ABACUS DISTRIBUTION SYSTEMS (INDIA) P.LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 1402/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0903 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 18-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NITESH JOSHIAR
• Keywords: Depreciation; Transfer pricing
• Section: 37(1); 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUM BAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LA L NEGI,JUDICIAL MEMBER /.ITA NOS.1402/MUM/2014, /ASSESSMENT YEAR: 2009-10 M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD, URMI ESTATE, 14 TH FLOOR, 95, GANPATRAO KADAM MARG, LOWER PAREL (WEST),MUMBAI-400 013. PAN: AAACA4836H VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE- 3(1),MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY : SHRI JAYANTKUMAR,SAURABH DESHPANDE-DR.S ASSESSEE BY : SHRI NITESH JOSHI-AR / DATE OF HEARING: 17/10/2017 / DATE OF PRONOUNCEMENT: 05/01/2018 , 1961 254 )1( ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT). , -PER RAJENDRA,AM: CHALLENGING THE ORDER OF THE AO,DATED 21/01/2014,PA SSED U/S.143(3) R.W.S 144C(13) OF THE ACT THE ASSESSEE HAS FILED HE PRESENT APPEAL.ASSESSEE-C OMPANY ENGAGED IN THE BUSINESS OF MARKETING AND PROMOTING ABACUS COMPUTER RESERVATIONS SOFTWARE ,FILED ITS RETURN OF INCOME ON 30/09/2009, DECLARING LOSS OF RS.34.61 CRORES.THE AO COMPLETED THE ASSESSMENT,IN PURSUANCE OF THE DIRECTION OF THE DISPUTE RESOLUTION PANEL (DRP)-1, MUMBAI,DAT ED 26/12/2013,DETERMINING ITS INCOME AT RS.15.53 CRORES. 2. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) DID NOT PRESS GROUND NO.6,HENCE,IT STANDS DISMISSED AS NOT PRESSE D.HE FURTHER STATED THAT GROUND NO.1 WAS GENERAL AND DID NOT REQUIRE ANY ADJUDICATION.HE ALS O STATED THAT ASSESSEE WAS INTERESTED IN PRESSING GROUNDS NO.2.1,3.1,3.2,4.1,5.1 AND 5.2 ONL Y.THEREFORE,WE ARE DISMISSING THE REMAINING GROUNDS. 3. GROUND NO.2.1 IS ABOUT ADDITION OF RS.8.04 CRORES.D URING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THE ASSESSEE ENTERED INTO INTERNATIONAL TRANS ACTIONS (IT.S) WITH ITS ASSOCIATED ENTERPRISES (AE.S).HE MADE A REFERENCE TO THE TRANSFER PRICING OFFICER(TPO) TO DETERMINE THE ARMS LENGTH 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 2 PRICE(ALP)OF THE IT.S.THE TPO OBSERVED THAT THE ASS ESSEE HAS ENTERED INTO FOLLOWING IT.S WITH ITS AE: SN NATURE OF TRANSACTION VALUE OF IT.S (RS.) METHOD USED 1 PROVISION OF MARKETING SERVICES 203,699,260 TNMM 2 AVAILING OF INTEREST FREE ECB LOAN OF 145,732,860 NIL ((INTEREST) - 3 REIMBURSEMENT OF EXPENSES : LINE CHARGES SERVICE CHARGES DEPUTATION COST OTHER EXPENSES FOREIGN TRAVEL 6,562,104 68,594,003 5,003859 1,924,721 1,791,358 CUP AS PER THE TPO,THE ASSESSEE HAD COMPUTED MARGIN AS UNDER: PARTICULARS AMOUNT (RS) AMOUNT (RS) COMMISSION 203,699,260 MARKETING SERVICE FEE 326,160,944 ONLINE WEB CONNECT AND TRAINING FEES 5,433,871 TOTAL INCOME 535,294,075 EXPENDITURE LINE CHARGES 3,987,222 AIRFARE TRANSACTION CHARGES 68,594,003 ADMINISTRATIVE AND OTHER EXPENSES 382,859,299 LESS: FINANCIAL CHARGES 71,399 LOSS ON DISPOSAL OF FIXED ASSETS 531,956 382,255,944 DEPRECIATION 37,071,541 TOTAL OPERATING COST 491,908,710 OPERATING MARGIN 43,385,365 BERRY RATIO (USED BY ASSESSEE) OP /OC COST (AS COMPUTED) 1.09 8.82% HE FOUND THAT ASSESSEE HAD SELECTED SIX COMPARABLES AND THAT FOR BENCHMARKING THE IT.S IT HAD APPLIED ENTITY LEVEL TNMM.THE TPO DIRECTED THE ASSE SSEE TO SUBMIT A COPY OF THE AGREEMENT ENTERED IN TO BETWEEN THE ASSESSEE AND THE AE.AFTER GOING THROUGH THE AGREEMENT,THE TPO OBSERVED THAT THE ASSESSEE WAS PROVIDING COMPLETE M ARKETING SUPPORT STARTING FROM FORMULATION OF MARKETING STRATEGIES,PREPARATION OF BUSINESS PLA NS, COMMUNICATION NETWORK PLANS, FORMULATION OF PRICING SCHEDULE AND MARKETING SUPPORT PLANS,THA T IT WAS ALSO RESPONSIBLE FOR PROVIDING NECESSARY SERVICES AND SUPPORTING INFRASTRUCTURES T O ENSURE THE UTILISATION LEVELS OF ABACUS SYSTEM AND ABACUS SERVICES,THAT THE ASSESSEE WOULD MARKET AND DISTRIBUTE ABACUS SYSTEM IN INDIA AND IT WAS SIGNING AND ENTERING INTO CONTRACT S WITH TRAVEL AGENTS IN INDIA, THAT THE ENTIRE REVENUE WAS COLLECTED BY THE PARENT COMPANY,THAT TH E 25% OF THE SHARE OF ALL BOOKING-FEE- COMMISSIONS WAS PASSED ON TO THE ASSESSEE FOR RENDE RING THE SERVICES, THAT THE ASSESSEE HAD EARNED AN INCOME OF RS.56.31 CRORES DURING THE YEAR UNDER APPEAL,THAT IT HAD CLAIMED EXPENDITURE 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 3 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.86.6 8 CRORES, THAT NET WORTH OF THE COMPANY WAS EFFECTIVELY WIPED OUT,THAT IT HAD RECEIVED UNSECURE D 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 TRANSF ER 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 FINANCIA L YEAR DATA,THAT IT DID NOT CONSIDER CURRENT YEAR DATA EXCLUSIVELY IN ALL OF THE COMPARABLES, TH AT 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 S ERVICES RENDERED BY IT TO THE AE WAS AKIN TO CONSULTANCY SERVICES AND BUSINESS SUPPORT SERVICES, THAT THE ENTIRE COMPARABILITY ANALYSIS WAS TOTALLY DEFECTIVE,THAT THE SIX COMPARABLES SELECTED BY IT HAD USED MARGINS FOR TWO EARLIER FINANCIAL YEARS,THAT IT HAD NOT FILED ANY JUSTIFICATION TO PR OVE THAT DATA OF THE EARLIER YEARS HAD INFLUENCED ON PRICING FOR THE TAX PAYER OR THE COMPARABLES,THA T IT HAD SEARCHED DATABASE OF COMMISSION AGENT SERVICES AND BUSINESS AGENT SERVICES,THAT IT WAS RENDERING MARKETING SUPPORT SERVICES (MSS),THAT THERE WAS NO SEARCH FOR THE COMPARABLES WHO HAD RENDERED MSS,THAT IT HAD SELECTED COMPARABLES WHICH WERE FUNCTIONALLY DIFFERENT,THAT THE COMPARABLES DID NOT STAND THE SCRUTINY OF FAR ANALYSIS. CONSIDERING THE ABOVE ALLEGED DEFECTS,THE TPO HELD THAT THE ALP COMPUTED BY THE ASSESSEE WAS NOT RELIABLE.HE THEREFORE INVOKE THE PROVISION OF S ECTION 92C(3).VIDE ORDER SHEET ENTRY,DATED 21/11/2012,HE ISSUED A SHOW CAUSE TO THE ASSESSEE R EJECTING THE TP DOCUMENTATION AND GIVING IT A SET OF 13 COMPARABLES TO BE CONSIDER FOR BENCHMARKI NG PURPOSES.AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE,HE SELECTED EIGHT COMPARABLES IN TH E FINAL LIST OF COMPARABLES NAMELY -APTICO LTD. (AL),CHOKSI LABORATORIES LTD.(CLL),GENINS INDIA TPA LTD.(GITL),RITES LTD.(RITES)WAPCOS LTD.(WL),BEST MULYANKAYAN CONSULTANTS LTD.(BMCL),IC RA MANAGEMENT CONSULTING SERVICES LTD.(ICRA-M) AND TECHNICOM-CHEMIE(INDIA)LTD.(TCIL). 3.1. AGGRIEVED BY THE ORDER OF THE TPO/AO,THE ASSESSEE F ILED OBJECTIONS BEFORE THE DRP.AFTER CONSIDERING THE AVAILABLE MATERIAL,IT HELD THAT THE RE WERE PERTINENT DEFECTS IN THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE,THAT IT HAD DON E THE BENCHMARKING ITS IT.S WITH THAT OF 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 4 COMMISSION AGENTS, RATHER THAN WITH COMPANIES PRO VIDING CONSULTANCY AND BUSINESS SUPPORT SERVICES,THAT IT WAS PROMOTING CRS OFFERED BY PARE NT COMPANY IN INDIA,THAT TO PROMOTE THE CRS OFFERED BY ABACUS SINGAPORE IT WOULD UNDERTAKE ADVE RTISEMENT AND PROMOTION ACTIVITIES,THAT IT WOULD PROVIDE SUPPORT TO SUBSCRIBERS OF CRS LIKE TR AINING TO USERS, COMPUTER HARDWARE SUPPORT, COMMUNICATION LINES,ESTABLISHMENT OF VARIOUS HELP D ESKS ETC,THAT IT WOULD ALSO FORMULATE MARKETING STRATEGIES AND PRICING SCHEDULES FOR EQUI PMENT,THAT IT WOULD INTRODUCE COMPETITIVE INCENTIVE SCHEMES,THAT SUCH ACTIVITIES PROVED THAT IT WOULD BE USEING IT'S KNOWLEDGE OF INDIAN MARKETS, CLIENTS, COMPETITOR'S STRATEGIES, PREVALEN T ECONOMIC AND POLITICAL SCENARIO ETC AND ACCORDINGLY USING IT'S EXPERIENCE, SKINS, DEVISES S TRATEGIES TO FORMULATE IT'S OWN MARKETING AND OTHER STRATEGIES TO PROMOTE AND STRENGTHEN IT'S CLI ENT BASE AND USAGE IN INDIA.THAT IT WAS PROVIDING CONSULTANCY AND ALSO IMPLEMENTING/ SUPPORTING THE C RS OFFERED BY PARENT BY PROVIDING SERVICES,THAT IT WAS NOT ONLY A 'COMMISSION AGENT' BUT A LSO 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 CO NVINCING 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, A SSESSEE'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 UNL ESS 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 ABNORMAL ITIES,THAT HIGH OR LOW PROFITABILITY PER SE, CANNOT BE A REASON FOR REJECTING OTHERWISE COMPARAB LE COMPANIES,THAT THE ITAT IN THE CASE OF WILLIS PROCESSING(ORDER DATED 01.03.2013) HAD HELD THAT THE ISSUE OF INCLUSION OR EXCLUSION O F COMPARABLES WAS TO BE DECIDED ON THE FACTORS MENTIO NED IN RULE 10B(2) AND NOT ON THE GROUND OF ABNORMAL OR HIGH PROFIT MARGINS. 3.2. DURING THE COURSE OF HEARING BEFORE US,AUTHORISED R EPRESENTATIVE(AR)STATED THAT THE ASSESSEE WAS GETTING 25% OF THE REVENUE GENERATED B Y THE AE IN RESPECT OF AIRLINE BOOKINGS MADE FROM INDIA, THAT REVENUE TO BE RECEIVED BY THE ASSESSEE WAS DEPENDANT ON WIDENING THE USE OF CRS NETWORK OF THE AE,THAT FORMULATION OF PRICIN G SCHEDULE OR INTRODUCTION OF COMPETITIVE INCENTIVE SCHEMES/SOFTWARE PACKAGE WAS FOR THE PURP OSE OF ITS OWN BUSINESS,THAT IT WAS JUSTIFIED IN IDENTIFYING THE COMPARABLES WHO WERE PROVIDING C OMMISSION AGENT/BUSINESS AGENT SERVICES, 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 5 THAT IF FIVE OF THE COMPARABLES,SELECTED BY THE TPO ,WERE EXCLUDED THE OP TO COST WOULD COME DOWN TO 3.10 % WHICH WOULD BE LOWER THAN THE OP TO THE COST OF ASSESSEE I.E. 5.87%.HE REFERRED TO THE PAGE NO 81 AND 82 OF THE PAPER BOOK AND STAT ED THAT THE ASSESSEE HAD CARRIED OUT FAR ANALYSIS, THAT THE TPO AND THE DRP WERE NOT JUSTIFI ED IN REJECTING THE TP STUDY REPORT, THAT A SUB- DISTRIBUTION AGREEMENT,DATED 06/06/1996,HAD BEEN EN TERED INTO BETWEEN THE AE AND THE ASSESSEE,THAT AS PER THE AGREEMENT THE ASSESSEE WAS OBLIGED TO FORMULATE AND IMPLEMENT THE MARKETING STRATEGY IN INDIA AS WELL AS TO FORMULATE THE PRICING SCHEDULE IN RESPECT OF THE AMOUNT TO BE CHARGED TO THE TRAVEL AGENTS, THAT AS A PART OF ITS BUSINESS THE ASSESSEE DECIDED TO OFFER INCENTIVE SCHEMES TO THE TRAVEL AGENTS OF INDIA,THA T THE AFORESAID FUNCTIONS WERE CARRIED OUT BY THE ASSESSEE AS A PART OF ITS COMMISSION AGENCY/BUS INESS AGENCY SERVICES OFFERED TO THE AE, THAT IT WAS NOT FUNCTIONING AS A INDEPENDENT SERVICE AGE NT,THAT IF OUT OF THE EIGHT COMPARABLES,SELECTED BY THE TPO,FIVE WERE EXCLUDED THE ASSESSEE WOULD BE WITHIN THE SAFE RANGE OF (+/-)5%. 3.2.1. WITH REGARD TO THE FIRST FIVE COMPARABLES,SELECTED BY THE TPO,HE MADE DETAILED SUBMISSIONS.ABOUT AL ,THE AR ARGUED THAT IT WAS GENERATING REVENUE FROM ACTIVITIES LIKE SKILL DEVELOPMENT, TOURISM AND RESEARCH STUDIES, PROJECT RELATED SERVICES,CLUSTER DEVELOPMENT,ASSET RE- CONSTRUCTION AND MANAGEMENT SERVICES, ENERGY RELATE D SERVICES,INFRASTRUCTURE PLANNING AND DEVELOPMENT,THAT ALL THESE ACTIVITIES HAD NOTHING T O 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 PHARMACEUTICA LS, FOOD AND BEVERAGES AND CLINICAL RESEARCH, THAT THE SERVICES WERE TOTALLY DIFFERENT FROM MSS.H E 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 CO MPANY WAS COMPARABLE AS IT RENDERED COMMISSION BASED SERVICES IN THE INSURANCE SECTOR,T HAT 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 ENGAG ED 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 DISBURSIN G THE CLAIM AMOUNTS,THAT THE ACTIVITY HAD NOTHING TO DO WITH PROVIDING OF MSS, THAT THE FUNCT ION PERFORMED BY GITL WERE NOT SIMILAR TO THE FUNCTIONS CARRIED OUT BY THE ASSESSEE.REGARDING RITES ,THE AR STATED IT WAS PROVIDING CONSULTANCY SERIES CONNECTED WITH CONSTRUCTION AND INFRASTRUCTURE STRUCTURE,THAT THE SAID SERVICES WERE CONNECTED WITH ENGINEERING INDUSTRY AND NOT WI TH PROVIDING MSS,THAT THE SAID COMPARABLE 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 6 HAD BEEN REJECTED BY THE TRIBUNAL IN THE CASES OF M CI.COM INDIA PRIVATE LIMITED (ITA/ 4187/ DEL/2010,DATED 30/08/2012).HE STATED IN CASE OF MCI .COM THE ASSESSEE WAS PROVIDING MSS TO ITS PARENT COMPANY. HE FURTHER STATED THAT THE ORDER OF MCI CASE WAS FOLLOWED BY THE TRIBUNAL WHILE ADJUDICATING THE CASE OF H&M, HENNS AND MAURIZ INDI A (P.)LTD(35 TAXMANN. COM 349).HE ALSO STATED THAT RITES WAS A PUBLIC SECTOR ENTITY, THAT IT COULD NOT BE CONSIDERED AS A VALID COMPARABLE IN VIEW OF THE JUDGMENT OF HONBLE BOMBAY HIGH COUR T IN THE CASE THYSSEN KRUPP INDUSTRIES INDIA PRIVATE LIMITED(INCOME TAX APPEAL NO.2218 OF 2013, DATED 28/03/2016).REFERRING TO WL ,THE AR STATED THAT IT WAS A PUBLIC SECTOR UNDERTAK ING AND WAS NOT PROVIDING MSS AND WAS AN GOVERNMENT ENTERPRISE. 3.3. SUPPORTING THE ORDER OF THE TPO AND THE DRP,THE DEP ARTMENTAL REPRESENTATIVE(DR) CONTENDED THAT THE ASSESSEE WAS NOT MERELY IN MSS,T HAT IT WAS PROVIDING VARIOUS SERVICES,THAT AL WAS A VALID COMPARABLE,AS IT WAS ALSO PROVIDING CONSULTANCY LIKE THE ASSESSEE,THAT CIENA INDIA PRIVATE LTD.,AVYA INDIA PVT.LTD.AND BG INDIA ENERGY PVT.LTD.WERE NOT PROVIDING MSS,THAT WHILE APPLY -ING TNMM BROAD FUNCTIONALITY HAD TO BE APPLIED, THAT THE SERVICES PROVIDED BY CLL WERE AKIN TO MSS,THAT THE TPO HAD CONSIDERED CO NSULTANCY SEGMENT ONLY AS FAR AS RITES AND WL ARE CONCERN -ED,THAT BOTH WERE GOVERNMENT CO MPANIES BUT WERE DRIVEN BY PROFIT MOTIVES, THAT JUST BECAUSE THEY WERE GOVERNMENT ENT ITIES THEY COULD NOT BE EXCLUDED FROM THE LIST OF VALID COMPARABLES,THAT THE COMPARABLES SELECTED BY THE TPO WERE ENGAGED IN THE BUSINESS OF PROVIDING SUPPORT SERVICES AND CONSULTANCY SERVICES LIKE THE ASSESSEE. 3.3.1. IN THE REJOINDER,THE AR STATED THAT TRIBUNAL ORDERS RELIED UPON BY THE ASSESSEE WERE CONCERNED WITH THOSE ASSESSEES WHICH WERE ENGAGED I N PROVIDING MSS, THAT THE TRIBUNAL HAD CLEARLY HELD IN THOSE CASES THAT THEY HAD TO BE TAK EN OUT OF THE FINAL LIST OF THE VALID COMPARABLES,THAT BY FORMULATING MARKETING STRATEGIE S/PRICING SCHEDULES/COMPETITIVE INCENTIVE SCHEMES THE ASSESSEE WAS CARRYING OUT ITS OWN BUSIN ESS AND WAS NOT RENDERING ANY CONSULTANCY TO ITS AE THAT MERE PROVISION OF SUPPORT SERVICES C OULD 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 P ARENT 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 A E WAS THE COMMISSION RECEIVED BY IT FROM 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 7 AIRLINE COMPANIES WHOSE TICKETS WERE BOOKED USING T HE CRS, THAT THE AE HAD APPOINTED ASSESSEE AS ITS NATIONAL MARKETING COMPANY IN INDIA FOR PROM OTING USE OF ITS CRS AMONG THE TRAVELS AGENTS IN INDIA,THAT IT WOULD RECEIVE 25% OF THE RE VENUE 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 ADJUSTME NT WERE MADE FOR THE FIRST TIME IN THE A.Y.2007-08,THAT IT HAD SELECTED SIX COMPARABLES,T HAT THE TPO REJECTED THE ALL OF THEM,THAT HE IDENTIFIED NEW EIGHT COMPARABLES,THAT THE DRP UPHEL D ALL THE COMPARABLES SELECTED BY HIM,THAT THE ASSESSEE HAD ADOPTED THE PLI AS BERRY RATIO BEI NG EBIT/OPERATING COST X 100, THAT THE TPO HAD CHANGED THE PLI TO OPERATING PROFIT /OPERATING COST (OP/OC),THAT THE TPO DETERMINED THE ASSESSEES OP TO COST AT 5.87% AS AGAINST AVERAGE O PERATING TO COST EARNED BY THE COMPARABLES OF 20.34 %, THAT FOR REJECTING THE ASSESSEE TP STUDY T HE TPO HAD REFERRED TO THE SUB-DISTRIBUTION AGREEMENT,THAT HE HAD CONCLUDED THAT IT WAS PROVIDI NG COMPLETE MSS,THAT HE FURTHER HELD THAT THE AE HAD ENGAGED THE ASSESSEE TO PROMOTE THE CRS AMON G THE TRAVEL AGENTS OF INDIA, THAT WHEN THE ASSESSEE FORMULATED THE MARKETING STRATEGY,IT W AS EFFECTIVELY CARRYING ON ITS OWN BUSINESS AND NOT RENDERING ANY SERVICE TO THE AE,THAT THE DR P APPROVED THE UPWARD ADJUSTMENT PROPOSED BY THE TPO/AO. 3.4 .NOW,WE WOULD LIKE TO DISCUSS THE COMPARABLES WHICH HAVE BEEN CONTESTED BEFORE US.AS PER THE ANNUAL REPORT OF AL ,IT DERIVES ITS REVENUE FROM VARIOUS SOURCES,THAT D URING THE YEAR IT HAD RECORDED TOTAL REVENUE OF RS. 1 145.71 LAKHS FROM M AJOR 10 SEGMENTS NAMELY SKILL DEVELOPMENT (RS.322.59 LAKHS),TOURISM AND RESEARCH STUDIES(RS.2 07.44 LAKHS),PROJECT RELATED SERVICES(RS.180. 06 LAKHS),MICRO-ENTERPRISES DEVELOPMENT(RS.117.83 L AKHS),CLUSTER DEVELOPMENT(RS.97.14 LAKHS), ASSET RECONSTRUCTION AND MANAGEMENT SERVICES(RS.78. 