Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: Central Excise rule to resale the machines to a new company :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARDS :: due date for vat payment :: VAT Audit :: empanelment :: TDS :: ACCOUNTING STANDARD :: form 3cd :: articles on VAT and GST in India :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: TAX RATES - GOODS TAXABLE @ 4% :: cpt :: list of goods taxed at 4%
 
 
From the Courts »
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21
 CHAUDHARY SKIN TRADING COMPANY Vs. PR. COMMISSIONER OF INCOME TAX-21
  Sushila Devi vs. CIT (Delhi High Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 Deputy Director Of Income Tax Vs. Virage Logic International
 Commissioner Of Income Tax-3 International Taxation Vs. Virage Logic International India
 Pr. Commissioner Of Income Tax-06 Vs. Moderate Leasing And Capital Services Pvt. Ltd.
 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

M/s. Metso Minerals (India) Pvt. Ltd. C-227, Ground Floor, Western Marg, Near Garden of five Senses, Paryavaran Complex, New Delhi 110 030 Vs. DCIT, Circle 6(1) New Delhi.
August, 31st 2015
          IN THE INCOME TAX APPELLATE TRIBUNAL
              DELHI BENCHES : "I-2" : NEW DELHI

        BEFORE SHRI I.C. SUDHIR , JUDICIAL MEMBER
                           AND
      SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

                      ITA No: 2449/Del/2014
                     Asstt. Year : - 2009-10

M/s. Metso Minerals (India) Pvt. Ltd.   Vs.            DCIT,
C-227, Ground Floor,                                   Circle 6(1)
Western Marg,                                          New Delhi.
Near Garden of five Senses,
Paryavaran Complex,
New Delhi ­ 110 030
(PAN AAACS3407L)
    (Appellant)                         (Respondent)

                            And

                    ITA No: 1205/Del/2014
                     Asstt. Year : - 2009-10

DCIT,                 Vs.       M/s. Metso Minerals (India) Pvt. Ltd.
Circle 6(1)                    C-227, Ground Floor, Western Marg,
New Delhi                      Near Garden of five Senses,
                               Paryavaran Complex,
                               New Delhi ­ 110 030
                               (PAN AAACS3407L)
    (Appellant)                        (Respondent)


 Assessee by  : Shri Ajay Vohra, Sr. Advocate
                 Shri Neeraj Jain, Advocate
                & Shri Puneet Chugh, CA
 Department by : Shri R.K. Jha, Addl. CIT,DR

        Date of Hearing  : 09.06.2015
   Date of pronouncement : 28.08.2015
                                         2


                                     ORDER

PER INTURI RAMA RAO, AM

    These are cross appeals filed by assessee-company as well as by the

Revenue directed against the order of the assessment passed u/s 143(3) read

with section 144C of the Income-tax Act, 1961 for the assessment year 2009-

10. The assessee-company raised the following grounds of appeal in ITA No.

2449/Del/2014:-


     1.      That the assessing officer erred on facts and in law in determining the
             income of the appellant at Rs.15,90,82, 198 under Section 143(3) read
             with Section 144C of the Income-tax Act, 1961 ('Act') as against
             returned income of Rs.10,73,56,150.

     2.      That the assessing officer/ DRP erred on facts and in law in making
             adjustment of Rs. 4,85,04,301 to the income of the appellant on
             account of the alleged difference in the arm's length price of the
             international transaction of marketing support services undertaken by
             the appellant with its associated enterprises.

     2.1     That the assessing officer/DRP erred on facts and in law in re-
             characterizing the transaction of provision of marketing support
             services undertaken by the appellant as commission agent services, by
             misinterpreting the following clauses of the agreement:

     (i)     The assessee is under no obligation to increase the turnover of its AE.
     (ii)    The assessee shall not be responsible for acting as mediator between its
             foreign AE and its customers.
     (iii)   There is no responsibility towards the customer neither there is any
             clause of obligation towards any after sales service.
     (iv)    The assessee has no obligation for recovery from the customers.
     (v)     The assessee does not have any authority to execute contract.
     (vi)    The payment mode is fixed percentage of sale value of goods.

     2.2     That the assessing officer/ORP erred on facts and in law in not
             appreciating that in terms of Marketing Support Services agreement
                                     3


       entered by the appellant with its associated enterprise, the scope of
       services provided by the appellant were limited to:
(i)    Promotion of AEs products in the India

(ii)   Providing information on any business opportunities that AEs may have

       in the India in relation to its products.

2.3    That the assessing officer/ORP erred on facts and in law in re-
       characterizing the transaction of provision of marketing support
       services as commission agent services, merely on the premise that the
       appellant is receiving fixed percentage of service fee on the FOB value
       of invoices raised by the AE on the customers in India.

2.4    That the assessing officer/ORP erred on facts and in law in concluding
       that the reason for dip in margins of the appellant in its marketing
       support service segment is due to the mutual adjustment between the
       associated enterprise and the appellant.

2.5    That on the facts and circumstances of the case and in law, the
       assessing officer/ORP ought to have allocated operating cost to the
       marketing support service segment on a rational basis instead of
       arbitrarily allocating disproportionately higher costs to this segment.

2.6    That the assessing officer/ORP erred on facts and in law in undertaking
       a fresh search of comparable companies engaged in the business of
       providing commission agent services and thereby rejected the
       benchmarking analysis undertaken by the appellant in its transfer
       pricing document considering companies engaged in providing
       marketing support services.

2.7    That the assessing officer/ ORP erred on facts and in law in considering
       Priya International Limited having abnormally high profit margin in the
       final set of comparable companies considering segment profitability of
       its commission segment, not appreciating that the said segmental
       profitability of the company was arrived at gross level without
       allocating indirect and un-allocable expenses.

2.8    That the assessing officer/ DRP erred on facts and in law in considering
       British Metal Corpn. India Private Limited a company functionally not
       comparable and showing abnormally high profit margin in the relevant
       segment, in the final set of comparable companies.
                                       4


2.9      That the assessing officer/ DRP erred on facts and in law in considering
         Publicity Society of India Ltd. and P L Worldways Ltd. which are
         functionally not comparable and are showing abnormally high profit
         margin in the relevant segment, in the final set of comparable
         companies.

2.10 That the assessing officer/ DRP erred on facts and in law in considering
     British Metal Corpn. India Private Limited, Priya International Limited
     and Publicity Society of India Ltd. as part of the comparable companies
     for bench marking of international transaction of market support
     services when these companies were not considered as comparable in
     the previous years nor in the subsequent years.

