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Income Tax Appellate Tribunal, “K”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the revenue and Cross Objection filed by the assessee against the order of CIT(A) 15, Mumbai dated 17/10/2011 for the assessment year 2005-06 in the matter of order passed u/s.143(3). 2. The following grounds have been taken by the Revenue. 1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in including Pfizer Limited as valid CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., comparable in respect of transactions relating to Technical Services, without appreciating the fact that the turnover of service segment is half the un-allocable expenses and this activity was not a separate activity undertaken on marginal costing basis and hence not comparable" . 2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in excluding Air Financial Support Services (India) Ltd., Fortune Infotech Ltd., North Gate PO Services Ltd., Datamatics Technologies Ltd. and comparables adopted for Back Office Support Services without appreciating the fact that the assessee itself had given these companies as comparable before TPO (copy enclosed)". 3. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in excluding Datamatics Technologies Ltd and Tricom Ltd from the list of comparables, without appreciating the finding of the TPO that the related party in both these cases is a subsidiary which is also making profits out of the software purchased from them and that the comparables might have reduced the margins but not increased them". 4. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing benefit of +/-5% as per proviso to Section 92C(2), without appreciating the fact that such benefit is available only when the actual Operating Margin and Arithmetic Mean of comparable companies is within the range of 5 % and is below the operating income actually earned by the assessee". 5. "The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored".
In the cross objection assessee has taken the following grounds:-
1. "On the facts and in the circumstances of the case of law, the Ld.CIT(A) has erred in applying the provisions of Chapter X to the transactions pertaining to Technical Services and Back Office Support Services without appreciating that the reference made by the AO to the TPO is not in accordance with the provisions of section 92CA(1) of the Income Tax Act, 1961". 2. "On the facts and in the circumstances of the case of law, the Ld.CIT(A) has erred in rejecting the contemporaneous documentation maintained by the appellant as required under the CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., Indian transfer pricing regulations and the use of multiple year data". 3. "On the facts and in the circumstances of the case of law, the Ld.CIT(A) has erred in including Vimta Labs Ltd., in the set of comparables adopted for Technical Services". 4. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in including Northgate BPO Services Ltd. and Ultramarine & Pigments Ltd., in the set of comparables adopted for Back Office Support Services". 5. "On the facts and in the circumstances of the case of law, the Ld.CIT(A) has erred in rejecting the National Securities Depository Ltd. (ITES Segment), Shreejal Info Hubs Ltd., TSR Darashaw and ICRA Online (BPO Service Segment) from the set of comparables adopted for Back Office Support Services". 6. "Without prejudice to the above, the appellant reserves its right to carry out risk adjustment" . 7. "On the facts and in the circumstances of the case of law, in computing interest under section 234B for the period from 1. November 2005 to 22. December 2005, the Ld. CIT (A) has erred in not directing the Assessing Officer to apportion the self-assessment tax paid on 17. October 2005 against interest under section 234B computed on the basis of the returned income".
Rival contentions have been heard and record perused.
Facts in brief are that the assessee Exxon Mobile Co. India Pvt. Ltd., (in short EMCIPL) is a company of Exxon Mobile Corp. Group of US and is responsible for information dissemination, maintaining customer relationship and market development for it’s A.E. Exxon Mobile Chemical Co. USA (in short EMC). It is also providing application research and technical services to associated enterprises and in addition provides back office support services to the A.E. During the year under consideration for the purpose of benchmarking, the international transactions segmental have been prepared by assessee for working out profitability separately in respect of 1. Marketing services CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., 2. Provision of application research and technical services 3. Provision of back office services 6. The AO referred the case to the TPO for determining the arm’s length price in respect of the international transactions. The TPO passed an order under Section 92 CA(3) dated September 29,2008 and sent to the AO for his incorporation, making the following adjustments. Sr. No. Particulars Amount (Rs.) 1 Application research 6,693,975 and technical services 2 Back Office support 9,622,109 services Total 1,63,16,075
In the order passed u/s.92CA(3), the TPO compared the profitability earned by assessee from the said transaction with the profitability of the comparable companies determined on the basis of the data available for Financial Year (FY) 2004-05 after having rejected / accepted certain comparables selected by the assessee which were forming part of Transfer Pricing Study Report. - Disregarding the multiple year data usage - Determining the arm’s length price by including / excluding certain companies, - Disregarding the application of Box plot method adopted.
