TaxTMI 
TaxTMI 
2019 (1) TMI 1838
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....10. The TPO, during the course of TP assessment proceedings observed that the assessee has entered into the following international transactions:- Nature of International Transaction Method Selected Amount (in INR) Providing services viz. Franchisee support Services TNMM 199,930,043 Payment of royalty for providing Systems, Trademarks and System property for franchisee TNMM 122,017,071 Payment of royalty for providing Systems, Trademarks and System property for equity Business TNMM 26,275,533 Reimbursement of expenses to AEs - 30,743,852 Reimbursement of expenses by AEs - 15,695,884 3. From the various details furnished by the assessee, he observed that the assessee has returned a margin at 8.75% in respect of the international transaction related to providing franchisee support service. The updated margin of the comparables, on cost, using multiple year data is -4.05%. The assessee has used TNMM as the method and OP/TC is the PLI. In the international transaction related to payment of royalty for providing systems and system property for franchisee business, the margin of the assessee is 12.95%. The a....
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....s Ltd. 1.94 1.38 Average 18.75 13.39 4. Since the assessee has declared 8.75% margin, the TPO, based on the average margin of 18.75% of the comparables, made an upward adjustment of Rs. 1,83,76,224/- on account of provision of support services in area countries. Thus, the TPO proposed an upward adjustment of Rs. 9,27,91,045/- u/s 92CA of the IT Act. The Assessing Officer, in the draft order, accordingly made upward adjustment of the above amount. The Assessing Officer also made certain other additions /disallowances such as royalty and TLA fees - Rs. 13,80,89,085/-, disallowance of a portion of the administrative expenses - Rs. 54,45,76,389/-, disallowance of depreciation- Rs. 20,17,400/-, disallowance out of Research & Development expenses - Rs. 56,55,254/-. He also treated the service income as 'Income from other sources.' 5. The assessee approached the DRP who directed the Assessing Officer/TPO to delete the addition of Rs. 1,83,76,224/- on account of provision of support service in area countries. However, they upheld the action of the TPO in confirming the transfer pricing adjustment of Rs. 7,44,14,821/- in relation to the advertisement, ma....
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....ting and Sales Promotion expenses through its subsidiary, which is both factually incorrect and irrelevant. 1.6 The Ld. TPO/Ld. AO/Hon'ble DRP has erred in determining arm's length price of the alleged AMP addition without use of any of the prescribed transfer pricing methods or use of any uncontrolled data. 1.7 Without prejudice to the contention that AMP expenses were incurred for the purpose of enhancing sales in India, the Ld. TPO/Ld. AO/Hon'ble DRP has made a gross error in considering rebates and discounts, sales promotion and selling expenditure as a part of AMP expenses. 1.8. The Ld. TPO/Ld. AO/Hon'ble DRP has erred by holding that a markup on the expenses incurred has to be earned by the Appellant in respect of the "alleged" AMP adjustment. B. Grounds relating to Corporate Tax matter Service income treated as 'income from other sources' 1. That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO has erred in characterizing the service income earned by the appellant amounting to Rs. 19,99,30,044 from M/s Yum! Asia Franchisee Pte Ltd., ("YAFL"), as "income from other sources" as against "business....
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.... under Section 40A(2)(b) of the Act. Disallowance of the research and development expenses 6. That on the facts and circumstances of the case and in law, the Ld. AO has erred in disallowing the research and development expenses amounting to Rs. 56,55,254 by holding them to be of capital nature. 6.1. Without prejudice to the above, even assuming (without admitting) that the said research and development expenses are of capital nature, the Ld. AO has erred is not allowing depreciation on the said expenditure. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing." 7. So far as appeal of the assessee is concerned, ground of appeal No.1.1 being general in nature is dismissed. The ld. counsel for the assessee submitted that the grounds relating to corporate tax matter in sub-clause B from ground of appeal No.1 to 6.1 become infructuous since all grounds of appeal have been allowed by the DRP. In absence of any objection from the side of the ld. DR, the grou....
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....t of Transfer pricing adjustment for AMP expenses in the light of the decision of the Special Bench in the case of L.G.Electronics (supra). We order accordingly. The question of disallowance u/s 40A(2) of the Act shall be decided by the AO after having found out the amount of TP adjustment on account of AMP expenses. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in this regard." 9. Following the similar reasoning, the grounds relating to AMP issue is restored to the file of the Assessing Officer/TPO for adjudication of the issue afresh in the light of the direction of the Tribunal for the preceding assessment year 2009-10. The ground raised by the assessee is accordingly allowed for statistical purposes. 10. Now, coming to the appeal filed by the Revenue is concerned, the Revenue has basically challenged the order of the DRP in directing the Assessing Officer/TPO to delete the addition of Rs. 1,83,76,224/- out of the 'Provision of support services in area countries.' 11. After hearing both the sides, we find the assessee, in its TP study, has considered the following comparables with average of 7.32%, the details of which are as unde....
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....he Assessing Officer in excluding Forex items from calculating the operating profit. In the process, the adjustment of Rs. 1,83,76,224/- was modified. 13.1 The ld. counsel for the assessee filed an application under Rule 27 of the ITAT Rules, requesting to include certain comparables which were rejected by the TPO and to exclude certain comparables which were added by the TPO. A. Comparables to be included which were rejected by the TPO. Sl. No. Name of the company Acceptance/Rejection reason Judicial Precedents relied on 1. In House Productions Limited The company is engaged in two main business segments namely 'Healthcare' and 'Media' Division. Under the Healthcare Division, the company provides access to information, relating to healthcare technology including management practices and knowledge databases. This is similar to the information/knowledge being provided by the assessee to its AEs on the market condition in India. Hence the same should be taken as an appropriate comparable. * The said company was accepted by the TPO for the A.Y. 2009-10 on the same functional profile. * Further, reliance can also be placed on the ITAT ....
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....td. vs. DCIT [ITA No.862/Del/2016] 2. Global Procurement Consultants Limited. Functionally dissimilar - engaged in specialized financial services related to procurement activities. * Marubeni-Itochu Steel India Pvt. Ltd. vs. DCIT (ITA No.1716/Del/2014) (A.Y. 2007-08) * H&M Hennes & Mauritz India Pvt. Ltd. vs. DCIT (IT (TP) No.282 & 490/Bang/2015) (A.Y. 2010-11) * Adidas Technical Services P. Ltd. vs. DCIT [ITA No.1233/Del/20150 * Adidas Technical Services P. Ltd. vs. DCIT [ITA No.862/Del/2016] 3. HCCA Business Services Private Limited Functionally dissimilar - engaged in BPO services. 4. Quadrant Communications Limited Functionally dissimilar - engaged in creative Services related to marketing 5. Quippo Valuers and Auctioneers Private Limited * It does not appear in the accept reject matrix of the assessee - Hence, basis of selection by the TPO is unclear. * Functionally dissimilar - provides complex services of asset management. 6. TSR Darshaw Ltd. Functionally dissimilar - BPO services. * H&M Hennes & Mauritz India Pvt. Ltd. vs. DCIT (IT (TP) No.282 & 490/Bang/2015) (A.Y....