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Income Tax Appellate Tribunal, DELHI BENCHE ‘I-1’, NEW DELHI
Before: Sh. N. K. Saini, Hon’ble & Sh. Kuldip Singh
ORDER
Per N. K. Saini, Vice President:
This is an appeal by the assessee against the order dated 30.12.2015 passed by the AO u/s 143(3) r.w.s. 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
Following grounds have been raised in this appeal: “1. That the Ld DRP erred in upholding Ld TPO's approach of rejecting the comparable set selected by the Appellant in its Transfer Pricing Study (‘TP Study') for benchmarking the international of provision of technical support services. The rejection is neither supported by an analysis nor corroborative evidence, which renders the process arbitrary and liable for outright rejection.
2. That the Ld DRP erred in accepting the fresh benchmarking process undertaken by Ld TPO without Kyocera Asia Pacific India Pvt. Ltd. identifying any specific deficiency or insufficiency in the search process adopted by the Appellant. The fresh benchmarking undertaken by Ld TPO is unwarranted, illegal and without jurisdiction.
3. That the Ld DRP/TPO erred in rejection of filters applied by the Appellant and applying insufficient /inappropriate additional filters. This exhibits the erroneous approach and blatant irregularity in the assessment undertaken by the Ld TPO.
4. That the Ld DRP/TPO erred in facts and circumstances of the case in rejecting a comparable company identified by the Appellant based on the sketchy understanding of functional analysis of the Appellant with respect to the provision of technical support services.
5. That the Ld DRP/TPO erred in selecting functionally different companies as comparables to the Appellant with respect to the provision of technical support services.
6. That the Ld DRP/TPO erred on facts and in law in accepting the inconsistent approach of Ld. TPO while analyzing arms' length price as compared to previous assessment year even when the business model, nature of transaction of the Appellant had not undergone any change.
7. That the Ld DRP/TPO erred by using single year data as against the multiple year data used by the Appellant, to compute the arm's length price of the international transaction of the appellant using Transactional Net Margin Method (‘TNMM'). The Ld DRP has also erred in using comparable data which was not available to the Appellant at the time of preparing TP Study.
8. The Ld Deputy Commissioner of Income Tax, Circle - 14(2), New Delhi ('the Ld AO') erred in facts and in law in initiating the penalty proceedings u/s 271(1)(c) of the Act against the Appellant for concealing the particulars of income or furnishing inaccurate particulars of income.
9. That the Ld AO erred in computing the total amount payable/refundable to the Appellant. The grounds of appeal are notwithstanding each other.
Kyocera Asia Pacific India Pvt. Ltd. The grounds of appeal are notwithstanding each other. The Appellant craves leave to amend, alter or add fresh grounds of appeal during the course of proceeding.”
3. During the course of hearing, the ld. Counsel for the assessee did not press ground nos. 2 to 4, 7 &
8. Ground Nos. 6 & 9 are general in nature. As regards to ground no. 1, the ld. Counsel for the assessee submitted that it is to be treated as infructuous and also gave in writing that only ground no. 5 is pressed. The said ground relates to the selection of comparable companies while working out the arm’s length price.
Facts of the case in brief are that the assessee filed the return of income on 27.09.2012 declaring an income of Rs.1,75,29,130/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. The AO referred the matter to the TPO u/s 92CA(3) of the Act in respect of international transaction entered into by the assessee, for determining the arm’s length price. The TPO noted that the primary functions performed by the assessee were following: “I. Local Sales and Marketing II. Marketing Support Service III. Technical Support Service”
The assessee had choosen following six comparables in the Trading Segments: “I. A C L Components Ltd. II. Associated Auto Parts Pvt. Ltd. III. India Motor Parts & Accessories Ltd. IV. Jullundur Motor Agency (Delhi) Ltd. V. Sai Service Spares & Accessories Kyocera Asia Pacific India Pvt. Ltd. VI. Stanes Motor Parts Ltd.” 6. The TPO rejected M/s Sai Service Spares & Accessories Ltd. and M/s Stanes Motor Parts Ltd. The TPO also included a new comparable M/s Cuprum Bagrodia Ltd. and worked out the operating margin at 10.70% instead of 4.47% declared by the assessee in the following manner: S. No. Name of the comparable OP/OC 1. A C L Components Ltd. 11.07% 2. Associated Auto Parts Pvt. Ltd. 9.20% 3. India Motor Parts & Accessories 8.92% Ltd. 4. Jullundur Motor Agency (Delhi) Ltd. 6.59% 5. Cuprum Bagrodia Ltd. 17.72% Average 10.70% The TPO proposed the adjustment of Rs.3,16,27,488/- in trading segment.
