2023 (4) TMI 675 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Global Procurement Consultants Ltd.company provides technical assistance in enhancing equality, transparency, efficiency and effectiveness or procurement and implementation service to help attain desired institutional and corporate objective. The expertise or this company is available to various sectors including power, water resources, transportation, industries etc., hence not comparable. Decision of the ld. CIT(A) is accepted. Power System Operation CL - function of a grid maintenance company are completely different from a marketing company. The company is also not in to marketing of power. Even otherwise the marketing of power is an entirely different ball game as compared to marketing of other goods and services. The company is not comparable and should be excluded. MMTV Ltd. company owns several websites that serve as online search portal company to the needs of the customers. A perusal of the several websites which are owned by the company indicates that it is primarily in business of internet related business.FAR not comparable. Hence, the decision of the ld. CIT(A) is accepted. Info Edge (India) Ltd company owns several websites that serve as online search portal company to the needs of the customers. A perusal of the several websites which are owned by the company indicates that it is primarily in business of internet related business.FAR not comparable. Hence, the decision of the ld. CIT(A) is accepted. Crystal Hues Ltd. - Assessee has no objection to consider this as a comparable. The decision of the ld. CIT(A) is not accepted. Quippo Valuers and Auctioneers Pvt. Ltd. company which is in activities of auctions and valuations is functionally different from the appellant. The functions involved in auctions are totally different from promotion - FAR not comparable. Hence, the decision of the ld. CIT(A) is accepted. Concept Communications Ltd. corrected OP/OC may be taken - The decision of the ld. CIT(A) is not accepted. DHFL Property Services Ltd company has two activities namely technical consultancy and project advisory, but the segmental results are not available, therefore, it cannot be selected and should be excluded.FAR not comparable. Hence, the decision of the ld. CIT(A) is accepted. Apitco Ltd. in absence of any segmental data, the company cannot be taken as comparable on an entity level.FAR not comparable. Hence, the decision of the ld. CIT(A) is accepted. Addition of account marketing intangibles developed by the appellant as a result of marketing expenditure on the basis of Bright Line Test (BLT) vide order under section 92CA(3) - TPO applied a markup of 15% on the nonroutine expenditure of the appellant based on the PLR of the SBI - HELD THAT - Revenue came into appeal before ITAT on the grounds that the ld. CIT(A) ought not to have relied on the verdict of Hon ble High Court of Delhi in the case of Sony Ericsson 2016 (1) TMI 1234 - DELHI HIGH COURT as the department has filed SLP before the Hon ble Supreme Court. At this juncture, it would suffice to hold that the judicial discipline mandates to follow the ratio of the Hon ble Jurisdictional High Court and hence the appeal of the revenue on this ground is liable to be dismissed.

Summary

Issues Involved:
1. Exclusion of comparables by the Transfer Pricing Officer (TPO).
2. Adjustment on account of Advertising and Marketing Promotion (AMP) expenses.
3. Selection of comparables by the CIT(A).
4. Application of the Bright Line Test (BLT) for AMP expenses.
5. Judicial reliance on the verdict of the Hon'ble Delhi High Court in the case of Sony Ericsson.

Detailed Analysis:

1. Exclusion of Comparables by the TPO:
The Revenue raised concerns about the CIT(A)'s decision to exclude certain comparables like Quippo Valuers and Auctioneers Private Limited, Global Procurement Consultants Limited, Power System Operation Corporation Limited, MMTV Limited, Info Edge (India) Limited, and Crystal Hues Limited, arguing that these companies provide marketing services similar to the assessee. The Tribunal upheld the CIT(A)'s decision, noting that these companies were functionally different from the assessee, which provides marketing support services encompassing sponsorship of seminars, conferences, and advertisement campaigns.

2. Adjustment on Account of AMP Expenses:
The TPO had bifurcated AMP expenses into routine and non-routine, applying the Bright Line Test (BLT) and marking up the non-routine expenditure by 15%. This resulted in an addition of Rs. 11,84,67,913/-, later rectified to Rs. 2,80,11,203/-. The CIT(A) deleted this addition, relying on the Delhi High Court's verdict in the case of Sony Ericsson. The Tribunal dismissed the Revenue's appeal on this ground, emphasizing judicial discipline in following the jurisdictional High Court's ratio.

3. Selection of Comparables by the CIT(A):
The assessee contested the inclusion of ICC International Limited and Priya International Limited, which were initially rejected by the TPO. The CIT(A) included these in the final list of comparables. The Tribunal accepted the CIT(A)'s inclusion of these companies, noting their functional similarity to the assessee's operations. Conversely, the Tribunal upheld the exclusion of companies like Indus Technical & Financial Consultant Ltd., India Tourism Development Corporation Ltd., EDCIL (India) Ltd., and In House Production Ltd., due to their functional dissimilarity and lack of segmental data.

4. Application of the Bright Line Test (BLT) for AMP Expenses:
The TPO's application of BLT led to a significant adjustment, which was contested by the assessee. The CIT(A) rejected the BLT application, aligning with the Delhi High Court's stance in Sony Ericsson. The Tribunal supported this rejection, reinforcing the need to adhere to the jurisdictional High Court's rulings.

5. Judicial Reliance on the Verdict of the Hon'ble Delhi High Court in the Case of Sony Ericsson:
The Revenue argued against the CIT(A)'s reliance on the Delhi High Court's verdict in Sony Ericsson, citing a pending SLP before the Supreme Court. The Tribunal dismissed this argument, underscoring the importance of judicial discipline and adherence to the jurisdictional High Court's decisions.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on excluding functionally dissimilar comparables and rejecting the BLT application for AMP expenses. The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed, with the Tribunal emphasizing the adherence to jurisdictional High Court rulings and the functional comparability of selected companies. The order was pronounced in the open court on 24/01/2023.