2.11 Without prejudice, that the assessing officer/ DRP erred on facts and in
     law in considering incorrect profit margin of certain comparable
     companies:

         Name of the company        Margin considered by TPO   Actual margin
         PL Worldways Ltd.          39.60%                     4.52%
         Publicity Society of India 71.17%                     37.14%
         Ltd. (Seg.)


3.       That the assessing officer/DRP erred on facts and in law in making an
         ad- hoc disallowance of 50% of the professional fees of Rs. 60,29,221
         paid by the appellant to Metso Minerals (Mumbai) Private Limited
         ('Metso Mumbai') invoking section 40A(2)(a) of the Act.

3.1      That the assessing officer/DRP erred on facts and in law in making
         arbitrarily disallowance of 50 percent of the professional fees paid to
         Metso Mumbai without giving any cogent basis and on the basis of
         his/its conjecture and surmises.

3.2      That the assessing officer/ORP erred on facts and in law in making an
         ad- hoc disallowance of professional fees paid by the appellant to
         Metso Mumbai, allegedly holding that:

      (i) There is no justification for the payment at the rate of Rs. 600 per hour.

     (ii) There are no details of what work has been done by the engineers of
          Metso Mumbai and what has been the contribution to revenue of the
          appellant.
                                     5


 (iii)   The appellant is also rendering such services to its related parties.
         Accordingly, there is rationale to receive such services from Metso
         Mumbai.

 (iv)    The rates agreed between the parties may not be at arms length price
         as the services are rendered to group companies.

3.3      That the assessing officer/ORP erred on facts and in law in concluding
         that the professional charges paid by the appellant to Metso Mumbai is
         a mechanism to divert income to Metso Mumbai as it is incurring losses
         for last several years.

3.4      That the assessing officer/ORP erred on facts and in law in not
         appreciating the fact that the design and drawing services availed by
         the appellant from Metso Minerals were availed for timely delivery of
         projects and to maintain confidentiality of the projects undertaken by
         the appellant.

 3.5     That the assessing officer/ ORP erred in fact and in law in making an ad-
         hoc disallowance of professional fees incurred by the appellant on
         account of drawings and designs received from Metso Mumbai without
         bringing on record the fair market value of such design and drawing
         services availed by the appellant.

3.6      Without prejudice, the assessing officer/ORP erred on facts and in law
         in not appearing that the profit earned by the appellant in its
         manufacturing segment were considered to be at arms length price by
         the TPO and accordingly, there could not be a case of shifting of profits
         by the appellant to Metso Mumbai by way of payment of professional
         fees.

4.       That the assessing officer erred on facts and in law in making
         disallowance of Rs 2,07,137 on the basis of information furnished by
         AIR as transaction against credit card -bills, alleging the same as
         unexplained expenditure.

4.1      That the assessing officer failed to follow the directions of DRP by not
         providing the appellant the details of the information furnished by the
         AIR based on which the disallowance is made.

5.       That the assessing officer erred on facts and in law in levying interest
         under Section 2348 and Section 234C of the Act.
                                           6




2.     Briefly stated the facts of the case are that the appellant [Mesto Minerals

(India) Pvt. Ltd.] is a company incorporated under the provisions of the Companies

Act, 1956. It is engaged in the business of manufacturing and trading of mineral

processing equipment. The return of income for the assessment year 2009-10 was

filed on 27th September, 2009, disclosing taxable income of Rs. 10,73,56,150/-. The

case was selected for scrutiny assessment. Since the appellant reported international

transaction in its report in form 3CEB, a reference under Section 92CA(3) was made

to Transfer Pricing Officer (TPO)-1(3), New Delhi.


3.     It is reported that during the year under consideration, the appellant entered

into the following international transactions with its AEs:


       (i)     Purchase of raw materials;
       (ii)    Purchase of spare parts:
       (iii)   Purchase of machinery;
       (iv)    Purchase of fixed assets;
       (v)     Provision of market support services; and
       (vi)    Reimbursement of expenses

4.     In support of the appellant's claim that the price charged by it for the

service rendered to its AE was at arm's length, the appellant filed a report in

Form 3CEB as required under the provisions of Section 92E of the Act. The

appellant also made a detailed analysis of international transactions. The

appellant had adopted transactional net margin method (TNMM) as the most

appropriate method for determining the arm's length price. The operating

profits to total cost was adopted as the profit level indicate ("PLI"). In the
                                          7


transfer pricing study, the appellant had chosen 17 comparables and their

weighted average operating profit margin was worked out at 5.82% as below:




Sl. No.                 Name of the company                   Weighted
                                                               average
                                                              (OP/QC)
     1.     A2Z Maintenance & Engineering Services Pvt. Ltd     0.99%
     2.     Ambals Advertisers (India)                          0.77%
     3.     Apollo Sindoori Hotels                              0.31%
     4.     Bonjour Bonheur Forex Spot Pvt. Ltd.                0.96%
     5.     Cyber Media Events                                  7.87%
     6.     DLF Services Ltd.                                   9.47%
     7.     IDC (India) Ltd.                                   15.67%
     8.     India Tourism Development Corporation              -0.92%
     9.     Indo Asia Leisure Services                          1.43%
     10.    Kerala Travels Interserve                           7.84%
     11.    Mid Day Multimedia                                 -1.05%
     12.    Overseas Development & Employmen Promotion          7.21%
            Consultants Limited
     13.    Pearl International Tours & Travels                4.06%
     14.    Shrayans Resources                                 3.33%
     15.    Times Innovative Media Limited                     0.37%
     16.    Trade Wings Limited                               15.61 %
     17.    Travel Corporation (India)              --        20.15%
            Ltd.                                   -

Arithmetic Mean                                                5.82%




5.         The appellant claimed that since the margin for marketing

supportive services segment was at 10.23% in its case, which was more

than the comparables profit margin of 5.82%. The international

transaction for provisions for marketing support services was at arm's

length price. As against this, the Transfer Pricing Officer (TPO), made the

flowing observations:
                                          8


              "It has been observed that in earlier years the commission
              being charged by the assessee from its US AE was at the
              rate of 10%. For e.g. in the F. Y 2007- 08 the commission
              from US on the sale of Rs.9,02,36,684 was RS.9048360
              i.e.10% and this was based on written agreement between
              them. The sale in the US segment increased in the year
              under consideration from 9.02 crores to 23.09 crores. But
              the assessee instead of showing the commission @ 10%
              reported only a commission of Rs.1.15 crores i.e. @ of 5%. It
              can be seen that as the parties were related to each other
              therefore      they      opted      to      reduce       the
              commission as a mutual arrangement so that the assessee
              does not have to pay taxes on the increased commission. As
              a matter of convenience since the parties are associated
              with each other they revised the agreement and reduced the
              commission from 10% to 5%."

