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.

Thomas Cook (India) Limited Versus DCIT-1 (3) (2) Mumbai. - [2016] 49 ITR (Trib) 178 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.