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TMI Blog2016 (6) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... word about the objection of the assessee with regard to the comparables. The TPO is authorized to select the comparables, but it is his duty not only to mention the methodology of selection process and to meet the objections raised by the assessee about the selection process or the selected comparables. Considering the above, we hold that the assessee had produced all the necessary documents and that the TPO and the DRP did not consider the same while passing/issuing the order/Directions. Therefore, in the interest of justice, we are of the opinion that the matter should be restored back to the file of the DRP who would decide the both the issues afresh after affording a reasonable opportunity of hearing to the assessee. Objections raised by the assessee, with regard to comparables have to be dealt case by case - Decided in favour of assessee in part Disallowance made u/s. 14A - Held that:- Provision of Rule 8D cannot be applied for the year under appeal, as held by the Hon’ble Bombay High Court as in the case of Godrej Boyce Mfg Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ). However, a reasonable disallowance could be made. It is a fact that the assessee had made investment in the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee-company is a wholly owned subsidiary of VALCON, which is part of the AC Nielsen group. It is engaged in the business of providing customised market research services including quantitative and qualitative consumer studies, print media measurement services and retail measurement services which includes retail tracking, modeling and analytics and category manage - ment. It filed its return of income on 29/10/2007, declaring total income at ₹ 18. 12 crores. The AO completed the assessment on 24/10/2011, determining the income of the assessee at ₹ 33. 77 crores. 2. 1. During the assessment proceedings, the AO found that the assessee had entered into 36 International Transactions (IT. s) with its Associated Enterprises (AE. s). The IT. s pertained to market research service to AE, receipt of market research service from the AE, BPO services rendered to AE and payment of General Services Agreement(GCA). To determine the Arm's Length Price (ALP), he made a reference to the Transfer Pricing Officer (TPO), as per the provisions of section 92 of the Act. 2. 2. The TPO found that during the year the assessee had paid ₹ 11. 14 crores to its AE, that the said payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no one would pay any amount without knowing the actual basis and also the actual allocation figures in a third-party situation, that the assessee had its own client/server system, that total allocation could not be accepted to be India specific. He held that adjustment had to be made in the TP order. Accordingly, he made an adjustment of ₹ 4. 50 crores (50% of ₹ 9. 01 crores). He calculated the ALP as under: Payment of GSS charges -Rs. 11. 14 crores Adjustment -Rs. 4. 50 crores Arm's length value of GSA -Rs. 6. 63 crores. 2. 3. In response to the show cause regarding BPO services bench-marking, the assessee stated that during the year under review the turnover from RRC and Eureka division was ₹ 21. 77 crores, its operating costs were ₹ 13. 24 crores, that the resultant operating profit was 8. 53 crores, that the operating profit/ operating cost was 64. 39%. The TPO furnished the assessee the details of compu -tation of Margins(PLI)-ITES conducted by the Department wherein Everest operating profit/operating cost was worked out at 33. 09%. Referring to the competition of margin, the assessee contended that operating profit/operating cost, shown by it, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mnet System & Services Ltd. (Seg. ) 260. 18 44. 99% 15. ICRA Techno Analytics Ltd. (Seg. ) 7. 23 12. 24% 16. Informed Technologies India Ltd. 4. 08 35. 56% 17. Infosys BPO Ltd. 649. 56 66. 14% 18. IServices India Pvt. Ltd. 16. 29 50. 27% 19. Maple Esolutions Ltd. 12. 21 34. 05% 20. Mold-Tek Technologies Ltd. 11. 40 113. 49% 21. R Systems International Ltd. (Seg. ) 17. 34 20. 18% 22. Spanco Ltd. (Seg. ) 35. 00 25. 81% 23. Triton Corp Ltd. 53. 37 34. 93% 24. Vishal Information Technologies Ltd. 30. 60 51. 19% 25. Wipro Ltd. (Seg. ) 939. 78 29. 70% Average 33. 09% He reworked the IT, in the BPO segment as under : Particulars Amount(Rs. ) Total operating cost of the assessee company 1, 248, 591, 404 Operating cost as it pertains to BPO segment(#) 192, 012, 762 Arm's length operating margin ratio 33. 09% Arm's length operating margin 63, 537, 023 Arm's length sales value in respect of BPO services 255, 549, 786 Actual sales value in BPO segment 206, 750, 103 Adjustment required 48, 799, 683 Thus, he proposed an adjustment of ₹ 9. 38crores(Rs. 4. 50crores and ₹ 4. 87 crores) to the total income of the assessee. The AO incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when expenditure was incurred for the benefit of the group as a whole no charging of such expenditure was required at individual level, that in such a situation the benefit of incurring of expenditure would be available to all the members of the group, that if the benefit was remote or for the benefit of entire group the same should not be charged, that unless it was shown that tangible and direct benefit was derived by such payment or that the payment made was commensurate with the benefit that was derived or expected to be derived when parties would deal with each other at arm's length the APL of such payment for intra group services would be treated as either Nil or to the extent it was shown that the benefit actually derived from such payment, that the assessee did not prove before the TPO or before the DRP that the paymeny, for the so called services rendered by the AEs, would be at arm's length, that the TPO was liberal and had allowed 50% as ALP in respect of regional cost allocation, that no services were rendered during the FY. 2006-07, that the ALP should have been Rs. Nil, that the assessee had its own client service team and, that no details of specific al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted by assessee evidencing the rendering of services by AE, that the TPO /AO ought to have appreciated the Benchmarking exercise of the appellant and should have considered the same. With regard to BPO services the AR argued that that the TPO/AO had failed to appreciate the supporting and reconciliation provided by the assessee and that he rejected the audited segmental accounts, that the TPO' s approach of allocating cost based on revenue is not justified, that he erred in applying the search filters and hence the comparable companies proposed by him were not acceptable, that the BPO Services rendered by assessee were adequately remunerated. . He referred to the Pg. 207-214, 471-484, 488-89, 493, 684-1012 of the PB. The DR supported the order of the DRP and contended that IT. s were to be analysed separately. 