9911796707
TMI Blog2019 (11) TMI 1777X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer who is a routine business support service provider; that TPO has taken entity level revenue from financials which are of diverse segments and services; that it has established state of the art infrastructure over the last 12 months and it has selected new Global Payroll ERP application called RAMCO for its fast growing payroll business, is not a suitable comparable vis- -vis the taxpayer who is a routine business support service provider, hence ordered to be excluded. Aptico being into diversified business activities with no segmental information available and being into providing high end consultancy services is not a suitable comparable vis- -vis the taxpayer who is a routine business support service provider, hence ordered to be excluded for benchmarking the international transactions. Foreign exchange gain or loss on account of international transactions entered with its AE - TPO had not considered foreign exchange gain or loss as the case may be by treating the same non-operative income of the taxpayer by treating the PLI of the taxpayer as well as the comparables - HELD THAT:- By now, it is settled principle of law that foreign exchange gain or loss on account of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the appellant for the relevant assessment year at INR 2,28,58,370, as against returned income of INR 98,77,683. 2. That on the facts and circumstances of the case and in law, the AO/ Transfer Pricing Officer ("TPO") have erred in making transfer pricing adjustments and the Dispute Resolution Panel ("DRP") further erred in upholding the adjustment in respect of the international transaction pertaining to business support services, alleging the same to be not at arm's length in terms of the provisions of sections 92C(1) and 92C(2) of the Act, read with Rule 100 of the Income-tax Rules, 1962 ("the Rules"). 3. That on the facts and circumstances of the case and in law, the DRP / AO / TPO have erred, in arbitrarily rejecting certain functionally comparable companies identified by the Appellant on a subjective basis, inter alia, using unreasonable comparability criterion. 3.1 That on the facts and circumstances of the case and in law, the DRP / AO / TPO have grossly erred in re-characterising business of the appellant as marketing support services without appreciating that the appellant has been engaged in providing business support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l; Facilitating communication among Exxon Mobil group entities and / or its affiliates, foreign companies, Indian companies and government authorities. • Attending and coordinating meetings among Exxon Mobil group entities and/or affiliates and other foreign and Indian companies to prevent misunderstanding due to language barriers. • Handling administrating matters with respect to meetings and travel arrangement; and • Generally acting as liaison among Exxon Mobil group entities and/or its affiliates and other foreign companies and their Indian customers and government authorities. 3. During the year under assessment, the taxpayer entered into international transactions with its AE as under :- Sl. No. Nature of transaction Method applied Value of International Transaction 1 Provision of Market Survey and related advisory Services. TNMM 11,62,42,507 2 Receipt of Shared Services - 3,47,884 3 Reimbursement of Expenses - 9,22,283 4 Reimbursement of Salary Cost - 2,12,64,664 5 Recovery of Salary Cost - 51,96,029 6 Recovery of Expenses - 1,43,35,518 4. The taxpayer in its transfer pricing analysis qua provision of business support s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer in order to compress the controversy raised by filing present appeal to the extent that AO/TPO/DRP have erred in selecting 3 comparables viz. Aptico Ltd., Global Procurement Consultants Ltd. and TSR Darashaw Ltd., which are otherwise incomparable on numerous grounds. Now, we would discuss the suitability of aforesaid comparables vis-à-vis the taxpayer qua providing of business support services one by one. APTICO LIMITED (APTICO) 13. The taxpayer sought exclusion of Aptico from the final set of comparables to benchmark the international transactions qua provision of business support services on the grounds inter alia that Aptico is having a different profile; that no segmental information is available qua diversified streams of income and relied upon the decision of the coordinate Bench of the Tribunal in Philip Morris Services India S.A. vs. DDIT (2018) 95 taxmann.com 156 (DelhiTrib.), which was confirmed by the Hon'ble Delhi High Court. 14. Ld. DR for the Revenue, on the other hand, supported the order passed by the TPO/DRP by contending that TPO has not recharacterized taxpayer's services and that website information available at page 409 was taken on 25.05.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.146/del/2013. He also placed reliance on the nation reported in Kobelco Cranes India Private Limited v. ITO in ITA No.8021de1/2016. In International SOS services India private limited versus DCIT ITA No.1631/del/2014 this company was excluded on account of being hundred percent government organisation and the appeal against this decision of the tribunal was dismissed by the Hon'ble jurisdictional High Court.. Further it could be seen in Vestegaard Asia private limited verses DCIT in ITA No. 6670/del/2015 and H & M Mouritz India private limited verses DCIT in ITA 282/bang/2015 it is held that the Aptico Pvt Ltd., is not a good comparable with any company rendering business support services on the ground that this company is a public sector undertaking and its operations are mainly based the on the policy requirements of the government. 