2017 (9) TMI 1795 - AT - Income Tax

TP adjustment - international transaction of provision of Marketing Support Services - comparable selection - functinal similarity - HELD THAT - Choksi Lab Ltd. is a commercial testing and analysis laboratory engaged in analysing food and agricultural products, cement and building material, chemicals, drugs and paints. The said services rendered by the company are calibration services, pollution control, research and consultancy services. Therefore, this company cannot be said to be functionally dissimilar to the assessee company and we accordingly direct the TPO/Assessing Officer to exclude this company from the final set of comparables Indus Technical and Financial Consultants Limited - as per the website details, is a renowned manufacturer of TMT bars having diverse exposure in many fields. Thus, this company is a manufacturing company and cannot be said to be a comparable to the assessee company. This company was also excluded on the ground of being engaged in manufacturing activity and having a completely different FAR vide order in Intrepid Travels Pvt. Ltd. Vs ADIT 2015 (4) TMI 752 - ITAT DELHI . Accordingly, we direct the Assessing Officer/TPO to exclude this company from the final list of comparables. WAPCOS Limited (Segmental) company provides consultancy services relating to water, power and infrastructure sector. The services offered include market intelligence studies, planning/project formulation and geotechnical investigation, engineering, quality assurance and management and human resource development. This company also executes turn key projects on a regular basis. This company was excluded as a comparable by ITAT Delhi Bench in Nortel Networks India Ltd. vs ADIT 2014 (3) TMI 363 - ITAT DELHI on the ground of being functionally dissimilar. Marketing support services cannot be compared with turnkey, engineering services and therefore, this company cannot be held to be functionally comparable to the assessee company. We direct the AO/TPO to exclude this company also from the final list of comparables. - Decided in favour of assessee.

Summary

Issues:
Transfer Pricing adjustment relating to international transaction of provision of Marketing Support Services.

Analysis:
The appeal was initially disposed of by the Tribunal, but the assessee filed a Miscellaneous Application (M.A.) stating that the contentions on the issue of Transfer Pricing adjustment for Marketing Support Services were not addressed. The M.A. was allowed, and the Tribunal recalled the order for adjudication on this specific issue.

The assessee, a subsidiary, provided IT services and Marketing Support Services to its parent company during the relevant Assessment Year. The Transfer Pricing (TP) documentation used TNMM as the Most Appropriate Method, with OP/TC as the PLI. The TPO made adjustments to the international transactions of IT services and Marketing Support Services, but accepted the arm's length nature of other transactions.

The DRP directed the TPO to exclude certain comparables for Marketing Support Services. After adjustments, the final comparable set was determined. The assessee sought exclusion of three more comparables, arguing functional dissimilarity based on activities. The Departmental Representative contended that even the accepted comparables were not strictly providing Marketing Support Services.

The ITAT analyzed each disputed comparable. Choksi Laboratories Ltd. was found comparable due to its services. Indus Technical & Financial Consultants Ltd. was excluded for being a manufacturing company. WAPCOS Limited (Segmental) was also excluded for providing different services. The appeal of the assessee was allowed based on these observations.

In conclusion, the ITAT directed the exclusion of specific comparables for Marketing Support Services, leading to the allowance of the assessee's appeal.