THOMAS COOK (INDIA) LTD,MUMBAI vs. ADDL CIT 1(3), MUMBAI

आयकर अपीलीय अिधकरण, मुंबई “केकेकेके” खंडपीठ Income-tax Appellate Tribunal -“K”Bench Mumbai सव�ी सव�ी राजे�� राजे��,लेखा लेखा सद�य सद�य एवं एवं सी सी. एन एन. �साद �साद,�याियक �याियक सद�य सद�य के सम� के सम� सव�ी सव�ी राजे�� राजे�� लेखा लेखा सद�य सद�य एवं एवं सी सी एन एन �साद �साद �याियक �याियक सद�य सद�य के सम� के सम� Before S/Sh.Rajendra,Accountant Member and C.N. Prasad,Judicial Member आयकर अपील सं आयकर अपील सं././././I.T.A./ 1261 & 1238/Mum/2015, आयकर अपील सं आयकर अपील सं िनधा�रण िनधा�रण वष� िनधा�रण िनधा�रण वष� वष� /Assessment Year: 2009-10 & 2010-11 वष� Thomas Cook (India) Limited DCIT-1 (3)(2) Thomas Cook Building Mumbai. Vs. Dr. D.N. Road, Fort,Mumbai-400 001. PAN:AAACT 4050 C (अपीलाथ� /Appellant) (��यथ� / Respondent) Revenue by:Shri N.K. Chand-CIT Assessee by: Shri Madhur Agarwal सुनवाई की तारीख / Date of Hearing: 04.05.2016 घोषणा की तारीख / Date of Pronouncement: 31.05.2016 आयकर अिधिनयम,1961 की धारा 254(1)के अ�ग�त आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद� राजे� के अनुसार PER RAJENDRA, AM- Challenging the orders dated 08.12.2014 and 24.12.2014 of CIT(A)-58 and of the Assesssing Officer(AO),the assessee has filed the appeals for the above mentioned two Assessment Years(AY.s.).Assessee-company, engaged in the business of tour operator,travel agent and is also an authorised dealer in foreign exchange.The details of filing of returns,returned incomes,assessed incomes etc.can be summarised as under: A.Y. ROI filed on Returned Assessment Assessed Dt. of orders of Income(Rs.) dt. Income(Rs.) CIT(A)/AO 2009-10 30.09.2009 44,28,33,999/- 28/03/2013 46,8432,558/- 08.12.2014 2010-11 30.09.2010 37,15,77,109/- 16/01/2015 57,86,82,443/- 16.01.2015

ITA No.1261/Mum/2015(09-10): 2.The second Ground of appeal deals with Transfer Pricing Adjustment for disallowance of Advertisement Marketing and Promotion (AMP) Expenses amounting to Rs.8.09Crores.The brief facts are that a reference u/s. 92CA(1) of the Act was made by the AO to Transfer Pricing Officer(TPO)on 23.11.2010 for determination of Arm’s Length Price(ALP).The TPO issued a notice

1261 & 1238/M/15 Thomas Cook u/s.92CA(2) of the Act to the assessee asking it to furnish all necessary evidences in support of ALP.The TPO noted that the assessee provides travel and related services and it also provides financial services during the course of its operations,that it also organizes excursions for clients which involves taking the client around the city.Besides,this the assessee provides foreign exchange and payment solutions for leisure and business travelers,students going abroad, people travelling for employment, medical treatment, emigration etc.He found that the assessee’s foreign currency activity is broadly divided into two segments namely (i) retail and (ii)wholesale.For retail operations it relies mainly on purchase and sale of foreign exchange from business and leisure travelers and for wholesale operations it mainly consist of purchase and sale of foreign currency in large quantities from other authorized dealers mainly banks and full-fledged/restricted money-changers.The TPO summarised the International Transactions(IT.s.)entered in to by the assessee during the year under appeal as under:- SN. Particulars Amount (Paid)/ Received Method used 1. Receipts on handling of inbound tourists 53,08,81,907/- TNMM 2. Payments for handling of outbound tourists 4,54,76,323/- TNMM 3. Export of foreign currencies 224,169,517/- CUP 4. Name & License Fee 17,706,908/- TNMM 5. Reimbursement of expenses paid 65,25,899/- CUP 6. Reimbursement of expenses received 58,89,920/- CUP

The TPO observed that the operation segments of the assessee were divided into two segments namely travel and related services segment (ii) financial services segment, that name and license fee paid to the AE had been allocated to both the segments, that it had entered into an agreement for use of trade mark license with its AE namely Thomas Cook UK Ltd.(TCUK)on 29.3.2006, that TCUK was holding majority share in the assessee company and was the owner of Thomas Cook trade mark, that it had granted the assessee an exclusive and non assignable licence to incorporate the name Thomas Cook in its Corporate name

1261 & 1238/M/15 Thomas Cook and /or its trade mark in its territory.A perusal of the P&L account revealed that the assessee had incurred an expenditure of Rs.10.01crores under the head advertisement, marketing and publicity (AMP), that the total turnover of the assessee was Rs.253 crores, that the AMP / total turnover was in the ratio of 3.95%. Within the expenditure incurred the share of name and license fee came to 17.7%.The TPO tabulated the AMP expenses/total revenue of the comparables as under :- SN. Company Name AMP expenses/total revenue 1. International Travel House Ltd. 0.62% 2. Trade-Wings Ltd. 1.8% 3. Crown Tours Ltd. 0.09% 4. Balmer Lawrie & Co. Ltd (Travel & Tours) 0% Industry Mean AMP Expenses / total revenue 0.63% Tested party 3.95%

Considering the above facts,the TPO observed that the assessee was spending much more than the industry average in promoting and building the brand of TC UK, that the brand Thomas Cook did not belong to the assessee, that it had paid a hefty sum for the use of brand through trade mark licence agreement, dated 29.3.2006,that the assessee was incurring expenses for promoting brand name of TCUK, it was also paying license fee.He held that the AMP expenses were to be restricted to the industry mean AMP/total revenue i.e. @ 3.9% , that the assessee was earning a profit margin of 25.64% that was more than industry mean for leisure travel industry,that it was one of the largest leisure travel company in India who had acquired 100% share holding in Travel Corporation of India Ltd.,that the assessee had location advantage, that there had been no location specific premium/rent to India, that the location advantage generated in India through super normal profit had been passed on to the majority share owner by way of indirect benefits i.e. incurring expenses in building and promoting TCUK brand in its territory and payment for use of the same brand which it was building in India, that trade mark fee charge by TCUK and passing

