TaxTMI 
TaxTMI 
2023 (2) TMI 20
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....ce partners") in India. The assessee primarily 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 33.8....
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....facts, by accepting companies based on unreasonable comparability criteria The learned AO/ DRP/TPO have erred, in law and in fact, by retaining 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 a....
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.... Arm's Length Price (119.92% * OC) 37,03,87,605 Price received 33,81,26,271 Short fall being adjustment u/s 92CA 3,22,61,334 11. Aggrieved with the draft assessment order passed by AO, the Assessee filed its objections before the DRP accepted the contentions of the Assessee to exclude 1 comparable i.e., Irclass Systems & Solutions Private Limited, which was proposed for exclusion 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 d....
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.... services which would mean that the assessee itself is considering marketing support services as comparable and that the assessee cannot cherry pick the comparables. The Ld DR therefore supported the orders of the lower authorities. 16. We heard the rival submissions and perused the material on record. We notice that the TPO in defining the profile of the assessee has stated that the activities of the assessee are classified 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 ass....
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.... Killick is acting as an agent for various foreign principals for sale of dredgers, dredging equipment, steerable rudder propellers, maritime and aviation lighting, acoustic communication equipment etc. Company also offers after sales services. Apart from this, Company is involved in export of micro switches, engineering items, acoustics items and headsets (Page 1054 of Paperbook II). Further the ld AR submitted that the company derives majority 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 acti....
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.... head of business/ management support services and therefore should be included. 28. The ld DR submitted that the company is into media and public relation and therefore cannot be included as comparable. 29. We heard the rival submissions and perused the material on record. We notice that as per Note -1 of the Notes to accounts, the company is engaged in the business of PR relations and as per the Director's report the activities of the company includes 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 segme....
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.... by relying on the decision in assessee's own case for AY 2008-09. The year under consideration being AY 2015-16, it is important to verify whether the facts are identical before applying the decision of the Hon'ble Tribunal. Therefore we remit the issue back to the TPO/AO to verify the facts and if there is no change i.e. facts are being identical with that of earlier year in which the above decision is rendered, then follow the decision of the Hon'ble Tribunal. Needless to say that the 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 af....
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.... (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transaction is computed having regard to the same base: (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which 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....
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....elines it has been explained as to what is comparability adjustment. The guideline explains that when applying the arm's length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an associated enterprise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that: None of the differences (if any) between the situations being compared could materially effect the condition being examined in the methodology (e.g price or margin), or Reasonably accurate adjustments can be made to eliminate the effect of any such differences. 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....
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....end or beginning of the year or average of these figures, (ij) the selection of the appropriate interest rare (or rates) to use. The rate (or rates) should generally be determined by reference to the rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. The guidelines conclude by observing that the purpose of working capital adjustments is to improve the reliability of the comparables. 15. In the present case the TPO allowed working capital adjustment accepting the calculation given by the Assessee. The CIT (A) in exercise of his powers of enhancement held that no adjustment should be made to the profit margins on account of working capital differences 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 ther....
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....to be based on the opening and closing working capital deployed. The Bench has also observed that in Transfer Pricing Analysis there is always an element of estimation because it is not an exact science. One has to see that reasonable adjustment is being made so as to bring both comparable and test party on same footing. Therefore there is little merit in CIT(A)'s objection on working adjustment based on unavailable daily working capital requirements data. There is also no merit in the objection of the CIT (A) regarding absence of segmental details available of working capital requirements of comparable companies chosen and absence of details of trade and non-trade debtors of comparable companies as these details are beyond the power of 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 justif....
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....on of the Co-ordinate Bench in the case of Huawei Technologies India (P.) Ltd. (supra), we hold that the working capital adjustment is to be allowed as per actuals, after considering the decisions rendered in this order on the exclusion/inclusion of comparable companies out of/into the final set of comparables. The TPO/AO is also directed to consider the submissions made by the assessee in this regard (page 421 of paper book). The TPO/ AO are accordingly directed. IT(TP)A 194/BANG/2021 39. For AY 2016-17, the TPO rejected the comparable chosen by the assessee and based on fresh search arrived at revised set of comparable. Accordingly the TPO made the adjustment as given below - Particulars Amount (INR) Operating Cost ("OC") 32,95,39,570 Arm's Length Price Mean margin 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 acce....
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....ally and internationally. The Company focuses on market research, advertising research, and brand research. The company has wide range of offerings such as Eye Tracking, Mobile Analytics, Video Analysis, Facial Recognition, Digital Tracking, Online Communities, Neuroscience, Emotional Analysis, Automated Audience Measurement, Sensory Sciences, etc. to deliver powerful insights into the effectiveness of branding, advertising and consumer choices. (Page 911, 912 and 958 of Paperbook II). As per company website, Majestic Research is a market research agency. ii. Majestic Research is engaged in providing services which are different from the support services provided by Lloyds India. Also, it fails the related party filter of 25% of sales for FY 2013-14. 45. The ld AR therefore prayed for exclusion of Majestic. In this regard, the ld AR also placed reliance of the ruling by 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 suppo....