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TMI Blog2017 (4) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us, such a concern was a persistent loss-maker so as to exclude it from the final set of comparables. Thus, following the ratio of the decision of the Pune Bench of the Tribunal in the case of Bobst India (P.) Ltd. (supra), we deem it fit and proper to direct the TPO/Assessing Officer to include the said concern in the final set of comparables. Correction of margin of one of the concerns included in the final set of comparables, i.e., Creative Eye Ltd. - margin of the said concern has been adopted at 7.33%, whereas the stand of the appellant is that the correct margin of the said concern is 0.47% and that the lower authorities have erred in calculating the margin at 7.33%. - HELD THAT:- As per the tabulation furnished by the assessee as Annexure - B to the written submissions it is clear that in the case of other comparable concerns, the Total Operating Expenses have been calculated after taking into account the Depreciation and Provision of FBT; and, that it is only in the case of Creative Eye Ltd. the same have been excluded. Quite clearly, the determination of margin in the case of all the comparable concerns needs to be uniformly done, so as to impart rationality to the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities. Therefore, on this aspect, we admit for consideration the plea of assessee for exclusion of Access India Advisors Ltd. from the final set of comparables. Having admitted the plea of assessee seeking exclusion of Access India Advisors Ltd. from the final set of comparables, and for the reason that such a plea was hitherto not before the lower authorities, we deem it fit and proper to remand the matter back to the file of Assessing Officer/TPO for an appropriate verification. AO/TPO shall verify the working of the Operating margins of Access India Advisors Ltd. furnished by the assessee for the various years and if it is found to be volatile without reflecting any normal business condition, then, the Assessing Officer/TPO shall exclude the same from the final set of comparables. Segment of Provision of General management and support services is to seek inclusion of Educational Consultants (India) Ltd. - HELD THAT:- The said concern has been accepted as a comparable even in the assessments finalised u/s 143(3) of the Act. Be that as it may, it is also clearly emerging from the order of TPO that the said concern has been excluded by merely making a bald assertion about the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls the reasons for the difference and the reason for which proper reconciliation could not be made. In the said communication, assessee had explained that the ITS details was founded on the basis of name and address of the parties and the amount and date entered by the other party in its book of accounts. It has been pointed out that in the absence of PAN of other party, the relevant invoice number and date, it is difficult to exactly match the entries appearing in the assessee s book of accounts. The relevance of the aforesaid has also been brought out in some detail by the assessee in its communication to the Assessing Officer. One pertinent point which stands out is the assertion of the assessee before the Assessing Officer that wherever in case of a party the amount of revenue recorded in the Profit Loss Account of the assessee was found lower than the ITS details, assessee explained that same is merely on account of timing difference inasmuch as assessee would have credited such sum to the Profit Loss Account of the other year. Assessee also asserted before the Assessing Officer in its communication dated 12.12.2011 that in respect of the parties mentioned in the ITS details, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with Rule 10D(4) of Rules and determining the arm's length operating margin for these transactions using only the updated Financial Year 2007-08 operating margins of the comparable companies, as available at the time of the assessment. 4. The learned TPO / AO erred in rejecting loss making comparables while determining the arm's length operating margin for the international transaction of supply and support of content. 5. Without prejudice to the ground number 4, the learned TPO / AO erred in not excluding companies earning super normal profits, where loss making companies are excluded, while determining the arm's length operating margin for the international transaction of supply and support of content. 6. The learned TPO / AO erred in computing the operating margin of Creative Eye Limited (comparable company) while determining the arm's length operating margin for the international transaction of support and supply of content. 7. The learned TPO / AO erred in considering the 'media division' as the comparable segment instead of 'health care division' for In House Productions Limited while determining the arm's length operating margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come returned u/s 115JB of the Act has been varied. Be that as it may, even the assessment made under the normal provisions of the Act has resulted in scaling down of the loss returned by the assessee on account of certain additions, primarily on account of the transfer pricing adjustment of ₹ 3,41,85,321/-. The appellant-company was found to have entered into certain international transactions within the meaning of Sec. 92B of the Act with its associated enterprises and, therefore, the Assessing Officer had referred the matter to the Transfer Pricing Officer (TPO) for determination of the arm's length price of the international transactions. The TPO vide order dated 27.10.2010 passed u/s 92CA(3) of the Act, after considering the material and submissions put forth by the assessee, has differed with the determination of arm's length price in relation to two segments of the international transactions entered with the associated enterprises. The transfer pricing adjustment worked out by the TPO formed the basis of the Assessing Officer to pass a draft assessment order dated 26.12.2011 against which the assessee carried its objections before the DRP. The DRP vide its orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese services and the mark-up over cost is stated at 10%. In its Transfer Pricing Study, assessee had selected the Transactional Net Margin (TNM) method as the most appropriate method to benchmark the said international transactions and the Profit Level Indicator (PLI) was characterised as Operating profit/Operating cost. Though, in the Transfer Pricing