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2018 (1) TMI 1722 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - We find that the assessee is a wholly own entity of Singapore base parent company that the AE was providing CRS for Airline ticket bookings that CRS was being used by the Travel Agents for booking of Air Tickets that the main source of income of the AE was the commission received by it from Airline companies whose tickets were booked using the CRS. Thus we are of the opinion that all the five comparables-i.e. AL, CLL GITL Rites and WL selected by the TPO for benchmarking the IT s of the assessee are not providing MSS that there functionally dissimilar that they have to be excluded from the final list of the valid comparables. There is nothing on record to prove that support services provided by the above five comparables were also associated with marketing function. There is no doubt that the support services provided by the assessee were directly associated with marketing. We find that if these five comparables are excluded from the list the valid comparables the assessee will be in the safe zone of /- 5% the OP to OC of the assessee is 5.18% whereas OP to OC of the remaining comparables is 3.01%. In the circumstances we hold that the IT s entered into by the assessee with its AE was at arm s length. Decided in favour of the assessee. Addition made on account of mismatch in AIR data - AO observed that data available with the Department indicated that the assessee had not shown income received by it from Yatra Online.com and Arzoo.com respectively - HELD THAT - We find that rectification application was filed before the AO by the assessee stating that there were certain mistakes in his order that Yatra had filed a fresh statement of tax deducted at source that the AO had not passed the rectification order in that regard. Therefore in our opinion the addition made by him in respect of Yatra Online.com cannot be endorsed. Reversing the order of the FAA we allow ground number 3.1. Income from Arzoo.com we find that the assessee had claimed that there was dispute about the sum that Arzoo had disputed the liability. The AO is directed to pass order u/s.154 of the Act within a month of receipt of this order. If he finds that claim made by the assessee about Arzoo.com is not supported by documentary evidences he can add the disputed amount i.e. for Rs. 6.64 lakhs to the income of the assessee. But he will give credit to the taxes deducted at source as per AS 26.GOA 3.2 is allowed partly. Disallowance of Foreign exchange loss - We find that the AO 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 AO 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 in the case of Oil and Natural Gas Corporation 2010 (3) TMI 81 - SUPREME COURT has held that the loss claimed by the appellant on account of fluctuation in the rate of FE as on the date of the balance-sheet was allowable as expenditure u/s 37(1). Addition made on account of Marketing Service Fee (MSF) - assessee had claimed an expenditure under the head payment of dealer incentive that it had claimed receipt as additional Marketing Service Fees(MSF)from its parent company that the figures included amounts pertaining to period 01.01.2008 to 31.12.2008 - whether the transaction in question was at arm s length? - HELD THAT - In our opinion it was a clear case of reimbursement by the AE of the expenditure incurred by the assessee. For the incentive scheme it should have charged full amount to its AE i.e.Rs.34.61 crores. If the agents would use the software of the AE it would result in higher income for the AE to the extent of 75% whereas the assessee would get 25% of the booking. Thus the direct and major beneficiary is AE. Because of proximity between them the AE and assessee could enter in to an agreement to suit their requirements. But that would not take away the right of the TPO to determine the ALP of the transaction considering the market value of such a transaction. He had considered all the aspects of the transaction and had held that the assessee should have received Rs.2 crores more from the AE. Here, an incentive scheme was introduced by the assessee and the AE makes part payment for the expenditure incurred by the assessee for the scheme. Advertisement expenditure cannot be compared with introduction of an incentive schemes that would increase the revenue of the AE. Here it is not a case of incidental benefit to AE-it is a case of major benefit to the AE and fringe benefit to the assessee.TP provisions were introduced to take care of such eventualities i.e. determine the market value of transactions had they been entered in by two independent entities. Therefore in our opinion the order of the DRP does not require any interference from our side. Main argument of the assessee stands dismissed. Disallowing the expenditure while computing the taxable income of the assessee - As we would like to hold that the DRP was not justified in disallowing the same. There is no doubt about incurring of expenditure by the assessee as stated earlier. The assessee had introduced an incentive scheme and had incurred the expenses - Whether the money received from AE was at arm s 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.
Issues Involved:
1. Addition of Rs. 8.04 crores due to Transfer Pricing adjustments. 2. Addition on account of mismatch in AIR data. 3. Disallowance of foreign exchange loss. 4. Addition of Rs. 2 crores on account of Marketing Service Fee (MSF). Issue-wise Detailed Analysis: 1. Addition of Rs. 8.04 crores due to Transfer Pricing adjustments: The assessee company, engaged in marketing and promoting Abacus computer reservations software, entered into international transactions with its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) found defects in the transfer pricing documentation, particularly the use of non-current year data and inappropriate comparables. The TPO rejected the assessee's comparables and selected eight new ones, leading to an addition of Rs. 8.04 crores. The Dispute Resolution Panel (DRP) upheld the TPO's adjustments, stating that the assessee's benchmarking was incorrect as it compared itself with commission agents rather than companies providing consultancy and business support services. The Tribunal, however, found that the comparables selected by the TPO were functionally dissimilar to the assessee's marketing support services (MSS) and excluded them from the final list. Consequently, the Tribunal held that the international transactions were at arm's length, deciding the issue in favor of the assessee. 2. Addition on account of mismatch in AIR data: The AO observed discrepancies in the income reported by the assessee and the data available with the Department, leading to an addition of Rs. 1.14 lakhs and Rs. 6.64 lakhs. The assessee contended that the discrepancy with Yatra Online.com was due to an erroneous TDS statement, which was later corrected. For Arzoo.com, the assessee argued that the amount was disputed and not paid. The Tribunal directed the AO to pass an order under section 154 regarding the disputed amount with Arzoo.com and to give credit for the TDS if the claim was unsupported by documentary evidence. The addition related to Yatra Online.com was reversed, and the issue was partly decided in favor of the assessee. 3. Disallowance of foreign exchange loss: The assessee claimed a foreign exchange loss of Rs. 40.02 crores, which the AO disallowed. The DRP confirmed the disallowance. The Tribunal found that the AO's approach of taxing foreign exchange gains while disallowing losses was unjustified. Citing Supreme Court judgments in the cases of Woodward Governor India Private Ltd. and Oil and Natural Gas Corporation Ltd., the Tribunal held that the foreign exchange loss was allowable as expenditure under section 37(1) of the Act. The issue was decided in favor of the assessee. 4. Addition of Rs. 2 crores on account of Marketing Service Fee (MSF): The DRP noted that the assessee received Rs. 32.61 crores from its AE for dealer incentives but claimed an expenditure of Rs. 34.61 crores. The DRP concluded that the assessee should have received the full amount and added Rs. 2 crores to the income. The Tribunal found that the transaction was a reimbursement by the AE and that the assessee should have charged the full amount. However, the Tribunal held that the expenditure of Rs. 2 crores was incurred and should not have been disallowed. The main argument of the assessee was dismissed, but the alternate argument regarding the expenditure was allowed. Conclusion: The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the issues of transfer pricing adjustments, foreign exchange loss, and partly on the AIR data mismatch and MSF expenditure. The Tribunal directed the AO to reconsider the disputed amount with Arzoo.com and to allow the foreign exchange loss and MSF expenditure.
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