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TMI Blog2018 (5) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order dated 23.10.2017 passed subsequent to the directions of the Ld. Dispute Resolution Panel (DRP), New Delhi for assessment year 2013-14. 2. The brief facts of the case are that the assessee is engaged in the business of providing sourcing support services. The assessee is a subsidiary company of Li Fung (South Asia) Ltd. The assessee provides services to the group companies for supply of high volume, time sensitive consumer goods. It is paid sourcing service charges at cost plus mark up of 8%. 2.1 During the year under consideration, the assessee had entered into the international transaction of providing support services for sourcing of garments, handicrafts, leather products, etc. amounting to ₹ 147,05,72,472/- with its associated enterprises (AE). For the purpose of benchmarking the said transaction of sourcing services, Transactional Net Margin Method (TNMM) was considered to be the most appropriate method with operating profit to cost (OP/OC) as the Profit Level Indicator (PLI). Six companies were selected by the assessee as comparables for the purpose of benchmarking the international transaction of the provision of sourcing support services. The PLI of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed under section 92CA(3) of the Act by the TPO. 2.1 That the AO/TPO/Dispute Resolution Panel ( DRP ) erred on facts and in law in not appreciating that the international transaction of Provision of procurement support services was at arm s length and no adjustment to the price thereof was called for being made. 2.2 That the AO/TPO erred on facts and in law in considering Axis Integrated Systems Ltd as comparable not appreciating that the said company is an accredited agency for issuing digital certification and therefore cannot be regarded as functionally comparable to the appellant in terms of Rule 10B(2) of the Income Tax Rules, 1962( Rules ). 2.3 That the DRP erred on facts and in law in excluding ICRA Management Consulting Services Ltd. as comparable observing that the company has a totally different FAR from the Assessee ignoring the fact that the said company is engaged in providing business support services of consultancy in the area of transportation and development as well as skill development. 2.4 That the DRP erred on facts and in law in excluding ICRA Management Consulting Services Ltd. as comparable ignoring the fact that the said company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature in view of the fact that the assessee s PLI will be within plus/minus 5% range 3.1 The Ld. Authorised Representative submitted that Axis Integrated Systems Ltd. was engaged in the business of issuing digital certification and, therefore, it was not functionally comparable with the assessee company. It was further reiterated that the assessee company, on the other hand, provided sourcing support services for supply of high volume, time sensitive consumer goods. It was submitted that even the TPO had observed in Para 7 of his order that the assessee was in the business of providing support services and, therefore, for benchmarking purposes, the comparables engaged in business of support services are to be considered. It was further submitted that the assessee was a captive service provider and did not operate as a stand alone business arm. 3.2 The Ld. Authorised Representative drew our attention to the FAR analysis of the assessee company and submitted that the activities and business profile of the assessee were completely different from that of Axis Integrated Systems Ltd. Our attention was also drawn to the annual report of Axis Integrated Systems Ltd. wherein in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee company shows that the assessee is a routine captive sourcing service provider for Li Fung and its group companies and assumes limited risk. The services provided by the assessee are in the nature of business support services. Admittedly and undisputedly, there is no dispute regarding the functional profile of the assessee and nor has the department questioned the action of the assessee in applying the TNMM as the most appropriate method. On the other hand, Axis Integrated Systems Ltd., as per the company s profile, is engaged in the business of issuing digital certification. It is also the matter of record that the financial statements of this company were not available in the public domain at the time when this company was selected as a comparable. The Ld. DRP in its directions has held that there was a broad similarity in the functionality as both the companies were providing business support services. However, the Ld. DRP has not elaborated as to how it has reached the conclusion that there was a broad functional similarity between the assessed company and Axis Integrated Systems Ltd. The TPO has mentioned that Integrated Axis Systems Ltd. is engaged in liaison ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Avenue Asia Advisors Pvt. Ltd. vs. DCIT in ITA 350/2016, while considering and approving Rampgreen Solutions (supra) laid down the following steps that ought to be undertaken in identification of comparable transactions/entities. The principle governing the identification of comparable transactions would be the same, irrespective of whichever transfer pricing method is adopted. Comparable transactions must be selected on the basis of a similarity with the controlled transaction/entity. Rule 10B(2) of the Income Tax Rules, 1962 ought to be borne in mind while choosing the factors of comparability in respect of uncontrolled transactions. Even while adopting the TNMM method, the standard for selection of the comparable transactions/entities cannot be diluted. Wide deviation in the Profit Level Indicator ( PLI ) would require further investigation/analysis. For comparison of transactions, factors such as the nature of capital, resources used, the risks assumed, etc. ought to be considered. 5.2 We do not agree with the findings of the lower authorities that a captive sourcing service provider like the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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