M/s. Fujitsu India Private Limited, Gurgaon V. DCIT, New Delhi

ITA 1821/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5039 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 05-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H S CHOUDHARY
• Assessee Lawyers: ANUBHAV RASTOGI S
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1821/DEL/2014 ASSESSMENT YEAR : 2009-10 FUJITSU INDIA PRIVATE LIMITED, BUILDING NO.9A, PHASE-III, DLF CYBER CITY, GURGAON. PAN: AAACF4170D VS. DCIT, CIRCLE-11(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA & SHRI ANUBHAV RASTOGI, ADVOCATES DEPARTMENT BY : SHRI H.S. CHOUDHARY, CIT, DR DATE OF HEARING : 22.08.2017 DATE OF PRONOUNCEMENT : 23.08.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER DATED 28.01.2014 PASSED BY THE ASSESSING OFFI CER (AO) U/S 143(3) ITA NO.1821/DEL/2014 2 READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YE AR 2009-10. 2. THE ONLY ISSUE ASSAILED IN THIS APPEAL IS AGAINS T THE TRANSFER PRICING ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A 100% SUBSIDIARY OF FUJITSU LTD., JAPAN (FJ). THE ASSESS EE WAS INCORPORATED IN INDIA WITH THE PRIME OBJECTIVE OF CONSOLIDATING MAR KETING OPERATIONS OF FUJITSU GROUP IN INDIA. FIVE INTERNATIONAL TRANSAC TIONS WERE REPORTED IN FORM NO.3CEB. THE AO MADE A REFERENCE TO THE TRANSF ER PRICING OFFICER (TPO) FOR DETERMINING THEIR ARMS LENGTH PR ICE (ALP). THE TPO ACCEPTED THE ALP OF OTHER FIVE TRANSACTIONS EXCEPT MARKETING SUPPORT SERVICES RENDERED WITH TRANSACTED VALUE OF RS.9,84 ,94,036/-. THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHO D (TNMM) WITH THE PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFI T/TOTAL COST (OP/TC) FOR DEMONSTRATING THAT THIS TRANSACTION WAS AT ALP. THE TPO ACCEPTED THE APPLICATION OF THE TNMM AS THE MOST APPROPRIATE METHOD. HE, HOWEVER, MADE CERTAIN ALTERATIONS TO THE COMPANIES SELECTED AS ITA NO.1821/DEL/2014 3 COMPARABLE. AS AGAINST THE ASSESSEES SELECTION OF CERTAIN COMPANIES, THE TPO SHORTLISTED FOUR COMPANIES AS COMPARABLE, WHICH ARE AS UNDER:- SL.NO. COMPANY PBIT/COST (%) 1. BASIZ FUND SERVICE PVT. LTD. 39.17 2. IDC (INDIA) LTD. (CYBER MEDIA RESEARCH LTD.) 10.89 3. GLOBAL PROCUREMENT CONSULTANTS LTD. 30.37 4. TSR DARASHAW 26.98 AVERAGE 26. 85 4. CONSIDERING THE AVERAGE PLI OF THESE FOUR COMPAN IES AT 26.85%, THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT OF RS.1,87,31,899/-. THE ASSESSEE TOOK THE MATTER BEFORE THE DISPUTE RES OLUTION PANEL (DRP), WHICH ORDERED FOR THE ELIMINATION OF IDC (INDIA) LT D. (CYBER MEDIA RESEARCH LTD.) FROM THE FINAL TALLY OF COMPARABLES, THEREBY LEAVING THREE COMPANIES IN RECKONING. BASED ON THIS, THE AO MADE AN ADDITION OF RS.1,49,42,964/- ON ACCOUNT OF TRANSFER PRICING ADJ USTMENT. THE ASSESSEE IS AGGRIEVED AGAINST SUCH ADDITION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. ADMITTEDLY, THERE IS NO DISPUT E ON THE APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD. THE ASSESSEE I S AGGRIEVED ONLY ITA NO.1821/DEL/2014 4 AGAINST THE INCLUSION OF TWO