2013 (5) TMI 199 - AT - Income Tax

Transfer pricing adjustment - comparable transactions - assessee contended that DRP erred in considering Rites Limited and WAPCOS Limited as engaged in engineering services and high end consultancy, whereas the assessee company, as available from its business profile, employs only non-technical persons and not technical people - Held that - As decided in DCIT, Circle 17(1), New Delhi Versus MCI Com India (P.) Ltd 2012 (10) TMI 790 - ITAT DELHI Rites Ltd. and WAPCOS Ltd. were excluded as comparables, holding that marketing support services cannot be compared with turnkey engineering services - Rites Ltd. and WAPCOS Ltd. are engineering companies, providing end-to-end solutions, whereas MCI Com. provided marketing support services to its parent company. The services of MCI Com qua Rites Ltd. and WAPCOS Ltd. were not found functionally comparable. On this basis MCI Com case will squarely applicable to the facts of the present assessee, i.e., of providing sourcing and procurement services and not at all comparable with Rites Ltd. and WAPCOS Ltd. No decision to the contrary has been brought to our notice. In favour of assessee.

2012 (10) TMI 790 - AT

Issues Involved:
1. Validity of the order/directions passed by the A.O./TPO/DRP.
2. Rejection of the economic analysis by the appellant.
3. Use of financial data not available in the public domain.
4. Use of single year data instead of multiple year data.
5. Computation of margins without working capital adjustment.
6. Consideration of companies with significantly larger turnover as comparable.
7. Consideration of companies earning super-normal profits as comparable.
8. Consideration of companies engaged in engineering services and high-end consultancy as comparable.
9. Rejection of objection regarding erroneous computation of working capital adjustment.
10. Non-allowance of economic adjustments for differences in risks assumed.
11. Non-consideration of business support companies selected by the appellant as comparable.
12. Non-acceptance of companies engaged in procurement activities as comparable.
13. Use of information obtained under section 133 (6) of the Act.
14. Non-application of the Proviso of Section 92C of the Act.

Issue-wise Detailed Analysis:

1. Validity of the order/directions passed by the A.O./TPO/DRP:
The appellant contended that the order/directions passed by the A.O./TPO/DRP are "bad in law and void ab-initio." However, this issue was not pressed during the hearing.

2. Rejection of the economic analysis by the appellant:
The appellant argued that the A.O./TPO/DRP erred by not accepting the economic analysis undertaken by the appellant and conducting a fresh economic analysis for determining the Arm's Length Price (ALP) of the impugned international transactions. This issue was not pressed during the hearing.

3. Use of financial data not available in the public domain:
The appellant contended that the A.O./TPO/DRP erred in placing reliance on financial data not available in the public domain at the time of the economic analysis and transfer pricing study. This issue was not pressed during the hearing.

4. Use of single year data instead of multiple year data:
The appellant argued that the A.O./TPO/DRP erred in using single year data for determining the ALP instead of multiple year data. This issue was not pressed during the hearing.

5. Computation of margins without working capital adjustment:
The appellant contended that the A.O./TPO/DRP erred in computing the margins of Asian Business Exhibition & Conference Limited without considering working capital adjustments. This issue was not pressed during the hearing.

6. Consideration of companies with significantly larger turnover as comparable:
The appellant argued that the A.O./TPO/DRP erred in considering companies with significantly larger turnover as comparable. This issue was not pressed during the hearing.

7. Consideration of companies earning super-normal profits as comparable:
The appellant contended that the A.O./TPO/DRP erred in considering companies earning super-normal profits as comparable. This issue was not pressed during the hearing.

8. Consideration of companies engaged in engineering services and high-end consultancy as comparable:
The appellant pressed this issue, arguing that the A.O./TPO/DRP erred in considering companies engaged in engineering services and high-end consultancy as comparable. The appellant's business involved administrative support services, employing non-technical personnel, and did not engage in high-end technical services. The Tribunal found merit in the appellant's argument, referencing a similar decision in 'MCI Com India P. Ltd.', where Rites Ltd. and WAPCOS Ltd. were excluded as comparables. The Tribunal concluded that the services provided by the appellant were not comparable to those of Rites Ltd. and WAPCOS Ltd., and thus excluded these companies from the list of comparables.

9. Rejection of objection regarding erroneous computation of working capital adjustment:
The appellant contended that the DRP erred in rejecting their objection regarding the erroneous computation of the working capital adjustment undertaken by the TPO. This issue was not pressed during the hearing.

10. Non-allowance of economic adjustments for differences in risks assumed:
The appellant argued that the A.O./TPO/DRP erred by not allowing economic adjustments for differences in risks assumed by the appellant vis-a-vis comparable companies. This issue was not pressed during the hearing.

11. Non-consideration of business support companies selected by the appellant as comparable:
The appellant contended that the A.O./TPO/DRP erred by not considering business support companies selected by the appellant as comparable. This issue was not pressed during the hearing.

12. Non-acceptance of companies engaged in procurement activities as comparable:
The appellant argued that the A.O./TPO/DRP erred by not accepting companies engaged in procurement activities proposed by the appellant as comparable. This issue was not pressed during the hearing.

13. Use of information obtained under section 133 (6) of the Act:
The appellant contended that the A.O./TPO/DRP erred by using information obtained under section 133 (6) of the Act. This issue was not pressed during the hearing.

14. Non-application of the Proviso of Section 92C of the Act:
The appellant argued that the A.O./TPO/DRP erred by not applying the Proviso of Section 92C of the Act and failing to allow the appellant the benefit of a 5 percent variation in determining the ALP. This issue was not pressed during the hearing.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, excluding Rites Ltd. and WAPCOS Ltd. as comparables for the purposes of the assessee's case. The stay granted in the matter became infructuous as a result.

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