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TMI Blog2016 (2) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... ain as non-operative - Held that:- On observing the functional profile of the assessee, we are inclined to agree with the contentions of the assessee that the foreign exchange loss/profit is an operating loss, if the transaction on which it arose is connected with the core business/services being rendered by the assessee. This aspect needs examination. Thus we deem it appropriate to set aside the issue to the file of the AO for denovo adjudication in accordance with law. - ITA No. 1233/Del/2015 - - - Dated:- 15-2-2016 - Shri J. Sudhakar Reddy, Accountant Member And Shri Kuldip Singh, Judicial Member For the Appellant : Sh. Deepak Chopra, Sh. Harpreet Ajmani, Smt.Ananya Kapoor, Advs For the Respondent : Smt. Anupama Anand, CIT, D.R. ORDER Per J. Sudhakar Reddy, Accountant Member This is an appeal filed by the Assessee directed against the final assessment order passed by the Assessing Officer (AO) u/s 143(3) r.w.s.144C of the Income Tax Act, 1961 (the Act) dated 27.1.2015. 2. Facts in brief:- The assessee s profile is brought out in para 2 of the Transfer Pricing Officer (TPO) s order which is extracted for ready reference. 2. Taxpayer s profile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it AE. With regard to expected services, aTSPL monitors the operations to ensure that quality of good produced by local contact manufactures is an accordance with the international standards of the adidas group. In this relation, the AE have implement various quality control mechanism. aTSPL is responsible for monitoring the quality of products manufactured by local suppliers. However, for the final products manufactured by local manufactures, the contract manufacturer is responsible for ensuring that the product meets required quality standards. * Human resource aTSPL is responsible for the day to day management and maintenance of team of suitably qualified personnel so as to ensure the proper fulfillment of its obligation under the agreement with AE. 2.1. The provision of support services was bench marked by using the TNMM as the MAM. The PLI was taken as a percentage of Operating Profit to Operating Expenses i.e. % of O.P./O.C. 2.2. The TPO came to the following conclusions. (i) The services provided by the tax payer of the A.E. are in the nature of market support services, managerial services and even technical support, in case of after sales suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport services entered into by the Appellant with its associated enterprises ( AEs ). 2. The learned AO / TPO / DRP have erred in classifying the functions of the assessee as providing high value services and accordingly selecting comparables in same genre. 3. The learned AO/TPO/DRP have erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ( the Rules ). 4. The learned AO / TPO / DRP have erred in making an adjustment under Section 92CA(3) of the Act without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of sub-section (3) of Section 92C of the Act. 5. The learned AO/TPO/DRP have erred in rejecting certain comparable companies (Ma Foi Management Consultants Ltd and Ma Foi Global Services) identified by the appellant for having different accounting year (i.e. having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months). 6. The learned AO /TPO /DRP have erred in : a. using single year data instead of multiple year data b. Determinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case. 5. The Ld.Counsel for the assessee Mr.Deepak Chopra submitted that ground nos. 1, 13, 14 are general in nature and do not require any specific adjudication, and that ground no.15 is premature. He further stated that ground nos. 3, 4, 5, 6, 7, 8, 9 and 10 are not to be pressed. Hence ground nos. 1, 13 and 14 do not require specific adjudication and hence they are dismissd as such. Ground nos. 3, 4, 5, 6, 7, 8, 9, 10 and 15 are dismissed as not pressed . 5.1. An additional ground in the form of ground no.2.1 has been raised. It reads as follows. 2.1. The Ld.AO/TPO/DRP have erred on facts and in law in treating foreign exchange loss/gain as non-operating. This additional ground is admitted. 5.2. Mr.Deepak Chopra submitted that the revenue authorities have not correctly appreciated the functional profile of the company. He argued that the assessee company is not ITES company and that it is a normal service provider and that the profile of the company is given in the transfer pricing study which is placed at page no.231 onwards, specifically at page 233 and 236. On a query from the Bench, he submitted that the assessee entered into an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ready reference. Clause I: Arrange for the manufacture of products desired by the purchasers; Identify new manufacturers and provide the purchasers with sufficient information regarding such manufacturers to enable it to decide whether to utilise such manufacturers; Act as a general consultant to the purchasers on all matters concerning the manufacture and purchase of the products; Keep the purchasers informed of sources of supply required by purchasers, in a particular country, and general conditions appearing likely to affect the future price or condition of such products or likely to interfere with the prompt supply thereof to the purchasers; Provide quality control services, which shall include randomly checking and inspecting shipments to verify that the quality and quantity 'of the Products shipped corresponds to the requirements of the contracts between the Purchasers and the manufacturers; Provide technical services with respect to the Products and, in this connection, aid the manufacturers of Products in correcting any manufacturing problems that adversely affect the quality of Products manufactured for the purchaser by provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f October, 2006 demonstrates that the assessee is not a normal service provider nor a ITES company. The assessee requires skill, capability as well as expertise in a particular filed of procurement and manufacturing for performing the functions referred above. The assessee is required to perform functions including, quality control services, providing technical services with respect to the products and aid the manufacturers of the products, provide guidance to the manufacturers with respect to acquisition of raw material, randomly inspect relevant factory conditions etc. In other words the assessee is offering a comprehensive range of procurement related advisory services including quality control etc. On this factual position we now consider each of the comparables that are in dispute. 8.3. We first take up the case of Apitco Ltd. (a) Apitco Ltd.:- Apitco Ltd. is a Public Sector Undertaking providing various support services for the development of tourism industry. Later the functional profile of the company had undergone a change, and it is now engaged in providing technical consultancy relating to asset reconstruction companies, management services, micro enterprise develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the proposition that functionally dissimilar companies cannot be taken as comparables. He pointed out that decision of the Spl. Bench of the Tribunal in the case of Global India Pvt. Limited has been overruled by the Hon ble Delhi High Court in ITA No. 7466/M/11 judgment dated 07/03/2004. 12.7 The ld. Departmental Representative on the other hand, pointed out that Global Procurement Limited is not a 100% Government of India owned company and that it is being promoted by export import bank of India, as a private sector company in partnership with Leading corporate groups like MECON, ICCI, TCE Consulting Engineers Ltd. etc. She submitted that the functional profile is that of specialized support services, which required high profile skill and timely delivery of quality services, which is comparable with the functional profile of the assessee. 12.8 On a careful consideration of these arguments, we are of the considered opinion that this company should be taken as a comparable for the following reasons: a) This is not a 100% Government owned company as claimed by the assessee. Under the head corporate synergy it is stated that this company is co-promoted by the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the functional profile is different from the assessee company as the company is engaged in providing asset management services as an auctioneer and valuer for construction equipment, earth moving machineries, commercial vehicles and other assets. It was further submitted that the annual report of the comparable is not available in the public domain for quantitative analysis. The Ld.D.R. submits that this company is functionally comparable as it is providing large gamut of services including allied business services to its clients. He further submitted that the company also qualifies the quantitative filters. On perusal of rival contentions, we find that the functional profile of the company Quippo Valuers and Auctioneers P.Ltd. is not similar to the functional profile of the assessee company. When a company is providing asset management services as an auctioneer and is also undertaking valuation of construction equipment, earth moving machineries etc. and when segmental data is not available, this company has to be, in our opinion, excluded from the list of comparables. (d) TSR Darashaw Ltd.:- The TPO included this company on the ground that the company is providing busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l activity undertaken by this company with the marketing support services rendered by the assessee to its AEs, we find that both are way apart from each other. There can be no logical comparison between a specific pay roll services rendered by a company to its clients with the marketing support services rendered by the assessee to its AEs. This company is, therefore, directed to be excluded from the final set of comparables. Consistent with the view taken in the above case, we direct the AO/TPO to exclude this comparable. 8.4. The assessee has not argued for the exclusion or inclusion of any other comparable. 9. On the issue of treating foreign exchange loss/gain as non-operative by the A.O., the Ld.Counsel for the assessee submitted that the TPO/DRP erred in on appreciating the functional profile of the assessee correctly, leading to a conclusion that the foreign exchange loss/gain is non operating loss/gain. He submitted that specific objection was raised before the DRP. He submitted that the DRP directed the AO/TPO to recomputed the margins of the comparables, in accordance with safe harbour rule, without appreciating that safe harbour rules are applicable from the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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