03 LAKHS),ENERGY-RELATED SERVICES (RS. 50.87 LAKHS),ENTREPRENEURSHIP DEVELOPMENT AND TRAINING(RS .30.78LAKHS),ENVIRONMENT MANAGEMENT (RS. 10 LAKHS),INFRASTRUCTURE PLANNING AND DEVELOPMENT ( RS.7.99 LAKHS).CONSIDERING THE PROFILE OF AL,WE ARE OF THE OPINION THAT IT HAS TO BE REJECTED FROM THE LIST OF VALID COMPARABLES. AS PER THE WEBSITE MAINTAINED BY CLL .IT IS A LEADING ANALYSIS AND RESEARCH GROUP PROVID ING COMPLETE SOLUTION FOR IMPROVING QUALITY IN PROCESS, PRODUCTS AND SERVICES,THAT IT PROVIDES CONTRACT LABORATORY SERVICES INCLUDING PHARMACEUTICAL ANALYS IS,FOOD AND BEVERAGES ANALYSIS,WATER ANALYSIS,CONSTRUCTION MATERIAL ANALYSIS, ENVIRONMEN T MANAGEMENT SERVICES, CLINICAL RESEARCH AND CONSULTANCY.IT IS ALSO ENGAGED IN TESTING OF VARIOU S PRODUCTS AND OFFER SERVICES IN THE FIELD OF 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 8 POLLUTION CONTROL AS PER THE PROFILE OF THE COMPANY .REFERRING TO SEGMENTAL REPORTING, IT HAS BEEN MENTIONED THAT IT TREATS ANALYTICAL CHARGES AND CON SULTANCY RECEIPTS AS A SINGLE SEGMENT, THAT DETAILS OF SEGMENTS WERE NOT SEPARATELY REPORTED,TH AT IT IS MANAGED ORGANISATIONALLY AS A UNIFIED ENTITY WITH VARIOUS FUNCTIONAL HEADS REPORTING TO T HE TOP MANAGEMENT AND IS NOT ORGANISED ALONG SEGMENTS.IN OUR OPINION,CLL IS FUNCTIONALLY DIFFERE NT AND HENCE IS TO BE REJECTED AS A VALID COMPARABLE. WE FIND THAT GITL PROVIDES THIRD PARTY ADMINISTRATIVE SERVICES IN TH E 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 MED ICARE 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)HA S BUSINESS OPERATION IN FOR DISTINCT FIELDS NAMELY CONSULTANCY IN TRANSPORTATION INFRASTRUCTURE SECTION, CONSTRUCTION ACTIVITIES,EXPORT AND LEASING OF RAILW AY EQUIPMENTS AND RUNNING RAILWAY SYSTEM ON CONCESSION, THE CONSULTANCY BUSINESS IS MAINLY IN T RANSPORT INFRASTRUCTURE SECTOR I.E. RAILWAYS, HIGHWAYS,AIRPORTS,PORTS,ROADS,URBAN TRANSPORT, INLA ND WATERWAYS, THAT IT HAD STARTED CONSTRUCTION ACTIVITIES FROM THE YEAR UNDER REVIEW, THAT IT HAD STARTED LEASING BUSINESS IN RAILWAY SECTOR IN MID- 1990,THAT CONSULTING SERVICES ACCOUNTED FOR 75% OF THE TOTAL OPERATING INCOME FOR THE YEAR UNDER CONSIDERATION,THAT EXPORT SALES ACCOUNTED FOR 12% O F THE INCOME. THE ANNUAL REPORT PROVES THAT THE MAIN SOURCE OF INCOME FOR THE YEAR UNDER CONSID ERATION WAS CONSULTANCY FEE. IN OUR OPINION, THE ASSESSEES IS JUSTIFIED IN ARGUING THAT RITES SH OULD BE EXCLUDED FROM THE LIST OF COMPARABLES. WL ,AS PER THE WEBSITE OF THE COMPANY IS A MINI RATNA AND ISO 9001: 2008ACCRETED PUBLIC SECTOR ENTERPRISES UNDER THE AEGIS OF UNION MINISTR Y OF WATER RESOURCES, THAT IT PROVIDES CONSULTANCY SERVICES IN ALL FACETS OF WATER RESOURC ES, POWER AND INFRASTRUCTURE SECTOR IN INDIA AND ABROAD. AS PER THE ANNUAL REPORT INCOME UNDER THE H EAD CONSULTANCY AND TRAINING PROJECT AND LUMP SUM TURNKEY PROJECTS WAS RS. 10644. 78 LAKHS A ND RS. 9 862.5 LAKHS RESPECTIVELY FOR THE YEAR UNDER CONSIDERATION.IT CAN SAFELY BE HELD THAT WL IS BASICALLY ENGAGED INTO PROJECT ENGINEER -ING CONSULTANCY AND THEREFORE NOT COMPARABLE TO TH E FUNCTIONAL PROFILE OF THE ASSESSEE. HERE WE WOULD LIKE TO MENTION THAT RITES AND WL HAVE NOT BE EN EXCLUDED BY US FROM THE LIST OF VALID COMPARABLES BECAUSE THEY ARE GOVERNMENT UNDERTAKING S.WE HAVE COMPARED THE FUNCTIONAL 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 9 PROFILE OF THE ASSESSEE AND THESE TWO COMPARABLES.W E FIND THAT THERE IS NO SIMILARITY BETWEEN THE FUNCTIONS PERFORMED BY THE ASSESSEE AND THESE TWO E NTITIES. WE ALSO FIND THAT IN CEINA INDIA PRIVATE LIMITED,TH E TRIBUNAL HAD HELD THAT IT WAS FUNCTIONAL-LY DISSIMILAR TO A COMPANY PROVIDING MSS.IN THE CASE O F AVAYA INDIA PRIVATE LIMITED(ITA/ 146/DEL/2013,DATED17/06/2016),THE TRIBUNAL HAD HELD THAT AL WAS NOT A VALID COMPARABLE FOR DETERMINING THE ALP FOR MSS,THAT SIMILAR CONCLUSION WAS RAISED BY THE TRIBUNAL IN THE CASE B.G. INDIA ENERGY PRIVATE LIMITED (ITA/6486/DEL/2012,DAT ED 04/10/2016). 3.5. CONSIDERING THE ABOVE,WE ARE OF THE OPINION THAT AL L THE FIVE COMPARABLES-I.E. AL,CLL, GITL,RITES AND WL,SELECTED BY THE TPO FOR BENCHMARK ING THE IT.S OF THE ASSESSEE-ARE NOT PROVIDING MSS,THAT THERE FUNCTIONALLY DISSIMILAR,TH AT THEY HAVE TO BE EXCLUDED FROM THE FINAL LIST OF THE VALID COMPARABLES.THERE IS NOTHING ON RECORD TO PROVE THAT SUPPORT SERVICES PROVIDED BY THE ABOVE FIVE COMPARABLES WERE ALSO ASSOCIATED WIT H MARKETING FUNCTION. THERE IS NO DOUBT THAT THE SUPPORT SERVICES PROVIDED BY THE ASSESSEE WERE DIRECTLY ASSOCIATED WITH MARKETING.WE FIND THAT IF THESE FIVE COMPARABLES ARE EXCLUDED FROM TH E 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 ARMS LENGTH. GOA 2.1 I S 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 PROCEED INGS,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 ASSESS EE HAD NOT RECONCILED THE MISMATCH OF THE DATA. 4.1. DURING THE COURSE OF HEARING BEFORE US,THE AR STATE D 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 EXP LAINING THAT THERE WAS MISTAKE IN THE EARLIER TDS STATEMENT.HE REFERRED TO PAGES 225-227 OF THE P APER BOOK.WITH REGARD TO ARZOO.COM, HE CONTENDED THAT ARZOO HAD DISPUTED THE LIABILITY AND HAD NOT PAID THE SAID AMOUNT, THAT AMOUNT IN QUESTION COULD NOT BE REGARDED AS INCOME,THAT ALL T HE DETAILS ABOUT BOTH THE ITEMS WERE MADE AVAILABLE TO REVENUE AUTHORITIES, THAT AN APPLICATI ON UNDER SECTION 154 OF THE ACT WAS FILED BEFORE 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 10 THE AO ON 25/02/2014. ALTERNATIVELY,IT WAS ARGUED T HAT IF THE AMOUNT WAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE,THEN CONSEQUENTLY IT SHOULD A LSO BE GRANTED CREDIT FOR TDS AS REFLECTED IN FORM NUMBER 26 AS. THE DR SUPPORTED THE ORDER OF TH E FAA. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT RE CTIFICATION APPLICATION WAS FILED BEFORE THE AO BY THE ASSESSEE STATING THAT THERE WERE CERT AIN MISTAKES IN HIS ORDER,THAT YATRA HAD FILED A FRESH STATEMENT OF TAX DEDUCTED AT SOURCE, THAT THE AO HAD NOT PASSED THE RECTIFITION ORDER IN THAT REGARD. THEREFORE IN OUR OPINION, THE ADDITION MADE BY HIM OF RS. 1.14 LAKHS, IN RESPECT OF YATRA ONLINE.COM CANNOT BE ENDORSED.REVERSING THE ORDER O F THE FAA, WE ALLOW GROUND NUMBER 3.1. 4.3. AS FAR AS INCOME OF RS. 6.64 LAKHS IS CONCERNED WE FIND THAT THE ASSESSEE HAD CLAIMED THAT THERE WAS DISPUTE ABOUT THE SUM, THAT ARZOO HAD DIS PUTED THE LIABILITY. THE AO IS DIRECTED TO PASS ORDER U/S.154 OF THE ACT WITHIN A MONTH OF RECEIPT OF THIS ORDER.IF HE FINDS THAT CLAIM MADE BY THE ASSESSEE ABOUT ARZOO.COM IS NOT SUPPORTED BY DOCUME NTARY EVIDENCES,HE CAN ADD THE DISPUTED AMOUNT I.E. FOR RS. 6.64 LAKHS TO THE INCOME OF THE ASSESSEE.BUT HE WILL GIVE CREDIT TO THE TAXES DEDUCTED AT SOURCE AS PER AS 26.GOA 3.2 IS ALLOWED PARTLY. 5 .FOREIGN EXCHANGE LOSS IS THE SUBJECT MATTER OF GRO UND NUMBER FOUR.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAI MED FOR EXCHANGE LOSS TO THE TUNE OF RS. 40.02 CRORES.AFTER CALLING FOR DETAILS IN THAT REGA RD,HE HELD THAT LOSS WAS NOT ALLOWABLE.THE DRP CONFIRMED THE ORDER OF THE AO. 5.1. DURING THE COURSE OF HEARING BEFORE US, THE AR STAT ED THAT FOREIGN EXCHANGE (FE)LOSS REPRESENTED FURTHER LIABILITY IN FOREIGN EXCHANGE A RISING ON THE ASSESSEE ON ACCOUNT OF REVALUATION OF FOREIGN CURRENCY LABILITY IS AT THE YEAR AND, TH AT THE NATURE OF LIABILITIES CLEARLY SHOWED THAT SAME WERE ARISING OUT OF BUSINESS TRANSACTIONS ON R EVENUE ACCOUNT,THAT THE AO HAD ASSESSED THE FE GAIN, BUT HE DID NOT ALLOW THE LOSS, THAT THE LI ABILITY 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 GOVERNER INDIA PRIVATE LTD.(312 ITR 254) OIL AND NA TURAL GAS CORPORATION LTD. (322 ITR 180). THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENC H. 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 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 11 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 F LUCTUATION HAS TO BE ALLOWED.WE FIND THAT THE HONORABLE SUPREME COURT, IN THE CASE OF OIL AND NAT URAL GAS CORPORATION (SUPRA)HAS HELD THAT THE LOSS CLAIMED BY THE APPELLANT ON ACCOUNT OF FLU CTUATION IN THE RATE OF FE AS ON THE DATE OF THE BALANCE-SHEET WAS ALLOWABLE AS EXPENDITURE UNDER SE CTION 37(1) OF THE ACT . RESPECTFULLY,FOLLOWING THE ABOVE MENTIONED TWO JUDG MENTS OF THE HONORABLE APEX COURT,RELIED UPON BY THE ASSESSEE,WE DECIDE GROUND NUMBER FOUR I N FAVOUR OF THE ASSESSEE. 6. GROUND NUMBER 5.1 IS ABOUT ADDITION MADE ON ACCOUNT OF MARKETING SERVICE FEE (MSF)OF RS. 2 CRORES.DURING THE PROCEEDINGS BEFORE IT,THE DRP N OTED THAT THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.30.55 CRORES UNDER THE HEAD PAYME NT OF DEALER INCENTIVE,THAT IT HAD CLAIMED RECEIPT OF RS.32.61 CRORES AS ADDITIONAL MARKETING SERVICE FEES(MSF)FROM ITS PARENT COMPANY, THAT THE FIGURES INCLUDED AMOUNTS PERTAINING TO PER IOD 01.01.2008 TO 31.12.2008.THE DRP CALLED FOR FURTHER DETAILS IN THAT REGARD.AFTER CONSIDERIN G THE SAME,THE DRP HELD THAT THE TRANSACTION IN QUESTION HAD NOT BEEN BENCHMARKED,THAT IT WAS INCLU DED IN FORM 3CEB ONLY AS A NOTE IN ANNEXURE, THAT THE RIGHT TO RECEIVE FEE FROM AE DID NOT ARISE ON 31/3/2008 AS CLAIMED BY THE ASSESSEE, THAT THE RIGHT AROSE WHEN IT DECIDED TO G IVE INCENTIVE TO THE DEALERS, THAT THE AGREEMENT DATED 6/6/1996 AUTHORISED THE ASSESSEE TO INTRODUCE INCENTIVE SCHEMES, THAT IT HAD THE NECESSARY AUTHORITY, THAT IT HAD ENTERED INTO WRITTEN AGREEME NTS WITH THE DEALERS PRIOR TO ENTERING INTO AGREEMENT OF 31/12/2008, THAT THE CLAIM OF THE ASSE SSEE REGARDING THE DATE /PERIOD OF ARISING INCOME IN ITS HANDS WAS FACTUALLY INCORRECT, THAT T HE ASSESSEE HAD INCURRED EXPENDITURE ON PROVIDING INCENTIVE TO THE DEALERS OF RS.34.16 CROR ES, THAT IT HAD ONLY BEEN COMPENSATED TO ONLY RS.32.61 CRORES, THAT THE PARENT COMPANY HAD DEDUCT ED RS.2 CRORES DUE TO THE ASSESSEE, THAT ON BEING CONFRONTED ABOUT THE FACT OF RECEIVING RS.2 CRORES FORM AE THE ASSESSEE HAD NOT COME UP WITH ANY CONVINCING EXPLANATION, THAT IT HAD NOT EX PLAINED REASON OF RECEIVING RS.2.00 CRORES FROM THE AE, THAT THE AGREEMENT DATED 31/12/2008 DI D NOT PROVIDE ANY DETAIL OR LIABILITY ON ASSESSEE THAT IT HAD INCURRED EXPENDITURE ON BEHALF OF PARENT COMPANY, AS THE AGREEMENT OF 1996 PROVIDED FOR THE SAME, THAT PAYMENT TO DEALERS WAS PURELY ON ACCOUNT OF AE, THAT IT HAD NO RELATIONSHIP OR LINK WITH THE ASSESSEE, THAT IT WAS NOT THE LIABILITY OF THE ASSESSEE, THAT IT OUGHT T O HAVE BEEN COMPENSATED FULLY.FINALLY, THE DRP HELD T HAT RS.2 CRORES HAD ACCRUED TO THE ASSESEE FROM AE, THAT IT DID NOT DISCLOSE THE SAID INCOME I N THE RETURN. THE DRP DIRECTED THE AO TO ADD 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 12 THE SAID SUM TO THE INCOME OF THE ASSESSEE. THE DRP FURTHER HELD THAT PAYMENT OF RS.2.00 CRORES AS DEALERS INCENTIVES WAS MADE ON ACCOUNT 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 UNDISCL OSED 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 INCURR ED EXPENDITURE,BY WAY OF INCENTIVES TO THE TRAVEL AGENTS OF RS. 34.61 CRORES,THAT RS. 32.61 CR ORES REPRESENTED THE AMOUNT PAID BY THE AE TO THE ASSESSEE IN RESPECT OF SUCH INCENTIVES, THAT PA YMENT 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 N OT 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 DISTILL ATION AGREEMENT,DATED 31/12/2008,THAT IT HAD RECEIVED AN AMOUNT OF RS.32.61 CRORES,THAT IT HAD R EFLECTED THE SAID AMOUNT IN THE BOOKS OF ACCOUNTS, THAT AS PER THE CLAUSE 5.3.2 OF THE SUB-D IVISION AGREEMENT INTRODUCTION OF INCENTIVE SCHEME WAS AN OBLIGATION OF THE ASSESSEE AND NOT TH AT OF THE AE,THAT THE AE WAS NOT OBLIGED TO PAY THE DISPUTED AMOUNT TO IT,THAT INCURRING OF EXP ENDITURE WAS NOT IN DOUBT,THAT AS A MARKETING COMPANY THE ASSESSEE COULD INCUR ADVERTISEMENT AND PROMOTION EXPENDITURE BENEFITS ARISING THERE FROM COULD ALSO FLOAT TO ITS PARENT COMPANY.H E REFERRED TO CASES OF NGC NETWORK (INDIA) PRIVATE LTD.