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TMI Blog2019 (1) TMI 1838X X X X Extracts X X X X X X X X Extracts X X X X ..... area countries - Comparable election - submission of the assessee that certain companies which were included by the assessee should not have been rejected by the TPO/DRP since the Tribunal in assessee s own case in the preceding years has accepted those companies as comparables - HELD THAT:- We find the order of the DRP is not a speaking order especially when in assessee s own case, certain comparables were held to be accepted as comparables. Although the decision of the Tribunal was available for the assessment year 2006-07 and 2009-10 when the order of the DRP was passed, however, it appears that no cognizance has been taken by the DRP of the order of the Tribunal. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the ld. DRP to pass a speaking order relating to the various comparables which the assessee is challenging in its application under Rule 27 of the ITAT Rules and which have been reproduced in the preceding paragraphs. DRP should also pass a speaking order on the issue relating to foreign exchange fluctuation/loss to be considered as operating item while computing the ALP of the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng multiple year data is -4.05%. The assessee has used TNMM as the method and OP/TC is the PLI. In the international transaction related to payment of royalty for providing systems and system property for franchisee business, the margin of the assessee is 12.95%. The assessee has used the same set of comparables as used in the former transaction. The method remains TNMM but the PLI is OP/OR. The weighted average margin of comparables is 6.06%. Based on this analysis, the assessee has concluded that its international transactions are at arm s length. The TPO, therefore, issued a show cause notice asking the assessee to justify the transfer pricing analysis. After considering the submissions made by the assessee, the TPO observed that the assessee has contributed to the brand building exercise of the AE for which it should have been reimbursed with a mark up. Since the sum of ₹ 8,07,48,889/- has been placed at the disposal of the YRMPL, this is the amount that should have been reimbursed with a mark up. He observed that an amount of ₹ 1,46,02,381/- is part of the cost base of the market support segment on which a mark up of 9.69% has been earned. According to him, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.39 4. Since the assessee has declared 8.75% margin, the TPO, based on the average margin of 18.75% of the comparables, made an upward adjustment of ₹ 1,83,76,224/- on account of provision of support services in area countries. Thus, the TPO proposed an upward adjustment of ₹ 9,27,91,045/- u/s 92CA of the IT Act. The Assessing Officer, in the draft order, accordingly made upward adjustment of the above amount. The Assessing Officer also made certain other additions /disallowances such as royalty and TLA fees ₹ 13,80,89,085/-, disallowance of a portion of the administrative expenses ₹ 54,45,76,389/-, disallowance of depreciation- ₹ 20,17,400/-, disallowance out of Research Development expenses ₹ 56,55,254/-. He also treated the service income as Income from other sources. 5. The assessee approached the DRP who directed the Assessing Officer/TPO to delete the addition of ₹ 1,83,76,224/- on account of provision of support service in area countries. However, they upheld the action of the TPO in confirming the transfer pricing adjustment of ₹ 7,44,14,821/- in relation to the advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Sales Promotion expenses through its subsidiary, which is both factually incorrect and irrelevant. 1.6 The Ld. TPO/Ld. AO/Hon ble DRP has erred in determining arm s length price of the alleged AMP addition without use of any of the prescribed transfer pricing methods or use of any uncontrolled data. 1.7 Without prejudice to the contention that AMP expenses were incurred for the purpose of enhancing sales in India, the Ld. TPO/Ld. AO/Hon ble DRP has made a gross error in considering rebates and discounts, sales promotion and selling expenditure as a part of AMP expenses. 1.8. The Ld. TPO/Ld. AO/Hon ble DRP has erred by holding that a markup on the expenses incurred has to be earned by the Appellant in respect of the alleged AMP adjustment. B. Grounds relating to Corporate Tax matter Service income treated as income from other sources 1. That on the facts and circumstances of the case and in law, the Hon ble DRP/Ld. AO has erred in characterizing the service income earned by the appellant amounting to ₹ 19,99,30,044 from M/s Yum! Asia Franchisee Pte Ltd., ( YAFL ), as income from other sources as against business income . 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Disallowance of the research and development expenses 6. That on the facts and circumstances of the case and in law, the Ld. AO has erred in disallowing the research and development expenses amounting to ₹ 56,55,254 by holding them to be of capital nature. 