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TMI Blog2014 (12) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred on such cars can be disallowed. In Sayaji Iron and Engineering Company vs. CIT 2001 (7) TMI 70 - GUJARAT High Court] it has been held that once the directors of the assessee company were entitled to use the vehicles of the company for the personal use as per the terms and conditions of their appointment, it cannot be said that the assessee incurred expenditure for the personal use of cars by the directors - such user of vehicles by the employees of the company cannot even be considered as ‘non-business user” - There are innumerable judgments on this point holding that there can be no disallowance of depreciation or other expenses on maintenance of the vehicles used by the directors/employees by treating it as personal user or non-business user of the company – there is no rationale in treating the amount of depreciation on cars as for personal use, when admittedly these have been provided to employees - a company is a separate legal entity distinct from its directors or employees - as such, there can be no occasion to treat the use of vehicles by the directors/employees as a personal use by the company - the deletion of the addition of depreciation on such veh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segments, namely, Consultancy & Engineering projects and Lumpsum Turnkey projects - These services are in the nature of engineering services, which, by no standard, can be compared with the marketing support services provided by the assessee to its AEs – in CIT vs. Verizon India (P) Ltd. [2013 (7) TMI 699 - DELHI HIGH COURT] it has bene held that marketing services cannot be compared with the engineering services - marketing services provided by that assessee were entirely different from the set of services in the nature of engineering services rendered by the comparables - Engineers (India) Ltd., is engaged in providing engineering services, the same cannot be considered as comparable with the assessee, who is engaged in providing marketing support services - This company is directed to be excluded from comparables. RITES Ltd. – Vinita Labs Ltd. - Functionally dissimilar company - Held that:- This company is primarily a consultancy organization rendering consultancy services in all facets of transportation. Its major areas of operations are consultancy services; Export of Rolling Stock, Equipments and Spares; and leasing of Railway Rolling Stock and Equipments - the functional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any distinguishing feature having been brought to our notice by the ld. DR about the facts of the instant year and the preceding year, we, respectfully following the precedent, allow this ground of appeal. 5. The next ground is against the disallowance of depreciation on company owned vehicles amounting to ₹ 1,23,84,597/-. The facts apropos this ground are that the assessee claimed depreciation for the said amount on vehicles which were owned by it but used by its employees. The AO observed in finalizing the assessment for the assessment year 2005-06, which has been followed for the instant year, that the employees were deciding about the car which they wanted to purchase and, in case of purchase of higher category than the sanctioned amount, the additional amount was contributed by them. He further observed that the employees were responsible for running and maintenance of vehicles and any damage in excess of normal wear and tear, was the sole responsibility of the employees. The fact that the assessee purchased the cars and paid road tax liability on such cars, did not weigh with the AO, who came to hold that depreciation was not allowable because of the personal use o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this issue is squarely covered by the above referred judgments of the Hon ble Gujarat High Court and the Tribunal order passed by the Delhi Bench. The same analogy which applies for not making any disallowance on account of depreciation for personal or non-business use, equally applies for not warranting any disallowance on account of running and maintenance expenses of the vehicles used by the employees of the company. We, therefore, order for the deletion of the addition. 9. Ground No. 6 is against the disallowance of Prior period expenses amounting to ₹ 78,63,993/-. The assessee raised an additional ground before the DRP requesting for allowing deduction of expenses incurred for the AY 2006-07, which were debited to the Profit Loss (Appropriation) Account for the AY 2007-08, without making any claim for deduction of such expenses in the computation of income for the said assessment year. The DRP did not deal with this ground. That is how, the assessee is in appeal before us on this aspect of the matter. 10. We have considered the rival submissions and perused the relevant material on record. It is pertinent to note that we are dealing with the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ascertaining if these were incurred for the AY 2006-07 and then to that extent allow deduction, if these are otherwise deductible. 11. The only other ground which survives for our consideration is against the addition of ₹ 28,55,40,322/- made on account of transfer pricing adjustment. Briefly stated, the facts of the case are that the assessee reported four international transactions, viz., Provision of marketing support services with value of ₹ 324,73,13,183/-; Provision for regional guest employee services; Provision of Microsoft consulting services; and Assignment of personnel. The Transfer Pricing Officer (TPO) got satisfied with the arm s length price (ALP) of all the international transactions except the first one, namely, Provision of marketing support services . The assessee adopted Transactional net margin method (TNMM) as the most appropriate method to benchmark this international transaction. Profit level indicator (PLI) was adopted as Operating profit/Total cost (OP/TC). The assessee computed its percentage of operating profit margin at 12.39% in comparison with that of nine comparables, on the basis of multiple year data, at 7.32%. That is how, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbarking upon making an analysis of comparability, it is sine qua non to first ascertain the correct nature of the assessee s activity under the segment of Provision of marketing support services. The assessee s Transfer pricing study report indicates that the assessee, a wholly owned subsidiary of Microsoft Corporation, provided marketing support services mainly to Microsoft Corporation Pte Ltd., Singapore and a small portion of revenue arose from services rendered to Microsoft Corpn., UK. The assessee was compensated for such services with actual costs incurred with a mark-up of 15% for services rendered to Microsoft Corporation Pte Ltd., Singapore and 10% for services rendered to Microsoft Corpn., UK. All the operating expenses, depreciation, realized foreign exchange gain/loss and bank charges were taken into account for calculating the markup. The TPO has reproduced relevant clauses of the assessee s Agreement with Microsoft Corporation Pte Ltd., Singapore on page 4 onwards of his order. This Agreement stipulates that the assessee shall provide Product support services and consulting services for the Microsoft products in the defined territory. Clause 3 of the Agreement prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is not only engaged in the dissemination of information, but also providing high-end marketing services leading to creation of marketing intangible for its AE, is not correct. It can be seen from the clipping dated 24th November, on page 19 of the TPO s order that Microsoft Corporation India Pte Ltd., announced the availability of the Get Genuine Solutions (GGS) for Windows, Vista through which customers were able to legalise their counterfeit or unlicensed Windows XP Professional PCs under GGS by simply place(ing) an order with their reseller to legalise their counterfeit software. From the above, it is clear that the assessee is nowhere engaged in the actual selling of the products to the customers directly. It is simply providing marketing support services by creating customer awareness for the Microsoft products and also in certain cases providing trainings and back-ups for the use of such products and softwares. With this background of the nature of the assessee s activity under this segment, let us analyse as to whether the five companies chosen by the TPO are, in fact, comparables. i. Engineers (India) Ltd. : 15.1. The assessee contended before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing it as comparable for the two earlier years. Such a view cannot be countenanced without examining the correct nature and the functional profile of this company. 15.4. It can be seen that Engineers (India) Ltd., is a company providing engineering and related technical services for petroleum refineries and other industrial projects. This company has two business segments, namely, Consultancy Engineering projects and Lumpsum Turnkey projects. These services are in the nature of engineering services, which, by no standard, can be compared with the marketing support services provided by the assessee to its AEs. The Hon ble jurisdictional High Court in CIT vs. Verizon India (P) Ltd. (2014) 360 ITR 342 (Del) has held that marketing services cannot be compared with the engineering services. In that case, the assessee provided marketing services and the authorities below considered some companies, providing engineering services, as comparable. The Hon ble High Court approved the view taken by the Tribunal in holding that marketing services provided by that assessee were entirely different from the set of services in the nature of engineering services rendered by the comparables. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, which can be of no match to the assessee s marketing support services. This company is also directed to be excluded from the list of comparables. v) Vinita Labs Ltd.: 19.1. The TPO included this company in the list of comparables by noticing that it has been so used as comparable to the assessee by the TPO since the AY 2002-03. He further supported his finding by noticing that this company was providing similar services as provided by the assessee. 19.2. We do not find any force in the functional comparability of this company with the assessee. It can be seen from the Annual report of this company, a copy of which is available at page 155 of the third paper book, that the spectrum of the services rendered by this company covers analytical food and drugs; clinical reference lab services to address the specialties and central lab services for clinical trials; clinical trials phase-I-IV and BA/BE studies; pre-clinical safety assessments; and environmental assessments. On a cursory look at the nature of services provided by this company, it transpires that the same is functionally dissimilar from that of the assessee. How a company conducting clinical trials on foods and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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