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TMI Blog2016 (10) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case and in law the Ld AO erred in assessing the income of the Appellant under the normal provisions of the Act at ₹ 65,356,841 against an income of ₹ 29,003,875 declared in the return, based on the directions received from Hon'ble Dispute Resolution Panel ( DRP ). 2. That on the facts and circumstances of the case and in law, the AO/DRP has erred, in upholding the adjustment made by the learned Transfer Pricing Officer ( TPO ) of ₹ 36,352,966 on account of business support services rendered by the Appellant to its Associated Enterprises ( AE ) alleging that the transactions between the Appellant and its AE were not at arm's length in terms of section 92F(ii) of the Act. 3. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred in rejecting the economic analysis undertaken by the Appellant which was in accordance with the provisions of the Act read with the Income-Tax Rules, 1962 ( Rules ) for establishing the arm length's price of the international transactions. 4. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has failed to place any material or docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case and in law, the AO/DRP/TPO has adopted a flawed approach by using single year data as against multiple year data used by the Appellant in its transfer pricing analysis, thereby ignoring the provisions of Rule 10B(4) of the Rules which allows use of multiple year data of comparable companies for the purpose of determination of the arm's length price as defined under section 92F of the Act. 12. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred in not allowing the appellant the benefit of 5 percent range as provided in the Proviso to Section 92C of the Act. 13. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred, in law and on facts, in charging interest under section 2348, 234C and 234D of the Act. 2. Briefly stated the facts of this case are : the assessee company BG India Energy Pvt. Ltd. (BGIEPL) was incorporated on 24.04.1998 as 99.98% subsidiary of British Gas Asia Pacific Holdings Pte. Ltd. (BGAPH), Singapore, engaged in provision of project support services to various projects promoted by BG Group in India. Assessee company is providing services to British Gas Asia Pacific H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the AE s Description of the transaction Total amount British Gas Asia Pacific Holdings Pvt. Ltd. Recovery of Expat Income Tax payment 48,196,554 Recovery of salary, relocation and other expenses 37,770,554 British Gas Exploration Production India Ltd. Recovery of salary and other expenses 8,734,336 Total Rs.94,701,444 7. TPO further noticed that to expedite their activities in India, AEs have seconded their employees to India whose tax payments are made by the assessee. Assessee has also incurred expenses in the nature of salary, relocation, travel and other expense son behalf of the AEs which has been reimbursed by the AEs to the assessee without any markup. TPO has not accepted the provision contained in the Agreement between the assessee and its AEs for not charging markup on alleged reimbursement expenditure. TPO noticed that in such situation, no independent party would provide any services to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction India Ltd. Recovery of salary and other expenses 8,734,336 Total Rs.94,701,444 14. Assessee company has benchmarked its international transaction by using TNMM and the PLI used as OP/OC and calculated its operating profit at an entity level as net profit ratio based on cost at 11.30%. Assessee company chosen 15 comparables out of which ld. TPO rejected 11 comparables and included 7comparables. TPO to benchmark the international transaction had chosen 11 companies as final set of comparables. TPO on the basis of the TP analysis worked out the arithmetic mean of the margins of the comparables at 18.32% as against assessee's operating margin of 11.30% and thereby made TP adjustment of ₹ 3,72,95,703/- 15. The ld. AR for the assessee contended that the TPO has erred in rejecting the 11 comparables chosen by the assessee company for benchmarking the international transactions on the ground that the comparable company is engaged in high end consultancy services/engineering services whereas assessee company is into providing low end services to its AEs. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. TPO observed that the assessee company was rendering several services to AEs but the expenses seemed to have been split into heads of cost and reimbursement expenses which seems to be inextricably linked to the mandate it has been given by its AEs. So, the bifurcation seems to be artificial as no independent party would have agreed to such terms where it incurs expenses on behalf of other without any return on the same. 19. Ld. AR for the assessee company contended that the ld. TPO has erroneously made two fold adjustment - one : taken ₹ 94.70 crores as cost and two : also taken ₹ 94.70 crores as income which cannot be taken for both purposes. Ld. AR for the assessee further contended that employees cost shown by the assessee does not include ₹ 94.70 crores and it should be excluded from expenditure as well as income. 