Kobelco Cranes India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 802/DEL/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7714 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 09-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 15-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: MANOJ PARDASANI
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Difference of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SHRI KULDIP SINGH, JM ITA NO.802/DEL/2016 ASSESSMENT YEAR : 2011-12 KOBELCO CRANES INDIA PVT. LTD., THIRD FLOOR, MOTHER HOUSE, PLOT NO.22, GULMOHAR ENCLAVE COMMUNITY CENTRE, YOUSUF SARAI, NEW DELHI. PAN: AAECK0664R VS. ITO, WARD-14(4), CR BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANOJ PARDASANI, CA DEPARTMENT BY : DR. B.R.R. KUMAR, SR.DR DATE OF HEARING : 09.05.2016 DATE OF PRONOUNCEMENT : 11.05.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (A O) ON 29.1.2016 UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, ITA NO.802/DEL/2016 2 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATIO N TO THE ASSESSMENT YEAR 2010-11. 2.1. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINS T THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.72,51,258/-. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CLOSELY HELD COMPANY WITH ITS 99.78% SHARE CAPITAL HELD BY KOBEL CO CRANES COMPANY LTD., JAPAN AND THE REMAINING 0.22% HELD BY KOBELCO CRANES TRADING COMPANY, JAPAN. THE ASSESSEE GOT INCORPORA TED IN INDIA ON 4.8.2010 TO CARRY ON THE BUSINESS OF BUYING, SELLIN G, IMPORTING, EXPORTING, DEVELOPING, DESIGNING, MANUFACTURING, AS SEMBLING OR OTHERWISE DEALING IN ALL KINDS OF CRANES INCLUDING USED CRANES AND MATERIAL HANDLING EQUIPMENTS WITH OTHER RELATED COM PONENTS. THIS IS THE FIRST YEAR OF THE ASSESSEES BUSINESS OPERATIONS. THE ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOME OF RS.29,88,565/- ACC OMPANIED BY AUDIT REPORT IN FORM NO.3CEB DETAILING NINE INTERNATIONAL TRANSACTIONS. THE ASSESSEE USED TRANSACTIONAL NET MARGIN METHOD (TNMM ) AS THE MOST APPROPRIATE METHOD FOR DEMONSTRATING THAT ITS INTER NATIONAL TRANSACTIONS ITA NO.802/DEL/2016 3 WERE AT ARMS LENGTH PRICE (ALP). IT USED PROFIT L EVEL INDICATOR (PLI) OF OPERATING PROFIT/OPERATING COST (OP/OC). THE ASSES SEE COMPUTED ITS OP/OC AT 8.7% WITH THE WEIGHTED AVERAGE MARGIN OF N INE COMPARABLE COMPANIES CHOSEN BY IT, AT 13.44%. THAT IS HOW, IT WAS SHOWN THAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WITH ITS AES WERE WITHIN THE PERMISSIBLE +/- 5% RANGE AND, HENCE, AT ARMS LENGTH PRICE (ALP). THE AO MADE A REFERENCE TO THE TRANSFER PR ICING OFFICER (TPO) FOR DETERMINING THE ALP OF THESE INTERNATIONAL TRAN SACTIONS. THE TPO OBSERVED THAT IN THE YEAR IN QUESTION THE ASSESSEE RENDERED MARKETING AND SALES SUPPORT SERVICES TO ITS PARENT COMPANY. SUCH SUPPORT SERVICES HAVE BEEN SUMMARIZED IN THE ORDER PASSED BY THE TPO , AS UNDER:- - CUSTOMER SUPPORT SERVICES IN RELATION TO THE BUSINE SS DEALINGS WITH EXISTING CLIENTS AND POTENTIAL CLIENTS IN INDIA; - ADMINISTRATIVE/FACILITATION ASSISTANCE SUCH AS INVE NTORY OF SPARE PARTS, ARRANGING FACILITIES, CUSTOMS CLEARANCE AND PRODUCT SUPPORT (BOTH PARTS AND SERVICE) AND TRAINING TO DEALERS AN D CUSTOMERS; - ASSISTANCE IN RELATION TO MARKETING/NEW BUSINESS DE VELOPMENT; ITA NO.802/DEL/2016 4 - COMPILATION OF CUSTOMER/MARKET DATA, IDENTIFICATION AND EVALUATION OF POTENTIAL BUSINESS OPPORTUNITIES IN INDIA, ETC. 2.2. THE TPO DISPUTED THE CALCULATION OF THE ASSE SSEES OWN PROFIT MARGIN AT 8.70%. HE NOTICED THAT THE ASSESSEES RE VENUE WAS TO THE TUNE OF RS.4.24 CRORE, WHEREAS THE ASSESSEE HAD CALCULAT ED ITS OPERATING PROFIT MARGIN WITH THE FIGURE OF GROSS REVENUE AT RS.2.23 CRORE, WHICH WAS SHOWN AS NET OF COMMISSION EXPENSES AMOUNTING TO RS .2.00 CRORE. IN SUPPORT OF ITS ARGUMENT FOR TAKING SUCH A REDUCED F IGURE OF REVENUE, THE ASSESSEE SUBMITTED THAT IT PAID COMMISSION TO VOLTA S INDIA LTD. AMOUNTING TO RS.2.00 CRORE, WHICH WAS A PASS THROUG H COST AND HENCE REDUCED FROM THE GROSS REVENUE EARNED FROM ITS AE R ATHER THAN SHOWING IT SEPARATELY AS AN ITEM OF OPERATING COST. NOT CO NVINCED WITH THE ASSESSEES SUBMISSIONS, THE TPO RE-WORKED