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TMI Blog2020 (3) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the addition made in respect of agency commission under section 40(a)(ia) of the Act. Thus, the Revenue accepted the findings of Tribunal on this issue. See STAR ENTERTAINMENT MEDIA (P.) LTD. [ 2020 (1) TMI 867 - BOMBAY HIGH COURT] WAPCOS company is liable to be rejected as comparable on account of functional disparity as well as, being a Government Company. In view of our above observation, we direct TPO /Assessing Officer to exclude WAPCOS from the list of comparables. Company having related party transactions exceeding 25% of turnover - It is no denying fact that where an entity is having related party transaction in excess of 25% of the total turnover, the same is held to be bad comparables - We find that in the case of DCIT vs. Aruba Network Pvt. Ltd., [ 2016 (9) TMI 1447 - ITAT BANGALORE] has excluded Hindustan Housing Co. Ltd. from the list of comparables as it has failed to qualify RPT filter of 25%. Taking into consideration, well settled principle of rejecting comparable by applying RPT filter, we deem it appropriate to refer this comparables to the TPO for re-examination. In case the related party transactions of the said company exceeds 25% of the total tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the comparable company PLI (%) 1 Apitco Ltd. 36.58 2 DLF Services Ltd. 5.21 3 Hindustan Housing Company Ltd. 9.09 4 IDC (India) Limited 9.99 5. TSR Darshaw Limited 27.98 Arithmetic Mean 17.77 Assessee 9.00 4. The TPO made adjustment of ₹ 29,69,557/- to determine ALP of the international transactions with AEs. On the basis of order of the TPO dated 17/01/2013, the Assessing Officer passed draft assessment order on 25/03/2013. Further, the Assessing Officer in the draft assessment order made disallowance of payment of agency commission ₹ 4,70,26,793/- under section 40(a)(ia) of the Act. Aggrieved against the draft assessment order the assessee filed objection before the Dispute Resolution Panel (DRP), inter-alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019has rejected Apitco as comparable on both ground i.e. the said company being Government Company and being functionally different. The ld. Authorized Representative for the assessee further submitted that in the case of assessee s group concern, Star India Ltd vs. ACT in ITA No.1902/Mum/2016 for assessment year 2011-12 decided on 01/08/2019, the Tribunal held Apitco is not functionally comparable 6.1 The ld. Authorized Representative for the assessee in order to buttress his contention that a Government company cannot be considered as comparable referred to the decision of Tribunal in the case of M/s.Thyseen Krupp Vs. Addl. CIT, 154 TTJ 689(Mum-Trib). The ld.Authorized Representative of the assessee submitted that the Tribunal excluded Engineers India Ltd. from the list of comparables on the ground that it is a Government Undertaking. The Department carried the issue in appeal before the Hon ble High Court. The Hon ble High Court upheld the findings of Tribunal [ CIT vs. Thyseen Krupp reported as 385 ITR 612(Bom).] 6.2 In respect of TSRDL, the ld. Authorized Representative for the assessee submitted that the said company is engaged in BPO/KPO activities and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any dispute on this count. The assessment year under appeal is the first year when the Department raised any query on trade discounts offered by the assessee and has wrongly assumed the same as agency commission. The ld. Authorized Representative for the assessee submitted that similar disallowance was made by the Revenue in assessee s group concern Star Entertainment Media Pvt. Ltd. in assessment year 2010-11. The DRP decided the issue in favour of the assessee. Thereafter, the Revenue carried the issue in appeal before the Tribunal in ITA No.1686/Mum/2015. The Tribunal vide order dated 09/03/2016 upheld the findings of DRP and dismissed the ground raised by the Department. Thereafter, the Department filed appeal against the order of Tribunal before the Hon'ble Bombay High Court in Income Tax Appeal No.950 of 2017. However, the Department did not challenge the finding of the Tribunal on this issue. Thus, the Department accepted the findings of Tribunal on this issue. 