15. Further reliance is placed by the counsel on the decision of the Mumbai bench of this tribunal in TysokKrupp industries India private limited verses ACIT in ITA No. 6460/mum/2012 wherein it was held that this company being a government enterprises is not comparable with a private business service provider because in case of governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices India S.A. vs. DDIT (2018) 95 taxmann.com 156 (DelhiTrib.), which was confirmed by the Hon'ble Delhi High Court. 21. Ld. DR for the Revenue, on the other hand, relied upon the orders of the lower Revenue authorities. 22. Perusal of the annual report, available at page 416 of the paper book, shows that GPCL encompasses preparing and reviewing technical specifications, estimation of costs, selection of vendors, inspection and expediting and quality control & time management. Furthermore, it has also come on record from annual report that GPCL is operating in field of power, water resources, transportation, industries and other sectors; that GPCL also undertakes training through state of the art tailor made training modules for transfer of expertise, bid support services in international funded projects, independent procurement review of multilaterally funded projects spread across the globe and procurement audits, whereas no such segmental financials are available qua diversified nature of services being provided by the GPCL. GPCL has been ordered to be excluded by the coordinate Bench of the Tribunal in Philip Morris Services India S.A. vs. DDIT (supra) as a comparable vis-& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he procurement in time bound and efficient manner within the framework of government regulations and guidelines of international institutions, which is not such a characteristic of the business of the assessee. The business model itself is different, let alone the disproportion is of the financials. We have no hesitation, in the face of the profile of Global Procurement Consultants Ltd., that it is not a good comparable at all to the assessee and for that matter to any private marketing support service provider, as such we direct the Ld. TPO to exclude this company from the list of comparables to benchmark the international transaction of the assessee in providing the market support services to its AEs." 23. Hon'ble High Court confirmed the aforesaid exclusion of GPCL as a comparable. 24. As per the ratio laid down by Hon'ble Delhi High Court in Rampgreen Solutions Pvt. Ltd. vs. CIT ITA 102/2015 order dated 10.08.2015, the functions of a company is to be taken as comparable cannot be ignored. So, since functions of GPCL are different vis-à-vis the taxpayer, it cannot be taken as a suitable comparable. 25. In view of the facts and circumstances and following the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t growing payroll business. 30. Coordinate Bench of the Tribunal in Philip Morris Services India S.A. vs. DDIT (supra) excluded TSRDL from the final set of comparables by returning following findings :- "39. On a perusal of record and the Annual Report of TSR Darashaw Ltd. we find that TSR Darashaw Ltd. is mainly into the payroll process outsourcing with a new global payroll ERP application called RAMCO for its payroll business. Further the order of Ld. TPO itself reads that TSR Darashaw Ltd. undertakes the registrar and transfer agent activity functions for equity and preference shares, venture instruments and bonds, commercial paper and private placements. Moreover this company, under this segment also undertakes transfer processing customer/query handling and correspondence split/consolidation/renewal of certificates, processing and distribution of interest to slash dividend warrants, payments by physical warrants/through ECS/director credited. In the segment of Records Management activity, TSR Darashaw Ltd. undertakes storage, retention and tribal of physical and/or electronic records. In the segment of payroll and trust fund activity, TSR Darashaw Ltd. handles the activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R for the taxpayer contended that DRP/TPO had not considered foreign exchange gain or loss as the case may be by treating the same non-operative income of the taxpayer by treating the PLI of the taxpayer as well as the comparables. 35. By now, it is settled principle of law that foreign exchange gain or loss on account of international transactions entered with its AE in the ordinary course of business i.e. in provision of business support services, the same cannot be treated as non-operating in nature. 36. Hon'ble Delhi High Court in case of Pr.CIT vs. B.C. Management Services (P) Ltd. (2018) 403 ITR 45 (Delhi) held that, "foreign exchange gain/loss is part of the operating income for ALP determination. In Pr. CIT vs. Ameriprise (P) Ltd. ITA No.206 of 2016 dated 23.03.2016, Hon'ble Delhi High Court held that, "foreign exchange gain earned by the taxpayer which is in relation to trading items and emanating from international transactions, direct value derived from it cannot be treated as nonoperating losses and gains." 37. In view of the matter, we are of the considered view that TPO/DRP have erred in not considering the foreign exchange gain or loss as operating income/expenses ..... 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