In respect of back office support services, the TPO compared the profitability earned by assessee from the said transaction with the profitability of the comparable companies determined on the basis of the CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., data available for Financial Year (FY) 2004-05 after having rejected / accepted certain comparables selected by the assessee which were forming part of Transfer Pricing Study Report.
The TPO has disregarded the multiple year data usage and also included certain comparables disregarding the structured search.
By the impugned order, CIT(A) observed and held as under:- 9.4. I have considered the facts of the case and submission of the appellant as above as against the observation / findings of the TPO in his order. The contentions of the appellant are being discussed and decided as under: A. Technical Services 1. Under the benchmarking of the technical service, there is no dispute in respect of the 6 comparables from Sr. No. 1 to 6 taken by the TPO. The only dispute raised is in respect (If the exclusion of Pfizer Limited-services segment and inclusion of Vimta Labs Ltd. The functional profile of the both these companies are being discussed here in under to decide their comparability or otherwise. a. Pfizer Limited -Servicer- This company has been excluded by the TPO for the reason that the total turnover of the services segment is half the unallowable expenses and that it seems this activity was not perhaps a separate profit activity but an activity undertaken on marginal costing basis, therefore not comparable. The appellant has contended that the segment operations primarily include conducting clinical trials, new product development and undertaking comprehensive data management for the new development. Further this segment has contributed to the development of clinical research in the country and holds a position of leadership in this area. Further this segment is responsible for an clinical research conducted within the country throughout the development continuum, irrespective of the phase or product custodian, Accordingly it may not be appropriate to say that the activities of the Services segment of the company is an incidental activity or that the company provides this activity on a marginal cost basis since. Keeping in view the functional profile of the company as aforesaid, and the: fact that same has been accepted by the DRP for AY 2006 ·07 in the case of appellant only as comparable, it is arrived at that the company is a valid comparable for the international transaction in question and is accordingly directed to be included in the set of comparables.
CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., b. Vimta Labs Ltd.:- This company has been included by the TPO in the set of comparables for the reason that it was picked up by the appellant in the last year, and although it continues to do the same work, it has not been included by the appellant in its benchmarking analysis. The appellant has submitted that this company should be excluded from the set of comparables for the following reasons: a) During the year the company has achieved a growth rate of 66% in net profit after tax. (b) The company is engaged in the business of testing activities in various disciplines such as Contract Research, Clinical Specialty Diagnostic, Analytical Testing, Environmental Monitoring and Impact Assessment studies. Hence functionally incomparable (c) Judicial precedents wherein it has been held that the extreme cases cannot be taken as a comparable (d) Para 55.10 of CBDT Circular No. 14 of 2001 The submission of the appellant has been considered and the same has not been found to be acceptable for the following reasons: 1. Simply because any comparable has achieved a higher growth in the net profit after tax cannot be the reason for either the inclusion or the exclusion of such company to or from the set of comparables fo: the purposes of benchmarking. The criteria for selecting the comparables is based on the FAR analysis of the comparable and the tested party. Further if the .profit earned is normal course of the business there cannot be any reason for the exclusion of the company from the set of comparables for this reason alone. In the facts of the case the appellant has not submitted that the higher profit in respect of this comparable is for the reasons other than normal business of the company. ii. As far as functional profile is concerned, this company's functional profile has not changed from the last year to the year under consideration and so is the fact in the case of the appellant. When the functional profile of the tested party or the comparable has not changed and there is nothing extraordinary happened in the case of the comparable in the year under consideration, there is no logic to exclude such a company from the set of comparables. iii. The appellant has relied upon the rulings in the cases of Teva India Pvt Ltd. 2011-TII-28-ITAT-MUM-TP, Abode Systems India Pvt. Ltd. 201l-TII- 13- ITAT-DEL-TP, E-Gain Communication (]I) Ltd. 2008-(023)-SOT- 0385-TPUN, Sap Labs India Pvt. Ltd. 2010-T[I-44-ITAT-BANG-TP and CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., Aginity India Technology ITA10No. 3856(Del)/2010). In. respect of the same it is mentioned that the same are in respect of specific facts of the case and thus cannot be generalised. Further in none of the rulings it has been decided that beyond what level of profit, the company can be considered as outlier or what can be termed as super normal profit. If the profit