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TMI Blog2017 (11) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... The following grounds have been taken by the Revenue. 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in including Pfizer Limited as valid comparable in respect of transactions relating to Technical Services, without appreciating the fact that the turnover of service segment is half the un-allocable expenses and this activity was not a separate activity undertaken on marginal costing basis and hence not comparable . 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in excluding Air Financial Support Services (India) Ltd., Fortune Infotech Ltd., North Gate PO Services Ltd., Datamatics Technologies Ltd. and comparables adopted for Back Office Support Services without appreciating the fact that the assessee itself had given these companies as comparable before TPO (copy enclosed) . 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in excluding Datamatics Technologies Ltd and Tricom Ltd from the list of comparables, without appreciating the finding of the TPO that the related party in both these cases is a subsidiary which is also making profits ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the Assessing Officer to apportion the self-assessment tax paid on 17 October 2005 against interest under section 234B computed on the basis of the returned income . 4. Rival contentions have been heard and record perused. 5. Facts in brief are that the assessee Exxon Mobile Co. India Pvt. Ltd., (in short EMCIPL) is a company of Exxon Mobile Corp. Group of US and is responsible for information dissemination, maintaining customer relationship and market development for it s A.E. Exxon Mobile Chemical Co. USA (in short EMC). It is also providing application research and technical services to associated enterprises and in addition provides back office support services to the A.E. During the year under consideration for the purpose of benchmarking, the international transactions segmental have been prepared by assessee for working out profitability separately in respect of 1. Marketing services 2. Provision of application research and technical services 3. Provision of back office services 6. The AO referred the case to the TPO for determining the arm s length price in respect of the international transactions. The TPO passed an order under Section 92 CA(3) da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the total turnover of the services segment is half the unallowable expenses and that it seems this activity was not perhaps a separate profit activity but an activity undertaken on marginal costing basis, therefore not comparable. The appellant has contended that the segment operations primarily include conducting clinical trials, new product development and undertaking comprehensive data management for the new development. Further this segment has contributed to the development of clinical research in the country and holds a position of leadership in this area. Further this segment is responsible for an clinical research conducted within the country throughout the development continuum, irrespective of the phase or product custodian, Accordingly it may not be appropriate to say that the activities of the Services segment of the company is an incidental activity or that the company provides this activity on a marginal cost basis since. Keeping in view the functional profile of the company as aforesaid, and the: fact that same has been accepted by the DRP for AY 2006 07 in the case of appellant only as comparable, it is arrived at that the company is a valid comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lings in the cases of Teva India Pvt Ltd. 2011-TII-28-ITAT-MUM-TP, Abode Systems India Pvt. Ltd. 201l-TII-13- ITAT-DEL-TP, E-Gain Communication (]I) Ltd. 2008-(023)-SOT-0385-TPUN, Sap Labs India Pvt. Ltd. 2010-T[I-44-ITAT-BANG-TP and Aginity India Technology ITA10No. 3856(Del)/2010). In. respect of the same it is mentioned that the same are in respect of specific facts of the case and thus cannot be generalised. Further in none of the rulings it has been decided that beyond what level of profit, the company can be considered as outlier or what can be termed as super normal profit. If the profit has been earned in the normal course of the business, the profit has to be termed as normal profit and if the company is comparable based on its FAR, vis-a-vis the tested party, the same has to be taken as comparable. Reliance is also placed on the recent decision of Hon'ble ITAT, Mumbai in the: case of DCIT Vs. B.P. India Services Pvt. Ltd. wherein it has been held that the fact whether the comparable has a higher or lower profit rate has not been prescribed as a determinative factor to make a case incomparable. This is because profit is not a factor in itself, but a consequence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty transaction is at 35.54% and accordingly the same should be rejected. However the revised computation of RPT based on the sales to the related parties over toted sales was worked out at 31.75%. Accordingly it is seen that the related party transaction in this case is substantial and accordingly this comparables is directed to be excluded from the set adopted for the benchmarking. BNR Udyog Ltd. - In respect of this comparable also, the appellant has mentioned that the related party transaction is 220.72% and accordingly the same should be rejected. In this case there is related party transaction of ₹ 4.31 crores vis a vis total sales of ₹ 2.00 crores. Accordingly it is see n that the related party transaction in this case is substantial and accordingly 'this Comparables is directed to be excluded from the set adopted for the benchmarking. Ill. CMC Limited -- ITES Segment - In respect of this company also, the appellant has contended that the related party transaction is 33.87% and accordingly they should be rejected. However the revised computation of RPT based on the sales to the related parties over total sales was worked out at 25.56%. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides clients with flexible, multi model advertising vehicles for reaching their customers. Further there is no segment available and the related party disclosure does not reflect any back office services rendered to the subsidiaries. As far as the RPT is concerned, the revised computation of RPT based on the sales to the related parties over total sales was worked out at 15.24%. Accordingly it is seen that related party transaction in this case is not substantial. As far as functional difference that has been pointed out by the appellant, it is stated that this company is into ITES segment, how far it is into software development is not seen from the details available. Accordingly, this company is directed to be retained in the set of comparables. Tricom India Ltd. - In respect of this company, it has been mentioned that the company has substantial related party transaction of 58.03% for F.Y. 2004-05 and accordingly, the same should be rejected. In respect of this company, the TPO has observed that the related party is a subsidiary which is also making profits out of the software purchased from the AE which shows the t the assessee might have reduced its margin but n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparable. Reliance is also placed on the recent decision of Hon ble ITAT, Mumbai in the case of DCIT vs. B.P. India Services Pvt. Ltd., wherein it has been held that the fact whether the comparable has a higher or lower profit rate has not been prescribed as a determinative factor to make a case incomparable. This is because profit is not a factor in itself, but a consequence of the effect of various factors. Only if the higher or lower profit rate results on account of the effect of factors given in rule 10B(2) read with sub-rule (3), that such case shall merit omission. If however such extreme profit rate is achieved because of factors other than those given in the rule, then such case would continue to find its place in the list of comparables. The appellant has further referred to the para 55.10 of circular 14/2001 of the CBDT, which in respect of new legislation to curb tax avoidance by abuse of transfer price. How the same is relevant to the case of th e appellant or to the selection of this company as comparable has no where been submitted by the appellant. This para actually gives the back ground or the justification for considering the arithmetic mean as the ALP as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable. Along with the submission, only segmental reporting of the company has been given by the appellant. It is seen that from the depository services, the company hr s earned operating profit over total cost at 74.63% as against 1.15% in the I.T. enabled service segment. From the profiling of the company, it is seen that the ITES segment of the company operates on marginal cost basis and that this segment is not its main revenue driver. Further catering to Government work differentiates its profile vis-a-vis the appellant, Accordingly the contention of the appellant. Accordingly, the contention of the appellant to include this in the set of comparables is not found to be acceptable. H. Shreejal Info Hubs Ltd. - This company was rejected by the TPO as consistent loss maker. The appellant has submitted that the Company has reported profits for the previous financial year i.e. F.Y. 2003-04 and ha.. further reported for F.Y. 2005-05 and 2006-07 and therefore it is not a consistent loss maker. It has been brought out by the TPO that the profit in F.Y. 2003-04 were only on account of prior period income and not because of the operational reasons. Further even if the company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on determination of ALP, Under the Indian Transfer Pricing Regulations, there is no scope for considering data for the future years. Reliance is placed on Honey well Automation India Ltd. Vs. DCIT (2009-T'IOL 104 ITAT-PUNE), (PUNE). Accordingly this company cannot be considered as comparable. In view of the discussion as above the TPOI AO are directed to take the set of comparables after exclusion/inclusion of companies as has directed above and arrive at the set of comparables for the purposes of benchmarking appellant's international transaction relating to Back Office Support Services. 11. Against the above order of CIT(A), revenue is in appeal before us and assessee has also filed cross objection. 12. We have considered rival contentions and carefully gone through the orders of the authorities below. 13. From the record we found that during the year under consideration, the EMCIPL had entered into certain international transactions with its Associated Enterprises (AE s) within the meaning of Section 92 of the Income-tax Act, 1961 ( the Act ). The said international transactions were duly reported in Form 3CEB (under Section 92E of the Act), which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly. 16. On the other hand, learned DR argued for excluding Pfizer Limited from the set of comparable companies since the company had its financial year ending November 2004. 17. We have considered rival contentions and found that Pfizer limited was selected as comparable company by TPO himself in AY 2004-05. The company was accepted as comparable by ITAT in assessee s own case for AY 2004-05 and AY 2006-07. Accordingly, we do not find any infirmity in the order of CIT(A) for including the Pfizer Limited in the set of comparables. 18. With regard to inclusion of Vimta Labs Ltd., in the set of comparable companies, we found that Vimta Labs Ltd., has been included by the TPO in the set of comparables since it was picked by the assessee itself in the last year. The CIT(A) found that Vimta Labs Ltd., continued to do the same work which has been included by the assessee itself in its benchmarking analysis. The criteria for selecting comparables are based on FAR analysis of the comparables and the tested party. If the profit earned is in normal course of the business there cannot be any reason for the exclusion of the company from the set of comparables. It was also observe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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