TMI Blog2020 (6) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition on account of adjustment of AMP expenses as computed u/s 92CA(3). Short charge to MMT US for ticketing charges and tours and travel package services - HELD THAT:- The assessee had also given the break-up on the basis of the finding given by the CIT(A) in A.Y. 2005-06. Nothing substantial was brought to our notice either by the Ld. AR or by the ld. DR against the finding given by the ld.CIT(A) on this issue. We, therefore, uphold the same and the ground raised by the assessee and the Revenue on this issue are dismissed. Accordingly, ground of appeal Nos.1-7 filed by the Revenue and ground No.1 raised by the assessee are dismissed. Addition u/s 14A r.w.r. 8D - HELD THAT:- It is the submission the assessee that he has not received any exempt income during the year and, therefore, he has no objection if the same is restored to the file of the AO for verification of the issue in the light of the decision in the case of Cheminvest Ltd [2015 (9) TMI 238 - DELHI HIGH COURT ] wherein it has been held that in absence of any exempt income, no disallowance u/s 14A can be made. Since the issue requires verification at the level of AO, therefore, we deem it proper to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckets, hotel reservations, car bookings and holidays. MMT India caters exclusively to the inbound into India leisure and small-business travel market. MMT India is focused on tapping the potential of the lucrative ₹ 100 billion Non Resident Indian market in North America, United Kingdom and Australia. MMT India has offices in New Delhi (IATA certified location), New York and Sydney. In addition to this the Company has appointed franchise partners in London and all major cities in India. The company also has a network of leading tour operators to provide travel related services within all cities and over 30 countries internationally. It filed its return of income on 31st October, 2007 declaring the total income at nil, i.e., loss of ₹ 32,72,39,840/-. Since the assessee had entered into certain international transactions with its AEs, the AO referred the matter to the TPO for determination of the ALP of the international transactions entered into by the assessee u/s 92CA(1) of the IT Act. The TPO, during the course of TP assessment proceedings, noted that the assessee has entered into the following international transactions:- S.No. Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sively incurred for the purpose of business of the assessee and which are incurred for creating brand name of a multinational group in India cannot be allowed to be claimed against the taxable income of the assesseee. The TPO, invoking the brightline principle to arrive at the correct amount by which the assessee was required to be compensated/reimbursed, made addition of ₹ 31,81,07,110/- on account of AMP services. Similarly, the TPO proposed an upward adjustment of ₹ 1,47,93,024/- on account of ticketing and tours and travel packages. The AO accordingly made addition of ₹ 33,29,00,134/- to the total income of the assesseee on account of transfer pricing adjustment which included ₹ 31,81,07,110/- on account of AMP services and ₹ 1,47,93,024/- on account of ticketing and tours and travel packages. 5. The AO, invoking the provisions of section 14A r.w. Rule 8D made a disallowance of ₹ 5,71,124/- to the total income of the assessee. Similarly, following the decision of his predecessor, the AO rejected the claim of depreciation on website development cost amounting to ₹ 2,55,09,969/-. The AO accordingly determined the total income of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer pricing approach of the Transfer Pricing Officer and thereby deleting the addition of Rs. ₹ 31,81,07,110/- on account of adjustment of AMP expenses as computed vide order under section 92CA(3)of the Act dated 29.10.2011. 2. On the facts and in the circumstances of the case, the learned CIT (A) erred in rejecting the transfer pricing approach of the Transfer Pricing Officer and thereby restricting the adjustment of ₹ 1,47,93,024/- on account of short charge to MMT, US for ticketing services and tours and travels packages service to ₹ 50,000/-. 3. On the facts and circumstances of the case, the Ld CIT(A) has erred in rejecting the internal comparison made by the TPO, wherein both the segments were involved in similar business. 4. The Ld CIT(A) has erred in facts and circumstances of the case, in accepting the transfer pricing approach of the assessee. 5. The Ld CIT(A) has erred on the facts and circumstances of the case, in accepting the additions evidence u/s 46A when adequate opportunity was already provided to the assessee during the course of the TP/assessment proceedings. 6. The Ld CIT(A) erred on the facts and circumstances ofthe case, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment of brands in India, the US company is capitalizing that brand building and developing brand in US. Therefore, to some extent, the AMP expenses has to be considered for the purpose of TP adjustment. However, the TPO has not done any adjustment. Further, the CIT(A) has accepted certain additional evidences and given relief to the assessee. Therefore, he submitted that the matter should be restored back to the file of the TPO for fresh adjudication of the issue. So far as the short charge of ₹ 1,47,93,024/- on account of ticketing and tours travel packages is concerned, he submitted that the TPO has given justifiable reasons while proposing upward adjustment. Therefore, the same should be upheld. 10. The ld. Counsel, on the other hand, heavily relied on the order of the CIT(A). He submitted that the ld.CIT(A) has given a categorical finding that the brand is owned by the assesseee and not by the US company. Further for the A.Y. 2010-11 the Department has accepted that it is not an international transaction. So far as the additional evidences filed before the CIT(A) are concerned, he submitted that these are only for the AMP expenditure and the documents are vital. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law arises. 12.1 Referring to the decision of the Hon ble Delhi High Court in the case of CIT vs. Monto Motors Ltd., vide ITA No.978/2011, order dated 12th December, 2011 , he submitted that the Hon ble High Court has upheld the decision of the Tribunal where the Tribunal has held that the advertisement expenses when incurred to increase the sales of products are usually treated as revenue expenditure. Since the memory of purchaser or customer is short, advertisements are issued from time to time and the expenditure is incurred periodically, so that the customers remained attracted and do not forget the products and its qualities. Advertisement and sales promotion are conducted to increase the sale and their impact is limited and felt for a short duration and no permanent character or advantage is achieved and is palpable, unless special or specific factors are brought on record. 12.2 Referring to the decision of the Hon ble Delhi High Court in the case of CIT vs. Jubilant Food Works India Pvt. Ltd., reported in 271 CTR 227, he submitted that the Hon ble High Court in the said decision has held that expenditure incurred by the assessee on advertisement expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, later on, MMT Mauritius had listed 50 lakh shares at USD 15 each totaling to USD 70 million on Nasdaq, USA on 13th August, 2010. According to the TPO, MMT Mauritius has been benefitted by the listing of the company in the US at a premium. According to the TPO, when the assessee MMT India was in losses, the shares of its parent MMT Mauritius were being quoted at a premium at Nasdaq IN USA. Therefore, the beneficiary of excess AMP expenses by MMT India was MMT Mauritius. Therefore, MMT Mauritius should have compensated MMT India for services rendered in connection with promotion of marketing intangibles which accrued to the benefit of MMT Mauritius. It is also the case of the TPO that even otherwise also such huge expenditure of AMP should have been capitalized since the assessee derives an enduring benefit. 14. We find, the ld.CIT(A) after obtaining a remand report from the AO had given a finding that the assessee is the owner and sole beneficiary of MakeMy Trip or MMT brand since the trade mark MakeMy Trip has been registered in the name of MakeMy Trip (India) Pvt. Ltd., w.e.f. 25th April, 2006. Event the TPO himself at various places of his order has accepted that MMT India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the additional evidence u/r 46A. 7.2 After considering the TPO/AO s orders and the arguments of the appellant, 1 am of the considered view that appellant is the owner and sole beneficiary of the MakeMyTrip or MMT brand. The trademark MakeMyTrip has been registered in name of MakeMyTrip (India) Pvt. Ltd. w.e.f. 25.04.2006 as evidenced by registration certificate dated 29.10.2008 issued by Government of India, Registrar of Trade marks. Further, Para 2 of the intercompany covenant dated 01.04.2006 establishes beyond all doubt that MMT India is the owner and sole beneficiary of MMT brand. Even the TPO himself has indicated at various places of his order his acceptance that MMT India is the owner of MMT brand. Therefore Blight Line Test or Arm s Length AMP Expenditure Test suggested in the OECD Guidelines/Australian Tax Office Guidelines/ US case laws, which is relevant only in the context of promotion of brand owned by the foreign AE, is not applicable in the appellant s case. The said bright line test comes into operation in a situation where a business enterprise is incurring excessive AMP expenditure for promoting a brand owned by its foreign AE. Based on appellant's submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd/compensation from its shareholders out of such appreciation. 7.4 Lastly, in view of a plethora of case laws on the subject including those cited by the appellant in paragraph 6.3 above, I have no hesitation to hold that the AMP expense of appellant is wholly and exclusively for the purposes of its business and further it is not capital in nature. The AO has not given any reasons in his order to substantiate his observations that AMP expense of the appellant are not wholly and exclusively for the purpose of its business and these are in nature of capital expenses. 7.5 Since, it has been held that the appellant does not render any services in connection with promotion of marketing intangibles which accrue to the benefit of MMT Mauritius; there is no question of applying a mark up for determining the compensation. 7.6 Therefore, addition of ₹ 31,81,07,110 made on account of AMP expense is deleted. This disposes of grounds of appeal no. 8 to 15. 15. We further find from the submissions made by the ld. Counsel that from A.Y. 2010-11 onwards, the Department has accepted that such AMP expenses is not an international transaction and no addition has been made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter and are essential for rendering substantial justice, therefore, we do not find any merit in the grounds raised by the Revenue for admission of such additional evidence in violation of Rule 46A of the IT Rules. 