has been earned in the normal course of the business, the profit has to be termed as normal profit and if the company is comparable based on its FAR, vis-a-vis the tested party, the same has to be taken as comparable. Reliance is also placed on the recent decision of Hon'ble ITAT, Mumbai in the: case of DCIT Vs. B.P. India Services Pvt. Ltd. wherein it has been held that the fact whether the comparable has a higher or lower profit rate has not been prescribed as a determinative factor to make a case incomparable. This is because profit is not a factor in itself, but a consequence of the effect of various factors. Only if the higher or lower profit rate results on account of the effect of factors given in rule 10B(2) read with sub-rule (3), that such case shall merit omission. If however such extreme profit rate is achieved because of factors other than those given in the rule, then such case would continue to find its place in the list of comparables. iv. The appellant has further referred to the part. 55.10 of circular 14/2001 of the CBDT, which in respect of-new legislation to curb tax avoidance by abuse: of transfer price. How the same is relevant to .he case of the appellant or to the selection of this company as comparable ha, no where been submitted by the appellant. This para actually gives the back ground or the justification for considering the arithmetic mean as the ALF as to what has been provided as proviso to section 92C(2) of the Act. v. Accordingly, the action of the TPO in selecting Vimta Labs Ltd., as one of the comparables is found to be justified.
11. In view of the discussion as above, it is directed to take a set of 8 comparable including the above two companies and the 6 comparables which have not been disputed, as the final set of comparables for benchmarking the appellant's international transaction relating to rendering of application research and technical services. B. Back office Support Services: For the bench marking Back Officer Support Services following the TNMM, the TPO has adopted a set of seventeen comparables with their arithmetic mean at 32.68%. However subsequently the TPO has passed an order under section 154 where by PLI in the case of one of the comparables viz. Ace Software Exports Ltd. has been considered as 13.65% as against the PLI adopted in the original order at 20.96%. Thus the arithmetic mean of the set of comparables was reduced to 32.25%. The list of 17 comparables with their PLI's have been mentioned herein above out of which the comparables appearing at Sr. No. 2,3,4, 8,9,11,14,16 and CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., 17 have been disputed by the appellant. In order to decide the comparability of these comparables, their functionality profile vis-a-vis that of the tested steel party are being discussed here in above. i. Airline Financial Support Services (India) Ltd. -in respect of this comparable, the appellant has mentioned that as per the Annual: Report, the related party transaction is at 35.54% and accordingly the same should be rejected. However the revised computation of RPT based on the sales to the related parties over toted sales was worked out at 31.75%. Accordingly it is seen that the related party transaction in this case is substantial and accordingly this comparables is directed to be excluded from the set adopted for the benchmarking. BNR Udyog Ltd. - In respect of this comparable also, the appellant has mentioned that the related party transaction is 220.72% and accordingly the same should be rejected. In this case there is related party transaction of Rs. 4.31 crores vis a vis total sales of Rs. 2.00 crores. Accordingly it is see n that the related party transaction in this case is substantial and accordingly 'this Comparables is directed to be excluded from the set adopted for the benchmarking. Ill. CMC Limited -- ITES Segment - In respect of this company also, the appellant has contended that the related party transaction is 33.87% and accordingly they should be rejected. However the revised computation of RPT based on the sales to the related parties over total sales was worked out at 25.56%. Accordingly it is seen that the related party transaction in this case is substantial and accordingly this comparables is directed to be excluded from the set adopted for the benchmarking. IV. Datamatics Technologies Ltd. - In respect of ibis company, the appellant has mentioned that this company should be rejected on account of substantial related party transaction of 61.81 % ( revised to 51.54 VD based on the sales to the related parties over total sales) for F. Y. 2004-05. It: ias been further submitted that this company is also engaged in the business of consultancy activities. Further be appellant has relied on judicial precedents for excluding extreme cases and have further relied on para 55.10 of CBDT Circular No. 14 of 2001. During the proceedings before the TPO, the appellant had contended for rejection of this comparable on account of substantial related party transaction. However, the AO observed that the related party is a subsidiary which is also making profits out of the software purchases from the AE and this show: that the AE might have reduced its margin but not increased them. It can accordingly been seen that the presence on related party transaction to the extent of 61.81% (revised 51.54%) has not been disputed by the TPO. On account of the fact that there is substantial related patty transaction, this comparable is directed to be excluded from the set adopted for the purpose of bench marking.
CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., v. Fortune Infotech Ltd. - In respect of this comparable, the appellant has mentioned that the related party transaction is to the tune of 98.46% and accordingly the same should be excluded from the set of comparables. However the revised computation of RPT based on the sales to the related parties over total sales was worked out at 98.32%. Accordingly it is seen that the related party transaction in this case is substantial and accordingly this comparables is directed to be excluded from the set adopted for the bench marking. VI Northgate GPO Services Ltd. - In respect of this company, the appellant has mentioned that it has related party transaction 10 be tune of 36.68% and also this company has earned income from the software exports, It has also been contended that apart from the software development and we) designing, it is also providing high end back office services to its subsidiaries which are in the field of online advertising that provides clients with flexible, multi model advertising vehicles for reaching their customers. Further there is no segment available and the related party disclosure does not reflect any back office services rendered to the subsidiaries. As far as the RPT is concerned, the revised computation of RPT based on the sales to the related parties over total sales was worked out at 15.24%. Accordingly it is seen that related party transaction in this case is not substantial. As far as functional difference that has been pointed out by the appellant, it is stated that this company is into ITES segment, how far it is into software development is not seen from the details available. Accordingly, this company is directed to be retained in the set of comparables. Tricom India Ltd. - In respect of this company, it has been mentioned that the company has substantial related party transaction of 58.03% for F.Y. 2004-05 and accordingly, the same should be rejected. In respect of this company, the TPO has observed that the related party is a subsidiary which is also making profits out of the software purchased from the AE which shows the t the assessee might have reduced its margin but not increased the same. It is clear from the facts as above that the TPO has not disputed presence of high end party transaction to the extent of 58.03%.). Accordingly, this company is direct to be exclude from the set of comparables. viii. Ultramarine & Pigments Ltd. - The appellant has mentioned that this company should be rejected on account of abnormal high margin for F.Y. 2004-05 and further the business of the company comprises of ] .apz Digital Services and Lapiz Technical Services under ITES segment. It} as been mentioned that from the Management Discussion Analysis of F.Y. 2005-06, it is evident that the Lapiz Technical Services consists of CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., rendering engineering services. Accordingly, this segment should be rejected. Further the appellant has relied upon the judicial precedents in which it has been held that extreme cases cannot be taken as a comparable and has further relied upon para 55.1(1 of CBDT Circular No. 14 of 2001.· The TPO has observed that this company has been considered as comparable by the appellant using data for F.Y. 20(12-03 and 2003-04. Accordingly the functional comparability is not disputed. Further it is not the case that the higher profit which has been earned by this comparable is on account of any abnormal event which took place during the year under consideration.. It is also not coming out of the facts that in the ITeS business segment it did n it have engineering services in the earlier years. Further such services are part of the overall ITeS business of this company. The appellant has relied upon the rulings in the cases of Teva India Pvt Ltd. 2011- TII-28-ITAT-MUM-TP, Abode Systems India Pvt. Ltd. 2011- TII-13-ITAT-DEL-TP, E-Gain Communication (P) Ltd. 2008-(023)-SOT- O385- TPUN, Sap Labs India Pvt. Ltd .. 