Trend Micro India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1585/DEL/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97880 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 19-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANONEET DALAL; GAURAV BHUTANI
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND MS SUCHITRA KAMBLE, J M ITA NO.1585/DEL/2015 ASSESSMENT YEAR : 2010-11 TREND MICRO INDIA PVT. LTD., EROS CORPORATE TOWER, 10 TH FLOOR, NEHRU PLACE, NEW DELHI. PAN: AACCT2082Q VS. DCIT, CIRCLE-25(2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANONEET DALAL, ADVOCATE & SHRI GAURAV BHUTANI, CA DEPARTMENT BY : SHRI ANAND KUMAR KEDIA, CIT, DR DATE OF HEARING : 19.11.2015 DATE OF PRONOUNCEMENT : 20.11.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE FINA L ORDER DATED 31.12.2004 PASSED BY THE ASSESSING OFFICER (AO) U/S 144C(13) OF THE ITA NO.1585/DEL/2015 2 INCOME TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. NO OTHER ISSUE EXCEPT THE INCLUSION OF THREE COM PANIES WAS PRESSED BY THE LD. AR. ALL OTHER GROUNDS, THEREFORE, STAND DISMISSED AS NOT PRESSED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS PRIMARILY ENGAGED IN PROVIDING PRE-SALES AND POST-SALES SERVI CES, MARKETING AND OTHER TECHNICAL SERVICES TO THE CLIENTS ON BEHALF O F ITS ASSOCIATED ENTERPRISE (AE), NAMELY, TREND TAIWAN. THE ASSESSE E ALSO IMPORTS CERTAIN SERVICES FROM ITS AE. FOUR INTERNATIONAL T RANSACTIONS WERE REPORTED IN FORM NO.3CEB WHICH INCLUDE `RENDERING O F SERVICES WITH THE TRANSACTED VALUE OF RS.15,34,24,161/- AND SERV ICES RECEIVED WITH THE TRANSACTED VALUE OF RS.1,07,15,985/-. THE AO R EFERRED THE DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF TH E INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESSEE TO THE TRANSF ER PRICING OFFICER (TPO). THE TPO ACCEPTED OTHER INTERNATIONAL TRANSA CTIONS AT ALP EXCEPT RENDERING OF SERVICES. THE ASSESSEE EMPLO YED COST PLUS ITA NO.1585/DEL/2015 3 METHOD AS THE MOST APPROPRIATE METHOD FOR DEMONSTRA TING THAT THE INTERNATIONAL TRANSACTION OF `RENDERING OF SERVICES WAS AT ALP. THE TPO REJECTED THE APPLICATION OF THE COST PLUS METHO D AND ALSO THE USE OF MULTIPLE YEAR DATA. HE APPLIED THE TRANSACTIONAL N ET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH THE USE OF CURRENT YEAR DATA ALONE. THE ASSESSEE HAS NOT CHALLENGED EITHER THE APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD OR THE USE OF C URRENT YEAR DATA ALONE. IN SO FAR AS THIS TRANSACTION IS CONCERNED, THE ASSESSEE HAD SELECTED FOUR COMPANIES AS COMPARABLES IN ITS TRANS FER PRICING STUDY REPORT. THE TPO REJECTED ALL THESE COMPANIES AND S ELECTED NINE NEW COMPANIES AS COMPARABLES, WHICH HAVE BEEN LISTED ON PAGE 63 OF HIS ORDER. THE TPO USED PROFIT LEVEL INDICATOR (PLI) O F OPERATING PROFIT/TOTAL COST (OP/TC). SUCH PERCENTAGE OF PROFI T OF THE ASSESSEE WAS WORKED OUT AT 10.26% AS AGAINST AVERAGE OP/TC OF NI NE COMPARABLE COMPANIES AT 23.25%. BY APPLYING THIS ALP MARGIN O F 23.25%, THE TPO WORKED OUT THE ALP OF THE INTERNATIONAL TRANSAC TION OF `RENDERING SERVICES AT RS.17,14,94,190/-. THAT IS HOW, HE P ROPOSED TRANSFER PRICING ADJUSTMENT OF RS.1,80,70,029/-. THE ASSESSE E ASSAILED THE ITA NO.1585/DEL/2015 4 CORRECTNESS OF THE DRAFT ORDER, CONTAINING THE EFFE CT OF THE TPOS ORDER, BEFORE THE DISPUTE RESOLUTION PANEL (DRP). VIDE IT S DIRECTION U/S 144C(5) DATED 24.11.2004, THE DRP ALLOWED CERTAIN R ELIEF. IN THE FINAL ASSESSMENT ORDER PASSED BY THE AO, AN ADDITION OF R S.1,70,26,454/- WAS MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT, WH ICH HAS BEEN ASSAILED BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS NOT CHALLENGE D THE APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD. FURTHER, ITS S ELECTION OF FOUR COMPARABLE COMPANIES THAT HAVE BEEN REJECTED BY THE TPO, IS, AGAIN, NOT IN CHALLENGE BEFORE US. IN SHORT, THE CONTROVERSY IS ONLY AGAINST INCLUSION OF THREE COMPANIES IN THE FINAL SET OF CO MPARABLES BY THE TPO, NAMELY, APITCO LIMITED, GLOBAL PROCUREMENT CONSULTA NTS LIMITED AND TSR DARASHAW LIMITED. 5. BEFORE EMBARKING UPON THE COMPARABILITY OR OT HERWISE OF THESE COMPANIES, IT IS IMPERATIVE TO DECIDE THE NATURE OF WORK CARRIED ON BY THE ASSESSEE. THE TPO HAS DISCUSSED THE SAME ON PA GES 5 AND 6 OF HIS ITA NO.1585/DEL/2015 5 ORDER, AS PER WHICH THE ASSESSEE PROVIDES PRE-SALES AND AFTER SALES SERVICES, MARKETING, FINANCIAL AND TECHNICAL SUPPOR T SERVICES TO ITS AE. WE HAVE GONE THROUGH THE SUPPORT AGREEMENT DATED 1. 1.2009 ENTERED INTO BETWEEN THE ASSESSEE AND TREND TAIWAN, A COPY OF WHICH HAS BEEN PLACED ON RECORD. THIS AGREEMENT IS VALID FOR THRE E YEARS, IMPLIEDLY, COVERING THE ENTIRE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER CONSIDERATION. AS PER THIS AGREEMENT, THE ASSESSEE DESIRES TO PROVIDE PRE-SALES AND AFTER-SALES SERVICES, MARKETING, FINA NCIAL AND TECHNICAL SUPPORT SERVICES TO TREND TAIWAN IN THE SPECIFIC AR EAS OF COMPUTER AND NETWORK SECURITY. FURTHER, THE ASSESSEE IS REMUNER ATED WITH THE ACTUAL COSTS INCURRED PLUS A MARK-UP OF 10%. IN REPLY DAT ED 24.1.2004 SUBMITTED TO THE TPO, THE ASSESSEE OUTLINED THE FUN CTIONS PERFORMED BY IT AS UNDER:- ROLE OF THE ASSESSEE: TREND MICRO INDIA ACTS AS A LIAISON BETWEEN ITS AES AND THE THIRD PARTY DISTRIBUTORS IN INDIA. THE ACTIVITIES UNDERTAKEN B Y THE ASSESSEE ARE AS FOLLOWS:- ITA NO.1585/DEL/2015 6 - PRE-SALES AND POST SALES SERVICES CONSIST OF UNDERS TANDING CUSTOMER IT SET UP AND REQUIREMENT, PRODUCT PRESENT ATION, PROPOSAL/TECHNICAL SPECIFICATION PREPARATION, LEAD GENERATION, ETC. - MARKETING SUPPORT SERVICES CONSIST OF COMMUNICATION WITH PROSPECTS AND CURRENT CUSTOMERS AT EACH STAGE OF TH E BUYERS JOURNEY VIA EVENTS, COLD CALLING, TELEMARKETING AND E-MAILE RS TO GENERATE POTENTIAL BUSINESS AND MANAGE INBOUND RESPONSE FROM CAMPAIGNS, ETC. - TECHNICAL SUPPORT SERVICES CONSIST OF DIRECT SUPPOR TING TO CUSTOMERS FACING TECHNICAL ISSUES, PROVIDE GUIDANCE , TECHNICAL SUPPORT, PRODUCT TECHNICAL TRAINING AND PROBLEM RESOLUTION F OR CUSTOMERS AND ASSIST IN HANDLING PRODUCT TECHNICAL ISSUES/DEMOS. 6. A N OVERVIEW OF THE AGREEMENT, THE TP STUDY REPORT AN D THE ASSESSEES REPLY TO THE TPO ABOUT THE NATURE OF SER VICES DIVULGES THAT IT IS BASICALLY ENGAGED IN PROVIDING PRE-SALES AND POS T-SALES SERVICES TO ITS AE WHICH INCLUDE UNDERSTANDING THE REQUIREMENTS OF THE PROPOSED CUSTOMERS, FORWARDING THE SAME TO ITS AE, COMMUNICA TION WITH THE CUSTOMERS AND PROSPECTIVE CUSTOMERS AND, THEREAFTER , PROVIDING TECHNICAL SUPPORT SERVICES TO CUSTOMERS FACING TECHNICAL ISSU ES IN HANDLING THE PRODUCT/DEMOS. THERE IS NO DISPUTE THAT THE ULTIMA TE PRODUCT DIRECTLY SOLD BY THE AE TO CUSTOMERS IN INDIA IS ANTIVIRUS S OFTWARE. THE ESSENCE OF THE SERVICES PROVIDED BY THE ASSESSEE TO ITS AE CAN BE CULLED OUT AS ITA NO.1585/DEL/2015 7 IDENTIFYING THE CUSTOMERS, UNDERSTANDING THEIR REQU IREMENTS, FORWARDING THE SAME TO ITS AE, ASSISTING IN THE FINALIZATION O F THE SALE OF ANTIVIRUS PRODUCTS, GIVING DEMOS OF THE SUCH SOFTWARE TO CUST OMERS AND, IN CASE THERE IS SOME PROBLEM IN HANDLING SUCH ANTIVIRUS SO FTWARE, THEN, FIXING THE SAME. WITH THIS BACKGROUND IN MIND, WE WILL END EAVOUR TO FIND OUT WHETHER THE THREE COMPANIES UNDER CHALLENGE IN SERI ATIM ARE, IN FACT, COMPARABLE. I. APITCO LIMITED . 7.1. THE ASSESSEE ARGUED AGAINST THE FUNCTIONAL INC OMPARABILITY OF THIS COMPANY BEFORE THE TPO BY PUTTING FORTH THAT THIS C OMPANY WAS PROVIDING HIGH-END DIVERSIFIED ACTIVITIES. SUCH CON TENTION DID NOT FIND FAVOUR WITH THE TPO, WHO TREATED THIS COMPANY AS CO MPARABLE BY INCLUDING ITS OP/OC AT 40.09%. 7.2. WE HAVE ANALYZED THE ANNUAL REPORT OF THIS C OMPANY WHICH IS AVAILABLE AT PAGE 657 OF THE PAPER BOOK. FROM THIS REPORT, IT CAN BE SEEN THAT ITS `INCOME FROM OPERATIONS STANDS AT RS.15,4 1,75,273/-, BREAK-UP OF WHICH HAS BEEN GIVEN AS PER SCHEDULE 11, AS UNDE R:- ITA NO.1585/DEL/2015 8 INCOME FROM OPERATIONS MICRO ENTERPRISES DEVELOPMENT SKILL DEVELOPMENT ENTREPRENEURSHIP DEVELOPMENT TOURISM & RESEARCH STUDIES PROJECT RELATED SERVICES, INFRASTRUCTURE PLANNING & DEVELOPMENT ENVIRONMENT MANAGEMENT ENERGY RELATED SERVICES CLUSTER DEVELOPMENT ASSET RECONSTRUCTION & MANAGEMENT SERVICES EMERGING AREAS 5,283,039 27,575,000 10,873,397 14,835,450 32,600,996 3,998,796 4,835,206 47,986,516 5,503,141 683,732 7.3. A CAREFUL PERUSAL OF THE OPERATIONS CARRI ED OUT BY APITCO LIMITED REVEALS THAT THIS COMPANY IS PROVIDING SERVICES IN THE NATURE OF PROJECT REPORT PREPARATION, TECHNICAL AND ECONOMIC STUDIES, FEASIBILITY STUDIES, MICRO ENTERPRISE DEVELOPMENT, SKILL DEVELOPMENT, PR OJECT MANAGEMENT CONSULTING, INDUSTRIAL CLUSTER DEVELOPMENT, ENVIRON MENTAL MANAGEMENT CONSULTING, ENERGY MANAGEMENT CONSULTING, MARKET AN D SOCIAL RESEARCH AND ASSET RECONSTRUCTION MANAGEMENT SERVICES. NO S EGMENT-WISE PROFITABILITY DATA OF THESE SERVICES IS AVAILABLE. THE TPO HAS CONSIDERED THIS COMPANY AS COMPARABLE ON ENTITY LEVEL. WE FIND THAT THERE IS A TINY RESEMBLANCE OF `MARKET AND SOCIAL RESEARCH FUNCTI ONS PERFORMED BY THIS COMPANY WITH THE OVERALL ACTIVITIES UNDERTAKE N BY THE ASSESSEE. ALL OTHER SERVICES ARE ENTIRELY DIFFERENT. WE FAIL TO A PPRECIATE AS TO HOW ALL THE ABOVE LISTED SERVICES CAN BE CONSIDERED AS COMP ARABLE WITH THE ITA NO.1585/DEL/2015 9 SERVICES PROVIDED BY THE ASSESSEE, WHICH ARE RESTRI CTED TO IDENTIFYING CUSTOMERS OF ANTIVIRUS PRODUCTS IN INDIA, SENDING S UCH INPUT TO ITS AE, FINALIZING SALES AND, THEREAFTER, RENDERING BASIC T ECHNICAL ASSISTANCE IN RESOLVING THE USE OF SUCH PRODUCTS, IF ANY, WHICH A RE EVENTUALLY MADE AND SOLD BY THE AE. 7.4. THE LD. DR STRENUOUSLY ARGUED THAT ALL THE ACTIVITIES DONE BY THIS COMPANY ARE BASICALLY `BUSINESS SERVICES AND THE A SSESSEE IS ALSO RENDERING BUSINESS SERVICES. HE SUBMITTED THAT DIFF ERENTIATION OF FUNCTIONS IN THE OVERALL `BUSINESS SERVICES UMBREL LA IS TAKEN CARE OF UNDER THE TNMM. HE HARPED ON THE CONTENTION THAT TH ERE IS NO REQUIREMENT TO HAVE IDENTICAL SERVICES FOR THE PURP OSE OF MAKING COMPARISON UNDER THE TNMM. 7.5. WE ARE UNABLE TO ACCEPT THIS ARGUMENT IN V IEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F RAMPGREEN SALES PVT. LTD. VS. CIT (2015) 377 ITR 533 (DEL) IN WHICH IT HAS BEEN HELD THAT THE COMPARABLES ARE TO BE SELECTED ON THE BASIS OF SIMILARITY EVEN UNDER TNMM. THE HONBLE HIGH COURT HAS LAID DOWN THAT SE LECTION OF ITA NO.1585/DEL/2015 10 COMPARABLES DOES NOT DIFFER WITH THE METHOD ADOPTED . EX CONSEQUENTI , IT IS NO MORE OPEN TO ARGUE THAT THE FUNCTIONAL DISSIM ILARITY OF THE COMPANIES UNDER THE OVERALL BROADER CATEGORY CAN BE IGNORED UNDER THE TNMM. 7.6. IN VIEW OF THE FOREGOING DISCUSSION, WE FIN D THAT THE FUNCTIONALLY SIMILARITY OF APITCO LIMITED IS LACKING ON ENTITY L EVEL WITH THE ASSESSEE COMPANY. AS SUCH, WE ORDER FOR ITS EXCLUSION FROM T HE FINAL SET OF COMPARABLES. II. GLOBAL PROCUREMENT CONSULTANTS LIMITED 8.1. THE TPO INCLUDED THIS COMPANY IN THE LIST OF C OMPARABLES DESPITE THE ASSESSEES OBJECTION THAT IT IS ENGAGED IN PROV IDING CONSULTANCY SERVICES AND REVIEW OF PROCUREMENT PROCESSES FOR VA RIOUS PROJECTS FUNDED BY THE WORLD BANK. THE ASSESSEE FAILED TO C ONVINCE EVEN THE DRP FOR ITS EXCLUSION. 8.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS A ND PERUSING THE RELEVANT MATERIAL ON RECORD, WE CONSIDER IT EXPEDIENT TO FIR ST DISCUSS THE NATURE OF ACTIVITIES CARRIED OUT BY GLOBAL PROCUREMENT CONSUL TANTS LTD. A COPY OF ITA NO.1585/DEL/2015 11 ANNUAL REPORT OF THIS COMPANY FOR THE RELEVANT YEAR IS AVAILABLE ON RECORD. AS PER THIS REPORT, THIS COMPANY IS PROMOT ED BY EXPORT-IMPORT BANK OF INDIA IN ASSOCIATION WITH LEADING INDIAN PU BLIC SECTOR AND PRIVATE SECTOR CONSULTANCY ORGANISATIONS ON THE BAS IS OF PUBLIC-PRIVATE PARTNERSHIP MODEL THAT OFFERS COLLECTIVE INDIAN EXP ERIENCE AND EXPERTISE THROUGH THE PROVISION OF A RANGE OF ADVISORY SERVIC ES WITH PARTICULAR FOCUS ON `PROCUREMENT. THIS COMPANY PROVIDES TECH NICAL ASSISTANCE IN ENHANCING QUALITY, TRANSPARENCY, EFFICIENCY AND EFF ECTIVENESS OF PROCUREMENT AND IMPLEMENTATION SERVICE TO HELP ATTA IN DESIRED INSTITUTIONAL AND CORPORATE OBJECTIVES. THE EXPERT ISE OF THIS COMPANY IS AVAILABLE TO VARIOUS SECTORS INCLUDING POWER, WATER RESOURCES, TRANSPORTATION, INDUSTRIES, ETC. ITS SERVICES HAVE BEEN OUTLINED IN THE ANNUAL REPORT. FROM SUCH SERVICES RENDERED BY THIS COMPANY, IT CAN BE NOTICED THAT IT IS CONDUCTING INDEPENDENT PROCUREME NT REVIEW OF MULTILATERALLY FUNDED PROJECTS SPREAD ACROSS THE GL OBE. IT ALSO UNDERTAKES PROCUREMENT AUDITS. THIS COMPANY IS PROVIDING FULL TIME ADVICE ON PROCUREMENT AND CONTRACT RELATED ASPECTS TO SEVERAL AGENCIES ACROSS THE GLOBE. FOR EXAMPLE, IN GEORGIA, IT PROVIDED ADVICE ON PROCUREMENT AND ITA NO.1585/DEL/2015 12 CONTRACT RELATED SERVICES TO MUNICIPAL DEVELOPMENT FUND (MDF), REPUBLIC OF GEORGIA. IN IRAN, THIS COMPANY PROVIDE D PROCUREMENT ADVISORY SERVICES TO INTERNATIONAL FORUMS, SUCH AS, BAM RECONSTRUCTION OFFICE OF MINISTRY OF HOUSING, TEHRAN. IN GUYANA, THIS COMPANY WAS SELECTED THROUGH AN INTERNATIONAL COMPETITIVE PROCE SS IN ASSISTING THE GOVERNMENT OF GUYANA IN STRENGTHENING OF ITS PROCU REMENT ADMINISTRATION UNDER TECHNICAL ASSISTANCE CREDIT F ROM THE WORLD BANK. IN INDIA, IT PROVIDED PROCUREMENT ADVISORY SERVICES TO IIT, BARAMATHY, PUNE, INDIA IN THE IMPLEMENTATION OF WORLD BANK ADM INISTERED EMPOWERING POOR: A PILOT ICT PROGRAMME FOR RURAL A REAS OF PUNE DISTRICT FUNDED BY JAPAN SOCIAL DEVELOPMENT FUND G RANT. IT HAS ALSO CARRIED OUT REVIEW OF PROCUREMENT SYSTEMS AND ORGAN ISATION IN THE STATE OF MADHYA PRADESH, PARTICULARLY, COVERING THE HEALT H, PUBLIC HEALTH, ENGINEERING AND WOMEN AND CHILD DEVELOPMENT DEPARTM ENTS. WHEN WE GO THROUGH THE NATURE OF SERVICES PROVIDED BY THIS COMPANY, WHICH BASICALLY AIM AT PROVIDING ADVICE ON PROCUREMENT AN D ALSO CARRYING OUT PROCUREMENT AUDIT, IT BECOMES PALPABLE THAT THERE I S AN ABSOLUTE MISMATCH WITH THE SERVICES PROVIDED BY THE ASSESSEE . THE SERVICES ITA NO.1585/DEL/2015 13 PROVIDED BY GLOBAL PROCUREMENT CONSULTANTS LTD. ARE MILES APART FROM THOSE RENDERED BY THE ASSESSEE, WHICH, IN TURN, A RE CONFINED TO ASSISTING ITS AE IN IDENTIFYING CUSTOMERS AND, THEN, FACILITA TING THE SALES OF ANTIVIRUS PRODUCTS. BY NO STANDARD, GLOBAL PROCURE MENT CONSULTANTS LTD., CAN BE CONSIDERED AS COMPARABLE WITH THE ASSE SSEE COMPANY. WE, THEREFORE, ORDER FOR THE ELIMINATION OF THIS COMPAN Y FROM THE LIST OF COMPARABLES. III. TSR DARASHAW LIMITED . 9.1. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY BY ARGUING THAT THE BUSINESS SEGMENTS OF THIS COMPANY ARE, REG ISTRAR AND TRANSFER AGENT ACTIVITY; RECORDS MANAGEMENT ACTIVITY; AND PA YROLL AND TRUST FUND ACTIVITY. NOT CONVINCED WITH THE ASSESSEES SUBMIS SIONS, THE TPO TREATED IT AS COMPARABLE ON ENTITY LEVEL, AGAINST W HICH THE ASSESSEE IS BEFORE US. 9.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS COMPANY IS A BROKING AND INVESTMENT BANKING HOUSE WITH ITS THREE SEGMENTS, N AMELY, REGISTRAR AND ITA NO.1585/DEL/2015 14 TRANSFER AGENT ACTIVITY (R&T); RECORDS MANAGEMENT ACTIVITY (RECORDS); AND PAYROLL AND TRUST FUND ACTIVITY (PAYROLL). UNDE R THE REGISTRAR AND TRANSFER AGENT ACTIVITY, THIS COMPANY UNDERTAKES RE GISTRAR AND TRANSFER AGENT ACTIVITY FUNCTIONS FOR EQUITY AND PREFERENCE SHARES, DEBENTURE INSTRUMENTS AND BONDS, COMMERCIAL PAPER AND PRIVATE PLACEMENTS. IT ALSO UNDERTAKES TRANSFER PROCESSING, CUSTOMER/QUERY HANDLING AND CORRESPONDENCE, SPLIT/CONSOLIDATION/RENEWAL OF CERT IFICATES, PROCESSING AND DISTRIBUTION OF INTEREST/DIVIDEND WARRANTS, PAY MENTS BY PHYSICAL WARRANTS/THROUGH ECS/DIRECT CREDIT. UNDER RECORDS MANAGEMENT ACTIVITY, THIS COMPANY UNDERTAKES STORAGE, RETENTIO N & RETRIEVAL OF PHYSICAL AND/OR ELECTRONIC RECORDS. UNDER PAYROLL AND TRUST FUND ACTIVITY, THIS COMPANY HANDLES THE ACTIVITIES NORMA LLY HANDLED BY PAYROLL AND RETIREMENT FUNDS SECTION IN ANY ORGAN IZATION, INCLUDING INTERFACE WITH REGULATORY AUTHORITIES. WHEN WE COM PARE ALL THE THREE BROADER ACTIVITIES UNDERTAKEN BY THIS COMPANY, NAME LY, R&T, RECORDS AND PAYROLL, WITH THE OVERALL PRE AND POST SALE SE RVICES RENDERED BY THE ASSESSEE TO ITS AE, ON A COST PLUS BASIS, WE FIND T HAT THERE IS A HUGE FUNCTIONAL DISPARITY BETWEEN THE TWO. THAT APART, THE CONSIDERATION OF ITA NO.1585/DEL/2015 15 THIS COMPANY ON AN ENTITY LEVEL BY THE TPO HAS REND ERED THE ENTIRE EXERCISE OF COMPARISON MEANINGLESS. FINDING STRIKI NG DISSIMILARITIES BETWEEN THIS COMPANY AND THE ASSESSEE, WE ORDER TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF COMPARABLES. 10. HAVING DEALT WITH THE COMPARABILITY OF THE AB OVE REFERRED THREE COMPANIES, WE CONSIDER IT SIGNIFICANT TO DEAL WITH A CONTENTION RAISED ON BEHALF OF THE REVENUE WITH GREAT VEHEMENCE. IN ALL , TOTAL NINE COMPANIES WERE TAKEN BY THE TPO AS COMPARABLE. INI TIALLY, THE ASSESSEE OBJECTED TO THE INCLUSION OF FIVE COMPANIES OUT OF SUCH NINE, BUT LATER ON, SUCH CLAIM WAS RESTRICTED TO THREE COMPANIES, WHICH WE HAVE DISCUSSED HEREINBEFORE. THE LD. DR CONTENDED THAT IF THE FIVE /THREE COMPANIES CHALLENGED BY THE ASSESSEE HAVING HIGHER PROFIT RAT E ARE TO BE EXCLUDED FOR ANY REASON, THEN THE REMAINING FOUR COMPANIES HAVING LOW PROFIT RATE SHOULD ALSO BE ELIMINATED DUE TO THEIR FUNCTIO NAL DISSIMILARITIES. HE TRIED TO ACCENTUATE ON THE FUNCTIONAL DISSIMILARITI ES OF THE REMAINING FOUR COMPANIES. ITA NO.1585/DEL/2015 16 11. IN THIS REGARD, THE PRIMARY QUESTION WHICH FA LLS FOR OUR CONSIDERATION IS : `CAN THE DR ARGUE FOR THE EXCLUS ION OF SOME COMPANIES, WHICH WERE TREATED BY THE AO/TPO AS COMP ARABLE? IN OUR CONSIDERED OPINION, THE ANSWER TO THIS QUESTION CAN BE GIVEN IN NEGATIVE ALONE. IT IS UNDERSTANDABLE THAT WHEN CIT(A) HAS DE CIDED SOME POINT IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, THE AO IS FULLY EMPOWERED TO ASSAIL THE CORRECTNESS OF SUCH A DECIS ION IN AN APPEAL BEFORE THE TRIBUNAL. SIMILARLY, WHEN AN ASSESSMENT ORDER IS PASSED U/S 143(3) READ WITH SECTION 144C OF THE ACT, THE AO CA N BE AGGRIEVED AGAINST THE DIRECTION GIVEN BY THE DRP. IN SUCH CAS ES OF GRUDGE, THE AO CAN APPROACH THE TRIBUNAL FOR AN APPROPRIATE RELIEF , WHEREVER AND TO THE EXTENT THE LAW PERMITS. THE UNDERLYING IDEA BEHIND THESE SITUATIONS IS THAT THE AO IS DISSATISFIED WITH REVERSAL OF HIS VI EW EITHER BY THE CIT(A) OR THE DRP, AS THE CASE MAY BE, WHICH HE WANTS TO B E RESTORED. BUT, THE AO IN OUR CONSIDERED OPINION, CAN UNDER NO CIRCUMST ANCE BE AGGRIEVED WITH HIS OWN VIEW TAKEN IN THE ASSESSMENT ORDER IND EPENDENT OF ANY EXTERNAL INFLUENCE OF THE DRP ETC. IT GOES WITHOUT SAYING THAT IN ALL THE APPEALS FILED BY THE ASSESSEE AGAINST THE FINAL ORD ER PASSED BY THE AO U/S ITA NO.1585/DEL/2015 17 143(3) READ WITH SECTION 144C OF THE ACT, THE RESPO NDENT IS ALWAYS THE AO. IN OTHER WORDS, THE DR REPRESENTS THE AO IN AN APPEAL BEFORE THE TRIBUNAL. TAKING UP AN ISSUE FOR ARGUMENT BY THE DR BEFORE THE TRIBUNAL MEANS TAKING UP THE ISSUE BY THE AO THROUGH THE DR. IF WE ALLOW THE DR TO ARGUE THAT THE DECISION TAKEN BY THE AO/TPO W AS WRONG AND CERTAIN COMPANIES INCLUDED BY THE TPO HIMSELF SHOUL D BE DELETED, IT WOULD MEAN THAT THE AO IS CHALLENGING THE CORRECTNE SS OF HIS OWN DECISION THROUGH THE DR BEFORE THE TRIBUNAL, WHICH IS ILLOGICAL. 12. THE ABOVE SITUATION NEEDS TO BE SEEN IN CONTR ADISTINCTION TO A SITUATION IN WHICH AN APPEAL HAS BEEN FILED BY THE ASSESSEE AND HE CONTENDS THAT SOME COMPANY WAS WRONGLY INCLUDED BY IT IN THE LIST OF COMPARABLES, WHOSE COMPARABILITY SHOULD BE EXAMINED BY THE TRIBUNAL. IN SUCH A SITUATION, THE TRIBUNAL CAN DIRECT THE AO /TPO TO EXAMINE THE CORRECTNESS OF THE ASSESSEES CLAIM. THE SPECIAL BE NCH OF THE TRIBUNAL IN DCIT VS. QUARK SYSTEMS PVT. LTD. (2010) 132 TTJ (CH D) (SB) 1 HAS HELD THAT A COMPANY WHICH WAS INCLUDED BY THE ASSESSEE A ND ALSO BY THE TPO IN THE LIST OF COMPARABLES AT THE TIME OF COMPUTING ALP, CAN BE TAKEN UP ITA NO.1585/DEL/2015 18 FOR CONSIDERATION BY THE TRIBUNAL, IF THE ASSESSEE PROVES THAT THE SAME WAS WRONGLY INCLUDED. THE DECISION OF THE SPECIAL B ENCH OF THE TRIBUNAL IS IN THE BACKGROUND OF THE FACTS AS PER WHICH THE APPEAL WAS FILED BY THE ASSESSEE AND DURING THE HEARING OF SUCH AN APPEAL, AN ARGUMENT WAS TAKEN BY THE ASSESSEE ABOUT THE INADVERTENT INCLUSI ON OF A COMPANY AS COMPARABLE. ON THE OTHER HAND, WE ARE CONFRONTED WI TH A SITUATION IN WHICH THE DEPARTMENT, WITHOUT HAVING ANY RIGHT TO F ILE AN APPEAL (AS WOULD BE SEEN INFRA ) AGAINST THE INTENTIONAL ACTION OF THE AO/TPO IN CONSIDERING SOME COMPANIES AS COMPARABLE, IS CONTES TING SUCH INCLUSION AND ASKING FOR THEIR EXCLUSION TO THE PREJUDICE OF THE ASSESSEE. 13. NOW WE ESPOUSE THE QUESTION IF THE DEPARTMEN T HAS ANY RIGHT TO FILE APPEAL AGAINST THE INDEPENDENT FREE DECISION O F THE AO/TPO IN WRONGLY DECIDING A POINT AGAINST THE REVENUE OR BY CONSIDERING SOME COMPANIES AS COMPARABLE IN THE TRANSFER PRICING ANA LYSIS, WHICH ARE IN FACT NOT COMPARABLE. AT THIS STAGE, IT IS RELEVANT TO MENTION THAT THE INSTITUTION OF THE DRP CAME INTO BEING BY MEANS OF INSERTION OF SECTION 144C BY THE FINANCE (NO. 2) ACT, 2009 W.R.E.F. 1.4. 