LLOYDS TSB GLOBAL SERVICES P.LTD, BANGALORE V. DCIT CIR 3(2), MUMBAI

ITA 5928/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9374 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 28-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Keywords: Transfer pricing; International transaction; Rule of consistency
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . , , ! '# ! '# ! '# ! '#, ,, , $ $ $ $ BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 5928/MUM./2012 ( & ' (' / ASSESSMENT YEAR : 200809 ) LLOYDS TSB GLOBAL SERVICES PVT. LTD. UNIT2, B WING, TRIDIB BLDG. BAGMANE TECH PARK, C.V. RAMAN NAGAR BANGALORE 560 093 .. )* / APPELLANT & V/S DY . COMMISSIONER OF INCOME TAX CIRCLE3(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... +,)* / RESPONDENT ) . / PERMANENT ACCOUNT NUMBER AAACL9321N & '.! / 0 / ASSESSEE BY : MR. M.P. LOHIA 1 / 0 / REVENUE BY : MR. AJEET KUMAR JAIN & / !2 / DATE OF HEARING 30.10.2012 ' 3( / !2 / DATE OF ORDER 21.11.2012 ' ' ' ' / ORDER +, +, +, +, PER BENCH THE PRESENT APPEAL PREFERRED BY THE ASSESSEE, IS DI RECTED AGAINST THE FINAL IMPUGNED ASSESSMENT ORDER DATED 27 TH AUGUST 2012, WHICH WAS PASSED IN PURSUANCE OF THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION LLOYDS TSB GLOBAL SERVICES PVT. LTD. 2 PANELI (FOR SHORT DRP ), MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 144C(V) OF THE INCOME TAX ACT, 1961 ( FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 200809. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THE LEARNED AO ERRED IN PASSING AN ORDER UNDER S ECTION 143(3) R.W.S. 92CA AND R.W.S 144C(5). 2. THE LEARNED ASSESSING OFFICER / TRANSFER PRICING OFFICER (TPO) ERRED IN MAKING AN ADDITION OF RS. 26,750,954 TO THE VALUE OF INTERNATIONAL TRANSACTION OF RENDERING SUPPORT SERV ICES BY THE APPELLANT. THE AO / TPO ERRED IN DETERMINING THE AV ERAGE PROFIT LEVEL INDICATOR (PLI) OF THE COMPARABLES AT 30.84%. 3. THE LEARNED AO/ TPO ERRED IN REJECTING THE DOCUM ENTATION TO THE EXTENT OF THE SEARCH PROCESS ADOPTED BY THE APPELLA NT WITHOUT PROVIDING ANY COGENT REASONS AND REQUESTING THE APP ELLANT TO CONDUCT A FRESH SEARCH FOR COMPARABLE COMPANIES: 4. WITHOUT PREJUDICE, IN THE FRESH SEARCH CONDUCTED BY THE APPELLANT THE LEARNED A.O / TPO ERRED IN REJECTING FIVE LOW MARGIN EARNING COMPARABLE COMPANIES AND ACCEPTING FOUR HIG H MARGIN EARNING COMPANIES AS COMPARABLE TO THE APPELLANT WI THOUT CONSIDERING THE FACT THAT THE LOW MARGIN COMPANIES WERE ENGAGED IN THE SAME ACTIVITIES AS THAT OF HIGH MARGIN COMPA NIES. 5. THE LEARNED AO / TPO ERRED IN IDENTIFYING COMPAR ABLE COMPANIES BASED ON THE DATA AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE ASSESSMENT I.E USING NONCONTEMPORANE OUS DATA FOR CALCULATING ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ENTERED BY THE APPELLANT. 6. THE LEARNED AO / TPO ERRED IN USING SINGLE YEAR DATA FOR UNDERTAKING A COMPARABILITY ANALYSIS THAT WILL NOT PRODUCE ACCURATE RESULTS. 7. THE LEARNED AO / TPO ERRED IN NOT CONSIDERING TH E PROVISIONS OF SECTION 92C(2) OF THE ACT WHILE DETERMINING THE ALP . 2. THE LEARNED COUNSEL, MR. M.P. LOHIA, REPRESENTING THE ASSESSEE, DURING THE COURSE OF HEARING, SUBMITTED BEFORE US THAT HE DID NOT WISH TO PRESS GROUNDS NO.3, 5, 6 & 7. LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT OBJECT TO THE SUBMISSIONS OF THE ASSESSEE. CONSEQUENTLY, THESE GR OUNDS ARE DISMISSED AS NOT PRESSED . LLOYDS TSB GLOBAL SERVICES PVT. LTD. 3 3. GROUND NO.1, IS GENERAL IN NATURE, HENCE, NO SEPARA TE ADJUDICATION IS REQUIRED. 4. GROUNDS NO.2 AND 4, THE ASSESSEE HAS MAINLY CHALLEN GED THE ADDITION OF RS. 2,67,50,954, ON ACCOUNT OF ADJUSTMENT MADE IN ARM S LENGTH PRICE (FOR SHORT ALP ) ON THE VALUE OF INTERNATIONAL TRANSACTIONS. 5. BRIEF FACTS OF THE CASE ARE THAT LLOYDS TSB GLOBAL SERVICES PVT. LTD. (FOR SHORT GSL ), INCORPORATED IN INDIA IN OCTOBER 2003 AND IS SUB SIDIARY OF LLOYDS TSB BANK PLC. (FOR SHORT LTSB). IT IS E NGAGED IN PROVIDING SUPPORT SERVICES RELATING TO OVER ALL MANAGEMENT OF LTSBS BUSINESS IN INDIA AND TO OVERSEAS OFFSHORE BUSINESS OPERATION RISK AND COMPLIANCE AND ALL NECESSARY RELATIONSHIP IN INDIA. THE SCOPE OF SERVICES RENDERED BY THE ASSESSEE GSL TO LTSB HAS BEEN ENUMERATED IN A L ETTER DATED 19 TH AUGUST 2005, WRITTEN BY THE C.E.O. OF THE ASSESSEE COMPANY TO THE DIRECTOR OF LTSB IN THE FOLLOWING MANNER: SCOPE OF SERVICES: 3. AS PER GSLS ARRANGEMENT WITH LTSB THE OVERARCHI NG FUNCTION OF GSL IS TO PROVIDE SUPPORT ON ISSUES WHICH AFFECT TH E CONDUCT OF BUSINESS BETWEEN LTSB AND ITS INDIAN OUTSOURCE PART NERS. THIS INCLUDES SUPPORT TOWARDS PROTECTING LTSB FROM ANY B RAND RISK AND PROVIDING SUPPORT TO LTSB EMPLOYEES PRESENT IN INDI A FROM TIME TO TIME IN RELATION TO THE OUTSOURCED ACTIVITIES. 4. SPECIFICALLY, UNDER ITS ARRANGEMENT WITH LTSB, GSL HAS BEEN REQUESTED TO PROVIDE THE FOLLOWING SUPPORT SERVICES TO LTSB IN RELATION TO THE OUTSOURCED ACTIVITIES. UK SECONDED STAFF WELFARE SUPPORT SUPPORTING LTSP, EMPLOYEES SENT TO INDIA IN CONNECT ION WITH THE OUTSOURCED ACTIVITIES ON SHORT OR LONG TERM STAYS. THIS INCLUDES WORKING WITH LTSB OFFSHORE UNITS TO DEVELOP TEMPLAT ES FOR TRACKING STAFF MOVEMENTS MAINLY AT WEEKENDS, AND A DOCUMENTE D SET OF LOCAL PROCEDURES COVERING STAFF MEDICAL WELFARE, AD MINISTRATION OF INSURANCE AND IMMIGRATION MATTERS, AND LTSB ISSUED GUIDELINES ON STAFF CONDUCT AND REPATRIATION SUPPORT. BEING THE POINT OF CONTACT FOR THE LTSB EMPLOYEES V ISITING INDIA IN CONNECTION WT THE OUTSOURCED ACTIVITIES IF IN NEED OF ASSISTANCE, INCLUDING IN A MEDICAL EMERGENCY. LLOYDS TSB GLOBAL SERVICES PVT. LTD. 4 RISK AND COMPLIANCE MANAGEMENT OVERSEEING THE IMPLEMENTATION OF LTSBS RISK MANAGE MENT STRATEGY AND ENCOURAGING LTSB BEST PRACTICES IN RIS K AND COMPLIANCE MANAGEMENT IN RELATION TO THE OUTSOURCED ACTIVITIES AT THE OUTSOURCE PARTNERS OFFICES / SITES IN INDIA. CONDUCT REGULAR CHECKS / AUDITS, IN CONJUNCTION WIT H THE LTSB INTERNATIONAL SECURITY CONSULTANT AND LTSB BUSINESS UNIT RISK TEAMS, ON THE OUTSOURCE PARTNERS BUSINESS PRACTICE S IN THE CONTEXT OF THE PERFORMANCE OF THE OUTSOURCED ACTIVITIES AND THE WELFARE, HEALTH AND SAFETY OF LTSB EMPLOYEES, IF ARTY, VISIT ING THE OUTSOURCE PARTNERS WORK SITE. INCIDENT END CRISIS MANAGEMENT COORDINATION IN THE EVENT OF A COUNTRY SPECIFIC OR ISOLATED RISK TO LTSB EMPLOYEES VISITING INDIA THE CEO, GSL IS RESPONSIBL E FOR CONVENING AND MANAGING THE CRISIS MANAGEMENT TEAM, AND IMPLEM ENTATION OF THE CRISIS MANAGEMENT PLAN, IF DEEMED APPROPRIATE, AND AND IN THE MANNER AGREED WITH LTSB. IT IS CLARIFIED THAT GSLS RESPONSIBILITIES ARE RESTRICTED TO EMPLOYEES OF LTSB VISITING INDIA AND THAT THE OUTSOURCE PARTNERS ARE RESPONSIBLE FOR CRISIS MANAG EMENT WITHIN THEIR OWN BUSINESSES. CORPORATE SOCIAL RESPONSIBILITY (CSR) GSL IS RESPONSIBLE FOR OVERSEEING THE IMPLEMENTATIO N OF LTSBS CSR PROGRAMME IN EACH OF THE CITIES WHICH THE OUTSO URCE PARTNERS OPERATE. CSR IMPLEMENTATION WILL INCLUDE IDENTIFYIN G SUITABLE PROJECTS FOR LTSBS CONSIDERATION, AND ADVISING LTS B OF ANY POTENTIAL RISKS THAT MAY ARISE TO THE LTSB BRAND ON IMPLEMENTATION OF THE SAME. INDUSTRY REPRESENTATION IN ACCORDANCE WITH THE DIRECTIONS OF AND UNDER THE EXPRESS INSTRUCTIONS OF LTSB, REPRESENT LTSB IN DEVELOPING RELATIONSHIPS WITH APPROPRIATE INDUSTRY AND GOVERNMENT BODIES (E. G. NASSCOM, BRITISH HIGH COMMISSION) AND LAW ENFORCEMENT AGENCI ES IN RELATION TO THE OUTSOURCED ACTIVITIES IN INDIA AND TO ASSIST THE LLOYDS 156 GROUP IN ITS EFFORTS TO ENHANCE END PROTECT ITS REP UTATION IN INDIA. PROVIDE SUPPORT TO BUSINESS UNITS ON INDUSTRY REGUL ATION AND TRENDS PROVIDING TIME TO TIME UPDATES REGARDING DEVELOPMEN TS IN THE INDIAN SPO MARKET AND WITH REGARD TO ANY REGULATORY OR LEGISLATIVE CHANGES IN INDIA WHICH COULD IMPACT THE PERFORMANCE OF LTSBS CONTRACTS WITH THE OUTSOURCE PARTNERS. LIAISING WITH LTSBS LAWYERS FOX MANDAL IN INDIA FO R OBTAINING THE ABOVE LEGAL AND REGULATORY UPDATES AND ASSIST LTSB AT THEIR REQUEST LLOYDS TSB GLOBAL SERVICES PVT. LTD. 5 AND UNDER THEIR INSTRUCTIONS, IN THE CO-ORDINATION WITH FOX MANDAL OF ANY LEGAL MATTERS IN RELATION TO THE OUTSOURCED ACTIVITIES. SUPPLIER MANAGEMENT SUPPORT THE PRIMARY SUPPLIER MANAGEMENT RELATIONSHIP WILL B E MANAGED BY LTSB FROM THE UK. HOWEVER, GSL WILL PRVDE LTSB WITH CERTAIN SUPPLIER MANAGEMENT SUPPORT SERVICES FORM TIME TO T IME AT LTSBS REQUEST SUCH AS SEAT UTILISATION AUDITS AT THE LOCA TION OF THE OUTSOURCE PROVIDER . 6. FOR THE SERVICES SO RENDERED, THE ASSESSEE WAS REMU NERATED COST PLUS 10%. DURING THE FINANCIAL YEAR 200708, THE AS SESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS: (I) RENDERING OF SUPPORT SERVICES LTSB RS. 14,37,84,205; (II) REIMBURSEMENT OF EXPENDITURE RS. 5,82,33,539. 7. IN RELATION TO RENDERING OF SUPPORT SERVICES, THE A SSESSEE IN ITS T.P. STUDY REPORT HAS SELECTED TRANSACTIONAL NET MARGIN METHOD (FOR SHORT TNMM ) AS MOST APPROPRIATE METHOD AND SELECTED ITSELF AS TESTED PARTY FOR THE PURPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTION ENTERED INTO WITH LTSB. IN THE SAID REPORT, THE ASSESSEE HA S USED MULTIPLE YEAR DATA OF 200506, 200607, 200708 AND IDENTIFIED TH IRTEEN COMPARABLES. THE TRANSFER PRICING OFFICER (FOR SHORT TPO ) TO WHOM MATTER WAS REFERRED BY THE ASSESSING OFFICER UNDER SECTION 92CA(1) FOR DETERMINING ALP ON INTERNATIONAL TRANSACTIONS, REJECTED THE ASSESSEES SELECTION FOR MULTIPLE YEAR DATA ON THE GROUND THAT AS PER RULE 10B, RELEV ANT YEAR DATA SHOULD BE USED. HE, THEREFORE, REQUIRED THE ASSESSEE TO COMPU TE PROFIT LEVEL INDICATOR (FOR SHORT PLI ) OF THE COMPARABLES USING THE F.Y. 200708 DATA. THEREAFTER, THE ASSESSEE SUBMITTED THAT OUT O F THIRTEEN COMPARABLES SELECTED BY IT, EIGHT WERE NOT COMPARABLE DUE TO VA RIOUS FACTORS, WHICH ARE ENUMERATED IN PARA 9 OF TPOS ORDER. THE TPO FINALL Y REJECTED THE ASSESSEES ENTIRE T.P. STUDY REPORT ON VARIOUS GROU NDS WHICH HAS BEEN DISCUSSED AT PARA11 OF THE ORDER. LLOYDS TSB GLOBAL SERVICES PVT. LTD. 6 8. THE TPO FURTHER REQUIRED THE ASSESSEE TO CONDUCT FR ESH SEARCH FOR THE COMPARABLES USING DATA OF F.Y. 200708 AND IN P URSUANCE OF WHICH THE ASSESSEE SUBMITTED FRESH SET OF FOLLOWING NINE COMP ARABLE COMPANIES HAVING ARITHMETIC MEAN OF 16.10% AS AGAINST 10.32% SHOWN BY THE ASSESSEE. SL.NO. NAME OF COMPANY PLI 1. ACCESS INDIA ADVISORS LTD. 45.97% 2. E D C I L (INDIA) LTD. 5.2% 3. I C R A MANAGEMENT CONSULTING SERVICES LTD. 3.22% 4. I D C (INDIA) LTD. 14.87% 5. IN HOUSE PRODUCTIONS LTD. 0.56% 6. INDIA TOURISM DEVP. CORPN. LTD. 9.4% 7. INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. 13.53% 8. INMACS MANAGEMENT SERVICES LTD. 49% 9. OVERSEAS MANPOWER CORP. LTD. 3.13% ARITHMETIC MEAN 16.10% 9. THE TPO, FROM THE SAID COMPARABLES, HOWEVER, ACCEPT ED FOUR COMPARABLE COMPANIES AND REJECTED THE FIVE COMPARAB LES IN THE FOLLOWING MANNER: SL.NO. NAME OF COMPANY REMARKS OF THE TPO 1. ACCESS INDIA ADVISORS LTD. SELECTED IN THE TP STUDY. REJECTED VIDE LETTER DATED 11TH APRIL 2011, SELECTED IN THE FRESH SEARCH. ACCEPTED BY THE TPO. 2. E D C I L (INDIA) LTD. EDCIL( INDIA) LIMITED IS OFFERING CONSULTANCY SERVICES AREAS OF EDUCATION AND HUMAN RESOURCE DEVELOPMENT, IN INDIA AND BEYOND NATIONAL BOUNDARIES WITH SPECIAL FOCUS ON DEVELOPING COUNTRIES OF LLOYDS TSB GLOBAL SERVICES PVT. LTD. 7 ASIA AND AFRICA. THE FUNCTIONAL PROFILE OF THE COMPANY IS DIFFERENT FROM THE TAXPAYER. 3. I C R A MANAGEMENT CONSULTING SERVICES LTD. IMACS IS A MANAGEMENT CONSULTING FIRM AND IS ENGAGED IN CONSULTING, ANALYTICS AND TRANSACTION ADVISORY SERVICES. THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. 4. I D C (INDIA) LTD. ACCEPTED AS COMPARABLE. 5. IN HOUSE PRODUCTIONS LTD. THE COMPANY IS INTO MEDICAL BUSINESS PROCESS OUTSOURCING BUSINESS(BPO). THE FUNCTIONAL PROFILE OF THE COMPANY IS DIFFERENT FROM THE TAXPAYER. 6. INDIA TOURISM DEVP. CORPN. LTD. THE CORPORATION IS RUNNING HOTELS, RESTAURANTS AT VARIOUS PLACES FOR TOURISTS, BESIDES PROVIDING TRANSPORT FACILITIES, IN ADDITION, THE COMPANY IS ENGAGED IN PRODUCTION, DISTRIBUTION AND SALE OF TOURIST PUBLICITY LITERATURE AND PROVIDING ENTERTAINMENT AND DUTY FREE SHOPPING FACILITIES TO THE TOURISTS. THE FUNCTIONAL PROFILE OF THE COMPANY IS DIFFERENT FROM THE TAXPAYER. 7. INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. ACCEPTED AS COMPARABLE 8. INMACS MANAGEMENT SERVICES LTD. ACCEPTED AS COMPARABLES 9. OVERSEAS MANPOWER CORP. LTD. OMG IS ENGAGED IN THE BUSINESS OF FINDING SUITABLE OVERSEAS PLACEMENTS FOR THE INDIAN PROFESSIONALS, SKILLED WORKERS AND OTHERS, WHO ARE DESIROUS OF SECURING JOBS ABROAD. THE FUNCTIONAL PROFILE OF THE COMPANY IS DIFFERENT FROM THE TAXPAYER. THEREFORE, THE TPO HAS REJECTED IT AS COMPARABLES. 10. BEFORE THE TPO, THE ASSESSEE MADE DETAIL OBJECTIONS ABOUT THE FUNCTIONAL COMPARABILITY OF THE FIVE COMPARABLE COM PANIES REJECTED BY LLOYDS TSB GLOBAL SERVICES PVT. LTD. 8 HIM, THE SAME HAS BEEN DISCUSSED FROM PAGES7 TO 11 OF THE TPO, HOWEVER, THE TPO REJECTED THE SAID CONTENTIONS OF T HE ASSESSEE AND AFTER SHORT LISTING FOLLOWING SET OF FOUR COMPARABLE COMP ANIES FOR THE PURPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTIONS : SL.NO. NAME OF COMPANY PLI (OP/OC) IN % 1. ACCESS INDIA ADVISORS LTD. 45.97 2. E D C I L (INDIA) LTD. 14.87 3. INDUS TECHNICAL AND FINANCIAL CONSULTANTS LTD. 13.53 4. INMACS MANAGEMENT SERVICES LTD. 49.00 AVERAGE PLI 30.84 HE MADE THE UPWARD ADJUSTMENT OF ALP AT RS.2,67,50 ,954/- 11. THEREAFTER, THE ASSESSEE PREFERRED TO FILE DETAIL O BJECTIONS BEFORE THE DRP FOR THE INCLUSION OF FIVE COMPARABLE COMPANIES WHICH HAS BEEN REJECTED BY THE TPO. HOWEVER, THE DRP REJECTED THE ASSESSEES CONTENTION AND UPHELD THE FINDINGS OF THE TPO. AGAINST SUCH DI RECTIONS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. LEARNED COUNSEL, MR. M.P.LOHIA, AFTER REFERRING TO THE FACTS OF THE CASE AND THE NATURE OF SERVICES PROVIDED BY THE ASS ESSEE TO ITS PARENT COMPANY, SUBMITTED BEFORE US THAT OUT OF THE NINE C OMPARABLE COMPANIES, WHICH WERE FINALLY SELECTED AFTER DETAIL SEARCH PRO CESS AS PER THE DIRECTION OF THE TPO, THE FOUR COMPARABLE COMPANIES HAVING HI GH MARGIN HAVE BEEN CHERRY PICKED BY THE TPO AND THE FIVE COMPARABLE CO MPANIES HAVING LOW PROFIT MARGIN HAS BEEN REJECTED. HE REFERRED TO THE FUNCTIONAL PROFILE AND THE BUSINESS DESCRIPTION OF THE COMPARABLE COMPANIE S WHICH ARE APPEARING AT PAGES68 TO 71 OF THE PAPER BOOK AND SUBMITTED T HAT THE BASIS FOR LLOYDS TSB GLOBAL SERVICES PVT. LTD. 9 REJECTION OF 5 COMPARABLES BY THE TPO ON THE GROUND THAT THEY ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE ARE NOT CO RRECT. IN SUPPORT OF HIS CONTENTION, HE GAVE DETAIL ANALYSIS OF EACH AND EVE RY FIVE COMPARABLES WHICH WERE REJECTED BY THE TPO. ALTERNATIVELY, HE S UBMITTED THAT IF THE CRITERIA OF FUNCTIONAL SIMILARITY IS TO BE TAKEN IN TO CONSIDERATION, THEN NONE OF THE 4 COMPARABLES SELECTED BY THE TPO CAN BE SAI D TO BE SIMILAR IN NATURE. THE TPO HAS DONE CHERRY-PICKING OF HIGH PRO FIT MARGIN COMPANIES ONLY AND NOTHING ELSE. HE FURTHER BROUGHT TO OUR NO TICE THAT IN THE EARLIER ASSESSMENT YEAR I.E., 200708, THE TPO HAS ACCEPTED THE ASSESSEES COMPARABLES OUT OF WHICH ICRA MANAGEMENT CONSULTING SERVICES LTD. AND EDCIL INDIA LTD., WERE COMMON. ONCE THESE TWO COMPA NIES HAVE BEEN HELD TO BE COMPARABLE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THEN HOW THE SAME TWO COMPANIES CAN BE SAID TO BE F UNCTIONALLY DIFFERENT IN THE PRESENT ASSESSMENT YEAR. HE, THEREFORE, PLEA DED THAT RULE OF CONSISTENCY SHOULD BE FOLLOWED AT LEAST FOR THESE T WO COMPANIES. 13. FINALLY, HE SUBMITTED THE BUSINESS DESCRIPTION AND FUNCTIONAL PROFILE OF ALL THE NINE COMPANIES BEFORE US IN THE FORM OF CHART AND HEAVILY RELIED UPON THE SAME. 14. PER CONTRA , THE LEARNED DEPARTMENTAL REPRESENTATIVE, RELYING UPON THE REASONING GIVEN BY THE TPO FOR REJECTING THE FI VE COMPARABLES ANALYSED THE BUSINESS DESCRIPTION AND FUNCTIONAL PROFILE OF EACH AND EVERY COMPARABLES REJECTED BY THE TPO, VIS--VIS THE BUSI NESS ACTIVITY AND FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY. IN THE CASE OF INDIA TOURISM DEVELOPMENT CORP. (ITDC), HE SUBMITTED THAT IT IS A PUBLIC SECTOR UNDERTAKING WHICH IS OPERATING IN THE BUSINESS OF H OTEL / RESTAURANT OPERATION; DUTY FREE SHOPS / DUTY PAID SHOPS OPERAT IONS TRAVEL AND TOUR OPERATIONS; SOUND AND LIGHT SHOW (SEL); ASHOK RESER VATION AND MARKETING SERVICE DIVISION (ARMS); MISC. OPERATIONS; AND CONS TRUCTION AND CONSULTANCY PROJECTS. REGARDING SEGMENTAL INFORMATI ON ABOUT SEL AND ARMS WHICH HAS BEEN TAKEN INTO ACCOUNT BY THE ASSES SEE FOR BENCHMARKING, HE SUBMITTED THAT THIS DIVISION OF IT DC IS ALSO FUNCTIONALLY LLOYDS TSB GLOBAL SERVICES PVT. LTD. 10 DIFFERENT WHICH IS EVIDENT FROM THE DESCRIPTION OF THE SAID ACTIVITIES GIVEN IN DIRECTORS REPORT, THE RELEVANT PORTION OF WHICH HA S BEEN GIVEN AT PAGES 248 AND 249 OF THE PAPER BOOK. HE SUBMITTED THAT TH IS DIVISION CARRIES ON THE FUNCTIONS OF HANDLING OF EVENTS AND CONFERENCES , PROMOTION AND MARKETING OF ITDC HOTELS AND RESERVATION OF ITDC HO TEL BY CENTRALIZED RESERVATION SERVICES. WHEREAS, ASSESSEES SCOPE OF ACTIVITIES IS ENTIRELY DIFFERENT, THEREFORE, THE FUNCTIONAL TEST FAILS IN THE CASE OF THIS COMPANY EVEN AT SEGMENTAL LEVEL WITH THAT OF THE ASSESSEE A ND, HENCE, IT HAS BEEN RIGHTLY REJECTED BY THE TPO. HE ALSO DREW OUR ATTEN TION TO THE PROFIT & LOSS ACCOUNT AND THE SEGMENTAL DETAILS OF ITDC AND POINT ED OUT THAT INCOME FROM SERVICES RENDERED BY THIS COMPANY ITSELF IS FU NCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE. 15. REGARDING EDCIL, EDUCATIONAL CONSULTING INDIA LTD., HE SUBMITTED THAT THIS COMPANY IS ALSO A PUBLIC SECTOR UNDERTAKI NG WHICH IS MAINLY ENGAGED IN RECRUITMENT OF TEACHERS AND EXPERTS FOR CLIENTS IN INDIA AND ABROAD AND ALSO FOCUSES ON PROMOTION OF INDIAN EDUC ATION AT ABROAD. EVEN OTHERWISE ALSO, TECHNICAL ASSISTANCE AND HUMAN RESO URCES DEVELOPMENT HRD WHICH HAS BEEN TAKEN BY THE ASSESSEE AS COMPARA BLE IS ALSO DIFFERENT FROM THE BUSINESS PROFILE OF THE ASSESSEE AS THESE DO NOT COME WITHIN THE PURVIEW OF BUSINESS SUPPORT SERVICES. HRD FUNCTIONS ARE BASICALLY RELATED TO PROMOTION OF INDIAN EDUCATION ABROAD AND RECRUIT MENT OF PERSONNEL IN MIDDLE EAST AND AFRICAN COMPANIES. THE SAID COMPANY WAS HAVING PROJECTS ONLY FOR GOVERNMENT. THE INCOME FROM TECHNICAL ASSI STANCE IS FROM EDUCATIONAL AIDS AND OTHER GOVT. PROJECTS AND ITS I NCOME FROM HRD ARE MOSTLY FROM PLACEMENT OF PERSONNEL. THIS COMPANY IS , THEREFORE, NOT COMPARABLE WITH THAT OF THE ASSESSEE. 16. REGARDING ICRA MANAGEMENT CONSULTING SERVICES, LD. CITDR SUBMITTED THAT THE AREA OF THE BUSINESS ACTIVITY OF THIS COMPANY IS RISK MANAGEMENT STRATEGY, PROJECT CONSULTING, TRANSACTIO N ADVISORY POLICY, REGULATION AND DEVELOPMENT CONSULTANCY. HE SPECIFIC ALLY DREW OUR ATTENTION TO DIRECTORS REPORT AS APPEARING IN THE PAPER BOOK AND DREW OUR SPECIFIC LLOYDS TSB GLOBAL SERVICES PVT. LTD. 11 ATTENTION TO ONE OF THE ACTIVITIES WHICH RELATES TO TRANSPORTATION IN URBAN SECTORS AND INVOLVEMENT IN POLICY FORMULATION, REGU LATORY REFORM IN INVESTMENT ADVISORY SERVICES. THUS, THIS COMPANY, H E PLEADED, IS ALSO FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE. H E FURTHER SUBMITTED THAT EVEN IF THIS COMPANY ALONG WITH EDCIL INDIA LTD. HA VE BEEN ACCEPTED TO BE COMPARABLE IN THE EARLIER YEARS, THEN ALSO IT CANNO T BE TAKEN AS COMPARABLE IN THIS YEAR AS ONCE ERROR HAS BEEN COMM ITTED IN THE EARLIER YEAR, THE SAME SHOULD NOT BE ALLOWED TO BE PERPETUA TED IN THE NEXT YEAR. FOR THIS, HE RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN DISTRIBUTORS (BARODA) PVT. LTD. V/S UNION OF INDIA, [1985] 155 ITR 120 (SC). 17. REGARDING OVERSEAS MANPOWER CORPORATION LTD., HE SU BMITTED THAT IT IS A GOVERNMENT OF TAMIL NADU UNDERTAKING AND BASIC ALLY IS A PLACEMENT COMPANY AND ITS MAIN SOURCE OF INCOME IS FROM RECRU ITMENT SERVICES ONLY. FURTHER, HE SUBMITTED THAT THIS COMPANY IS ALSO DOI NG AIR TICKETING BUSINESS. THEREFORE, THIS COMPANY CANNOT BE TAKEN A S A COMPARABLE AS THE FUNCTIONAL TEST COMPLETELY FAILS IN THIS CASE. 18. REGARDING INHOUSE PRODUCTION LTD., HE SUBMITTED THA T THIS COMPANY IS MAINLY ENGAGED INTO KNOWLEDGE PROCESSING OUTSOUR CING (KPO) AND IS ENTIRELY DIFFERENT FROM THE FUNCTIONS CARRIED OUT B Y THE ASSESSEE. HE FURTHER SUBMITTED THAT ITS MAIN BUSINESS IS HEALTHC ARE AND MEDIA DIVISION WHICH TOO ARE ONLY RELATED TO KPO ONLY AND IS ALSO DOING INHOUSE PRODUCTION. IN SUPPORT OF HIS CONTENTION, HE REFERR ED TO THE DIRECTORS REPORT OF THE COMPANY AS APPEARING IN THE PAPER BOO K. THUS, THIS COMPANY, HE PLEADED, IS ALSO ENTIRELY DIFFERENT FRO M THE ASSESSEE AND, THEREFORE, THE SAME HAS BEEN RIGHTLY REJECTED BY TH E TPO FOR TAKING INTO COMPARABILITY ANALYSIS. 19. THE LEARNED COUNSEL FOR THE ASSESSEE, IN HIS REJOIN DER, SUBMITTED THAT ONE HAS TO SEE THE OVERALL FUNCTION AND CANNOT SEE VERTICALLY BECAUSE OTHERWISE NO TWO COMPANIES HAVE SIMILAR FUNCTIONS. ALL THESE COMPANIES LLOYDS TSB GLOBAL SERVICES PVT. LTD. 12 ARE INTO BUSINESS SUPPORT SERVICES WHICH HAS A VERY VIDE CONNOTATION. IF THE CRITERIA OF REJECTION AS HAVE BEEN CANVASSED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND BY THE TPO, THEN EV EN THE FOUR COMPARABLES SELECTED BY THE TPO ARE ALSO FUNCTIONAL LY DIFFERENT. JUST BECAUSE THE FOUR COMPANIES HAVE VERY HIGH PROFIT MA RGIN, THEREFORE, THEY CANNOT BE HELD TO BE FUNCTIONALLY SAME AND OTHER CO MPANIES WHICH HAVE A LOWER PROFIT MARGIN CAN BE HELD TO BE FUNCTIONALLY DIFFERENT. HE, THEREFORE, SUBMITTED THAT SUCH CHERRY PICKING BY THE TPO IS UN CALLED FOR. REGARDING OBJECTION OF THE COMPANIES BY THE LEARNED DEPARTMEN TAL REPRESENTATIVE THAT THEY ARE PUBLIC SECTOR UNDERTAKINGS HE SUBMITT ED THAT THE SAME DOES NOT HAVE ANY BEARING ON THE OPERATING MARGIN. IN SU PPORT OF THIS CONTENTIONS, HE RELIED UPON THE DECISION OF THE ITA T, PUNE BENCH, IN THE CASE OF VISHAY COMPONENTS INDIA P. LTD. V/S DCIT, ITA NO.133/PN./2011 . FOR THE PROPOSITION THAT ONE HAS TO GO BY THE HORIZONTAL SET OF COMPARABLES OF PARTICULAR KIND AN D CLASS OF SERVICES BECAUSE IT IS VERY DIFFICULT TO GET ACCURATE COMPAR ABLES HAVING EXACT FUNCTIONAL PROFILES. HE PLACED HEAVY RELIANCE ON TH E DECISION OF THE ITAT, DELHI BENCH, IN THE CASE OF ACTIS ADVISORS P. LTD. V/S DCIT, ITA NO.5277/DEL./2011 . 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED MATERIAL PLACED ON RECORD AND THE IMPUGNED ORDERS. THE LIMITED ISSUE THAT IS REQUIRED TO BE ADJUDICATED IS WHETHER THE FIVE COMPARABLE COMPANIES WHICH HAS BEEN REJECTED BY THE TPO ON THE GROUND THAT THEY ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE CAN BE INCLUDED FOR COMPARABILITY ANALYSIS FOR BENCHMARKING THE ALP OF THE ASSESSEE COMPANY. INSOFAR AS THE APPLICATION OF TNNM IS CONCERNED FOR BENCH MARKING THE INTERNATIONAL TRANSACTION FOR DETERMINING THE ALP, THERE IS NO DISPUTE. FOR CARRYING OUT COMPARABILITY ANALYSIS, COMPARISON OF CONTROLLED TRANSACTIONS WITH AN UNCONTROLLED TRANSACTION HAS TO BE SEEN WHE THER THEY ARE COMPARABLE HAVING REGARD TO THE CHARACTERISTIC OF T HE PROPERTY AND SERVICE TRANSFERRED, FUNCTIONS PERFORMED TAKING INTO ASSETS USED AND RISK ASSUMED LLOYDS TSB GLOBAL SERVICES PVT. LTD. 13 AND OTHER ECONOMIC CIRCUMSTANCES. WHILE CARRYING OU T THE COMPARABILITY ANALYSIS ONE HAS TO SEE ECONOMICALLY SIGNIFICANT AC TIVITIES AND THE RESPONSIBILITY TAKEN BY THE UNRELATED PARTIES IN RE LATION TO THE TESTED PARTY. IN THIS CASE, AFTER DETAIL SEARCH PROCESS AND USING VARIOUS FILTRATIONS, NINE COMPARABLE COMPANIES WERE SHORT LISTED BY THE ASSES SEE AS PER THE DIRECTION OF THE TPO. OUT OF SUCH NINE COMPANIES, F OUR OF THEM HAVE BEEN ACCEPTED BY THE TPO, PRIMAFACIE, WHICH WERE HAVING HIGH PLI (PROFIT LEVEL INDICATOR). HE HAS REJECTED THE OTHER FIVE COMPANIE S MAINLY ON THE GROUND THAT THEY WERE FUNCTIONALLY DIFFERENT WITHOUT GIVIN G ANY REASONS AS TO HOW THE OTHER FOUR COMPANIES WHICH HAS BEEN ACCEPTED BY HIM ARE FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEES BUSINESS ACTIVITI ES. BE THAT AS IT MAY BE, THE FOUR COMPANIES VIZ.; (I) ACCESS INDIA ADVISORS LTD.; (II) IDC INDIA LTD.; (III) INDUS TECHNICAL AND FINANCIAL CONSULTANTS LTD . AND (IV) INMACS MANAGEMENT SERVICES LTD., BOTH THE PARTIES HAVE ACC EPTED TO BE A FIT COMPARABLE CASES. NOW WE HAVE TO SEE WHETHER OTHER FIVE COMPARABLES ARE TO BE INCLUDED IN THE COMPARABILITY ANALYSIS OR NOT. THE BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE HAS BEEN DIS CUSSED IN DETAIL IN THE FORGOING PARAGRAPHS WHICH ARE MOSTLY IN THE NATURE OF BUSINESS SUPPORT SERVICES AND LIAISONING. 21. IN THE CASE OF ITDC LTD. , IT IS SEEN THAT THIS COMPANY IS MAINLY ENGAGED IN THE BUSINESS OF RUNNING OF HOTEL AND RES TAURANTS AT VARIOUS TOURIST PLACES BESIDES PROVIDING TRANSPORT FACILITI ES. ITS MAIN BUSINESS ACTIVITIES REVOLVE AROUND PROMOTION OF TOURISM IN I NDIA. EVEN GOING BY THE SEGMENTAL DATA OF RESERVATION, MARKETING SERVICE AN D EVENT MANAGEMENT AS ADOPTED BY THE ASSESSEE FOR COMPARISON, IT IS SE EN THAT THESE FUNCTIONS ARE ENTIRELY DIFFERENT FROM THAT OF THE ACTIVITIES OF THE ASSESSEE COMPANY. UNDER THE ARMS DIVISION I.E., RESERVATION AND MARKE TING SERVICES, THIS COMPANY IS MAINLY HANDLING EVENT AND CONFERENCES, P ROMOTION AND MARKETING OF ITDC HOTELS AND RESERVATIONS. THE SEL I.E. SOUND AND LIGHT ACTIVITIES CARRIED ON BY THIS COMPANY ARE ALSO DIFF ERENT. THE SEGMENTAL DETAILS AND ALSO INCOME FROM SUCH SERVICE GOES TO S HOW THAT INCOME FROM LLOYDS TSB GLOBAL SERVICES PVT. LTD. 14 SERVICES RENDERED HAVE BEEN CLASSIFIED INTO SEVERAL CATEGORIES WHICH ARE ENTIRELY DIFFERENT FROM EACH OTHER. THE CONTENTIONS RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE FUNCTIONAL PRO FILE OF THE COMPANY IS ENTIRELY DIFFERENT FROM THE ACTIVITIES CARRIED ON B Y THE ASSESSEE APPEARS TO BE ACCEPTABLE. THEREFORE, IN OUR OPINION, GOING BY THE FUNCTIONAL PROFILE AS AVAILABLE ON RECORD BEFORE US, THIS COMPANY HAS RIG HTLY BEEN REJECTED BY THE TPO AND CANNOT BE INCLUDED AS A COMPARABLE ENTI TY EVEN AT A SEGMENTAL LEVEL FOR CONDUCTING ANY COMPARABILITY AN ALYSIS. ACCORDINGLY THE ASSESSEES CONTENTION FOR INCLUDING THE SAID COMPAN Y IS REJECTED. 22. NOW, COMING TO THE EDCIL AND ICRA MANAGEMENT CONSULTING SERVICES , WE FIND THAT THESE COMPANIES WERE ACCEPTED AS A C OMPARABLE BY THE TPO IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 200708 AND THERE WAS NO DISPUTE AMONG THE PARTIES IN THAT YEAR FOR TAKING THEM AS A COMPARABLE COMPANY. MOREOVER, GOING BY THE FUNCTION AL PROFILE SPECIFICALLY THAT OF ICRA MANAGEMENT CONSULTANT SERVICES, PRIMA FACIE, IT IS SEEN THAT IT IS ALSO ENGAGED IN THE BUSINESS SUPPORT SERVICES LIKE STRATEGY RISK MANAGEMENT, PROCESS CONSULTING, TRANSACTION ADVISOR Y POLICY AND REGULATION AND DEVELOPMENT CONSULTING. THESE FUNCTI ONS ARE, BY AND LARGE, SIMILAR TO THE ASSESSEES ACTIVITIES ALSO. THEREFOR E, THIS COMPANY ON MERITS ALSO IS INCLUDABLE IN THE SET OF COMPANIES. IN THE CASE OF EDCIL, THOUGH MAIN ACTIVITIES ARE FUNCTIONALLY DIFFERENT, HOWEVER , ITS TECHNICAL ASSISTANCE SEGMENT CAN BE BROADLY CONSIDERED TO BE FUNCTIONALL Y SIMILAR TO THE ASSESSEE. SINCE THIS COMPANY HAS BEEN ACCEPTED AS A COMPARABLE BY THE DEPARTMENT AS WELL AS BY THE ASSESSEE, THEREFORE, F OLLOWING THE RULE OF CONSISTENCY, WE HOLD THAT THIS COMPANY SHOULD ALSO BE INCLUDED AS COMPARABLE. WE ALSO FIND MERITS IN THE CONTENTIONS OF THE LD. COUNSEL THAT IN THE EARLIER YEAR ONCE THESE TWO COMPANIES HAVE B EEN FOUND TO BE FUNCTIONALLY SIMILAR, THEN IN THIS YEAR THEY CANNOT BE REJECTED ON FUNCTIONAL ANALYSIS. THUS, BOTH THE AFORESAID COMPANIES I.E. I CRA MANAGEMENT AND EDCIL ARE DIRECTED TO BE INCLUDED AS COMPARABLE FOR THE PURPOSE OF LLOYDS TSB GLOBAL SERVICES PVT. LTD. 15 COMPARABILITY ANALYSIS FOR DETERMINING THE ALP OF T HE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY. 23. REGARDING OVERSEAS MANPOWER CORP. LTD. , IT IS SEEN THAT IT IS PURELY RECRUITMENT AND PLACEMENT COMPANY AND ITS MA IN REVENUE IS FROM RECRUITMENT SERVICES ONLY. THUS, NOT ONLY THE FUNCT IONAL PROFILE, THE OTHER TEST OF COMPARABILITY ANALYSIS ALSO FAILS IN THIS C ASE. THEREFORE, WE FULLY AGREE WITH THE CONTENTION OF THE LD. CITDR THAT THI S COMPANY HAS RIGHTLY BEEN REJECTED BY THE TPO FOR THE PURPOSE OF COMPARA BILITY ANALYSIS AND IS TO BE EXCLUDED. 24. LASTLY, IN THE CASE OF INHOUSE PRODUCTIONS LTD. , IT IS SEEN THAT THIS COMPANY IS MAINLY ENGAGED IN THE BUSINESS OF KNOWLE DGE PROCESS OUTSOURCING (KPO) IN THE FIELD OF HEALTHCARE AND IS ALSO ENGAGED IN MEDIA. THE FUNCTIONS AND THE BUSINESS ACTIVITIES OF THIS C OMPANY AS SEEN FROM THE RECORDS IS NOT COMPARABLE TO THAT OF THE BUSINESS A CTIVITIES CARRIED ON BY THE ASSESSEE AND THE FUNCTIONAL PROFILE IS ALSO DIF FERENT. THEREFORE, THIS COMPANY HAS RIGHTLY BEEN REJECTED BY THE TPO. 25. THUS, IN OUR VIEW, BESIDES FOUR COMPANIES, ACCEPTED BOTH BY THE TPO AS WELL AS BY THE ASSESSEE, TWO MORE COMPANIES SHOU LD ALSO BE INCLUDED NAMELY EDCIL AND ICRA MANAGEMENT SERVICES FOR THE P URPOSE OF COMPARABILITY ANALYSIS FOR DETERMINING THE ALP. THE BALANCE THREE COMPANIES ARE TO BE EXCLUDED. THE TPO IS DIRECTED T O WORK OUT THE ARITHMETIC MEAN FOR THE FINALLY SELECTED SIX COMPAN IES AND DETERMINE THE ALP. ACCORDINGLY, GROUNDS NO.2 AND 4, ARE PARTLY AL LOWED. 26. IN GROUND NO.9, THE ASSESSEE IS AGGRIEVED BY THE FA ILURE OF THE ASSESSING OFFICER TO GRANT CREDIT FOR ADVANCE TAX O F RS. 64,07,100. 27. AFTER HEARING BOTH THE PARTIES AND GOING THROUGH TH E RECORD, WE DIRECT THE ASSESSING OFFICER TO GIVE CREDIT OF THE ADVANCE TAX PAID AFTER VERIFYING IT FROM AS26 OR AS PER THE CHALLAN. ACCOR DINGLY, GROUND NO.9, IS TREATED AS ALLOWED SUBJECT TO VERIFICATION BY THE A SSESSING OFFICER. LLOYDS TSB GLOBAL SERVICES PVT. LTD. 16 28. . !4 & '.! / ' 5! / 1! 67 8 28. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ' / ( 9 :&4 21/11/2012 / ; 8 ORDER PRONOUNCED IN THE OPEN COURT ON 21/11/2012 SD SD/ - . .. . B. RAMAKOTAIAH ACCOUNTANT MEMBER SD/ - ! ! ! ! '# '# '# '# AMIT SHUKLA JUDICIAL MEMBER MUMBAI, :& :& :& :& DATED: 21/11/2012 ' / +!< =<(! / COPY OF THE ORDER FORWARDED TO : (1) & '.! / THE ASSESSEE; (2) 1 / THE REVENUE; (3) >() / THE CIT(A); (4) > / THE CIT, MUMBAI CITY CONCERNED; (5) < A; +!& , , / THE DR, ITAT, MUMBAI; (6) ;B' C / GUARD FILE. ,