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TMI Blog2018 (1) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal and computed the income of the assessee at Rs .29 .17 crores .Second appeal(ITA/2183/Mum/ 2015)has been filed against the said rectification order .As both the appeals are interlinked, so, we are adjudicating them together . ITA/1766/Mum/2015: 2 .First Effective Ground of appeal (GOA-2) is about addition made on account of Marketing Service Fee(MSF)and expenses on incentives to travel agents .During the assessment proceedings, the AO found the assessee entered into International Transactions (IT .s)with its Associated Enterprises(AE .s) .He made a reference to the Transfer Pricing Officer(TPO) to determine the Arm's Length Price(ALP)of the IT .s .He vide his order dated 29/01/2014, proposed adjustment of Rs .2 .78 crores to the income of the assessee .After receiving the order of the TPO, the AO issued a draft assessment order to the assessee, who challenged it before the DRP . 2.1 .During the TP proceedings, the TPO observed that the assessee has entered into following IT .s with its AE: SN Nature of International Transaction Value in Rs. Method used 1 Provision of marketing services 19, 78, 14, 045/- TNMM Note 2 mentions that company has recorded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r use of the comparable set of the earlier year . He observed that the updated margin of the comparable is for the period under consideration had been adapted for calculation of adjustments, that the assessee had not brought up any additional evidence to prove that the fresh comparability on the same search criteria as adopted by him in the earlier year would result in addition/deletion of any particular comparable, that the comparable is used to steer were functionally comparable, that the basis of compilation of TP documents by the assessee was same as had been followed in previous years .Vide letter dated 16/01/2014 the assessee was given another show cause to consider 10 new comparables, selected by the TPO, along with the comparables selected for last assessment year . After considering the submission of the assessee, the AO selected following comparables for marketing support services/commission agency: Sr.No. Name of the Company Margin (%)PBIT /Cost 1. Apitco Ltd. 43.44% 2. Best Mulyankayan Consultants Ltd. 11.81% 3. Choksi Laboratories Ltd. 22.07% 4. Genins India Tribunal PA Ltd. 21.81% 5. ICRA Management Consulting Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee, that it was not a mere commission agent/business agent, that out of 10 comparable selected by the TPO eight comparables were engaged in the provision of marketing/ promotion/ consultancy/ various support services, that they were functionally comparable, that while selecting comparable for benchmarking the a LP the business model of the comparable entities could only be broadly similar with that of the tested party, that there was no reason to interfere with the selection of the first eight comparables, as listed by the TPO . With regard to Accentia Technologies Ltd . and Vishal Information Technologies Ltd ., the DRP observed that the services provided by them were in the field of business process outsourcing . It directed the AO/ TPO to exclude both the comparables from the final list of the comparables and further observed that the TPO had rightly used the updated margins that the data used by TPO pertained to the relevant AY .itself and was contemporaneous, that for using multiyear data no convincing argument was advanced, that the TPO was correct in rejecting the economic analysis carried out by the assessee and was corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the TPO was 23 .03% as against the margin of the assessee of 15 .77% . 2.5 .We further find that while deciding the appeal filed by the assessee (1402/Mum/2013, AY . 2009-10, dtd .03 .12 .2018 ), the Tribunal had dealt with the similar issue, that it had held that all the eight comparables appearing in the final list of comparable were not valid comparables and had allowed the appeal of the assessee as under: "3......... . . the TPO held that the ALP computed by the assessee was not reliable .He therefore invoke the provision of section 92C(3) .Vide order sheet entry, dated 21/11/2012, he issued a show cause to the assessee rejecting the TP documentation and giving it a set of 13 comparables to be consider for benchmarking purposes .After considering the objections of the assessee, he selected eight comparables in the final list of comparables namely -Aptico Ltd . (AL), Choksi Laboratories Ltd .(CLL), Genins India TPA Ltd .(GITL), Rites Ltd .(Rites)WAPCOS Ltd .(WL), Best Mulyankayan Consultants Ltd .(BMCL), ICRA Management Consulting Services Ltd .(ICRA-M) and Technicom- Chemie(India)Ltd .(TCIL) . XXXXX 3 .4 .We have heard the rival submissions and perused the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p development and training(Rs .30 .78lakhs), environment management (Rs . 