M/s Destination of the World (Subcontinent) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1697/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7732 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B RAMANJANEYULU SENIOR
• Assessee Lawyers: SWETA GUPTA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Additional evidence; Wholly owned subsidiary; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1697/DEL./2017 (ASSESSMENT YEAR : 2009-10) DESTINATION OF THE WORTH (SUBCONTINENT) VS. DCIT, CIRCLE 11 (1), PVT. LTD., NEW DELHI. 207, CHIRANJI TOWER, 43, NEHRU PLACE, NEW DELHI 110 019. (PAN : AACCD1178P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SWETA GUPTA, CA REVENUE BY : SHRI B. RAMANJANEYULU, SENIOR DR DATE OF HEARING : 08.01.2020 DATE OF ORDER : 29.01.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. DESTINATION OF THE WORTH (SUBCONTINENT) PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.09.2016 PASSED BY COMMISSIONER OF INCOME-TAX (APPEALS) 44 , NEW DELHI QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTE R ALIA THAT:- 1. IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CA SE, LD COMMISSIONER OF INCOME TAX (A) (LD. CIT (A)) HAS ER RED IN MAKING AN ADDITION OF RS.1,66,27,826/- TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LEN GTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. ITA NO.1697/DEL./2017 2 2. IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A) ERRED IN DISREGARDING RESALE PRICE METHOD (R PM) AND COST PLUS METHOD (CPM) AS THE MOST APPROPRIATE METH OD AND ARBITRARILY APPLYING TRANSACTIONAL NET MARGIN METHO D (TNMM) AS THE MOST APPROPRIATE METHOD FOR DETERMINING ARM' S LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS OF OUTBOU ND TRAVEL RELATED SERVICES AND INBOUND TRAVEL RELATED SERVICE S PERTAINING TO THE FOLLOWING REASONS: A. LD. CIT(A) FAILED TO APPRECIATE THAT WITH RESPEC T TO THE INTERNATIONAL TRANSACTIONS OF OUTBOUND TRAVEL SERVI CES, THE APPELLANT IS ONLY ACTING AS AN INTERMEDIARY/ RESELL ER AND IS NOT ADDING ANY SIGNIFICANT VALUE TO THE SERVICES PROCUR ED FROM ASSOCIATED ENTERPRISES (AES) ACCORDINGLY TRANSACTIO NS SHOULD BE BENCHMARKED APPLYING RPM AS THE MOST APPROPRIATE ME THOD. B. IN THE CASE OF INBOUND TRAVEL SERVICES, DIRECT A ND INDIRECT COST OF SERVICES IS IDENTIFIABLE BOTH WITH RESPECT TO THE SERVICES PROVIDED TO AES AND TO NON AES, ACCORDINGLY, LD. CI T (A) OUGHT TO HAVE ACCEPTED CPM FOR DETERMINING THE ARM'S LENG TH PRICE OF THE INBOUND TRAVEL SERVICES PROVIDED TO AES. C. LD. CIT (A) FAILED TO PRESENT ANY COGENT REASONS FOR APPLYING TNMM AND DISREGARDING RPM AND CPM FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATI ONAL TRANSACTION. D. IN THE SUBSEQUENT YEARS ALSO SIMILAR METHODOLOG Y HAS BEEN FOLLOWED BY THE APPELLANT (I.E. RPM FOR OUTBOU ND TRAVEL SERVICES AND CPM FOR INBOUND TRAVEL SERVICES) AND H AS BEEN ACCEPTED BY LD. TRANSFER PRICING OFFICER (LD. TPO), ACCORDINGLY THE ADDITION MADE BY THE LD. CIT (A) IS AGAINST THE 'RULE OF CONSISTENCY'. 3. WITHOUT PREJUDICE TO THE ABOVE, IN LAW AND ON FA CTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN RES ORTING TO EXTERNAL COMPARABLES FOR THE PURPOSE OF APPLYING TN MM AFTER ITSELF APPRECIATING THE JUDGMENT OF HON'BLE TRIBUNA L FOR THE AY 2006-07 AND AY 2007-08 IN APPELLANT'S OWN CASE GIVI NG PREFERENCE TO INTERNAL COMPARABLE OVER EXTERNAL COM PARABLES. LD CIT (A) OUGHT TO HAVE GIVEN PREFERENCE TO INTERNAL COMPARABLES AFTER ITSELF ACKNOWLEDGING THE FACT THAT IN THE CAS E OF APPELLANT INTERNAL COMPARABLES ARE AVAILABLE. 4. WITHOUT PREJUDICE TO THE ABOVE, IN LAW AND ON FA CTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN AFF ORDING REASONABLE OPPORTUNITY TO THE APPELLANT FOR FURNISH ING SEGMENTAL PROFITABILITY FOR OUTBOUND AND INBOUND SERVICES AT THE OPERATING PROFITABILITY LEVEL FOR DETERMINING ALP OF INBOUND AND OUTBOUND ITA NO.1697/DEL./2017 3 TRAVEL RELATED SERVICES AND PASSED THE ORDER MERELY ON THE PRESUMPTION THAT SEGMENT PROFITABILITY COULD NOT BE DETERMINED AT THE OPERATING PROFIT LEVEL. 5. WITHOUT PREJUDICE TO THE ABOVE, IN LAW AND ON FA CTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN CON SIDERING CLUB 7 HOLIDAY LTD. AND INDO ASIA LEISURE SERVICES LTD. AS COMPARABLE TO THE APPELLANT WHICH ARE OPERATING IN DIFFERENT GEOGRAPHY AND ARE ALSO CATERING TO DIFFERENT MARKET . THUS, NOT FULFILLING THE COMPARABILITY CRITERIA LAID DOWN AS PER RULE 10B(F)(2). 6. WITHOUT PREJUDICE TO THE ABOVE, IN LAW AND ON FA CTS AND CIRCUMSTANCES, LD. CIT (A) ERRED IN NOT ALLOWING VA RIATION TO THE EXTENT OF (+/-) 5%, WHILE DETERMINING THE ARM'S LEN GTH PRICE OF THE 'INTERNATIONAL TRANSACTION' AS PER SECTION 92C( 2). 7. IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CAS E THE APPELLANT IN THE INTEREST OF JUSTICE, MAY BE ALLOWE D TO ADDUCE ADDITIONAL EVIDENCE AS MAY BE NECESSARY IN SUPPORT OF THE GROUNDS RAISED HEREINABOVE AFTER FOLLOWING DUE PROC EDURES LAID DOWN IN THE INCOME TAX (APPELLATE TRIBUNALS) RULES, 1963. 8. IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CAS E, THE APPELLANT MAY BE ALLOWED TO ADD, SUPPLEMENT, REVISE , AMEND OR WITHDRAW ANY OF THE GROUNDS RAISED HEREIN ABOVE AT OR BEFORE THE TIME OF HEARING. ' 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. DESTINATION OF THE WORTH (SUBCONTINENT) PVT. LTD., THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY OF DESTINATION OF THE WORLD HOLDINGS ESTABLISHMENT, LI ECHTENSTEIN. THE TAXPAYER IS INTO RENDERING INBOUND, OUTBOUND AND DO MESTIC TRANSFER SERVICES TO INDIA, NEPAL AND BANGLADESH. INBOUND S ERVICES COMPRISE OF CAR RENTALS, AIRPORT TRANSFERS, SITE SCENE TOURS, T RAVEL INSURANCE AND CUSTOMIZE PACKAGES. OUTBOUND SERVICES COMPRISE OF MEETINGS, CONVENTIONS AND EXHIBITIONS AND TRAVEL TO VARIOUS D ESTINATIONS OF THE WORLD. DURING THE YEAR UNDER ASSESSMENT, THE TAXPA YER ENTERED INTO ITA NO.1697/DEL./2017 4 INTERNATIONAL TRANSACTIONS AS REPORTED IN FORM NO.3 CEB WITH ITS ASSOCIATED ENTERPRISES (AE) AS UNDER :- S. NO. DESCRIPTION OF TRANSACTION METHOD VALUE (IN RS.) 1 OUTBOUND TRAVEL RELATED SERVICES RPM 23,42,55,679 2 INBOUND TRAVEL RELATED SERVICES CPM 2,91,53,914 3 CHARGED BACK OF EXPENSES BY ASSESSEE - 75,64,684 4 CHARGED BACK OF EXPENSES TO ASSESSEE (EXCLUDING TRANSACTIONS OF RECEIPT OF MANAGEMENT SERVICES) - 14,89,349 5 PAYMENT OF MANAGEMENT FEES - 27,74,63,626 3. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS FOR OUTBOUND TRAVEL RELATED SERVICES A PPLIED INTERNAL RESALE PRICE METHOD (RPM) WITH GROSS PROFIT/SALES ( GP/SALES) IN AE SEGMENT AT 9.66% AND GP/SALES IN NON-AE SEGMENT AT 10.29% AND FOUND ITS TRANSACTIONS AT ARMS LENGTH. THE TA XPAYER IN ORDER TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS QUA INBOUN D TRAVEL RELATED SERVICES APPLIED INTERNAL COST PLUS METHOD WITH GP/ SALES IN AE SEGMENT AT 14.33% AND GP/SALES IN NON-AE SALES SEGM ENT AT 14.66% AND AGAIN FOUND ITS TRANSACTIONS AT ARMS LE NGTH. 4. THE TRANSFER PRICING OFFICER (TPO) HOWEVER REJEC TED THE TAXPAYERS APPROACH AND APPLIED EXTERNAL TRANSACTIO NAL NET MARGIN METHOD (TNMM) SELECTED 2 COMPARABLES VIZ. CLUB 7 HO LIDAY LTD. AND INDO ASIA LEISURE SERVICES LTD. AND ULTIMATELY ARRIVED AT AVERAGE GROSS PROFIT MARGIN WITH OP/SALES OF THESE 2 COMPARABLES ITA NO.1697/DEL./2017 5 AT 3.93% AS AGAINST NET PROFIT MARGIN OF THE TAXPAY ER AT (-)2.48% AND CONSEQUENTLY MADE UPWARD ADJUSTMENT TO THE TUNE OF RS.1,66,27,826/- ON ACCOUNT OF ALP OF INTERNATIONAL TRANSACTIONS OF INBOUND AND OUTBOUND OF THE SERVICES. 5. ASSESSEE CARRIED THE MATTER BY WAY OF APPEAL BEF ORE THE LD. CIT (A) WHO HAS DISMISSED THE APPEAL. FEELING AGGRI EVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. AT THE VERY OUTSET, LD. AR FOR THE TAXPAYER CONT ENDED THAT THE ISSUE AS TO APPLYING THE METHOD OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS IS COVERED AGAINST THE TAXPAYER BY THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2007-08 PASSED IN ITA NO.1635/DEL/2013 ORDER DAT ED 31.07.2014 WHEREBY INTERNAL TNMM HAS BEEN UPHELD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS AND THE TR IBUNAL ALSO UPHELD THE SEGMENTAL ACCOUNTS WHICH WERE PREPARED U SING SALES AS THE BASIS FOR ALLOCATION OF COMMON EXPENSES AND SIM ILARLY TNMM HAS BEEN UPHELD BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY ITA NO.1697/DEL./2017 6 2006-07 ALSO DECIDED IN ITA NO.5534/DEL/2010 ORDER DATED 08.07.2011 BUT DUE TO NON-AVAILABILITY OF SEGMENT, ADDITION W AS MADE. 8. HOWEVER, WHEN WE EXAMINE THE ORDER PASSED BY THE LD. CIT(A) PARTICULARLY PARA 4.3, IT HAS COME ON RECORD THAT, DURING THE APPELLATE PROCEEDINGS, THE TAXPAYER HAS FAILED TO PROVIDE WORKING OF THE NET PROFIT MARGIN FOR 2 SEGMENTS I.E . OUTBOUND AND INBOUND TRAVEL RELATED SERVICES, HOWEVER ON COMBINE D BASIS I.E. AE AS WELL AS NON-AE TRANSACTIONS TAKING TOGETHER NOR SEPARATELY FOR AE AND ANOTHER PARTY FROM WHICH INTERNAL COMPARABLE S CAN BE EXAMINED ON TNMM FOR INBOUND AND OUTBOUND SERVICES . THIS FACTUAL POSITION HAS NOT BEEN DISPUTED BY THE LD. A R FOR THE TAXPAYER. 9. IN THE ABSENCE OF WORKING OF NET PROFIT MARGIN O F INTERNAL COMPARABLES FOR INBOUND AND OUTBOUND SERVICES, THE ISSUE AS TO BENCHMARKING THE INTERNATIONAL TRANSACTIONS CANNOT BE DECIDED. 10. NOW, THE TAXPAYER HAS COME UP WITH SEGMENTAL AC COUNT IN TABULATED FORM EXPLAINED IN PAGE 2 & 3 OF THE SYNOP SIS WHICH IS REQUIRED TO BE EXAMINED BY THE TPO TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. SO, THE TPO IS DIRECTED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS BY APPLYING TNMM ON THE BASIS OF INTERNAL COMPARABLES IN VIEW OF THE WORKING SUPPLIE D BY THE ITA NO.1697/DEL./2017 7 TAXPAYER. SO, THE CASE IS REMANDED BACK TO THE TPO TO DECIDE AFRESH AFTER PROVIDING OPPORTUNITY OF BEING HEARD T O THE TAXPAYER BY FOLLOWING THE DECISIONS RENDERED BY THE TRIBUNAL IN AYS 2007-08 & 2006-07 IN TAXPAYERS OWN CASE. CONSEQUENTLY, TH E APPEAL OF THE TAXPAYER IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF JANUARY, 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 29 TH DAY OF JANUARY, 2020. TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-44, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.