Appeal Details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 3586 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 2 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-05-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
K
Assessment Year
2009-2010
Appeal Filed On
04-03-2015
Judgement Text
, INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C.N. PRA SAD,JUDICIAL MEMBER ./ ././ ./ I.T.A./ 1261 & 1238/MUM/2015, /ASSESSMENT YEAR: 2009-10 & 2010-11 THOMAS COOK (INDIA) LIMITED THOMAS COOK BUILDING DR. D.N. ROAD, FORT,MUMBAI-400 001. PAN:AAACT 4050 C VS. DCIT-1 (3)(2) MUMBAI. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI N.K. CHAND-CIT ASSESSEE BY: SHRI MADHUR AGARWAL / DATE OF HEARING: 04.05.2016 / DATE OF PRONOUNCEMENT: 31.05.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS DATED 08.12.2014 AND 24.12.2 014 OF CIT(A)-58 AND OF THE ASSESSSING OFFICER(AO),THE ASSESSEE HAS FILED T HE APPEALS FOR THE ABOVE MENTIONED TWO ASSESSMENT YEARS(AY.S.).ASSESSEE-COMP ANY, ENGAGED IN THE BUSINESS OF TOUR OPERATOR,TRAVEL AGENT AND IS ALSO AN AUTHORISED DEALER IN FOREIGN EXCHANGE.THE DETAILS OF FILING OF RETURNS,RETURNED INCOMES,ASSESSED INCOMES ETC.CAN BE SUMMARISED AS UNDER: A.Y. ROI FILED ON RETURNED INCOME(RS.) ASSESSMENT DT. ASSESSED INCOME(RS.) DT. OF ORDERS OF CIT(A)/AO 2009-10 30.09.2009 44,28,33,999/- 28/03/2013 46,8432,558/- 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 PRI CING ADJUSTMENT FOR DISALLOWANCE OF ADVERTISEMENT MARKETING AND PROMOTI ON (AMP) EXPENSES AMOUNTING TO RS.8.09CRORES.THE BRIEF FACTS ARE THAT A REFERENCE U/S. 92CA(1) OF THE ACT WAS MADE BY THE AO TO TRANSFER PRICING OFFI CER(TPO)ON 23.11.2010 FOR DETERMINATION OF ARMS LENGTH PRICE(ALP).THE TPO IS SUED A NOTICE 1261 & 1238/M/15 THOMAS COOK 2 U/S.92CA(2) OF THE ACT TO THE ASSESSEE ASKING IT T O FURNISH ALL NECESSARY EVIDENCES IN SUPPORT OF ALP.THE TPO NOTED THAT THE ASSESSEE PROVIDES TRAVEL AND RELATED SERVICES AND IT ALSO PROVIDES FINANCIAL SERVICES DURING THE COURSE OF ITS OPERATIONS,THAT IT ALSO ORGANIZES EXCURSIONS FO R CLIENTS WHICH INVOLVES TAKING THE CLIENT AROUND THE CITY.BESIDES,THIS THE ASSESSE E PROVIDES FOREIGN EXCHANGE AND PAYMENT SOLUTIONS FOR LEISURE AND BUSINESS TRAV ELERS,STUDENTS GOING ABROAD, PEOPLE TRAVELLING FOR EMPLOYMENT, MEDICAL TREATMENT , EMIGRATION ETC.HE FOUND THAT THE ASSESSEES FOREIGN CURRENCY ACTIVITY IS BR OADLY DIVIDED INTO TWO SEGMENTS NAMELY (I) RETAIL AND (II)WHOLESALE.FOR RE TAIL OPERATIONS IT RELIES MAINLY ON PURCHASE AND SALE OF FOREIGN EXCHANGE FROM BUSI NESS AND LEISURE TRAVELERS AND FOR WHOLESALE OPERATIONS IT MAINLY CONSIST OF P URCHASE AND SALE OF FOREIGN CURRENCY IN LARGE QUANTITIES FROM OTHER AUTHORIZED DEALERS MAINLY BANKS AND FULL-FLEDGED/RESTRICTED MONEY-CHANGERS.THE TPO SUMM ARISED THE INTERNATIONAL TRANSACTIONS(IT.S.)ENTERED IN TO BY THE ASSESSEE DU RING THE YEAR UNDER APPEAL AS UNDER:- SN. PARTICULARS AMOUNT (PAID)/ RECEIVED METHOD USE D 1. RECEIPTS ON HANDLING OF INBOUND TOURISTS 53,08,8 1,907/- TNMM 2. PAYMENTS FOR HANDLING OF OUTBOUND TOURISTS 4,54, 76,323/- TNMM 3. EXPORT OF FOREIGN CURRENCIES 224,169,517/- CUP 4. NAME & LICENSE FEE 17,706,908/- TNMM 5. REIMBURSEMENT OF EXPENSES PAID 65,25,899/- CUP 6. REIMBURSEMENT OF EXPENSES RECEIVED 58,89,920/- C UP THE TPO OBSERVED THAT THE OPERATION SEGMENTS OF THE ASSESSEE WERE DIVIDED INTO TWO SEGMENTS NAMELY TRAVEL AND RELATED SERVICES SEG MENT (II) FINANCIAL SERVICES SEGMENT, THAT NAME AND LICENSE FEE PAID TO THE AE H AD 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 ASSESSEE COMPANY AND WAS THE OWNER OF THOMAS COOK TRADE MARK, THAT IT HAD GRANTED THE ASS ESSEE AN EXCLUSIVE AND NON ASSIGNABLE LICENCE TO INCORPORATE THE NAME THOMAS C OOK IN ITS CORPORATE NAME 1261 & 1238/M/15 THOMAS COOK 3 AND /OR ITS TRADE MARK IN ITS TERRITORY.A PERUSAL O F THE P&L ACCOUNT REVEALED THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.10.0 1CRORES UNDER THE HEAD ADVERTISEMENT, MARKETING AND PUBLICITY (AMP), THAT THE TOTAL TURNOVER OF THE ASSESSEE WAS RS.253 CRORES, THAT THE AMP / TOTAL TU RNOVER WAS 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 R EVENUE 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 T HE ASSESSEE WAS SPENDING MUCH MORE THAN THE INDUSTRY AVERAGE IN PROMOTING AN D BUILDING THE BRAND OF TC UK, THAT THE BRAND THOMAS COOK DID NOT BELONG TO TH E ASSESSEE, THAT IT HAD PAID A HEFTY SUM FOR THE USE OF BRAND THROUGH TRADE MARK LICENCE AGREEMENT, DATED 29.3.2006,THAT THE ASSESSEE WAS INCURRING EXPENSES FOR PROMOTING BRAND NAME OF TCUK, IT WAS ALSO PAYING LICENSE FEE.HE HELD THA T THE AMP EXPENSES WERE TO BE RESTRICTED TO THE INDUSTRY MEAN AMP/TOTAL REVENU E I.E. @ 3.9% , THAT THE ASSESSEE WAS EARNING 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 HOLDI NG IN TRAVEL CORPORATION OF INDIA LTD.,THAT THE ASSESSEE HAD LOCATION ADVAN TAGE, THAT THERE HAD BEEN NO LOCATION SPECIFIC PREMIUM/RENT TO INDIA, THAT THE L OCATION ADVANTAGE GENERATED IN INDIA THROUGH SUPER NORMAL PROFIT HAD BEEN PASSED O N TO THE MAJORITY SHARE OWNER BY WAY OF INDIRECT BENEFITS I.E. INCURRING EX PENSES IN BUILDING AND PROMOTING TCUK BRAND IN ITS TERRITORY AND PAYMENT F OR USE OF THE SAME BRAND WHICH IT WAS BUILDING IN INDIA, THAT TRADE MARK FEE CHARGE BY TCUK AND PASSING 1261 & 1238/M/15 THOMAS COOK 4 ON OF EXPENSES OF BRAND BUILDING IN THE TERRITORY B Y TCUK TO THE ASSESSEE WAS NOTHING BUT ARM TWISTING OF THE ASSESSEE TO PAY TH E BRAND, THAT THE DEAL GIVEN TO THE ASSESSEE BY ITS AE WAS NOT AT ARMS LENGTH, TH AT THE ASSESSEE WAS ENTITLED TO USE THE BRAND ONLY IN ITS TERRITORY, THAT THE ASSES SEE JUST BY BEING IN CONTROLLED TRANSACTION WAS IN A SITUATION WHERE IT HAD TO SPEN D 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 WOUL D NOT HAPPEN BETWEEN THE UNCONTROLLED PARTIES, THAT THE BRAND WAS DETERIORAT ING IN UK AND EUROPE. ACCORDINGLY ALP OF LICENSE FEE PAID TO TCUK ALONG W ITH FOREX FLUCTUATION, (RS.1,77,06,908/- + RS.10,00,000/- ASSESSEERS.1, 87 , 06, 908/-) WAS DETERMINED AT NIL. FURTHER,THE AMP EXPENSES WERE DOWNWARDLY AD JUSTED TO 0. 76% OF TOTAL REVENUE I.E.0.76% X 2,53,01,95,569 ASSESSEE 1,92,29 ,486/-.AS THE TOTAL AMP EXPENSES APPEARING IN THE P&L ACCOUNT WAS RS.10.01 CRORES THEREFORE, AN ADJUSTMENT OF RS.8.09 BY OF NOTORIOUSLY TO CRORES(R S.10.01CR- 1.92 CRORES) WAS MADE.THE TPO FURTHER MENTIONED THAT TRADEMARK LICEN SE FEE PAYMENT WAS ALREADY INCLUDED IN THE CALCULATION S SOLOED O NO S EPARATE ADJUSTMENT WAS BEING MADE. AFTER RECEIVING THE ORDER OF THE TPO,THE AO A DDED THE SAID AMOUNT IN HIS DRAFT ORDERS. 2.1. AGGRIEVED BY THE ORDER OF THE AO/TPO THE ASSESSEE P REFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE TH E FAA,THE ASSESSEE CONTENDED THAT TPO HAD MADE ADJUSTMENT WITHOUT GIVI NG A SHOW CAUSE NOTICE, THAT IT BECAME AWARE OF THE ADJUSTMENT DIRECTLY VID E 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/DISALLOW ANCE. IT MOVED AN APPLICATION UNDER RULE 46A OF THE INCOME TAX RULES (1962) BEFOR E FAA WITH A REQUEST TO ADMIT THE ADDITIONAL EVIDENCES.THE FAA OBSERVED THA T TPO HAD ISSUED A SHOW CAUSE NOTICE ON 29.11.2011,THAT THE TRANSACTION IN QUESTION WAS NOT BENCH - MARKED,IT WAS SPECIFICALLY REQUESTED TO FURNISH THE DETAILS OF THE TRANSACTIONS NOT 1261 & 1238/M/15 THOMAS COOK 5 INCLUDED IN FORM CEB, THAT THE ASSESSEE DID NOT APP EAR BEFORE THE TPO ON THREE TO FOUR OCCASIONS , THAT DUE OPPORTUNITY WAS ALLOWE D TO THE ASSESSEE , THAT THERE WAS NO LACK OF OPPORTUNITY TO ADDUCE EVIDENCE BEFOR E THE TPO, THE REQUEST MADE BY THE ASSESSEE COULD NOT BE ACCEPTED AS PER R ULE 46A OF THE IT RULES. REFERRING TO THE CASE OF VELJI DEORAJ & CO.(68ITR7 08), 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 E VIDENCES 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 HAT THE ASSESSEE WAS NOT PROVIDED SUFFICIENT OPPORTUNITY BY THE TPO WITH REGARD TO ADJUSTMENT MADE WITH REGARD TO AMP EXPENDITURE,THE FAA SUMMARILY RE JECTED THE APPLICATION MADE BY HIM UNDER RULE 46A OF THE IT RULES, THAT TH E AMP EXPENDITURE WAS NOT AN IT TRANSACTION,THAT THE EXPENDITURE WAS INCU RRED BY THE ASSESSEE TO PROMOTE ITS OWN BUSINESS,THAT THERE WAS NO AGREEMEN T WITH THE AE TO SHARE THE EXPENDITURE, THAT THE PAYMENT WAS MADE TO UNRELATED THIRD PARTIES IN INDIA. THE DEPARTMENTAL REPRESENTATIVE(DR) RELIED UPON THE CAS E 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 IND IA (P) LTD.7545/ MUM/ 2012 AND HEINZ INDIA P.LTD.(7732/ MUM/2012). IN THE YEAR UNDER CONSIDERATION THE FAA HAD NOT PAS SED 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 WH ILE ARGUING THE MATTER FOR THE SUBSEQUENT YEAR.THEREFORE,WE WOULD LIKE TO ADJU DICATE THE AMP EXPENDITURE ISSUE,WHILE DECIDING THE APPEAL FOR NEX T AY. 3. NEXT GROUND OF APPEAL IS ABOUT ADJUSTMENT OF RS. 22 .82 LAKHS UNDER THE HEAD 1261 & 1238/M/15 THOMAS COOK 6 CORPORATE GUARANTEE COMMISSION(CGC).AFTER GOING THR OUGH THE ANNUAL REPORT OF THE ASSESSEE,THE TPO FOUND THAT THE ASSESSEE HA D PROVIDED A CORPORATE GUARANTEE OF RS.7.60 CRORES TO ITS AE THOMAS COOK M AURITIUS 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 DOW N SUBSIDIARY OF THE ASSESSEE,THAT IT WAS ALSO A STRATEGICALLY IMPORTANT SUBSIDIARY,THAT MAURITIUS WAS A KEY FINANCIAL ROUND ABOUT FOR ASIA INTO AFRICA AN D EUROPE, THAT THE ASSESSEE WOULD LEVERAGE ON THE AE TO OFF LOAD ITS SURPLUS FO REIGN CURRENCY NOTES BY HAVING THEM SHIPPED AT REGULAR INTERVALS, THAT THE ASSESSEE HAD OWNERSHIP INTEREST IN AE AS A SHARE HOLDER, THAT CG GIVEN BY IT TO THE AE FAVOURING HSBC QUALIFIED AS SHAREHOLDER ACTIVITY FOR WHICH A CHARG E TO AE WOULD NOT BE JUSTIFIED , THAT THE ASSESSEE HAD NOT INCURRED ANY COST IN RES PECT OF THE SAID CG , THAT THERE WAS NO BENEFIT ARISING TO AE ON ACCOUNT OF CG, THAT THE TRANSACTION WOULD NOT FALL UNDER THE DEFINITION OF IT AS PER TH E PROVISIONS OF SECTION 92. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE TH E TPO HELD THAT THE ASSESSEE HAD WRONGLY CLASSIFIED THE CG GIVEN IN RESPECT OF I TS 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 GUARANTE E FEE WOULD BE QUANTIFIED THROUGH A COMPARISON OF ARMS LENGTH GUARANTEE FEE R ATES CHARGED BY UNRELATED THIRD PARTIES PROVIDING SIMILAR GUARANTEE UNDER SIM ILAR TERMS AND CONDITIONS. FINALLY HE APPLIED A RATE OF 3% AS CG FEES AND PROP OSED ADJUSTMENT OF RS.22.82 LAKHS. FOLLOWING THE ORDER OF TPO THE AO MADE AN AD DITION OF RS.22,82,400/- TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. AGGRIEVED BY THE ORDER OF THE AO/TPO,THE ASSESSEE P REFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE H IM THE ASSESSEE MADE 1261 & 1238/M/15 THOMAS COOK 7 ELABORATE SUBMISSIONS.REFERRING TO THE ORDER OF HIS PREDECESSORS FOR THE AY 2008-09,HE DISMISSED THE APPEAL FILED BY THE ASSESS EE . 3.2. BEFORE US,THE AUTHORISED REPRESENTATIVE STATED THAT WHILE DECIDING THE APPEAL FOR EARLIER AY.,THE TRIBUNAL HAD ALREADY ADJ UDICATED 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 THE APPEAL OF THE ASSESSE E, WHEREIN THE FIRST ISSUE IS IN RELATION TO AN ADDITION OF RS.18,05,400/- MADE TO T HE TOTAL INCOME ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WITH RESPECT TO THE COR PORATE GUARANTEE ISSUED BY THE ASSESSEE ON BEHALF OF ITS FOREIGN ASSOCIATED ENTERP RISE. IN THIS CONTEXT, BRIEF FACTS ARE THAT THE ASSESSEE WAS FOUND TO HAVE ENTERED INTO CE RTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE WITHIN THE MEANING OF SEC TION 92B OF THE ACT AND CONSEQUENTIAL REFERENCE UNDER SECTION 92CA(1) WAS MADE BY THE AS SESSING OFFICER TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LE NGTH PRICE OF SUCH TRANSACTIONS. IN AN ORDER PASSED BY THE TRANSFER PRICING OFFICER UND ER SECTION 92CA(3) OF THE ACT DATED 30/09/2011, THE TRANSFER PRICING OFFICER FOUND THA T ASSESSEE HAD NOT CHARGED ANY FEE FOR PROVIDING CORPORATE GUARANTEE ON BEHALF OF ITS ASSOCIATED ENTERPRISE AND, THEREFORE, HE DETERMINED AN AMOUNT OF RS.18,05,400/- BEING ADJ USTMENT REQUIRED TO BE MADE TO THE RETURNED INCOME ON THIS COUNT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PROVIDED A CORPORATE GUARANTEE ON BEHALF OF ITS ASSOCIATED ENTERPRISE M/S. THOMAS COOK MAURITIUS OPERATIONS CO. LTD. FOR BANKING FACI LITIES AVAILED BY IT FROM HSBC BANK TO THE EXTENT OF RS.6,01,80,000/-. THE STAND OF THE TRANSFER PRICING OFFICER WAS THAT IN THE ABSENCE OF ANY GUARANTEE FEE COMMISSION EARNED BY THE ASSESSEE FROM SUCH TRANSACTION, THE SAME COULD NOT BE SAID TO HAVE BEE N RECORDED AT AN ARM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER REFERRED TO THE INFORM ATION GATHERED FROM ALLAHABAD BANK AND THE STATE BANK OF INDIA WITH RESPECT TO THE RAT E OF GUARANTEE COMMISSION FEE AND ACCORDINGLY DETERMINED A RATE OF 3%, THAT WAS LIABL E TO BE CHARGED AS AN ARMS LENGTH RATE AS GUARANTEE COMMISSION FEE. ON THIS BASIS, THE TRANSFER PRICING OFFICER WORKED OUT AN ADDITION OF RS.18,05,400/- BEING 3% OF RS.6, 01,80,000/-. THE ASSESSING OFFICER DETERMINED THE INCOME ACCORDINGLY IN TERMS OF SECTI ON 92CA(4) OF THE ACT. THE 1261 & 1238/M/15 THOMAS COOK 8 CIT(APPEALS) HAS ALSO AFFIRMED THE AFORESAID ACTION AND ACCORDINGLY ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3.1IT IS NOTED THAT BEFORE THE LOWER AUTHORITIES, ASSESSEE HAD RESISTED THE AFORESAID ACTION ON VARIOUS GROUNDS. FIRSTLY, THE STAND OF T HE ASSESSEE WAS THAT PROVIDING OF A CORPORATE GUARANTEE ON BEHALF OF THE ASSOCIATED ENT ERPRISE IS NOT AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF T HE ACT. SECONDLY, THE CLAIM MADE WAS THAT THE CORPORATE GUARANTEE WAS GIVEN ON BEHAL F OF A STEP-DOWN SUBSIDIARY AND, THEREFORE, IT WAS A STRATEGIC REQUIREMENT OF BUSINE SS AND WAS A SHAREHOLDER ACTIVITY. THIRDLY, IT WAS POINTED OUT THAT THE PROVIDING OF C ORPORATE GUARANTEE HAS NOT RESULTED TO IN ANY INTEREST SAVINGS FOR THE ASSOCIATED ENTERPRI SE AND THAT ASSESSEE HAD ALSO NOT INCURRED ANY COST IN RESPECT OF SUCH CORPORATE GUAR ANTEE. APART THEREFROM, ASSESSEE ALSO OPPOSED THE ADOPTION OF 3% RATE AS A MEASURE TO DETERMINE ARM'S LENGTH RATE AND INSTEAD CONTENDED THAT A RATE OF 0.50% WAS QUITE J USTIFIED. 4. BEFORE US, THE ASSESSEE HAS PRIMARILY ARGUED THA T THE RATE OF 3% ADOPTED BY THE INCOME-TAX AUTHORITIES IN ORDER TO DETERMINE TH E ARM'S LENGTH RATE OF THE IMPUGNED INTERNATIONAL TRANSACTION WAS UNTENABLE AND INSTEAD POINTED OUT THAT IN THE FOLLOWING DECISIONS OF THE TRIBUNAL RATE OF 0.50% HAS BEEN CO NSIDERED TO BE ARM'S LENGTH RATE ON ACCOUNT OF FEE FOR PROVIDING CORPORATE GUARANTEE. (1) M/S.EVEREST KENTO CYLINDERS LTD. VS. DCIT,ITA NO.542/MUM/201 ORDER DATED 23/11/2012. (2) ADITYA BIRLA MINACS WORLDWIDE LTD. VS. DCIT, 5 6 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.36 64/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 THE HON'BLE BOMBAY HIGH COURT VIDE ITA NO.1165 OF 2013 DATED 8 TH MAY, 2015 ALSO AND IN THIS MANNER, IT IS SOUGHT TO BE MADE OUT THAT AP PLICATION OF A RATE OF 0.50% TO DETERMINE THE ARM'S LENGTH RATE TOWARDS GUARANTEE COMMISSION FEE WOULD BE JUSTIFIED. 5. ON THE OTHERHAND, LD. DEPARTMENTAL REPRESENTATIV E HAS POINTED OUT THAT THE RATE OF 0.50% BEING CANVASSED BY THE ASSESSEE IS NO T AN ABSOLUTE SITUATION, INASMUCH AS, IN CERTAIN OTHER DECISIONS OF THE TRIBUNAL ADJU STMENT ON ACCOUNT OF GUARANTEE COMMISSION FEE HAS BEEN APPROVED EVEN @ 3%. IN TH IS CONNECTION ATTENTION HAS BEEN 1261 & 1238/M/15 THOMAS COOK 9 INVITED TO THE DECISION OF THE TRIBUNAL IN ITA NO.6 394/MUM/2012 DATED 21/08/2013, WHEREIN RATE OF 3% HAS BEEN APPROVED. OUR ATTENTIO N WAS ALSO INVITED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF TECHNOCRAFT INDUSTRI ES (INDIA) LTD., VS. ADDL. CIT, IN ITA NOS.7519& 7990/MUM/2011 DATED 8/01/2014, WHEREIN RA TE OF 2.08% HAS BEEN APPROVED. 6.WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. BE THAT AS IT MAY, THE ONLY DISPUTE THAT THE ASSESSEE HAS CONTESTED BEFORE US RELATES TO THE APPLICATION OF THE RATE OF 3% TAKE BY THE TRANSFER PRICING OFFICER TO DETER MINE THE ARM'S LENGTH RATE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF CORPORATE GUARANTEE ON BEHALF OF THE ASSOCIATED ENTERPRISE. THEREFORE, WE CONFINE OURS ELVES TO EXAMINE THE VERACITY OF THE ARM'S LENGTH RATE ADOPTED BY THE INCOME-TAX AUTHORI TIES. IN THE PRESENT CASE, ASSESSEE COMPANY ISSUED CORPORATE GUARANTEE ON BEHALF OF THE ITS ASSOCIATED ENTERPRISE WHICH ENABLED ITS 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 SITUA TION, WHERE IN THE MATTER OF GUARANTEE COMMISSION FEE THE ADJUSTMENT MADE BY THE INCOME-TAX AUTHORITIES WAS BASED ON INSTANCES OF COMMERCIAL BANKS PROVIDING GU ARANTEES. THE HON'BLE BOMBAY HIGH COURT HAS EXPLAINED THAT INSTANCES OF COMMERCI AL BANKS PROVIDING GUARANTEES COULD NOT BE COMPARED TO INSTANCES OF ISSUANCE OF CORPORATE GUARANTEE. AS PER HON'BLE BOMBAY HIGH COURT, WHEN COMMERCIAL BANKS IS SUE BANK GUARANTEES, THE SAME IS QUITE DISTINCT IN CHARACTER, THAN THE SITUATION WHERE A CORPORATE ISSUES GUARANTEE TO THE EFFECT THAT, IF A SUBSIDIARY ASSOCIATED ENTERPR ISE DOES NOT REPAY A LOAN, THE SAME WOULD BE MADE GOOD BY SUCH CORPORATE. KEEPING THE SAID RATIO OF THE HON'BLE BOMBAY HIGH COURT IN MIND, IT IS QUITE CLEAR THAT THE MANN ER 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 JUSTIF IED. IN THIS VIEW OF THE MATTER, WE ARE UNABLE TO APPROVE 3% RATE OF GUARANTEE COMMIS SION 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 ARM'S LEN GTH RATE FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH INCOME ON ACCOUNT OF GUARANTEE COMMISSION FEE IN THE PRESENT CASE. THE LD. DEPARTMENTAL REPRESENTATIVE HAD REFERRED TO CERTAIN DECISIONS OF THE MUMBAI TRIBUNAL, WHEREIN A RATE HIGHER THAN 0.5 0% HAS ALSO BEEN APPROVED IN ORDER TO DETERMINE THE GUARANTEE COMMISSION FEE. A LL THOSE DECISIONS ARE BASED ON THE 1261 & 1238/M/15 THOMAS COOK 10 PROBABLE RATES AT WHICH THE GUARANTEES ARE ISSUED B Y THE COMMERCIAL BANKS, AND IN VIEW OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT I N THE CASE OF EVEREST KENTO CYLINDERS LTD.(SUPRA), SUCH AN APPROACH CANNOT BE U PHELD SINCE THE INSTANT IS A CASE, WHERE A CORPORATE GUARANTEE HAS BEEN ISSUED BY HOL DING COMPANY FOR THE BENEFITS OF ITS STEP-DOWN SUBSIDIARY ASSOCIATED ENTERPRISE. CO NSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE BASIS OF THE M ATERIAL 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 GUARANTEE COMMISSION FEE. IN THIS VIEW OF THE MATTER, WE SET- ASIDE THE ORDER OF CIT(APPEALS) AND DIRECT THE ASSE SSING OFFICER TO DETERMINE THE ADDITION IN VIEW OF OUR AFORESAID DIRECTION. THUS, ON THIS ASPECT ASSESSEE PARTLY SUCCEEDS. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,WE DECIDE TH E GROUND NO.3 IN FAVOUR OF THE ASSESSEE,IN PART. 4. GROUND NO.4 IS ABOUT DISALLOWANCE ON CLAIM OF DEPRE CIATION ON PRINTERS DATA, CABLE ROUTER AND SCANNER AMOUNTING TO RS.6,11,892/- .IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS DECIDED BY THE TRIB UNAL WHILE DECIDING THE APPEAL IN A.Y. 2008-09 (SUPRA), WE WOULD LIKE TO RE PRODUCE THE RELEVANT PORTION OF THE ABOVE ORDER AND SAME READS AS UNDER :- 7.THE SECOND GROUND IN THE APPEAL RELATES TO THE AC TION OF THE INCOME-TAX AUTHORITIES IN ALLOWING DEPRECIATION @15% ON DATA CABLE AND OTH ER COMPUTER PERIPHERALS AS AGAINST ASSESSEES CLAIM OF DEPRECIATION OF 60%. I N THIS CONTEXT, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE AFORESAID ISSUE IS IDE NTICAL TO THE ISSUE DEALT WITH BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 VIDE ORDER IN ITA NOS.858& 738/MUM/2014 DATED 30/09/2015. FOLLOWING THE AFORESAID PRECEDENT, IT IS HEREBY DIRECTED THAT ASSESSING OFFICER SHALL ALLOW DEPRECIATION @ 60% IN TERMS OF THE DECISION OF THE TRIBUNAL DATED 30/09/2015 (SUPRA). THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. RESPECTFULLY FOLLOWING THE ABOVE,GROUND NO.4 IS ALL OWED. 5. GROUND NO.5 PERTAINS TO DISALLOWANCE OF CLAIM OF DE PRECIATION ON JODHPUR PROPERTY OF RS.1,68,023/-.DURING THE COURSE OF HEAR ING BEFORE US,THE AR FAIRLY 1261 & 1238/M/15 THOMAS COOK 11 CONCEDED THAT THE TRIBUNAL HAD DECIDED THE ABOVE IS SUE AGAINST THE ASSESSEE WHILE ADJUDICATING THE APPEAL FOR AY 2008-09. WE FI ND THAT THE TRIBUNAL HAS HELD AS UNDER : 8.THE NEXT GROUND IS WITH REGARD TO THE DISALLOWAN CE OF THE CLAIM OF DEPRECIATION OF RS.1,86,692/- ON JODHPUR PROPERTY. ON THIS POINT A LSO, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE HAS BEEN DECIDED AGA INST THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 30/09/2015(SUPRA) BY FOLLO WING EARLIER DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 IN ITA NO.9156 /MUM/2010 DATED 31/12/2013. CONSEQUENTLY, THE GROUND OF APPEAL NO.3, RAISED BY THE ASSESSEE IS DISMISSED. RESPECTFULLY,FOLLOWING THE ABOVE,FIFTH GROUND IS DE CIDED AGAINST THE ASSESSEE. 6. LAST GROUND OF APPEAL IS DISALLOWANCE MADE U/S. 14A OF THE ACT AMOUNTING TO RS.8.79LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.2,90,706/- ON MU TUAL 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 STA TED IT HAD NOT INCURRED ANY DIRECT OR INDIRECT EXPENDITURE FOR EARNING THE EXEM PT INCOME,THAT IT HAD ADEQUATE OWN FUNDS FOR MAKING INVESTMENT IN MUTUAL FUNDS, TH AT THE BORROWING MADE BY IT IN THE FORM OF BANK OVERDRAFT WERE USED FOR BUSI NESS PURPOSES, THAT THEY WERE NOT USED FOR MAKING INVESTMENTS.AFTER CONSIDERING T HE SUBMISSION OF THE ASSESSEE,THE AO HELD THAT FOR MAKING INVESTMENTS MA NPOWER AND FUNDS WERE REQUIRED,THAT THE INVESTMENTS WERE MADE FROM A POOL OF FUNDS AVAILABLE TO THE ASSESSEE.APPLYING THE PROVISIONS OF RULE 8D R.W.S 1 4A(2),HE MADE A DISALLOW - ANCE OF RS. 8.79LAKHS. 6.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FAA. IN THE ORIGINAL APPEAL THE DISALLOWANCE UN DER SECTION 14A WAS NOT CHALLENGED.HOWEVER,BY WAY OF AN ADDITIONAL GROUND T HE ASSESSEE RAISED THE SAID 1261 & 1238/M/15 THOMAS COOK 12 ISSUE BEFORE THE FAA. BUT, HE DID NOT ADJUDICATE IT . 6.2. BEFORE US THE AR STATED THAT ASSESSEE HAD MADE STR ATEGIC 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 MATTER SHOULD BE RESTORED BACK TO THE FI LE OF FAA FOR FRESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE .GR.NO.6 OF THE ASSESSEE IS ALLOWED IN PA RT. ITA NO.1238/MUM/2015(10-11): 7. FIRST GROUND OF APPEAL IS ABOUT TP ADJUSTMENT OF RS .12.04 CRORES IN RELATION TO THE TRAVEL RELATED SEGMENT.DURING THE TP PROCEEDING S,THE TPO FOUND THAT THE TRANSACTIONS RELATING TO 'HANDLING OF INBOUND TOURI STS' AND 'HANDLING OF OUTBOUND TOURISTS' AND 'PAYMENT OF NAME AND LICENSE FEES' (T O THE EXTENT ALLOCATED TO TRAVEL AND RELATED SERVICES)WAS APPEARING UNDER THE HEAD T RAVEL AND RELATED SERVICES SEGMENT,THAT THEY WERE AGGREGATED FOR THE PURPOSE OF BENCHMARKING ANALYSIS, THAT FOR BENCHMARKING ANALYSIS,THE ASSESSEE COMPAN Y WAS SELECTED AS TESTED PARTY,THAT THE TRANSACTIONAL NET MARGIN METHOD (TNM M)WAS ADOPTED AS THE MOST APPROPRIATE METHOD,THAT THE PROFIT LEVEL INDI CATOR(PLI)USED WAS OPERAT - ING PROFIT/TOTAL COST (OP/TC),THAT THE ASSESSEE H AD USED WEIGHTED AVERAGE FOR THREE YEARS FOR TP STUDY.THE OP/OC OF THE COMPARABL ES WAS FOUND AS UNDER: SN. COMPANY NAME OPERATING PROFIT/TOTAL COST(%) 1. CROWN TOURS LTD.(CTL) 6.83 2. TAMARIND TOURS PVT. LTD.(TTPL) 4.7 3. BALMER & LAWRIE & CO. LTD.(BLCL)* 2.77 4. TRADE-WINGS LTD.-TRAVEL & TOUR 17.41 AVERAGE 7.86 * (TRAVEL & TOUR SEGMENT) 1261 & 1238/M/15 THOMAS COOK 13 IN PURSUANCE OF THE DIRECTIONS OF THE TPO,THE ASSES SEE VIDE ITS SUBMISSIONS, DATED 21 .06.2013, SUBMITTED THE UPDATE MARGINS OF 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 LENG TH. THE TPO HELD THAT THE ASSESSEE HAD ALREADY ESTABLI SHED THIRD PARTY AGENTS IN ALMOST ALL PARTS OF THE WORLD,THAT FROM THE DESCRI PTION OF THE OUTBOUND SERVICES THAT THE ASSESSEE WAS PERFORMING ALMOST ALL THE FUN CTIONS FOR THE OUT BOUND TOURISTS,THAT IT HAD REQUIRED EXPERT MANPOWER TO PE RFORM THE FUNCTION,THAT IN THE TPSR IT WAS MENTIONED THAT ONLY A MARKETING FEE WAS RETAINED BY THE ASSESSEE,THAT NOWHERE IN THE TPSR THE PERCENTAGE OF THE MARKETING FEE WAS MENTIONED,THAT IT HAD NOT PROVIDED THE SAID DATA. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THREE C OMPARABLE ENTITIES,I.E. CTL,TTPL AND BLCL,WHICH WERE FUNCTIONALLY NOT COMPA RABLE,SHOULD NOT BE EXCLUDED FROM THE 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 THA T THE ABOVE MENTIONED THREE COMPARABLES WERE TO BE EXCLUDED FROM THE LIST.HE PI CKED UP THE LAST COMPARABLE I.E.TWL AS A VALID COMPARABLE.HE FURTHER OBSERVED T HAT 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: TRAVEL SEGMENT REVENUE (A)- RS.13,65,59,448/- BAD DEBTS (B)- RS.2,81,93,887/- COST (C)- RS.12,23,31,834/- ADJUSTED COST AFTER BAD DEBTS REMOVAL D=C-B R S.9,41,37,947 1261 & 1238/M/15 THOMAS COOK 14 PROFIT OF THE SEGMENT(E)=A-D RS.4,24,21,501 OP/OC(F)ASSESSEEE/D 45.06312529 HE RECALCULATED THE PLI OF THE ASSESSEE ALSO AS FOL LOW: 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% 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)- R S.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.6 0,18,33,52,260/- ARMS' LENGTH INCOME (I)=D+H RS.1, 93,74,60,51,460/- DIFFERENCE (J)=I-A RS.44,79,80,51,460/- ADJUSTMENT PROPOSED RS.12,04,28,660 FOLLOWING THE ORDER OF THE TPO THE AO INCLUDED THE SAID ADJUSTMENT IN THE DRAFT ORDER. 7.1. AGGRIEVED BY THE ORDER OF THE TPO/AO,THE ASSESSEE F ILED OBJECTIONS BEFORE THE DRP.BEFORE THE DRP,THE ASSESSEE ARGUED THAT ITS OPERATING MARGIN OF WAS 10.96%,THAT THE BENCHMARKING ANALYSIS CARRIED OUT B Y IT YIELDED A SET OF FOUR COMPARABLES WITH A MEAN MARGIN OF 7.68%,THAT THE TP O REJECTED THREE COMPARABLES WITHOUT PROVIDING ANY OPPORTUNITY TO IT ,THAT HE ACCEPTED TRAVEL AND TOUR SEGMENT(TTS) OF ONE OF THE COMPARABLES,THAT TH E THREE REJECTED COMPARA - BLES(EXCEPT THE TTPL) WERE A PART OF THE BENCHMARKI NG SET USED IN THE TP 1261 & 1238/M/15 THOMAS COOK 15 DOCUMENTS FOR THE YEARS PRIOR TO ASSESSMENT YEAR 20 10-11,THAT THERE HAD BEEN NO ADJUSTMENTS ON THAT ISSUE IN THOSE YEARS, THAT CONS ISTENCY IN THE COMPARABLES AND ITS FUNCTIONAL PROFILES HAD NOT BEEN QUESTIONED EXT RACT FOR THE YEAR UNDER CONSIDERATION, THAT THE TPO ADJUSTED THE OPERATING MARGIN OF TWL-TTS BY IN APPROPRIATELY DEDUCING THE BAD DEBTS EXPENSES,THAT BAD DEBTS WRITTEN OFF WERE INTRINSICALLY LINKED TO THE BUSINESS, THAT SAME WER E OPERATING IN NATURE AND COULD NOT BE HELD TO BE ABNORMAL, THAT USE OF ONLY ONE CO MPARABLE WAS INAPPROPRIATE, THAT IT DID NOT REPRESENT THE INDUSTRY,THAT IF BAD DEBTS WERE ELIMINATED FROM ALL THE FOR COMPARABLES PROVIDED BY THE ASSESSEE THE ME AN MARGIN OF THE COMPA RABLE-COMPANIES WOULD BE 13.21% WHICH WAS WITHIN + -5% OF ARMS LENGTH RANGE.THE ASSESSEE RELIED UPON THE CASE OF WILLIS P ROCESSING SERVICES INDIA PRIVATE LTD. AFTER CONSIDERING THE ORDERS OF THE TPO AND THE SUB MISSIONS 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 WEDDIN GS, THAT FUNCTIONS OF EVENT MANAGEMENT WERE COMPLETELY DIFFERENT AND THE ASSETS REQUIREMENT WAS DIFFERENT, THAT THE CLIENTELE WAS OF DIFFERENT CLAS S, THAT THE TPO HAD RIGHTFULLY REJECTED TTPL FROM THE LIST OF COMPARABLES, THAT CT L OPERATED ONLY IN AND AROUND RAJASTHAN AS OPPOSED TO WORLDWIDE OPERATION OF THE ASSESSEE, THAT THE FOREIGN EXCHANGE-EARNING OF CTL WAS NIL, THAT BLCL WAS A PUBLIC SECTOR ENTITY, THAT THE BUSINESS DYNAMICS OF A PSE COULD NOT BE CO MPARED WITH THAT OF PRIVATE SECTOR,THAT COMPARABLE SEGMENT OF THE BLCL INCLUDED SEVERAL FUNCTIONS, THAT OTHER THAN THE SEGMENT OF TWL OTHER CASES COULD NOT BE COMPARED WITH THE ASSESSEE,THAT EVERY ASSESSMENT YEAR WAS 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 CONSIDERATIO N WAS NOT FETTERED BY ORDERS MADE DURING EARLIER ASSESSMENT YEARS BASED ON THE P REVAILING FACTS AND CIRCUMS -TANCES,THAT ARMS LENGTH OF IT.S DEPENDENT UPON NU MEROUS FACTORS WHICH WOULD VARY FROM YEAR TO YEAR, THAT THE ACCEPTANCE OF VALU ATION OF CERTAIN INTERNATIONAL 1261 & 1238/M/15 THOMAS COOK 16 TRANSACTION IN ONE YEAR DID NOT PRECLUDE THE TPO FR OM ARRIVING AT A DIFFERENT CONCLUSION IN ANOTHER YEAR. WITH REGARD TO ALLOWABI LITY OF BAD DEBTS AS OPERATING ITEM OF EXPENDITURE,THE DRP REFERRED TO CASE OF CA COMPUTERS ASSOCIATION INDIA PRIVATE LTD.AND HELD THAT THE LOGIC AND RATIO OF THE SAID JUDGMENT SUPPORTED THE VIEW TAKEN BY THE TPO.FINALLY,THE DRP HELD THAT THE TPO HAD SELECTED THE BEST AVAILABLE AND FUNCTIONALLY COMPAR ABLE ENTITY FROM THE LIST, THAT AS PER THE OECD GUIDELINES ONE SINGLE SUITABLE COMP ARABLE WAS BETTER THAN THE MULTIPLE MISMATCH 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 FUNCTI ONAL COMPARABILITY OF THE COMPARABLES VIDE ITS SUBMISSION,DT.24. 12. 2013,THA T 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 NO T ACCEPTED THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE IN ACCORDANCE W ITH THE ACT,THAT HE HAD REJECTED THE DATA FOR THE EARLIER YEAR,THAT HE DID NOT ALLOW 5% RAISE BENEFIT TO THE ASSESSEE,THAT THE UPDATED OPERATING MARGIN OF THE A SSESSEE WAS 10.06%,THAT THE UPDATED MEAN MARGIN OF FOUR COMPARABLES WAS 7.86%,T HAT THE VALUE OF IT.S. ENTERED INTO BY THE ASSESSEE WITH ITS AE.S WAS AT A RMS LENGTH,THAT ADJUSTMENT OF BAD DEBTS IN FINALISING THE PLI AND ALP WAS AGAINST THE PROVISIONS OF THE ACT. HE REFERRED TO POINT NO.5 OF THE BALANCE SHEET ABST RACT AND ITS GENERAL BUSINESS PROFILE OF THE ASSESSEE-COMPANY AND HIGHLIGHTED THA T IN THE ABSTRACT IT WAS MENTIONED THAT THE ASSESSEE WAS AN IATA TRAVEL AGEN T AND WAS ENGAGED IN ALL TOURISM RELATED ACTIVITIES.WITH REGARD TO CTL THE A R 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 CA LLED FOREIGN EXCHANGE EARNING-UNUTILISED RESERVE, THAT IT HAD FOREIGN EXC HANGE-EARNING FOR THE AY. 2010-11 AS DISCLOSED AT PAGE NO.48 OF THE ANNUAL RE PORT, THAT THE CRITERIA USED BY 1261 & 1238/M/15 THOMAS COOK 17 THE TPO WAS VAGUE,THAT IT COULD NOT BE USED TO ASSE SS THE FUNCTIONAL COMPARABI- LITY,THAT THE FINANCIAL DATA OF CTL AND OF THE ASSE SSEE WERE AUDITED AND THE MANNER OF REVENUE REPORTING WAS IN ACCORDANCE WITH THE ACCEPTABLE ACCOUNTING PRACTICES IN INDIA, THAT A MERE DIFFERENCE IN NATUR E OF REPORTING SHOULD NOT BE USED AS A CRITERIA FOR REJECTING THE COMPANY HOLDIN G IT TO BE FUNCTIONALLY DIFFERENT, THAT UNDER THE TNMM COMPARABLE TRANSACTI ON WERE REQUIRED TO BE BROADLY SIMILAR,THAT THE PRODUCT DIVERSITY AND SOME FUNCTIONAL DIVERSITY BETWEEN THE CONTROLLED AND THE UNCONTROLLED PARTIES WAS ACC EPTABLE, THAT UNDER THE TNMM THE NET PROFIT INDICATORS,USED FOR BENCH MARKI NG,WERE LESS AFFECTED BY TRANSACTIONAL DIFFERENCES THAN IS THE CASE WITH PRI CE(CUP METHOD),THAT THE COMPARABLES SELECTED BY THE ASSESSEE WERE ENGAGED IN TRAVEL SERVICES,THAT AS PER SCHEDULE -8 OF ANNUAL REPORT THE ASSESSEE WAS D ERIVING MAJORITY OF ITS OPERATING INCOME FROM TOUR AND TRAVEL OPERATIONS,TH AT IN THE NOTES TO ACCOUNTS IT WAS MENTIONED THAT COMPANY WAS CARRYING OUT ACTIVIT Y OF TOURISM BUSINESS,THAT IN THE EARLIER YEARS THE TPO HAD ACCEPTED THE SAME COMPARABLES. THE DR SUPPORTED THE ORDER OF THE DRP. 7.3. WE FIND THAT THE ASSESSEE WAS ENGAGED IN TRAVEL IND USTRY PRIMARILY PROVIDING TRAVEL AND TOUR SERVICES,THAT THE TRAVEL AND RELATE D SEGMENT ACTIVITIES OF THE ASSESSEE INCLUDED TWO IT.S-HANDLING OF INBOUND TOUR ISTS AND HANDLING OF OUT BOUND TOURISTS,THAT BOTH THE TRANSACTIONS WERE AGGR EGATED FOR THE PURPOSE OF BENCH -MARKING ANALYSIS,THAT THE ASSESSEE-COMPANY WAS SELECTED AS TESTED PART, THAT TNMM WAS ADOPTED AS MOST APPROPRIATE METHOD,TH AT THE PROFIT LEVEL INDICATOR (PLI) USED WAS OPERATING PROFIT/OPERATING COST (OP/TC),THAT IT HAD SELECTED FOUR COMPARABLES TO PROVE THE ARMS LENGTH OF THE IT.S.,THAT THE OPERATING MARGIN OF THE ASSESSEE WAS 10.76% AS AGAI NST THE MARGIN OF 4.39% OF THE COMPARABLES,THAT THE UPDATED MARGIN WAS FOUND T O BE WITHIN THE +- 5% RANGE,THAT WHILE MAKING THE ADJUSTMENT THE TPO HAD REJECTED THREE COMPARABLES NAMELY CTL,TTPL AND BLCL,THAT AFTER REJECTING THE T HREE COMPARABLES HE HAD 1261 & 1238/M/15 THOMAS COOK 18 RECOMPUTED THE OPERATING MARGIN OF BALANCE ONE COMP ARABLE I.E.TWL@ 45.06%, THAT WHILE MAKING THE ADJUSTMENT THE TPO RE DUCED BAD DEBT EXPENSES FROM OPERATING COST ON THE GROUND THAT SAME WAS ABN ORMAL IN NATURE, THAT HE INCREASED THE MARGIN OF THE COMPARABLE TO 45.06% AN D BENCHMARKED THE SAME AGAINST ASSESSEES OPERATING MARGIN OF 11.52% AFTER REDUCING BAD DEBT EXPENSES OF THE ASSESSEE,THAT HE MADE AN ADJUSTMENT OF RS.12 .08 CRORES,THAT THE DRP CONFIRMED THE REJECTION OF COMPARABLES AND DISMISSE D 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.WI THOUT ASSIGNING VALID REASON FOR REJECTING THE EARLIER YEARS STAND,THE TPO SHOU LD NOT HAVE REJECTED THE COMPARABLES THAT WERE FOUND VALID COMPARABLES IN PR EVIOUS YEARS.WITHOUT BRINGING ON RECORD THE SALIENT FEATURES OF THE YEAR UNDER CONSIDERATION AS COMPARED TO THE FACTS OF THE EARLIER YEARS,THE DEPA RTMENTAL AUTHORITIES CANNOT TAKE AN OPPOSITE VIEW.IT BRINGS UNCERTAINTY IN THE ASSESSMENT PROCEEDINGS.IN OUR OPINION,STAND TAKEN IN THE EARLIER YEARS SHOULD NOT BE DISTURBED IN THE SUBSEQUENT YEARS UNTIL AND UNLESS NEW FACTS EMERGE AND THE SAME ARE CONFRONTED TO THE ASSESSEE.HERE,WE WOULD LIKE TO REFER TO THE CASE OF GALILEO NEDERLAND BV,(367ITR319),OF THE HONBLE DELHI HIGH COURT WHER EIN IT HAS BEEN HELD THAT DECISION ON AN ISSUE OR QUESTION TAKEN IN EARLIER Y EARS THOUGH NOT BINDING SHOULD BE FOLLOWED AND NOT IGNORED UNLESS THERE ARE GOOD A ND 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 AND GOOD REASONS FOR DEVIATING AND NOT ACCEPTING EARLIER DECISION.THE HONBLE BOMBAY H IGH COURT IN THE CASE OF ARONI COMMERCIALS LTD.(362 ITR 403) HAS HELD AS UND ER: THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT APPLIC ABLE TO TAX MATTERS AS EACH YEAR IS SEPARATE AND DISTINCT,NEVERTHELESS WHERE FACTS ARE IDENTICAL FROM YEAR TO YEAR,THERE HAS TO BE UNIFORMITY AND IN TREATMENT. IN THE CASE UNDER CONSIDERATION WE FIND THAT THE TP O/DRP HAS NOT PROVED THAT THERE WAS A CHANGE IN THE FACTS,AS COMPARED TO EARL IER YEARS AND EVEN IF THEY 1261 & 1238/M/15 THOMAS COOK 19 EXISTED SAME WERE NOT BROUGHT ON RECORD.IN SHORT, T HE TPO/DRP HAS FAILED TO PROVE THE JUSTIFICATION FOR DEVIATING FROM THE DECI SION TAKEN EARLIER. WE FIND THAT THE TPO AND THE DRP HAD TAKEN A VIEW T HAT BAD DEBTS SHOULD BE EXCLUDED AS AN EXTRA ORDINARY ITEM WHILE CALCULATIN G MARIGN,THAT ACCORDINGLY THE FINAL MARGIN WAS ALTERED.BUT,THEY HAVE NOT ADDRESSE D THE BASIC AND FUNDAMENTAL ISSUE AS TO WHETHER THE ITEM WAS OF OPERATING NATUR E.THE TPO HAD NOT DEMONSTRATED THE NON-OPERATING NATURE OF THE BAD DE BTS.THEREFORE IN OUR OPINION THE RATIONALE FOR ELIMINATING BAD DEBTS AND REWORKI NG OF PLI WAS UNJUSTIFIED. THE ISSUE OF INCLUSION/EXCLUSION OF BAD DEBTS FOR T HE PURPOSES OF COMPUTATION OF MARGIN HAS ALREADY BEEN DELIBERATED UPON BY THE TRI BUNAL ON MORE THAN ONE OCCASIONS.WHILE DECIDING THE APPEAL OF THE CASE OF M/S. KENEXA TECHNOLOGIES PVT.LTD.HYDERABAD,(ITA/243/HYD/2014,DT.14.11. 2014) ,THE TRIBUNAL HAS HELD AS UNDER: 40.WITH RESPECT TO GROUND NO. 2.6.3 AND 2.6.4, IT WAS ARGUED BY THE LEARNED COUNSEL THAT THE TPO ERRED IN COMPUTING THE MARGINS OF COMP ARABLE COMPANIES BY CONSIDERING THE PROVISION FOR BAD AND DOUBTFUL DEBT S 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 W RITE BACK IS A NORMAL INCIDENT OF A BUSINESS OPERATION WHICH IS CARRIED EVERYWHERE IN A CCOUNTS TO HAVE TRUE PICTURE OF PROFITS OF THE RELEVANT PERIOD. HAVING REGARD TO STATUTORY PROVISIONS, IT CANNOT BE SAID THAT PROVISIONS OR WRITING BACK OF LIABILITY IS NOT PART OF OPERATING PROFIT OR WOU LD NOT BE TAKEN INTO CONSIDERATION FOR COMPUTING THE SAME. WE CAN THEREFORE MAKE A GENERAL OBSERVATION THAT AL L BUSINESS ENTERPRISES ARE MAKING AND WRITING BACK LIABILITIES AS A NORMAL INCIDENT O F OPERATING BUSINESS. THEREFORE ON FACTS WE DO NOT SEE ANY JUSTIFICATION FOR EXCLUDING PROVISIONS WRITTEN BACK IN THE PROFIT AND LOSS ACCOUNT AS NOT FORMING PART OF THE OPERATI NG PROFIT OF THE TAXPAYER. ACCORDINGLY CLAIM OF THE TAXPAYER IS ACCEPTED. 1261 & 1238/M/15 THOMAS COOK 20 107. THE NEXT ITEM RELATES TO BALANCES WRITTEN BACK . IN OUR CONSIDERED OPINION, FINDING GIVEN IN RESPECT OF PROVISIONS WRITTEN BACK IS EQUA LLY APPLICABLE TO BALANCES WRITTEN BACK MORE PARTICULARLY WHEN LD. CIT(A) HAS NOT GIVE N ANY SEPARATE FINDING AND THE TRANSFER PRICING OFFICER HAS SAID NOTHING SPECIFICA LLY ON THIS ITEM. THE BALANCES WRITTEN BACK SHOULD ALSO BE TREATED AS PART OF OPER ATING PROFIT. WE DIRECT ACCORDINGLY.' 42. WE ARE OF THE VIEW THAT IN THE INSTANT CASE BAD DEBTS AND PROVISION FOR BAD AND DOUBTFUL DEBTS ARE PART OF THE OPERATING EXPENSES A ND WE DIRECT THE TPO TO RE- COMPUTE THE MARGINS OF COMPARABLE COMPANIES BY INCL UDING BAD DEBTS AND PROVISION FOR BAD AND DOUBTFUL DEBTS AS OPERATING EXPENSES FO R THE PURPOSE OF COMPUTING PROFIT AND LOSS OF COMPARABLE COMPANIES . IN THE CASE OF EDAG ENGINEERS & DESIGN INDIA PVT. L TD. (ITA/3618/DEL/2009 DT.13/10/ 14) THE DELHI TRIBUNAL HAS HELD AS UNDER: .. AS FOR THE EXCLUSION OF BAD DEBTS, AMORTIZATIO N AND PROVISIONS, IN COMPUTATION OF THE PLI OF THE COMPARABLES, WE ARE UNABLE TO SEE AN Y RATIONALE IN THE SAME NOR HAS IT BEEN JUSTIFIED BEFORE US. IN VIEW OF THESE DISCUSSI ONS, IN OUR CONSIDERED OPINION, THE STAND TAKEN BY THE CIT(A) DOES NOT MERIT ANY INTERF ERENCE BY US. AS PER THE AS-5,BAD DEBTS CANNOT BE CONSIDERED AS E XTRA ORDINARY ITEM. CONSIDERING THE ABOVE WE ARE NOT AGREEABLE TO THE P ROPOSITION PROPOUNDED BY THE TPO AND THE DRP THAT BAD SHOULD EXCLUDED AS AN EXTRA ORDINARY ITEM FOR CALCULATING MARGINS.IF WE IGNORE THE REWORKING OF T HE PLI OF THE ASSESSEE AND OF TWL IT IS FOUND THAT THE CORRECT OPERATING MARGIN O F TWL WOULD BE 11.64% AND IT WOULD FALL WITHIN THE CRITERIA OF +- 5% OF A RMS LENGTH RANGE. IN OUR OPINION,THE TPO HAD FOLLOWED THE PECULIAR PA TTERN IN REJECTING/SELECTING THE COMPARABLES WITHOUT FOLLOWING THE BASIC PHILOSO PHY OF TP PROVISIONS. TNMM IS ONE OF THE MAM AND WAS ADOPTED BY THE ASSES SEE.THE FUNDAMENTAL PRINCIPLE OF THE SAID METHOD IS TO BROADLY COMPARE THE FUNCTIONS OF THE SELECTED COMPANIES.IN OTHER WORDS,PRODUCT COMPARABILITY IS N OT THE BACK BONE OF TNMM.THE PROVERBIAL FLY CANNOT BE REPLACED BY ANOTH ER 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 TRANSF ERRING OF PROFITS TO AE.S.BY 1261 & 1238/M/15 THOMAS COOK 21 THE INDIAN ENTITIES,OF THE TP PROVISIONS HAS ALWAYS TO BE KEPT IN MIND WHILE MAKING ADJUSTMENTS.IN THESE CIRCUMSTANCES, THE ARGU MENT ADVANCED BY THE TPO AND THE DRP THAT REPORTING OF RESULTS ON GP/NP BAS IS BY THE ASSESSEE/ COMPARABLES WAS AN EVIDENCE OF DIVERSITY IS BEYOND OUR COMPREHENSION- ESPECIALLY WHEN THE ASSESSEE HAD FILED RECONCILIATI ON ABOUT THE IT(PG.348 OF THE PB.)WHETHER THE REPORTING SYSTEM OF PROFIT MARGINS RESULTED IN TRANSFERRING OF THE LEGITIMATE TAXES FROM INDIA TO THE AE HAS NOT B EEN DEALT OR ANSWERED BY BOTH THE AUTHORITIES WHILE REJECTING THE COMPARABLES. SECONDLY,TWO OF THE COMPARABLES WERE REJECTED ON TH E BASIS OF AREA OF OPERATIONS.BUT,IF WE CLOSELY LOOK AT THE FUNCTION P ROFILE OF THE COMPARABLES,ONE THING IS CLEAR THAT THEY ARE IN THE SAME BUSINESS T HAT 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 OF BUSINESS AND THEY WERE FACE SAME RISKS,SO,THE TPO WAS NOT JUSTIF IED IN REJECTING THE THREE AND CHERRY PICKING ONE.COMPARABLES SELECTED BY THE ASSE SSEE SHOULD NOT BE REJECTED IN A CASUAL AND LIGHT MANNER. NOW WE WOULD LIKE TO DISCUSS ALL THE THREE COMPARAB LES REJECTED BY THE TPO. WE FIND THAT ONE OF THE REASON FOR REJECTING CTL WA S FOREIGN EXCHANGE EARNING, THAT IT HAD EARNED FOREIGN EXCHANGE, THAT THE ANNUA L REPORT OF THE CTL FOR THE YEAR UNDER CONSIDERATION,AT PAGE 48 TALKS OF FOREIG N EXCHANGE EARNINGS,THAT THE TPO HAD MISINTERPRETED THE RESERVE AND SURPLUS BEIN G A BALANCE SHEET ITEM (PAGE 32 OF THE ANNUAL REPORT) AS EARNING IN FOREIG N EXCHANGE. IT IS A FACT THAT MAJORITY OF OPERATING INCOME OF TCL IS FROM TOURS A ND TRAVELS OPERATIONS, THAT IN THE SEGMENTAL REPORTING, THE ASSESSEE HAS REPORT ED ACTIVITY OF TOURISM BUSINESS IS THE ONLY ACTIVITY, THAT IN THE BALANCE SHEET ABS TRACT AND GENERAL IS THIS PROFILE TCL HAS BEEN REFERRED AS IATA ISNT CARRYING OUT TO URISM RELATED ACTIVITIES. WE FIND THAT THESE VITAL FACTS WERE IGNORED BY THE TPO AND THE DRP THEREFORE THE REJECTION OF TCL IS COMPARABLE IS HELD TO BE UNJUST IFIABLE.WE HAVE GONE THROUGH THE ANNUAL REPORT OF THE TTPL AND FIND THAT THERE IS NO MENTION OF EVENT 1261 & 1238/M/15 THOMAS COOK 22 MANAGEMENT AND MANAGING THE WEDDINGS BY IT, THAT FO R THE YEAR UNDER CONSIDERA -TION IT HAD SHOWN THE OPERATING INCOME FROM TOURS AND TRAVELS IN THE PROFIT AND LOSS ACCOUNT, THAT WHILE REPORTING THE SEGMENTAL RE SULTS IT HAS STATED THAT IT WAS IN THE BUSINESS OF ORGANISING TOURS, THAT THE BALAN CE SHEET ABSTRACT AND COMPANY GENERAL BUSINESS PROFILE TALKS ABOUT INBOUND TOUR O PERATOR 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 CONSIDERATIO N AND AS PER THE BOOKS OF ACCOUNTS,TTPL WAS CARRYING OUT BUSINESS OF TOURS AN D TRAVELS ONLY IN THAT YEAR.THEREFORE, WE ARE UNABLE TO ENDORSE THE VIEW O F THE DRP AND THE TPO IN REJECTING IT AS A VALID COMPARABLE. IN THE CASE OF THE BCLC,WE FIND THAT TOURS AND TRAVELS WAS THE MAIN SEGMENT OF OPERATING INCOM E FOR THE YEAR UNDER CONSIDERATION.SO,WE HOLD THAT THE TPO HAD WRONGLY R EJECTED 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. 8. NEXT GROUND DEALS WITH TP ADJUSTMENT OF RS.8.31CROR ES 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 TH E YEAR UNDER APPEAL.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,THE TPO HELD THAT THE ASSESSEE WAS SPENDING MUCH MORE THAN INDUSTRY EVEREST IN PROMOTI NG AND BUILDING BRAND TCUK,THAT THE BRAND THOMAS COOK DID NOT BELONG TO T HE ASSESSEE, THAT IT WAS PAYING A HEFTY SUM PER AND FOR THE USE OF BRAND THR OUGH TRADEMARK LICENSE AGREEMENT DATED 29/03/2006,THAT IT WAS INCURRING EX PENSES FOR PROMOTING BRAND NAME OF TCUK,THAT THE ARGUMENT OF THE ASSESSEE THAT AE HAD NOT BE BENEFITED WAS MISPLACED,THAT THE AE GOT MORE LICENCE FEE AND MORE BUSINESS THAT THE ASSESSEE WAS ENTITLED TO USE THE THOMAS COOK BRAND ONLY IN THE TERRITORY WHERE IT WAS ALREADY BUILDING AND PROMOTING IT.HE FOUND T HAT ONE OF THE COMPARABLES 1261 & 1238/M/15 THOMAS COOK 23 SELECTED BY THE ASSESSEE NAMELY TWL HAD INCURRED EX PENDITURE AT THE RATE OF 1.8% FOR AMP FOR THE YEAR UNDER CONSIDERATION. THER EFORE, 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. ADVERT ISING AND BUSINESS PROMOTION INCURRED BY IT DURING THE YEAR FOR THE PURPOSE OF S ELLING PRODUCTS IN INDIAN MARKET,THAT THE TRANSACTION WERE PURELY DOMESTIC TR ANSACTIONS WITH THIRD PARTIES AND WERE OUTSIDE THE PURVIEW OF SECTION 92 OF THE A CT, THAT THE AMP EXPENSES DID NOT FORM PART OF THE INTERNATIONAL TRANSACTIONS ,THAT THE EXPENDITURE HAD BEEN ENTIRELY INCURRED IN INDIA WITH UNRELATED DOMESTIC PARTIES AND THE SAME HAD NOT BEEN REPORTED IN FORM 3 CEB, THAT TRANSFER PRICING IS APPLICABLE ONLY IN RESPECT OF INCOME ARISING/EXPENSES INCURRED FROM/FOR AN INT ERNATIONAL TRANSACTION, THAT THE TPO HAD TREATED AMP EXPENDITURE AS NON-ROUTINE EXPENDITURE INCURRED TOWARDS BRAND BUILDING,THAT AMP INCURRED BY THE ASS ESSEE WAS AN EXPENDITURE INCURRED FOR ITS OWN BUSINESS,THAT THE PAYMENT HAD BEEN PRIMARILY MADE TO UNRELATED THIRD PARTIES IN ASSESSEES TERRITORY AND DID NOT BENEFIT AE IN ANY MANNER, THAT THE TRANSACTION COULD NOT BE TREATED A S AN IT, THAT THE PROMOTION OF SALE IN THE ASSESSEES TERRITORY WAS ITS SOLE RESPO NSIBILITY, THAT THE EXPENDITURE INCURRED FOR ADVERTISEMENT ETC WAS SOLELY FOR ITS O WN BUSINESS INTEREST IN ORDER TO INCREASE ITS SALES AND MARKET SHARE IN ITS TERRI TORY, THAT FOR A TRANSACTION TO BE TREATED AS AN IT,SAME SHOULD HAVE BEEN UNDERTAKEN B ETWEEN TO AE.S., THAT THE PAYMENT FOR ADVERTISEMENT EXPENSES HAD BEEN MADE TO THIRD PARTIES, THAT THE SAME WAS NOT COVERED WITHIN THE AMBIT OF TP REGULAT IONS, THAT THERE WAS NO PRIOR AGREEMENT BETWEEN TCUK AND THE THIRD PARTIES TO ADVERTISEMENT PROMO - TIONS PAYMENT WERE MADE, THAT THE TPO DID NOT BRING ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THERE EXISTED PRIOR AGREEMENT BETW EEN THE ASSESSEE AND ITS AE 1261 & 1238/M/15 THOMAS COOK 24 REGARDING AMP EXPENSES,THAT THE TPO HAD NOT GIVEN D UE CONSIDERATION TO ASSESSEES 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 THE SUBMISSIONS OF THE ASSESSEE, THE DRP HELD THAT AMP EXPENDITURE WAS RE QUIRED FOR THE BUSINESS OF THE ASSESSEE, THAT THE HIGHER THAN NORMAL SPENDING INCURRED BY IT ESTABLISHED THAT BRAND BUILDING SERVICES HAD BEEN RENDERED BY IT TO THE AE FOR WHICH NO CHARGES HAD BEEN MADE, THAT THE CONTENTION THAT THE EXPENSE S WERE INCURRED FOR ASSESSEES OWN BUSINESS PURPOSES ONLY WAS NOT ACCEP TABLE, THAT THE ASSESSEE WAS NOT OWNER OF THE BRANDS AND WAS MERELY A USER AND B ENEFICIARY OF THE BRAND, THAT THE ASSESSEE WAS PROVIDING A VALUABLE SERVICE TO TH E AE,THAT THE TPO HAD RIGHTLY MADE THE ADJUSTMENT 8.2. BEFORE US,THE AR MADE THE ARGUMENTS THAT ARE RECORD ED AT PARAGRAPH NO.2.2. OF THE ORDER AND THAT HAVE BEEN NOTED IN THE LAST P ARAGRAPH 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 DE CISION IN THE CASE OF MARUTI SUZUKI(DATED 11/12/2015),THE BENEFIT OF THE DECISIO N WAS NOT AVAILABLE TO THE AUTHORITIES BELOW-TPO, A.O,CIT(A),DRP-THAT IN THE L IGHT OF THE EARLIER DECISIONS AND PARTICULARLY LG'S CASE(140 ITD 41)THE TPOS AND OTHER AUTHORITIES PROCEEDED IN A MANNER FOLLOWING THE BRIGHT LINE TES T,THAT IN CERTAIN CASES, REFERENCES COULD ALSO HAVE BEEN MADE TO THE AGREEME NTS BETWEEN THE PARTIES I.E., INDIAN ENTITY AND FOREIGN AES.,THAT IN SOME CASES, BRIGHT LINE TEST HAD BEEN FOLLOWED AND THE EXPENDITURE ON AMP HAS BEEN SLICED INTO TWO PORTIONS,THAT THE NON-ROUTINE EXPENDITURE IN EXCESS OF BLT WAS CONSID ERED 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 MA NUFACTURING, CONSIDERED THE NORMAL EXPENDITURE ON AMP WHICH DID NOT INCLUDE AMO UNT OVER AND ABOVE THE 1261 & 1238/M/15 THOMAS COOK 25 BLT, THAT THE TPO EVALUATED THE TRANSACTIONS INTO S ET OF TWO TRANSACTIONS I.E. DISTRIBUTION AND AMP SEPARATELY, THAT IN CASES OF M ANUFACTURING, THE TPO DID THE BENCHMARKING SEPARATELY FOR MANUFACTURING SEGME NT AND AMP SEGMENT,THAT IN CASE AMP WAS CONSIDERED NOT TO BE AN INTERNATION AL TRANSACTION THE BENCH - MARKING OF THE OTHER SEGMENT(DISTRIBUTION OR MANUFA CTURING)WOULD GET IMPACTED ,THAT THE NON-ROUTINE EXCESS EXPENDITURE TAKEN OUT FOR BENCH -MARKING OF AMP WOULD BE REQUIRED TO BE CONSIDERED AS PART OF COST BASE OR EXPENDITURE RELATING TO DISTRIBUTION SEGMENT OR MANUFACTURING SEGMENT AS THE CASE MAY BE,THAT EXISTENCE OF INTERNATIONAL TRANSACTION IS TO BE DEM ONSTRATED ON THE BASIS OF AGREEMENTS, ARRANGEMENTS ETC.,THAT 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 PRIN CIPLE 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 EXP ENDITURE UNDER THE HEAD AMP WHICH SIGNIFIED CARRYING OUT OF AMP FUNCTIONS AND ITS INTENSITY BY AN ENTITY, THAT THE NATURAL COURSE WOULD BE TO MAKE IN-DEPTH ANALYSIS OF FUNCTIONS, ASSETS AND RISKS(FAR),THAT THE SELECTION OF THE COMPARABLE S WOULD NEED TO BE ALIGNED IN TERMS OF THE REVISED FAR.HE REFERRED TO NUMBER O F CASES WHERE THE TRIBUNAL HAD RESTORED THE MATTER BACK TO THE FILE OF AO/TPO AND STATED THAT THE MATTER SHOULD BE SENT BACK TO THE FILE OF THE TPO/AO. 8.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.IN THE EARLIER PART OF OUR ORDER,WE HAVE MENTIONED THA T 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 TH E NON ADJUDICATION OF THE ISSUE IN THE EARLIER YEAR.THE ARGUMENTS OF THE ASSE SSEE FOR BOTH THE YEARS ARE IDENTICAL. WE FIND THAT ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.12,25,71,652/-AND 1261 & 1238/M/15 THOMAS COOK 26 RS.10,01,37,032/-RESPECTIVELY FOR THE EARLIER AND C URRENT AY.UNDER THE HEAD AMP,THAT IT WAS PAYING NAME AND LICENCE FEE TO TCUK , THAT THE TPO HELD THAT THE ASSESSEE WAS SPENDING MUCH MORE THAN INDUSTRY A VERAGE IN PROMOTING AND BUILDING BRAND OF TCUK,THAT HE MADE AN ADJUSTMENT O F RS.8.09 CRORES AND RS.8.31 CRORES FOR THE AY.S.2009-10 AND AY.2010-11 TOWARDS AMP EXPENDI - TURE,THAT THE ASSESSEE HAD FILED ADDITIONAL EVIDENC ES BEFORE THE FAA,THAT THE FAA DID NOT ADMIT THE EVIDENCES REFERRING TO THE P ROVISIONS OF RULE 46A OF THE RULES, THAT HE UPHELD THE ORDER OF THE TPO,THAT FOR THE AY.2010-11 THE ASSESSEE HAD FILED OBJECTIONS BEFORE THE DRP,THAT THE ADJUST MENT MADE BY THE TPO WERE CONFIRMED THE DRP,THAT THE ADJUSTMENT WAS MADE/CONF IRMED BY THE TPO/DRP BECAUSE BOTH OF THEM WERE OF THE OPINION THAT BY IN CURRING 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 TO DAY THE LEGAL POSITION IS AS CLEAR AS CRYSTAL WITH REGARD TO AMP EXPENSES.THE HONBLE DELHI HIGH COURT HAS DEALT THE ISSUE IN DEPTH AND HAS ARRIVED AT THE CONCLUSION THAT IN ABSENCE OF ANY AGREEMENT FOR SHARING AMP EXPENSES IT CANNOT BE HELD THAT AMP EXPENDITURE WAS AN IT.PROBABLE INCIDENTAL BENEFIT T O THE AE WOULD NOT MAKE SUCH A TRANSACTION AN IT.THE FACTORS LIKE PAYMENT U NDER THE HEAD AMP EXPENDITURE TO THE THIRD INDEPENDENT PARTIES, PROMO TING OWN BUSINESS INTEREST BY WAY OF AMP EXPENSES TAKE AWAY THE ALLEGED INTERNAT IONALITY OF THE TRANSACT - TION.IN ABSENCE OF ANY DIRECT OR DIRECT EVIDENCE OF INCURRING OF AMP EXPENSES BY THE ASSESSEE FOR THE BENEFIT OF THE AE OR ON BEH ALF 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 OTHE R ADJUSTMENT WILL AND CANNOT COME IN PICTURE.FOLK WISDOM OF RURAL INDIA T HE SAYS THAT MOTHER(MAA)IS MUST FOR EXISTENCE OF HER SISTER(MAUSI).SIMILARLY T HE EXISTENCE OF AN IT IS THE PRE-REQUISITE OF APPLYING THE PROVISIONS OF CHAPTER X OF THE ACT. THE ASSESSEE 1261 & 1238/M/15 THOMAS COOK 27 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 CIRCU MSTANCES,WE ARE OF THE OPINION THAT THE MATTER SHOULD NOT BE REMITTED BACK TO THE FILE OF THE TPO/ AO. LITIGATION HAS TO BE PUT TO AN END AT SOME STAGE.JU DICIAL TIME OF EVERY AUTHORITY, INCLUDING THE TPO/DRP,IS VERY PRECIOUS AND IT SHOUL D NOT BE WASTED FOR DEALING WITH MERE ACADEMIC ARGUMENTS.THE RECOURSE OF REMAND ING OF MATTERS/ISSUE TO THE AO.S HAS TO RESORTED RARELY AND SELECTIVELY.IN THE CASE BEFORE US,NO REASONABLE CAUSE HAS BEEN SHOWN TO JUSTIFY THE SETT ING ASIDE THE ISSUE. HERE,WE WOULD ALSO LIKE TO REFER TO THE CASE OF BOS CH 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['COMPUTATI ON OF INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO ARM'S LENGTH PRICE']A ND SECTION 92 (1) WHICH STATES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRAN SACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP AND SECTION 92C (1) WHICH SETS O UT THE DIFFERENT METHODS OF DETERMINING THE ALP, MAKES IT CLEAR THAT THE TRANS FER PRICING ADJUSTMENT IS MADE BY SUBSTITUTING THE ALP FOR THE PRICE OF THE TRANSACT ION. TO BEGIN WITH THERE HAS TO BE AN INTERNATIONAL TRANSACTION WITH A CERTAIN DISCLOSED PRICE.THE TRANSFER PRICING ADJUSTMENT ENVISAGES THE SUBSTITUTION OF THE PRICE OF SUCH INTERNATIONAL TRANSACTION WITH THE ALP. 54. UNDER SECTIONS 92B TO 92F, THE PRE-REQUISITE FO R COMMENCING THE TP EXERCISE IS TO SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACT ION. 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 S PECIFIED IN SECTION 92C. THE FOURTH STEP WOULD BE TO COMPARE THE PRICE OF THE TRANSACTI ON THAT IS SHOWN TO EXIST WITH THAT OF THE ALP AND MAKE THE TP ADJUSTMENT BY SUBSTITUT ING THE ALP FOR THE CONTRACT PRICE. 55. SECTION 928 DEFINES 'INTERNATIONAL TRANSACTION' AS UNDER: 'MEANING OF INTERNATIONAL TRANSACTION. 928.(1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92,92C,92D AND 92E ,'INTERNATIONAL TRANSA CTION MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- 1261 & 1238/M/15 THOMAS COOK 28 RESIDENTS; IN THE NATURE OF PURCHASE, SALE OR LEAS E OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, 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 BE TWEEN 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 CONNECTIO N WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SU CH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WITH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES 'OF SUB-SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXIST S A PRIOR AGREEMENT IN RELATION TO' THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMIN ED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE.' 56.THUS, UNDER SECTION 92B(1) AN 'INTERNATIONAL TR ANSACTION' MEANS- (A) A TRANSACTION BETWEEN TWO OR MORE AES, EITHER OR BOTH OF WHOM AR E 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 BOR ROWING MONEY OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME S OR LOSSES OF SUCH ENTERPRISES, AND (C) SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANG EMENT BETWEEN TWO OR MORE AES FOR ALLOCATION OR APPORTIONMENT OR CONTRIBUTION TO THE ANY COST OR EXPENSES INCURRED OR TO BE INCURRED IN CONNECTION- WITH THE - BENEFI T, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ONE OR MORE OF SUCH ENTERPRISES. 57. CLAUSES (B) AND (C) ABOVE CANNOT BE READ DISJU NCTIVELY. EVEN IF RESORT IS HAD TO THE RESIDUARY PART OF CLAUSE (B) TO CONTEND THAT T HE AMP SPEND OF BLI IS 'ANY OTHER TRANSACTION HAVING A BEARING' ON ITS 'PROFITS, INCO MES OR LOSSES, FOR A 'TRANSACTION' THERE HAS TO BE TWO PARTIES. THEREFORE FOR THE PURP OSES OF THE 'MEANS' PART OF CLAUSE (B) AND THE 'INCLUDES' PART. OF CLAUSE (C), THE RE VENUE HAS TO SHOW THAT THERE EXISTS AN 'AGREEMENT' OR 'ARRANGEMENT' OR' 'UNDERSTANDING' B ETWEEN 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 C ONCERNED, IT IS SEEN THAT CERTAIN TRANSACTIONS LISTED IN THE EXPLANATION UNDER CLAUS ES (I) (A) TO (E) TO SECTION 92B ARE DESCRIBED AS AN 'INTERNATIONAL TRANSACTION'. THIS M IGHT BE ONLY AN ILLUSTRATIVE LIST, BUT SIGNIFICANTLY' IT DOES NOT LIST AMP SPENDING AS ONE SUCH TRANSACTION. 1261 & 1238/M/15 THOMAS COOK 29 58. IN MARUTI SUZUKI INDIA LTD. (SUPRA), ONE OF THE SUBMISSIONS OF THE REVENUE WAS: 'THE MERE FACT THAT THE SERVICE OR BENEFIT HAS BEEN PROVIDED BY ONE PARTY TO THE OTHER WOULD BY ITSELF CONSTITUTE A TRANSACTION IRRESPECTI VE OF WHETHER THE CONSIDERATION FOR THE SAME HAS BEEN PAID OR REMAINS PAYABLE OR THERE IS A MUTUAL AGREEMENT TO NOT CHARGE ANY COMPENSATION FOR THE SERVICE OR BENEFIT . THIS WAS NEGATIVED BY THE COURT BY POINTING OUT; 'EVEN IF THE WORD 'TRANSACTION' I S GIVEN ITS WIDEST CONNOTATION, AND NEED NOT INVOLVE ANY TRANSFER OF MONEY OR A WRITTE N 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', IT IS STILL INCUMBENT ON THE REVENUE TO SHOW THE EXISTENCE OF AN 'UNDERSTANDING' OR AN 'ARRANGEMENT' OR 'ACTION IN CONCERT' BETWEEN MSIL AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. IN OTHER WORDS, FOR BOTH THE 'MEANS', PART AND THE 'INCLUDES' PART OF SECTION 928 (1) WH AT HAS TO BE DEFINITELY SHOWN IS THE EXISTENCE OF TRANSACTION WHEREBY MSIL HAS BEEN OBL IGED TO INCUR AMP OF A CERTAIN LEVEL FOR SMC FOR THE PURPOSES OF PROMOTING THE BR AND OF SMC.' 59. IN WHIRLPOOL OF INDIA LTD. (SUPRA), THE COURT INTERPRETED THE EXPRESSION 'ACTED IN CONCERT' AND IN THAT CONTEXT REFERRED TO THE DECISI ON 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 ZE NOTECH 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 R ANBAXY WERE 'ACTING IN CONCERT' WITHIN THE MEANING OF REGULATION 20(4) (B) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOV ERS) REGULATIONS, 1997. IN. PARA 44, IT WAS OBSERVED AS UNDER: 'THE OTHER LIMB OF THE CONCEPT REQUIRES TWO OR MORE PERSONS JOINING TOGETHER WITH THE SHARED COMMON OBJECTIVE AND PURPOSE OF SUBSTAN TIAL ACQUISITION OF SHARES ETC. OF A- CERTAIN TARGET COMPANY, THERE CAN BE NO 'PERSON S ACTING IN CONCERT' UNLESS THERE IS A SHARED COMMON OBJECTIVE OR PURPOSE BETWEEN TWO O R 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 'P ERSON ACTING IN CONCERT' IS AS MEANINGLESS AS CRIMINAL CONSPIRACY WITHOUT ANY AGR EEMENT TO COMMIT A CRIMINAL OFFENCE. THE IDEA OF 'PERSONS ACTING IN CONCERT' I S NOT ABOUT A FORTUITOUS RELATIONSHIP COMING INTO EXISTENCE BY ACCIDENT OR CHANCE. THE RE LATIONSHIP' CAN COME INTO BEING ONLY BY DESIGN, BY MEETING OF MINDS BETWEEN TWO OR MORE PERSONS LEADING TO THE 1261 & 1238/M/15 THOMAS COOK 30 SHARED COMMON OBJECTIVE OR PURPOSE OF ACQUISITION OF SUBSTANTIAL ACQUISITION OF SHARES ETC. OF THE TARGET COMPANY. IT IS ANOTHER M ATTER THAT THE COMMON OBJECTIVE OR PURPOSE MAY BE IN PURSUANCE OF AN AGREEMENT' OR AN UNDERSTANDING, FORMAL OR INFORMAL; 'THE ACQUISITION OF SHARES ETC. MAY BE D IRECT OR INDIRECT OR THE PERSONS ACTING IN CONCERT MAY COOPERATE IN ACTUAL ACQUISITI ON OF SHARES ETC. OR THEY MAY AGREE TO, COOPERATE IN SUCH ACQUISITION. NONETHELESS, TH E ELEMENT OF THE SHARED COMMON OBJECTIVE OR PURPOSE IS THE SINE QUA NON FOR THE R ELATIONSHIP 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 INT ERNATIONAL TRANSACTION EXISTS AND THEN PROCEEDING TO MAKE THE ADJUSTMENT OF THE DIFF ERENCE IN ORDER TO DETERMINE THE VALUE OF SUCH AMP EXPENDITURE INCURRED , FOR THE AE. IN ANY EVENT, AFTER THE DECISION IN SONY ERICSSON (SUPRE), -- THE QUESTION OF APPLY ING THE BLT TO DETERMINE THE EXISTENCE-OF AN-INTERNATIONAL TRANSACTION INVOLVIN G AMP EXPENDITURE DOES NOT ARISE. 61. THERE IS MERIT IN THE CONTENTION OF THE ASSESSE E THAT A DISTINCTION IS REQUIRED TO BE DRAWN BETWEEN A 'FUNCTION' AND A 'TRANSACTION' AND THAT EVERY EXPENDITURE FORMING PART OF THE FUNCTION, CANNOT BE CONSTRUED AS A 'TR ANSACTION'. 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) W HICH REQUIRED A TPO 'TO EXAMINE THE 'INTERNATIONAL TRANSACTION' AS HE ACTUALLY FIN DS THE SAME.' 62. IN THE PRESENT CASE, THE MERE FACT THAT B&L, US A THROUGH B&L, SOUTH ASIA, INC HOLDS 99.9% OF THE SHARE OF THE ASSESSEE WILL NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE MERE INCREASING OF AMP EXPENDITURE BY THE ASSESSEE INVOLVES AN INTERNATIONAL TRANSACTION IN THAT REGARD WITH B&L, USA. A SIMILAR CONTENTION BY THE REVENUE, NAMELY THE FACT THAT EVEN IF THERE IS NO E XPLICIT ARRANGEMENT, THE FACT THAT THE BENEFIT OF SUCH AMP EXPENSES WOULD ALSO ENCURE TO T HE AE IS ITSELF SELF SUFFICIENT TO 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 SURM ISES AND CONJECTURES AND IF ACCEPTED AS SUCH WILL LEAD TO SENDING THE TAX AUTH ORITIES THEMSELVES ON A WILD-GOOSE CHASE OF WHAT CAN AT BEST BE DESCRIBED AS A 'MIRAG E'. FIRST OF ALL, THERE HAS TO BE A CLEAR 1261 & 1238/M/15 THOMAS COOK 31 STATUTORY MANDATE FOR SUCH AN EXERCISE. THE COURT IS UNABLE TO FIND ONE. TO THE QUESTION WHETHER THERE IS ANY 'MACHINERY' PROVISIO N FOR DETERMINING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES , MR. SRIVASTAVA ONLY REFERRED TO SECTION 92F (II) WHICH DEFINES ALP TO MEAN A PRICE 'WHICH IS APPLIED OR PROPOSED TO BE APPLIED IN A TRANSACTION BETWEEN PERSONS OTHER T HAN AES IN UNCONTROLLED CONDITIONS',SINCE THE REFERENCE IS TO 'PRICE' AND T O 'UNCONTROLLED CONDITIONS' IT IMPLICITLY BRINGS INTO PLAY THE BLT. IN OTHER WORDS , IT EMPHASISES THAT WHERE THE PRICE IS SOMETHING OTHER THAN WHAT WOULD BE PAID OR CHAR GED 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 F ACT THAT -THE-BLT HAS BEEN EXPRESSLY NEGATIVED BY THE COURT IN SONY ERICSSON. THEREFORE, THE EXISTENCE OF AN INTERNATIONAL TRANSACTION WILL HAVE TO BE ESTABLIS HED DE HORS THE BLT, 70. WHAT IS CLEAR IS THAT IT. IS THE 'PRICE' OF AN INTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE ADJUSTED: THE VERY EXISTENCE OF AN INTERNATIONAL TRANSACTION CANNOT BE PRESUMED BY ASSIGNING SOME PRICE TO IT AND THEN DED UCING THAT SINCE IT IS NOT AN ALP, AN ADJUSTMENT HAD TO BE MADE. THE -BURDEN IS ON THE REVENUE TO FIRST SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION. NEXT, T O ASCERTAIN THE DISCLOSED 'PRICE' OF SUCH TRANSACTION AND THEREAFTER ASK WHETHER IT IS A N ALP. IF THE ANSWER TO THAT IS IN THE NEGATIVE THE TP ADJUSTMENT SHOULD FOLLOW.THE OBJECT IVE OF CHAPTER X IS TO MAKE ADJUSTMENTS TO THE PRICE OF AN INTERNATIONAL TRANSA CTION 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 PERMISSI BLE 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 R EVENUE HAS SOUGHT TO DO IN THE PRESENT. CASE IS TO RESORT TO A QUANTITATIVE ADJUS TMENT BY FIRST DETERMINING WHETHER THE AMP SPEND OF THE ASSESSEE ON- APPLICATION OF THE B LT,IS EXCESSIVE,THEREBY EVIDENC - ING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE AE. THE QUANTITATIVE DETERMINATION FORMS THE VERY BASIS FOR THE ENTIRE TP EXERCISE IN THE PRESENT CASE. 74.THE PROBLEM WITH THE REVENUE'S APPROACH IS THAT IT WANTS EVERY INSTANCE OF AN AMP SPEND BY AN INDIAN ENTITY WHICH HAPPENS TO USE THE BRAND OF A FOREIGN AE TO BE PRESUMED TO INVOLVE AN INTERNATIONAL TRANSACTION. AND THIS, NOTWITHSTANDING THAT THIS IS NOT ONE OF THE DEEMED INTERNATIONAL TRANSACTION S LISTED UNDER THE EXPLANATION TO SECTION 928 OF THE ACT.THE PROBLEM DOES NOT STOP HE RE.EVEN IF A TRANSACTION INVOLVING 1261 & 1238/M/15 THOMAS COOK 32 AN AMP SPEND FOR A FOREIGN AE IS ABLE TO BE LOCATE D IN SOME AGREEMENT, WRITTEN (FOR E.G., THE SAMPLE AGREEMENTS PRODUCED BEFORE THE CO URT BY THE REVENUE) OR OTHERWISE, HOW SHOULD A TPO PROCEED TO BENCHMARK THE PORTION OF SUCH AMP SPEND THAT THE INDIAN ENTITY SHOULD BE COMPENSATED FOR? 63. FURTHER, IN MARUTI SUZUKI INDIA LTD. '(SUPRA) T HE COURT FURTHER EXPLAINED THE ABSENCE OF A 'MACHINERY PROVISION QUA AMP EXPENSES BY THE FOLLOWING ANALOGY: '75. AS AN ANALOGY; AND FOR-NO OTHER PURPOSE; IN TH E- CONTEXT OF A DOMESTIC TRANSACTION INVOLVING TWO OR MORE RELATED PARTIES, REFERENCE MAY' BE MADE TO SECTION 40 A (2) (A) UNDER WHICH CERTAIN TYPES OF EXPENDIT URE INCURRED BY WAY OF PAYMENT TO RELATED PARTIES IS NOT DEDUCTIBLE 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 CON SIDERED 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 CORRESPON DING 'MACHINERY' PROVISION IN CHAPTER X WHICH ENABLES' AN AO TO DETERMINE WHAT S HOULD BE THE FAIR 'COMPENSATION' AN INDIAN ENTITY WOULD BE ENTITLED TO IF IT IS FOU ND' THAT THERE IS AN INTERNATIONAL TRANSACTION IN THAT REGARD. IN PRACTICAL TERMS, AB SENT A CLEAR STATUTORY GUIDANCE, THIS MAY ENCOUNTER FURTHER DIFFICULTIES. THE STRENGTH O F A BRAND,WHICH COULD BE PRODUCT SPECIFIC, MAY BE 'IMPACTED BY NUMEROUS OTHER IMPOND ERABLES NOT LIMITED TO THE NATURE OF THE INDUSTRY, THE GEOGRAPHICAL PECULIARITIES, EC ONOMIC TRENDS BOTH INTERNATIONAL AND DOMESTIC, THE CONSUMPTION PATTERNS, MARKET BEHAVIOU R 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 ENCAPSULATI NG THE LEGISLATIVE POLICY AND MANDATE WHICH PROVIDES THE NECESSARY CHECKS AGAINS T ARBITRARINESS WHILE AT THE SAME TIME ADDRESSING THE APPREHENSION OF TAX AVOIDANCE. 64. IN THE ABSENCE OF ANY MACHINERY PROVISION, BRI NGING AN IMAGINED TRANSACTION TO TAX IS NOT POSSIBLE. THE DECISIONS IN CIT V. B.C. S RINIVASA SETTY (1981) 128 ITR 294 (SC) AND PNB FINANCE LTD. V, CIT (2008) 307 ITR 75 (SC) MAKE THIS POSITION EXPLICIT. THEREFORE,WHERE THE EXISTENCE OF AN INTER NATIONAL TRANSACTION INVOLVING AMP EXPENSE WITH AN ASCERTAINABLE PRICE IS- UNABLE TO BE SHOWN TO EXIST, EVEN IF SUCH PRICE IS NIL,CHAPTER X PROVISIONS CANNOT BE INVOKED TO UN DERTAKE A TP ADJUSTMENT EXERCISE. 1261 & 1238/M/15 THOMAS COOK 33 65. AS ALREADY MENTIONED, MERELY BECAUSE THERE IS A N INCIDENTAL BENEFIT TO THE FOREIGN AE, IT CANNOT BE SAID THAT THE AMP EXPENSES INCURR ED BY THE INDIAN ENTITY WAS FOR PROMOTING THE BRAND OF THE FOREIGN AE. AS MENTIONE D-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 EXPEN DITURE BEING 'ALLOWED BY WAY OF A DEDUCTION UNDER SECTION 10 (2) (XV) OF THE ACT (IN DIAN INCOME TAX ACT, 1922) IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY THE LAW '. WITH REFERENCE TO THE SUBMISSIONS OF THE DR,WE WOUL D LIKE MENTION THAT FIRST OF ALL THE ISSUE BEFORE US IS NOT AN ASSESSEE THAT IS ENGAGED IN DISTRIBUTION AND MANUFACTURING OF CERTAIN GOODS,SO THE QUESTION OF S LICING OF EXPENSE IN TWO PORTIONS WOULD NOT ARISE.HOWEVER,THE OTHER PART OF THE ARGUMENT THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO/TPO A S THEY WERE FOLLOWING THE ORDER OF LG AND DID NOT HAVE BENEFIT OF LATER JUDGM ENTS OF THE HONBLE HIGH COURT,WE WOULD LIKE TO MENTION THAT MATTER CAN BE R ESTORED 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 A DVISABLE TO PROLONG THE JUDICIAL PROCEEDINGS IN THE NAME OF FAIR PLAY.IT IS NOT A CA SE WHERE NEW EVIDENCES HAVE BEEN PLACED ON RECORD BY THE ASSESSEE, THAT WERE NO T MADE AVAILABLE TO THE AO AT THE TIME OF ORIGINAL ASSESSMENT.IT IS NOT ALSO A MATTER WHEREIN SOME GROUND OF APPEAL HAS REMAINED UN-ADJUDICATED.THERE IS VIOLATI ON OF PRINCIPLES OF NATURAL JUSTICE.SO,WE HOLD THAT IT IS NOT A FIT CASE TO BE SENT BACK TO THE TPO FOR FRESH ADJUDICATION. 8.4. IN THE FIRST GROUND OF APPEAL FOR THE EARLIER YEAR, THE ASSESSEE HAD RAISED THE ISSUE OF NON ADMISSION OF ADDITIONAL EVIDENCE BY TH E FAA,WITH REGARD TO AMP EXPENSES.AS WE HAVE ALREADY DECIDED THE ISSUE IN FA VOUR OF THE ASSESSEE,SO,THE ISSUE BECOMES ACADEMIC. 9. THIRD GROUND DEALS WITH TP ADJUSTMENT OF RS.20.20 C RORES IN RELATION TO CG GIVEN BY THE ASSESSEE TO ITS AE. FOLLOWING OUR ORD ER FOR THE EARLIER YEAR (PARA NO.3.2 PG.6-8 OF OUR ORDER,GOA-3 IS DECIDED IN FAVO UR OF THE ASSESSEE. 1261 & 1238/M/15 THOMAS COOK 34 10. FOURTH GROUND IS ABOUT TP ADJUSTMENT OF RS. 3.07CRO RES 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 TH E TRIBUNAL HAD DECIDED IT IN FAVOUR OF THE ASSESSEE.THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 10.1. WE FIND THAT IN ASSESSEES OWN CASE(ITA/2465/M/2011 -AY 2005-06 DT.31. 10. 2013) IDENTICAL ISSUE HAS BEEN DECIDED AS UNDER : 4. THE FACTS RELATING TO THE ISSUE RELATING TO TP A DJUSTMENT ARE THAT THE ASSESSEE DID NOT CHARGE ANY FEES FROM ITS ASSOCIATED ENTERPRISES (AE) (NAMELY HSBC, TRAVELLEX AND TCMOL), WHILE HE IS CHARGING THE SAME FROM OTHE R RELATED PARTIES. APPLYING THE ARM'S LENGTH PRICE (ALP) PROVISIONS, TPO MADE A N ADDITION OF RS.7,46,243/-. MATTER TRAVELLED TO THE CIT (A). DURING THE PROCEED ING 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 A E (TCMOL), THEREFORE, IT IS A REVENUE LOSS. FURTHER, HE POINTED OUT THAT WITH REG ARD 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 MO RE THAN AN INCENTIVE RECEIPT. IF THE BOTH SERVICE FEES AND COUNTING FEES WERE TAKEN, IT WOULD LEAD TO LOSS OF INCOME TO THE ASSESSEE. THE ASSESSEE RELIED ON VARIOUS TP GU IDELINES OF ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD) IN FAVO UR OF SUCH COUNTING PRINCIPLE AND SUBMITTED THAT ALP PRINCIPLE NEED NO T BE INVOKED IN SUCH CIRCUMSTANCES.CIT (A) CONSIDERED THE SAME AND ALLO WED THE CLAIM OF THE ASSESSEE AND DELETED THE ADJUSTMENT AS SEEN FROM PARA 2.10 OF THE IMPUGNED ORDER. 5. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED O N THE ORDER OF THE 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 F EES ALSO ON THE TRANSACTIONS OF THE ASSESSEE. IF BOTH ARE TAKEN INTO ACCOUNT QUANTITATI VELY, IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE WILL PUT TO LOSSES AND THE SAME I S NOT ACCOUNTED BY THE INCOME FACT 1261 & 1238/M/15 THOMAS COOK 35 OF FIGURES. THESE KIND OF ACCOUNTING ISSUES ARE OU TSIDE THE SCOPE OF TP PRINCIPLES AS DISCUSSED IN PARA 2.9 OF THE IMPUGNED ORDER. THE CI T (A) DISCUSSED THE ISSUE AT LENGTH IN PARA 2.10 OF HIS ORDER, GIVING THE REASO NING. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAID PARA 2.10 IS REPRODUCED HE RE UNDER: '2.10. I HAVE PERUSED THE FACTS OF THE CASE AND WRI TTEN SUBMISSIONS AND VERBAL ARGUMENTS OF THE APPELLANT. THE TPO HAS VIEWS THE W HOLE 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 CORR ESPONDING COUNTING FEES PAID IS MORE THAN WHAT IT RECEIVED BY WAY OF INCENTIVE / S ERVICE FEE. AS SUCH IF BOTH THE SERVICE FEES AND COUNTING FEE ARE INCLUDED / TAKEN TOGETHER IN TRANSACTIONS WITH THE AE, THE APPELLANT WOULD BE WORSE OFF. AS SUCH IT D ISCONTINUED THIS ARRANGEMENT. THE APPELLANT BY AN INTERNAL CUP (TRAVELEX / HSBC) HAS DEMONSTRATED THAT COUNTING FEES FOR EXPORT OF CURRENCY ENTAILS MORE E XPENSE THAN CORRESPONDING SERVICE FEES OR / INCENTIVE RECEIPTS. THUS, IT HAS PASSED THE TEST OF COMPARABILITY. IT IS A FACT THAT COUNTING FEES FOR CURRENCY EXPORTED IS CHARGED BY THIRD PARTIES (HSBC / TRAVELEX) AND SO IF THE APPELLANT AE DID NOT CHARG E IT LAST YEAR OR THIS YEAR, DOES NOT IN ANY WAY NEGATE THE CRUCIAL FACT THAT A THIRD IN DEPENDENT 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 WOUL D HAVE NEGOTIATED IN SIMILAR CIRCUMSTANCES. IN THE PRESENT CASE HAD THE AE INSI STED ON CHARGING COUNTING FEES FOR CURRENCY EXPORTED THEN IT WOULD HAVE BEEN MORE THA N THE CORRESPONDING INCENTIVES / SERVICE FOR INCOME AND THE APPELLANT WOULD HAVE BE EN WORSE OFF. TO SUM UP, THE DISCONTINUANCE OF EARLIER ARRANGEME NT OF NOT PAYING ANY COUNTING FEES TO IT'S AE AT MAURITIUS AND ALSO FOREGOING THE CORRESPONDING SERVICE / INCENTIVE 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 PAYM ENT SIDE. MOREOVER, THE APPELLANT HAS DEMONSTRATED BY AN INTERNAL CUP (HSB C / TRAVELEX) ON THIS ASPECT TO ESTABLISH ITS CASE. THE ADJUSTMENT OF RS.7,46,243/ - SO MADE IS THEREFORE, DELETED. ' 7. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THA T 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. 1261 & 1238/M/15 THOMAS COOK 36 11. NEXT GROUND IS REGARDING DISALLOWANCE OF CLAIM ON J ODHPUR 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 DISALLOWANCE U/S. 14A R.W.R. 8D OF THE RULES OF RS.96.20 LAKHS.DURING THE YEAR THE ASSESSE E. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD REC EIVED DIVIDEND INCOME OF RS.11.01 LAKHS ON MUTUAL FUNDS AND SAME WAS CLAIMED EXEMPT, THAT IT HAD NOT ALLOCATED ANY EXPENDITURE TOWARDS THE EARNING OF TH E EXEMPT INCOME. HE DIRECTED THE ASSESSEE TO FILE EXPLANATION IN THAT R EGARD.VIDE ITS LETTER DATED 3/02/2014,THE ASSESSEE STATED THAT IT HAD SUO MOTU DISALLOWED RS. 6,415/- UNDER THE PROVISIONS OF SECTION 14A OF THE ACT,THAT THE D IVIDEND 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 E ARNING THE SAID EXEMPT INCOME, THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8 D OF THE INCOME-TAX RULES, 1962(RULES)WERE NOT APPLICABLE IN RESPECT OF STRATE GIC INVESTMENT MADE IN SUBSIDIARIES,THAT EXPENDITURE INCURRED FOR ACQUIRIN G SHARES OUT OF COMMERCIAL EXPEDIENCY HAD ALREADY BEEN CAPITALISED,THAT OWN FU NDS DURING THE YEAR WERE SUFFICIENT TO MAKE INVESTMENT IN SUBSIDIARY ENTITIE S, THAT THE INTEREST EXPENDITURE FOR THE YEAR PERTAIN TO WORKING CAPITAL LOANS,THAT DOMESTIC BORROWINGS FOR MAKING DOWNSTREAM INVESTMENT WERE NOT PERMITTED AS PER THE GUIDELINES OF MINISTRY OF INDUSTRY,THAT THERE WAS NO NEXUS BETWEE N INTEREST EXPENDITURE AND THE INVESTMENT MADE BY THE ASSESSEE, THAT NO FRESH INVESTMENT WAS MADE DURING THE YEAR UNDER CONSIDERATION. THE AO DID NOT AGREE WITH THE ASSESSEE AND HELD THA T INVESTMENTS WERE MADE OUT OF FUNDS AND THE FUNDS ALWAYS INVOLVED TIME, CO ST AND OPPORTUNITY COST, THAT MAKING INVESTMENT WAS AN INFORMED DECISION AND IT W OULD 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 ASSESSEES 1261 & 1238/M/15 THOMAS COOK 37 EXPLANATION THAT NO INTEREST EXPENSES WERE INVOLVED FOR EARNING EXEMPT INCOME WAS NOT ACCEPTABLE, THAT INVESTMENTS WERE MADE FROM THE POOL OF FUNDS AVAILABLE TO ASSESSEE, THAT IT WAS OPTION OF THE AS SESSEE TO INVEST THE SURPLUS FUND IN THE INVESTMENTS AND USED BORROWED FUNDS FOR BUSI NESS,THAT HAD THE SURPLUS FUNDS BEING USED FOR BUSINESS PURPOSES THERE WOULD NOT HAD BEEN ANY NEED TO BORROW AND THE INTEREST EXPENSES WOULD HAVE BEEN PR OPORTIONATELY REDUCED. INVOKING THE PROVISIONS OF SECTION 14A(2)R.W.R.8D O F THE RULES,HE MADE A DISALLOWANCE OF RS. 96,20, 694/-. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILE D OBJECTIONS BEFORE THE DRP. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE DRAFT ORDER OF THE AO, THE DRP HELD THE AO HAD RIGHTLY APPLIED PROVISIONS OF RULE 8D OF THE RULES, THAT IN THE EARLIER YEARS THE TRIBUNAL HAD UPHELD T HE DISALLOWANCE AT THE RATE OF 2% OF THE EXEMPT INCOME, THAT IN THOSE YEARS RULE 8 D WAS NOT APPLICABLE, THAT PROVISIONS OF THE RULE WERE APPLICABLE FOR THE YEAR UNDER CONSIDERATION. FINALLY, THE DRP APPELLATE THE DISALLOWANCE MADE BY THE AO. 12.1. BEFORE US,THE AR STATED THAT STRATEGIC INVESTMENT C OULD NOT BE CONSIDERED FOR 14A DISALLOWANCE,THAT ALMOST ALL THE INVESTMENT (RS.192.54 CRORES), WAS MADE IN DOMESTIC(RS.184.99 CRORES)OR OVERSEAS SUBSI DIARIES(RS.7.54 CRORES), THAT THE AO AND THE DRP HAD NOT CONSIDERED THE ABOV E ISSUE WHILE MAKING/ CONFIRMING THE DISALLOWANCE.DR LEFT THE ISSUE TO TH E DISCRETION OF THE BENCH. 12.2. AFTER HEARING BOTH THE SIDES WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUD ICATION.THE HONBLE HIGH COURTS HAVE LAID DOWN THE PRINCIPLE THAT STRATEGIC INVESTMENT SHOULD BE EXCLUDED FROM THE LIST OF INVESTMENTS,WHILE COMPUTI NG THE DISALLOWANCE U/S. 14AR.W.R 8D OF THE RULES.AS THIS VITAL ISSUE HAS NO T BEEN CONSIDERED BY THE LOWER AUTHORIRIES,SO,WE ARE OF THE OPINION THAT THE AO SHOULD DECIDE THE ISSUE 1261 & 1238/M/15 THOMAS COOK 38 AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY TO TH E ASSESSEE.SIXTH GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,APPEALS FILED BY THE ASSESSEE FOR BOTH THE AY.S.STAND PARTLY ALLOWED. . !'# $'%&% '( . ORDER PRONOUNCED IN T HE OPEN COURT ON 31 ST MAY, 2016. 31 , 2016 SD/- S D/- ( . . ) / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 31.05.2016. JV.SR.PS. ! '# / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / !'#$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT(A)/ ' !' ( , 4. THE CONCERNED CIT / ' ( 5. DR K BENCH, ITAT, MUMBAI / %* , ' , . !* . 6. GUARD FILE/ - &' % //TRUE COPY// / BY ORDER, ' / ' DY./ASST. REGISTRAR !' !* , /ITAT, MUMBAI.
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