WATANMAL (INDIA) PVT. LTD.,CHENNAI vs. ACIT, CHENNAI

The Brief facts of the case that the assessee company is engaged in business process of providing support services to its AE (Watanmal Boolchand & Co Limited Hongkkong) engaged in trading of FMCG/food products, sundries etc. and form part of the Watanmal Group operating in various countries and filed the Return of income on 22.10.2007 with total income of Rs. 37,02,530/- and the Return was processed u/s. 143(1) of the Act. Subsequently, there was survey operations u/s 133A of the Act on the business premises of the assessee and the Income Tax Department found that the assessee has international transactions and was not being remunerated at Arm's Length Price by the AE in respect of services of the assessee company. Further, the Assessing Officer recorded reasons for reopening of assessment and issued notice u/s.148 of the Act. In compliance to the notice, the assessee filed the letter dated 15.04.2014 requesting to treat return of income filed on 22.10.2007 as return in compliance to notice u/s.148 and the reasons for reopening of assessment was provided to the assessee and Ld. AR appeared from time to time and submitted the :-3-: I.T.A. No. 1889/Mds/2016 information. The Ld. AO made reference u/s. 92CA of the Act to the TPO and the assessee filed report form 3CEB on international transactions. The Ld. TPO passed order u/s. 92CA(3) of the Act on 19.05.2015 by determining the Arm's Length Price of support services of the assessee company to its AE and made a upward adjustment of Rs. 36 lakhs to wards the management fee and the Ld. AO has passed the draft assessment on 13.08.2015. Against the draft Assessment Order the assessee has filed objections in form 35A before the Dispute Resolution Panel (DRP). Subsequently, DRP rejected the objections and confirmed the disallowance of Ld. AO as in draft assessment order. Finally, the Ld. AO passed assessment order u/s. 143(3) r.w.s. 147 r.w.s 92CA (3) r.w.s 144C(5) of the Act on 05.05.2016 determining the assessed income of Rs. 73,02,530/-against which the assessee has filed appeal before the tribunal.

Before us, the Ld. AR argued on selection of comparables. The Ld. TPO based on the international transactions computed Arm's Length Prices (ALP) with upward adjustment of Rs. 36 Lakhs and dealt on the working system were the assessee company is engaged in providing support services to its AE in Hongkong. While determining ALP, the Ld. TPO rejected six comparables selected by the assessee and selected three comparables companies and calculated Arithmetic Mean at 27.58%. The assessee has filed submissions on the comparables and the Ld. TPO considered the submissions and excluded comparable company M/s. Apex Advanced Tech (P) Ltd., being a outsourcing company and is in ITES (Information Technology Enabling Services) provided by :-4-: I.T.A. No. 1889/Mds/2016 US Company and also in the services of documentation, conversion and process outsource.

Where as, the assessee company is in logistic and business support services and The Ld. TPO accepted the assessee company's comparable M/s.

The Ld. AR argued that the assessee company wants to exclude the comparable selected M/s. Allsec Tech Ltd. The Ld. AR emphasised that the assessee company is in support services to its AE at Hongkong and chosen TNM method as the most appropriate method for determining ALP. The Ld. TPO determined PLI at 9.12% as against at 10.29% of the assessee company, further PLI of comparables selected by the assessee company worked out at 15.44% were as the Ld. TPO selected three comparables M/s. Cyber Media research Limited, M/s. Allsec tech Ltd., and M/s. Adithya Birla Minacs Worldwide Ltd., and calculated average PLI at 19.33% and made upward adjustment of Rs. 36 Lakhs.

Contra, the Ld. DR objected to the exclusion of comparable and relied on the DRP Order.

We heard the rival submissions and perused the material on record and found that the comparable company M/s. Allsec Tech Ltd., is in HR outsourcing, mortgage processing, voice intelligence and financial processing services and anti money laundering services.

Whereas, the assessee company does not render any of the services rendered by M/s. Allsec Tech Ltd. which also provides service in the area of anti- money laundering to the financial institutions to proactively detect fraud and customer authenticity. The assessee company profile and functions are different from M/s. Allsec Tech Ltd., We considering the facts and material on record are inclined to accept the contentions of the Ld. AR on comparable Allsec Tech Ltd., as the functions of the company differ from the assessee company on services.

In the result, the appeal of the assessee is allowed for statistical purpose.