17. So far as the grievance of the Revenue that the AMP expenses incurred by the assessee is capital in nature is concerned, we find the Hon ble Delhi High Court in the case of Salora International Ltd. (supra) has observed as under:- 3. The first issue that is sought to be raised in this appeal pertains to advertising expenditure of approx. ₹ 3.08 crores. According to the AO, the expenditures was incurred for launching of its products. The AO was of the view that such expenditure was of an enduring nature and, therefore, treated one-third as capital expenditure and only allowed the two-thirds of the said amount as expenditure, to the assessee . The CIT(A) allowed the entire amount after treating the expenditure as revenue expenditure . The findings of the CIT(A) were confirmed by the Tribunal by virtue of the impugned order. Particularly, the Tribunal held that there was a direct nexus between the advertising expenditure and the business of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of similar services to other customers because the efforts made by MMT US for acquisition of customers, marketing and business development expenditure etc and the business risks assumed by MMT US would not be factored in such comparison. If at all this comparison has to be made, then corresponding expenses incurred by MMT US ought to be factored in, as was accepted by my predecessor in appeal for AY 2005-06. The appellant has worked out that approximately 16.44 percent of AE s operating expenses will be allocated to the appellant since the appellant will receive 16.44 percent of the total gross profit of AE if the TPO s approach is applied. Accordingly, ₹ 1.474 crores (being 16.44 percent of the AE s operating expenses amounting to ₹ 8.965 crores) is required to be allocated to the appellant. After such factoring in, the addition to be made on this account would remain ₹ 50,000 only as per working furnished by the appellant. Therefore, following the reasoning of then CIT(A) given in appellate order for AY 2005-06, out of ₹ 1,47,93,024 added by the AO, addition of only ₹ 50,000 is upheld and the balance ₹ 1,47,43,024 is deleted. The grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was ₹ 5 crore at the beginning of the year and it was sold during the year on 20.6.2006 i.e. after 80 days, meaning thereby that there was average investment of 5X80/365= ₹ 1.10 crore in these units during FY 2006-07 . Disallowance of ₹ 5,71,124 had been made by the AO against average investment of ₹ 8.5 crore in these three mutual funds. Therefore disallowance against average investment of ₹ 1.10 crore would be ₹ 5,71,124X1.10/8.5= ₹ 73,910. The AO is Thus, disallowance u/s 14A is confirmed to the extent of ₹ 73,910 and the AO is directed to give relief accordingly. The grounds of appeal no. 16 to 19 are accordingly partly allowed. 24. It is the submission of the ld. Counsel for the assessee that he has not received any exempt income during the year and, therefore, he has no objection if the same is restored to the file of the AO for verification of the issue in the light of the decision of the Hon ble Supreme Court in the case of Cheminvest Ltd., 387 ITR 33 wherein it has been held that in absence of any exempt income, no disallowance u/s 14A can be made. Since the issue requires verification at the level of AO, therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank with effect from January 1, 2013. The Payment Gateway facility charges being similar to credit/debit commission, the aforesaid beneficial notification equally applies to the transactions, prior to the effective date of notification, 5. Under the facts and circumstances of the case and in law, the Ld. CIT (A) failed to appreciate that the Appellant has been making payments to various banks on account of Payment Gateway charges from Financial Year 2000-01 onwards and no adverse inference has been drawn by the Income-tax department in this regard in the past and therefore payment made to banks should not be disallowed following the principles of Hon ble Mumbai Bench of the Income-tax Appellate Tribunal in the case of CIT Vs Kotak Securities Limited (Appeal No 311 of 2009). The above grounds of appeal are without prejudice to and independent of one another. The appellant craves leave to add, supplement, amend, vary, withdraw or otherwise modify the grounds mentioned herein above at or before the time of hearing. The appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case. 27.1 Grounds of appeal filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already decided the issue and the grounds raised by the Revenue have been dismissed. Following similar reasonings, the above grounds raised by the Revenue are dismissed. 29. Grounds No.1 to 5 filed by the assessee and the ground No.8 filed by the Revenue relate to part relief granted by the CIT(A) on account of addition made by the AO for non-deduction of TDS on payment of gateway charges paid to HDFC and ICICI Bank. 30. Facts of the case, in brief, are that during the course of assessment proceedings, the AO noted that the assessee has claimed bank charges of ₹ 12,52,49,946/- in the P L Account. From the details furnished by the assessee, the AO noted that the assessee has paid the following charges:- Nature of Expenses Amount (Rs.) Payment of Gateway Charges 11,99,39,901/- Bank charges General 53,10,044/- 31. It was further stated that no tax has been deducted on the above two payments on account of the following:- 1. that the assessee is a e-commence company and is using automated facility to charge a customer through its website usin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing these payments u/s 40(a)(ia) of the Act. He, however, held that payments made to Citi Bank and American Bank are not considered for the purpose of disallowance u/s 40(a)(ia) of the Act. Aggrieved with such order of the CIT(A), both the Revenue and the assessee are in appeal before us. 34. We have heard the rival arguments made by both the sides and perused the record. It is the submission of the ld. DR that provisions of Explanation (2) to section 195 are applicable to the assessee according to which tax is required to be deducted from any payment made to a non-resident outside India. The assessee has the option to obtain a No-deduction Certificate from the AO which he has not done in the instant case. It is the submission of the ld. Counsel for the assessee that identical issue had come up before the Tribunal in assessee s own case for A.Y. 2009-10 and the Tribunal, vide order dated 26th September, 2017, has decided the issue pertaining to non-deduction of taxes on payment gateway charges in favour of the assessee with certain directions/observations. Further, the appeal filed by the Revenue was dismissed by the Hon ble High Court. Under these circumstances and conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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