COMPANIES IN THE FINAL SET OF COMPARABLES, VIZ., TSR DARASHAW AND GLOBAL PROCUREMENT CONSULTA NT LTD. 6. BEFORE EMBARKING UPON THE COMPARABILITY OR OTH ERWISE OF THESE COMPANIES, IT IS ESSENTIAL TO UNDERSTAND THE NATURE OF WORK CARRIED OUT BY THE ASSESSEE UNDER THIS SEGMENT. THE TPO HAS RECOR DED ON PAGE 1 OF HIS ORDER THAT THE ASSESSEE IS ENGAGED IN PROVIDING : ` MARKETING SUPPORT SERVICES TO ITS AES FOR DIRECT SALE MADE BY THEM T O VARIOUS DISTRIBUTORS IN INDIA. WE HAVE GONE THROUGH THE AGREEMENT ENTE RED INTO BETWEEN THE ASSESSEE AND ITS AE FOR THE PROVISION OF MARKE TING AND SUPPORT SERVICES. A COPY OF SUCH AGREEMENT IS AVAILABLE O N PAGE 235 ONWARDS OF THE PAPER BOOK. THE SCOPE OF THE TERM SERVICES HAS BEEN DEFINED UNDER CLAUSE (1) WHICH READS AS UNDER:- 1. SERVICES DURING THE TERM OF THIS AGREEMENT AND SUBJECT TO TH E TERMS AND CONDITIONS SET FORTH HEREIN, FIL SHALL PROVIDE FCAL WITH THE GENERAL MARKETING AND SALES PROMOTIONAL SERVICES, ALL OF WH ICH ARE MORE PARTICULARLY DESCRIBED AS UNDER: 1. GATHERING INFORMATION REGARDING MARKET TREND, COMPE TITORS ACTIVITIES, CUSTOMERS PURCHASE PLAN, BUDGETS, ETC., AND RELEASE SUCH INFORMATION TO FCAL; 2. INDIA PRICING ANALYSIS; ITA NO.1821/DEL/2014 5 3. INTRODUCE THE PRODUCTS AND PROVIDE INFORMATION REGA RDING THE SPECIFICATION OF THE PRODUCTS TO CUSTOMERS, AGE NTS OR DISTRIBUTORS; 4. ASSIST IN DEMONSTRATION OF THE PRODUCTS AND ORGANIZ E SALES MEETING WITH CUSTOMERS, AGENTS AND DISTRIBUTORS FOR PRESENTATIONS TO BE MADE BY FCAL; 5. MAINTAIN EFFECTIVE CONTACTS WITH THE CUSTOMERS, AGE NTS OR DISTRIBUTORS AND PROMOTE FCAL AND THE PRODUCTS IMAG E AND REPUTATION TO CUSTOMERS, AGENTS OR DISTRIBUTORS . 7. WE HAVE ALSO GONE THROUGH THE TRANSFER PRICING STUD Y REPORT OF THE ASSESSEE WHOSE COPY IS AVAILABLE IN THE PAPER BOOK. THE NATURE OF SERVICES SET OUT ON PAGE 24 ARE IDENTICAL TO THOSE WHICH HAVE BEEN REPRODUCED ABOVE FROM THE AGREEMENT. THUS, THERE I S NO QUARREL ON THE POINT THAT THE ASSESSEE IS PROVIDING MARKETING SUPP ORT SERVICES TO ITS CUSTOMERS BY GATHERING INFORMATION REGARDING MARKET TRENDS ETC.; PROVIDING SUCH INFORMATION TO ITS AES; COMMUNICATIN G CLIENTS REQUESTS FOR PROCURING PRODUCTS; AND ASSISTING IN DEMONSTRAT ION OF FUJITSU PRODUCTS TO CUSTOMERS ETC. WITH THE ABOVE BACKGROU ND OF THE NATURE OF SERVICES RENDERED BY THE ASSESSEE, LET US EXAMINE A S TO WHETHER THE TWO COMPANIES UNDER CHALLENGE ARE REALLY COMPARABLE OR NOT. ITA NO.1821/DEL/2014 6 (I) TSR DARASHAW PRIVATE LTD . 8. THE TPO PROPOSED THE INCLUSION OF THIS COMPANY WHIC H WAS OBJECTED TO BY THE ASSESSEE ON THE GROUND OF FUNCTI ONAL INCOMPARABILITY. THE TPO NOTICED THAT: THE ASSESSEE MAY NOT BE PROV IDING THIS SERVICE TO AE, BUT WE ARE LOOKING FOR THE COMPANIES WHICH ARE PROVIDING BUSINESS SERVICES SIMILAR AND NOT EXACT. AS SUCH, THE ASSE SSEES OBJECTION WAS REJECTED. 