TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 1463
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.... in law. 2. That the Ld. DRP erred both on facts and in law in confirming action of the Ld. AO/ Transfer Pricing Officer's (Ld. TPO) of making an adjustment of Rs. 1,14,09,377/- to the income of the appellant by holding that the international transactions undertaken by the appellant do not satisfy the arm's length principle envisaged under the Income-tax Act 1961 ('Act') 3. That the Ld. DRP erred in confirming an adjustment of Rs. 64,84,261/- in back-office support services segment and in doing so the Ld. DRP has grossly erred in agreeing with the Ld. TPO's action of: 3.1 not appreciating that none of the conditions set out in section 920(3) of the Act are satisfied in the present case; 3.2 disregarding the Arm's Length Price ('ALP') as determined by the Appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); and in particular modifying/ rejecting the filters applied by the Appellant; 3.3 disregarding multiple year/ prior years' data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2009-10) data for comparable c....
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....in the circumstances of the case and in law, the Hon'ble DRP has erred in deleting the disallowance made u/s 14A of the IT Act, 1961, when DRP agrees that the additions u/s 14A should be made on average investment and not on turnover. 2. That on the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in ignoring the DBDT's Circular No. 5 dated 14.02.2014. 3. That the order of the Hon'ble DRP is erroneous and is not tenable on facts and in law. 4. That the grounds of appeal are without prejudice to each other. 5. That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of hearing. 3. Briefly stated facts of the case are that the assessee, 'Louis Drefus Commodities India Private Limited' ('LD India') is a subsidiary of 'Louis Dreyfus Commodities Asia Pte. Ltd.', Singapore (LD Asia). The assessee is trader in India of agriculture-based commodity products, including crude palm oil, coffee, cotton, soyabean meal, sorghum, maize etc. For the year under consideration, the assessee filed return of income on 01/10/2010, declaring nil income after set-off of income of Rs. 4,34,63,477/- with ....
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....port of Agri-Commodities 1.1 Purchase of Crude Palm Oil - Raw Material 807,402,850 Comparable Uncontrolled Price Method (''CUP1') 1.2 Purchase of Soya bean Oil -Raw Material 796,658,133 1.3 Purchase of Crude Palm Oil -Traded Goods 198,004,805 1.4 Purchase of Sugar - Traded Goods 2,281,788,761 1.5 Purchase of Cotton - Traded Goods 6,255 2. Export of Agri-Commodities 2.1 Sale of Soya Bean Meal 9,461,751 CUP 2.2 Sale of Maize 99,427,923 2.3 Sale of Cotton 5,125,418,551 2.4 Sale of Coffee 83,526,864 3. Merchanting trade of Agri Commodities 3.1 Purchase of Soyabean Seed 244,909,808 3.2 Sale of Soyabean seed 246,571,182 4. Provision of Market Research and Research for Freight and Metal 4.1 Provision of Market Research Services 16,942,314 Transactional Net Margin Method ("TNMM") 4.2 Provision of Research Service for Freight and Metal 8,463,131 5. Provision of Back-office support services 5.1 Provision of Logistic support/....
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....s India Ltd. 16.26% 5. Infosys B P O limited 17.55% 6. Inhouse Productions Limited 8.81% 7. Nittany Outsourcing Services Pvt.Ltd. 26.25% 8. R Systems International Limited 10.70% 6.4 Accordingly, the assessee treated its international transaction of back office support service at arm's-length in view of the margin being in the range of plus minus 5% of average margins of comparables. The learned TPO rejected few comparables of the assessee and added few comparables selected by him. Finally, he retained nine comparables as under and computed their average margin at 22.76%. Final list of comparable is reproduced as under: Sr. No. Comparable name Operating Profit / Total Cost margin 1 Apitco Ltd. 40.02% 2 Cameo Corporate Services Ltd. 7.84% 3 Crystal Hues Ltd. 9.08% 4 Cyber Media Research Ltd. 14.85% 5 Global Procurement Consultants Ltd. 37.18% 6 H C C A Business Services Pvt. Ltd. 19.73% 7 Quadrant Communications Ltd. 13.11% 8 Quippo Valuers & Auctioneers Pvt. Ltd. 23.96% 9 T S R Darashaw Ltd. 39.07% Count 9 Average OP/TC margin 22.76% 6.5 The learned TPO computed the amount of adjustment of Rs.6....
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....l analysis of the assessee, the comparability of comparable companies challenged by the assessee is adjudicated as under: 1. Aptico Limited: 1.1 Before the learned TPO, this company was challenged for inclusion on the ground that it is engaged in providing high-end technical consultancy services. The learned TPO rejected this objection observing that majority of the income of the company is from skill development, tourism and research studies, project related services, which are in the nature of business and support services for development of tourism and industry and thus company is a good comparable. The other arguments of the assessee of high and volatile profit margin, employee experience in diverse disciplines were also rejected. The learned TPO noted that the assessee has also booked revenue under the head skill development. The learned DRP also rejected the contention of the assessee of technical services observing that that revenue breakup of the technical services constituted much lower percentage of total services and upheld inclusion of the company in the set of the comparables. 1.2 Before us, the Learned Counsel of the assessee submitted that company is function....
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....the paper book furnished by the assessee. A careful perusal of the operations carried out by Apitco Ltd. deciphers that this company is providing services in the nature of Project report preparation, Technical and economic studies, feasibility studies, Micro enterprise development, Skill development, Project management consulting, Industrial cluster development, Environmental management consulting, Energy management consulting, Market and social research and Asset reconstruction management services. No segment-wise profitability data of these services is available. In view of above facts as well as considering the various judicial pronouncements, which are also relied upon by the assessee, we are of the opinion that above comparable company cannot be considered as functionally similar to the functions performed by the assessee company hence the Ld. Transfer Pricing Officer is directed to exclude the above company from the comparability analysis." 1.6 In view of no change in activity of the company as compared to assessment year 2008-09, respectfully following the finding of the Tribunal (supra), the learned AO/TPO is directed to exclude the above company from the set of comparab....
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.... India. The company has also provided procurement management services in India. The company has also provided bid support services. The relevant part of the annual report is reproduced as under: "Bid Support Services GPCL's expertise in conducting audits and providing services in multilaterally funded projects was put to use in offering Bid Support Services to an Indian Contracting firm in its maiden international tender for an African Development Bank funded Highway Project in Mauritius. The Services involved assistance in technical investigation of site conditions, assessment of materials in the Bill of Quantities and obtaining competitive quotations for the same from accredited vendors, and ensuring that the bidding documents is complete in all respects." 2.5 The company has also carried out performance review of various projects of Asian Development Bank, which were executed in India, survey of health facilities under UNICEF etc. In view of all this activity reported in annual report of the company, we are of the view that company is no longer engaged in providing consultancy but it is providing support services for execution of the various projects and, thus, primaril....
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.... on the physical and futures side. The accounts support service team of the assessee generates debtors ageing report and trial balance, after posting of invoice and bank reconciliation etc. Thus, the activities of the assessee are also in the nature of processing of accounting data for AEs, which is akin to payroll processing support services, which is sole segment of the company. As far as regrouping/rearrangement of he figures is concerned, the relevant part of the annual report of the company is reproduced as under: "2.14 Quantitative Details The Company's operations comprise of Payroll processing services. Hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 3, 4C and 4D of Part II of Schedule VI of the Companies Act, 1956. 2.15 Figures for the previsou year have been re-grouped/rearranged, wherever considered necessary to conform to current period's presentation." 3.5 On perusal of the above, we find that previous year figures have been regrouped/rearranged, which is not having any impact on the figures of the year under consideration. Accordingly, we reject the objections of assessee to exclude the....
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....ain the company in the set of comparables. 5. TSR Darashaw Ltd. 5.1 Before the learned TPO, the assessee objected inclusion of the company on the ground of functional dissimilarity being engaged in rendering services, namely, registrar and transfer agent activity, records management activity and payroll & trust fund activity. According to the assessee company is a business process outsourcing (BPO) organization engaged in handling BPO activities. The learned TPO rejected the objections of the assessee observing that activities of the company are in the nature of business services, which are outsourced by the companies in India and therefore it is a correct comparable. The objection of the assessee that company fails service income filters was also rejected by the learned TPO holding that entire sales income is from services. The objection of assessee of high and volatile profit margin was also rejected by the learned TPO. The learned DRP upheld inclusion of the company. 5.2 Before us, the learned Counsel of the assessee referred to page 170 of the Annual Report Compendium and submitted that company is mainly in the broking and investment banking house with its three segmen....
