2016 (7) TMI 318 - AT - Income Tax

Assessee's Appeals Partly Allowed, Tribunal Directs Adjustments, Fresh Adjudication

Thomas Cook (India) Limited Versus DCIT-1 (3) (2) Mumbai.

The Tribunal partly allowed the appeals filed by the assessee for both assessment years, providing relief on several grounds while upholding some of the ... Transfer pricing adjustment - adjudication of AMP expenditure - Held that:- In the year under consideration the FAA had not passed a speaking order.He has just confirmed the adjustment. In the next year the DRP has dealt with all the arguments raised by the assessee before the TPO and before the DRP itself. We find that except for the issue of non admission of additional evidences the assessee has advanced all most all the arguments while arguing the matter for the subsequent year. Therefore, we would like to adjudicate the AMP expenditure issue, while deciding the appeal for next AY. Adjustment under the head Corporate Guarantee Commission(CGC) - Held that:- Considering the entirety of facts and circumstances of the case and on the basis of the material available on record, we, therefore, proceed to uphold the rate of 0.50% for the purpose of determining the arm's length rate of the guarantee commission fee. In this view of the matter, we setaside the order of CIT(Appeals) and direct the Assessing Officer to determine the addition in view of our aforesaid direction Disallowance on claim of depreciation on printers data, cable router and scanner - Held that:- Identical issue was decided by the Tribunal while deciding the appeal in A.Y. 2008-09 it is hereby directed that Assessing Officer shall allow depreciation @ 60% Disallowance of claim of depreciation on Jodhpur property - Held that:- Tribunal had decided the above issue against the assessee while adjudicating the appeal for AY 2008-09 Disallowance made u/s. 14A - Held that:- AR stated that assessee had made strategic investments, that it had sufficient own funds, that FAA had not admitted the additional grounds. DR left the issue to the discretion of the Bench. After considering the available material we are of the opinion that in the interest of justice matter should be restored back to the file of FAA for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee Adjustment in relation to the travel related segment - Held that:- We hold that the TPO had wrongly rejected the comparables. Considering the peculiar facts and circumstances of the case, we hold that the TP adjustment made by the TPO and confirmed by the DRP has to be deleted. First effective ground of appeal is decided in favour of the assessee. TP adjustment under the head AMP expenses - Held that:- The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take away the alleged ‘internationality’ of the transact - tion. In absence of any direct or direct evidence of incurring of AMP expenses by the assessee for the benefit of the AE or on behalf of the AE, it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT. Once it goes out of the ambit of being an IT, FAR analysis of comparables or any other adjustment will and cannot come in picture. Folk wisdom of rural India the says that mother(Maa)is must for existence of her sister(Mausi). Similarly the existence of an IT is the pre-requisite of applying the provisions of chapter X of the Act. The assessee from the very beginning was arguing that it is not an IT, but, the TPO and the DRP did not deal with the core issue. In these circumstances, we are of the opinion that the matter should not be remitted back to the file of the TPO/ AO. Litigation has to be put to an end at some stage. Judicial time of every authority, including the TPO/DRP, is very precious and it should not be wasted for dealing with mere academic arguments. The recourse of remanding of matters/issue to the AO.s has to resorted rarely and selectively. In the case before us, no reasonable cause has been shown to justify the setting aside the issue. Thus where the existence of an international transaction involving AMP expense with an ascertainable price is- unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. Thus merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE Adjustment in relation to insurance cost - Held that:- As decided in assessee's own case in AY 2005-06 it is a fact that the assessee has not charged from AE. Further, it is also equally true that AE charges counting fees also on the transactions of the assessee. If both are taken into account quantitatively, it is the claim of the assessee that the assessee will put to losses and the same is not accounted by the income fact of figures. These kind of accounting issues are outside the scope of TP principles. The discontinuance of earlier arrangement of not paying any counting fees to it's AE at Mauritius and also foregoing the corresponding service / incentive fees, does not erode the tax base if one keeps