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Income Tax Appellate Tribunal, DELHI BENCH “I-2”, NEW DELHI
Before: SHRI JOGINDER SINGH & SHRI R. K. PANDA
O R D E R PER JOGINDER SINGH, JM : This assessee is aggrieved by the impugned order dated 23/12/2013 passed u/s 144C(5) of the Income Tax Act, 1961(hereinafter the Act) by the Ld. Dispute Resolution Panel-1, New Delhi, assessing the income at Rs.2,33,73,350/- as against the returned income of Rs.1,10,62,980/- .
2. During hearing, the Ld. Counsel for the assessee, Shri Vishal Kalra along with Ms. Reema Malik, broadly contended that the Ld. DRP has not specifically dealt with the issue for which our attention was invited to various pages of the paper book and the observation recorded in the impugned order.
Our attention was further invited to the case of Apicto Ltd., Global Procurement Consultant Ltd., TSR Darashaw Ltd. and also the case of Trade Wings Ltd. Our attention was further invited to page 23 of the impugned order with respect to direction by the Ld. DRP along with page-50 and page 17 of the T.P. order. On the other hand, Shri H. K. Choudhary, Ld. CIT-DR, defended the impugned order and strongly contested the claim of the assessee.
2.1. We have considered the rival submissions and perused the material available on record. Ground no. 1 is general in nature and ground no.2, 3, 4 and 5 are with respect to erroneous selection of comparable companies and consequent making adjustment in respect of provision of services by the assessee to AEs. The facts, in brief, are that the assessee company was incorporated on 28/05/2003 and is a subsidiary of Mobil Pacific Services Inc.
USA, engaged in the business of providing business support services to its associated enterprises (“AEs”), such as conducting market surveys, coordination activities, liaising activities and similar services. The assessee declared total income of Rs.70,24,580/- in its return filed on 24/02/2010, which was further revised to Rs.1,10,.62,980/- on 29/09/2010. The case of the assessee was selected for scrutiny, therefore, the Ld. TPO examined the arm’s length Price (ALP) of the international transactions entered into by the assessee. The Ld. TPO made an adjustment of Rs.2,55,34,575/- to the ALP of the international transaction relating to provision of services. The assessee objected to the adjustment made by the Ld. TPO before the Ld. DRP. The Ld. DRP while dealing with the objections of the assessee adjudicated upon few comparable companies selected by the assessee and the Ld. TPO and directed to grant working capital adjustment to the assessee. Pursuant to the direction dated 23/12/2013, of the Ld. DRP, the TPO passed an order dated 29/01/2014, giving effect to the directions of the Ld. DRP, which lead to an adjustment of Rs.1,23,10,368/-, which is contested before this Tribunal. 2.2. Before this Tribunal, the Ld. Counsel for the assessee, explained that the assessee provided following business support services to its AEs i.e. Exxon Mobil Qatar Inc, Esso Asutralia Pte. Limited, and ExonMobil Hong Kong Limited during the year, (for which our attention was invited to page 285 of the paper book for TP Study). a. Conducting market Surveys and providing market information; b. Assisting its associated enterprises to develop business strategies for India by providing general guidance on the India economy and market conditions; c. Facilitating communications among ExxonMobil Group Entities and/or affiliates, foreign companies, Indian companies and Government authorities; d. Attending and coordinating meetings among ExxonMobil Group entities and/or affiliates and other foreign and Indian companies to prevent misunderstandings due to language barriers; e. Handling administrative matters with respect to meetings and travel arrangements; f. Acting as a liaison among ExxonMobil Group entities and/or affiliates and other foreign companies and their Indian customers and Government authorities; and g. Overseeing inspection and weighing of goods shipped from overseas for delivery to Indian customers. 2.3. We find that the assessee adopted transactional net margin method (TNMM) with profit level indicator of operating cost to total cost (OP/TC). The assessee selected broadly about 22 comparable companies for bench marking the international transactions pertaining to business support services to AEs. In its search, the assessee selected market research companies engaged in the business of arranging tours and travels, facilities management and event management etc. As per the TP study, the margin of the assessee was 12.26% (page 415 of the paper book), resultantly, the international transaction pertaining to provision of services by the assessee to AEs was concluded to be at arm’s length. The Ld. TPO rejected the entire set of comparable companies, selected by the assessee, except one company i.e. IDC (India) Ltd. (Now, Cyber Media Research Ltd.). The Ld. TPO proposed the following companies as comparable to the assessee, resulting into mean margin of 28.95% (unadjusted):- i. Apitco Ltd. ii. Basiz Fund Services Pvt. Ltd. iii. IDC (India) (Cyber Media Research Ltd.) iv. Global Procurement Consultant Ltd. v. TSR Darashaw Pvt. Ltd.
2.4. Before this Tribunal, the claim of the assessee is that out of the proposed set of comparable companies, selected by the TPO, the Ld. DRP excluded Basiz Fund Service Pvt. Ltd., holding the same to be functionally different and the at the same time directed the Ld. TPO to grant working capital adjustment to the assessee. Pursuant to the direction of the ld. DRP, the final set of comparable companies and their margins as computed by the Ld. TPO/AO was as under:-
Sr. No. Comparable Margin (adjusted)
Apitco Ltd. 23.18
IDC (India) Limited (Cyber Media Research 7.83
Ltd.)
3. Global Procurement Consultant Ltd. 25.19
4. TSR Darashaw Pvt. Ltd. 24.99
Mean margin 20.30 2.5. The grievance of the assessee, before this Tribunal is that the Ld. DRP did not appreciate the functions, assets and risk profile of the assessee and thus erred in comparing the present assessee with the companies which are functionally different. Our attention was invited to pages 285-287 of the paper book.
So far as, ground no. 7, raised by the assessee, is with respect to alleged erroneous exclusion of comparable company “Trade wings Ltd.” by the Ld. DRP/TPO. It was explained that the comparable company i.e. “Trade Wings Ltd.” was rejected by Ld. TPO, holding that it does not pass the service income filter of 75% (page 17 of the TP order). However, the Ld. DRP vide its direction dated 30/06/2014, held that income from service charge of Trade Wing Ltd. is only Rs.1.94 crores whereas, the total revenue is Rs.10.26 crores, thus, not satisfying the service income filter (refer page-3 of the paper book for DRP directions dated 30/06/2014). Our attention was invited to page -54 of the paper book, wherein, break up of income from operations of Trade Wings Ltd., as per profit & loss account, is given. As per the profit & loss account, total service income, i.e. commission and agency service charges and service charges, amounts to Rs.6,11,63,765/- , which is 78.68% of the total income from operations (i.e. Rs.7,77,36,713/-). It was explained that as per the segmental information in the financial statement of Trade Wings Ltd. (page 61 of the paper book), total Revenue, from the Travel related Services was Rs.10,26,59,762/-, which is 97.82% of the total income i.e. Rs.10,49,47,599/- (page 46 of the paper book) of the company. The crux of the argument on behalf of the assessee is that since the income is much more than 75% of the income of the company, the ld. DRP/TPO were not justified in holding that the service income filter for this comparable company is not satisfied and thus Trade Wings Ltd. ought to be held as a valid comparable.
3.1. So far as, issue with respect to benefit of risk adjustment is concerned, it was explained by the Ld. Counsel for the assessee that the assessee provides business support services to its AEs for which the assessee charges a markup of 10% on costs for such services for which no service delivery risk or credit risk is borne by the assessee. It was explained that the assessee is reimbursed for all costs incurred by it in relation to providing business support services and also on a markup basis. The Ld. CIT-DR defended the addition. In reply, the ld. Counsel for the assessee, placed reliance upon the decisions in the case of Sony India Pvt. Ltd. vs DCIT (2008) 114 ITD 448 (Del.), Philips Software Centre Pvt. Ltd. vs ACIT (2008) 119 TTJ 721 (Bangalore), Mentorgraphics (Noida)(P.) Ltd. vs CIT (2007) 109 ITD 101(Del.), Kodiak Networks India Pvt. Ltd. vs ACIT (2012) 52 SOT 189 (Bangalore) and E-Gain Communications Pvt. Ltd. 118 TTJ 354 (Pune).
If the observation made in the assessment order, conclusion drawn by the Ld. DRP and the assertions made by the respective counsel, if kept in juxtaposition with the facts of the present appeal, we find merit in the argument of the ld. Counsel for the assessee to the extent that the Ld. DRP has not analyzed the factual matrix in a justifiable manner, because a speaking order has not been passed by the Ld. DRP. Before the Ld. DRP, the assessee made both oral and as well as written submissions with respect to issues in hand and the Ld. TPO rejected the comparables including new comparables without assigning any reason and the same were not considered by the Ld. DRP, where the financial data was available but the same was neither considered by Ld. TPO nor by the Ld. DRP. The totality of facts, clearly indicates that the factual matrix needs to be examined afresh at the level of the Ld. DRP. The DRP is at liberty to consider the cases relied upon by the assessee as well as other cases/comparable cases, which are relevant for adjudication for the issues in hand. The assessee is also at liberty to furnish necessary evidences, if any, in support of its claim. Thus, the appeal of the assessee on the issues in hand is remanded back to the file of the ld. DRP for fresh adjudication in accordance with law, as agreed by both sides. Needless to mention here that the assessee be given opportunity of being heard. Thus, the appeal of the assessee is allowed for statistical purposes only. Finally, the appeal of the assessee is allowed for statistical purposes only.
This order was pronounced in the open court in the presence for ld. representatives from both sides at the conclusion of hearing on 26/06/2018.