Income Tax Appellate Tribunal - Delhi
M/S. Fujitsu India Private Limited, ... vs Dcit, New Delhi on 23 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I-2 : NEW DELHI
BEFORE SHRI R.S. SYAL, VICE PRESIDENT
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No.1821/Del/2014
Assessment Year : 2009-10
Fujitsu India Private Limited, Vs. DCIT,
Building No.9A, Phase-III, Circle-11(1),
DLF Cyber City, New Delhi.
Gurgaon.
PAN: AAACF4170D
(Appellant) (Respondent)
Assessee By : Shri Ravi Sharma &
Shri Anubhav Rastogi, Advocates
Department By : Shri H.S. Choudhary, CIT, DR
Date of Hearing : 22.08.2017
Date of Pronouncement : 23.08.2017
ORDER
PER R.S. SYAL, VP:
This appeal by the assessee is directed against the final assessment order dated 28.01.2014 passed by the Assessing Officer (AO) u/s 143(3) ITA No.1821/Del/2014 read with section 144C of the Income-tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year 2009-10.
2. The only issue assailed in this appeal is against the transfer pricing adjustment.
3. Briefly stated, the facts of the case are that the assessee is a 100% subsidiary of Fujitsu Ltd., Japan (FJ). The assessee was incorporated in India with the prime objective of consolidating marketing operations of Fujitsu Group in India. Five international transactions were reported in Form No.3CEB. The AO made a reference to the Transfer Pricing Officer (TPO) for determining their arm's length price (ALP). The TPO accepted the ALP of other five transactions except 'Marketing Support Services rendered' with transacted value of Rs.9,84,94,036/-. The assessee applied the Transactional Net Margin Method (TNMM) with the Profit level indicator (PLI) of Operating Profit/Total Cost (OP/TC) for demonstrating that this transaction was at ALP. The TPO accepted the application of the TNMM as the most appropriate method. He, however, made certain alterations to the companies selected as 2 ITA No.1821/Del/2014 comparable. As against the assessee's selection of certain companies, the TPO shortlisted four companies as comparable, which are as under:-
Sl.No. Company PBIT/Cost (%)
1. Basiz Fund Service Pvt. Ltd. 39.17
2. IDC (India) Ltd. (Cyber Media Research 10.89
Ltd.)
3. Global Procurement Consultants Ltd. 30.37
4. TSR Darashaw 26.98
AVERAGE 26.85
4. Considering the average PLI of these four companies at 26.85%, the TPO proposed the transfer pricing adjustment of Rs.1,87,31,899/-. The assessee took the matter before the Dispute Resolution Panel (DRP), which ordered for the elimination of IDC (India) Ltd. (Cyber Media Research Ltd.) from the final tally of comparables, thereby leaving three companies in reckoning. Based on this, the AO made an addition of Rs.1,49,42,964/- on account of transfer pricing adjustment. The assessee is aggrieved against such addition.
5. We have heard the rival submissions and perused the relevant material on record. Admittedly, there is no dispute on the application of TNMM as the most appropriate method. The assessee is aggrieved only 3 ITA No.1821/Del/2014 against the inclusion of two companies in the final set of comparables, viz., TSR Darashaw and Global Procurement Consultant Ltd.
6. Before embarking upon the comparability or otherwise of these companies, it is essential to understand the nature of work carried out by the assessee under this segment. The TPO has recorded on page 1 of his order that the assessee is engaged in providing : `marketing support services to its AE's for direct sale made by them to various distributors in India'. We have gone through the Agreement entered into between the assessee and its AE for the 'Provision of marketing and support services.' A copy of such agreement is available on page 235 onwards of the paper book. The scope of the term 'Services' has been defined under Clause (1) which reads as under:-
"1. SERVICES During the term of this Agreement and subject to the terms and conditions set forth herein, FIL shall provide FCAL with the General Marketing and Sales Promotional services, all of which are more particularly described as under:
1. Gathering information regarding market trend, competitors activities, customers purchase plan, budgets, etc., and release such information to FCAL;
2. India pricing analysis;4 ITA No.1821/Del/2014
3. Introduce the products and provide information regarding the specification of the products to customers, agents or distributors;
4. Assist in demonstration of the Products and organize sales meeting with customers, agents and distributors for presentations to be made by FCAL;
5. Maintain effective contacts with the customers, agents or distributors and promote FCAL and the products image and reputation to customers, agents or distributors."
7. We have also gone through the Transfer pricing study report of the assessee whose copy is available in the paper book. The nature of services set out on page 24 are identical to those which have been reproduced above from the Agreement. Thus, there is no quarrel on the point that the assessee is providing Marketing support services to its customers by gathering information regarding market trends etc.; providing such information to its AEs; communicating clients' requests for procuring products; and assisting in demonstration of Fujitsu products to customers etc. With the above background of the nature of services rendered by the assessee, let us examine as to whether the two companies under challenge are really comparable or not. 5 ITA No.1821/Del/2014
(i) TSR Darashaw Private Ltd.
8. The TPO proposed the inclusion of this company which was objected to by the assessee on the ground of functional incomparability. The TPO noticed that: "the assessee may not be providing this service to AE, but we are looking for the companies which are providing business services similar and not exact". As such, the assessee's objection was rejected.
9. We have gone through the Annual report of this company whose copy has been placed on record. It is found out that this company is a broking and investment banking house. Schedule forming part of the financial statements of this company refers to revenue recognition. Point 4(a) records as under:-
"a) Income from Services - share registry and transfer services, depository services, record management, payroll and provided fund management, corporate and fixed deposit management are cognized on the basis of services rendered."
10. From the above description of the nature of services rendered by this company which is basically a share transfer services and also payroll and fixed deposit management services, we fail to see any comparison of 6 ITA No.1821/Del/2014 the marketing support services rendered by the assessee to its AE. Because of the complete mismatch between the nature of work done by this company vis-à-vis the assessee, we order for the exclusion of this company from the list of comparables.
(ii) Global Procurement Consultants Ltd.
11. The TPO proposed this company for inclusion in the final tally of comparables. The assessee objected the same by submitting that it was functionally different. The TPO rejected the assessee's contention.
12. After considering the rival submissions and perusing the relevant material on record, we consider it expedient to first discuss the nature of activities carried out by Global Procurement Consultants Ltd. A copy of Annual report of this company for the relevant year is available on record. As per this Report, this company is promoted by Export-Import Bank of India in association with leading Indian Public Sector and Private Sector consultancy organisations on the basis of Public-private partnership model that offers collective Indian experience and expertise through the provision of a range of advisory services with particular 7 ITA No.1821/Del/2014 focus on `Procurement'. This company provides technical assistance in enhancing quality, transparency, efficiency and effectiveness of procurement and implementation service to help attain desired institutional and corporate objectives. The expertise of this company is available to various sectors including power, water resources, transportation, industries, etc. From the services rendered by this company, as outlined in the Annual report, it can be noticed that it is conducting Independent Procurement Review of multilaterally funded projects spread across the globe. It also undertakes Procurement audits. This company is providing full time advice on procurement and contract related aspects to several agencies across the globe. When we go through the kind of services provided by this company, which are aimed at giving advice on procurement and also carrying out procurement audits, it becomes vivid that there is an absolute no match with the kind services rendered by the assessee. The work done by Global Procurement Consultants Ltd. is miles apart from that done by the assessee, which, in turn, is largely confined to assisting AEs in identifying customers/suppliers and, then, facilitating sale/purchase of 8 ITA No.1821/Del/2014 goods. By no standard, Global Procurement Consultants Ltd., can be considered as comparable to the assessee company. We, therefore, order for the elimination of this company from the final list of comparables.
13. To sum up, we set aside the impugned order on the issue of addition towards transfer pricing adjustment and remit the matter to the file of AO/TPO for fresh determination of the ALP of the international transaction in consonance with our above directions. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings.
14. In the result, the appeal is allowed for statistical purposes.
The order pronounced in the open court on 23.08.2017.
Sd/- Sd/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT Dated, 23rd August, 2017. dk 9 ITA No.1821/Del/2014 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI. 10