Wolters Kluwer (India) Private Limited, New Delhi V. Deputy Commissioner of Income-tax, New Delhi

ITA 1700/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7228 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 25-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR YADAV SENIOR
• Assessee Lawyers: MUKESH BHUTANI
• Keywords: Transfer pricing; International transaction; Rule of consistency
• Section: 92C; 92F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1700/DEL./2015 (ASSESSMENT YEAR : 2010-11) M/S. WOLTERS KLUWER (INDIA) PVT. LTD., VS. DCIT, 501 A, DEVIKA TOWER 6, CIRCLE 27 (2), NEHRU PLACE, NEW DELHI. NEW DELHI. (PAN : AAACW6190J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MUKESH BHUTANI, ADVOCATE REVENUE BY : SHRI SANJAY KUMAR YADAV, SENIOR DR DATE OF HEARING : 02.07.2018 DATE OF ORDER : 06.07.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. WOLTERS KLUWER (INDIA) PVT. LTD. (F OR SHORT THE TAXPAYER), BY FILING THE PRESENT APPEAL SOUGH T TO SET ASIDE THE IMPUGNED ORDER DATED 27.01.2015, PASSED BY THE AO U NDER SECTION 144C READ WITH SECTION 143 (3) OF THE INCOME-TAX AC T, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2010-11 IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO ON THE GR OUNDS INTER ALIA THAT :- ITA NO.1700/DEL./2015 2 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO HAS ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT FOR THE RELEVANT AY AT INR 4,51,05,620 AS AGAINST THE RETURNED INCOME OF INR 4,02,78,624. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') / AO / TRANSFER PRICING OFFICER ('TPO') ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT OF INR 48,26,992 IN RESPECT OF T HE INTERNATIONAL TRANSACTION RELATING TO BUSINESS SUPP ORT SERVICES ALLEGING THE SAME TO BE NOT AT ARM'S LENGTH IN TERM S OF THE PROVISIONS OF SECTION 92C OF THE ACT READ WITH RULE 100 OF THE INCOME TAX RULES, 1962 ('THE RULES'). 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE FACT S AND IN LAW, THE DRP / AO / TPO WHILE REJECTING APPELLANT'S DETERMINATION OF ARM'S LENGTH PRICE FOR RENDERING B USINESS SUPPORT SERVICES HAVE ERRED IN (A) NOT APPRECIATING THE BUSINESS MODEL, FUNCTIONAL, ASSET AND RISK ANALYSIS, (B) NOT ACCEPTING THE ECONOMIC ANALYSIS DONE IN ACCORDANCE WITH THE PROVI SIONS OF THE ACT READ WITH THE RULES AND (C) MAKING SEVERAL OBSE RVATIONS / FINDINGS BASED ON INCORRECT INTERPRETATION OF LAW A ND CONTRARY TO FACTS OF THE CASE. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP / AO / TPO HAVE ERRED, IN ARBITRARILY REJECTING CERTAIN FUNCTIONALLY COMPARABLE COMPANIES IDENTIFIE D BY THE APPELLANT ON A SUBJECTIVE / ARBITRARY BASIS, INTER ALIA, USING UNREASONABLE COMPARABILITY CRITERION. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP / AO / TPO HAVE ERRED IN ARBITRARILY S ELECTING COMPARABLE COMPANIES BASED ON INCORRECT APPRECIATIO N OF FUNCTIONAL, ASSET AND RISK PROFILE, AND USING ARBIT RARY SEARCH FILTERS. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP / AO / TPO ERRED IN REJECTING/ MODIFYI NG THE SEARCH PROCESS AND FILTERS ADOPTED BY THE APPELLANT FOR TH E PURPOSE OF BENCHMARKING ITS INTERNATIONAL TRANSACTION OF RENDE RING BUSINESS SUPPORT SERVICES IN AN ARBITRARY MANNER. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP / AO / TPO ERRED IN NOT PROVIDING APPR OPRIATE ECONOMIC ADJUSTMENTS, AS REQUIRED UNDER RULE 10B(1) (E)(III) OF THE RULES, ON ACCOUNT OF DIFFERENCES IN RISK PROFIL E BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP / AO / TPO HAVE ERRED BY IGNORING THE PROVISIONS ITA NO.1700/DEL./2015 3 OF RULE 10B(4) OF THE RULES AND JUDICIAL PRONOUNCEM ENTS, WHICH ADVOCATES THE USAGE OF MULTIPLE YEAR DATA OF COMPAR ABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE A RM'S LENGTH PRICE AS DEFINED UNDER SECTION 92F OF THE ACT. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP / AO / TPO ERRED IN NOT PROVIDING THE APPELLANT THE BENEFIT OF (+/-) 5% RANGE AS PROVIDED BY THE PROVIS O TO SECTION 92C(2) OF THE ACT. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AD HAS ERRED IN CHARGING INTEREST UNDER SE CTIONS 234A, 2348, 234C AND 2340 OF THE ACT. 2. BRIEFLY STATED THE FACTS NECESSARY TO ADJUDICATE THE ISSUES IN CONTROVERSY ARE : WOLTERS KLUWER (INDIA) PVT. LTD., THE TAXPAYER IS ENGAGED INTO BUSINESS SUPPORT SERVICES TO ITS ASSOC IATES ENTERPRISES, WKH INC. AND OVID TECHNOLOGIES INC., W HICH PRIMARILY INCLUDES RENDERING MARKETING SUPPORT SERV ICES VIZ. DEVELOPMENT OF TITLE, CONTENTS OF TITLE, PRINTING A ND PUBLISHING, MARKET INFORMATION AND CO-ORDINATION. DURING THE Y EAR UNDER ASSESSMENT, THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) AS UNDER :- S. NO. NATURE OF TRANSACTION METHOD USED BY ASSESSEE AMOUNT (IN CRORES) 1 PROVISION OF BUSINESS SUPPORT SERVICES TNMM 4,13,79,296 2 DISTRIBUTION OF PUBLICATIONS AND ONLINE DATABASE RPM 2,19,92,258 3 PAYMENT OF ROYALTY FOR REPRINT OF PUBLICATION PAID TNMM 3,96,07,933 4 EXPORT OF BOOKS CUP 11,70,705 5 REIMBURSEMENT OF EXPENSES PAID --- 14,38,889 6 RECOVERY OF EXPENSES --- 2,67,267 ITA NO.1700/DEL./2015 4 3. THE ISSUE INVOLVED IN THE CASE UNDER CONSIDERATI ON IS QUA DETERMINATION OF ARMS LENGTH PRICE (ALP) OF PROVI SION OF BUSINESS SUPPORT SERVICES OF RS.4,13,79,296/- ONLY . 4. THE TAXPAYER IN ITS TP ANALYSIS APPLIED TRANSACT IONAL NET MARGIN METHOD (TNMM) WITH OPERATING PROFIT / TOTAL COST (OP/TC) AS PROFIT LEVEL INDICATOR (PLI) WITH ITS OW N PLI AT 8.94%. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATIONA L TRANSACTIONS QUA PROVISION OF BUSINESS SUPPORT SERVICES SEGMENT SELECTED 14 COMPARABLES WITH MEAN AVERAGE OF 7.93% AS AGAINST I TS OWN PLI AT 8.94% ON COST AND FOUND ITS INTERNATIONAL TRANSACTI ON AT ARMS LENGTH. TPO, HOWEVER, REJECTED 13 COMPARABLES OUT OF 14 COMPARABLES SELECTED BY TAXPAYER AND INTRODUCED 9 N EW COMPARABLES AND COMPUTED THE AVERAGE OP/OC AT 22.42 % AND PROPOSED THE ALP FOR BUSINESS SUPPORT SERVICES AT R S.50,90,920/-. 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY RAISING OBJECTIONS WHO HAS REJECTED THE OBJECTIONS. FEELIN G AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.1700/DEL./2015 5 7. UNDISPUTEDLY, TNMM APPLIED BY THE TAXPAYER WITH OP/OC AS PLI HAS BEEN ACCEPTED BY THE TPO. TPO AFTER APP LYING VARIOUS FILTERS REJECTED 13 COMPARABLES OUT OF 14 COMPARABL ES SELECTED BY THE TAXPAYER, INTRODUCED 9 COMPANIES AS ITS OWN COM PARABLES AND FINALLY SELECTED THE FOLLOWING COMPANIES AS COMPARA BLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS :- S. NO. COMPANY NAME OP/OC OP/OC (W/O FX) 1 APITCO LTD. 40.09 40.09 2 CAMEO CORP.SERV. 8.26 8.26 3 CRYSTAL HUES LIMITED 9.05 9.10 4 CYBER MEDIA RESEARCH LTD. 13.00 14.85 5 GLOBAL PROCUREMENT CONSULTANTS LTD. 32.26 37.19 6 H C C A SERVICES PVT. LTD. 20.05 20.05 7 QUADRANT COMMUNICATIONS LTD. 13.11 13.11 8 QUIPPO VALUERS 24.88 25.49 9 T S R DARASHAW LTD. 41.15 41.15 AVERAGE 22.42 23.25 8. ON THE BASIS OF AFORESAID TP ANALYSIS, THE TPO C OMPUTED THE ALP FOR BUSINESS SUPPORT SERVICES AS UNDER :- OPERATING COST 3,77,04,030 ARMS LENGTH MARGIN 23.25% ARMS LENGTH PRICE (ALP) 4,64,70,216 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS 4,13, 79,297 SHORTFALL BEING ADJUSTMENT U/S 92CA 50,90,920 9. THE LD. AR FOR THE TAXPAYER IN ORDER TO NARROW D OWN THE CONTROVERSY RAISED IN THE PRESENT APPEAL CONTENDED INTER ALIA THAT THE LD. TPO HAS APPLIED INCORRECT FILTERS OF SERVIC E INCOME TO TOTAL INCOME GREATER THAN 75% AS AGAINST TAXPAYERS FILTE R OF REJECTING ITA NO.1700/DEL./2015 6 COMPANIES HAVING MANUFACTURING/TRADING INCOME GREAT ER THAN 50%; THAT THE LD. TPO WHILE ANALYZING THE FAR OF THE TAX PAYER HAS ADOPTED FAR OF SOME OTHER COMPANIES. THE TAXPAYER ALSO SOUGHT TO EXCLUDE 5 COMPARABLES OUT OF THE FINAL SET OF CO MPARABLES SELECTED BY THE TPO AND SOUGHT TO INCLUDE 2 COMPARA BLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. 10. SO FAR AS THE QUESTION OF INCORRECT ADOPTION OF FILTER OF SERVICE INCOME TO TOTAL INCOME GREATER THAN 75% AS AGAINST 50% APPLIED BY THE TAXPAYER IS CONCERNED, THE TAXPAYER HAS OPPOSED THIS FILTER BEFORE TPO, AS IS EVIDENT FROM PAGE NO.208 O F PAPER BOOK-1, ON THE GROUND THAT IT WOULD RESULT IN REJECTION OF COMPANIES FOR WHICH RELEVANT SEGMENTS IN AUDITED FINANCIALS ARE A VAILABLE, INSPITE OF THE TOTAL SERVICE INCOME BEING LESS THAN 75% AND FURTHER STATED THAT APPLICATION OF THIS FILTER IS TOTALLY UNWARRAN TED. THE LD. DRP HAS NOT COMMENTED ON THIS ISSUE RAISED BY THE TAXPA YER BY WAY OF FILING OBJECTIONS. 11. KEEPING IN VIEW THE CONTENTIONS RAISED BY THE L D. AR FOR THE PARITIES TO THE APPEAL, WE ARE OF THE CONSIDERED VI EW THAT FILTER OF REJECTING COMPANIES WHOSE MANUFACTURING/TRADING INC OME IS GREATER THAN 50% ARE REQUIRED TO BE REJECTED IS IN FACT BROADER ONE LEADING TO THE BROADER SET OF POTENTIAL COMPARABLES . MOREOVER, TPO IN THE SUBSEQUENT YEAR HAS ACCEPTED TAXPAYERS FILTER OF ITA NO.1700/DEL./2015 7 REJECTING COMPANIES WHOSE MANUFACTURING/TRADING INC OME IS GREATER THAN 50% IN THE SUBSEQUENT YEAR FOR AY 2012 -13, PARTICULARLY WHEN THE TAXPAYER HAS NOT UNDERGONE AN Y CHANGE IN ITS BUSINESS MODEL. SO, IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER IS REQUIRED TO BE S ET ASIDE TO THE TPO TO BE DECIDED AFRESH AFTER PROVIDING AN OPPORTU NITY OF BEING HEARD BY APPLYING THE RULE OF CONSISTENCY. 12. FURTHERMORE, IT IS THE CONTENTION OF THE LD. AR FOR THE TAXPAYER THAT THE TP ANALYSIS MADE BY THE TPO IS BA SED UPON WRONG FAR OF THE COMPARABLES AND DREW OUR ATTENTION TOWARDS PAGE 518 OF THE PAPER BOOK-II. LD. TPO IN HIS ANAL YSIS TO DETERMINE THE ARMS LENGTH NATURE MADE EXTENSIVE SE ARCH FOR COMPARABLES AS UNDER :- 3.2.4 ANALYSIS UNDERTAKEN TO DETERMINE THE ARM'S L ENGTH NATURE THE SECTION BELOW PROVIDES A SUMMARY OF THE ANALYSI S THAT HAS BEEN UNDERTAKEN TO REVIEW THE ARM'S LENGTH NATURE O F THE PRICE CHARGED BY WK INDIA FOR PROVISION OF BUSINESS SUPPO RT SERVICES. SEARCH FOR COMPARABLES TO IDENTIFY COMPANIES THAT COULD BE CONSIDERED TO B E COMPARABLE TO WK INDIA; THE FOLLOWING TWO DATABASES WERE USED: PROWESS; A CORPORATE DATABASE PROVIDED BY CENTRE FO R MONITORING OF INDIAN ECONOMY, THAT CONTAINS FINANCI AL DATA AND REPORTS OF OVER 24,000 COMPANIES; AND CAPITALINE PLUS, A DATABASE OF MORE THAN 21,000 IND IAN COMPANIES PROVIDED AND MONITORED BY CAPITAL MARKET PUBLISHERS INDIA PRIVATE LIMITED. SEARCH 1 ITA NO.1700/DEL./2015 8 PROWESS A SEARCH FOR BROADLY COMPARABLE COMPANIES WAS CONDU CTED USING THE QUERY BY PRODUCTS SECTION OF PROWESS UNDE R THE FOLLOWING HEADS: ECONOMIC ACTIVITY / PRODUCTS / RAW MATERIALS COMMISSION AGENTS' SERVICES; MARKET RESEARCH SERVICES; BUSINESS SERVICES - ADVERTISING - ACCOUNTING, AUDITING 8. BOOK-KEEPING SERVICES; - MARKET RESEARCH & PUBLIC OPINION POLLING - BUSINESS ACTIVITY NEC PLACEMENT & HR CONSULTANCY SERVICES MANAGEMENT CONSULTANCY SERVICES; EVENT MANAGEMENT SERVICES; AND DATABASE SERVICES; HOUSEKEEPING SERVICE; BUSINESS BROKERAGE ACTIVITIES ACTIVITY OF MEMBERSHIP ORGANIZATION TRAVEL AGENCIES AND TOUR OPERATORS TOURISM SERVICES & CONSULTANCY COMMERCIAL COMPLEX MARKETING OF TELEFILMS / SERIALS / TV PROGRAMMES MAINTENANCE OF BUILDINGS NIC CODES ACCOUNTING, BOOK - KEEPING AND AUDITING ACTIVITIES MARKET RESEARCH AND PUBLIC OPINION POLLING; BUSINESS AND MANAGEMENT CONSULTANCY ACTIVITIES; ADVERTISING; OTHER BUSINESS ACTIVITIES NEC. - LABOUR RECRUITMENT AND PROVISION OF PERSONNEL - BUILDING CLEANING ACTIVITIES - AUCTIONING SERVICES - BUSINESS BROKERAGE ACTIVITIES - SERVICES RENDERED BY LIAISON OFFICES - SECRETARIAL ACTIVITIES SUCH AS TELEPHONE ANSWERING, STENOGRAPHIC - OTHER BUSINESS ACTIVITIES N.E.C. ACTIVITIES OF OTHER MEMBERSHIP ORGANIZATIONS N.E.C. ITA NO.1700/DEL./2015 9 FURTHER, QUERY BY PRODUCT NAME AND SELECT COMPANY B Y NAME MODULES WERE USED TO IDENTIFY ALL COMPANIES HAVING THE FOLLOWING VARIABLES IN THEIR PRODUCT NAME / COMPANY NAME: ADMIN CONSULT ADVIS MANAG MARKETING ADVERTIS PUBLICITY PROMOT SUPPORT AGENCY ACCOUNT COMMISSION EVENT THIS SEARCH PRODUCED 2,554 COMPANIES. SEARCH 2 CAPITALINE PLUS ENGINEERING - TURNKEY SERVICES TRAVEL AGENCIES NIC CODES ACTIVITIES OF OTHER TRANSPORT AGENCIES ACTIVITIES OF TRAVEL AGENCIES AND TOUR OPERATORS ACTIVITY OF MEMBERSHIP ORGANIZATION ADVERTISING ADVERTISING. BUSINESS AND MANAGEMENT CONSULTANCY ACTIVITIES BUSINESS BROKERAGE ACTIVITIES BUSINESS SERVICES COMMERCIAL COMPLEX COMMISSION AGENTS DEALING IN AGRICULTURAL RAW MATER IALS COMMISSION AGENTS DEALING WOOD, PAPER, SKN COMMISSION AGENTS SERVICES COMMISSION AGENTS N.E.C EVENT MANAGEMENT SERVICES LABOUR RECRUITMENT AND PROVISION OF PERSONNEL LABOUR RECRUITMENT AND PROVISION OF PERSONNEL. MANAGEMENT CONSULTANCY SERVICES OTHER CONSULTANCY OTHER RNERNBERSHE ORGANIZATION SERVICE ACTIVITIES INCIDENTAL TO OIL AND GAS SERVICE ACTIVITIES INCIDENTAL TO OIL AND GAS EXTRAC TION ITA NO.1700/DEL./2015 10 SERVICES AND CONSULTANCY SERVICES INCIDENTAL TO OFFSHORE OIL AND GAS EXTRACT ION SERVICES INCIDENTAL TO O~ AND GAS EXTRACTION SUPPORTING & AUXILIARY TRANSPORT I TRAVEL ACTIVITIE S SUPPORTING AND AUXILIARY TRANSPORT ACTIVITIES TOURISM A SEARCH FOR BROADLY COMPARABLE COMPANIES WAS CONDU CTED USING THE QUERY OPTION 'LIKE' WAS USED TO IDENTIFY ALL