10 lakhs), infrastructure planning and development (Rs .7 .99 lakhs) .Considering the profile of AL, we are of the opinion that it has to be rejected from the list of valid comparables . As per the website maintained by CLL .it is a leading analysis and research group providing complete solution for improving quality in process, products and services, that it provides contract laboratory services including pharmaceutical analysis, food and beverages analysis, water analysis, construction material analysis, environment management services, clinical research and consultancy .It is also engaged in testing of various products and offer services in the field of pollution control as per the profile of the company .Referring to segmental reporting, it has been mentioned that it treats analytical charges and consultancy receipts as a single segment, that details of segments were not separately reported, that it is managed organisationally as a unified entity with various functional heads reporting to the top management and is not organised along segments .In our opinion, CLL is functionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctional profile of the assessee and these two comparables .We find that there is no similarity between the functions performed by the assessee and these two entities . We also find that in Ceina India Private Limited, the Tribunal had held that it was functional-ly dissimilar to a company providing MSS .In the case of Avaya India Private Limited(ITA/ 146/Del/2013, dated17/06/2016), the Tribunal had held that AL was not a valid comparable for determining the ALP for MSS, that similar conclusion was raised by the Tribunal in the case B .G . India Energy Private Limited (ITA/6486/Del/2012, dated 04/10/2016) . 3.5 .Considering the above, we are of the opinion that all the five comparables-i .e . AL, CLL, GITL, Rites and WL, selected by the TPO for benchmarking the IT .s of the assessee-are not providing MSS, that there functionally dissimilar, that they have to be excluded from the final list of the valid comparables .There is nothing on record to prove that support services provided by the above five comparables were also associated with marketing function . There is no doubt that the support services provided by the assessee were directly associated with marketing .We f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss arising on FE loss .In our opinion, the stand taken by the AO is not justified in any manner .If the gains of FE fluctuation had to be taxed then the loss arising out of such fluctuation has to be allowed .We find that the honorable Supreme Court, in the case of Oil and Natural Gas Corporation (supra)has held that the loss claimed by the appellant on account of fluctuation in the rate of FE as on the date of the balance-sheet was allowable as expenditure under section 37(1) of the Act . Respectfully, following the above mentioned two judgments of the honorable Apex court, relied upon by the assessee, we decide ground number four in favour of the assessee ." Respectfully following the above order, second effective ground of appeal stands allowed . ITA/2183/Mum/2015: 4 .In his order, passed under section 154 of the Act, the AO mentioned that while computing the assessment on 30/1/2015, the total income of the assessee was determined at Rs . 27 .17 crore, that the issue of income from the AE on account of incentive was decided in favour of the Department by the DRP, that while giving effect to the order of the DRP it was wrongly mentioned that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of such an scheme .Why any other entity would pay for it .The AE decided to pay Rs .32 .61 crores to the assessee out of Rs .34 .61 crores, for a scheme that was claimed to be introduced by assessee on its own .The Departmental authorities have taken note of the fact that the entire capital of the assessee would be wiped out had it not been paid Rs .32 .61 crores by the AE .In our opinion, it was a clear case of reimbursement by the AE of the expenditure incurred by the assessee .For the incentive scheme it should have charged full amount to its AE i .e .Rs .34 .61 crores .If the agents would use the software of the AE it would result in higher income for the AE to the extent of 75%, whereas the assesse would get 25% of the booking .Thus, the direct and major beneficiary is AE .Becuase of proximity between them the AE and assessee could enter in to an agreement to suit their requirements .But, that would not take away the right of the TPO to determine the ALP of the transaction considering the market value of such a transaction .He had considered all the aspects of the transaction and had held that the assessee should have received Rs .2 crores more from the AE . We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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