Greaves Travel India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 6722/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5137 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 21-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SSH R S SINGHVI
• Keywords: Depreciation; Transfer pricing; Rectification of order; International transaction
• Section: 143(3); 154

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH I-1, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6722/DEL/2015 ASSESSMENT YEAR: 2011-12 GREAVES TRAVEL INDIA PVT. LTD., 4-B, JANGPURA-B, MATHURA ROAD, NEW DELHI. PAN- AABCG 9481H (APPELLANT) VS. ACIT, CIRCLE 10(2), NEW DELHI. (RESPONDENT) APPELLANT BY S/SH. R.S. SINGHVI & SATYAJEET GOEL RESPONDENT BY MS. PRINCY SINGLA, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER PASSED U/S. 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT DATED 30.11.2015 ON THE FOLLOWING GROUNDS : 1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION OF RS. 3,01,29,754/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT BASED ON DRP AND TPOS ORDER. 2) THAT THE ORDER OF DRP AND TPO ARE WITHOUT PROPER A PPRECIATION OF FACTS AND ARE IN TOTAL DISREGARD TO PAST HISTORY OF THE APPELLANT. DATE OF HEARING 25.09.2018 DATE OF PRONOUNCEMENT 24 .10.2018 ITA NO. 6722/DEL/2015 2 3) THAT THE FACTS BEING IDENTICAL, THE DRP AND TPO WE RE NOT JUSTIFIED IN REJECTING THE CPM METHOD WHICH WAS DULY CONSIDERED AND ACCEPTED IN THE PRECEDING YEAR BY ID.TPO AND ASSESSING OFFICER. 4) (I) THAT THE TPO HAS NOT PROPERLY ALLOCATED THE CO STS OF AIR CHARTER SERVICES TO AE AND NON-AE TRANSACTIONS FOR THE PURPOSE OF COMPUTATION OF ALP WHICH IS A MISTAKE APPARENT FROM RECORD THEREBY RENDERING THE ALLEGED TRANSFER PRICING ADJUSTMENT I NCORRECT. (II) THAT THE TPO WAS NOT JUSTIFIED IN ADOPTING EXT ERNAL COMPARABLES INSTEAD OF THE INTERNAL COMPARABLES AS ADOPTED BY T HE ASSESSEE. (III) THAT EVEN OTHERWISE, SOME OF THE EXTERNAL COM PARABLES USED BY THE TPO HAVE VERY HIGH TURNOVER AS COMPARED TO THE ASSES SEE BUSINESS AND AS SUCH SAME ARE NOT RELEVANT AND IT CANNOT BE CONSIDE RED AS AN APPROPRIATE BASE. 5) THAT THE DRP HAS TOTALLY DISREGARDED THE FACTS AN D OUR SUBMISSION OF FACTS RELATING TO PROPER ALLOCATION OF COSTS AND USE OF COMPARABLES. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS IN RES PECT OF ADOPTION OF APPROPRIATE METHOD FOR DETERMINING THE ALP OF INTER NATIONAL TRANSACTIONS. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED RETURN OF INCOME ON 27.09.2011 DECLARING A LOSS OF RS.1,24,26,869/-. TH E CASE WAS SELECTED FOR SCRUTINY. IN THE SCRUTINY PROCEEDINGS, IT WAS OBSER VED THAT THE ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS OF RS.16,02,2 6,577/-. THE ASSESSEE HAD ADOPTED CPM METHOD AS THE MOST APPROPRIATE METHOD F OR DETERMINATION OF PLI BY GP/OC. THE ASSESSEE COMPANY IS ENGAGED IN TH E BUSINESS OF SALE OF PACKAGES FOR LEISURE TRAVEL WHERE TWO OR MORE COMPO NENTS OF TRAVEL SUCH AS FLIGHTS, HOTELS, CAR RENTALS, TRANSFER AND GROUND H ANDLING SERVICES ARE BUNDLED TOGETHER IN DANCE AND SOLD TO CUSTOMERS. APART FROM ABOVE, THE ASSESSEE HAS ITA NO. 6722/DEL/2015 3 AN AIR CHARTER BUSINESS ALSO. THE TPO DID NOT ACCEP T THE COST PLUS METHOD (CPM) USED BY THE ASSESSEE FOR DETERMINATION OF ALP AND APPLIED TNMM AS MOST APPROPRIATE METHOD AND OP/TC AS PLI. HE USED C URRENT YEAR DATA AND SELECTED THE FOLLOWING COMPARABLES WITH AVERAGE PLI OF 4.45% AND MADE AN UPWARD ADJUSTMENT OF RS.4,48,48,531/-. LATER ON BY PASSING THE RECTIFICATION ORDER U/S. 154 DATED 03.02.2015, IT WAS REDUCED TO RS.3,14,02,024/- : S.NO. COMPANY NAME OP/TC(%) 1 ACE TOURS WORLDWIDE LTD. 3.8 2 INDO ASIA LEISURE SERVICES LTD. 4.57 3 PEARL INTERNATIONAL TOURS & TRAVELS LTD. 10.52 4 ROOMSXML SOLUTIONS LTD. 1.21 5 TAMARIND TOURS PVT. LTD. 2.15 AVERAGE 4.45 THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP BY R EITERATING THE SAME OBJECTIONS FILED BEFORE THE TPO WHICH HAS BEEN REPR ODUCED IN THE DRP ORDER. THE LD. DRP AFTER CONSIDERING THE ORDER OF THE LOWE R AUTHORITIES AND RELYING ON SOME CASE LAWS, UPHELD THE ORDER OF THE TPO AND DIR ECTED THE ASSESSING OFFICER FOR PASSING FINAL ORDER. ACCORDINGLY, THE A SSESSING OFFICER MADE THE FINAL ORDER BY MAKING UPWARD ADJUSTMENT OF RS.3,01, 29,754/-. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE TP O HAS WRONGLY NOT ACCEPTED THE CPM AS ADOPTED BY THE ASSESSEE ON YEAR TO YEAR BASIS. THE FACTS ARE SIMILAR IN THE PRECEDING AND SUBSEQUENT YEARS A ND HE PLACED ITA NO. 6722/DEL/2015 4 BEFORE US ASSESSMENT ORDERS FOR PRECEDING ASSESSMEN T YEAR 2010-11 AND SUCCEEDING ASSESSMENT YEAR 2013-14 IN WHICH CPM HAS BEEN ACCEPTED BY THE REVENUE AS MOST APPROPRIATE METHOD FOR DETERMINING ALP. THEREFORE, CPM SHOULD BE ACCEPTED BY THE REVENUE. HE ALSO RELIED O N THE FOLLOWING CASE LAWS, WHICH ARE PLACED IN THE PAPER BOOK : (I). CIT VS. LOREAL INDIA P. LTD., 276 CTR 484 (B OM) AFTER HAVING PERUSED THE RELEVANT PART OF THE ORDER PASSED BY THE COMMISSIONER AND THE TRIBUNAL ON THIS QUESTION, WE A RE IN AGREEMENT WITH MR. PARDIWALLA THAT THE TRIBUNAL DID NOT COMMIT ANY ERROR OF LAW APPARENT ON THE FACE OF THE RECORD NOR CAN THE FIND INGS CAN BE SAID TO BE PERVERSE. THE TRIBUNAL HAS FOUND THAT THE TPO HAS PASS ED AN ORDER EARLIER ACCEPTING THIS METHOD. THE TRIBUNAL HAS NOTED IN PARA 19 OF THE ORDER UNDER CHALLENGE THAT THIS METHOD IS ONE OF THE STAN DARD METHOD AND THE OECD (ORGANIZATION OF ECONOMIC COMMERCIAL DEVELOPME NT) GUIDELINES ALSO STATE IN CASE OF DISTRIBUTION OR MARKETING ACT IVITIES WHEN THE GOODS ARE PURCHASED FROM ASSOCIATED ENTITIES AND THERE AR E SALES EFFECTED TO UNRELATED PARTIES WITHOUT ANY FURTHER PROCESSING, T HEN, THIS METHOD CAN BE ADOPTED. THE FINDINGS OF FACT ARE BASED ON THE MATER IALS WHICH HAVE BEEN PRODUCED BEFORE THE COMMISSIONER AS ALSO THE TRIBUNA L. FURTHER, IT WAS HIGHLIGHTED BEFORE THE COMMISSIONER AS TO COST. (II). RACOLD THERMO LTD. V. DCIT, 63 TAXMANN.COM 2 15 (PUNE-TRIB) UNDOUBTEDLY, THE DOCTRINE OF RES JIIDICATA IS NOT A PPLICABLE TO THE TAX PROCEEDINGS, BUT AT THE SAME TIME, WHERE THERE IS N O CHANGE IN THE FACTS IN RESPECT OF A PARTICULAR TRANSACTION AND/OR ISSUE OR PROCEEDINGS, THEN IT IS THE REQUIREMENT OF LAW THAT CONSISTENCY SHOULD BE M AINTAINED AND THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR BENCHMARKIN G ITS INTERNATIONAL TRANSACTIONS SHOULD NOT BE DISTURBED. WHERE THE REV ENUE FROM YEAR TO YEAR HAS ACCEPTED THE METHOD ADOPTED BY THE ASSESSE E FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE E NTERPRISES, IN THE ABSENCE OF ANY REASONS BROUGHT ON RECORD, THERE IS NO MERIT IN DEVIATING OR TAKING STAND CONTRARY TO THE STAND ACCEPTED IN BOTH THE PR ECEDING AND ITA NO. 6722/DEL/2015 5 SUCCEEDING YEARS, WHILE BENCHMARKING THE INTERNATIO NAL TRANSACTIONS IN THE HANDS OF THE ASSESSEE. (III). DCIT V. FRITIDSRESOR TOURS AND TRAVELS INDIA P. LTD., 157 ITD 495 (DELHI-TRIB) THE SECOND REASON FOR NOT COUNTENANCING THE IMPUGNED ORDER IS THAT THE COMMISSIONER (APPEALS) HAS ACCEPTED THE YARDSTICK O F COMPARING THE ASSESSEES RATIO OF 'NET PROFIT TO TOTAL COSTS' WITH THE SIMILAR RATIO OF TWO COMPARABLES. RATIO OF 'NET PROFIT TO TOTAL COSTS' H AS NO PLACE IN THE MECHANISM PROVIDED FOR COMPUTING THE ALP UNDER THE 'COST PLUS METHOD1 AS CAN BE SEEN FROM THE EXTRACTION OF RULE 10B(1) ( C) ABOVE. EVEN UNDER THE TNMM, THE FORMULA IS THE RATIO OF 'OPERATING PRO FIT TO A SUITABLE BASE, WHAT IS RELEVANT UNDER THE TNMM IS 'OPERATING PROFIT AND NOT 'NET PROFIT. THE ACTION OF THE COMMISSIONER (APPEALS) IN ACCEPTIN G THE RATIO OF 'NET PROFIT TO TOTAL COSTS' AS A PROFIT LEVEL INDICATOR HAS LED TO THE DEVISING OF A NEW METHOD IN ITS OWN, WHICH HAS NO SANCTION OF LAW . AS THE MOST APPROPRIATE METHOD IN THIS CASE IS UNDISPUTEDLY THE 'COST PLUS METHOD, IT CANNOT BE APPRECIATED AS TO HOW THE DECISION OF THE FIRST APPELLATE AUTHORITY IN ACCEPTING SUCH A RATIO AS A PROFIT LEV EL INDICATOR UNDER THIS METHOD CAN BE SUSTAINED. THE COMPARISON OF THIS RATI O IS ALIEN TO THE COST PLUS METHOD. [PARA 12.7] (IV). DCIT V. SUMI MOTHERSON INNOVATIVE ENGINEERING LTD. 30 ITR(T) 367(DELHI-TRIB). HOWEVER THE NUMERATOR, BEING THE 'NET PROFIT MARGIN IS STATIC OR FIXED. UNLIKE DENOMINATOR, NO ALTERNATIVES HAVE BEEN PROVI DED FOR NUMERATOR. IT REMAINS CONSTANT WITH THE VARYING DENOMINATORS. IT IS THIS PERCENTAGE OF NET PROFIT MARGIN DERIVED BY THE ASSESSEE FROM ITS INTERNATIONAL TRANSACTION, WHICH IS COMPARED WITH SIMILAR ADJUSTE D NET PROFIT MARGIN WITH THE SAME BASE OF OTHER COMPARABLES FOR ASCERTA INING WHETHER THE 'NET PROFIT MARGIN' (OR TO BE MORE APPROPRIATE 'NET OPER ATING PROFIT MARGIN') FROM INTERNATIONAL TRANSACTIONS IS AT ARM'S LENGTH. IN COMMON PARLANCE, THE TERM 'NET PROFIT' REFERS TO THE PROFIT OF THE ASSESSEE AFTER DEPRECIATION, INTEREST AND TAXES. BU T IN THE CONTEXT OF ITA NO. 6722/DEL/2015 6 TNMM, THIS TERM RESTRICTS ITSELF TO 'NET OPERATING P ROFIT', WHICH MEANS THE PROFIT FROM BUSINESS ACTIVITY AFTER CONSIDERING ALL DIRECT AND INDIRECT COSTS AND EXCLUDING NON OPERATING INCOMES AND EXPENSES. TO PUT IT SIMPLY, IT REFERS TO THE DETERMINATION OF PROFIT BY IGNORING N ON-OPERATING COSTS AND REVENUES AND ALSO EXTRAORDINARY AND EXCEPTIONAL ITE MS WHICH ARE NON- RECURRING IN NATURE. THE LOGIC IN CONSIDERING NET OPERATING PROFIT MARGIN IS SIMPLE THAT THE ITEMS OF INCOME/EXPENSE WHICH ARE NOT CONCERNED WIT H THE BUSINESS OPERATION OF THE ASSESSEE ARE TAKEN OUT WITH A VIEW TO DERIVE A FAIR PICTURE ABOUT THE PROFITABILITY FROM OPERATIONS. IN THIS PR OCESS, ALL THE OPERATING EXPENSES AND ALL THE OPERATING REVENUES ARE TAKEN I NTO CONSIDERATION. 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE RES JUDICATA DOES NOT APPLY IN THE INCOME-TAX PROCEEDINGS. EVERY YEAR IS A SEPARATE YEAR. THEREFO RE, LOWER AUTHORITIES ARE JUSTIFIED TO APPLY TNMM FOR DETERMINING THE ALP IN THE CASE OF ASSESSEE. 5. AFTER HEARING BOTH THE SIDES AND PERUSING THE EN TIRE MATERIALS AVAILABLE ON RECORD, WE OBSERVE THAT THE BUSINESS MODEL OF TH E ASSESSEE IS SAME AS IN THE PRECEDING AND SUCCEEDING YEARS. THE FACTS ARE U NCHANGED. IT IS CLEAR FROM THE PAPER BOOK SUBMITTED BY THE ASSESSEE THAT FOR T HE ASSESSMENT YEAR 2010- 11 AND 2013-14, THE COST PLUS METHOD HAS BEEN ACCEP TED BY THE REVENUE IN THE SAME FACTS OF THE CASE OF THE ASSESSEE. THIS HA S NOT BEEN CONTROVERTED BY THE LD. DR. WE, THEREFORE, FIND THAT RULE OF CONSIS TENCY SHOULD HAVE BEEN ADOPTED BY THE AUTHORITIES BELOW AS HELD IN THE CAS E OF RACOLD THERMO LTD. VS. DCIT(SUPRA), REPRODUCED ABOVE. THE DECISION RENDER ED BY DELHI TRIBUNAL IN THE CASE OF FRITIDSRESOR TOURS AND TRAVELS INDIA P. LTD. (SUPRA) IS ALSO ITA NO. 6722/DEL/2015 7 APPLICABLE TO THE PRESENT CASE, AS IN THAT CASE, TH E ASSESSEE WAS ENGAGED IN THE SAME LINE OF BUSINESS AND CPM HAS BEEN ACCEPTED BY THE CO-ORDINATE BENCH OF TRIBUNAL, AS MOST APPROPRIATE METHOD, AS REPRODUCED ABOVE. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE ALLOW THE APPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH OCTOBER, 2018. SD/- SD/- (BHAVNESH SAINI) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24 TH OCTOBER, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI