2018 (7) TMI 1727 - AT - Income Tax

TPA - Comparable selection - Held that - The assessee provides ancillary management services to Six Continents Hotels, Inc. It also renders service to Indian franchises of its foreign affiliates, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Addition on account of project and consultation fee and on account of advertisement and sales promotion - Held that - As decided in assessee s own case we find that the expenditure on advertisement was in print and electronic media and for hosting / sponsoring certain conventions and conferences and similar other expenditure on calendar printing, posters etc. We note that the total expenditure works out approximately 1.9% of the total expenditure. We are in agreement with the Ld. Commissioner of Income Tax (A) that there is no element of brand building or acquisition of brand by incurring such expenses. The concerned brands were not owned by the assessee, but it belongs to the assessee s overseas group entity, assessee has been reimbursed the entire advertisement and sale promotion expenses by the overseas group entity on cost plus basis. Under the circumstances, we do not find any infirmity in the order of me Ld. Commissioner of Income Tax (A) in holding that these expenses are revenue in nature.

Issues Involved:
1. Exclusion of one comparable (Techprocess Solutions Ltd) by the Revenue.
2. Inclusion of two comparables (Vapi Waste & Effluent Mgmt. Co. Ltd and Choksi Laboratories Ltd) by the Assessee.
3. Deletion of addition on account of project and consultation fee.
4. Deletion of addition on account of advertisement and sales promotion.

Issue-wise Detailed Analysis:

1. Exclusion of Techprocess Solutions Ltd:
The Revenue appealed against the exclusion of Techprocess Solutions Ltd as a comparable. The Tribunal found that Techprocess Solutions Ltd is engaged in providing payment processing and online transactions processing to customers in banking, mutual funds, telecom, and other entities in banking, financial services, and insurance. It was noted that this company uses unique capabilities and proprietary tools, making it functionally dissimilar to the assessee company, which provides routine marketing support services. The Tribunal upheld the CIT(A)'s decision to exclude Techprocess Solutions Ltd, citing significant functional dissimilarities and the use of unique technology-based platforms by Techprocess Solutions Ltd.

2. Inclusion of Vapi Waste & Effluent Mgmt. Co. Ltd and Choksi Laboratories Ltd:
The assessee contested the inclusion of Vapi Waste & Effluent Mgmt. Co. Ltd and Choksi Laboratories Ltd as comparables. The CIT(A) retained these companies as comparables, but the Tribunal disagreed. For Vapi Waste & Effluent Mgmt. Co. Ltd, the Tribunal found that it is a non-profit entity engaged in waste management services, which is functionally different from the marketing support services provided by the assessee. The Tribunal also noted that the income of Vapi Waste & Effluent Mgmt. Co. Ltd comes mainly from its members, making its pricing not independent and uncontrolled. For Choksi Laboratories Ltd, the Tribunal found that it is engaged in technical services like testing and analysis, which are highly technical and not comparable to the assessee's marketing support services. The Tribunal highlighted significant differences in the assets employed by Choksi Laboratories Ltd compared to the assessee. Consequently, the Tribunal directed the exclusion of both Vapi Waste & Effluent Mgmt. Co. Ltd and Choksi Laboratories Ltd from the final list of comparables.

3. Deletion of Addition on Account of Project and Consultation Fee:
The Revenue's appeal included a challenge to the deletion of an addition of ?23,25,896 on account of project and consultation fee. The CIT(A) had followed the Tribunal's earlier decision in the assessee's own case for the assessment year 2007-08, where it was held that the expenses incurred for due diligence and risk analysis were in the normal course of the assessee's business and were revenue in nature. The Tribunal found no reason to interfere with the CIT(A)'s findings and dismissed this ground of the Revenue's appeal.

4. Deletion of Addition on Account of Advertisement and Sales Promotion:
The Revenue also appealed against the deletion of an addition of ?68,27,880 on account of advertisement and sales promotion. The CIT(A) had again followed the Tribunal's previous decision, which held that the advertisement expenses were revenue in nature and were reimbursed by the overseas group entity on a cost-plus basis. The Tribunal agreed with the CIT(A)'s findings, noting that the expenses did not result in brand building or acquisition of a brand by the assessee. Thus, this ground of the Revenue's appeal was also dismissed.

Conclusion:
The appeal of the Revenue was dismissed, and the appeal of the assessee was allowed. The Tribunal upheld the exclusion of Techprocess Solutions Ltd and directed the exclusion of Vapi Waste & Effluent Mgmt. Co. Ltd and Choksi Laboratories Ltd from the final list of comparables. The deletions of additions on account of project and consultation fee and advertisement and sales promotion were also upheld.

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