      The TPO rejected the comparables selected by the appellant by

holding that none of comparables selected by the appellant were

functionally comparable as the appellant mere commission agent and

therefore he proceeded to select his own comparables and selected the

following comparables earning commission income:


         S. No.        Company Name                         OP/TC
         1.          Killick Agencies & Marketing Ltd.
                                                                    29.24%
                     (seg)
         2.        ' P LWorldways Ltd.                              39.60%
         3.          Publicity Societyof India Ltd. (seg)           71.17%
         4.          Cox & Kings.                                   69.81%
         5.          ICC International Agencies Limited             11.83%
         6.          British Metal Corporation (India)
                                                                    62.96%
                     Pvt Ltd.
         7.          Priya International Limited
                                                                    82.19%
                     (Indenting Segment)
                     Arithmetic mean                                52.40%
      Accordingly, the TPO vide his order dated 8th January, 2013 passed an

order under section 92CA(3) of the Act determining the arm's length price at

Rs. 5,87,64,787/-. Subsequently, this order was rectified under Section 154 of
                                      9


the Act vide his order dated 26th February, 2014 determining the adjustments

at Rs. 4,85,04,301/-.


6.    Against the above said adjustment proposed by the Transfer Pricing

Officer the Assessing Officer vide its draft order dated 5th March, 2013 passed

under section 144C of the Act incorporated the above adjustments. The draft

assessment was duly served on the appellant. Being aggrieved by the draft

assessment order, the appellant filed objections before the Dispute Resolution

Panel. The Dispute Resolution Panel (`DRP') vide order dated 26.12.2013

directed the TPO to exclude Killick Agencies & Marketing Ltd. And Cox & Kings

as these companies had substantially high related party transactions.

Accordingly, the Assessing Officer passed final assessment order dated 28th

February, 2014 making upward adjustment of on account of Transfer Pricing

of Rs. 4,85,04,301/-; for profession fees paid to Metso Minerals (Mumbai) Pvt.

Ltd. of Rs. 30,14,610/- and for unexplained expenditure reflecting in ITS

Report of Rs. 2,07,137/-. Being aggrieved, the appellant as well the Revenue

had come up with the present appeals before us.


7.    During the course of hearing, the learned Counsel for the appellant had

submitted that the level of value addition in a distribution activity can be

compared with an agency/marketing support function only at gross margin

level. All functions related to trading such as procurement, storage,

distribution and other related activities are not undertaken for agency/

marketing support function. Further, in the market support segment the
                                          10


appellant neither performs any function related to inventory management nor

assume inventory risk. Hence, selling and administration costs should ideally

be split in gross margin ratio and not in the ratio of sales. It would be

appreciated that the allocation of expenses at gross margin level provides a

level playing field for the two activities, viz., distribution and commission/

marketing support service activities for the reason that the effect of the

turnover / cost of goods sold which is not relevant in the agency/ marketing

support service activities, is not taken into account for allocating common

expenses.


Reliance in this regard is placed on the following decisions:

·      Varian India Private Limited vs. ADIT (ITA 160/Mum/2013)

·      DSM Anti-Infective India Ltd vs ACIT (ITA/Chd/2011)

·      Mitsubishi Corporation India Pvt Ltd vs. DCIT (ITA No 5042/Del/2011

7.2.   It was submitted that if the allocation of expenses in proportion of the gross

margin is done, it results in allocation of only Rs.2,71,47,935 towards

agency/marketing     support    service   activity   and     OP/OC   ratio   of   the

commission/marketing support segment at 354.58%.


       Without prejudice, it was submitted that if the expenses are allocated in the

proportion of gross margins, the transfer pricing adjustment in respect of agency

service functions and marketing service functions taking OPITC of comparable

companies adopted by TPO, would be nil.
                                          11





 Income from Market Support Services                               12,34,09,807
 Total income from market support                                  12,34,09,807
Cost for market support (on basis of allocation                     2,71,47,935
done on the basis of GP Ratio)

 Total aggregate cost                                               2,71,47,935
 Arm's length agency/ marketing support servi                      4,16,85,654
(considering a mark-up of 53.55% as taken by the -
                      TPO
 after DRP Order) (A)                              (153.55% of171,271,47,935)
  Marketing support and Agency service income                      12,34,09,807
  the appellant
            (B)



      It is clear from the above working, after making the correct allocation of

expenses, the value of international transaction from marketing support services at

Rs. 12,34,09,807 is more than the arm's length price at Rs. 4,16,85,654 (after taking

into consideration the OP/OC of the comparables at 53.55%) as determined by TPO.


      In view of the above, it was submitted that if the segmental profitability

computed after allocation of expenses in the proportion of Gross Profit then the

international transaction of rendering market support services is at arm's length

price. Hence, no transfer pricing adjustment is warranted.


7.2   Without prejudice to the above argument, the learned counsel had assailed

the rejection of transfer pricing study undertaken by the appellant and the

comparables identified therein without assigning any reason. He contended that the

TPO has summarily rejected the transfer pricing study undertaken by the appellant

and the comparables identified therein without ascribing any reason. In this

connection, he placed reliance on the decision of Hon'ble Jurisdictional High Court in
                                            12


the case of Li & Fund India (P) Ltd.: 361 ITR 85, before this Hon'ble Court, the

assessee adopted TNMM and computed PLI at operating profit margin/total cost.

The Hon'ble Delhi High Court, held that where all elements of a proper TNMM were

detailed and disclosed in the assessee's study reports, care ought to be taken by the

tax administrators and authorities to analyze the same in detail and then proceed to

record reasons why some or all of them were unacceptable. The Hon'ble Court also

referred to Circular Nos. 12 and 14 of 2001, wherein it was clarified that where the

onus as to determination of ALP stood discharged by the assessee, the assessing

officer could intervene only if the AO/TPO had, on the basis of material or

information or document in his possession, all the information that price charged in

an international transaction had not been determined in accordance with the Act.


Further, he submitted that the comparables selected by the TPO are functionally not

comparable with the appellant and the TPO has erroneously selected the companies

earning commission income. According to the learned counsel, the following

companies selected by the TPO should be rejected:


 S.No           Company Name                       Reasons for rejections
 1.             British Metal Corpn India        The company provides agency
                                                 services for non-ferrous metals,'
                Private Limited                  precious. metals, fertilizers and
                                                 cooking coal. These products
                                                 are- completely different from
                                                 the products for which assessee
                                                 provides    marketing-     support
                                                 services.

