TMI Blog2018 (1) TMI 1722X X X X Extracts X X X X X X X X Extracts X X X X ..... keting. We find that if these five comparables are excluded from the list the valid comparables, the assessee will be in the safe zone of +/- 5% the OP to OC of the assessee is 5.18% whereas OP to OC of the remaining comparables is 3.01%. In the circumstances, we hold that the IT's entered into by the assessee with its AE was at arm s length. Decided in favour of the assessee. Addition made on account of mismatch in AIR data - AO observed that data available with the Department indicated that the assessee had not shown income received by it from Yatra Online.com and Arzoo.com respectively - HELD THAT:- We find that rectification application was filed before the AO by the assessee stating that there were certain mistakes in his order, that Yatra had filed a fresh statement of tax deducted at source, that the AO had not passed the rectification order in that regard. Therefore in our opinion, the addition made by him in respect of Yatra Online.com cannot be endorsed. Reversing the order of the FAA, we allow ground number 3.1. Income from Arzoo.com we find that the assessee had claimed that there was dispute about the sum, that Arzoo had disputed the liability. The AO is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would increase the revenue of the AE. Here it is not a case of incidental benefit to AE-it is a case of major benefit to the AE and fringe benefit to the assessee.TP provisions were introduced to take care of such eventualities i.e. determine the market value of transactions had they been entered in by two independent entities. Therefore, in our opinion, the order of the DRP does not require any interference from our side. Main argument of the assessee stands dismissed. Disallowing the expenditure while computing the taxable income of the assessee - As we would like to hold that the DRP was not justified in disallowing the same. There is no doubt about incurring of expenditure by the assessee, as stated earlier. The assessee had introduced an incentive scheme and had incurred the expenses - Whether the money received from AE was at arm s length or not is a separate issue. But, incurring of expenditure was never in doubt. So, in our opinion, the alternate argument raised by the assessee has to allowed. - Shri Rajendra, Accountant Member And Ram Lal Negi, Judicial Member For the Appellant : Shri Jayantkumar And Saurabh Deshpande-DR.s For the Respondent: Shri N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year under appeal, that it had claimed expenditure of Rs. 91.25 crores, that it had suffered loss-before tax-of Rs.34.9 crores, that the expenses included foreign exchange fluctuation losses of Rs. 40.02 crores, that on the capital of Rs. 5.5 crores the assessee had accumulated loss of Rs. 86.68 crores, that net worth of the company was effectively wiped out, that it had received unsecured loan of Rs.14.57 crores from its AE.s, that it had also received income in advance to the tune of Rs. 46.09 crores, that it owed Rs. 34.8 crores to its AE, that there was serious defects in the transfer pricing documentation, that the search process, adopted by the assessee, did not contain any contemporaneous data, that as per rule 10B(4) it was mandatory to use the current financial year data, that it did not consider current year data exclusively in all of the comparables, that assessee is not merely a commission agent or a broker, that it was performing functions that were more than that of an agent or a broker, that it was providing complete marketing support, that the services rendered by it to the AE was akin to consultancy services and business support services, that the entire comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng it's experience, skins, devises strategies to formulate it's own marketing and other strategies to promote and strengthen it's client base and usage in India. that it was providing Consultancy and also Implementing/ supporting the CRS offered by parent by providing services, that it was not only a 'Commission Agent' but also provides 'Support services and Consultancy services'. It further held that the TPO had rightly used the information that was available at the time of making assessment, that the data used by TPO pertained to the relevant FY itself and was contemporaneous, that for using multiyear data no convincing argument was advanced, that the TPO was correct in rejecting the economic analysis carried out by the assessee and was correct in benchmarking afresh. Regarding, assessee's contention about the comparables chosen by TPO, the DRP held that that merely because the profit margin of the comparable companies was high would not make them abnormal unless it is shown that abnormal factors had affected the margins of those companies, it is also required to be shown as to how and to what extent the profit margins were affected by abnormalitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, infrastructure planning and development, that all these activities had nothing to do with the MSS. Referring to the CLL, the AR stated that functional profile of the comparable was available at page 140 of paper book, that CLL was providing testing services in pharmaceuticals, food and beverages and clinical research, that the services were totally different from MSS. He referred to the cases of Ceina India Private Limited, Avaya India Private Limited and B G India Private Limited (supra). About GITL, the AR submitted that the TPO had held that the said company was comparable as it rendered commission based services in the insurance sector, that the TPO erred in rejecting the TP study of the assessee where a comparison had been made with entities engaged in providing commission agents/business agents services, that GITL was engaged in the business of providing third party administration services to held insurance companies, that the said services included receiving of insurance claim processing the claims and disbursing the claim amounts, that the activity had nothing to do with providing of MSS, that the function performed by GITL were not similar to the functions carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltancy to its AE that mere provision of support services could not make an entity a good comparable to the assessee unless said support services were also associated with marketing function. 3.4. We have heard the rival submissions and perused the material before us. We find that the assessee is a wholly own entity of Singapore base parent company, that the AE was providing CRS for Airline ticket bookings, that CRS was being used by the Travel Agents for booking of Air Tickets, that the main source of income of the AE was the commission received by it from Airline companies whose tickets were booked using the CRS, that the AE had appointed assessee as its national marketing company in India for promoting use of its CRS among the travels agents in India, that it would receive 25% of the Revenue generated by the AE in respect of Airline-Tickets booked from India, as commission fee, that the assessee had also earned marketing services fee from the AE, that TP adjustment were made for the first time in the A.Y.2007-08, that it had selected six comparables, that the TPO rejected the all of them, that he identified new eight comparables, that the DRP upheld all the comparables selecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ationally as a unified entity with various functional heads reporting to the top management and is not organised along segments. In our opinion, CLL is functionally different and hence is to be rejected as a valid comparable. We find that GITL provides third party administrative services in the field of health insurance including receiving of insurance claim. An analysis of the financial statements of the company revealed that revenue is recognised as and when Medicare policy is issued by general insurance companies in favour of the policyholders. We are of the opinion that GITL is functionally dissimilar from the assessee and has to be excluded from the list of the comparables. As per the annual report of Rites (system integration and support service segment)has business operation in for distinct fields namely consultancy in transportation infrastructure section, construction activities, export and leasing of railway equipments and running railway system on concession, the consultancy business is mainly in transport infrastructure sector i.e. railways, highways, airports, ports, Roads, urban transport, inland waterways, that it had started construction activities from the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services provided by the assessee were directly associated with marketing. We find that if these five comparables are excluded from the list the valid comparables, the assessee will be in the safe zone of +/- 5% -the OP to OC of the assessee is 5.18% whereas OP to OC of the remaining comparables is 3.01%. In the circumstances, we hold that the IT.s entered into by the assessee with its AE was at arm s length. GOA 2.1 is decided in favour of the assessee. 4. Next effective ground of appeal (GOA 3.1 and 3.2) deals with addition made on account of mismatch in AIR data. During the assessment proceedings, the AO observed that data available with the Department indicated that the assessee had not shown income of Rs. 1.14 lakhs and Rs. 6.64 lakhs received by it from Yatra Online.com and Arzoo.com respectively. The DRP confirm - ed the addition made by the AO and held that assessee had not reconciled the mismatch of the data. 4.1. During the course of hearing before us, the AR stated that Yatra Online.com had erroneously reported in its TDS a statement that they had paid an amount of Rs. 1.14 lakhs to the assessee, that later on Yatra filed a corrected statement explaining that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed the FE gain, but he did not allow the loss, that the liability were reflected as a FE liability in the annual accounts, that the approval was given by the RBI for receiving the ECB loan, that the loan was taken for working capital requirements. He relied upon the cases of Woodward Governor India Private Ltd.(312 ITR 254) Oil and Natural Gas Corporation Ltd. (322 ITR 180). The DR left the issue to the discretion of the Bench. 5.2. We have heard the rival submissions and perused the material before us. We find that the AO 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 AO 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 mentioned two judgments of the honorable Apex court, relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of AE, that the expenditure was not allowable as the assessee did not file any justification/explanation/reasoning. Following the directions of the DRP the AO added an amount of Rs. 2 crores being undisclosed income of the assessee for the year under consideration. 6.1. Before us, the AR contended that apart from revenue in form of commission income, being 25% of the amount received by the AE from airlines companies for ticket booking, it received MSF of Rs. 32.61 crores, that the assessee had incurred expenditure, by way of incentives to the travel agents of Rs. 34.61 crores, that Rs. 32.61 crores represented the amount paid by the AE to the assessee in respect of such incentives, that payment made to travel agents was an expenditure incurred wholly and dexterously for the purpose of business, that some incidental benefit could have been arisen to its AE, that the amount could not be regarded income of the assessee on the ground that it should have been recovered from the parent company, that it had no right to receive the amount, that as per the addendum to sub distillation agreement, dated 31/12/2008, that it had received an amount of Rs. 32.61 crores, that it had reflecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.61 crores. If the agents would use the software of the AE it would result in higher income for the AE to the extent of 75% , whereas the assessee would get 25% of the booking. Thus, the direct and major beneficiary is AE. Because of proximity between them the AE and assessee could enter in to an agreement to suit their requirements. But, that would not take away the right of the TPO to determine the ALP of the transaction considering the market value of such a transaction. He had considered all the aspects of the transaction and had held that the assessee should have received Rs. 2 crores more from the AE. We have gone through the cases relied upon by the assessee. We find that in the case of NGC Network (India) Private Ltd.(supra), Hon ble High Court was dealing with advertisement expenditure incurred by the assessee. In our opinion, the facts of the case under consideration cannot be compared with the matter of NGC case. Here, an incentive scheme was introduced by the assessee and the AE makes part payment for the expenditure incurred by the assessee for the scheme. Advertisement expenditure cannot be compared with introduction of an incentive schemes that would increase the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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