Case law Analysis - Integreon India Private Ltd. (Delhi ITAT)

Integreon India Private Limited
ITAT Delhi, ITA 1173/DEL/2016, Shri N.K. Billaiya, AM, Shri Sandeep Gosain, JM

This case law is relevant with respect to two issues,

I.            Exclusion of TCS E-Serve Limited as comparable.

The TPO had included the above company in the list of comparable, which had unreasonably high margin, leading to TP adjustment. The Assessee objected before the TPO on the following grounds

a.      Presence of Brand

b.      Super normal profits and,

c.       Peculiar eco circumstances

The TPO’s against above held that, “Brand value may drive its revenue, but may not affect the profitability”. Also the TPO held that “Any brand comes with a cost, which are required to be incurred to build a brand. Thus such brand may generate revenue but, the cost compensates any extra benefits.”

The Assessee placed reliance on B.C. Management Services [P] Ltd. (Delhi ITAT), further confirmed by Delhi High court. The ITAT, in the present case upheld the following observations made by the co-ordinate bench in the case of B.C. Management, as follows:

•       TCS E-serve being a subsidiary of TCS Ltd…….a part of eminent TATA Group, which inherently has ….huge brand value…which tends to influence the pricing policy and thereby directly impacting margins… Huge payment has been made by TCS E-Serve to TCS for use of brand name TATA. 

•      The co-ordinate bench also pointed out that in the Annual report reflects huge payment in terms of royalty for use of Brand from TCS E-serve to TCS Ltd.

•       In the case of B.C. Management, also pointed out the widely fluctuating growth in operating revenue, operating costs and margins

•       It also highlighted the employee cost base being more than 64 times of the assessee, also the turnover was 67 times to that of the appellant.

II.            Adding the amount of TP Adjustment for computing book profits under MAT (Sec 115JB)

Here the AO had added the amount of TP Adjustment to the book profits as per section 115JB. The ITAT held the case of Owens Corning [India] Ltd. (Mumbai ITAT), which highlighted the following relevant key points.

•              Sec 115JB is a self-contained code in itself and adjustments permissible to book profits have been prescribed u/s. 115JB. The TP adjustments are governed by altogether different sets of provision as contained in Chapter X of the Act.

•              There is no provision in the law that permits the AO, to add the amount of TP adjustments for the purpose of computing the book profits as per sec 115JB.

•              The Apex court in the case of Apollo tyres ltd (255 ITR273/122), held that such approach is highly unfair and brings undue and avoidable hardships  to the tax payers….we recommend that such a casual approach should be avoided by the revenue officers, as it may tarnish the image of Income tax department.