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TMI Blog2016 (5) TMI 1375X X X X Extracts X X X X X X X X Extracts X X X X ..... l Board of Direct Taxes ('CBDT) and therefore the transfer pricing order is void. 3. the Ld. AO/Ld. TPO erred on facts and in law by making a transfer pricing addition of Rs. 57,41,9837- to the income of the Appellant and holding that the international transactions pertaining to provision of marketing support services do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred by: 3.1. rejecting comparability analysis undertaken by the Appellant in the TP documentation for determining the Arm's Length Price ('ALP') and modifying comparability analysis based on application of the following additional revised filters: a. excluding companies whose data is not available for the FY 2009-10; b. excluding companies who have employee cost less than 25% of the sales; c. excluding companies whose revenue from service activity is less than 75% of the total operating revenues; and rejecting, in particular, the following filters applied by the Appellant: d. accepting companies having ratio of other operating income (i.e. income other than manufacturing and trading income) to sales greater than 50%; e. accepting c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Rules, 1962 in respect of the difference in the risk profile of the comparable companies and the Appellant 3.5. disregarding multiple year/prior years' data used by the Appellant in the TP documentation and holding that current year (i.e. FY 2009-10) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 4. the Ld. AO/TPO has grossly erred in making an illusionary disallowance on the pretext of expenditure to have been incurred for earning exempt income and on the other hand considering all expenses to have been incurred for earning taxable income while determining arm's length price of the international transactions. The Appellant has filed a rectification application u/s 154 of the Act with the Hon'ble DRP for adjudicating this contention of the Appellant. 5. the Ld. AO has erred in disallowing Rs. 6316,500 under section 14A of the Act read with Rule 8D of Income tax Rules, 1962 ("Rules") as he failed to appreciate:- (a) that no investments have been made by appellant out of borrowed funds; (b) that no new investments have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld DRP has passed direction u/s 144C of the Act and based on that final assessment order was passed on 30.01.2015 wherein the addition on account of transfer pricing adjustment of Rs. 5741983/- and disallowance u/s 14A of Rs. 6316500/- was retained and total assessed income was determined at Rs. 16026231/-. Against this order, the assessee is in appeal before us. Transfer Pricing Adjustment 6. Ground no 1 is general in nature and therefore same is dismissed. 7. Ground no 2 is not pressed and hence dismissed. 8. Ground No 3 is related to transfer pricing issues and ld AR of the assessee submitted that other than ground No. 3.2 other grounds are not pressed, therefore ground No. 3.1 and 3.3 to 3.5 are dismissed. 9. Ground NO. 3.2 of the appeal is against including certain companies by ld TPO and upheld by ld DRP as comparable for determining Alp of the International transaction of the appellant. 10. Before us, ld AR of the appellant submitted detailed synopsis on this issue and contested that only ground No. 3.2 may be addressed as far as it relates to functional dissimilarity in case of two of the comparables, namely TRS Darwshwa . 11. Ld DR relied on the orders of lower au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to LG Chem, Korea for its evaluation. f) Contacting the customers to obtain feedback on behalf of AE LGCI contacts the customers of its AE on a regular basis to obtain their inputs on the quality and efficiency of products as supplied by the AE vis-a-vis the competitors in India and gives the resultant feedback to its AE. g) Providing marketing assistance 1 LGCI provides marketing assistance to LG Chem, Korea based on the instructions received by the AE. The marketing assistance is provided with an objective to promote the products of LG Chem, Korea in India. LGCI acts as a communication channel for AE's customers for all commercial and technical problems and does not carry out any repairs or supply of goods. As explained above, the marketing activities undertaken by LGCI for promoting LG Chem Korea's products are limited to co-ordination between its AE and the customers. LGCI acts as a facilitator for its AE and does not undertake significant functions (e.g. confirming orders, negotiation of prices/terms of agreements etc.) while performing these activities. 4.3.1.1. Other management functions The functions addressed below are common functions that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Entertainment Network India Ltd. 0.22 NA Rejected by TPO 5. Cameo Corp. Serv. NA 8.26 Included by TPO 6. HCCA Business Services Pvt. Ltd. NA 20.05 Included by TPO 7. TSR Darashaw Ltd NA 41.15 Included by TPO Average 7.06 21.08 Assessee's PLI 8.14 International transaction ( INR) 48843515 48843515 ALP determined by Assessee and TPO (INR) 48843515 51285690 Adjustment (INR) Nil 5741983 16. Before us ld AR of the assessee contested two comparables selected by TPO which are at Sl. NOs. 6 and 7 of above table which are considered as under:- a. TSR Darashaw Ltd:- The above comparable was contested by the assessee submitting that it is functionally dissimilar as it is engaged in the business of registrar and transfer agent activity, record management activity and pay roll trust fund etc. It was further submitted that it is BPO organization and therefore, it is not comparable. The ld TPO rejected stating that as the comparable is also a service provider it is functionally similar. Regarding abnormally high margins of the comparable ld TPO rejected this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India Pvt. Ltd. Vs. DCIT in ITA No.5766/Del/2011 for AY 2007-08 of the coordinate bench where it has been held that TSR Darashaw Ltd. was held to be not comparable with market support service provider as under:- "18. Coming to the merits of comparability, we find that this company has three segments, which inter alia include: 'Pay Roll and Trust Fund activity (Pay Roll).' It is this segment which has been considered by the assessee as comparable. This company on an overview is a broking and investment banking house. Its other segments are : 'Registrar and Transfer Agent activity (R&D)' and 'Records management activity (Records).' The segment of 'Pay Roll' was considered by the assessee as comparable in its TP study report and the same is now assailed. Under the 'Pay Roll' segment, this company undertakes pay roll and employee trust fund administration and management. When we compare the nature of pay roll 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 rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly TSR Darashaw Ltd. and HCCA Business Services Pvt. Ltd. Corporate Tax Issues 18. The ground No. 4 and ground No. 5 of appeal are with respect to disallowance u/s 14A of Rs. 6316500/- made by the ld Assessing Officer applying the provisions of Rule 8D of the Income Tax Rules, 1962. 19. The brief facts of these grounds are that the assessee has made investment of Rs. 126,33,00,000/- in its subsidiary LG Polymer India Pvt. Ltd. On query by the ld AO , assessee submitted reply vide letter dated 03.10.2013 stating that the investment is made in subsidiary and therefore, no disallowance are made. Ld Assessing Officer applied Rule 8D and disallowed 0.5% of this investment. The issue was contested before the ld DRP vide ground No.4, Ld. DRP has disposed off this objection rejecting the contention of the assessee. Before us assessee has contested that no investment have been made by the appellant out of borrowed funds and exempt income earned during the year is Nil. Ld AR submitted that issue is squarely covered in favour of the assessee in view of the decision of Hon'ble Delhi High Court in Cheminvest Ltd. Vs. CIT. ld DR relied on the orders of lower authorities. 20. We have carefull ..... X X X X Extracts X X X X X X X X Extracts X X X X
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