COMPANIES HAVING THE FOLLOWING VARIABLES IN THEIR PRODUCT NAM E: ADMIN CONSULT ADVIS MANAG MARKETING ADVERTIS PUBLICITY PROMOT SUPPORT AGENCY ACCOUNT COMMISSION EVENT THIS SEARCH PRODUCED 1,484 COMPANIES THE FOLLOWING QUANTITATIVE WERE USED DURING TO IDEN TIFY COMPANIES WITH REQUIRED FINANCIAL INFORMATION: FINANCIAL INFORMATION NOT AVAILABLE FOR YEARS 2007- 0B, 2008-09 AND 2009-10: SALES NOT GREATER THAN ZERO; . RATIO OF MANUFACTURING INCOME TO TOTAL INCOME GREAT ER THAN 50 PERCENT; AND RATIO OF TRADING INCOME TO TOTAL INCOME GREATER THA N 50 PERCENT. 2,174 COMPANIES WERE REJECTED DURING THE QUANTITATI VE ANALYSIS. THE REJECTED COMPANIES ALONG WITH THE REASONS FOR R EJECTION ARE ENCLOSED IN ANNEXURE 2. 13. THE TAXPAYER IN ITS TP ANALYSIS HAS GIVEN ITS F UNCTIONAL ANALYSIS QUA PROVISION OF BUSINESS SUPPORT SERVICES , AVAILABLE AT ITA NO.1700/DEL./2015 11 PAGES 111 & 112 OF THE PAPER BOOK-II, WHICH IS EXTR ACTED FOR READY PERUSAL AS UNDER :- 3 PROVISION OF BUSINESS SUPPORT SERVICES 3.1 FUNCTIONAL ANALYSIS 3.1.1 FUNCTIONS PERFORMED WK INDIA IS ENGAGED IN RENDERING BUSINESS SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES, WKH INC AND OVID TECHNOLOGIES INC. SUCH SERVICES PRIMARILY INCLUDE RENDERING MARKETING SUPPORT SERVICES. IN THIS REGAR D, THE FUNCTIONS PERFORMED BY WK INDIA AND THE ASSOCIATED ENTERPRISES ARE PROVIDED BELOW: DEVELOPMENT OF TITLE THE ASSOCIATED ENTERPRISES ARE RESPONSIBLE FOR DEVE LOPING THE TITLE TO BE PUBLISHED IN INDIA. WK INDIA IS NOT INVOLVED IN ANY DECISION MAKING PROCESS OF THE DEVELOPMENT O F TITLE. CONTENTS OF TITLE THE ASSOCIATED ENTERPRISES CARRY OUT THE FUNCTIONS OF DEVELOPING THE CONTENT. THIS INCLUDES OBTAINING REQ UISITE PERMISSIONS FROM AUTHORS, NEGOTIATIONS WITH PUBLISH ING HOUSES, RESTRUCTURING OF CONTENT ETC. PRINTING AND PUBLISHING WK INDIA DOES NOT PERFORM THE PRINTING AND PUBLISHI NG ACTIVITIES PERTAINING TO THE TITLES. MARKET INFORMATION WK INDIA PROVIDES MARKET INFORMATION ON BUSINESS OPPORTUNITIES THAT EXIST IN INDIA IN RELATION TO PR ODUCTS AND BUSINESSES OF THE GROUP TO ITS ASSOCIATED ENTER PRISES. CO-ORDINATION WK INDIA FACILITATES CO-ORDINATION AND ACT AS A COMMUNICATION CHANNEL BETWEEN THE ASSOCIATED ENTERPRISES AND THE CUSTOMERS IN INDIA. EXECUTING CONTRACTS ITA NO.1700/DEL./2015 12 THE CUSTOMERS DIRECTLY ENTER INTO CONTRACTS WITH TH E ASSOCIATED ENTERPRISES OF WK INDIA. RECOVERY THE ASSOCIATED ENTERPRISES ARE SOLELY RESPONSIBLE T O RECOVER THE PAYMENTS FROM THE CUSTOMERS FOR THE PUR CHASE OF THE PRODUCTS/SERVICES. HOWEVER, WK INDIA DOES NOT ENGAGE IN NEGOTIATION AN D CONCLUSION OF CONTRACTS WITH CUSTOMERS OR MAINTENAN CE OF INVENTORY AND LOCAL DELIVERY TO CUSTOMERS. FUNCTIONS ARTICULATED ABOVE CAN BE SUMMARISED BELOW : FUNCTIONS PERFORMED WK INDIA ASSOCIATED ENTERPRISES DEVELOPMENT OF TITLE NO YES CONTENTS OF TITLE NO YES PRINTING AND PUBLISHING NO YES MARKET INFORMATION YES NO CO-ORDINATION YES NO EXECUTING CONTRACTS NO YES RECOVERY NO YES FINAL SALE NO YES VENDOR SUPERVISION SERVICES WK INDIA IS ALSO ENGAGED IN PROVIDING SUPPORT SERVI CES TO CCH INCORPORATED AND WOLTERS K1UWER UNITED STATES INC. THESE SERVICES ARE IN THE NATURE OF VENDOR SUPERVISION. T HE SCOPE OFWK INDIA IN THIS REGARD IS ARTICULATED BELOW: TO FACILITATE COORDINATION AND ACT AS A COMMUNICA TION LINK BETWEEN ITS ASSOCIATED ENTERPRISES AND VENDORS IN INDIA; AND TO SUPERVISE THE VENDORS MANAGING BACK OFFICE WOR K OF ITS ASSOCIATED ENTERPRISES IN INDIA. SINCE THE COMPANY PRIMARILY ACTS AS A SUPERVISOR AN D COMMUNICATION LINK BETWEEN ITS ASSOCIATED ENTERPRIS ES AND THE VENDORS IN INDIA. THE ACTIVITIES BEING IN THE NATUR E OF BUSINESS SUPPORT SERVICES ARE AGGREGATED WITH THE MARKETING SUPPORT SERVICES PERFORMED BY WK INDIA. ITA NO.1700/DEL./2015 13 14. THE LD. AR FOR THE TAXPAYER DREW OUR ATTENTION TOWARDS PARA 5 AT PAGE 20 OF THE TP ORDER WHICH GOES TO PROVE TH AT THE TPO HAS TAKEN INTO ACCOUNT FUNCTIONS OF SOME OTHER COMPANIE S, AS SHE HAS NOT DISPUTED THE FUNCTIONAL ANALYSIS GIVEN BY THE T AXPAYER REPRODUCED ABOVE. FOR READY PERUSAL, FUNCTIONS ALL EGED TO BE PERFORMED BY THE TAXPAYER REFERRED AT PAGE 20 OF TH E TP ORDER ARE EXTRACTED AS UNDER :- AS PER THE TP REPORT SUBMITTED, TAXPAYER IS ENGAGED IN PROVIDING MARKET SUPPORT SERVICES TO ITS AE. IN RES PECT OF MARKET SUPPORT SERVICES, FOLLOWING FUNCTIONS ARE PERFORMED BY IT:- GATHERING INFORMATION ABOUT THE MARKET, CONSUMER PREFERENCES ETC. FOR DEVELOPING MARKETING STRATEGY AND PLANS FOR INDIA. CO-ORDINATE MARKET SURVEYS, PACKAGING AND BRAND REL ATED ACTIVITIES ALONG WITH ENSURING COMP L IANCE WITH LOCAL REGULATORY REQUIREMENTS. MARKET SUPPORT SERVICES IN NEPAL AND BANGLADESH ALS O. REPRESENTATION SERVICES TO PARENT COMPANIES! OTHER AFFILIATES: C ARRYING OUT MARKET RESEARCH WORK AND SHARING MARKET RELATED INFORMATION WITH THE AES; AND LOGISTICS SUPPORT TO AE FOR SUPPLY OF GOODS TO OTHE R COUNTRIES. IT CAN BE SEEN FROM THE ABOVE THAT THE SERVICES PRO VIDED BY THE TAXPAYER TO THE AE ARE IN THE NATURE OF BUSINESS SU PPORT SERVICES. THE TAX PAYER HAS NOT GONE INTO VERTICALS/ HORIZONT ALS WITHIN THE BUSINESS SUPPORT SERVICE INDUSTRY IN ITS COMPARABIL ITY STUDY. THE TAXPAYER ADOPTED THE SEARCH PROCESS BASED ON THE FO LLOWING KEY WORDS:- I. 'SERVICE INDUSTRY' (PROWESS) II. 'SERVICE INDUSTRY' (CAPITA LINE PLUS) IT IS CLEAR FROM THE ABOVE SEARCH STRATEGY THAT THE TAXPAYER SEARCHED FOR COMPARABLES WHICH ARE ENGAGED IN BUSIN ESS SUPPORT SERVICES IMMATERIAL OF THE VERTICAL/FUNCTIONAL OR S ERVICE LINE IN ITA NO.1700/DEL./2015 14 WHICH THE COMPANY IS ENGAGED. VERTICAL IS THE EXACT SERVICE SEGMENT LIKE MARKET RESEARCH, MARKET SUPPORT, ADMIN ISTRATIVE SUPPORT, FINANCIAL SERVICES, ACCOUNTING; HUMAN RESO URCE (HR) SERVICES ETC. TO WHICH THE SERVICES OF THE COMPANY CATER TO. FUNCTIONAL OR SERVICE LINE IS THE TYPE OF FUNCTION BEING PERFORMED WHETHER LOW END OR HIGH END. FOR EXAMPLE, A COMPANY PROVIDING PAY ROLL SERVICES WILL BE A LOW END HR SERVICE COMP ANY. A COMPANY PROVIDING PLACEMENT CONSULTANCY FOR MIDDLE AND TOP MANAGEMENT WILL BE A HIGH END HR SERVICE COMPANY. 15. AFORESAID DISCUSSION MADE BY THE TPO IN ITS ORD ER REGARDING FUNCTIONS PERFORMED BY THE TAXPAYER GO TO PROVE THA T THE ENTIRE TP ANALYSIS HAS BEEN MADE BY THE TPO ON THE BASIS OF W RONG FAR OF THE TAXPAYER AS WELL AS COMPARABLE. IT IS ALSO BRO UGHT TO OUR NOTICE THAT MANY OF THE COMPARABLES NOW CHALLENGED BY THE TAXPAYER IN THE APPEAL UNDER CONSIDERATION HAVE BEEN ACCEPTED B Y THE TPO IN THE SUBSEQUENT YEARS IN WHICH NO TP ADJUSTMENT HAS BEEN MADE. 16. WHEN IT IS UNDISPUTED FACT ON RECORD THAT THE T AXPAYER HAS NOT UNDERGONE ANY CHANGE IN ITS BUSINESS MODEL, THE RULE OF CONSISTENCY IS REQUIRED TO BE FOLLOWED. SO, WHEN T HE ENTIRE TP ANALYSIS IS BASED UPON THE WRONG FAR OF THE COMPARA BLES AND THE TPO HAS ASSUMED WRONG FUNCTIONS BEING PERFORMED BY THE TAXPAYER, THE ENTIRE SUBSEQUENT EXERCISE AS TO SELE CTING THE COMPARABLES HAS BECOME ERRONEOUS AND IS OF NO USE T O DETERMINE THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION FOR DETERMINING ALP OF INTERNATIONAL TRANSACTION RATHER ENTIRE EXER CISE NEEDS TO BE CARRIED OUT AFRESH. ITA NO.1700/DEL./2015 15 17. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT THE CASE IS REQUIRED TO BE SET ASIDE TO THE FILE OF THE TPO TO DECIDE AFRESH BY APPLYING THE PRINCIP LE OF CONSISTENCY AND IN THE LIGHT OF THE VIEW TAKEN BY T HE TPO IN SUBSEQUENT YEARS. TPO IS ALSO DIRECTED TO DECIDE T HE ISSUE IN CONTROVERSY IN THE LIGHT OF THE DECISION OF THE COO RDINATE BENCH OF THE TRIBUNAL CASE CITED AS ADIDAS TECHNICAL SERVICES (P.) LTD. VS. DCIT, CIRCLE 1 (2), NEW DELHI (2016) 69 TAXMANN.C OM 401 (DELHI-TRIB.) . SO, THE APPEAL FILED BY THE TAXPAYER IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY 6 TH OF JULY, 2018. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 6 TH DAY OF JULY, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.