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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 ..... ivesh Khanna, Adv Sh. Yishu Goel, Adv For the Revenue : Sh. Sanjay Kumar, Sr. DR ORDER Per Prashant Maharishi, A. M. 1. This is appeal filed by the assessee against the order u/s 143(3) rws 144C of the Act dated 30.01.2015 passed by ACIT, Circle-15(1), New Delhi in pursuance of direction of Dispute Resolution panel u/s 144C(5) dated 12.11.2014 for the Assessment Year 2010-11. 2. The assessee has raised the following grounds of appeal:- 1. the Learned Assessing Officer ("the Ld. AO")/ Hon'ble Dispute Resolution Panel ("DRP") has erred in assessing the income of the Appellant at ₹ 16,026,230 as against the returned income of ₹ 3,967,748. 2. the Ld. AO grossly erred in law by referring the case to the Ld. Transfer Pricing Officer ('TPO') for determination of arm's length price contrary to the instruction issued by the Central 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 ₹ 57,41,9837- to the income of the Appellant and holding that the international transactions pertaining to provision of marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been made during the subject year; (c) that appellant has not earned any exempt income on its investments during the subject year; (d) that investments have been made in the financial year 2006-07 for controlling stake in Group concern and not for earning any dividend income; (e) that no administrative cost, directly/indirectly have been incurred by appellant during the year in connection with its investment 3.3. excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 3.4. not providing appropriate economic adjustments as provided under Rule 10B 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 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts margin to 8.14% therefore using the multiple year data of comparables assessee has submitted the transfer pricing study report concluding that its international transactions are at arm's length. 5. The ld TPO after perusing the TP study report of the assessee rejected the economic analysis of the assessee and selected different comparables and taken the PLI as PBIT divided by cost and calculated the arm's length price of the transaction at ₹ 51285690/- and proposed an adjustment u/s 92CA of the Act of ₹ 5741983/-. Therefore, draft assessment order was passed by the Assessing Officer on 28.02.2014 making an adjustment on account of transfer pricing of ₹ 5741983/-. A further disallowance u/s 14A of the act was also made of ₹ 6316500/-, and therefore, total income was determined at ₹ 16026631/-. Against this draft assessment order appellant filed objection in Form 35A before the Dispute Resolution Panel. The 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 ₹ 5741983/- and disallowance u/s 14A of ₹ 6316500/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomers in India. However, the functions are limited to providing information. LGCI does not secure orders, negotiate prices or enters into contract with the customers. In the case of advance technical queries, these are directed to the AE's technical people. LGCI merely acts as a facilitator for its AE while performing these marketing activities. d) Providing information on potential customers LGCI conducts surveys/studies on potential customers with due consideration to market standing, past performance and profitability, foreign collaborations, proposed business plans etc. LGCI sends periodical reports to LG Chem, Korea on any available market information with respect to customers. It follows up the correspondence between the AE and customers in the territory. e) Forwarding the inquiries/sales order LGCI forwards the inquiries received by it relating to the products and all the sales orders solicited by LGCI from identified customers 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts AE. 14. The assessee was shown to be owning limited tangible assets and does not have any intangible assets of its own. 15. Based on above FAR analysis assessee was characterized as a routine service provider exposed to less than normal risk associated with its business. Based on this assessee was selected as a tested party and transaction net marginal method was considered as the most appropriate method. In its TP study report it has selected four comparables and PLI of OP/TC. This study report was rejected by TPO and he selected his own comparable and PLI of PBIT/cost. The brief comparisons of the comparables selected by assessee and TPO are tabulated as under:- Sl. No. Comparable As per PLI of assessee of OP/TC As per PLI of TPO of PBIT/cost Remarks 1. IDC India Ltd. 12.79 14.85 Assessee as well as TPO both accepted this comparable 2. Hansa Vision Pvt. Ltd. 3.63 NA Rejected by TPO 3. Empire Industries Ltd. 11.60 NA Rejected by TPO 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee. According to the Director's report assessee is engaged in payroll process outsourcing business and also earned revenue from registry business as well as record management business. At page no. 80 which provides segmental information it has major revenue of ₹ 1194 lacs from registry and transfer business and ₹ 144.18 from record management business and balance from payroll outsourcing out of total revenue of ₹ 2007 lacs. Assessee has submitted that this comparable is a business process outsourcing organization and is primarily engaged in the handling of BPO services. We do not find any observation of ld TPO, ld DRP and ld DR before us which says that BPO industry comparable can be taken as functionally comparable with the limited risk market support service provider. Further, ld AR has relied upon decision in the case of Microsoft Corporation 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, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this submission for our reasons given in discussing earlier comparable. It is very significant to note that as per the balance sheet submitted by the assessee of the comparable at Page No.99 onwards it shows that according to schedule D of the balance sheet the comparable posses business and commercial rights of ₹ 37533159/- and further the nature of services produced by the assessee before ld TPO shows that it is engaged in pay roll processing and compensation structure. In the decision cited before us of the coordinate bench in case of Microsoft Corporation India Pvt. Ltd. Vs. DC IT (Supra) at para No. 18 it is held that marketing support services and payroll activity are way apart from each other. In view of this we direct the exclusion of this comparable. 17. In view of the above we allow ground No. 3.2 of the appeal and direct exclusion of the above two comparables namely 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 ₹ 6316500/- made by the ld Assessing Officer applying the provisions of Rule 8D of the Income Tax Rules, 1962. 19. The brief ..... X X X X Extracts X X X X X X X X Extracts X X X X
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