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TMI Blog2015 (8) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on by the assessee appears to be acceptable. Therefore, in our opinion, going by the functional profile as available on record before us, this company has rightly been rejected by the TPO and cannot be included as a comparable entity even at a segmental level for conducting any comparability analysis. Accordingly the assessee’s contention for including the said company is rejected. EDCIL and ICRA Management Consulting Services, we find that these companies were accepted as a comparable by the TPO in the immediately preceding assessment year 2007–08 and there was no dispute among the parties in that year for taking them as a comparable company. Therefore, this company on merits also is includable in the set of companies. In the case of EDCIL, though main activities are functionally different, however, its technical assistance segment can be broadly considered to be functionally similar to the assessee. Since this company has been accepted as a comparable by the Department as well as by the assessee, therefore, following the rule of consistency, we hold that this company should also be included as comparable. We also find merits in the contentions of the Ld. Counsel that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the Dispute Resolution Panel I (for short DRP ), Mumbai, for the quantum of assessment passed under section 144C(v) of the Income Tax Act, 1961 (for short the Act ) for the assessment year 2008 09. Following grounds have been raised by the assessee: 1. The learned AO erred in passing an order under section 143(3) r.w.s. 92CA and r.w.s 144C(5). 2. The learned Assessing Officer / Transfer Pricing Officer (TPO) erred in making an addition of ₹ 26,750,954 to the value of international transaction of rendering support services by the appellant. The AO / TPO erred in determining the average Profit Level Indicator (PLI) of the comparables at 30.84%. 3. The learned AO/ TPO erred in rejecting the documentation to the extent of the search process adopted by the appellant without providing any cogent reasons and requesting the appellant to conduct a fresh search for comparable companies: 4. Without prejudice, in the fresh search conducted by the appellant the learned A.O / TPO erred in rejecting five low margin earning comparable companies and accepting four high margin earning companies as comparable to the appellant without considering the fact that the low ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the outsourced activities. UK Seconded Staff Welfare Support Supporting LTSP, employees sent to India in Connection with the outsourced activities on short or long term stays. This includes working with LTSB offshore units to develop templates for tracking staff movements mainly at weekends, and a documented set of local procedures covering staff medical welfare, administration of insurance and immigration matters, and LTSB issued guidelines on staff conduct and repatriation support. Being the point of contact for the LTSB employees visiting India in connection wt the Outsourced activities if in need of assistance, including In a medical emergency. Risk and Compliance Management Overseeing the implementation of LTSB S risk management strategy and encouraging LTSB best practices in risk and compliance management in relation to the outsourced activities at the outsource partners offices / sites in India. Conduct regular checks / audits, in conjunction with the LTSB International Security Consultant and LTSB business unit risk teams, on the Outsource Partners business practices In the context of the performance of the outsourced activities and the welfare, health a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto following international transactions: (i) Rendering of support services LTSB ₹ 14,37,84,205; (ii) Reimbursement of expenditure ₹ 5,82,33,539. 7. In relation to rendering of support services, the assessee in its T.P. study report has selected Transactional Net Margin Method (for short TNMM ) as most appropriate method and selected itself as tested party for the purpose of bench marking the international transaction entered into with LTSB. In the said report, the assessee has used multiple year data of 2005 06, 2006 07, 2007 08 and identified thirteen comparables. The Transfer Pricing Officer (for short TPO ) to whom matter was referred by the Assessing Officer under Section 92CA(1) for determining ALP on International Transactions, rejected the assessee s selection for multiple year data on the ground that as per rule 10B, relevant year data should be used. He, therefore, required the assessee to compute Profit Level Indicator (for short PLI ) of the comparables using the F.Y. 2007 08 data. Thereafter, the assessee submitted that out of thirteen comparables selected by it, eight were not comparable due to various factors, which are enumerated in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultingfirm and is engaged in Consulting, Analytics and Transaction Advisory services. The company is functionally different from the assessee. 4. I D C (India) Ltd. Accepted as comparable. 5. In House Productions Ltd. The company is into Medical Business Process Outsourcing business(BPO). The functional profile of the company is different from the taxpayer. 6. India Tourism Devp. Corpn. Ltd. The Corporation is running hotels, restaurants at various places for tourists, besides providing transport facilities, In addition, the company is engaged in production, distribution and sale of tourist publicity literature and providing entertainment and duty free shopping facilities to the tourists. The functional profile of the company Is different from the taxpayer. 7. Indus Technical Financial Consultants Ltd. Accepted as comparable 8. Inmacs Management Services Ltd. Accepted as comparables 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO on the ground that they are functionally different from the assessee are not correct. In support of his contention, he gave detail analysis of each and every five comparables which were rejected by the TPO. Alternatively, he submitted that if the criteria of functional similarity is to be taken into consideration, then none of the 4 comparables selected by the TPO can be said to be similar in nature. The TPO has done cherry-picking of high profit margin companies only and nothing else. He further brought to our notice that in the earlier assessment year i.e., 2007 08, the TPO has accepted the assessee s comparables out of which ICRA Management Consulting Services Ltd. and EDCIL India Ltd., were common. Once these two companies have been held to be comparable in the immediately preceding assessment year, then how the same two companies can be said to be functionally different in the present assessment year. He, therefore, pleaded that rule of consistency should be followed at least for these two companies. 13. Finally, he submitted the business description and functional profile of all the nine companies before us in the form of chart and heavily relied upon the same. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can companies. The said company was having projects only for Government. The income from technical assistance is from educational aids and other Govt. projects and its income from HRD are mostly from placement of personnel. This company is, therefore, not comparable with that of the assessee. 16. Regarding ICRA Management Consulting Services, Ld. CITDR submitted that the area of the business activity of this company is risk management strategy, project consulting, transaction advisory policy, regulation and development consultancy. He specifically drew our attention to director s report as appearing in the paper book and drew our specific attention to one of the activities which relates to transportation in urban sectors and involvement in policy formulation, regulatory reform in investment advisory services. Thus, this company, he pleaded, is also functionally different from that of the assessee. He further submitted that even if this company along with EDCIL India Ltd. have been accepted to be comparable in the earlier years, then also it cannot be taken as comparable in this year as once error has been committed in the earlier year, the same should not be allowed to be perpet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to go by the horizontal set of comparables of particular kind and class of services because it is very difficult to get accurate comparables having exact functional profiles. He placed heavy reliance on the decision of the ITAT, Delhi Bench, in the case of Actis Advisors P. Ltd. v/s DCIT, ITA no.5277/Del./2011. 20. We have carefully considered the rival contentions of the parties, perused material placed on record and the impugned orders. The limited issue that is required to be adjudicated is whether the five comparable companies which has been rejected by the TPO on the ground that they are functionally different from the assessee can be included for comparability analysis for benchmarking the ALP of the assessee company. Insofar as the application of TNNM is concerned for bench marking the international transaction for determining the ALP, there is no dispute. For carrying out comparability analysis, comparison of controlled transactions with an uncontrolled transaction has to be seen whether they are comparable having regard to the characteristic of the property and service transferred, functions performed taking into assets used and risk assumed and other economic circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly different from the activities carried on by the assessee appears to be acceptable. Therefore, in our opinion, going by the functional profile as available on record before us, this company has rightly been rejected by the TPO and cannot be included as a comparable entity even at a segmental level for conducting any comparability analysis. Accordingly the assessee s contention for including the said company is rejected. 22. Now, coming to the EDCIL and ICRA Management Consulting Services, we find that these companies were accepted as a comparable by the TPO in the immediately preceding assessment year 2007 08 and there was no dispute among the parties in that year for taking them as a comparable company. Moreover, going by the functional profile specifically that of ICRA Management Consultant Services, prima facie, it is seen that it is also engaged in the business support services like strategy risk management, process consulting, transaction advisory policy and regulation and development consulting. These functions are, by and large, similar to the assessee s activities also. Therefore, this company on merits also is includable in the set of companies. In the case of EDCIL, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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