TMI Blog2014 (12) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve AMP expenses to the tune of ₹ 77,67,895/-. Ground No. 1 of the Revenue s appeal is against the direction of the Dispute Resolution Panel (DRP) to delete the addition of ₹ 5,27,33,334/- ( ₹ 6,05,01,229 minus ₹ 77,67,895 ) made by the AO u/s 92C of the Act. Since these three broader grounds involve different facets of AMP expenses, we are disposing them in a consolidated manner. 4. Briefly stated the facts of the case are that the assessee has a license arrangement with YRAPL for operation of various KFC and PH outlets in India, which was later assigned in favour of YAFPL w.e.f. August, 2008. The assessee operates these restaurants through various franchisees. Additionally, the assessee also operates company-owned KFC outlets in India. Certain International transactions were reported in Form No. 3CEB, which were referred by the AO to the Transfer Pricing Officer (TPO). 5. On perusal of the international transaction of Reimbursement of expenses, the TPO observed that the assessee made a contribution of 5% of its sales to a company, namely, YRMPL, which is a no-profit no-loss entity with the only function of carrying out AMP activities for KFC and PHD b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6.05 crore minus ₹ 7.257 crore) was also added to the assessee s income. That is how, both the side are in appeal on their respective stands on this issue. 6. We have heard the rival submissions and perused the relevant material on record. It is noticed that the Special Bench of the Tribunal in LG Electronics India Pvt. Ltd. Vs. ACIT 2013 152 TTJ (Del) (SB) 273, by majority decision, has inter alia held that incurring of AMP expenses towards promotion of brand, legally owned by the foreign AE, constitutes a `transaction . The contention that no disallowance could be made out of AMP expenses by benchmarking them separately when the overall net profit rate declared by the assessee was higher than other comparable cases, also came to be specifically rejected by the special bench. Resultantly, the transfer pricing adjustment in relation to such AMP expenses was held to be sustainable in principle. In the eventual order, the Special Bench restored the matter to the file of the AO/TPO for fresh determination of Transfer Pricing adjustment for AMP expenses. In order to enable the determination of correct ALP of AMP expenses, the Tribunal has listed out 14 parameters in Para 17.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct Ltd. (Segment) and the exclusion of Ma Foi Management Consultant Ltd. No other aspect of the TP adjustment of this international transaction has been assailed. We will, ergo, confine ourselves only to determining the correctness of excluding Ma Foi and not including Saket Projects Ltd. (Segment). I. Ma Foi Management Consultant Ltd. 10.1. Though this company did not find place in the list of comparables in the assessee s TP Study report, however, the assessee pleaded before the TPO for its inclusion. The TPO refused to pay any heed to this argument as it was selected randomly without relying on a rational search process. The proceedings before the DRP also did not change the fortune of the assessee on this score, which ultimately culminated into the exclusion of this company from the final list of comparables. The assessee now seeks to include this company in such list. 10.2. At the outset, we do not find any force in the vigorous submissions made by the ld. DR that no randomly selected company, without passing through the search process of a database, can be considered as comparable. The reason for our not agreeing with the ld. DR in this regard is that the essence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndidly admitted the functional dissimilarity, however, maintaining that it should nevertheless be directed to be included. We fail to appreciate the rationale of this contention for the apparent reason that unless a company passes the test of functional comparability in the first instance, it cannot be taken up for further comparison. Under these circumstances, we hold that the authorities below were justified in not including this company in the list of comparables, though on a different reason. II. Saket Projects Ltd. (Segment). 11.1. This company on segment level was voluntarily selected by the assessee as comparable. The TPO did not raise any objection to its inclusion. However, the assessee contended unsuccessfully before the DRP that it was wrongly included and hence be excluded. The ld. DR objected against its exclusion on the ground that the assessee, having itself selected it as comparable, cannot be allowed to back out. 11.2. We find no merit in the objection of the ld. DR that once the assessee has chosen a company as comparable in its TP study, then it cannot be allowed to retract from the same during the course of proceedings before the authorities. The reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the precedent, we hold that this company should be excluded from the list of comparables. 12. In view of above discussion, we set aside the impugned order and remit the matter to the file of TPO/AO for a fresh determination of ALP of this international transaction as per law in conformity with our above directions. At the cost of repetition, we want to make it clear that the determination of the ALP of this international transaction on all other aspects has attained finality inasmuch as the assessee has challenged nothing except as discussed above. 13. Ground No. 1.11 of the assessee s appeal about the double disallowance/taxation of certain expenses under Support Services of outside India segment, was not pressed by the ld. AR. The same is, therefore, dismissed. 14. Ground No. 1.12 of the assessee s appeal about not allowing working capital adjustment, was also not pressed by the ld. AR. The same is also dismissed. 15. Ground No. 1.13 of the assessee s appeal about use of data not existing at the time of preparation of TP documentation, was also not pressed by the ld. AR. The same is also dismissed. 16.1. Ground No. 1.14 of the assessee s appeal is about the use o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respectfully following the precedent, we allow this ground of appeal. 21.1. Ground No. 4 of the assessee s appeal is against part disallowance of tax depreciation. The ld. AR explained that this disallowance was made on account of sale of certain individual assets forming part of block of assets. It was submitted that similar issue was there in earlier years as well. 21.2. We find from page 13 of the Tribunal order for the assessment year 2008-09 that the Tribunal decided it for the first time for the assessment years 2002-03, 2003-04 and 2006-07 by restoring the matter to the file of the AO with a direction to allow a fresh opportunity of being heard to the assessee. Contention of the ld. AR that this ground may be allowed cannot be countenanced unless the factual position is verified by the AO. The palpable reason being to undertake the fresh investigation as to whether the block of assets ceased to be exist on sale of all the assets of the relevant block etc. Respectfully following the Tribunal order for assessment year 2002- 03 etc., we remit the matter to the file of the AO for a fresh decision after ascertaining the correct factual position. Needless to say, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a shareholder or gift etc. nor as a result of amalgamation or demerger etc. Now seeing the mandate of the main provision in conjunction with clause (a), it becomes vivid that the set off and carry forward of loss, which is otherwise available under the provisions of Chapter VI, is denied, if the extent of a change in shareholding taking place in a previous year is more than 51% of the voting power of shares beneficially held on the last day of the year(s) in which the loss was incurred. It means that if change is less than 51% as stipulated, then section 79 shall not be triggered and the loss of the earlier years shall continue to be available for set off and carry forward subject to the relevant provisions. To curtail the set off and carry forward of loss in a later year, it is sine qua non that the change in shareholding pattern should be more than 51% of the voting power of shares beneficially held. It has two important components. One is the percentage of change at 51% and the second is the change of such percentage of voting power of shares beneficially held. When we revert to the facts of the instant case, it is noticed that the change is 100% of shareholding. It means that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e separate legal entity of subsidiary and require the assessment of its income in the hands of holding company alone, which is patently incorrect. Going by that, even the extant assessment of the assessee along with that of its successive holding companies, which are, in turn, subsidiaries, would be required to be made in the hands of the ultimate US holding company. This contention, being devoid of any legal force, is hereby repelled. It is, ergo, held that the provisions of section 79 are attracted in the facts and circumstances of the case. This ground fails. 23.1. The only other ground taken by the Revenue in its appeal is against the deletion of addition of ₹ 6,56,133/- on account of R D expenses. 23.2. After hearing the rival submissions, we find that this issue also stands squarely decided by the Tribunal in its order for the immediately preceding year. Relevant discussion is there on pages 19 to 20 of this order, through which the assessee s point of view has been upheld. In the absence of any change in the factual or legal position in this regard having been brought out by the ld. DR, respectfully following the precedent, we order for the deletion of the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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