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Income Tax Appellate Tribunal, “C” BENCH, Bangalore
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARJAN K
A. Y. 2021-22 Appellant Respondent The Deputy Commissioner of Ebix Travels Private income tax Limited 101, 1st Floor, 4832/24, Circle (2)(2)(1) Ansari Road Bangalore Darya Ganj New Delhi 110002 PAN AABCF0520E For Appellant Shri Gautam Jain Advocate For Respondent Dr. Divya K J CIT DR Date of Hearing 21-08-2025 Date of pronouncement 29-08-2025 O R D E R
PER PRASHANT MAHARISHI, AM:
This appeal is filed by Ebix Travels private limited (the assessee/appellant) for assessment year 2021–22 against assessment order passed under section 143 (3) read with section 144C (13) read with section 144B of The Income -Tax Act, 1961 (The Act) dated 27/10/2024 passed by The Assessment Unit, Income Tax Department (the learned AO) determining total income at ₹ 50,021,422/- wherein the variations made to the arm's-length price of the international transaction was computed at ₹ 48,175,807 and disallowance of depreciation of ₹ 1,845,615 was added to the total income pursuant to the direction passed by The Dispute Resolution Panel – 1, New Delhi (the learned DRP) dated 27/9/2024 in the draft assessment order passed on 26/12/2023 wherein the order under section 92CA (3) was passed by the learned TPO proposing the adjustment.
Assessee is aggrieved with it and has preferred following grounds of appeal: - i. That the learned assessment unit, income tax department (AO) has erred both in law and on facts in determining total income of the appellant company at ₹ 50,021,422/– as against declared loss of ₹ 72,545,473/– in an order of assessment dated 27/10/2024 under section 143 (3)/144C (13) read with section 144B of the act. ii. That the learned AO/TPO/DRP has erred both in law and on facts in making an adjustment of ₹ 48,174,000/- to the sale and purchase of a ticket segment of the appellant in an order dated 27/10/2024 under section 143 (3)/144C (13)/144B of the act read with the order dated 27/10/2021 & 18/10/2024 under section 92CA (3) of the act and order dated 27/9/2024 under section 144C (5) of the act.
The learned AO/TPO/DRP have also erred both in law and on facts by adopting transactional net margin method as the most appropriate method for determination of the arm's-length price of the impugned transaction in the documents maintained under section 92D of the act read with rule 10 D of The Income- Tax Rules, 1962. That the learned AO/TPO/DRP has failed to appreciate that all the transactions of the appellant with its associated enterprises were done on its online portals only which were system driven and no special rates were given to them. iii. That the learned AO/TPO/DRP has erred both in law and on facts in selecting the comparable which are having different functionality and nature of operations for computing the arm's-length price and therefore cannot be selected as comparable iv. that the learned AO/TPO/DRP has erred both in law and on facts in applying the alleged arm's-length price and total operating revenue of the assessee from ticket segment, instead of applying it on the revenue from associated enterprises only. v. That the learned AO has also erred both in law and on facts in law in disallowing the claim of depreciation of ₹ 1,845,615/– under section 32 (1) of the act. That while making the aforesaid disallowance learned assessment unit has erred in holding that in the light of the fact that assessee has relied only on financial Statements before AO, assessment unit and before DRP and nothing in the financial statements supports the value of intangible assets opening WDV for any of the years, nor the assessee has produced any of the initial opening written down value for the year in which the block came into existence, the value is not substantiated as an allowable deduction/business expenses under section 32 of the act. Thus, the value of depreciation claimed on intangible assets is disallowed and added to the income. That the disallowance made by the learned assessment unit under section 32 (1) of the act in order dated 27/10/2024 is further said without jurisdiction and contrary to statutory provisions contained in the act. vi. That order of assessment dated 27/10/2024 has been framed under section 143 (3), 144C (13) read with section 144B of the act is otherwise without jurisdiction therefore deserves to be quashed as such. vii. That the learned assessing officer has further erred both in law and on facts in levying interest under section 234A of the act and interest under section 234B of the act which are not levy of on the facts and circumstances of the case of the appellant company.
At the time of hearing, the learned authorized representative submitted that ground number 1 is general in nature, ground number 6 is not pressed, and ground number 7 is consequential in nature and therefore these grounds are dismissed.
The learned authorized representative submitted that only 2 issues are involved in this appeal wherein as per ground number 2 – 4 the assessee is challenging the transfer pricing adjustment of ₹ 48,174,000/- and as per ground number 5, assessee is challenging the disallowance of the claim of depreciation of ₹ 1,845,615/-.
The brief facts of the case show that the assessee is a private limited company. The business relevant to the subject matter of appeal involves the online sale of airline, railway, and bus tickets, as well as tour packages and hotel room bookings. These operations are carried out under both B2B and B2C models. The B2B (business-to-business) model refers to transactions with other businesses, while the B2C (business- to-consumer) model involves direct sales to individual customers.
The assessee filed their return of income on 4 March 2022, declaring a total loss of ₹72,545,473. The Income Tax Department selected the return for scrutiny. This scrutiny was conducted to verify the assessee’s expenditure and to review transactions with related parties regarding the lending and borrowing of money. A notice under section 143(2) was served to the assessee on 28 June 2022.
The assessee entered an international transaction. Consequently, a reference was made to the Transfer Pricing Officer, the technical unit responsible for evaluating international transactions, on 19/10/2022. This reference was subsequently approved by the Principal Commissioner of Income Tax.
It was found that assessee has entered an international transaction with its associated enterprises for sale of tickets amounting to ₹ 13,652,461/- with Flight Raj travels Middle East FZZ LLC, of RS. 86,205 with PET DR) travels and of ₹ 1,275,239/– with the flight Raj travels Singapore PTE Ltd.
To benchmark these transactions, assessee adopted the ‘other method’ as the most appropriate method for benchmarking its international transaction. It also entered an international transaction of purchase of tickets with wire Philippines travels Corporation of ₹ 25,272/– which was also considered for benchmarking adopting the ‘other method’ as the most appropriate method. Other international transactions are not relevant for the appeal.
The assessee submitted that for the sale of tickets, assessee charges the cost of tickets, which is a third-party cost and a surcharge. The surcharge is charged by the assessee to its associated enterprises at the same rate as that charged to the third-party customer for the same segment and sector. The table was prepared which shows that the same rate charged by the assessee to the associated Enterprises and non-associated enterprises’ customers. Assessee further stated that surcharge is determined in each territory based on the competitive
market rates. Thus, as there is no difference in surcharges charged to the AE and NON AE, assessee submitted that its international transaction of surcharge income is at arm’s length.
The learned transfer pricing officer noted that it is the claim of the assessee that transactions with the associated enterprise and non-associated enterprise segment are treated at par without giving any preference to its associated enterprises. Assessee has provided certain evidence in the form of invoices with its related and unrelated parties to demonstrate the above facts. However, the learned transfer pricing officer was of the view that the taxpayer has failed to submit relevant agreements in support of its claim. In absence of agreement, it is difficult for the TPO to determine the authenticity of these invoices. It was further held that the taxpayer could have selectively provided only those invoices on which it is relying that same charges to its associated enterprises and non- associated enterprises. The learned TPO was further provided with a board resolution for collection of booking surcharge and tickets. According to the TPO only mentions that the booking charge of ₹ 10 per ticket per passenger is to be collected by the company. Same does not have any mention regarding associated enterprises and non-associated enterprises transactions. Therefore, due to lack of any agreement establishing the above mentioned facts, the contention of the taxpayer was rejected by the TPO. Thus, the learned TPO held that “other method” is not the Most appropriate method for determination of the arm's-length price, and he adopted the Transactional Net Margin Method [ TNMM] as the most appropriate method to compute the arm's-length price. The learned TPO than adopted the search process of applying certain filters on Prowess database and putting certain keyword search of sale of a ticket, travel agency activities and the tour operators etc. wherein final six comparables were selected whose median margin was 1.35% taking the profit level indicator of operating profit to operating cost [ OP/OC] issued a show cause notice to the assessee.
The assessee objected to the same with respect to the functional comparability of each of the six comparable companies. The learned transfer pricing officer discussed the objection and rejected them, computed the mean margin of the comparable set at 2.18% whereas the margin of the assessee was (minus) 12.18% and thereafter arm's-length price of the international transaction was determined at ₹ 34 28 lakhs and made a shortfall adjustment of ₹ 48,174,000/–. Accordingly, order under section 92CA (3) was passed.
Accordingly, the draft assessment order under section 144C (1) was passed on 26/12/2023 proposing and variation of the above amount in the transfer pricing adjustment. Further it was found that the depreciation amounting to ₹ 1,845,615/- has been claimed for which the details were asked. As no information was forthcoming, the learned assessing officer proposed an adjustment of the above sum by disallowing the depreciation and issued the show cause notice. Assessee replied that there is no new addition to the total block of assets of the depreciable assets and it has come only from the opening balance. The assessee has not purchased any assets, but it is only computation of the depreciation. However, as there was no documentary evidence produced before the assessing officer, in the draft assessment order the above adjustment was made.
Against the draft assessment order, the assessee preferred an objection before the learned dispute resolution panel who passed its direction on 27/9/2024 wherein the objection of the assessee.
i. With respect to the arm's-length price of the international transaction was discussed at paragraph number 4.3 and the order of the learned TPO to that extent was upheld. ii. With respect to the claim of the depreciation also the objection of the assessee despite producing the audited financial statement, tax audit report for earlier years as well as the current year, the action of the AO was upheld. iii. Accordingly in the order giving effect to order passed by the learned TPO the adjustment with respect to sale and purchase of a ticket of ₹ 4,81,74,000/- was made.
Consequently, the assessment order was passed determining total income of the assessee at ₹ 50,021,421 wherein the amount to adjustment/addition/disallowance of ₹ 4, 81,75,807 on account of determination of the arm's-length price and disallowance of Depreciation of ₹ 1,845,615/– was retained. The assessee is in appeal before us.
The ld. AR submitted that: - i. With respect to the transfer pricing adjustment the learned authorized representative stated that the international transaction of assessee with its AE is of only on ₹ 15,313,905/– and the adjustment made is of ₹ 48,174,000/–. If the adjustment is made with respect to the international transactions with the associated enterprises but it has been made by the learned TPO on whole of the transaction, the addition would be less than 50,000/–. ii. He submits that there are several judicial precedents which say that the adjustment is required to be restricted only to the extent of the international transaction with the associated enterprises only and it cannot be made on all transactions with associated Enterprises and non- associated Enterprises. iii. He submits that the quantum of addition/adjustment itself shows that there are more than three of the international transactions.
iv. On the merits of the case, he submitted that when the transaction is entered into with the associated Enterprises and non- associated enterprises at the same surcharge rate, assessee adopted the ‘other method” as the most appropriate method, but the learned transfer pricing officer has rejected it on flimsy ground. v. It was submitted that when each of the invoices were placed before the learned TPO showing that there is a separate surcharge charged to the associated on non- associated at the same rate, merely because the absence of agreement, he could not have rejected the transfer pricing study report by the assessee. vi. He submitted that only for the reason, the transfer pricing study of the assessee was rejected in absence of agreement. He submits that invoice itself is the agreement which is not accepted by the learned transfer pricing officer as well as the learned dispute resolution panel. vii. He also submitted a written note consisting of 33 pages on this issue. viii. On the issue of depreciation, he submitted that assessee has merely claimed the depreciation during the year of 18,45,615/- on Patents and copyrights. ix. These patents and copyrights are coming out of the opening WDV of 73,82,458. x. There is no addition during the year. xi. On this sum the assessee has calculated depreciation at the rate of 25% which is neither accepted by the learned assessing officer of the learned dispute resolution panel. xii. He submitted that all the evidence was produced before the assessing officer and the learned dispute resolution panel in the form of annual accounts, tax audit report and the earlier years audited statement. xiii. He submits that there could not have been more documents than these documents for the claim of the depreciation on the opening written down value in the block of the assets. xiv. For this purpose, he submitted a chart showing that there is no addition during the year and the depreciation is claimed only on the opening balances carried forward from last year’s depreciation chart.
The learned CIT DR vehemently supported the order of the learned that AO/TPO and the direction of the learned dispute resolution panel. It was stated that the most appropriate method selected by the assessee as other method is based on only invoices and there is no agreement. In absence of agreement, it was not possible to verify the contention of the assessee. On the issue of the depreciation, it was submitted that the matter may be restored back to the file of the learned assessing officer for verification.
We have carefully considered the rival contention and perused the orders of the learned lower authorities along with the written note made by assessee. The only issue with respect to the transfer pricing adjustment is that assessee has entered international transaction with its associated enterprise of sale of air tickets amounting to ₹ 1,50,13,905. To benchmark this transaction, the assessee adopted the other method as the most appropriate method. The cost of a ticket is a third-party cost which does not have any impact on sale of tickets to related party or an associated enterprise which neither the assessee nor the related party or associated enterprise has any control. It is the same in the case whether it is booked for an associated enterprise or for non-associated price. The only revenue which is a matter of dispute is Air ticket surcharge charged by the assessee to the related party and unrelated party. It is the claim of the assessee that it charges the same rate as that is charged to the third-party customers for the same segment and sector. To support it, assessee has produced copy of the invoices with its related and unrelated parties. It is not the claim of the learned TPO that the rate of surcharge charged to unrelated party, or an unrelated party have a different terms and conditions for service, payment or for any other matter as compared to air ticket bookings of associated
enterprises. Therefore, the functions, assets, and risk of the transaction with the associated enterprises and the non- associated enterprises are same. The assessee has charged the same remuneration whether the transaction is with the associated party or others.
According to rule 10AB being other method of determination of arm’s-length price provides that for the purposes of clause (f) of subsection (1) of section 92C, the other method for determination of the arm’s-length price in relation to an international transaction shall be any method which takes into account the price which is been charged or paid and would have been charged for paid for the same and similar uncontrolled transactions with all between nonassociated enterprises under similar circumstances considering all the relevant facts.
Therefore, in the benchmarking methodology adopted by the assessee the price which has been charged for the same and similar uncontrolled transaction with non-associated enterprises under similar circumstances considering all the relevant facts is the same which is charged to its associated enterprises. Thus, the transaction of the assessee with associated enterprises is comparable by adopting other methods as the most appropriate method as there is no change pointed out in the circumstances and any other facts compared to transaction with non-associated enterprises. Thus, we do not find any fault in the transfer pricing methodology adopted by the assessee.
But the question is that then why the learned transfer pricing officer does not accept the above methodology. The reason given by the TPO is that the taxpayer has failed to give the relevant agreements in support of its claim therefore it is difficult for the learned TPO to determine the authenticity of these invoices. His allegation is that the taxpayer would have selectively produced only those invoices in which it is charging same charges to its AE and non-AE parties. Thus, absence of agreement and allegation that assessee would have selectively produced the invoices made him reject the TPSR of the assessee.
According to us the invoices produced by the assessee are also a form of agreement where a particular transaction is documented. Further the learned TPO was of the view that assessee could have selectively produced only those invoices which have the same pricing irrespective of the buyer of the Air tickets, if that be so, he is empowered by the act to carry out necessary enquiries. In absence of any necessary enquiry, finding the learned TPO of selectively producing the invoices is merely an allegation. Even if we presume for a second that if there is no agreement and that assessee might have produced evidence in the form of invoices selectively, then it is not justified by the learned TPO that the transactional net margin method becomes the most appropriate method. Thus, according to us, rejection of the transfer pricing study report prepared by the assessee is without any justifiable reason.
Even otherwise if it is accepted that the determination of the arm’s-length price by the learned transfer pricing officer is proper, then at least the adjustment should have been made to the extent of international transaction only and not on the whole of the transaction. Several judicial precedents cited before us, and it was submitted that the adjustment would be less than ₹ 50,000/– if adjustment were restricted to the international transaction of sale of hair tickets to associated enterprises. In fact, the ld TPO has made adjustment to the three times of the international transaction of surcharge income.
In view of the above facts, we hold that according to the information available with respect to the comparison of invoices, the other method adopted by the assessee is the most
appropriate method and further as there is no evidence available that assessee has charged to non-associated enterprises higher than what is chargeable to associated enterprises, allowing ground no 2 and its sub- grounds, we direct the learned assessing officer to delete the adjustment of ₹ 47,174,000/– made to the arm’s-length price of the international transaction of sale of air tickets amounting to ₹ 15,313,905/–.
Ground number 5 and its sub grounds are against not allowing the depreciation of ₹ 1845,615/– to the assessee. The assessee has produced a chart which shows that in the block of assets the assessee has one particular asset of Patents and Copyrights. These assets in assessment year 2019 – 20 had opening written down value of ₹ 13,124,372/– on which depreciation for that year was claimed of ₹ 3,281,093/– which resulted into closing balance for the assessment year 2019 – 20 of ₹ 98,43,279/–. Naturally, this became an opening balance of WDV for assessment year 2020-21 on which depreciation was claimed of ₹ 2,460,820/ – which resulted into the closing written down value of ₹ 7,382,458. Naturally sum of ₹ 7,382,458/– became the opening written down value of patents and copyrights on which assessee claimed depreciation at the rate of 25% amounting to ₹ 1,845,615 resulting into a closing written down value of ₹ 5,536,844/–.
Thus, the claim of the assessee of the depreciation for the impugned assessment year i.e., assessment year 2021 – 22 was ₹ 18,45,615/–. The above was shown to the assessing officer and the learned dispute resolution panel by showing the tax audit report, annual accounts of the assessee company for earlier assessment years also. Both the lower authorities held that as assessee could not substantiate the above claim of depreciation, the depreciation disallowance was upheld.
We fail to understand what assessee is required to establish when there is no addition in the assets during the year but in earlier years assessee has claimed depreciation as per the prescribed rate on the opening WDV of the block of assets. We do not find any reason to sustain the disallowance. Accordingly, we direct the learned assessing officer to delete the disallowance of depreciation allowance of ₹ 1,845,615/- to the assessee on opening written down value of patents and copyrights. Accordingly ground number 5 of the appeal is allowed.