AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 326
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....y the AO in conformity with the directions issued by Ld. Disputes Resolution Panel (DRP) vide order dated 31st December, 2015. 2.1 Following grounds of appeal have been raised:- "1. That on facts and in law the orders passed by the Assessing Officer (hereinafter referred as the "AO") / Dispute Resolution Panel (hereinafter referred as the "DRP) / Transfer Pricing Officer (hereinafter referred as the "TPO") are bad in law and void abinitio. 1.1 Without prejudice, on facts and in law, the TPO/DRP erred in not granting a proper opportunity of being heard and thereby violating the settled principals of audi alteram partem. 2. That on facts and in law the AO/TPO/DRP erred in making / proposing/upholding an addition to total income of Rs. 114,98,39,926/- under Chapter X of the Income Tax Act, 1961 (hereinafter referred as "the Act"). 3. That on facts and in law the AO/TPO/DRP erred in making / proposing/upholding Transfer Pricing adjustment of Rs. 114,98,39,926/- on account of Advertisement, Marketing and sales promotion expenses 3.1. That on facts and in law the AO/TPO/DRP erred in not appreciating that in absence of a "transaction" as envisaged under section 92F of th....
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....ccount of alleged "transaction" for notional interest attributable to delayed payments receivable from the AE. 7.1 Without prejudice, that on facts and in law the TPO/DRP erred in not appreciating that once the "international transactions" executed by the appellant under the Distribution Agreement with Amadeus Spain have been accepted to be at ALP applying TNMM as the Most Appropriate Method then no further adjustment on account of advertising, marketing and promotional expenditure (hereinafter referred to as "AMP") or notional interest attributable to delayed payments receivable from the AE was called for. 8. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transactions of AMP and notional interest are "closely linked" with the main activities carried out under the Distribution Agreement and hence they cannot be segregated and benchmarked on a stand-alone basis. 9. That on facts and in law the AO/ DRP erred in restricting allowance for deduction u/s 10A of the Act to Rs. 59,39,683/- as against a deduction of Rs. 17,70,80,634/- claimed by the appellate in its return of income. 9.1 That on facts and in law the AO/DRP e....
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....d others to market or distribute their service products for other information. 2.5 The assessee entered into an agreement with M/s Amadeus Spain on 1st October, 2004. The main activity of the assessee is to provide connectivity to the subscribers in India to the host the CRS system by creation/modification/up-gradation of computer programmes online. The assessee has a data processing centre, which provides the above services to the deemed AE. In the Transfer Pricing (TP) Study, the assessee has declared the following international transactions with its deemed AE: Nature of Transaction Method Value (Rs) Provision of Information Technology Enabled Services (ITeS) TNMM 231,71,32,514 Receipt of Data Processing Services 9,40,17,116 2.6 In the Transfer Pricing study, the assessee had followed the Transaction Net Margin Method (TNMM) to substantiate the Arm's Length Price (ALP) of above disclosed international transaction/s pertaining to provision of ITES Services with its deemed AE and accordingly it compared the net operating profit/total cost (OP/TC) earned by it with the mean OP/TC of the comparable companies selected by it and concluded that since the OP....
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....r issue from Form 35A Sony Ericsson High Court order dt.16 March, 2015 Re-characterization of expenses incurred for own business as a service to AE is not justified Upheld at Para 64 page 48 of 142 and para 147, page 111 The burden is on the assessed to select and justify the method adopted and the arm's length price declared under sub-section (3) to section 92C, the Assessing Officer can proceed to determine the arm's length price in accordance with Section 92C(1) and (2) on the basis of material, Information or documents in his possession, if any of the circumstances mentioned in clauses (a) to (d) are satisfied - The AMP expenses incurred by the assessee, qua independent parties, are domestic transaction and not international transaction as defined in section 92B of the Act. AMP expense is an international transaction. (Paras 52 & 53 of the judgment) : The TPO has jurisdiction to determine the ALP of the international transaction of AMP expenses (para 50 of the judgment); Discussion under the heading C para 51-57, the substantial question of law answered in favor of Revenue. AO/TPO can segregate AMP expenses as an independent international transacti....
