Microsoft Corporation India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5766/DEL/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0136 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 26-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.5766/DEL/2011 ASSESSMENT YEAR : 2007-08 MICROSOFT CORPORATION INDIA PVT. LTD., 807, BARAKHAMBA ROAD, NEW DELHI HOUSE, NEW DELHI 110 001. PAN : AAACM5586C VS. DCIT, CIRCLE 6(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESHWAR RAO, ADVOCATE DEPARTMENT BY : SHRI BHASKAR GOSWAMI, SR. DR ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE EMANATES FROM THE FINA L ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) REA D WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON 24.10.2011 IN RELATION TO THE ASSESSMENT YEAR 2007-08. ITA NO.5766/DEL/2011 2 2. THE FIRST EFFECTIVE ISSUE RAISED IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF DEPRECIATION ON ITG NETWORKING EQUI PMENTS BY RS.1,20,89,521 BY REDUCING THE RATE OF DEPRECIATION FROM 60% CLAIMED BY THE ASSESSEE TO 25%. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT SIMILAR ISS UE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E., 2006-0 7. VIDE ITS ORDER DATED 18.12.2014 IN ITA NO.5855/DEL/2010, THE TRIBUNAL HA S ACCEPTED THE APPLICABILITY OF HIGHER RATE OF DEPRECIATION BY REL YING ON THE SPECIAL BENCH ORDER PASSED IN THE CASE DCIT VS. DATA CRAFT INDIA LTD. (2010) 133 TTJ (MUM) (SB) 377. THE HONBLE DELHI HIGH COURT IN THE CASE CIT VS. BSES YAMUNA POWERS LTD. 2010-TIOL-636-HC-DEL-IT HAS APPROVED SIMILAR VIEW BY HOLDING THAT DEPRECIATION ON COMPUTER PERIP HERALS SHOULD BE ALLOWED AT 60% INSTEAD OF THE REGULAR RATE OF DEPRE CIATION APPLICABLE TO MACHINERY. NO DISTINGUISHING FEATURE WAS POINTED O UT BY THE LD. DR IN THE FACTS OF THE INSTANT YEAR VIS--VIS THE PRECEDING YEAR. IN VIEW OF THE AFOREDISCUSSED LEGAL POSITION, WE DECIDE THIS ISSUE IN FAVOR OF THE ASSESSEE. ITA NO.5766/DEL/2011 3 4. THE NEXT ISSUE IS AGAINST THE DISALLOWANCE OF DE PRECIATION ON COMPANY OWNED VEHICLES AMOUNTING TO RS.1,85,45,102/ -. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND IT AS AN UNDISPUTED FAC T THAT THE COMPANY PROVIDED VEHICLES TO ITS EMPLOYEES FOR THEIR USE FO R WHICH THE PURCHASE PRICE WAS PAID BY THE COMPANY TO THE EXTENT IT DID NOT EXCEED THE FIXED BENCHMARK. THE MAJOR REASON GIVEN BY THE AO FOR DIS ALLOWING DEPRECIATION IS THE PERSONAL USE OF VEHICLES BY THE EMPLOYEES OF THE COMPANY. THE DELHI BENCH OF THE TRIBUNAL IN DCIT VS. HARYANA OXYGEN LTD. (2001) 76 ITD 32 (DEL) HAS HELD THAT THE USE OF CARS BY DIRECTORS- EMPLOYEES OF A COMPANY CANNOT BE CHARACTERIZED AS U SER FOR NON-BUSINESS PURPOSE AND, HENCE, NO PART OF SUCH CAR EXPENSES CA N BE DISALLOWED. THE HONBLE GUJARAT HIGH COURT IN SAYAJI IRON AND ENGINEERING COMPANY VS. CIT (2002) 253 ITR 749 (GUJ) HAS HELD THAT ONCE THE DIRECTORS OF THE ASSESSEE COMPANY ARE ENTITLED TO USE THE VEHICLES O F THE COMPANY FOR PERSONAL USE AS PER THE TERMS AND CONDITIONS OF THE IR APPOINTMENT, IT CANNOT BE SAID THAT THERE WAS A PERSONAL USE OF CARS. THE HONBLE HIGH COURT FURTHER HELD THAT SUCH USER OF VEHICLES BY THE EMPL OYEES OF THE COMPANY ITA NO.5766/DEL/2011 4 CANNOT EVEN BE CONSIDERED AS NON-BUSINESS USER. THERE ARE INNUMERABLE JUDGMENTS ON THIS POINT HOLDING THAT THERE CAN BE N O DISALLOWANCE OF DEPRECIATION OR OTHER EXPENSES ON MAINTENANCE OF TH E VEHICLES USED BY THE DIRECTORS/EMPLOYEES BY TREATING IT AS PERSONAL USER OR NON-BUSINESS USER OF THE COMPANY. WE FAIL TO SEE ANY RATIONALE IN TREAT ING THE AMOUNT OF DEPRECIATION ON CARS AS FOR PERSONAL USE, WHEN ADMI TTEDLY THESE HAVE BEEN PROVIDED TO EMPLOYEES. A COMPANY IS A SEPARATE LEGA L ENTITY DISTINCT FROM ITS DIRECTORS OR EMPLOYEES. AS SUCH, THERE CAN BE N O QUESTION OF TREATING THE USE OF VEHICLES BY THE DIRECTORS/EMPLOYEES AS A PER SONAL USE BY THE COMPANY. SIMILAR ISSUE HAS ALSO BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE PRECEDING YEAR IN ITS F AVOUR. THE RELEVANT DISCUSSION HAS BEEN MADE IN PARAS 5 AND 6 OF THE TR IBUNAL ORDER. WE, THEREFORE, ORDER FOR THE DELETION OF DISALLOWANCE O F DEPRECIATION ON SUCH VEHICLES. 6. THE NEXT ISSUE IS THE DISALLOWANCE OF RS.1,28,88 ,973/- TOWARDS RUNNING AND MAINTENANCE EXPENSES OF THE VEHICLES US ED BY THE EMPLOYEES OF THE ASSESSEE COMPANY. THE AO, FOLLOWING THE DIR ECTION OF THE DISPUTE ITA NO.5766/DEL/2011 5 RESOLUTION PANEL (DRP), HELD THAT 50% OF RUNNING AN D MAINTENANCE EXPENSES OF THE VEHICLES WERE TO BE DISALLOWED FOR NON-BUSINESS PURPOSE. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS SQUA RELY COVERED BY THE ABOVE REFERRED JUDGMENT OF THE HONBLE GUJARAT HIGH COURT AND THE TRIBUNAL ORDER PASSED BY THE DELHI BENCH. THE ANALOGY WHICH APPLIES FOR NOT MAKING ANY DISALLOWANCE ON ACCOUNT OF DEPRECIATION FOR PERSONAL OR NON- BUSINESS USE, EQUALLY APPLIES FOR NOT MAKING ANY DI SALLOWANCE ON ACCOUNT OF RUNNING AND MAINTENANCE EXPENSES OF THE VEHICLES USED BY THE EMPLOYEES OF THE COMPANY. SIMILAR VIEW HAS BEEN TA KEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE PRECEDING YEAR. FOLLOW ING THE SAME, WE, ORDER FOR THE DELETION OF THE ADDITION. 8. GROUND NO. 7 IS AGAINST NOT FOLLOWING THE DIRECT ION OF THE DRP ABOUT CHARGING OF INTEREST U/S 234A. 9. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, WE FIND THAT THE DRP DEALT WITH THE ISSUE O F CHARGING OF INTEREST U/S 234A IN PARA 3.14 OF ITS DIRECTION AND MADE THE FOL LOWING OBSERVATIONS:- ITA NO.5766/DEL/2011 6 THE CBDT HAD IN ORDER U/S 119 ISSUED IN FILE NUMBE R 225/13/2007 IN LTA-II (PT) HAD EXTENDED THE LAST DA TE FOR FILING THE RETURN TO 15.11.2007 AND ASSESSEE FILED IT ON 13.11.2007. THE AO IS DIRECTED TO VERIFY THE FACTS AND TAKE ACTION AS PER FACTS AS RECORD AND AS PER LAW. 10. IT IS AN ADMITTED POSITION THAT THE AO PASSED T HE FINAL ORDER WITHOUT COMPLYING WITH THE ABOVE DIRECTION GIVEN BY THE DRP IN THE CONTEXT OF CHARGING INTEREST U/S 234A. UNDER SUCH CIRCUMSTANC ES, WE SET ASIDE THE ASSESSMENT ORDER ON THIS ISSUE AND DIRECT THE AO TO COMPLY WITH THE DIRECTION GIVEN BY THE DRP. NEEDLESS TO SAY, THE A SSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN THIS REGARD. 11. THE NEXT ISSUE AGITATED IN THIS APPEAL IS AGAIN ST THE ADDITION AMOUNTING TO RS.43,28,67,761/- MADE BY THE AO ON AC COUNT OF TRANSFER PRICING ADJUSTMENT. 12. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS INCORPORATED AS A PRIVATE COMPANY IN INDIA IN JULY, 1988. IT WAS CONVERTED INTO A WHOLLY OWNED SUBSIDIARY OF MS CORP IN JANUAR Y, 1996. THE ASSESSEE IS ENGAGED IN PROVIDING SERVICES IN SUPPOR TING DEVELOPMENT OF CLIENT SERVER APPLICATIONS TO ASSIST CUSTOMERS IN T HE SUCCESSFUL DEVELOPMENT ITA NO.5766/DEL/2011 7 OF MICROSOFT TECHNOLOGY, BOTH DIRECTLY AND THROUGH SERVICE PROVIDERS AND PROVIDING TRAINING THROUGH VARIOUS TRAINING CENTRES TO ASSIST CUSTOMERS IN THE OPERATION OF MICROSOFT LICENSED SOFTWARE. THE ASSESSEE REPORTED FIVE INTERNATIONAL TRANSACTIONS IN FORM NO. 3CEB WHICH I NCLUDE PROVISION OF MARKETING SUPPORT SERVICES WITH THE TRANSACTED VAL UE OF RS.549,96,89,240/-. APART FROM THAT, THE ASSESSEE A LSO REPORTED INTERNATIONAL TRANSACTION OF PROVISION OF PRODUCT SUPPORT SERVICES AND PROVISION OF MICROSOFT CONSULTING SOLUTIONS SERVIC ES, ETC. THE ASSESSEE ADOPTED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING ITS INTERNATION AL TRANSACTIONS. THE ENTIRE CONTROVERSY IN THE PRESENT APPEAL ROTATES AR OUND THE DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRAN SACTION OF PROVISION OF MARKETING SUPPORT SERVICES. WITH THE HELP OF CERTA IN COMPARABLES CHOSEN, THE ASSESSEE TRIED TO DEMONSTRATE THAT THIS INTERNA TIONAL TRANSACTION WAS AT ARMS LENGTH PRICE (ALP). FOR PROVING THIS, THE AS SESSEE ADOPTED PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT TO TOTAL COST (OP/TC). ON A REFERENCE MADE BY THE ASSESSING OFFICER (AO) TO THE TRANSFER PRICING OFFICER (TPO), THE LATTER SHORTLISTED NINE COMPARAB LES WITH THEIR AVERAGE ITA NO.5766/DEL/2011 8 OP/TC AT 25.32%. BY APPLYING THIS BENCHMARK, THE T PO PROPOSED TRANSFER PRICING ADJUSTMENT IN RESPECT OF PROVISIO N OF MARKETING SUPPORT SERVICES TO THE TUNE OF RS.73,21,02,823/-. THE AS SESSEE APPROACHED THE DISPUTE RESOLUTION PANEL (DRP) ON VARIOUS ASPECTS O F THE DETERMINATION OF ALP OF THIS TRANSACTION. THE DRP CONCURRED WITH SO ME OF THE POINTS RAISED BY THE ASSESSEE. CERTAIN DIRECTIONS WERE ISS UED TO THE TPO, WHO VIDE HIS ORDER DATED 21.10.2011, GIVING EFFECT TO THE DI RECTIONS RENDERED BY THE DRP, SHORTLISTED THE FOLLOWING SIX COMPANIES AS COM PARABLES:- S. NO. NAME OF THE COMPANY WC ADJUSTED OP/ OC-AFTER DRP DIRECTIONS 1. IDC INDIA LIMITED 13.94% 2. TSR DARASHAW (SEGMENTAL) 33.90% 3. TCF CONSULTING ENGINEERS LTD. 18.04% 4. VIMTA LABS LTD. 26.34% 5. WATER & POWER CONSULTANCY SERVICES (INDIA) LTD. (WAPCOS) 32.92% 6. ICRA MANAGEMENT CONSULTING SERVICES LTD. 8.83% ARITHMETIC MEAN 22.33% 13. WITH THE REDUCED OP/TC OF THE AVERAGE OF THE AB OVE MENTIONED SIX COMPARABLES AT 22.33%, THE AMOUNT OF TRANSFER PRICI NG ADJUSTMENT WAS ITA NO.5766/DEL/2011 9 SLASHED DOWN TO RS.43,28,67,764/-. THE AO MADE THE ABOVE ADDITION IN THE IMPUGNED ORDER. THE ASSESSEE IS AGGRIEVED AGAI NST SUCH ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT SO MADE IN T HE FINAL ASSESSMENT ORDER. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE CONTROVERSY BEFORE US RELAT ES TO THE DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTION OF PROVISI ON OF MARKETING SUPPORT SERVICES. AT THIS JUNCTURE, WE WANT TO RECORD THA T THE ASSESSEE ADOPTED TNMM AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THIS INTERNATIONAL TRANSACTION, WHICH METHOD HAS BEEN AP PROVED BY THE TPO. THE ASSESSEE HAS NOT OBJECTED TO ANY OTHER ASPECT O F THE DETERMINATION OF ALP BY THE TPO IN HIS FINAL ORDER GIVING EFFECT TO THE DIRECTIONS GIVEN BY THE DRP, EXCEPT FOR THE INCLUSION OF THE FOLLOWING FOUR COMPANIES:- S.NO. NAME OF THE COMPANY WC ADJUSTED OP/ OC-AFTER