M/s. Louis Dreyfus Commodities, Gurgaon V. ACIT, New Delhi

ITA 2432/DEL/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4601 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 24-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Capital asset; Transfer pricing; International transaction; Earning of tax free income; Rule 8D
• Section: 92D; 14A; 48; 13; 22; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: I-1 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.2432/DEL/2015 ASSESSMENT YEAR: 2010-11 LOUIS DREYFUS COMMODITIES, BUILDING NO. 5, TOWER A, 8 TH FLOOR, DLF CYBER CITY, DLF PHASE-III, GURGAON VS. ACIT, CIRCLE-15(2), NEW DELHI PAN :AAACL7361E (APPELLANT) (RESPONDENT) AND ITA NO.2479/DEL/2015 ASSESSMENT YEAR: 2010-11 ACIT, CIRCLE-15(2), NEW DELHI VS. LOUIS DREYFUS COMMODITIES INDIA PVT. LTD., 2 ND FLOOR, TOWER 9B, DLF CYBER CITY, DLF PHASE-III, GURGAON PAN : AAACL7361E (APPELLANT) (RESPONDENT) ASSESSEE BY SH. RAVI SHARMA, ADV. MS. SHRUTI KHIMTA, AR DEPARTMENT BY SH. SURENDER PAL, CIT(DR) DATE OF HEARING 08.09.2021 DATE OF PRONOUNCEMENT 30.09.2021 2 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 ORDER PER O.P. KANT, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST FINAL ASSESSMENT ORDER DATED 27/02 /2015 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -15(2), NEW DELHI (IN SHORT THE ASSESSING OFFICER) FOR ASSESS MENT YEAR 2010- 11, PURSUANT TO THE DIRECTION OF LEARNED DISPUTE RE SOLUTION PANEL (DRP). 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL A RE REPRODUCED AS UNDER: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW; 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER PASSED BY THE ASSESSING OFFICER (LD AO) IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE LEARNED DISPUTE RES OLUTION PANEL (LD DRP) IS BAD IN LAW. 2. THAT THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING ACTION OF THE LD. AO/ TRANSFER PRICING OFFICERS (L D. TPO) OF MAKING AN ADJUSTMENT OF RS. 1,14,09,377/- TO THE IN COME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSAC TIONS UNDERTAKEN BY THE APPELLANT DO NOT SATISFY THE ARM S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME-TAX ACT 1961 ( ACT) 3. THAT THE LD. DRP ERRED IN CONFIRMING AN ADJUSTM ENT OF RS. 64,84,261/- IN BACK-OFFICE SUPPORT SERVICES SEGMENT AND IN DOING SO THE LD. DRP HAS GROSSLY ERRED IN AGREEING WITH T HE LD. TPOS ACTION OF: 3.1 NOT APPRECIATING THAT NONE OF THE CONDITIONS S ET OUT IN SECTION 920(3) OF THE ACT ARE SATISFIED IN THE PRES ENT CASE; 3.2 DISREGARDING THE ARMS LENGTH PRICE (ALP) A S DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING ('TP') DOC UMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 (RULES); A ND IN PARTICULAR MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 3.3 DISREGARDING MULTIPLE YEAR/ PRIOR YEARS DATA A S USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING T HAT CURRENT YEAR (I.E. FY 2009-10) DATA FOR COMPARABLE COMPANIE S SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECE SSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 3 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 3.4. REJECTING COMPARABILITY ANALYSIS IN THE TP DOC UMENTATION BASED ON APPLICATION OF THE ADDITIONAL/ REVISED FIL TERS IN DETERMINING THE ALP: 3.5. INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES SET FOR BENCHMARKING A LOW RISK CAPTIVE UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEME NTS ON THE ISSUE) 3.6. INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPA RABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS E MPLOYED AND RISKS ASSUMED; 3.7. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIV OLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPE LLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND R ISKS ASSUMED; 3.8. IGNORING THE BUSINESS/ COMMERCIAL REALITY THAT SINCE THE APPELLANT IS REMUNERATED ON AN ARMS LENGTH COST PL US BASIS, I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE- AGREED MARK-UP BASED ON A BENCHMARKING ANALYSIS, TH E APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAI NST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAK ING ENTREPRENEURS, AND BY NOT ALLOWING A RISK ADJUSTMEN T TO THE APPELLANT ON ACCOUNT OF THIS FACT; 4. THAT THE LD. DRP ERRED IN AGREEING WITH THE ACT ION OF THE LD. TPO/ LD. AO OF CLASSIFYING THE INTERNATIONAL TRANSACTION OF MERCHANTING TRADE AS A FINANCING ARRANGEMENT WITHOUT UNDERSTA NDING ITS EXACT NATURE AND WITHOUT TAKING INTO COGNIZANCE THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED BY THE ASSESSEE IN THIS REGARD; 4.1. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE LD. DRP/ LD. AO/ LD. TPO ERRED IN DISREGARDING THE CLAI M OF THE ASSESSEE TO USE THE SAME INTEREST RATE I.E. 2.74% P .A (LIBOR PLUS 100 BASIS POINTS)WHICH ASSESSEE HAD USED TO PA Y INTEREST ON ADVANCES RECEIVED FROM ITS ASSOCIATED ENTERPRISE (AE) TO TEST THE ARMS LENGTH CHARACTER OF THE SUBJECT INTERNATI ONAL TRANSACTION. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. AO ERRED IN INITIATING PENALTY UNDER SECTION 27I(I)(C) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHD RAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HE ARING. 2.1 THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL AR E REPRODUCED AS UNDER: 4 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HONBLE DRP HAS ERRED IN DELETING THE DISALLOWA NCE MADE U/S 14A OF THE IT ACT, 1961, WHEN DRP AGREES THAT THE A DDITIONS U/S 14A SHOULD BE MADE ON AVERAGE INVESTMENT AND NOT ON TURNOVER. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HONBLE DRP HAS ERRED IN IGNORING THE DBDTS CI RCULAR NO. 5 DATED 14.02.2014. 3. THAT THE ORDER OF THE HONBLE DRP IS ERRONEOUS A ND IS NOT TENABLE ON FACTS AND IN LAW. 4. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND OR FOREGO ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE, LOUIS DREFUS COMMODITIES INDIA PRIVATE LIMITED (LD INDI A) IS A SUBSIDIARY OF LOUIS DREYFUS COMMODITIES ASIA PTE. LTD., SINGAPORE (LD ASIA). THE ASSESSEE IS TRADER IN INDI A OF AGRICULTURE-BASED COMMODITY PRODUCTS, INCLUDING CRU DE PALM OIL, COFFEE, COTTON, SOYABEAN MEAL, SORGHUM, MAIZE ETC. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF I NCOME ON 01/10/2010, DECLARING NIL INCOME AFTER SET-OFF OF I NCOME OF 4,34,63,477/- WITH BROUGHT FORWARD BUSINESS LOSSES. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SC RUTINY ASSESSMENT AND STATUTORY NOTICES UNDER THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT) WERE ISSUED AND COMPLIED WITH. THE LEARNED ASSESSING OFFICER OBSERVED INTERNATIONAL TRANSACTIO NS CARRIED OUT BY THE ASSESSEE AND, THEREFORE, HE REFERRED THE MAT TER OF DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THOSE INTERNATIONAL TRANSACTION TO THE LEARNED TRANSFER PRICING OFFICER (TPO). THE LEARNED TPO PROPOSED TRANSFER PRICING ADJUSTMENT OF 49,25,116/- TO THE TRANSACTION OF MERCHANTING OF TR ADE COMMODITIES AND 67,48,709/- TO THE TRANSACTION OF BACK OFFICE SUPPORT SERVICES. IN THE DRAFT ASSESSMENT ORDER DAT ED 5 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 18/03/2014, THE ASSESSING OFFICER PROPOSED TRANSFER PRICING ADJUSTMENT ALONG WITH OTHER DISALLOWANCE ON ACCOUNT OF COMMISSION AND BROKERAGE ( RS.3,58,91,944/-), DISAL LOWANCE ON ACCOUNT OF CASH DISCOUNT ( RS.77,32,269/-) AND DISA LLOWANCE ON ACCOUNT UNDER SECTION 14A OF THE ACT (RS. 8,48,25,0 00/-). 3.1 THE LEARNED DRP UPHELD THE ADJUSTMENT OF 49,25,116/- TO THE TRANSACTION OF MERCHANTING OF COMMODITIES, HOWE VER, PART RELIEF OF 2,64,448/- HAS BEEN GRANTED AGAINST THE TRANSFER PRICING ADJUSTMENT OF BACK OFFICE SUPPORT SERVICES BY WAY OF ALLOWING WORKING CAPITAL ADJUSTMENT. THE OTHER ADDI TIONS PROPOSED BY THE ASSESSING OFFICER WERE ALSO REJECTE D BY THE LEARNED DRP. PURSUANT TO THE DIRECTION OF THE LEARN ED DRP, THE ASSESSING OFFICER PASSED THE IMPUGNED FINAL ASSESSM ENT ORDER AGAINST WHICH BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUC ED ABOVE. 4. BEFORE US, THE PARTIES APPEARED THROUGH VIDEO CONF ERENCING FACILITY AND FILED PAPER-BOOK AND ANOTHER DOCUMENTS ELECTRONICALLY (THROUGH EMAIL). 5. THE GROUND NO. 1 & 2 OF THE APPEAL OF THE ASSESSEE ARE GENERAL IN NATURE AND, THEREFORE, WE ARE NOT REQUIR ED TO ADJUDICATE UPON THESE GROUNDS SPECIFICALLY. 6. THE GROUND NO. 3 OF THE APPEAL RELATES TO ADJUSTME NT TO BACK OFFICE SUPPORT SERVICE SEGMENT. 6.1 BRIEF FACTS QUA THE ISSUE IN DISPUTE ARE THAT IN I TS TRANSFER PRICING STUDY, THE ASSESSEE REPORTED MANY INTERNATI ONAL TRANSACTIONS, WHICH HAVE BEEN REPRODUCED BY THE LEA RNED TPO ON PAGE 2 OF THE ORDER. FOR READY REFERENCE SAID TRANS ACTIONS ARE EXTRACTED AS UNDER: 6 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 10. NATURE OF INTERNATIONAL TRANSACTION VALUE OF TRANSACTION (RS.) MOST APPROPRIATE METHOD 1. IMPORT OF AGRI-COMMODITIES 1.1 PURCHASE OF CRUDE PALM OIL - RAW MATERIAL 807,402,850 COMPARABLE UNCONTROLLED PRICE METHOD (''CUP 1 ') 1.2 PURCHASE OF SOYA BEAN OIL - RAW MATERIAL 796,658,133 1.3 PURCHASE OF CRUDE PALM OIL - TRADED GOODS 198,004,805 1.4 PURCHASE OF SUGAR - TRADED GOODS 2,281,788,761 1.5 PURCHASE OF COTTON - TRADED GOODS 6,255 2. EXPORT OF AGRI-COMMODITIES 2.1 SALE OF SOYA BEAN MEAL 9,461,751 CUP 2.2 SALE OF MAIZE 99,427,923 2.3 SALE OF COTTON 5,125,418,551 2.4 SALE OF COFFEE 83,526,864 3. MERCHANTING TRADE OF AGRI- COMMODITIES 3.1 PURCHASE OF SOYABEAN SEED 244,909,808 3.2 SALE OF SOYABEAN SEED 246,571,182 4. PROVISION OF MARKET RESEARCH AND RESEARCH FOR FREIG HT AND METAL 4.1 PROVISION OF MARKET RESEARCH SERVICES 16,942,314 TRANSACTIONAL NET MARGIN METHOD ('TNMM) 4.2 PROVISION OF RESEARCH SERVICE FOR FREIGHT AND METAL 8,463,131 5. PROVISION OF BACK-OFFICE SUPPORT SERVICES 5.1 PROVISION OF LOGISTIC SUPPORT/EXECUTION 55,812,068 TNMM 5.2 PROVISION OF MANPOWER SERVICES 2,366,481 6. INTEREST EXPENSE ON TRADE ADVANCES 21,092,726 CUP 7. ACCEPTANCE OF TRADE ADVANCES 2,282,706,564 CUP 8. REIMBURSEMENT OF EXPENSES. 2,043,874 CUP 9. RECOVERY OF EXPENSES. 3,135,821 CUP 10. PRE-PAYMENT DISCOUNT ALLOWED 78,203,624 CUP 7 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 11. PRE-PAYMENT DISCOUNT RECEIVED 204,074 CUP TOTAL 12,364,147,560 6.2 THE LEARNED TPO, HOWEVER, MADE ADJUSTMENT TO TRANS ACTION OF MERCHANTING TRADE OF AGRI-COMODITIES AND PROVISI ON OF BACK OFFICE SUPPORT SERVICES, DETAILS OF WHICH ARE AS UN DER: S. NO. NATURE OF INTERNATIONAL TRANSACTION VALUE OF TRANSACTIO N (INR) METHOD APPLIED BY THE APPELLANT ADJUSTMENT AS PER TPO ORDER (INR) ADJUSTMENT AS PER FINAL AO ORDER (INR) 1 MERCHANTING TRADE OF AGRI-COMMODITIES L.L PURCHASE OF SOYABEAN SEED 24,49,09,80 8 COMPARABLE UNCONTROLLE D PRICE (CUP) ADJUSTMENT OF INR 49,25,116 (REFER PAGE NO 48 OF THE APPEAL SET) ADJUSTMENT OF INR 49,25,116 (REFER PAGE NO 82 OF THE APPEAL SET) 1.2 SALE OF SOYABEAN SEED 24,65,71,18 2 2 PROVISION OF BACK - OFFICE SUPPORT SERVICES 2.1 PROVISION OF LOGISTIC SUPPORT/EXECUT IO N 5,81,78,549 TRANSACTION AL NET MARGIN METHOD (TNMM) ADJUSTMENT OF INR 67,48,709 (REFER PAGE NO 66 OF THE APPEAL SET) ADJUSTMENT OF INR 64,84,261 (REFER PAGE NO 82 OF THE APPEAL SET 6.3 AS FAR AS TRANSACTION OF PROVISION OF BACK OFFICE SUPPORT SERVICES IS CONCERNED, THE ASSESSEE WAS ENGAGED IN PROVIDING BUSINESS SUPPORT SERVICES TO HOLDING COMPANY (LD AS IA) AND OTHER AFFILIATED ENTITIES IN RETURN FOR A SERVICE FEE. IN BUSINESS SUPPORT SERVICE SEGMENT, THE ASSESSEE REPORTED OPERATING RE VENUE (OR) OF 5,81,78,549/- AND TOTAL OPERATING COST (OC) OF 5,28,89,588/- AND WORKED OUT OPERATING PROFIT (OP) OF 52,88,961/-. IN THIS MANNER, THE ASSESSEE COMPUTED PROFIT LEVEL INDICATO R OR PROFIT MARGIN OF THE ASSESSEE (OP/OC) AS 10.00 PERCENTILE. IN ITS 8 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 TRANSFER PRICING STUDY, THE ASSESSEE SELECTED 8 COM PARABLES AND COMPUTED THE AVERAGE ARITHMETIC MEAN OF THE MARGIN AT 11.79%. THE LIST OF THE COMPARABLES SELECTED BY THE ASSESSE E AND THERE MARGIN IS REPRODUCED AS UNDER: SI. NO. NAME OF THE COMPARABLE MARGIN 1. ADITYA BIRLA MINACS WORLDWIDE LIMITED 2.20% 2. DATAMATICS FINANCIAL SERVICES LTD. -1.26% 3. I C R A TECHNO ANALYTICS LTD. 13.81% 4. INFORMED TECHNOLOGIES INDIA LTD. 16.26% 5. INFOSYS B P O LIMITED 17.55% 6. INHOUSE PRODUCTIONS LIMITED 8.81% 7. NITTANY OUTSOURCING SERVICES PVT. LTD. 26.25% 8. R SYSTEMS INTERNATIONAL LIMITED 10.70% 6.4 ACCORDINGLY, THE ASSESSEE TREATED ITS INTERNATIONA L TRANSACTION OF BACK OFFICE SUPPORT SERVICE AT ARMS -LENGTH IN VIEW OF THE MARGIN BEING IN THE RANGE OF PLUS MINUS 5% O F AVERAGE MARGINS OF COMPARABLES. THE LEARNED TPO REJECTED FE W COMPARABLES OF THE ASSESSEE AND ADDED FEW COMPARABL ES SELECTED BY HIM. FINALLY, HE RETAINED NINE COMPARABLES AS UN DER AND COMPUTED THEIR AVERAGE MARGIN AT 22.76%. FINAL LIST OF COMPARABLE IS REPRODUCED AS UNDER: SR. NO. COMPARABLE NAME OPERATING PROFIT / TOTAL COST MARGIN 1 APITCO LTD. 40.02% 2 CAMEO CORPORATE SERVICES LTD. 7.84% 3 CRYSTAL HUES LTD. 9.08% 4 CYBER MEDIA RESEARCH LTD. 14.85% 5 GLOBAL PROCUREMENT CONSULTANTS LTD. 37.18% 6 H C C A BUSINESS SERVICES PVT. LTD. 19.73% 7 QUADRANT COMMUNICATIONS LTD. 13.11% 8 QUIPPO VALUERS & AUCTIONEERS PVT. LTD. 23.96% 9 T S R DARASHAW LTD. 39.07% 9 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 COUNT 9 AVERAGE OP/TC MARGIN 22.76% 6.5 THE LEARNED TPO COMPUTED THE AMOUNT OF ADJUSTMENT OF RS.67,48,709/- AS UNDER: PARTICULARS AMOUNT (INR) PRICE CHARGED IN INTERNATIONAL TRANSACTION 5,81,78,549 OPERATING COST OF THE ASSESSEE FOR PROVISION OF SERVICES (A) 5,28,89,588 ADD: MARK-UP @ 22.76% (B) 1,20,37,670 ALP FOR PROVISION OF SERVICES (C= A+B) 6,49,27,258 PRICE RECEIVED 5,81,78,549 AMOUNT OF ADJUSTMENT 67,48,709 6.6 THE CLAIM OF WORKING CAPITAL ADJUSTMENT AS WELL AS RISK ADJUSTMENT WAS DECLINED BY THE LEARNED TPO. THE LEA RNED DRP RETAINED THE COMPARABLES FINALLY SELECTED BY THE LE ARNED TPO, BUT DIRECTED TO ALLOW THE WORKING CAPITAL ADJUSTMENT. A CCORDINGLY, IN THE FINAL ASSESSMENT ORDER, THE LEARNED ASSESSING O FFICER HAS ALLOWED RELIEF OF 2,64,448/- ON TRANSFER PRICING ADJUSTMENT TO BACK OFFICE SUPPORT SERVICES. 6.7 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE HAS ONLY DISPUTED INCLUSION OF FIVE COMPARABLES NAMELY APTIC O LTD.; GLOBAL PROCUREMENT CONSULTANT LTD. (GPCL); HCCA BUSINESS S ERVICES PRIVATE LIMITED; QUIPO VALUERS AND TSR DARASHAW LTD . BEFORE ADJUDICATING SELECTION/ACCEPTANCE OF COMPARABLES, I T IS RELEVANT TO SUMMARISE FUNCTIONS UNDER THE SEGMENT OF BACK OFFI CE SUPPORT 10 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 SERVICES OF THE ASSESSEE REPORTED IN TRANSFER PRICI NG STUDY (PAGE NO. 394 TO 398 OF APB). AS UNDER: (I) MAINTAINING ACCOUNTS AND GENERATING FINANCIAL REPOR TS FOR ASSOCIATED ENTERPRISES ; (II) PROVIDING LOGISTIC AND OPERATIONS SUPPORT TO ASSOCI ATED ENTERPRISE INCLUDING SCHEDULING AND DOCUMENTATION O F SHIPMENTS, RAISING OF BILLS/INVOICE, GENERATING WAR EHOUSE ADVICE, PROCESSING THE PAYMENTS FOR TRADING EXECUTE D, LIAISON WITH COUNTER PARTIES, INVENTORY MANAGEMENT FOR INSURANCE AND MANAGEMENT OF WAREHOUSE ACCOUNTS (III) TRADE SUPPORT INCLUDING SETTLEMENT OF SALE/PURCHASE TRANSACTIONS OF FUTURES ENTERED INTO BY THE ASSOCIA TED ENTERPRISE ON EXCHANGE ON DAILY BASIS, ACCEPT TRADE S ENTERED INTO BY THE AES AND VERIFY THOSE TRADES FROM EXCHAN GE WITH THE TRADE SHEET PROVIDED BY THE AE, PREPARING OF PO SITION REPORT OF THE PHYSICAL AND FUTURES TRADES OF AES (IV) PROVIDING TRAVEL SUPPORT DESK TO EMPLOYEES OF AES I NCLUDING ONLINE SEARCH OF AVAILABILITY OF THE AIRLINE TICKET AND COMPARING QUOTES FOR AVAILABLE CARRIERS BETWEEN A S PECIFIED DESTINATIONS (V) PROVIDING INTERNAL AUDIT SERVICES TO ASSOCIATED ENT ERPRISES (VI) PROVIDING QUALITY CONTROL/ INSPECTION SERVICES FOR QUALITY AND GRADE OF COFFEE TO ASSOCIATED ENTERPRISES. 6.8 IN BACKGROUND OF ABOVE FUNCTIONAL ANALYSIS OF THE ASSESSEE, THE COMPARABILITY OF COMPARABLE COMPANIES CHALLENGE D BY THE ASSESSEE IS ADJUDICATED AS UNDER: 11 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 1. APTICO LIMITED: 1.1 BEFORE THE LEARNED TPO, THIS COMPANY WAS CHALLE NGED FOR INCLUSION ON THE GROUND THAT IT IS ENGAGED IN P ROVIDING HIGH-END TECHNICAL CONSULTANCY SERVICES. THE LEARNE D TPO REJECTED THIS OBJECTION OBSERVING THAT MAJORITY OF THE INCOME OF THE COMPANY IS FROM SKILL DEVELOPMENT, TOURISM A ND RESEARCH STUDIES, PROJECT RELATED SERVICES, WHICH A RE IN THE NATURE OF BUSINESS AND SUPPORT SERVICES FOR DEVELOP MENT OF TOURISM AND INDUSTRY AND THUS COMPANY IS A GOOD COMPARABLE. THE OTHER ARGUMENTS OF THE ASSESSEE OF HIGH AND VOLATILE PROFIT MARGIN, EMPLOYEE EXPERIENCE IN DIVERSE DISCIPLINES WERE ALSO REJECTED. THE LEARNED TPO NOT ED THAT THE ASSESSEE HAS ALSO BOOKED REVENUE UNDER THE HEAD SKILL DEVELOPMENT. THE LEARNED DRP ALSO REJECTED THE CONT ENTION OF THE ASSESSEE OF TECHNICAL SERVICES OBSERVING THA T THAT REVENUE BREAKUP OF THE TECHNICAL SERVICES CONSTITUT ED MUCH LOWER PERCENTAGE OF TOTAL SERVICES AND UPHELD INCLU SION OF THE COMPANY IN THE SET OF THE COMPARABLES. 1.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT COMPANY IS FUNCTIONALLY DISSIMILAR A ND TRIBUNAL IN ASSESSMENT YEAR 2008-09 HAS EXCLUDED TH E COMPANY FROM THE SET OF THE COMPARABLES ON THE GROU ND OF FUNCTIONAL DISSIMILARITY. 1.3 THE LEARNED DR SUBMITTED THAT ACTIVITIES OF THE COMPANY ARE IN THE NATURE OF BACK OFFICE SUPPORT SE RVICES 12 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 AND, THEREFORE, IT IS ONE OF GOOD COMPARABLE WITH T HE ASSESSEE. 1.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES A ND PERUSED THE RELEVANT MATERIAL ON RECORD. ON PERUSAL OF SCHEDULE 11 OF PROFIT AND LOSS ACCOUNT AVAILABLE ON PAGE 19 OF ANNUAL REPORTS OF COMPANY, WE FIND THAT INCOME F ROM OPERATIONS HAS BEEN SHOWN FROM FOLLOWING ACTIVITIES : INCOME FROM OPERATIONS MICRO ENTERPRISES DEVELOPMENT 5 , 283,039 11,782, 673 SKILL DEVELOPMENT 27 , 575,000 32 , 259,550 ENTREPRENEURSHIP DEVELOPMENT 10 , 873,397 3 , 078,030 TOURISM & RESEARCH STUDIES 14 , 835,450 20 , 743,985 PROJECT RELATED SERVICES, INFRASTRUCTURE PLANNING & DEVELOPMENT 32 , 600,996 18 , 805,321 ENVIRONMENT MANAGEMENT 3 , 998,796 1 , 000,000 ENERGY RELATED SERVICES 4 , 835,206 5 , 086,749 CLUSTER DEVELOPMENT 47 , 986,516 9 , 714,128 ASSET RECONSTRUCTION & MANAGEMENT SERVICES 5 , 503,141 7 , 802,982 EMERGING AREAS 683,732 154,175,273 110,273,418 1.5 IN ASSESSMENT YEAR 2008-09, ALSO THIS COMPANY W AS ENGAGED IN SIMILAR SERVICES AND THE TRIBUNAL IN ITA NO. 6409/DEL/2012 HAS HELD THE COMPANY IS FUNCTIONALLY DISSIMILAR WITH THE ASSESSEE, OBSERVING AS UNDER: 19. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND ORDERS OF THE LEARNER TRANSFER PRICING OFFICER WHER E IN AT PAGE NO. 32/33 THE ABOVE COMPARABLE COMPANY HAS BEEN CONSIDERED. THE LD. TRANSFER PRICING OFFICER HAS RE JECTED THE CONTENTION OF THE ASSESSEE AS THE COMPARABLE COMPAN Y IS FULFILLING ALL THE QUANTITATIVE CRITERIA SET FORTH BY THE LD. TRANSFER PRICING OFFICER. THE ARGUMENT OF THE SELEC TION OF THE ABOVE COMPARABLE COMPANY VIS-A-VIS IS THE FUNCTIONS PERFORMED BY THE COMPARABLE COMPANY WHICH SHOWS THA T ONLY 12% OF THE TOTAL REVENUE OF THE COMPARABLE COMPANY IS PERTAINING TO THE RESEARCH STUDIES DESERVES CONSIDE RATION. THIS IS A GLARING FACTOR WHICH SHOWS THAT THE COMPA RABLE COMPANY IS NOT FUNCTIONALLY COMPARABLE WHEREIN IT P ERFORMS ONLY ONE FUNCTIONS WHICH IS CONSTITUTING ONLY 12% O F ITS REVENUE WHICH IS COMPARABLE WITH THE FUNCTIONS PERF ORMED BY THE ASSESSEE. WE HAVE ALSO PERUSED THE ANNUAL ACCOU NTS OF 13 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 THE ABOVE COMPARABLE COMPANY PLACED AT PAGE NO. 681 /706 OF THE PAPER BOOK FURNISHED BY THE ASSESSEE. A CARE FUL PERUSAL OF THE OPERATIONS CARRIED OUT BY APITCO LTD. DECIPH ERS THAT THIS COMPANY IS PROVIDING SERVICES IN THE NATURE OF PROJ ECT REPORT PREPARATION, TECHNICAL AND ECONOMIC STUDIES, FEASIB ILITY STUDIES, MICRO ENTERPRISE DEVELOPMENT, SKILL DEVELO PMENT, PROJECT MANAGEMENT CONSULTING, INDUSTRIAL CLUSTER DEVELOPMENT, ENVIRONMENTAL MANAGEMENT CONSULTING, E NERGY MANAGEMENT CONSULTING, MARKET AND SOCIAL RESEARCH A ND ASSET RECONSTRUCTION MANAGEMENT SERVICES. NO SEGMEN T-WISE PROFITABILITY DATA OF THESE SERVICES IS AVAILABLE. IN VIEW OF ABOVE FACTS AS WELL AS CONSIDERING THE VARIOUS JUDI CIAL PRONOUNCEMENTS, WHICH ARE ALSO RELIED UPON BY THE A SSESSEE, WE ARE OF THE OPINION THAT ABOVE COMPARABLE COMPANY CANNOT BE CONSIDERED AS FUNCTIONALLY SIMILAR TO THE FUNCTI ONS PERFORMED BY THE ASSESSEE COMPANY HENCE THE LD. TRA NSFER PRICING OFFICER IS DIRECTED TO EXCLUDE THE ABOVE CO MPANY FROM THE COMPARABILITY ANALYSIS. 1.6 IN VIEW OF NO CHANGE IN ACTIVITY OF THE COMPANY AS COMPARED TO ASSESSMENT YEAR 2008-09, RESPECTFULLY FOLLOWING THE FINDING OF THE TRIBUNAL (SUPRA), THE LEARNED AO/TPO IS DIRECTED TO EXCLUDE THE ABOVE COMPANY FRO M THE SET OF COMPARABLES. 2. GLOBAL PROCUREMENT CONSULTANTS LTD: 2.1 BEFORE THE LEARNED TPO, THE ASSESSEE CONTENDED THAT THIS COMPANY IS ENGAGED IN PROVIDING CONSULTANCY SE RVICES AND REVIEW PROCUREMENT PROCESS FOR VARIOUS PROJECTS FUNDED BY THE WORLD BANK AND, THEREFORE, IT IS FUNCTIONALL Y DISSIMILAR TO THE ASSESSEE. THE LEARNED TPO, HOWEVE R, OBSERVED THAT MAIN SERVICE PROVIDED IS PROCUREMENT MANAGEMENT SERVICE WHICH IS IN THE NATURE OF BUSINE SS SUPPORT SERVICES AND THEREFORE COMPANY IS FUNCTIONA LLY 14 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 SIMILAR TO THE ASSESSEE. THE LEARNED TPO ALSO REJEC TED THE OBJECTION OF THE ASSESSEE OF ABNORMALLY HIGH AND VO LATILE PROFIT MARGINS. LEARNED DRP ALSO UPHELD THE FINDING OF THE LEARNED TPO. 2.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REFERRED TO PAGE 42 OF THE ANNUAL REPORT COMPENDIUM AND SUBMITTED THAT COMPANY IS MAINLY IN PROVIDING CONSU LTANCY SERVICES IN THE PROCUREMENT FIELD, WHEREAS THE ASSE SSEE IS ENGAGED IN PROVIDING BACK-OFFICE SUPPORT SERVICES. HE FURTHER RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF EXXON MOBILE GAS (INDIA) PRIVATE LIMITED VS. ACIT IN ITA N O. 1491/DEL/2015 FOR ASSESSMENT YEAR 2010-11. 2.3 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT COMPANY IS ENGAGED IN PROVIDING PROCUREMENT RELATED ADVISORY AS WELL AS AUDIT OR REVIEW OF PROCUREMENT, PROCUREMENT MANAGEMENT, PROCUREMENT GOVERNANCE, BID SUPPORT SERVICES, VALUATION ASSIGNMENTS ETC, WHICH ARE PRIMARILY IN THE NATURE OF BACK OFFICE SUPPORT SER VICES AND, THEREFORE, COMPANY IS FUNCTIONALLY SIMILAR TO THE A SSESSEE. 2.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES O N THE ISSUE IN DISPUTE AND PERUSED RELEVANT MATERIAL ON R ECORD. THE DISPUTE IS REGARDING WHETHER THE SERVICES RENDE RED BY THE COMPANY ARE IN THE NATURE OF THE CONSULTANCY OR IN THE NATURE OF SUPPORT SERVICES. ON PERUSAL OF ANNUAL RE PORT OF THE COMPANY, WE FIND THAT ON PAGE 42 OF THE ANNUAL REPORT COMPENDIUM, THE CRITICAL ACTIVITY OF THE COMPANY HA S BEEN MENTIONED AS MONITORING OF ALL PROCUREMENT ACTIVITI ES INCLUDING PROJECT MANAGEMENT FROM CONCEPT TO 15 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 COMMISSIONING SO AS TO ENSURE TIMELY SUPPLY AND DEL IVERY, QUALITY CONTROL, THROUGH INSPECTION AND EVIDENCE OF COST OVERRUNS TO THE CLIENT. FURTHER ON PERUSAL OF THE A NNUAL REPORT COMPENDIUM PAGES 44 TO 61, WE FIND THAT THE COMPANY HAS PROVIDED PROCUREMENT RELATED ADVISORY A ND AUDITING SERVICES FOR MULTILATERALLY FUNDED PROJECT ACROSS A RANGE OF DEVELOPING COUNTRIES INCLUDING INDIA. THE COMPANY HAS ALSO PROVIDED PROCUREMENT MANAGEMENT SERVICES I N INDIA. THE COMPANY HAS ALSO PROVIDED BID SUPPORT SE RVICES. THE RELEVANT PART OF THE ANNUAL REPORT IS REPRODUCE D AS UNDER: BID SUPPORT SERVICES GPCLS EXPERTISE IN CONDUCTING AUDITS AND PROVIDING SERVICES IN MULTILATERALLY FUNDED PROJECTS WAS PUT TO USE IN OFFERING BID SUPPORT SERVICES TO AN INDIAN CONTRACTING FIRM IN I TS MAIDEN INTERNATIONAL TENDER FOR AN AFRICAN DEVELOPMENT BAN K FUNDED HIGHWAY PROJECT IN MAURITIUS. THE SERVICES INVOLVED ASSISTANCE IN TECHNICAL INVESTIGATION OF SITE CONDI TIONS, ASSESSMENT OF MATERIALS IN THE BILL OF QUANTITIES A ND OBTAINING COMPETITIVE QUOTATIONS FOR THE SAME FROM ACCREDITED VENDORS, AND ENSURING THAT THE BIDDING DOCUMENTS IS COMPLETE IN ALL RESPECTS. 2.5 THE COMPANY HAS ALSO CARRIED OUT PERFORMANCE RE VIEW OF VARIOUS PROJECTS OF ASIAN DEVELOPMENT BANK, WHIC H WERE EXECUTED IN INDIA, SURVEY OF HEALTH FACILITIES UNDE R UNICEF ETC. IN VIEW OF ALL THIS ACTIVITY REPORTED IN ANNUA L REPORT OF THE COMPANY, WE ARE OF THE VIEW THAT COMPANY IS NO LONGER ENGAGED IN PROVIDING CONSULTANCY BUT IT IS PROVIDIN G SUPPORT SERVICES FOR EXECUTION OF THE VARIOUS PROJECTS AND, THUS, PRIMARILY IT IS ENGAGED IN BACK-OFFICE SUPPORT SERV ICES. ACCORDINGLY, IT IS FUNCTIONALLY SIMILAR TO ASSESSEE ; THEREFORE, 16 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 THE LEARNED AO/TPO IS DIRECTED TO RETAIN THIS COMPA NY FOR THE PURPOSE OF SET OF COMPARABLES. 3. HCCA BUSINESS SERVICES: 3.1 BEFORE THE LEARNED TPO, THE ASSESSEE OBJECTED I NCLUSION OF THIS COMPANY ON THE GROUND THAT IT IS ENGAGED IN PROVIDING PAYROLL PROCESSING SERVICES, WHICH ARE IN THE NATURE OF BUSINESS PROCESS OUTSOURCING SERVICES, I. E., AKIN TO INFORMATION TECHNOLOGY ENABLED SERVICES SEGMENT AND NOT BUSINESS SUPPORT SERVICE SEGMENT. THE LEARNED TPO R EJECTED THIS ARGUMENT OF THE ASSESSEE ON THE GROUND THAT SE RVICES ARE PROVIDED BY THE COMPANY TO LOCAL CLIENTS AND NO T FOREIGN CLIENTS HENCE, THEY ARE NOT SIMILAR ITES SERVICES. ACCORDING TO THE LEARNED TPO, SERVICES ARE PREDOMINANTLY PROV IDED IN INDIA, THE COMPANY IS A CORRECT COMPARABLE. THE LEA RNED DRP ALSO UPHELD THE FINDING OF THE LEARNED TPO. 3.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT COMPANY IS ENGAGED IN PAYROLL PROCES SING SERVICES WHICH ARE DIFFERENT FROM THAT OF THE ASSES SEE. HE ALSO REFERRED TO PAGE 105 OF THE ANNUAL REPORT COMP ENDIUM AND SUBMITTED THAT FIGURES HAVE BEEN REGROUPED/REAR RANGED TO CONFIRM CURRENT PERIODS PRESENTATION. THEREFORE , THE COMPANY IS LIABLE TO BE REJECTED AS COMPARABLE TO T HE ASSESSEE. 3.3 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THE ASSESSEE IS ALSO ENGAGED IN PROCESSING OF EXPENSE V OUCHERS AND PREPARING AND MAINTAINING ACCOUNTS FOR ASSOCIAT ED 17 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 ENTERPRISES AND THEREFORE SERVICES ARE IDENTICAL TO THE SERVICES OF BACK-OFFICE SUPPORT RENDERED BY THE ASS ESSEE. 3.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES O N THE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS FAR AS ARGUMENT THAT SERVICES ARE PAYROL L PROCESSING ARE SIMILAR TO SERVICES OF PREPARING AND MAINTAINING ACCOUNTS BY THE ASSESSEE FOR ITS ASSOCI ATED ENTERPRISES, WE AGREE WITH THE LEARNED DR. ON PERUS AL OF FUNCTION PERFORMED BY THE ASSESSEE UNDER BACK-OFFIC E SUPPORT SERVICES ( PAGE 394 OF THE PAPER-BOOK), WE FIND THAT THE ASSESSEE UTILIZED TWO SOFTWARES FOR MAINTENANCE OF ACCOUNTS OF AES. THE FIRST SOFTWARE IS EKA, I.E., TRADING/LOGISTICS APPLICATION, WHICH CAPTURES TRADE S BOTH IN THE PHYSICAL AND THE FUTURES SIDE. ANOTHER SOFTWARE IS DREAM WHICH IS AN ACCOUNTING APPLICATION AND CAPT URES ACCOUNTING ASPECTS OF TRADES ENTERED INTO EKA, BO TH ON THE PHYSICAL AND FUTURES SIDE. THE ACCOUNTS SUPPORT SER VICE TEAM OF THE ASSESSEE GENERATES DEBTORS AGEING REPOR T AND TRIAL BALANCE, AFTER POSTING OF INVOICE AND BANK RE CONCILIATION ETC. THUS, THE ACTIVITIES OF THE ASSESSEE ARE ALSO IN THE NATURE OF PROCESSING OF ACCOUNTING DATA FOR AES, WH ICH IS AKIN TO PAYROLL PROCESSING SUPPORT SERVICES, WHICH IS SOLE SEGMENT OF THE COMPANY. AS FAR AS REGROUPING/REARRANGEMENT OF HE FIGURES IS CONCERNED , THE RELEVANT PART OF THE ANNUAL REPORT OF THE COMPANY I S REPRODUCED AS UNDER: 18 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 2.14 QUANTITATIVE DETAILS THE COMPANYS OPERATIONS COMPRISE OF PAYROLL PROCES SING SERVICES. HENCE, IT IS NOT POSSIBLE TO GIVE THE QUA NTITATIVE DETAILS OF SALES AND CERTAIN INFORMATION AS REQUIRE D UNDER PARAGRAPHS 3, 4C AND 4D OF PART II OF SCHEDULE VI O F THE COMPANIES ACT, 1956. 2.15 FIGURES FOR THE PREVISOU YEAR HAVE BEEN RE-GRO UPED/RE- ARRANGED, WHEREVER CONSIDERED NECESSARY TO CONFORM TO CURRENT PERIODS PRESENTATION. 3.5 ON PERUSAL OF THE ABOVE, WE FIND THAT PREVIOUS YEAR FIGURES HAVE BEEN REGROUPED/REARRANGED, WHICH IS NO T HAVING ANY IMPACT ON THE FIGURES OF THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE REJECT THE OBJECTION S OF ASSESSEE TO EXCLUDE THE COMPANY FROM THE SET OF THE COMPARABLES. THE LEARNED AO/TPO IS DIRECTED TO RETA IN THE COMPANY IN THE SET OF THE COMPARABLES. 4. QUIPPO VALUERS AND AUCTIONEERS PRIVATE LIMITED: 4.1 BEFORE THE LEARNED TPO, THE ASSESSEE SOUGHT TO EXCLUDE THIS COMPANY ON THE GROUND THAT COMPANY IS ENGAGED IN PROVIDING SPECIALIZED SERVICES OF ASSET MANAGEMENT, WHICH INCLUDE SALE OF CONSTRUCTION AND EARTHMOVING EQUIPM ENTS THROUGH AUCTIONS, EXECUTION OF LIVE AUCTION FOR FIN ANCIAL INSTITUTION, PROVISION OF VALUATION SERVICES IN RES PECT OF THE ASSETS INCLUDING CONSTRUCTION EQUIPMENT, BARGES AND OTHER INDUSTRIAL ASSETS. ACCORDING TO THE LEARNED TPO, TH E SERVICES ARE IN THE NATURE OF BUSINESS SUPPORT SERVICES AND THEREFORE COMPANY IS COMPARABLE TO THE ASSESSEE. THE LEARNED DRP UPHELD THE FINDING OF THE LEARNED TPO. 4.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REFERRED TO PAGE 108 AND 120 OF ANNUAL REPORT COMPENDIUM AND 19 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 SUBMITTED THAT COMPANY IS ENGAGED IN PROVIDING SERV ICES OF SALE OF CONSTRUCTION AND EARTHMOVING EQUIPMENT, AUC TIONS FOR FINANCIAL INSTITUTIONS AND INDUSTRIAL ASSETS DI SPOSAL AND VALUATION SERVICES. THE LEARNED COUNSEL REFERRED TO PAGE 139 OF THE ANNUAL REPORT COMPENDIUM AND SUBMITTED T HAT SEGMENT OF THE COMPANY IS IN THE NATURE OF CONSULTANCY/PROFESSIONAL SERVICES AND THEREFORE COM PANY IS LIABLE TO BE REJECTED. 4.3 ON THE CONTRARY, THE LEARNED DR SUBMITTED THAT THE ASSESSEE IS ALSO PROVIDING LOGISTIC AND OPERATIONS SUPPORT SERVICES TO ASSOCIATED ENTERPRISES WHICH INCLUDE SC HEDULING AND DOCUMENTATION OF SHIPMENTS, LIAISON WITH COUNTE R PARTIES, INVENTORY MANAGEMENT FOR INSURANCE, MANAGE MENT OF WAREHOUSE ACCOUNTS INCLUDING SENDING INSTRUCTION TO WAREHOUSE FOR STORAGE. THESE SERVICES ARE ALSO AKIN TO SERVICES OF VALUATION AND AUCTION OF THE ASSETS OF THIRD PARTIES AND PRIMARILY BUSINESS SUPPORT SERVICES AND THEREFORE, COMPANY IS A GOOD COMPARABLE. 4.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES A ND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESS EE HAS OBJECTED INCLUSION OF THE COMPANY ON THE GROUND OF FUNCTIONAL DISSIMILARITY ONLY. HOWEVER WE FIND THAT SERVICES OF VALUATION OF THE ASSETS OF THE THIRD PARTIES AND ASSISTING IN THEIR DISPOSAL BY WAY OF AUCTION IS IN THE NATURE O F BUSINESS SUPPORT TO THIRD PARTIES. THEREFORE, IN OUR OPINION , THE COMPANY IS A VALID COMPARABLE BEING FUNCTIONALLY SI MILAR. THE LEARNED AO/TPO IS ACCORDINGLY DIRECTED TO RETAI N THE COMPANY IN THE SET OF COMPARABLES. 20 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 5. TSR DARASHAW LTD. 5.1 BEFORE THE LEARNED TPO, THE ASSESSEE OBJECTED I NCLUSION OF THE COMPANY ON THE GROUND OF FUNCTIONAL DISSIMIL ARITY BEING ENGAGED IN RENDERING SERVICES, NAMELY, REGIST RAR AND TRANSFER AGENT ACTIVITY, RECORDS MANAGEMENT ACTIVIT Y AND PAYROLL & TRUST FUND ACTIVITY. ACCORDING TO THE ASS ESSEE COMPANY IS A BUSINESS PROCESS OUTSOURCING (BPO) ORGANIZATION ENGAGED IN HANDLING BPO ACTIVITIES. TH E LEARNED TPO REJECTED THE OBJECTIONS OF THE ASSESSEE OBSERVI NG THAT ACTIVITIES OF THE COMPANY ARE IN THE NATURE OF BUSI NESS SERVICES, WHICH ARE OUTSOURCED BY THE COMPANIES IN INDIA AND THEREFORE IT IS A CORRECT COMPARABLE. THE OBJEC TION OF THE ASSESSEE THAT COMPANY FAILS SERVICE INCOME FILTERS WAS ALSO REJECTED BY THE LEARNED TPO HOLDING THAT ENTIRE SAL ES INCOME IS FROM SERVICES. THE OBJECTION OF ASSESSEE OF HIGH AND VOLATILE PROFIT MARGIN WAS ALSO REJECTED BY THE LEA RNED TPO. THE LEARNED DRP UPHELD INCLUSION OF THE COMPANY. 5.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REFERRED TO PAGE 170 OF THE ANNUAL REPORT COMPENDIUM AND SUBMITTED THAT COMPANY IS MAINLY IN THE BROKING AND INVESTMENT BANKING HOUSE WITH ITS THREE SEGMENTS, N AMELY, REGISTRAR AND TRANSFER AGENT ACTIVITY, RECORDS MANA GEMENT ACTIVITY AND PAYROLL AND TRUST FUND ACTIVITY. HE SU BMITTED THAT THERE IS NO SEPARATE SEGMENT -WISE RESULT IN T HE CASE OF THE COMPANY AVAILABLE ON PUBLIC DOMAIN AND, THEREFO RE, IT CANNOT BE CONSIDERED AS COMPARABLE AT ENTITY LEVEL WITH THE 21 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 ASSESSEE, WHO IS ENGAGED IN PROVIDING BACK-OFFICE S UPPORT SERVICES. 