Toluna India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 6407/DEL/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4384 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 16-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUAMR YADAV
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI B.P.JAIN, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6407/DEL /2012 ASSTT. YEAR: 2008-09 TOLUNA INDIA PVT. LTD., (FORMERLY KNOWN AS GREENFIELD ONLINE PVT. LTD.), FIRST FLOOR, UNITECH TRADE CENTRE, SUSHANT LOK, PHASE-I, GURGAON. (PAN:AACCG0003G) VS DCIT, CIRCLE-12(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANUBHAV RASTOGI, ADV. RESPONDENT BY : SHRI SANJAY KUAMR YADAV, S R. DR DATE OF HEARING : 22.09.2017 DATE OF PRONOUNCEMENT: 22.09.2017 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL OF THE ASSESSEE WAS INITIALLY DISPOSED OF BY THIS TRIBUNAL VIDE ORDER DATED 2.6.2015 IN ITA NO. 6407/ DEL/12. HOWEVER, SUBSEQUENT TO THE ORDER OF THE ITAT, THE A SSESSEE FILED AN M.A. BEFORE THE TRIBUNAL SUBMITTING THAT THE ITA T HAD NOT DISPOSED OF THE CONTENTIONS OF THE ASSESSEE ON THE ISSUE OF ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 2 TRANSFER PRICING ADJUSTMENT RELATING TO INTERNATION AL TRANSACTION OF PROVISION OF MARKETING SUPPORT SERVICES. THE MI SCELLANEOUS APPLICATION OF THE ASSESSEE WAS ALLOWED AND THE ORD ER OF THE TRIBUNAL DATED 2.6.15 WAS RECALLED ONLY FOR THE LIM ITED PURPOSE OF ADJUDICATION ON THE ISSUE OF INTERNATIONAL TRANSACT ION OF PROVISION OF MARKETING SUPPORT SERVICES VIDE ORDER DATED 19.1 .2017 IN M.A. NO. 342/DEL/15. ACCORDINGLY, WE PROCEED TO HEAR BO TH THE PARTIES ON THE ISSUE RELATING TO INTERNATIONAL TRAN SACTION OF PROVISION OF MARKETING SUPPORT SERVICES. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF TOLUNA US (FORMERLY KNOWN AS GR EENFIELD US) WHICH IS THE ULTIMATE PARENT ENTITY OF THE TOLU NA GROUP (FORMERLY KNOWN AS GREENFIELD GROUP). THE ASSESSEE IS PRIMARILY ENGAGED IN PROVIDING CONTRACT IT AND RELATED SERVIC ES TO ITS PARENT COMPANY. FURTHER, DURING AY 2008-09, THE ASS ESSEE ALSO PROVIDED ROUTINE MARKETING SUPPORT SERVICES TO ITS PARENT COMPANY. DURING THE RELEVANT ASSESSMENT YEAR, THE A SSESSEE UNDERTOOK INTERNATIONAL TRANSACTIONS WITH ITS ASSOC IATED ENTERPRISES (AES), WHICH WERE DULY REPORTED IN TH E ACCOUNTANTS REPORT (FORM NO. 3CEB), FILED ALONG WITH THE ASSESS EES RETURN OF INCOME. ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 3 2.1 FOR BENCHMARKING ITS INTERNATIONAL TRANSACT IONS OF PROVISION OF CONTRACT IT SERVICES AND PROVISION OF MARKETING SUPPORT SERVICES, THE ASSESSEE IN ITS TP DOCUMENTA TION, SELECTED TNMM AS THE MOST APPROPRIATE METHOD APPLYI NG OPERATING PROFIT / TOTAL COST (OP/TC) AS THE PROF IT LEVEL INDICATOR (PLI). THE FOLLOWING TABLE SUMMARISES T HE RESULTS OF THE COMPARABLE SEARCH AND THE ECONOMIC ANALYSIS UND ERTAKEN BY THE ASSESSEE FOR BENCHMARKING THE SAID INTERNATI ONAL TRANSACTIONS: 2.2 DURING THE COURSE OF THE TRANSFER PRICING ASSES SMENT PROCEEDINGS, THE TPO DIRECTED THE ASSESSEE TO SUBMI T UPDATED CURRENT YEAR I.E. FINANCIAL YEAR (FY) 2007-08 DAT A FOR THE COMPARABLE COMPANIES CONSIDERED IN ITS TP DOCUMENTA TION. THEREAFTER, THE TPO MADE AN ADJUSTMENT TO THE ASSES SEES PARTICULARS PROVISION OF CONTRACT IT SERVICES PROVISION OF MARKETING SUPPORT SERVICES NO. OF COMPARABLES 20 5 AVERAGE OP/TC OF COMPARABLES (USING 13 - 32 % 11.06% MULTIPLE YEAR DATA) 15.06% 8.00% OP/TC (USING CURRENT YEAR DATA) DATA CONCLUSION AT ARMS LENGTH IN ACCORDANCE WITH THE INDIAN TRANSFER PRICING (TP) REGULATIONS. ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 4 INTERNATIONAL TRANSACTIONS OF PROVISION OF CONTRAC T IT SERVICES AND PROVISION OF MARKETING SUPPORT SERVICES VIDE ORDER DATED OCTOBER 25, 2011. THE TPO, HOWEVER, ACCEPTED THE AR MS LENGTH NATURE OF THE OTHER INTERNATIONAL TRANSACTION ENTER ED INTO BY THE ASSESSEE WITH ITS AES. 2.3 THE FINAL SET OF COMPARABLE COMPANIES IDENTIFIE D BY THE TPO IN HIS ORDER TO BENCHMARK THE ASSESSEES INTERN ATIONAL TRANSACTIONS OF PROVISION OF MARKETING SUPPORT SERV ICES ARE AS FOLLOWS: PROVISION OF MARKETING SUPPORT SERVICES S. NO. COMPARABLE OP/TC MARGIN (USING CURRENT YEAR DATA) WORKING CAPITAL ADJUSTED OP/TC MARGIN 1 APITCO LIMITED 49 - 35 % 47 . 30 % 2 BEST MULYANKAN CONSULTANTS LIMITED 12.85% 3 - 34 % 3 CHOKSI LABORATORIES LIMITED 29.20% 28.90% 4 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 4.18% 2.60% 5 IDC (INDIA) LIMITED 15.48% 16.67% 6 INDUS TECHNICAL & FINANCIAL CONSULTANTS LIMITED 14.56% 18.37% 7 RITES LIMITED 25.77% 37.18% 8 TECHNICOM-CHEMIE (INDIA) LIMITED 7.32% 13 - 57 % 9 VAPI WASTE & EFFLUENT MGMT. CO. LIMITED 18.53% 10.00% 10 WAPCOS LIMITED (SEG.) 40.37% 61.14% ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 5 2.4 BASED ON THE ABOVE APPROACH, THE TPO, THEREAFTE R, PROCEEDED TO PASS AN ORDER UNDER SECTION 92CA(3) OF THE ACT DATED OCTOBER 25, 2011 PROPOSING AN ADJUSTMENT OF I NR 28,290,817/- TO THE INCOME FROM PROVISION OF CONTRACT IT SERVICES AND INR 234,191/- TO THE INCOME FROM PROVISION OF MARKETING SUPPORT SERVICES BY HOLDING THAT THE SAID TWO INTERNATIONAL TRANSACTIONS DID NOT MEET THE ARMS L ENGTH STANDARD AS LAID DOWN UNDER THE INDIAN TP REGULATIO NS. HOWEVER, THE TPO ACCEPTED THE ARMS LENGTH NATURE O F ALL THE OTHER INTERNATIONAL TRANSACTIONS ENTERED INTO BY TH E ASSESSEE WITH ITS AES DURING AY 2008-09. 2.5 AGGRIEVED BY THE TPOS APPROACH IN DETERMINING THE ARMS LENGTH PRICE (ALP) IN REFERENCE TO THE INTERNATIO NAL TRANSACTIONS OF PROVISION OF CONTRACT IT SERVICE AND MARKETING S UPPORT SERVICES IN HIS TP ORDER, THE ASSESSEE APPROACHED T HE HONBLE DRP. 2.6 THE HONBLE DRP ISSUED THE FOLLOWING DIRECTIONS TO THE TPO IN REFERENCE TO THE ASSESSEES INTERNATIONAL TRANSA CTION OF MARKETING SUPPORT SERVICES: TO EXCLUDE M/S APITCO LIMITED, M/S RITES LIMITED AN D M/S ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 6 VAPI WASTE & EFFLUENT MGMT. CO. LIMITED IN THE FINA L COMPARABLE SET FOR DETERMINING THE REVISED ALP FOR THE ASSESSEES INTERNATIONAL TRANSACTION IN THE NATURE OF PROVISION OF MARKETING SUPPORT SERVICES. 2.7 ACCORDINGLY, AFTER INCORPORATING THE ABOVE CHAN GES IN ACCORDANCE WITH THE DIRECTIONS ISSUED BY THE HONBL E DRP, THE FINAL COMPARABLE SET IS AS FOLLOWS: 2.8 NOW THE ASSESSEE HAS APPROACHED THE ITAT AND SEEKS EXCLUSION OF THREE MORE COMPARABLES. 3. THE LD. AR SUBMITTED THAT THE ASSESSEE PRAYS FOR EXCLUSION OF THREE MORE COMPARABLES VIZ. CHOKSI LABORATORIES LTD., INDUS TECHNICAL & FINANCIAL CONSULTANTS LIMITED AND WAPCO S LIMITED SR. NO. NAME OF THE COMPANY REVISED COMPARABLES SET - AS PER DIRECTIONS OF THE HON. DRP 1 BEST MULYANKAN CONSULTANTS LIMITED 3 - 34 % 2 CHOKSI LABORATORIES LIMITED 28.90% 3 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 2.60% 4 IDC (INDIA) LIMITED 16.67% 5 INDUS TECHNICAL & FINANCIAL CONSULTANTS LIMITED 18.37% 6 TECHNICOM-CHEMIE (INDIA) LIMITED 13 - 57 % 7 WAPCOS LIMITED (SEG.) 61.14% COUNT 7 AVERAGE OP/TC 20.66% APPELLANT'S OP/TC 8.00% ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 7 (SEG.). THE LD. AR DREW OUR ATTENTION TO THE ANNUA L REPORT OF CHOKSI LABORATORIES LTD. AND SUBMITTED THAT THIS CO MPANY WAS NOT A COMPARABLE AS IT WAS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY AS IT PROVIDED ANALYSIS, CALIBRATION, POLLU TION CONTROL SERVICES TO A BROAD SPECTRUM OF INDUSTRIES. LD. AR PLACED RELIANCE ON THE ORDER OF THE ITAT DELHI BENCH IN TH E CASE OF NORTEL NETWORKS INDIA PRIVATE LIMITED VS ACIT IN ITA NO. 4 765/DEL/2011 AND 427/DEL/2013 WHEREIN VIDE ORDER DATED 25.2.2014 , CHOKSI WAS EXCLUDED FROM THE FINAL LIST OF COMPARABLES ON THE GROUND THAT CHOKSI PROVIDED END TO END SOLUTIONS AND HENCE COULD NOT BE COMPARED WITH ASSESSEE WHO PROVIDED MARKETING SU PPORT SERVICES TO THE PARENT COMPANY. 3.1 IT WAS FURTHER SUBMITTED THAT INDUS TECHNICAL & FINANCIAL CONSULTANTS LIMITED WAS A COMPANY ENGAGED IN PROVIS ION OF TECHNICAL CONSULTANCY. IT WAS SUBMITTED THAT ITS W EBSITE SHOWED THAT THIS COMPANY WAS INVOLVED IN ENVIRONMENT AND P OLLUTION CONTROL, TECHNOLOGY MANAGEMENT, FINANCIAL SERVICES, ADMINISTRATIVE AND LEGAL SERVICES, PROJECT SELECTIO N AND PROJECT IMPLEMENTATION SERVICES, ENERGY AND POWER SERVICES AND THEREFORE, THIS COMPANY WAS NOT A COMPANY WHICH COU LD BE COMPARED TO THE ASSESSEE COMPANY. RELIANCE WAS PLA CED ON THE ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 8 ORDER OF THE ITAT DELHI BENCH IN THE CASE OF INTREP ID TRAVELS PVT. LTD. VS ADIT IN ITA NO. 5582/DEL/2012 WHEREIN VIDE ORDER DATED 27.2.2015 THIS COMPANY WAS EXCLUDED ON THE GROUND T HAT THIS COMPANY WAS ENGAGED IN MANUFACTURING ACTIVITY AND T HEREFORE HAD COMPLETELY DIFFERENT FAR FROM THE TESTED PARTY. 3.2 REGARDING WAPCOS LIMITED (SEGMENTAL) IT WAS SUB MITTED THAT THIS COMPANY WAS INTO HIGH END CONSULTANCY AND WAS, THEREFORE, FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY. OUR ATTENTION WAS DRAWN TO THE DIRECTORS REPORT AS WEL L AS THE ANNUAL ACCOUNTS TO BUTTRESS THE ARGUMENT THAT THIS COMPANY WAS PROVIDING INFRASTRUCTURE FACILITIES RELATING TO ENV IRONMENT, RURAL AND URBAN DEVELOPMENT, WATER RESOURCES, PERSONNEL DEVELOPMENT, INDUSTRIAL RELATIONS ETC. AND WAS NOT PROVIDING MARKETING SUPPORT SERVICES AND HENCE THE SAME NEEDE D TO BE EXCLUDED. 4. THE LD. DEPARTMENTAL REPRESENTATIVE, IN RESPONSE , SUBMITTED THAT EVEN THE COMPARABLES ACCEPTED BY THE ASSESSEE WERE NOT STRICTLY PROVIDING MARKETING SUPPORT SERVI CES AND THAT THESE COMPARABLES WERE EXCLUDED LOOKING INTO THE M AIN FUNCTION OF THE ASSESSEE WHICH WAS OF PROVIDING IT ENABLED S ERVICES. LD. DR PLACED RELIANCE ON THE FINDINGS OF THE TPO AS WE LL AS OF THE ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 9 HONBLE DRP AND SUBMITTED THAT IN ABSENCE OF PROPER COMPARABLES, A BROADER VIEW HAS TO BE TAKEN. IT WA S SUBMITTED THAT THESE THREE COMPARABLES SHOULD NOT DIRECTED TO BE EXCLUDED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE TAKE UP THE COMPAR ABLES DISPUTED BY THE ASSESSEE ONE BY ONE. I) CHOKSI LABORATORIES LIMITED : IT IS THE ASSESSEES CONTENTION THAT THIS COMPAN Y WAS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY AS THIS COMPANY PROVIDED END TO END SOLUTIONS WHEREAS THE A SSESSEE COMPANY ONLY PROVIDED MARKETING SUPPORT SERVICES AL ONG WITH IT ENABLED SERVICES. WE FIND THAT CHOKSI HAS BEEN EXCLUDED FROM THE FINALS SET OF COMPARABLES IN THE CASE OF N ORTEL NETWORKS INDIA PRIVATE LIMITED VS ACIT REPORTED IN 164 TTJ 21 (DEL) ON THE GROUND THAT COMPANIES PROVIDING END TO END SOLUTIONS COULD NOT BE COMPARED WITH ASSESSEES PROV IDING MARKETING SUPPORT SERVICES TO THE PARENT COMPANY AN D HENCE THEY WERE HELD TO BE FUNCTIONALLY NOT COMPARABLE. ITAT BANGALORE BENCH HAS ALSO TAKEN A SIMILAR VIEW. WE F IND THAT CHOKSI LAB LTD. IS A COMMERCIAL TESTING AND ANALYSIS LABORATORY ENGAGED IN ANALYSING FOOD AND AGRICULTUR AL ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 10 PRODUCTS, CEMENT AND BUILDING MATERIAL, CHEMICALS, DRUGS AND PAINTS. THE SAID SERVICES RENDERED BY THE COMPANY ARE CALIBRATION SERVICES, POLLUTION CONTROL, RESEARCH A ND CONSULTANCY SERVICES. THEREFORE, THIS COMPANY CANN OT BE SAID TO BE FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPA NY AND WE ACCORDINGLY DIRECT THE TPO/ASSESSING OFFICER TO EXC LUDE THIS COMPANY FROM THE FINAL SET OF COMPARABLES. II) INDUS TECHNICAL AND FINANCIAL CONSULTANTS LIMITED: WE FIND THAT THIS COMPANY, AS PER THE WEBSITE DETAI LS, IS A RENOWNED MANUFACTURER OF TMT BARS HAVING DIVERSE EX POSURE IN MANY FIELDS. THUS, THIS COMPANY IS A MANUFACTUR ING COMPANY AND CANNOT BE SAID TO BE A COMPARABLE TO TH E ASSESSEE COMPANY. THIS COMPANY WAS ALSO EXCLUDED O N THE GROUND OF BEING ENGAGED IN MANUFACTURING ACTIVITY A ND HAVING A COMPLETELY DIFFERENT FAR VIDE ORDER OF ITAT DELHI IN INTREPID TRAVELS PVT. LTD. VS ADIT IN ITA NO. 5582/DEL/2012. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. III) WAPCOS LIMITED (SEGMENTAL) : IT IS SEEN THAT THIS COMPANY PROVIDES CONSULTANCY S ERVICES RELATING TO WATER, POWER AND INFRASTRUCTURE SECTOR. THE ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 11 SERVICES OFFERED INCLUDE MARKET INTELLIGENCE STUDIE S, PLANNING/PROJECT FORMULATION AND GEOTECHNICAL INVES TIGATION, ENGINEERING, QUALITY ASSURANCE AND MANAGEMENT AND H UMAN RESOURCE DEVELOPMENT. THIS COMPANY ALSO EXECUTES T URN KEY PROJECTS ON A REGULAR BASIS. THIS COMPANY WAS EXCL UDED AS A COMPARABLE BY ITAT DELHI BENCH IN NORTEL NETWORKS I NDIA LTD. VS ADIT (SUPRA) ON THE GROUND OF BEING FUNCTIONALLY DISSIMILAR. MARKETING SUPPORT SERVICES CANNOT BE COMPARED WITH TURNKEY, ENGINEERING SERVICES AND THEREFORE, THIS COMPANY CA NNOT BE HELD TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE COMPANY. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY ALSO FROM THE FINAL LIST OF COMPARABLE S. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED IN TERMS OF OUR ABOVE OBSERVATIONS. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22 ND SEPTEMBER, 2017. SD/- SD/- (B.P. JAIN ) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: SEPTEMBER, 2017 GS ITA NO. 6407/DEL/2012 ASSESSMENT YEAR 2008-09 12 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGI STRAR