M/s. Amadeus India Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 4584/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74256 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 05-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 14-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH KUMAR VERMA
• Assessee Lawyers: SYALI
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 4584/DEL/2011 (ASSESSMENT YEAR-2007-08) M/S AMADEUS INDIA PVT. LTD., E-9, CONNAUGHT HOSE, CONNAUGHT PLACE NEW DELHI-110001 VS ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-1, NEW DELHI-110001 (APPELLANT) (RESPONDENT) PAN NO. AAACA0364L ASSESSEE BY: SHRI M. S. SYALI & SHRI TARANDEEP SING H REVENUE BY: SHRI YOGESH KUMAR VERMA DATE OF HEARING 5.3.2014 DATE OF PRONOUNCEMENT 6.3.2014 ORDER PER R. S. SYAL, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER DT. 29.8.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3 ) R.W.S 144C(13) OF THE INCOME-TAX ACT, 1961 (ACT) IN RELA TION TO THE ASSESSMENT YEAR 2007-08. 2. THE ONLY ISSUE RAISED IN THIS APPEAL THROUGH VAR IOUS GROUNDS IS AGAINST THE MAKING OF ADDITION OF RS. 33,52,43,7 20/- BY THE AO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT TOWARDS A MP EXPENSES. ITA NO. 4584/DEL/2011 AMADEUS INDIA PVT. LTD. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING DATA PROCESSIN G AND RELATED SERVICES TO ITS ASSOCIATED ENTERPRISES (AES). IT IS RESPONSIBLE FOR PROVIDING SOFTWARE ACCESS TO THE `SUBSCRIBERS OF T HE AMADEUS PRODUCTS AND COMPUTER DATABASE WITHIN THE INDIAN SU BCONTINENT. ITS TERRITORY INCLUDES INDIA, BANGLADESH AND NEPAL. THE MAIN ACTIVITY OF THE ASSESSEE IS TO PROVIDE CONNECTIVITY TO HOST SYSTEM BY CREATION/MODIFICATION/UP-GRADATION OF COMPUTER PROG RAMMES ONLINE. THE ASSESSEE HAS A DATA PROCESSING CENTRE W HICH PROVIDES SERVICES TO ITS A.ES. THROUGH SUBSCRIBERS (MOSTLY T RAVEL AGENTS). THE ASSESSEE REPORTED INTERNATIONAL TRANSACTIONS TO WARDS RECEIPTS AND PAYMENTS FOR SERVICES PROVIDED/RECEIVED TO THE TUNE OF RS. 133,45,52,217/- AND RS. 7,69,13,058/- RESPECTIVELY. IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE, CLAIMED DEDUCTION INTER ALIA, FOR A SUM OF RS. 58,66,30,490/- DESIGNATED AS SELL ING EXPENSES. THE DETAIL OF SUCH EXPENSES HAS BEEN S ET OUT ON PAGE 10 OF THE ORDER PASSED BY THE TRANSFER PRICING OFFI CER (TPO). THE LARGEST CONSTITUENT OF SUCH SELLING EXPENSES IS A SUM OF RS. 54,75,44,112/- WITH THE NOMENCLATURE OF `INCENTIVE . WITHOUT GOING INTO ELABORATE DETAILS, IT IS NOTICED THAT TH E TPO INITIALLY PROPOSED ADJUSTMENT OF RS. 52,33,73,988/- ON ACCOUN T OF AMP EXPENSES. PURSUANT TO THE DIRECTION GIVEN BY THE DI SPUTE RESOLUTION PANEL (DRP), THE AMOUNT OF SUCH ADJUSTME NT WAS REDUCED BY THE TPO TO RS. 33,52,43,720/-. IT IS THI S AMOUNT FOR ITA NO. 4584/DEL/2011 AMADEUS INDIA PVT. LTD. 3 WHICH THE ASSESSING OFFICER MADE ADDITION IN THE FI NAL ORDER PASSED U/S 144C(13). THE ASSESSEE IS AGGRIEVED AGAI NST THIS ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE SPECIAL BENCH OF THE TRIBUN AL IN LG ELECTRONICS INDIA PVT. LTD. VS ACIT (2013) 140 ITD 41 (DELHI)(SB) CONSIDERED A SIMILAR ISSUE OF TRANSFER PRICING ADJU STMENT ON ACCOUNT OF AMP EXPENSES. INSOFAR AS WE ARE CONCERNE D WITH THE PRESENT APPEAL, THE SPECIAL BENCH, BY ITS MAJORITY VIEW, HELD THAT THERE IS A `TRANSACTION BETWEEN THE ASSESSEE AND I TS FOREIGN A.E UNDER WHICH IT INCURRED AMP EXPENSES TOWARDS PROMOT ION OF BRAND LEGALLY OWNED BY THE FOREIGN ENTITY. IT ALSO HELD THAT SUCH TRANSACTION FALLS WITHIN THE AMBIT OF INTERNATIO NAL TRANSACTION. WHILE UPHOLDING THE APPLICATION OF COST PLUS METHO D AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF AMP E XPENSES, THE SPECIAL BENCH HELD THAT THE COMPONENT OF `COST UND ER THIS METHOD SHOULD BE DETERMINED BY APPLYING THE `BRIGHT LINE T EST. CERTAIN PARAMETERS HAVE BEEN LAID DOWN BY THE SPECIAL BENCH IN PARA 17.4 OF ITS ORDER AND THE AO/TPO WAS DIRECTED TO CONSIDE R THE CUMULATIVE IMPACT OF SUCH FACTORS BEFORE DECIDING T HE QUESTION OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPEN SES. 5. THE CONTENTIONS RAISED BY THE LD. AR IN T HE PRESENT APPEAL THAT THERE IS NO TRANSACTION ON ACCOUNT OF AMP EX PENSES AND IF IT ITA NO. 4584/DEL/2011 AMADEUS INDIA PVT. LTD. 4 IS A TRANSACTION, THEN IT IS NOT AN `INTERNATION AL TRANSACTION, STAND REJECTED IN THE LIGHT OF THE MANDATE OF THE S PECIAL BENCH ORDER. THE FURTHER CONTENTION ABOUT THE APPLICATION OF `BRIGHT LINE TEST AS A METHOD FOR DETERMINING THE ALP IS ALSO M ISCONCEIVED WHICH IS HEREBY REPELLED IN VIEW OF THE DECISION IN LG ELECTRONICS INDIA PVT. LTD. (SUPRA). RESPECTFULLY FOLLOWING TH E SPECIAL BENCH DECISION, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF A.O/TPO WITH A DIRECTION TO REDO THE DE TERMINATION OF TP ADJUSTMENT, IF ANY, ON ACCOUNT OF AMP EXPENSES B Y CONSIDERING THE RELEVANT FACTORS AS NOTED IN SUCH ORDER. 6. THE LD. AR SUBMITTED THAT THE A.O/TPO ERRED IN C ONSIDERING THE AMOUNT OF INCENTIVE AT RS. 54.75 CRORE IN THE AMP EXPENSES TOTALING RS. 58.66 CRORES. IT WAS ARGUED THAT SUCH AMOUNT SHOULD BE EXCLUDED AT THE VERY THRESHOLD FROM THE TOTAL AMP E XPENSES FOR THE PURPOSE OF CONSIDERATION IN THE LIGHT OF THE SPECIA L BENCH ORDER IN LG ELECTRONICS INDIA PVT. LTD. (SUPRA). IT WAS EXPL AINED THAT SUCH INCENTIVE WAS NOTHING BUT COMMISSION PASSED ON BY THE ASSESSEE TO ITS SUBSCRIBERS, THROUGH WHOM THE ENTIRE BUSINES S WAS GENERATED. THE LD. AR EXPLAINED THAT THE ASSESSEE E NTERED INTO AGREEMENT WITH VARIOUS SUBSCRIBERS, MOSTLY TRAVEL AGENTS, WHO MADE THE BOOKINGS THROUGH THE ASSESSEES NETWORK. I T WAS EXPLAINED THAT THE ASSESSEE WAS TO RECEIVE 44% OF T HE REVENUE FROM ITS FOREIGN A.E IN THE SECOND YEAR OF AGREEMEN T ON ACCOUNT ITA NO. 4584/DEL/2011 AMADEUS INDIA PVT. LTD. 5 OF BOOKINGS EFFECTED THROUGH SUCH SUBSCRIBERS AND, IN TURN, THE ASSESSEE WAS OBLIGED TO PASS OVER A PART OF THE GRO SS AMOUNT RECEIVED FROM ITS A.E TO SUCH SUBSCRIBERS. A COPY O F THE SAMPLE AGREEMENT WITH M/S GAURAV TRAVELS PVT. LTD., ONE OF THE SUBSCRIBERS, WAS PLACED ON RECORD. IT WAS SHOWN TH AT VIDE CLAUSE 4 OF THIS AGREEMENT, THE ASSESSEE AGREED TO PAY TO T HE SUBSCRIBER A LOYALTY INCENTIVE ON THE SEGMENTS BOOKED BY HIM. IT WAS EXPLAINED THAT THE ENTIRE AMOUNT OF `INCENTIVE TO TALING RS. 54.74 CRORE REPRESENTED SUCH AMOUNTS PAID TO VARIOUS SUBS CRIBERS THROUGHOUT THE COUNTRY WHO BOOKED THE TICKETS ETC. THROUGH THE NETWORK OF THE AMADEUS GROUP. IT WAS ARGUED THAT SI NCE THIS EXPENDITURE OF INCENTIVE WAS IN THE NATURE OF SELL ING EXPENSE AND NOT SALE PROMOTION EXPENSE, THE SAME WAS REQUIRED TO BE EXCLUDED FROM THE TOTAL AMOUNT OF AMP EXPENSES FOR CONSIDERATION BY THE A.O IN THE FRESH PROCEEDINGS IN LINE WITH TH E SPECIAL BENCH ORDER. PER CONTRA, THE LD. DR ARGUED THAT SUCH AMOU NT OF `INCENTIVE COULD NOT BE REDUCED FROM THE TOTAL AMP EXPENSES AS IT WAS FOR PROVIDING INCENTIVE TO THE CUSTOMERS TO RE MAIN ATTACHED WITH THE ASSESSEE, WHICH INDIRECTLY BOOSTED THE BRA ND. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE SPECI AL BENCH IN LG ELECTRONICS INDIA PVT. LTD. (SUPRA) HAS HELD IN PARA 18.3 OF ITS ORDER THAT AMP EXPENSES REFER ONLY TO ADVERTISEMENT, MARK ETING AND ITA NO. 4584/DEL/2011 AMADEUS INDIA PVT. LTD. 6 PUBLICITY. APPRECIATING THE DISTINCTION BETWEEN `EX PENSES FOR THE PROMOTION OF SALES ON ONE HAND AND `EXPENSES IN C ONNECTION WITH THE SALES ON THE OTHER, THE TRIBUNAL HELD THAT THE FIRST CATEGORY OF EXPENSES LEAD TO BRAND BUILDING BUT THE SECOND CATE GORY WHICH ARE SALE-SPECIFIC EXPENSES SHOULD BE REDUCED FROM THE B ASE OF AMP EXPENSES. 8. ADVERTING TO THE FACTS OF THE INSTANT CASE W E FIND FROM PARA 7.13 OF THE TPOS ORDER THAT THE ASSESSEE STATED TH AT A SUM OF RS. 54.75 CRORE WAS INCURRED ON `INCENTIVE WHICH WAS P ASSED ON TO THE SUBSCRIBERS. THE NATURE OF THIS INCENTIVE HAS NOT B EEN DISPUTED BY THE TPO OR FOR THAT MATTER BY THE DRP. THE TPO HIMS ELF OBSERVED THAT; THE NATURE AND PURPOSE OF PROVIDING INCENTIVE TO SU BSCRIBERS IS TO GENERATE MORE REVENUE FROM AMADEUS GLOBAL . THE NATURE OF THIS INCENTIVE HAS ALSO BEEN DISCUSSED BY THE DRP I N PARA 4.2.2 AND 4.2.3 OF ITS ORDER BY OBSERVING THAT IT WAS TOWARDS INCENTIVE TO TRAVEL AGENTS. IN THE LIGHT OF THE ABOVE FACTS, TH E POSITION WHICH EMERGES IS THAT THE ASSESSEE PAID A SUM OF RS. 54.7 5 CRORE TO THE SUBSCRIBERS WHO ACTUALLY GOT MADE BOOKINGS FOR THEI R CUSTOMERS THROUGH THE NETWORK OF AMADEUS GROUP. BUT FOR THE PAYMENT OF SUCH INCENTIVE, THE SUBSCRIBERS HAD NO INTEREST IN DEALING WITH THE ASSESSEE. AS THE REVENUE GENERATED FROM BOOKINGS DO NE BY THE SUBSCRIBERS IS THE MAJOR SOURCE OF THE ASSESSEES I NCOME FROM ITS A.E, SUCH `INCENTIVE TO THE SUBSCRIBERS CANNOT BE VIEWED AS ITA NO. 4584/DEL/2011 AMADEUS INDIA PVT. LTD. 7 ANYTHING OTHER THAN `SELLING EXPENSE WHICH IS LIAB LE TO EXCLUDED FROM THE TOTAL AMP EXPENSES AS PER THE DECISION GIV EN BY THE SPECIAL BENCH IN LG ELECTRONICS INDIA PVT. LTD. (SUPRA) . IT IS FURTHER NOTICED THAT THE DELHI BENCH OF THE TRIBUNA L IN WHIRLPOOL INDIA PVT. LTD. VS DCIT (ITA NO. 426/DEL/2013) HAS HELD VIDE ITS ORDER DATED 13.1.2014 THAT THE DISCOUNT AND INCENTI VE PASSED BY THE ASSESSEE TO ITS DEALERS AND DISTRIBUTORS ON EFFECTI NG THE SALES WAS REQUIRED TO BE EXCLUDED FROM THE TOTAL AMP EXPENSES FOR THE PURPOSES OF DETERMINATION OF ALP IN RESPECT OF AMP EXPENSES. THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE ARE MORE OR LESS SIMILAR TO THOSE IN THE CASE OF WHIRLPOOL INDIA PVT . LTD. (SUPRA). IN VIEW OF THE FOREGOING DISCUSSION, WE HOLD THAT INC ENTIVE AMOUNTING TO RS. 54.75 CRORE SHOULD BE DEDUCTED FRO M TOTAL AMP EXPENSES OF RS. 58.66 CRORES AND THE REMAINING AMOU NT OF RS. 3.91 CRORES SHOULD BE CONSIDERED BY THE ASSESSING OFFICE R FOR A FRESH DETERMINATION OF ITS ALP AS PER THE GUIDELINES LAID DOWN IN LG ELECTRONICS INDIA PVT. LTD. (SUPRA) . 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6/3/2014. SD/- SD/- (A. T. VARKEY) (R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 6/3/2014 *SUBODH* ITA NO. 4584/DEL/2011 AMADEUS INDIA PVT. LTD. 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 5.3.2014 PS 2. DRAFT PLACED BEFORE AUTHOR 5.3.2014 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *