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Thomas Cook (India) Limited Versus DCIT-1 (3) (2) Mumbai.

2016 (7) TMI 318 - ITAT MUMBAI

Transfer pricing adjustment - adjudication of AMP expenditure - Held that:- In the year under consideration the FAA had not passed a speaking order.He has just confirmed the adjustment. In the next year the DRP has dealt with all the arguments raised by the assessee before the TPO and before the DRP itself. We find that except for the issue of non admission of additional evidences the assessee has advanced all most all the arguments while arguing the matter for the subsequent year. Therefore, we .....

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irect the Assessing Officer to determine the addition in view of our aforesaid direction - Disallowance on claim of depreciation on printers data, cable router and scanner - Held that:- Identical issue was decided by the Tribunal while deciding the appeal in A.Y. 2008-09 it is hereby directed that Assessing Officer shall allow depreciation @ 60% - Disallowance of claim of depreciation on Jodhpur property - Held that:- Tribunal had decided the above issue against the assessee while adjud .....

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to the assessee - Adjustment in relation to the travel related segment - Held that:- We hold that the TPO had wrongly rejected the comparables. Considering the peculiar facts and circumstances of the case, we hold that the TP adjustment made by the TPO and confirmed by the DRP has to be deleted. First effective ground of appeal is decided in favour of the assessee. - TP adjustment under the head AMP expenses - Held that:- The factors like payment under the head AMP expenditure to the th .....

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es or any other adjustment will and cannot come in picture. Folk wisdom of rural India the says that mother(Maa)is must for existence of her sister(Mausi). Similarly the existence of an IT is the pre-requisite of applying the provisions of chapter X of the Act. The assessee from the very beginning was arguing that it is not an IT, but, the TPO and the DRP did not deal with the core issue. In these circumstances, we are of the opinion that the matter should not be remitted back to the file of the .....

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ble price is- unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. Thus merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE - Adjustment in relation to insurance cost - Held that:- As decided in assessee's own case in AY 2005-06 it is a fact that the assessee has not charged from AE. F .....

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centive fees, does not erode the tax base if one keeps in mind the ratio of such receipts and payment made which is tilted in favour of the payment side. Moreover, the appellant has demonstrated by an Internal CUP (HSBC / Travelex) on this aspect to establish its case. The adjustment is therefore, deleted. - I.T.A./ 1261 & 1238/Mum/2015, - Dated:- 31-5-2016 - Sh. Rajendra, Accountant Member and C.N. Prasad, Judicial Member For The Revenue :Shri N.K. Chand-CIT For The Assessee : Shri Madhur Agarw .....

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ed Income(Rs.) Dt. of orders of CIT(A)/AO 2009-10 30.09.2009 44,28,33,999/- 28/03/2013 46,84,32,558/- 08.12.2014 2010-11 30.09.2010 37,15,77,109/- 16/01/2015 57,86,82,443/- 16.01.2015 ITA No.1261/Mum/2015(09-10): 2. The second Ground of appeal deals with Transfer Pricing Adjustment for disallowance of Advertisement Marketing and Promotion (AMP) Expenses amounting to ₹ 8.09Crores. The brief facts are that a reference u/s. 92CA(1) of the Act was made by the AO to Transfer Pricing Officer(TPO .....

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ions for leisure and business travelers, students going abroad, people travelling for employment, medical treatment, emigration etc.He found that the assessee s foreign currency activity is broadly divided into two segments namely (i) retail and (ii)wholesale. For retail operations it relies mainly on purchase and sale of foreign exchange from business and leisure travelers and for wholesale operations it mainly consist of purchase and sale of foreign currency in large quantities from other auth .....

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paid 65,25,899/- CUP 6. Reimbursement of expenses received 58,89,920/- CUP The TPO observed that the operation segments of the assessee were divided into two segments namely travel and related services segment (ii) financial services segment, that name and license fee paid to the AE had been allocated to both the segments, that it had entered into an agreement for use of trade mark license with its AE namely Thomas Cook UK Ltd.(TCUK)on 29.3.2006, that TCUK was holding majority share in the asse .....

