M/s. Steelcase Asia Pacific Holdings India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 408/DEL/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77723 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 07-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN; YOGESH KUMAR VERMA
• Assessee Lawyers: MANOJ PARADASANI
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Working capital adjustments; Procedural lapse
• Section: 143(3); 234B; 10B

Judgement Text

ITA NO. 408/DEL/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I, NEW DELHI BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER AND SHRI B. R. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 408/DEL/2014 A.Y. : 2009-10 STEELCASE ASIA PACIFIC HOLDINGS INDIA PRIVATE LIMITED, GROUND FLOOR, BUILDING 9A, DLF CYBER CITY, DLF PHASE-III, GURGAON, HARYANA (PAN: AAICS6302A) VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 9(1), CR BUILDING, NEW DELHI 110 002 (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. MANOJ PARADASANI, CA DEPARTMENT BY : SH. PEEYUSH JAIN, CIT(DR) AND SH. YOGESH KUMAR VERMA, CIT(DR) ORDER ORDER ORDER ORDER PER PER PER PER B. R. JAIN : B. R. JAIN : B. R. JAIN : B. R. JAIN : AM AMAM AM THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATE D 20.1.2013 PASSED BY THE DCIT, CIRCLE 9(1), NEW DELHI, RAISES THE FOLLOWING GROUNDS:- ITA NO. 408/DEL/2014 2 1. ON THE FACTS AND IN LAW, THE LEARNED TRANSFER PRICI NG OFFICER - 11(6), NEW DELHI ('LD. TPO') AND DEPUTY COMMISSIONE R OF INCOME TAX, CIRCLE - 9(1), NEW DELHI ('LD. AO') ERR ED IN DETERMINING AND THE HON'BLE DISPUTE RESOLUTION PANE L ('HON'BLE DRP') ERRED IN PARTLY CONFIRMING THE ADDI TION OF RS. 11,351,925 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF THE DIFFERENCE IN ARM'S LENGTH PRICE OF THE INTERNA TIONAL TRANSACTIONS PROVISION OF MARKETING SUPPORT SERVICE S BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES ('AES'). 2 ON FACTS AND IN LAW, THE ORDER UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE ACT PASSED BY THE LD. AO IS VOI D-AB-INITIO AND INFRUCTUOUS AND IS LIABLE TO BE QUASHED AS THE SAID ORDER IS IN VIOLATION OF SECTION 144C(10), (13), (5) OF THE ACT , IN SO FAR, AS IT IS CONTRADICTORY TO AND IGNORANT OF THE DIRECTIONS ISS UED BY THE HON'BLE DRP. 3 WITHOUT PREJUDICE TO GROUND 2, ON THE FACTS AND IN LAW, THE ORDER OF THE LD. AO IS ERRONEOUS TO THE EXTENT OF N OT INCORPORATING THE BINDING DIRECTIONS OF THE HON'BLE DRP WHILE FIN ALIZING THE ORDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT. 4 ON FACTS AND IN LAW, THE LD. TPO, LD. AO AND THE HON'BLE DRP ERRED IN REJECTING THE TRANSFER PRICING ('TP') DOCU MENTATION MAINTAINED BY THE APPELLANT U/S 920 OF THE INCOME T AX ACT, I961 ITA NO. 408/DEL/2014 3 ('THE ACT'), READ WITH RULE 100 OF THE INCOME TAX R ULES, 1962 ('THE RULES') AND IN CARRYING OUT A FRESH SEARCH FO R COMPARABLE COMPANIES. 