TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 20
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....ily provides an overarching function of overseeing the LBP's outsourcing contracts in India and to render, inter alia, the following services to LBP: (i) Overall management of LBP's presence in India, facilitating and providing links into the Government and outsourcing activity; and (ii) Oversee off-shored business operations, risk and compliance and all necessary relationships in India. 3. The assessee performs functions that ensure that the deliverables of the outsourced partners are as per the requirements and specifications of LBP. This involves Assessee's personnel visiting the site of the outsource partners, to monitor the services provided by them and if any discrepancy or failure to provide service as per the specified parameters is noted, Assessee reports the issue to LBP. 4. During the AY 2015-16, the assessee filed the return of income on 30.11.2015 declaring a total income of Rs.3,08,05,230. The return was selected for scrutiny under CASS. The assessee has entered into the international transaction towards provision of support services to its Associated Enterprise ("AE") amounting to INR 33.81 crores. Hence a reference was made to the Transfer Pricin....
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....ning the following companies as comparable which are functionally dissimilar to the Appellant company: i. Killick Agencies and Marketing Limited; ii. ICC International Agencies Limited; and iii. India Tourism Development Corporation Limited. 11. The learned AO/DRP/TPO have erred by wrongly computing the operating margin of following companies: i. Kestone Integrated Mktg. Services Private Limited; ii. Axience Consulting Private Limited; iii. India Tourism Development Corporation Limited; iv. ICC International Agencies Limited; and v. Platinum Advertising Private Limited. 6. The additional grounds raised do not require examination of new facts otherwise than on record and are pure legal issue, which does not require investigation of new facts. Hence, placing reliance on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional grounds. TRANSFER PRICING ISSUES 7. The assessee for the purpose of TP study chose Transaction Net Margin Method as the most appropriate method. The operating profit by operating cost is the profit level indicator. The assessee chose the following....
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....sion by the Assessee in the final comparable set. The TPO passed the Order giving effect whereby the TP adjustment was enhanced to Rs.3,80,67,944. The AO passed the final assessment order in pursuant to the DRP directions incorporating the revised TP adjustment. Aggrieved the assessee is in appeal before the Tribunal. 12. During the course of hearing, out of the exclusions sought through Ground no.5(a) and additional ground 10, the ld AR presented arguments with regard to Ugam Solutions Private Limited, Axience Consulting Private Limited, Platinum Advertising Private Limited, Killick Agencies and Marketing Limited, and ICC International Agencies Limited. Ugam Solutions Private Limited - (Ugam) 13. The ld AR made the following submissions with regard to the company being functionally different. ► As per the annual report for FY 2014-15, Ugam Solutions is engaged in provision of managed analytics services. (Page 509 of Paperbook II) ► Ugam is a leading provider of managed analytics services and solutions combining its proprietory big data platform with a global team of insights and analytics experts. Ugam offers a range of service offerings and solutions to globa....
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.... into Compliance management, supplier management services, staff welfare support and other support functions. The DRP has stated that Ugam's services falls within the ambit of market support services and a proper comparable. We also notice that the coordinate bench of the Tribunal in the case of Epson India has excluded Ugam as a comparable company to Epson based on the functions performed by Ugam. Therefore it is important to analyse the functions performed by Ugam during the year under consideration, before applying the ratio laid down by the Hon'ble Tribunal. We therefore remit the issue back to the AO/TPO to look into the functions performed by Ugam based on the various details submitted by the assessee and decide accordingly. Needless to say that the assessee may be given a reasonable opportunity of being heard. It is ordered accordingly. Axience Consulting Private Limited - (Axience) 17. The ld AR submitted that the company is in the business of providing consultancy and advisory services in the field of finance, market research & business administration to corporate & noncorporates. (Page 800 of Paper book II) and therefore not comparable to the assessee. The ld AR also s....
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....ority of its revenue from sale of services which includes commission and service income (Page 1052 of Paperbook II). The ld AR also submitted that the exclusion of kellick was argued before the DRP and that the DRP did not consider the submissions made in this regard. The ld AR placed reliance on the decision of the coordinate bench of the Tribunal in the case of Epson India (supra). The ld AR prayed for the exclusion of Killick before us. 22. With regard to exclusion of ICC the ld AR submitted that as per the annual report for FY 2014-15, the company is an indenting agent and reseller of textile machines (Page 935 and 948 of Paperbook II). And that the company operates in two segments - a) commission and servicing activity and b) trading activity, both of which are not comparable to the assessee. (Page 1025 of Paperbook II). The ld AR also submitted that the exclusion of ICC was not sought before the lower authorities. The ld AR further submitted that coordinate bench in assessee's own case [IT(TP)A 421/BANG/2016] has held that ICC be excluded. 23. The ld DR on other hand submitted that Killick and ICC are companies chosen by the assessee as a comparable and now the assessee can....
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....es advertising, communication and public relations activities. It is also mentioned by the DRP that the company is into marketing support services. We have in earlier part of this order has excluded companies who are into marketing support services for the reason that it is functionally different from the profile of the assessee which is into business support services. Further Concept is in public and media relations which is functionally different from the activities of the assessee. Hence we hold that concept cannot be included as a comparable and the ground raised by the assessee in this regard is rejected. Priya International Ltd 30. The ld AR submitted that ► The company is into three main business segments, namely: - (a) Indenting business,(b) Trading business - chemicals and (c)Trading business - electronics. The identing business segment is comparable to the business of the assessee. (Page 1188, 1194 of Paperbook II) ► The company is involved in sale of products such as, chemical, electronics/ software and other products, and indenting commission. (Page 1188 of Paperbook II) ► Considering the financial data of the relevant segment (i.e., indenti....
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....e assessee be given a reasonable opportunity of being heard. It is ordered accordingly. 35. Through additional Ground no.11 the assessee is seeking for considering the correct margins of the comparable. We direct the TPO/AO to consider the correct margins of the final list comparable that will be arrived at after considering the directions given in the above paragraphs of this order after giving a reasonable opportunity of being heard to the assessee. Working capital adjustment 36. The ld AR submitted that - i. The Rules provide that a transaction can be considered as comparable, if reasonably accurate adjustments can be made to eliminate differences that are likely to materially affect the price or cost or profit between a controlled and an uncontrolled transaction. ii. As per Rule 10B(1)(e), the manner of computation under the Transactional Net Margin Method ("TNMM") clearly mandates comparison of the net margin (after adjustment, if any) between the comparable companies and the Appellant. Thus, in undertaking such a comparison, the difference, if any, between the comparable companies and the Appellant would necessarily have to be adjusted in the net margin of either the....
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....ich could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]: (f).**** (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the tran....
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..... These are called "comparability adjustments. 13. In Paragraphs 13 to 16 of the aforesaid DECO guidelines, need for working capital adjustment has been explained as follows: "13. In a competitive environment, money has a time value. If a company provided, say, 60 days trade terms for payment of accounts, the Price of the goods should equate to the price for immediate payment plus 60 days of interest on the immediate payment price. By carrying high accounts receivable a company is allowing its customers a relatively long period to pay their accounts. It would need to borrow money to fund the credit terms and/or suffer a reduction in the amount of cash surplus which it would otherwise have available to invest. In a competitive environment, the price should therefore include an element to reflect these payment terms and compensate for the timing effect. 14. The opposite applies to higher levels of accounts payable. By carrying high accounts payable, a company is benefitting from a relatively long period to pay its suppliers. It would need to borrow less money to fund its purchases and/or benefit from an increase in the amount of cash surplus available to invest. In a comp....
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....es between the tested party and the comparable companies for the following reasons: (i) The daily working capital levels of the tested party and the comparables was the only reliable basis of determining adjustment to be made on account of working capital because that would be on the basis of working capital deployed throughout the year, (ii) Segmental working capital is not disclosed in the annual reports of companies engaged or different segments and therefore proper comparison cannot be made. (iii) Disclose in the balance sheet does not contain break up of trade and non-trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (iv) Cost of capital would be different for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results. 16. The CIT (A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013]38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the assessee was not able to dem....
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....the Assessee to obtain, unless these details are available in public domain. Regarding absence of cost of working capital funds, the OECD guidelines clearly advocates adopting raters) of interest applicable 10 a commercial enterprise operating in the same market as the tested party. Therefore this objection of the CIT (A) is also not sustainable. 17. In the light of the above discussion we are of the view that the CIT (A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT (A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the Assessee and a copy of the same is at pages 173 & 192 of the Assessee's paper book. No defect whatsoever has been pointed out in these working by the CIT (A). We may also further add that in terms of Rule 108(l)(e)(iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the compa....
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....gin 16.60% Arm's Length Price (116.60% * OC) 38,42,43,139 Price received 36,25,85,717 Short fall being adjustment u/s 92CA 2,16,57,422 40. Aggrieved with the draft assessment order passed by AO incorporating the above TP adjustment, the assessee filed its objections before the DRP. The DRP vide its directions dated 09 February 2021, granted partial relief to the assessee by accepting the contentions of the assessee to exclude 2 comparable i.e., Irclass Systems & Solutions Private Limited and Aparajitha Corporate Services Pvt. Ltd, which was proposed for exclusion by the assessee in the final comparable set. Accordingly the TP adjustment was recomputed at Rs.1,95,48,368 by the TPO. The assessee is in appeal against the final AO order passed in accordance the DRP directions. 41. Ground 1 to 4 are general not warranting separate adjudication. Ground 8 and additional ground 12 are not pressed and hence dismissed as not pressed. Ground no.9 and 10 are consequential. Through ground no.5 and through additional ground no.11 the assessee sought for exclusion and exclusion of certain comparable. Out of the list the ld AR argued for only the below listed comparable and the rest are d....
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....y the Hon'ble Bangalore Tribunal in case of Epson India Pvt. Ltd. [IT(TP)A No. 206/Bang/2021] wherein the said company was rejected. 46. We heard the rival submissions. We notice that the DRP has upheld the inclusion by stating that the company is engaged in market research and is in marketing support services. We have in earlier part of this order have held that the company which is engaged in market support services is functionally different from the assessee which is into business support services. Further it is noticed that the coordinate bench of the Tribunal in the case of Epson India (supra) has held that the company is not functionally comparable for AY 2016-17. The relevant extract of the decision of the Tribunal is given below - 47. Considering the functions of the company, the year under consideration being AY 2016-17 we respectfully follow the decision of the coordinate bench of the Tribunal and hold that Majestic is not a comparable. We direct the TPO/AO to exclude the same. It is ordered accordingly. This ground is allowed in favour of the assessee. 48. With regard to the inclusion of Concept Public Relations India Limited, Priya International Limited and EDCIL....