 2              Priya International              The company is engaged in
                                                 provision of commission agency
                                                 and trading of chemicals. As per the
                                                 animal report of the company, . the
                                                 company is engaged In providing' .
                                                 agency services for sale of chemicals
                                                 which forms part of the indenting
                                         13

                                              services. The chemical business is
                                              completely different market business
                                              which cannot be compared with the
                                              provision of marketing . support
                                              services         in'the         heavy
                                              machinery business. Further, in the
                                              annual report of the company- there
                                              is an unallocated segment for which
                                              complete details are not available.

3.          PL Worldways Limited              The company provides a wide
                                              gamut of travel related services viz.
                                              Corporate travel solutions, holiday
                                              travel,       event     management,
                                              conferences, cruises and air
                                              charters, which         are entirely
                                              different from the marketing
                                              support services rendered by the
                                              appellant.
                                              As per the annual report of the
                                              company, the company not only
                                              earns commission from air tickets
                                              sold but also earns transaction fees
                                              from its customer for sale of holiday
                                              packages and other travel solutions.
4.          Publicity Society of India        The company is a newspaper
            Limited                           publication company engaged in
                                              publication of wide variety of
                                              newspaper and publications. The
                                              company derives majority of its
                                              income from sale of newspapers
                                              and advertisement revenue.
                                              Further, the company also has a
                                              website `freepressjournal.in' which
                                              is a major source of revenue
                                              through        its   e-advertisement
                                              initiatives. As the majority of income
                                              comprises of advertisement revenue
                                              and sale from newspaper, the
                                              company is not functionally
                                              comparable to the marketing
                                              support services rendered by the
                                              appellant.



     After removing the above companies, average operating profit
                                     14


margin of the final list of comparable companies with an 11.83% as

under:

               Sl. No.     Company Name               OP/TC
                  1.       ICC          International 11.83%
                           Agencies Ltd.
               Arithmetic mean                        11.83%



        Therefore, it is submitted that since the OP/OC ratio of the

appellant in marketing support services segment at 10.23% falls within

the +/-5% range of the mean operating margin of 11.83% of the above

comparable companies, it was submitted that the international

transaction of provision of marketing support services undertaken by the

appellant satisfies the arm's length test and the adjustment made by the

TPO is liable to be deleted.

7.3 . In consistent Approach followed by the TPO :

        It is submitted that the Transfer Pricing Officer in the assessee's

own case for the all the preceding assessment years and successive

years    has     accepted the   benchmarking    analysis   of international

transaction of provision of marketing support services applying TNMM

method.

        The comparable selected by the appellant in its transfer pricing

study for the FY 2008-09 (AY2009-10) have either been accepted by

that TPO in the financial year 2009-10 (AY 2010-11) or FY 2007-08 (AY
                                          15


2008-09). The list of the comparables is tabulated as under:-



 Sl. No.      Name    of            the                       OP/OC(%)
              company
                                          F.Y. 2010           FY 2009           FY 2008


 1.           Asian         Business              18.22
              Exhibition          &
              Conference Ltd.
 2.           BVG Indian Ltd.                     25.60


 3.           Balmer Lawrie & Co.                     3.80
              Ltd.

 4.           Balurghat Technologies                  1.93
              Ltd.

 5.           Bonjour Bonheur Forex                   0.84               0.96    Not in base
              Spot Pvt. Ltd.                                                         set

 6.           Cyber Media     Events                  6.07               7.87              8.43
              Limited

 7.           DLF Services Limited                    8.47               9.47              9.47


 8.           IDC (India) Limited                 12.83                 15.67             15.34


 9.           Indo    Asia    Leisure                 3.50               1.43    Not in base
              Services Ltd.                                                          set

 10.          Kerala          Travels                 8.54               7.84    Not in base
              Interserve Ltd.                                                        set

 11.          Mid    Day   Multimedia                 -5.08             -1.05    Not in base
              Ltd.                                                                   set

 12.          Officer Care Services                   4.72
              Ltd.

 13.          Overseas Development                    9.88               7.21     Persistent
              &         Employment                                              losses during
              Promotion Consultants                                              FY 2006 and
              Ltd.                                                                  2007
                                       16


14.         Pearl     International            -3.28       4.06             2.91
            Tours and Travels Ltd.

15.         Sharyans     Resourses                 3.21    3.33        Different
            Ltd.                                                       business
                                                                          profile
                                                                       Financial
                                                                  Service prove
16.         Trade Wings Ltd.                   17.36      15.61             8.52


17.         Travel                             22.58      20.15           18.01
            Corporation(India) Ltd.

18.         A2Z Maintenance &           Not in base        0.99             0.99
            Engineering     Service         set
            Pvt. Ltd.
19          Ambal's      Advertisers   Turnover less       0.77      Insufficinet
            (India) Ltd.               than 1 Crores                information
                                                                       Director's
                                                                      report and
                                                                        company
                                                                      profile not
                                                                        available
20.         Appolo Sindoori Hotels     RPT to Sales        0.31              0.27
            Ltd.                        Ratio 85%

21.         India          Tourism      Persistent        -0.92             0.64
            Development                  Losses
            Corporation Ltd.
22.         Times        Innovative     Persistent         0.37             2.15
            Media Ltd.                   Losses

23.         Balmer Lawrie & Co.
            Ltd.

            Average                         8.19           5.82             6.21




      From the above table it would be· appreciated that the

comparables selected in the transfer pricing documentation in FY

2008-09 are accepted by the TPO in the previous and successive

years. Hence the rejection of the benchmarking done by the appellant
                                     17


is arbitrary and without any cogent reasons.


    It is submitted that the appellant is in the same business for a

number of years and the methodology used for benchrnarking the

international transaction has been consistently followed from year to

year. There has absolutely no deviation from this practice for all the

years. The department was also pleased to not make any variation to

the determination of arms length price for the said international

transactions keeping in view consistency and uniformity of approach

while determining the ALP for all the earlier years. Accordingly,

following the rule of consistency also, the same should be accepted by

the TPO in the year under consideration.


        In this connection, it is respectfully submitted that the Hon'ble

Supreme ourt has clearly laid down that where a fundamental aspect

permeating through the different assessment years have been found

as a fact one way or the ther, and the parties have allowed the

position to be sustained by not challenging the order, it is not allowed

to change the position in any subsequent year. The Supreme Court in

Radhasoami Satsang vs. CIT (193 ITR 321) has clearly laid down the

above rule of law by making the following observation:

    "One of the contentions which learned senior counsel for the Assessee raised
    at the hearing was that, in the absence of any change in the circumstances,
                                          18


      the Revenue should have felt bound by the previous decisions and no attempt
      should have been made to reopen the question. He relied upon some
      authorities in support of his stand. A Full Bench of the Madras High Court
      considered this question in T.M.M. Sankaralinga Nadar and Bros. Vs. CIT
      [1929] 4 ITC 226. After dealing with the contention, the Full Bench expressed
      the following opinion (p.242).