5 ON THE FACTS AND IN LAW, THE LD. TPO, THE LD. AO AND THE HON'BLE DRP ERRED IN SELECTING CERTAIN COMPANIES AS COMPARABLE, WITH A PREJUDICED INTENTION OF MAKING AN ADDITION T O THE RETURNED INCOME OF THE APPELLANT, WITHOUT APPRECIATING THAT IN COGNIZANCE OF RULE 1OB(2), THE FUNCTIONAL, ASSET AND RISK PROF ILE OF THESE ALLEGED COMPARABLE COMPANIES ARE DISSIMILAR TO THAT OF THE APPELLANT. 6 ON THE FACTS AND IN LAW, THE LD. TPO, THE LD. AO AND THE HON'BLE DRP ERRED IN REJECTING CERTAIN COMPANIES AS COMPARA BLE, WITH A PREJUDICED INTENTION OF MAKING AN ADDITION TO THE R ETURNED INCOME OF THE APPELLANT, WITHOUT APPRECIATING THAT IN COGN IZANCE OF RULE LOB(2), THE FUNCTIONAL, ASSET AND RISK PROFILE OF T HESE COMPANIES ARE SIMILAR WITH THAT OF THE APPELLANT. 7 ON THE FACTS AND IN LAW, THE LD. TPO, THE LD. AO AND THE HON'BLE DRP ERRED IN NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT, THEREBY CONTRAVENING THE RULE 1OB(1)(E)( III). 8 ON FACTS AND IN LAW THE LD. TPO, THE LD. AO AND THE HON'BLE DRP ERRED IN USING THE DATA FOR THE CURRENT YEAR (I .E. FINANCIAL YEAR 2008-09) WHICH WAS NOT CONTEMPORANEOUS AND WHICH WA S NOT ITA NO. 408/DEL/2014 4 AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF PREPA RING THE TP DOCUMENTATION BY THE APPELLANT, THEREBY GROSSLY MIS INTERPRETING THE REQUIREMENT OF 'CONTEMPORANEOUS' DATA IN THE RU LES TO NECESSARILY IMPLY CURRENT YEAR DATA, THEREBY BREACH ING THE PRINCIPLES OF NATURAL JUSTICE AND 'IMPOSSIBILITY OF PERFORMANCE'. 9 ON FACTS AND IN LAW, THE LD. TPO, LD. AO AND HON 'BLE DRP ERRED IN NOT GRANTING THE BENEFIT OF REDUCTION/ VARIATION OF 5 PERCENT FROM THE ARITHMETIC MEAN WHILE DETERMINING THE ARM' S LENGTH PRICE TO THE ASSESSEE AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT. 10 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 11 WITHOUT PREJUDICE TO GROUND 9, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO ERRED IN COMP UTING THE INTEREST UNDER SECTION 234B OF THE ACT AT RS. 3,160 ,505 INSTEAD OF RS. 1,973,382. 12 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271 (1)(C) OF THE ACT. THE ABOVE 'GROUNDS OF APPEALS' ARE ALL INDEPENDENT AND WITHOUT PREJUDICE TO ONE AND ANOTHER. ITA NO. 408/DEL/2014 5 THE APPELLANT ALSO CRAVES LEAVE TO SUPPLEMENT, TO C ANCEL, AMEND, ADD AND/ OR OTHERWISE ALTER OR MODIFY, ANY OR ALL, GROUNDS OF THE APPEAL STATED HEREINABOVE. 2. BRIEFLY THE FACTS STATED ARE THAT THE ASSESSEE HAS DECLARED AN INCOME OF RS. 1,80,34,681/- ON 30.3.2010 FROM THE BUSINESS OF FACILITATING SALE OF ARCHITECTURAL FURNITURE AND TE CHNOLOGY PRODUCTS AND ALSO RELATED SERVICES. THE ASSESSEE WAS FOUN D TO HAVE UNDERTAKEN INTERNATIONAL TRANSACTIONS WITH ITS ASSO CIATED ENTERPRISES OF THE AMOUNT OF MORE THAN RS. 15 CRORES. ACCORD INGLY, AFTER TAKING REQUISITE SANCTION AND IN LIGHT OF THE PROVISIONS O F SECTION 92CA OF THE I.T. ACT, THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ASSOCIATED ENTERPRISES WERE REFERRED TO THE TRANSFE R PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE. THE T PO AFTER CONSIDERING THE MATERIAL ON RECORD FOUND THAT THE A SSESSEE HAS BENCHMARKED ITS INTERNATIONAL TRANSACTIONS BY USIN G TMM AS THE MOST APPROPRIATE METHOD IN THE TRANSFER PRICING REP ORT. THE OP/OC OF THE ASSESSEE IS SHOWN AS COST + 14%. FIVE COMPA RABLES HAVE BEEN SELECTED BY THE ASSESSEE AND THEIR AVERAGE MAR GIN FOR THREE YEARS SHOWN AT 13.58%. THE ECONOMIC ANALYSIS AND DO CUMENTATION RELATING TO THE INTERNATIONAL TRANSACTIONS REPORTED WERE DULY EXAMINED AND COMMENTED UPON. THE TPO FOUND THE S TUDY CONDUCTED BY THE TAX PAYERS TO BE DEFECTIVE IN TERM S OF SECTION 92CA(3)(C) READ WITH SECTION 92CA AND NOT RELIABLE . AS THE ARMS ITA NO. 408/DEL/2014 6 LENGTH PRICE (ALP) HAS NOT BEEN DETERMINED CORRECTL Y, HE ISSUED SHOW CAUSE NOTICE DATED 28.12.2012, MORE SO WHEN THE DEFECTS IN TRANSFER PRICING STUDY WERE NOT BASED ON RULE 10B O F THE IT RULES, 1962. THE SAID SHOW CAUSE NOTICE HAS BEEN INCORP ORATED AT PARA 5.4 ONWARDS IN THE ORDER DATED 28.1.2013 MADE BY TH E TRANSFER PRICING OFFICER-II, (VI), NEW DELHI. THE FILTERS THAT WERE EMPLOYED BY THE ASSESSEE TO ARRIVE AT THE SET OF COMPARABLE S WERE DULY DISCUSSED AND REMARKS GIVEN FOR NOT ACCEPTING THE R EASONING OF THE ASSESSEE. GOING BY FUNCTIONAL ANALYSIS OF SERVICE S PROVIDED BY THE ASSESSEE, IT WAS INFERRED THAT THE INDIAN ENTITY IS PRIMARILY RESPONSIBLE FOR THE BUSINESS SERVICES / MARKETING ACTIVITIES IN THE INDIAN TERRITORY. HE, THEREFORE, PROPOSED TO APPLY THE APPROPRIATE FILTERS KEEPING IN VIEW THE SPECIFIC FUNCTIONS CARR IED OUT BY THE ASSESSEE AND DISCUSSED THE SAME IN HIS ORDER DATED 28.1.2013. ON THE FUNCTIONAL ANALYSIS CARRIED BY HIM, HE FOUND TH AT ONLY ONE COMPARABLE USED BY THE ASSESSEE IS AN APPROPRIATE C OMPARABLE. THE FLAWS WERE FOUND EVEN IN THE QUALITATIVE ANALYS IS CARRIED BY THE ASSESSEE. THE TPO, THEREFORE, ON THE FRESH SEARCH C ARRIED BY HIM FROM THE DATA BASE FOUND CERTAIN COMPARABLES AS REP RODUCED IN PARA 5 OF THE ORDER, SO AS TO USE IN THE BENCHMARKING PR OCESS, PARTICULARLY, WHEN SUCH COMPARABLES CHOSEN BY THE T PO WERE FOUND SUITABLE, IN LIGHT OF THE FACT THAT ALL OF SUCH COM PARABLE HAD INCOME IN EXCESS OF 75% OF THE TOTAL INCOME FROM SERVICES SECTOR AND HAD ITA NO. 408/DEL/2014 7 RPT BELOW 25% OF SALES EXCEEDING RS. 1 CRORE. ACC ORDINGLY, THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S RELATED TO THE PROVISIONS OF THE MARKETING SUPPORT SERVICES WAS PR OPOSED TO BE RE- CASTED BY TAKING THE OP/TC AT 27.13% IN HIS SHOW CA USE NOTICE. THE COMMENTS OF THE ASSESSEE ALONGWITH DETAILED REPLY D ATED 11.1.2013 WERE DULY CONSIDERED AND DISCUSSED IN THE ORDER. AFTER HAVING DETAILED DISCUSSION AND GIVING REASONING IN CHOOSIN G APPROPRIATE COMPARABLES, AS ALSO BY REJECTING ASSESSEES CLAIM FOR ALLOWING WORKING CAPITAL ADJUSTMENTS AS WELL AS RISK ADJUSTM ENTS ETC. HE CONCLUDED THAT THE FINAL SET OF COMPARABLES TO BE U SED IN THE CASE OF THE ASSESSEE ARE AS UNDER:- S.NO. S.NO. S.NO. S.NO. COMPARABLES COMPARABLES COMPARABLES COMPARABLES OP/OC OP/OC OP/OC OP/OC 1. APITCO LTD 37.70 2. CAMEO CORP. SERV. 14.95 3. CYBER MEDIA RESEARCH LTD. 10.89 4. GLOBAL PROCUREMENT CONSULTANTS LTD. 30.37 5. HCCA BUSINESS SERVICES PVT. LTD. 20.12 6. KILLICK AGENCIES & MKTG. LTD. 29.48 7. ORIENT ENGINEERING AND COMMERCIAL CO. LTD. 34.47 8. TSR DARASHAW 26.98 9. TECHPROCESS SOLUTIONS LTD. (SEG.) 24.57 AVERAGE AVERAGE AVERAGE AVERAGE 25.50 25.50 25.50 25.50 2.1 THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRA NSACTIONS RELATED TO THE PROVISIONS OF MARKETING SUPPORT SERVICES STO OD COMPUTED BY TAKING THE OP/TC AT 25.50% RESULTED INTO AN ADJUS TMENT DATED ITA NO. 408/DEL/2014 8 1,13,51,925/- AS THE PRICE CHARGED BY THE ASSESSEE VARIED BY MORE THAN 5% FROM THE VALUE OF INTERNATIONAL TRANSACTION S. 3. THE AO HAVING REGARD TO THE TPOS ORDER U/S 92CA (3) OF THE ACT MADE ADDITION OF RS. 1,13,51,925/- IN HIS DRAFT ORDER PASSED U/S. 144C OF THE ACT AND SOUGHT OBJECTIONS FROM THE ASSE SSEE ON THE VARIATION SO PROPOSED IN THE DRAFT ASSESSMENT ORDER . 3.1 THE ASSESSEE FILED OBJECTIONS TO THE DRAFT ASSE SSMENT ORDER ON 12.4.2013 IN FORM NO. 35A AGAINST THE DRAFT ORDER D ATED 13.3.2013 REQUIRING THE DISPUTES RESOLUTION PANEL (DRP) TO IS SUE DIRECTIONS U/S. 144C (5) OF THE ACT FOR THE GUIDANCE OF AO FOR ENA BLING HIM TO COMPLETE ASSESSMENT ORDER. THE PANEL AFTER CAREF ULLY CONSIDERING THE OBJECTIONS OF THE ASSESSEE CAME TO THE CONCLUSI ON THAT IN THE YEAR UNDER CONSIDERATION THOUGH SOME OF THE DEFECT S AS STATED IN THE ORDER OF THE TPO MAY BE CURABLE, BUT BY KEEPING THE TOTALITY COMPARABLE ISSUE IN MIND, IT AFFIRMED THAT THERE WE RE FLAWS IN THE SEARCH PROCESS CARRIED OUT BY THE ASSESSEE. WHERE AS ON THE OTHER HAND, THE TPO HAS CORRECTLY RE-RUN ALL THE SEARCH P ROCESS. THE DRP THEREFORE, UPHELD THE ACTION OF THE TPO, IN LIGHT O F THE DISCUSSIONS CONTAINED IN ITS ORDER. ON THE ISSUE OF REJECTION OF COMPARABLES BY THE TPO AND SELECTION OF COMPARABLE BASED ON FRESH SEARCH, THE DRP CARRIED OUT DISCUSSIONS ON EACH OF THE COMPARABLES AND ISSUED DIRECTIONS. ALL OTHER ISSUES RAKED UP BEFORE IT W ERE ALSO DULY ITA NO. 408/DEL/2014 9 CONSIDERED AND FINDINGS AND DIRECTIONS WERE RECORDE D THEREON. IN VIEW OF SUCH DISCUSSION AND DIRECTIONS. THE AO WA S REQUIRED TO COMPLETE THE ASSESSMENT AND ASSESSEES OBJECTIONS S TOOD DISPOSED OF ACCORDINGLY ON 31.10.2013. 3.2 THE AO COMPUTED ASSESSABLE INCOME AT RS. 2,93, 86,610/- AS AGAINST THE RETURNED INCOME OF RS. 1,80,34,681/- BY MAKING THE ADDITION OF RS. 1,13,51,925/- AND RAISED THE TAX D EMAND ACCORDINGLY. 3.3 THE ASSESSEES COUNSEL SHRI MANOJ PARADASANI CO NTENDS THAT THE APPELLANT HAS AGITATED ENTIRE ADDITION OF RS. 1 ,13,51,925/- MADE ON THE BASIS OF NINE COMPARABLES POST DRPS DIRECTI ONS. THE BUSINESS DESCRIPTIVE OF THE ASSESSEE IN FACT IS THA T THE ASSESSEE IS ENGAGED IN PROVISION FOR MARKETING SUPPORT SERVICES TO ITS GROUP COMPANIES. AS PART OF ITS BUSINESS THE OPERATIONS, THE ASSESSEE IS ENGAGED IN MARKETING RESEARCH ACTIVITIES INCLUDING THE MARKET BASED ANALYSIS, INFORMATION OF COMPETITORS, MARKET CHARA CTERISTICS, DEMAND DRIVERS ETC. AND THE FUNCTIONS ALTERNATE BY THE ASSESSEE INCLUDE :- (I) INTERACTING REGULARLY WITH POTENTIAL / EXIST ING INDIAN CUSTOMERS OF STEELCASE PRODUCTS IN ORDER TO UNDERS TAND THEIR REQUIREMENT AND EXPECTATIONS. ITA NO. 408/DEL/2014 10 II) FACILITATING MAPPING OF PRODUCT SPECIFICATIONS DESIRED BY THE CUSTOMERS VIS-A-VIS THE PRODUCT PORTFOLIO OFFERED BY STEEL CASE GROUP. III) ORGANIZING OF SEMINARS AND CONFERENCES WHEREBY IT PROVIDES INFORMATION ON VARIOUS PRODUCT OFFERINGS AND ITS BE NEFITS. 4. BEING A ROUTINE SERVICE PROVIDER THE ASSESSEE DI D NOT OWN NON-ROUTINE INTANGIBLES. OPERATING ON A COST PLUS 14% BASIS, THE ASSESSEE IS INSULATED FORM ALL THE RELEVANT RISKS E XCEPT THE FOREIGN CURRENCY RISK IN RELATION TO ITS RECEIVABLES. THESE MAINLY INCLUDE BUSINESS RISKS SUCH AS MARKET RISK, PRODUCT RISK, C REDIT RISK, MANPOWER RISK, LEGAL AND STATUTORY RISK, ETC. 4.1 IN SUPPORT OF GROUND NO. 2 AND 3 IN APPEAL, I T IS CONTENDED THAT DRP AFTER CONSIDERING THE OBJECTIONS OF THE A SSESSEE FOUND TAHT CYBER MEDIA (INDIA) ONLINE LTD. IS BROADLY COMPARA BLE TO THE ASSESSEE COMPANY. THE ASSESSING OFFICER, HOWEVER, DID NOT INCORPORATE THE AFORESAID DIRECTIONS OF THE DRP IN HIS ORDER. EVEN THOUGH THE MANDATE OF SECTION 144C(10) OF THE ACT I S THAT EVERY DIRECTION ISSUED BY THE DRP IS BINDING ON THE AO. THE AO THUS HAS VIOLATED THE PROVISIONS OF SECTION 144C(5) & (13) A ND HAS IMPACT IN REDUCTION OF ADDITION BY AN AMOUNT OF RS. 17,58,067 /-. 4.2 IN SUPPORT OF GROUND NO. 5 IN APPEAL, THE ASSES SEES COUNSEL CONTENDS THAT THERE HAS BEEN A PRACTICE IN MAKING A DDITION TO THE ITA NO. 408/DEL/2014 11 RETURNED INCOME WITHOUT APPRECIATING THE COGNIZANCE OF RULE 10B(2) OF THE IT RULES, 1962 PARTICULARLY WHEN TH E FUNCTIONAL, ASSET AND RISK PROFILE OF THESE ALLEGED COMPARABLE COMPAN IES ARE DISSIMILAR TO THAT OF THE APPELLANT. I. I.I. I. APTICO LIMITED APTICO LIMITED APTICO LIMITED APTICO LIMITED THE FIRST COMPARABLE OF APTICO LTD. IS FUNCTIONAL DISSIMILAR TO THE APPELLANT AS THEY WERE ENGAGED IN A DIVERSE RAN GE OF ACTIVITIES/ OPERATIONS AND SERVICES RENDERED BY THEM CANNOT BE COMPARED WITH THOSE OF THE SERVICES RENDERED BY THE ASSESSEE. EVE N THE SEGMENTAL PROFITABILITY DETAILS OF APTICO LIMITED NOT PROVIDE D IN ANNUAL REPORT. THERE IS ALSO NO SIMILARITY IN THE OFF SHORE OPERATI ONS BETWEEN THE TWO. THE APPELLATE TRIBUNAL, DELHI IN THE CASE OF ACTIS ADVISERS PVT. LTD. (ITA NO. 6390/DEL/2012) UPHELD THE EXCLUSION O F APTICO LIMITED AS A COMPARABLE WHICH WAS SELECTED BY THE