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in the ratio of 3.95%. Within the expenditure incurred the share of name and license fee came to 17.7%. The TPO tabulated the AMP expenses/total revenue of the comparables as under :- SN. Company Name AMP expenses/total revenue 1. International Travel House Ltd. 0.62% 2. Trade-Wings Ltd. 1.8% 3. Crown Tours Ltd. 0.09% 4. Balmer Lawrie & Co. Ltd (Travel & Tours) 0% Industry Mean AMP Expenses/total revenue 0.63% Tested party 3.95% Considering the above facts, the TPO observed that the asse .....

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ning a profit margin of 25.64% that was more than industry mean for leisure travel industry, that it was one of the largest leisure travel company in India who had acquired 100% share holding in Travel Corporation of India Ltd., that the assessee had location advantage, that there had been no location specific premium/rent to India, that the location advantage generated in India through super normal profit had been passed on to the majority share owner by way of indirect benefits i.e. incurring .....

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lled transaction was in a situation where it had to spend huge amount on building and promoting the brand in its territory and it had also to pay license fee, that such grossly unjust and controlled transaction would not happen between the uncontrolled parties, that the brand was deteriorating in UK and Europe. Accordingly ALP of license fee paid to TCUK along with forex fluctuation, (Rs.1, 77, 06, 908/- + ₹ 10, 00, 000/- assesseeRs.1, 87, 06, 908/-) was determined at Nil. Further, the AMP .....

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AO added the said amount in his draft orders. 2.1. Aggrieved by the order of the AO/TPO the assessee preferred an appeal before the First Appellate Authority(FAA). Before the FAA, the assessee contended that TPO had made adjustment without giving a show cause notice, that it became aware of the adjustment directly vide TP order dt.14.1.13, that the assessee was not provided with any opportunity of submitting its arguments or contentions against the said adjustment/disallowance. It moved an appl .....

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ortunity to adduce evidence before the TPO, the request made by the assessee could not be accepted as per Rule 46A of the IT rules. Referring to the case of Velji Deoraj & Co.(68ITR708), Jaipur Udyog Ltd. (227 ITR 245) and A. K. Babukhan (102ITR757), he held that the assessee had failed to establish reasonable cause that the additional evidences could not be accepted in appeal. Consequently, the adjustment made by the TPO were upheld. 2.2. Before us, the Authorised Representative(AR)stated t .....

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sentative(DR) relied upon the case of Whirlpool India Ltd (ITA 610 of 2014), Bausch & Lomb Eyecare (India) Ltd.)(ITA 643 of 2014) and Maruti Suzuki India Ltd.(ITA110 of 2014). Diageo India (P) Ltd.7545/ Mum/ 2012 and Heinz India P. Ltd.(7732/ Mum/2012). In the year under consideration the FAA had not passed a speaking order.He has just confirmed the adjustment. In the next year the DRP has dealt with all the arguments raised by the assessee before the TPO and before the DRP itself. We find t .....

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orate guarantee of ₹ 7.60 crores to its AE Thomas Cook Mauritius Operations Ltd. (TCMOL)for banking facility availed by it from HSBC.He directed the assessee to explain as to why the CGC should not be adjusted. Vide its reply, dt. 21.12. 2012, the assessee stated that TCMOL was a step down subsidiary of the assessee, that it was also a strategically important subsidiary, that Mauritius was a key financial round about for Asia into Africa and Europe, that the assessee would leverage on the .....

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ons of Section 92. After considering the submission of the assessee the TPO held that the assessee had wrongly classified the CG given in respect of its AE as a share holder activity, that the asessee had failed to bring any material on record to prove that the concern AE was not capable of raising loan all by itself on a stand-alone basis, that the CG was an international transactions as provided by the retrospec -tive amendment, that under the CUP method guarantee fee would be quantified throu .....