in mind the ratio of such receipts and payment made which is tilted in favour of the payment side. Moreover, the appellant has demonstrated by an Internal CUP (HSBC / Travelex) on this aspect to establish its case. The adjustment is therefore, deleted. Issues Involved:1. Transfer Pricing Adjustment for disallowance of Advertisement Marketing and Promotion (AMP) Expenses.2. Adjustment under the head Corporate Guarantee Commission (CGC).3. Disallowance on claim of depreciation on printers data, cable router, and scanner.4. Disallowance of claim of depreciation on Jodhpur property.5. Disallowance made under Section 14A of the Income Tax Act.6. Transfer Pricing Adjustment in relation to the travel-related segment.7. Transfer Pricing Adjustment under the head AMP expenses for the subsequent assessment year.8. Transfer Pricing Adjustment in relation to Corporate Guarantee (CG) given to the Associated Enterprise (AE).9. Transfer Pricing Adjustment in relation to insurance cost.Detailed Analysis:1. Transfer Pricing Adjustment for disallowance of Advertisement Marketing and Promotion (AMP) Expenses:The TPO made a Transfer Pricing Adjustment for disallowance of AMP expenses amounting to Rs. 8.09 Crores, noting that the assessee was spending significantly more than the industry average in promoting and building the brand of its AE, Thomas Cook UK Ltd. The TPO restricted AMP expenses to the industry mean AMP/total revenue ratio of 0.76%, resulting in an adjustment of Rs. 8.09 Crores. The assessee contended before the First Appellate Authority (FAA) that no show cause notice was given, and the AMP expenditure was incurred to promote its own business. The FAA upheld the TPO's adjustment. The Tribunal decided to adjudicate the AMP expenditure issue while deciding the appeal for the next assessment year.2. Adjustment under the head Corporate Guarantee Commission (CGC):The TPO found that the assessee provided a corporate guarantee of Rs. 7.60 Crores to its AE, Thomas Cook Mauritius Operations Ltd., and proposed an adjustment of Rs. 22.82 lakhs by applying a rate of 3% as CG fees. The FAA dismissed the assessee's appeal. The Tribunal referred to its earlier decision, which upheld a rate of 0.50% as the arm's length rate for guarantee commission fee and directed the AO to determine the addition accordingly.3. Disallowance on claim of depreciation on printers data, cable router, and scanner:The AO allowed depreciation at 15% on data cable and other computer peripherals as against the assessee’s claim of 60%. The FAA upheld the AO's decision. The Tribunal, following its earlier decision, directed the AO to allow depreciation at 60%.4. Disallowance of claim of depreciation on Jodhpur property:The AO disallowed the claim of depreciation on Jodhpur property amounting to Rs. 1,68,023/-. The FAA upheld the AO's decision. The Tribunal, following its earlier decision, decided the issue against the assessee.5. Disallowance made under Section 14A of the Income Tax Act:The AO made a disallowance of Rs. 8.79 lakhs under Section 14A, applying Rule 8D of the Income Tax Rules. The FAA did not adjudicate the issue. The Tribunal restored the matter back to the file of the FAA for fresh adjudication.6. Transfer Pricing Adjustment in relation to the travel-related segment:The TPO made a TP adjustment of Rs. 12.04 Crores in relation to the travel-related segment, rejecting three comparables and selecting only one comparable, Trade-Wings Ltd. (TWL). The DRP upheld the TPO's adjustment. The Tribunal found that the TPO/DRP had not justified the rejection of comparables used in earlier years and held that the TP adjustment made by the TPO and confirmed by the DRP should be deleted.7. Transfer Pricing Adjustment under the head AMP expenses for the subsequent assessment year:The TPO made an adjustment of Rs. 8.31 Crores towards AMP expenses for the subsequent assessment year, which was confirmed by the DRP. The Tribunal, referring to the legal position clarified by the Delhi High Court, held that in the absence of any agreement for sharing AMP expenses, it could not be held that AMP expenditure was an international transaction and deleted the adjustment.8. Transfer Pricing Adjustment in relation to Corporate Guarantee (CG) given to the Associated Enterprise (AE):The TPO made a TP adjustment of Rs. 20.20 Crores in relation to CG given by the assessee to its AE. The Tribunal, following its earlier decision, decided the issue in favor of the assessee.9. Transfer Pricing Adjustment in relation to insurance cost:The TPO made a TP adjustment of Rs. 3.07 Crores in relation to insurance cost. The Tribunal, following its earlier decision, decided the issue in favor of the assessee.Conclusion:The Tribunal partly allowed the appeals filed by the assessee for both assessment years, providing relief on several grounds while upholding some of the disallowances made by the AO and the TPO.