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TMI Blog2018 (10) TMI 1116X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration to the orders of the authorities below. 4. Briefly stated, the facts of the case are that the appellant-company was formerly known as One Stop Airline MRO Support Private Limited. It was incorporated under the Companies Act, 1956 on 27.07.2005. It is a subsidiary of Lufthansa Technik Immobilien - und Verwaltungsgesellschaft mBh, Germany which, in turn, is a subsidiary of Lufthansa Technik Aktiengesellschaft (LHT). 2. During the year under consideration, the appellant company was primarily engaged in the provision of services as well as provision of aircraft components in India. In relation to these activities, the appellant entered into a number of international transactions with its Associated Enterprise (AE) which are as under: S. No. Nature of transaction Method used by Appellant Value of transaction (INR) 1. Provision of marketing support services Transactional Net Margin Method 3,70,49,263 2. Provision of logistics support services TNMM 1,73,38,799 3. Interest on external commercial borrowings Comparable Uncontrolled Price 4,71,65,339 4. Purchase of home base (for lease to third parties) TNMM 98,35,34,236 5. Reimbursement of salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properly to this segment. The TPO was of the opinion that most of the expenses had been allocated to the other domestic operation segment. The TPO observed that it is against the common business expediency that the revenue of Rs. 12.27 crores in the other segment is consuming Rs. 15.23 crores of expenses while home base segment is consuming only Rs. 9.23 crores of expenses. The TPO further observed that no salary, communication, telephone, travelling, conveyance and other administrative expenses have been incurred for the leasing business. The TPO formed a belief that homebase segment was artificially showing higher operating margin of 49%, while the domestic operation was showing loss of 24.13%. The TPO proceeded by pooling together homebase and domestic operation and the same read as under: Operating Income Homebase Domestic Total 18,09,81,838 12,27,21,421 30,37,03,259 Operating Expenses 9,23,06,510 15,23,39,180 24,46,45,690 Operating Expenses(re- allocated in revenue proportion) 14,57,88,448 9,88,57,242 24,46,45,690 Operating Profit 3,51,93,390 2,38,64,179 5,90,57,569 OP/OC 24.14% OP/OI 19.45% 9. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. It is further noted that the assessee is claiming depreciation on leased assets @4.75 % (as per Companies Act). Therefore, the reduction in depreciation of Rs. 3,71,63,149/- corresponds to a reduction in the price of asset amounting to Rs. 78,23,82,084 (Rs. 3,71,63,149/.0475). Therefore, the ALP of value of assets is calculated as below: Book Value of the asset as per Form 3CEB A 98,35,34,236 Reduction in price as calculated above B 78,23,82,084 Arm's length Price of Assets A-B 20,11,52,152 15. Therefore, the arm's length price of the assets imported by the assessee comes to Rs. 20,11,52,152/-. The Assessing Officer shall reduce the value of block of fixed assets containing the leased assets of the assessee by an amount of Rs. 78,23,82,084/- while allowing the depreciation [as per Income Tax Act) on this block of fixed assets. 16. To sum up, the following adjustments were made a. On account of MSS Rs. 29,45,820/- b. On account of purchase of assets from the AE." Rs. 78,23,82,084/- 14. We are of the considered view that if the Revenue authorities proceeded on a false premise, then the conclusion so arrived would not only be erroneous but also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals) who accepted the assessee's contentions regarding the genuineness of these transactions and deleted the addition of the said amount of six deposits. In the appeal preferred by the Revenue, the Tribunal held that in the case of cash credit entries, the assessee has to prove the identity of the capacity of the creditor to advance the loan and genuineness of the transaction. The Tribunal held that the Assessing Officer, for reasons best known to him, did not care to examine the five creditors and did not take note of the voluminous evidence which was adduced by the assessee. It was found that the Assessing Officer had adopted a short-cut method and placed reliance on the statements of three creditors which were recorded during the search. The Assessing Officer did not supply the copies of those statements to the assessee against whom they were used by him and, thus, violated the principles of natural justice. The Tribunal observed that the Assessing Officer was "a bit negligent" in not examining the creditors who were produced by the assessee before him and that the ends of justice would be met if "fresh innings" be given to the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's products / services. 23. As per the consultancy agreement, for running the above mentioned services, the appellant charged its AE the costs incurred in rendering such services plus, a mark-up of 9 percent on such costs. A perusal of the aforementioned services shows that these services are in the nature of routine support services and the appellant does not employ highly qualified or technical staff for the same, and uses routine assets like furniture, office equipment etc. for rendering the MSS. 24. The segment of MSS has been benchmarked by the appellant using TNMM as the most appropriate method and Operating Profit / Total cost as the Profit Level Indicator, earning a margin of 10.51% in the MSS segment. The appellant used 9 comparables, which had an arithmetic mean of 6.14%. 25. The TPO rejected the comparables selected by the Appellant and undertook a new search and arrived at 10 comparables. The TPO used the following filters: a) Exclusion of companies whose data was not available for FY 2007-08; b) Companies whose income from business support services constitutes at least 75 percent of total operating income was included; c) Companies whose sales were less than R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , skill development etc. In our considered opinion, looking to the business profile of the assessee under MSS segment, as mentioned elsewhere, this company is functionally different from the appellant company and, therefore, cannot be accepted in the final list of comparables. We, accordingly, direct the Assessing Officer /TPO to exclude this company. Best Mulyankan Consultants Ltd 31. In our considered opinion, this company fails the RPT filter as it appears that this company has RPT of 27.30% of the total revenue. We, therefore, restore the inclusion/exclusion of this company to the Assessing Officer/TPO with a direction to verify the RPT of this company and whether it passes the filter adopted by the TPO. Choksi Laboratories Ltd 32. The website extract of this company shows that this company has expertise in setting up in-house labs for large number of clients and also provides consultancy, training and independent auditing for quality management systems. Its quality assurance solutions address almost every aspect of regulatory norms set by FDA, BIS, NABL i.e. National Accreditation Board for testing and calibration Laboratories, department of health and other regulatory b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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