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TMI Blog2018 (1) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... - Held that:- As decided in assessee's own case 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 the honorable Supreme Court, in the case of Oil and Natural Gas Corporation (supra)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 under section 37(1) of the Act . Income from the AE on account of incentive - Held that:- As decided in assessee'e own case incentive scheme was introduced by the assesee 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 mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .He vide his order dated 29/01/2014, proposed adjustment of Rs .2 .78 crores to the income of the assessee .After receiving the order of the TPO, the AO issued a draft assessment order to the assessee, who challenged it before the DRP . 2.1 .During the TP proceedings, the TPO observed that the assessee has entered into following IT .s with its AE: SN Nature of International Transaction Value in Rs. Method used 1 Provision of marketing services 19, 78, 14, 045/- TNMM Note 2 mentions that company has recorded a sum of ₹ 231, 865, 271/- as marketing service fee pursuant to addendum entered with the holding company on 31st December 2009 for marketing and promotion of Abacus Systems for the year ended 31st March 2010. The assessee has benchmarked it by aggregating it with Provision if marketing services. TNMM 2 Availing of Interest free ECB loan of 14.57 Crores Rs.129, 766, 000/- Nil (Interest) 3 Reimbursement of Expenses : Service Charges Other Expenses Foreign Travel 4, 29, 11, 118/- 51, 41, 045/- 39, 543/- CUP He observed that the assessee had earned MSF and commission income of Rs .42 .96 crores, that it had computed the margin as follow: Particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r marketing support services/commission agency: Sr.No. Name of the Company Margin (%)PBIT /Cost 1. Apitco Ltd. 43.44% 2. Best Mulyankayan Consultants Ltd. 11.81% 3. Choksi Laboratories Ltd. 22.07% 4. Genins India Tribunal PA Ltd. 21.81% 5. ICRA Management Consulting Services Ltd. 5.97% 6. Rites Ltd. 24.54% 7. Technicom-Chemie (India) Ltd. 32.42% 8. WAPCOS Ltd.(Seg.) 9.98% 9. Accentia Technologies Ltd. 42.97% 10. Vishal Information Technologies Ltd. 38.34% Grand Average 23.03% The TPO reworked the margin (OP/OC) of the assessee as under : Particulars Amount (Rs.) Amount(Rs.) Commission 197, 814, 045/- Marketing Service Fee 231, 865, 271/- Online Web connect and training fee 14, 634, 213/- Total Income 444, 313, 529/- EXPENDITURE Line Charges 4, 930, 157/- Airfare Transaction Charges 42, 941, 118/- Administrative and Other Expenses 335, 339, 118/- Less: Provision of doubtful advance 3, 366, 287/- Provision of doubtful debts 2, 538, 458/- 329, 434, 373/- Depreciation 6, 469, 224/- Total Operating Cost 383, 774, 872/- Operating Margin 60, 538, 657/- Operating Profit/Operating Cost (as computed) 15.77% He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enchmarking afresh, that that merely because the profit margin of the comparable companies was high would not make them unacceptable unless it is shown that abnormal factors had affected the margins of those companies, that it was also required to be shown as to how and to what extent the profit margins were affected by abnormalities, that high or low profitability, per se, could not be a reason for rejecting otherwise comparable companies . With regard to addition of Rs .2 crores under the head incentive paid to travel agents, is the DRP held the assessee had claimed Rs . 23 .66 crore as payment of dealer incentive, that against the same had it had claimed receipts of Rs . 23 .18 crore as additional marketing service fee from its parent company, that the said figure included amounts pertaining to the period 01/01/2009 to 31/12/2009, that there was already an agreement dated 06/06/1996 with the dealers prior to entering into an agreement on 31/12/2009, that the right to receive its fees for compensation did not arise on 29/09/2009 or 31/12/2009, that it would arise when the assessee would decide to give incentive to the dealers, that there was no infirmity in the action of the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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, that the AE had appointed assessee as its national marketing company in India for promoting use of its CRS among the travels agents in India, that it would receive 25% of the Revenue generated by the AE in respect of Airline-Tickets booked from India, as commission fee, that the assessee had also earned marketing services fee from the AE, that TP adjustment were made for the first time in the A .Y .2007-08, that it had selected six comparables, that the TPO rejected the all of them, that he identified new eight comparables, that the DRP upheld all the comparables selected by him, that the assessee had adopted the PLI as berry ratio being EBIT/Operating Cost X 100, that the TPO had changed the PLI to Operating Profit /Operating Cost (OP/OC), that the TPO determined the assessee's OP to cost at 5 .87% as against average operating to cost earned by the comparables of 20 .34 %, that for rejecting the assessee TP stud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e including receiving of insurance claim .An analysis of the financial statements of the company revealed that revenue is recognised as and when Medicare policy is issued by general insurance companies in favour of the policyholders .We are of the opinion that GITL is functionally dissimilar from the assessee and has to be excluded from the list of the comparables . As per the annual report of Rites (system integration and support service segment)has business operation in for distinct fields namely consultancy in transportation infrastructure section, construction activities, export and leasing of railway equipments and running railway system on concession, the consultancy business is mainly in transport infrastructure sector i .e . railways, highways, airports, ports, Roads, urban transport, inland waterways, that it had started construction activities from the year under review, that it had started leasing business in railway sector in mid-1990, that consulting services accounted for 75% of the total operating income for the year under consideration, that export sales accounted for 12% of the income . The annual report proves that the main source of income for the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 3 .01% .In the circumstances, we hold that the IT .s entered into by the assessee with its AE was at arm's length . GOA 2 .1 is decided in favour of the assessee ." Considering the above, we allow the first ground of appeal in favour of the assessee . 3 .In the second effective Ground of appeal the assessee has objected the taxation of foreign exchange gain of Rs . 20 .75 crore on the ground that in the preceding year the claim of foreign exchange loss had been disallowed by the AO . The DRP held that the foreign exchange gain offered to tax by the assessee in the return of income was taxable, that the same was not to be reduced from the income offered .Finally, it rejected the objections raised by the assessee . 3.1 .We find that the identical issue was dealt by the Tribunal for the AY .2009-10 in following manner: "5 .Foreign exchange loss is the subject matter of ground number four .During the assessment proceedings, the AO found that the assessee had claimed for exchange loss to the tune of Rs . 40 .02 crores .After calling for details in that regard, he held that loss was not allowable .The DRP confirmed the order of the AO . 5.1 .During the course of hearing before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above, Rs .2, 00, 00, 000/- is added back to the total income on account of Incentive ." 4.1 .We find that while dealing with the objections raised by the assessee in that regard, the DRP had observed that the AO had rightly held that the right to receive its fee/compensation from the AE did not arise on 31/12/2009, that same would arise when the assessee would decide to give the incentive to the dealers, that the assessee had entered into agreement with the dealers prior to entering into agreement of 31/12/2009, that the parent company had deducted Rs . 2 crore due to the assessee, that it could not satisfactorily explain the reason for deduction of the said amount by the AE, that it was not explained as to why it did not claim Rs . 2 crore from the AE, that the agreement between the assessee and its AE did not provide for any such detail liability on account of the assessee, that the incentives had been incurred on behalf of the parent company 4.2 .We find that while adjudicating the appeal for the last AY .(supra)the Tribunal had dealt with the issue as under: "6 .3 .We have heard the rival submissions and perused the material before us .We find that the assessee had in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assesee 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 . As far as disallowing the expenditure of Rs .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 expenditure by the assessee, as stated earlier .The assessee had introduced an incentive scheme and had incurred the expenses of Rs .34 .61 crores . 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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