1261 & 1238/M/15 Thomas Cook on of expenses of brand building in the territory by TCUK to the assessee was nothing but arm twisting of the assessee to pay the brand, that the deal given to the assessee by its AE was not at arm’s length, that the assessee was entitled to use the brand only in its territory, that the assessee just by being in controlled transaction was in a situation where it had to spend huge amount on building and promoting the brand in its territory and it had also to pay license fee, that such grossly unjust and controlled transaction would not happen between the uncontrolled parties, that the brand was deteriorating in UK and Europe. Accordingly ALP of license fee paid to TCUK along with forex fluctuation, (Rs.1,77,06,908/- + Rs.10,00,000/- assesseeRs.1, 87, 06, 908/-) was determined at Nil. Further,the AMP expenses were downwardly adjusted to 0. 76% of total revenue i.e.0.76% X 2,53,01,95,569 assessee 1,92,29,486/-.As the total AMP expenses appearing in the P&L account was Rs.10.01 crores therefore, an adjustment of Rs.8.09 by of notoriously to crores(Rs.10.01cr- 1.92 crores) was made.The TPO further mentioned that trademark license fee payment was already included in the calculation s soloed o no separate adjustment was being made. After receiving the order of the TPO,the AO added the said amount in his draft orders.

2.1.Aggrieved by the order of the AO/TPO the assessee preferred an appeal before the First Appellate Authority(FAA).Before the FAA,the assessee contended that TPO had made adjustment without giving a show cause notice, that it became aware of the adjustment directly vide TP order dt.14.1.13, that the assessee was not provided with any opportunity of submitting its arguments or contentions against the said adjustment/disallowance. It moved an application under Rule 46A of the Income tax Rules (1962) before FAA with a request to admit the additional evidences.The FAA observed that TPO had issued a show cause notice on 29.11.2011,that the transaction in question was not bench - marked,it was specifically requested to furnish the details of the transactions not

1261 & 1238/M/15 Thomas Cook included in Form CEB, that the assessee did not appear before the TPO on three to four occasions , that due opportunity was allowed to the assessee , that there was no lack of opportunity to adduce evidence before the TPO, the request made by the assessee could not be accepted as per Rule 46A of the IT rules. Referring to the case of Velji Deoraj & Co.(68ITR708), Jaipur Udyog Ltd. (227 ITR 245) and A.K.Babukhan (102ITR757), he held that the assessee had failed to establish reasonable cause that the additional evidences could not be accepted in appeal. Consequently, the adjustment made by the TPO were upheld.

2.2.Before us,the Authorised Representative(AR)stated that the assessee was not provided sufficient opportunity by the TPO with regard to adjustment made with regard to AMP expenditure,the FAA summarily rejected the application made by him under Rule 46A of the IT Rules, that the AMP expenditure was not an IT transaction,that the expenditure was incurred by the assessee to promote its own business,that there was no agreement with the AE to share the expenditure, that the payment was made to unrelated third parties in India. The Departmental Representative(DR) relied upon the case of Whirlpool India Ltd (ITA 610 of 2014),Bausch & Lomb Eyecare (India) Ltd.)(ITA 643 of 2014) and Maruti Suzuki India Ltd.(ITA110 of 2014).Diageo India (P) Ltd.7545/ Mum/ 2012 and Heinz India P.Ltd.(7732/ Mum/2012). In the year under consideration the FAA had not passed a speaking order.He has just confirmed the adjustment.In the next year the DRP has dealt with all the arguments raised by the assessee before the TPO and before the DRP itself.We find that except for the issue of non admission of additional evidences the assessee has advanced all most all the arguments while arguing the matter for the subsequent year.Therefore,we would like to adjudicate the AMP expenditure issue,while deciding the appeal for next AY.

3.Next ground of appeal is about adjustment of Rs. 22.82 lakhs under the head

1261 & 1238/M/15 Thomas Cook Corporate Guarantee Commission(CGC).After going through the annual report of the assessee,the TPO found that the assessee had provided a corporate guarantee of Rs.7.60 crores to its AE Thomas Cook Mauritius Operations Ltd. (TCMOL)for banking facility availed by it from HSBC.He directed the assessee to explain as to why the CGC should not be adjusted.Vide its reply,dt. 21.12. 2012,the assessee stated that TCMOL was a step down subsidiary of the assessee,that it was also a strategically important subsidiary,that Mauritius was a key financial round about for Asia into Africa and Europe, that the assessee would leverage on the AE to off load its surplus foreign currency notes by having them shipped at regular intervals, that the assessee had ownership interest in AE as a share holder, that CG given by it to the AE favouring HSBC qualified as shareholder activity for which a charge to AE would not be justified,that the assessee had not incurred any cost in respect of the said CG , that there was no benefit arising to AE on account of CG, that the transaction would not fall under the definition of IT as per the provisions of Section 92. After considering the submission of the assessee the TPO held that the assessee had wrongly classified the CG given in respect of its AE as a share holder activity, that the asessee had failed to bring any material on record to prove that the concern AE was not capable of raising loan all by itself on a stand-alone basis,that the CG was an international transactions as provided by the retrospec -tive amendment, that under the CUP method guarantee fee would be quantified through a comparison of arms length guarantee fee rates charged by unrelated third parties providing similar guarantee under similar terms and conditions. Finally he applied a rate of 3% as CG fees and proposed adjustment of Rs.22.82 lakhs. Following the order of TPO the AO made an addition of Rs.22,82,400/- to the total income of the assessee.

3.1.Aggrieved by the order of the AO/TPO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him the assessee made

1261 & 1238/M/15 Thomas Cook elaborate submissions.Referring to the order of his predecessors for the AY 2008-09,he dismissed the appeal filed by the assessee .

3.2.Before us,the Authorised Representative stated that while deciding the appeal for earlier AY.,the Tribunal had already adjudicated the issue. The Departmental Representative left the matter to the discretion of the Bench. We find that the Tribunal had,on 29.04.2016 (ITA No.859-768/Mum/2014), deliberated upon the issue as under : “3.First, we may take up the appeal of the assessee, wherein the first issue is in relation to an addition of Rs.18,05,400/- made to the total income on account of transfer pricing adjustment with respect to the corporate guarantee issued by the assessee on behalf of its foreign associated enterprise. In this context, brief facts are that the assessee was found to have entered into certain international transactions with its associated enterprise within the meaning of section 92B of the Act and consequential reference under section 92CA(1) was made by the Assessing Officer to the Transfer Pricing Officer (TPO) for determination of arm’s length price of such transactions. In an order passed by the Transfer Pricing Officer under section 92CA(3) of the Act dated 30/09/2011, the Transfer Pricing Officer found that assessee had not charged any fee for providing corporate guarantee on behalf of its associated enterprise and, therefore, he determined an amount of Rs.18,05,400/- being adjustment required to be made to the returned income on this count. During the year under consideration, the assessee had provided a corporate guarantee on behalf of its associated enterprise M/s. Thomas Cook Mauritius Operations Co. Ltd. for banking facilities availed by it from HSBC bank to the extent of Rs.6,01,80,000/-. The stand of the Transfer Pricing Officer was that in the absence of any guarantee fee commission earned by the assessee from such transaction, the same could not be said to have been recorded at an arm's length price. The Transfer Pricing Officer referred to the information gathered from Allahabad Bank and the State Bank of India with respect to the rate of guarantee commission fee and accordingly determined a rate of 3%, that was liable to be charged as an arm’s length rate as guarantee commission fee. On this basis, the Transfer Pricing Officer worked out an addition of Rs.18,05,400/- being 3% of Rs.6,01,80,000/-. The Assessing Officer determined the income accordingly in terms of section 92CA(4) of the Act. The

1261 & 1238/M/15 Thomas Cook CIT(Appeals) has also affirmed the aforesaid action and accordingly assessee is in further appeal before us. 3.1It is noted that before the lower authorities, assessee had resisted the aforesaid action on various grounds. Firstly, the stand of the assessee was that providing of a corporate guarantee on behalf of the associated enterprise is not an ‘international transaction’ within the meaning of section 92B of the Act. Secondly, the claim made was that the corporate guarantee was given on behalf of a step-down subsidiary and, therefore, it was a strategic requirement of business and was a shareholder activity. Thirdly, it was pointed out that the providing of corporate guarantee has not resulted to in any interest savings for the associated enterprise and that assessee had also not incurred any cost in respect of such corporate guarantee. Apart therefrom, assessee also opposed the adoption of 3% rate as a measure to determine arm's length rate and instead contended that a rate of 0.50% was quite justified. 4. Before us, the assessee has primarily argued that the rate of 3% adopted by the income-tax authorities in order to determine the arm's length rate of the impugned international transaction was untenable and instead pointed out that in the following decisions of the Tribunal rate of 0.50% has been considered to be arm's length rate on account of fee for providing corporate guarantee. (1) M/s.Everest Kento Cylinders Ltd. vs. DCIT,ITA No.542/Mum/201 order dated 23/11/2012. (2) Aditya Birla Minacs Worldwide Ltd. vs. DCIT, 56 taxman.com 317 (Mum-Trib) (3) M/s. Godrej Household Products Ltd. vs. Addl. CIT, ITA No.7369/Mum/2010 order dated 22/11/2013 (4) ACIT vs. Nimbus Communications Ltd., ITA No.3664/Mum/2010 dated 12/06/2013. It was also pointed out that so far as the decision of the Tribunal in the case of Everest Kento Cylinders Ltd.(supra) is concerned, the same has since been affirmed by the Hon'ble Bombay High Court vide ITA No.1165 of 2013 dated 8th May, 2015 also and in this manner, it is sought to be made out that application of a rate of 0.50% to determine the arm's length rate towards guarantee commission fee would be justified. 5. On the otherhand, Ld. Departmental Representative has pointed out that the rate of 0.50% being canvassed by the assessee is not an absolute situation, inasmuch as, in certain other decisions of the Tribunal adjustment on account of guarantee commission fee has been approved even @ 3%. In this connection attention has been

1261 & 1238/M/15 Thomas Cook invited to the decision of the Tribunal in ITA NO.6394/Mum/2012 dated 21/08/2013, wherein rate of 3% has been approved. Our attention was also invited to the decision of the Tribunal in the case of Technocraft Industries (India) Ltd., vs. Addl. CIT, in ITA Nos.7519& 7990/Mum/2011 dated 8/01/2014, wherein rate of 2.08% has been approved. 6.We have carefully considered the rival submissions. Be that as it may, the only dispute that the assessee has contested before us relates to the application of the rate of 3% take by the Transfer Pricing Officer to determine the arm's length rate of the international transaction of provision of corporate guarantee on behalf of the associated enterprise. Therefore, we confine ourselves to examine the veracity of the arm's length rate adopted by the income-tax authorities. In the present case, assessee company issued corporate guarantee on behalf of the it’s associated enterprise which enabled it’s associated enterprise to avail banking facilities from HSBC Bank in Mauritius.The Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd.(supra)was considering a somewhat similar situation, where in the matter of guarantee commission fee the adjustment made by the income-tax authorities was based on instances of commercial banks providing guarantees. The Hon'ble Bombay High Court has explained that instances of commercial banks providing guarantees could not be compared to instances of issuance of corporate guarantee. As per Hon'ble Bombay High Court, when commercial banks issue bank guarantees, the same is quite distinct in character, than the situation where a corporate issues guarantee to the effect that, if a subsidiary associated enterprise does not repay a loan, the same would be made good by such corporate. Keeping the said ratio of the Hon'ble Bombay High Court in mind, it is quite clear that the manner in which the Transfer Pricing Officer has proceeded to determine the arm's length rate based on the probable rate being charged by the commercial banks is not justified. In this view of the matter, we are unable to approve 3% rate of guarantee commission fee determined as arm's length rate by the income-tax authorities. In the alternative, the addition that is required to be sustained is the position canvassed by the assessee before the Transfer Pricing Officer i.e. adoption of 0.50% as arm's length rate for the purpose of determining the arm’s length income on account of guarantee commission fee in the present case. The Ld. Departmental Representative had referred to certain decisions of the Mumbai Tribunal, wherein a rate higher than 0.50% has also been approved in order to determine the guarantee commission fee. All those decisions are based on the

1261 & 1238/M/15 Thomas Cook probable rates at which the guarantees are issued by the commercial banks, and in view of the judgment of Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd.(supra), such an approach cannot be upheld since the instant is a case, where a corporate guarantee has been issued by holding company for the benefits of its step-down subsidiary associated enterprise. Considering the entirety of facts and circumstances of the case and on the basis of the material available on record, we, therefore, proceed to uphold the rate of 0.50% for the purpose of determining the arm's length rate of the guarantee commission fee. In this view of the matter, we set- aside the order of CIT(Appeals) and direct the Assessing Officer to determine the addition in view of our aforesaid direction. Thus, on this aspect assessee partly succeeds.” Respectfully,following the above order,we decide the ground no.3 in favour of the assessee,in part.

