TaxTMI 
TaxTMI 
2017 (7) TMI 854
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....ewels Exports Pvt. Ltd. Tara Ultimo Pvt. Ltd., UCB India P. Ltd. Vs. Asstt. Comm. of Income Tax, Dy. CIT vs. Starlite [2010]6 taxmann.com41, Addl. CIT vs. Tej. Diam [2010]37 SOT 341 (Mum). 2. The assessing officer has erred in law and on facts in rejecting the Comparable Uncontrolled Price (CUP) workings (based on internal TNMM derived from comparisons of similar transactions between AEs and Non AE) submitted by the assessee and relied upon by the assessing officer. 3. The assessing officer has grossly erred on facts and in law by not accepting the transfer pricing methodology in spite of the fact that the assessee had undertaken similar transactions with non-AEs amounting to Rs. 25,19,30,724/- (42.55 % of total sales) and with AEs amounting to Rs. 34,02,16,704/- (57.45 % of total sales) and evidently demonstrated through audited segment accounts that it earned a margin of 23.91% from its AE transactions and 03.43% from its non-AE transactions. 4. The Assessing officer applied TNMM and then erred in using incorrect profit margin calculated at entity level (15.98 %) for the assessee, instead of the correctly computed profit margin from international transa....
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....ssing officer erred in law and on facts of this case in relying on the data during the course of assessment which was not available to the assessee at the time of preparing transfer pricing documentation. 12. That the assessing officer erred on facts and in circumstances of the case and in law completely ignoring the duly audited segmentwise report filed before DRP on the financial results for determination of ALP based upon TNMM in respect of transactions with AE and non-AE. " 2. Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon. 3. The general facts in brief are that the assessee company is a part of Abercrombie & Kent Pvt. Ltd. (in short A & K) Group. It provides personalized luxury tour and travel services. A & K India (assessee) primarily operates destination management company that specializes in handling free individuals travelers, group travelers, special interest group, who intends to visit India, Nepal, Sri Lanka. Assessee was established in the year 1985 and presently has its offices in New Delhi. The assessee arranges two types of tour, (i) in b....
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....es of the Assessee Company 57% was made to AE and 43% was made to non-AE's. See Page NO-5 of PB 4 in this regard. And submissions of the assessee before TPO dated 27.11.2008 Page NO-112 to 121 of PB -3. 5. It is submitted that the TPO has applied the TNMM method for finding out the Arm's Length price of International Transactions. Ld TPO without applying FAR test and has chosen four comparables and has made the adjustment to the international transactions. It worthy to mention here that all these comparables have been dropped in next AY i.e AY 2007-08 and comparable chosen by the assessee namely TCI has been adopted as correct in next AY and no adjustment of any amount on account of payments made for services has been made in next year. 6. The main reason for rejecting the method of assessee as assigned by the TPO is that assessee has not submitted audited segment of the transactions entered with AE and non-AE and hence segments produced by assessee are not reliable. 7. The Ld TPO after rejecting the method of assessee applied TNMM, and made the adjustment of Rs. 2,05,69,692/- and the AO and DRP has affirmed the order of TPO. 8. Aggrieved with the order of the TPO asses....
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....- See Page No-109 of PB -2 It is submitted that 2nd nature of receipt is surrender of tenancy rights, this has been exluded by the TPO himself at the time of passing the order It is submitted that assessee is an Inbound tour operator. It arranges tours for foreigners travelling to India. Functions of assessee are very well explained in T.P study report. See Page No-14 of PB-3. The functions of the assessee are reproduced hereunder:- a) A&K on receipt of booking order, will contact the customer and provide the customer with requisite information and details b) A&K India will coordinate, arrange and organize the entire trip of the customer including interaction with hotels, guides, transporters etc. c) A&K India will keep the customer informed of any delay or any other specific information which A&K India believes can materially affect the trip. d) A&K India from the moment the client set foot in India greet with traditional Namaste Gesture- two hands joined together in welcome and with this journey in India starts and becomes memorable. It is submitted that income of the assessee from the tour operations is to the tune of Rs. 59,21,47,427/-. All in foreign exchange- S....
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....the ambit of + 5% and hence no adjustment is required to be done. 14. Similarly for other comparables the assessee has submitted its objections. However the same were rejected by the TPO. See Page no 191 to 194 of PB-1 15. It is further pertinent to mention here that in AY 2007-08 the same TPO has excluded all the comparables and has benchmarked the transaction with the comparable given by the assessee namely TCI, and has not made any adjustment on the amount charged in lieu of services rendered by the assessee. See TPO order Page NO- 22 of Compilation. 16. It is submitted that now it is settled position of law that if some claim has been accepted in subsequent year then such claim is to be allowed in previous year also. Rieta Industries- 309 ITR 154(P&H). Recently Hon'ble Delhi High Court in the case of Crain U.K- 359 ITR 268(Del) has held that that there has to be consistency uniformity in the approach of revenue while dealing in taxation matters. Relevant observations of the High Court are as under:- "Certainty is integral to rule of law. Certainty and stability form the basis foundation of any fiscal laws. Highlighting this fact in Vodafone International Holdi....
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....from audited books of account, and are relied on by the TPO himself while making the final adjustment. 22. It is next submitted that there is no allegation of the Ld TPO that price charged from non AE is not correct. It is submitted that TP adjustment is meant to see the price charged and not to see whether the same is audited or not. 23. It is submitted that assessee has allocated royalty expenses on the basis of forign exchange earned from AE and Non AE. This allocation is accepted by the DRP as a prudent and recognize manner in subsequent year i.e AY 2008-09 Page No-122 of Compilation Para-4.6 and 4.7. The Ld TPO has not pointed out any defect in this method. It is next submitted that other expenses are allocated on the basis of gross receipt which method is also an accepted method of allocation of expenses. In this key also the TPO has not pointed out any defect. The TPO has rejected the separate result of segment and allocation of expenses by a generalize observation. Recently Hon'ble Bombay High Court in the case of Alstom has held that even in absence actual segments adjustment has to be done in respect of transactions with AE only and not on entity level. 24. It is....
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....s the submission of the assessee that under the TNMM method, the process is simple to initially find out the average of operating profit margin of the comparable cases. Then this bench mark margin is then compared with the operating profit margin from the assessee's international transactions with AE. It is not possible to compare the assessee's total margin emanating from national and international transaction with AE and Non AE with the average operating profit margin of the comparable cases 31. It is next submitted that so far as the payment of royalty is concerned the DRP in subsequent years has accepted the rate of 5% and revenue is not in appeal and hence the same is applicable mutatis-mutandis here also. " 5. The ld. CIT [DR], on the other hand, tried to justify the orders of the authorities below. He submitted that principle of res judicata is not applicable in the Income Tax matters, hence non-application of the comparables Cox & Kings by the TPO in subsequent assessment year 2007-08 cannot be a basis to exclude the same during the year. He submitted that every assessment year is an independent unit and, hence facts of that particular assessment year can be considere....
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....cts is excluded during the year, then the mean of other comparables would come to 19.24%, which is within + - 5% of the profit margin declared by the assessee. Thus, no adjustment is required to be made by the TPO during the year for working out the arm's length price relating to the international transactions entered into during the year. It is ordered accordingly. Apart from this finding, even otherwise, we find substance in the contention of the ld. AR that mean has to be applied to the transactions related to AE only and transactions related with non-AE are to be excluded from the net profit margin. The assessee at page Nos. 41 and 42 of the paper book - IV has made available the complete working vis-a-viz transactions with AE and non-AE, perusal of the same shows that the margin of the assessee with respect to transactions with AE gives the profit ratio of 23.91%, which is more than the adjustment made by the TPO. It is held accordingly. The assessee succeeds on this account as well. In result, the adjustment in question made and upheld by the authorities below is held as not justified. The grounds are accordingly allowed. 7. In result, appeal is allowed. 8. ITA. No. 574....
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....ng to discharge the statutory obligation of providing supporting evidence / data / information to justify 2% royalty being paid under similar contracts between unrelated parties, after having reached the firm conclusion that 'CUP method' qualified as the Most Appropriate Method u/s 92C(1) of the Act for testing the arm's length nature of royalty payments arising under the Agreement; 1.4 By misconstruing the Appellant's business model and by conveniently overlooking the supporting evidence and arguments that the Appellant filed / adduced during the course of the proceedings to support the 'real benefits' it received in return for the Royalty Payment. In this regard, the observations made by the DRP (in para. 3.2 of the DRP direction) are perverse on facts and based on misplaced notions owing to, but not limited to, the following: a. The DRP failed to appreciate that the marketing brochures, layouts, etc. were specifically developed and customized to promote the business interests of the Appellant by canvassing tourist destinations in India to international travellers / potential customers; b. By misconstruing technical inputs and marketing support as share....
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....by the parties. 10. Before furnishing the following written synopsis, the ld. AR, Shri P.C. Yadav, pointed out that the issue of royalty for the use of trade mark is fully covered by the action of the Revenue itself in the subsequent assessment years 2008-09 to 2013-14 in which the ld. DRP has decided the issue in favour of the assessee and the Revenue did not prefer appeal against the order of the DRP. " Assessee is a Company and part of A&K Group; it provides personalized luxury tour and travel services. A&K India primarily operates destination Management Company that specializes in handling free individuals travelers, group travelers, special interest group who intends to visit India, Nepal, Srilanka. A&K India was established in 1985 and presently has its offices in New-Delhi. It is submitted that in this year the Ld TPO has disallowed the entire sum of royalty paid by assessee. And ld DRP after appreciating the facts and submission of the assessee allowed the appeal of the assessee in parts in as much as it has allowed the payment of royalty to the tune of 2%. And now assessee is in appeal before the ITAT. It is submitted that Royalty has been pai....