5.3 THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E FINDING OF THE LOWER AUTHORITIES AND SUBMITTED THAT SERVICES RENDERED BY THE COMPANY ARE IN THE NATURE OF BACK-O FFICE SUPPORT SERVICES. 5.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES A ND PERUSED RELEVANT MATERIAL ON RECORD. ON PERUSAL OF PAGE 152 OF ANNUAL REPORT COMPENDIUM, WE FIND THAT ENTIR E REVENUE OF 20.07 LAKHS HAS BEEN SHOWN FROM SERVICE CHARGES AND THERE IS NO SEPARATE SEGMENT FOR RECORD MANAGEMENT AND PAYROLL PROCESSING SERVICES. ON PAGE 145 OF THE ANNUAL REPORT COMPENDIUM, UNDER FINANCIAL HIGHLIGHTS IT IS REPORTED THAT INCOME FROM TRADITIO NAL REGISTRY BUSINESS HAS INCREASED BY 10% FROM 1089 LAKHS TO RS.119 4 LAKHS. SIMILARLY, REVENUE FROM RECORD MANAGEMENT BUSINESS INCREASED BY 24% FROM 116 TO 144 LAKHS AND INCOME FROM PAYROLL BUSINESS HAS INCREASED BY 0.15% FROM 670 LAKHS TO 671 LAKHS. THUS, WE FIND THAT MAJORITY OF THE INCOME OF THE COMPANY IS FROM REGISTRY AND SHARE TR ANSFER BUSINESS. BEFORE THE TPO, IT WAS SUBMITTED BY THE A SSESSEE ON THE BASIS OF THE WEBSITE OF THE COMPANY THAT TRA NSFER AGENT ACTIVITY FUNCTIONS INCLUDE TRANSFER FOR EQUIT Y AND PREFERENCE SHARES, DEBENTURES INSTRUMENTS AND BONDS , COMMERCIAL PAPER AND PRIVATE PLACEMENTS. THE TRANSF ER PROCESSING INCLUDE CUSTOMER/QUERY HANDLING AND CORRESPONDENCE, SPLIT/CONSOLIDATION/RENEWAL OF CERT IFICATES, PROCESSING AND DISTRIBUTION OF THE INTEREST. THESE 22 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 OBSERVATIONS HAVE NOT BEEN DISPUTED BY THE LOWER AUTHORITIES. IF WE TAKE INTO ACCOUNT THESE ACTIVITI ES, THEN WE FIND THAT THESE ACTIVITIES ARE IN THE NATURE OF IND EPENDENT ACTIVITIES OF A SHARE BROKING HOUSE AND CANNOT BE T REATED AS BACK-OFFICE SUPPORT SERVICES. ACCORDINGLY, WE HOLD THE COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AND, THEREFORE, DIRECT THE LEARNED AO/TPO TO EXCLUDE THE COMPANY FROM THE SET OF THE COMPARABLES. 6.9 THE GROUND NOS. 3 TO 3.8 OF THE APPEAL ARE ACCORDI NGLY ALLOWED PARTLY. 7. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED ACTIO N OF THE LEARNED DRP IN UPHOLDING THE ACTION OF THE LEARNED TPO OF CLASSIFYING THE INTERNATIONAL TRANSACTION OF MERCHA NDISING TRADE AS A FINANCE ARRANGEMENT. IN GROUND NO. 4.1, THE AS SESSEE HAS ALTERNATIVELY REQUESTED TO TAKE INTEREST RATE OF 2. 74%, WHICH THE ASSESSEE HAD USED TO PAY INTEREST ON ADVANCE RECEIV ED FROM ASSOCIATED ENTERPRISES. 7.1 THE FACTS QUA THE ISSUE IN DISPUTE ARE THAT DURING FINANCIAL YEAR 2009-10, LD INDIA ENTERED INTO MERCHANTING T RADE TRANSACTION WITH LOUIS DREYFUS CORPORATION, WILTOM (LD WILTON) AND LD ASIA OF THE IMPORT AND EXPORT OF SOYABEAN SEED RESPECTIVELY. THE ASSESSEE PURCHASED 11,000 METRIC TON OF YELLOW SOYABEEN FROM LD WILTON AT US DOLLAR 462.88 PER M ETRIC TON CNF AND SOLD IT ON THE SAME DATE TO LD ASIA AT US DOLLAR 466.02 PER METRIC TON CNF. ACCORDING TO THE ASSESSEE, IT E ARNED A NET MARGIN OF US DOLLAR 3.14 PER METRIC TON BETWEEN SAL ES AND PURCHASE PRICE. THE SALE PRICE WAS COMPUTED BASED O N THE MARKET REPORT OF CHICAGO BOARD OF TRADE (CBOT) ON T HE DATE OF 23 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 PURCHASE/SALE. ACCORDING TO THE ASSESSEE, COMPARABL E UNCONTROLLED PRICE ON THE DATE OF PURCHASE/SALE WAS WITHIN + /- 5% OF THE PRICE AT WHICH THE ASSESSEE UNDERTOOK THE PURCHASE/SALE TRANSACTION AND THEREFORE TRANSACTION OF MERCHANTING TRADE WAS WITHIN ARMS LENGTH PRICE. HO WEVER, THE LEARNED TPO REJECTED THE ARMS LENGTH PRICE COMPUTED BY THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE MADE PAYMEN T FOR THE PURCHASE OF THE SOYABEEN ALMOST IMMEDIATELY ON 01 .10.2009 BUT THE PAYMENT FOR SALE WAS RECEIVED ON 04/12/2009 , I.E., AFTER 65 DAYS OF TRADE. ACCORDING TO LEARNED TPO, THE ASS ESSEE HAD FINANCED ITS AE TO THE EXTENT OF 24.65 CRORE AND IN AN INDEPENDENT TRANSACTION, FIRSTLY, THE ASSESSEE WOUL D NOT HAVE WAITED FOR 65 DAYS FOR PAYMENT; AND SECONDLY, HAD I T NOT BEEN ITS AE, THE ASSESSEE WOULD NOT HAVE ENTERED INTO SUCH T RANSACTION, IF PAYMENT WAS TO BE RECEIVED AFTER 65 DAYS. ACCORDING TO THE LEARNED TPO, HAD THE SAME MONEY OF 24.65 CRORES GIVEN ON INTEREST FOR THE SAME PERIOD OF 65 DAYS ON THE BASI S OF SBI PLR PLUS A MARK-UP OF 300 BASIS POINT, IT WOULD HAVE F ETCHED A RETURN OF 65.86 LAKH AND AGAINST WHICH ASSESSEE HAS SHOWN ON LY A PROFIT OF RS.16.61 LAKHS. THE LEARNED TPO HELD THAT ASSESSEE HAS FINANCED THE TRANSACTION OF LD ASIA AND IS PROJEC TING IT AS OPPORTUNITY AVAILED TO MAKE QUICK PROFIT WHEN THE R EAL MONEY DOES NOT REACH HIM IN REAL-TIME AS IT WOULD HAVE IN AN INDEPENDENT UNCONTROLLED TRANSACTION. THE LEARNED T PO HELD THAT IN INDEPENDENT SITUATION, THE ASSESSEE WOULD HAVE A LSO TAKEN INTO CONSIDERATION THE COST OF THE MONEY THAT HAS BEEN P UT AT RISK. BUT SINCE THIS TRANSACTION IS HAPPENING BETWEEN CONTROL LED PARTIES, THOSE CONSIDERATIONS TAKEN A BACKSEAT, AND THEREFOR E ARMS LENGTH 24 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 DETERMINATION OF SUCH TRANSACTION OF FINANCING NEED TO BE DONE. THE LEARNED TPO TAKING AVERAGE LENDING RATE OF SBI AT 11.8% DURING FINANCIAL YEAR 2009-10 AND AFTER ADDING 300 POINTS, HE COMPUTED INTEREST RATE FOR 65 DAYS AT THE RATE OF 1 4.80% PER ANNUM, WHICH WAS WORKED OUT 65,86,490/-. AND, ACCORDINGLY, HE MADE ADJUSTMENT OF 49,25,116/- AFTER REDUCING THE AMOUNT OF 16,61,734/- SHOWN BY THE ASSESSEE AS PROFIT IN THE TRADE OF SOYABEEN. BEFORE THE LEARNED DRP, THE ASSESSEE SU BMITTED THAT IN THE EXPORT LEG OF TRANSACTION BETWEEN THE LD IN DIA AND LD ASIA, A CREDIT TERM OF PAYMENT OF 90 DAYS WAS PROV IDED IN THE CONTRACT, THOUGH THE ASSESSEE WAS PAID WITHIN 65 DA YS. ACCORDING TO THE ASSESSEE, THE COST OF CREDIT WAS BUILT IN BY THE ASSESSEE IN THE SALE PRICE AT WHICH SOYABEEN WAS EXPORTED TO THE AE AND, THEREFORE, CONTENTION OF THE LEARNED TPO TO TREAT S UCH TRANSACTION AS A FINANCING ARRANGEMENT WAS COMPLETELY INCORRECT . THE LEARNED DRP, HOWEVER, REJECTED THE CONTENTION OF TH E ASSESSEE IN ABSENCE OF DETAILS OF ALLOWANCE OF CREDIT OF 90 DAY S AND UPHELD THE DISALLOWANCE MADE BY THE LEARNED TPO. 7.2 BEFORE US, THE CONTENTION RAISED BY THE LEARNED CO UNSEL OF THE ASSESSEE, AND SUBMITTED IN SYNOPSIS, ARE REPROD UCED AS UNDER: 13. BASED ON THE FAR ANALYSIS IN THE TP REPORT, TH E ROLE OF LD INDIA IN THIS TRANSACTION WAS LIMITED TO IDENTIFICATION O F BUYER AND SELLER OF A PARTICULAR COMMODITY WITHOUT PERFORMING ANY FUNCT IONS GENERALLY PERFORMED BY THE TRADER INCLUDING INVENTORY MANAGEM ENT, MARKETING, DISTRIBUTION, ETC. THE APPELLANT DID NOT ASSUME ANY OF THE RISKS WHICH A TRADER GENERALLY ASSUMES. THE RISKS A RE TABULATED BELOW: 25 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 PRICING RISK - THE PRICING RISK WAS NOT BORNE BY THE APPELLANT SINCE THE LD INDIA HAD ENTERED INTO THE IMPORT TRAN SACTION IMMEDIATELY BASED ON CONFIRMED SALES ORDER IN PLACE . INVENTORY RISK - THE APPELLANT DID NOT BEAR THE INVENTORY RISK AS THE COMMODITIES WERE DIRECTLY TRANSFERRED BY LD WILTON TO LD ASIA. CREDIT RISK - THE APPELLANT DID NOT BEAR CREDIT RISK SINCE THE TRANSACTIONS WERE ENTERED INTO WITH THE AES OF THE APPELLANT. 