Study, assessee had used the average of the multiple year's data of the comparables to calculate the average margins, but in the course of the proceedings before the TPO, assessee had furnished the revised margins based on the single year's data corresponding to the financial year under consideration, and on this aspect there is no dispute. The average margin of the comparable concerns selected by the assessee came to 10.92%, which compared favourably with the stated margin of assessee at 11.75%, and on that basis, it was asserted by the assessee that the stated value of the international transactions in the Content supply and Support segment was at an arm's length price and, therefore, it did not require any further adjustment. The TPO has accepted the stand of the assessee for benchmarking the international transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Ltd. from the final set of comparables. The learned representative had referred to point (x) of Part A of para 7 of the order of TPO, to point out that the said concern has been excluded by the TPO on the ground that it had incurred an operating loss. It has been canvassed that the action of the TPO to exclude the said concern is not well-founded inasmuch as incurrence of loss is a normal business incidence and, in any case, the concern could have been excluded only if it was a persistent loss-maker. It has been asserted before us that the said concern is not a persistent loss-maker and for that matter, reference was invited to Annexure-A of the written submissions wherein the margins of the said concern have been tabulated for three years ending on 31.3.2006, 31.3.2007 and 31.3.2008. On that basis, it is sought to be pointed out that the said concern had a positive operating margin of 10.17% for year ending 31.3.2006 and loss of 30.28% and 30.83% for the year ending 31.3.2007 and 31.3.2008 respectively. It was, therefore, contended that the said concern had made profit in one of the last three years and, therefore, it could not be said to be a persistent loss maker. In sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ratio of the decision of the Pune Bench of the Tribunal in the case of Bobst India (P.) Ltd. (supra), we deem it fit and proper to direct the TPO/Assessing Officer to include the said concern in the final set of comparables. 11. The only other point raised before us is with regard to correction of margin of one of the concerns included in the final set of comparables, i.e., Creative Eye Ltd. As the tabulation enumerated in the earlier part of the order would show, the margin of the said concern has been adopted at 7.33%, whereas the stand of the appellant is that the correct margin of the said concern is 0.47% and that the lower authorities have erred in calculating the margin at 7.33%. 12. In this background, the learned representative for the assessee referred to page 493 of the Paper Book to point out that there was an error on the part of the TPO in determining the margin at 7.33% inasmuch as certain items of the Profit & Loss Account, namely depreciation - ₹ 1,96,73,699/- and Provision of FBT - ₹ 3,18,168/- have been excluded for the purpose of computing the Total Operating Expenses. It is emphasised, with reference to a tabulation placed at page 493 of the Pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, therefore, the other issues raised in the Grounds of appeal with regard to the Content and Support segment are rendered academic and are not being adjudicated for the present. 16. In the result, insofar as the Content and Support segment is concerned, the TPO/Assessing Officer is directed to re-work the arm's length price of the international transactions in accordance with the aforesaid directions. 17. Now, we may take up the dispute arising from benchmarking of international transactions in the General Management Support Services segment. 18. In this segment, assessee has rendered General management & support services in the nature of secretarial assistance, handling documents, etc. to BVI, Walt Disney Internet group, Disney Worldwide Services and The Walt Disney Company, i.e. to the associated concerns of the Walt Disney group. For the services so rendered in this segment, assessee is being compensated at cost + mark-up basis, such mark-up being 5%. During the year under consideration, assessee received a consideration of ₹ 8,23,38,337/- on account of Provision of General management and support services to its associated enterprises. In its Transfer Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excluded on the ground that its margins have wide fluctuations over the years and in this context, he referred to page 492 of the Paper Book wherein the margin of the said concern from the years 2005 to 2010 have been tabulated. The learned representative for the assessee justified the admission of the said plea, which was hitherto not raised before the lower authorities on the ground that the necessary information showing fluctuation in margins was available in public domain only subsequently. 20. On the other hand, the ld. CIT-DR appearing for the Revenue opposed the plea of the assessee by pointing out that the assessee was not justified in seeking exclusion of the said concern from the final set of comparables because the said concern has been included by the assessee itself as a good comparable in its Transfer Pricing Study. In support of his stand, the ld. CIT-DR has relied on the decision of the Hyderabad Bench of the Tribunal in the case of App Labs Technologies (P.) Ltd. v. Dy. CIT [2014]149 ITD 99/42 taxmann.com 11 to contend that where the assessee had not raised any objection with regard to selection of a concern as a comparable before the DRP, it could not be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiple year's data of the comparables which would have off-set the wide fluctuations. It is only in the course of proceedings before the TPO, the adoption of multiple year's data of the comparables was negated and assessee carried out a comparability analysis after adopting single year's data of the comparables relating to the period under consideration. It has also been pointed out before us that in order to establish volatility in the margins over the years, the data of the subsequent years is also relevant, which became available to the assessee only subsequently. In our considered opinion, the plea of assessee for exclusion of Access India Advisors Ltd. from the final set of comparables cannot be disregarded merely because initially the said concern has been accepted as a comparable by the assessee in its Transfer Pricing Study. A similar situation has been dealt with by the Pune Bench of the Tribunal in the case of Q Logic (India) (P.) Ltd. v. Dy. CIT [2014] 52 taxmann.com 225 and the following discussion is relevant :- "17. In our considered opinion, the plea of the assessee for exclusion of Bodhtree Consulting Ltd. from the final list of comparables cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Transfer Pricing Study and, therefore, once such an information is available in public domain, it is only thereafter that the assessee can feasibly raise such a ground based on the abnormal fluctuations in the margins. Notably, insofar as the instant case is concerned, there is ostensibly a justifiable reason for the assessee to raise such a plea before us, which was hitherto not raised before the lower authorities. Therefore, on this aspect, we admit for consideration the plea of assessee for exclusion of Access India Advisors Ltd. from the final set of comparables. 