OUT THE A SSESSEES PROFIT MARGIN AT 6.34% BY TAKING INCOME FROM OPERATION AT A GROSS FIGURE OF RS.4.24 CRORE. OUT OF NINE COMPANIES CHOSEN BY THE ASSESSEE, THE TPO CONSIDERED ONLY ONE COMPANY AS COMPARABLE, NAMELY, ICRA MANAGEMENT CONSULTING SERVICES LTD. HE CARRIED OUT HIS OWN SEARCH ITA NO.802/DEL/2016 5 PROCESS TO EXPAND THE LIST OF COMPARABLE COMPANIES. IN THE ULTIMATE ANALYSIS, A LIST OF 12 COMPARABLE COMPANIES WAS DRA WN WITH THEIR AVERAGE OP/TC AT 26.80%. BY TREATING THIS PROFIT M ARGIN OF 26.80% AS ARMS LENGTH PROFIT MARGIN, THE TPO RECOMMENDED TR ANSFER PRICING ADJUSTMENT AMOUNTING TO RS.81,63,332/-, WHICH WAS I NCLUDED BY THE AO IN HIS DRAFT ORDER. THE ASSESSEE OBJECTED TO SUCH ADDITION BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AND REMAINED PARTLY SUCCESSFUL. AFTER CONSIDERING THE DIRECTIONS GIVEN BY THE DRP, THE AO FINALLY WORKED OUT THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTM ENT AMOUNTING TO RS.72,51,258/-, AGAINST WHICH THE ASSESSEE HAS COM E UP IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THIS ADDITION HAS BEEN ASSAILE D ON TWO COUNTS, VIZ., THE COMPUTATION OF PROFIT MARGIN OF THE ASSESSEE AN D INCLUSION/EXCLUSION OF CERTAIN COMPANIES IN THE FINAL TALLY OF COMPARAB LES. WE WILL ESPOUSE THESE ISSUES IN SERIATIM . ITA NO.802/DEL/2016 6 I. DETERMINATION OF ASSESSEES PROFIT MARGIN . 4.1. THE ASSESSEE COMPUTED ITS PROFIT MARGIN OF OP/ OC AT 8.70%, THE WORKING OF WHICH HAS BEEN INCORPORATED ON PAGE 4 OF THE TPOS ORDER. IN CALCULATING ITS OPERATING PROFIT MARGIN, THE ASS ESSEE ADOPTED THE AMOUNT OF ITS GROSS REVENUE, BEING INCOME FROM SAL ES COMMISSION AT RS.2,23,72,709/-, BY MENTIONING THAT SUCH FIGURE W AS DEDUCED AFTER REDUCING COMMISSION EXPENSES OF RS.2,00,76,132/-. T HE TPO TOOK THE GROSS AMOUNT OF INCOME FROM OPERATIONS AS OPERATING REVENUE AT RS.4,24,48,841/-. THERE IS NO DISPUTE ON ANY ASPEC T OF THE DETERMINATION OF THE ASSESSEES PROFIT MARGIN AT 6.34% EXCEPT FOR THE CONSIDERATION OF COMMISSION PAYMENT OF RS.2.00 CRORE TO VOLTAS INDIA LTD. AS DEDUCTIBLE OR NOT FROM THE GROSS REVENUE EARNED BY THE ASSESSE E FROM ITS AE. 4.2. THE FACTS LEADING TO THIS CONTROVERSY ARE TH AT THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 10.3.2011, EFFECTIVE FROM 1 .10.2010, WITH ITS ASSOCIATED ENTERPRISE (AE) FOR RENDERING MARKET SU PPORT/CUSTOMER SUPPORT SERVICES, A COPY OF WHICH IS AVAILABLE ON P AGE 1382 OF THE PAPER ITA NO.802/DEL/2016 7 BOOK. AS PER THIS AGREEMENT, THE ASSESSEE AGREED T O RENDER THE FOLLOWING SERVICES TO ITS AE:- PROVIDING CUSTOMER SUPPORT SERVICES TO KCL (I.E. IT S AE) IN RELATION TO THEIR BUSINESS DEALINGS WITH EXISTING C LIENTS AND POTENTIAL CLIENTS IN INDIA; PROVIDING ADMINISTRATIVE/FACILITATION ASSISTANCE SU CH AS INVENTORY OF SPARE PARTS, ARRANGING FACILITIES, CUSTOMS CLEAR ANCE, ETC., TO KCL; PROVIDING PRODUCT SUPPORT (BOTH PARTS AND SERVICE) AND TRAINING TO DEALERS AND CUSTOMERS, ASSISTANCE IN RELATION TO MA RKETING/NEW BUSINESS DEVELOPMENT, COMPILATION OF CUSTOMER/MARKE T DATA, IDENTIFICATION AND EVALUATION OF POTENTIAL BUSINESS OPPORTUNITIES; KCI (I.E. THE ASSESSEE) SHALL COMMUNICATE ANY NEW B USINESS OPPORTUNITY, POST EVALUATION, TO KCL IN THE FORM OF A BUSINESS PROPOSAL; ITA NO.802/DEL/2016 8 KCL SHALL BE SOLELY RESPONSIBLE TO SCRUTINIZE SUCH BUSINESS PROPOSALS RECOMMENDED BY KCI AND WILL INDEPENDENTLY TAKE DECISION TO ACCEPT OR REJECT THE SAME; IT IS EXPRESSLY AGREED UPON BY THE PARTIES TO THE A GREEMENT THAT KCIS ROLE SHALL BE LIMITED TO FINDING BUSINES S OPPORTUNITIES IN INDIA AND IT SHALL NOT HAVE ANY AU THORITY TO EXECUTE ANY CONTRACTS FOR OR ON BEHALF OF KCL NOR B IND KCL IN ANY OTHER MANNER WHATSOEVER IN INDIA. LIASONING WITH THE TECHNICAL DEPARTMENT OF KCLS AF FILIATES (LOCATED OUTSIDE INDIA) TO PROVIDE ASSISTANCE TO KC LS CUSTOMERS IN INDIA. PROVIDING ASSISTANCE TO KCL IN NEGOTIATING THE PRIC ES OF THE PRODUCTS/TERMS OF THE CONTRACT WITH THE CUSTOMER. HOWEVER, KCL SHALL BE THE ULTIMATE DECISION-MAKING AUTHORITY IN THIS RESPECT AND KCI SHALL NOT HAVE ANY AUTHORITY TO FIN ALISE THE PRICES OR EXECUTE ANY CONTRACTS FOR OR ON BEHALF OF KCL IN INDIA. ITA NO.802/DEL/2016 9 4.3. AS PER CLAUSE 4 OF THE AGREEMENT, IT