14. HOWEVER, THE LD. TPO/HONBLE DRP IGNORED THE FU NCTIONAL PROFILE OF THE APPELLANT AND CLASSIFIED THIS TRANSACTION AS A FINANCIAL ARRANGEMENT WHICH WAS BENCHMARKED WITH THE AVERAGE PLR RATE OF SBI BANK FOR THE FY 2009-10 PLUS 300 BASIS POINTS. 15. IN RESPECT OF THE LD. TPO/HONBLE DRPS APPROAC H OF BENCHMARKING THE ABOVE TRANSACTION, THE HONBLE BEN CH WOULD APPRECIATE THAT THE OBJECTIVE OF UNDERTAKING THE SU BJECT TRANSACTION WAS TO AVAIL AN OPPORTUNITY TO MAKE PROFIT. THE APP ELLANT ONLY PROVIDED MERCHANTING TRADE OF AGRI- COMMODITIES IN THE FORM OF IMPORT AND EXPORT OF SOYA BEAN OIL AND DID NOT PERF ORM ANY OF THE IMPORTANT AND CRUCIAL FUNCTIONS OF A TRADER. 16. THE DETAILS PERTAINING TO DATE OF PURCHASE AND DATE OF SALE OF MERCHANTING TRADE TRANSACTION, THE MONEY TRAIL, INV OICES AND BILLING DETAILS OF THE SAME ARE PROVIDED IN THE TABLE GIVEN BELOW: PARTICULARS PURCHASE OF SOYABEAN SALE OF SOYABEAN ASSOCIATED ENTERPRISE LD WILTON LD ASIA DATE OF PURCHASE/ SALE SEPTEMBER 18, 2009 SEPTEMBER 18, 2009 PRICE (USD/MT) 462.88 466.02 QUANTITY (MT) 11,000 11,000 AMOUNT (INR) 24,49,09,808 24,65,71,182 DATE OF ISSUANCE OF INVOICE SEPTEMBER 24, 2009 SEPTEMBER 24, 2009 DATE OF PAYMENT OCTOBER 1, 2009 DECEMBER 4, 2009 17. BASED ON ABOVE, THE APPELLANT WOULD ALSO LIKE T O BRING IN LIGHT THE EXPORT LEG OF LD INDIA WITH LD ASIA WHEREIN A C REDIT TERM OF PAYMENT OF QO DAYS WAS PROVIDED IN THE CONTRACT, TH OUGH THE APPELLANT WAS PAID WITHIN 65 DAYS. IN THIS REGARD, THE HONBLE BENCH WOULD APPRECIATE THAT THE COST OF CREDIT WAS BUILT IN BY THE APPELLANT IN THE SALE PRICE AT WHICH SOYA BEAN OIL WAS EXPORTED TO THE AE. (KINDLY REFER TO PAGE NO 254 OF THE PAPER B OOK FOR THE COPY OF CONTRACT) 26 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 18. THEREFORE, THE CONTENTION OF LD. TPO TO TREAT S UCH TRANSACTION AS A FINANCING ARRANGEMENT BETWEEN THE APPELLANT AND I TS AE IS WITH ANY LEGAL BASIS BASELESS. IT IS THUS, THE HUMBLE SU BMISSION OF THE APPLICANT THAT THE ADDITION MADE BY THE LD. TPO BE KINDLY DELETED. DISREGARDING THE CLAIM OF THE APPELLANT TO USE THE SAME INTEREST RATE OF LIBOR PLUS 100 BASIS POINTS WHICH THE APPELLANT HAD USED TO PAY INTEREST ON ADVANCES RECEIVED FROM ITS AES. 19. DURING THE SUBJECT ASSESSMENT YEAR, THE APPELLA NT HAD ALSO RECEIVED ADVANCES AGAINST SALE OF GRAINS AND CRUDE OIL FROM THE SAME AE TO WHICH THE CREDIT WAS ALLOWED IN RESPECT OF SUBJECT TRANSACTION OF MERCHANTING TRADE (I.E. LD ASIA). IN THIS RESPECT, THE APPELLANT PAID INTEREST TO LD ASIA ON REPAYMENT OF ADVANCE RECEIVED FROM LD ASIA AGAINST SALES CONTRACT OF MAIZE AT THE RATE OF LIBOR PLUS TOO BASIS POINTS (I.E., AT THE RATE OF 2.73 PERCENT P.A.) WHICH WAS APPROXIMATELY NEAR THE PREVAILING INTEREST RATE ON USD DENOMINATED TRADE CREDIT OFFERED BY THE BANKS. 20. HENCE, WITHOUT PREJUDICE THE APPELLANTS CONTEN TION THAT THE SUBJECT INTERNATIONAL TRANSACTION WAS UNDERTAKEN IN THE NORMAL COURSE OF TRADING BUSINESS AND WAS NOT A FINANCING ARRANGEMENT, IN CASE THE HONBLE TRIBUNAL WISHES TO CONSIDER SUCH T RANSACTION AS A FINANCING ARRANGEMENT, IT IS THE HUMBLE SUBMISSION OF THE APPELLANT THAT THE SAME RATE OF INTEREST AT WHICH THE INTERES T WAS PAID BY THE APPELLANT TO LD ASIA ON ADVANCE RECEIVED FROM LD AS IA BE APPLIED FOR THE SUBJECT TRANSACTION. 21. IN THIS REGARD A COMPARISON OF THE PROFIT MARGI N EARNED BY THE APPELLANT FROM THE SUBJECT INTERNATIONAL TRANSACTIO N OF MERCHANTING TRADE AND THE INTEREST MARGIN THAT IT WOULD HAVE EA RNED IN CASE THIS IS REGARDED AS FINANCING TRANSACTION IS PROVIDED IN THE TABLE GIVEN BELOW: PARTICULARS AMOUNT SALE PRICE (USD/MT) 466.02 PURCHASE PRICE (USD/MT) 462.88 PROFIT (USD/MT) 3-14 QUANTITY (MT) 11,000 PROFIT (USD) 34,540 EXCHANGE RATE 48.10 AMOUNT OF PROFIT (INR) (A) 16,61,374 TIME LAG IN RECEIPT OF PAYMENT 65 INTEREST RATE 2.74% P.A 27 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 SALE VALUE (INR) 24,65,71,182 INTEREST COST (2.74% OF 246,571,182 X 65/365)(B) 12,03,132 EXCESS PROFIT EARNED (INR) (A- B) 4,58,242 7.3 IN SUPPORT OF ALTERNATE GROUND, THE LEARNED COUNSE L SUBMITTED FOR APPLICATION OF THE LIBOR FOR BENCHMAR KING OF FOREIGN CURRENCY LOANS. 7.4 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE HAS PAID MONEY OUT OF INDIAN RUPEES AND, T HEREFORE, SUFFERED LOSS ON INTEREST IN INDIAN RUPEES AND, THU S, LEARNED TPO JUSTIFIED IN HOLDING THE ARRANGEMENT AS FINANCIAL A RRANGEMENT AND BENCHMARKING INVOKING THE SBI PRIME LENDING RATE +3 00 BASIS POINT. 7.5 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. THE LEARNED TPO HAS CONSIDERED FINANCING OF LOAN BY THE ASSESSEE TO LD ASIA, BEING A RECEIVABLE AMOUNT. THE ASSESSEE HA S SOLD SOYABEEN TO LD ASIA AND PAYMENT HAS BEEN RECEIV ED WITH DELAY OF 65 DAYS, WHEREAS PAYMENT FOR PURCHASE FROM ANOTH ER AE, I.E., LD WILTON WAS MADE IMMEDIATELY. THE TRANSACTION O F THE ASSESSEE WITH LD ASIA HAS HAPPENED IN US DOLLAR A ND, THEREFORE, ASSESSEE WAS TO RECEIVE US DOLLAR FROM LD ASIA. IN VIEW OF THE FACTS OF PURCHASE OF SOYBEAN FROM ONE AE AND SALE A T SAME MOMENT TO ANOTHER AE AND INCURRING OF INTEREST BURD EN OF PAYMENT FOR 65 DAYS BY THE ASSESSEE IS NOT JUSTIFIE D AS A PRUDENT BUSINESSMEN AND THEREFORE THE LEARNED TPO IS JUSTIF IED IN HOLDING THE TRANSACTION AS FINANCING TRANSACTION. T HE TRANSACTION 28 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 OF PURCHASE OF SOYABEAN BY THE ASSESSEE HAS HAPPE NED WHEN GOODS WERE ALREADY THERE ON SINGAPORE PORT, WHICH I S THE PORT FOR LD ASIA. THE ASSESSEE HAS SOLD THE GOODS ALSO AT THE SAME PORT IMMEDIATELY WITHIN MINUTES OF PURCHASE TRANSACTION. IN SUCH CIRCUMSTANCES, QUESTION ARISES, WHY LD WILTON HAS TRANSFERRED GOODS AT SINGAPORE PORT, WITHOUT ANY PURCHASE ORDER . OBVIOUSLY, THIS SOYABEAN MUST