4.Ground No.4 is about disallowance on claim of depreciation on printers data, cable router and scanner amounting to Rs.6,11,892/-.It was brought to our notice that identical issue was decided by the Tribunal while deciding the appeal in A.Y. 2008-09 (supra), we would like to reproduce the relevant portion of the above order and same reads as under :- “7.The second Ground in the appeal relates to the action of the income-tax authorities in allowing depreciation @15% on data cable and other computer peripherals as against assessee’s claim of depreciation of 60%. In this context, it was a common point between the parties that the aforesaid issue is identical to the issue dealt with by the Tribunal in the assessee’s own case for assessment year 2007-08 vide order in ITA Nos.858& 738/Mum/2014 dated 30/09/2015. Following the aforesaid precedent, it is hereby directed that Assessing Officer shall allow depreciation @ 60% in terms of the decision of the Tribunal dated 30/09/2015 (supra). Thus, on this aspect assessee succeeds.” Respectfully following the above,Ground No.4 is allowed.

5.Ground No.5 pertains to disallowance of claim of depreciation on Jodhpur property of Rs.1,68,023/-.During the course of hearing before us,the AR fairly

1261 & 1238/M/15 Thomas Cook conceded that the Tribunal had decided the above issue against the assessee while adjudicating the appeal for AY 2008-09. We find that the Tribunal has held as under : “8.The next ground is with regard to the disallowance of the claim of depreciation of Rs.1,86,692/- on Jodhpur property. On this point also, it was a common point between the parties that similar issue has been decided against the assessee for assessment year 2007-08 vide order dated 30/09/2015(supra) by following earlier decision of the Tribunal for assessment year 2006-07 in ITA No.9156/mum/2010 dated 31/12/2013. Consequently, the Ground of appeal No.3, raised by the assessee is dismissed.”

Respectfully,following the above,fifth ground is decided against the assessee.

6.Last Ground of appeal is disallowance made u/s. 14A of the Act amounting to Rs.8.79lakhs.During the assessment proceedings,the AO found that the assessee had received dividend income of Rs.2,90,706/- on mutual funds,that same was claimed exempt,that the assessee had not allocated any expenditure towards earning of the said income.He directed the assessee to file explanation in that regard.Vide its order dt.25.10.12 the assessee stated it had not incurred any direct or indirect expenditure for earning the exempt income,that it had adequate own funds for making investment in mutual funds, that the borrowing made by it in the form of bank overdraft were used for business purposes, that they were not used for making investments.After considering the submission of the assessee,the AO held that for making investments manpower and funds were required,that the investments were made from a pool of funds available to the assessee.Applying the provisions of Rule 8D r.w.s 14A(2),he made a disallow - ance of Rs. 8.79lakhs.

6.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the FAA. In the original appeal the disallowance under section 14A was not challenged.However,by way of an additional ground the assessee raised the said

1261 & 1238/M/15 Thomas Cook issue before the FAA. But, he did not adjudicate it.

6.2.Before us the AR stated that assessee had made strategic investments, that it had sufficient own funds, that FAA had not admitted the additional grounds. DR left the issue to the discretion of the Bench. After considering the available material we are of the opinion that in the interest of justice matter should be restored back to the file of FAA for fresh adjudication.He is directed to afford a reasonable opportunity of hearing to the assessee .Gr.No.6 of the assessee is allowed in part.

ITA No.1238/Mum/2015(10-11): 7.First Ground of appeal is about TP adjustment of Rs.12.04 crores in relation to the travel related segment.During the TP proceedings,the TPO found that the transactions relating to 'handling of inbound tourists' and 'handling of outbound tourists' and 'payment of name and license fees' (to the extent allocated to travel and related services)was appearing under the head Travel and Related Services segment,that they were aggregated for the purpose of benchmarking analysis, that for benchmarking analysis,the assessee company was selected as tested party,that the Transactional Net Margin Method (TNMM)was adopted as the most appropriate method,that the Profit Level Indicator(PLI)used was Operat - ing Profit/Total Cost (OP/TC),that the assessee had used weighted average for three years for TP Study.The OP/OC of the comparables was found as under: SN. Company Name Operating Profit/Total Cost(%) 1. Crown tours Ltd.(CTL) 6.83 2. Tamarind Tours Pvt. Ltd.(TTPL) 4.7 3. Balmer & Lawrie & Co. Ltd.(BLCL)* 2.77 4. Trade-Wings Ltd.-Travel & Tour 17.41 Average 7.86 *(Travel & Tour Segment)

1261 & 1238/M/15 Thomas Cook In pursuance of the directions of the TPO,the assessee vide its submissions, dated 21 .06.2013, submitted the update margins of the above comparables and it was as follow: SN. Company Name Operating Profit/Total Cost(%) 1. CTL 1.02 2. TTPL 1.65 3. BLCL* 3.24 4. TWL 11.64 Average 4.39 **(Travel & Tour Segment) Assessee claimed that it had recorded an OP/TC of 10.96% for the Travel segment and hence the Transaction was at Arm's Length. The TPO held that the assessee had already established Third Party Agents in almost all parts of the world,that from the description of the outbound services that the assessee was performing almost all the functions for the out bound tourists,that it had required Expert Manpower to perform the function,that in the TPSR it was mentioned that only a marketing fee was retained by the assessee,that nowhere in the TPSR the percentage of the Marketing fee was mentioned,that it had not provided the said data. The assessee was asked to explain as to why three comparable entities,i.e. CTL,TTPL and BLCL,which were functionally not comparable,should not be excluded from the final list.Vide its letter dtd.24.12.2013,the assessee filed its reply in that regard and stated that all the three comparables were functionally similar.After considering the same,the TPO held that the above mentioned three comparables were to be excluded from the list.He picked up the last comparable i.e.TWL as a valid comparable.He further observed that the PLI of the TWL was not properly calculated,that there were certain mistakes in it.Hence the PLI of TWL was recalculated as under: Travel Segment revenue (A)- Rs.13,65,59,448/- Bad Debts (B)- Rs.2,81,93,887/- Cost (C)- Rs.12,23,31,834/- Adjusted Cost after Bad Debts removal D=C-B Rs.9,41,37,947 13