In Market Support Service Segment, the assessee selected three comparables having arithmetic mean of 8.88% while the margin of the comparables selected by the assessee was at 12.81%. So, it was claimed that this transaction was at arm’s length price. The TPO, however, selected 15 comparables which included two comparables selected by the assessee and one of the comparable, namely, M/s Entertainment Network (India) Ltd. was rejected. The TPO worked out the average margin at 23.24% and proposed the adjustment of Rs.11,30,190/-
In Technical Support Segment, the assessee selected seven comparables with average OP/TC ratio at 17.57%. The TPO Kyocera Asia Pacific India Pvt. Ltd. accepted five comparables selected by the assessee and rejected two comparables, namely, M/s Nicco Parks & Resorts Ltd. and M/s Telecommunications Consultants India Ltd. The TPO also introduced 13 new comparables and worked out average margin at 32.67% in the following manner: Company Name OP/OC (%) Ashok Leyland Project Services Ltd. 24.70% Bengal S R E I Infrastructure Devp. Ltd. 42.14% Certification Engineers International 78.45% Ltd. Global Procurement Consultants Ltd. 30.86% H S C C (India) Ltd. 21.04% Indus Technical & Financial Consultants 14.78% Ltd. Kitco Ltd. 27.48% Mahindra Consulting Engineers Ltd. 30.92% Mitcon Consultancy & Engg. Services 40.19% Ltd. Pallavan Transport Consultancy Services 25.59% Ltd. R E C Power Distribution Co. Ltd. 39.44% T C E Consulting Engineers Ltd. 29.29% Usha Hydro Dynamics Ltd. 29.45% Gujarat Industrial & Technical 7.89% Consultancy Org Ltd. IBI Chematur (Engineering & 25.96% Consultancy) Ltd. Rites Ltd. 58.27% NTPC Electric Supply Company Ltd. 18.01% Wapcos Ltd. 43.68% Average 32.67% Accordingly, the TPO worked out the adjustment of Rs.14,54,754/- in the following manner:
Kyocera Asia Pacific India Pvt. Ltd. S. No. Particulars Amount 1. Operating Revenue of the 96,34,132 assessee(A) 2. Arm’s Length Margin (OP/sales) 31,47,471 (B=A*32.67%) 3. Operating Margin of the assessee 16,92,717 (C=A*17.57%) 4. Adjustment (B-C) 14,54,754 9. Accordingly, total adjustment of Rs.3,42,12,432/- was proposed as per the following details: S. No. Particulars Amount 1. Trading Segment 3,16,27,488 2. Market Support Service 11,30,190 3. Technical Support Service 14,54,754 Total 3,42,12,432 10. On the basis of the proposal made by the TPO, the AO passed the draft assessment order dated 16.02.2015 and proposed the addition of Rs.3,42,12,432/- on account of arm’s length price adjustment. Against the draft assessment order passed by the AO, the assessee filed objection before the Dispute Resolution Panel-1 (DRP). The adjudication of the ld. DRP and the objections of the assessee in Marketing Support Services and Technical Segments were as under: Company Name Taxpayers Objections DRPs Adjudication -Entire turnover from Apar Chematek Engaged in marketing of lubricants advertising & publicity Lubricants Ltd. Functionally similar Turnover objections addressed at approval of -Engaged in indenting services filter supra including jurisdictional for sale of lubricants HC decisions in Chryscapital. DRP approves its inclusion as comparable.