WAS AGREE D BETWEEN THE PARTIES THAT THE ASSESSEE SHALL BE PAID SALES COMMI SSION ON THE PRODUCTS (I.E. CRANES AND SPARE PARTS) SOLD BY ITS AE TO CUS TOMERS IN INDIA. PURSUANT TO THIS AGREEMENT, THE ASSESSEE WAS PAID C OMMISSION TO THE TUNE OF RS.4,24,48,841/-. THE ASSESSEE ENTERED INT O A SUB-CONTRACT SERVICE AGREEMENT WITH VOLTAS LTD. ON 1.10.2010, A COPY OF WHICH IS AVAILABLE ON PAGE 1372 ONWARDS OF THE PAPER BOOK. CLAUSE 2 OF THIS AGREEMENT PROVIDES THAT THE ASSESSEE AGREED TO SUB- CONTRACT THE MARKET SUPPORT/CUSTOMER SUPPORT SERVICES TO VOLTAS LTD. IN RELATION TO ITS BUSINESS DEALINGS WITH ITS AES. PURSUANT TO THIS A GREEMENT, VOLTAS LTD. AGREED TO PROVIDE THE FOLLOWING SERVICES:- PROVIDING CUSTOMER SUPPORT SERVICES TO KCI IN RELA TION TO THE BUSINESS DEALINGS OF KCIS ASSOCIATED ENTERPRISES I N RESPECT OF EXISTING CLIENTS AND POTENTIAL CLIENTS IN INDIA; PROVIDING ASSISTANCE IN PRODUCT SUPPORT (BOTH PARTS AND SERVICE), TRAINING TO DEALERS AND CUSTOMERS, ASSISTANCE IN RE LATION TO MARKETING/COMPILATION OF CUSTOMER/MARKET DATA; ITA NO.802/DEL/2016 10 PROVIDING ADMINISTRATIVE/FACILITATION ASSISTANCE TO THE DEALERS/CUSTOMERS OF KCI/KCL. COMMUNICATING ANY POTENTIAL BUSINESS OPPORTUNITY TO KCI FOR ITS EVALUATION AND SCRUTINY. IT IS EXPRESSLY AGREED UPON BY THE PARTIES TO THE A GREEMENT THAT VOLTAS INDIAS ROLE SHALL BE LIMITED TO PROVIDING A SSISTANCE IN MARKETING AND CUSTOMER SUPPORT SERVICES OPPORTUNITI ES IN INDIA AND IT SHALL NOT HAVE ANY AUTHORITY TO EXECUTE ANY CONT RACTS FOR OR ON BEHALF OF KCI NOR BIND KCI IN ANY OTHER MANNER WHAT SOEVER IN INDIA. 4.4. CLAUSE 4 OF THIS AGREEMENT PROVIDES THAT IN PE RFORMANCE OF THE SERVICES UNDER THIS AGREEMENT, VOLTAS LTD. SHALL BE PAID COMMISSION BY THE ASSESSEE, WHICH MAY BE MUTUALLY DECIDED BY BOTH THE PARTIES. IT IS PURSUANT TO THIS AGREEMENT, THAT THE ASSESSEE PAID A COMMISSION OF RS.2,00,76,132/- TO VOLTAS LTD. IT IS SUCH PAYMENT OF COMMISSION, WHICH IS THE SUBJECT MATTER OF DISPUTE IN THE CALCU LATION OF THE ASSESSEES OPERATING PROFIT MARGIN. WHEREAS THE ASSESSEE COMP UTED ITS PROFIT BY ITA NO.802/DEL/2016 11 EXCLUDING THE AMOUNT OF COMMISSION PAID TO VOLTAS F ROM ITS GROSS REVENUE, BEING COMMISSION EARNED FROM ITS AE, THE T PO HELD THAT SUCH COMMISSION TO VOLTAS LTD. WAS TO BE CONSIDERED AS A N OPERATING EXPENSE AND WAS NOT LIABLE TO BE REDUCED FROM THE GROSS REV ENUE. THE REASON BEHIND THIS DIFFERENCE OF OPINION IS THE IMPACT OF SUCH TREATMENT ON THE COMPUTATION OF PROFIT MARGIN RATE OF THE ASSESSEE, ALBEIT THE ULTIMATE AMOUNT OF OPERATING PROFIT REMAINS THE SAME IN BOTH THE SITUATIONS. IF THE REVENUE IS TAKEN AT RS.2.23 CRORE BECAUSE OF THE SH IFTING OF COMMISSION PAYMENT TO VOLTAS LTD. FROM THE OPERATING COSTS, AS ADOPTED BY THE ASSESSEE, THE PERCENTAGE OF OPERATING PROFIT SHOOTS UP TO 8.70%. IF, ON THE CONTRARY, THIS AMOUNT OF COMMISSION IS RETAINED AS AN OPERATING EXPENSE, THE PERCENTAGE OF OPERATING PROFIT SLIDES TO 6.34%. 4.5. IT IS SIMPLE AND PLAIN THAT HIGHER THE ASSE SSEES OPERATING PROFIT RATE, LOWER IS THE AMOUNT OF THE TRANSFER PRICING A DJUSTMENT AND VICE VERSA . UNDER SUCH CIRCUMSTANCES, WE ARE REQUIRED TO DE CIDE AS TO WHETHER THE AMOUNT OF COMMISSION PAID TO VOLTAS LTD . SHOULD BE RIGHTLY CONSIDERED AS PART OF OPERATING EXPENSES OR BE REDU CED FROM THE GROSS ITA NO.802/DEL/2016 12 OPERATING REVENUE EARNED BY THE ASSESSEE FROM ITS A E. THE LD. AR SUPPORTED HIS VIEW BY ARGUING THAT THE PAYMENT OF T HIS COMMISSION IS A PASS THROUGH COST AND, HENCE, WAS CORRECTLY EXCLUDE D BY THE ASSESSEE FROM ITS GROSS REVENUE. WE ARE UNABLE TO COUNTENAN CE THIS CONTENTION PUT FORTH ON BEHALF OF THE ASSESSEE. THE ARGUMENT THAT THE EXPENDITURE OF RS.2.00 CRORE AND ODD INCURRED IN PAYING COMMISSION TO VOLTAS LTD. IS A PASS THROUGH COSTS, PRE-SUPPOSES THAT SUCH EXPENSE WAS INCURRED BY THE ASSESSEE FOR AND ON BEHALF OF ITS FOREIGN AE, WHICH WAS RECOVERABLE AS SUCH FROM ITS AE. IF THE COST IS NOT RECOVERABLE FR OM THE AE, THEN SUCH COST SHEDS THE CHARACTER OF PASS THROUGH COSTS. WE FIND THAT THE ENTIRE AMOUNT OF RS.2.00 CRORE AND ODD REPRESENTS THE COST S INCURRED BY THE ASSESSEE IN ITS ROLE AS A PRINCIPAL FOR CARRYING OU T THE MARKET AND SUPPORT SERVICES AND NOT AS AN AGENT OF ITS FOREIGN AE INAS MUCH AS THIS IS NOT A SUM RECOVERABLE PER SE FROM ITS AE. THE ASSESSEE RECEIVED REVENUE OF RS.4.24 CRORE AS COMMISSION FOR RENDERING MARKETING SUPPORT SERVICES TO ITS AE. THERE IS NO AGREEMENT WITH THE AE FOR OUTS OURCING OF SUCH SERVICES FROM VOLTAS LTD. IT WAS ONLY BETWEEN THE A SSESSEE AND VOLTAS LTD. THAT THE ASSESSEE SUB-CONTRACTED THE PROVISIO N OF SERVICES TO VOLTAS ITA NO.802/DEL/2016 13 LTD. FURTHER, IT IS NOT THE CASE THAT THE ASSESSEE SIMPLY SUB-CONTRACTED THE SERVICES AND ENJOYED REVENUE FROM ITS AE WITHOU T MAKING ANY FURTHER EFFORT. IT CAN BE SEEN FROM THE ASSESSEES PROFIT & LOSS ACCOUNT THAT AS AGAINST THE TOTAL OPERATING EXPENSES OF RS. 4.06 CRORE, THE ASSESSEE INCURRED OTHER OPERATING EXPENSES AT RS.2.06 CRORE AND PAID ONLY A SUM OF RS.2.00 CRORE TO VOLTAS LTD. THE ASSESSEE IS NOT INVOLVED IN ANY OTHER BUSINESS ACTIVITY EXCEPT RENDERING SERVICES TO ITS AE. THUS, ALL THE COSTS INCURRED BY IT, INCLUDING PAYMENT OF COMMISSION TO VOLTAS LTD., ARE DIRECTED TOWARDS RENDERING OF MARKETING SUPPORT SER VICES TO ITS AE. NEITHER THERE WAS ANY AGREEMENT BETWEEN THE ASSESSE E AND ITS AE FOR OUTSOURCING OF THE SERVICES FROM VOLTAS LTD., NOR T HE ASSESSEES AE ATTRIBUTED ANY PARTICULAR SUM IN RESPECT OF SERVICE RENDERED BY VOLTAS LTD. ON A POINTED QUERY, THE LD. AR CANDIDLY ADMIT TED THAT THE ASSESSEE WAS PAID COMMISSION AT A SPECIFIED RATE ON THE SALE S OF CRANES AND SPARE PARTS. THIS MANIFESTS THAT THE REVENUE EARNED BY T HE ASSESSEE AMOUNTING TO RS.4.24 CRORE WAS A ONE COMPOSITE AMOUNT RECEIVE D AGAINST THE SERVICES OUTSOURCED FROM VOLTAS LTD., FOR WHICH IT PAID RS.2.06 CRORE AND THE IN-HOUSE SERVICES, FOR WHICH IT INCURRED RS.2.0 6 CRORE. THUS, IT IS ITA NO.802/DEL/2016 14 CLEAR THAT THE PAYMENT OF RS.2.00 CRORE TO VOLTAS L TD. IS NOT A PASS THROUGH COST, BUT, A VALUE ADDED COST. WE FAIL TO APPRECIATE ANY DIFFERENCE BETWEEN THE PAYMENT MADE BY THE ASSESSEE TO VOLTAS LTD. AND TO ITS OWN EMPLOYEES IN THE CONTEXT OF THE SO CALLE D PASS THROUGH COSTS. IF THE CONTENTION OF LD. AR THAT PAYMENT TO VOLTAS INDIA LTD. MADE EXCLUSIVELY FOR RENDERING SERVICES BY THE ASSESSEE TO ITS AE IS A PASS THROUGH COST, IS TAKEN TO A LOGICAL CONCLUSION, THE N THE PAYMENT TO ASSESSEES OWN EMPLOYEES, WHICH WAS ALSO MADE FOR T HE SAME PURPOSE, SHOULD ALSO GET A SIMILAR TAG OF A PASS THROUGH COS T. GOING A STEP AHEAD WITH THE SAME LOGIC, ALL OTHER EXPENSES INCLUDING R ENT AND DEPRECIATION SHOULD ALSO BECOME PASS THROUGH COSTS AS THESE WERE ALSO INCURRED IN RENDERING SERVICES TO THE AE. OBVIOUSLY, IT IS AN ABSURD PROPOSITION. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE TPO IN ADOPTING THE GROSS FIGURE OF REVENUE AT RS.4.24 CRORE AND PAYMENT OF C OMMISSION TO VOLTAS LTD., AS A PART OF OPERATING COST FOR THE PURPOSE O F CALCULATING THE OPERATING PROFIT MARGIN OF THE ASSESSEE. ITA NO.802/DEL/2016 15 II. COMPARABLES 5. WE HAVE NOTICED ABOVE THAT THE ASSESSEE STARTED WITH NINE COMPARABLES, WHICH THE TPO REDUCED TO ONE AFTER M AKING EIGHT ELIMINATIONS. THEREAFTER, THE TPO CARRIED OUT HIS OWN SEARCH PROCESS AND, AFTER APPLYING CERTAIN FILTERS, HE MADE A LIST OF TOTAL COMPARABLE COMPANIES STANDING AT 12. THE ASSESSEE IS AGGRIEVE D AGAINST THE INCLUSION OF FIVE COMPANIES IN SUCH LIST OF COMPARA BLES. I) APAR CHEMATEK LUBRICANTS LTD. 6.1. THIS COMPANY WAS CHOSEN BY THE TPO AS COMPARAB LE. HOWEVER, THERE IS NO DISCUSSION WHATSOEVER IN HIS ORDER ABO UT THIS COMPANY. THE DRP HAS DISCUSSED THIS COMPANY ON PAGE 27 OF ITS OR DER BY NOTICING THAT THE ASSESSEE MAINLY OBJECTED TO HIGH PROFIT MARGIN EARNED BY IT, WHICH, IN THE OPINION OF THE DRP, WAS NOT SIGNIFICANT. TH AT IS HOW, THE DRP APPROVED THE INCLUSION OF THIS COMPANY IN THE FINAL LIST OF COMPARABLES. 6.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. THOUGH THE DRP HAS RECORDED IN ITS ORDER THAT THE ASSESSEE SIMPLY OBJECTED TO HIGH PROFIT MARGIN EARN ED BY THIS COMPANY, ITA NO.802/DEL/2016 16 BUT, WHEN WE PERUSE A COPY OF OBJECTIONS FILED BEFO RE THE DRP, IT TRANSPIRES THAT THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY ON THE BASIS OF ITS RELATED PARTY TRANSACTIONS (RPTS). THIS IS APPARENT FROM PAGE 66 OF THE OBJECTIONS FILED BEFORE THE DRP, WHE REIN IT HAS BEEN MENTIONED THAT APAR CHEMATEK LUBRICANTS LTD., TAKEN BY THE TPO AS COMPARABLE, IS A SUBSIDIARY OF APAR INDUSTRIES LTD. , AND IT FAILS THE RPT FILTER PROPOSED BY THE TPO AS THE ENTIRE REVENUE OF THE FORMER WAS EARNED FROM THE LATTER, HOLDING 50% OF THE SHARE CA PITAL IN THE FORMER. EVEN THE RELEVANT EXTRACTS SHOWING THIS POSITION HA VE ALSO BEEN REPRODUCED IN THE OBJECTIONS TAKEN BEFORE THE DRP. WE HAVE ALSO PERUSED THE ANNUAL ACCOUNTS OF THIS COMPANY, A COPY OF WHICH IS AVAILABLE ON PAGES 388 ONWARDS OF THE PAPER BOOK. W HEN WE GO THROUGH THE FINANCIALS OF APAR CHEMATEK LUBRICANTS LTD., IT IS SEEN THAT ITS GROSS REVENUE IS `MARKETING FEES AMOUNTING TO RS.22,79,5 7,211/-, WHICH WAS PAID BY APAR INDUSTRIES LTD. SCHEDULE 17 ON PAGE 4 74 CONTAINS, OPERATING AND OTHER EXPENSES INCURRED BY APAR IND USTRIES LTD. IN THIS SCHEDULE, THERE IS AN ITEM OF EXPENDITURE OF RS.22, 79,57,210/-, WITH THE NARRATION OF MARKETING FEES. IT HAS ALSO BEEN MEN TIONED IN THE ANNUAL ITA NO.802/DEL/2016 17 ACCOUNTS OF THIS COMPANY THAT THIS MARKETING FEES W AS PAID BY APAR INDUSTRIES LTD. TO APAR CHEMATEK LUBRICANTS LTD. T HIS MANIFESTS THAT THE TOTAL REVENUE OF APAR CHEMATEK LUBRICANTS LTD. , TAKEN BY THE TPO AS COMPARABLE, IS FROM ITS AE ALONE, THEREBY MAKING IT A RELATED PARTY TRANSACTION AND, HENCE, A CONTROLLED TRANSACTION. 6.3. RULE 10B(1)(E)(II) AND (III) TALK OF COMPARI NG THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM INTERNATIONAL TRANS ACTION WITH THE SIMILAR NET PROFIT MARGIN REALIZED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION . AN UNCONTROLLED TRANSACTION HAS BEEN DEFINED IN RULE 10A(A) TO MEAN : A TRANSACTION BETWEEN ENTERPRISES OTHER THAN ASSOCIATED ENTERPRIS ES, WHETHER RESIDENT OR NON-RESIDENT . ON GOING THROUGH THE MANDATE OF RULE 10B(1)(E) IN JUXTAPOSITION TO RULE 10A(A), IT IS MANIFESTED THAT THE CONTROLLED TRANSACTIONS ARE NOT CONTEMPLATED FOR COMPARISON WI TH THE INTERNATIONAL TRANSACTION UNDERTAKEN BY AN ENTERPRISE. REVERTING TO THE FACTUAL POSITION BEFORE US, WE FIND THAT THE ONLY SOURCE OF REVENUE OF APAR CHEMATEK LUBRICANTS LTD. IS FROM ITS AE, WHICH MAKE S IT A CONTROLLED ITA NO.802/DEL/2016 18 TRANSACTION, THEREBY JUSTIFYING ITS EXCLUSION FROM THE LIST OF COMPARABLES. WE, THEREFORE, DIRECT TO REMOVE THIS COMPANY FROM T HE LIST OF COMPARABLES. (II) INFO EDGE (INDIA) LTD . 7.1. THE TPO INCLUDED THIS COMPANY IN THE LIST OF C OMPARABLES. THE ASSESSEE OBJECTED TO ITS INCLUSION BY ARGUING THAT IT WAS FUNCTIONALLY DIFFERENT. NOT CONVINCED, THE TPO CONSIDERED IT AS COMPARABLE, WHICH VIEWPOINT WAS UPHELD BY THE DRP. THE ASSESSEE IS AS SAILING THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES . 7.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE ANNUAL REPORT OF THIS COMPANY, WHICH IS AVAILABLE ON PAGE 208 ONWARDS OF THE PAPER BOOK. IT CAN BE SEEN THAT THIS COMPANY OWNS SEVERAL WEBSITES THAT SERVE AS ONLINE SEARCH PORTALS CATERING TO DIFFERENT NEEDS OF ITS C USTOMERS, AS UNDER:- RECRUITMENT THIS COMPRISES ONLINE RECRUITMENT C LASSIFIEDS WWW.NAUKRI.COM, INDIAS LEADING JOB SITE AND WWW.NAUKRIGULF.COM A JOB SITE FOCUSED AT THE MIDDLE EAST JOB ITA NO.802/DEL/2016 19 MARKET AND OFFLINE EXECUTIVE SEARCH WWW.QUADRANGLESEARCH.COM RELATED SITES IN THIS BUS INESS ARE A PROFESSIONAL NETWORKING SITE WWW.BRIJJ.COM AND A FR ESHER HIRING SITE WWW.FIRSTNAUKRI.COM. MATRIMONY THIS COMPRISES ONLINE MATRIMONY CLASSIF IEDS WWW.JEEVANSATHI.COM AND 14 OFFLINE JEEVANSATHI MAT CH POINTS. REAL ESTATE THIS COMPRISES ONLINE REAL ESTATE CLA SSIFIEDS WWW.99ACRES.COM A REAL ESTATE BROKERAGE BUSINESS WWW.ALLCHECKDEALS.COM, HOUSED IN A SUBSIDIARY NAMED ALLCHECKDEALS.COM INDIA PRIVATE LIMITED. EDUCATION THIS COMPRISES ONLINE EDUCATION CLASSIFIEDS WWW.SHIKSHA. COM. THE SITES PROVIDES TOOLS THAT ENABLE ITS USERS MAKE A WELL INFORMED DECISION BY INTERACTING WITH OTHER SHIKSHA USERS, DOMAIN EXPERTS AND COLLEGE/SCHOOL ALUMNI. FOR E.G. , A SHIKSHA USER CAN START A DISCUSSION AT SHIKSHA CAFE, AN A SK & ANSWER SECTION, IN ORDER TO SEEK OPINION OF OTHER SHIKSHA USERS AND DOMAIN EXPERTS INCLUDING ALUMNI AND FELLOW STUDENTS OR THE INSTITUTE ITSELF. 7.3. A CAREFUL PERUSAL OF SEVERAL WEBSITES WHICH AR E OWNED BY THIS COMPANY DELINEATES THAT IT IS PRIMARILY IN THE BUSI NESS OF INTERNET BASED SERVICES. ANYONE CAN HAVE ACCESS TO THESE WEBSITES ON PAYMENT. FOR ITA NO.802/DEL/2016 20 EXAMPLE, THROUGH WWW.NAUKRI.COM, INTERESTED CANDIDA TES CAN APPLY FOR JOBS. THROUGH WWW.JEEVANSATHI.COM, THE PERSONS INT ERESTED IN LOOKING FOR MATRIMONIAL ALLIANCE GET REGISTERED ON THIS WEB SITE. SIMILARLY, WWW.99ACRES.COM SERVES AS A REAL ESTATE AGENT BETWE EN THE PROSPECTIVE BUYERS AND SELLERS. AS AGAINST THIS, THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING MARKETING SUPPORT SERVICES TO ITS AE, WHI CH ARE IN THE NATURE OF PROVIDING ADMINISTRATIVE /FACILITATION ASSISTANC E, PROVIDING PRODUCT SUPPORT AND TRAINING TO DEALERS AND CUSTOMERS; ASSI STANCE IN RELATION TO MARKETING/NEW BUSINESS DEVELOPMENTS; COMMUNICATING NEW BUSINESS OPPORTUNITIES TO AE; AND PROVIDING ASSISTANCE IN NE GOTIATING THE PRICE OF THE PRODUCTS/TERMS OF THE CONTRACT WITH THE CUSTOME RS. WHEN WE SEE THE NATURE OF ACTIVITIES CARRIED OUT BY INFO EDGE (INDI A) LTD. ON ONE HAND AND THAT CARRIED OUT BY THE ASSESSEE ON THE OTHER, WE FIND NO DIFFICULTY IN HOLDING THAT THERE IS COMPLETE MISMATCH BETWEEN THE TWO. BY NO STANDARD, THE SERVICES RENDERED BY INFO EDGE (INDIA ) LTD. CAN BE CONSIDERED AS COMPARABLE WITH THE SERVICES PROVIDED BY THE ASSESSEE. WE, THEREFORE, DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NO.802/DEL/2016 21 (III) APITCO LTD . 8.1. THE TPO PROPOSED THE INCLUSION OF THIS COMPANY WHICH WAS OBJECTED TO BY THE ASSESSEE. IT WAS STATED THAT TH IS COMPANY WAS PRIMARILY ENGAGED IN PROVIDING HIGH END CONSULTANCY SERVICES BY PREPARING PROJECT FEASIBILITY REPORTS AND CARRYING OUT MARKET/OTHER SERVICE AND, HENCE, FUNCTIONALLY DIFFERENT. THE TP O REFUSED TO ACCEPT THE ASSESSEES CONTENTION AND EVENTUALLY INCLUDED I T IN THE LIST OF COMPARABLES. NO RELIEF WAS ALLOWED BY THE DRP. 8.2. WE HAVE HEARD THE PARTIES AND PERUSED THE RELE VANT MATERIAL AVAILABLE ON RECORD. WE HAVE ANALYZED THE ANNUAL RE PORT OF THIS COMPANY WHICH IS AVAILABLE AT PAGE 573 OF THE PAPER BOOK. FROM THIS REPORT, IT CAN BE SEEN THAT ITS `INCOME FROM OPERAT IONS' STANDS AT RS.15,41,75,273/-, BREAK-UP OF WHICH HAS BEEN GIVE N AS PER SCHEDULE 11, AS UNDER :- INCOME FROM OPERATIONS - MICRO ENTERPRISES DEVELOPMENT RS.5,729,192 SKILL DEVELOPMENT RS.33,00,091 ENTREPRENEURSHIP DEVELOPMENT RS.1,02,55,558 TOURISM & RESEARCH STUDIES RS.41,86, 253 PROJECT RELATED SERVICES, INFRASTRUCTURE PLANNING & ITA NO.802/DEL/2016 22 DEVELOPMENT RS.3,65,66,465 ENVIRONMENT MANAGEMENT RS.15,38,346 ENERGY RELATED SERVICES RS.23,20,885 C LUSTER DEVELOPMENT RS.4,94,85,525 ASSET RECONSTRUCTION & MANAGEMENT SERVICES RS.60,50,759. 8.3. A CAREFUL PERUSAL OF THE OPERATIONS CARRIED OU T BY APITCO LIMITED DECIPHERS THAT THIS COMPANY IS PROVIDING SERVICES I N THE NATURE OF PROJECT REPORT PREPARATION, TECHNICAL AND ECONOMIC STUDIES, FEASIBILITY STUDIES, MICRO ENTERPRISE DEVELOPMENT, SKILL DEVELOPMENT, PR OJECT MANAGEMENT CONSULTING, INDUSTRIAL CLUSTER DEVELOPMENT, ENVIRON MENTAL MANAGEMENT CONSULTING, ENERGY MANAGEMENT CONSULTING, MARKET AN D SOCIAL RESEARCH AND ASSET RECONSTRUCTION MANAGEMENT SERVICES. NO SE GMENT-WISE PROFITABILITY DATA OF THESE SERVICES IS AVAILABLE. THE TPO HAS CONSIDERED THIS COMPANY AS COMPARABLE ON ENTITY LEVEL. WE FIND THAT THERE IS A TINY RESEMBLANCE OF SOME OF THE FUNCTIONS PERFORMED BY T HIS COMPANY WITH THE OVERALL ACTIVITIES UNDERTAKEN BY THE ASSESSEE. UNDER SUCH CIRCUMSTANCES, WE FAIL TO APPRECIATE AS TO HOW ALL THE ABOVE LISTED SERVICES TAKEN TOGETHER AS ONE UNIT CAN BE CONSIDER ED AS COMPARABLE WITH THE SERVICES PROVIDED BY THE ASSESSEE AS LISTED AB OVE. ITA NO.802/DEL/2016 23 8.4. THE LD. DR STRENUOUSLY ARGUED THAT ALL THE ACTIVITIES DONE BY THIS COMPANY ARE BASICALLY `BUSINESS SERVICES' AND THE A SSESSEE IS ALSO RENDERING BUSINESS SERVICES. HE SUBMITTED THAT DIFF ERENTIATION OF FUNCTIONS IN THE OVERALL `BUSINESS SERVICES' UMBREL LA IS TAKEN CARE OF UNDER THE TNMM. HE HARPED ON THE CONTENTION THAT TH ERE IS NO REQUIREMENT TO HAVE IDENTICAL SERVICES FOR THE PURP OSE OF MAKING COMPARISON UNDER THE TNMM. 8.5. WE ARE UNABLE TO ACCEPT THIS ARGUMENT IN VIEW OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F RAMPGREEN SALES PVT. LTD. VS. CIT (2015) 377 ITR 533 (DEL) IN WHICH IT HAS BEEN HELD THAT THE COMPARABLES ARE TO BE SELECTED ON THE BASIS OF SIMILARITY EVEN UNDER TNMM. THE HON'BLE HIGH COURT HAS LAID DOWN THAT SEL ECTION OF COMPARABLES DOES NOT DIFFER WITH THE METHOD ADOPTED . EX CONSEQUENTI , IT IS NO MORE OPEN TO ARGUE THAT THE FUNCTIONAL DISSIM ILARITY OF THE COMPANIES UNDER THE OVERALL BROADER CATEGORY CAN BE IGNORED UNDER THE TNMM. ITA NO.802/DEL/2016 24 8.6. IN VIEW OF THE FOREGOING DISCUSSION, WE FIND THE FUNCTIONAL SIMILARITY OF APITCO LIMITED LACKING ON ENTITY LEVE L WITH THE ASSESSEE COMPANY. AS SUCH, WE ORDER FOR ITS EXCLUSION FROM T HE FINAL SET OF COMPARABLES. (IV) GLOBAL PROCUREMENT CONSULTANTS LIMITED 9.1. THE TPO INCLUDED THIS COMPANY IN THE LIST OF C OMPARABLES DESPITE THE ASSESSEE'S OBJECTION THAT IT WAS ENGAGED IN PRO VIDING CONSULTANCY SERVICES AND REVIEW OF PROCUREMENT PROCESSES FOR VA RIOUS PROJECTS FUNDED BY THE WORLD BANK. THE ASSESSEE FAILED TO CO NVINCE EVEN THE DRP FOR ITS EXCLUSION. 9.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE CONSIDER IT EXPEDIENT TO FIR ST DISCUSS THE NATURE OF ACTIVITIES CARRIED OUT BY GLOBAL PROCUREMENT CONSUL TANTS LTD. A COPY OF ANNUAL REPORT OF THIS COMPANY FOR THE RELEVANT YEAR IS AVAILABLE ON RECORD. AS PER THIS REPORT, THIS COMPANY IS PROMOTE D BY EXPORT-IMPORT BANK OF INDIA IN ASSOCIATION WITH LEADING INDIAN PU BLIC SECTOR AND ITA NO.802/DEL/2016 25 PRIVATE SECTOR CONSULTANCY ORGANISATIONS ON THE BAS IS OF PUBLIC-PRIVATE PARTNERSHIP MODEL THAT OFFERS COLLECTIVE INDIAN EXP ERIENCE AND EXPERTISE THROUGH THE PROVISION OF A RANGE OF ADVISORY SERVIC ES WITH PARTICULAR FOCUS ON `PROCUREMENT'. THIS COMPANY PROVIDES TECHN ICAL ASSISTANCE IN ENHANCING QUALITY, TRANSPARENCY, EFFICIENCY AND EFF ECTIVENESS OF PROCUREMENT AND IMPLEMENTATION SERVICE TO HELP ATTA IN DESIRED INSTITUTIONAL AND CORPORATE OBJECTIVES. THE EXPERTI SE OF THIS COMPANY IS AVAILABLE TO VARIOUS SECTORS INCLUDING POWER, WATER RESOURCES, TRANSPORTATION, INDUSTRIES, ETC. ITS SERVICES HAVE BEEN OUTLINED IN THE ANNUAL REPORT. FROM SUCH SERVICES, IT CAN BE NOTICE D THAT IT IS CONDUCTING INDEPENDENT PROCUREMENT REVIEW OF MULTILATERALLY FU NDED PROJECTS SPREAD ACROSS THE GLOBE. IT ALSO UNDERTAKES PROCURE MENT AUDITS. THIS COMPANY IS PROVIDING FULL TIME ADVICE ON PROCUREMEN T AND CONTRACT RELATED ASPECTS TO SEVERAL AGENCIES ACROSS THE GLOB E. FOR EXAMPLE, IN GEORGIA, THE WORLD BANK DIRECTLY APPROACHED IT FOR CONDUCTING ANY INDEPENDENT PROCUREMENT REVIEW OF CONTRACTS SELECTE D FROM TWO PROJECTS IN TRANSPORTATION AND MUNICIPAL INFRASTRUCTURE SECT OR. IN MOLDOVA, THIS COMPANY WAS ASSIGNED THE TASK OF CONDUCTING AN INDE PENDENT ITA NO.802/DEL/2016 26 PROCUREMENT REVIEW OF 75 CONTRACTS INCLUDING ASSET VERIFICATION. THAT APART, THIS COMPANY ALSO UNDERTOOK VALUATION ASSIGN MENTS AS LISTED ON PAGE 25 OF ITS ANNUAL REPORT IN ADDITION TO RENDER ING FINANCIAL ADVISORY SERVICES AS DISCUSSED ON 26 OF ITS REPORT. WHEN WE GO THROUGH THE NATURE OF SERVICES PROVIDED BY THIS COMPANY, WHICH BASICALLY AIMS AT PROVIDING ADVICE ON PROCUREMENT AND ALSO CARRYING O UT PROCUREMENT AUDIT, IT BECOMES PALPABLE THAT THERE IS AN ABSOLUT E MISMATCH WITH THE SERVICES PROVIDED BY THE ASSESSEE. THE SERVICES PR OVIDED BY GLOBAL PROCUREMENT CONSULTANTS LTD. ARE MILES APART FROM T HOSE RENDERED BY THE ASSESSEE. BY NO STANDARD, GLOBAL PROCUREMENT CONSUL TANTS LTD. CAN BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE COMPANY. WE, THEREFORE, ORDER FOR THE ELIMINATION OF THIS COMPANY FROM THE LIST OF COMPARABLES. (V) TSR DARASHAW LIMITED . 10.1. THE TPO SELECTED THIS COMPANY AS COMPARABLE. THERE IS NO DISCUSSION WHATSOEVER ABOUT THIS COMPANY IN THE ORD ER OF THE TPO. THE DRP APPROVED THE INCLUSION OF THIS COMPANY. ITA NO.802/DEL/2016 27 10.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS COMPANY IS A BROKING AND INVESTMENT BANKING HOUSE. AS PER ITS WEBSITE, TSRD L IS ONE OF INDIA'S LEADING BUSINESS PROCESS OUTSOURCING (BPO) ORGANIZA TIONS CERTIFIED UNDER ISO 9001:2008 GUIDELINES HAVING A TOTAL INDU STRY EXPERIENCE OF OVER 35 YEARS. TSRDL HAS STATE-OF-THE-ART IT CAPAB ILITIES AND WELL TRAINED HR WHICH ARE THE KEY REQUIREMENTS FOR HANDL ING BPO ACTIVITIES. TSRDL'S STRENGTH, CAPABILITIES AND INFRASTRUCTURE E NABLES IT TO HANDLE ANY LARGE, VOLUMINOUS, TIME BOUND PROCESSING ACTIVI TIES REQUIRING MEETING OF STRINGENT QUALITY AND SERVICE STANDARDS IN A REGULATORY ENVIRONMENT. DETAILS OF PRODUCTS AND SERVICES PROVI DED BY THIS COMPANY, AS DISCLOSED ON ITS WEBSITE, ARE AS UNDER : - 'PAYROLL & EMPLOYEES' TRUST FUND ADMINISTRATION & MANAGEMENT - ALL THE ACTIVITIES NORMALLY HANDLED BY 'PAYROLL AND RETIREMENT FUNDS' SECTION IN THE ORGANIZATION, INCLUDING INTERFACE WITH REGULATORY AUTHORITIES, ARE TAKEN OV ER BY US. RECORD MANAGEMENT - STORAGE. RETENTION & RETRIEVAL OF PHYSICAL AND/OR ELECTRONIC RECORDS REGISTRAR & TRANSFER AGENTS FOR - ITA NO.802/DEL/2016 28 EQUITY AND PREFERENCE SHARES. DEBENTURE INSTRUMENTS AND BONDS COMMERCIAL PAPER AND PRIVATE PLACEMENTS TRANSFER PROCESSING CUSTOMER/QUERY HANDLING AND CORRESPONDENCE . SPLIT/CONSOLIDATION/RENEWAL OF CERTIFICATES PROCESSING AND DISTRIBUTION OF INTEREST/DIVIDEND WARRANTS PAYMENTS BY PHYSICAL WARRANTS/THROUGH ECS/DIRECT CREDIT DEPOSITORY RELATED SERVICES ELECTRONIC CONNECTIVITY WITH NSDL/CDSL AND TRANSMISSION INFORMATION TO CLIENT COMPANIES THROUGH PREFERABL E ELECTRONIC MEDIA DEMATERIALIZATION/REMATERIALIZATION INTER-DEPOSITORY TRANSFERS REGISTRAR TO FIXED DEPOSIT SCHEMES ACCEPTANCE AND PROCESSING OF APPLICATIONS RENEWALS & REPAYMENTS PROCESSING & DISTRIBUTION OF INTEREST PAYMENTS THROUGH ECS OR PHYSICAL WARRANTS. RECONCILIATION OF PAYMENT OF INTEREST ITA NO.802/DEL/2016 29 REGISTRY RELATED SERVICES : REGISTRAR TO ISSUES PUBLIC/RIGHTS/BONUS ISSUES SPECIAL PROJECTS BUY-BACK OF SHARES OPEN OFFERS MERGERS & DE-MERGERS SUB-DIVISION & EXCHANGE REDEMPTION OF DEBT INSTRUMENTS BULK PROCESSING & PRINTING CUSTOMER/INVESTOR ANALYTICAL SURVEYS ASSISTING CLIENT COMPANIES IN CONDUCTING MEETINGS AGM/EGM/COURT CONVENED MEETINGS POSTAL BALLOT HANDLING POLL RELATED ACTIVITIES 10.3. A NARRATION OF THE ACTIVITIES UNDERTAKEN BY THIS COMPANY ABUNDANTLY SHOWS THAT THERE ARE STRIKING DISSIMILAR ITIES WITH THE ASSESSEES ACTIVITIES. WE, THEREFORE, ORDER FOR T HE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. 11.1. APART FROM DISPUTING THE INCLUSION OF THE A BOVE FIVE COMPANIES BY THE TPO, THE ASSESSEE HAS ALSO CHALLEN GED NON-INCLUSION OF ONE COMPANY, NAMELY, M/S KIRLOSKAR CONSULTANTS LTD., IN THE LIST OF COMPARABLES. THE LD. AR SUBMITTED THAT THIS COMPANY CHOSEN AS COMPARABLE WAS WRONGLY REJECTED BY THE TPO ON THE G ROUND THAT IT FAILED ITA NO.802/DEL/2016 30 ITS RPT TO SALES FILTER. THE LD. AR SUBMITTED THAT , BUT FOR THAT, THERE IS NO DISCUSSION IN THE ORDER PASSED BY THE TPO ABOUT THE FUNCTIONAL SIMILARITIES OR DISSIMILARITIES. NO RELIEF WAS ALLO WED BY THE DRP. 11.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D PERUSING RELEVANT MATERIAL ON RECORD, IT IS FOUND THAT THE TPO HAS WO RKED OUT THE RPT TO SALES RATIO OF THIS COMPANY AT 25.30%, WHOSE CORREC TNESS HAS BEEN ASSAILED BEFORE US BY THE LD. AR. THE LD. DR ALSO COULD NOT POINT OUT AS TO HOW THIS PERCENTAGE WAS CALCULATED. UNDER SUCH CIRCUMSTANCES, WE DEEM IT APPROPRIATE TO REMIT THE MATTER TO THE FILE OF THE TPO/AO FOR CONFRONTING THE ASSESSEE WITH THE CALCULATION OF RP T TO SALES FILTER OF 25.30%. APART FROM THAT, THE TPO WILL BE FULLY COM PETENT TO CONSIDER THE FUNCTIONAL SIMILARITIES/DISSIMILARITIES OF THIS COMPANY BEFORE CONSIDERING ITS INCLUSION OR OTHERWISE IN THE FINAL TALLY OF COMPARABLES. 12. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON T HE ISSUE OF ADDITION TOWARDS TRANSFER PRICING ADJUSTMENT AND RE MIT THE MATTER TO THE FILE OF AO/TPO FOR FRESH DETERMINATION OF THE ALP O F THE INTERNATIONAL TRANSACTION IN CONSONANCE WITH OUR ABOVE DIRECTIONS . NEEDLESS TO SAY, ITA NO.802/DEL/2016 31 THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNI TY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. 13. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.05.201 5. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 11 TH MAY, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.