1261 & 1238/M/15 Thomas Cook Profit of the segment(E)=A-D Rs.4,24,21,501 OP/OC(F)assesseeE/D 45.06312529 He recalculated the PLI of the assessee also as follow: Income (A)-Rs.1,48,94,80,000 /- Cost (B)-Rs.1,34,23,87,000/- Less: bad debts (C)-Rs.67,60,008/- Adjusted cost (D)=B-C Rs.1,33,56,26,992/- Operating profit (E)=A-D Rs.15,38,53,008/- OP/OC (F)=E/D 11.51% He held that the PLI of the assessee was 11.51 % as against 45.06% of TWL, that the transaction in question was not at Arm' s Length.He calculated the ALP of the transaction as under: Income (A)- Rs.1,48,94,80,000/- Cost (B)- Rs.1,34,23,87,000/- Less: bad debts (C)- Rs.67,60,008/- Adjusted cost (D)=B-C Rs.1,33,56,26,992/- Operating profit (E)=A-D Rs.15,38,53,008/- OP/OC (F)=E/D 11.51% OP/OC of Comparable (G) 45.06% Arms Length Profit (H)=G*D Rs.60,18,33,52,260/- Arms' Length Income (I)=D+H Rs.1,93,74,60,51,460/- Difference (J)=I-A Rs.44,79,80,51,460/- Adjustment Proposed Rs.12,04,28,660 Following the order of the TPO the AO included the said adjustment in the draft order. 7.1.Aggrieved by the order of the TPO/AO,the assessee filed objections before the DRP.Before the DRP,the assessee argued that its operating margin of was 10.96%,that the benchmarking analysis carried out by it yielded a set of four comparables with a mean margin of 7.68%,that the TPO rejected three comparables without providing any opportunity to it,that he accepted Travel and Tour Segment(TTS) of one of the comparables,that the three rejected compara - bles(except the TTPL) were a part of the benchmarking set used in the TP

1261 & 1238/M/15 Thomas Cook documents for the years prior to assessment year 2010-11,that there had been no adjustments on that issue in those years, that consistency in the comparables and its functional profiles had not been questioned extract for the year under consideration, that the TPO adjusted the operating margin of TWL-TTS by in appropriately deducing the bad debts expenses,that bad debts written off were intrinsically linked to the business, that same were operating in nature and could not be held to be abnormal, that use of only one comparable was inappropriate, that it did not represent the industry,that if bad debts were eliminated from all the for comparables provided by the assessee the mean margin of the compa rable-companies would be 13.21% which was within + -5% of arm’s length range.The assessee relied upon the case of Willis Processing Services India Private Ltd. After considering the orders of the TPO and the submissions of the assessee,the DRP held that the functional profile of TTPL showed that it was in the revenue of event management as well as management of weddings, that functions of event management were completely different and the assets requirement was different, that the clientele was of different class, that the TPO had rightfully rejected TTPL from the list of comparables, that CTL operated only in and around Rajasthan as opposed to worldwide operation of the assessee, that the foreign exchange-earning of CTL was nil, that BLCL was a public sector entity, that the business dynamics of a PSE could not be compared with that of private sector,that comparable segment of the BLCL included several functions, that other than the segment of TWL other cases could not be compared with the assessee,that every assessment year was a separate year and the principles of res-judicata were not applicable to the proceedings under the act, that the stand taken by the TPO during the year under consideration was not fettered by orders made during earlier assessment years based on the prevailing facts and circums -tances,that arm’s length of IT.s dependent upon numerous factors which would vary from year to year, that the acceptance of valuation of certain international

1261 & 1238/M/15 Thomas Cook transaction in one year did not preclude the TPO from arriving at a different conclusion in another year. With regard to allowability of bad debts as operating item of expenditure,the DRP referred to case of CA Computers Association India Private Ltd.and held that the logic and ratio of the said judgment supported the view taken by the TPO.Finally,the DRP held that the TPO had selected the best available and functionally comparable entity from the list, that as per the OECD guidelines one single suitable comparable was better than the multiple mismatch the comparables, that the case of TWL was to be treated as the sole and appropriate comparable entity for the TP purposes.

7.2.Before us,the AR argued that that the TPO had used inappropriate selection criteria,that the assessee had substantiated functional comparability of the comparables vide its submission,dt.24. 12. 2013,that despite the availability of more comparables segment the TPO selected only one comparable solely for the purpose of making TP adjustment,that the TPO had not accepted the economic analysis undertaken by the assessee in accordance with the Act,that he had rejected the data for the earlier year,that he did not allow 5% raise benefit to the assessee,that the updated operating margin of the assessee was 10.06%,that the updated mean margin of four comparables was 7.86%,that the value of IT.s. entered into by the assessee with its AE.s was at arm’s length,that adjustment of bad debts in finalising the PLI and ALP was against the provisions of the Act. He referred to point No.5 of the balance sheet abstract and its general business profile of the assessee-company and highlighted that in the abstract it was mentioned that the assessee was an IATA travel agent and was engaged in all tourism related activities.With regard to CTL the AR stated that page-32 of the annual report of the company pertained to financial data on the reserves and surplus, that there was only one type of reserve called foreign exchange earning-unutilised reserve, that it had foreign exchange-earning for the AY. 2010-11 as disclosed at page No.48 of the annual report, that the criteria used by

1261 & 1238/M/15 Thomas Cook the TPO was vague,that it could not be used to assess the functional comparabi- lity,that the financial data of CTL and of the assessee were audited and the manner of revenue reporting was in accordance with the acceptable accounting practices in India, that a mere difference in nature of reporting should not be used as a criteria for rejecting the company holding it to be functionally different, that under the TNMM comparable transaction were required to be broadly similar,that the product diversity and some functional diversity between the controlled and the uncontrolled parties was acceptable, that under the TNMM the net profit indicators,used for bench marking,were less affected by transactional differences than is the case with price(CUP method),that the comparables selected by the assessee were engaged in travel services,that as per schedule -8 of annual report the assessee was deriving majority of its operating income from tour and travel operations,that in the notes to accounts it was mentioned that company was carrying out activity of tourism business,that in the earlier years the TPO had accepted the same comparables.The DR supported the order of the DRP.

7.3.We find that the assessee was engaged in travel industry primarily providing travel and tour services,that the travel and related segment activities of the assessee included two IT.s-handling of inbound tourists and handling of out bound tourists,that both the transactions were aggregated for the purpose of bench -marking analysis,that the assessee-company was selected as tested part, that TNMM was adopted as most appropriate method,that the profit level indicator (PLI) used was operating profit/operating cost (OP/TC),that it had selected four comparables to prove the arm’s length of the IT.s.,that the operating margin of the assessee was 10.76% as against the margin of 4.39% of the comparables,that the updated margin was found to be within the +- 5% range,that while making the adjustment the TPO had rejected three comparables namely CTL,TTPL and BLCL,that after rejecting the three comparables he had

1261 & 1238/M/15 Thomas Cook recomputed the operating margin of balance one comparable i.e.TWL@ 45.06%, that while making the adjustment the TPO reduced bad debt expenses from operating cost on the ground that same was abnormal in nature, that he increased the margin of the comparable to 45.06% and benchmarked the same against assessee’s operating margin of 11.52% after reducing bad debt expenses of the assessee,that he made an adjustment of Rs.12.08 Crores,that the DRP confirmed the rejection of comparables and dismissed other arguments.

We are aware that the principles of res-judicata do not apply to the income tax proceedings.But, the rule of consistency applies.Without assigning valid reason for rejecting the earlier years’ stand,the TPO should not have rejected the comparables that were found valid comparables in previous years.Without bringing on record the salient features of the year under consideration as compared to the facts of the earlier years,the departmental authorities cannot take an opposite view.It brings uncertainty in the assessment proceedings.In our opinion,stand taken in the earlier years should not be disturbed in the subsequent years until and unless new facts emerge and the same are confronted to the assessee.Here,we would like to refer to the case of Galileo Nederland BV,(367ITR319),of the Hon’ble Delhi High Court wherein it has been held that decision on an issue or question taken in earlier years though not binding should be followed and not ignored unless there are good and sufficient reasons to take a different view,that said principle was based upon rules of certainty and that a decision taken after due application of mind should be followed consistently as this lead to certainty,unless there were valid and good reasons for deviating and not accepting earlier decision.The Hon’ble Bombay High Court in the case of Aroni Commercials Ltd.(362 ITR 403) has held as under: “Though the principle of res judicata is not applicable to tax matters as each year is separate and distinct,nevertheless where facts are identical from year to year,there has to be uniformity and in treatment.” In the case under consideration we find that the TPO/DRP has not proved that there was a change in the facts,as compared to earlier years and even if they 18

1261 & 1238/M/15 Thomas Cook existed same were not brought on record.In short, the TPO/DRP has failed to prove the justification for deviating from the decision taken earlier. We find that the TPO and the DRP had taken a view that bad debts should be excluded as an extra ordinary item while calculating marign,that accordingly the final margin was altered.But,they have not addressed the basic and fundamental issue as to whether the item was of operating nature.The TPO had not demonstrated the non-operating nature of the bad debts.Therefore in our opinion the rationale for eliminating bad debts and reworking of PLI was unjustified. The issue of inclusion/exclusion of bad debts for the purposes of computation of margin has already been deliberated upon by the Tribunal on more than one occasions.While deciding the appeal of the case of M/s. Kenexa Technologies Pvt.Ltd.Hyderabad,(ITA/243/Hyd/2014,dt.14.11. 2014),the Tribunal has held as under: “40.With respect to ground No. 2.6.3 and 2.6.4, it was argued by the learned counsel that the TPO erred in computing the margins of comparable companies by considering the provision for bad and doubtful debts and bad debts as non-operative expenditure. 41.We place reliance on the decision of ITAT Delhi Bench in the case of Sony India Pvt. Ltd. vs. DCIT, ITA No. 1189/Del/2005, 819/Del/2007 and 820/Del/2007. The relevant portion is extracted below: "106.2 Thus, creation of unpaid liability and its write back is a normal incident of a business operation which is carried everywhere in accounts to have true picture of profits of the relevant period. Having regard to statutory provisions, it cannot be said that provisions or writing back of liability is not part of operating profit or would not be taken into consideration for computing the same. We can therefore make a general observation that all business enterprises are making and writing back liabilities as a normal incident of operating business. Therefore on facts we do not see any justification for excluding provisions written back in the profit and loss account as not forming part of the operating profit of the taxpayer. Accordingly claim of the taxpayer is accepted.

1261 & 1238/M/15 Thomas Cook 107. The next item relates to balances written back. In our considered opinion, finding given in respect of provisions written back is equally applicable to balances written back more particularly when ld. CIT(A) has not given any separate finding and the Transfer Pricing Officer has said nothing specifically on this item. The balances written back should also be treated as part of operating profit. We direct accordingly." 42. We are of the view that in the instant case bad debts and provision for bad and doubtful debts are part of the operating expenses and we direct the TPO to re- compute the margins of comparable companies by including bad debts and provision for bad and doubtful debts as operating expenses for the purpose of computing profit and loss of comparable companies.” In the case of EDAG Engineers & Design India Pvt. Ltd. (ITA/3618/Del/2009 dt.13/10/ 14) the Delhi Tribunal has held as under: “….. As for the exclusion of bad debts, amortization and provisions, in computation of the PLI of the comparables, we are unable to see any rationale in the same nor has it been justified before us. In view of these discussions, in our considered opinion, the stand taken by the CIT(A) does not merit any interference by us.” As per the AS-5,bad debts cannot be considered as extra ordinary item. Considering the above we are not agreeable to the proposition propounded by the TPO and the DRP that bad should excluded as an extra ordinary item for calculating margins.If we ignore the reworking of the PLI of the assessee and of TWL it is found that the correct operating margin of TWL would be 11.64% and it would fall within the criteria of +- 5% of arm’s length range.

In our opinion,the TPO had followed the peculiar pattern in rejecting/selecting the comparables without following the basic philosophy of TP provisions. TNMM is one of the MAM and was adopted by the assessee.The fundamental principle of the said method is to broadly compare the functions of the selected companies.In other words,product comparability is not the back bone of TNMM.The proverbial fly cannot be replaced by another fly(Makshika Sthane Makshika)in TNMM.No two entities would be replica of each,so,diversity is bound to be there.But,the final aim,to avoid transferring of profits to AE.s.by

1261 & 1238/M/15 Thomas Cook the Indian entities,of the TP provisions has always to be kept in mind while making adjustments.In these circumstances, the argument advanced by the TPO and the DRP that reporting of results on GP/NP basis by the assessee/ comparables was an evidence of diversity is beyond our comprehension- especially when the assessee had filed reconciliation about the it(Pg.348 of the PB.)Whether the Reporting system of profit margins resulted in transferring of the legitimate taxes from India to the AE has not been dealt or answered by both the authorities while rejecting the comparables. Secondly,two of the comparables were rejected on the basis of area of operations.But,if we closely look at the function profile of the comparables,one thing is clear that they are in the same business that of the assessee and there exists functional similarities between the assessee and the comparable selected by it.As,all the comparables selected by it were in the same line of business and they were face same risks,so,the TPO was not justified in rejecting the three and cherry picking one.Comparables selected by the assessee should not be rejected in a casual and light manner. Now we would like to discuss all the three comparables rejected by the TPO. We find that one of the reason for rejecting CTL was foreign exchange earning, that it had earned foreign exchange, that the annual report of the CTL for the year under consideration,at page 48 talks of foreign exchange earnings,that the TPO had misinterpreted the reserve and surplus being a balance sheet item (page 32 of the annual report) as earning in foreign exchange. It is a fact that majority of operating income of TCL is from Tours and travels operations, that in the segmental reporting, the assessee has reported activity of tourism business is the only activity, that in the balance sheet abstract and general is this profile TCL has been referred as IATA isn’t carrying out tourism related activities. We find that these vital facts were ignored by the TPO and the DRP therefore the rejection of TCL is comparable is held to be unjustifiable.We have gone through the annual report of the TTPL and find that there is no mention of event

1261 & 1238/M/15 Thomas Cook management and managing the weddings by it, that for the year under considera -tion it had shown the operating income from Tours and travels in the profit and loss account, that while reporting the segmental results it has stated that it was in the business of organising tours, that the balance sheet abstract and company general business profile talks about inbound tour operator and domestic tour operators.Before us,the DR stated that the website of the TTPL was the proof that it was in the business of wedding planning and event management.We are deciding the appeal for the year under consideration and as per the books of accounts,TTPL was carrying out business of Tours and travels only in that year.Therefore, we are unable to endorse the view of the DRP and the TPO in rejecting it as a valid comparable. In the case of the BCLC,we find that Tours and travels was the main segment of operating income for the year under consideration.So,we hold that the TPO had wrongly rejected the comparables. Considering the peculiar facts and circumstances of the case,we hold that the TP adjustment made by the TPO and confirmed by the DRP has to be deleted.First effective ground of appeal is decided in favour of the assessee.

8.Next ground deals with TP adjustment of Rs.8.31crores under the head AMP expenses.During the TP proceedings,the TPO issue a show cause notice to the assessee asking it to explain as to why adjustment should not be made for the expenditure incurred for AMP of the business for the year under appeal.After considering the submissions of the assessee,the TPO held that the assessee was spending much more than industry Everest in promoting and building brand TCUK,that the brand Thomas Cook did not belong to the assessee, that it was paying a hefty sum per and for the use of brand through trademark license agreement dated 29/03/2006,that it was incurring expenses for promoting brand name of TCUK,that the argument of the assessee that AE had not be benefited was misplaced,that the AE got more licence fee and more business that the assessee was entitled to use the Thomas Cook brand only in the territory where it was already building and promoting it.He found that one of the comparables 22

1261 & 1238/M/15 Thomas Cook selected by the assessee namely TWL had incurred expenditure at the rate of 1.8% for AMP for the year under consideration. Therefore, he restricted the AMP expenses to 1.8% of the revenue,as shown in the case of TWL.

8.1.Aggrieved by the order of the AO/TPO the assessee filed objections before the DRP.Before it the assessee argued that the TPO had computed notional benefit arising to TCUK in respect of a completely domestic transaction entered into by the assessee with third parties i.e. advertising and business promotion incurred by it during the year for the purpose of selling products in Indian market,that the transaction were purely domestic transactions with third parties and were outside the purview of section 92 of the act, that the AMP expenses did not form part of the international transactions,that the expenditure had been entirely incurred in India with unrelated domestic parties and the same had not been reported in form 3 CEB, that transfer pricing is applicable only in respect of income arising/expenses incurred from/for an international transaction, that the TPO had treated AMP expenditure as non-routine expenditure incurred towards brand building,that AMP incurred by the assessee was an expenditure incurred for its own business,that the payment had been primarily made to unrelated third parties in assessee’s territory and did not benefit AE in any manner, that the transaction could not be treated as an IT, that the promotion of sale in the assessee’s territory was its sole responsibility, that the expenditure incurred for advertisement etc was solely for its own business interest in order to increase its sales and market share in its territory, that for a transaction to be treated as an IT,same should have been undertaken between to AE.s., that the payment for advertisement expenses had been made to third parties, that the same was not covered within the ambit of TP regulations, that there was no prior agreement between TCUK and the third parties to advertisement promo - tions payment were made, that the TPO did not bring any material on record to demonstrate that there existed prior agreement between the assessee and its AE

1261 & 1238/M/15 Thomas Cook regarding AMP expenses,that the TPO had not given due consideration to assessee’s business model, that its operations had not resulted in passing on profit to AE,that the TPO did not bring evidence on record to show benefits of AMP expenditure incurred by the assessee the AE. After considering the orders of the AO/TPO and the submissions of the assessee, the DRP held that AMP expenditure was required for the business of the assessee, that the higher than normal spending incurred by it established that brand building services had been rendered by it to the AE for which no charges had been made, that the contention that the expenses were incurred for assessee’s own business purposes only was not acceptable, that the assessee was not owner of the brands and was merely a user and beneficiary of the brand, that the assessee was providing a valuable service to the AE,that the TPO had rightly made the adjustment