9. WE HAVE GONE THROUGH THE ANNUAL REPORT OF THIS COMP ANY WHOSE COPY HAS BEEN PLACED ON RECORD. IT IS FOUND OUT TH AT THIS COMPANY IS A BROKING AND INVESTMENT BANKING HOUSE. SCHEDULE FOR MING PART OF THE FINANCIAL STATEMENTS OF THIS COMPANY REFERS TO REVE NUE RECOGNITION. POINT 4(A) RECORDS AS UNDER:- A) INCOME FROM SERVICES SHARE REGISTRY AND TRANS FER SERVICES, DEPOSITORY SERVICES, RECORD MANAGEMENT, PAYROLL AND PROVIDED FUND MANAGEMENT, CORPORATE AND FIXED DEPOSIT MANAGEMENT ARE COGNIZED ON THE BASIS OF SERVICES RENDERED. 10. FROM THE ABOVE DESCRIPTION OF THE NATURE OF SERVICE S RENDERED BY THIS COMPANY WHICH IS BASICALLY A SHARE TRANSFER SE RVICES AND ALSO PAYROLL AND FIXED DEPOSIT MANAGEMENT SERVICES, WE FAIL TO S EE ANY COMPARISON OF ITA NO.1821/DEL/2014 7 THE MARKETING SUPPORT SERVICES RENDERED BY THE ASSE SSEE TO ITS AE. BECAUSE OF THE COMPLETE MISMATCH BETWEEN THE NATURE OF WORK DONE BY THIS COMPANY VIS--VIS THE ASSESSEE, WE ORDER FOR T HE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. (II) GLOBAL PROCUREMENT CONSULTANTS LTD . 11. THE TPO PROPOSED THIS COMPANY FOR INCLUSION IN THE FINAL TALLY OF COMPARABLES. THE ASSESSEE OBJECTED THE SAME BY SUB MITTING THAT IT WAS FUNCTIONALLY DIFFERENT. THE TPO REJECTED THE ASSES SEES CONTENTION. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D 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 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 ITA NO.1821/DEL/2014 8 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. FROM THE SERVICES RENDERED BY THIS COMPANY, AS OUTLINED IN THE ANNUAL REPORT, IT CAN B E NOTICED THAT IT IS CONDUCTING INDEPENDENT PROCUREMENT REVIEW OF MULTIL ATERALLY FUNDED PROJECTS SPREAD ACROSS THE GLOBE. IT ALSO UNDERTAK ES PROCUREMENT AUDITS. THIS COMPANY IS PROVIDING FULL TIME ADVICE ON PROCU REMENT AND CONTRACT RELATED ASPECTS TO SEVERAL AGENCIES ACROSS THE GLOB E. WHEN WE GO THROUGH THE KIND OF SERVICES PROVIDED BY THIS COMPA NY, WHICH ARE AIMED AT GIVING ADVICE ON PROCUREMENT AND ALSO CARRYING O UT PROCUREMENT AUDITS, IT BECOMES VIVID THAT THERE IS AN ABSOLUTE NO MATCH WITH THE KIND SERVICES RENDERED BY THE ASSESSEE. THE WORK DONE BY GLOBAL PROCUREMENT CONSULTANTS LTD. IS MILES APART FROM TH AT DONE BY THE ASSESSEE, WHICH, IN TURN, IS LARGELY CONFINED TO ASSISTING AES IN IDENTIFYING CUSTOMERS/SUPPLIERS AND, THEN, FACILITA TING SALE/PURCHASE OF ITA NO.1821/DEL/2014 9 GOODS. BY NO STANDARD, GLOBAL PROCUREMENT CONSULTA NTS LTD., CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. WE, THEREFORE, ORDER FOR THE ELIMINATION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 13. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON T HE ISSUE OF ADDITION TOWARDS TRANSFER PRICING ADJUSTMENT AND RE MIT THE MATTER TO THE FILE OF AO/TPO FOR FRESH DETERMINATION OF THE ALP O F THE INTERNATIONAL TRANSACTION IN CONSONANCE WITH OUR ABOVE DIRECTIONS . NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNI TY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. 14. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.201 7. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 23 RD AUGUST, 2017. DK ITA NO.1821/DEL/2014 10 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.