Genuineness of Admin Support services

Facts of the case:

• The assessee is engaged in the business of purchase and sales of Ophthalmic glass products and life sciences product in the Indian market and rendering marketing services and support services to its group companies.
• During, the year under consideration, the assessee undertook international transactions with its associated enterprises (AE) and chose TNMM as the most appropriate method.
• Now, during the assessment, while selecting comparable, the TPO considered “Just Dial” as one of the comparable. Further, it did not allow any risk adjustments on account of the fact that the assessee was a lowrisk bearing captive service provider as opposed to the comparable companies.
• Further, during the year, the assessee also received certain administration support services from its AE for which it paid. Such payment made by the assessee to its AE was benchmarked at NIL, on account of lack of evidence to substantiate that such services were actually received by the assessee.

Issue before the ITAT:

• Apart from other issues, the important issue before the ITAT was the selection of comparable being ‘Just Dial’ in this case.
• Whether actual services in the nature of administrative services are received in lieu of sums paid to the AE

Decision of the Delhi ITAT Bench:

• On the issue of comparable – ITAT held that “Just Dial” cannot be held to be a right comparable only because of certain functional similarities. Just dial provides search services for different products for multiple users using different platforms, whereas the assessee is a captive service provider for its AE and thus it is not a right comparable.
• The ITAT further held that the risk of having AE as its sole customer is an anticipated risk which cannot be compared to the entities which are dealing in the open market since they are prone to marketing and technical risk. Accordingly, risk adjustment should be done to net margin to make the entities comparable.
• On the issue of administrative support services – ITAT held that the assessee during the course of proceeding has duly submitted the evidences such as email, invoices and agreements to substantiate the genuineness of the transaction. Therefore, it cannot be said that the services have not been provided to the assessee.

Basis this judgement it can be inferred that captive services providers have to be distinguished from comparable which are engaged in providing services to multiple third-party customers. Further, on the issue of availing administrative support services from AE, the exchange of emails etc are sufficient to prove that such services were actually rendered and accordingly payment made for them was genuine transaction.
Though, the decision has been held in favour of the assessee, but the larger debate on the power of TPO to question the genuineness of the transaction remains unanswered still.

Jaskaran Singh, SW India