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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN, VICE- & SHRI G. MANJUNATHA
O R D E R
Per N.V. Vasudevan,Vice-President
This appeal by the revenue is against the final order of assessment dated 28.11.2004 passed by the DCIT, Circle 1(1)(1), Bengaluru u/s. 143(3) r.w.s. 144C r.w.s. 263 of the Income-Tax Act, 1961 [“the Act”] in relation to assessment year 2008-09.
IT(TP)A No.78/Bang/2015 Page 2 of 7
The only issue that arises for consideration in this appeal is with regard to the correctness of the relief given by the Disputes Resolution Panel (DRP) in the matter of determination of Arm’s Length Price (ALP) under the provisions of section 92 of the Act, in respect of international transaction entered into by the assessee with its Associated Enterprise (AE).
The assessee is a company engaged in the business of real estate consultancy services. The assessee rendered real estate consultancy services to a holding company, DTZ India Ltd. (UK). For rendering such services, the assessee received a service fee of Rs.10,60,60,656. There is no dispute that the said transaction of rendering consultancy service was an international transaction and the ALP of such transaction had to be determined. For determination of the arm’s length price of the aforesaid transaction, the AO made a reference u/s. 92CA of the Act to the TPO. The TPO chose 7 comparable companies and determined the ALP of the transaction and suggested an addition of Rs.5,77,08,156 to the total income of the assessee as follows:-
“9.3 Accordingly, the final set of comparables in the case of the taxpayer for comparability analysis under TNMM, including the two selected comparables of the taxpayer, is as under: Sl. Company PLI (OP/OC%)
1 CRISIL Ltd. 45.98% 2 ICRA Management Consulting Services Ltd. 4.45% 3 Asian Business Exhibition & Conferences Ltd. 15.50% 4 Cyber Media Research Ltd. 15.54% 5 HGS Business Services Pvt. Ltd. 15.12% 6 Killick Agencies & Marketing Ltd. 23.23% 7 Priya International Ltd. 11.43% Average 18.75%
IT(TP)A No.78/Bang/2015 Page 3 of 7
10. Determination of Arm’s Length Price 10.1 Since the taxpayer did not file any submissions before the TPO in response. to the show cause notice dated: 01.01.2014 did not avail of the opportunity of personal hearing nor, filed any request for grant of additional time, as mentioned above, the TPO understands that, the taxpayer has no objections to the proposed transfer pricing adjustments in the show cause notice. 10.2 Being a time baiting mailer, the TPO proceeds to finalize the case on the basis of material available on record. 10.3 The Arm's Length Price of the international transaction of the taxpayer is therefore determined as under using the set of 7 (seven) uncontrolled comparables finally selected by the TPO as per Para 9.3 above, with average PLI (OP/Cost) of 18.75%. The taxpayer's PLI (OP/Cost) in the segment is 5.96% as per Para 3 above. Particulars Amount (Rs.) Operating Cost 45,12,97,631 Arm’s Length Mean Margin 18.75% Arm’s Length Price (118.75% of Operating Cost) 53,59,15,937 Price Received 47,82,07,771 Shortfall being adjustment u/s. 92CA 5,77,08,166 Therefore the transfer pricing adjustment made in the case of the tax payer u/s. 92CA of the Income-tax Act, 61 is of Rs.5,77,08,166/- (Rupees Five Crores, Seventy Seven Lakhs, Eight Thousand, One Hundred and Sixty Six Only) as discussed above.” 4. On the objections by the assessee before the DRP against the above order of assessment in which the adjustment was suggested by the TPO, the DRP excluded M/s. CRISIL Ltd. on the ground that RPT was in excess of 25% and therefore this company should be excluded from the list of comparable companies. The DRP also excluded M/s. HGS Business
IT(TP)A No.78/Bang/2015 Page 4 of 7 Services Pvt. Ltd., M/s. Killick Agencies & Marketing Ltd. and Priya International Ltd. from the list of comparable companies on the ground that these companies were functionally not comparable with the assessee. At this stage, we may mention that the services rendered by the assessee to its AE was investment advisory services, occupational development management, project management and research and valuation of property.
We have heard the rival submissions. The grounds of appeal of the revenue is as follows:-
“1. The order of the Dispute Resolution Panel is opposed to law and the facts and circumstances of the case.
2. The DRP erred in holding that no proper opportunity of being heard was given to the assessee before finalizing the comparables/TP adjustment without appreciating the fact that a proper opportunity of being heard was given to the assessee vide show cause notice dated 01.01.2014 and there was no response from the assessee side for the notice.
3. The DRP erred in directing the TPO to exclude M/s. CRISIL Ltd from the list of comparable, holding that the RPT in this case has exceeded 2570 without appreciating the fact that the comparable was selected by the taxpayer in the TP documentation.
The DRP erred in directing the TPO to exclude M/s.HGS Business services Pvt ltd., M/s. Killick Agencies & marketing Ltd., M/s. Priya International Ltd from the list of final comparables, being functionally incomparable without appreciating the fact that these companies qualify all the qualitative and quantitative filters applied by the TPO.
5. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the DRP be reversed and that of the Assessing Officer be restored.
IT(TP)A No.78/Bang/2015 Page 5 of 7
The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal.” 6. As far as ground Nos. 1, 5 & 6 are concerned, these are general in nature and calls for no adjudication.
Ground No.2 does not require any specific adjudication because no prejudice would be caused by the DRP granting specific opportunity of being heard, despite the AO having afforded opportunity to the assessee.
As far as ground No.3 is concerned, the admitted factual position is that the computation of RPT was filed before the DRP and has been specifically mentioned by the DRP in para 6.3 of its order. Therefore, the fact that the assessee chose this company as a comparable, does not further the case of the revenue. Further, it was also pointed out by the ld. counsel for the assessee that CRISIL Ltd. was chosen by the assessee as a comparable company only on the basis of the financial data for the 3 financial years, 2005-06, 2006-07 & 2007-08. The TPO, however, took the financial data only for the FY 2007-08 and retained this company as a comparable. Therefore, it is not correct to say that this company was assessee’s own comparable chosen in the TP documentation and therefore should not be excluded.
As far as ground No.4 raised by the revenue is concerned, the comparable company HGS Business Services Pvt. Ltd. was excluded by the DRP for the reason that this company was engaged in payroll processing and compliances, management of labour and legal compliances, which cannot be compared with the functions performed by the assessee. As far as Killick Agencies & Marketing Ltd. is concerned, the DRP came to the conclusion that this company conducts business as an IT(TP)A No.78/Bang/2015 Page 6 of 7 agent of foreign principals and deals in maritime equipment. The receipts are mainly in the nature of commission income and service charges. The DRP, therefore, came to the conclusion that this company is not functionally comparable with the assessee. As far as comparable viz., Priya International Ltd. is concerned, the DRP found that this company was predominantly a trading company with inventories constituting 40.86% of its total assets. Therefore, it was concluded that this company was not functionally comparable with that of the assessee. When we compare the order of DRP with the functional profile of the assessee, we can only uphold the conclusions of the DRP. Thus, we do not find any merit in ground No.4 raised by the revenue also.
In the result, the appeal by the revenue is dismissed.
Pronounced in the open court on this 15th day of March, 2019.