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TMI Blog2021 (7) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. We find that Sabre Travel Network (India) Private Limited (hereinafter referred as assessee) is subsidiary of Sabre Asia Pacific Pte. Ltd. (Sabre Singapore). Sabre Singapore owns the Computerized Reservation system ("CRS‟), which is a Computerized Reservation system that provides travel information and reservations & facilities air booking & provides non-air solution like hotel booking, car booking, etc. specifically tailored to the Asian region. It provides the helpdesk support and provides the 2-way communications from the central processing facility of the CRS up to the Abacus Country Node. 3.1. Sabre's CRS is situated in Dallas, USA. Revenue at Sabre Singapore is earned under the Global agreements executed by Sabre Singapore independently (without any assistance from NMC) with various airlines outside India. It is the Asia Pacific's leading travel facilitator with around 11,000 agency locations in 24 markets. Sabra Singapore's partners include a consortium of Asia and the world's leading airlines - All Nippon Airways, Cathay Pacific Airways, China Airlines, EVA Airways, Garuda Indonesia, DragonAir, Malaysia Airlines, Philippine Airlines, Royal Brunei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CRS products in India, installation of computer hardware and software for new subscribers, provision of technical support and post sales training to Indian subscribers and maintenance of help desk to assist the subscribers with the technically and operational issues. The assesses markets and distributes CRS in India. It signs and enters into contract with travel agents in India. The entire revenues are collected by the parent Sabre Singapore and 25% of the share of all booking fee commissions is passed on to the assessee for rendering these services. 5.3. The profit level indicator adopted by the assessee was Operating Profit (OP) / Operating Cost (OC) and assessee arrived at a margin of (-) 2.99%. The ld. TPO considered the following comparable companies and arrived at the average margin of comparables at 21% as under:- S.NO. Name of the company Margin(%) PBIT/Cost 1 Apitco Limited 14.77% 2 Killick Agencies and Marketing Limited 26.26% 3 BVG India Limited 24.92% 4 Axis Integrated Systems Limited 29.86% 5 Marketing Consultants & Agencies Limited 9.19% Average 21.00% 5.4. Based on the aforesaid average margin of comparables at 21% worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the observations of the Transfer Pricing Officer and DRP. 20. We have considered rival submissions and perused material on record. From the facts emerging from record it is evident that this company is not functionally similar to the assessee as the services provided by the said company is neither in the nature of or akin to marketing support services as provided by the assessee. In fact, the Transfer Pricing Officer has himself observed that this company provides energy related services, skill development services etc. It is relevant to observed, taking note of the aforesaid functional differences between the assessee and the aforesaid comparable the Tribunal in assessee's own case in A.Y. 2009-10 (supra) has excluded this company from the list of comparables. There being no material difference in fact, respectfully following the aforesaid decision of the coordinate bench in assessee's own case we direct the assessing officer to exclude this company from the list of comparables." 5.7.1. The functions carried out by this comparable company and the functions carried out by the assessee company during the year under consideration have not undergone any change. Hence, respectf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its AE. Though, the Ld. Departmental Representative has relied upon the decision of the ITAT, Delhi bench in case of Adidas Technical services Pvt.Ltd V/S DCIT (supra), however, on careful reading of the said order we find, in that case the assessee has disputed this comparable only on the basis of provision of doubtful debts having not been considered as non operating in nature. The functionality of this company did not come up for consideration of the bench. Therefore, in our view selection of this company as a comparable has to be considered after carefully analyzing the business model and functional profile of the company. It is also required to be examined whether segmental details of this company are available, if at all, it has a segment relating to marketing support services. Since, necessary factual details relating to this company are not available before us, we are inclined to restore the issue relating to comparability of this company to the Assessing Officer for reconsideration after due opportunity of being heard to the assessee." 5.8.1. We find that though this Tribunal had restored the exclusion of this comparable to the file of the ld. TPO in A.Y.2012-13, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing Officer in his order as well as noted from the submissions made by the assessee in course of the transfer pricing proceeding, it is noticed that the company is mainly engaged in trading in digital certificate and providing liasioning agent for the customer and the AE. To some extent the Transfer Pricing Officer also acknowledges that the functionality of this company, in a way, is different from the assessee. Thus, on consideration of facts on record it emerges that this company is not providing marketing support services like the assessee. Therefore, in our view this company cannot be considered as a comparable. The Assessing Officer is directed to exclude this company from the list of comparable." 5.9.1. The functions carried out by this comparable company and the functions carried out by the assessee company during the year under consideration have not undergone any change. Hence, respectfully following the aforesaid decision of this Tribunal, we hold that Axis Integrated Systems Ltd., chosen as comparable by the ld. TPO and upheld by the ld. DRP, is functionally not comparable with the assessee company and hence, deserves to be excluded from the final list of comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is involved in exports of micro switches, engineering items, acoustic items and head sets. 5.10.3. The ld. DR vehemently argued that this comparable company is engaged in providing marketing support services in ship building industry and hence, functionally comparable with that of the assessee. He also argued that assessee had submitted that exclusion of this comparable before the ld. DRP only due to high margins and not on functional dissimilarity and that the said aspect of functional dissimilarity cannot be argued before this tribunal for the first time. We find from page 16 of the order of the ld. DRP that assessee had specifically objected the functional dissimilarity of this comparable company with that of the assessee company. Hence, the argument advanced by the ld. DR in this regard is dismissed. We also find that from the financials of the said comparable company that no segmental details are available in respect of income from services derived by the assessee. Hence there is no detail available as to what extent of service income derived by the said company out of rendering marketing supporting services, if any. Hence, based on functional dissimilarities and also in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribers with technical and operation issues. As per the revenue sharing model, entire revenue is collected by Abacus International Pte. Ltd., Singapore and 25% of the share of all booking fee, commissions is passed on to the assessee for rendering services. During the assessment proceedings, the Assessing Officer noticing that assessee has entered into international transactions with its AE made a reference to the Transfer Pricing Officer (TPO) under section 92CA of the Act for determining the arm's length price. The Transfer Pricing Officer after examining the transfer pricing analysis of the assessee and other materials on record ultimately made an upward adjustment of Rs. 14,12,65,777 to the arm's length price shown by the assessee. The Assessing Officer while framing the draft assessment order besides incorporating the transfer pricing adjustment also made couple of other additions. One of them being addition of Rs. 2 crore on account of marketing service fee. The facts as regard this issue are, during the assessment proceedings, the Assessing Officer on verifying the financial statements of the assessee found that it has claimed deduction of an amount of Rs. 56,13,02,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived was added back in preceding assessment years 2009-10, 2010-11 and 2011-12. Thus, on the aforesaid reasoning, the Assessing Officer added back the amount of Rs. 2 crore to the income of the assessee. Being aggrieved of the said addition, assessee filed objections before the DRP. 5. The DRP taking note of the fact that while deciding identical issue in assessee's own case for assessment years 2009-10 and 2010-11, the additions were sustained and further, stating that there is no change in facts and circumstances of the case on the disputed issue in the impugned assessment year, the DRP sustained the addition made by the Assessing Officer. 6. The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted that looking at the stiff competition faced by it, the assessee had devised an incentive scheme for travel agents and the incentive of Rs. 56.13 crore was paid to the travel agents as per the said scheme. The learned Authorised Representative submitted, looking at the efforts of the assessee and cost incurred by it, the A.E. agreed to pay marketing service fee to the assessee which was incorporated in the agreement through an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.E. The learned Departmental Representative submitted, the addition made is justified. 8. We have considered rival submissions and perused materials on record. It is evident, the Transfer Pricing Officer while determining the arm's length price of the international transaction has considered both the marketing services fee paid by the AE to the assessee as well as incentives paid by the assessee to the travel agent for determining the arm's length price of the international transaction and accordingly has arrived at transfer pricing adjustment of Rs. 14,12,65,777. Of course, it is a fact that the Transfer Pricing Officer in the order passed under section 92CA(3) of the Act did observe that the assessee has failed to provide a reasonable explanation with respect to deduction of Rs. 2 crore with regard to marketing service fee received from AE against the trade incentives paid to travel agent. It is also true that the Tribunal in the order passed in assessee's own case for assessment year 2009-10 in ITA no.1402/Mum./2014, dated 5th January 2018, has approved similar observation of the Transfer Pricing Officer with regard to short receipt of Rs. 2 crore from the A.E. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2015, dated 10th January 2018. Respectfully following the decisions of the Co-ordinate Bench in assessee's own case as referred to above, we delete the addition made by the Assessing Officer. This ground is allowed. 6.2. We find that the ld. DR argued that assessee is a low level marketing service provider and as such should have operated at cost plus margin model and hence, ought not to have incurred in loss of Rs. 2 Crores in the incentives given to travel agents. We find that this is not even the case of the lower authorities and hence, the argument of the ld. DR could not be appreciated at this stage. Respectfully following the aforesaid decision in assessee‟s own case, the addition of Rs. 2 crores made on account of income from marketing service fees is hereby directed to be deleted. Accordingly, the ground nos. 3.1. and 3.2. raised by the assessee are allowed. 7. The ground No. 4.1 and 4.2 raised by the assessee is challenging the disallowance made on account of foreign exchange loss of Rs. 19,49,09,643/-. 7.1. We have heard rival submissions and perused the materials available on record. We find that the same issue was the subject matter of adjudication in assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso be allowed. Moreover, it is a fact on record that both the Assessing Officer as well as DRP while disallowing assessee's claim of foreign exchange loss have simply relied upon the reasoning of the DRP in assessee's own case for assessment year 2009-10. Notably, while deciding assessee's appeal on the issue of disallowance of foreign exchange loss in assessment year 2009-10, the Tribunal in ITA no.1402/Mum./2013, dated 5th January 2018, has dealt with it as under:- "5.2. We have heard the rival submissions and perused the material before us. We find that the Assessing Officer on one hand would tax gain on FE earnings but would not allow loss arising on FE loss. In our opinion, the stand taken by the Assessing Officer is not justified in any manner. If the gains of FE fluctuation had to be taxed then the loss arising out of such fluctuation has to be allowed. We find that the honorable Supreme Court, in the case of Oil and Natural Gas Corporation (supra) has held that the loss claimed by the appellant on account of fluctuation in the rate of FE as on the date of the balance-sheet was allowable as expenditure under section 37(1) of the Act. Respectfully, following the above me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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