Fujitsu India Ltd., Gurgaon V. DCIT, New Delhi

ITA 6280/DEL/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6708 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 01-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T M SHIVAKUMAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.6280/DEL/2012 ASSESSMENT YEAR : 2008-09 FUJITSU INDIA LTD., BUILDING NO.9A, PHASE-III, DLF CYBER CITY, GURGAON. PAN: AAACF4170D VS. DCIT, CIRCLE-11(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT TIWARI, CA & SHRI ANUBHAV RASTOGI, ADVOCATE DEPARTMENT BY : SHRI T.M. SHIVAKUMAR, CIT, DR DATE OF HEARING : 01.02.2017 DATE OF PRONOUNCEMENT : 02.02.2017 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143( 3) READ WITH SECTION ITA NO.6280/DEL/2012 2 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON 28.09.2012 IN RELATION TO THE ASSESSMENT YEAR 2008- 09. 2. THE ONLY ISSUE ASSAILED IN THIS APPEAL IS AGAINS T THE TRANSFER PRICING ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A 100% SUBSIDIARY OF FUJITSU LTD., JAPAN (FJ). THE ASSESS EE WAS INCORPORATED IN INDIA WITH THE PRIME OBJECTIVE OF CONSOLIDATING MAR KETING OPERATIONS OF FUJITSU GROUP IN INDIA. SIX INTERNATIONAL TRANSACT IONS WERE REPORTED IN FORM NO.3CEB. THE AO MADE A REFERENCE TO THE TRANSF ER PRICING OFFICER (TPO) FOR DETERMINING THEIR ARMS LENGTH PR ICE (ALP). THE TPO ACCEPTED THE ALP OF OTHER FIVE TRANSACTIONS EXCEPT RECEIPTS FOR SERVICES RENDERED WITH A TRANSACTION VALUE OF RS.6,39,70,16 6/-. THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH THE PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT/TOTAL COS T (OP/TC) FOR DEMONSTRATING THAT THIS TRANSACTION WAS AT ALP. THE TPO ACCEPTED THE APPLICATION OF THE TNMM AS THE MOST APPROPRIATE MET HOD. APART FROM MAKING CERTAIN CHANGES IN THE DETERMINATION OF THE ASSESSEES OWN PLI ITA NO.6280/DEL/2012 3 FROM THE INTERNATIONAL TRANSACTION, THE TPO ALSO MA DE VARIATIONS IN THE COMPANIES CHOSEN BY THE ASSESSEE AS COMPARABLES AND ALSO THEIR PROFITABILITY RATES. IN THE ULTIMATE ANALYSIS, THE HE SHORTLISTED TEN COMPANIES AS COMPARABLES WITH THEIR OP/TC AT 21.76% BEFORE WORKING CAPITAL ADJUSTMENT AND 34.95% AFTER WORKING CAPITAL ADJUSTMENT. BY APPLYING SUCH PROFIT RATE OF 34.95% ON TOTAL COSTS INCURRED BY THE ASSESSEE IN PROVISION OF THE SERVICES, THE TPO DETE RMINED ALP AT RS.9.03 CRORE, WHICH LED TO THE TRANSFER PRICING AD JUSTMENT AMOUNTING TO RS.2,63,21,723/-. THE AO FINALIZED THE DRAFT ASSES SMENT ORDER ON THE BASIS OF THE TPOS ORDER. AGGRIEVED THEREBY, THE A SSESSEE MOVED THE DISPUTE RESOLUTION PANEL (DRP), WHICH LARGELY ECHOE D THE ACTION OF THE TPO EXCEPT FOR GIVING A DIRECTION ON THE COMPUTATIO N OF WORKING CAPITAL ADJUSTMENT, WHICH WE WILL DISCUSS INFRA . THE TPO, GIVING EFFECT TO THE DIRECTIONS GIVEN BY THE DRP, RECALCULATED THE AVERA GE OP/TC OF COMPARABLE COMPANIES BY RE-EXAMINING THE CALCULATIO N OF WORKING CAPITAL AT 31.35%. IN THIS WAY, THE AMOUNT OF TRANS FER PRICING ADJUSTMENT GOT REDUCED TO RS.2.39 CRORE. THE AO, IN HIS FINAL ORDER, MADE TRANSFER ITA NO.6280/DEL/2012 4 PRICING ADDITION OF RS.2,39,11,122/-, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS CHALLENGED TW O COMPONENTS, IN SO FAR AS THE COMPUTATION OF ITS OWN PLI IS CONCERNED, VIZ., MANNER OF APPORTIONMENT OF UNALLOCABLE COSTS AND NOT ALLOWING DEDUCTION ON ACCOUNT OF PASS THROUGH COSTS. IN SO FAR AS THE PLI OF COMPARABLES IS CONCERNED, THE ASSESSEE HAS CHALLENGED INCLUSION OF SIX COMPANIES IN THE FINAL LIST OF COMPARABLES APART FROM THE COMPUTATIO N OF WORKING CAPITAL ADJUSTMENT BY THE TPO. 5. FIRSTLY, WE WILL ESPOUSE THE TWO ASPECTS OF CALC ULATION OF THE ASSESSEES PLI. FIRST IS THE APPORTIONMENT OF `UNA LLOCABLE COSTS. IN THIS REGARD, IT IS NOTICED THAT THE ASSESSEE MADE TWO BR OADER SEGMENTS, NAMELY, INTERNATIONAL SEGMENT AND DOMESTIC SEGMENT. THE INTERNATIONAL SEGMENT HAS FURTHER BEEN DIVIDED INTO TWO SUB-SEGME NTS, NAMELY, SERVICES SEGMENT AND TRADING SEGMENT. DOMESTIC SEGM ENT ADMITTEDLY INCLUDES BOTH SERVICES AND TRADING. THUS, IN ALL, THERE ARE THREE ITA NO.6280/DEL/2012 5 SEGMENTS DECLARED BY THE ASSESSEE. THE DISPUTE IN THE PRESENT APPEAL IS ONLY AGAINST THE INTERNATIONAL TRANSACTION OF SERV ICES. THE ASSESSEE COMPUTED OP/TC FROM THE `SERVICES SEGMENT AT 12.69 %, WITH A LOSS IN DOMESTIC SEGMENT AT 65.77% AND THE OVERALL ENTITY L EVEL OP/TC AT (-) 30.06%. THIS HAS BEEN TABULATED AT PAGE 3 OF THE T POS ORDER. THE ASSESSEE APPORTIONED TOTAL UNALLOCABLE COSTS OF RS.9.79 CRORE AMONGST THE THREE SEGMENTS IN THE RATIO OF HEAD COUNTS, T HAT IS, NUMBER OF EMPLOYEES ENGAGED IN EACH SEGMENT. IN THIS WAY, A S UM OF RS.3,13,07,865/- WAS ALLOCATED TO THE `SERVICES SE GMENT. THE TPO DID NOT ACCEPT THE MANNER OF APPORTIONMENT OF THE COMBI NED `UNALLOCABLE COSTS. HE APPORTIONED THESE COSTS IN THE RATIO OF GROSS REVENUE FROM THE THREE SEGMENTS. THIS LED TO THE APPORTIONMENT OF R S.5,26,83,863/- TO THE `SERVICES SEGMENT WHICH IS UNDER DISPUTE. BY SUCH ALLOCATION, THE ASSESSEES POSITIVE OP/TC FROM THIS SEGMENT GOT CON VERTED INTO NEGATIVE OF (-) 5%. THE CASE OF THE ASSESSEE IS THAT THE COM BINED `UNALLOCABLE EXPENSES AMOUNTING TO RS.9.79 CRORE SHOULD HAVE BE EN APPORTIONED IN THE RATIO OF HEAD COUNTS. ITA NO.6280/DEL/2012 6 6. WE ARE UNABLE TO COUNTENANCE THE VIEW CANVASSED BY THE LD. AR. THERE CAN BE NO RATIONALE IN APPORTIONING THE COSTS ON THE BASIS OF NUMBER OF PERSONS WORKING IN THE THREE SEGMENTS. A PERSON WORKING AT A LOWER LEVEL, SUCH AS, A HELPER OR AN ASSISTANT, C ANNOT BE COMPARED WITH A PERSON WORKING AT A HIGHER POSITION, SUCH AS , A WELL QUALIFIED TECHNICIAN OR A MARKETING EXPERT, DRAWING MORE SALA RY. ONE SEGMENT MAY NEED MORE LOWER STAFF DRAWING LESS SALARIES AND THE OTHER SEGMENT MAY HAVE MORE HIGHER STAFF WITH HIGHER SALARIES. I F WE CONSIDER THE NUMBER OF HEADS WORKING IN EACH SEGMENT, IRRESPECTI VE OF THEIR POSITIONS ETC., AND APPORTION UNALLOCATED COSTS IN THAT RATIO , THE RESULTS ARE BOUND TO BE DISTORTED. AT THE SAME TIME, WE ARE ALSO NOT AG REEABLE WITH THE APPORTIONMENT OF UNALLOCATED COSTS IN THE RATIO OF SALES PRICE OR, SAY, GROSS REVENUE. IT IS SO FOR THE REASON THAT THE `T RADING SEGMENT WILL, NATURALLY, HAVE MORE GROSS REVENUE REPRESENTING SAL E PRICE OF GOODS BECAUSE IT WILL ALSO INCLUDE COST OF GOODS SOLD. ON THE OTHER HAND, THE `SERVICE SEGMENT WILL BE RELATIVELY MORE WORK-INTE NSIVE BUT ENTAILING LOWER COSTS BECAUSE OF THE ABSENCE OF COST OF MATER IAL. IN OUR CONSIDERED OPINION, A MORE LOGICAL WAY OF APPORTIONING `UNALLO CABLE COSTS IS TO ITA NO.6280/DEL/2012 7 DIVIDE THEM IN THE RATIO OF GROSS PROFIT MARGINS (N OT GROSS PROFIT RATE) EARNED BY THE ASSESSEE FROM THE THREE SEGMENTS. TH IS WILL PRESENT A MORE REALISTIC WAY OF APPORTIONING THE UNALLOCABLE COSTS. 7. ON A PERTINENT QUERY, THE LD. AR COULD NOT A DDUCE THE DETAILS OF `UNALLOCABLE COSTS OF RS.9.79 CRORE, WHICH IS NOT EVEN AVAILABLE IN THE TPOS ORDER. IN THE ABSENCE OF SUCH DETAILS, IT CAN NOT BE PRECISELY ASCERTAINED AS TO HOW MUCH IS REALLY THE AMOUNT OF UNALLOCABLE COSTS. UNDER THESE CIRCUMSTANCES, WE SET ASIDE THE IMPUGNE D ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR CONSIDERING TH E DETAILS OF RS.9.79 CRORE. IF SOME COST INCLUDED IN THIS AMOUNT IS DIR ECTLY IDENTIFIABLE WITH ONE OF THE THREE SEGMENTS, THEN, IT SHOULD BE EXCLU DED FROM THE COMMON POOL TO BE CONSIDERED SEPARATELY UNDER THE RESPECTI VE SEGMENT. THE REMAINING AMOUNT SHOULD BE APPORTIONED AMONGST THE THREE SEGMENTS IN THE RATIO OF THE AMOUNT OF RESPECTIVE GROSS MARGINS . NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F BEING HEARD IN THIS REGARD. ITA NO.6280/DEL/2012 8 8. THE SECOND ISSUE RAISED IN THE COMPUTATION OF TH E ASSESSEES PLI IS NON-REDUCTION OF RS.17,13,222/- FROM ITS OPERATING COSTS, BEING THE AMOUNT OF SUB-CONTRACTED MAINTENANCE SERVICES TO TH IRD PARTY VENDORS. THE LD. AR CONTENDED THAT THE ASSESSEE OUTSOURCED M AINTENANCE SERVICES AND INCURRED A SUM OF RS.17.13 LAC ON THE SAME. IT WAS CLAIMED THAT SINCE THE ASSESSEE DID NOT PERFORM ANY VALUE ADDED FUNCTION ON THE SAME, WHICH MADE THEM PASS THROUGH COSTS AND, HENCE, THE SAME SHOULD HAVE BEEN EXCLUDED FROM THE TOTAL COSTS. THERE IS NO DI SCUSSION IN THE TPOS ORDER ON THIS ISSUE THOUGH THE SAME WAS RAISED BEFO RE HIM. THE ASSESSEE RAISED OBJECTION BEFORE THE DRP IN THIS REGARD ALSO , WHICH CAME TO BE JETTISONED. IT WAS, THEREFORE, PRAYED BEFORE THE TR IBUNAL THAT A SUM OF RS.17.13 LAC SHOULD BE EXCLUDED FROM THE TOTAL OPER ATING COSTS INCURRED BY THE ASSESSEE IN THE COMPUTATION OF ITS PLI AS NO PROFIT ELEMENT IS EMBEDDED IN THE SAME. 9. WE ARE NOT CONVINCED WITH THE SUBMISSION ADVANCE D ON BEHALF OF THE ASSESSEE. THERE IS NO DOUBT THAT THE PASS THRO UGH COST IS TO BE EXCLUDED FROM THE TOTAL COSTS FOR THE PURPOSES OF D ETERMINING OP/TC ITA NO.6280/DEL/2012 9 UNDER THE TNMM. HOWEVER, THE ASSESSEE HAS NEEDLESSL Y STRETCHED THE SCOPE OF PASS THROUGH COST, WHICH REFERS TO SUCH COST AS IS DIRECTLY REIMBURSED BY THE OTHER SIDE ON WHICH NO PROFIT IS EARNED BY THE ASSESSEE. THUS, PASS THROUGH COST PRE-SUPPOSES ITS SPECIFIC AND IDENTIFIABLE RECOVERY AS SUCH FROM ITS AE WITHOUT A NY PROFIT ELEMENT. IF A COST IS NOT SEPARATELY RECOVERABLE FROM AE, THEN , IT SHEDS THE CHARACTER OF PASS THROUGH COST. AN EXAMPLE OF THE SAME CAN BE SOME MATERIAL SUPPLIED BY THE AE FOR USE IN RENDERING SERVICES BY THE ASSESSEE. IN SUCH A SITUATION, THE AE MAY RAISE A BILL ON THE ASSESSE E FOR SUPPLY OF SUCH MATERIAL, WHICH WILL BE SEPARATELY DISCHARGED UNCON CERNED WITH THE OVERALL CONTRACT VALUE OF SERVICE. IN THE ALTERNATI VE, THE ASSESSEE MAY INCUR SUCH COST WITH A THIRD PARTY AND RECOVER THE SAME AS IT IS FROM IT AE. THE ESSENCE OF THE MATTER IS THAT SUCH COST TO BE UTILIZED IN RENDERING THE OVERALL SERVICES SHOULD BE SEPARATELY RECOVERAB LE FROM THE AE WITHOUT ANY PROFIT ELEMENT. IF THERE IS NO SEPARATE REIMBURSEMENT OF SUCH A COST AND IT IS PART OF THE OVERALL CONTRACTED VAL UE, THEN THE PRESUMPTION WILL BE THAT THE OVERALL PROFIT ELEMENT IS ENTRENCH ED IN ALL THE COSTS INCURRED BY THE ASSESSEE, THEREBY TAKING IT OUTSIDE THE AMBIT OF PASS ITA NO.6280/DEL/2012 10 THROUGH COST. IN A NUTSHELL, THERE SHOULD BE A SEPA RATE CREDIT FOR THE EQUAL AMOUNT OF THE DEBIT TOWARDS COSTS INCURRED. 10. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE SO-CALLED PASS THROUGH COST AMOUNTING TO RS.17.13 LAC WAS INC URRED QUA THIRD PARTIES. THE OTHERWISE NATURE OF SUCH COSTS, BEING , OPERATING, HAS NOT BEEN DISPUTED. THE THIRD PARTY OUTSOURCED SERVICES COST HAS ULTIMATELY GONE INTO THE RENDERING OF SERVICES BY THE ASSESSEE WHICH FETCHED THE CONTRACTED REVENUE. ON A SPECIFC QUESTION ABOUT TH E NATURE OF SUCH COSTS, IT WAS STATED THAT THE ASSESSEE DID NOT RECO VER IT FROM ITS AE AND THERE WAS NO PROFIT ELEMENT INVOLVED IN IT. THIS C ONTENTION AUTOMATICALLY SHOWS THAT THE THIRD PARTY OUTSOURCED SERVICES COST CANNOT BE ASSIGNED THE CHARACTER OF PASS THROUGH COST AS ADMITTEDLY IT HAS NOT BEEN RECOVERED AS SUCH FROM THE AE. IF THE CONTENTION O F THE LD. AR THAT SINCE THERE IS NO PROFIT ELEMENT IN THE INCURRING OF SUCH A COST AND HENCE THE SAME BE EXCLUDED BY TREATING IT AS A PASS THROUGH C OST, IS TAKEN TO A LOGICAL CONCLUSION, THEN, ALL THE COSTS INCURRED BY THE ASSESSEE TO THIRD PARTIES IN RENDERING THE SERVICES TO ITS AE WILL FI ND THEIR WAY OUT OF THE ITA NO.6280/DEL/2012 11 AMBIT OF OPERATING COSTS, THEREBY RENDERING THE CONCEPT OF `OPERATING COSTS ITSELF MEANINGLESS. THIS IS PATENTLY ERRONEO US AND UNACCEPTABLE. EX CONSEQUENTI, WE HOLD THAT THE THIRD PARTY OUTSOURCED SERVICE COS T AMOUNTING TO RS.17,13,222/- IS RIGHTLY INCLUDIBLE I N THE TOTAL OPERATING COSTS INCURRED BY THE ASSESSEE. THE ARGUMENT OF TH E LD. AR FAILS ON THIS SCORE. 11. NOW, WE TAKE UP THE COMPUTATION OF MEAN OP/TC O F COMPARABLES. IT CAN BE SEEN THAT THE TPO COMPUTED AVERAGE OP/TC OF TEN COMPARABLES COMPANIES AT 34.95% AFTER ADJUSTING IT WITH WORKING CAPITAL. WHEN THE ASSESSEE RAISED THIS ISSUE BEFOR E THE DRP THAT THE MANNER OF CALCULATING THE WORKING CAPITAL ADJUSTMEN T BY THE TPO WAS NOT DISCLOSED, THE DRP DIRECTED THE TPO FOR REDOING THE SAME. IN THE FRESH EXERCISE, THE TPO THOUGH REDUCED THE ADJUSTED OP/TC OF COMPARABLE COMPANIES AT 31.35%, BUT, STILL, DID NOT CONFRONT THE ASSESSEE WITH THE COMPUTATION OF WORKING CAPITAL AD JUSTMENT. THE LD. AR SUBMITTED THAT THE SECOND CALCULATION OF WORKING CAPITAL ADJUSTMENT BY THE TPO IS ALSO WRONG AND THE SAME BE SUITABLY A MENDED. ITA NO.6280/DEL/2012 12 12. IT IS OBSERVED THAT THE TPO HAS ALLOWED THE WOR KING CAPITAL ADJUSTMENT IN A NEGATIVE MANNER BY ENHANCING THE PR OFIT MARGIN OF COMPARABLES. THERE CAN BE NO QUARREL ON THE FACT T HAT IF FIGURES OF INVENTORY, RECEIVABLES AND PAYABLES WARRANT A WORKI NG CAPITAL ADJUSTMENT IN A NEGATIVE MANNER TO THE PROFIT MARGI N OF THE COMPARABLES, THE SAME HAS TO BE NECESSARILY CARRIED OUT IN THE S AME MANNER AS IT IS DONE IF THE ADJUSTMENT LEADS TO REDUCTION OF THE PR OFIT MARGIN OF COMPARABLES. HOWEVER, IT IS ESSENTIAL THAT ANY ADV ERSE CALCULATION SHOULD BE CONFRONTED TO THE ASSESSEE, SO THAT HIS O BJECTION, IF ANY, COULD BE ADDRESSED. AS THE NEEDFUL HAS NOT BEEN DONE IN THIS CASE, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATT ER TO THE FILE OF TPO/AO FOR CONFRONTING THE ASSESSEE WITH THE MANNER IN WHICH THE ADJUSTED OP/TC OF COMPARABLES HAS BEEN COMPUTED, SO THAT THE ASSESSEE MAY RAISE OBJECTION, IF ANY, TO THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT. 13. THE LAST ISSUE INVOLVED IN THIS APPEAL IS AGAIN ST THE SELECTION OF COMPARABLES. THE TPO IN THE ULTIMATE ANALYSIS SELE CTED TEN COMPANIES ITA NO.6280/DEL/2012 13 AS COMPARABLE AND THE ASSESSEE IS AGGRIEVED AGAINST THE INCLUSION OF SIX OF SUCH COMPANIES. BEFORE EMBARKING UPON THE COMPAR ABILITY OR OTHERWISE OF THESE COMPANIES, IT IS ESSENTIAL TO UN DERSTAND THE NATURE OF WORK CARRIED OUT BY THE ASSESSEE UNDER THE SEGMENT OF SERVICES. THE TPO HAS RECORDED ON PAGE 2 OF HIS ORDER THAT THE : `ASSESSEE IS ENGAGED IN MARKET RESEARCH ACTIVITIES/BUSINESS DEVELOPMENT AND HELPS ITS ASSOCIATED ENTERPRISES IN IDENTIFYING NEW PROJECTS AND BUSINESS OPPORTUNITIES IN INDIA. THE ASSESSEE: `ALSO ACTS A S AN INTERMEDIARY BETWEEN ITS AES AND CLIENTS. FURTHER, IT: `PROVID ES TECHNICAL SUPPORT/COORDINATION SERVICES TO ITS AES. THE TPO H AS RECORDED IN HIS ORDER THAT IN THE PROVISION OF MARKETING/BUSINESS D EVELOPMENT SUPPORT SERVICES, THE ASSESSEE UNDERTAKES THE FOLLOWING AC TIVITIES :- A) PROVISION OF REPORTS AND INFORMATION IN RESPECT OF LOCAL MARKET SUCH AS LATEST MARKET TRENDS/DEVELOPMENTS, SUPPLY/DEMAND SCENARIOS, MARKET PRICES, FUTURE MARKET OUTLOOK, ACTIVITIES OF COMPETITORS, ETC.; B) PROVISION OF INFORMATION IN RESPECT OF' EXISTING AN D POTENTIAL CUSTOMERS; C) ACT AS AN INTERFACE/CO-ORDINATOR BETWEEN THE FUJITS U GROUP ENTITIES AND THE CUSTOMERS BY: ITA NO.6280/DEL/2012 14 INFORMING CUSTOMERS ABOUT FUJITSU GROUP'S VARIOU S PRODUCT OFFERINGS; INFORMING CUSTOMERS OF DELIVERY SCHEDULES AND ANY C HANGES TO THOSE SCHEDULES AS ADVISED BY THE GROUP COMPANIES; AND PROVISION OF ADMINISTRATIVE ASSISTANCE TO FUJITSU G ROUP; COORDINATING INFORMATION ON AND EVALUATING BUSINESS / COMMERCIAL RISKS INCLUDING FINANCIAL, POLITICAL, TE CHNICAL, ENVIRONMENTAL, LEGAL, TAXATION, ETC. OF OPERATING I N INDIA; COORDINATING INFORMATION ON POTENTIAL PARTNER/S AND COORDINATING/CORRESPONDING/LIAISONING/BUILDING RELA TIONSHIPS WITH THEM; COORDINATING/CORRESPONDING/LIAISONING/BUILDING RELA TIONSHIPS WITH CONCERNED GOVERNMENT AUTHORITIES; AND CO-ORDINATION WITH VARIOUS CONTRACTORS, FROM WHOM C ERTAIN SERVICES/ADVICE MAY HAVE BEEN OUTSOURCED IN RELATIO N TO HEALTH/ SAFETY/ ENVIRONMENT MATTERS, GOVERNMENT AUT HORITIES RELATED MATTERS, PUBLIC RELATIONS MATTERS, COMMUNIT Y DEVELOPMENT MATTERS, LEGAL MATTERS, ETC. 14. ON A SPECIFIC QUERY, THE LD. AR DID NOT PLACE O N RECORD A COPY OF THE AGREEMENT PURSUANT TO WHICH SUCH SERVICES WERE RENDERED, THAT COULD HAVE FACILITATED IN FINDING OUT THE CORRECT N ATURE OF WORK DONE BY THE ASSESSEE FOR ITS AES. IT WAS SUBMITTED THAT NO AGREEMENT WAS EXECUTED. WE ARE NOT INCLINED TO ACCEPT THIS SUBMIS SION. IT GOES WITHOUT ITA NO.6280/DEL/2012 15 SAYING THAT NO WORK, IN THE ORDINARY COURSE, CAN BE CARRIED OUT BETWEEN TWO DISTINCT, EVEN THOUGH RELATED, CORPORATE ASSE SSES LOCATED IN DIFFERENT OVERSEAS TAX JURISDICTIONS WITHOUT ANY FORMAL AGREE MENT SHOWING, INTER ALIA , THE NATURE OF WORK, RESPONSIBILITIES, OBLIGATION S AND MODE OF COMPENSATION/ REMUNERATION. WE ARE LEAVING THIS ISS UE HERE ONLY AFTER MAKING A MENTION. 15. ON GOING THROUGH THE TRANSFER PRICING STUDY RE PORT OF THE ASSESSEE, WHOSE COPY IS AVAILABLE IN THE PAPER BOOK, IT CAN B E SEEN THAT THE ASSESSEE PERFORMED FUNCTIONS OF MARKETING AND SUPPO RT SERVICES TO ITS AES, WHICH HAVE BEEN OUTLINED IN PARAS 4.3.6 TO 4.3 .16 AS UNDER :- ` SUPPORT SERVICES RENDERED TO AES 4.3.6 IN ACCORDANCE WITH ITS PRIMARY OBJECTIVE, FI L IS PERFORMING THE FUNCTION OF GENERAL MARKETING AND MARKET RESEARCH. IT ALSO PROVIDES INFORMATION ABOUT COMPANY'S PRODUCTS TO PO TENTIAL CUSTOMERS. 4.3.7 FIL PARTICIPATES IN VARIOUS TENDERS IN INDIA FOR SUPPLY OF TELECOM EQUIPMENT AND RELATED SERVICES. IN CASE OF AWARD OF THE CONTRACT, THE EXECUTION OF CONTRACT IS UNDERTAKEN B Y AES/THIRD PARTIES. IN MOST CASES THE PROJECTS ARE EXECUTED BY FJ AND FELLOW SUBSIDIARIES WITH A SMALL PORTION BEING OUTSOURCED TO THIRD PARTY SUB-CONTRACTORS. 4.3.8 FJ AND ITS FELLOW SUBSIDIARIES NEED TO BE CONTINUALLY AWARE OF THE MARKET CONDITIONS IN INDIA. FIL PROVIDES INFORMATI ON TO AES ITA NO.6280/DEL/2012 16 REGARDING THE CHANGES IN MARKET PLACE, CHANGES IN T HE GOVERNMENT POLICY, BUSINESS ENVIRONMENT IN INDIA, P ROGRESS ON PROJECTS AND OTHER INCIDENTAL MATTERS. THIS INFORMA TION IS PROVIDED ON A REGULAR BASIS. 4.3.9 FUJITSU HAS IMMENSE BRAND EQUITY IN THE TELE COM BUSINESS AND IT MARKET, WHICH GIVES FIL A GREAT REFERENCE LIST T HAT INSPIRES CONFIDENCE IN POTENTIAL CUSTOMERS. ACCORDINGLY, FUJ ITSU'S BRAND EQUITY SUPPORTS FIL'S MARKETING SUPPORT EFFORTS TO A GREAT EXTENT. 4.3.10 FUJITSU OWNS THE BRAND RIGHTS WHEREAS FIL D OES NOT OWN ANY INTANGIBLE VIS-A-VIS THE PRODUCTS. THE MARKETING OF BRANDED PRODUCTS CARRIES WITH IT THE STATED OR IMPLIED RIGH T TO USE THE SUPPLIER'S TRADEMARK OR TRADE NAME ONLY FOR THE PUR POSE OF PROMOTING THE SUPPLIER'S PRODUCTS. FIL DOES NOT HAV E ANY OTHER ADDITIONAL RIGHTS TO USE OR EXPLOIT THE BRAND RIGHT S OWNED BY FUJITSU. 4.3.11 IN THE TELECOM INDUSTRY AND IT MARKET, BRA ND RECOGNITION PLAYS A VITAL ROLE IN ACHIEVING SALES VOLUMES. FUJITSU BRAN D HAS A REPUTATION ACROSS THE GLOBE AS WELL AS IN THE INDIA N MARKET. ACCORDINGLY, RETURNS ATTRIBUTABLE TO THE BRAND NAME SHOULD ACCRUE TO THE ENTITY THAT OWNS THE BRAND. FIL SHOUL D ONLY BE ADEQUATELY COMPENSATED FOR THE FUNCTION CARRIED ON BY IT. 4.3.12 FIL IS ALSO PROVIDING WEBSITE UPDATION AN D MAINTENANCE ON FUJITSU'S OPERATIONS IN INDIA AND PROVIDING A LINK TO IT AT FUJITSU'S WEBSITE. IN ORDER TO CORRECTLY ASSESS THE CUSTOMER NEEDS. FIL ALSO EMPLOYS TECHNICAL PERSONNEL WHO SUP PORT MARKETING PERSONNEL IN UNDERSTANDING TECHNICAL REQU IREMENTS OF THE CUSTOMERS. COMMISSION INCOME FROM AES 4.3.13 FUJITSU, IN ORDER TO EXPAND ITS OPERATIONS, IS ALWAYS LOOKING FOR OPPORTUNITIES IN THE GLOBAL MARKET AND IS INVOLVED IN VARIOUS BIDDINGS AND TENDERS. FJ ENTERED INTO AN AGREEMENT WITH FIL WITH RESPECT TO THE INDIA LEG OF THE SEA-ME-WE 4 (S OUTH EAST ASIA- MIDDLE EAST- WESTERN EUROPE-4) PROJECT. THE S EA-ME- WE-4 CABLE SYSTEM PROJECT IS IN RELATION TO OPTICAL FIBERS TRANSMISSION UNDER SEA. AS PER THE AGREEMENT. FIL P ROVIDED ASSISTANCE TO FJ IN RELATION TO OBTAINING THE SUPPL Y CONTRACT FOR ITA NO.6280/DEL/2012 17 THE SEA-ME-WE-4 CABLE SYSTEM BY PROVIDING INFORMATI ON ABOUT GOVERNMENT POLICIES AND REGULATIONS, COMPETIT OR ANALYSIS, PRICING NORMS ETC. FIL WAS COMPENSATED IN THE FORM OF COMMISSION INCOME BY FJ, IN RESPECT OF ITS VARIOUS SUPPORT SERVICES WITH RESPECT TO THE SE-ME-WE-4 PROJECT. 4.3.14 TECHNICAL SUPPORT SERVICES RENDERED TO FUJI TSU NETWORK SOLUTIONS LIMITED JAPAN (FNETS) ARE AS UNDER: INDIA MAINTENANCE SUPPORT 4.3.15 FNETS HAS SUPPLIED TRANSMISSION EQUIPMENT TO POWER GRID CORPORATION INDIA LTD. ('PGCIL') IN INDIA. AS PART OF THE SUPPLY CONTRACT, FNETS HAS TO PROVIDE MAINTENANCE SERVICES FOR THESE EQUIPMENTS. THESE SERVICES ARE SUBCONTRACTED TO FIL , WHICH HAS FURTHER SUBCONTRACTED THESE SERVICES TO THIRD PARTI ES, WITH ALL RISKS TRANSFERRED BACK-TO-BACK, AFTER RETAINING ITS MARGIN. THE SCOPE OF SERVICES INCLUDES PROBLEM SOLVING AND ATTE NDING QUERIES. FIL ACTS AS A COORDINATOR BETWEEN FNETS AN D THE END CUSTOMER AND THIRD PARTY SUB-CONTRACTOR. SEA-ME-WE 4 PROJECT (SOUTH EAST ASIA-MIDDLE EAST-W EST EUROPE 4 PROJECT) 4.3.16 THE PROJECT OF SEA-ME-WE 4 CABLE SYSTEM I S IN RELATION TO OPTICAL FIBER TRANSMISSION UNDER SEA. SEA-ME-WE IS A CONSORTIUM FORMED BY VARIOUS COUNTRIES TO EXPAND TH E HORIZONS OF THE BROADBAND TECHNOLOGY. FJ WAS ENGAGED IN SUPP LYING EQUIPMENT AND PROVIDING INSTALLATION AND COMMISSION ING SUPPORT FOR THIS PROJECT. FJ PERFORMED THE WORK OF EQUIPMENT SUPPLIES AND SUBCONTRACTED THE INSTALLATION AND COM MISSIONING SERVICES PART OF THE CONTRACT TO FNETS. FNETS SUBCO NTRACTED THE ENTIRE INSTALLATION AND COMMISSIONING SERVICES PART OF THE CONTRACT TO FNETS. FNETS SUBCONTRACTED THE ENTIRE I NSTALLATION AND COMMISSIONING SERVICES PART TO FIL WHICH IN TUR N FURTHER SUBCONTRACTED TO FUJITSU OPTEL LTD. (FOTEL) AFTER RETAINING ITS MARGIN. THE SCOPE OF WORK INCLUDES CONTROL AND MANAGEMENT OF IMPLEMENTATION, SUPPLY OF MAN POWER F OR ITA NO.6280/DEL/2012 18 TESTING WORK, SAFETY CONTROL AND INSURANCE FOR TEST ER, ARRANGEMENT OF ENTRANCE PERMISSION AT SITE, SUPPLY OF TEST PROCEDURE AND DATA SHEET FORM AND SUPPLY OF TEST EQ UIPMENT. 16. ADMITTEDLY NO COMMISSION INCOME WAS EARNED BY T HE ASSESSEE AND THE ABOVE PARA 4.3.13. APPEARS TO BE A COPY AND PASTE WORK HAVING NO RELEVANCE TO THE ACTUAL BUSINESS ACTIVITY CARRIE D OUT DURING THE YEAR. 17. THE LD. DR ARGUED THAT THE ASSESSEE, APART FR OM RENDERING MARKETING SUPPORT SERVICES, WAS ALSO ENGAGED IN PRO VIDING TECHNICAL SUPPORT SERVICES AS WAS APPARENT FROM PARA 4.3.12 A ND 4.3.14 ABOVE. THIS WAS CONTROVERTED BY THE LD. AR WHO SUBMITTED T HAT THE SO-CALLED TECHNICAL SUPPORT SERVICES WERE SIMPLY IN THE NATUR E OF WEBSITE UPDATION AND MAINTENANCE OF THE FUJITSUS GROUP OPERATIONS I N INDIA, SO THAT THE CUSTOMERS COULD UNDERSTAND THE NATURE OF SERVICES P ROVIDED. WE FIND WEIGHT IN THE SUBMISSION ADVANCED ON BEHALF OF THE ASSESSEE FOR THE OBVIOUS REASON THAT, FIRSTLY, IT IS NOT THE CASE OF THE TPO THAT THE ASSESSEE DID RENDER ANY TECHNICAL SUPPORT SERVICES TO ITS AE AND, SECONDLY, THE SERVICES OF WEBSITE UPDATION, THOUGH DESIGNATED AS TECHNICAL SUPPORT SERVICES, ARE, IN FACT, IN THE NATURE OF UPDATION A ND MAINTENANCE OF THE ITA NO.6280/DEL/2012 19 WEBSITE OF FUJITSUS GROUP, SO THAT THE NATURE OF A CTIVITIES DONE BY THE GROUP MAY BE MADE KNOWN TO THE CUSTOMERS IN INDIA. NOTHING MORE THAN THAT HAS BEEN BROUGHT TO OUR NOTICE. 18. THE NEXT CONTENTION OF THE LD. DR WAS WITH REFERENCE TO PARAS 4.3.15 AND 4.3.16 OF THE TRANSFER PRICING STUDY REP ORT. IT WAS SUBMITTED THAT THE ASSESSEE WAS NOT ONLY RENDERING MARKETING SUPPORT SERVICES, BUT ALSO UNDERTAKING MAINTENANCE SERVICES. WE ARE, AGA IN, NOT CONVINCED WITH THE LD. DRS SUBMISSION. AS CAN BE SEEN FROM PARA 4.3.15 THAT FNETS WAS TO PROVIDE MAINTENANCE SERVICES FOR SUPPL Y OF EQUIPMENTS TO POWER GRID CORPORATION OF INDIA LTD. THESE SERV ICES WERE SUBCONTRACTED TO THE ASSESSEE, WHICH WERE FURTHER S UBCONTRACTED BY THE ASSESSEE TO THIRD PARTY WITH ALL RISKS TRANSFERRED BACK TO BACK. SIMILAR POSITION EMANATES FROM A READING OF PARA 4.3.16 WHI CH SHOWS THAT FJ WAS ENGAGED IN SUPPLYING EQUIPMENTS AND PROVIDING I NSTALLATION AND COMMISSIONING SUPPORT FOR PROJECT OF SEA-ME-WE. FJ PERFORMED THE WORK OF EQUIPMENTS SUPPLY AND SUBCONTRACTED THE INS TALLATION AND COMMISSIONING SERVICES PART OF THE CONTRACT TO FNET S, WHICH ITA NO.6280/DEL/2012 20 SUBCONTRACTED THE ENTIRE INSTALLATION AND COMMISSIO NING OF SERVICE PART TO THE ASSESSEE, WHICH, IN TURN, SUBCONTRACTED THE SAME TO FOTEL, ANOTHER GROUP COMPANY. THIS SHOWS THAT THE ASSESSE E DID NOT RENDER ANY INSTALLATION AND COMMISSIONING SERVICES OR MAINTENA NCE SERVICES AT ITS OWN, BUT SIMPLY SUBCONTRACTED THE SAME TO OTHER ENT ITIES, WHICH IS NOTHING, BUT, CO-ORDINATION. SUCH INCOME CAN BE BE TTER DESCRIBED AS FROM MEDIATION IN ENTRUSTING THE WORK TO OTHER ENTI TIES FROM SUB-LETTING RATHER THAN BEING CHARACTERIZED AS INCOME FROM PROV IDING MAINTENANCE SUPPORT SERVICES. IT IS, THEREFORE, AMPLY CLEAR THA T THE ASSESSEE RENDERED MARKETING SUPPORT SERVICES TO ITS AES AS HAS BEEN A CCEPTED BY THE TPO AS WELL, WHICH ARE IN THE NATURE OF PROVIDING INFOR MATION IN RESPECT OF LOCAL MARKET ETC., EXISTING AND POTENTIAL CUSTOMERS TO ITS AES AND WORKING AS AN INTERFACE BETWEEN THE AES AND CUSTOME RS IN INDIA BY INFORMING THE CUSTOMERS ABOUT THE GROUPS OFFERINGS , DELIVERY SCHEDULES, ETC. AND COORDINATING VARIOUS ISSUES CONCERNING THE MARKETING OF PRODUCTS. WITH THE ABOVE BACKGROUND OF NATURE OF S ERVICES RENDERED BY THE ASSESSEE IN MIND, WE WILL NOW TAKE UP THE COMPA RABILITY OR OTHERWISE OF SIX COMPANIES UNDER CHALLENGE. ITA NO.6280/DEL/2012 21 (I) APITCO LTD . 19.1. THE TPO PROPOSED THIS COMPANY AS COMPARABL E. THE ASSESSEE OBJECTED TO THE SAME ON ACCOUNT OF ITS FUNCTIONAL D ISSIMILARITY, WHICH DID NOT FIND FAVOUR WITH THE TPO, WHO INCLUDED THE SAME IN THE FINAL LIST OF COMPARABLES. 19.2. ANNUAL REPORT OF THIS COMPANY IS AVAILABLE O N PAGES 1 ONWARDS OF THE PAPER BOOK HAVING ANNUAL REPORTS OF SOME OF THE COMPANIES. PERFORMANCE REVIEW FOR THE YEAR 2007-08 (EQUIVALENT TO THE AY 2008-09 UNDER CONSIDERATION) INDICATES THAT THIS COMPANY RE CORDED TOTAL REVENUE OF RS.10.66 CRORE CONTRIBUTED BY ITS MAJOR BUSINESS SEGMENTS VIZ., ASSET RECONSTRUCTION & MANAGEMENT SERVICES RS.2.01 CRORE; PROJECT RELATED SERVICES RS.2.01 CRORE; MICRO ENTERPRISES DEVELOP MENT RS.1.50 CRORE; INFRASTRUCTURE PLANNING & DEVELOPMENT RS.1.36 CRORE ; RESEARCH STUDIES & TOURISM RS.1.26 CRORE; SKILL DEVELOPMENT RS.1.12 CRORE; ENVIRONMENT MANAGEMENT RS.42.08 LAC; ENTREPRENEURSH IP DEVELOPMENT & TRAINING RS.34.79 LAC; CLUSTER DEVELOPMENT RS.24. 08 LAC; ENERGY RELATED SERVICES RS.16.24 LAC; EMERGING AREAS RS.5. 30 LAC; AND OTHER ITA NO.6280/DEL/2012 22 INCOME OF RS.15.45 LAC. ON GOING THROUGH THE BREAK -UP OF REVENUES FROM MAJOR BUSINESS SEGMENTS, IT CAN BE SEEN THAT T HIS COMPANY IS ENGAGED IN PROVIDING ASSET RECONSTRUCTION AND MANAG EMENT SERVICES; PROJECT RELATED SERVICES; MICRO ENTERPRISES DEVELOP MENT SERVICES; INFRASTRUCTURE PLANNING AND DEVELOPMENT SERVICES AN D CLUSTER DEVELOPMENT ETC. APART FROM THE ABOVE, THIS COMPANY HAS ALSO EARNED REVENUE FROM RESEARCH STUDIES AND TOURISM AMOUNTING TO RS.1.26 CRORE. FROM A CLOSE LOOK AT THE ACTIVITIES CARRIED ON BY T HIS COMPANY, IT BECOMES CLEAR THAT EXCEPT FOR RESEARCH STUDIES, W HICH PARTLY RESEMBLES WITH THE ASSESSEES MARKETING RESEARCH ACTIVITY, TH ERE IS NO MATCH BETWEEN ALL THE OTHER ACTIVITIES CARRIED OUT BY THI S COMPANY AND WHAT THE ASSESSEE IS DOING. THERE IS NO SEGMENTAL INFORMATIO N AVAILABLE ON THIS BUSINESS SEGMENT AND THE COMPANY HAS COMPUTED PROFI T ON A CONSOLIDATED BASIS. IN VIEW OF THE PATENT MISMATCHI NG FUNCTIONS PERFORMED BY THIS COMPANY ON A HOLISTIC BASIS VIS--VIS THE ASSESSEE, WE CANNOT DEEM THIS COMPANY AS COMPARABLE ON ENTITY LE VEL. THIS COMPANY IS, THEREFORE, ORDERED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. ITA NO.6280/DEL/2012 23 (II) BEST MULYANKAN CONSULTANTS LTD . 20.1. THE TPO SELECTED THIS COMPANY AS COMPARABL E. THE ASSESSEE OBJECTED TO THE SAME, BUT THE TPO DID NOT CONCUR WI TH THE ASSESSEES OBJECTIONS. 20.2. THE LD. AR DID NOT PRESS THE FUNCTIONAL DIFF ERENCES OF THIS COMPANY WITH THE ASSESSEE. THE ONLY ISSUE RAISED W AS THAT THE TPO HAD WRONGLY COMPUTED ITS PROFIT MARGIN AT 12.84%. IT W AS, THEREFORE, PRAYED THAT A DIRECTION MAY BE GIVEN FOR COMPUTING THE COR RECT PLI OF THIS COMPANY. THIS WAS NOT OPPOSED BY THE LD. DR. UNDER THESE CIRCUMSTANCES, WE DIRECT THE AO/TPO TO CONFRONT THE ASSESSEE WITH THE WORKING OF PLI OF THIS COMPANY. IF IT IS NOT CORR ECT, THE SAME SHOULD BE CORRECTED AFTER CONFRONTING THE ASSESSEE WITH THE S AME. (III) CHOKSI LAB LTD . 21.1. THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES DESPITE THE ASSESSEES OBJECTION THAT IT WAS FUNCTI ONALLY DIFFERENT. ITA NO.6280/DEL/2012 24 21.2. WE HAVE GONE THROUGH THE ANNUAL REPORT OF THIS COMPANY, WHICH IS AVAILABLE IN THE PAPER BOOK. NOTE NO. 8 TO PART B - NOTES FORMING PART OF THE ACCOUNTS - PROVIDES THAT THIS COMPANY IS A COMMERCIAL TESTING HOUSE ENGAGED IN TESTING OF VARIOUS PRODUCTS AND AL SO OFFERS SERVICES IN THE FIELD OF POLLUTION CONTROL AS ALLIED ACTIVITY. FROM THE ABOVE DESCRIPTION OF THE NATURE OF SERVICES CARRIED ON BY THIS COMPANY, IT BECOMES EVIDENT THAT IT IS BASICALLY ENGAGED IN PRO VIDING TESTING SERVICES FOR VARIOUS PRODUCTS AND ALSO OFFERS SERVICES IN TH E FIELD OF POLLUTION CONTROL. AS AGAINST THIS, THE SERVICES PROVIDED BY THE ASSESSEE ARE PURELY IN THE NATURE OF MARKETING SUPPORT TO ITS AES. WE FAIL TO APPRECIATE AS TO HOW MARKETING SUPPORT SERVICES CAN BE EQUATED WITH TESTING SERVICES. WHEN WE PERUSE SCHEDULE OF FIXED ASSETS OF THIS COM PANY, IT CAN BE SEEN THAT THE MAJOR ASSET IS INSTRUMENTS. IT IS WITH T HE HELP OF THESE INSTRUMENTS THAT THE COMPANY IS PROVIDING SERVICES IN THE NATURE OF TESTING OF VARIOUS PRODUCTS. BY NO STANDARD, THIS COMPANY CAN BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE COMPANY. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NO.6280/DEL/2012 25 (IV) INDUS TECHNICAL AND FINANCIAL CONSULTANTS LTD . 22.1. THE TPO INCLUDED THIS COMPANY IN THE LIST O F COMPARABLES DESPITE THE ASSESSEES OBJECTIONS THAT THE WEBSITE OF THIS COMPANY SHOWED THAT IT WAS INVOLVED IN ENVIRONMENTAL SERVICES, TECHNOLOGY MANAGEMENT, FINANCIAL SERVICES AND ADMINISTRATIVE SERVICES. THE ASSESSEE IS AGGRIEVED AGAINST THE INCLUSION OF THIS COMPANY. 22.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. THE LD. AR HAS SIMPLY RELIED O N THE CURRENT WEBSITE OF THIS COMPANY TO SUPPORT HIS CONTENTION THAT IT I S FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. OBVIOUSLY, THE WEBSITE INDICATE S THE POSITION OF A COMPANY AS ON DATE AND NOT QUA THE DATE OF CLOSING OF THE YEAR, WHICH EVENT TOOK PLACE NINE YEARS BACK. NO OTHER INFORMAT ION/DETAIL HAS BEEN MADE AVAILABLE TO SHOW THAT THIS COMPANY IS FUNCTIO NALLY DIFFERENT. IN THE ABSENCE OF ANY SUCH DETAILS, WE ARE UNABLE TO A PPROVE THE STAND OF THE ASSESSEE. THIS COMPANY IS, THEREFORE, HELD TO BE RIGHTLY INCLUDED IN THE LIST OF COMPARABLES. ITA NO.6280/DEL/2012 26 (V) RITES LTD . 23.1. THE TPO NOTICED THAT THIS COMPANY IS PRIMARI LY A CONSULTANCY ORGANIZATION HAVING THREE BUSINESS SEGMENTS, NAMELY , CONSULTANCY SERVICES, EXPORT OF ROLLING STOCK, EQUIPMENT AND SP ARE, LEASING OF RAILWAY ROLLING STOCK AND EQUIPMENT. THE TPO CONSI DERED ONLY THE CONSULTANCY SERVICES SEGMENT OF THIS COMPANY FOR TH E PURPOSE OF INCLUSION IN THE LIST OF COMPARABLES, AGAINST WHICH THE ASSESSEE IS AGGRIEVED. 23.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT ONLY `CONSULTANCY SERVICE SEGMENT OF THIS COMPANY HAS BEEN CONSIDERED BY THE TPO LEAVING THE OTHER BUSINESS SEGMENTS ASIDE. OUR ATTENTION HAS NOT BEEN DRAWN T OWARDS ANY MATERIAL OF SUBSTANCE TO INDICATE THAT THE NATURE OF SERVICE S RENDERED BY THIS COMPANY CANNOT BE CONSIDERED AS MATCHING WITH THE S ERVICES PROVIDED BY THE ASSESSEE FOR THE PURPOSE OF COMPARISON. THE LD. AR FURTHER SUBMITTED THAT THE TPO WRONGLY COMPUTED PROFIT MARG IN FROM THE CONSULTANCY SERVICES SEGMENT OF THIS COMPANY. WHIL E RETAINING THIS ITA NO.6280/DEL/2012 27 COMPANY IN THE LIST OF COMPARABLES, WE DIRECT THE T PO/AO TO RECOMPUTE PROFIT MARGIN OF RITES LTD. FROM THE CONSULTANCY SE RVICE SEGMENT AFTER DUE NOTICE TO THE ASSESSEE. (VI) WAPCOS LTD. (SEG.) 24.1. THE TPO CONSIDERED THIS COMPANY AS COMPARAB LE BY OBSERVING THAT IT WAS PROVIDING SUPPORT SERVICES IN TERMS OF TECHNICAL SUPPORT, TECHNICAL KNOW-HOW VALUATION AND ASSISTANCE IN DEVELOPMENT/UPGRADATION OF POTENTIAL SUPPLIERS, ETC . THE ASSESSEES OBJECTIONS ABOUT THE FUNCTIONAL DISSIMILARITY OF TH IS COMPANY, WERE REJECTED. 24.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT HAS TWO SEGMENTS, NAMELY, CONSULTANCY AND ENGIN EERING PROJECTS AND LUMPSUM TURNKEY PROJECTS. THE TPO HAS TAKEN CON SULTANCY AND ENGINEERING PROJECT SEGMENT FOR THE PURPOSES OF CO MPARISON WITH THE ASSESSEE COMPANY. THIS COMPANY IS ENGAGED IN INFRA STRUCTURE DEVELOPMENT PROJECTS. THIS COMPANY IS ALSO WORKING AS INDEPENDENT ITA NO.6280/DEL/2012 28 REVIEW AND MONITORING AGENCY FOR PROJECTS IN SOME S TATES. IT IS ALSO PROVIDING SUPERVISION AND QUALITY CONTROL CONSULTAN CY FOR CONSTRUCTION/UPGRADATION OF RURAL ROADS UNDER PMGSY . IT ALSO SECURED PROJECTS FOR DEVELOPMENT AND HYGIENE EDUCATION, DEV ELOPMENT OF DRY PIT LATRINES, DESIGNS FOR LOCAL CONDITIONS FOR HOUSEHOL D AND SCHOOLS AND SOLID WASTE MANAGEMENT. IT ALSO SECURED PROJECTS FOR TRA NSMISSION LINE KIRTI IRTI TO STA, TRENG, CAMHODIA. A REVIEW OF THE ABOV E SERVICES PROVIDED BY THIS COMPANY, IT CAN BE EASILY ASCERTAINED THAT IT IS NOWHERE CLOSE TO THE RENDERING OF MARKETING SUPPORT SERVICES, WHICH IS BEING DONE BY THE ASSESSEE UNDER THIS SEGMENT. THE NATURE OF ACTIVIT Y DONE BY THE ASSESSEE IS QUITE DISTINCT FROM THIS COMPANY. WE, THEREFORE , DIRECT TO EXCLUDE WAPCOS LTD. (SEG.) FROM THE LIST OF COMPARABLES. 25. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON THE ISSUE OF ADDITION TOWARDS TRANSFER PRICING ADJUSTMENT AND RE MIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF RECEIPTS FOR SERVICES RENDERED IN CONSONANCE WITH OUR ITA NO.6280/DEL/2012 29 ABOVE DIRECTIONS. NEEDLESS TO SAY, THE ASSESSEE WI LL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS 26. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 02.02.201 7. SD/- SD/- [K.N. CHARY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, FEBRUARY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.