2. 6. We have heard the rival submissions and perused the material before us. We find that the assessee had filed, before the TPO, details of GSA fees, debit-notes based on projected revenue and true calculation based on actual revenue and the invoices copies raised by the AE. s, vide its letter dated 24/09/2010 (Pg. 363-65 of the PB), that the cost allocation repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared to markup of 28. 05% of the comparables, that it claimed that IT was at arm's length, that the TPO ignored the benchmarking study of the assessee and proposed new comparable search and determined the markup of 33. 09%, that he held that the assessee had not provided segmental data and supporting evidences. As stated in earlier paragraph, now would like to discuss the details that were furnished in addition to the documents mentioned at paragraph no. 2. 6. We find that details of influencer survey carried out by the AE in case of Wipro Infotech was shared with the assessee along with the details of other projects undertaken by the it for companies like P&G Cadbury (Regional AAC). Details of service provided under the head finance included Installation of Hyperion Smartview for HFM training, Discussions regarding HFM training and account mapping, Discussions regarding budgeting, Communications regarding HFM Migration and elimination of month lag and HFM training materials, Communication of updated AP user list for HFM/CCU3 application and discussion on client concerns, design recommendations/changes, technology constraints, financials for the staffing approvals for GBS India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to all the group companies on the basis of the revenue and detailed workings was shared with the TPO and DRP, so, it cannot be held that requisite information was not made available. It is other thing that both of them did not take notice of the details filed, as discussed earlier. We are unable to understand the logic behind the argument of both the authorities that if the assessee had its own client service team then why costs of client service teams was included. According to us, it is gross violation of the 'Laman-Rekha' drawn by the basic and fundamental taxation jurisprudence. No authority is required to hold that the jurisdiction of the AO u/s. 37 of the Act and that of the TPO u/s. 92CA are distinct. The authority of the TPO is to conduct a TP analysis to determine the ALP and not to determine whether or not there is a service from which the assessee benefits. So, when the TPO holds that the assessee did not benefit from these services it amounts to disallowing expenditure. Such a decision is outside the authority of the TPO. The decision as to whether the expenditure was "laid out or expended wholly and exclusively for the purposes of the business" is a fact determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave decided the issue of allowability of expenditure incurred by it. Therefore, in our opinion, their order are not in accordance with the provisions of the Act. As far as comparables of BPO services are concerned it is enough to say that the TPO and the DRP had not dealt with the objections raised by the assessee about the comparables selected by the TPO(Pg. 601-10 of the PB). We do not find even a single word about the objection of the assessee with regard to the comparables. The TPO is authorized to select the comparables, but it is his duty not only to mention the methodology of selection process and to meet the objections raised by the assessee about the selection process or the selected comparables. Considering the above, we hold that the assessee had produced all the necessary documents and that the TPO and the DRP did not consider the same while passing/issuing the order/Directions. Therefore, in the interest of justice, we are of the opinion that the matter should be restored back to the file of the DRP who would decide the both the issues afresh after affording a reasonable opportunity of hearing to the assessee. Objections raised by the assessee, with regard to comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter needs further verification. Therefore, in the interest of justice, we are restoring back the issue to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity to the assessee of being heard. 4. Fourth Ground of appeal pertains to addition made on account of mis-match of AIR data amounting to ₹ 17. 30lakhs. During the assessment proceedings, the AO handed over a copy of AIR information, as generated from the system and asked it to reconcile the account. As per the AO the assessee was able to reconcile all the items except one item of ₹ 17, 32, 053/- received under the head rent. The AO added the amount in question to the total income of the assessee while preparing the draft order. The assessee filed objections before the DRP in that regard. The DRP upheld the order of the AO. 4. 1. Before us, the AR stated that assessee had not made any transaction with the parties in the AIR. He relied upon the cases of ANS Law Associates (ITA/5181/M/2012 dt. 5. 12. 14), S. Ganesh(ITA527/Mum/10 AY06-07), Thread Needle Investment Fund ICVC Asia Fund (27 taxmann321). The DR stated that the issue could be decided on merits. 4. 2. We have heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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