20. As per Business Support Agreement available at page 240 of the Paper Book, the assessee company is to provide services on a non-exclusive basis to BGIEPL to the following effect :- 1.1 Evaluating prospective customers of BGEPIL especially in connection with upcoming upstream projects in India. 1.2 Allowing BGEPIL' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove that the same is into turnkey implementation preparing reports and is directly into core activities, etc. i.e. end to end service provider whereas the assessee is a captive service provider and is not into any core activities. Hence, we find APITCO not as a valid comparable and same is ordered to be excluded. CHOKSI LABORATORIES LTD. (CHOKSI) 26. TPO included this comparable in the final set of comparables for benchmarking on the ground that this comparable provides analysis, calibration, pollution control and consultancy services to a broad spectrum of industries, which amounts to support services to its clients to help them conducting their business. Whereas assessee company is providing low end support services, such as, assistance in obtaining information regarding industrial and commercial matters and technological developments, evaluation of prospective customers, etc. However, assessee company have opposed this comparable on the ground that since this comparable is into providing testing services for various projects and also renders services in the field of Pollution Control, this is functionally different and relied upon the decision rendered by ITAT, Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is company from the list of comparables. RITES LIMITED (RITES) 28. TPO chosen this comparable for benchmarking international transactions by observing that this entity is involved in the business of consultancy and has used this segment only. However, functional profile of this company, available at page 75 of the paper book, shows that it is engaged in consultancy, export and licence of railway equipment and running railway systems on concession and is providing high end engineering/consultancy services mainly in infrastructure sector and it is a Government of India undertaking engaged in providing end to to end solutions to turnkey projects. 29. Ld. AR contended that assessee company is not into high end consultancy services and monitoring of ongoing projects for its AEs, hence not comparable with the RITES. 30. Assessee company relied upon the decision rendered by ITAT, Delhi Bench 'H' in case of DCIT vs. MCI Com India (P.) Ltd. - (2012) 25 taxmann.com 520 (Delhi). Coordinate Bench on the basis of functional profile of the RITES vis- -vis appellant in that case who was into providing marketing support services held the same to be functionally different by mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ND NO.5 35. Ld. AR for the assessee contended that the TPO have erred in including the reimbursement to the tune of ₹ 9,47,01,444/- received by the assessee from its AEs for computing the operating margin (OP/TC) of the assessee company. Undisputedly, assessee company received the following expenses allegedly recovered being the actual cost incurred by the assessee :- Name of the AE s Description of the transaction Total amount British Gas Asia Pacific Holdings Pvt. Ltd. Recovery of Expat Income Tax payment 48,196,554 Recovery of salary, relocation and other expenses 37,770,554 British Gas Exploration Production India Ltd. Recovery of salary and other expenses 8,734,336 Total Rs.94,701,444 36. Ld. AR for the assessee contended that so far as recovery of salary and related expenses from AEs is concerned, the assessee company has settled its employees to different BG Group entities worl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to work out as to whether these services are directly relatable to the services rendered by the assessee company to its group company in which 8% markup was receivable. 40. Moreover, when no services were rendered by the assessee company to the AEs, no markup was required to be charged on such reimbursement. Service agreement remained the same in both the AYs viz. 2004-05 and 2008-09. So, following the decision rendered by the aforesaid coordinate Bench, we determine ground no.5 in favour of the assessee and restore the matter back to the AO to decide afresh after providing an opportunity of being heard to the assessee. GROUND NO.6 41. Ld. AR for the assessee after arguing for sometime on this ground stated at bar that he does not want to press this ground and as such, the same is determined against the assessee. GROUND NO.7 42. Ground No.7 is not pressed by the ld. AR for the assessee, consequently, ground no.7 is dismissed having not been pressed by the assessee company. 43. Ld. AR for the assessee company fairly conceded that he does not want to press grounds no.10, 11 12 and consequently, grounds no.10,11 12 are dismissed having not been pressed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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