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TMI Blog2021 (3) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... r pricing officer as well as the direction of the learned dispute resolution panel in rejecting the resale price method adopted by the assessee and adopting transactional net margin method as the most appropriate method. - Decided against assessee. Working capital adjustment - Addition while applying TNMM on account of difference in working capital of the comparable companies and that of the assessee - HELD THAT:- There is no denial of the fact that in the earlier assessment years, namely, assessment years 2011-12 and 2012-13 TPO allowed the working capital adjustment since the facts and circumstances involved in this year are similar to the facts and circumstances for the earlier assessment years, there is no justification for not allowing the same for this particular year. Having regard to this anomalous situation, we are of the considered opinion that the working capital adjustment should have been allowed for this year also. We therefore while answering ground No. 2 in favour of the assessee, direct the learned Assessing Officer/Ld. TPO to allow working capital adjustment to the assessee for this assessment year also. Recomputation of the arm's-length price by appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yankan Consultants Ltd. and Indus Technical Financial consultants Ltd. are good comparables to the assessee. Companies functionally dissimilar with that of assessee need to be deselected from final list. Non-comparable of certain companies in view of their huge and disproportionate turnover more than 200 times to that of the assessee when compared to the entities like assessee. - ITA No. 3840/Del/2017 - - - Dated:- 22-2-2021 - Anil Chaturvedi , Member ( A ) And K. Narasimha Chary , Member ( J ) For the Appellant : Vijay Mehta , CA For the Respondents : Sunil Kumar , CIT/DR ORDER K. Narasimha Chary, Member (J) Aggrieved by the order dated 11/4/2017 passed under section 144C/143(3) of the Income Tax Act, 1961 (for short the Act ) by the learned Assessing Officer pursuant to the directions dated 14/3/2017 passed by the Ld. Dispute Resolution Panel (DRP)-2, New Delhi ( Ld. DRP ) in the case of M/s. Roxtec India private limited ( the assessee ), for the assessment year 2013-14, assessee preferred this appeal. 2. Briefly stated relevant facts are that the Roxtec India, the assessee) is a company incorporated on 28/9/2005 and has been engaged in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time of arguments stating that due to the order dated 28/7/2017 passed by the learned Assessing Officer under section 154/144C/143(3) of the Act the net loss was determined at a ₹ 3,40,81,910/-. Grounds No. 1, 2, 5 and 6, therefore, require adjudication. 5. Ground No. 1 relates to the re-computation of ALP by combining both Import of material and Export of Finished goods and applying TNMM and thereby upward adjustment of ₹ 34,193,860. In respect of the import of materials and export of Finished goods, the TPO applied TNMM as the MAM for both the aforesaid transactions on combined basis and recomputed the ALP by considering 5.15% as Arm's Length Margin and made addition of INR 3.42 crores to the returned losses, which the Ld. DRP upheld and accordingly, the Ld. AO passed the final order in line with DRP/TPO direction. Subsequently, Company filed a petition under Rule 13, requesting for rectification in the DRP direction on account of computational errors made in the margins at 5.15% as computed by the TPO Vide order dated 10th July, 2017, as per the directions of the DRP to verify the computational errors, the TPO with regard to import of material and export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purview of 'deemed manufacturing; that the primary/principle function of manufacturing the modules, wedges/compression units and frames, which requires use of the specialised technology of Roxtec group, is carried out by the AE of the Company and the local vendor respectively. The role of the Company is limited to M 2 decisions are marketing of the products in the specified territory, procuring modules and wedges from the AEs and frames from the local vendors; affixing modules and wedges into frames; and final delivery to the customers and invoicing for the sales. He further submitted that the Ld. TPO wrongly observed that imports have been made in the nature of 'Raw materials'. Ld. AR aside the findings of the Ld. DRP also on similar grounds. 10. Ld. AR however, fairly submitted that this issue came up for consideration before the Tribunal in assessee's own case for the assessment year 2012-13 in ITA No. 240/Del/2017 and the Tribunal has taken a view against the contentions of the assessee. Ld. AR, however, further submits that his contentions may be decided on merits for this year. 11. Per contra, Ld. DR submits that inasmuch as there is no change is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r pricing officer as well as the direction of the learned dispute resolution panel in rejecting the resale price method adopted by the assessee and adopting transactional net margin method as the most appropriate method. 13. It not the case of the Ld. AR that there is any change of facts and circumstances or in law from the ones relating to the assessment year 2012-13. Facts and law remained the same, we are of the considered opinion that the view taken by the Tribunal in the earlier assessment year cannot be disturbed to take a different view. Hence while respectfully following the view taken by the Tribunal for the assessment year 2012-13 in ITA No. 240/Del/2017, expected above, we dismiss ground No. 1. 14. Ground No. 2 relates to the action of the Ld. TPO of not allowing the working capital adjustment to the Appellant, while applying TNMM, on account of difference in working capital of the comparable companies and that of the assessee, as confirmed by the Ld. DRP. It is the submission of the Ld. AR that there are significant differences in the working capital employed by the Company and the comparable companies and the Working Capital adjustment was allowed to the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... election of companies having income from export 75%; and the companies having employee cost 25% of sales; that such filters, however, were subsequently withdrawn/rejected in the order after observing the submission of the assessee wherein the assessee objected that all the comparable selected by TPO are failing one of the above two filters. He further disputed the adoption of Entity level margins instead of Segmental margins stating that given the fact that function, asset and risk (FAR) profile is different for each of the business lines, the Appellant has benchmarked the two segments (viz. import of semi-finished and finished goods and provision for MSS) involving AE transactions separately for transfer pricing purposes; that the assessee has maintained proper segmental records in relation to MSS and from such transaction appellant earned margin of 25.06%; that they Ld. TPO, however, without giving any specific finding rejected the segmental margin and adopted the entity level margin of the Appellant; that the assessee is earning better margins when entity level margins are compared with the margins of comparable as determined by the TPO; that the margins of the assessee at en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red opinion that the ld. TPO should have taken them into consideration. For this purpose, we set aside the issue to the file of ld. Assessing Officer/TPO for comparison of the segmental results and not the margin at entity level. 