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.... to select MAM, and undertake comparability analysis. Selection of method and comparables should be as per the command and directive of the Act and Rules and justified by giving reasons. The choice of comparables cannot be restricted only to domestic companies using any foreign brand (para 120); If no comparables having performed both the functions in a similar manner are available, then, suitable adjustment should be made to bring international transactions and comparable transactions at par [para 194(iii)]; If adjustment is not possible or comparable is not available, then, the TNMM on entity level should not be applied [Paras 100, 121, 194(iii) & (vi)] For determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses, should be chosen [Paras 194(i), (ii), (viii) & others]; The choice of comparables cannot be restricted only to domestic companies using any foreign brand [Para 120]; Arbitrary Mark up PLR cannot be the basis for computing markup on AMP expenses as an international transaction. Mark-up as per sub-clause (ii) to rule 10B(1)(c....
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....or reported International Transactions of Provision of ITeS Services and Receipt of Data Processing Services. TPO accepts that the margins disclosed are within Arm's Length....conclusion at @ pages 309 to 313, para 10 and 10.1 2. Issue as to whether there exists a "transaction" for brand promotion in the instant case is now settled by appellate orders passed in case of 'A' for earlier assessment years. Kind reference in this regard is invited to the decision of Hon'ble ITAT in for AY 09-10 reported in 52 ITR(T) 83 {copy enclosed at pages 409 to 447 of PB filled in Stay Nos 475 & 476/Del/2018}. Hon'ble ITAT after considering the facts of the case has held that in absence of a "transaction" for brand promotion between 'A' and its AE no TP adjustment for alleged AMP expenses can be made. Kind reference is invited to following extracts of Hon'ble ITAT decision: (a) TPO accepts that "International Transaction" for Provision of ITeS Services are at ALP applying TNMM....page 421, para 8 (b) Jurisdictional Issue questioning existence of "transaction" for brand promotion merely premised benefit to AE taken up for consideration.....page 421-422, para 8 (c) Argument of DR praying ....
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....yalty Agreement with various Subscribers. Payment of Loyalty incentive to Subscribers has been held to be a Selling Expense by Hon'ble ITAT in AY 2008-09 vide order dated 06.03.2014 reported in 149 ITD 496(Del) copy enclosed at pages 405 to 408, relevant conclusions at page 408, paras 7 and 8." 4. On the other hand, the Ld. CIT (DR) vehemently opposed the submissions made by the Ld. AR. By relying on the orders passed by the TPO and the Ld. DRP it was submitted by him that the lower authorities have, for fair reasons, concluded that there exists an international transaction between the assessee and its AE for brand promotion. 5.0 We have carefully considered the submissions made by both the sides and have also perused the material available on record. It is seen that the issue in dispute has been decided in favour of the assessee by the coordinate Bench of this Court in earlier assessment years and the order passed by the coordinate Bench for A.Y.2009-10 has also been upheld by the Hon'ble Jurisdictional High Court. In earlier years the issue in dispute has been decided in favour of the assessee by the coordinate Bench by taking into consideration the following decisions of t....
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....nditure, incurred by the appellant, would have benefited the associated enterprise, who owned the brands used by the appellant. The learned authorised representative has rightly submitted that this is a jurisdictional issue, which requires a foremost adjudication and only if the answer to this issue is against the appellant that the matter then required a de novo adjudication in the light of the jurisdictional High Court decision in the case of Sony Ericsson Mobile Communications (supra). The above line of adjudication is also supported by the decision of the honourable jurisdictional High Court in the case of Diakin Air-conditioning India (P.) Ltd. (supra) wherein it is held as under: "Accordingly, the court directs as under: (a) The impugned order dated October 8, 2015, passed by the Income-tax Appellate Tribunal in I. T. A. No. 5090/DEL/2010 for the assessment year 2006-07 is set aside and the said appeal is restored to the file of the Income-tax Appellate Tribunal ; (b) The Income-tax Appellate Tribunal will first decide the question regarding the existence of an international transaction involving AMP expenses between the assessee and its associated ....
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....eading of Chapter X ('Special provisions relating to avoidance of tax') and section 92(1) which states that any income arising from an international transaction shall be computed having regard to the arm's length price and section 92C(1) which sets out the different methods of determining the arm's length price, makes it clear that the transfer pricing adjustment is made by substituting the arm's length price for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the arm's length price. Under sections 92B to 92F, the pre-requisite for commencing the transfer pricing exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the arm's length price by applying one of the five price discovery methods specified in section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the arm's length price and make the tr....
