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TMI Blog2020 (2) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on goodwill - main reason for dismissing the claim of depreciation by the Assessing Officer is that in none of the valuation reports, good will has been separately mentioned - HELD THAT:- Carefully gone through the valuation reports mentioned elsewhere, which are part of the paper book filed before us. It is true that in none of the valuation reports, goodwill has been separately valued. But it is equally true that the assessee has paid consideration over and above the fair value of the assets of Amex. In our considered opinion, differential amount represents payment towards goodwill. We do not concur with the observations of the DRP that the assessee, with the motive of reducing profits in form of depreciation, had entered into this transaction. In our considered view, no prudent business man would pay a sum of ₹ 45.48 crores to claim depreciation of ₹ 10.93 crores over a period of five years, not to mention that the Amex have confirmed that they have paid capital gain tax on the consideration paid by the assessee to acquire Corporate Travel Division. Assessing Officer has confused himself with the valuation report of the independent valuer with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ievances of the assessee can be divided into two parts viz: (i) Additions made on account of TP issues, and (ii) Additions made on corporate issues. 3. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of PB in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides 4. Briefly stated, the facts of the case are that the appellant is a wholly owned subsidiary of GBT III BV, Netherlands and is engaged in the business of arranging travel for domestic customers within and outside India by facilitating services entailing booking of air tickets, accommodation, cab, conference rooms, catering services, management of corporate events, public relation services etc. The holding company GBT III BV is a joint venture between American Express Company, USA ( Amex, in short ) and Certares LP effective from 01.07.2014, with each group holding 50% share in it. Prior to 01.07.2014, Global Business Travel (GBT), was the corporate travel segment of Amex. 5. In Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers and non-negotiated revenue from airlines and hotels. Further, it receives support from the AE if it is unable to meet the targeted profit margins as per the Global Transfer Pricing Policy. 8. During the course of TP assessment proceedings, the TPO proposed additions on account of: (a) Provision of operational and business support services amounting to ₹ 34,55,989/- by including / excluding certain comparable companies; (b) Disallowance of availing forward TSA under a master transitional service agreement and Regional Headquarter Services amounting to ₹ 33,10,68,560/. 9. The TPO applied Comparable Uncontrolled Price (CUP) method to determine the arm s length price to be NIL. The TPO was of the strong belief that the assessee has failed to provide any cogent evidence to demonstrate that services were received by the assessee and, according to the TPO, it is only a clandestine methodology adopted for collusion to shift the profits from Indian territory. The TPO further observed that the assessee has failed to establish any direct nexus between increase in business and profitability as a result of availing of these services. According to the TPO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry evidences, there is no error in the finding of the TPO 15. We have given thoughtful consideration to the orders of the authorities below and the rival contentions. There is no dispute that TNMM has been accepted as the most appropriate method. It is equally true that the TPO has singled out one transaction and applied CUP as most appropriate method. 16. The Hon'ble High Court of Delhi in the case of Magneti Marelli Powertrain India Pvt Ltd 389 ITR 469 has held that when intra group services are linked to the main business activity of the company, they should be bench marked by adopting TNMM. The relevant findings of the Hon'ble High Court read as under: 17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of royalty. The TPO, however, disputed application of TNMM as the most appropriate method for the payment of technical assistance fee of ₹ 38,58,80,000 only for which Comparable Uncontrolled Price ( CUP ) method was sought to be applied. Here, this court concurs with the assessee that having accepted the TNMM a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al transaction. Rule 10B(1) says that for the purposes of Section 92C(2), the ALP shall be determined by any one of the five methods, which is found to be the most appropriate method, and goes on to lay down the manner of determination of the ALP under each method. The five methods recognized by the rule are (i) comparable uncontrolled price method (CUP), (ii) re-sale price method, (iii) cost plus method, (iv) profit split method and (v) transactional net marginal method (TNMM). The manner by which the ALP in relation to an international transaction is determined under CUP is prescribed in clause (a) of the sub-rule (1) of Rule 10B. The following three steps have been prescribed: - (a) comparable uncontrolled price method, by which, (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptionally, be both appropriate and legitimate for a tax administration to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties' characterization of the transaction and re-characterise it in accordance with its substance. An example of this circumstance would be an investment in an associated enterprise in the form of interest-bearing debt when, at arm's length, having regard to the economic circumstances of the borrowing company, the investment would not be expected to be structured in this way. In this case it might be appropriate for a tax administration to characterize the investment in accordance with its economic substance with the result that the loan may be treated as a subscription of capital. The second circumstance arises where, while the form and substance of the transaction are the same, the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. 19. There is no reason why the OECD guidelines should not be taken as a valid input in the present case in judging the action of the TPO. In fact, the CIT (Appeals) has referred to and applied them and his decision has been affirmed by the Tribunal. These guidelines, in a different form, have been recognized in the tax jurisprudence of our country earlier. It has been held by our courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur. We may refer to a few of these authorities to elucidate the point. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the language employed in Section 37(1) of the Act is broader than Section 57(iii) of the Act makes the position stronger. 20. In the case of Sassoon J. David Co. Pvt. Ltd. v. CIT, (1979) 118 ITR 261 (SC), the Supreme Court referred to the legislative history and noted that when the Income Tax Bill of 1961 was introduced, Section 37(1) required that the expenditure should have been incurred wholly, necessarily and exclusively for the purposes of business in order to merit deduction. Pursuant to public protest, the word necessarily was omitted from the section. 21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred wholly and exclusively for the purpose of business and nothing more. It is this principle that inter alia finds express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are referred to in a tabular form in his order in paragraph 5.5.1. In fact there are four tabular statements furnished by the assessee before the CIT (Appeals) in support of the reasons for the continuous losses. There is no material brought by the revenue either before the CIT (Appeals) or before the Tribunal or even before us to show that these are incorrect figures or that even on merits the reasons for the losses are not genuine. 24. We are, therefore, unable to hold that the Tribunal committed any error in confirming the order of the CIT (Appeals) for both the years deleting the disallowance of the brand fee/ royalty payment while determining the ALP. Accordingly, the substantial questions of law are answered in the affirmative and in favour of the assessee and against the Revenue. The appeals are accordingly dismissed with no order as to costs. 19. Considering the facts of the case in totality in light of the judicial decisions referred to hereinabove, we do not find any merit in the TP adjustment of ₹ 33,10,68,560/-. The Assessing Officer/TPO is, accordingly, directed to delete the same. Grounds relating to TP adjustments with all its sub grounds ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oughtful consideration to the orders of the authorities below and have carefully gone through the valuation reports mentioned elsewhere, which are part of the paper book filed before us. It is true that in none of the valuation reports, goodwill has been separately valued. But it is equally true that the assessee has paid consideration over and above the fair value of the assets of Amex. In our considered opinion, differential amount represents payment towards goodwill. 29. We do not concur with the observations of the DRP that the assessee, with the motive of reducing profits in form of depreciation, had entered into this transaction. In our considered view, no prudent business man would pay a sum of ₹ 45.48 crores to claim depreciation of ₹ 10.93 crores over a period of five years, not to mention that the Amex have confirmed that they have paid capital gain tax on the consideration paid by the assessee to acquire Corporate Travel Division. 30. Further, we find that the Assessing Officer has confused himself with the valuation report of the independent valuer with another report wherein the value of the transferred business had been determined at negativ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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