ASST CIT 14(2)(1), MUMBAI vs. HITACHI DATA SYSTEMS INDIA P.LTD, MUMBAI

Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeal by revenue for Assessment Year [AY] 2011-12 contest the final assessment order dated 31/12/2015 passed u/s 143(3) read with Section 144C(13) of the Income Tax Act, 1961 by Ld. Assistant Commissioner of Income Tax-14(2)(1) pursuant to the directions of Ld. Dispute Resolution Panel [DRP] wherein the returned income of Rs.376.08 Lacs e-filed by the assessee on 29/09/2011 has been accepted. The revenue is aggrieved by relief provided by Ld.DRP to the assessee against certain Transfer Pricing [TP] Adjustment as proposed by Ld. Transfer Pricing Officer [TPO] in an order u/s 92CA(3). The assessee, challenging the directions of Ld. DRP on certain issues relating to transfer pricing adjustment, has filed cross-objections against the same. 2. The registry has noted that the appeal has been filed with a delay of 37 days. However, upon perusal of Form No. 36 filed by the revenue, it is noted that the date of communication of order appealed against in Column No. 9 has wrongly been mentioned as 24.11.2015 whereas the date of passing of impugned order is 31/12/2015. The same has been clarified by the revenue during hearing before us. Prima facie, the appeal is in order and therefore, we proceed to dispose-off the same on merits. 3.1 Facts in brief are that certain International transactions as carried out by the assessee during the impugned AY with its Associated 2 IT(TP)A No.1012/Mum/2016 & CO. No. 54/Mum/2016 Hitachi Data System India Private Limited Assessment Year:2011-12 Enterprises [AE] as reported in Form No. 3CEB were referred for determination of Arm’s Length Price [ALP] to Ld. TPO u/s 92CA(1) on 17/12/2013. The assessee was engaged in the business of providing marketing and support services like promoting the sales of AE’s products in India, marketing presentation to potential customers of its AE, general corporate communications, public relations, advertisement and channel communications among other activities. The dispute under appeal is related with determination of ALP of marketing support services fees of Rs.35.66 crores received by the assessee from its AE which has been benchmarked in the Transfer Pricing [TP] study using Transactional Net Margin method [TNMM], Profit Leven Indicator [PLI] being operating profit / operating cost [OP/OC] and the assessee being the tested party. The assessee computed its own PLI of 9.40% as against mean PLI of 10.36% as reflected by six comparable entities and therefore, claimed the transactions to be at ALP. The Ld. TPO while accepting assessee’s five comparables, added six more comparables and computed mean PLI of eleven comparables as 15.47% as against assessee’s PLI of 9.40% and worked out TP adjustment of Rs.240.54 Lacs against the same. 3.2 Incorporating the order of Ld. TPO, draft assessment order u/s 144C(1) dated 23/03/2015 was passed, which was assailed by the assessee with partial success before Ld. DRP vide directions u/s IT(TP)A No.1012/Mum/2016 & CO. No. 54/Mum/2016 Hitachi Data System India Private Limited Assessment Year:2011-12 144C(5) dated 02/11/2015. The Ld. DRP directed for exclusion of one comparable namely Empire Industries Ltd. as selected by Ld. TPO by making following observations:- Apparently, the TPO has taken segmental result of trading and indenting activity. Looking at the fact that the assessee is providing marketing support services to its AE whereas Empire industries Ltd. is earning 40% of its revenue from trading activities, we are of the opinion that the companies are functionally different and therefore, the AO is directed to drop Empire Industries Ltd. from the list of comparables. The exclusion of the said comparable has resulted into TP adjustment being reduced to ‘Nil’. Aggrieved, the revenue is in further appeal before us.