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TMI Blog2016 (2) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... P') is bad in law in as much as failed to appreciate the facts involved and the applicable law thereon. Part I - Transfer Pricing Grounds 2. That on facts and in law, the DRP has erred in confirming that TPO has discharged his statutory onus by establishing that the conditions specified in clause (a) to (d) of Section 92C (3) of the Act have been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price himself. 3. That on facts and in law, the DRP and TPO/AO have erred in making I upholding an upward adjustment of Rs. 64,21,85,866 in respect of the international transactions of the Appellant pertaining to provision of marketing support services and regional guest employee services to its Associated Enterprises (UAEs"). 3.1 That on the facts and in law, the DRP and TPO/ AO have erred, in law and facts, by treating market support services segment and regional guest employee services segment as similar segments without conducting a proper FAR (Functional Asset and Risk) analysis and benchmarking the RGE segment with the ALP of the marketing support services segment. 3.2 That on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to Rs. 1,51,00,500 with respect to the vehicles that were used for the purpose of the business of the Appellant. 6. That on the facts and circumstances of the case and in law, the DRP and AO have erred in treating repair and maintenance expense of Rs. 207,549 as expenses pertaining to prior years. 7. That on the facts and in the circumstances of the case, the AO has erred in charging interest under section 2348, 234C and 234D and initiating penalty under section 271 (1 )(c) of the Act as consequences of the additions made in the assessment order passed u/s 143(3) read with section 144C( 5) of the Act. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal." 2. Addressing the same it was submitted by the Ld. AR that although various grounds have been raised in the present appeal, however, the assessee in the facts of the present case would address only certain specific issues in the grounds raised. 3. Inviting attention to the synopsis dated 07.04.2015, it was submitted that whereas Ground No.1 is gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power Consultancy Services India Limited; * TCE Consulting Engineers Limited. (the grievance is posed to the last three comparables) 4.2. It was submitted that the ITAT in the facts of the assessee's case has directed exclusion of these three specific comparables on the reasons as captured in the synopsis filed. The specific reasons justifying their exclusion is extracted from the synopsis itself so as to ensure that nothing is left out:- TCE Consulting Engineers Limited "Functionally Different- Hon'ble ITAT has rejected it as a comparable in Appellant's own case for AY 2006-07 by stating that it is engaged rendering engineering consultancy services (Covered under Ground 7.6 of Appeal for AY 2006-07 ITAT verdict covered in Para 15 to 1 9 of the judgement) Vimta Labs Ltd. ("Vimta") Functionally Different- Hon'ble ITAT has rejected Vimta (erroneously mentioned as Vinita Labs in ITAT AY 2006- 07 judgement) as a comparable in Appellant's own case for AY 2006-07 by stating that it is a company conducting clinical trials on foods and drugs, cannot be considered as comparable to a marketing support service provider like MCIPL. (Covered under Ground 7.6 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res to assist customers in the operation of Microsoft software. 6.1. The assessee in the year under consideration returned an income on 30.09.2008 of Rs. 181,63,97,089/- which was revised on 25.03.2010 at Rs. 145,30,74,639/-. 6.2. The assessee i.e. Microsoft Corporation India Pvt. Ltd. (hereinafter referred to as "MCIPL") having been incorporated as a private company in India in July 1988 was converted to a wholly owned subsidiary of MS Corp. in January 1996. MCIPL is engaged in the business of providing services in supporting the development of client server applications, to assist customers in the successful development of Microsoft technology, both directly and through service providers and to provide training through authorized training centres to assist customers in the operation of Microsoft licensed software. During the financial year under consideration, MCIPL was engaged in the provision of marketing support to MS Corp. and affiliate entitles in return for a service fee. Further, MCIPL also as per record provided software consulting services (hereinafter referred to as "MCS Services") and Product Support Services (hereinafter referred to as "PSS") to Microsoft group enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingapore (referred to as "MO") and 10% in respect to services rendered to Microsoft Ms. Corp. During FY 2007-08, Microsoft India has rendered the following support services to the following entities:- Associated Enterprise Amount (INR) Microsoft Corporation 59,295,468 Microsoft Operations Pte. Ltd. Singapore 6,085,904,633 Total 6,14,52,00,101 6.6. Accordingly a show cause notice was issued to the assessee based on the FAR analysis conducted taking into consideration the past position of the assessee. For ready-reference, the same is reproduced hereunder from the TPO's order itself:- 6.2. Show cause notice to the assessee "From the analysis of the functional profile of the assessee, FAR analysis conducted and on the basis of study material available on the website of the assessee, it was found in the previous years 2005-06 and 2006- 07 that the assessee was involved in creation of marking intangible and the economic, ownership of these intangibles is with the assessee for which it was not adequately compensated. On the basis of above analysis, the assessee was asked to show cause vide notice dated 06.09.2011 as to why as per the reasons recorded in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering Designs, Drawing and ............................process, contract Management and construction supervision, operation and maintenance institutional Human Resource Development (source wwww.wapcos..) The assessee has again selected this comparable in AY 20003-04 commenting that the said company performs comparable functions as under:- "WAPCOS provides consulting services in the domestic and international water and power sectors. Service offered include market intelligence, feasibility studies, planning/project formulation, field investigations and testing, engineering designs, contract management, quality assurance & management and human resource development. Apart from the Indian sub-continent, WAPCOS renders consultancy services in over 30 developing countries. This company was once again treated as comparable company in AY 2004-05 and AY 2006-07 also with the same comments as mentioned above. Therefore, the company is considered as a comparable and is being taken this year also." However, it seen from the Annual Report for FY 2007-08 that this company has a reportable segment of consultancy and engineering products. The entity level result will not be desirab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection was decided by the DRP in assessee's favour. This fact is evident from the following