7. On the other hand, Shri A. Mohan, representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld.Departmental Representative submitted that mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as upheld by the Hon'ble Delhi High Court while deciding Revenue s appeal in ITA no. 454 of 2016, dated 30th May 2017. It is relevant to observe, though the Department challenged the aforesaid decision of the Hon'ble Delhi High Court before the Hon'ble Supreme Court, however, the SLP was dismissed by the Hon'ble Supreme Court finding no merit therein. Thus, in view of the judicial precedents referred to above, Apitco Ltd., cannot be considered to be a comparable. Even otherwise also, in various other decisions, Apitco Ltd., has been rejected as a comparable due to functional dissimilarity and lack of segmental break up. In view of the aforesaid, we direct the Assessing Officer to exclude Apitco Ltd., from the list of comparables and compute the arm's length price of business support service segment. This ground is allowed. 8.2 We further find in the case of Star India Pvt. Ltd. vs. ACIT(supra), the Coordinate Bench of Tribunal after considering the facts came to the conclusion that Apitco is not a good comparable being Government company. The Tribunal further held that the said company is not functionally comparable with a company engaged in providing sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from that of a support service provider. Thus, in view of similarity in facts of the case and the decision of Tribunal in assessee s own case in assessment year 2012- 13, we hold that Apitco is not a good comparable and, hence, is to be excluded from the list of comparables. 8.4 The assessee in the Ground No.10 of the appeal is also seeking inclusion of Overseas Development Employment Promotion Consultants Ltd. and Overseas Manpower Corporation Ltd. However, no submissions were made by the ld.Authorized Representative of the assessee in respect of the said companies. Consequently, the ground No.10 of the appeal is partly allowed. TSR Darshaw Limited 8.5 The assessee in ground No.11 of the appeal is seeking exclusion of TSRDL from the list of comparables on the ground of functional differences. The contention of the assessee is that TSRDL is engaged in providing Share Registrar and transfer services, depository services, pay roll and Provident fund Management Services, etc. The activities carried out by the said company are in the nature of BPO/KPO. We find that the Tribunal in the case of Star India Pvt. Ltd. (supra), a group company of the assessee, havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the assessee. The trade discounts labelled as agency commission by Assessing Officer, are neither paid to the agents nor claimed in the books. Therefore, there is no question of deducting tax at source on such alleged payment of agency commission. The ld.Authorized Representative of the assessee has further pointed that in the past assessee was following similar practice of offering trade discounts to its customers, the discounts were reflected in the invoice, no dispute was ever raised by the Department. This fact has not been disputed by the ld. D.R. There has been no change in facts in the assessment year under appeal. Rule of consistency demands that if the transaction has been accepted by the Revenue in the past, without there being any change of facts or the provisions of law, the transaction should not be disturbed. 10. We find that similar issue had come up before the Tribunal in the case of assessee s group concern Star Entertainment Media Pvt. Ltd. The Tribunal in an appeal by the Department in ITA No.1686/Mum/2018(supra) after examining the facts on this issue concluded as under:- 3.5. In our opinion, combined reading of facts of this case, order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has assailed initiation of penalty proceedings under section 271(1)(c) of the Act. Challenge to penalty proceedings at this stage is premature, therefore, this ground is dismissed as premature. 14, In the result, appeal of the assessee is partly allowed in the terms aforesaid. ITA NO.1658/MUM/2015, A.Y.2010-11: 15. The grounds raised by the assessee in assessment year 2010-11 are similar to the grounds raised in assessment year 2009-10. The ld. Authorized Representative for the assessee submitted that in present appeal the assessee is seeking exclusion of Apitco and TSRDL, as was in assessment year 2009-10. The submissions made in A.Y 2009-10 in respect of aforesaid comparables would equally apply to A.Y 2010-11. Apart from above two comparables, the assessee in the present assessment year has also assailed inclusion of WAPCOS Limited (in short WAPCOS ). 16. The ld. Authorized Representative for the assessee submitted that WAPCOS is a Government Company and, hence, should be excluded from the list of comparables for the parity of reasons APPLIED FOR excluding Apitco. The ld. Authorized Representative for the assessee further contended that the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the appeal of the assessee for assessment year 2009-10 would equally apply to assessment year 2010-11. 