22. Now coming to the ground No. 6, the assessee is challenging the rejection of two entities, namely, Best Mulyankan Consultants Ltd. and Indus Technical Financial Consultants Ltd. from the list of comparables holding those to be functionally dissimilar. It is argued by the ld. AR that these two entities are also engaged in the business of providing consultancy services and are considered as valid comparables for evaluating market service segment by the Ld. TPO in the case of Lufthansa Technik Services India Pvt. Ltd. vs. DCIT in ITA No. 5451/Del/2012. 23. It is the submission of the ld. DR that the functional profile for the assessment year 2013-14 is not clearly discernible from the order of Lufthansa Technik Services India Pvt. Ltd. (supra) because that case pertains to the state of affairs relating to assessment year 2008-09 and therefore, it cannot be a good guide for the functional profile of this company for the assessment year 2013-14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmunications Ltd., Just Dial Limited, Killick Agencies and Marketing Consultants Agencies Ltd. From the arguments of the ld. AR, we could decipher that such an objection is based broadly on two grounds. Firstly that the comparables Apitco Ltd., Cameo Corporate Services Ltd. and Killick Agencies are functionally dissimilar whereas Cameo Corporate Services Ltd., Concept Communications Ltd., Just Dial Limited and Marketing Consultants Agencies Ltd. have a turnover of more than 200 times to that of the assessee. 27. In the judgment dated 18.12.2018 in CIT vs. Philip Morris Services India SA, in ITA No. 1468/2018, the functional profile of these three companies, namely, Apitco Ltd. Cameo Corporate Services Ltd. and Killick Agencies, was captured and the observations of the Tribunal in respect of the comparability of these pennies with the entities providing Management Support Services, like the assessee, as approved by the Hon'ble High Court are that,- Apitco Ltd., XXXXX 13. As could be seen from the annual report of this company, is company is one of the 18 TCOs was formed by the key national level financial institutions in association with state-level institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Bombay High Court in ITA number 20/02/2018 of 2013. 16. The reasons recorded by the Tribunal in all the decisions referred to above hold good for the assessee also inasmuch as the assessee is a private company in the field of providing business support services. We, therefore, while respectfully following the ratio laid down in the above decisions hold that Apitco Ltd., is not a good comparable with the assessee and is accordingly liable to be excluded. We, therefore, directly Ld. TPO to exclude this company from the finalist of comparables to benchmark the international transaction relating to the market support services provided by the assessee to its AEs. Cameo corporate services. XXXXX 20. We have gone through the financials of this company, including the profit and loss account incorporated page No. 96 and scheduled 8 incorporated at page number 102 of the paper book relating to the financials of the comparable companies and find that the entire income of ₹ 24,36,67,920/- was shown without any segmental bifurcations. 21. Further the comparability of the Cameo Corporate Services with the companies providing market support services like ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. DRP. Further the Bangalore tribunal in the case of DCIT vs. Aruba Networks India Private limited in ITA- TP57/bank/2015 found that Killik Agencies and Marketing Ltd. is not a marketing support service and it cannot find a place in the set of comparables for such companies. 34. On a perusal of the profile of this Killik Agencies and Marketing Ltd. and also the findings of the tribunal on the comparability of this company with the companies rendering market support services, we are of the considered opinion that Killik Agencies and Marketing Ltd. cannot be a good comparable to the assessee and is liable to be excluded from the final list of comparables and, accordingly we direct the Ld. TPO to exclude this company from the list of comparables for benchmarking the international transaction of market support services. 28. So also in Kobelco Cranes India Pvt. Ltd., in ITA No. 802/Del/2016, a coordinate Bench of this Tribunal captured the functional profile of Kobelco Cranes, which renders the marketing and sales support services to its parent company. Such support services have been summarized in the order of TPO as customer support services in relation to the business d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal and the Hon'ble High Court in Philip Morris Services India SA (supra) in respect of the comparability of the Apitco Ltd., Cameo Corporate Services Ltd. and Killick Agencies are very much relevant on this aspect in comparison with the assessee also who is rendering only the marketing support services, on the ground of dissimilarity of functions. We, therefore, direct the learned Assessing Officer/Ld. TPO to delete this the entities from the list of comparables. 31. Now coming to the aspect of non-comparable tea of certain companies in view of their huge and disproportionate turnover when compared to the entities like assessee, it could be seen from the financials of this Cameo Corporate Services Ltd. that the Revenues from business support services by Cameo Corporate Services are 75.65 crores whereas the revenue of the assessee is only at ₹ 58 lacs and therefore, the Cameo Corporate Services Ltd.'s revenues are more than 100 times from the International transactions compared to the assessee. In respect of Concept Communications Ltd., its revenue from operations is 125.02 crores which is 200 times the revenue of the assessee from international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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