TPO AKIN TO PROVISION OF MARKETING SUPPORT SERVICES. II. II.II. II. ORIENT ENGINEERING & COMMERCIAL COMPANY LIMITED ORIENT ENGINEERING & COMMERCIAL COMPANY LIMITED ORIENT ENGINEERING & COMMERCIAL COMPANY LIMITED ORIENT ENGINEERING & COMMERCIAL COMPANY LIMITED HA S BEEN ACCEPTED AS A COMPARABLE BY THE DRP. EVEN THOUGH T HIS COMPANY HAS SIGNIFICANTLY DIFFERENT FAR PROFILE. THIS BEING RISK BEARING AGENT CANNOT BE COMPARED WITH MINIMAL RISK SERVICE PROVI DERS. RELIANCE HAS BEEN PLACED ON THE APPELLATE TRIBUNAL, DELHI J UDGMENTS IN THE CASE OF GAP INTERNATIONAL SOURCING (INDIA) PVT. LTD . (ITA NO. 5147/DEL/2011 AND 228/DEL/2012) AND ALSO ON THE J UDGMENT BY ITA NO. 408/DEL/2014 12 APPELLATE TRIBUNAL, BANGALORE IN THE CASE OF LOGIC A PRIVATE LIMITED IT(TP) A. NO. 1129/BANG/2011. III. III.III. III. KILLICK KILLICK KILLICK KILLICK AGENCIES & MARKETING LIMITED AGENCIES & MARKETING LIMITED AGENCIES & MARKETING LIMITED AGENCIES & MARKETING LIMITED WHICH HAS BEEN ALSO ACCEPTED, AS DRP IN ITS DIRECTIONS HAS IN FACT A CO MPANY HAVING DIFFERENT FAR PROFILE, AS THIS COMPANY HAS A RISK BEARING AGENT AND RISK BEARING AGENT CANNOT BE COMPARED WITH MINI MAL RISK SERVICES PROVIDER. AS HAS BEEN ELUCIDATED IN THE CA SE OF THE AFORESAID COMPARABLES OF ORIENT ENGINEERING AND COM MERCIAL COMPANY LIMITED. IV. IV.IV. IV. GLOBAL PROCUREMENT CONSULTANTS LIMITED GLOBAL PROCUREMENT CONSULTANTS LIMITED GLOBAL PROCUREMENT CONSULTANTS LIMITED GLOBAL PROCUREMENT CONSULTANTS LIMITED THE DRP HAS ALSO ACCEPTED THE GLOBAL PROCUREMENT CONSULTANTS LIMITED TO BE IN THE SIMILAR LINE OF BU SINESS AS THAT OF THE ASSESSEE. EVEN THOUGH THERE ARE FUNCTIONAL DISS IMILARITY AS HAVE BEEN STATED IN THE DESCRIPTIVE FORM OF THE CHART LA ID BEFORE THE APPELLATE TRIBUNAL, WHEREBY BROAD CATEGORIES OF FU NCTIONS, CONSULTING SERVICES HAVE BEEN DESCRIBED. V. V.V. V. TSR DARASHAW LIMITED TSR DARASHAW LIMITED TSR DARASHAW LIMITED TSR DARASHAW LIMITED THE DRP HAS ALSO ACCEPTED THE TSR DARASHAW LIMITED A COMPARABLE BY CONSIDERING THE ACTIVITIES SUCH AS BU SINESS OF PAY ROLLS, RECORD MANAGEMENT AND REGISTER AND TRANSFER AGENTS FOR ITS CLIENTS AND SIMILAR TO THE ACTIVITIES OF THE ASSESS EE-APPELLANT AND ITA NO. 408/DEL/2014 13 DIRECT THE ASSESSING AUTHORITY TO RETAIN THE SAID C OMPARABLE IN ITS LIST. THE ASSESSEE, HOWEVER, HAS DESCRIBED EACH AN D EVERY FUNCTION CARRY BY THEIR COMPARABLES IN THE CHART LAID BEFORE THE APPELLATE TRIBUNAL TO SHOW FUNCTIONAL DISSIMILARITY TO THE AS SESSEE. VI. VI.VI. VI. TECHPROCESS SOLUTIONS LIMITED TECHPROCESS SOLUTIONS LIMITED TECHPROCESS SOLUTIONS LIMITED TECHPROCESS SOLUTIONS LIMITED THE SIMILARITY IN REASONING HAVE BEEN ADVANCED TO SHOW THAT TECHPROCESS SOLUTIONS LIMITED A COMPARABLE ADOPTED BY THE TPO. EVEN THOUGH IT WAS FUNCTIONAL DISSIMILAR AND THAT C OMPANY HAD SUBSTANTIAL AMOUNT OF COMPUTERS SOFTWARE IN ITS BL OCK OF ASSETS. VII. VII. VII. VII. KOTAK MAHINDRA CAPITAL COMPANY LIMITED KOTAK MAHINDRA CAPITAL COMPANY LIMITED KOTAK MAHINDRA CAPITAL COMPANY LIMITED KOTAK MAHINDRA CAPITAL COMPANY LIMITED THE DRP HAS REJECTED THE COMPARABLES ADOPTED BY T HE ASSESSEE WITHOUT GIVING REASONABLE BASIS OF RPT ADO PTED AT 47.62% IN THE CASE OF KOTAK MAHINDRA CAPITAL COMPANY LTD. AND AT 34.47%. VIII. VIII. VIII. VIII. M/S INDIA INFOLINE MARKETING SERVICES LIMITED BESIDES OTHER COMPANIES ARE ALSO CONTAINED IN CHART AND THOSE EXC LUDED WRONGFULLY THE APPELLANTS COMPUTATION. IN ADDITIO N TO THE ASSESSEES CLAIM IN GROUND NO. 6 THE ASSESSEE SUPPO RTED ITS CLAIM OF RISK ADJUSTMENT TAKEN IN GROUND NO. 7 IN APPEAL BY RAISING THE KEY ARGUMENTS WITH REFERENCE TO THE RISK ADJUSTMENT AND CITING THE JUDICIAL PRECEDENTS THAT WERE NOT CONSIDERED BY TH E AUTHORITIES BELOW IN THE RIGHT PERSPECTIVE. IT HAS THEREFORE, B EEN CONTENDED THAT ITA NO. 408/DEL/2014 14 THE ORDER OF THE AO RESULTING INTO THE ADDITION OF RS. 1,13,51,925/- NEEDS TO BE HELD AS VOID ABNITIO AND INFRUCTUOUS AN D IF THE ALTERNATE THE COMPARABLES ADOPTED BY THE TPO OF THEIR STUDY A ND CONFIRMED BY THE TPO NEED TO BE EXCLUDED FROM THE ADJUSTMENT AND THOSE OFFERED BY THE ASSESSEE ALONE NEED TO BE INCLUDED S O THAT THE ASSESSING AUTHORITY COMPUTES THE INCOME AFRESH ACCO RDINGLY. 4.3 ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE CONTENDS THAT THE ORDER PASSED U/S. 143(3) READ WITH SECTION 144C OF THE ACT PASSED BY THE ASSESSING AUTHORITY CANNOT BE TERMED AS VOID ABNITIO NOR THE SAME CAN BE HELD TO BE INFRUCTUOUS AS IT HA S BEEN MADE IN ACCORDANCE WITH LAW BY REQUIRING THE ASSESSEE TO SH OW CAUSE AS TO WHY THE COMPARABLES CHOSEN BY THE TPO BE NOT ADOPTE D FOR MAKING ADJUSTMENTS AND THOSE INCLUDED BY THE ASSESSEE BE N OT EXCLUDED AS THEY WERE HAVING FUNCTIONAL DISSIMILARITY WITH THE NATURE OF BUSINESS OF THE ASSESSEE WERE NOT AS PER RULE 10B(2) OF THE IT RULES, 1962. THE APPELLATE TRIBUNAL SHALL ALSO NOT CORRECT THE I NCOME / ADJUSTMENTS MADE BY THE ASSESSING AUTHORITY MERELY BECAUSE THE ASSESSEE IS TRYING TO PUT A NEW CASE BEFORE IT AND REQUIRES THE TRIBUNAL TO DO ALL THAT EXERCISE AFRESH WHICH INFAC T IS WITHIN THE SCOPE OF POWERS OF THE ASSESSING AUTHORITY. IN ANY EVENT, IF THE MATTER IS TO BE SENT BACK, THE WHOLE ISSUE OF EXAMI NING THE ASSESSEES CLAIM BE LEFT UPON THE ASSESSING AUTHOR ITY SO THAT EACH ITA NO. 408/DEL/2014 15 AND EVERY ISSUE RAKED UP BY THE ASSESSEE IS EXAMINE D AND DECISION TAKEN AFRESH IN ACCORDANCE WITH LAW. 5. WE HAVE HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD AND CASE LAWS BROUGHT TO OUR NOTICE. ADMITTEDLY, THE ASSESSING AUTHORITY HAS TO FOLLOW THE DIRECTIONS OF THE DRP A ND THIS MANDATE IS CONTAINED U/S. 144C(10) OF THE ACT. IN THIS CASE THE DRP HAS MERELY RECORDED A FINDING THAT CYBER MEDIA (INDIA) ONLINE LTD. IS BROADLY COMPARABLE TO THE ASSESSEE COMPANY. THE FINDING SO GIVEN APPEARS TO BE A FINDING NECESSARY FOR DISPOSAL OF OBJECTION S RAISED BY THE ASSESSEE TO THE PROPOSED ASSESSMENT ORDER MADE BY THE ASSESSING AUTHORITY. IT HOWEVER, IS NOT THAT SAME THING AS D IRECTIONS OF DRP WHICH IT IS EMPOWERED TO GIVE UNDER SECTION 144C(5) READ WITH SECTION 144C(10) OF THE ACT. THE PECULIAR FINDING SO GIVEN BY DRP WAS MERELY FOR THE GUIDANCE OF THE ASSESSING AUTHO RITY AND NOT A BINDING DIRECTION. IF THE ASSESSING AUTHORITY COMMI TTED ANY PROCEDURAL LAPSE IN TAKING GUIDANCE FROM THE SAID F INDING, SUCH A LAPSE DOES NOT IMPINGE UPON THE LEGALITY OF THE OR DER FRAMED WITHIN THE POWERS VESTED IN HIM UNDER THE ACT. THE ASSESS MENT, THEREFORE, CANNOT BE HELD TO BE VOID OR INFRUCTUOUS IN THIS CA SE. IN THE DETAILED CHART OF THE ARGUMENTS LAID BEFORE US, THE APPELLAN T IS FOUND TO HAVE RAISED NEW PLEAS AND SEEKS THIS TRIBUNAL TO EMBARK ENQUIRY AFRESH INTO THE FACTS OF EACH OF THE COMPARABLES SELECTED BY THE TPO IN THE FRESH STUDY FOR MAKING ADJUSTMENTS IN ARMS LENGTH PRICE AND ITA NO. 408/DEL/2014 16 EXCLUDING COMPARABLE THAT OF THE ASSESSEE ON THE GR OUND THAT THEY HAD FUNCTIONAL SIMILARITIES OR DISSIMILARITIES. IN A CASE LIKE THIS, THE ASSESSING AUTHORITY IS THE BEST JUDGE OF THE SITUA TION AND HAS TO ARRIVE AT ITS CONCLUSION WITHOUT ANY BIAS AND ON RATIONAL BASIS. IN THE APPELLATE PROCEEDINGS BEFORE THIS TRIBUNAL THE SCOPE OF POWER IN A CASE LIKE THIS IS ONLY TO CORRECT THE ERRORS COMMITTED BY THE AO SO AS TO MAKE ASSESSMENT OF CORRECT INCOME OF THE ASSESSEE AND COLLECT THE LEGITIMATE TAX DUE THEREON BY CONFORMIN G TO THE PRINCIPLES OF NATURAL JUSTICE. THE APPELLATE TRIBU NAL SHALL BY ITSELF NOT EMBARK ENQUIRY AFRESH INTO THE FACTS AND COMMEN T UPON THE SIMILARITIES OR DISSIMILARITIES OF THE COMPARABLE S ON THE BASIS OF NEW PLEAS WHICH IN FACT IS UNDER THE DOMAIN OF THE ASS ESSING AUTHORITY. IT IS ALSO CLAIMED BY THE ASSESSEE AND HAS FAIRLY BEIN G ADMITTED BY THE REVENUE THAT THE ASSESSEE DID NOT HAVE REASONABLE A ND EFFECTIVE OPPORTUNITY OF EXPLAINING ITS CASE BEFORE THE AUTHO RITIES BELOW. WE, THEREFORE, ON THE PECULIAR FACTS CONSIDER IT PROPE R TO SET ASIDE THE ADDITION AND REMIT THE MATTER BACK TO THE ASSESSING AUTHORITY SO THAT THE ADJUSTMENTS, IF ANY, IS MADE AFRESH IN A CCORDANCE WITH LAW, BY AFFORDING REASONABLE AND EFFECTIVE OPPORTU NITY OF BEING HEARD. IN THE REMIT PROCEEDINGS, IT SHALL BE OPEN TO THE AO TO ACT FAIRLY ON THE MATERIAL THAT IS AVAILABLE OR IS MA DE AVAILABLE TO HIM FOR REACHING THE LOGICAL CONCLUSION, IN ACCORDANCE WITH LAW. ITA NO. 408/DEL/2014 17 6. IN THE RESULT, THE APPEAL BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 07.5.2014, IMMEDIATELY AFTER CONCLUSION OF HEARING. SD/- SD/- [ [[ [R. P. TOLANI R. P. TOLANI R. P. TOLANI R. P. TOLANI] ]] ] [ [[ [B. R. JAIN B. R. JAIN B. R. JAIN B. R. JAIN] ]] ] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 07/5/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES