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TMI Blog2018 (2) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... e DRP/ Ld. AO has erred by not understanding the business model of the Appellant and failed to comprehend the agreements entered into by the Appellant, without appreciating the legal and economic nexus between the Appellant, McDonald's Corporation ("MDC") and Joint Venture ("JV") companies. Thus, Hon'ble DRP/ Ld. AO failed to appreciate that the receipts/payment of royalty and initial franchisee fee is being diverted by the overriding title at the very source. Ground 3. Hon'ble DRP/Ld. AO has erred in concluding that the responsibility to undertake advertising and bearing the cost of such advertising lies with the Appellant. Thus, Hon'ble DRP/Ld. AO failed to give due cognizance to the commercial rationale and the legal obligations of the JV companies, the Appellant and McDonald's Corporation, by erroneously adding advertising cost to the cost base of basic management services for the purpose of arriving at an arm's length price. While doing so the Hon'ble DRP/Ld. AO failed to appreciate the following contentions of the Appellant: * The advertisement expense is to be incurred by JV companies and is not an economic cost of the Appellant; * JV comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue cognizance to the fact that Appellant indeed enjoys a "No Risk" status, i.e., all authorized expenses incurred by the Appellant get reimbursed with a markup of 10 percent, irrespective of their commercial success. Thus, Hon'ble DRP/Ld. AO has erred by not making suitable adjustments to account for differences in the risk profile of the Appellant's (no risk) vis-a-vis the comparables (bearing full-fledged entrepreneurial risk). Ground 7. Hon'ble DRP/Ld. AO has erred in using single year data of comparable companies vis-a- vis multiple year weighted average data as considered by the Appellant. Ground 8. Hon'ble DRP/ Ld. AO has erred in not applying the proviso to Section 92C(2) of the Act correctly and has failed to allow the benefit of downward variation from the arm's length price so computed. Grounds relating to Corporate Tax Matters Ground 9: Disallowance of foreign exchange loss That on the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO has erred on facts and in law in disallowing the foreign exchange fluctuation loss arising on account of restatement of royalty payments amounting to Rs. 1,75,31,988 on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59,60,690 as against amount ofRs.l,58,89,594 under Section 14A of the Act read with Rule 8D of the Rules. Ground 12: Disallowance of claim of brought forward losses and MAT credit That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO has erred on facts and in law in disallowing the claim of brought forward losses amounting to Rs. 85,94,435 and MAT credit amounting to Rs. 9,99,691. The Appellant craves leave to add, amend, vary, omit or substitute, any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal and consider each of the grounds as without prejudice to the other grounds of appeal." 3. At the time of hearing, ld. counsel for the assessee submitted that the assessee has accepted the transfer pricing additions as decided in the MAP resolution. Referring to the copy of the order dated 19.09.2017 addressed by the Assessing Officer to the assessee company along with annexure, he submitted that the assessee has accepted the TP adjustment of Rs. 5,35,13,112/-. Therefore, the assessee is not pressing the grounds of appeal no.1 to 8. 4. In view of the above submissions by the ld. counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r at para 7.1 of the order has discussed the issue by observing as under :- "7.1 Assessee has paid Rs. 1,41,95,363/- on account of R&D Cess on Royalty and Franchisee Fee (License and Location Fee) paid to McDonald Corporation during the F.Y. 2008-09 as submitted by the assessee vide letter dated 06.02.2013. It has been further observed that the assessee has paid Rs. 22,37,10,767/- on account of Royalty Payment and Rs. 5,35,13,112/- on account of Franchisee Fee (License and Location Fee) to McDonald Corporation and the TPO has computed the Arm's Length Price of NIL in respect of both of the above international transactions of assessee with AE and made Transfer Pricing adjustments of Rs. 22,37,10,767/- and Rs. 5,35,13,112/-, respectively, on the above payments. It is evident that the R&D Cess on Royalty and Franchisee Fee (License and Location Fee) of Rs. 1,41,95,363/- is part of the above payments and the assessee failed to furnish the above information either in the Audit Report in form 3CEB or during the course of Transfer Pricing proceeding. Since, the TPO has already determined Arm's Length Price or NIL in respect of both of the payments mentioned above, hence, R&D Cess on Roy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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