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Income Tax Appellate Tribunal, DELHI BENCH ‘I: NEW DELHI
Before: SHRI SUDHIR PAREEK & SHRI AVDHESH KUMAR MISHRA
A.Y. 2020-21 AAPC India Hotel Management Deputy Commissioner Private limited, of Income Tax, Vs. 4th Floor, Kaveri Tower-1, Circle-1(1), 211-A, Sector-D, Pocket 6, C R Building, Vasant Kunj, New Delhi–110070 I P Estate, New Delhi PAN: AAECA9801C (Appellant) (Respondent) Appellant by Shri Ajit Jain, AR Ms. Suchita Kanodia, AR Respondent by Sh. Dharm Veer Singh, CIT(DR) Date of Hearing 29/05/2025 Date of Pronouncement 26/08/2025 ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the assessee for the Assessment Year (‘AY’) 2020-21 is directed against the order dated 12.07.2024 of the Assessment Unit, Income Tax Department, New Delhi passed under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (‘Act’).
2. The Assessee has raised following grounds of appeal:
1. That on the facts and circumstances of the case and in law, the Assessment Unit, Income Tax Department has erred in enhancing the income of the Appellant under section 143(3) 144C (13) read with section 1448 of the Act, for the AY 2020-21 at INR 28.94,79,208 as against INR 27,29,12,940 under the normal provisions of Act. 1
Transfer Pricing Grounds Addition account of availing technical consultancy services amounting to INR 1,65,66,265.
On the facts of the case and in law, the Learned Transfer Pricing Officer ('Ld. TPO) and Ld. Dispute Resolution Panel ('DRP') erred in proposing an adjustment on account of arm's length price for the transaction of availing technical consultancy services. In doing so, the Ld. TPO/L4 DRP erred in: a. Disregarding the benchmarking approach of the Appellant of applying Transactional Net Margin Method (TNMM') as the most appropriate method for determining the arm's length price of technical consultancy services. b. Incorrectly determining a NIL price for the aforesaid transaction without providing any information on any comparable uncontrolled cases wherein NIL. price would have been charged for similar transaction. c. Discarding substantial documentary evidence(s) and submissions placed on record without providing any cogent reason. d. Not appreciating that it was not appropriate for the Ld. TPO to determine a NIL arm's length price of the international transaction. e. Ignoring the pertinent fact of the case that the transaction was merely a pass-through wherein the Appellant was charging it from third parties what it has paid to its Associated Enterprise.
Corporate Tax Grounds 3. On the facts and circumstances of the case and in law, Assessment Unit, Income Tax Department, has erred in computing the total demand due from the Assessee as under: Not allowing the TDS credit amounting to INR 15,60,52,314, Incorrect levy of interest under section 234B and section 234C of the Act. Incorrect calculation of the interest under section 23-4B and section 234C of the Act.
4. On facts and circumstances of the case and in law, the final assessment order suffers from legal infirmity owing to difference in amount of demand as per the notice of demand issued under section 156 of the Act vis-à-vis the computation sheet attached in the final 2
Legal Ground 5. On the facts and circumstances of the case and in law, the assessment proceedings are barred by limitation in view of Section 153 read with Section 144C of the Act.
The Appellant craves leave to alter, amend, or withdraw all or any of the Grounds of Appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the appeal hearing.
The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”
3. The relevant facts giving rise to this appeal are that the appellant assessee, a Joint Venture of InterGlobe Enterprise Ltd. and AAPC Singapore Pte. Ltd., engaged in the business of franchising, operating, managing, and promoting hotels, serviced apartments, restaurants, eating places, conference and convention centers and other hospitality related facilities and activities related and incidental thereto, filed its Income Tax Return (‘ITR’) of the relevant year on 12.02.2021 declaring income of IBR 27,29,12,940. The case was selected for scrutiny on the following reasoning: (i) Claim of any other amount allowable as Deduction in Schedule BP (ii) High Risk International Transactions (TP Risk Parameter) (iii) Claim of Refund (iv) Foreign Outward Remittance.
AAPC India Hotel Management Pvt. Ltd. 3.1 Since the case was picked up for scrutiny for High Risk International Transactions (one of the Parameters of scrutiny); therefore, the Assessing Officer (‘AO’) referred the case to the Transfer Pricing Officer (‘TPO’) for benchmarking the international transactions with the Associated Enterprises (‘AE’). The appellant assessee is the Franchisor for the Indian region, appointed by AAPC Singapore Pte. Ltd (AAPC Singapore', 'the AE"), which in turn is the franchisor for the Asia Pacific region. During the year, the appellant assessee inter-alia entered into international transaction with its AE for receipt of technical support services essential for its business; hotel operations. The appellant assessee has undertaken 7 types of international transactions as detailed on page 8-9 of the assessment order. The disputed international transaction is only one; i.e. technical services valued at INR 1,65,66,265. The assessee adopted the Transactional Net Margin Method (TNMM) as Most Appropriate Method (‘MAM’) for benchmarking all international transactions at the entity level. As per the TP Study of the appellant assessee, its operating margin was 22.81%, which was higher than the arm's length ranges of comparables (3.36% to 20.59%, median 11.98%), affirming that the transactions were conducted at arm's length. The TPO accepted the result of the benchmarking at TNMM level for all other international transactions except the technical services received from the AE. The TPO determined the arm's length price of the "availing of technical services" at NIL after categorizing the said transactions as Intra-Group AAPC India Hotel Management Pvt. Ltd. Services (‘IGS’) and applying the Comparable Uncontrolled Price (‘CUP’) Method. Consequentially, the TPO made an adjustment of INR 1,65,66,265. Aggrieved, the assessee filed Objections before the Dispute Resolution Panel (‘DRP’); wherein it took alternative argument to show that the cost paid to the AE was in fact charged on back-to-back basis from the third-party hotels and therefore, the transaction ought to be considered to be arm's length even on a standalone basis [page 94-246 of the Paper Book (PB)]. In support of the alternative argument, the assessee filed copy of invoices raised by it to the third-party hotel owners and Copies of corresponding invoices raised by its AE; i.e. AAPC Singapore before the Ld. DRP, who directed the TPO to allow the services if the appellant could substantiate that they were reimbursements on a cost-to-cost basis. But the TPO/AO was not satisfied with and took the ALP at NIL. Aggrieved, it filed this appeal.
The Ld. Authorized Representative (‘AR’) submitted that the technical services availed from the AE were directly passed on to the third- party hotel owners on a back-to-back basis, in line with franchise agreements. It was further submitted that the appellant assessee acted merely as pass-through without involving any function to be performed and any direct value addition by the appellant assessee. It was contended that these transactions were vital to the appellant assessee's business model of franchising, operation and management of third-party hotels. The Ld. AR contended that the TPO had incorrectly categorized the impugned 5 AAPC India Hotel Management Pvt. Ltd. transaction as IGS and applied CUP to determine its cost as NIL ignoring the appellant assessee's submission that these services were neither consumed nor utilized by the appellant assessee, but the said transaction was merely a reimbursement on a back-to-back basis as the same had been charged back from the third-party hotels. It was submitted that the detailed filed before the Authorities below clearly showed that the entire amount of expenses paid to AE as technical fee were already charged to third-party hotels and thus, the TPO's claim that the market price of services received was NIL could not be justified. To buttress the said contention, the Ld. AR placed before us the details of invoices raised by the AE of the assessee and corresponding invoices issued by the assessee to third party hotels. The Ld. AR emphasizing Page 94 of the PB, which contained the details of invoices raised by the AE and its corresponding invoices raised by the assessee to third-party hotels at Page 95-96B of the PB containing the details of invoices raised by the assessee to third-party hotels, demonstrated that the assessee was a pass-through only. For illustration, he demonstrated before us that the corresponding invoices raised by the assessee to third-party hotels in respect to the invoice No.: IN/19-20/10/A037 raised by the AE were as: OTH/2019/511, OTH/2019/449, OTH/2019/450, OTH/2019/452, OTH/2019/512, OTH/2019/515, OTH/2019/547, OTH/2019/548, OTH/2019/619, OTH/2019/620, OTH/2019/622, OTH/2019/675, OTH/2019/676, 4.1 The Ld. AR contended that the TPO did not provide any comparable uncontrolled case; wherein NIL prices would've been paid for availing such services. It was argued that the TPO was not authorized to determine ALP of the international transaction at NIL on the basis that no services were rendered as the TPO's role was restricted to determine whether the transaction was at ALP or not. Reliance in this regard was placed on the decision of the Tribunal in the case of Benetton India (P.) Ltd. reported in [2025] 171 taxmann.com 536 (Delhi).
4.2 The Ld. AR further contended that once the TNMM had been accepted as MAM by the Ld. TPO for benchmarking all international transactions; then the Ld. TPO was not justified in isolating one transaction out of MAM and work out its ALP at NIL, when all these transactions were closely linked (i.e. Loyalty and distribution Fees, Provision of support services and Reimbursement of expenses) and interdependent as mentioned in the TP documentation (Page 443 of the PB). Reliance was placed on the decision of Hon'ble Bombay High Court in the case of Cummins India Limited reported in [2023] 153 taxmann.com 223 (Bombay). SLP filed by the Revenue against this decision (Cummins India Limited) was dismissed by the Hon'ble Supreme Court reported [2025] 173 taxmann.com 354. The Ld. AR argued that no revenue could be AAPC India Hotel Management Pvt. Ltd. earned from an activity without incurring any corresponding expenditure/ cost as there were no free lunches in the business/practical scenario.
Per contra, the Ld. CIT-DR placed reliance on the order of the TPO. Further, he argued that the said transactions could be segregated as these were not interlinked and interdependent as submitted by the Ld. AR. The Ld. CIT-DR, emphasizing on para 2.2 of the TP Study (page 447 of the PB), submitted that the appellant assessee was engaged in independent business/enterprises. The appellant assessee had entered into the franchisee with one hotel at Goa (page 416, 288 of the PB). The Ld. CIT- DR, with the help of the details on page 443 of the PB, submitted that the appellant assessee was not doing work exclusively for its AE and therefore, the independent transactions should be benchmarked separately. The Ld. CIT-DR, placing emphasis on para 1.2.1 of page 443 of the PB, submitted that the assessee had received the sum of INR 1,65,66,265 from its AE for hotel projects being constructed for operation under various Accor Brand in India.
5.1 The Ld. CIT-DR placed reliance on the decisions of the Hon’ble High Court in the cases of Denso India Ltd. [2016] 68 taxmann.com 55 (Delhi) and Knorr-Bremse India (P) Ltd. [2015] 63 taxmann.com 186 (P & H). Further, he placed reliance on the decisions of the Tribunal in the cases of Petro Araldite (P) Ltd. [2013] 31 taxmann.com 281 (Mum), UCB India Pvt. Ltd. [2019] 121 ITD 131 (Mum), Gemplus India (P) Ltd. [2010] 3 AAPC India Hotel Management Pvt. Ltd. taxmann.com 755 (Ban) and Bombardier Transportation India Pvt. Ltd. (order dated 04.11.2015). The Ld. CIT-DR also submitted that the appellant assessee had indulged in hotel construction, which was not in accordance with the terms and conditions of the agreement entered between the assessee and its AE. He therefore, argued that the appellant assessee would have recovered Mark-up on all independent work done from third-party hotels. The Ld. CIT-DR thus, submitted that the transactions were not interlinked to main business of the appellant assessee and could not be aggregated with the other international transactions undertaken by it during the year.
In counter, the Ld. AR submitted that the Ld. CIT-DR did not dispute the rendition as well as the back-to-back nature of the international transactions. However, the Ld. CIT-DR brought in new arguments as mentioned above; (i) independent business/enterprises (ii) benchmarking of independent transactions and (iii) recovery of Mark-up on all independent work done from third-party hotels. The Ld. AR submitted that the argument of the Ld. CIT-DR itself was misplaced as the transaction from third-party hotels were not in the nature of international transaction and thus, the same should not be subjected to arm's length testing. The Ld. AR submitted that the Ld. CIT-DR had ignored the fact that the said transaction had been tested on an entity level TNMM wherein the appellant assessee's margin had been already shown and accepted to 6.1 The Ld. AR submitted that the contention of the Ld. CIT-DR that the transactions were not interlinked to main business of the appellant and could not be aggregated with other international transactions undertaken by the appellant assessee during the year was never an argument raised by the Authorities below. The Ld. AR submitted that the Ld. CIT-DR could not improve upon to the case of the Authorities below at this stage of proceedings. Reliance was placed on Para No. 19.6 of the Special Bench decision of the Tribunal in the case of Mahindra & Mahindra Ltd. (ITA No. 2606, 2607, 2613 & 2614/Mum/2000), which was also affirmed by the Hon'ble Bombay High Court in the case of Mahindra & Mahindra Ltd. [[2014] 48 taxmann.com 150 (Bombay)].
6.2 The Ld. AR further submitted that he, with the help of the page 94- 96B of the PB, had already demonstrated that these transactions were vital to the assessee’s business of franchising. operation and management of third-party hotels. The Ld. AR contended that the reliance upon all of the case laws by Ld. CIT-DR was baseless as none of the cases had facts similar to those of the appellant assessee. The Ld. AR further contended that the Revenue could not step into the shoes of the appellant assessee to direct the assessee the manner of conducting business and to direct the assessee to charge the specific quantum from third-party hotels. Reliance
We have heard both parties and have perused the material available on the record. After careful consideration of material on the record, above contentions/arguments/submissions of both parties and facts in entirety, we, keeping in view the decision of the Special Bench of Tribunal in the case of Mahindra & Mahindra Ltd. affirmed by the Hon'ble Bombay High Court (supra), find force in the argument of the Ld. AR that the Ld. CIT-DR cannot improve upon to the case of the Authorities below at this stage of proceedings. Hence, we are not travelling beyond to the scope of the assessment order and the grounds of appeal tasked to us to decide.
The issue, in nutshell, we are tasked to decide that whether the receipt of technical services valued at INR 1,65,66,265 costs NIL to the appellant assessee. We find force in the argument of the Ld. AR that the technical services received from the AE have not been used and availed by the appellant assessee and the same had been passed on to the third- party hotels. The appellant assessee has paid INR 1,65,66,265 to its AE for technical services for hotel projects being constructed for operation under Accor brands in India. The issue that whether technical services rendered by the appellant assessee’s AE for which the payment of INR 1,65,66,265 done have been passed through to the third-party hotels and whether corresponding recovery in lieu thereof have been done, by the appellant AAPC India Hotel Management Pvt. Ltd. assessee, from the third-party hotels need verifications. In view the above, without offering any comment on merit of the case, we deem it fit to set aside the impugned order and remit the matter back to the file of the AO for the limited purpose of verification that whether technical services for which the payment of INR 1,65,66,265 done have been availed by the third-party hotels and they have made payment in lieu thereof to the appellant assessee. Further, the AO is directed to delete the adjustment on this score after verification to the extent of sum recovered from third-party hotels in lieu of the technical services valued at INR 1,65,66,265. Consequentially, grounds of appeal numbered 1 and 2 are disposed of accordingly as above.
Grounds of appeal numbered 3 to 5, being not pressed, stand dismissed.
In the result, the assessee’s appeal is allowed for statistical purpose.
Order pronounced in open Court on 26th August, 2025