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TMI Blog2024 (1) TMI 841X X X X Extracts X X X X X X X X Extracts X X X X ..... e different function and revenue and activity. Majestic Research and Solution Ltd. was engaged in various activity like study, design, data collection etc. and the function was not comparable with the assessee company, thus we direct the assessing officer to exclude this company from the list of comparable. - SHRI ABY T VARKEY, JUDICIAL MEMBER SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For the Appellant : Vijay Mehta For the Respondent : Anil Sant ORDER Per Amarjit Singh (AM): This appeal filed by the assessee is directed against the order passed by the ld. CIT(DRP)-1 dated 25.03.2021 for A.Y. 2016-17. The assessee has raised the following grounds before us: 1.1. That the learned Assessing Officer (referred to as the learned AO') erred on facts and in law in completing assessment under section 144C(13) read with section 143(3) of the Income-tax Act, 1961 (the Act') at income of INR 276,61,63,621 as against returned income of INR 194,22,84,460 in making adjustments to the international transactions pertaining to software development, Information technology enabled services, marketing support services and on account of employee stock optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warrants a cost-plus mark-up. Specific Grounds Working capital Adjustment: 1.11. That on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in rejecting working capital adjustments to the Profit Level Indicator (PLI) of comparable companies as required by the Rule 10B(3) read with Rule 10B(1)(e) of Income-tax Rules, 1962 (the Rules). Specific Grounds - Deduction of education cess: 1.12 That on the facts and in the circumstances of the case and in law, the Ld. DRP erred in not allowing the Appellant's claim for deduction of education cess (including secondary and higher education cess) amounting to INR 1,95,78,228 as paid by the Appellant for AY 2016-17. 2. The fact in brief is that return of income declaring total income of Rs. 194,22,84,460/- was filed on 25.11.2016. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 15.09.2017. The assessee was engaged in the business of networking software development services. In this case a reference u/s 92CA(1) of the Act was made to the Transfer Pricing Officer on 03.10.2018 to examine the arm s length price of the transaction between the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee segment: Axis Integrated Systems Limited Asian Business Exhibition Conferences Limited In its response the assessee submitted that Axis Integrated system limited was not functionally comparable and therefore should be rejected. However, the TPO has not agreed with the response of the assessee and stated that the DRP in its direction for assessment year 2015-16 has upheld this company as functionally comparable therefore, same was included by the TPO in the final list of comparable. The final list of comparable taken by the TPO was as under: Name of Comparable PLI % (OP/OC) Keystone Integrated Marketing Services Private Limited (Seg) 13.93% Focus Suites Solutions Services Private Limited 11.83% Axis Integrated Systems Limited 17.36% Killick Agencies and Marketing 19.24% Majestic Research Services 20.53% Average 16.58% After taking the aforesaid comparable the arm s length value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectorate General of Foreign Trading, customers/ excise and tax related services which were in the nature of professional consultancy services. With the assistance of ld. Representative we have perused the decision of coordinate bench of the ITAT in the case of the assessee itself on similar issue on identical facts for assessment year 2013-14 vide ITA No. 7412/Mum/2017 dated 30.08.2022 and the relevant extract of the decision is reproduced as under: 6. We have heard the rival submissions and perused the material on record. We note that the Marketing Support Segment of the Appellant was engaged in providing sales and marketing services to the AEs. According to the functional profile of the AISL, as per the extracts of its websites placed on record, AISL was engaged in providing services related to Directorate General of Foreign Trade, Customs/Excise Service Tax related services, which are in the nature of the professional consultancy services as opposed to sales and marketing support services provided by the Appellant. Further, AISL was providing liaison services to large number of customers as opposed to the Marketing Support Segment of the Appellant which was providing supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Marketing Limited and Majestic Research Services and Solution Limited companies in its transfer pricing study report for comparatively analysis for marketing support services segment and requested to exclude these companies as comparable because of functional dissimilarity. During the course of appellate proceedings before us the ld. Counsel referred page no. 144 of the paper book pertaining to copy of directors report in respect of Killick Agencies and Marketing Ltd. and submitted that this company is functionally different from the assessee and it is engaged in totally different set of activities. He further submitted that Killick Co. is not a service provider and acts as agent for various foreign principals for sale of dredgers, dredging equipment etc,. He also submitted that its income and expenditure and functions were different as mainly it has earned commission and service income from its agency function. He also referred page no. 194-198 of the paper book pertaining to the profit and loss account and other pages of paper book and submitted that Killick was paying royalty of approximately 30% of the Revenue which was different from the assessee company. The ld. Counsel has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly analyzed the facts and has concluded that the company is functionally similar to the assessee. He submitted, it cannot be said the DRP has not applied its mind properly to assessee s objections, as accepting assessee s contentions some of the comparables selected by TPO have been excluded. Thus, he submitted, the company may be retained as comparable. 16. We have considered rival submissions and perused the material on record. 17. After analyzing the functional profile of the comparable qua the assessee, we find, the company is more or less into earning commission income being an agent of certain overseas entities specialized in manufacturing and sale of dredgers, dredging equipments, rudder propellers etc. Whereas, assessee provides sales and support services including warranty and maintenance services. Therefore, due to significant differences in the functional profile of the assessee and the selected comparable, we hold that this company cannot be treated as comparable to the assessee. Accordingly, assessing officer is directed to exclude this company from the list of comparables. The ld. Counsel also submitted that ITAT Mumbai in the case of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP only due to high margins and not on functional dissimilarity and that the said aspect of functional dissimilarity cannot be argued before this tribunal for the first time. We find from page 16 of the order of the Id. DRP that assessee had specifically objected the functional dissimilarity of this comparable company with that of the assessee company. Hence, the argument advanced by the Ld. DR in this regard is dismissed. We also find that from the financials of the said comparable company that no segmental details are available in respect of income from services derived by the assessee. Hence there is no detail available as to what extent of service income derived by the said company out of rendering marketing supporting services, if any. Hence, based on functional dissimilarities and also in the absence of segmental details for marketing support services, if any, we hold that this comparable company deserves to be excluded from the list of comparables chosen by the Id. TPO and upheld by the Id. DRP for the purpose of determination of arms length margin 21. Respectfully following the above said decisions, we direct the Assessing Officer/TPO to exclude Axis Integrated Syst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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