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Judgment
PER VIMAL KUMAR, JM:
The appeal filed by the assessee is against Final assessment order dated 08.10.2024 of the Ld. Assessing Officer (‘AO’) under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 ( (hereinafter referred to as “the Act”) for Assessment year (‘AY’) 2021-22.
Brief facts of the case are that the assessee filed return of income on 24.02.2022 declaring an income of Rs. Nil. The case of assessee was selected for scrutiny for the reasons:
Large value of International transactions in services including transactions u/s 92B(2) in comparison to Revenue from Sale of Services for ITES and low profitability (T.P. Risk Parameter)
Very Low PBDIT ratio in specific business code and turnover range where deficiency is reported in audit report.
Large value of International transactions in services including transactions u/s 92B(2) in comparison to Revenue from Sale of Services shown in ITR and low profitability (T.P.Risk Parameter).
Notice u/s 143(2) of the Act dated 28.06.2022 and Notice u/s 142(1) of the Act dated 09.08.2023 were issued. After that show cause notice dated 21.11.2023 was issued. The assessee, Amadeus India Private Limited, is a joint venture between Ms. Radha Bhatia and family and Bird Travels Private Limited in which the former holds 95% of its equity capital and the remaining share capital of 5% is held by the latter. Amadeus India began its operation in 1994 in New Delhi. The area of operation of assessee included the Indian subcontinent. The company established subsidiaries Indian Subcontinent with offices in Dhaka, Colombo and Kathmandu. Reference for determination of Arm’s Length Price (‘ALP’) with reference to all international transactions specified domestic transactions returned by assessee in report furnished by it u/s 92E of the Act and as per Rule 10E of the Income-tax Rules, 1962 in Form No. 3CEB for the previous year 2020-21 relevant assessment year 2021-22. After taking approval as per Section 92CA(1) of the Act. The transfer pricing officer u/s 92CA(3) of the Act dated 31.10.2023 was received with concluding para as follows:
“12.3 MARK UP ON THIS AMP:
With regard to the mark up.in earlier years the TPO has taken GP margin of the assessee as the mark up. However DRP in the order for AY 2014-15 has directed to consider the mark up of the comparables used in the Bright line method. Hence, respectfully following the decision of the Hon'ble DRP, the PLI 15.01% adopted for the bright line method is also being taken as the mark-up for computing TP Adjustments on substantive basis. With these remarks, the adjustment in this head is computed as under:-
(Rs. in Lakhs) Total Expenditure on AMP by the Taxpayer 1630 Mark-up @ 15.01% 245 Adjustment u/s 92CA 1875 The above amount of Rs. 18,75,00,000/- is being proposed as an adjustment u/s 92CA of the Income-tax Act on substantive basis.
13.The cumulative adjustments made in this case are tabulated below:
S. No. Nature of transaction Adjustment u/s 92CA(Rs.) 1 AMP (Protective addition 18,67,00,000/- 2. AMP (Substantive addition) 18,75,00,000/- The Assessing Officer will accordingly enhance the income of the taxpayer by Rs. 18,75,00,000/-. This shall be treated as the cumulative adjustment u/s 92CA. No adverse inference is drawn in respect of the other international transactions undertaken by the taxpayer during the FY.2020-21. It has already been decided in Para 4.6 that the AMP expenditure is an international transaction within the meaning of Section 92B(1) of the Act read with clause (v) of Section 92F of the Act. Being an international transaction it was required to be reported in Form No. 3CEB under section 92E of the Act. The taxpayer was also required to furnish complete details of these international transactions as prescribed under Rule 10D of the IT Rules 1962. The Assessing Officer may examine issue of initiation of penalty u/s 270A of the Act."
Based on the reply given by the assessee and the TPO order, a show cause notice was issued to the assessee on 21.11.2023. The assessee submitted reply to the show cause notice on 27.11.2023. On completion of the proceedings, ld. AO, vide order dated 08.10.2024, made the following additions:
| Sl. No. | Description | Amount (in INR) |
| 1 | Income as per Return of Income filed | Nil |
| 2 | Income as computed u/s 143(1)(a) | Nil |
| 3 | Variation in respect of issue 4.5.1 | 18,75,00,000/- |
| 4 | Variation in respect of issue 4.5.2 | 5,00,000/- |
| 5 | Total income /loss determined as per the above proposal | 18,80,00,000/- |
Being aggrieved, the appellant/assessee preferred present appeal on following grounds:
“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 "TPOT are bad in law and void ab-initio.
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 marketing intangible, the TPO had no jurisdiction to propose an adjustment on account AMP expenses.
3.That the Transfer Pricing adjustment of Rs 18,75,00,000/- on account of Advertisement, Marketing and Sales Promotion (AMP) expenses being higher of:
(i)Protective Adjustment Rs 18,67,00,000/-
(ii)Substantive Adjustment Rs 18,75,00,000/-is bad in law, illegal and uncalled for both on facts and in law.
3.1That 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.
3.2That on facts and in law the TPO / DRP erred in disproving the benchmarking. analysis adopted by the appellant without following the methodology and approach recognised 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/observing that:
(i)Appellant had incurred AMP expenditure of Rs. 1,630 lakhs on promotion of proprietary marks and for development of marketing intangible for the benefit of AE.
(ii)AMP expenditure of Rs. 1,630 lakhs incurred by the assessee is an "International Transaction" u/s 92B of the Act.
(iii)Expenditure of Rs. 1,559 lakhs incurred by the assessee on payment of incentives to subscribers is in the nature of AMP.
(iv)By incurring excess / extraordinary AMP expense the appellant had rendered Intra group services to its AE.
(v)AE is directly / incidentally benefited by any expenditure incurred by assessee on AMP
(vi)AE directs the AMP strategy and the expenditure incurred by appellant in India.
(vii)Legal ownership of the marketing intangible would get transferred to the AE without any consideration on termination of the Distribution Agreement.
(viii)Appellant is not the economic owner of brand.
(ix)Appellant has failed to show that for excessive AMP expenditure it was compensated by the AE through a set-off.
(x)Margins earned by the appellant (applying TNMM) is not significantly more than 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.
5.1That 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.
5.2That on facts and in law the DRP erred in holding that appellant has not been able to substantiate benchmarking of alleged AMP "transaction" following an aggregate 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".
7.That on facts and in law the AO/TPO/DRP erred in making / upholding Substantive TP Adjustment on account of AMP expenses invoking "Cost Plus Method".
8 That without prejudice, while benchmarking alleged AMP as a separate "transaction" the TPO has erred in applying a mark-up of 15.01% while computing adjustment on a substantive basis, and
9.That on facts and in law the AO/DRP erred in making/upholding disallowance of Rs 5,00,000/- u/s 14A of the Act.
9.1That 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.
9.2That on facts and in law the AO has erred invoking provisions of Rule 8D.
10.That on facts and in law the AO has erred in committing following mistakes in the Computation Sheet dated 08-10-2024:
(a)Not taking cognizance of returned loss of Rs 11,45,32,190/-
(b)Not taking into consideration relief granted by Ld CIT(A) vide appellate order dated 05-06-2024 passed u/s 250 of the Act in proceeding u/s 143(1) of the Act.
(c)Erroneously levying interest u/s 234A of the Act.
(d)Determining Total interest and fee payable at a sum of Rs 83,04,061/-.
(e)Erroneously making an adjustment on account of "Refund Already issued -including interest u/s 244A and 244A(1A)" of Rs 13,27,360/-.
That the appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing.”
Ld. Authorized Representative for appellant/assessee submitted that ground of appeal No. 1 is general in nature and Ground of appeal Nos. 2 to 8 are regarding transfer pricing issue. Ground of appeal No. 2 raises jurisdictional issue. Ld. TPO/DRP erred in not appreciating that in absence of transaction as envisaged u/s 92F of the Act between the assessee and its AE for Brand promotion and for establishing, marketing intangible details of AMP expenses as noted by TPO page No. 189 to 190 of paper book 1 are as under:
“(i)Protective Adjustment applying Bright Line Test (BLT)-refer page 231 to 233 of PB-1 as under:
Particulars Amount (Rs. in lakh) Value of Sales 2571 AMP/Sales of the Comparable 0.27% Amount that represents Bright Line 7 Expenditure on AMP by assessee 1630 Expenditure in excess of Bright Line 1623 Markup @ 15.01% 244 Adjustment (Protective Basis) 1867 (ii)Since issue relating to applicability of BLT method has been decided against the revenue by Delhi High Court in case of Sony Mobile reported in 374 ITR 18 (Del) the TPO has also made a Substantive Adjustment applying Cost Plus Method (refer pages 234 to 237) as under:-
| Particulars | Amount (Rs. in lakh) |
|---|---|
| Total Expenditure on AMP by the Taxpaper | 1630 |
| Markup @ 15.01% | 245 |
| Adjustment | 1875 |
Ground of appeal Nos. 2, 3.1 and 4(ii) mentioned that there is no international transaction between the assessee and its AE for Brand Promotion. Ld. TPO has alleged that there exists an “international transaction” between assessee and its AE for brand promotion. Ld. TPO has extensively relied upon extracts of Distributorship Agreement between assessee and its AE. The DRP has upheld the conclusions recorded by TPO on existence of an “international transaction”. Relevant issue extracts as under:
“The Jurisdictional Issue has been decided in favour of the 'A' by Hon'ble ITAT in earlier years and decision of Hon'ble ITAT has also been upheld by the Hon'ble Delhi High Court Issue as to whether there exists a "transaction" for brand promotion in the instant case is now settled by appellate orders passed in case of 'A' for 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(Del) (copy enclosed at pages 129 to 167 of PB-II). 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 141, para 8 of PB-II
(b)Jurisdictional Issue questioning existence of "transaction" for brand promotion merely premised benefit to AE taken up for consideration.....page 141-142, para 8 of PB-II
(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 142, para 8.1 of PB-II
(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 (India) (P.) Ltd. reported in 381 ITR 227 (Del) followed... pages 142 to 145, para 8.1 of PB-II
(e)TPO's reliance on Distribution Agreement for construing existence of "transaction" rejected...page 145, para 8.2 of PB-II
(f)At page 146, para 8.3 of PB-II Hon'ble ITAT rejected following findings /observations made by lower authorities:
-Special Bench decision in case of LG Electronics (supra) no more a good law
-Amendments made to section 92B by Finance Act 2012 do not support the case of revenue
-The fact that 'A' has been held to be a DAPE in assessment of its AE is irrelevant to determination of issue under consideration Premised above factual findings it has been held (refer page 147, para 8.4 of PB-II) by Hon'ble ITAT in AY 09-10 that:-
"Considering the material facts like the absence of an agreement, arrangement or understanding between the appellant and ifs associated enterprise for sharing the advertisement, marketing and promotion expenses or for incurring the advertisement, marketing and promotion expenses for the sole benefit of the associated enterprise, payments made by the appellant under the head "advertisement, marketing and promotion" to the domestic parties cannot be termed as an "international transaction" specifically when the learned Transfer Pricing Officer has not been able to prove that the expenses incurred were not for the business carried out by the appellant in India."
Since the jurisdictional issue was decided in favor of 'A' it was held that other grounds of appeal have become infructuous. D1. It is further submitted that decision rendered by Hon'ble ITAT in AY 09-10 has been upheld by Hon'ble High Court vide order dated 26.04.2017 in ITA No.154/2017....
Copy enclosed at pages 172-173.
D2. The above decisions have thereafter also been followed by Hon'ble ITAT:
In case of 'A' for AY 2010-11 in ITA No. 1835/Del/2015 vide order dated 23.10.2017 copy enclosed at pages 82-128 of PB-II - conclusions on this issue are at paras 4.4 to 4.7 In case of 'A' for AYs 2011-12 to 2013-14 in ITA Nos. 1811 to 7671/Del/2017 and ITA No. 1662/Del/2016 vide order dated 27.01.2019-copy enclosed at pages 1 to 81 conclusions on this issue are at paras 5.0 to 5.3. It is further submitted that decision of Hon'ble ITAT in AY 2011-12 has also been upheld by Hon'ble Delhi High Court in ITA 901 of 2019 vide order dated 16th October 2019 (copy enclosed at pages 174 to 182 of PB-II)
In case of 'A' for AY 2014-15 in ITA No.7376/Del/2018 vide order dated 08.03.2021 - copy enclosed at pages 183-231-conclusions on this issue are in paras 18 to 22.
In case of 'A' for AY 2015-16 in ITA No.8700/Del/2019 vide order dated 31.05.2021 -copy enclosed at pages 232-260-conclusions on this issue are in paras 240 to 260, para 11.
In case of 'A' for AY 2017-18 in ITA No.8700/Del/2019 vide order dated 31.05.2021 -copy enclosed at pages 261-269-conclusions on this issue are in para 8.
In case of 'A' for AY 2018-19 in ITA No. 1656/Del/2022 vide order dated 10.01.2025 - copy enclosed at pages 270-280-conclusions on this issue are in para 8.
E. In earlier years as well as in the present order the AO has relied upon Loyalty Agreement with various Subscribers. Payment of Loyalty incentive to Subscribers has been held to be a Selling Expense by Hon'ble ITAT in AY 2007-08 vide order dated 06th March 2014 reported in 149 ITD 496(Del) copy enclosed at pages 168 to 171 of PB-II, relevant conclusions are in paras 7 and 8 of PB-II.”
Ld. Departmental Representative relied on assessment order.
From the examination of the record in light of aforesaid rival contention, it is crystal clear that Ground of Appeal Nos. 2, 3.1 and 4.2 raise the jurisdictional issue that there is no international transaction between assessee and its AE for Brand Promotion. Ld. TPO, at page No. 208 to 223, held that there exists an international transaction between the assessee and its AE for brand promotion. Reference was made to extract of Distributorship agreement between assessee and its AE. The extracts of royalty agreements were executed by the assessee with travel agents in India were also referred to. Ld. DRP upheld the conclusion recorded by TPO regarding the existence of an international transaction. Para Nos. A to K page No. 40 to 54 of paper book 1 Hon’ble ITAT Delhi In ITA No. 1804/Del/2014 title as Amadeus India Pvt. Ltd. vs. ACIT 2017, 88 taxmann.com 733 (Delhi Tribunal) for Assessment year 2009-10 after considering the facts held that in absence of a transaction for brand promotion between the assessee and its AE, no transfer pricing adjustment for alleged ALP expenses can be made. Reference is made to para 8.4 at page no. 147 extracted as under:
“8.4Considering the material facts like the absence of an agreement, arrangement or understanding between the appellant and its associated enterprise for sharing the advertisement, marketing and promotion expenses or for incurring the advertisement, marketing and promotion expenses for the sole benefit of the associated enterprise, payments made by the appellant under the head "advertisement. marketing and promotion" to the domestic parties cannot be termed as an "international transaction" specifically when the learned Transfer Pricing Officer has not been able to prove that the expenses incurred were not for the business carried out by the appellant in India. We are thus of the opinion that the Transfer Pricing Officer had wrongly invoked the provisions of Chapter X of the Act for the said advertisement, marketing and promotion spent. The addition of Rs. 75,40,09,515 is, therefore, directed to be deleted. Ground Nos. 4 to 4.4 are therefore allowed. Considering our conclusions above ground Nos. 5 and 5.1 do not require any adjudication.”
In view of above facts by following jurisdictional precedents, it is held that the Ld. TPO wrongly invoked provisions of chapter 10 of the Act for said advertisement, marketing and promotion expenses. Accordingly, ground of appeal Nos. 2, 3.1 and 4.2 are accepted.
Considering above conclusion, Ground of appeal Nos. 3, 3.2, 4.1, 4.3, 4.5, and 5 to 8 do not require adjudication.
Ground of appeal Nos. 9, 9.1, 9.2 regarding disallowances u/s 14A of the Act being consequential in nature is accepted.
Ground of Appeal No. 10 regarding correction of computation errors is allowed. The Ld. AO is directed to correct computation errors as per law.
In the result, the appeal of assessee is allowed.