TMI Blog2018 (10) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee shall remain undisturbed. The Ld. AO is directed to verify the fact that impugned payments were deposited by the assessee before due date of filing of return of income with a direction to assessee to provide requisite details in this regard. The ground stand allowed. Disallowance u/s 14A - Held that:- We find that it is an undisputed fact that no exempt income has been earned by the assessee during the impugned AY and therefore, no disallowance was called for u/s 14A as per catena of judgments of Higher Judicial Authorities in assessee’s favor. Addition of Deposits written-off which mainly comprised-off of forfeiture of security deposits paid by the assessee on account of termination of lease before stipulated lock-in-period - Held that:- The security deposits made by the assessee have been adjusted / forfeited by the landlords on account of the fact that the premises were not used for minimum lock-in-period as stipulated in the respective agreements. It is also undisputed fact that the premises were being used for business purposes. AO, himself, in the alternative, opined that the said expenditure was capital in nature which demonstrates that the genuineness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng proportionate adjustment arrived at TP adjustment of ₹ 25.63 Lacs, being 2.54% of TP adjustment of ₹ 10.49 Crores as computed by Ld. AO. However, the said adjustment has been found to be within range of safe harbor of +5% as provided u/s 92C(2) as calculated with reference to aggregate international transactions of ₹ 11.28 Crores and therefore, deleted in full. No infirmity in the same since the benefit as envisaged by the statutory provisions could not be denied to the assessee. Therefore, the same being in accordance with law, require no interference on our part. - I.T.A. No.5781/Mum/2016 And I.T.A. No.5707/Mum/2016 - - - Dated:- 3-10-2018 - SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For The Assessee : Nimesh Vora, Ld. AR For The Revenue : Rignesh Das, Ld. JCIT-DR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. These are cross appeals for Assessment Year [AY] 2011-12 which contest the order of the Ld. Commissioner of Income-Tax (Appeals)-58 [CIT(A)], Mumbai, Appeal No.CIT(A)-58/Arr.283/2013-14 dated 02/06/2016 on different grounds of appeal. First we take up assessee s appeal ITA No.5707/Mum/2016 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AO was directed to re-compute disallowance afresh. The Ld. CIT(A) while adjudicating the same placed reliance on the decision of Hon ble Kerala High Court rendered in Merchem Ltd. [61 Taxmann.com 119]. Aggrieved, the assessee is in further appeal before us. 3.3 The Ld. AR submitted that the issue stood covered in assessee s favor by the following binding judicial pronouncements, the copies of which have been placed on record:- ( i) Pr. CIT v Rajasthan State Beverages Corporation Ltd [2017] 84 taxmann.com 173 (Rajasthan HC). Special Leave Petition filed in Pr. CIT v Rajasthan State Beverages Corporation Ltd [250 Taxman 16(SC) was dismissed by the Supreme Court [Page 301 to 304 of legal paper book]. ( ii) CIT v Hindustan Organics Chemicals Ltd [366 ITR 001 (Bombay HC)] [Page 305 to 309 of legal paper book] ( iii) CIT v Ghatge Patil Transports Limited [368 ITR 749 (Bombay HC)] [Page 310 to 314 of legal paper book] Besides the judgment of Hon ble Kerala High court as relied upon by Ld. CIT(A), the Ld. DR could not put forward any other contrary judgment. Upon due consideration, we find that the issue stood squarely covered in assessee s favor by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The Ld. AO is directed to verify the fact that impugned payments were deposited by the assessee before due date of filing of return of income with a direction to assessee to provide requisite details in this regard. The ground stand allowed. 3.4 Resultantly, the assessee s appeal stand partly allowed. Revenue s Appeal ITA No. 5781/Mum/2016 4. The revenue is aggrieved by certain relief provided by Ld. CIT(A) to the assessee, which could be tabulated in the following manner:- Ground No. Nature of Additions / disallowances Remarks 1. Disallowance u/s 14A Rs.5,41,294/- 2. Deposits written-off Rs.19,56,730/- 3. Professional / Non-compete fees paid to Raju Shete Rs.97,26,905/- 4. to 6. Transfer Pricing Adjustment Rs.10,49,74,001/- 5.1 Facts qua revenue s appeal are that during assessment proceedings, it was noted that the assessee held exempt dividend income yielding investments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Punjab Haryana High Court 81 Taxmann.com 108 7. CIT Vs Lakhani Marketing Inc. Hon ble Punjab Haryana High Court 2015 4 ITR-OL 246 8. CIT Vs Hero Cycles Ltd Hon ble Punjab Haryana High Court 323 ITR 518 9. CIT Vs. Winsome Textiles Ind. Ltd. Hon ble Punjab Haryana High Court 319 ITR 204 10. CIT Vs Corrtech Energy Pvt Ltd Hon ble Gujarat High Court 223 Taxmann.com 130 The revenue is unable to bring on record any contrary judgment to controvert the same. Respectfully following the wisdom of higher judicial authorities, we confirm the stand of Ld. first appellate authority. This ground stand dismissed. 6.1 The second issue pertains to deposits written-off for ₹ 19.56 Lacs which mainly comprised-off of forfeiture of security deposits paid by the assessee on account of termination of lease before stipulated lock-inperiod. The details of the write-off as ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. 6.4 Upon careful consideration, we find that factual matrix is not under dispute. The security deposits made by the assessee have been adjusted / forfeited by the landlords on account of the fact that the premises were not used for minimum lock-in-period as stipulated in the respective agreements. It is also undisputed fact that the premises were being used for business purposes. The Ld. AO, himself, in the alternative, opined that the said expenditure was capital in nature which demonstrates that the genuineness of the same was also not under doubt. Under these circumstances, we find that the expenditure was not capital in nature since the same did not bring into existence any new asset or benefit of enduring in nature. The same, being incurred during the course of business, were revenue in nature and therefore, allowable to the assessee. This ground stand dismissed. 7.1 The root of third addition lies in the fact that the assessee paid professional fees of ₹ 60 Lacs to an individual Raju Shete which was payable in 4 quarterly installments of ₹ 15 Lacs each. It was submitted that Raju Shete was the previous owner director of an entity namely M/s Radha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 The AO has placed his reliance on the agreement to conclude that the payment represented non-compete fee paid to Mr. Shete and hence a payment which was capital in nature. The business activity of the appellant has been examined. It is seen that the appellant is in hospitality business which requires a very intimate knowledge of the clients and is extremely sensitive to even small errors or mismanagement. The operations include supplying catering and other services to airlines etc. which have serious quality standards. Hospitality business is not a business which can be created overnight but is an outcome of goodwill generated over years. Hence, the submission made by the appellant that the presence of Mr. Shete was required for the purpose of its business so as to ensure that the clients were retained and there was no disturbance in the services being offered, is found to be valid explanation. In a business take over, it is not unusual to retain key employees in order to ensure that the business continues to run smoothly. 9.6 There is no inference by the AO that Shri Raju Shete has not rendered professional services during the year. If he has functioned as non-executive Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord the relevant extract of the Share Sale Agreement dated 10/03/2009 whereby Sodexo SA has acquired the entity namely Radhakrishna Hospitality Private Limited [RHKS-renamed as Sodexo Food Solutions India Private Limited or SFS i.e. the assessee] and RKHS Food Allied Services Private Limited from the existing shareholders. Shri Raju Shete is a part of selling shareholder [non-compete parties] . In terms of Clause 8.5(c) of the said agreement, the non compete parties are entitled for additional compensation of US$1 million, the break-up of which has been provided in Schedule-Xnon- compete consideration allocation of the said agreement. Upon perusal of the same, we find that Shri Raju Shete is entitled for compensation of US $ 6 Lacs. The allegations of Ld. AO are exactly this. The Ld. AO has opined that the amount stated to be paid by the assessee to Shri Raju Shete forms part of acquisition process and therefore, capital in nature and not allowable to assessee u/s 37(1). The terms of the agreement, as produced before us corroborate the same. This being the case, the Ld. CIT(A), in our opinion, fell in error in providing relief to the assessee merely on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested party were reflected as 0.68% as against -10.52% reflected by 7 comparables, the details of which have already been extracted at Para-10.4 of the quantum assessment order. In view of the same, no adjustment was offered / proposed. The margin of -10.52% was arrived on the basis of three years data viz. Financial Year [FY] 2008-09, 2009-10 2010-11 out of which the data for 2010-11 was incomplete. The Ld. AO rejected the three years data and opined that only the data of relevant FY was to be considered for comparability analysis. Based on data for FY 2011-12, the assessee arrived at margin of -20.91% for six comparables and in the process excluded the seventh comparable namely Brigade Hospitality Services Limited in view of the fact that there were significant related party transactions carried out by the said entity. The exclusion of the same was accepted. However, in the final analysis, Ld. AO computed margin of 3.056% of five entities after excluding a super loss making entity namely Hotel Corporation of India Limited which reflected abnormal loss margin of -140.76% during the impugned AY. Resultantly, the average margin of 3.056% of five entities as pitied against as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons on the basis of /arithmetic mean of overall margin of the comparables. 10.5.2 Under such circumstances, there has been an overwhelming judicial approval for restricting the adjustment to that %age of turnover which the transactions have with the turnover. In the present case, the total value of transactions is ₹ 11,28,82,570/-. The turnover of the appellant is ₹ 4,44,81,42,358/-. Hence, the international transaction is 2.54% of the total turnover. Hence, the adjustment will have to be restricted to a level of 2.54% of the adjustment computed on entity level. The AO has computed all of ₹ 10,49,74,001/- at entity level. The proportionate adjustment will be 2.54% of this amount or ₹ 26,63,974/-. 10.5.3 The total transaction value is ₹ 11,28,82,570/-. If the adjustment falls within --/- 5% of this amount, then the adjustment is covered by the safe harbour provided by the proviso to section 92C(2) of the Act. 5% of the international transaction comes to ₹ 56,44,129/-. It is seen that the suggested adjustment is less than 5% of the international transaction and hence covered by the second proviso to section 92C(2) of the Act. 10.5.4 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. CIT Vs Tata Jewels Exports Private Ltd Hon ble Bombay High Court 381 ITR 404 2. CIT Vs Firestone International Pvt. Ltd. Hon ble Bombay High Court 378 ITR 558 3. Thyssen Krupp Industries India Pvt. Ltd. Vs ACIT Mumbai Tribunal 55 SOT 497 as approved by Bombay High Court in revenue s appeal 381 ITR 413] 4. Hindustan Unilever Ltd Vs ACIT Mumbai Tribunal 22 ITR(T) 737 as approved by Bombay High Court in revenue s appeal 394 ITR 73] Respectfully following the same, we find no infirmity in the stand of Ld. CIT(A) in granting the benefit of proportionate adjustment to the assessee by holding that entity level TNMM could not be applied to all the transactions / cost base on gross basis as a whole and the same was to be applied on proportionate basis to international transactions which were subjected to determination of ALP. 8.6 Proceeding further, upon perusal of impugned order, we find that Ld. first ..... X X X X Extracts X X X X X X X X Extracts X X X X
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