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TMI Blog2016 (2) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... re, order for the exclusion of this company from the list of comparables. Askme Info Hubds Ltd. hardly bears any similarity with the assessee company. We, therefore, reject the assessee’s contention for including this company in the list of comparables. Crisil Research & Information Services Ltd only reason given for its exclusion is the nonavailability of data for the relevant financial year. The ld. AR fairly admitted that it is not possible to deduce operating profit margin of this company for the financial year ending 31.3.2007 on the basis of information as is available in public domain. As such, we hold that the authorities were justified in excluding this company from the list of comparables on this score alone. Addition towards the expenditure incurred on account of leasehold improvements by treating the same as capital in nature - Held that:- It is evident from the description of the items on which the above referred expenditure has been incurred that it is a case of renovation of premises immediately after taking it on lease. As such, there can be no question of replacement. We cannot help if the Revenue has accepted the part deletion of disallowance by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of business support services and not IT enabled services. The assessee applied the Transactional net margin method (TNMM) as the most appropriate method with the Profit level indicator (PLI) of Operating profit to Total cost (OP/TC). The assessee computed its OP/TC at 10.39%. 14 companies were chosen as comparable with their average OP/OC at 8.18% with a view to demonstrate that this international transaction was at ALP. The TPO accepted the assessee s contention about the adoption of TNMM as the most appropriate method with PLI of OP/TC. He did not consider the multiple year data as adopted by the assessee for its comparables, which fact has not been disputed by the ld. AR before us as well. The TPO refused to accept any of the companies taken by the assessee as comparable. He selected nine new companies as comparable. Average operating profit margin of these companies was determined at 19.3%. By applying the same as benchmark, the TPO recommended transfer pricing adjustment amounting to ₹ 25,36,526/-, which was made by the AO. The assessee assailed such transfer pricing addition before the ld. first appellate authority, but without any success. 4. We have heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the true nature of the assessee s work and the consequential comparability of the companies under challenge. He pleaded that the entire matter be restored to the file of TPO. 8. We are not convinced with this submission advanced on behalf of the Revenue urging restoration for a de novo adjudication at the TPO s end. A simple and plain reason for our this decision is that the TPO has categorically recorded the nature of services rendered by the assessee without any dispute and has also characterized the same as business support services. He has nowhere disputed the real nature of services provided by the assessee and specifically noted that none of the services rendered by the assessee are ITES. The Agreement entered into by the assessee with MIT, as discussed above, is a clear pointer that the services rendered by it are more or less of the same kind being, pre-sale and post-sale of products by its AE to Maruti. The ld. DR has not placed on record any material to controvert the factual finding recorded by the TPO qua the nature of services provided by the assessee. We could have entertained his objection on demonstrating that the contents of the Agreement with MIT run contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services 2,824,012 Emerging Areas 25,146,403 10.3. A careful perusal of the operations carried out by Apitco Limited divulges that it is providing services in the nature of Project management consulting, Feasibility studies, Micro enterprise development, Skill development, Environment management, Energy related services, Social research and Asset reconstruction management services. No segment-wise profitability data of these services is available. The TPO has considered this company as comparable on entity level. The services rendered by it, taken as one unit, are different from what the assesee is doing. We fail to appreciate as to how all the above listed services taken in unison, can be considered as comparable to the services provided by the assessee, which are restricted to identifying customers, sending inputs to AE, finalizing sales and, thereafter, rendering post-sale services, if required etc. 10.4. The ld. DR strenuously argued that all the activities done by this company are basically `Business services and the assessee is also rendering business services alone. Justifying the inclusion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. From the services rendered by this company, as outlined in the Annual report, it can be noticed that it is conducting Independent Procurement Review of multilaterally funded projects spread across the globe. It also undertakes Procurement audits. This company is providing full time advice on procurement and contract related aspects to several agencies across the globe. For example, in Georgia, it provided advice on procurement and contract related services to Municipal Development Fund (MDF), Republic of Georgia. In Iran, this company provided procurement advisory services to international forums, such as, Bam Reconstruction Office of Ministry of Housing, Tehran. In Guyana, this company was selected through an international competitive process in assisting the Government of Guyana in strengthening of its procurement administration under Technical Assistance Credit from the World Bank. In India, it provided Procurement Advisory Services to IIT, Baramathy, Pune, India in the implementation of World Bank administered Empowering Poor: A pilot ICT programme for rural areas of Pune District funded by Japan Social Development Fund Grant. It has also carried out review of Procure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d project monitoring and supervision of quality of work for the projects executed by the State utilities was also given to this company. Its Annual report further manifests that this company assisted DISCOMS and Utilities in the sectoral reform process and was participating in the distribution infrastructural development under Consultancy assignments. It also carried out consultancy work of project monitoring and quality assurance under various projects for Bhopal and Gwalior regions. From the above description of the nature of works carried out by this company, it clearly emerges that it is absolutely incomparable to the assessee, which is basically engaged in providing pre-sale/purchase and post-sale/purchase services to its AE that include collection of information about new customers, reporting of market conditions, sourcing of customers, facilitating in sale and assisting in the follow up for payment etc. The activities carried out by the assessee in facilitating purchase and sale of goods for its AEs, can by no standard, be compared with the nature of activity carried out by NTPC Electric Supply Ltd. We, therefore, order for the exclusion of this company from the list of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006 to 31.3.2007. In that view of the matter, a valid comparison can be made only if the corresponding figures of comparable company for the same financial year are available. In this regard, we consider it apt to note the relevant part of sub-rule (4) of Rule 10B which provides that: the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction had been entered into. It is obvious from the language of sub-rule (4) that the comparability of an uncontrolled transaction can be analyzed only with the data relating to the financial year in which the international transaction has been entered into. In other words, if the tested party has March as year ending, then, the figures of comparables relating to the financial year ending 31st March itself should be available. If such a data is either not available or is not capable of ascertainment with precision and without distortion, then, a company, albeit functionally comparable, disqualifies. 15.3. Espousing the facts of the extant case, we find that insofar as the functional comparability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction undertaken by the assessee, in consonance with the discussion made and findings rendered above. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such determination. 18.1. The only other ground raised in this appeal is against the confirmation of addition of ₹ 23,91,810/- towards the expenditure incurred on account of leasehold improvements by treating the same as capital in nature. 18.2. The facts apropos this issue are that the assessee claimed leasehold improvement expenses of ₹ 23.90 lac and architect fee of ₹ 33.14 lac as revenue. The AO observed that the assessee started its business during this year only and civil and construction work was done on the premises taken on lease. He treated this work as construction of a permanent structure on leasehold premises. After entertaining objections from the assessee, he made disallowance of ₹ 51,34,426/- (Capitalization of two amounts of ₹ 23.90 lac and ₹ 33.14 lac as reduced by depreciation). The ld. CIT(A) allowed the assessee s claim in respect of payment to architect amounting to ₹ 33.14 lac. However, the remaining amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension of, or improvement to the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 18.6. A circumspection of the above Explanation reveals that where a business is carried on in a building not owned by the assessee but in respect of which it holds a lease or either occupancy rights, then the expenditure on i. the construction of a structure or ii. doing of any work in or in relation to and by way of renovation or extension of, or improvement to the building, shall be considered as structure or work in the nature of building owned by the assessee for the purpose of depreciation. Spirit and text of Explanation 1 to section 32 is that any capital expenditure by the assessee on a building not owned by him, in which he carries on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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