DRP DIRECTIONS 1. TSR DARASHAW (SEGMENTAL) 33.90% 2. TCF CONSULTING ENGINEERS LTD. 18.04% 3. VIMTA LABS LTD. 26.34% 4. WATER & POWER CONSULTANCY SERVICES (INDIA) LTD. (WAPCOS) 32.92% ITA NO.5766/DEL/2011 10 15. BEFORE EXAMINING THE COMPARABILITY OF THE ABOVE FOUR COMPANIES, IT IS ESSENTIAL TO CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE UNDER THIS TRANSACTION. THE ASSESSEE PROVIDED MARKETING SUPPO RT SERVICES TO MS CORP AND AFFILIATE ENTITIES IN RETURN FOR SERVICE FEES. THE ASSESSEE DID NOT UNDERTAKE SALE OF MICROSOFT SOFTWARE, BUT, ONLY CRE ATED AWARENESS AND PROMOTED SALE OF MICROSOFT PRODUCTS IN INDIA. THE MARKETING SUPPORT SERVICES UNDERTAKEN BY THE ASSESSEE INCLUDE : EXPA NDING THE MARKETS FOR MICROSOFT RETAIN PRODUCTS IN INDIA THROUGH LOCAL PR INT ELECTRONIC ADVERTISING, PROMOTIONAL CAMPAIGNS, ANTI-PIRACY DRI VES, ETC; AND PERFORMING OTHER ACTIVITIES WHICH INCLUDES: I. DISS EMINATION OF INFORMATION TO POTENTIAL CUSTOMERS; II. COMMENTING ON ANY DEVEL OPMENT IN THE TERRITORY AFFECTING THE INDUSTRY IN WHICH MCIPL FUNCTIONS; II I. INVESTIGATING FEASIBILITY OF NEW MARKETS FOR MICROSOFT RETAIN PRO DUCTS AND BASIC MARKET RESEARCH; AND IV. PROVIDE MISCELLANEOUS MARKETING S UPPORT. REVERSING THE ORDER OF THE TPO, THE DRP DID NOT FIND THE ASSESSEE TO HAVE PROVIDED ANY HIGH-END NICHE SERVICES AND RESULTANTLY, THE OBJECT ION SO RAISED BY THE ASSESSEE WAS ACCEPTED THROUGH PARA 3.3 OF ITS DIREC TION. IT CAN BE OBSERVED FROM THE TPOS ORDER THAT THE ASSESSEE PROVIDED THE SE SERVICES UNDER THE ITA NO.5766/DEL/2011 11 MASTER SERVICE AGREEMENT WITH MICROSOFT CORPORATION . THIS AGREEMENT WAS EXECUTED ON 1.7.2003. THIS DISCERNS THAT THE N ATURE OF MARKETING SUPPORT SERVICES RENDERED BY THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION ARE SIMILAR TO THOSE OF THE PRECEDING YEAR AS BOTH THE YEARS ARE GOVERNED BY THE SAME MASTER SERVICE AGREEMENT D ATED 1.7.2003. IT IS OBSERVED THAT TRANSFER PRICING ADJUSTMENT OF SUCH I NTERNATIONAL TRANSACTION WAS MADE BY THE AUTHORITIES BELOW FOR THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR 2006-07 ALSO. THE ADDITION ON ACCO UNT OF SUCH ADJUSTMENT WAS CHALLENGED BY THE ASSESSEE BEFORE THE TRIBUNAL, WHICH HAS SINCE BEEN DISPOSED OF BY THE TRIBUNAL VIDE ITS ORDER DATED 18 TH DECEMBER, 2014. A DETAILED DESCRIPTION OF THE NATURE OF PROVISION OF MARKETING SUPPORT SERVICES HAS BEEN SET OUT IN PARAS 13 AND 14 OF THE ABOVE REFERRED ORDER OF THE TRIBUNAL, WHICH IS ADOPTED FOR THE PURPOSES OF THE INSTANT YEAR AS WELL WITHOUT BURDENING THIS ORDER WITH THE REPETITION OF THE SAME. THE LD. DR WAS ALSO FAIR ENOUGH TO ADMIT THAT THERE IS NO DIFF ERENCE IN THE NATURE OF MARKETING SUPPORT SERVICES PROVIDED BY THE ASSESSEE DURING THE INSTANT YEAR AS WELL AS THE PRECEDING YEAR. WITH THE ABOVE UNDE RSTANDING OF THE NATURE OF MARKETING SUPPORT SERVICES RENDERED BY THE ASSES SEE TO ITS AE, WE WILL ITA NO.5766/DEL/2011 12 NOW TRY TO ASCERTAIN WHETHER THE ABOVE REFERRED FOU R COMPANIES ARE, IN FACT, COMPARABLE OR NOT. I. TSR DARASHAW (SEGMENTAL) 16. THIS COMPANY WAS CHOSEN BY THE ASSESSEE AS COM PARABLE IN ITS TRANSFER PRICING STUDY REPORT. THE TPO ACCEPTED TH E FUNCTIONAL COMPARABILITY OF THIS SEGMENT OF THE COMPANY WITH T HE ASSESSEES MARKETING SUPPORT SERVICES AGREEMENT. THE LD. AR C ONTENDED THAT THIS COMPANY WAS WRONGLY INCLUDED IN THE LIST OF COMPARA BLES AND THE SAME SHOULD BE EXCLUDED. THE LD. DR OBJECTED TO THE EX CLUSION OF THIS COMPANY ON THE GROUND THAT SINCE THE ASSESSEE VOLUNTARILY I NCLUDED IT IN THE FINAL SET OF COMPARABLES, NOW IT CANNOT TURN AROUND TO CONTEN D ITS INCOMPARABILITY. 17. WE ARE NOT INCLINED TO UPHOLD THE OBJECTION T AKEN BY THE LD. DR ON THE INCLUSION OF THIS COMPANY AS COMPARABLE MERELY ON THE FACT THAT THE ASSESSEE TREATED IT AS COMPARABLE IN ITS TP STUDY R EPORT. IT GOES WITHOUT SAYING THAT THERE CAN BE NO ESTOPPEL AGAINST CORREC TNESS. IF THE ASSESSEE INADVERTENTLY INCLUDES A COMPANY IN ITS FINAL SET O F COMPARABLES, WHICH IS, IN FACT, NOT COMPARABLE, HE HAS A RIGHT TO AGITATE BEFORE THE AUTHORITIES THAT ITA NO.5766/DEL/2011 13 THIS COMPANY MAY BE EXCLUDED. THIS RIGHT OF THE AS SESSEE DOES NOT, IN ANY MANNER, PREJUDICE THE POWERS OF THE AUTHORITIES TO EXAMINE THE COMPARABILITY OF THE COMPANY WHICH IS SOUGHT TO BE EXCLUDED. IF, ON MAKING SUCH AN ANALYSIS, THE AUTHORITIES FIND THAT THE COMPANY SO AGITATED AS FUNCTIONALLY INCOMPARABLE, IS COMPARABLE, THEN T HERE CAN BE NO REASON TO EXCLUDE THE SAME. IF, HOWEVER, THE COMPANY TURNS O UT TO BE FUNCTIONALLY DISSIMILAR FROM THE ASSESSEE, THEN, THERE CAN BE NO RATIONALE IN CONTINUING TO TREAT IT AS COMPARABLE DESPITE THE FUNCTIONAL VA RIATION. THE CRUX IS THAT WHAT REALLY MATTERS IS THE ACTUAL COMPARABILITY AND NOT THE WRONG VIEW CANVASSED BY THE ASSESSEE IN THE ORIGINAL REPORTING . WHAT IS TRUE FOR THE ASSESSEE IS EQUALLY TRUE FOR THE REVENUE AS WELL. T HE AUTHORITIES ARE FULLY COMPETENT TO CONSIDER THE COMPARABILITY OF THE COMP ANIES TREATED BY THE ASSESSEE AS COMPARABLE. IF THE ANALYSIS UNDERTAKEN BY THE TPO SHOWS THAT SOME OF THE COMPANIES SO CONSTRUED BY THE ASSESSEE AS COMPARABLE ARE, IN FACT, NOT COMPARABLE, THEN, SUCH COMPANIES ARE LIAB LE TO BE EXCLUDED. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS (P) LTD. (2010) 132 TTJ (CHD) (SB) 1, HAS HELD THAT AN ASSESSEE IS ENTITLED TO RAISE A CLAIM FOR THE FIRST TIME BEFORE THE TRIBUNA L EVEN THROUGH AN ITA NO.5766/DEL/2011 14 ADDITIONAL GROUND THAT A COMPANY WAS WRONGLY INCLUD ED IN THE LIST OF COMPARABLES. IN VIEW OF THE FOREGOING DISCUSSION, W E ARE OF THE CONSIDERED OPINION THAT THE OBJECTION TAKEN BY THE LD. DR IN O UTRIGHTLY REJECTING THE ASSESSEES CONTENTION, IS UNTENABLE. 18. COMING TO THE MERITS OF COMPARABILITY, WE FI ND THAT THIS COMPANY HAS THREE SEGMENTS, WHICH INTER ALIA INCLUDE: PAY ROLL AND TRUST FUND ACTIVITY (PAY ROLL). IT IS THIS SEGMENT WHICH HAS BEEN CONS IDERED BY THE ASSESSEE AS COMPARABLE. THIS COMPANY ON AN OVERVIEW IS A BROKI NG AND INVESTMENT BANKING HOUSE. ITS OTHER SEGMENTS ARE : REGISTRAR AND TRANSFER AGENT ACTIVITY (R&D) AND RECORDS MANAGEMENT ACTIVITY (R ECORDS). THE SEGMENT OF PAY ROLL WAS CONSIDERED BY THE ASSESSE E AS COMPARABLE IN ITS TP STUDY REPORT AND THE SAME IS NOW ASSAILED. UNDE R THE PAY ROLL SEGMENT, THIS COMPANY UNDERTAKES PAY ROLL AND EMPLO YEE TRUST FUND ADMINISTRATION AND MANAGEMENT. WHEN WE COMPARE THE NATURE OF PAY ROLL ACTIVITY UNDERTAKEN BY THIS COMPANY WITH THE MARKET ING SUPPORT SERVICES RENDERED BY THE ASSESSEE TO ITS AES, WE FIND THAT B OTH ARE WAY APART FROM EACH OTHER. THERE CAN BE NO LOGICAL COMPARISON BET WEEN A SPECIFIC PAY ROLL SERVICES RENDERED BY A COMPANY TO ITS CLIENTS WITH THE MARKETING SUPPORT ITA NO.5766/DEL/2011 15 SERVICES RENDERED BY THE ASSESSEE TO ITS AES. THIS COMPANY IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE FINAL SET OF COMPA RABLES. II. TCE CONSULTING ENGINEERS LTD . 19. THIS COMPANY WAS CONSIDERED BY THE TPO AS COMPA RABLE ON THE STRENGTH OF HIS REASON OF INCLUSION IN THE LIST OF COMPARABLES FOR THE AYS 2002-03 AND 2003-04. 20. WE FIND THAT THIS COMPANY IS ENGAGED IN THE PRO VISION OF ENGINEERING SERVICES, SUCH AS, OPERATION AND DESIGN ENGINEERING , UPGRADATION & RENOVATION SERVICES, SURVEYS & FIELD INVESTIGATION SERVICES. THIS COMPANY IS OPERATING ONLY IN ONE SEGMENT, NAMELY, ENGINEERI NG CONSULTANCY SERVICES. IT IS AXIOMATIC THAT THERE CAN BE NO COM PARISON OF THIS COMPANY WITH THE ASSESSEES INTERNATIONAL TRANSACTION OF RE NDERING MARKETING SUPPORT SERVICES. THE HONBLE DELHI HIGH COURT IN CIT VS. VERIZON INDIA (P.) LTD. (2014) 360 ITR 342 (DEL) HAS HELD THAT MARKETING SERVICES PROVIDED BY COMPANIES CANNOT BE COMPARED WITH ENGIN EERING SERVICES PROVIDED BY ASSESSEE. THIS COMPANY HAS ALSO BEEN HE LD BY THE TRIBUNAL TO BE INCOMPARABLE IN ITS ORDER FOR THE IMMEDIATELY PR ECEDING ASSESSMENT ITA NO.5766/DEL/2011 16 YEAR PASSED IN THE CASE OF THE ASSESSEE ITSELF. AS SUCH, THIS COMPANY IS ALSO DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. III. VIMTA LABS LTD. : 21. THE TPO INCLUDED THIS COMPANY IN THE SET OF COM PARABLES BY NOTICING THAT IT HAS BEEN SO USED AS COMPARABLE WIT H THE ASSESSEE SINCE THE AY 2002-03. HE FURTHER SUPPORTED HIS FINDING BY NO TICING THAT THIS COMPANY WAS PROVIDING SIMILAR SERVICES AS PROVIDED BY THE ASSESSEE. 22. WE DO NOT FIND ANY FORCE IN THE FUNCTIONAL CO MPARABILITY OF THIS COMPANY WITH THE ASSESSEE. SPECTRUM OF THE SERVICES RENDERED BY THIS COMPANY COVERS ANALYTICAL FOOD AND DRUGS; CLINICAL REFERENCE LAB SERVICES TO ADDRESS THE SPECIALTIES AND CENTRAL LAB SERVICES FOR CLINICAL TRIALS; CLINICAL TRIALS PHASE-I-IV AND BA/BE STUDIES; PRE-CLINICAL S AFETY ASSESSMENTS; AND ENVIRONMENTAL ASSESSMENTS. A CURSORY LOOK AT THE N ATURE OF SERVICES PROVIDED BY THIS COMPANY DIVULGES THAT THE SAME IS FUNCTIONALLY DISSIMILAR FROM THE ASSESSEE. HOW A COMPANY CONDUCTING CLINICA L TRIALS ON FOODS AND DRUGS CAN BE CONSIDERED AS COMPARABLE WITH THE ASSE SSEE UNDERTAKING MARKETING SUPPORT SERVICES, IS ANYBODYS GUESS. TH IS COMPANY BEING IN ITA NO.5766/DEL/2011 17 THE NATURE OF BUSINESS TOTALLY ALIEN TO THAT OF THE ASSESSEE, CANNOT BE CONSIDERED AS A COMPARABLE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. IV. WAPCOS: 23. THIS COMPANY WAS CONSIDERED BY THE TPO AS COMPA RABLE ON THE REASON OF ITS INCLUSION IN THE LIST OF COMPARABLES FOR THE AYS 2002-03 AND 2003-04. 24. WE FIND THAT THIS COMPANY OPERATES IN TWO SE GMENTS, NAMELY, `CONSULTANCY & ENGINEERING PRODUCTS AND LUMPSUM T URNKEY PROJECTS. IT IS NOTICED THAT THE TPO HAS CONSIDERED ONLY `CONSUL TANCY AND ENGINEERING PRODUCTS SEGMENT FOR THE PURPOSES OF COMPARISON AN D HAS NOT TAKEN INTO CONSIDERATION THE OTHER SEGMENT OF `LUMPSOM TURNKEY PROJECTS. THE COMPANY, UNDER THE ALLEGED COMPARABLE SEGMENT, PROV IDES CONSULTANCY SERVICES, SUCH AS, PRE-FEASIBILITY REPORT OF HYDROE LECTRIC PROJECTS, FIELD INVESTIGATION DRILLING OF TUBE WELLS, ETC. FROM TH E ABOVE DESCRIPTION OF THE ITA NO.5766/DEL/2011 18 ACTIVITIES PERFORMED BY THE COMPANY UNDER THIS SEGM ENT, IT IS VIVID THAT THE SAME IS ENGAGED IN PROVIDING ENGINEERING AND CONSUL TANCY SERVICES, WHICH CAN BE NO MATCH TO THE ASSESSEES MARKETING SUPPORT SERVICES. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF THE A SSESSEE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THIS COMPAN Y IS ALSO DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 25. IN VIEW OF THE FOREGOING DISCUSSION, WE SET ASI DE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF TPO/AO FOR A FR ESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF PROVISION OF MARKETING SUPPORT SERVICES IN LINE WITH OUR ABOVE DIRECTIONS, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 26. BEFORE PARTING WITH THIS ISSUE, WE WILL LIKE TO DEAL WITH AN ARGUMENT PUT FORTH BY THE LD. DR. HE SUBMITTED THAT THE TPO DID NOT PROPERLY CONSIDER THE NATURE OF THE `MARKETING SUPPORT SERVI CES PROVIDED BY THE ASSESSEE AND ALSO ACCEPTED SOME COMPANIES CHOSEN BY THE ASSESSEE AS COMPARABLE WHICH WERE, IN FACT, NOT COMPARABLE. HE INVITED OUR ATTENTION TOWARDS THE ONLY REMAINING TWO COMPANIES IN THE LIS T OF COMPARABLES, ITA NO.5766/DEL/2011 19 NAMELY, IDC INDIA LTD., AND ICRA MANAGEMENT CONSULT ING SERVICES LTD. IT WAS STATED THAT THESE TWO COMPANIES ARE NOT COMP ARABLE WITH THE ASSESSEES MARKETING SUPPORT SERVICE SEGMENT. IN TH E BACKDROP OF THE ABOVE ARGUMENTS, IT WAS REQUESTED THAT THE ENTIRE I SSUE OF DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF `PROVIS ION OF MARKETING SERVICES SHOULD BE SET ASIDE AND THE MATTER BE REM ITTED TO THE TPO FOR A DE NOVO ADJUDICATION BY CONSIDERING AN ALTOGETHER FRESH SE T OF COMPARABLES. 27. WE FIND FORCE IN THE SUBMISSION ADVANCED BY THE LD. DR TO THE EXTENT OF IMPROPER EXAMINATION OF THE CASE DONE BY THE AUT HORITIES IN NOT PROPERLY APPRECIATING THE NATURE OF SERVICES PERFORMED BY TH E ASSESSEE IN THIS INTERNATIONAL TRANSACTION, WHICH LED TO THE ACCEPTA NCE OF IMPROPER COMPARABLES SELECTED BY THE ASSESSEE. IT IS HOWEVER , CLEAR FROM THE ORDER OF THE TPO THAT HE WAS WELL AWARE WITH A DISTINCT INTE RNATIONAL TRANSACTION OF PROVISION OF MARKETING SUPPORT SERVICES, WHICH EXPR ESSION HAS BEEN REPEATEDLY USED BY HIM IN THE ORDER. THUS, IT CAN BE SEEN THAT AFTER ELIMINATION OF THE ABOVE DISCUSSED FOUR COMPANIES, THE ONLY TWO COMPANIES WHICH SURVIVE IN THE LIST OF COMPARABLES ARE IDC LTD. AND ICRA MANAGEMENT CONSULTING SERVICES LTD. ANNEXURE III T O THE TP STUDY REPORT ITA NO.5766/DEL/2011 20 INDICATES THE NATURE OF ACTIVITY CARRIED OUT BY THE SE COMPANIES. PAGE 390 OF THE PAPER BOOK GIVES THE NATURE OF BUSINESS DONE BY IDC INDIA LTD., AS UNDER:- IDC (INDIA) LIMITED IS AN INFORMATION TECHNOLOGY (IT) RESEARCH & ADVISORY FIRM. THE COMPANY PROVIDES BUSINESS INSIGHTS TO PROVIDERS, BUILDERS AND USERS OF INFORM ATION TECHNOLOGY. THE COMPANY IS FOCUSING ON GO-TO-MARKE TING (GTM) SERVICES AS KEY AREA OF OPERATIONS. THE COMP ANY EARNS ALL ITS INCOME IN THE FORM OF RESEARCH AND SURVEY INCOME. 28. AS REGARDS ICRA MANAGEMENT CONSULTING SERVICES LTD., THE ASSESSEES TP STUDY REPORT DIVULGES THE NATURE OF A CTIVITY UNDERTAKEN BY THIS COMPANY AS UNDER:- ICRA MANAGEMENT CONSULTING SERVICES LTD., WAS INCORPORATED IN 2005 WITH THE OBJECTIVE OF TAKING O VER THE ENTIRE BUSINESS OF THE MANAGEMENT CONSULTING DIVISI ON OF ICRA LIMITED. THE OPERATIONS PERTAINING TO THE ADVISORY SERVICES DIVISION OF ICRA LIMITED DURING FY 2005-06 HAVE BEEN TRANSFERRED TO ICRA MANAGEMENT CONSULTING SERV ICES LTD. 29. A CAREFUL PERUSAL OF THE NATURE OF BUSINESS DON E BY IDC (INDIA) LTD. TRANSPIRES THAT THIS COMPANY IS AN INFORMATION TECH NOLOGY RESEARCH AND ADVISORY FIRM. THIS COMPANY EARNS ALL ITS INCOME I N THE FORM OF RESEARCH AND SURVEY. WE FAIL TO APPRECIATE AS TO HOW THIS C OMPANY CAN BE ITA NO.5766/DEL/2011 21 CONSIDERED AS COMPARABLE WITH THE INTERNATIONAL TRA NSACTION OF `PROVISION OF MARKETING SUPPORT SERVICES RENDERED BY THE ASSE SSEE TO ITS AE. SIMILAR IS THE POSITION REGARDING ICRA MANAGEMENT CONSULTIN G SERVICES LTD., WHICH IS PROVIDING ADVISORY SERVICES. IN OUR CON SIDERED OPINION, A COMPANY PROVIDING ADVISORY SERVICES CAN BE NO MATCH WITH A COMPANY PROVIDING ACTUAL MARKETING SUPPORT SERVICES. DESPI TE THIS CLEAR MISMATCH OF THE FUNCTIONAL PROFILE OF THE ASSESSEES INTERNA TIONAL TRANSACTION OF `PROVISION OF MARKETING SUPPORT SERVICES WITH THE IT RESEARCH/ADVISORY SERVICES PROVIDED BY THESE TWO COMPANIES, WE ARE UN ABLE TO ACCEPT THE CONTENTION OF THE LD. DR TO ORDER A DE NOVO ADJUDICATION. IT IS PATENT THAT THE ASSESSEE IN THE INSTANT APPEAL IS AGGRIEVED AGA INST THE INCLUSION OF THE AFORE DISCUSSED FOUR COMPANIES FROM A TOTAL SET OF SIX COMPANIES. IT HAS NO ISSUE WITH THE INCLUSION OF IDC LTD., AND ICRA MANA GEMENT CONSULTING SERVICES LTD. THE REVENUE IS NOT IN APPEAL BEFORE U S. IN SUCH CIRCUMSTANCES, WE ARE UNABLE TO REMEDY THE SITUATIO N TO THE ADVANTAGE OF THE REVENUE INASMUCH AS IT IS THE TPO WHO HAS ACCEP TED THE COMPARABILITY OF THESE TWO COMPANIES WITH THE ASSESSEES MARKETIN G SUPPORT SERVICES. AS SUCH, OUR HANDS ARE TIED TO HOLD THAT THE TWO SURVI VING COMPANIES IN THE ITA NO.5766/DEL/2011 22 FINAL LIST OF COMPARABLES WHICH ARE, IN FACT, NOT C OMPARABLE, BE ALSO EXCLUDED AND A FRESH DETERMINATION OF THE ALP BE DO NE. WE ARE, ERGO, LEAVING THIS ISSUE HERE ONLY WITH THE HOPE THAT A B ETTER AND MORE WISER ANALYSIS WILL BE DONE BY THE TPOS IN THE DAYS TO CO ME. 30. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND RE ADING AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AN EXPENSE OF RS.207,549 DISALLOWED BY THE LEARNED ASS ESSING OFFICER AS PRIOR PERIOD EXPENSES SHOULD BE ALLOWED AS AN EXPENSE IN AY 2007-08 SINCE IT PERTAINS TO THE SAID AY. 31. IT IS APPARENT FROM THE TEXT OF GROUND ITSEL F THAT IT IS A LEGAL GROUND AND DOES NOT REQUIRE ANY FRESH INVESTIGATION OF FAC TS FOR ITS DETERMINATION. THIS GROUND IS, THEREFORE, ADMITTED FOR DISPOSAL ON MERITS. 32. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE CROP PED UP BEFORE THE TRIBUNAL THROUGH ADDITIONAL GROUND FOR THE AY 2006- 07. THIS HAS BEEN DEALT WITH BY THE TRIBUNAL IN ITS ORDER VIDE PARAS 9 AND 10. THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF AO WITH CERTA IN DIRECTIONS. RESPECTFULLY FOLLOWING THE PRECEDENT, WE DIRECT THE AO TO DECIDE THIS ISSUE ITA NO.5766/DEL/2011 23 IN CONFORMITY WITH THE DIRECTION GIVEN BY THE TRIBU NAL BY ITS ORDER FOR THE AY 2006-07. 33. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 30 .06.2 015. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 30 TH JUNE, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.