6.1. Without prejudice to the above, even assuming (without admitting) that the said research and development expenses are of capital nature, the Ld. AO has erred is not allowing depreciation on the said expenditure. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing. 7. So far as appeal of the assessee is concerned, ground of appeal No.1.1 being general in nature is dismissed. The ld. counsel for the assessee submitted that the grounds relating to corporate tax matter in sub-clause B from ground of appeal No.1 to 6.1 become infructuous since all grounds of appeal have been allowed by the DRP. In absence of any objection from the side of the ld. DR, the grounds relating to corporate tax matter are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses in the light of the decision of the Special Bench in the case of L.G.Electronics (supra). We order accordingly. The question of disallowance u/s 40A(2) of the Act shall be decided by the AO after having found out the amount of TP adjustment on account of AMP expenses. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in this regard. 9. Following the similar reasoning, the grounds relating to AMP issue is restored to the file of the Assessing Officer/TPO for adjudication of the issue afresh in the light of the direction of the Tribunal for the preceding assessment year 2009-10. The ground raised by the assessee is accordingly allowed for statistical purposes. 10. Now, coming to the appeal filed by the Revenue is concerned, the Revenue has basically challenged the order of the DRP in directing the Assessing Officer/TPO to delete the addition of ₹ 1,83,76,224/- out of the Provision of support services in area countries. 11. After hearing both the sides, we find the assessee, in its TP study, has considered the following comparables with average of 7.32%, the details of which are as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.05 14.31 8 Quadrant Communications Ltd. 13.11 10.08 9. Quippo Valuers 25.49 20.31 10. TSR Darashaw Ltd. 41.15 29.38 11 Karvy Data Mgmt. Services Ltd. 6.47 4.62 12 ICRA Management Consulting Services Ltd. 1.94 1.38 Average 18.75 13.39 13. The DRP, in the order upheld the action of the TPO in rejecting the Inhouse Productions Ltd., India Tourism Development Corporation Ltd. and Ma Foi Global Services Ltd. The DRP also upheld the action of the TPO in adding the new comparables. However, based on the argument of the assessee that there are certain computational error in the computation of the margins, the DRP held that if miscellaneous income and other income are not related to the opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s own case Other case laws -Eli Lilly Co. (India) Pvt. Ltd. vs. ACIT (ita No.788/Del/2015). 3. Ma Foi Global Services Limited ( Ma Foi ) Ma Foi is engaged in providing executive search services to its clients. The company helps organizations to attract best talents to work for the company. The services provided by Ma Foi are similar to the ones provided by the assessee. Hence the same should be taken as an appropriate comparables. Mckinsey Knowledge Centre India Private Limited vs. DCIT (ITA No.2195/Del/2011) 4. Overseas Manpower Corporation Limited The assessee has taken the recruitment segment as the comparables segment, since the service under this segment is comparable to that of the assessee. The said company was accepted by the TPO for the A.Y.2009-10 on the same functional profile. 5. HT Music Entertainment Company Limited The company is engaged in managing and organizing various events, shows, and derives revenue from su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP) No.282 490/Bang/2015) (A.Y. 2010-11) Eli Lilly Co. (India) Pvt. Ltd. vs. ACIT (ita No.788/Del/2015). Adidas Technical Services P. Ltd. vs. DCIT [ITA No.1233/Del/20150 14. He also submitted that foreign exchange fluctuation gain/loss should be considered as operating item while computing the ALP of the international transaction. 15. We have considered the rival arguments made by both the sides and perused the material available on record. We find the Assessing Officer, on the basis of the report of the TPO, made an upward adjustment of ₹ 1,83,76,224/- on account of provision of marketing support service segment. We find the DRP, while granting certain relief to the assessee, directed the Assessing Officer to rectify certain computational errors in case of certain comparables and they have also held that miscellaneous income and other income, if not related to the operation, cannot be taken for calculation of profit margin. They had also held that bad debts, loans and advances written off should not be taken as non-operating in nature. However, in the process, they upheld the action of the Assessing Officer in rejecting cer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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