20l0-TII-44-ITAT-BANG-TP and 'Aginty India Technology lTA No. 3856(Del)/201 O. In respect of the same it is mentioned that the same are in respect of specific facts of the case and thus cannot be generalised. Further in none of the rulings it has been decided that beyond what level of profit, the company can be considered as outlier or what can be termed as a super normal profit. If the profit has been earned in the normal course of the business, the profit has to be termed as normal profit and if the company is comparable based on its FAR, vis-à-vis the tested party, the same has to be taken as comparable. Reliance is also placed on the recent decision of Hon’ble ITAT, Mumbai in the case of DCIT vs. B.P. India Services Pvt. Ltd., wherein it has been held that the fact whether the comparable has a higher or lower profit rate has not been prescribed as a determinative factor to make a case incomparable. This is because profit is not a factor in itself, but a consequence of the effect of various factors. Only if the higher or lower profit rate results on account of the effect of factors given in rule 10B(2) read with sub-rule (3), that such case shall merit omission. If however such extreme profit rate is achieved because of factors other than those given in the rule, then such case would continue to find its place in the list of comparables. The appellant has further referred to the para 55.10 of circular 14/2001 of the CBDT, which in respect of new legislation to curb tax avoidance by abuse of transfer price. How the same is relevant to the case of th e appellant or to the selection of this company as comparable has no where been submitted by the appellant. This para actually gives the back ground or the justification for considering the arithmetic mean as the ALP as to what has been provided as proviso to section 92(: (2) of the Act.
CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., Accordingly the contention of the appellant to exclude this comparable from the set of comparables is not found to be acceptable IX. Vishal Informational Technologies Ltd. - The appellant has mentioned that this company should be rejected as it sub contracts i:s business and further the: employee cost is less than 1 % of the total cost. During tie proceedings before the TPO, the assessee has not submitted anything which could have affected its functional comparability in the ITeS segment. In the annual accounts, under the Schedule 15 trading and operating expenses have been given which pertain to data entry charges and vendor payments, [t nowhere shows that such work has been outsourced. It only shows that the data entry charges and the related costs may have been grouped separately and have not been shown as employer cost. Because what has been shown as employee cost is only 'personnel cost' which might relate to the personnels employed for supervising and administrative se: UII, Accordingly the submission of the appellant that is sub contracts its business and the employee cost is less than 1 % of the total cost may not be the fact of the case and it is also arrived at that even if so, the same does not vitiate the comparability, Accordingly the contention of the appellant to exclude this is not found to be acceptable. In respect of the certain comparables the appellant has mentioned that the same should be accepted. Such submissions of the appellant are being considered hereinunder. National Securities Depository Ltd. (ITES segment)- In respect of this company, it has been submitted that the segment caters to the Income Tax Department providing back end support and also providing facilities for straight through processing. Further the company has invested substantially in assets. The segment cannot be considered to be incidental or low margin segment / activity and its revenue are increasing in the subsequent F.Ys. In respect of the same, the TPCI has observed that this company is mainly into Demat services and the ITES services are incidental and works on marginal cost basis. This is not full fledge profit contributing segment. The ITES segment is being operating on marginal cost basis. Accordingly, the TPO has not accepted this segment of the company as comparable. Along with the submission, only segmental reporting of the company has been given by the appellant. It is seen that from the depository services, the company hr s earned operating profit over total cost at 74.63% as against 1.15% in the I.T. enabled service segment. From the profiling of the company, it is seen that the ITES segment of the company operates on marginal cost basis and that this segment is not its main revenue driver. Further catering to Government work differentiates its profile vis-a-vis the appellant, Accordingly the contention of the appellant. Accordingly, the contention of the appellant to include this in the set of comparables is not found to be acceptable.
CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., H. Shreejal Info Hubs Ltd. - This company was rejected by the TPO as consistent loss maker. The appellant has submitted that the Company has reported profits for the previous financial year i.e. F.Y. 2003-04 and ha.. further reported for F.Y. 2005-05 and 2006-07 and therefore it is not a consistent loss maker. It has been brought out by the TPO that the profit in F.Y. 2003-04 were only on account of prior period income and not because of the operational reasons. Further even if the company has earned profit from F.Y. 2005-06 and 2006-07, the data' for the same cannot be considered for the purpose of comparability under rule 10B(4) of the IT.Rules, 1962 as in that rule, there is no provision to consider the data for the future years. The year under consideration is F.Y. 2004-05. Reliance i 3 placed on the ruling of Hon'ble IT A T Pune in the case of Honey-well Automation India Ltd. Vs. DCIT (2009- TIOL 104 ITAT- PUNE), (Pune). Accordingly, the contention of the appellant to include this company as comparable is not found to be acceptable. iii. TSR Darashaw - In respect of this company, it has been contended that the company I is one of the India's leading BPO organisation certified under ISO 900] -2000 guidelines having a total industry experience of over 35 years and accordingly, it has been contended that the same should be accepted. In the submission, the appellant has also mentioned that this company has been rejected by the TPO arbitrarily without assigning any reasons. It is seen that alongwith this submission, the appellant has not enclosed copy of the annual report of this company and only a print of its web home page has been enclosed. It only means that the Annual Report or the Management discussion and analysis of this company is not available in the public domain and accordingly the company cannot be taken as comparable for want of sufficient information I data. Accordingly the contention of the appellant cannot be accepted. IV. ICRA Online (BPO Service Segment) - In respect of this company, the appellant has mentioned that the segment has reported health} profits for F.Y. 2005-06 and 2006- 07 and therefore the same cannot be considered' as a consistent loss maker. Further the segment result are not available for F.Y. 2003-04 and as the segment is functionally comparable, it should be considered as comparable and included for the bench marking. This company was rejected by the TPO for the reason of it being consistent into loss in the past. The period under consideration is F.Y. 2004-05 and accordingly, data for F.Y. 2005-06 and 2006-(,7 cannot be taken for deciding be comparability and / or the bench marking. As per Rule 10B(4), the data for the year under consideration is to be considered for benchmarking and data for earlier two years can also be considered if such data reveals that it has influence on determination of ALP, Under the Indian Transfer Pricing Regulations, there is no scope for considering data for the future years. Reliance is placed on Honey well Automation India Ltd. Vs. DCIT (2009-T'IOL 104 ITAT-PUNE), (PUNE). Accordingly this company cannot be considered as comparable.
CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., In view of the discussion as above the TPOI AO are directed to take the set of comparables after exclusion/inclusion of companies as has directed above and arrive at the set of comparables for the purposes of benchmarking appellant's international transaction relating to Back Office Support Services.
Against the above order of CIT(A), revenue is in appeal before us and assessee has also filed cross objection.
We have considered rival contentions and carefully gone through the orders of the authorities below. 13. From the record we found that during the year under consideration, the EMCIPL had entered into certain international transactions with its Associated Enterprises (AE’s) within the meaning of Section 92 of the Income-tax Act, 1961 (‘the Act’). The said international transactions were duly reported in Form 3CEB (under Section 92E of the Act), which was filed along with the return of Income for Assessment Year 2005-06 on October 30,2005. The international transactions entered into by the assessee, relevant to the Transfer Pricing Regulations are as under:-
Sr.No Nature of Method Adopted Amount transaction (Rs.) 1 Marketing Services Transactional Net 234,365,365 Margin Method 2 Application Transactional Net 68,720,007 Research and Margin Method Technical services 3 Back Office Support Transactional Net 44,591,700 Services Margin Method CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd.,
The assessee has adopted TNMM method to support its benchmarking. After considering the TP report AO excluded Pfizer Limited as the valid comparable in respect of transactions relating to technical services. AO also excluded Airline Financial Support Services and Tricom Ltd., from the set of technologies adopted for back office support services. The AO also excluded Datamatics Technologies Ltd., and Tricom Ltd., from the set of comparables. TPO has discussed above issue with regard to benchmarking of application research and technical services resulting into addition of Rs.66,93,975/-. Benchmarking of back office support services have been dealt in para 7, resulting into addition of Rs.96,22,109/-.
From the record we found that as per para 4.2 of the TPO Order for AY 2005-06, the TPO himself proposes to add Pfizer limited to the list of comparable companies. The CIT(A) further confirms the TPO's order thereby including Pfizer Limited as a comparable company. Furthermore, In AY 2006-07, page 9 of ITAT Order, the set of comparable companies as selected by the assessee includes Pfizer Limited, the TPO however excludes the said company from the set of comparable while passing the order under section 92CA of the Act. The assessee filed an appeal before the DRP and the DRP directs the TPO to include the Pfizer Limited in the final set of comparable companies. Further the DRP argues only on the calculation of the margins of the Pfizer Limited. Under these facts and circumstances, we direct TPO to include Pfizer Limited in the set of comparable companies. We direct accordingly.
CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., 16. On the other hand, learned DR argued for excluding Pfizer Limited from the set of comparable companies since the company had its financial year ending November 2004.
We have considered rival contentions and found that Pfizer limited was selected as comparable company by TPO himself in AY 2004-05. The company was accepted as comparable by ITAT in assessee’s own case for AY 2004-05 and AY 2006-07. Accordingly, we do not find any infirmity in the order of CIT(A) for including the Pfizer Limited in the set of comparables.
With regard to inclusion of Vimta Labs Ltd., in the set of comparable companies, we found that Vimta Labs Ltd., has been included by the TPO in the set of comparables since it was picked by the assessee itself in the last year. The CIT(A) found that Vimta Labs Ltd., continued to do the same work which has been included by the assessee itself in its benchmarking analysis. The criteria for selecting comparables are based on FAR analysis of the comparables and the tested party. If the profit earned is in normal course of the business there cannot be any reason for the exclusion of the company from the set of comparables. It was also observed by the CIT(A) that assessee has not submitted that the higher profit in respect of this comparable is for the reasons other than normal business of the company. We also found that functional profile of the company has not changed from the last year to the year under consideration. When the functional profile of the tested party or the comparable has not changed and there is nothing extraordinary happened CO 260/Mum/2012 M/s. Exxon Mobile Co. India Pvt. Ltd., in the case of the comparable in the year under consideration, there is no reason to exclude such a company from the set of comparables. Detailed finding so recorded by CIT(A) for inclusion of Vimta Labs Ltd., have not been controverted, accordingly we do not find any infirmity in the ordre of CIT(A) for inclusion of Vimta Labs Ltd., in the set of comparables.
In view of the detailed discussion and finding the CIT(A) had directed to take set of 8 comparables including the above two companies and the 6 comparables which have not been disputed, as the final set of comparables for benchmarking the assessee's international transaction relating to rendering of application research and technical services. 20.For benchmarking Back Officer Support Services following the TNMM method, the TPO has adopted set of 17 comparables with their arithmetic mean at 32.68%. In respect of Airline Financial Support Services, we found that the related party transaction is substantial, therefore after recording detailed finding, CIT(A) has directed for its exclusion in the set of comparables adopted for benchmarking. We do not find any infirmity in the order of CIT(A).
Similarly, on the finding of substantial related party transaction BNR Udhyog Ltd., was also excluded. For similar reasoning CMC Ltd., Datamatics Technologies Ltd., Fortune Infotech Ltd., were also excluded.
In respect of Tricom India Ltd., the TPO has not disputed presence of high end party transaction to the extent of 58.03%. Accordingly, it was correctly excluded by CIT(A) from the set of comparabiles.