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de elaborate submissions. Referring to the order of his predecessors for the AY 2008-09, he dismissed the appeal filed by the assessee . 3.2. Before us, the Authorised Representative stated that while deciding the appeal for earlier AY., the Tribunal had already adjudicated the issue. The Departmental Representative left the matter to the discretion of the Bench. We find that the Tribunal had, on 29.04.2016 (ITA No.859-768/Mum/2014), deliberated upon the issue as under : 3. First, we may take up .....

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erence under section 92CA(1) was made by the Assessing Officer to the Transfer Pricing Officer (TPO) for determination of arm s length price of such transactions. In an order passed by the Transfer Pricing Officer under section 92CA(3) of the Act dated 30/09/2011, the Transfer Pricing Officer found that assessee had not charged any fee for providing corporate guarantee on behalf of its associated enterprise and, therefore, he determined an amount of ₹ 18, 05, 400/- being adjustment require .....

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recorded at an arm's length price. The Transfer Pricing Officer referred to the information gathered from Allahabad Bank and the State Bank of India with respect to the rate of guarantee commission fee and accordingly determined a rate of 3%, that was liable to be charged as an arm s length rate as guarantee commission fee. On this basis, the Transfer Pricing Officer worked out an addition of ₹ 18, 05, 400/- being 3% of ₹ 6, 01, 80, 000/-. The Assessing Officer determined the in .....

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im made was that the corporate guarantee was given on behalf of a step-down subsidiary and, therefore, it was a strategic requirement of business and was a shareholder activity. Thirdly, it was pointed out that the providing of corporate guarantee has not resulted to in any interest savings for the associated enterprise and that assessee had also not incurred any cost in respect of such corporate guarantee. Apart therefrom, assessee also opposed the adoption of 3% rate as a measure to determine .....

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Kento Cylinders Ltd. vs. DCIT, ITA No.542/Mum/201 order dated 23/11/2012. (2) Aditya Birla Minacs Worldwide Ltd. vs. DCIT, 56 taxman.com 317 (Mum-Trib) (3) M/s. Godrej Household Products Ltd. vs. Addl. CIT, ITA No.7369/Mum/2010 order dated 22/11/2013 (4) ACIT vs. Nimbus Communications Ltd., ITA No.3664/Mum/2010 dated 12/06/2013. It was also pointed out that so far as the decision of the Tribunal in the case of Everest Kento Cylinders Ltd.(supra) is concerned, the same has since been affirmed by .....

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ntee commission fee has been approved even @ 3%. In this connection attention has been invited to the decision of the Tribunal in ITA NO.6394/Mum/2012 dated 21/08/2013, wherein rate of 3% has been approved. Our attention was also invited to the decision of the Tribunal in the case of Technocraft Industries (India) Ltd., vs. Addl. CIT, in ITA Nos.7519& 7990/Mum/2011 dated 8/01/2014, wherein rate of 2.08% has been approved. 6. We have carefully considered the rival submissions. Be that as it m .....

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t s associated enterprise which enabled it s associated enterprise to avail banking facilities from HSBC Bank in Mauritius. The Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd.(supra)was considering a somewhat similar situation, where in the matter of guarantee commission fee the adjustment made by the income-tax authorities was based on instances of commercial banks providing guarantees. The Hon'ble Bombay High Court has explained that instances of commercial banks .....

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in which the Transfer Pricing Officer has proceeded to determine the arm's length rate based on the probable rate being charged by the commercial banks is not justified. In this view of the matter, we are unable to approve 3% rate of guarantee commission fee determined as arm's length rate by the income-tax authorities. In the alternative, the addition that is required to be sustained is the position canvassed by the assessee before the Transfer Pricing Officer i.e. adoption of 0.50% as .....

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y High Court in the case of Everest Kento Cylinders Ltd.(supra), such an approach cannot be upheld since the instant is a case, where a corporate guarantee has been issued by holding company for the benefits of its step-down subsidiary associated enterprise. Considering the entirety of facts and circumstances of the case and on the basis of the material available on record, we, therefore, proceed to uphold the rate of 0.50% for the purpose of determining the arm's length rate of the guarante .....