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....ing the action of the learned TPO of classifying the international transaction of merchandising trade as a finance arrangement. In ground No. 4.1, the assessee has alternatively requested to take interest rate of 2.74%, which the assessee had used to pay interest on advance received from associated enterprises. 7.1 The facts qua the issue in dispute are that during financial year 2009-10, 'LD India' entered into merchanting trade transaction with Louis Dreyfus Corporation, Wiltom ("LD Wilton") and 'LD Asia' of the import and export of 'Soyabean seed' respectively. The assessee purchased 11,000 metric ton of Yellow Soyabeen from 'LD Wilton' at US dollar 462.88 per metric ton CNF and sold it on the same date to LD Asia at US dollar 466.02 per metric ton CNF. According to the assessee, it earned a net margin of US dollar 3.14 per metric ton between sales and purchase price. The sale price was computed based on the market report of Chicago Board of trade (CBOT) on the date of purchase/sale. According to the assessee, comparable uncontrolled price on the date of purchase/sale was within + /- 5% of the price at which the assessee undertook the purchase/sale transaction and therefore tra....
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....nsaction as a financing arrangement was completely incorrect. The Learned DRP, however, rejected the contention of the assessee in absence of details of allowance of credit of 90 days and upheld the disallowance made by the learned TPO. 7.2 Before us, the contention raised by the learned Counsel of the assessee, and submitted in synopsis, are reproduced as under: "13. Based on the FAR analysis in the TP report, the role of LD India in this transaction was limited to identification of buyer and seller of a particular commodity without performing any functions generally performed by the trader including inventory management, marketing, distribution, etc. The Appellant did not assume any of the risks which a trader generally assumes. The risks are tabulated below: * Pricing risk - The pricing risk was not borne by the Appellant since the LD India had entered into the import transaction immediately based on confirmed sales order in place. * Inventory risk - The Appellant did not bear the inventory risk as the commodities were directly transferred by LD Wilton to LD Asia. * Credit risk - The Appellant did not bear credit risk since the transactions were entered into with the....
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....pect of subject transaction of merchanting trade (i.e. LD Asia). In this respect, the Appellant paid interest to LD Asia on repayment of advance received from LD Asia against sales contract of Maize at the rate of Libor plus too basis points (i.e., at the rate of 2.73 percent p.a.) which was approximately near the prevailing interest rate on USD denominated trade credit offered by the banks. 20. Hence, without prejudice the Appellant's contention that the subject international transaction was undertaken in the normal course of trading business and was not a financing arrangement, in case the Hon'ble Tribunal wishes to consider such transaction as a financing arrangement, it is the humble submission of the Appellant that the same rate of interest at which the interest was paid by the Appellant to LD Asia on advance received from LD Asia be applied for the subject transaction. 21. In this regard a comparison of the profit margin earned by the Appellant from the subject international transaction of merchanting trade and the interest margin that it would have earned in case this is regarded as financing transaction is provided in the table given below: Particulars Amount Sale Pri....
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.... The first, the 'LD Wilton' must have been in need of funds and assessee must be having available fund, therefore, assessee has been roped in for financing the 'LD Wilton'. Then, it becomes pure loan transaction by the assessee to 'LD Wilton'. The second way, it can be interpreted that assessee has owned the finance burden of 'LD Asia', and assessee should have received the payment from 'LD Asia' on the same date when it made payment to 'LD Wilton'. But since the payment from 'LD Asia' was received after a delay of 65 days, it is in international transaction in the nature of outstanding receivable simpliciter without any allegation of arrangement of colluded finance transaction. The ld. TPO has though alleged it as financial arrangement to benefit AE, but benchmarked it is outstanding receivable. But in both ways, the currency of transaction is US Dollar. In first way, it is US Dollar have been sent to AE; in second way, US Dollar was outstanding to be received for 65 days. Neither the loan has been given in Rupees, nor outstanding was to be received in Rupees. 7.6 As far as benchmarking of the transaction is concerned, we agree with the learned Counsel of the assessee that in vie....