Kyocera Asia Pacific India Pvt. Ltd. Developer and owner of Info Edge (India) Given functional profile of taxpayer various internet Ltd. of providing marketing support for platforms/websites which in Kyoceras marketing support turn provide various online services to KAP for distribution of services its products in India, and providing Operates in the e-commerce technical support services to industry Kyocera Corporation Japan to facilitate the sale of groups products to Nokia and other companies in India including getting accreditation of KC products from Nokia India, this company does not seem to be functionally similar, and has a different business model pertaining to electronic media/ e-commerce segment, and hence a different FAR. DRP directs its exclusion as comparable. Operates in media industry MTV Ltd Given functional profile of taxpayer Net Fixed Assets to Soles of providing marketing support for ratio is 127% Kyoceras marketing support Significant manufacturing services to KAP for distribution of service cost 34.36% of OC its products in India, and providing technical support services to Kyocera Corporation Japan to facilitate the sale of groups products to Nokia and other companies in India including getting accreditation of KC products from Nokia India, this company does not seem to be functionally similar, and has a different business model, and hence a different FAR. DRP directs its exclusion as comparable. NPO which works as an Media Research Not for Profit body for welfare of ethical body for the welfare of Users Council members- functionally different. its members, i.e. media players Not engaged in providing TPO is directed to exclude marketing support services comparable Kyocera Asia Pacific India Pvt. Ltd. Operates in power Power System Functionally different. generation sector Operation Corpn. Subsidiary of PGCIL scheduling and - Wholly owned subsidiary of Ltd distribution electricity over its grid. Power Grid Corporation of India Limited, TPO is directed to exclude - Targets of the company comparable include implementation of web-based scheduling software, updating of operating procedures, restoration and black start procedures. Significant investment in fixed assets (INR 51.14 crores) - Engaged in rendering Apitco Ltd Engaged in technical consultancy. Technical Consultancy and not Functionally broadly similar marketing support services Turnover objections addressed at approval of filter supra including jurisdictional HC decisions in Chryscapital. DRP approves its inclusion as comparable. Engaged in providing Global Given functional profile of taxpayer procurement related services Procurement of providing marketing support for Kyoceras marketing support services Consultants Ltd to KAP for distribution of its products in India, and providing technical support services to Kyocera Corporation Japan to facilitate the sale of groups products to Nokia and other companies in India including getting accreditation of KC products from Nokia India, this company does not seem to be functionally similar, and has a different business model, and hence a different FAR. DRP directs exclusion of comparable TSR Darashaw Leading Registrar & Transfer Income derived from the traditional Limited agents registered with SEBI. registry services, record Income derived from the management business - Functionally traditional registry services, Different. record management business and payroll business DRP directs its exclusion as comparable Kyocera Asia Pacific India Pvt. Ltd. - Engaged in offering ICRA Management Engaged in technical management consulting services in the Consulting consultancy. Functionally broadly areas of strategy, process Ltd. similar Turnover objections consulting and corporate addressed at approval of filter finance. supra including jurisdictional HC decisions in Chryscapital. DRP approves its inclusion as comparable. Ashok Leyland Engaged in project Functionally different - different Projects Services management services. business model. Ltd Extraordinary events as to Provides specialised services Wind division sold on a designated to deliver project slump sale during the year opportunities from concept to affecting its profits. commissioning from pre-investment Infrastructure Project Development such as feasibility studies and appraisals to development of joint ventures and company formation - Provides negotiated equity. Sold wind division on slump sale during FY 2010-11 for 705 lakhs which has impact on margin. DRP directs exclusion of comparable. Bengal SREI Engaged in providing Provides consultancy of industrial Infrastructure infrastructure development parks, tourism and water supply Devp. Ltd. services projects. TPO excluded Nicco Parks & Resorts Ltd as comparable to its Technical Support Service segment, by stating- This company is functionally different and on perusal of its annual report it is evident that this company doesn’t provides technical services rather the annual report of the company clearly brings out the fact that it is engaged in providing water and fun rides, basically an amusement park. And DRP approved its exclusion. DRP thus has no hesitation in holding this as functionally different and directing its exclusion. Certification Engaged in Certification, Re- Engaged in technical management Engineers certification, Safety Audit consultancy, Functionally broadly International Ltd. and HSE Management similar Turnover objections Systems for offshore and addressed at approval of filter onshore Oil & Gas supra including jurisdictional HC Facilities. decisions in Chryscapital. DRP approves its inclusion as comparable Kyocera Asia Pacific India Pvt. Ltd. Global Engaged in procurement Given functional profile of taxpayer Procurement related activities in diverse of providing marketing support for areas of Health, Kyoceras Consultants Ltd. Education, Agriculture, marketing support services to KAP Mining, Transportation, for distribution of its products in Communication, Energy, India, and providing technical Water Resources and other support services to Kyocera key sectors Corporation Japan to facilitate the sale of groups products to Nokia and other companies in India including getting accreditation of KC products from Nokia India, this company does not seem to be functionally similar, and has a different business model, and hence a different FAR. DRP directs exclusion of comparable. Mitcon Engaged in varied services Engaged in technical management Consultancy & like power division, energy consultancy. Functionally broadly Engg. Services Ltd. and carbon services, similar Turnover objections environment management and addressed at approval of filter supra engineering, agro infra and including jurisdictional HC food processing service decisions in Chryscapital. - Foils service filter - DRP approves its inclusion as consultancy income as a comparable Taxpayer alleges it fails proportion of total operating Service Income Filter — TPO to income is 61% i.e. < 75% verify. If this is correct then DRP directs to exclude from comparables. NTPC Electric Engaged in business of Functionally Different Supply Company distribution and supply of Engaged in business of distribution Ltd. electrical energy and supply of electrical energy During FY 2010-11, the DRP directs TPO to exclude as company formed a Joint comparable Venture for the purpose of retail distribution of power The operating revenues are 338 times that of KAPI REC Power Involved in providing third Engaged in technical management Distribution Co. party inspection, feeder consultancy. Functionally broadly Ltd. renovation programs, material similar inspection and preparation of DRP approves its inclusion as Detailed Review Projects comparable Rites Ltd. Engaged in providing Engaged in technical and commissioning consultancy, management consultancy. design, engineering and Functionally broadly similar turnkey solutions in the field of Turnover objections addressed at transport, transportation approval of filter supra including infrastructure and related jurisdictional HC decisions in Kyocera Asia Pacific India Pvt. Ltd. technologies Chryscapital. Fails service filters as the DRP approves its inclusion as consultancy income as a comparable but if it fails service proportion of total operating income filter then TPO to exclude income is merely 63.69% i.e. after verification. 75% Operating revenue is 4125 times the revenue of KAPI Carries significant inventories unlike a service company TCE Consulting Engaged in providing design Given functional profile of taxpayer Engineers Ltd. and engineering consultancy of providing marketing support for project management Kyoceras marketing support services times the revenue consultancy, procurement to KAP for distribution of its management services, products in India, and providing construction management technical support services to consultancy and advanced Kyocera Corporation Japan to technology and simulation facilitate the sale of groups products Operating revenue of the to Nokia and other companies in company is 2457 of KAPI India including getting accreditation of KC products from Nokia India, this company does not seem to be functionally similar business model, and hence a different FAR. DRP directs exclusion of comparable. Usha Hydro Engaged in providing services Engaged in technical management Dynamics Ltd. in the field of Descaling of consultancy. Equipments & Vessels through Functionally broadly similar hydrojetting & retubing of Turnover objections addressed at condenses & heat exchanges approval of filter supra including (manufacturing activities). jurisdictional HC decisions in Chryscapital.
The AO passed the impugned order and finally made the adjustment of Rs.8,96,937/- in the Technical Support Service on the basis of the TPO’s order dated 28.12.2015 passed in pursuant to the direction of the ld. DRP.
Now the assessee is in appeal. The ld. Counsel for the assessee submitted that following three comparables selected by the TPO deserve to be excluded: “1. Certification Engineers International Ltd. 2. REC Power Distribution Co. Ltd. 3. Usha Hydro Dynamics Ltd.”
It was stated that the aforesaid three comparables were functionally different and that the ITAT Delhi Bench ‘I’, New Delhi vide order dated 14.10.2015 for the assessment year 2009-10 in the case of M/s Bechtel India (P) Ltd. Vs DCIT, Circle-2(1), New Delhi (2015) 64 taxmann.com 180 directed to exclude M/s Certification Engineers International Ltd., a reference was made to paras 28 to 32 of the said order (copy of which is placed on the record).
13. In his rival submissions, the ld. CIT DR supported the order of the TPO.
After considering the submissions of both the parties and the material on record, it is noticed that the said comparable M/s Certification Engineers International Ltd. has been directed to be excluded by the Co-ordinate Bench in the aforesaid referred to order dated 14.10.2015 in the case of Bechtel India (P) Ltd. Vs DCIT, Circle-2(1), New Delhi (supra) and the relevant findings have been given in paras 28 to 32 which read as under: “28. The next issue for our consideration is the functional comparability of the assessee Bechtel India with CIEL. We have already noted the functional profile of the taxpayer assessee in para 16 as stated above. That the functional profile of CIEL has been submitted by the ld. Counsel of the assessee which explains the details of services offered by CIEL, area of certification expertise and another important area of energy efficiency audit functions by the assessee CIEL. The relevant operative part reads as under:— "4. Services Offered by CEIL:
CEIL is India's leading Certification and Inspection agency for offshore Oil & Gas Process & Well platforms, Petro-chemical Refineries, Submarine and Cross country Pipelines etc. CEIL provides services designed to suit project requirements throughout the life span of a plant/facility from concept to commissioning, revamping and health check. It promotes Safety, Quality and Reliability throughout the design and operating life of all types of equipment, structures, pressure vessels, pipelines and rotating machinery. The services cover all types of capital goods and equipment during manufacture and erection stages for oil & gas and general engineering sectors, encompassing; - Review of Detailed Engineering - Independent Analysis and Review of Designs/Drawings - Conformance of Materials & Equipments to National/International Codes - - Review and Approval of Inspection Test Plans - Review of Installation, Pre-commissioning and Commissioning Procedures - Third Party Inspection Services/Pre-shipment Inspection - Supervision of Site Construction for cross country water/gas pipelines - PMC Services for Infra structure projects of Municipalities - HAZOP Studies/Quantitative Risk Analysis - Mitigation Measures Report with recommendations to reduce the risk factor is issued after studying the above. 5.7 Energy Efficiency Audit In addition to Certification Services, CEIL also carries out Energy Audit, Base Line Verification of energy intensive facilities e.g. pumping stations, municipal lighting, and commercial buildings as per client's requirements. CEIL is also prepared to provide Energy Service Contracting services (ESCO) for Kyocera Asia Pacific India Pvt. Ltd. rehabilitation/replacement of energy inefficient equipments/appliances and to be paid back from affected savings in energy consumption.