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at identical issue was decided by the Tribunal while deciding the appeal in A.Y. 2008-09 (supra), we would like to reproduce the relevant portion of the above order and same reads as under :- 7. The second Ground in the appeal relates to the action of the income-tax authorities in allowing depreciation @15% on data cable and other computer peripherals as against assessee s claim of depreciation of 60%. In this context, it was a common point between the parties that the aforesaid issue is identic .....

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on Jodhpur property of ₹ 1, 68, 023/-. During the course of hearing before us, the AR fairly conceded that the Tribunal had decided the above issue against the assessee while adjudicating the appeal for AY 2008-09. We find that the Tribunal has held as under : 8. The next ground is with regard to the disallowance of the claim of depreciation of ₹ 1, 86, 692/- on Jodhpur property. On this point also, it was a common point between the parties that similar issue has been decided agains .....

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hat the assessee had received dividend income of ₹ 2, 90, 706/- on mutual funds, that same was claimed exempt, that the assessee had not allocated any expenditure towards earning of the said income.He directed the assessee to file explanation in that regard. Vide its order dt.25.10.12 the assessee stated it had not incurred any direct or indirect expenditure for earning the exempt income, that it had adequate own funds for making investment in mutual funds, that the borrowing made by it in .....

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the original appeal the disallowance under section 14A was not challenged.However, by way of an additional ground the assessee raised the said issue before the FAA. But, he did not adjudicate it. 6.2. Before us the AR stated that assessee had made strategic investments, that it had sufficient own funds, that FAA had not admitted the additional grounds. DR left the issue to the discretion of the Bench. After considering the available material we are of the opinion that in the interest of justice .....

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and 'payment of name and license fees' (to the extent allocated to travel and related services)was appearing under the head Travel and Related Services segment, that they were aggregated for the purpose of benchmarking analysis, that for benchmarking analysis, the assessee company was selected as tested party, that the Transactional Net Margin Method (TNMM)was adopted as the most appropriate method, that the Profit Level Indicator(PLI)used was Operat - ing Profit/Total Cost (OP/TC), tha .....

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the above comparables and it was as follow: SN. Company Name Operating Profit/Total Cost (%) 1. CTL 1.02 2. TTPL 1.65 3. BLCL* 3.24 4. TWL 11.64 Average 4.39 **(Travel & Tour Segment) Assessee claimed that it had recorded an OP/TC of 10.96% for the Travel segment and hence the Transaction was at Arm's Length. The TPO held that the assessee had already established Third Party Agents in almost all parts of the world, that from the description of the outbound services that the assessee was .....

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final list. Vide its letter dtd.24.12.2013, the assessee filed its reply in that regard and stated that all the three comparables were functionally similar. After considering the same, the TPO held that the above mentioned three comparables were to be excluded from the list.He picked up the last comparable i.e. TWL as a valid comparable.He further observed that the PLI of the TWL was not properly calculated, that there were certain mistakes in it.Hence the PLI of TWL was recalculated as under: .....

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E/D 11.51% He held that the PLI of the assessee was 11.51 % as against 45.06% of TWL, that the transaction in question was not at Arm' s Length.He calculated the ALP of the transaction as under: Income (A)- Rs.1,48,94,80,000/- Cost (B)- Rs.1,34,23,87,000/- Less: bad debts (C)- Rs.67,60,008/- Adjusted cost (D)=B-C Rs.1,33,56,26,992/- Operating profit (E)=A-D Rs.15,38,53,008/- OP/OC (F)=E/D 11.51% OP/OC of Comparable (G) 45.06% Arms Length Profit (H)=G*D Rs.60,18,33,52,260/- Arms' Length I .....

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three comparables without providing any opportunity to it, that he accepted Travel and Tour Segment(TTS) of one of the comparables, that the three rejected compara - bles(except the TTPL) were a part of the benchmarking set used in the TP documents for the years prior to assessment year 2010-11, that there had been no adjustments on that issue in those years, that consistency in the comparables and its functional profiles had not been questioned extract for the year under consideration, that the .....

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-5% of arm s length range. The assessee relied upon the case of Willis Processing Services India Private Ltd. After considering the orders of the TPO and the submissions of the assessee, the DRP held that the functional profile of TTPL showed that it was in the revenue of event management as well as management of weddings, that functions of event management were completely different and the assets requirement was different, that the clientele was of different class, that the TPO had rightfully .....

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a separate year and the principles of res-judicata were not applicable to the proceedings under the act, that the stand taken by the TPO during the year under consideration was not fettered by orders made during earlier assessment years based on the prevailing facts and circums -tances, that arm s length of IT.s dependent upon numerous factors which would vary from year to year, that the acceptance of valuation of certain international transaction in one year did not preclude the TPO from arrivi .....

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h the comparables, that the case of TWL was to be treated as the sole and appropriate comparable entity for the TP purposes. 7.2. Before us, the AR argued that that the TPO had used inappropriate selection criteria, that the assessee had substantiated functional comparability of the comparables vide its submission, dt.24. 12. 2013, that despite the availability of more comparables segment the TPO selected only one comparable solely for the purpose of making TP adjustment, that the TPO had not ac .....

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He referred to point No.5 of the balance sheet abstract and its general business profile of the assessee-company and highlighted that in the abstract it was mentioned that the assessee was an IATA travel agent and was engaged in all tourism related activities. With regard to CTL the AR stated that page-32 of the annual report of the company pertained to financial data on the reserves and surplus, that there was only one type of reserve called foreign exchange earning-unutilised reserve, that it .....

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functionally different, that under the TNMM comparable transaction were required to be broadly similar, that the product diversity and some functional diversity between the controlled and the uncontrolled parties was acceptable, that under the TNMM the net profit indicators, used for bench marking, were less affected by transactional differences than is the case with price(CUP method), that the comparables selected by the assessee were engaged in travel services, that as per schedule -8 of annua .....

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IT.s-handling of inbound tourists and handling of out bound tourists, that both the transactions were aggregated for the purpose of bench -marking analysis, that the assessee-company was selected as tested part, that TNMM was adopted as most appropriate method, that the profit level indicator (PLI) used was operating profit/operating cost (OP/TC), that it had selected four comparables to prove the arm s length of the IT.s., that the operating margin of the assessee was 10.76% as against the marg .....

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le to 45.06% and benchmarked the same against assessee s operating margin of 11.52% after reducing bad debt expenses of the assessee, that he made an adjustment of ₹ 12.08 Crores, that the DRP confirmed the rejection of comparables and dismissed other arguments. We are aware that the principles of res-judicata do not apply to the income tax proceedings. But, the rule of consistency applies. Without assigning valid reason for rejecting the earlier years stand, the TPO should not have reject .....

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like to refer to the case of Galileo Nederland BV, (367ITR319), of the Hon ble Delhi High Court wherein it has been held that decision on an issue or question taken in earlier years though not binding should be followed and not ignored unless there are good and sufficient reasons to take a different view, that said principle was based upon rules of certainty and that a decision taken after due application of mind should be followed consistently as this lead to certainty, unless there were valid .....

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d to earlier years and even if they existed same were not brought on record. In short, the TPO/DRP has failed to prove the justification for deviating from the decision taken earlier. We find that the TPO and the DRP had taken a view that bad debts should be excluded as an extra ordinary item while calculating marign, that accordingly the final margin was altered. But, they have not addressed the basic and fundamental issue as to whether the item was of operating nature. The TPO had not demonstr .....

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. 2.6.3 and 2.6.4, it was argued by the learned counsel that the TPO erred in computing the margins of comparable companies by considering the provision for bad and doubtful debts and bad debts as non-operative expenditure. 41. We place reliance on the decision of ITAT Delhi Bench in the case of Sony India Pvt. Ltd. vs. DCIT, ITA No. 1189/Del/2005, 819/Del/2007 and 820/Del/2007. The relevant portion is extracted below: "106.2 Thus, creation of unpaid liability and its write back is a normal .....

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facts we do not see any justification for excluding provisions written back in the profit and loss account as not forming part of the operating profit of the taxpayer. Accordingly claim of the taxpayer is accepted. 107. The next item relates to balances written back. In our considered opinion, finding given in respect of provisions written back is equally applicable to balances written back more particularly when ld. CIT(A) has not given any separate finding and the Transfer Pricing Officer has .....

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panies. In the case of EDAG Engineers & Design India Pvt. Ltd. (ITA/3618/Del/2009 dt.13/10/ 14) the Delhi Tribunal has held as under: ….. As for the exclusion of bad debts, amortization and provisions, in computation of the PLI of the comparables, we are unable to see any rationale in the same nor has it been justified before us. In view of these discussions, in our considered opinion, the stand taken by the CIT(A) does not merit any interference by us. As per the AS-5, bad debts cann .....

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e comparables without following the basic philosophy of TP provisions. TNMM is one of the MAM and was adopted by the assessee. The fundamental principle of the said method is to broadly compare the functions of the selected companies. In other words, product comparability is not the back bone of TNMM. The proverbial fly cannot be replaced by another fly(Makshika Sthane Makshika)in TNMM. No two entities would be replica of each, so, diversity is bound to be there. But, the final aim, to avoid tra .....

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taxes from India to the AE has not been dealt or answered by both the authorities while rejecting the comparables. Secondly, two of the comparables were rejected on the basis of area of operations. But, if we closely look at the function profile of the comparables, one thing is clear that they are in the same business that of the assessee and there exists functional similarities between the assessee and the comparable selected by it. As, all the comparables selected by it were in the same line o .....

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hange earnings, that the TPO had misinterpreted the reserve and surplus being a balance sheet item (page 32 of the annual report) as earning in foreign exchange. It is a fact that majority of operating income of TCL is from Tours and travels operations, that in the segmental reporting, the assessee has reported activity of tourism business is the only activity, that in the balance sheet abstract and general is this profile TCL has been referred as IATA isn t carrying out tourism related activiti .....

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organising tours, that the balance sheet abstract and company general business profile talks about inbound tour operator and domestic tour operators. Before us, the DR stated that the website of the TTPL was the proof that it was in the business of wedding planning and event management. We are deciding the appeal for the year under consideration and as per the books of accounts, TTPL was carrying out business of Tours and travels only in that year. Therefore, we are unable to endorse the view of .....

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ith TP adjustment of ₹ 8.31crores under the head AMP expenses. During the TP proceedings, the TPO issue a show cause notice to the assessee asking it to explain as to why adjustment should not be made for the expenditure incurred for AMP of the business for the year under appeal. After considering the submissions of the assessee, the TPO held that the assessee was spending much more than industry Everest in promoting and building brand TCUK, that the brand Thomas Cook did not belong to the .....

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assessee namely TWL had incurred expenditure at the rate of 1.8% for AMP for the year under consideration. Therefore, he restricted the AMP expenses to 1.8% of the revenue, as shown in the case of TWL. 8.1. Aggrieved by the order of the AO/TPO the assessee filed objections before the DRP. Before it the assessee argued that the TPO had computed notional benefit arising to TCUK in respect of a completely domestic transaction entered into by the assessee with third parties i.e. advertising and bus .....

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ncome arising/expenses incurred from/for an international transaction, that the TPO had treated AMP expenditure as non-routine expenditure incurred towards brand building, that AMP incurred by the assessee was an expenditure incurred for its own business, that the payment had been primarily made to unrelated third parties in assessee s territory and did not benefit AE in any manner, that the transaction could not be treated as an IT, that the promotion of sale in the assessee s territory was its .....

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sement promo - tions payment were made, that the TPO did not bring any material on record to demonstrate that there existed prior agreement between the assessee and its AE regarding AMP expenses, that the TPO had not given due consideration to assessee s business model, that its operations had not resulted in passing on profit to AE, that the TPO did not bring evidence on record to show benefits of AMP expenditure incurred by the assessee the AE. After considering the orders of the AO/TPO and th .....

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ssee was providing a valuable service to the AE, that the TPO had rightly made the adjustment 8.2. Before us, the AR made the arguments that are recorded at paragraph no.2.2. of the order and that have been noted in the last paragraph at paragraph 8.1. The DR supported the order of the DRP and filed written submissions also. In his submissions, the DR argued that up to the date of decision in the case of Maruti Suzuki(dated 11/12/2015), the benefit of the decision was not available to the author .....

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of BLT was considered separately as an IT and bench -marked accordingly for the purposes of ALP of AMP transaction, that the TPO in the segment of distribu -tion or manufacturing, considered the normal expenditure on AMP which did not include amount over and above the BLT, that the TPO evaluated the transactions into set of two transactions i.e. distribution and AMP separately, that in cases of manufacturing, the TPO did the benchmarking separately for manufacturing segment and AMP segment, tha .....

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at the Tribunal in number of cases, after considering Sony Ericsson and Maruti Suzuki, issued directions restoring the matter for fresh determination of ALP, that the principle behind remanding the case back to the TPO could that the TPO/AO did not have the benefit of these decisions which had been rendered subsequent to the decision of Special Bench in the case of LG, that there was a substantial expenditure under the head AMP which signified carrying out of AMP functions and its intensity by a .....

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that we would like to deal with the issue of AMP expenses for both the years at one place, as there is no change in the facts except for the amounts involved and the non adjudication of the issue in the earlier year. The arguments of the assessee for both the years are identical. We find that assessee had incurred an expenditure of ₹ 12, 25, 71, 652/-and ₹ 10, 01, 37, 032/-respectively for the earlier and current AY.under the head AMP, that it was paying name and licence fee to TCUK .....

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filed objections before the DRP, that the adjustment made by the TPO were confirmed the DRP, that the adjustment was made/confirmed by the TPO/DRP because both of them were of the opinion that by incurring expenditure in India the assessee was benefitting a brand name of TCUK. 8.3.1. First of all, we would like to mention that as on today the legal position is as clear as crystal with regard to AMP expenses. The Hon ble Delhi High Court has dealt the issue in depth and has arrived at the conclus .....

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fit of the AE or on behalf of the AE, it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT. Once it goes out of the ambit of being an IT, FAR analysis of comparables or any other adjustment will and cannot come in picture. Folk wisdom of rural India the says that mother(Maa)is must for existence of her sister(Mausi). Similarly the existence of an IT is the pre-requisite of applying the provisions of chapte .....

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to the AO.s has to resorted rarely and selectively. In the case before us, no reasonable cause has been shown to justify the setting aside the issue. Here, we would also like to refer to the case of Bosch and Lomb (supra) wherein all the arguments raised by the TPO & FAA/DRP have been deliberated upon in length and the relevant portion of the order reads as under: 53. Areading of the heading of Chapter X['Computation of income from international transactions having regard to arm's l .....

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of the price of such international transaction with the ALP. 54. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make .....

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s, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost. or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an en .....

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ational transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the .....

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of the 'means' part of clause (b) and the 'includes' part. of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or' 'understanding' between BLI -and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are d .....

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eement to not charge any compensation for the service or benefit. This was negatived by the Court by pointing out; "Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v), which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', .....

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59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were "acting i .....

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jective or purpose between two or more persons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared common Objective' or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship' can come into bein .....

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to, cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being. " 60. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to make the a .....

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e function, cannot be construed as a 'transaction'. Further, the- Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same." 62. In th .....

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infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an· exercise. The Court is unable to find one. To the question wheth .....

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hat where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly -in-light of the fact that -the-BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT, 70. What is clear is that it. is the 'price' of an international transac .....

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tive of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. " 71- Since a quantitative adjustment is not permissible for the purposes of a TP adjust - ment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbetore, what the Revenue has sought to do in the p .....

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n AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP s .....

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eductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision i .....

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nomic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance. 64. In .....

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5. As already mentioned, merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As mentioned-in- Sassoon -J David-(supra)- "the-fact that- somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it .....

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ments of the Hon ble High Court, we would like to mention that matter can be restored back in certain conditions only. Restoration of matters to the AO.s is not a tool to give one more opportunity of hearing to the litigants. It is not advisable to prolong the judicial proceedings in the name of fair play. It is not a case where new evidences have been placed on record by the assessee, that were not made available to the AO at the time of original assessment. It is not also a matter wherein some .....

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₹ 20.20 Crores in relation to CG given by the assessee to its AE. Following our order for the earlier year (para No.3.2 pg.6-8 of our order, GOA-3 is decided in favour of the assessee. 10. Fourth ground is about TP adjustment of ₹ 3.07crores in relation to insurance cost. During the course of hearing before us, the AR stated that the identical issue had arisen in the AY.2005-06 and the Tribunal had decided it in favour of the assessee. The DR left the issue to the discretion of the .....

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T (A). During the proceeding before the CIT (A), assessee submitted that in case of exports to non-AEs i.e., unrelated parties, assessee incurred losses as compared to the parties to the AE (TCMOL), therefore, it is a revenue loss. Further, he pointed out that with regard to exports to the AEs, assessee was not subject to any counting fees charged by AEs, unlike third parties (HSBC / Travelex). Normally, counting fees paid is often more than an incentive receipt. If the both service fees and cou .....

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he AO and the TPO and submitted that every transaction has to be independently benchmarked. However, there is no specific submission by the Ld DR to counter the reasoning given by the CIT (A) while granting the relief to the assessee. 6. We have heard both the parties on this issue and perused the orders of the Revenue Authorities. It is a fact that the assessee has not charged from AE. Further, it is also equally true that AE charges counting fees also on the transactions of the assessee. If bo .....

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e facts of the case and written submissions and verbal arguments of the appellant. The TPO has views the whole arrangement of the appellant with its AE in isolation. He has failed to take into account the fact that the appellant is required to pay counting fees to Its AE as well as third parties (HSBC / Travelex) in respect of currency exported and corresponding counting fees paid is more than what it received by way of incentive / service fee. As such if both the service fees and counting fee a .....

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not charge it last year or this year, does not in any way negate the crucial fact that a third independent part would have charged it any case. The fundamentals underlying transfer pricing involves setting of prices within an MNE In line with what third parties would have negotiated in similar circumstances. In the present case had the AE insisted on charging counting fees for currency exported then it would have been more than the corresponding incentives / service for income and the appellant .....

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made is therefore, deleted." 7. Considering the above, we are of the opinion that the order of the CIT (A) does not call for any interference. Accordingly, ground no.1 raised by the Revenue is dismissed. Following the above we decide ground no.4 in favour of the assessee. 11. Next ground is regarding disallowance of claim on Jodhpur property. Following our order for the earlier year, (para No.5, pg.9-10)ground No.5 is decided against the assessee. 12. Last Ground of appeal deals with disal .....

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5/- under the provisions of section 14A of the Act, that the dividend income was claimed as exempt income predation of total income u/s.10 (35) of the Act, that it had not incurred any expenditure, direct or indirect, for earning the said exempt income, that the provisions of section 14A read with rule 8D of the Income-tax Rules, 1962(Rules)were not applicable in respect of strategic investment made in subsidiaries, that expenditure incurred for acquiring shares out of commercial expediency had .....

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ee with the assessee and held that investments were made out of funds and the funds always involved time, cost and opportunity cost, that making investment was an informed decision and it would involve study and research, that required manpower time and funds to make investments, the cost would be in the form of direct as well as indirect costs, that the assessee s explanation that no interest expenses were involved for earning exempt income was not acceptable, that investments were made from th .....

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