26. Insofar as the plea of ld. CIT-DR based on the decision of Hyderabad Bench of the Tribunal in the case of App Labs Technologies (P.) Ltd. (supra) is concerned, we have carefully perused the said decision. The Tribunal in the case of App Labs Technologies (P.) Ltd. (supra) denied the assessee to raise a plea for exclusion of a concern which had been considered by the assessee itself as a comparable at an earlier stage. The said negation by the Tribunal was founded on the ground that assessee could not show "any reasonable cause" as to why the assessee had not objected to the inclusion of the particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted as a comparable and in Assessment Years 2010-11 and 2013-14, the assessments were completed u/s 143(3) of the Act. In sum and substance, the learned representative has justified the inclusion of the said concern on the basis of principle of consistency. In this context, the learned representative has referred to the decision of the Delhi Bench of the Tribunal in the case of Eli Lilly & Co. (India) (P.) Ltd. v. Asstt. CIT [2016] 159 ITD 482/70 taxmann.com 260 to point out that the functions of the said concern, namely Educational Consultants (India) Ltd. have been found to be same over the years, including for the assessment year under consideration. The learned representative explained that the assessment year before the Delhi bench of the Tribunal was 2010-11 and it was considering the plea of assessee for including Educational Consultants (India) Ltd. as a comparable; it was noted by the bench that in the Assessment Year 2009-10, the said concern was directed to be included as a comparable by the Tribunal after noticing that in the Assessment Year 2008-09, the said concern was accepted as a comparable by the TPO himself. It was, therefore, pointed out that the activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chlumberger Global Support Centre Ltd v. Dy. DIT [2015] 64 taxmann.com 322 (Pune - Trib.) 33. The learned representative also referred to page 560 of the Paper Book to point out the basis for working out the risk adjustment and contended that the matter may be set-aside to the file of TPO/Assessing Officer for appropriate verification. 34. On this aspect, the ld. CIT-DR appearing for the Revenue has opposed the plea of assessee for allowing risk adjustment by reiterating the stand of the DRP, which we have already noted earlier, and is not being repeated for the sake of brevity. 35. On this aspect of the matter, we find that the plea of assessee has been declined by the DRP in a rather casual manner. Notably, the appellant had canvassed before the lower authorities that adjustment for the difference between the risk assumed by the assessee and those assumed by the comparable concerns was required to be made. Notably, the assessee had also sought the benefit of working capital adjustment to account for the difference in the level of working capital deployed by the assessee vis-a-vis the comparable concerns. The DRP in para 9.1 of his order has denied both the claims primarily on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transactions on the basis of our aforesaid directions. 38. The next Ground is with regard to addition of ₹ 77,13,648/- made by the Assessing Officer on account of non-reconciliation of ITS data. In this context, the relevant facts are that the Assessing Officer provided assessee with ITS data in terms of which there was a difference vis-a-vis entries made in the account books of the assessee- company. Before the lower authorities, assessee pointed out that it had duly reported its incomes in the financial statements and that the ITS details were obtained on the basis of the TDS returns filed by the deductors and that assessee had no control on such filings. One of the points made out by the assessee was that the ITS details provided by the Assessing Officer were insufficient to carry out exact reconciliation inasmuch as it does not indicate the PAN of the other party, invoice number or date. However, the Assessing Officer as well as the DRP held that the transactions appearing in the ITS details are mapped only with the transactions which take place on the PAN of assessee and, therefore, the onus was on the assessee to reconcile the data. In the absence of the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is pointed out that in some cases names of certain individuals are mentioned in the ITS details whereas assessee would have recorded the transactions in the name of the proprietary concern and not in the name of the individual and that such a situation makes it extremely difficult to reconcile the amounts on the basis of limited information available. In any case, it is quite obvious that the revenues credited by the assessee in its financial statements are much more than the details obtained by the Assessing Officer in the ITS data. One pertinent point which stands out is the assertion of the assessee before the Assessing Officer that wherever in case of a party the amount of revenue recorded in the Profit & Loss Account of the assessee was found lower than the ITS details, assessee explained that same is merely on account of timing difference inasmuch as assessee would have credited such sum to the Profit & Loss Account of the other year. Assessee also asserted before the Assessing Officer in its communication dated 12.12.2011 that in respect of the parties mentioned in the ITS details, on an overall basis, the revenues reflected by the assessee in its financial statements was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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