21. Both sides heard. The ground No.1 of the appeal is general in nature. In so far as Transfer Pricing issues raised in ground No.2 to 13, the ld. Authorized Representative for the assessee has restricted his submissions only qua exclusion of three comparables i.e. Apitco, TSRDL and WAPCOS. While deciding the appeal of the assessee in assessment year 2009-10 we have given detailed finding for excluding Apitco and TSRDL from the list of comparables. The aforesaid findings would mutatis mutandis apply to assessment year 2010-11, as well. 22. As regards exclusion of WAPCOS, the primary contention of the assessee is that the said company is a Government Company and, hence, should be excluded from list of comparables. In addition, the assessee has also assailed inclusion of WAPCOS on the ground of functional difference. The Balance Sheet of the company as on 31/03/2011 and the P L Account for Financial Year 2009-10 at pages 533 to 564 of the Paper Book reveal that the said company is a Government of India Undertaking. The Co-ordinate Bench of the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dis apply to ground No.14 to 19 of the present appeal. Consequently, these grounds are allowed in similar terms. 27. In ground No.20 of the appeal, assessee has assailed charging of interest under section 234Bof the Act. The charging of interest under section 234B is mandatory and consequential, hence, the ground raised is dismissed. 28. In ground No.21, assessee has assailed penalty proceedings under section 271(1)(c) of the Act. This ground is premature at this stage. Accordingly, the same is dismissed as such. 29. In the result, appeal of the assessee is partly allowed in the terms aforesaid. ITA No.1245/MUM/16, CO. 265/MUM/2017 ITA 1527/MUM/2016. ITA No.1527/Mum/2016: 30. The grounds raised by the assessee in this appeal are similar to the one raised in assessment year 2009-10 and 2010-11. The ld. Authorized Representative for the assessee has confined his submissions only for exclusion of following comparables: (1) Apitco, (2) TSRDL, (3) WAPCOS (4) Hindustan Housing Co. Ltd. 31. The ld. Authorized Representative for the assessee contended that the assessee is not pressing inclusion of following companies: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ang/2015 for assessment year 2010-11 decided on 30/09/2016 has excluded Hindustan Housing Limited for the reasons that it has related party transactions exceeding 25% of turnover. Similar view has been taken by the Tribunal in the case of ITO vs. Alcon Laboratories Pvt. Ltd. in IT(TP)A No.391/Bang/2015 in assessment year 2010-11 decided on 21/11/2017. The ld. Authorized Representative for the assessee submitted that there are catena of judgments where the company having related party transactions exceeding 25% of turnover have been rejected as comparable. 36. We have considered the contentions of the ld. Authorized Representative for the assessee . It is no denying fact that where an entity is having related party transaction in excess of 25% of the total turnover, the same is held to be bad comparables. In various judicial pronouncements tolerance of RPT filter has been accepted as 25% of the total turnover. We find that in the case of DCIT vs. Aruba Network Pvt. Ltd., Bangalore Bench of the Tribunal has excluded Hindustan Housing Co. Ltd. from the list of comparables as it has failed to qualify RPT filter of 25%. Taking into consideration, well settled principle of rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... channel placement fee. 44. The ld. Authorized Representative for the assessee has submitted that Hon ble High Court in the case of UTB Entertainment Television Ltd., Times Global Broadcasting Co. Ltd. and in assessee s own case has deleted the disallowance on account of channel placement fee. 45. We find that DRP has granted relief to the assessee by placing reliance on the decision of Tribunal in assessee s own case for the immediately preceding assessment year . Since this issue has already been laid to rest by the decision of the Hon ble High Court in various cases including in assessee s own case , we find no infirmity in the directions of DRP in deleting the disallowance on account of channel placement fee. Consequently, ground No.1 to 6 raised in the appeal by the Revenue on the single issue is dismissed. Consequently, appeal of the Revenue are dismissed. C.O.No.265/Mum/2017: 46. The assessee filed cross objections supporting the findings of Assessing Officer/DRP. Since we have dismissed the appeal of the Revenue, the cross objections filed by the assessee have become infructuous, and the same are dismissed as such. 47. To sum up, ITA No. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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