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....ntend that the AMP spend of BLI is 'any other transaction having a bearing' on its 'profits, incomes or losses', for a 'transaction' there has to be two parties. Therefore, for the purposes of the 'means' part of clause (b) and the 'includes' part, of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between BLI and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i)(a) to (e) to section 92B are described as an 'international transaction'. This might be only an illustrative list, but significantly it does not list advertisement, marketing and promotion spending as one such transaction. In Maruti Suzuki India Ltd. [2016] 381 ITR 117 (Delhi), one of the submissions of the Revenue was (page 144) : 'The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the....
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....mmit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares, etc., of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal ; the acquisition of shares, etc., may be direct or indirect or the persons acting in concert may co-operate in actual acquisition of shares, etc., or they may agree to co-operate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being.' The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the assessee and the advertisement, marketing and promotion expenditure of a comparable entity that an international transaction exists and then proceeding to ....
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....nvolving advertisement, marketing and promotion expenses, Mr. Srivastava only referred to section 92F(ii) which defines arm's length price to mean a price "which is applied or proposed to be applied in a transaction between persons other than associated enterprise in uncontrolled conditions". Since the reference is to "price" and to "uncontrolled conditions" it implicitly brings into play the bright line test. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the arm's length price. The court does not see this as a machinery provision particularly in light of the fact that the bright line test has been expressly negatived by the court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established dehors the bright line test. . . . What is clear is that it is the "price" of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an arm's length price, an....
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....t, marketing and promotion expenses by the following analogy (page 149): 'As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to section 40A(2)(a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the Assessing Officer "is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods". In such event, "so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction". The Assessing Officer in such an instance deploys the "best judgment" assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding "machinery" provision in Chapter X which enables an Assessing Officer to determine what should be the fair "compensation" an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be p....
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....d article XVI of the agreement indicate the existence of a "transaction" for brand promotion is not supported by contents of those clauses. The appellant's objections before the learned Dispute Resolution Panel, which we have quoted above, are acceptable. These clauses nowhere provide that the appellant will be incurring brand promotion expenses for and on behalf of its associated enterprise or solely for its business purposes and interests. The agreement dated October 1, 2004, between the appellant and its associated enterprise is based upon the revenue sharing model in which 46 per cent revenue is being shared by Amadeus Spain with the appellant and, hence, it is difficult to visualise that the appellant will not be incurring routine advertisement expenses in its entrepreneur capacity. Excluding the payment of incentives, which in the earlier years have been held, to be pure selling expenses the ratio of the AMP/sales of the appellant is mere 2.29 per cent. The learned authorised representative is also right in relying upon the decision of the honourable jurisdictional High Court in the case of Sony Ericsson Mobile Communications (supra) for submitting that events which would....
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....n the Explanation under clauses (i)(a) to (e) to section 92B are described as an 'international transaction'. This might be only an illustrative list but significantly it does not list advertisement, marketing and promotion spending as one such transaction . . ." hence the amendments to section 92B by the Finance Act, 2012, also do not support the case of the Revenue lastly on the observations made by the learned Dispute Resolution Panel that since the appellant is a dependent agency permanent establishment of its associated enterprise, hence, all its expenses on advertisement, marketing and promotion are being incurred by it for the benefit of associated enterprise we would like to state that this is also entirely irrelevant. While alleging as the above the learned Dispute Resolution Panel has not appreciated that the appellant has been held to be a dependent agent permanent establishment of Amadeus Spain for determination of Amadeus Spain's income, which is taxable in India. Moreover, we may refer here the decision of the honourable jurisdictional High Court in the case of Whirlpool of India Ltd. (supra) wherein it is held by the honourable High Court as under (pages ....
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....lusions above ground Nos. 5 and 5.1 do not require any adjudication." 5.2 The order passed by the coordinate Bench for A.Y. 2009-10 has also been followed by the Tribunal vide order dated 23rd October, 2017 in ITA No.1835/Del/2015 for A.Y. 2010-11. Moreover, the decision of the coordinate Bench for A.Y.2010-11 has also been upheld by the Hon'ble Jurisdictional High Court in ITA No. 154/2017 vide order dated 26th April, 2017 as under:- "3. The first issue concerns the deletion of the transfer pricing adjustment of Rs. 75,40,09,515/- on account of Advertising, Marketing and Sales Promotion Expenses (AMP Expenses) relying upon the decisions of this Court including the decision in Bausch & Lomb Eyecare (India) Pvt. Ltd. vs. Additional Commissioner of Income Tax (2016) 381 ITR 227 (Del). 4. As far as the above issue is concerned, it is covered by the earlier decisions of this Court against the Revenue. This Court is not inclined to frame any substantial question of law on this issue." 5.3 Respectfully following the above binding precedents, it is concluded that the TPO has wrongly invoked the provisions of Chapter X of the Act. The addition of Rs. 114.89 crores, is therefore....
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....ant issue discussed at page 475, para 5 onwards and conclusions are at pages 475 to 479 at paras 5.3 to 5.5." 7.2 The Ld. AR also referred to the orders passed by the TPO for Assessment Years 2012-13 and 2013-14 wherein, after issuing show cause proposing an adjustment on account of outstanding receivables, the issue has, thereafter, been dropped and no further adjustment is proposed by the TPO for those years. In support, the Ld. AR also relied on the decision of Hon'ble Jurisdictional High Court in the case of Pr. CIT vs. Kusum Healthcare Pvt. Ltd. reported in 2017-TII-28-HC-DEL-TP. 8.0 On the other hand, the Ld. CIT (DR) opposed the arguments and contentions taken by the Ld. AR. Relying on orders passed by the lower authorities, it was submitted by him that the reasoning given by the Ld. DRP requires no interference. However, on query being raised by the Bench, the Ld. CIT (DR) was fair enough to admit that in earlier assessment years, identical issue has been decided in favour of the assessee and that the department has accepted the order passed by the coordinate Bench for A.Y. 2009-10 on this issue. 9.0 We have carefully considered the submissions made and perused the....
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.... these exclusions. (paragraph 15) As regards the contention that normally all interest incomes are excluded in the computation of PBIT as such incomes rarely constitute operational income, there is no need to be guided by such hypothesis and generalities. There is nothing on the records, to show such exclusions on the facts of this case. In any event, setting off of interest expenditure with interest on account of delay in realisation of debts, even if so, is not too common an occurrence and more of exceptions than the rule. The apprehensions of the Revenue are purely hypothetical and, therefore, devoid of legally sustainable merits. (paragraph 16) In view of these discussions, as also bearing in mind entirety of the case, no arm's length price adjustments can be made, in respect of delay in relation of sale proceeds. Such being conclusion, there is no need to address the specific factual arguments advanced by the assessee. In effect thus the grievance of the assessee, is upheld and direct the Assessing Officer to delete the impugned arm's length price adjustment. (paragraph 17) Explanation to section 92B There is, however, one more aspec....
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....tax because you did not behave in that manner yesterday. (paragraph 36) When this is put to the Department, his stock reply is that the amendment only clarifies the law, it does not expand the law. (paragraph 37) Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not this provision has already been judicially interpreted, and the matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, there is no way it could be implemented for the period prior to this law coming on the statute, i.e., May 28, 2012. The law is well settled. It does not expect anyone to perform an impossibility. (paragraph 38) It is for this reason that the Explanation to section 92B, though stated to be clarificatory and stated to be effective from April 1, 2002, has to be necessarily treated as effective from at best the assessment year 2013-14. In addition to this reason, in the light of the Delhi High Court's guidance in the case of DIT v. New Skies Satellite BV [201....
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....a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-à-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi)" 9.2 Respectfully ....
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....xpayer has not been able to controvert the arguments of the AO discussed comprehensively at assessment order. Thus following the Rule of Consistency, the DRP following the decision of DRP in AY 2010-11 approves the AO's order and the action of the AO in the proposed draft assessment order for not allowing deduction u/s 10A on the alleged "Data Processing Fee" which is held to be of the nature of commission on rendering of distribution and marketing activities." 10.3 Being aggrieved, the assessee/appellant is now in appeal before us. 11.0 In this regard, the Ld. AR has submitted as under:- "Issue decided in favour of 'A' by Hon'ble ITAT in AYs 2009-10 and 2010-11. References: • AY 2009-10 ITAT order reported in 52 ITR(T) 83 {copy enclosed at pages 409 to 447 of PB filled in Stay Nos 475 & 476/Del/2018} relevant issue discussed at page 430, para 12 onwards and conclusions are at pages 437 to 447, para 15 to 16. • ITAT order for AY 09-10 on this issue has been upheld by Hon'ble Delhi High Court vide order dated 22.05.2017 in ITA 154/2017 {copy enclosed at pages 493 to 514 relevant conclusions at page 507, para 32} . AY 2010-11 ITAT order dated 23.....
