M/s Microsoft Corporation (India) Pvt. Ltd., New Delhi V. Addl.CIT, New Delhi

ITA 5980/DEL/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3755 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2003-2004
• Appeal Filed On: 23-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA SENIOR
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Bad and doubtful debts; Set aside
• Section: 234B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5980/DEL./2016 (ASSESSMENT YEAR : 2003-04) M/S. MICROSOFT CORPORATION (INDIA) VS. ADDL.CIT, PRIVATE LTD., RANGE 6, 807, NEW DELHI HOUSE, NEW DELHI. BARAKHAMBA ROAD, NEW DELHI 110 001. (PAN : AAACM5586C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESHWAR RAO, ADVOCATE REVENUE BY : SHRI SANJAY I. BARA, SENIOR DR DATE OF HEARING : 03.10.2019 DATE OF ORDER : 28.11.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER THE APPELLANT, M/S. MICROSOFT CORPORATION (INDIA) PVT. LTD. (MCIPL) (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 18.07.2016 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- 44, NEW DELHI IN AN APPEAL CHALLENGING THE ORDERS P ASSED BY THE LD. TPO/AO QUA THE ASSESSMENT YEAR 2003-04 ON THE GROUN DS INTER ALIA THAT :- ITA NO.5980/DEL/2016 2 TRANSFER PRICING GROUNDS 1. ON FACTS AND IN LAW, THE LD. TPO/AOI CIT(A) HAVE ERRED IN MAKING AN ADJUSTMENT OF INR 71,092,606 TO THE RE TURNED INCOME OF THE APPELLANT IN RESPECT OF THE INTERNATI ONAL TRANSACTION PERTAINING TO PROVISION OF MARKETING SU PPORT SERVICES ('IMPUGNED TRANSACTION'). 2. THAT THE LD. TPO/CIT(A) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES. 3. THAT ON FACTS AND IN LAW, THE LD. TPOI AOI CIT(A ) HAVE GROSSLY ERRED BY NOT APPRECIATING E CORRECT FUNCTIO NAL PROFILE OF THE APPELLANT AND DRAWING AN ERRONEOUS CONCLUSION T HAT THE APPELLANT IS ENGAGED IN PROVIDING HIGH-END SERVICES AND THEREBY DETERMINING THE ARM'S LENGTH PRICE ('ALP') USING FU NCTIONALLY DISSIMILAR COMPANIES AS COMPARABLES. 4. THAT ON FACTS AND IN LAW, WHILE DETERMINING THE OPERATING MARGIN OF THE TESTED PARTY, THE LD. TPOI AOI CIT(A) ERRED BY: FAILING TO APPRECIATE THAT THE ENTIRE BUSINESS OF T HE APPELLANT IS INTEGRATED AND OVERALL MARGIN OF THE APPELLANT FROM THE BUSINESS AS A WHOLE SHOULD BE CONSIDERED TO ARRIVE AT THE ALP; FAILING TO CONSIDER THE REVISED SEGMENTAL PROFIT AN D LOSS ACCOUNT SUBMITTED BY THE APPELLANT WHEREIN THE OPER ATING PROFIT MARGINS OF THE APPELLANT FROM PROVISION OF MARKETING SUPPORT SERVICES, MICROSOFT CONSULTING SERVICES ('MCS'), PRODUCT SUPPORT SERVICES ('PSS') WERE BASED ON APPROPRIATE ALLOCATION OF OVERHEADS A MONG THESE SEGMENTS; TREATING 'SEMINAR & TRAINING EXPENSES' AND 'PROVISI ON FOR DOUBTFUL DEBTS' AS NON- OPERATING ITEMS; WITHOUT PREJUDICE TO OTHER CONTENTIONS, EVEN IF THE 'SEMINAR & TRAINING EXPENSES' AND 'PROVISION FOR DOUBTFUL DEBTS' ARE EXCLUDED AS NON-OPERATING ITEMS WHILE DETERMINING OPERATING PROFITABILITY, THE PROV ISION IN RESPECT OF EMPLOYEE RETIREMENT BENEFITS SHALL ALSO BE EXCLUDED AS THE LD. TPO HAS HELD THAT PROVISIONS AR E ONLY ESTIMATIONS; 5. THAT ON FACTS AND IN LAW, THE LD. TPOI AOI CIT(A ) HAVE ERRED BY SELECTING FUNCTIONALLY / DISSIMILAR COMPAN IES TO THE FINAL SET OF COM PARABLES FOR THE IMPUGNED TRANSACTION TO DETERMINE THE ALP FOR THE IMPUGNED TRANSACTION. ITA NO.5980/DEL/2016 3 6. THAT ON FACTS AND IN LAW, THE LD. TPOI AOI CIT(A ) HAVE PASSED AN ORDER WHICH HAS COMPUTATIONAL ERRORS IN T HE MARGIN OF COMPARABLE COMPANIES, USED IN THE DETERMINATION OF THE ALP. 7. THAT ON FACTS AND IN LAW, THE LD. AO HAS ERRED I N MAKING A REFERENCE TO THE LD. TPO DESPITE THE ABSENCE OF R EQUISITE PRECONDITIONS BEING MET IN LAW. CORPORATE TAX GROUNDS 8. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMI NG THE DISALLOWANCE OF DEPOSITS MADE TO MTNL OF INR 7,65,2 14 & SECURITY DEPOSITS FOR RENTAL PREMISES OF INR 10,00, 000 WRITTEN OFF BY THE APPELLANT CLAIMED AS BUSINESS LOSS UNDER SEC TION 28 READ WITH SECTION 29 OF THE ACT. 8.1 THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW I N NOT APPRECIATING THAT THE AMOUNT SO WRITTEN OFF WAS NON -RECOVERABLE IN NATURE BEING A TRADING LOSS ON A REVENUE ACCOUNT AND WAS INCIDENTAL TO THE BUSINESS OF THE APPELLANT. 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 234B & 234C OF THE ACT. 10. THAT THE LD. AO ERRED ON FACTS AND IN LAW IN IN ITIATING THE PENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SEC TION 271 (1)(C) OF THE ACT. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. MICROSOFT CORPORATIO N (INDIA) PRIVATE LIMITED (MCIPL), THE TAXPAYER IS A WHOLLY O WNED SUBSIDIARY OF MICROSOFT CORPORATION, US. THE TAXPA YER CREATES AWARENESS OF MICROSOFT PRODUCTS IN INDIA IN GENERAL THROUGH SEMINARS, CONFERENCES, ADVERTISING IN PUBLIC MEDIA AND PROMOTIONAL CAMPAIGNS. MICROSOFT SOFTWARE IN INDIA IS SOLD THR OUGH A NETWORK OF INDEPENDENT UNRELATED DISTRIBUTORS. THE TAXPAYE R DOES NOT SELL SOFTWARE IN INDIA ON ITS OWN ACCOUNT BUT RENDERS MA RKETING SERVICES ITA NO.5980/DEL/2016 4 VIZ. MAXIMIZING THE MARKETS FOR MICROSOFT RETAIL PR ODUCTS INCLUDING ALL LOCAL ADVERTISING AND PERFORMING OTHER ACTIVITI ES INCLUDING DISSEMINATION OF INFORMATION TO POTENTIAL CUSTOMERS , COMMENTING ON ANY DEVELOPMENTS IN THE TERRITORY AFFECTING THE SOFTWARE INDUSTRY, INVESTIGATING FEASIBILITY OF NEW MARKETS FOR MICROSOFT RETAIL PRODUCTS, AND ALSO PROVIDES MICROSOFT CONSUL TANCY SERVICES AND PRODUCT SUPPORT SERVICES TO SUPPORT ITS SALE AN D MARKETING EFFORTS IN INDIA. 4. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AE) AS REPORTED IN FORM 3CEB AS UNDER :- S.NO. INTERNATIONAL TRANSACTION METHOD VALUE (IN RS.) 1 PROVISION OF MARKETING SUPPORT SERVICES TNMM 1,07,87,13,104 2 SERVICE FEE RECEIVED FOR SOFTWARE CONSULTING SERVICES TNMM 1,29,96,683 3 ASSIGNMENT OF PERSONNEL TNMM 89,91,796 5. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS APPLIED TRANSACTIONAL NET MARGIN METHO D (TNMM) WITH OPERATING PROFIT / TOTAL COST (OP/TC) AS PROFI T LEVEL INDICATOR (PLI). THE TAXPAYER CHOSEN 8 COMPARABLES WITH MARGIN OF 9.89% AS AGAINST ITS OWN MARGIN OF 11.79% AND FO UND ITS INTERNATIONAL TRANSACTIONS QUA MARKET SUPPORT SERVI CES AT ARMS LENGTH. ITA NO.5980/DEL/2016 5 6. HOWEVER, THE TRANSFER PRICING OFFICER (TPO)IN IT S ANALYSIS DISAGREED WITH THE TAXPAYER WHO HAS SEGREGATED THE TRANSACTIONS WITH THIRD PARTIES WHICH INCLUDES PROVIDING PRODUCT SUPPORT SERVICES AND MARKETING CONSULTING SERVICES WITH MAR KETING SUPPORT SERVICES RENDERED TO THE ASSOCIATED ENTERPRISES (AE ) AND ACCORDINGLY, TPO HAS TREATED THE PRODUCT SUPPORT SE RVICES RECEIVED FROM UNRELATED PARTIES NOT INCLUDIBLE IN MARKET SUP PORT SERVICES SEGMENTS AND CONSEQUENTLY, CALCULATED OPERATING MAR GIN OF THE TAXPAYER AT 3.07%. TPO, AFTER TAKING WEIGHTED AVER AGE OPERATING PROFIT MARGIN FOR FYS 2000-01 AND 2001-02, INCLUDED CRISIL LIMITED, ICRA LIMITED AND VIMTA LABS LTD. IN THE FI NAL SET OF COMPARABLES. TPO FINALLY SELECTED 11 COMPARABLES W ITH AVERAGE OF 17.60% AFTER TAKING INTO ACCOUNT THE ECONOMIC COST OF OWNING NET WORKING CAPITAL AND THE EFFECT OF SUCH COST ON OPER ATING INCOME COMPUTING THE ADJUSTED OPERATING MARGIN OF COMPARAB LES AT 16.13% AND PROPOSED THE ARMS LENGTH PRICE QUA MARK ETING SUPPORT SERVICES AT RS.118,15,53,563/- AND ADDED THE DIFFER ENCE OF RS.10,28,40,459/- TO THE TOTAL INCOME OF THE TAXPAY ER. 7. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. C IT (A) BY WAY OF FILING APPEAL, WHO HAS PARTLY ALLOWED THE SA ME. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEAL. ITA NO.5980/DEL/2016 6 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. LD. TPO IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS VIZ. MARKETING SUPPORT SERVICES TRANSACTIONS COMPUT ED AVERAGE AT 16.13% AFTER TAKING INTO ACCOUNT THE ADJUSTMENT QUA ECONOMIC COST OF OWNING NET WORKING CAPITAL AND THE EFFECT OF SUC H COST OF OPERATING INCOME WHICH IS AS UNDER :- S. NO. NAME OF THE COMPANY ADJUSTED OPERATING PROFIT MARGIN (WEIGHTED AVERAGE FOR 99-00 AND 00-01) 1 CRISIL LTD. 48.49% 2 GILCON PROJECT SERVICES LTD. -2.90% 3 ICRA LTD. 39.67% 4 E I L 17.16% 5 KITCO LTD. -.89% 6 NIS SPARTA LTD. 7.59% 7 WATER & POWER CONSULTANCY (I) LTD. 14.37% 8 VIMTA LABS LTD. 23.50% 9 PRIYA INTERNATIONAL LTD. 11.39% 10 RITES LIMITED 18.05% 11 UJJAWAL LIMITED 1.05% ARITHMETIC MEAN 16.13% 10. UNDISPUTEDLY, BUSINESS TRANSACTIONS QUA MARKETI NG SUPPORT SERVICES OF THE TAXPAYER WITH ITS AE IS IDENTICAL T O THE PRECEDING AS WELL AS SUCCEEDING YEARS WHICH HAVE ALREADY BEEN DE CIDED IN ITS FAVOUR. ITA NO.5980/DEL/2016 7 11. BEFORE LD. CIT (A), THE TAXPAYER CHALLENGED 6 C OMPARABLES EG. CRISIL LTD., ICRA LTD., VIMTA LABS, ENGINEERS I NDIA LTD., RITES LTD. AND WAPCOS. LD. CIT (A) HAS NOT AGREED WITH THE FINDINGS RETURNED BY THE LD. DRP IN THE VARIOUS ASS ESSMENT YEARS IN CASE OF THE TAXPAYER BY OBSERVING THAT SERVICES UND ER THE AGREEMENT, NAMELY, MARKETING REPRESENTATION AGREEME NT CANNOT BE SAID TO BE LOW END RATHER CHARACTERIZED THE SERVI CES RENDERED BY THE TAXPAYER TO ITS AE UNDER THE MASTER SERVICE AGR EEMENT AS SERVICES OF HIGH END WHICH ARE NOT RELATING TO ON LY MARKETING BUT ALSO RELATING TO RESEARCH & DEVELOPMENT AND THEREBY RETAINED ALL THE AFORESAID SIX COMPARABLES IN THE FINAL LIST TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA MARKETING SUPPORT SE RVICES. 11.1 LD. CIT(A) HAS ALSO PREFERRED NOT TO FOLLOW TH E JUDICIAL PRECEDENTS RELIED UPON BY THE LD. AR FOR THE TAXPAY ER IN ITS OWN CASE IN THE SUCCEEDING AS WELL AS PRECEDING YEARS F OR THE REASONS THAT FUNCTIONALITY OF THE TAXPAYER WAS NOT BROUGHT BEFO RE THE COURT PROPERLY SPECIALLY RESEARCH & DEVELOPMENT (R& D) OF VARIOUS TECHNICAL PRODUCT OF MICROSOFT CORPORATION AS PROFIT IN MARKETING REPRESENTATION AGREEMENT . 12. PERUSAL OF PARA 5.2 OF THE TP ORDER DATED 18.09 .2009, AVAILABLE ON THE FILE, FOR AY 2006-07 SHOWS THAT FA R OF THE TAXPAYER WAS DONE AS UNDER :- ITA NO.5980/DEL/2016 8 5.2 THE DETAILS OF THE SERVICES RENDERED BY THE AS SESSEE TO MICROSOFT CORPORATION USA THESE SERVICES ARE GOVERNED BY MASTER SERVICE AGREE MENT WITH MICROSOFT CORPORATION USA. THE AGREEMENT IS TITLED PARENT SUBSIDIARY AGREEMENT DATED 01/07/2003. WHERE MICROS OFT CORP. USA IS CALLED MSFT. THE ASSESSEE IS REFERRED TO AS 'SUBSIDIARY''. THE FOLLOWING SERVICES AS PER AGREEMENT ARE BEING R ENDERED. 2. RESEARCH AND DEVELOPMENT SUBSIDIARY HEREBY AGREES TO UNDERTAKE SUCH RESEARCH AND DEVELOPMENT WORK AS REQUESTED AND APPROVED IN WRITI NG BY MSFT FORM TIME TO TIME. SUBSIDIARY MAY SUBCONTRACT WITH THIRD PARTIES TO PERFORM SOME ALL OF SUCH WORK UPON MSFT' S APPROVAL. IN THE EVENT THAT MSFT CONTRACTS DIRECTLY WITH VEND ORS IN COUNTRY MSFT MAY REQUESTED THE SUBSIDIARY TO PROVID E ASSISTANCE WITH REGARD TO SUCH CONTRACTS. 3. OTHER INTERCOMPANY SERVICES 3.1 SERVICES: MSFT AND SUBSIDIARY ACKNOWLEDGE THAT MSFT AND/OR ITS AFFILIATED COMPANIES MAY FROM TIME TO TI ME PROVIDE CORPORATE AND OTHER SERVICES TO SUBSIDIARY AND SUBS IDIARY MAY FROM TIME TO TIME PROVIDE CORPORATE AND OTHER SERVI CES TO MSFT AND/OR ITS AFFILIATED COMPANIES. 3.2 SALES: MSFT AND SUBSIDIARY ACKNOWLEDGE THAT MS FT AND/OR ITS AFFILIATED COMPANIES MAY FROM TIME TO TI ME PROVIDE SALES AND SALES RELATED SERVICES TO SUBSIDIARY AND SUBSIDIARY MAY FROM TIME TO TIME PROVIDE SALES AND SALES RELATED S ERVICES TO MSFT AND/OR ITS AFFILIATED COMPANIES. THE PAYMENT TERMS ARE DEFINED IN THE AGREEMENT AS U NDER : 4. FEE: PAYMENT TERMS 4.1 MARKETING; RESEARCH AND DEVELOPMENT IN CONSIDERATION OF SUBSIDIARY'S RESEARCH AND DEVEL OPMENT ACTIVITIES UNDER ARTICLE 2 MSFT SHALL PAY SUBSIDIAR Y A FEE EQUAL TO ONE HUNDRED AND TEN PERCENT (110%) OF SUBSIDIARY 'S ACTUAL EXPENSES, LESS REVENUES, INCURRED IN CONNECTION WIT H ITS DUTIES PROVIDE SUCH EXPENSES COMPLY WITH SUBSIDIARY BUDGET , AS ADJUSTED FROM TIME TO TIME, AND PROVIDE, FURTHER SUCH EXPENS ES ARE NOT ALREADY COMPENSATED PURSUANT TO ANOTHER SECTION OF THIS AGREEMENT OR ANOTHER AGREEMENT BETWEEN SUBSIDIARY A ND MSFT AND ANY MSFT AFFILIATE. THE FEE SHALL BE EXCLUSIVE OF ANY ITA NO.5980/DEL/2016 9 APPLICABLE CONSUMPTION TAX SUCH AS A VALUE ADDED TA X OR A GOODS AND SERVICE TAX, WHICH CONSUMPTION TAX SHALL BE THE RESPONSIBILITY OF MSFT. 13. AFORESAID FAR OF THE TAXPAYER IN AY 2006-07 UND ER THE SAME MASTER SERVICE AGREEMENT TITLED AS PARENT SER VICE AGREEMENT DATED 01.07.2003 CONSIDERED RESEARCH & DEVELOPMENT NOT MARKETING. AFORESAID FAR OF THE TAXPAYER HAS BEEN DULY CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 18.12.2014 IN ITA NO.5855/DEL/2010 IN TAXPAYE RS OWN CASE BY RETURNING FOLLOWING FINDINGS :- 13. BEFORE EMBARKING UPON MAKING AN ANALYSIS OF COMPARABILITY, IT IS SINE QUA NON TO FIRST ASCERTAI N THE CORRECT NATURE OF THE ASSESSEES ACTIVITY UNDER THE SEGMENT OF PROVISION OF MARKETING SUPPORT SERVICES. THE ASSESSEES TRAN SFER PRICING STUDY REPORT INDICATES THAT THE ASSESSEE, A WHOLLY OWNED SUBSIDIARY OF MICROSOFT CORPORATION, PROVIDED MARKE TING SUPPORT SERVICES MAINLY TO MICROSOFT CORPORATION PTE LTD., SINGAPORE AND A SMALL PORTION OF REVENUE AROSE FROM SERVICES REND ERED TO MICROSOFT CORPN., UK. THE ASSESSEE WAS COMPENSATED FOR SUCH SERVICES WITH ACTUAL COSTS INCURRED WITH A MARK-UP OF 15% FOR SERVICES RENDERED TO MICROSOFT CORPORATION PTE LTD. , SINGAPORE AND 10% FOR SERVICES RENDERED TO MICROSOFT CORPN., UK. ALL THE OPERATING EXPENSES, DEPRECIATION, REALIZED FOREIGN EXCHANGE GAIN/LOSS AND BANK CHARGES WERE TAKEN INTO ACCOUNT FOR CALCULATING THE MARKUP. THE TPO HAS REPRODUCED RELE VANT CLAUSES OF THE ASSESSEES AGREEMENT WITH MICROSOFT CORPORATION PTE LTD., SINGAPORE ON PAGE 4 ONWARDS OF HIS ORDER. THIS AGREEMENT STIPULATES THAT THE ASSESSEE SHALL PROVID E PRODUCT SUPPORT SERVICES AND CONSULTING SERVICES FOR THE MI CROSOFT PRODUCTS IN THE DEFINED TERRITORY. CLAUSE 3 OF THE AGREEMENT PROVIDES THAT THE ASSESSEE SHALL HAVE A NON EXCLUS IVE RIGHT TO MARKET MICROSOFT PRODUCTS IN THE TERRITORY. ITS DU TIES HAVE BEEN SET OUT IN CLAUSE 3.2 BY PROVIDING THAT THE ASSESSE E SHALL USE ITS BEST EFFORTS TO FURTHER THE INTEREST OF MO AND MAXI MIZE THE MARKETS FOR MICROSOFT PRODUCTS IN THE TERRITORY. IT HAS ALSO BEEN PROVIDED THAT THE ASSESSEE IN SOLICITING ORDERS SHA LL ONLY BE AUTHORIZED TO INFORM CUSTOMERS OF PRICE, PAYMENT DE LIVERY AND OTHER TERMS OFFERED BY MO IN ACCORDANCE WITH INFORM ATION RECEIVED FROM MO OR ITS AFFILIATES. IT FURTHER PROV IDES THAT THE ASSESSEE SHALL NOT ENTER INTO ANY AGREEMENTS WITH CUSTOMERS ITA NO.5980/DEL/2016 10 REGARDING MICROSOFT PRODUCTS, BUT SHALL INSTEAD PRO MPTLY SUBMIT WRITTEN CUSTOMER ORDERS TO MO OR ITS AFFILIATES AS APPROPRIATE, FOR ITS ACCEPTANCE OR REJECTION. THE NATURE OF SERVICE S PROVIDED BY THE ASSESSEE TO MICROSOFT CORPORATION, USA IS ALSO THAT OF MARKETING RESEARCH AND DEVELOPMENT. THUS, IT CAN BE SEEN THAT THE ASSESSEE IS BASICALLY ENGAGED IN CREATING AWARE NESS OF MICROSOFT PRODUCTS AMONGST EXISTING AND POTENTIAL U SERS OF MICROSOFT PRODUCTS IN INDIA THROUGH SEMINARS, CONFE RENCES, ADVERTISEMENT IN PUBLIC MEDIA AND PROMOTIONAL CAMPA IGNS. ALL THE EXPENSES INCURRED BY THE ASSESSEE ON SUCH SALES PROMOTION ACTIVITIES HAVE BEEN COMPLETELY REIMBURSED TO THE A SSESSEE WITH A MARK-UP OF 15% BY SINGAPORE AE. EVEN THOUGH SOME MA RKETING INTANGIBLES GET CREATED BY THE ASSESSEES SPENDING ON ADVERTISEMENT AND MARKETING EXPENSES, SUCH INTANGIB LES BELONG TO ITS AES BECAUSE THE ASSESSEE IS NOT INDULGING IN ANY SALE OR PURCHASE ACTIVITIES OF MICROSOFT PRODUCTS AT ITS OW N. 14. THE TPO HAS REFERRED TO CERTAIN CLIPPINGS, MOST LY RELATING TO THE PERIOD OF OCTOBER/NOVEMBER, 2008 TO BRING HO ME HIS POINT THAT THE ASSESSEE IS PROVIDING HIGH-END MARKETING S ERVICES AFTER IDENTIFYING THE CUSTOMERS AND ITS JOB IS NOT SIMPLY TO CREATE MARKET AWARENESS BY PERFORMING A LOW-END NON-COMPLE X FUNCTION. THIS, IN THE OPINION OF THE TPO, IS DONE BY THE LAUNCHING OF THE PRODUCTS WITH BIG ADVERTISEMENT CA MPAIGNS, CUSTOMER INTERFACE AND PROVISION FOR TRAINING AND B ACK-UP FOR USE OF PRODUCTS AND SOFTWARES. IN THIS REGARD, IT I S FIRSTLY RELEVANT TO NOTE THAT WE ARE DEALING WITH THE AY 2006-07 AND THE RELEVANT FINANCIAL YEAR ENDS ON 31.3.2006. ALL THE CLIPPINGS REFERRED TO BY THE TPO RELATE TO SUBSEQUENT YEARS. BE THAT AS IT M AY, IT CAN BE SEEN THAT THE INFERENCE DRAWN BY THE TPO THAT THE A SSESSEE IS NOT ONLY ENGAGED IN THE DISSEMINATION OF INFORMATION, B UT ALSO PROVIDING HIGH-END MARKETING SERVICES LEADING TO CR EATION OF MARKETING INTANGIBLE FOR ITS AE, IS NOT CORRECT. IT CAN BE SEEN FROM THE CLIPPING DATED 24 TH NOVEMBER, ON PAGE 19 OF THE TPOS ORDER THAT MICROSOFT CORPORATION INDIA PTE LTD., AN NOUNCED THE AVAILABILITY OF THE GET GENUINE SOLUTIONS (GGS) FOR WINDOWS, VISTA THROUGH WHICH CUSTOMERS WERE ABLE TO LEGALISE THEIR COUNTERFEIT OR UNLICENSED WINDOWS XP PROFESSIONAL P CS UNDER GGS BY SIMPLY PLACE(ING) AN ORDER WITH THEIR RESEL LER TO LEGALISE THEIR COUNTERFEIT SOFTWARE. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS NOWHERE ENGAGED IN THE ACTUAL SELLING O F THE PRODUCTS TO THE CUSTOMERS DIRECTLY. IT IS SIMPLY PROVIDING M ARKETING SUPPORT SERVICES BY CREATING CUSTOMER AWARENESS FOR THE MICROSOFT PRODUCTS AND ALSO IN CERTAIN CASES PROVID ING TRAININGS AND BACK-UPS FOR THE USE OF SUCH PRODUCTS AND SOFTW ARES. WITH THIS BACKGROUND OF THE NATURE OF THE ASSESSEES ACT IVITY UNDER THIS SEGMENT, LET US ANALYSE AS TO WHETHER THE FIVE COMP ANIES CHOSEN BY THE TPO ARE, IN FACT, COMPARABLES. ITA NO.5980/DEL/2016 11 14. WHEN WE EXAMINE THE FINDINGS RECORDED BY THE LD . CIT (A) AT PAGE 43 OF THE IMPUGNED ORDER RECHARACTERIZING T HE SERVICES RENDERED BY THE TAXPAYER UNDER THE MASTER SERVICE A GREEMENT AS HIGH END BY DEVIATING FROM THE EARLIER VIEW TAKEN BY THE REVENUE CONFIRMED BY THE TRIBUNAL, WE FAIL TO FIND OUT ANY REASON AS TO WHY THE LD. CIT (A) HAS NOT FOLLOWED THE DECI SION RENDERED BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2006-07 (SUPRA). LD. CIT (A) HAS TREATED THE SERVICES RENDERED BY THE TA XPAYER TO ITS AE AS HIGH END ON THE HALF-BAKED REASONS WHICH HAVE BE EN DULY REPLIED WITH DECIDED BY THE COORDINATE BENCH OF THE TRIBUNA L IN PARAS 13 & 14, EXTRACTED ABOVE, IN FAVOUR OF THE TAXPAYER. 15. SO, FOLLOWING THE DECISION RENDERED BY THE COOR DINATE BENCH OF THE TRIBUNAL IN AYS 2006-07 AND 2007-08, WE ARE OF THE CONSIDERED VIEW THAT THE TAXPAYER IS A LOW END MARK ETING SUPPORT SERVICE PROVIDER ON COST PLUS MARK UP BASIS BY CREA TING CUSTOMER AWARENESS FOR THE MICROSOFT PRODUCTS AND ALSO IN CE RTAIN CASES, TRAINING AND BACK UP FOR THE USE OF SUCH PRODUCTS A ND SOFTWARE AND NOT CREATING ANY MARKET INTANGIBLES FOR ITS AE. SO , THE VIEW TAKEN BY THE TPO THAT THE TAXPAYER IS INTO PROVIDING HIGH END MARKETING SERVICES LEADING TO CREATION OF HIGH END TANGIBLES FOR ITS AE IS NOT SUSTAINABLE. ITA NO.5980/DEL/2016 12 16. NOW, THE NEXT CONTENTION RAISED BY THE LD. AR F OR THE TAXPAYER THAT BY TREATING MARKETING SUPPORT SERVICE S BEING PROVIDED BY THE TAXPAYER TO ITS AE AS HIGH END SERVICES, THE LD. TPO PROCEEDED TO INCLUDE CRISIL LTD., ICRA LTD., VIMTA LABS LTD., WATER AND POWER CONSULTANCY SERVICES (INDIA) LTD. ( WAPCOS) AND RITES LTD. AS COMPARABLES WHICH APPROACH IS NOT SUSTAINABLE BECAUSE HIGH END COMPANIES CANNOT BE COMPARED VIS- -VIS ROUTINE LOW END MARKETING SUPPORT SERVICES PROVIDER. WE WO ULD PROCEED TO EXAMINE THE SUITABILITY OF AFORESAID COMPARABLES CHOSEN BY THE TPO/CIT(A) VIS--VIS THE TAXPAYER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA MARKETING SUPPORT SERVICES ONE BY ONE. TRANSFER PRICING GROUNDS CRISIL LTD. (CRISIL) 17. THE TAXPAYER SOUGHT TO EXCLUDE CRISIL FROM THE FINAL SET OF COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACT IONS QUA MARKET SUPPORT SERVICES ON THE GROUNDS INTER ALIA T HAT CRISIL IS PROVIDING NON-COMPARABLE SERVICES AS IT OPERATES IN THREE SEGMENTS, VIZ., CREDIT RATING AGENCY, ADVISORY AND R&D; THAT CRISIL IS PREMIUM SERVICE PROVIDER; THAT CRISIL IS A HIGH RI SK BEARING ENTITY AND IS HAVING SIGNIFICANT INTANGIBLES; AND THAT CRI SIL HAS BEEN EXCLUDED BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2002-03, 2007-08 AND 2008-09. ITA NO.5980/DEL/2016 13 18. LD. DR FOR THE REVENUE, ON THE OTHER HAND, RELI ED ON THE ORDERS OF THE LOWER REVENUE AUTHORITIES. 19. PERUSAL OF SCHEDULE G FORMING PART OF THE ACC OUNTS, AVAILABLE AT PAGE 392 OF THE PAPER BOOK, SHOWS THAT CRISIL IS HAVING INCOME FROM CREDIT RATING SERVICES, ADVISORY SERVIC ES AND RESEARCH & INFORMATION SERVICES. MOREOVER, TPO HIMSELF HAS ACKNOWLEDGED THAT THE CRISIL IS ENGAGED IN PROVIDIN G PREMIUM INDIAN BUSINESS ADVISORY SERVICE IN THE BUSINESS AN D FINANCIAL ADVISORY. FURTHERMORE, PERUSAL OF THE ANNUAL REPOR T UNDER THE HEAD RISK MANAGEMENT, AVAILABLE AT PAGE 364 OF THE PAPER BOOK, SHOWS THAT CRISIL IS FACING BUSINESS RISK, FINANCIAL RISK , LEGAL AND STATUTORY RISKS, TECHNOLOGY RISK, AUDIT & INTERNAL CONTROL AN D POLICY RISKS IN ITS BUSINESS OPERATION WHEREAS THE TAXPAYER IS WORK ING ON COST PLUS MARK UP BASIS. MOREOVER, CRISIL HAS BEEN REJECTED BY THE LD. DRP IN TAXPAYERS OWN CASE FOR AY 2007-08 AND 2008-09 B EING ENGAGED INTO NICHE ADVISORY SERVICES OF FINANCIAL M ARKET. 20. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2002-03 EXCLUDED CRISIL FROM THE FINAL SET OF COMPARABLES BY RETURNING FOLLOWING FINDINGS :- 23. IT IS BROUGHT TO OUR NOTICE BY THE LD. AR FOR THE TAXPAYER IN TABULATED FORM THAT CONTINUOUSLY IN AYS 2007-08 TO 2009-10, CRISIL (ADVISORY AND INFORMATION SEGMENT) HAS BEEN REJECTED BY THE DRP AS A VALID COMPARABLE VIS--VIS THE TAXPAYE R ON THE GROUND THAT, CRISIL IS ENGAGED IN PROVIDING NICHE ADVISOR Y SERVICES OF FINANCIAL MARKETS AND AS SUCH FINANCIALLY DIFFERENT . ITA NO.5980/DEL/2016 14 24. WHEN THE TAXPAYER IS PROVED TO HAVE PROVIDED SI MILAR MARKETING SUPPORT SERVICES TO ITS AE AS IT HAS PROV IDED IN AYS 2007- 08 TO 2009-10, NO COGENT REASON HAS BEEN BROUGHT ON RECORD BY THE TPO/CIT (A) TO DEPART FROM THE CONSISTENT VIEW TAKE N IN THE SUCCEEDING YEARS. MOREOVER, THE COMPANY PROVIDING ADVISORY SERVICES CANNOT BE COMPARED WITH THE TAXPAYER WHO I S INTO PROVIDING ROUTINE MARKETING SUPPORT SERVICES TO ITS AES. 25. MOREOVER, AUDITED FINANCIAL OF CRISIL, AVAILABL E AT PAGE 426 OF THE PAPER BOOK (ANNUAL REPORT), SHOWS THAT 7 4% OF ITS INCOME IS FROM RATING SERVICES. RATING SERVICES HA VE BEEN EXPLAINED IN THE ANNUAL REPORT, AVAILABLE AT PAGE 411 OF THE PAPER BOOK, AS UNDER :- SOME LANDMARKS ACHIEVED BY THE RATINGS DIVISION IN 2001-02 ARE HIGHLIGHTED BELOW : GRADING OF HEALTHCARE INSTITUTIONS LAUNCHED WITH TH E ANNOUNCEMENT OF GRADES ASSIGNED TO THREE HOSPITALS INTRODUCTION OF A NEW RATING SYMBOL (WITH R SUBSC RIPT) TO INDICATE NON-CREDIT RISK FIRST RATED DEBT TRANSACTION FOR AN ACQUISITION TWO NEW STATE GOVERNMENT RATINGS GOVERNMENT OF INDIA GUARANTEED DEBT RATINGS FIRST RATED TAKE-OUT CUM GUARANTEE FACILITY BY AN INFRASTRUCTURE DEVELOPMENT FINANCE INSTITUTION. CORPORATE SECTOR RATING SERVICES (CSRS) REVENUE GROWTH IN CORPORATE SECTOR RATINGS WAS MAIN LY DRIVEN BY REFINANCING OF DEBT DUE TO THE CONTINUOUS DROP IN I NTEREST RATES. NEW OFFERINGS SUCH AS THE ADVANCE RATING SERVICES AND STRUCTURED RATINGS HAVE GROWN SIGNIFICANTLY AND ACCOUNT FOR 30 % OF THE CSRS BILLINGS. THE 42 NEW COMPANIES RATED DURING 2001-0 2 CONSTITUTED 30% OF CSRS INITIAL RATING FEES. THE CSRS HAS ALSO MADE SIGNIFICANT PROGRESS IN GENERATING BUSINESS FROM ST ANDARD AND POORS. ALTHOUGH THIS IS STILL A SMALL COMPONENT O F ITS REVENUES, THERE IS A SIGNIFICANT ORDER BOOK AS ON DATE AND CS RS EXPECTS TO DOUBLE ITS INTERNATIONAL REVENUES IN THE CURRENT YE AR. GOVERNMENTS DISINVESTMENT PROGRAMME AND A FURTHER ROUND OF REFI NANCING BY STRONGER CORPORATE, ARE EXPECTED TO DRIVE CSRS REVE NUES IN THE COMING YEAR. 26. FURTHERMORE, FROM THE FINANCIAL CONDITIONS EXPL AINED AT PAGE 423 OF THE ANNUAL REPORT, IT HAS COME ON RECOR D THAT HUGE INTANGIBLES HAVE BEEN EMPLOYED BY CRISIL IN ORDER T O ACHIEVE ITS TARGETS, WHICH MAKE IT INCOMPARABLE VIS--VIS THE T AXPAYER. CONSEQUENTLY, WE ORDER TO EXCLUDE CRISIL FROM THE F INAL SET OF COMPARABLES. 21. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TR IBUNAL IN ITA NO.5980/DEL/2016 15 TAXPAYERS OWN CASE (SUPRA) IN THE SIMILAR FACTS AN D CIRCUMSTANCES WHEREIN THERE IS NO CHANGE IN THE BUSINESS MODEL AN D TAXPAYER IS PROVIDING SERVICES UNDER THE SAME MASTER SERVICE AG REEMENT, CRISIL BEING OWNER OF HUGE INTANGIBLES HAVING BEEN EMPLOYE D IN ORDER TO ACHIEVE ITS TARGET AND THAT IT IS A HIGH RISK PROFI LE ENTITY CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHO IS A NON-RISK BEARING ROUTINE MARKETING SERVICE PROVIDER TO ITS A E WORKING ON COST PLUS MARK UP BASIS, HENCE ORDERED TO BE EXCLUD ED. ICRA LIMITED (ICRA) 22. THE TAXPAYER SOUGHT TO EXCLUDE ICRA ON THE GROU NDS INTER ALIA THAT IT IS PROVIDING RATING SERVICES, ADVISORY SERVICES AND INFORMATION SERVICES; THAT ICRA IS INTO PROVIDING P REMIUM ADVISORY SERVICES SEGMENT; AND THAT ICRA HAS BEEN E XCLUDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE IN AY 2002-03 (SUPRA) ON GROUND OF FUNCTIONAL DISSIMILARITY. 23. PERUSAL OF THE ANNUAL REPORT AVAILABLE UNDER TH E HEAD DIRECTORS REPORT AT PAGES 918, 923 & 924 SHOWS THA T ICRA IS INTO RATING SERVICES, ADVISORY SERVICES AND INFORMATION SERVICES. FURTHERMORE, PERUSAL OF THE TP ORDER ITSELF SHOWS T HAT TPO HIMSELF ACKNOWLEDGED IN PARA 7.9 THAT ICRA IS INTO PROVIDIN G PREMIUM FINANCIAL ADVISORY SERVICES AS THE RATE OF ITS EMPL OYEE COST IS ITA NO.5980/DEL/2016 16 EXTREMELY HIGH INDICATING THAT ITS PERSONNEL ARE KE Y DRIVERS OF THESE BUSINESSES. MOREOVER, COORDINATE BENCH OF THE TRIB UNAL IN TAXPAYERS OWN CASE FOR AYS 2002-03 AND 2007-08 (SUPRA) HAS EXCLUDED ICRA FROM THE FINAL SET OF COMPARABLES. T HE RELEVANT FINDINGS RETURNED IN AY 2002-03 (SUPRA) IS REPRODUCED FOR READY PERUSAL AS UNDER :- ICRA LIMITED (ICRA) 27. UNDISPUTEDLY, ICRA HAS BEEN REJECTED AS A V ALID COMPARABLE BY THE REVENUE ON THE OBJECTION OF FUNCT IONAL DISSIMILARITY RAISED BY THE TAXPAYER IN AYS 2006-07 TO 2009-10, AS PER COMPILATION GIVEN BY THE TAXPAYER DURING THE CO URSE OF ARGUMENTS AVAILABLE ON RECORD. 28. MOREOVER, PERUSAL OF THE ANNUAL REPORT, AVAILAB LE AT PAGES 547, 553 & 557 OF THE PAPER BOOK, SHOWS THAT THERE IS NO SEGMENTAL INFORMATION AVAILABLE AND KEEPING IN VIEW THE DIVER SIFIED FUNCTION PERFORMED BY ICRA, IT CANNOT BE TAKEN AT ENTITY LEV EL. MOREOVER, UNDER TNMM, THE TPO HAS A WIDE DISCRETION OF CHOOSI NG COMPARABLES AS THERE IS WIDE RANGE OF SUCH COMPARAB LES AVAILABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. 29. FURTHERMORE, ICRA HAS BEEN HELD TO BE INCOMPARA BLE VIS-- VIS THE TAXPAYER BY THE COORDINATE BENCH OF THE TRI BUNAL IN THE TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) BY HOLDI NG THAT SINCE ICRA HAS BEEN PROVIDING ADVISORY SERVICES, IT CAN B E A NO MATCH TO THE COMPANY PROVIDING ACTUAL MARKETING SUPPORT SERV ICES. SINCE THERE IS NO CHANGE IN THE PROFILE OF THE TAXPAYER D URING THE YEAR UNDER ASSESSMENT AS IT HAS BEEN PROVIDING SIMILAR M ARKETING SUPPORT SERVICES TO ITS AE, ICRA IS NOT A VALID COM PARABLE VIS--VIS TAXPAYER, HENCE ORDERED TO BE EXCLUDED. 24. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNA L IN TAXPAYERS OWN CASE FOR AYS 2002-03 AND 2007-08 (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT ICRA IS NOT A SUITABLE COMPARA BLE VIS--VIS THE TAXPAYER ON GROUND OF FUNCTIONAL DISSIMILARITY BUT BEING INTO ITA NO.5980/DEL/2016 17 PROVIDING ADVISORY SERVICES WHICH IS NO MATCH TO TH E COMPANY PROVIDING ACTUAL MARKETING SUPPORT SERVICES, HENCE ORDERED TO EXCLUDE ICRA FROM THE FINAL SET OF COMPARABLES. WATER AND POWER CONSULTANCY SERVICES (INDIA) LTD. (WAPCOS) 25. THE TAXPAYER SOUGH EXCLUSION OF WAPCOS ON THE G ROUNDS INTER ALIA THAT WAPCOS IS FUNCTIONALLY DISSIMILAR B EING INTO NON- COMPARABLE COMPANIES; THAT IT IS A 100% GOVERNMENT OWNED ENTITY AND THAT IT HAS BEEN ORDERED TO BE EXCLUDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2002-03, 2007-08 AND 2008-09 (SUPRA). 26. PERUSAL OF ANNUAL REPORT AT PAGES 628 TO 640 OF THE PAPER BOOK, SHOWS THAT WAPCOS IS INTO DISTINCT ACTIVITIES VIZ. COMMERCIAL AND INFORMATICS CENTRE FOR PROVIDING SER VICES IN PUBLISHING OF PUBLICITY MATERIAL, TECHNICAL BULLETI NS, STATUS REPORT, PROVIDING CONSULTANCY SERVICES IN THE MAJOR FIELD O F IRRIGATION, DRAINAGE, WATERSHED MANAGEMENT, ETC., IT IS ALSO PR OVIDING SERVICES IN THE FIELD OF HYDRO-POWER, THERMAL POWER, TRANSMI SSION AND DISTRIBUTION ETC. AND IS INTO CONDUCTING ENVIRONMEN TAL STUDIES FOR MEGA PROJECTS IN HYDROPOWER, WATER RESOURCES, PORTS AND HARBOURS, MINING, INDUSTRIAL SECTOR ETC., PORTS AND HARBOURS DIVISION IS INVOLVED IN CARRYING OUT TECHNO-ECONOMIC FEASIBILIT Y STUDIES, ITA NO.5980/DEL/2016 18 PREPARATION OF PROJECT REPORTS, DETAILED ENGINEERIN G PROJECT IMPLEMENTATION AND MONITORING, IT IS INTO PROVIDING PLANNING AND DESIGNING OF RURAL AND URBAN WATER SUPPLY SCHEMES, SEWAGE TREATMENT AND DISPOSAL SCHEMES, LABORATORY TESTING, INSPECTION ETC. 27. COORDINATE BENCH OF THE TRIBUNAL EXCLUDED WAPCO S FROM THE FINAL SET OF COMPARABLES IN TAXPAYERS OWN CASE FOR AY 2006- 07 BY RETURNING FOLLOWING FINDINGS :- 18.2. WE FIND THAT THIS COMPANY OPERATES IN TWO S EGMENTS, NAMELY, CONSULTANCY & ENGINEERING PROJECTS AND LUMP SUM TURNKEY PROJECTS. THIS COMPANY PROVIDES CONSULTANCY SERVICES, SUCH AS, PRE-FEASIBILITY REPORT OF HYDROELECTRIC PR OJECTS, FIELD INVESTIGATION DRILLING OF TUBE WELLS, ETC. FROM THE ABOVE DESCRIPTION OF THE NATURE OF ACTIVITIES PERFORMED B Y THIS COMPANY, IT CAN BE SEEN THAT THE SAME IS ENGAGED IN PROVIDIN G ENGINEERING AND CONSULTANCY SERVICES, WHICH CAN BE OF NO MATCH TO THE ASSESSEES MARKETING SUPPORT SERVICES. THIS COMPANY IS ALSO DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. 28. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE, WAPCOS IS INTO PROVIDING DISTINCT SERVICES AND IS A 100% GOVERNMENT OWNED COMPANY, BEING NOT DRIVING BY PROF IT MOTIVE AND FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2006-07 (SUPRA), IT CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER, HENCE O RDERED TO BE EXCLUDED. RITES LTD. (RITES) 29. THE TAXPAYER SOUGHT EXCLUSION OF RITES ON GROUN DS INTER ALIA THAT IT IS FUNCTIONALLY DISSIMILAR AND THAT IT IS A GOVERNMENT OF INDIA ITA NO.5980/DEL/2016 19 UNDERTAKING UNDER THE AEGIS OF INDIAN RAILWAYS; THA T RITES HAS BEEN EXCLUDED BY THE DRP IN TAXPAYERS OWN CASE FOR AY 2007-08 ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT BEING IN NICHE AREA OF ENGINEERING CONSULTANCY. 30. RITES HAS BEEN EXCLUDED BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2006-07 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 16.2. WE FIND THAT THIS COMPANY IS PRIMARILY A CON SULTANCY ORGANIZATION RENDERING CONSULTANCY SERVICES IN ALL FACETS OF TRANSPORTATION. ITS MAJOR AREAS OF OPERATIONS ARE C ONSULTANCY SERVICES; EXPORT OF ROLLING STOCK, EQUIPMENTS AND S PARES; AND LEASING OF RAILWAY ROLLING STOCK AND EQUIPMENTS. IT CAN BE SEEN THAT THE FUNCTIONAL PROFILE OF THIS COMPANY IS NOWH ERE NEAR THE ASSESSEE, WHICH IS SIMPLY PROVIDING MARKETING SUPPO RT SERVICES BY LARGELY CREATING CUSTOMER AWARENESS FOR THE MICROSO FT PRODUCTS IN INDIA. THIS COMPANY IS, THEREFORE, DIRECTED TO B E EXCLUDED. 31. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE THAT RITES BEING INTO PROVIDING ENGINEERING AND CONSULTA NCY SERVICES AND IS AN INTERNATIONAL RECOGNISED COMPANY ENGAGED IN TRANSPORT INFRASTRUCTURE HAS BEEN EXCLUDED BY THE LD. DRP IN TAXPAYERS OWN CASE FOR AY 2007-08 ON GROUND OF FUNCTIONAL DISSIMI LARITY BEING IN NICHE AREA ENGINEERING CONSULTANCY AND FOLLOWING TH E ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN AY 2006-07 IN TAXPAYERS OWN CASE IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHO IS A ROUTINE LOW END MARKETING SUPPORT SERVICES PROVIDER ON COST PLUS MARK UP BASIS, HENCE ORDERED TO BE EXCLUDED. ITA NO.5980/DEL/2016 20 VIMTA LABS LTD. (VIMTA) 32. THE TAXPAYER SOUGHT EXCLUSION OF VIMTA AS A COM PARABLE VIS- -VIS THE TAXPAYER ON GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DIFFERENT; THAT IT HAS HIGH PROPORTION OF PLANT AND MACHINERY APPLIED AND IT HAS SIGNIFICANT INTANGIBLES; THAT IT IS A HI GH RISK BEARING ENTITY; THAT IT HAS BEEN ORDERED TO BE EXCLUDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2006-07 AND 2007-08 (SUPRA). 33. PERUSAL OF ANNUAL REPORT, AVAILABLE AT PAGE 517 OF THE PAPER BOOK, SHOWS THAT VIMTA IS ENGAGED IN CONTRACT RESEA RCH (CLINICAL AND PRE-CLINICAL), CLINICAL SPECIALTY DIAGNOSTICS, ANALYTICAL TESTING OF WATER, FOOD, DRUGS, CHEMICALS, PETROLEUM PRODUCTS, MINERALS, METALS, ETC. AND ENVIRONMENTAL MONITORING AND IMPAC T ASSESSMENT. PERUSAL OF SCHEDULE FORMING PART OF THE ACCOUNTS AT PAGE 527 OF THE PAPER BOOK SHOWS THAT IT HAS DISPLAYED HIGH PROPORT ION OF PLANT AND MACHINERY. 34. COORDINATE BENCH OF THE TRIBUNAL IN AY 2007-08 IN TAXPAYERS OWN CASE EXCLUDED VIMTA IN TAXPAYERS OWN CASE ON GROUND OF FUNCTIONAL DISSIMILARITY BY RETURNING FOL LOWING FINDINGS:- 22. WE DO NOT FIND ANY FORCE IN THE FUNCTIONAL COM PARABILITY 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 SPEC IALTIES AND CENTRAL LAB SERVICES FOR CLINICAL TRIALS; CLINICAL TRIALS PHASE-I-IV AND BA/BE STUDIES; PRE-CLINICAL SAFETY ASSESSMENTS; AND ITA NO.5980/DEL/2016 21 ENVIRONMENTAL ASSESSMENTS. A CURSORY LOOK AT THE NA TURE OF SERVICES PROVIDED BY THIS COMPANY DIVULGES THAT THE SAME IS FUNCTIONALLY DISSIMILAR FROM THE ASSESSEE. HOW A CO MPANY CONDUCTING CLINICAL TRIALS ON FOODS AND DRUGS CAN B E CONSIDERED AS COMPARABLE WITH THE ASSESSEE UNDERTAKING MARKETI NG SUPPORT SERVICES, IS ANYBODYS GUESS. THIS COMPANY BEING IN THE NATURE OF BUSINESS TOTALLY ALIEN TO THAT OF THE ASSESSEE, CAN NOT BE CONSIDERED AS A COMPARABLE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE IMMEDIATELY PRECED ING ASSESSMENT YEAR. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS C OMPANY FROM THE LIST OF COMPARABLES. 35. IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRI BUNAL (SUPRA), WE ORDER TO EXCLUDE VIMTA FROM THE FINAL SET OF COM PARABLES ON GROUND OF FUNCTIONAL DISSIMILARITY VIS--VIS THE TA XPAYER, HENCE ORDERED TO BE EXCLUDED FROM THE FINAL SET OF COMPAR ABLES. CORPORATE GROUNDS 36. ASSESSING OFFICER MADE DISALLOWANCE OF RS.17,82 ,532/- CLAIMED BY THE TAXPAYER ON ACCOUNT OF DEPOSIT MADE TO MTNL OF RS.7,65,214/- AND SECURITY DEPOSIT FOR RENTAL PREMI SES OF RS.10,00,000/- WRITTEN OFF AS BUSINESS LOSS U/S 28 READ WITH SECTION 29 OF THE ACT ON THE GROUND THAT THE TAXPAYER HAS N OT PROVIDED EXACT DETAILS AS TO WHEN THE RELATABLE CREDIT ENTRI ES WERE PASSED RESULTING INTO INCOME OF THE TAXPAYER AND ORDER PAS SED IN THE AY 2002-03. 37. LD. CIT (A) HAS ALSO CONFIRMED THE DISALLOWANCE EXCEPT THE AMOUNT OF RS.17,318/-. ITA NO.5980/DEL/2016 22 38. NO DOUBT, AFORESAID ADVANCES/DEPOSITS HAVE BEEN MADE BY THE TAXPAYER TO CARRY OUT THE BUSINESS ACTIVITIES I N THE NORMAL COURSE OF BUSINESS BUT TO CLAIM THE SAME AS BUSINES S LOSSES, THE CONDITION LAID DOWN U/S 36 (2) OF THE ACT HAS TO BE FULFILLED. THERE IS NOT EVEN A WHISPER IN THE ASSESSMENT ORDER AS WE LL AS NOT BROUGHT ON RECORD DURING THE ARGUMENT THAT CONDITIONS U/S 3 6(2) OF THE ACT HAVE BEEN FULFILLED. THEREFORE, THE SAME CANNOT BE ALLOWED AS BAD DEBT AS ARGUED BY THE LD. AR FOR THE TAXPAYER. SO FAR AS THE CLAIM OF THE LD. AR FOR THE TAXPAYER THAT THE SAME SHOULD BE ALTERNATIVELY ALLOWED AS BUSINESS LOSS, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE IS REQUIRED TO BE REMITTED BACK TO THE AO TO GIVE AN OPPORTUNITY TO THE TAXPAYER TO SUBSTANTIATE AS TO H OW THE SAME CAN BE ALLOWED AS BUSINESS LOSS. AO SHALL ALSO DETERMI NE THE YEAR OF ALLOWABILITY IF OTHERWISE PROVED. CONSEQUENTLY, CO RPORATE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 39. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S ALLOWED FOR STATISTICAL PURPOSES.. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF NOVEMBER, 2019. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 28 TH DAY OF NOVEMBER , 2019 TS ITA NO.5980/DEL/2016 23 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-44, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.