2009. AS PER THIS ITA NO.1585/DEL/2015 19 SECTION, AN ASSESSEE WHO IS DISSATISFIED WITH A DRA FT ORDER CAN APPROACH THE DRP FOR NECESSARY RELIEF. SUCH A RELIEF CAN BE ALLOWED BY GIVING DIRECTION UNDER SUB-SECTION (5) OF THIS SECTION. SU B-SECTION (13) OF SECTION 144C PROVIDES THAT THE AO IS OBLIGED TO PAS S A FINAL ASSESSMENT ORDER IN CONFORMITY WITH THE DIRECTION GIVEN BY THE DRP. THIS SHOWS THAT THE DIRECTION TENDERED BY THE DRP IS BINDING O N THE AO NOTWITHSTANDING THE AOS RESERVATIONS ON IT. THE FI NANCE ACT, 2012 INSERTED SUB-SECTION (2A) TO SECTION 253 W.E.F. 1.7 .2012 PROVIDING THAT : `THE PRINCIPAL COMMISSIONER OR COMMISSIONER MAY, IF HE OBJECTS TO ANY DIRECTION ISSUED BY THE DISPUTE RESOLUTION PANEL UNDER SUB-SECTION (5) OF SECTION 144C IN RESPECT OF ANY OBJECTION FILED O N OR AFTER THE 1ST DAY OF JULY, 2012, BY THE ASSESSEE UNDER SUB-SECTION (2 ) OF SECTION 144C IN PURSUANCE OF WHICH THE ASSESSING OFFICER HAS PASSED AN ORDER COMPLETING THE ASSESSMENT OR REASSESSMENT, DIRECT T HE ASSESSING OFFICER TO APPEAL TO THE APPELLATE TRIBUNAL AGAINST THE ORD ER. THIS DIVULGES THAT THE AO WAS WITHOUT ANY REMEDY TO CHALLENGE THE UNCO NVINCING ADVERSE DIRECTION GIVEN BY THE DRP, GIVEN EFFECT TO IN HIS OWN ORDER, IN RESPECT OF ANY OBJECTIONS FILED BEFORE THIS CUT-OFF DATE OF 1.7.2012. NOW WITH ITA NO.1585/DEL/2015 20 THIS AMENDMENT, THE REVENUE HAS BEEN GIVEN A LIBERT Y TO FILE APPEAL BEFORE THE TRIBUNAL IF THE CIT OBJECTS TO ANY DIRECTION ISSUED BY THE DISPUTE RESOLUTION PANEL, THAT HAS BEEN GIVEN EFFECT TO BY THE AO. THE POINT TO BE UNDERSCORED IS THAT SUCH POWER OF FILIN G APPEAL IS RESTRICTED ONLY TO THE CASES WHERE `OBJECTION IS TO THE DIRECT ION OF THE DRP AND NOT TO THE VOLUNTARY ACTION OF THE AO HIMSELF. IN OTHER WORDS, IF THE AO/TPO HAS CHOSEN A COMPANY AS COMPARABLE, WHICH HA S BEEN DIRECTED TO THE EXCLUDED BY THE DRP, THEN AN APPEAL CAN BE F ILED AGAINST THE ASSESSMENT ORDER ON SUCH EXCLUSION. THE POWER TO FI LE APPEAL DOES NOT EXTEND TO THE SELECTION OF A COMPANY AS COMPARABLE BY THE AO/TPO HIMSELF WHICH HAS REMAINED INTACT EVEN AFTER THE DI RECTION GIVEN BY THE DRP. 14. SIMILAR IS THE POSITION ON FILING A CROSS OBJ ECTION BY THE DEPARTMENT, WHICH IS COVERED UNDER SUB-SECTION (4) OF SECTION 254. AS PER THIS PROVISION AMENDED BY THE FINANCE ACT, 201 2, : `THE ASSESSING OFFICER ., ON RECEIPT OF NOTICE THAT AN APPEAL AGA INST THE ORDER OF . THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTION S OF THE DISPUTE ITA NO.1585/DEL/2015 21 RESOLUTION PANEL HAS BEEN PREFERRED UNDER SUB-SECTI ON (1) , MAY, NOTWITHSTANDING THAT HE MAY NOT HAVE APPEALED AGAIN ST SUCH ORDER OR ANY PART THEREOF; WITHIN THIRTY DAYS OF THE RECEIPT OF THE NOTICE, FILE A MEMORANDUM OF CROSS-OBJECTIONS AGAINST ANY PART OF THE ORDER OF THE ASSESSING OFFICER (IN PURSUANCE OF THE DIRECTIONS O F THE DISPUTE RESOLUTION PANEL) ... IT IS MANIFEST THAT THE LIBERTY TO FILE CROSS OBJECTION HAS BEEN GIVEN TO THE AO U/S 253(4) OF TH E ACT ONLY AGAINST THAT PART OF THE ORDER OF THE ASSESSING OFFICER WHI CH IS IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. TH IS PROVISION WOULD NOT ENCOMPASS A CASE OF THE AO FILING CROSS OBJECTION AGAINST THAT PART OF THE ASSESSMENT ORDER WHICH HAS NOT BEEN DISTURBED B Y THE DRP. 15. IN A NUTSHELL, THE POSITION IS THAT AFTER T HE INSERTION/AMENDMENT BY THE FINANCE ACT, 2012 TO SUB-SECTIONS (2A) AND (4) OF SECTION 253, THE DEPARTMENT HAS ACQUIRED A RIGHT TO FILE APPEAL OR C ROSS OBJECTION AGAINST THE ASSESSMENT ORDER PASSED IN PURSUANCE OF THE DIR ECTION OF THE DRP TO THE EXTENT IT IS AGGRIEVED AGAINST SUCH DIRECTION. IT HAS NO RIGHT TO FILE APPEAL OR CROSS OBJECTION AGAINST THE VOLUNTARY DEC ISION OF THE AO/TPO ITA NO.1585/DEL/2015 22 WHICH WAS NOT SUBJECT MATTER OF ANY ADVERSE DIRECTI ON BY THE DRP. THE ANALOGY WHICH FOLLOWS IS THAT IF NO APPELLATE RECOU RSE IS OPEN TO THE DEPARTMENT AGAINST THE SUO MOTU ORDER OF THE AO/TPO, THEN, THE DR, WHO ARGUES BEFORE THE TRIBUNAL FOR AND ON BEHALF OF THE AO, CAN EQUALLY HAVE NO RIGHT TO ARGUE AGAINST THAT PART OF THE ORD ER. WE WANT TO CLARIFY THAT THE DEPARTMENT IS FULLY EMPOWERED TO SET SUCH ADVERSE POSITION RIGHT BY TAKING RECOURSE TO THE OTHER REMEDIES, IF ANY, AVAILABLE AS PER LAW DE HORS THE APPELLATE OPTION. 16. THE LD. DR THEN ARGUED THAT THERE CAN BE NO ESTOPPEL AGAINST THE ACT AND HENCE NO SHADOW CAN BE CAST ON HIS RIGHT TO ARGUE AGAINST THE INCLUSION OF FOUR COMPANIES WHICH ARE NOT COMPARABL E. WE APPRECIATE THE CONCERN OF THE LD. DR AND FIND FORCE IN HIS CON TENTION THAT THERE CAN BE NO ESTOPPEL AGAINST THE STATUTE. BUT, THE POINT IS THAT IF THE STATUTE DOES NOT PERMIT THE RAISING OF SUCH A CONTENTION BEFORE THE TRIBUNAL EITHER THROUGH APPEAL OR CROSS OBJECTION, THEN HOW PROHIBI TING THE LD. DR TO ARGUE SUCH A MATTER, CAN BE CONSIDERED AS AN ESTOPP EL AGAINST THE ACT. ITA NO.1585/DEL/2015 23 17. AT THIS JUNCTURE, IT IS IMPERATIVE TO HIGHLI GHT THE DIFFERENCE BETWEEN THE RIGHT OF THE DR TO ARGUE AGAINST THE ASSESSMENT ORDER ON THE INCLUSION OF INCOMPARABLE COMPANIES WITH LOWER PRO FIT RATES BY THE AO HIMSELF AND THE POWER OF THE TRIBUNAL TO SUO MOTU EXAMINE THE CORRECTNESS OF SUCH AN ACTION OF THE AO, WHILE HEAR ING AN APPEAL FILED BY THE ASSESSEE. AS AGAINST OUR DECISION ABOUT THE D R HAVING NO RIGHT TO ARGUE AGAINST THE ORDER OF THE AO/TPO IN INCLUDING SUCH COMPANIES IN THE LIST OF COMPARABLES, THE TRIBUNAL HAS UNBRIDLED POWER TO VET THE CORRECTNESS OF SUCH AN ACTION OF THE AO/TPO AT ITS OWN BY VIRTUE OF THE LANGUAGE OF SECTION 254(1), WHICH PROVIDES THAT :` THE APPELLATE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPORTUNITY OF BEING HEARD, PASS SUCH ORDER THEREON AS ITS THINKS FIT. THE USE OF EXPRESSION `PASS SUCH ORDER THEREON AS ITS THINKS FIT GIVES W IDEST POWERS TO THE TRIBUNAL TO DEAL WITH THE ISSUE BEFORE IT. WE ARE E QUALLY CONSCIOUS OF THE LIMITATION ON THE POWER OF THE TRIBUNAL U/S 254(1) IN NOT DIRECTING ENHANCEMENT OF INCOME. AT THE SAME TIME, THE TRIB UNAL HAS A POWER TO REMAND A MATTER TO THE LOWER AUTHORITIES AND THERE IS NO BAR IF THE CONSEQUENTIAL ORDER PASSED BY THE LOWER AUTHORITY O N REMAND LEADS TO ITA NO.1585/DEL/2015 24 ENHANCEMENT. THIS POSITION HAS BEEN LAID DOWN BY TH E HONBLE SUPREME COURT IN CIT VS. ASSAM TRAVELS SHIPPING SERVICE (1993) 199 I TR 1 (SC). RESULTANTLY, WE HAVE NO HESITATION IN HOLDING THA T ALBEIT THE TRIBUNAL HAS THE POWER TO VOLUNTARILY DIRECT THE AO /TPO TO RECONSIDER THE CORRECTNESS OF THE COMPANIES INCLUDED BY HIM IN THE LIST OF COMPARABLES, BUT IN NO CASE, CAN THE DR ARGUE, AS A MATTER OF RIGHT, AGAINST SUCH INCLUSION. 18. IN THE BACKDROP OF THE FOREGOING DISCUSSION, WE ARE NOT INCLINED TO COUNTENANCE THE VIEW CANVASSED BY THE LD. DR HAVING A RIGHT TO ARGUE FOR THE REMOVAL OF THE REMAINING FOUR COMPANIES FRO M THE LIST OF COMPARABLES. 19. IN THE FINAL ANALYSIS, WE SET ASIDE THE IMPUGN ED ORDER AND RESTORE THE MATTER TO THE FILE OF AO/TPO FOR RECALCULATING THE ALP OF THE INTERNATIONAL TRANSACTION OF RENDERING OF SERVICE S AFRESH IN CONFORMITY WITH OUR ABOVE DISCUSSION. NEEDLESS TO SAY, THE ASSESSEE WILL BE AFFORDED A REASONABLE OPPORTUNITY OF HEARING. ITA NO.1585/DEL/2015 25 20. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20.11.201 5. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 20 TH NOVEMBER, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.