Areas of Certification Expertise: CEIL avails a total synergetic support of its parent company EIL which has skilled and experienced professionals located at Head Office and spread across India and abroad who are fully conversant with national and international codes backed by over 4 million man hours of experience. It has on its roll Engineers qualified by various recognized NDT bodies like ASNT, ISNT and QMS. CEIL's expertise covers Design Verification, Quality Services and Commissioning Assistance on: - High pressure Reactors, Pressure Vessels, Columns, Heat Exchangers, Reformers of carbon steel, stainless steel, alloy steels & non ferrous materials - Clad Columns, Storage Tanks, Horton Spheres, Mounded Tanks - Equipment for Combustible/Explosive Classifications, Occupational Safety and Hazardous Area Classifications - Instrument Air/Plant Air Systems, Air Drying Plants, Gas dehydration units - Heating, Ventilation and Air Conditioning (HVAC) Systems - Line Pipes, Pipe Coating and Piping Appurtenances"
In view of above, the assessee taxpayer Bechtel India which is rendering engineering support services including related design and drawing as per specification of its foreign AE Bechtel Corporation USA cannot be compared with a company which is engaged in the functions of third party inspections (TPI), certification of equipment supplied by vendors & installation of work of contractors of ONGC and other government departments and private Kyocera Asia Pacific India Pvt. Ltd. sector undertakings. The CIEL having domestic consumers, government companies and public sector undertaking having insignificant export surplus cannot be compared with the assessee Bechtel India which is 100% exporter of services to its AE Bechtel Corporation, USA.
We may point out that functions of a company should be determined having regard to its data mentioned in the financial results filed along with return of income and annual report which is a primary resource and general information in the annual report is more accurate and this fact has not been controverted by the ld. CIT DR. From the functional profile of assessee Bechtel India and functional profile of CIEL as reproduced hereinabove, it is amply clear that the CIEL carries on business of certification and third party inspection of equipments provided by a contractor and obviously certification and TPI functions are dissimilar form the business of rendering engineering support services including related design and drawing as per specifications of foreign AE and by using intangibles/IPR of parent company.
Ld. DR could not demolish this factum that the certification/TPI involves testing/assessing and auditing of the work done by the high-end technocrats which conforms to specifications prescribed in the contract; meets quality standard of work and material; meets safety standards; meets environmental standards and satisfactory works, plant commissioning and installation of various works and projects for the employer like ONGC. The CIEL certifies the work of the contractor that the employer accepts the work undertaken as per specifications of the contract and then makes the payment. Per contra, the business functional profile of assessee company is to perform the work of preparing and supplying design and drawings given by its parent Bechtel Corporation USA. In this modus operandi this work is outsourced by the non- resident AE to the assessee Bechtel India which carry out the work as per specifications given by the outsourcing company AE. We may also point out that the revenue of CIEL form export of surplus is 3% which is insignificant and the income from export of Kyocera Asia Pacific India Pvt. Ltd. services by the assessee Bechtel India is 100% of operating income as there is no domestic client, thus, as per Rule 10B(2)(d) of the Rules, the comparability test also fails on this count.
On the basis of foregoing discussion, we have no hesitation to hold that the functions of assessee Bechtel India are quite dissimilar with CIEL which was wrongly taken by the TPO as a suitable comparable for benchmarking of impugned international transaction undertaken by the assessee during the relevant financial period. The functional dissimilarity as well as distinction in the geographical market in the light of foreign exchange fluctuation risk of the assessee company coupled with below 25% RPT undertaken by the CIEL, we, therefore, decline to agree with the conclusion of the AO/DRP/TPO that the CIEL is a suitable comparable for the purpose of proposed TP adjustment made by the authorities below. Functional dissimilarity and other aspects cannot be ignored and these factors clearly demonstrate that CIEL should not have been included in the final set of comparables for making transfer pricing adjustment pertaining to the impugned international transactions of the assessee company and we order to exclude the same from the final set of comparables. It is ordered accordingly.” So, respectfully following the aforesaid referred to order, this comparable is directed to be excluded, since, it is functionally different from the assessee.
As regards to the comparable M/s REC Power Distribution Co. Ltd., the ld. Counsel for the assessee submitted that it was involved in providing third party inspection, feeder renovation programs, material inspection and preparation of detailed review projects. The said functions were different from the functions performed by the assessee who was engaged into marketing and sales and cutting tools and other components. It was further submitted that the said Kyocera Asia Pacific India Pvt. Ltd. company was primarily engaged in providing third party inspection, detailed project report for Government Power Project. A reference was made to page nos. 2680 & 2681 of the assessee’s paper book volume (V) which is the copy of Director report and included review of operation. It was also stated that the said company had taken new initiatives, initiated the TPI works of High Voltage Distribution System, completed field inspections of 17 feeders and it also conducted Energy Audit at IIM, Lucknow, Noida Campus and NIPFP, New Delhi. It had also taken up the work of Energy Accounting and Energy Audit in distribution network, it was appointed to act as Lenger’s Engineer for various renewable energy projects including solar power project under Jawaharlal Nehru National Solar Mission Scheme launched by Ministry of New and Renewable Energy. It was pointed out that the said company had entered into a MoU with M/s North Delhi Power Limited to undertake the business of distribution of electricity jointly by RECPDCL and NDPL and had also taken new initiative to promote and implement as a “Developer”, one of the key program of the Ministry of Power viz. Decentralized Distruibution system under Rajiv Gandhi Grameen Vidyutikaran Yojana, a scheme of Rural Electricity Infrastructure and Household Electrification of remote villages, therefore, the comparable M/s REC Power Distribution Co. Ltd. is having all together different functions from the assessee, as such it is not a comparable.
In his rival submissions, the ld. CIT DR supported the orders of the authorities below.
After considering the submissions of both the parties and the material on record, it appears that the said comparable M/s REC Power Distribution Co. Ltd. was having different functions than the assessee who was mainly engaged in marketing and sale of cutting tools and other components manufactured by parent company Kyocera Group while the comparable company was engaged in third party inspection of HVDS feeders, energy audit, making the detailed project for Government Power Project, and also had undertaken new initiative to promote and implement as a “Developer”, one of the key programe of the Ministry of Power. Therefore, it was not functionally comparable with the assessee. Accordingly, we direct the AO/TPO to exclude M/s REC Power Distribution Co. Ltd. from the list of the comparable while working out the arm’s length price.
As regards to the company M/s Usha Hydro Dynamics Ltd., the ld. Counsel for the assessee submitted that this company was in all together different kind of business as it was doing business of cleaning of various machines equipments etc. for various industries and also doing trading business. A reference was made to page no. 2795 of the assessee’s paper book volume (V). It was also stated that the said company was not earning any foreign exchange whereas the assessee was earning foreign exchange. It was accordingly submitted that this company having different function was to be excluded on account of functional dissimilarity.
Kyocera Asia Pacific India Pvt. Ltd. 19. In his rival submissions, the ld. CIT DR reiterated the observations of the ld. DRP and strongly supported the orders passed by the authorities below.
We have considered the submissions of both the parties and carefully gone through the material available on the record, it appears that the company M/s Usha Hydro Dynamics Ltd. was engaged in industrial cleaning activity by high pressure water jet technology while the assessee was not engaged in such activity. Therefore, it was to be excluded on account of functional dissimilarity. Moreover, the said company was not having any earning in foreign exchange while the assessee was having foreign exchange earnings and that the said company was not having market support functions while the profile of the assessee clearly shows that it was having market support functions. It is also evident from para 3 of the TPO’s order that the assessee entered into international transactions with its AE for Rs.1,22,24,024/- for marketing support fee. The TPO in para 4.2 clearly mentioned that the primary function performed by the assessee was marketing support service and that the assessee was providing information on market trends, products and strategies of competitors, future customers needs etc., acting as channel of communication between parent company Kyocera Asia Pacific India Pvt. Ltd. and its buyers/prospective buyers thereby licensing with the buyers to understand their needs and acting as the window for any claim or enquiry from the customers which clearly shows that the assessee Kyocera Asia Pacific India Pvt. Ltd. was engaged in marketing support service while M/s Usha Hydro Dynamics Ltd. was not engaged in such type of service.
In view of the above, we direct the AO/TPO to exclude this company i.e. M/s Usha Hydro Dynamics Ltd. from the list of the comparable. No other ground was argued before us.
In the result, the appeal of the assessee is partly allowed. (Order Pronounced in the Court on 26/11/2018)