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2014 (12) TMI 600 - AT - Income TaxTransfer pricing adjustment - Disallowance of excessive AMP expenses - Advertisement Marketing and Sales Promotion - assessee has a license arrangement with YRAPL for operation of various KFC and PH outlets in India – Held that:- In LG. Electronics India P. Ltd. Versus Assistant Commissioner of Income-tax [2013 (6) TMI 217 - ITAT DELHI] it has been held that incurring of AMP expenses towards promotion of brand, legally owned by the foreign AE, constitutes a ‘transaction’ - the TPO did not have the benefit of the Special Bench order in the case of LG Electronics and the DRP failed to apply it correctly to the facts of the case, by making sweeping observations generally without considering the effect of relevant factors laid down by the special bench – thus, the matter is to be remitted back to the AO/TPO for a fresh determination of disallowance, if any, on account of Transfer pricing adjustment for AMP – the issue related to the 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 – Decided in favour of assessee. Selection of comparbles - Exclusion of Ma Foi Management Consultant Ltd. – Different nature of services - Held that: The Company is a HR Services Company - as against this, the assessee under this segment is engaged in providing Liaison services, Market development and Ongoing support to the licensees outside India - the nature of services provided by the assessee to its AEs is no match with those provided by Ma Foi Management Consultant Ltd. - unless a company passes the test of functional comparability in the first instance, it cannot be taken up for further comparison - the authorities below were justified in not including this company in the list of comparables, though on a different reason. Saket Projects Ltd. (Segment) – Held that:- The assessee treated Saket Project Ltd.(Seg.) as comparable in its TP study, as was also done for the preceding year - assessee assailed before the Tribunal, the non-exclusion of this company by the authorities below for the preceding year - in assessee’s own case for the preceding year it has been held that Saket Projects Ltd is not functionally comparable as it was engaged in the business of organizing events and was also earning revenue in this division from selling of events by offering space for rent, which had no comparison with the assessee’s nature of business under this international transaction – thus, the order is set aside and the matter is remitted back to the TPO/AO for fresh determination of ALP – Decided partly in favour of assessee. Allowability of carry forward and set off of brought forward losses of past years against the income for the current year u/s 79 - Change in the shareholding of the assessee-company - Held that:- 100% shareholding of the assessee company underwent a change, by which another company came to hold 100% shares of the assessee company - the first condition for magnetizing section 79 is satisfied - there is no change of the beneficial ownership of shares because both the predecessor and successor companies are subsidiaries of the same holding company and in that sense of the matter, the beneficial interest remains the same, that is, of the ultimate holding company - the Revenue has made out a case that there is a change of the beneficial ownership of shares because the predecessor and successor companies are distinct from each other, and the factum of they being subsidiaries of the ultimate holding company, does not mean that there is no change in the beneficial interest - the provisions of section 79 are attracted – Decided partly in favor revenue and partly in favor of assessee.
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