2018 (6) TMI 1226 - AT - Income Tax

TPA - comparable selection criteria - Held that - Assessee is engaged in the business of import and distribution of the Marlboro brand of cigarettes, export of tobacco leaves to its associated enterprises and provision of market support services. The market support services segment of Indian branch office provides the services like representation services to associated enterprises, carrying out market research work and sharing market related information with AEs and logistic support to AEs for supply of goods to other countries, apart from rendering services in respect of the operations in Nepal and Bangladesh thus companies with difference in business structures and functionally not to be selected as comparable 5 companies, namely, Apitco Ltd., Cameo Corporate Services, Global Procurement Consultants Ltd, Killik Agencies and Marketing Ltd and TSR Darashaw Ltd. opposed by the assessee before the authorities below are not good comparables to the assessee and they are liable to be deleted. We therefore direct the Ld. TPO to delete all these companies can define a list of comparables for benchmarking the international transaction of Market Support Services rendered by the assessee to AEs., and to recompute the Arm s Length Price of the international transaction of Market Support Services. Disallowance u/s 40 (i)(a) - assessee had incurred certain expenditure in foreign currency on various accounts - admission of additional evidence - Held that -The very submission of the learned Counsel that the assessee had to file additional evidence to furnish the alleged Agreement, lends any amount of support to the observations of the Ld. AO that such an Agreement was not available during the assessment proceedings so that the Ld. AO could have returned a finding after appreciating the contentions of the assessee. Further the matter is pending before the Ld. AO for consideration of the very same issue in respect of the assessment year 2008-09, as was remanded by this Tribunal. In the circumstances, we deem it just and proper to remand this issue to the file of the Ld. AO for consideration

Issues Involved:
1. Inclusion of certain companies as comparables for benchmarking international transactions.
2. Disallowance under Section 40(a)(i) of the Income Tax Act.
3. Levy of interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Inclusion of Certain Companies as Comparables:
The primary issue in this appeal is the inclusion of five companies as comparables for benchmarking the international transactions of the assessee related to market support services. The companies in question are Apitco Ltd., Cameo Corporate Services, Global Procurement Consultants Ltd., Killik Agencies and Marketing Ltd., and TSR Darashaw Ltd.

Apitco Ltd.:
The assessee objected to the inclusion of Apitco Ltd. on the grounds that it provides high-end and diverse services, making it functionally incomparable. The Tribunal noted that Apitco Ltd. is a government enterprise providing technical services to other government entities and is engaged in high-end consultancy services. Previous decisions of the Tribunal, such as in Ciena India (P) Ltd vs. DCIT, have excluded Apitco Ltd. due to its nature as a public sector undertaking and its high-end services. The Tribunal concluded that Apitco Ltd. is not a good comparable and directed its exclusion.

Cameo Corporate Services:
The assessee argued that Cameo Corporate Services, engaged in registry, transfer, archival, and BPO services, is functionally different. The Tribunal, referencing previous decisions like Vestergaard Asia Pvt. Ltd. vs. DCIT, found that Cameo Corporate Services is not comparable to companies providing market support services. The Tribunal directed the exclusion of Cameo Corporate Services due to the lack of functional similarity and segmental information.

Global Procurement Consultants Ltd.:
The assessee contended that Global Procurement Consultants Ltd. is functionally different as it provides procurement management services primarily to government departments. The Tribunal observed that the company's activities are diverse and cater to sectors like Health, Education, and Urban Development, making it functionally incomparable to the assessee. Citing previous Tribunal decisions, the Tribunal directed the exclusion of Global Procurement Consultants Ltd. from the list of comparables.

Killik Agencies and Marketing Ltd.:
The assessee opposed the inclusion of Killik Agencies and Marketing Ltd., arguing that it provides agency services in a monopolistic environment. The Tribunal noted that this company acts as an agent for various foreign principals and offers after-sale services, making it functionally different. Previous Tribunal decisions, such as in Aruba Networks India Pvt. Ltd., have excluded Killik Agencies and Marketing Ltd. from comparables for market support services. The Tribunal directed its exclusion.

TSR Darashaw Ltd.:
The assessee argued that TSR Darashaw Ltd. operates in segments like payroll processing, registrar and transfer agent activities, and record management, which are dissimilar to the assessee's functions. The Tribunal found that TSR Darashaw Ltd. is primarily engaged in BPO activities and share registry services, making it functionally incomparable. Previous Tribunal decisions, such as in Microsoft Corporation India Pvt. Ltd. vs. DCIT, have excluded TSR Darashaw Ltd. from comparables for market support services. The Tribunal directed its exclusion.

2. Disallowance under Section 40(a)(i):
The Ld. AO disallowed a sum of ?5,24,18,207/- under Section 40(a)(i) of the Act, observing that the assessee failed to deduct tax on payments made for services rendered in Bangladesh. The assessee argued that the payments were not chargeable to tax in India as the services were rendered outside India. The Tribunal noted that a similar issue for the assessment year 2008-09 was remanded to the AO for fresh adjudication. The Tribunal deemed it appropriate to remand this issue back to the AO for consideration in light of the Agreement and after giving the assessee an opportunity to be heard.

3. Levy of Interest under Section 234B:
The Tribunal stated that the levy of interest under Section 234B is mandatory and consequential in nature.

Conclusion:
The appeal is allowed in part for statistical purposes. The Tribunal directed the exclusion of the five disputed companies from the list of comparables and remanded the issue of disallowance under Section 40(a)(i) back to the AO for fresh consideration. The levy of interest under Section 234B was upheld as mandatory and consequential.

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