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TMI Blog2018 (12) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... cing ("TP") adjustment u/s 92CA(3) of the Income-tax Act, 1961 ("Act") made by the Learned Assistant Director of Income-tax, Transfer Pricing Officer - 1(4) ("Ld. TPO"), by holding that the international transactions with associated enterprises ("AEs") does not satisfy the arm's length principle ("ALP") envisaged under the Act and in doing so have grossly erred in: 1.1 disregarding the fact that the spends to third party vendors are pass through in nature and are recovered fully from the AEs on whose behalf such payments are made and therefore the appellant does not assume any risk of non-payment by the customer/AEs. 1.2 disregarding the fact that these payments made to third party vendors do not represent any 'value adding' activity undertaken by the appellant and therefore should not be considered for the purpose of determining the appellant's operating profitability; 1.3 Total Adjustment Amount = INR 6,369,110 = 6,046,056 (recomputed TP adjustment) + 323,054 (adjustment already made by the appellant) disregarding the ALP as determined in the TP documentation maintained by the appellant in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s OP/TC margin 6.971% 884 The assessee company incurred certain advertising and brand promotion expenses while rendering marketing support services to JBB U.S. These expenses were reimbursed by JBB, U.S to the assessee company on cost-tocost basis without any mark-up. Such expenses were in the nature of passthrough expenses as the assessee company submitted that it is just acting as a conduit between the associated enterprise and the third party vendors. There is no cogent nexus with its market support services activity. The Transfer Pricing Officer ('TPO') rejected the economic analysis submitted by the assessee company and undertook a fresh search using arbitrary quantitative and qualitative filters and arrived at an NCP of 21.76%. The TPO further observed that the reimbursed AMP expenses have been incurred while rendering marketing support service and, therefore, would fall within the scope expenditure for services. Accordingly, these expenses were considered while determining the operating profits of the assessee company. The TPO proposed an adjustment of ₹ 60,77,920/- to the income of the assessee company. 4. The Dispute Resolution Panel (DRP) directed the exclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46/Del/2013) b) Ciena India P. Ltd. Vs. DCIT (ITA No. 3324/Del/2013) 6.2 The Ld. DR relied upon the order of the TPO and the directions of the DRP. 6.3 We have heard both the parties and perused all the relevant material available on record. From the Annual Reports it can be seen that this comparable company is functionally dissimilar. This comparable company is engaged in highly technical services which includes Asset Reconstruction and Management Services, Projects Related services, Micro Enterprise Development, Infrastructure, Planning and Development, research studies & Tourism, Skill Development, Environment Management, Entrepreneurship Development & Training, Cluster Development, Energy Related Services, Emerging areas etc. Whereas under the MSS segment, the assessee company is engaged in providing marketing support services to JBB U.S to promote the duty-free sales of international brands of liquor products of JBB U.S. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable. 6.4 Chokso Laboratories Ltd.:- The Ld. AR submitted that this comparable company is functionally dissimilar as the company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entities operating in free market/ uncontrolled environment. Therefore, such undertakings cannot be selected as comparables for determining arm's length price of the marketing support services rendered by the Assessee company who is a captive service provider to its AEs. Similar principles were laid down by the Hon'ble Bombay High Court in the case of Thyssen Krupp Industries India (P.) Ltd. [ITA No. 2218 of 2013]. In this case, the assessee company assessee was engaged in the business of providing turnkey services for design, manufacture, supply, erection and commissioning of sugar plants, cement plants, bulk material handling etc,. The Hon'ble High court excluded government companies as comparables citing the reason that wherein it was held that the contracts between public sector undertakings are driven by social obligations rather than profit motive. The Ld. AR relied upon the following decisions: a) Avaya India P. Ltd. Vs. DCIT (ITA No. 146/Del/2013) b) Ciena India P. Ltd. Vs. DCIT (ITA No. 3324/Del/2013) 6.8 The Ld. DR relied upon the order of the TPO and the directions of the DRP. 6.9 We have heard both the parties and perused all the relevant material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wireless content etc. It is engaged in the business of online advertising and fee based services. The services rendered by Rediff.com are thus broadly similar to the services of sales promotion through marketing support rendered by the assessee company. The Ld. AR relied upon the decision in case of Microsoft Corporation India (2015) 63 taxmann.com 178 (Delhi-Trib.) 6.14 The Ld. DR relied upon the order of the TPO and the directions of the DRP. 6.15 We have heard both the parties and perused all the relevant material available on record. The contentions of the Ld. AR that this comparable company is a good comparable as it is engaged in the business of online advertising and fee based services which are broadly similar to the services of sales promotion through marketing support rendered by the assessee company. But the same appears not to be similar as the Annual Report describes that revenues comprise of revenues from online advertising and fee based services which is not at par with the marketing support services to JBB U.S to promote the duty-free sales of international brands of liquor products of JBB U.S. Besides that there is no segmental bifurcation available in the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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