      The principle to be deduced from these two cases is that where the question
      relating to assessment does not vary with the income every year but depends
      on the nature of the property or any other question on which the rights of the
      parties to be taxed are based, e.g., whether a certain property is trust property
      or not, it has nothing to do with the fluctuations in the income; such questions,
      if decided by a court on a reference made to it would be res judicata in that
      the same question cannot be subsequently agitated."


      The Supreme Court in the recent decision in the case of Excel Industries

Limited 358 ITR295, following its earlier decision supra reiterated the law in

this regard.


      Reliance is" also' placed on' the forgoing decisions, wherein the

aforesaid settled principles as to consistency were applied in respect of the

issues relating to transfer pricing:


      (i)      Giesecke & Devrient        India   Private   Limited   vs.   DCIT   (ITA
               No.5400/De1/2010)

               72. The Assessee in its submission has stated that TPO has accepted the
               bench marking analysis of the Assessee in immediately preceding year
               (i.e. AY 2006-07) and immediately succeeding year (AY 2008-09) and
               has not drawn any adverse inference with regard to the international
               transaction pertaining to CVPS distribution business ... xxx ...

               73. We have considered the submission of both the parties and find
               considerable force in arguments of Ld. Counsel for the Assessee that
               there being no change in business profile of the Assessee, the
               comparables accepted in AY 2006-07 and AY 2008-09 could not be
               ignored ... xxx ... "
                                             19


       (ii)       The Hon'ble Delhi Tribunal in the case of McCann Erickson .India Pvt.
                  Ltd. vs. Addl. CIT (ITA No. 5871/DeI/2011), too held that "although the
                  principle of res-judicata is not applicable to the income-tax
                  proceedings, however, something material or adverse in nature, which
                  is having direct bearing on the peculiar facts and circumstances of the
              Name of the          Margin considered by TPO  Actual margin           case,
              Company                                                             has to
              P L Worldways Ltd. 39.60%                      4.52%
                                                                                       be
              Publicity Society of 71.17%                    37.14%
              India Ltd. (seg)
                                                                                  brought
                                                                                       on
                  record to draw the adverse inference".

       Reliance is also placed on the following judgements in which principle of

consistency was affirmed by the various courts:


       - Lloyds TSB Global Services Private Limited (ITA No. 5928/Mum/2012)
       - Brintons Carpets Asia P Ltd. (ITA No. 296/PN/10)
       - ARJ Security Printers (264 ITR 276)
       - Deutsche Asset Management (India) Private (ITA No. 7717/Muml2010)
       - Hosley India Private Limited (ITA No. 5904/De1/2010)
       - Nokia India Pvt. Ltd. [ITA No.551/DeI/2011]
       - M/s Lenovo (India) Pvt. Ltd. vs. ACIT [ITA No. 1457/Bang/2010]
       - L'Oreal India P. Ltd. (ITA No. 5423/Mum/2009)
       - NDS Services Pay-TV Technology Private Limited, ITA No. 10891Bang/2011

       In view of the above the benchmarking analysis undertaken by the appellant

in the transfer pricing study calls for being restored.

7.4    Without prejudice ­ Correct Margin (OP/OC) of the comparables companies:

       The TPO vide its order has considered incorrect margin of the following

companies in the comparable set:


  Name of the comparables companies Incorrect margin Correct margin
  PL Worldways Limited                         39.60%               4.52%
  Publicity Society of India Limited           71.17%              37.14%
                                          20


       The appellant pointed out the above computational error before the

TPO and DRP and the same was not accepted or considered by them without giving

any reason.


       After considering the correct margins the revised arithmetic mean of the

comparable companies is as follows :


        No.      Company Name                                    OP/TC
        1.       P L World ways Ltd.                             4.52%
        2.       `Publicity Society of India Limited'            37.14%
        3.       ICC International Agencies Limited              11.83%
        4.       British Metal Corporation (India) Pvt. Ltd.     62.96%
        5.       Priya International Limited                     82.19%
                 (Indenting Segment)
                 Arithmetic mean                                 39.73%


       Alternatively without prejudice, the revised TP adjustment after considering

the correct arithmetic mean would be as follows:


Particulars                  Incorrect adjustment in    Adjustment after correct
                             the AO order               margin as per appellant
Operating cost of the                       111,959,693               111,959,693
assessee (as per TP Order)
Arm's length margin-                              53.55%                       39.73%
OP/OC
Arm's length price (A)                      171,914,109                   171,914,109
Price shown in                              123,409,807                   123,409,807
international transaction
(B)
Transfer Pricing                               48,504,302                  33,029,233
adjustment


       Without prejudice, Transfer Pricing adjustment, to be sustained, if any, should

be restricted to Rs.3,30,29,233.
                                        21


      On the other hand, learned Sr. DR relied on the orders of the lower

authorities.


8.    We have heard the rival submissions and perused the material on

record. At the first instance, we shall now deal with the comparables chosen by

the Transfer Pricing Officer:


(i) British Metal Corpn. Indian Pvt. Ltd.


      This company was selected as comparable by the Transfer Pricing

Officer. Before us, the appellant objected to inclusion of this company as

comparable on the ground that this company provides agency services for non-

ferrous metals, precious metals, fertilizers, and cooking coal and whereas the

appellant provides market supporting services for which it earns commission in

respect of equipment for minerals and rock processing. The appellant also

brought on record the details to demonstrate the nature of business carried on

by this company. It is clear from the page nos. 695 & 696 of the paper book

that this company is engaged in providing agency services in non-ferrous

metals, fertilizers and cooking coal etc. In our considered opinion, the nature

of services rendered by this company is entirely different and cannot be

considered as a comparable. Moreover, the appellant received fixed fee from

its AE. Therefore, we direct that this company be omitted from the list of
                                         22


comparables for the period under consideration for the purpose of

determining arm's length price of the international transaction in question.


(ii) Priya International


      This company was selected as comparable by the Transfer Pricing

Officer. It is seen from the record that the Transfer Pricing Officer included this

company in the final set of comparables selected by him. The appellant

brought on record substantial factual evidence to establish that this company

is functionally dissimilar and different from the appellant and therefore is not

comparable. It is evident from page no. 740 to 743 of the paper book that this

company is engaged in the provision of commissioning agency and trading of

chemicals. This function is totally different from marketing services for the

equipment of minerals and therefore, this company should be excluded for the

purposes of comparison while determine the arm's length price of the

international transaction in question.


(iii) PL Worldways Ltd.