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....r, the doctrine of res judicata does not strictly apply to the income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in the subsequent years unless there is some material change in facts. In the present case, the learned counsel for the revenue has not been able to point out even a single distinguishing feature in respect of the assessment year in question which could have prompted the Assessing Officer to take a view different from the earlier assessment years in which the same income was brought to tax as income from business." 15.2 Even otherwise on merits we are unable to sustain the view adopted by Ld DRP. Ld AR is justified in submitting that the learned DRP has written factually incorrect findings in its order. Moreover the details, filed by the appellant have also been partially taken into consideration. Ld DRP takes note of top 25 employees but omits to take into consideration crucial fact that director of appellate company Shri Ankur Bhatia is a Software Engineer with 16 years of experience. Moreover div....
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....estricted area and so long as those activities were not considered by the Reserve Bank of India, which is the concerned authority as amounting to anything other than carrying on of liaison work no inference adverse to the assessee can be drawn or is possible to draw. To repeat what all that was done by the assessee fell within the parameters of supplying of information which is preparatory to and auxiliary to the formation of the final contracts." Appellant has clarified above that like earlier years in the year under consideration also the sole activity carried on by it was that of providing the travel agents an access to the Amadeus CRS System by rendering ITeS data processing services. Facts on record also show that the appellant has not carried on any "distribution" functions though the agreement provided for same DRP's action in the present case is motivated by the "distribution" part of agreement which was not actually carried on by the appellant. Since fee to be paid to appellant as per Annexure A of the agreement was defined in aconsolidated manner probably that has lead to the present confusion in Ld DRP's action of making disallowance of deduction u/s 10A. As h....
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....he revenues generated on account of functional analysis of the DAPE are to be taken into account as hypothetical income of the said DAPE, and deduction is to be provided in respect of all the expenses incurred by the GE to earn such revenues, including, of course, the remuneration paid to the DA. The second taxable unit in this transaction is the DA itself, but this taxability is in respect of the remuneration of the DA. The provisions of the tax treaty are silent on this issue, and rightly so, because the taxability of the DA is quite distinct of the taxability of the enterprise of the contracting state which is in respect of PE of such an enterprise. At the cost of repetition, it is not the DA who constitutes PE of the GE, but it is by the virtue of a DA that the GE is deemed to have a PE, a DAPE though, in the other contracting state. We are of the considered view that in addition of the taxability of the DA in respect of remuneration earned by him, which is in accordance with the domestic law and which has nothing to do with the taxability of the foreign enterprise of which he is dependent agent, the foreign enterprise is also taxable in India, in terms of the provisions of Art....
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....ould like to mention over here that identical issue had also came up for the consideration of the Tribunal in case of M/s Interglobe Technology Quotient Private Limited for AYs 2007-08 to 2010-11 in ITA Nos. 419/Del/2011, 5830/Del/2011, 1463/Del/2013 and 6144/Del/2013. Vide order dated 26th July 2016 division bench of this Tribunal allowed the claim for deduction u/s 10A of the Act by M/s Interglobe Quotient, which is a competitor of the appellant. Both the assessees have similar business model and are rendering data processing activity. Factual allegations levied by the authorities below are also same. In the said order, after following Tribunal's decision of appellant for AY 1996-97 (supra), the Tribunal has opined as under: "We find that the learned CIT(Appeals) while dealing with the issue has basically followed the decision of the IT AT in the case of Amadeus India (supra). He has elaborately discussed the terms of distribution agreement between the assessee and Galileo and has compared the activities of the assessee with that of Amadeus India before coming to the conclusion that the assessee before us is very much eligible for claiming deduction under section 10AA of t....
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....ompany submits their monthly returns for export to the competent authority which has accepted the same in discharge of export obligation. The ITAT noted further that the export of software as per the statutory requirement are also declared on exporters declaration form SOFTES (specimen of SOFTES Form has been filed). The competent authority Le., Department of Electronics authorized official also certified that the software described in the SOFTES form was actually transmitted and the export value declared by the exporter has been found to be in order and accepted by the authorized officer. Similar are the functions of the assessee in the present case before us and similar types of certificates have been issued to the assessee about the transmission of software and the export value declared by the exporter has been found to be in order and accepted by the authorized officer. We are thus of the view that the Learned CIT(Appeals) was justified in equating the facts of the present case with that of the Amadeus India, also in the same line of business and following the decision of the IT AT on an identical issue, in the case of Amadeus India, in para No. 5.2 of the first appellate order....
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....d a huge database comprising a variety of information relating to several airlines and other travel services provides, for providing international travel related facilities. The core computer system/server were established at overseas locations at US, Germany or Spain as the case may be. The travel agent, with a computer, merely accesses or utilizes travel information drawn from the data base of the computers. The travel agent also adds to, and alters the data available on the computer when he books a ticket (or other travel facilities like cab services, accommodation at hotels/resorts etc.) for a customer by feeding in the data regarding the customer such as airlines, hotel, local travel fare, tickets, the several intermediary and eventual destination; and the nature of services to be provided etc. This data enters the composite data based stream and becomes available to other operators via computers operating on Amadeus or Galileo system, all over the world, whenever a fulfilling transactions occurs at the travel agents end. The assessee's role like the present assessee before us, was occupying the position of hyphen between the overseas Amadeus and Galileo which have conceiv....
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....examine its income to be taxable in India. This decision of the IT AT has been upheld by the Hon'ble High Court. 7.8 The Hon'ble Delhi High Court in the case of CIT vs. M.L. Outsourcing Services (P) Ltd. (supra) in the para No. 9 of the decision has been pleased to make observation on the CBDT Notification No. S0890(E) dated 26.09.2000 in relation to deduction under sec. 10A, reproduced as under: "9. A perusal of the said notification would indicate that the Board has included several distinct types of services under the expression, "product or services" in the fifteen clauses. The Board, in the notification has understood that product or services, to be included within clause (b) of Explanation 2 to Section 10A, need not be computer software as understood in the common parlance of even customized electronic data, as generally understood. Any product or service of similar nature would include in its ambit, product and services which were enabled by, i.e. would rely upon, or are driven by information technology. This becomes clear when we refer to the wide ambit of the divergent and varied services covered in the different clauses like, "(ii) call centres...(viii) huma....
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....ore, do not require specific adjudication. 13.4 In Ground No.10, the assessee/appellant has challenged charging of interest u/s 234A, 234B and 234C of the Act. The AO is directed to consequential relief in this regard. 14.0 In the result, ITA No.1662/Del/2016 for AY 2011-12 stands allowed. 15.0 We shall now take up for consideration appeal for A.Y. 2012-13 bearing ITA No. 1811/Del/2017. In this appeal, the following grounds have been raised by the Assessee/Appellant: "1. That on facts and in law the orders passed by the Assessing Officer (hereinafter referred as the "AO") / Dispute Resolution Panel (hereinafter referred as the "DRP) / Transfer Pricing Officer (hereinafter referred as the "TPO") are bad in law and void abinitio. 2. That on facts and in law the TPO/DRP erred in not appreciating that in absence of a "transaction" as envisaged under section 92F of the Act between appellant and its AE for brand promotion or for establishing a marketing intangible, the TPO had no jurisdiction to propose an adjustment on account of AMP expenses. 3. That the Transfer Pricing adjustment of Rs. 200,12,15,476/- on account of Advertisement, Marketing and Sales Promotion (AMP)....
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....gnificantly more that the margins of the comparable companies. 5. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transactions of AMP were "closely linked" with the main activity carried on by the appellant and hence it cannot be segregated and benchmarked on a stand-alone basis. 5.1 That on facts and in law the AO/TPO.DRP erred in holding that there is no suitable comparable available for benchmarking the alleged "international transaction" of incurring excessive AMP expense by applying the aggregated approach. 6. That on facts and in law the AO/TPO/DRP erred in making / upholding Protective TP Adjustment on account of AMP expenses invoking "Bright Line Method". 6.1 That on facts and in law the DRP erred in holding that use of "Bright Line Method" is supported by Rule 10AB of Income Tax Rules. 7. That on facts and in law the TPO/AO/DRP erred in making/upholding substantive TP adjustment on account of AMP expenses invoking "Cost Plus Method". 7.1 That Without prejudice, on facts and in law the TPO/DRP erred in making/upholding the applicability of a markup of 45.97% on the alleged excessive AMP expenses incurre....
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....f AMP {refer ITAT decision in the case of the assessee/appellant for A.Y. 2007-08 reported in 149 ITD 496(Del)}. The TPO records that since on both the above issues, the tax department has approached the Hon'ble Apex Court, to keep these issues alive, Protective and Substantive AMP adjustments have been made in the year under consideration. It will be relevant to note that the Ld. DRP for AY 2012-13 has also specifically considered the jurisdictional issue i.e. as to whether AMP is an international transaction or not and in this regard it has been held by the Ld. DRP as under:- "Amendment regarding filing of appeals by the Department against DRP's directions 1. The Income Tax Act has recently been amended w.e.f., 1.4.2016, to provide that the directions of the DRP cannot be appealed against by the Department. The Hon'ble High Court in the case of Vodafone India Services Pvt. Ltd. have held that proceedings before the DRP are continuation of assessment proceedings, and the final assessment order is passed only after the directions of the DRP. A similar view has been taken in several decisions of the Hon'ble ITAT. The recent amendment in the Income Tax Act only strengthens the ....
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....us other facets of impugned addition do not require any adjudication as having become in fructuous. 15.6 Before finally concluding on this issue, we would like to state that the Ld. AR has fairly invited our attention towards the findings recorded by the Ld. DRP at pages 62 to 80 of the order wherein the Ld. DRP has directed that in the alternative an AMP intensity adjustment be made. In this regard, it has been held by the Ld. DRP as under:- "It may be mentioned that this adjustment is not dependent on whether there is an international transaction. As discussed in para 4, there is clearly an international transaction in this case however, if this view is not accepted by higher judicial authorities, the AMP intensity adjustment would still stand." 15.7 Thereafter, at page 79 -Para 2, the Ld. DRP has laid down a methodology for making an adjustment on account of AMP intensity and has issued directions to the TPO accordingly. Highlighting the above background, it was submitted by the Ld. AR that post issuance of directions by the Ld DRP, vide letter dated 10th January, 2017, the assessee/appellant submitted the necessary details for AMP Intensity Adjustment before the TPO as....
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....ven valid reasons for his decision. The decision of the AO is supported by the CBDT circular and judicial decisions. The assessee has failed to controvert the findings of the AO. 2. The assessee has contended that in AY 2011-12, the DRP have deleted the disallowance following the decision of the Hon'ble Delhi High Court in Cheminvest. It is not clear whether the DRP's decision on this issue was accepted by the Department on merits, or whether an appeal was filed on this issue. If the Department has not accepted the DRP's decision on this issue in AY 2011-12, and if the DRP was to direct deletion of the disallowance in the present year also, this would result in a fait accompli, because after the amendment w.e.f. 1.6.2016, the AO cannot file appeal against the directions of the DRP. This would be inconsistent with the view taken by the Department in earlier year and should not be misconstrued as the Department having accepted the exclusion of this comparable, even when this is actually not the case. 3. In view of the above discussion, this issue is decided as follows: (i) If the Department has accepted the decision of the DRP on this issue in AY 2011-12, and has also accept....
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....on facts and in law. 3.1 That on facts and in law the DRP erred in : (a) Observing that the appellant has not furnished complete / adequate details before TPO / DRP. (b) Observing that the TPO has carried out an AMP Intensity Adjustment, and this adjustment not dependent upon existence of an "international transaction" for AMP. (c) Issuing directions contrary to provisions of section 144C(8) of the Act. 3.2 That on facts and in law the TPO/DRP erred in ignoring and not following the orders of Hon'ble ITAT and High Court in the appellant's own case for the AYs 2007-08, 2008-09, 2009-10 and 2010-11, duly placed on record. 3.3 That on facts and in law the TPO/DRP erred in disproving the benchmarking analysis adopted by the appellant without following the methodology and approach recognized under section 92C(3) of the Act. 4. That on facts and in law the TPO erred in holding and the DRP inter alia erred in upholding / observing that : (i) Appellant had incurred AMP expenditure totaling to Rs. 20,21,41,620/- on promotion of proprietary marks and for development of marketing intangible for the benefit of AE. (ii) AMP expenditure of Rs. 20,21,41,620/....