M/S. CITRIX SYSTEMS INDIA PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 11(2), BANGALORE

The ground Nos.1 and 6 are general in nature. At the time of hearing, the Ld A.R did not press ground nos. 3 & 4 by making necessary endorsement in the grounds of appeal. The remaining grounds relate to the following two issues:-

The facts of the case are set out in brief. The assessee company is engaged in providing marketing services in India to its Associated Enterprises (AEs) located abroad. The nature of services provided by the assessee include:- (a) Answering customer inquiries, telemarketing calls (b) Building awareness about the products by conducting exhibitions, road shows, conferences, customer events etc. (c) Liaison with PR Agencies for marketing activities (d) Other related marketing support to AEs.

The assessee had received a sum of Rs.15.00 crores from it’s A.E. on account of marketing and technical support services. The assessee bench marked the transaction under TNM method by adopting OP/OC as profit level indicator (PLI). The PLI of the assessee was 10.04% and the arithmetic mean of PLI of the comparable companies selected by the assessee was 10.72%. Accordingly, the assessee claimed that the international transaction with it’s A.E. was at arm’s length. The TPO rejected the transfer pricing study of the assessee and finally selected following 6 comparable companies with an arithmetic mean of 24.48%. Sl.No. Name of the company OP/Cost (%) 1. Asian Business Exhibition & 58.64 Conferences Ltd. 2. Cyber Media Research Ltd. 19.52 3. HCCA Business Services Pvt. Ltd. 19.11 4. Hindustan Housing Co. Ltd. 19.59 5 ICC International Agencies Ltd. 13.27 6. Killick Agencies & Mktg. Ltd. 16.77 Average 24.48%

The assessee preferred appeal before Ld. CIT(A) challenging the transfer pricing adjustment made by the A.O./TPO. The Ld. CIT(A) noticed that the comparable company named Asian Business Exhibition & Conferences Ltd. was held to be not a good comparable by the ITAT in the assessee’s own case for assessment year 2011-12. Accordingly, the Ld. CIT(A) directed the AO/TPO to exclude above said company from the final list of comparables. The Ld. CIT(A) confirmed other comparables selected by the TPO.

Before the Tribunal, the assessee is seeking exclusion of following three companies:

It is pertinent to note that the assessee has mentioned in the grounds of appeal the name of M/s. Asian Business Exhibition & Conferences Ltd., for exclusion. However, the same has been amended by way of an additional ground of appeal by replacing the above said company with HCCA Business Services Pvt. Ltd.

We heard the parties and perused the record. The Ld. A.R. submitted that all these three companies are not functionally

We heard Ld. D.R. and perused the record. We noticed that the coordinate bench in the case of Electronics for Imaging India Pvt. Ltd. (pertaining to AY 2010-11) has excluded M/s. HCCA Business Services Pvt. Ltd. and Killick Agencies and Mktg. Ltd. with the following observations:

The assessee objected against inclusion of this company in the list of comparables on the ground that this company is engaged in providing payroll process services and therefore it is functionally different. In support of its contention, the assessee referred to Notes to the Accounts wherein the company's operations comprise of payroll processing services is mentioned and hence it is not possible to give the quantitative details of sales and certain information separately.

The DRP after considering the annual report noted that except the Note 2.14, there is no other observation in the annual report from which it can be established that the company is engaged in marketing and sales support services comparable to the assessee. Accordingly, the DRP directed the AO to exclude the said company from the comparables.

We have heard the ld. DR as well as ld. AR and considered the relevant material on record. The DRP has considered the fact that payroll processing services was main part of the operations of the company and quantitative details of sales and certain information as required under Part II of Schedule VI to IT(TP)A No.2513/Bang/2019 M/s. Citrix Systems (India) Pvt. Ltd.

The assessee objected against this company on the ground that commission/service charges income of this company is Rs. 2,19,00,000 out of the operating revenue of Rs. 3,39,00,000. Therefore, the commission/service charges income constitute about 65% of the operating revenue which is less than 75% of the operating revenue filter applied by the TPO. In the absence of segmental results, this company was sought to be excluded from the set of comparables.

The DRP found that this company conducts business as an agent of the foreign principal and deal in maritime equipments. Further, the receipts are mainly in the nature of commission income and service charges. Therefore, this company was functionally dissimilar to that of assessee.

We have heard the ld. DR as well as ld. AR and considered the relevant material on record.

The ld. DR has submitted that the TPO has considered the relevant information as reported in the annual report of the company and it was found that this company is acting as an agent for various foreign principals for sale of dredgers, dredging equipment and also offers after sales service. Therefore, this company was found to be in the business of marketing support services which is similar to the assessee.

On the other hand, the ld. AR has submitted that this company is engaged in the business of construction equipments and earth moving machinery and is not into marketing support services.

Having considered the rival submissions as well as relevant material on record, we note that in the profit & loss account for the year under consideration, this company has shown sales

We notice that M/s HCCA Business Services P Ltd is engaged in payroll processing services and the same has been held to be not comparable with a company engaged in providing marketing services by the co-ordinate bench in the case of Electronics for Imaging India P Ltd (supra). Though it was not the only reason for excluding this company by the co-ordinate bench, we are of the view that the decision taken therein can be conveniently applied here also. Accordingly, we direct the AO/TPO to exclude this company.

With regard to Killick Agencies and Mktg. Ltd, the main business of the company as mentioned in its Annual Report (Page 843 of paper book) is given below:- “Killick Agencies & Marketing Ltd is public limited company. Company is acting as agent for various foreign principals for sale of Dredgers, Dredging equipments, Steerable Rudder Propulsions, Maritime and aviation lighting, Acoustic communication equipments etc. Company also offers after sales services. Apart from this company is involved in export

In respect of Hindustan Housing Co. Ltd, the contention of the assessee was that this company was providing various types of services. Another contention raised was that the Related Party Transaction of this company exceeds 25%. We notice that the co- ordinate bench has restored this company to the file of AO/TPO for examining it afresh in the case of Alcon Laboratories P Ltd (supra). Accordingly, following the above said decision, we restore this comparable company to the file of AO/TPO for examining afresh by considering the RPT filter also.

The assessee has also raised a ground contending that the mark up of IDC India Ltd. (Cyber Media Research Ltd.) has been wrongly computed by the TPO. It is the submission of the Ld A.R that the TPO has not included “depreciation” as part of operating cost and wrongly included “financial cost” as part of operating cost. The Ld. A.R. submitted that the financial cost does not form part of operating cost and depreciation should be included in the operating cost.

We heard Ld. D.R. and perused the record. There should not be any doubt that, while computing “Operating Cost”, a uniform practice should be followed for all the comparable companies. It is the submission of the assessee that depreciation forms part of Operating cost, while the financial expenses does not. We notice that the assessee has taken a general ground before Ld CIT(A) and hence it appears that the Ld CIT(A) has not adjudicated the same. Before us, the assessee has taken a specific ground in respect of IDC India Ltd. (Cyber Media Research Ltd.). As observed by us, a uniform methodology should be followed while determining operating cost. It is not clear as to whether the same method was followed in respect of the assessee as well as in respect of other comparable companies. Hence, this issue requires examination at the end of AO/TPO. Accordingly, we restore this issue to the file of AO/TPO for examining it.

The assessee in ground No.5 has contended that the working capital adjustment and risk adjustment should be given to the assessee. The Ld. A.R. submitted that the assessee has claimed this adjustment before Ld. CIT(A) and accordingly, the Ld. CIT(A) called for remand report from the A.O. The TPO has expressed the IT(TP)A No.2513/Bang/2019 M/s. Citrix Systems (India) Pvt. Ltd.

We heard the Ld. D.R. on this issue and perused the record. It is stated by the AO/TPO in the remand report that the required details were not furnished by the assessee. Hence we direct the assessee to furnish required details to the AO/TPO. Since this issue also requires examination at the end of the A.O./TPO, we restore this issue also to their file.

After affording adequate opportunity of being heard, the AO/TPO may take appropriate decision in accordance with law.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.