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Income Tax Appellate Tribunal, DELHI ‘I-1’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI SANDEEP GOSAIN
ORDER PER N. K. BILLAIYA, AM:-
The above cross appeals by the Revenue and the assessee are preferred against the order dated 28/01/2016 framed u/s 143(3) r.w.s 144C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] pertaining to A.Y. 2011-12. The appeals were heard together and are being disposed of by this common order for the sake of convenience and brevity.
The sum and substantive grievance of the Revenue, as presented by the ld. DR, relates to the exclusion of three comparables out of which two comparables have been excluded by the DRP on the ground that both are Government companies and the third comparable has been excluded by the DRP on the ground that it is a non-profit organization.
The international transaction of the assessee with its Associated Enterprises reported in Form No. 3CEB are summarized in the table as below:
S. Head Value Method No. used for determining the price 1. Provision of marketing and support 6,83,85,63,944 TNMM services 2. Payment of assignment of 20,06,34,474 TNMM personnel services received from the associated companies 3. Reimbursement 12,36,68,415 NA Total 7,16,28,66,833 The assessee has used TNMM as the most appropriate method and OP/OC as PLI for its international transactions relating to provision of bench marking and support services. The assessee’s own margin is worked out to be 14.98% and on the basis of its analysis, the assessee has concluded its international transactions at Arm’s length.
The TPO recomputed the operating margin of the assessee from this segment on finding that the assessee has treated forex loss as operating, whereas according to the TPO, the same has to be treated as non-operating. The revised operating margin was recomputed as under:
Particulars Income from operations
Income Income from operations 7,81,19,16,583 Interest income Miscellaneous income 3,62,01,949 Operating revenue 7,84,81,18,532 Expenditure Employee costs 3,28,03,28,881 Administrative and 1,63,18,42,957 other expenses Foreign Exchange loss Donations Marketing expenses 1,75,50,30,820 Bank charges 19,20,110 Depreciation 11,29,79,847 Operating cost 6,78,21,02,615 Profit before tax Operating profit 1,06,60,15,917 Operating 15.72% profit/operating cost
After setting out the filters and after applying accept reject matrix, the TPO analyzed the comparables used by the assessee as under:
S. Name of the company Remarks to TPO No. 1 Access India Advisors Ltd. Insufficient financial information to perform analysis 2 EDCIL ( India) Ltd ( Segmental) 3 HT Music & Entertainment Co. Ltd. Insufficient financial information to perform analysis 4 ICRA Management Consulting Services This is a robust comparable Ltd. 5 Cyber Media Research Ltd ( Formerly This is a robust comparable DC (India ) Ltd.) 6 India Tourism Development Corporation Not comparable. This company Ltd. (Segmental) fails STO filter. 7 Indus Technical & Financial Not Comparable. This company is functionally different. 8 Inhouse Productions Ltd (Segmental) Not Comparable. This fails STO filter. 9 Inmacs Management Services Ltd. Non Comparable. This company fails Sales less than 1 Crore filter 10 Ma Foi Global Search Services Ltd Not comparable. Significant related party transactions 11 Overseas Manpower Corpn. Ltd. Insufficient financial information to perform analysis. Additionally identified 12 Impresario Event Management India Not comparable. This company Limited is functionally different. 13 Concept Public Relations India Ltd. This is robust comparable.
Based on the filters proposed by the TPO, final set of following comparables alongwith their margins were arrived at as under:
S. No Company Name OP/OC (%) Profile of the Companies Source 1 Concept 4.73% Concept Communication Ltd. Annual Report Communication Ltd. operates as an Advertising Agency. ("AR"), Page- 48 2 Crystal Flues Ltd. Crystal Hues Limited (CHL) is a http://www.cry 11.6p% pioneer in international marketing stalhues.com/a communication services combined boutus.asp with localization services in India. Its specialization in international marketing, promotion and localization of your products are key requirements to your exploration and entry strategies for global markets. Its services include developing, designing and localizing advertisements, brochures, product packaging, manuals, multimedia presentations and websites 3. 42.31% AR, page 1 Apar Chematek Apar Chematek Lubricants Ltd. Lubricants Ltd. belongs to commercial and 4 10.60%\ Cyber Media Research Cyber Media Research Ltd. is AR, page & 41 ! Ltd. engaged mainly in the business of market research and management consultancy. The Company is a wholly owned subsidiary of Cyber Media (India) Limited. Its principal services include research & development and business convention.
5 14.86% AR, page 2 D H F L Property DHF L Property Services Ltd. Services Ltd. provides services in Residential sales, Exclusive marketing of residential projects with management fees, Co-branded \product and Market research services. The Company now is looking forward to explore ding opportunities in commercial leasing i and sales.
6 16.14% AR, page 49 1C R A Management The Company's business segment is Consulting Services Consulting Services and it has no Ltd. other primary reportable segments. The key area of the company is Management Consulting 7 Info Edge (India) Ltd. 45.53% AR, page 13 Services. Info Edge (India) Limited ('Info Edge' or 'the Company') is one of India's leading internet based enterprise. The Company develops world class platforms that provide various services using internet as the primary medium of delivery. It has developed various websites like naukri.com, jeevansathi.com, 1 99acres.com, etc. 8 M MTV Ltd. 32.94% AR, page 30 The company is engaged in the Television broadcasting business and related operations within and | outside India. Its main revenue is from Advertising Income. 9 40.53% http://www.mr ’ uc.net/?q=brief Media Research Users Council is a history Media Research Users registered not-for-profit body of Council members representing from major advertisers, advertising agencies, . . - 10 Power System 22.52% Operation Corpn. Ltd. The company's principle business is power system and market operation. The Company operates within India and does not have operations in economic environments with different risks and returns. 1 Quadrant 14.58% The company is engaged in the business of Advertising. Communications Ltd.
12 Apitco Ltd. 25.17% main operations of Apitco ltd. are Micro Enterprises Development, Skill Development, Entrepreneurship Development, Tourism & Research Studies, Project related Services, Infrastructure, Planning & Development, Environment Management, Energy related 13 30.86% AR, page 3 Services, Cluster Development, Global Procurement GPCL synthesizes Indian Asset Reconstruction & Consultants Ltd. consultancy expertise in project Management Services. management and procurement across varied sectors of the economy including finance, infrastructure, energy, transportation, communication, information technology, industry, agriculture, mining, water 14 TSR Darashaw Limited 28.91% resources, health and education. SR DARASHAW PRIVATE LIMITED is one of India's leading Business Process Outsourcing (BPO) organization certified under the ISO 9001:2008 guidelines having a total industry experience of over 35 years. TSRDL has http://www.tsr state-of-the-Art IT capabilities darashaw.com/ and well trained HR which are the tatashare/avs/ key requirements for handling BPO home/ activities. TSRDL's Strength, capabilities and infrastructure enables it to handle any large, voluminous, time bound processing activities requirement meeting of stringent quality and service standards in a regulatory environment. 15 Quippo Valuers and 7.23% Quippo Valuers and Auctioneers AR, page 27 Auctioneers Private Private Limited is engaged into the Limited business of Valuation and auction service.
The assessee was asked to explain its stand on the aforementioned comparables.
After considering the detailed submissions /objections made by the assessee, and after rejecting the additional comparables proposed by the assessee, the TPO identified some additional comparables, namely, : 1. Apitco Limited 2. Aparchematek Lubricants Limited 3. Crystal Hues Limited 4. Concept Communications Limited 5. DHFL Property Services Limited 6. Global Procurement Consultants Limited 7. Info Edge [India] Limited 8. MMTV Limited 9. Media Research Users Council 10. Power System Corporation Limited 11. Quadrant Communications Ltd 12. TSR Darashaw Limited
Finally, the following comparables were used:
Company Name OP/OC Concept Communication Ltd. 4.73% Crystal Hues Ltd. 11.69% Apar Chematek Lubricants 42.31% Ltd. Cyber Media Research Ltd. 10.60% D H F L Property Services Ltd 14.86% 16.14% Info Edge (India) Ltd. 45.53% 1 C R A Management Consulting Services M M TV Ltd. 32.94% Ltd. Media Research Users Council 40.53% Power System Operation Corpn. Ltd. 22.52% Quadrant Communications Ltd. 14.58% Apitco Ltd. 25.17% Global Procurement Consultants Ltd. 30.86% 41.6% TSR Darashaw Limited Quippo Valuers and Auctioneers Private 7.23% Limited Average 24.09%
Accordingly, the ALP was computed as under:
S.No. Particulars Amount 1 Operating Cost (A) 6782102615 2 Operating Revenue (B) 7848118352 Arms Length Price @ 24.09% (C = 2 8415911135 A*124.09%) Proposed Adjustment u/s 92 CA 3 567792783 (D=B-C)
The assessee raised objections before the DRP and the DRP, while considering the objections of the assessee, agreed for exclusion of the following three comparables: 1. Apitco Limited 2. Media Research Users Council 3. Power System Corporation Limited
Before us, the ld. DR vehemently argued against the exclusion of the aforesaid comparables. It is the say of the ld. DR that merely because a company is a government company, would not mean that the same is not a good comparable. The ld. DR referred to the relevant findings of the TPO in his order.
Per contra, the ld. counsel for the assessee stated that government companies have very high related party transaction and, therefore, they do not fit into the filter adopted by the TPO. It is the say of the ld. counsel for the assessee that the government companies are not considered as good comparables and relied upon the decision of the co-ordinate bench in the case of Shell India Markets Ltd and Thyssen Krupp Industries India Pvt Ltd. ITA No. 6460/MUM/2012.
We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. In our considered opinion, profit motive is not a relevant consideration in the case of government undertakings. Many government undertakings even operate on losses in furtherance of social obligations of the Government. We have also considered the Annual Reports of Aptico Limited placed at pages 1 to 35 of the paper book and M/s Power System Corporation Limited [POSOCO] placed at pages 116 to 157 of the paper book. A perusal of the Annual Reports shows that the main source of revenue is the Government/Government organizations, which make the related party transactions much higher than the filter adopted by the TPO. The decision of the co-ordinate bench in the case of Thyssen Krupp Industries India Pvt Ltd [supra] was challenged before the Hon'ble High Court of Bombay by the Revenue. The relevant substantial question of law for consideration of the Hon'ble High Court reads as under:
“Whether on the facts and circumstances of the case and in law, the Tribunal was justified in excluding the case of Engineers India Ltd from the list of comparables?”
The answer of the Hon'ble High Court reads as under: “Re question (b) 4. The grievance of the respondent assessee before the Tribunal was that M/s. Engineers India Ltd. has been erroneously introduced as a comparable by the TPO for determining the ALP of the respondent assessee's International Transactions. The impugned order of the Tribunal records the fact that the Engineering India Ltd. is a Government Company and its annual report indicates that a substantial part of its revenue in execution of turnkey projects arose out of executing projects of public sector undertakings. In the circumstances, the impugned order of the Tribunal holds that the Engineers India Ltd. could not be considered to be comparable for the reason that contracts between Public Sector undertakings are not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc. Thus, it is not comparable. Moreover, from the annual report, it is clear that the revenue earned in executing turnkey project for other public sector undertakings was much more than the filter of 25%, which has been applied by the TPO in his order under Section 92CA(3) of the Act, while taking TRF Ltd. as a comparable on the ground that its related party transaction was not in excess of 25% of its total turnover. Thus, applying consistent filter of 25% or less of related party transaction alone to be considered comparable, Engineers India Ltd. could not be considered to be comparable. We find that the view taken by the Tribunal in the impugned order is a reasonable and possible view. Nothing has been shown which would justify our interference in the impugned order of the Tribunal excluding Engineers India Ltd. from the list of comparables.”
A similar view was taken by the co-ordinate bench in the case of Shell India Markets Pvt Limited [supra] wherein Government companies were excluded from the final list of comparables. Respectfully following the findings of the co-ordinate bench, read with the decision of the Hon'ble High Court of Bombay [supra] we do not find any error or infirmity in the findings of the DRP.
In so far as Media Research Users Council whose Annual Reports are exhibited at pages 36 to 70 of the paper book, it can be seen from its account that it is not preparing the Profit and Loss Account, but Income and Expenditure Account and the main source of income is shows as subscription fees. This clearly shows that this is a nonprofit organization and cannot be used as a good comparable and, therefore, its exclusion is upheld.
In the result, the appeal of the stands dismissed.
ITA No. 1543/DEL/2016 [Assessee’s Appeal]
First grievance of the assessee relates to the addition of Rs. 16.97 lakhs on accou3nt of AIR/CIB information in respect of the transaction related to the sale and purchase of motor vehicle. Second grievance relates to short credit of TDS amounting to Rs. 9.39 crores duly claimed by the assessee in the Return of Income.
During the course of scrutiny assessment proceedings, the assessee was provided a copy of AIR information relating to sale/purchase of immovable property and motor vehicles as reported under CIB segment. The assessee was asked to explain the transaction. The assessee replied that these transactions do not pertain to it and supported its submissions by filing an affidavit in this regard. The Assessing Officer was of the opinion that the assessee was not able to provide any details/information about these transactions. The Assessing Officer issued noticed u/s 133(6) of the Act. However, on receiving no response, the Assessing Officer proceeded by making the addition of Rs. 16.97 lakhs.
Before us, the ld. counsel for the assessee pointed out that in spite of specific directions of the DRP, given to the Assessing Officer, to examine the information so obtained and make additions only if it is established that the impugned transactions pertain to the assessee. The Assessing Officer did not make any enquiry and simply made the addition. It is the say of the ld. counsel for the assessee that since ht assessee has never entered into the impugned transactions, it is not possible to prove the negative.
Per contra, the ld. DR supported the findings of the Assessing Officer.
We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. It is true that there was AIR/CIB information available with the Assessing Officer. The screen shot of the same is also made available to us. However, we are of the considered view that the Assessing Officer should have made enquiry from the office of the Sub-Registrar where the sale deed of the impugned property was executed and the Assessing Officer should have also made enquiry from the office of the Regional Transport officer where the vehicle was registered. Unless some direct evidences are confronted to the assessee, it would not be possible for the assessee to explain the transactions once he has claimed in the form of an affidavit that it has never entered into such transaction. We accordingly, restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to make necessary enquiries from the office of the Sub-Registrar/RTO and decide the issue afresh after giving reasonable opportunity of being heard to the assessee.
As a result, the first grievance of the assessee is allowed for statistical purposes.
In so far as short credit of TDS is concerned, we direct the Assessing Officer to consider the claim of the assessee as per TDS certificates/TDS details /Form No. 26 AS and give credit of tax claimed by the assessee after necessary verification and after affording adequate opportunity of being heard to the assessee.
To sum up, in the result the appeal of the revenue is dismissed whereas the appeal of the assessee is treated as allowed for statistical purposes. The order is pronounced in the open court on 15.03.2019.