This company was selected as comparable by the Transfer Pricing Officer. It

earns commission from air ticket sold and also transactional fees from its

customer for sale of holiday packages. This function is totally different from

the functions carried out by the appellant and therefore, this company should
                                         23


be excluded for the purposes of comparison while determine the arm's length

price of the international transaction in question.


(iv) Publicity Society of India Ltd.


This company was selected as comparable by the Transfer Pricing Officer. It is

contended that this company cannot be included in the list of comparables as

it is engaged in the business of publication of news papers and publications. To

demonstrate this fact, the appellant had filed the annual financial statement of

this company. We find substance in the submissions made by the learned

Counsel for the appellant and therefore, this company should be excluded for

the purposes of comparison while determine the arm's length price of the

international transaction in question.


8.1   Learned Counsel for the appellant submitted before us that if the above

aforesaid comparables are excluded from the list of the comparables chosen by the

transfer pricing officer then the profit margin of the appellant would well within + 5

per cent range of the arithmetic mean of the remaining comparables companies

and therefore the price received by the appellant would be considered as at arm's

length. He prayed for a limited direction to the Transfer Pricing Officer on the lines

set out above and determine the arm's length price. It also submitted that the other

issues raised by the appellant in the grounds of appeal need not be gone into.


8.2   We are of the view that the prayer sought for by learned counsel for the

appellant is acceptable and accordingly, the Transfer Pricing Officer is directed to
                                           24


compute the arm's length price after excluding the comparable companies dealt with

in this order. Accordingly, the ground nos. 2 to 2.11 are disposed of.


9.     Ground nos. 3 to 3.6 relate to challenge of addition on account of

disallowance of 50% of profession paid to M/s Metso Minerals (Mumbai) Pvt. Ltd.

The brief facts leading to this addition of Rs. 30,14,610/- under Section 40A(2)(a) of

the Act are as follows:


       During the previous year relevant to the AY 2009-10, the appellant made

payment to its subsidiary M/s Metso Minerals (Mumbai) Private Limited

("Metso Mumbai") amounting to Rs. 60,29,221 towards drawings, design &

engineering services. The appellant, during the year has also received payment

of Rs 9,67,387 for similar services rendered to Metso Mumbai.


       The assessing officer, in the impugned order, disallowed 50% of the aforesaid

payment made by the appellant to Metso Mumbai under section 40A(2)(a) of the

Act, allegedly holding that:


       (i)     There is no justification for the payment at the rate of Rs. 600 per hour;

       (ii)    There are no details of what work has been done by the engineers of
               Met so Mumbai and what has been the contribution to revenue of the
               appellant;

       (iii)   The appellant is also rendering such services to its related parties.
               Accordingly, there is rationale to receive such services from Metso
               Mumbai;

       (iv)    The appellant has not furnished any comparable case which would
               show that the rates are as per prevailing market rates;
                                             25


        (v)    Professional services have been rendered to Metso Mumbai and other
               third parties in spite of tight delivery schedules.

        It is submitted before us that the aforesaid disallowance made by the

assessing officer is without appreciating the following underlying facts of the case of

the appellant and the need for receiving services from Metso India:


(i)     The appellant, under its project engineering segment, is engaged in diversified
        activities, including, (a) Bulk Material Handling (b) activities such as stock re-
        claimer, Wagon Tippler & designing for engineering services (c) supply of
        equipments / materials and (d) erection and commissioning of the plant!
        projects.

(ii)    Since the appellant is engaged in diversified activities, in order to facilitate and
        manage delivery of goods and services on time, while handling multiple
        projects simultaneously, it is necessary for the appellant to delegate some
        part of the" design and drawing work to outside agency, on requirement basis.
        This is also required to avoid penalties/damages claimed by the customers on
        delay in delivery of goods and services.

(iii)   Since Metso Mumbai has requisite expertise to render such services on time
        to time basis with fundamental quality of goods and services, it is incumbent
        upon the appellant to engage Metso Mumbai for rendering such services.

(iv)    Further, since Metso Mumbai is group entity of the appellant, confidentiality
        and secrecy of the products for which the drawings are made are kept secret.



        In order to substantiate its claim and corroborate the aforesaid, the appellant,

during the course of assessment proceedings vide submission dated 25.02.2013

submitted the following documents:


1)      The details of projects for which services were availed from Metso Minerals.
        The number of hours spent by Metso Mumbai on each was also submitted;

2)      Copy of invoices issued by Metso Mumbai;
                                          26


3)    Name projects for which the appellant company has rendered services to
      Metso Mumbai;

4)    Copy of invoices raise by the appellant for rendition of services to Metso
      Mumbai;

5)    Details of the qualified engineers of the both companies who have rendered
      the professional work of engineering and designing services.

      The DRP vide its order dated 26.12.2013 rejected the objection of the

appellant against the addition made by the assessing officer allegedly holding that

the rate of payment made by appellant against such professional services are higher

and susceptible as Metso Mumbai was in losses.


      The learned Sr. Counsel submitted before us that it is a settled position as laid

down in the following decisions is that whether any expenditure is required to be

incurred for the purpose of business and the reasonableness of the quantum thereof

has to be judged from the point of view of the businessman and not of the Revenue:


      -   CIT v. Malayalam Plantations Limited: 53 ITR 140 (SC)
      -   CIT v. Wa1chand & Co. etc. (1967) 65 ITR 381
      -   J K Woollen Manufacturers v. CIT: 72 ITR 612(SC)
      -   CIT v. Birla Cotton Spg. And Wvg. Mills: 82 ITR 166 (SC)
      -   Madhav Prasad Jatia v. CIT UP, 118 ITR 200 (SC)
      -   S.A. Builders Ltd. vs. CIT : 288 ITR 1 (SC)
      -   CIT v. Rockman Cycle Industries Ltd.: 331 ITR 401 (P&H) (FB)
      -   CIT v. Bharti Televentures Ltd: 331 ITR 502 (Del)
      -   CIT vs. EKL Appliances Ltd. : ITA No. 1068/2011 & 1070/2011 (Del HC)

      It was further submitted that for invoking the provisions of section 40A(2) of

the Act, the onus lies upon the assessing officer to prove that the payment is

excessive or unreasonable having regard to the fair market value of goods or

legitimate needs of the business, as has been held in the following decisions:
                                         27


      - CIT vs. Modi Revlon (P.) Ltd.:210 Taxman 161 (Del)
      - CIT vs. Nestle India Ltd: 337 ITR 103 (Del.)
      - CIT vs. Forbes Tea Brokers: 315 ITR 405 (Mad.)
      - CIT v. Modi Xerox Ltd.: ITA No.31120011 Lex Doc Id 405888 (All.)
      - Voltamp Transformers (P) Limited v. CIT: 129 ITR 105 (Guj.)
      - CIT v. Aditya Medisales Ltd.: ITA No. 559/2009 (Guj.)
      - CIT v. Gopala Polyp last Ltd. : ITA NO. 26512009 (Guj.)
      - JCIT v. ITC Ltd.: 112 ITD 57 (Kol.)(SB)
      - Jagdamba Rollers Flour Mill Ltd. vs ACIT: 117 ITD 260(TM) (Nag.)
      - Aradhana Beverages & Foods Co. (P.) Ltd vs. DCIT:51 SOT 426 (Del)
      - S.K. Engg vs. JCIT: 103 ITD 97 (Bang.)
      - Rangoon Chemical Works (P) Limited: 100 Taxman163 (Ahd.) (Mag)
      - Kinetic Honda Motor Ltd V. JCIT 77 ITD 393
      - Shyam Oil Cake Ltd V. ACIT: 83 TTJ 414 (Jd.)
      - Vikshara Trading & Investment (P) Limited: 61 TTJ 6 (Ahd.)
      - Beta Naphthol (P) Limited: 50 TTJ 375 (Ind.)

      In the instant case, the assessing officer has failed to bring on record any

corroborative evidence to establish that the price paid to Metso Minerals for receipt

of professional services was unreasonable and excessive. The AO/DRP have merely

made bald allegations without any supporting evidence with respect to

excessiveness of the payments made as compared to the 'market value'.


      Reliance in this regard is also placed on the decision of the Hon'ble Tribunal in

the appellant's own case for assessment year 2007-08 (ITA No 4414/Del/2012)

wherein the Hon'ble Tribunal while deleting similar addition made by the assessing

officer held as under:


      "12. In view of the foregoing reasons, we are of the considered opinion that
      the case of the assessee does not fall in any of the three situations
      contemplated by section 40A(2)(a) of the Act. Once a payment is held to be not
      excessive or unreasonable having regard to the fair market value of the
      services or the legitimate needs of the business or the benefit derived by or
                                          28


       accruing to the assessee, there can be no question of making or sustaining any
       disallowance u/s 40A(2) of the Act. We, therefore, order for the deletion of the
       addition sustained in the first appeal. "

       In view of the above, it was submitted that the disallowance of Rs. 30,14,610

being professional charges paid to Metso Mumbai made by the assessing officer may

be directed to be deleted.


10.    On the other hand, the ld. Senior DR has relied on the orders of the lower

authorities.


11.    We heard the rival submissions and perused the material on record. It appears

from the assessment order that the Assessing Officer had disallowed the impugned

payment to its sister concern merely guided by the fact that the appellant had been

incurring losses and also placed reliance on the decision of Hon'ble Gujarat High

Court in the case of Coronation Flour Mills Vs. ACIT, [2009] 314 ITR 1 (Guj.). This, in

our view, would not meet the requirement of the provisions of Section 40A(2). A

plain reading of the provisions of Section 40A(2) reveals that where an assessee

incurs any expenditure in respect of which payment is required to be made or has

been made to any person referred to in clause (b) of section 40A(2) of the Act and

the Assessing Officer is of the opinion        that such expenditure is excessive or

unreasonable having regard to (a) fair market value of the goods, services or facilities

for which the payment is made; or (b) the legitimate needs of the business of the

assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such

goods, services or facilities, then the Assessing Officer shall not allow as a deduction

so much of the expenditure as is so considered by the Assessing Officer to be
                                          29


excessive or unreasonable. Therefore, it becomes apparent that the Assessing Officer

is required to record a finding as to whether the expenditure is excessive or

unreasonable in relation to any one of the three requirements prescribed. This

opinion has to be formed by the Assessing Officer based on the material evidence

available on the record. The Assessing Officer is duty bound to bring on record the

comparable fair market value of the services rendered to say that the value paid by

the assessee is excessive or unreasonable. We find no evidence on record to notice

that the Assessing Officer made efforts in this direction. He simply made

disallowance based on the surmises and conjectures.


12.   We may also refer to the scope of Section 40A(2) as explained by the CBDT in

Circular No. 6P, dated 06.07.1968. The CBDT clarified that while examining the

reasonableness of expenditure the Assessing Officer is expected to exercise his

judgment in a reasonable and fair manner. It should be borne in mind that the

provision is meant to check evasion of tax through excessive or unreasonable

payments to relatives and associate concerns and should not be applied in a manner

which will cause hardship in bona fide cases.


13.   In CIT Vs. Edward Keventer (P.) Ltd. [1972] 86 ITR 370, the Calcutta High Court

considering identical provision in 1922 Act, it was held that the section places two

limitations in the matter of exercise of the power. The section enjoins the Assessing

Officer in forming any opinion as to the reasonableness or otherwise of the

expenditure incurred must take into consideration (i) the legitimate business needs

of the company and (ii) the benefit derived by or accruing to the company. The
                                         30





legitimate business needs of the company must be judged from the view point of the

company itself and must be viewed from the point of view of a prudent

businessman. It is not for the Assessing Officer to dictate what the business needs of

the company should be and he is only to judge the legitimacy of the business needs

of the company from the point of view of a prudent businessman. The benefit

derived or accruing to the company must also be considered from the angle of a

prudent businessman. The term "benefit" to a company in relation to its business, it

must be remembered, has a very wide connotation and may not necessarily be

capable of being accurately measured in terms of pound, shillings and pence in all

cases. Both these aspects have to be considered judiciously, dispassionately without

any bias of any kind from the view-point of a reasonable and honest person in

business.


14.   The aforesaid judgement of Calcutta High Court was affirmed by the Apex

Court in CIT Vs. Edward Keventer (P.) Ltd. [1978] 115 ITR 149. In the same line is the

judgment of Bombay High Court in the case of CIT Vs. Shtrunjay Diamonds [2003]

261 ITR 258/128, Taxmann, 759.


15.   In the light of aforesaid legal position, we hold that 50% of professional

charges paid to M/s Metso Minerals (Mumbai) Private Limited cannot be

disallowed and accordingly these grounds of appeal are allowed.


16.          Ground no. 4 to 4. 1 relates to challenge of disallowance of Rs

2,07,137/- on account of unexplained expenditure made against credit card bills.
                                           31


16.1. During the assessment proceedings, the assessing officer required the

appellant to explain the transaction amounting to Rs 207,137/- against the credit

card bills as per individual transaction statement (' ITS ') furnished by Citi Bank. Since

no such transaction was entered into by the appellant during the year and no

transaction was recorded in the books of accounts of the appellant, the appellant

sought information from Citi Bank. However, Citi Bank directed the appellant to

sought information from the assessing officer.


16.2 Further, the AIR furnished by Citi Bank was also in the name of Vijay Dhar

whose address is stated to be that of the appellant. The appellant requested Citi

Bank as well as assessing officer to furnish the relevant details, however, both did

not accepted the request and did not furnish any detail to the appellant. In these

circumstances, the apprehension of AD that the said transaction is unexplained-is

incorrect .


16.3 The DRP vide its order dated 26.12.2013 has however directed the AO to

furnish the detail of entries regarding the credit card transaction to the appellant and

then decided upon "the" tax liability u/s. 69C of the Act for unexplained credit. The

DRP held as follows:


       "The assessee has submitted that detail of transactions was not supplied to
       him and the A 0 has not established that entries are not recorded in books of
       accounts. In the view of this, DRP directs the AO to furnish detail of entries
       regarding credit card transaction to the assessee and then decide upon its
       taxability U/S 69C of the Act. The objection is disposed of accordingly. "
                                           32


       The assessing officer while passing the final order dated 28.02.2014 did not

followed the direction of the DRP and did not re-verified the AIR of the Citi Bank and

upheld the adjustment of Rs 207,137 /- by holding that there was paucity of time so

as to verify the AIR of Citi Bank.


       Reliance is placed on the recent decision of the Mumbai Tribunal in case of

Threadneedle Investment Fund ICVC Asia Fund Mumbai (ITA 8016/Mum/2011)

where in it has been held that onus does not shifts on assessee if a transaction is

reported in AIR. The Tribunal held as follows:


       " .......just because an AIR report was generated indicating the PAN No. of
       assessee, the onus does not shift completely to assessee. It is the responsibility
       of A O to examine complete details before asking for reconciliation and
       whether the transactions were indeed undertaken or not. The AIR report also
       does not contain any authentication but since it is generated by the
       Department, credit was given by AO and DRP 'about its authenticity. Assessee
       after obtaining the details and making efforts to reconcile filed the documents
       on record duly certified as 'true copy' before the DRP. What further
       authentication was required could not be understood. In our view, the DRP
       should have examined the transactions, which could not be done before AO
       due to lack of time and details. "

       Reliance is placed on decision of Bangalore Tribunal in case of DCIT vs. Shri G.

Selva Kumar (ITA No. 868/ Bang/2009) where in it has been held that onus would be

on the revenue if the adjustment is made on the basis of AIR. The Tribunal held as

follows:


       " 10 .....Assessment order based only on the AIR report will not stand in the
eye of law. The assessee is also directed to co-operate with the proceedings by
promptly producing the relevant documents and books of account required by the
Id. AO .. Since the grounds raised by the Revenue and CO by the assessee pertains to
the same issue, the delay in filing the CO is condoned and admitted for hearing. "
                                            33



       In the light of the above arguments, it is submitted that adjustment made by

the assessing officer on account of credit card transaction may be deleted.


16.4 Having heard the rival submissions, we are of the considered opinion that the

interest of justice would be met, if the matter is restored to the file of the Assessing

Officer for fresh adjudication in accordance with law. Accordingly, this ground of

appeal is restored to the file of the Assessing Officer.




ITA No. 1205/Del/2014


17.    This appeal filed by the Revenue against the direction of the Hon'ble Dispute

Resolution Panel for deletion of two comparables chosen by the Transfer Pricing

Officer , namely Killick Agencies Marketing Ltd. and Cox and Kings (India) Ltd. The

Hon'ble DRP rejected these two comparables applying the filter of related party

transactions. Indisputably, Killick Agencies Marketing Ltd. had 64.12% and M/s Cox

and Kings (India) Ltd. had 109.9% of related party transactions. In view of the fact

that these comparables had high percentage of related party transactions, the

Hon'ble DRP had rejected the same as comparables.


18.    Section 92 provides that the income arising from international transactions is

to be computed, having regard to arm's length price. Section 92F(ii) defines "arm's

length price" to mean a price which is applied or proposed to be applied in a

transaction between persons other than associated enterprises, in uncontrolled
                                           34


conditions. To compute ALP the results of the international transaction are bench

marked against comparable uncontrolled transaction. The mandate of s. 92F(ii) is

that ALP shall be computed considering price applied or proposed to be applied in

transactions between non-AE's. When selecting external comparables, one needs to

ensure that such external comparables are uncontrolled. The companies having

controlled transactions therefore need to be eliminated. Following this rationality,

the courts have evolved test of related party transactions. The Hon'ble Coordinate

Benches of Tribunal in the following decisions, held that companies having related

party transactions of 15% cannot be considered as comparables:


      (i)      Customer.Com Pvt. Ltd. Vs. DCIT, [2012] 28 taxmann.com 258 (Bang.)
      (ii)     ITO vs CRM Services India (P.) Ltd., [2011] 14 taxmann.com 96 (Del.)
      (iii)    CSR India (P.) Ltd. Vs. ITO, [2013] 31 taxmann.com 265 (Bang.)
      (iv)     Logica Private Ltd. Vs. ACIT IT(TP) A No. 1129/Bang./2011 : TS-131-ITAT-
               2013-BANG-TP
      (v)      Avaya India (P.) Ltd. Vs. ACIT, [2013] taxmann.com 569 (Del-Trib.):
               [2012] 15 ITR(T) 237 (Del-Trib.)
      (vi)     ACIT Vs. Sakata Inx (India) Ltd., [2012] 21 taxmann.com 37 (JP) : [2012]
               53 SOT 165 (JP.)
      (vii)    Huawei Technologies India Pvt. Ltd. Vs. ITO IT(TP) No. 1338/Bang/2010.
      (viii)   Will Processing Services (India) (P.) Ltd. Vs. DCIT, TS-49-ITAT-2013
               (Mum)-TP


27.   Respectfully following the ratio laid down in the above cases, since the

comparables in the question are having more than 15% related party transactions,

we hold that the Hon'ble DRP is justified in rejecting these two comparables. Hence

the grounds of appeals filed by the Revenue are dismissed.
                                              35


28.       In the result, the appeal filed by the assessee company is partly allowed for

statistical purposes and the appeal filed by the Revenue is dismissed.


          Order pronounced in the open court on 28th August, 2015




                Sd/-                                                    Sd/-

       (I.C. SUDHIR)                                      (INTURI RAMA RAO)
     JUDICIAL MEMBER                                     ACCOUNTANT MEMBE
Dated: the 28th August, 2015
`veena'
`RK'
Copy of the Order forwarded to:
 1. Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR
6.    Guard File                   By order
                                              Dy. Registrar, ITAT, New Delhi

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Privacy Policy

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions