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Amadeus India Pvt. Ltd. Versus Additional Commissioner of Income Tax, Range-I, New Delhi

2015 (6) TMI 596 - ITAT DELHI

Transfer pricing adjustment - determination of AMP - Held that:- Hon’ble Jurisdictional High Court IN COMMISSIONER OF INCOME TAX –I Versus MIS AMADEUS INDIA PVT. LTD. AND AMADEUS INDIA PVT. LTD.[2015 (6) TMI 590 - DELHI HIGH COURT] direct the AO to deduct the incentive expenses amounting to ₹ 51.19 crores from the total AMP expenses. As regards to the remaining expenses of ₹ 3.94 crores, the AO is directed to determine the AMP afresh in accordance with the terms and guidelines issued .....

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od for relaxation by the competent authority. In the present case, the assessee applied for extension and also claimed that the export remittances were realized within 12 months. We, therefore, considering the totality of the fact deem it appropriate to remand this issue back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. - ITA No. 469/Del/2013 - Dated:- 10-6-2015 - Sh. N. K. Saini and Sh. I. C. .....

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n law and void abinitio. 2. that on facts and in law, the assumption of jurisdiction by the AO/TPO to determine Arm s Length Price is bad in law and void ab-initio. 2.1 That on facts and in law the show cause notice dated 27th October, 2011 issued by the TPO is bad in law and void ab-initio. 3. That on facts and in the law the TPO/DRP erred in making/upholding an addition to total income of ₹ 5,06,86,319/- under Chapter X of the Income Tax Act, 1961 (hereinafter referred as the Act ). 4. T .....

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not appreciating that benchmarking on the basis of expenses incurred by an assessee is not permissible while applying TNMM as per the provisions of the Act. 5. That on facts and in law the TPO erred in holding and the DRP inter alia erred in upholding/observing that: (i) the assessee had incurred AMP expenditure totaling to ₹ 55,13,71,181/- on promotion of proprietary marks and for development of a marketing intangible for the benefit of AE. (ii) the AMP expenditure of ₹ 55,13,71,18 .....

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he Distribution Agreement. 6. That without prejudice on facts and in law the TPO/DRP erred in making/upholding the applicability of a markup of PLR+2.5% (i.e. 15%) on the alleged AMP expenses incurred by the assessee in India on behalf of the Associated Enterprise. 7. That without prejudice on facts and in law the AO/DRP erred in not granting the benefit for adjustment of the Arm s Length Price ( ALP ) by ± 5% as per the proviso to Section 92C(2). 8. That on facts and in law the AO/DRP er .....

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e to add, alter, amend and/or vary the grounds of appeal at or before the time of hearing. 3. Ground Nos. 1 to 7 are co-related and relates to the addition of ₹ 5,06,86,319/- made by the AO under Chapter X of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 4. Facts related to this issue in brief are that the assessee was engaged in the business of providing data processing and relating services to its associated enterprises (AE s). It enables software access to the subscrib .....

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s the AO noted that during the year under consideration, the assessee entered into International Transactions with Associated Enterprises (AEs) within the meaning of Section 92C of the Act. The details of the said transactions were mentioned in Form No. 3CEB filed alongwith the return of income. Therefore, the case was referred to the Transfer Pricing Officer (TPO) who suggested to make an adjustment of ₹ 5,06,86,319/- attributable to Arm s Length Price of the International Transactions en .....

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assessee filed the objections against the draft assessment order with the Dispute Resolution Panel, New Delhi on 27.01.2012 against the proposed addition on account of Transfer Pricing by taking the following objections: 1. That on facts and in law order s passed by both the Assessing Officer (hereinafter referred as AO ) and the Transfer Pricing Officer (hereinafter referred to as the TPO) are bad in law and void ab-initio. 2. That on facts and in law the AO/TPO has erred in proposing an additi .....

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r the Associate Enterprise; (c) Holding/observing that the said expenditure having been incurred for the benefit of the Associate Enterprise called for a reimbursement of the same; (d) Holding the percentage of advertisement, marketing and promotional ( AMP ) expenses/sales incurred by the Assessee company at 36.50% which is actually 2.61%; (e) Holding/observing that the economic ownership of the marketing intangible is with the Assessee and its legal ownership is with the Associate Enterprise; .....

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ribers is to generate more revenue for the Associate Enterprise. 4. That on facts and in law the AP/TPO has erred in proposing that the Assessee was required to be reimbursed with the mark-up of PLR + 2.5% (i.e. 15%) on the non-routine AMP expenses incurred by it in India on behalf of the Associate Enterprise. 5. That on facts and in law the AO/TPO erred in not granting relief under proviso to section 92C(2) of the Act. 6. The DRP considered Objection No. 1 & 2 as general in nature and did n .....

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otal AMP expenses of ₹ 58.66 crores and the remaining expenses to the tune of ₹ 3.91 crores were directed to be considered for fresh determination of AMP in terms of guidelines issued by the Special Bench of the ITAT Delhi Benches in the case of LG Electronics India Pvt. Ltd. Vs ACIT reported at (2013) 140 ITD 41. It was pointed out that the department challenged the said order dated 06.03.2014 before the Hon ble Jurisdictional High Court wherein the decision of the ITAT with regard .....

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ars 2005-06 and 2006-07 which read as under: Particulars Amount in Rs. FY 2007-08 Amount in Rs. FY 2006-07 Amount in Rs. FY 2005-06 Data Processing/Software Export Receipts 1,510,709,117 1,329,741,475 1,042,479,453 Agents Training 102,842 137,659 26,396 Advertisement and Publicity 10,885,930 5,993,804 10,248,839 Entertainment 5,687,606 5,027,002 2,088,999 Incentive 511,935,575 547,544,112 398,231,608 Promotional Expenses 15,509,155 19,956,432 6,496,601 Exhibition and Conference 3,988,146 4,925,3 .....

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s will come out at 2.61% as against 33.58% in the case of comparable which was considered by the TPO. 9. In his rival submissions the ld. DR supported the order of the AO as well as of the TPO but could not controvert this contention of the ld. Counsel for the assessee that the issue under consideration is covered by the judgment of the Hon ble Jurisdictional High Court is assessee s own case for the preceding year. 10. We have considered the submissions of both the parties and carefully gone th .....

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oup s website. The Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) who was of the opinion that these expenses constituted advertising, marketing and promotional expenditure, i.e. AMP expenses. An adjustment of ₹ 52,33,73,988/- was proposed. The assessee s appeal to the DRP succeeded partly, in that the judgment reduced the amount to ₹ 33,52,43,720/-. The revenue appealed to the ITAT, which in the light of the Special Bench decision in LG Electronics ( .....

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P related matters was considered by the Division Bench judgment of this Court in Sony Ericsson Mobile Communications India Private Limited Vs CIT-III (ITA 16/2014, decided on 16.03.2015). In the said decision, direct selling expenses such as the one which are the subject matter of these proceedings - including incentives paid to distributors and dealers for services rendered are treated as AMP expenses and, therefore, held to be excluded from the determination of transfer pricing. In the light o .....

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t the AO to deduct the incentive expenses amounting to ₹ 51.19 crores from the total AMP expenses. As regards to the remaining expenses of ₹ 3.94 crores, the AO is directed to determine the AMP afresh in accordance with the terms and guidelines issued by the Hon ble Jurisdictional High Court in the case of M/s Sony Ericsson Mobile Communications India Pvt. Ltd. Vs CIT (supra). 12. The next issue vide Ground No. 8 & 8.1 relates to the claim for deduction u/s 10A of the Act. The fa .....

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Del) CIT Vs Sterling Foods Ltd. (1999) 237 ITR 579 (SC) Nanji Topanbhai and Co. Vs ACIT (2000) 243 ITR 192 (Ker) Cambay Electric Supply Industrial Company Ltd. Vs CIT (1978) 113 ITR 84 (SC) Cement Distribution Ltd. (1994) 208 ITR 35 (Del) CIT Vs Buildwell Assam Pvt. Ltd. (1996) 220 ITR 577 (Gau) 13. The assessee raised the objection before the DRP and submitted that on the date of raising an invoice in foreign currency the transaction is recorded in the books of accounts at the exchange rate pre .....

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tes to the entirely export activity of the assessee. It was submitted that the exchange fluctuation amounting to ₹ 40,34,827/- included in the export turnover was entirely derived from the exports made by the assessee. 14. The DRP after considering the submissions of the assessee observed that exchange rate fluctuation was undoubtedly part of export business and it could not have been said as not derived from export activity. It was further observed that export turnover itself was defined .....

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duction u/s 10A of the Act and accordingly sustained the objection of the assessee. 15. As regards to the claim of the assessee on sale proceeds in foreign exchange amounting to ₹ 1,26,20,436/- which remained unrealized even after the end of six months. The assessee submitted before the DRP that the requisite applications was filed on 16.10.2008 seeking extension of time of six months for realization of the export proceeds and since the export proceeds were realized within the time for whi .....

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s as per the RBI Regulations. The reliance was placed on the following case laws: CIT Vs Morgan Stanley Advantage Services Pvt. Ltd. (2011) 202 Taxman 40 16. The DRP after considering the submissions of the assessee observed as under: 4.3 The assessee s contention has been considered. In this regard, the various aspects of this issue are considered as under: i) The assessee applied for extension of time limit well beyond the period of expiry of six months provided under sub-section (3) of sectio .....

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y Advantage Services Ltd. Vs ITO, cited by the assessee, it has been clearly held that the permission of the competent authority is must in this regard. v) In the Morgan Stanley Advantage Services Ltd. Vs ITO, the assessee had applied for extension of time before RBI and had completed all formalities in this regard. In the case in hand, the assessee has not applied before the competent authority nor any permission letter has been obtained. Even the application has been made beyond the period pre .....

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for extension of time before RBI as no evidence in this regard has been submitted. viii) Even the form 56F submitted by the assessee calculates the deduction after excluding the unrealized portion of sale proceeds at ₹ 17,82,09,148/-. Hence, the contention of the assessee in this regard is rejected and deduction u/s 10A of the I.T. Act is recalculated after excluding the sum of ₹ 1,26,20,436/- from the Export turnover in later part of this order. The AO followed the directions of th .....

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lars 1,00,000 (Rs.38,74,000/-) vide FIRCs No. 191644 dated 30.12.2008 and No. 195924 dated 23.03.2009 respectively. It was further stated that the provisions of section 10A(3) of the Act provides that the export proceeds can also be realized within such further period as competent authority may allow in this behalf. It was submitted that the assessee applied for extension of time vide letter dated 23.09.2008 to Standard Chartered Bank Ltd., Connaught Place, New Delhi and American Express Bank Lt .....

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per RBI Circular No. 25 dated 01.11.2004 relaxation had been given to 100% Export Oriented Units and units set up under the Electronics Hardware Technology Parks and Bio- Technology Parks to realize and repatriate the full value of export proceeds within a period of 12 months from the date of export (a reference was made to page nos. 119 and 120 of the assessee s paper book which is the copy of the aforesaid Circular No. 25 dated 01.11.2004). It was contended that since the assessee applied for .....

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