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2021 (7) TMI 1428 - AT - Income TaxTP Adjustment - Comparable selection - functional dissimilarity - HELD THAT - As based on functional dissimilarities and also in the absence of segmental details for marketing support service exclusion of Aptico Ltd., BVG India Ltd. Axis Integrated System Ltd., Killick Agencies and Marketing Ltd. and include Quadrant Communication Ltd. which was included as a comparable company by the assessee and upheld by the ld. DRP more so when the revenue is not in appeal before us against such inclusion. The ground Nos. 2.1 to 2.9 raised by the assessee are disposed of in the above mentioned terms. Addition made on account of marketing service fees - HELD THAT - We find that the ld. DR argued that assessee is a low level marketing service provider and as such should have operated at cost plus margin model and hence ought not to have incurred in loss of Rs. 2 Crores in the incentives given to travel agents. We find that this is not even the case of the lower authorities and hence the argument of the ld. DR could not be appreciated at this stage. Respectfully following the aforesaid decision in assessee s own case for A.Y.2012-13 the addition made on account of income from marketing service fees is hereby directed to be deleted. Disallowance made on account of foreign exchange loss - HELD THAT - We find that the same issue was the subject matter of adjudication in assessee s own case by this Tribunal for A.Y. 2012-13 thus we direct the ld. AO to grant deduction towards foreign exchange loss.
Issues Involved:
1. Transfer pricing adjustment. 2. Addition on account of marketing service fees. 3. Disallowance of foreign exchange loss. 4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment: The assessee challenged the transfer pricing adjustment of Rs. 14,03,65,751/-. The assessee, a subsidiary of Sabre Asia Pacific Pte. Ltd., markets and distributes the Computerized Reservation System (CRS) in India. The assessee's TP study report relied on four comparable companies and applied the Transactional Net Margin Method (TNMM) for benchmarking, arriving at a Berry Ratio of 0.97. The TPO, however, considered other comparables and arrived at an average margin of 21%, resulting in a transfer pricing adjustment of Rs. 17,33,04,809/-, later reduced to Rs. 14,03,65,751/- by the DRP. The Tribunal directed the exclusion of the following comparables based on functional dissimilarity: - Aptico Ltd: Engaged in diverse activities not related to marketing support services. - BVG India Ltd: Involved in facility management and other services, not marketing support. - Axis Integrated Systems Ltd: Engaged in trading digital certificates and providing liasioning services. - Killick Agencies and Marketing Ltd: Involved in shipbuilding and water treatment business. The Tribunal upheld the inclusion of Quadrant Communication Ltd. as a comparable, as directed by the DRP. 2. Addition on Account of Marketing Service Fees: The assessee contested the addition of Rs. 2 Crores as undisclosed income from marketing service fees. The Tribunal noted that this issue was covered in favor of the assessee in its own case for A.Y. 2012-13. The assessee had entered into an agreement with its AE for marketing services, receiving Rs. 54,13,02,874/- against incentives paid to travel agents amounting to Rs. 56,13,02,874/-. The Tribunal found that the differential amount of Rs. 2 Crores was neither received nor receivable from the AE, and thus, could not be added as income. The Tribunal, following its earlier decisions, directed the deletion of the addition. 3. Disallowance of Foreign Exchange Loss: The assessee challenged the disallowance of foreign exchange loss of Rs. 19,49,09,643/-. The Tribunal noted that this issue was also covered in favor of the assessee in its own case for A.Y. 2012-13. The foreign exchange loss arose during the regular course of business and was allowable as business loss. The Tribunal directed the AO to grant the deduction for the foreign exchange loss, following its earlier decisions. 4. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal found that the issue of initiation of penalty proceedings under Section 271(1)(c) was premature for adjudication at this stage and dismissed the ground as premature. Conclusion: The appeal of the assessee was partly allowed, with directions to exclude certain comparables for transfer pricing adjustment, delete the addition on account of marketing service fees, and allow the deduction for foreign exchange loss. The issue of penalty proceedings was dismissed as premature.
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