extract of Objection No.3 made by the assessee and the reason of the DRP in deciding the issue in favour of the assessee:- 4.3. "Ground No.3:This issue had arisen last year too before the DRP. The contentions of the assessee which are as follows had been examined by the DRP. * Creating awareness of Microsoft products in India through seminars, conferences, limited advertising in public media, promotional campaigns Etc. * Expanding the markets for Microsoft retail products in India through local print and electronic advertising, promotional campaign, antipiracy drives, etc; and * Performance other activities which includes the following:- o Dissemination of information to potential customers; o Commenting on any developments in the territory affecting the industry in which MCIPL functions; o Investigating feasibility of new markets for Microsoft retail products and basic market research; and o Provide miscellaneous marketing support. The profile as described above, had been accepted by the DRPO, we find facts and circumstances are same this year too, hence the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port services.' The assessee's Transfer pricing study report indicates that the assessee, a wholly owned subsidiary of Microsoft Corporation, provided marketing support services mainly to Microsoft Corporation Pte Ltd., Singapore and a small portion of revenue arose from services rendered to Microsoft Corpn., UK. The assessee was compensated for such services with actual costs incurred with a mark-up of 15% for services rendered to Microsoft Corporation Pte Ltd., Singapore and 10% for services rendered to Microsoft Corpn., UK. All the operating expenses, depreciation, realized foreign exchange gain/loss and bank charges were taken into account for calculating the markup. The TPO has reproduced relevant clauses of the assessee's Agreement with Microsoft Corporation Pte Ltd., Singapore on page 4 onwards of his order. This Agreement stipulates that the assessee shall provide Product support services and consulting services for the Microsoft products in the defined territory. Clause 3 of the Agreement provides that the assessee 'shall have a non- exclusive right to market Microsoft Products in the Territory.' Its duties have been set out in clause 3.2 by providing that the assessee sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not correct. It can be seen from the clipping dated 24th November, on page 19 of the TPO's order that Microsoft Corporation India Pte Ltd., announced the availability of the Get Genuine Solutions (GGS) for Windows, Vista through which customers were able to legalise their counterfeit or unlicensed Windows XP Professional PCs under GGS by simply 'place(ing) an order with their reseller to legalise their counterfeit software.' From the above, it is clear that the assessee is nowhere engaged in the actual selling of the products to the customers directly. It is simply providing marketing support services by creating customer awareness for the Microsoft products and also in certain cases providing trainings and back-ups for the use of such products and softwares. With this background of the nature of the assessee's activity under this segment, let us analyse as to whether the five companies chosen by the TPO are, in fact, comparables." 8.1. It is seen that the Co-ordinate Bench has made the relevant discussion qua these comparables in paras 17.1 & 17.2 qua the TCE Consulting Engineers Ltd.; paras 18.1 & 18.2 qua WAPCOS and paras 19.1 & 19.2 qua Vimta Labs. These paras are extracted f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices provided by this company, it transpires that the same is functionally dissimilar from that of the assessee. How a company conducting clinical trials on foods and drugs can be considered as comparable with the assessee undertaking marketing support services, is anybody's guess. This company being in the nature of business totally alien to that of the assessee, cannot be considered as a comparable. We, therefore, direct the exclusion of this company from the list of comparables." 9. It is further seen that the Co-ordinate Bench vide its order dated 30.06.2015 in ITA No.5766/Del/2011 in 2007-08 assessment year has reiterated this factual position as is evident from para 19- 24 of the said order. These paras are also reproduced hereunder for ready-reference:- ii. TCE Consulting Engineers Ltd. 19. "This company was considered by the TPO as comparable on the strength of his reason of inclusion in the list of comparables for the AYs 2002-03 and 2003- 04. 20. We find that this company is engaged in the provision of engineering services, such as, operation and design engineering, upgradation & renovation services, surveys & field investigation services. This company is opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment' for the purposes of comparison and has not taken into consideration the other segment of `Lumpsom turnkey projects'. The company, under the alleged comparable segment, provides consultancy services, such as, pre-feasibility report of hydroelectric projects, field investigation drilling of tube wells, etc. From the above description of the activities performed by the company under this segment, it is vivid that the same is engaged in providing engineering and consultancy services, which can be no match to the assessee's marketing support services. Similar view has been taken by the Tribunal in the case of the assessee for the immediately preceding assessment year. This company is also directed to be excluded from the list of comparables." 10. In view of the above detailed factual position wherein we find that the Revenue though has filed an appeal in 2006-07 assessment year before the Hon'ble High Court has taken a decision not to assail the findings of the Co-ordinate Bench directing the exclusion of these three comparables on similar facts and the view taken by the Co-ordinate Bench has been followed in 2007-08 assessment year. We find that there been no change in the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluded the issue in assessee's favour as would be evident from the following para:- 4. "The next issue is against the disallowance of depreciation on company owned vehicles amounting to Rs. 1,85,45,102/-. 5. After considering the rival submissions and perusing the relevant material on record, we find it as an undisputed fact that the company provided vehicles to its employees for their use for which the purchase price was paid by the company to the extent it did not exceed the fixed benchmark. The major reason given by the AO for disallowing depreciation is the personal use of vehicles by the employees of the company. The Delhi Bench of the Tribunal in DCIT vs. Haryana Oxygen Ltd. (2001) 76 ITD 32 (Del) has held that the use of cars by directors employees of a company cannot be characterized as user for non-business purpose and, hence, no part of such car expenses can be disallowed. The Hon'ble Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT (2002) 253 ITR 749 (Guj) has held that once the directors of the assessee company are entitled to use the vehicles of the company for personal use as per the terms and conditions of their appointment, it cannot be said ..... 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