(368 ITR 738) AND SASSOON J DAVID AND C O.(118 ITR 261).THE DR ARGUED THAT THE ASSESSEE HAD NOT EXPLAINED AS TO WHY RS. 2 CRORES W ERE NOT CONSIDERED AS THE PART OF THE INCOME, THAT THE INCENTIVES WERE PROVIDED AGAINST THE MFS,T HAT NO REASONABLE EXPLANATION WAS FILED FOR REDUCING THE AMOUNT DUE TO IT FROM THE AE,THAT THE ASSESSEE HAD RIGHT TO RECEIVE THE AMOUNT. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE = HAD INCURRED AN EXPENDITURE OF RS.34.61 CRORES UNDE R THE HEAD MFS,THAT IT RECEIVED RS.32.61 CRORES FORM ITS AE,THAT PAYMENT WAS MADE TO THE AGE NTS AS A PART OF INCENTIVE SCHEME INTRODUCED BY IT,THAT AN AGREEMENT WAS ENTERED INTO BETWEEN TH E AE AND THE ASSESSEE IN THAT REGARD, IN OUR OPINION,THE BASIC QUESTION TO BE DECIDED IS AS TO WHETHER THE TRANSACTION IN QUESTION WAS AT ARMS LENGTH.HAD TWO INDEPENDENT ENTITIES ENTERED I NTO SUCH AN TRANSACTION WHAT WOULD HAVE 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 13 HAPPENED IN NORMAL COURSE OF BUSINESS HAS TO BE SEE N TO DETERMINE THE ALP.PROVISION OF SECTION 92 WERE INTRODUCED TO PREVENT THE MISUSE OF PROXIMI TY OF THE AE.S TO MANAGE THEIR AFFAIRS IN A MANNER THAT COULD LEAD TO PAYMENT OF LESS TAXES THA T ARE DUE TO THE SOVEREIGN.HAD THE INCENTIVE IN AN OPEN MARKET BEEN INITIATED BY AN ASSESSEE FOR ITS BENEFIT,IT WOULD BEAR THE COST OF SUCH AN SCHEME.WHY ANY OTHER ENTITY WOULD PAY FOR IT.THE AE DECIDED TO PAY RS.32.61 CRORES TO THE ASSESSEE OUT OF RS.34.61 CRORES,FOR A SCHEME THAT W AS CLAIMED TO BE INTRODUCED BY ASSESSEE ON ITS OWN.THE DEPARTMENTAL AUTHORITIES HAVE TAKEN NOTE OF THE FACT THAT THE ENTIRE CAPITAL OF THE ASSESSEE WOULD BE WIPED OUT HAD IT NOT BEEN PAID RS .32.61 CRORES BY THE AE.IN OUR OPINION,IT WAS A CLEAR CASE OF REIMBURSEMENT BY THE AE OF THE EXPENDITURE INCURRED BY THE ASSESSEE.FOR THE INCENTIVE SCHEME IT SHOULD HAVE CHARGED FULL AMOUNT TO ITS AE I.E.RS.34.61 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 ASSESSE WOULD GET 25% OF THE BOOKI NG.THUS,THE DIRECT AND MAJOR BENEFICIARY IS AE.BECUASE OF PROXIMITY BETWEEN THEM THE AE AND ASS ESSEE COULD ENTER IN TO AN AGREEMENT TO SUIT THEIR REQUIREMENTS.BUT,THAT WOULD NOT TAKE AWA Y 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 AS SESSEE SHOULD HAVE RECEIVED RS.2 CRORES MORE FROM THE AE. WE HAVE GONE THROUGH THE CASES RELIED UPON BY THE A SSESSEE.WE FIND THAT IN THE CASE OF NGC NETWORK (INDIA) PRIVATE LTD.(SUPRA),HONBLE HIGH CO URT 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 ASSESEE AND THE AE MAKES PART PAYMENT FOR THE E XPENDITURE INCURRED BY THE ASSESSEE FOR THE SCHEME.ADVERTISEMENT EXPENDITURE CANNOT BE COMPARED WITH INTRODUCTION OF AN INCENTIVE SCHEMES THAT WOULD INCREASE THE REVENUE OF THE AE.H ERE IT IS NOT A CASE OF INCIDENTAL BENEFIT TO AE-IT IS A CASE OF MAJOR BENEFIT TO THE AE AND FRIN GE 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.TH EREFORE,IN OUR OPINION,THE ORDER OF THE DRP DOES NOT REQUIRE ANY INTERFERENCE FROM OUR SIDE.MAI N ARGUMENT OF THE ASSESSEE STANDS DISMISSED. AS FAR AS DISALLOWING THE EXPENDITURE OF RS.2 CRORE S,WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE,IS CONCERNED,WE WOULD LIKE TO HOLD THAT TH E DRP WAS NOT JUSTIFIED IN DISALLOWING THE 1402/M/13(09-10) M/S.ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD. 14 SAME.THERE IS NO DOUBT ABOUT INCURRING OF EXPENDITU RE BY THE ASSESSEE,AS STATED EARLIER.THE ASSESSEE HAD INTRODUCED AN INCENTIVE SCHEME AND HAD INCURRED THE EXPENSES OF RS.34.61 CRORES. WHETHER THE MONEY RECEIVED FROM AE WAS AT ARMS LEN GTH 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. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JANUARY,2018. 05 , 2018 SD/- SD/- /RAMLAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :05 .01.2018. S.GANGADHARA RAO, SR.PS./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.