SABRE TRAVEL NETWORK (INDIA) P.LTD, MUMBAI V. DCIT 8(1)(2), MUMBAI

ITA 7306/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0236 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 22-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VATSALYA SAXENA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Initiation of penalty proceedings; Wholly owned subsidiary; Bad and doubtful debts; Corroborative evidences
• Section: 37(1); 201; 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , J BENCH MUMBAI BEFORE : SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI M.BALAGANESH, A CCOUNTANT M EMBER ITA NO. 7306 /MUM/ 20 17 ( ASSESSMENT YEAR : 201 3 - 1 4 ) M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., U RMI ESTATE, 14 TH FLOOR 99, GANPAT RAO KADAM MARG, LOWER PAREL (W) MUMBAI 400 013 VS. DCIT 8(1)(2) R.NO.651, 6 TH FLOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI - 400 020 PAN/GIR NO. AAACA4836H (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI NITESH JOSHI REVEN UE BY SHRI VATSALYA SAXENA DATE OF HEARING 06 / 07 /202 1 DATE OF PRONOUNCEMENT 14 / 07 /202 1 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 7306/MUM/2017 FOR A.Y. 2013 - 14 IS DIRECTED AGAINST FINAL ASSESSMENT ORDER FR AMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX - 8(1)(2), MUMBAI HEREINAFTER REFERRED TO AS THE LD. AO U/S.143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DATED 30/10/2017 FOR THE A.Y. 2013 - 14 PURSUANT TO THE DIRECTIONS U/S.144C(5) OF THE ACT ISSUED BY THE LD. DISPUTE RESOLUTION PANEL, MUMBAI HEREINAFTER REFERRED TO AS THE LD. DRP DATED 12/09/2017. ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 2 2. THE GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. THE GROUND N OS. 2.1 TO 2.9 RAISED BY THE ASSESSEE IS CHALLENGING THE TRANSFER PRICING ADJUSTMENT OF RS.14,03,65,751/ - . 3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT SABRE TRAVEL NETWORK (INDIA) PRIVATE LIMITED (HEREINA FTER REFERRED AS ASSESSEE) IS SUBSIDIARY OF SABRE ASIA PACIFIC PTE. LTD. (SABRE SINGAPORE). SABRE SINGAPORE OWNS THE COMPUTERIZED RESERVATION SYSTEM (CRS), WHICH IS A COMPUTERIZED RESERVATION SYSTEM THAT PROVIDES TRAVEL INFORMATION AND RESERVATIONS & FAC ILITIES AIR BOOKING & PROVIDES NON - AIR SOLUTION LIKE HOTEL BOOKING, CAR BOOKING, ETC. SPECIFICALLY TAILORED TO THE ASIAN REGION. IT PROVIDES THE HELPDESK SUPPORT AND PROVIDES THE 2 - WAY COMMUNICATIONS FROM THE CENTRAL PROCESSING FACILITY OF THE CRS UP TO TH E ABACUS COUNTRY NODE. 3.1. SABRE'S CRS IS SITUATED IN DALLAS, USA. REVENUE A T SABRE SINGAPORE IS EARNED UNDER THE GLOBAL AGREEMENTS EXECUTED BY SABRE SINGAPORE INDEPENDENTLY (WITHOUT ANY ASSISTANCE FROM NMC) WITH VARIOUS AIRLINES OUTSIDE INDIA. IT IS THE ASIA PACIFIC'S LEADING TRAVEL FACILITATOR WITH AROUND 11,000 AGENCY LOCATIONS IN 24 MARKETS. SABRA SINGAPORE'S PARTNERS INCLUDE A CONSORTIUM OF ASIA AND THE WORLD'S LEADING AIRLINES - ALL NIPPON AIRWAYS, CATHAY PACIFIC AIRWAYS, CHINA AIRLINES, EVA AIRWAYS , GARUDA INDONESIA, DRAGONAIR, MALAYSIA AIRLINES, PHILIPPINE AIRLINES, ROYAL BRUNEI AIRLINES, SILKAIR AND SINGAPORE AIRLINES. 4. AS SABRE INDIA MARKETS AND DISTRIBUTES THE GRS IN INDIA, IT SIGNS UP THE TRAVEL AGENTS IN INDIA. CONTRACTS WITH THE TRAVEL AG ENTS ARE ENTERED INTO WITH SABRE INDIA. ITS CUSTOMERS IN INDIA INCLUDE AKBAR TRAV ELS, MAKE ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 3 MY TRIP.C OM, CLEAR TRIP. C OM, RIYA TRAVELS, CORPORATE CLIENTS LIKE WIPRO TRAVEL SERVICES LTD., FLIGHT RAJA GROUP, ATLAS TOURS & TRAVELS, TRINITY AIR TRAVEL PVT LTD, A ND INDIA TIMES. C OM. 5. DURING THE YEAR UNDER PROCEEDINGS, THE ASSESSEE HAS EARNED MARKETING FEE AND COMMISSION INCOME OF RS. 70.07 CRORES. THE MARGIN COMPUTATION DONE BY THE A SSESSEE IS AS UNDER: - PARTICULARS AMOUNT ( RS) AMOUNT (R S) COMMISSION 25,56,96,266 MARKETING SERVICE FEE 44,50,39,722 TOTAL I NCOME 70,07,35,988 EXPENDITURE EMPLOYEE BENEFIT EXPENSE 86,127,860 LINE CHARGES 13,174,580 AIRFARE TRANSACTION CHARGES 39,360,880 INCENTIVE TO TRAVEL AGENTS 465,039,722 ADMINISTRATIVE AND OTHER EXPENSES 95,822,605 DEPRECIATION 24, 667,415 TOTAL OPERATING COST 72,41,33,062 OPERATING MARGIN (2,34,57,074) BERRY RATIO (USED BY ASSESSEE) OPERATING PROFIT / OPERATING COST (AS COMPUTED ) 0.97 - 2.99% ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 4 5.1. IT WAS OBSERVED THAT ASSESSEE AS PER TP STUDY REPORT RELIED UPON 4 COMPARABLE COMPANIES . THE SEARCH CRITERIA ADOPTED BY THE ASSESSEE COMPRISED OF THE ECO NOMIC ACTIVITY OF MARKETING/ SAL ES SUPPORT SERVICES, ADV ERTISING SERVICES, EX HIBITIONS & PUBLICATIONS . AS PER THE TRANSFER PRICING STUDY, DURING THE YEAR, SABRE INDIA HAS RENDERED MARKETING SERVICES TO ITS ASSOCIATE D E NTERPRISES (AE) . THE ASSESSES HAS APPLIED ENTITY LEVEL TRANSACTIONAL NET MARGIN METHOD ( TNMM ) FOR BENCHMARKING ITS P ROVISION OF MARKETING SERVICES AND HAS ARRIVED AT BERRY RATIO OF 0.97 AND HENCE, STATED THAT THE INTERNATIONAL TRANSACTIONS OF PROVIDING MARKETING SUPPORT SERVICES ARE AT ARM'S LENGTH. 5.2. AS PER THE TP STUDY REPORT , SABRE SINGAPORE (AE) IS RESPONSIBLE FOR SOFTWARE DEVELOPMENT AND MAINTENANCE OF SABRE CRS PRODUCTS. SABRE SINGAPORE I S ALSO RESPONSIBLE FOR TRAINING OF THE STAFF OF SABRE INDIA TO KEEP THEM UP TO DATE WITH THE CHANGES AND FURTHER DEVELOPMENTS OF SABRE CRS SOFTWARE. AS PER THE AGREEMENT, SA BR E INDIA IS BASED IN MUMBAI AND ITS PRI MA RY FUNCTIONS INCLUDE RESPONSIBILITY FOR SALES AND MARKETING OF SABRE CRS PRODUCTS IN INDIA, INSTALLATION OF COMPUTER HARDWARE AND SOFTWARE FOR NEW SUBSCRIBERS, PROVISION OF TECHNICAL SUPPORT AND POST SALES TRAINING T O INDIAN SUBSCRIBERS AND MAINTENANCE OF HELP DESK TO ASSIST THE SUBSCRIBERS WITH THE TECHNICALLY AND OPERATIONAL ISSUES. THE ASSESSES MARKETS AND DISTRIBUTES CRS IN INDIA. IT SIGNS AND ENTERS INTO CONTRACT WITH TRAVEL AGENTS IN INDIA. THE ENTI RE REVENUES A RE COLLECTED BY TH E PARENT SABRE SINGAPORE AND 25% OF THE SHARE OF ALL BOOKING FEE COMMISSIONS IS PASSED ON TO THE ASSESSEE FOR RENDERING THESE SERVICES. 5.3. THE PROFIT LEVEL INDICATOR ADOPTED BY THE ASSESSEE WAS OPERATING PROFIT (OP) / OPERATING COST (O C) AND ASSESSEE ARRIVED AT A MARGIN OF ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 5 ( - ) 2.99%. THE LD. TPO CONSIDERED THE FOLLOWING COMPARABLE COMPANIES AND ARRIVED AT THE AVERAGE MARGIN OF COMPARABLES AT 21% AS UNDER : - 5.4. BASED ON THE AFORESAID AVERAGE MARGIN OF COMPARABLES AT 21% WORKED OUT BY THE LD. TPO, THE SAME WAS CONSIDERED TO BE AT ARMS LENGTH MARGIN OF MARKET SUPPORT FOR RENDERING SERVICES WHICH WAS COMPARED WITH THE MARGIN DECLARED BY THE ASSESSEE AT ( - ) 2.99% AND THE LD. TPO PROCEEDED TO MAKE TRANSF ER PRICING ADJUSTMENT FOR THE SAID INTERNATIONAL TRANSACTION TO THE TUNE OF RS.17,33,04,809/ - AS UNDER: - S.N O . NAME OF THE COMPANY MARGIN(%) PBI T/CO ST 1 APITCO LIMITED 14.77% 2 KILLICK AGENCIES AND MARKETING LIMITED 26.26% 3 BVG INDIA LIMITED 24.92% 4 AXIS INTEGRATED SYSTEMS LIMITED 29.86% 5 MARKETING CONSULTANTS & AGENCIES LIMITED 9.19% AVERAGE 21.00% PARTICULARS AMOUNT ( RS) INCOME 70,07,35,988 TOTAL OPERATING COST 72,23,47,766 OPERATING MARGIN (2,16,11,778) OPERAT ING PROFIT/OPERATING COST - 2.99% ARM'S LENGTH MARGIN 21.00% ARM'S LENGTH INCOME 87,40,40,797 TRANSFER PRICE 70,07,35,988 TRANSFER PRICING ADJUSTMENT 17,33,04,809 ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 6 5.5. THIS TRANSFER PRICING ADJUSTMENT WAS REDUCED TO RS.14,03,65,751 / - BY THE LD. DRP BY UPHOLDING THE COMPARABLES ADOPTED BY THE LD. TPO AND ALSO BY DIRECTING THE LD. TPO TO INCLUDE ONE OF THE COMPARABLE COMPANIES CONSIDERED BY THE ASSESSEE I. E . QUADRANT COMMUNICATION LTD. 5.6. BEFORE US , THE LD. AR ARGUED FOR EXCLUSION OF THE FOLLOWING COMPARABLES: - (A) APTICO LTD., (B) BVG INDIA LTD., (C) AXIS INTEGRATED SYSTEM LTD., (D) KILLICK AGENCIES AND MARKETING LTD., 5.7. EXCLUSION OF APTICO LTD - WE FIND THAT THIS COMPARABLE HAD BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE WIT H THAT OF THE ASSESSEE COMPANY VIDE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1054/MUM/2017 DATED 04/05/2018 FOR A.Y.2012 - 13. THE RELEVANT OPERATIVE PORTION OF THE SAID ORDER OF THE TRIBUNAL IS AS UNDER: - 18 . APITCO LTD. (AL) OBJECTING TO THE SELECTION OF THIS COMPANY AS A COMPARABLE, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED, THE COMPANY UNDER NO CIRCUMSTANCES CAN BE TREATED AS COMPARABLE AS IT IS ENGAGED IN DIVERSE ACTIVITIES LIKE SKILL DEVELOPMENT, TOURISM AND RESEARCH STUDIES, PROJEC T RELATES SERVICES, CLUSTER DEVELOPMENT, ASSET RECONSTRUCTION AND MANAGEMENT SERVICES, ENERGY RELATED SERVICES, INFRASTRUCTURE PLANNING AND DEVELOPMENT. HE SUBMITTED, THESE ACTIVITIES ARE NOT AT ALL RELATED OR AKIN TO MARKETING SUPPORT SERVICES. THEREFORE, IT CANNOT BE CONSIDERED AS A COMPARABLE. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED, CONSIDERING THE AFORESAID FUNCTIONAL DIFFERENCES THE TRIBUNAL IN ASSESSEES OWN CASE HAVE HELD THAT THIS COMPANY IS NOT A COMPARABLE. IN ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 7 THIS CONTEXT HE RELIED UPON THE DECISION OF THE TRIBUNAL IN ITS OWN CASE IN ITA NO. 1402/MUM/2014 DATED 05/01/2018. 19 . THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND DRP. 20 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECOR D. FROM THE FACTS EMERGING FROM RECORD IT IS EVIDENT THAT THIS COMPANY IS NOT FUNCTIONALLY SIMILAR TO THE ASSESSEE AS THE SERVICES PROVIDED BY THE SAID COMPANY IS NEITHER IN THE NATURE OF OR AKIN TO MARKETING SUPPORT SERVICES AS PROVIDED BY THE ASSESSEE. I N FACT, THE TRANSFER PRICING OFFICER HAS HIMSELF OBSERVED THAT THIS COMPANY PROVIDES ENERGY RELATED SERVICES, SKILL DEVELOPMENT SERVICES ETC. IT IS RELEVANT TO OBSERVED, TAKING NOTE OF THE AFORESAID FUNCTIONAL DIFFERENCES BETWEEN THE ASSESSEE AND THE AFORE SAID COMPARABLE THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2009 10 (SUPRA) HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES. THERE BEING NO MATERIAL DIFFERENCE IN FACT, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE COORDINATE BENCH IN ASSESSE ES OWN CASE WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 5.7.1. THE FUNCTIONS CARRIED OUT BY THIS COMPARABLE COMPANY AND THE FUNCTIONS CARRIED OUT BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION HAVE NOT UNDERGONE ANY CHANGE. HENCE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THIS TRIBUNAL, WE HOLD THAT APTICO LTD., CHOSEN AS COMPARABLE BY THE LD. TPO AND UPHELD BY THE LD. DRP , IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE COMPANY AND HENCE, DE SERVES TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 5.8. EXCLUSION OF BVG INDIA LTD - WE FIND THAT THIS COMPARABLE HAD BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE WITH THAT OF THE ASSESSEE COMPAN Y VIDE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1054/MUM/2017 DATED 04/05/2018 FOR A.Y.2012 - 13. THE RELEVANT OPERATIVE PORTION OF THE SAID ORDER OF THE TRIBUNAL IS AS UNDER: - 21. BVG INDIA LIMITED OBJECTING TO THE SELECTION OF THIS CO MPANY THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 8 AS IT IS NOT PROVIDING MARKETING SUPPORT SERVICES. REFERRING TO THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER IN RESPECT OF THIS COMPARA BLE THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT SERVICES PROVIDED BY THIS COMPANY CANNOT BE COMPARED TO THE SERVICES PROVIDED BY THE ASSESSEE TO ITS AE. THEREFORE, IT HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 22. THE LD. DEPARTMENTAL REPRESENT ATIVE RELYING UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER SUBMITTED THAT THIS COMPANY BEING FUNCTIONALLY SIMILAR TO THE ASSESSEE WAS RIGHTLY SELECTED AS A COMPARABLE. HE SUBMITTED, IN CASE OF ADIDAS TECHNICAL SERVICES PVT. LTD V/S DCIT, ITA NO.41 2/DEL/2017 DATED 18/05/2017 THIS COMPANY WAS FOUND TO BE A COMPARABLE TO A MARKETING SUPPORT SERVICE PROVIDER. 23 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN FROM THE ORDER OF THE TRANSFER PRICING OFFICER, AFTER PERUSING THE ANNUAL REPORT OF THIS COMPANY HE HAS STATED THAT THIS COMPANY IS ENGAGED IN UNDERTAKING FACILITY MANAGEMENT, MECHANIZE HOUSEKEEPING, TRANSPORTATION, LAND RELOCATION, ATTENDANCE SERVICES AND LABOUR SERVICES. HE HAS ALSO STATED THAT THE COMPANY UNDERTAKES VARIOUS PROJECTS FOR GARDEN DEVELOPMENT, SLUM REHABILITATION, RURAL ELECTRIFICATION ETC. THUS, FROM THE AFORESAID OBSERVATION OF THE TRANSFER PRICING OFFICER, PRIMA FACIE, IT APPEARS THAT THE NATURE OF SERVICES PROVIDED BY THIS COMPANY ARE DIFF ERENT FROM THE ASSESSEE AS THE ASSESSEE SIMPLY PROVIDES MARKETING SUPPORT SERVICES IN RELATION TO COMPUTERIZE RESERVATION SYSTEM OF ITS AE. THOUGH, THE LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE DECISION OF THE ITAT, DELHI BENCH IN CASE OF ADIDAS TECHNICAL SERVICES PVT.LTD V/S DCIT (SUPRA), HOWEVER, ON CAREFUL READING OF THE SAID ORDER WE FIND, IN THAT CASE THE ASSESSEE HAS DISPUTED THIS COMPARABLE ONLY ON THE BASIS OF PROVISION OF DOUBTFUL DEBTS HAVING NOT BEEN CONSIDERED AS NON OPERATING IN NATUR E. THE FUNCTIONALITY OF THIS COMPANY DID NOT COME UP FOR CONSIDERATION OF THE BENCH. THEREFORE, IN OUR VIEW SELECTION OF THIS COMPANY AS A COMPARABLE HAS TO BE CONSIDERED AFTER CAREFULLY ANALYZING THE BUSINESS MODEL AND FUNCTIONAL PROFILE OF THE COMPANY. I T IS ALSO REQUIRED TO BE EXAMINED WHETHER SEGMENTAL DETAILS OF THIS COMPANY ARE AVAILABLE, IF AT ALL, IT HAS A SEGMENT RELATING TO MARKETING SUPPORT SERVICES. SINCE, NECESSARY FACTUAL DETAILS RELATING TO THIS COMPANY ARE NOT AVAILABLE BEFORE US, WE ARE INC LINED TO RESTORE THE ISSUE RELATING TO COMPARABILITY OF THIS COMPANY TO THE ASSESSING OFFICER FOR RECONSIDERATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5.8.1. WE FIND THAT THOUGH THIS TRIBUNAL HAD RESTORED THE EXCLUSION OF THIS COMPARABL E TO THE FILE OF THE LD. TPO IN A.Y.2012 - 13, THE LD. TPO VIDE HIS ORDER DATED 28/12/2020 WHILE GIVING EFFECT TO THE DIRECTIONS OF THIS TRIBUNAL , HAD ACCEPTED THE CONTENTIONS OF THE ASSESSEE , THAT BVG INDIA LTD FUNCTIONS WERE TOTALLY DIFFERENT FROM ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 9 FUNCTION S PERFORMED BY THE ASSESSEE COMPANY AND HENCE, FUNCTIONALLY NOT COMPARABLE. MOREOVER, THE LD. TPO IN A.Y.2012 - 13 WHILE GIVING EFFECT TO TRIBUNAL ORDER HAD ALSO OBSERVED THAT SEGMENTAL DETAILS FOR MARKETING SUPPORTING SERVICES WERE NOT AVAILABLE FROM THE FI NANCIAL STATEMENTS OF BVG INDIA LTD., AND HENCE, THE SAME DESERVES TO BE EXCLUDED ON THAT COUNT ALSO. THE SITUATION IS SAME FOR A.Y.2013 - 14 ALSO AS IT COULD BE SEEN FROM FINANCIAL STATEMENTS OF BVG INDIA LTD., FROM THE YEAR ENDED 31/03/2013. HENCE, RESPECT FULLY FOLLOWING THE AFORESAID DECISION OF THIS TRIBUNAL, THE GIVING EFFECT ORDER PASSED BY THE LD. TPO ON 20/12/2020 FOR A.Y.2012 - 13, WE HOLD THAT BVG INDIA LTD., CHOSEN AS COMPARABLE BY THE LD. TPO AND UPHELD BY THE LD. DRP , IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE COMPANY ; FURTHER IN THE ABSENCE OF SEGMENTAL DETAILS THEREON FOR MARKETING SUPPORT SERVICES, THE SAME DESERVES TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 5.9. EXCLUSION OF A XIS INTEGRATED SYSTEMS LTD - WE FIND THAT THIS COMPARABLE HAD BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE WITH THAT OF THE ASSESSEE COMPANY VIDE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1054/MUM/2017 DATED 04/05/2018 FOR A.Y.2012 - 13. THE REL EVANT OPERATIVE PORTION OF THE SAID ORDER OF THE TRIBUNAL IS AS UNDER: - 24 AXIS INTEGRATED SYSTEMS LIMITED OBJECTING TO THE SELECTION OF THIS COMPANY, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED, THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT DEVELOPS A SIMULATION, ACCELERATION AND EMULATION PLATFORM AND ASSOCIATED SOFTWARE. IT WAS SUBMITTED, THIS COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN DIGITAL CERTIFICATE AND PROVIDING LIASIONING SERVICES SUCH AS VERIFICATION OF SERVICE TAX, EXCIS E ETC. THUS, IT WAS SUBMITTED, SINCE, THE COMPANY IS NOT PROVIDING MARKETING SUPPORT SERVICES IT CANNOT BE TREATED AS A COMPARABLE 25. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND DRP. ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 10 26 . WE HAVE CONS IDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. FROM THE FUNCTIONAL PROFILE OF THIS COMPANY, AS MENTIONED BY THE TRANSFER PRICING OFFICER IN HIS ORDER AS WELL AS NOTED FROM THE SUBMISSIONS MADE BY THE ASSESSEE IN COURSE OF THE TRANSFER PRICING PRO CEEDING, IT IS NOTICED THAT THE COMPANY IS MAINLY ENGAGED IN TRADING IN DIGITAL CERTIFICATE AND PROVIDING LIASIONING AGENT FOR THE CUSTOMER AND THE AE. TO SOME EXTENT THE TRANSFER PRICING OFFICER ALSO ACKNOWLEDGES THAT THE FUNCTIONALITY OF THIS COMPANY, IN A WAY, IS DIFFERENT FROM THE ASSESSEE. THUS, ON CONSIDERATION OF FACTS ON RECORD IT EMERGES THAT THIS COMPANY IS NOT PROVIDING MARKETING SUPPORT SERVICES LIKE THE ASSESSEE. THEREFORE, IN OUR VIEW THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. THE ASSE SSING OFFICER IS DIRECTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE. 5.9.1. THE FUNCTIONS CARRIED OUT BY THIS COMPARABLE COMPANY AND THE FUNCTIONS CARRIED OUT BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION HAVE NOT UNDERGONE ANY CH ANGE. HENCE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THIS TRIBUNAL, WE HOLD THAT AXIS INTEGRATED SYSTEMS LTD., CHOSEN AS COMPARABLE BY THE LD. TPO AND UPHELD BY THE LD. DRP , IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE COMPANY AND HENCE, DESER VES TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 5.10. EXCLUSION OF KILLICK AGENCIES AND MARKETING LTD., - WE FIND THAT THE LD. AR VEHEMENTLY ARGUED THAT THIS COMPARABLE COMPANY IS FUNCTIONALLY N OT COMPARABLE WITH THAT OF THE ASSESSEE COMPANY IN VIEW OF THE FACT THAT THE SAID COMPANY IS INTO THE SERVICES OF SHIP BUILDING INDUSTRY. THE LD. AR ALSO DREW OUR ATTENTION TO THE ANNUAL REPORT FOR THE YEAR ENDED 31/03/2013 OF KILLICK AGENCIES AND MARKETIN G LTD., WHEREIN IT IS MENTIONED AS UNDER: - HOWEVER, THE INDIAN SHIPPING INDUSTRY HAS NOT SHOWN ANY SUCH SIGNS. T HE ESTABLISHED SHIPYARDS LIKE BHARATI AND ABG ARE FEEING FINANCIAL DIFFICULTIES AND ARE STILL TO EXECUTE ORDERS RECEIVED BY THEM IN EARLIER YEARS. THE NEW SHIPYARDS LIKE - PIPAVAV AND LARSEN & TOUBRO HAVE SECURED SOME ORDERS AT VERY LOW PRICES; DUE TO ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 11 WHICH THE MARINE EQUIPMENT PURCHASED BY THEM ARE ALSO AT VERY LOW PRICES, WHICH OUR PRINCIPALS ARE NOT ABLE TO MEET. DURING THIS YEAR THE SHIP - LIGHTING BUSINESS FROM GLAMOX HAS DONE WELL AS SHIP LIGHTS ARE GENERALLY PURCHASED LAST. 5. 10.1. THE LD. AR ALSO SUBMITTED THAT THE SAID COMPARABLE COMPANY IS ALSO ENGAGED IN THE WATER TREATMENT BUSINESS AND IN THIS REGARD, IT HAS BEEN MENTIONED IN THE ANNUAL REPORT OF THE SAID COMPARABLE COMPANY AS UNDER: - EFFORTS CONTINUE TO BE PUT INTO N.E.I., THE NEWLY ACQUIRED BALLAST WATER TREATMENT SYSTEMS AGENCY. THE INTERNATIONAL RATIFICATION FOR THESE SYSTEMS IS TAKING TIME AND DUE TO WHICH THE REQUIREMENTS OF THIS EQUIPMENT ARE STILL NOT ON A REGULAR BASIS. HOWEVER, WE ARE HOPEFUL THAT THE FUTURE PROSPECTS FOR THIS AGENCY ARE GOOD. 5.10.2 . THE LD. AR ALSO SUBMITTED THAT THESE FACTS WERE DULY BROUGHT ON RECORD BEFORE THE LD. TPO AND THE LD. DRP. THE LD. AR AL SO DREW OUR ATTENTION TO THE FINANCIAL STATEMENTS OF THE SAID COMPARABLE FOR THE YEAR ENDED 31/03/2013, WHEREIN IT WAS POINTED OUT THAT THE SAID COMPANY IS HAVING INVENTORY AND STOCK IN TRADE IN ITS BALANCE SHEET AND HENCE, IT COULD BE SAFELY CONCLUDED THA T IT IS NOT MERELY THE SERVICE RENDERING COMPANY. WE ALSO FIND FROM THE ANNUAL REPORT OF THE SAID COMPARABLE COMPANIES THAT THE COMPANY IS ACTING AS AGENT FOR VARIOUS FOREIGN PRINCIPALS FOR SALE OF DREDGES, DREDGING EQUIPMENT, STEERABLE RUDDER , PROPELLERS, MARITIME AND AVIATION LIGHTING, ACOUSTIC COMMUNICATION EQUIPMENT ETC., THE COMPANY ALSO OFFERS AFTER SALE SERVICES. APART FROM THIS, THE COMPANY IS INVOLVED IN EXPORTS OF MICRO SWITCHES, ENGINEERING ITEMS, ACOUSTIC ITEMS AND HEAD SETS. 5.10.3 . THE LD. DR VEHEMENTLY ARGUED THAT THIS COMPARABLE COMPANY IS ENGAGED IN PROVIDING MARKETING SUPPORT SERVICES IN SHIP BUILDING ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 12 INDUSTRY AND HENCE, FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. HE ALSO ARGUED THAT ASSESSEE HAD SUBMITTED THAT EXCLUSION OF THIS COM PARABLE BEFORE THE LD. DRP ONLY DUE TO HIGH MARGINS AND NOT ON FUNCTIONAL DISSIMILARITY AND THAT THE SAID ASPECT OF FUNCTIONAL DISSIMILARITY CANNOT BE ARGUED BEFORE THIS TRIBUNAL FOR THE FIRST TIME. WE FIND FROM PAGE 16 OF THE ORDER OF THE LD. DRP THAT ASS ESSEE HAD SPECIFICALLY OBJECTED THE FUNCTIONAL DISSIMILARITY OF THIS COMPARABLE COMPANY WITH THAT OF THE ASSESSEE COMPANY. HENCE, THE ARGUMENT ADVANCED BY THE LD. DR IN THIS REGARD IS DISMISSED. WE ALSO FIND THAT FROM THE FINANCIALS O F THE SAID COMPARABLE COMPANY THAT NO SEGMENTAL DETAILS ARE AVAILABLE IN RESPECT OF INCOME FROM SERVICES DERIVED BY THE ASSESSEE . HENCE THERE IS NO DETAIL AVAILABLE AS TO WHAT EXTENT OF SERVICE INCOME DERIVED BY THE SAID COMPANY OUT OF RENDERING MARKETING SUPPORTING SERVICES, I F ANY. HENCE, BASED ON FUNCTIONAL DISSIMILARITIES AND ALSO IN THE ABSENCE OF SEGMENTA L DETAILS FOR MARKETING SUPPORT SERVICES, IF ANY, WE HOLD THAT THIS COMPARABLE COMPANY DESERVES TO BE EXCLUDED FROM THE LIST OF COMPARABLES CHOSEN BY THE LD. TPO AND UPHEL D BY THE LD. DRP FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH MARGIN. 5.11. ACCORDINGLY, WE DIRECT THE LD. TPO TO EXCLUDE THE AFORESAID FOUR COMPARABLE COMPANIES AND INCLUDE QUADRANT COMMUNICATION LTD., WHICH WAS INCLUDED AS A COMPARABLE COMPANY BY TH E ASSESSEE AND UPHELD BY THE LD. DRP , MORE SO, WHEN THE REVENUE IS NOT IN APPEAL BEFORE US, AGAINST SUCH INCLUSION . THE GROUND NOS. 2.1 TO 2.9 RAISED BY THE ASSESSEE ARE DISPOSED OF IN THE ABOVE MENTIONED TERMS. ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 13 6 . THE GROUND NOS.3.1 AND 3.2 RAISED BY THE ASSESSEE IS WITH REGARD TO CHALLENGING THE ADDITION MADE ON ACCOUNT OF MARKETING SERVICE FEES AMOUNTING TO RS.2 CRORES . 6.1. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT THIS ISSUE IS SQUAREL Y COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2012 - 13 IN ITA NO.1054/MUM/2017 DATED 04/05/2018. THE AR DREW OUR ATTENTION TO PAGE NO.120 OF THE PAPER BOOK CONTAINING THE SUB - DISTRIBUTION AGREEMENT TOGET HER WITH ITS ADDENDUM AT PAGE 149 OF THE PAPER BOOK. THE FACTS HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR WHEN COMPARED TO A.Y.2012 - 13. HENCE, WE DEEM IT FIT TO REPRODUCE THE ENTIRE ORDER OF A.Y.2012 - 13 WITH REGARD TO THIS ISSUE AS UNDER: - 3 . IN GROUND NO .2, ASSESSEE HAS CHALLENGED ADDITION OF 2 CRORE AS UNDISCLOSED INCOME FROM MARKETING SERVICE FEES. 4. BRIEF FACTS ARE, THE ASSESSEE AN INDIAN COMPANY WAS EARLIER KNOWN AS ABACUS DISTRIBUTION SYSTEMS INDIA PVT. LTD. AND IS A WHOLLY OWNED SUBSIDIARY OF SABRE INTERNATIONAL PTE. LTD., SINGAPORE ( ASSOCIATED ENTERPRISE, IN SHORT, AE). SABRE INTERNATIONAL PTE. LTD., SINGAPORE, THROUGH A COMPUTERIZED RESERVATION SYSTEM PROVIDES TRAVEL INFORMATION AND RESERVATIONS FACILITIES, AIR BOOKING, PROVIDING NON AIR SOLUTION LIKE HOTEL BOOKING, CAR BOOKING, ETC. , SPECIFICALLY DESIGNED FOR ASIAN REGION. THE ASSESSEE ON ITS PART IS RESPONSIBLE FOR SALES AND MARKETING OF AES COMPUTERIZED RESERVATION SYSTEM (CRS) PRODUCTS IN INDIA, INSTALLATION OF COMPUTER HARDWARE AND SOFTWARE FOR NEW SUBSCRIBERS, PROVISIONS OF TEC HNICAL SUPPORT AND POST SELLS TRAINING TO INDIAN SUBSCRIBERS AND MAINTENANCE OF HELP DESK TO ASSIST THE SUBSCRIBERS WITH TECHNICAL AND OPERATION ISSUES. AS PER THE REVENUE SHARING MODEL, ENTIRE REVENUE IS COLLECTED BY ABACUS INTERNATIONAL PTE. LTD., SINGAP ORE AND 25% OF THE SHARE OF ALL BOOKING FEE, COMMISSIONS IS PASSED ON TO THE ASSESSEE FOR RENDERING SERVICES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE MADE A REF ERENCE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA OF THE ACT FOR DETERMINING THE ARM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER AFTER EXAMINING THE TRANSFER PRICING ANALYSIS OF THE ASSESSEE AND OTHER MATERIALS ON RECORD ULTIMATELY MADE AN U PWARD ADJUSTMENT OF 14,12,65,777 TO THE ARM'S LENGTH PRICE SHOWN BY THE ASSESSEE. THE ASSESSING OFFICER WHILE ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 14 FRAMING THE DRAFT ASSESSMENT ORDER BESIDES INCORPORATING THE TRANSFER PRICING ADJUSTMENT ALSO MADE COUPLE OF OTHER ADDITIONS. ONE OF THEM BEING ADDITION OF 2 CROR E ON ACCOUNT OF MARKETING SERVICE FEE. THE FACTS AS REGARD THIS ISSUE ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ON VERIFYING THE FINANCIAL STATEMENTS OF THE ASSESSEE FOUND THAT IT HAS CLAIMED DEDUCTION OF AN AMOUNT OF 56,13,02,874, TO WARDS PAYMENT OF INCENTIVES TO TRAVEL AGENTS DURING THE RELEVANT PREVIOUS YEAR. WHEREAS, IT HAS CLAIMED RECEIPT OF 54,13,02,874, TOWARDS MARKETING SERVICE FEE FROM ITS A.E. THEREFORE, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH THE COMPLETE DETAILS RELATING TO THE PAYMENT AND RECEIPT OF MARKETING FEES AND ALSO TO EXPLAIN WHY THE DIFFERENCE OF 2 CRORE BETWEEN THE INCENTIVE PAID TO TRAVEL AGENTS AND MARKETING SERVICE FEE RECEIVED FROM THE A.E. SHOULD NOT BE ADDED TO THE INCOME. IN RESPONSE T O THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE FURNISHED NECESSARY DETAILS AND SUBMITTED THAT IN VIEW OF THE STIFF COMPETITION FACED BY THE ASSESSEE AND THE EFFORTS IT MADE AND COST INCURRED TO INCREASE THE MARKET SHARE OF THE COMPUTERIZED RESER VATION SYSTEM OF AE IN INDIA, PAYMENT OF MARKETING SERVICE FEE WAS AGREED UPON THROUGH AN ADDENDUM TO THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE A.E. IT WAS SUBMITTED, BY VIRTUE OF SUCH AGREEMENT, THE ASSESSEE HAD RECEIVED MARKETING SERVICE FE E OF 54,13,02,874, FROM THE A.E. WHICH HAS BEEN DULY CREDITED TO THE PROFIT & LOSS ACCOUNT. IT WAS SUBMITTED, THOUGH, THE ASSESSEE HAD PAID INCENTIVES TO TRAVEL AGENT AMOUNTED TO 56,13,02,874, HOWEVER, AS PER THE TERMS OF THE AGREEMENT, NO DEEMED RIGHT IS CREATED IN FAVOUR OF THE ASSESSEE TO RECEIVE THE ENTIRE INCENTIVES PAID TO TRAVEL AGENTS FROM THE A.E. IT WAS SUBMITTED, MARKETING SERVICE FEE IS NOT IN THE NATURE OF REIMBURSEMENT OF THE INCENTIVE COST INCURRED BY THE ASSESSEE BUT IT IS RECEIVED TOWAR DS ADDITIONAL EFFORTS AND COSTS INCURRED TO INCREASE THE MARKET SHARE OF AES COMPUTERIZED RESERVATION SYSTEM IN INDIA. IT WAS SUBMITTED, SINCE, THE DIFFERENCE OF 2 CRORE BETWEEN THE FEE RECEIVED AND INCENTIVE PAID WAS NEITHER ACTUALLY RECEIVED NOR RECEIVABLE FROM THE AE, IT CANNOT BE TAXED AT THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. REFERRIN G TO THE ADDENDUM TO SUB DISTRIBUTION AGREEMENT, THE ASSESSING OFFICER OBSERVED THAT AS PER THE CLAUSE THE ENTIRE EXPENSES INCURRED BY THE ASSESSEE WOULD BE SUBSEQUENTLY SET OFF BY THE AE. HE OBSERVED, THE DIFFERENCE OF 2 CRORE NOT REIMBURSED TO THE ASSE SSEE BY THE A.E. IS NOT IN TERMS WITH THE AGREEMENT. HE FURTHER OBSERVED THAT SIMILAR DIFFERENCE BETWEEN THE INCENTIVE PAID TO TRAVEL AGENTS AND MARKETING SERVICE FEE RECEIVED WAS ADDED BACK IN PRECEDING ASSESSMENT YEARS 2009 10, 2010 11 AND 2011 12. THUS, ON THE AFORESAID REASONING, THE ASSESSING OFFICER ADDED BACK THE AMOUNT OF 2 CRORE TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED OF THE SAID ADDITION, ASSESSEE FILED OBJECTIONS BEFORE THE DRP. 5. THE DRP TAKING NOTE OF THE FACT THAT WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009 10 AND 2010 11 , THE ADDITIONS WERE SUSTAINED AND FURTHER, STATING THAT THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE ON THE DISPUTED ISSUE IN THE IMPUGNED ASSESSMENT YEAR, THE DRP SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 15 6. THE LEARNED AUTHORIS ED REPRESENTATIVE REITERATING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES SUBMITTED THAT LOOKING AT THE STIFF COMPETITION FACED BY IT, THE ASSESSEE HAD DEVISED AN INCENTIVE SCHEME FOR TRAVEL AGENTS AND THE INCENTIVE OF 56.13 CRORE WAS PAID TO THE TRAVEL AGENTS AS PER THE SAID SCHEME. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, LOOKING AT THE EFFORTS OF THE ASSESSEE AND COST INCURRED BY IT, THE A.E. AGREED TO PAY MARKETING SERVICE FEE TO THE ASSESSEE WHICH WAS INCO RPORATED IN THE AGREEMENT THROUGH AN ADDENDUM. HE SUBMITTED, THOUGH, THE MARKETING SERVICE FEE WAS DERIVED AND AGREED UPON BASED ON THE INCENTIVES PAID TO THE TRAVEL AGENT, HOWEVER, IT DOES NOT CREATE A DEEMED RIGHT ON THE ASSESSEE TO RECEIVE THE ENTIRE IN CENTIVE PAID FROM THE AE. IT WAS SUBMITTED, MARKETING SERVICE FEE IS NOT IN THE NATURE OF REIMBURSEMENT OF THE INCENTIVE COST INCURRED BY THE ASSESSEE. IN FACT, RECOGNIZING ASSESSEES ADDITIONAL EFFORTS AND COST INCURRED TO INCREASE THE MARKET SHARE OF THE COMPUTER RESERVATIONS SYSTEM IN INDIA THE AE. AGREED TO PAY MARKETING SERVICE FEE TO THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, SINCE THE DIFFERENTIAL AMOUNT OF 2 CRORE WAS NEITHER RECEIVED NOR RECEIVABLE FROM THE AE, NO ADDITION ON THAT ACCOUNT CAN BE MADE. WITHOUT PREJUDICE TO THE AFORESAID SUBMISSIONS, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT MARKETING SERVICE FEE HAS BEEN AGGREGATED TO THE OTHER INTERNATIONAL TRANSACTIONS WITH THE A.E. FOR BENCHMARKING AND THE TRANSFER PRICING OFFICER HAS DETERMINED THE ARM'S LENGTH PRICE FOR THE INTERNATIONAL TRANSACTION ACCORDINGLY. THEREFORE, NO SEPARATE ADDITION ON ACCOUNT OF MARKETING SERVICE FEE CAN BE MADE BY THE ASSESSING OFFICER. FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE S UBMITTED THAT SIMILAR ADDITION MADE IN THE ASSESSMENT YEAR 2009 10 AND 2010 11 HAS BEEN DELETED BY THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL. IN SUPPORT, HE RELIED UPON THE FOLLOWING ORDERS OF THE TRIBUNAL: I ) M/S. ABACUS DISTRIBUTIONS SYSTEMS INDIA PVT . LTD. V/S DCIT, ITA NO. 1402/MUM./2014, DATED 05.01.2018; AND II ) M/S. ABACUS DISTRIBUTIONS SYSTEMS INDIA PVT. LTD. V/S DCIT, ITA NO. 1766 AND 2183/MUM./2015, DATED 10.01.2018. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRING TO THE ORDER OF THE TRANSFE R PRICING OFFICER SUBMITTED THAT THE TRANSFER PRICING OFFICER HAS CATEGORICALLY OBSERVED THAT THE ASSESSEE HAS FAILED TO PROVIDE REASONABLE EXPLANATION WITH REGARD TO DEDUCTION OF 2 CRORE GRANTED TO THE A.E. ON ACCOUNT OF AMOUNT RECEIVED TOWARDS TRADE IN CENTIVES. THUS, HE SUBMITTED THAT THE PAYMENT MADE BY THE AE TO THE ASSESSEE TOWARDS MARKETING SERVICE FEE WAS NOT AT ARM'S LENGTH. HE SUBMITTED, EVEN THE TRIBUNAL WHILE DECIDING THE ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 10 HAS APPROVED THE OBSERVATION OF THE TRANSFER PRICING OFFICER THAT THE ASSESSEE SHOULD HAVE RECEIVED 2 CRORE MORE FROM THE A.E. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, THE ADDITION MADE IS JUSTIFIED. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. IT IS EVIDENT, THE TRANSFER PRICING OFFICER WHILE DETERMINING THE ARM' S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION HAS CONSIDERED BOTH THE MARKETING SERVICES FEE PAID BY THE AE TO THE ASSESSEE AS WELL AS INCENTIVES PAID BY THE ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 16 ASSESSEE TO THE TRAVEL AGENT FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSAC TION AND ACCORDINGLY HAS ARRIVED AT TRANSFER PRICING ADJUSTMENT OF 14,12,65,777. OF COURSE, IT IS A FACT THAT THE TRANSFER PRICING OFFICER IN THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT DID OBSERVE THAT THE ASSESSEE HAS FAILED TO PROVIDE A REASONABLE EXPLANATION WITH RESPECT TO DEDUCTION OF 2 CRORE WITH REGARD T O MARKETING SERVICE FEE RECEIVED FROM AE AGAINST THE TRADE INCENTIVES PAID TO TRAVEL AGENT. IT IS ALSO TRUE THAT THE TRIBUNAL IN THE ORDER PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 10 IN ITA NO.1402/MUM./2014, DATED 5 TH JANUARY 2018, HAS APPRO VED SIMILAR OBSERVATION OF THE TRANSFER PRICING OFFICER WITH REGARD TO SHORT RECEIPT OF 2 CRORE FROM THE A.E. HOWEVER, A PERUSAL OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER WOULD MAKE IT CLEAR THAT HE HAS AGGREGATED ALL THE INTERNATIONAL TRANSACTIONS WITH THE AE FOR DETERMINING THE ARM'S LENGTH PRICE AND HAS NEITHER DETERMINED THE A RM'S LENGTH PRICE OF MARKETING SERVICE FEE SEPARATELY NOR HAS SUGGESTED ANY SEPARATE ADDITION ON ACCOUNT OF THE DIFFERENCE OF 2 CRORE BETWEEN THE INCENTIVE PAID TO TRAVEL AGENT AND THE MARKETING SUPPORT FEE RECEIVED FROM THE AE. RATHER, IT IS THE ASSESSI NG OFFICER WHO WHILE FRAMING THE DRAFT ASSESSMENT ORDER HAS MADE A SEPARATE ADDITION OF 2 CRORE ON THE GROUND THAT THE ASSESSEE SHOULD HAVE RECEIVED THE AMOUNT OF 2 CRORE FROM THE AE AS AGAINST THE TOTAL INCENTIVES PAID TO TRAVEL AGENTS. NOTHING HAS BE EN BROUGHT ON RECORD BY THE DEPARTMENTAL AUTHORITIES TO DEMONSTRATE THAT THE ASSESSEE HAS ACTUALLY RECEIVED THE AMOUNT OF 2 CRORE FROM THE AE. THE DEPARTMENT HAS ALSO NOT DISPUTED OR DOUBTED THE PAYMENT OF INCENTIVES OF 56,13,02,874 TO THE TRAVEL AGENT S. THAT BEING THE CASE, THE ADDITION MADE PURELY ON PRESUMPTION AND SURMISES CANNOT BE SUSTAINED. MOREOVER, IT IS EVIDENT FROM THE ORDER OF THE DRP THAT RELYING UPON THEIR OWN DECISION IN ASSESSEES CASE FOR ASSESSMENT YEAR 2010 11, THEY HAVE UPHELD THE DI SALLOWANCE. NOTABLY, WHILE DECIDING THE APPEAL OF THE ASSESSEE ON IDENTICAL ADDITION OF 2 CRORE ON ACCOUNT OF DIFFERENCE IN PAYMENT OF INCENTIVES TO TRAVEL AGENTS AND MARKETING SERVICE FEE RECEIVED FROM THE AE, THE TRIBUNAL IN ASSESSMENT YEAR 2009 10 IN ITA NO.1402/MUM./2014, DATED 5 TH JANUARY 2018, HAS DELETED THE ADDITION WITH THE FOLLOWI NG OBSERVATIONS: AS FAR AS DISALLOWING THE EXPENDITURE OF .2 CRORES, WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE, IS CONCERNED, WE WOULD LIKE TO HOLD THAT THE DRP WAS NOT JUSTIFIED IN DISALLOWING THE SAME. THERE IS NO DOUBT ABOUT INCURRING OF EX PENDITURE BY THE ASSESSEE, AS STATED EARLIER. THE ASSESSEE HAD INTRODUCED AN INCENTIVE SCHEME AND HAD INCURRED THE EXPENSES OF .34.61 CRORES. WHETHER THE MONEY RECEIVED FROM AE WAS AT ARMS LENGTH 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' 9. THE SAME VIEW WAS AGAIN EXPRESSED BY THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010 11 IN ITA NO.1766 AN D 2183/MUM./2015, DATED 10 TH JANUARY 2018. RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO ORDINATE BENCH IN ASSESSEES OWN CASE AS ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 17 REFERRED TO ABOVE, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. THIS GROUND IS ALLOWED. 6.2. WE FIND THAT THE LD. DR ARGUED THAT ASSESSEE IS A LOW LEVEL MARKETING SERVICE PROVIDER AND AS SUCH SHOULD HAVE OPERATED AT COST PLUS MARGIN MODEL AND HENCE, OUGHT NOT TO HAVE INCURRED IN LOSS OF RS.2 CRORES IN THE INCENTIVES GIVEN TO TRAVEL AGENTS. WE FIND THAT THIS IS NOT EVEN THE CASE OF THE LOWER AUTHORITIES AND HENCE, THE ARGUMENT OF THE LD. DR COULD NOT BE APPRECIATED AT THIS STAGE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION IN ASSESSEES OWN CASE, THE ADDITION OF RS 2 CRORES MADE ON ACCOUNT OF INCOME FROM MARKETING SERVICE FEES IS HEREBY DIRECTED TO BE DELETED. ACCORDINGLY, THE GROUND NOS. 3.1. AND 3.2. RAISED BY THE ASSESSEE ARE ALLOWED. 7. THE GROUND NO. 4.1 AND 4.2 RAISED BY THE ASSESSEE IS CHALLENGING THE DISALLOWANCE MADE ON ACCOUNT OF FOREIGN EXCHANGE LOSS OF RS.19,49,09,643/ - . 7.1. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE SAME ISSUE WAS THE SUBJECT MATTER OF ADJUDICATION IN ASSESSEES OWN CASE BY THIS TRIBUNAL FOR A.Y. 2012 - 1 3 IN ITA NO.1504/MUM/2017 DATED 04/05/2018 WHEREIN IT WAS OBSERVED AS UNDER: - 10 . GROUND NO.3 IS AGAINST DISALLOWANCE OF FOREIGN EXCHANGE LOSS OF 48,63,46,027. 11 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASS ESSEE HAS CLAIMED DEDUCTION OF 48,63,46,027 ON ACCOUNT OF FOREIGN EXCHANGE LOSS CALLED UPON THE ASSESSEE TO FURNISH SUPPORTING EVIDENCE IN RESPECT OF THE DEDUCTION CLAIMED AND ALSO TO EXPLAIN WHY THE LOSS BEING IN THE NATURE OF CAPITAL LOSS SHOULD NOT BE DISALLOWED. THE ASSESSEE AFTER FURNISHING NECESSARY EVIDENCE RELATING TO THE LOSS ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 18 CLAIMED SUBMITTED THAT THE LOSS INCURRED BY THE ASSESSEE SINCE WAS IN COURSE OF CONDUCTING ITS BUSINESS ACTIVITY IT IS ALLOWABLE AS BUSINESS LOSS. THE ASSESSING OFFICER, HOW EVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED, SIMILAR LOSS CLAIMED BY THE ASSESSEE IN ASSESSMENT YEAR 2009 10 WAS DISALLOWED BY THE DRP. ACCORDINGLY, FOLLOWING THE REASONING OF THE DRP IN ASSESSMENT YEAR 2009 10 THE ASSESSING OF FICER DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE. THOUGH, THE ASSESSEE OBJECTED TO THE DISALLOWANCE OF SUCH LOSS BEFORE THE DRP, HOWEVER, THE ASSESSEES OBJECTION ON THE ISSUE WAS REJECTED BY THE DRP RELYING UPON ITS OWN DECISION IN ASSESSMENT YEAR 2009 1 0. 12 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ISSUE HAS NOW BEEN DECIDED BY THE TRIBUNAL IN ASSESSMENT YEARS 2009 10 AND 2010 11 ALLOWING ASSESSEES CLAIM. IN THIS CONTEXT, HE PLACED RELIANCE ON THE ORDERS PASSED IN ITA NO.1402/MUM.2014, DA TED 5 TH JANUARY 2018 AND ITA NO.1766 AND 2183/MUM./2015, DATED 10 TH JANUARY 2018. 13 . THOUGH, THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS, HOWEVER, HE RELI ED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE DRP. 14 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. AS COULD BE SEEN FROM THE ELABORATE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE DEPARTMENTAL AUTHORITIES, THE FOREIGN EXCH ANGE LOSS AROSE DURING REGULAR COURSE OF BUSINESS. MOREOVER, IT IS A FACT ON RECORD THAT WHENEVER THERE IS GAIN ON ACCOUNT OF FOREIGN EXCHANGE, THE ASSESSEE HAS OFFERED IT TO TAX AND DEPARTMENT HAS ALSO ASSESSED IT. APPLYING THE SAME LOGIC, FOREIGN EXCHANG E LOSS SHOULD ALSO BE ALLOWED. MOREOVER, IT IS A FACT ON RECORD THAT BOTH THE ASSESSING OFFICER AS WELL AS DRP WHILE DISALLOWING ASSESSEES CLAIM OF FOREIGN EXCHANGE LOSS HAVE SIMPLY RELIED UPON THE REASONING OF THE DRP IN ASSESSEES OWN CASE FOR ASSESSMEN T YEAR 2009 10. NOTABLY, WHILE DECIDING ASSESSEES APPEAL ON THE ISSUE OF DISALLOWANCE OF FOREIGN EXCHANGE LOSS IN ASSESSMENT YEAR 2009 10, THE TRIBUNAL IN ITA NO.1402/MUM./2013, DATED 5 TH JANUARY 2018, HAS DEALT WITH IT AS UNDER: 5.2. WE HAVE HEAR D THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSING OFFICER ON ONE HAND WOULD TAX GAIN ON FE EARNINGS BUT WOULD NOT ALLOW LOSS ARISING ON FE LOSS. IN OUR OPINION, THE STAND TAKEN BY THE ASSESSING OFFICER IS NOT JUSTIFIED IN ANY MANNER. IF THE GAINS OF FE FLUCTUATION HAD TO BE TAXED THEN THE LOSS ARISING OUT OF SUCH FLUCTUATION HAS TO BE ALLOWED. WE FIND THAT THE HONORABLE SUPREME COURT, IN THE CASE OF OIL AND NATURAL GAS CORPORATION (SUPRA) HAS HELD THAT THE LOSS CLAIMED B Y THE APPELLANT ON ACCOUNT OF FLUCTUATION IN THE RATE OF FE AS ON THE DATE OF THE BALANCE SHEET WAS ALLOWABLE AS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 19 RESPECTFULLY, FOLLOWING THE ABOVE MENTIONED TWO JUDGMENTS OF THE HONORABLE APEX COURT, RELIED UPON BY THE ASSESSEE, WE DECIDE GROUND NUMBER FOUR IN FAVOUR OF THE ASSESSEE. 15 . SIMILAR VIEW WAS AGAIN EXPRESSED BY THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010 11 IN ITA NO.1766 AND 2183/MUM./2015, DATED 10 TH JANU ARY 2018. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE AS REFERRED TO ABOVE, WE ALLOW THE FOREIGN EXCHANGE LOSS CLAIMED BY THE ASSESSEE AMOUNTING TO 48,63,46,027. THIS GROUND IS ALLOWED. 7.2. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE HEREBY DIRECT THE LD. AO TO GRANT DEDUCTION TOWARDS FOREIGN EXCHANGE LOSS AMOUNTING TO RS.19,49,09,643/ - . 8. THE GROUND NO.5 RAISED BY THE ASSESSEE IS WITH REGARD TO INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT, WHICH WOULD BE PREMATURE FOR ADJUDICATION AT THIS STA GE , HENCE, THE GROUND IS DISMISSED AS PREMATURE. 9. THE GROUND NO.6 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIR E ANY SPECIFIC ADJUDICATION. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 14 / 07 /202 1 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( VIKAS AWASTHY ) SD/ - (M.BALAGANE SH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 14 / 07 / 2021 KARUNA , SR.PS ITA NO . 7306/MUM/2017 M/S. SABRE TRAVEL NETWORK (INDIA) P. LTD., 20 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//