HAVE BEEN SHIPPED IN ADVANCE F ROM THE ASSESSEE TO SINGAPORE PORT ON THE REQUEST OF LD AS IA, AND DUE TO NON-AVAILABILITY OF FUNDS WITH LD ASIA, THE ASSESS EE MUST HAVE BEEN ROPED IN FOR FINANCING THE TRANSACTION. IN THE FACTS OF THE CASE, THE TRANSACTION CAN BE ASSUMED IN TWO WAYS. T HE FIRST, THE LD WILTON MUST HAVE BEEN IN NEED OF FUNDS AND ASS ESSEE MUST BE HAVING AVAILABLE FUND, THEREFORE, ASSESSEE HAS B EEN ROPED IN FOR FINANCING THE LD WILTON. THEN, IT BECOMES PUR E LOAN TRANSACTION BY THE ASSESSEE TO LD WILTON. THE SEC OND WAY, IT CAN BE INTERPRETED THAT ASSESSEE HAS OWNED THE FINANCE BURDEN OF LD ASIA, AND ASSESSEE SHOULD HAVE RECEIVED THE PAYMEN T FROM LD ASIA ON THE SAME DATE WHEN IT MADE PAYMENT TO LD WILTON. BUT SINCE THE PAYMENT FROM LD ASIA WAS RECEIVED AFTER A DELAY OF 65 DAYS, IT IS IN INTERNATIONAL TRANSACTION IN THE NAT URE OF OUTSTANDING RECEIVABLE SIMPLICITER WITHOUT ANY ALLE GATION OF ARRANGEMENT OF COLLUDED FINANCE TRANSACTION. THE LD . TPO HAS THOUGH ALLEGED IT AS FINANCIAL ARRANGEMENT TO BENEF IT AE, BUT BENCHMARKED IT IS OUTSTANDING RECEIVABLE. BUT IN BO TH WAYS, THE CURRENCY OF TRANSACTION IS US DOLLAR. IN FIRST WAY, IT IS US DOLLAR HAVE BEEN SENT TO AE; IN SECOND WAY, US DOLLAR WAS OUTSTANDING TO BE RECEIVED FOR 65 DAYS. NEITHER THE LOAN HAS BE EN GIVEN IN RUPEES, NOR OUTSTANDING WAS TO BE RECEIVED IN RUPEE S. 29 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 7.6 AS FAR AS BENCHMARKING OF THE TRANSACTION IS CONCE RNED, WE AGREE WITH THE LEARNED COUNSEL OF THE ASSESSEE THAT IN VIEW OF TRANSACTION OF SALE IN US DOLLAR, ADJUSTMENT FOR IN TEREST SHOULD BE BENCHMARKED ON THE BASIS OF CURRENCY OF TRANSACTION FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS COTTON NATURALS (I) P LTD [2015] 55 TAXMANN.COM 523 /231 TAXMAN 401, ACCORDINGLY THE LEARNED TPO IS DIRECTED TO RE- COMPUTE THE ADJUSTMENT. THE GROUND NO. 4 OF THE APP EAL IS DISMISSED, HOWEVER, THE ALTERNATIVE GROUND 4.1 IS A LLOWED FOR THE STATISTICAL PURPOSES. 8. THE REVENUE IN ITS APPEAL HAS CHALLENGED THE FINDI NG OF LEARNED DRP ON THE ISSUE OF DISALLOWANCE UNDER SECT ION 14A OF THE ACT THAT THE ADDITION SHOULD BE MADE ON AVERAGE INVESTMENT AND NOT ON TURNOVER. 8.1 THE FACT QUA THE ISSUE IN DISPUTE ARE THAT DURING THE YEAR ASSESSEE MADE INVESTMENT OF 1696.55 CRORES IN MUTUAL FUNDS AND EARNED DIVIDEND INCOME OF 94,929. ACCORDING TO THE ASSESSEE, IT HAS NOT INCURRED ANY EXPENDITURE FOR E ARNING SAID EXEMPTED INCOME . THE ASSESSING OFFICER INVOKED RUL E 8D (III) OF INCOME-TAX RULES, 1962 (IN SHORT THE RULES) AND D ETERMINED THE EXPENDITURE ATTRIBUTABLE TO EARNING EXEMPT INCOME A T 8,48,25,000/- BEING 0.5% OF THE TURNOVER OF THE MUT UAL FUNDS PURCHASE AND SOLD. THE LEARNED DRP HELD THAT THERE WAS NO OPENING BALANCE OF MUTUAL FUND AS ONE 01/04/2009 AN D CLOSING BALANCE OF MUTUAL FUND AS ON 31/03/2010 AND, THEREF ORE, ON 30 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 APPLICATION OF THE RULE 8D(2)(III) OF RULES, THERE COULD BE NO DISALLOWANCE, AND DELETED THE DISALLOWANCE OBSERVIN G AS UNDER: 8.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSION MA DE BY THE ID. AR AND GONE THROUGH THE DRAFT ASSESSMENT ORDER. WE HAVE NOTED THAT DURING THE RELEVANT PERIOD THE ASSESSEE HAS PU RCHASED AND SOLD THE MUTUAL FUNDS NAMELY DEUTSCHE INSTA CASH PL US FUND AND THE INCOME HAS BEEN SHOWN IN THE COMPUTATION OF INC OME AS SHORT TERM CAPITAL GAIN. THERE WAS NO OPENING BALANCE OF MUTUAL FUNDS AS ON 01.04.2009 OR THE CLOSING BALANCE OF MUTUAL FUND S AS ON 31.03.2010 AND ALL THE MUTUAL FUND PURCHASES DURING THE YEAR WERE SOLD BY THE ASSESSEE. HOWEVER, THERE WAS A DIVIDEND INCOME OF RS. 94,929/- WHICH WAS EARNED BY THE ASSESSEE DURING TH E PERIOD OF HOLDING OF MUTUAL FUNDS WHICH WAS CLAIMED TO BE EXE MPT U/S 10(35) OF THE INCOME TAX ACT. IT IS AN UNDISPUTED FACT THA T THERE WERE NO DIRECT EXPENSES OR ANY FINANCIAL EXPENSES INCURRED BY THE ASSESSES FOR EARNING THE EXEMPT INCOME. HOWEVER, THE AO HAS DISALLOWED 0.5% OF THE TOTAL TURNOVER FOR THE SALE OF MUTUAL F UNDS BY THE ASSESSEE DURING THE RELEVANT PERIOD UNDER RULE 8D(2 )(III) READ WITH SECTION 14A OF THE INCOME TAX ACT. AS PER RULE 8D(2 )(III), EVEN IF SOME INDIRECT EXPENSES HAS TO BE ALLOCATED FOR EARN ING THE EXEMPT INCOME, IT SHOULD BE THE VALUE OF AVERAGE INVESTMEN T OF THE ASSESSEE DURING THE RELEVANT PERIOD AND NOT THE TURNOVER OF THE ASSESSEE. IN THIS CASE, WE HAVE NOTED THAT THERE WAS NO OPENING VALUE OR THE CLOSING VALUE OF MUTUAL FUNDS AS THE MUTUAL FUNDS W ERE PURCHASED AND SOLD BY THE ASSESSEE DURING THE RELEVANT ASSESS MENT YEAR ITSELF. HENCE THE AVERAGE VALUE OF INVESTMENT WOULD BE NIL IN RESPECT OF THE MUTUAL FUNDS TRADED BY THE ASSESSEE. IN OUR OPINION , IF SOME DISALLOWANCE WAS TO BE MADE FOR THE INDIRECT EXPENS ES INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME, IT WOULD HA VE BEEN THE VALUE OF AVERAGE INVESTMENT AND NOT THE TURNOVER OF THE MUTUAL FUNDS. THE AO HAS CLEARLY ERRED IN DISALLOWING 0.5 PER CENT OF THE TURNOVER OF THE ASSESSEE REGARDING THE MUTUAL FUNDS WHICH IS AGAINST THE EXPRESSED PROVISIONS OF RULE 8D2(III) O F THE I T RULES. HENCE, THE AO IS DIRECTED TO DELETE THE IMPUGNED AD DITION OF RS. 8,48,25,000/- U/S 14A READ WITH RULE 8D (2)(III) OF THE IT RULES. 8.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. DURING THE YEAR UN DER CONSIDERATION, ASSESSEE HAS MADE PURCHASE AND SALE OF MUTUAL FUNDS OF HUGE AMOUNTS AND, THEREFORE, INCURRING OF EXPENDITURE FOR EARNING EXEMPT INCOME CANNOT BE DENIED IN TERMS OF SECTION 31 ITA NO. 2432/DEL/2015 & ITA NO.2479/DEL/2015 14A OF THE ACT. HOWEVER, IF RULE 8D OF THE RULES IS INVOKED, THERE WOULD NOT BE ANY DISALLOWANCE IN VIEW OF NO OPENING AND CLOSING STOCK VALUE OF MUTUAL FUNDS. IN THE CIRCUMSTANCES, WE ACCEPT THE ALTERNATIVE CLAIM OF THE ASSESSEE TO RESTRICT THE D ISALLOWANCE TO THE EXTENT OF EXEMPTED INCOME FOLLOWING THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVES TMENT PRIVATE LIMITED VERSUS CIT [2015] 59 TAXMANN.COM 295/233 TA XMAN 117 (DEL. HC) AND ACCORDINGLY DIRECT TO RESTRICT THE DI SALLOWANCE TO THE AMOUNT OF 94,929/-. THE GROUND OF THE APPEAL OF THE REVENUE IS ACCORDINGLY ALLOWED PARTLY. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WELL AS THE APPEAL OF REVENUE ARE ALLOWED PARTLY FOR THE STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2021 SD/- SD/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH SEPTEMBER, 2021. RK/- (DTDC) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI