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TMI Blog2019 (3) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Processing Receipts derived by the assessee from Units 1 and 2 would not be eligible for deduction u/s 10A - HELD THAT:- As decided in assessee's own case [2017 (10) TMI 998 - ITAT DELHI] the impugned order of the ITAT in the case of AIPL for AY 2009-10 on the issue of allowing the deduction under Section 10A suffers from no legal infirmity either in its analysis of the legal provisions or in its conclusions. The Court is not inclined to frame any question of law on the issue concerning a Section 10A deduction in the appeal of the Revenue against AIPL for AY 2009-10. Disallowance u/ 14A - HELD THAT:- Since undisputedly, there is no exempt income derived by assessee/appellant in the instant case, in our considered opinion, the issue merits to be decided in favour of the assessee/appellant following the Hon ble jurisdictional High Court s decision in the case of Mc Donald India Pvt. Ltd [2018 (11) TMI 1057 - DELHI HIGH COURT] and M/s Cheminvest Ltd.[2015 (9) TMI 238 - DELHI HIGH COURT]. - Stay Application no. 475-476/Del/2018 (Arising out of ITA no. 1811 & 7691/Del/2017), ITA no. 1662/Del/2016 - - - Dated:- 27-2-2019 - SHRI N.S. SAINI, ACCOUNTANT MEMBER And SHRI SUDHANS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had incurred AMP expenditure totaling to ₹ 94,31,24,844/- on promotion of proprietary marks and for development of marketing intangible for the benefit of AE. (ii) AMP expenditure of ₹ 94,31,24,844/- incurred by the assessee is an International Transaction u/s 92B of the Act. (iii) AMP transaction is being made at the behest and under control of the AE. (iv) AE is directly benefited by any expenditure incurred by assessee on AMP. (v) Legal ownership of the marketing intangible would get transferred to the AE without any consideration on termination of the Distribution Agreement. (vi) Applying transaction-by-transaction approach AMP transaction is to benchmarked in a segregated manner. (vii) International Transaction on account of AMP expenses cannot be benchmarked applying TNMM as the Most Appropriate method. 4. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transactions of AMP were closely linked with the main activity carried on by the appellant and hence it cannot be segregated and benchmarked on a stand-alone basis. 5. That on facts and in law the TPO erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneously being influenced by the findings recorded by appellate courts in cases relating to the AE. 9.3 That on facts and in law the AO/DRP erred in holding that the appellant has not been able to establish with evidence that it has rendered data processing services which are eligible for claim of deduction u/s 10A of the Act. 10. That on facts and in law the AO/DRP erred in charging/upholding levy of interest u/s 234A, 234B 234C of the Act. 11. That on facts and in law, the assumption of jurisdiction by the AO/TPO to determine Arm s Length Price is bad in law and void ab-initio. 2.2 Thus, in crux, the assessee is aggrieved by the following additions/disallowances made by the AO in the instant case:- (a) Transfer Pricing Adjustment on account of alleged excessive Advertising Marketing and Promotion (AMP) expenditure of ₹ 114.89 crores. (b) Transfer Pricing Adjustment of ₹ 8,98,683/- on account of alleged transaction for notional interest on receivables. (c) Disallowance u/s 10A of the Act 2.3 The first issue in dispute arising out of grounds 2 to 6 of appeal pertains to Transfer Pricing Adjustment on account of excessive AMP expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transaction are at Arms Length Price. In order to verify this, the AO made a reference to the Transfer Pricing Officer (TPO). The TPO has accepted the benchmarking of the above declared international transactions. In this regard after a detailed benchmarking of the disclosed international transaction/s, the TPO has, at page 69 of order dated 20th January, 2015, held that from above it can be seen that the international transaction of taxpayer in respect of ITES is within + / - 5% of arms length price . 2.7 The TPO, however, observed that the assessee had incurred more than normal AMP expenses to build Amadeus brand in India which is legally owned by M/s Amadeus Spain. The TPO held that the assessee should have been reimbursed with appropriate mark-up on such excessive AMP expenditure identified by him by applying the Bright Line Test (BLT). In his order, the TPO has identified the said abnormal AMP expenses by applying the bright line method i.e., by comparing the AMP as a percentage to sales of the assessee with average AMP as a percentage of the comparable companies finally selected by him for benchmarking the main functions of the assessee. Thereafter, by applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot international transaction as defined in section 92B of the Act. AMP expense is an international transaction. (Paras 52 53 of the judgment) : The TPO has jurisdiction to determine the ALP of the international transaction of AMP expenses (para 50 of the judgment); Discussion under the heading C para 51-57, the substantial question of law answered in favor of Revenue. AO/TPO can segregate AMP expenses as an independent international transaction, but only after elucidating the grounds and reasons for not accepting the bunching adopted by the assessed and examining and giving benefit of set off under 92(3). Assessee is already remunerated for the activities performed by it. Para 134 Page 103 Owner of the marketing intangible should adequately compensate the domestic AE incurring costs towards marketing activities by reimbursement of expenses or by sufficient and appropriate return. Bright Line Test, applied by the Ld. TPO/LD. AO, is not permitted by the transfer pricing regulations Para 194, sno X, page 139 Bright Line Test has no st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transactions and comparable transactions at par [para 194(iii)]; If adjustment is not possible or comparable is not available, then, the TNMM on entity level should not be applied [Paras 100, 121, 194(iii) (vi)] For determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses, should be chosen [Paras 194(i), (ii), (viii) others]; The choice of comparables cannot be restricted only to domestic companies using any foreign brand [Para 120]; Arbitrary Mark up PLR cannot be the basis for computing markup on AMP expenses as an international transaction. Mark-up as per sub-clause (ii) to rule 10B(1) would be comparable gross profit on the cost or expenses incurred as AMP. The mark-up has to be benchmarked with comparable uncontrolled transactions or transactions for providing similar service/product. The Revenue s stand in some cases applying the prime lending rate fixed by the Reserve Bank of India with a further mark-up, is mistaken and unfounded. Interest rate mark-up would apply to interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier assessment years. Kind reference in this regard is invited to the decision of Hon ble ITAT in for AY 09-10 reported in 52 ITR(T) 83 {copy enclosed at pages 409 to 447 of PB filled in Stay Nos 475 476/Del/2018}. Hon ble ITAT after considering the facts of the case has held that in absence of a transaction for brand promotion between A and its AE no TP adjustment for alleged AMP expenses can be made. Kind reference is invited to following extracts of Hon ble ITAT decision: (a) TPO accepts that International Transaction for Provision of ITeS Services are at ALP applying TNMM .page 421, para 8 (b) Jurisdictional Issue questioning existence of transaction for brand promotion merely premised benefit to AE taken up for consideration ..page 421-422, para 8 (c) Argument of DR praying for remand rejected. Held, that all necessary facts are on record effect is to be given to decisions of Jurisdictional High Court which are direct on this issue .page 422, para 8.1 (d) Jurisdictional High Court decisions in case of Maruti Suzuki India Ltd. reported in 381 ITR 117(Del), Whirlpool of India Ltd. reported in 381 ITR 154(Del) and Bausch Lomb Eyecare (Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the submissions made by the Ld. AR. By relying on the orders passed by the TPO and the Ld. DRP it was submitted by him that the lower authorities have, for fair reasons, concluded that there exists an international transaction between the assessee and its AE for brand promotion. 5.0 We have carefully considered the submissions made by both the sides and have also perused the material available on record. It is seen that the issue in dispute has been decided in favour of the assessee by the coordinate Bench of this Court in earlier assessment years and the order passed by the coordinate Bench for A.Y.2009-10 has also been upheld by the Hon ble Jurisdictional High Court. In earlier years the issue in dispute has been decided in favour of the assessee by the coordinate Bench by taking into consideration the following decisions of the Hon ble Jurisdictional High Court:- (i) Maruti Suzuki India Ltd. vs. CIT reported in 381 ITR 117 (Delhi); (ii) CIT vs. Whirlpool of India Ltd. reported in 381 ITR 154 (Delhi); (iii) Honda Siel Power Products Ltd. vs. Dy. CIT reported in 237 Taxman 304 (Delhi); (iv) Bausch and Lomb Eyecare (India) Pvt. Ltd. v. Addl. reported in CIT 381 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red a de novo adjudication in the light of the jurisdictional High Court decision in the case of Sony Ericsson Mobile Communications (supra). The above line of adjudication is also supported by the decision of the honourable jurisdictional High Court in the case of Diakin Air-conditioning India (P.) Ltd. (supra) wherein it is held as under: Accordingly, the court directs as under: (a) The impugned order dated October 8, 2015, passed by the Income-tax Appellate Tribunal in I. T. A. No. 5090/DEL/2010 for the assessment year 2006-07 is set aside and the said appeal is restored to the file of the Income-tax Appellate Tribunal ; (b) The Income-tax Appellate Tribunal will first decide the question regarding the existence of an international transaction involving AMP expenses between the assessee and its associated enterprise. This question will not be remanded by the Income-tax Appellate Tribunal to any other authority for decision. If the said question is answered in favour of the assessee, then no other question would arise. If answered against the assessee, then the Income-tax Appellate Tribunal will decide the further issues that arise in the appeal in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricing adjustment is made by substituting the arm's length price for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the arm's length price. Under sections 92B to 92F, the pre-requisite for commencing the transfer pricing exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the arm's length price by applying one of the five price discovery methods specified in section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the arm's length price and make the transfer pricing adjustment by substituting the arm's length price for the contract price. Section 92B defines 'international transaction' as under: '92B. Meaning of international transaction.-(1) For the purposes of this section and sections 92, 92C, 92D and 92E, international transaction means a transaction between two or more associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; or 'understanding' between BLI and B L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i)(a) to (e) to section 92B are described as an 'international transaction'. This might be only an illustrative list, but significantly it does not list advertisement, marketing and promotion spending as one such transaction. In Maruti Suzuki India Ltd. [2016] 381 ITR 117 (Delhi), one of the submissions of the Revenue was (page 144) : 'The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit'. This was negatived by the court by pointing out (page 144): 'Even if the word transaction is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal ; the acquisition of shares, etc., may be direct or indirect or the persons acting in concert may co-operate in actual acquisition of shares, etc., or they may agree to co-operate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of persons acting in concert to come into being.' The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the assessee and the advertisement, marketing and promotion expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such advertisement, marketing and promotion expenditure incurred, for the associated enterprise. In any event, after the decision in Sony Ericsson [2015] 374 ITR 118 (Delhi), the question of applying the bright line test to determine the existence of an international transaction involving the advertisement, marketing and promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the arm's length price. The court does not see this as a machinery provision particularly in light of the fact that the bright line test has been expressly negatived by the court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established dehors the bright line test. . . . What is clear is that it is the price of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an arm's length price, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed price of such transaction and thereafter ask whether it is an arm's length price. If the answer to that is in the negative the transfer pricing adjustment should follow. The objective of Chapter X is to make adjustments to the price of an intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive or unreasonable having regard to the fair market value of the goods . In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction . The Assessing Officer in such an instance deploys the best judgment assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding machinery provision in Chapter X which enables an Assessing Officer to determine what should be the fair compensation an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd interests. The agreement dated October 1, 2004, between the appellant and its associated enterprise is based upon the revenue sharing model in which 46 per cent revenue is being shared by Amadeus Spain with the appellant and, hence, it is difficult to visualise that the appellant will not be incurring routine advertisement expenses in its entrepreneur capacity. Excluding the payment of incentives, which in the earlier years have been held, to be pure selling expenses the ratio of the AMP/sales of the appellant is mere 2.29 per cent. The learned authorised representative is also right in relying upon the decision of the honourable jurisdictional High Court in the case of Sony Ericsson Mobile Communications (supra) for submitting that events which would transpire on termination of distribution require a transfer pricing adjustment at that stage but the same will be immaterial to presume the existence of an agreement, arrangement or understanding in the year under consideration. In this regard the honourable High Court at paragraph 153 of its reported judgment has been pleased to be hold as under (page 217): Economic ownership of a brand is an intangible asset, just as legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution Panel that since the appellant is a dependent agency permanent establishment of its associated enterprise, hence, all its expenses on advertisement, marketing and promotion are being incurred by it for the benefit of associated enterprise we would like to state that this is also entirely irrelevant. While alleging as the above the learned Dispute Resolution Panel has not appreciated that the appellant has been held to be a dependent agent permanent establishment of Amadeus Spain for determination of Amadeus Spain's income, which is taxable in India. Moreover, we may refer here the decision of the honourable jurisdictional High Court in the case of Whirlpool of India Ltd. (supra) wherein it is held by the honourable High Court as under (pages 175, 179 of 381 ITR): The provisions under Chapter X do envisage a 'separate entity concept'. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that the advertisement, marketing and promotion expense incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- 3. The first issue concerns the deletion of the transfer pricing adjustment of ₹ 75,40,09,515/- on account of Advertising, Marketing and Sales Promotion Expenses (AMP Expenses) relying upon the decisions of this Court including the decision in Bausch Lomb Eyecare (India) Pvt. Ltd. vs. Additional Commissioner of Income Tax (2016) 381 ITR 227 (Del). 4. As far as the above issue is concerned, it is covered by the earlier decisions of this Court against the Revenue. This Court is not inclined to frame any substantial question of law on this issue. 5.3 Respectfully following the above binding precedents, it is concluded that the TPO has wrongly invoked the provisions of Chapter X of the Act. The addition of ₹ 114.89 crores, is therefore, directed to be deleted. Ground Nos. 3 3.1 are, therefore, allowed. Considering our conclusions, other grounds challenging various other facets of the impugned addition do not require any adjudication as having become in fructuous. 6.0 The next issue in dispute arising out of grounds 7, 7.1 8 of the Appeal pertains to the Transfer Pricing Adjustment of ₹ 8,98,683/- on account of alleged transaction for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In support, the Ld. AR also relied on the decision of Hon ble Jurisdictional High Court in the case of Pr. CIT vs. Kusum Healthcare Pvt. Ltd. reported in 2017-TII-28-HC-DEL-TP. 8.0 On the other hand, the Ld. CIT (DR) opposed the arguments and contentions taken by the Ld. AR. Relying on orders passed by the lower authorities, it was submitted by him that the reasoning given by the Ld. DRP requires no interference. However, on query being raised by the Bench, the Ld. CIT (DR) was fair enough to admit that in earlier assessment years, identical issue has been decided in favour of the assessee and that the department has accepted the order passed by the coordinate Bench for A.Y. 2009-10 on this issue. 9.0 We have carefully considered the submissions made and perused the material available on record. It is observed that the coordinate Bench in A.Y. 2009-10 had adjudicated upon the identical issue in favour of the assessee as under:- 11. We have considered the arguments advanced by the parties and perused the material available on record. Undisputedly, in the present case the benchmarking of the main international transactions applying the transactional net margin method has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delay in realisation of debts, even if so, is not too common an occurrence and more of exceptions than the rule. The apprehensions of the Revenue are purely hypothetical and, therefore, devoid of legally sustainable merits. (paragraph 16) In view of these discussions, as also bearing in mind entirety of the case, no arm's length price adjustments can be made, in respect of delay in relation of sale proceeds. Such being conclusion, there is no need to address the specific factual arguments advanced by the assessee. In effect thus the grievance of the assessee, is upheld and direct the Assessing Officer to delete the impugned arm's length price adjustment. (paragraph 17) Explanation to section 92B There is, however, one more aspect of the matter for which the impugned arm's length price adjustment must be deleted. (paragraph 19) It is noted that everything hinges on application of the Explanation to section 92B, vide Finance Act, 2012, though with retrospective effect from April 1, 2002. (paragraph 20) The amendment so made by the Finance Act, 2012, stated to be with retrospective effect April 1, 2002, inserts an Explanation to section 92B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, there is no way it could be implemented for the period prior to this law coming on the statute, i.e., May 28, 2012. The law is well settled. It does not expect anyone to perform an impossibility. (paragraph 38) It is for this reason that the Explanation to section 92B, though stated to be clarificatory and stated to be effective from April 1, 2002, has to be necessarily treated as effective from at best the assessment year 2013-14. In addition to this reason, in the light of the Delhi High Court's guidance in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Delhi) ; 68 taxmann.com 8 ; [2016-TII-6-HC-DEL-INTL] also, the amendment in the definition of international transaction under section 92B, to the extent it pertains to the issuance of corporate guarantee being outside the scope of 'international transaction', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesaid guidance of the Delhi High Court would not alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis- -vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi) 9.2 Respectfully following the above binding precedents, grounds 7 7.1 are allowed and the AO is directed to delete the addition of ₹ 8,98,683/-. 10.0 The next issue which requires our deliberations pertains to disallowance of deduction u/s 10A of the Act. This issue is raised in Ground Nos. 9, 9.1, 9.2 9.3 of the appeal. The relevant facts in this regard are that in the computation of income, deduction u/s 10A of the Act amounting to ₹ 17,70,80,624/- has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the views of the DRP on this issue. The taxpayer has not been able to controvert the arguments of the AO discussed comprehensively at assessment order. Thus following the Rule of Consistency, the DRP following the decision of DRP in AY 2010-11 approves the AO s order and the action of the AO in the proposed draft assessment order for not allowing deduction u/s 10A on the alleged Data Processing Fee which is held to be of the nature of commission on rendering of distribution and marketing activities. 10.3 Being aggrieved, the assessee/appellant is now in appeal before us. 11.0 In this regard, the Ld. AR has submitted as under:- Issue decided in favour of A by Hon ble ITAT in AYs 2009-10 and 2010-11. References: AY 2009-10 ITAT order reported in 52 ITR(T) 83 {copy enclosed at pages 409 to 447 of PB filled in Stay Nos 475 476/Del/2018} relevant issue discussed at page 430, para 12 onwards and conclusions are at pages 437 to 447, para 15 to 16. ITAT order for AY 09-10 on this issue has been upheld by Hon ble Delhi High Court vide order dated 22.05.2017 in ITA 154/2017 {copy enclosed at pages 493 to 514 relevant conclusions at page 507, para 32} . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year being independent of each other, the doctrine of res judicata does not strictly apply to the income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in the subsequent years unless there is some material change in facts. In the present case, the learned counsel for the revenue has not been able to point out even a single distinguishing feature in respect of the assessment year in question which could have prompted the Assessing Officer to take a view different from the earlier assessment years in which the same income was brought to tax as income from business. 15.2 Even otherwise on merits we are unable to sustain the view adopted by Ld DRP. Ld AR is justified in submitting that the learned DRP has written factually incorrect findings in its order. Moreover the details, filed by the appellant have also been partially taken into consideration. Ld DRP takes note of top 25 employees but omits to take into consideration crucial fact that director of appellate company Shri Ankur Bhatia is a Software Enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re conducting the operations within the restricted area and so long as those activities were not considered by the Reserve Bank of India, which is the concerned authority as amounting to anything other than carrying on of liaison work no inference adverse to the assessee can be drawn or is possible to draw. To repeat what all that was done by the assessee fell within the parameters of supplying of information which is preparatory to and auxiliary to the formation of the final contracts. Appellant has clarified above that like earlier years in the year under consideration also the sole activity carried on by it was that of providing the travel agents an access to the Amadeus CRS System by rendering ITeS data processing services. Facts on record also show that the appellant has not carried on any distribution functions though the agreement provided for same DRP's action in the present case is motivated by the distribution part of agreement which was not actually carried on by the appellant. Since fee to be paid to appellant as per Annexure A of the agreement was defined in aconsolidated manner probably that has lead to the present confusion in Ld DRP's action of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such activities. In simple words, whatever are the revenues generated on account of functional analysis of the DAPE are to be taken into account as hypothetical income of the said DAPE, and deduction is to be provided in respect of all the expenses incurred by the GE to earn such revenues, including, of course, the remuneration paid to the DA. The second taxable unit in this transaction is the DA itself, but this taxability is in respect of the remuneration of the DA. The provisions of the tax treaty are silent on this issue, and rightly so, because the taxability of the DA is quite distinct of the taxability of the enterprise of the contracting state which is in respect of PE of such an enterprise. At the cost of repetition, it is not the DA who constitutes PE of the GE, but it is by the virtue of a DA that the GE is deemed to have a PE, a DAPE though, in the other contracting state. We are of the considered view that in addition of the taxability of the DA in respect of remuneration earned by him, which is in accordance with the domestic law and which has nothing to do with the taxability of the foreign enterprise of which he is dependent agent, the foreign enterprise is also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be 'Nil'. 15.4 Before concluding we would like to mention over here that identical issue had also came up for the consideration of the Tribunal in case of M/s Interglobe Technology Quotient Private Limited for AYs 2007-08 to 2010-11 in ITA Nos. 419/Del/2011, 5830/Del/2011, 1463/Del/2013 and 6144/Del/2013. Vide order dated 26th July 2016 division bench of this Tribunal allowed the claim for deduction u/s 10A of the Act by M/s Interglobe Quotient, which is a competitor of the appellant. Both the assessees have similar business model and are rendering data processing activity. Factual allegations levied by the authorities below are also same. In the said order, after following Tribunal's decision of appellant for AY 1996-97 (supra), the Tribunal has opined as under: We find that the learned CIT(Appeals) while dealing with the issue has basically followed the decision of the IT AT in the case of Amadeus India (supra). He has elaborately discussed the terms of distribution agreement between the assessee and Galileo and has compared the activities of the assessee with that of Amadeus India before coming to the conclusion that the assessee before us is very much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case also noted some material facts that assessee company submits their monthly returns for export to the competent authority which has accepted the same in discharge of export obligation. The ITAT noted further that the export of software as per the statutory requirement are also declared on exporters declaration form SOFTES (specimen of SOFTES Form has been filed). The competent authority Le., Department of Electronics authorized official also certified that the software described in the SOFTES form was actually transmitted and the export value declared by the exporter has been found to be in order and accepted by the authorized officer. Similar are the functions of the assessee in the present case before us and similar types of certificates have been issued to the assessee about the transmission of software and the export value declared by the exporter has been found to be in order and accepted by the authorized officer. We are thus of the view that the Learned CIT(Appeals) was justified in equating the facts of the present case with that of the Amadeus India, also in the same line of business and following the decision of the IT AT on an identical issue, in the case of Ama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputer reservation system (CRS), the requisite software and a huge database comprising a variety of information relating to several airlines and other travel services provides, for providing international travel related facilities. The core computer system/server were established at overseas locations at US, Germany or Spain as the case may be. The travel agent, with a computer, merely accesses or utilizes travel information drawn from the data base of the computers. The travel agent also adds to, and alters the data available on the computer when he books a ticket (or other travel facilities like cab services, accommodation at hotels/resorts etc.) for a customer by feeding in the data regarding the customer such as airlines, hotel, local travel fare, tickets, the several intermediary and eventual destination; and the nature of services to be provided etc. This data enters the composite data based stream and becomes available to other operators via computers operating on Amadeus or Galileo system, all over the world, whenever a fulfilling transactions occurs at the travel agents end. The assessee's role like the present assessee before us, was occupying the position of hyphen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anent establishment of Galileo International Inc. in India to examine its income to be taxable in India. This decision of the IT AT has been upheld by the Hon'ble High Court. 7.8 The Hon'ble Delhi High Court in the case of CIT vs. M.L. Outsourcing Services (P) Ltd. (supra) in the para No. 9 of the decision has been pleased to make observation on the CBDT Notification No. S0890(E) dated 26.09.2000 in relation to deduction under sec. 10A, reproduced as under: 9. A perusal of the said notification would indicate that the Board has included several distinct types of services under the expression, product or services in the fifteen clauses. The Board, in the notification has understood that product or services, to be included within clause (b) of Explanation 2 to Section 10A, need not be computer software as understood in the common parlance of even customized electronic data, as generally understood. Any product or service of similar nature would include in its ambit, product and services which were enabled by, i.e. would rely upon, or are driven by information technology. This becomes clear when we refer to the wide ambit of the divergent and varied services cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9.3 are, therefore, allowed. 13.3 Ground Nos.1 11 are general and, therefore, do not require specific adjudication. 13.4 In Ground No.10, the assessee/appellant has challenged charging of interest u/s 234A, 234B and 234C of the Act. The AO is directed to consequential relief in this regard. 14.0 In the result, ITA No.1662/Del/2016 for AY 2011-12 stands allowed. 15.0 We shall now take up for consideration appeal for A.Y. 2012-13 bearing ITA No. 1811/Del/2017. In this appeal, the following grounds have been raised by the Assessee/Appellant: 1. That on facts and in law the orders passed by the Assessing Officer (hereinafter referred as the AO ) / Dispute Resolution Panel (hereinafter referred as the DRP) / Transfer Pricing Officer (hereinafter referred as the TPO ) are bad in law and void abinitio. 2. That on facts and in law the TPO/DRP erred in not appreciating that in absence of a transaction as envisaged under section 92F of the Act between appellant and its AE for brand promotion or for establishing a marketing intangible, the TPO had no jurisdiction to propose an adjustment on account of AMP expenses. 3. That the Transfer Pricing adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensated by the AE through a set-off. (x) Margins earned by the appellant (applying TNMM) is not significantly more that the margins of the comparable companies. 5. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transactions of AMP were closely linked with the main activity carried on by the appellant and hence it cannot be segregated and benchmarked on a stand-alone basis. 5.1 That on facts and in law the AO/TPO.DRP erred in holding that there is no suitable comparable available for benchmarking the alleged international transaction of incurring excessive AMP expense by applying the aggregated approach. 6. That on facts and in law the AO/TPO/DRP erred in making / upholding Protective TP Adjustment on account of AMP expenses invoking Bright Line Method . 6.1 That on facts and in law the DRP erred in holding that use of Bright Line Method is supported by Rule 10AB of Income Tax Rules. 7. That on facts and in law the TPO/AO/DRP erred in making/upholding substantive TP adjustment on account of AMP expenses invoking Cost Plus Method . 7.1 That Without prejudice, on facts and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be relevant to note that incentives paid to travel agents in the instant case are selling expenses and they ought to have been excluded from the ambit of AMP {refer ITAT decision in the case of the assessee/appellant for A.Y. 2007-08 reported in 149 ITD 496(Del)}. The TPO records that since on both the above issues, the tax department has approached the Hon ble Apex Court, to keep these issues alive, Protective and Substantive AMP adjustments have been made in the year under consideration. It will be relevant to note that the Ld. DRP for AY 2012-13 has also specifically considered the jurisdictional issue i.e. as to whether AMP is an international transaction or not and in this regard it has been held by the Ld. DRP as under:- Amendment regarding filing of appeals by the Department against DRP s directions 1. The Income Tax Act has recently been amended w.e.f., 1.4.2016, to provide that the directions of the DRP cannot be appealed against by the Department. The Hon ble High Court in the case of Vodafone India Services Pvt. Ltd. have held that proceedings before the DRP are continuation of assessment proceedings, and the final assessment order is passed only after the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. As a result Ground Nos. 2, 3 and 3.2 is allowed. Since the jurisdictional aspect is decided in favour of the assessee/appellant, other grounds challenging various other facets of impugned addition do not require any adjudication as having become in fructuous. 15.6 Before finally concluding on this issue, we would like to state that the Ld. AR has fairly invited our attention towards the findings recorded by the Ld. DRP at pages 62 to 80 of the order wherein the Ld. DRP has directed that in the alternative an AMP intensity adjustment be made. In this regard, it has been held by the Ld. DRP as under:- It may be mentioned that this adjustment is not dependent on whether there is an international transaction. As discussed in para 4, there is clearly an international transaction in this case however, if this view is not accepted by higher judicial authorities, the AMP intensity adjustment would still stand. 15.7 Thereafter, at page 79 -Para 2, the Ld. DRP has laid down a methodology for making an adjustment on account of AMP intensity and has issued directions to the TPO accordingly. Highlighting the above background, it was submitted by the Ld. AR that post issuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been carefully considered. In his order, the AO has discussed the issue in detail. This discussion is not being repeated here for the sake of brevity. In his order, the AO has given valid reasons for his decision. The decision of the AO is supported by the CBDT circular and judicial decisions. The assessee has failed to controvert the findings of the AO. 2. The assessee has contended that in AY 2011-12, the DRP have deleted the disallowance following the decision of the Hon ble Delhi High Court in Cheminvest. It is not clear whether the DRP s decision on this issue was accepted by the Department on merits, or whether an appeal was filed on this issue. If the Department has not accepted the DRP s decision on this issue in AY 2011-12, and if the DRP was to direct deletion of the disallowance in the present year also, this would result in a fait accompli, because after the amendment w.e.f. 1.6.2016, the AO cannot file appeal against the directions of the DRP. This would be inconsistent with the view taken by the Department in earlier year and should not be misconstrued as the Department having accepted the exclusion of this comparable, even when this is actually not the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sales Promotion (AMP) expenses being the aggregate of : (i) Protective Adjustment ₹ 21,18,92,792/- (ii) Substantive Adjustment ₹ 2,85,16,758/- Is bad in law, illegal and uncalled or both on facts and in law. 3.1 That on facts and in law the DRP erred in : (a) Observing that the appellant has not furnished complete / adequate details before TPO / DRP. (b) Observing that the TPO has carried out an AMP Intensity Adjustment, and this adjustment not dependent upon existence of an international transaction for AMP. (c) Issuing directions contrary to provisions of section 144C(8) of the Act. 3.2 That on facts and in law the TPO/DRP erred in ignoring and not following the orders of Hon ble ITAT and High Court in the appellant s own case for the AYs 2007-08, 2008-09, 2009-10 and 2010-11, duly placed on record. 3.3 That on facts and in law the TPO/DRP erred in disproving the benchmarking analysis adopted by the appellant without following the methodology and approach recognized under section 92C(3) of the Act. 4. That on facts and in law the TPO erred in holding and the DRP inter alia erred in upholding / observin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f AMP expenses invoking Cost Plus Method . 8. That without prejudice, while benchmarking alleged AMP as a separate transaction TPO has erred in : (a) applying a mark-up of 41% while computing adjustment on a substantive basis, and (b) applying a mark-up of 12.87% (upheld by DRP as an AMP intensity Adjustment) while computing adjustment on a protective basis. 9. That on facts and in law the AO/DRP erred in making / upholding disallowance of ₹ 37,74,997/- u/s 14A of the Act. 9.1 That on facts and in law the AO/DRP erred in not appreciating that provisions of section 14A are not applicable as no exempt income was earned by the appellant during the year under consideration. 10. That on facts and in law the AO erred in levying interest u/s 234B of the Act. 18.0 From perusal of record, it is observed that relevant facts and issue involved in this appeal for A.Y. 2013-14 are similar to those involved in the appeal for A.Y. 2012-13. This is also accepted by both the parties before us. As such, it is directed that the findings recorded and conclusions drawn by us for A.Y. 2012-13 would apply mutatis mutandis to the appeal for AY 2013-14 as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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