirectly in connection with providing such services. The TPO noted that majority of risks were borne by the AE. The assessee had benchmarked its international transaction of provision of Ancillary Management Supp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany is functionally comparable to the assessee. The assessee is also aggrieved by erroneous computation of margin in case of HSCC (India) Ltd. at 18.32%. We shall deal with the submissions of both authorized representatives while deciding the issue in paras below. 8. The Ld.AR for the assessee pointed out that Ground of appeal No.1 raised by the assessee is general. Ground of appeal Nos. 2, 6 & 7 are not pressed. However, Ground of appeal No.3, partly Ground of appeal No.4 & Ground of appeal No.5 need to be adjudicated in the case of the assessee. 9. We have heard the rival contentions and perused the record. The assessee before us is engaged in providing support services to its AE in the nature of marketing and other support services. The assessee is reimbursed on cost plus basis for rendering the said services to its AE i.e. Continent Hotels INC. The assessee had applied Transactional Net Margin Method for benchmarking its international transaction for Provision of Ancillary Management Support Services to its AE being the most appropriate method and had computed its margin at 10.28% by applying OP/OC as PLI. The assessee in the transfer pricing study report has selected s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Hon'ble Delhi High Court in Philip Morris in ITA No.1468 of 2018 judgement dated 18.12.2018. The Ld.AR for the assessee also pointed out that the Delhi Bench of Tribunal in assessee's own case relating to Assessment Year 2009-10 in ITA No.5479/Del/2014 vide order dated 27.07.2018 on similar grounds rejected the inclusion of Vapi Waste Effluent Co., a Government company as functionally not comparable. Our attention was drawn to the financial statement of the respective concerns i.e. Apitco Ltd. & GPCL Ltd. to establish its case that the said concerns were Government companies. 13. The Ld.DR for the Revenue on the other hand pointed out that there was no dispute to the filters applied but applying those filters and adopting reject/ accept matrix the TPO selected concerns as functionally comparbles. It was pointed out by the Ld.DR for the Revenue that the assessee manages own hotels and manages third party hotels and manages franchisee hotels and where the assessee is providing Ancillary Management Support Services then under TNMM analysis similarly placed concerns are considered. The Ld. DR for the Revenue also pointed out that though the Ld.AR for the assessee has relied on var....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mited vs. ITO in ITA No. 802/del/2016. In International SOS services India private limited versus DCIT ITA No. 1631/de1/2014 this company was excluded on account of being hundred percent government organisation and the appeal against this decision of the tribunal was dismissed by the Hon'ble jurisdictional High Court.. Further it could be seen in Vestegaard Asia private limited verses DCIT in ITA No. 6670/del/2015 and H & M Mouritz India private limited verses DCIT in ITA 282/bankg/2015 it is held that the Aptico Pvt Ltd., is not a good comparable with any company rendering business support services on the ground that this company is a public sector undertaking and its operations are mainly based the on the policy requirements of the government. 15. Further reliance is placed by the counsel on the decision of the Mumbai bench of this tribunal in TysokKrupp industries India private limited verses ACIT in ITA No. 6460/mum/2012 wherein it was held that this company being a government enterprises is not comparable with a private business service provider because in case of government enterprises profit motive is not irrelevant consideration, and government companies work f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgins. 27. This profile what we have observed from the record certainly makes this company to stand apart from the market support service providers. Further it is submitted by the Ld. AR that this company rejected by Ld. DRP, Delhi in the case of travel security services(India) private Ltd. For assessment year 2011-12 by holding that this company is functionality similar and should be deleted from the set of comparable companies rendering business support services. Further a coordinate Bench of this Tribunal in Kobelco Cranes India Private Limited vs. ITO in ITA No. 802/de1/2016 excluded this company as comparable to the marketing support services. So also in Adidas technical services Ltd vs. DCIT in ITA No. 862/de1/2016 and ITA No. 1233/de1/2015 a coordinate Bench of this Tribunal excluded this Global Procurement Consultants Ltd., as a good comparable to the marketing support service providers on the ground of functionality similarity. 28. The profile of this Global Procurement Consultants Ltd., as narrated by the Ld. TPO himself speaks in unequivocal terms that this Global Procurement Consultants Ltd., is a company established by the government to serve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....E. The said concern is to be excluded from final list of comparables. We also find support from the decision of Hon'ble Delhi High Court in Philips Morris (supra) to exclude it from the final list of comparables. The Hon'ble Delhi High Court in Philip Morris (supra) vide paras 39 & 40 directed the exclusion of TSR Darashaw Ltd. as no segmental information was available in respect of the different segments operated by the company. Accordingly, we hold that TSR Darashaw Ltd. is not to be included in final list of comparables. 20. Now coming to the computation of margins of HSCC (India) Ltd. The assessee claims that because of difference in provisions of doubtful debts, the margins have been incorrectly computed at 18.32% whereas the correct margin is 8.96%. The assessee claims that the main reason of difference in the computation of margins of the said company by the assessee and the TPO is on account of treatment of provision of doubtful debts as an operating item by the assessee and as non-operating by the TPO. 21. The Ld.DR for the Revenue pointed out that the margins of the said concern need to be looked into by the TPO. 22. We accordingly direct the Assessing Officer/TP....