8.2.Before us,the AR made the arguments that are recorded at paragraph no.2.2. of the order and that have been noted in the last paragraph at paragraph 8.1.The DR supported the order of the DRP and filed written submissions also.In his submissions,the DR argued that up to the date of decision in the case of Maruti Suzuki(dated 11/12/2015),the benefit of the decision was not available to the authorities below-TPO, A.O,CIT(A),DRP-that in the light of the earlier decisions and particularly LG's case(140 ITD 41)the TPOs and other authorities proceeded in a manner following the Bright Line Test,that in certain cases, references could also have been made to the agreements between the parties i.e., Indian entity and foreign AEs.,that in some cases, Bright Line Test had been followed and the expenditure on AMP has been sliced into two portions,that the non-routine expenditure in excess of BLT was considered separately as an IT and bench -marked accordingly for the purposes of ALP of AMP transaction, that the TPO in the segment of distribu -tion or manufacturing, considered the normal expenditure on AMP which did not include amount over and above the

1261 & 1238/M/15 Thomas Cook BLT, that the TPO evaluated the transactions into set of two transactions i.e. distribution and AMP separately, that in cases of manufacturing, the TPO did the benchmarking separately for manufacturing segment and AMP segment,that in case AMP was considered not to be an international transaction the bench - marking of the other segment(distribution or manufacturing)would get impacted ,that the non-routine excess expenditure taken out for bench -marking of AMP would be required to be considered as part of cost base or expenditure relating to distribution segment or manufacturing segment as the case may be,that existence of international transaction is to be demonstrated on the basis of agreements, arrangements etc.,that the Tribunal in number of cases,after considering Sony Ericsson and Maruti Suzuki, issued directions restoring the matter for fresh determination of ALP,that the principle behind remanding the case back to the TPO could that the TPO/AO did not have the benefit of these decisions which had been rendered subsequent to the decision of Special Bench in the case of LG,that there was a substantial expenditure under the head AMP which signified carrying out of AMP functions and its intensity by an entity, that the natural course would be to make in-depth analysis of functions, assets and risks(FAR),that the selection of the comparables would need to be aligned in terms of the revised FAR.He referred to number of cases where the Tribunal had restored the matter back to the file of AO/TPO and stated that the matter should be sent back to the file of the TPO/AO.

8.3.We have heard the rival submissions and perused the material before us.In the earlier part of our order,we have mentioned that we would like to deal with the issue of AMP expenses for both the years at one place,as there is no change in the facts except for the amounts involved and the non adjudication of the issue in the earlier year.The arguments of the assessee for both the years are identical. We find that assessee had incurred an expenditure of Rs.12,25,71,652/-and

1261 & 1238/M/15 Thomas Cook Rs.10,01,37,032/-respectively for the earlier and current AY.under the head AMP,that it was paying name and licence fee to TCUK, that the TPO held that the assessee was spending much more than Industry average in promoting and building brand of TCUK,that he made an adjustment of Rs.8.09 crores and Rs.8.31 crores for the AY.s.2009-10 and AY.2010-11 towards AMP expendi - ture,that the assessee had filed additional evidences before the FAA,that the FAA did not admit the evidences referring to the provisions of Rule 46A of the Rules, that he upheld the order of the TPO,that for the AY.2010-11 the assessee had filed objections before the DRP,that the adjustment made by the TPO were confirmed the DRP,that the adjustment was made/confirmed by the TPO/DRP because both of them were of the opinion that by incurring expenditure in India the assessee was benefitting a brand name of TCUK.

8.3.1.First of all,we would like to mention that as on today the legal position is as clear as crystal with regard to AMP expenses.The Hon’ble Delhi High Court has dealt the issue in depth and has arrived at the conclusion that in absence of any agreement for sharing AMP expenses it cannot be held that AMP expenditure was an IT.Probable incidental benefit to the AE would not make such a transaction an IT.The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take away the alleged ‘internationality’ of the transact - tion.In absence of any direct or direct evidence of incurring of AMP expenses by the assessee for the benefit of the AE or on behalf of the AE,it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT.Once it goes out of the ambit of being an IT,FAR analysis of comparables or any other adjustment will and cannot come in picture.Folk wisdom of rural India the says that mother(Maa)is must for existence of her sister(Mausi).Similarly the existence of an IT is the pre-requisite of applying the provisions of chapter X of the Act. The assessee

1261 & 1238/M/15 Thomas Cook from the very beginning was arguing that it is not an IT,but,the TPO and the DRP did not deal with the core issue.In these circumstances,we are of the opinion that the matter should not be remitted back to the file of the TPO/ AO. Litigation has to be put to an end at some stage.Judicial time of every authority, including the TPO/DRP,is very precious and it should not be wasted for dealing with mere academic arguments.The recourse of remanding of matters/issue to the AO.s has to resorted rarely and selectively.In the case before us,no reasonable cause has been shown to justify the setting aside the issue.

Here,we would also like to refer to the case of Bosch and Lomb (supra) wherein all the arguments raised by the TPO & FAA/DRP have been deliberated upon in length and the relevant portion of the order reads as under: “53.Areading of the heading of Chapter X['Computation of income from international transactions having regard to arm's length price"]and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP and Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price.The transfer pricing adjustment envisages the substitution of the price of such international transaction with the ALP. 54. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. 55. Section 928 defines 'international transaction' as under: "Meaning of international transaction. 928.(1) For the purposes of this section and sections 92,92C,92D and 92E ,"international transaction” means a transaction between two or more associated enterprises, either or both of whom are non-

1261 & 1238/M/15 Thomas Cook residents; in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost. or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes 'of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise." 56.Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection- with the - benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is "any other transaction having a bearing" on its "profits, incomes or losses”, for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part. of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or' 'understanding' between BLI -and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as an 'International transaction'. This might be only an illustrative list, but significantly' it does not list AMP spending as one such transaction.

1261 & 1238/M/15 Thomas Cook 58. In Maruti Suzuki India Ltd. (supra), one of the submissions of the Revenue was: "The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit. “This was negatived by the Court by pointing out; "Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v), which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means', part and the 'includes' part of Section 928 (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC." 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was observed as under: "The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a- certain target company, There can be no "persons acting in concert" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared common Objective' or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship' can come into being only by design, by meeting of minds between two or more persons leading to the

1261 & 1238/M/15 Thomas Cook shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement' or an understanding, formal or informal; 'the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they may agree to, cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being. " 60. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred , for the AE. In any event, after the decision in Sony Ericsson (supre), -- the question of applying the BLT to determine the existence-of an-international transaction involving AMP expenditure does not arise. 61. There is merit in the contention of the Assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function, cannot be construed as a 'transaction'. Further, the- Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same." 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99.9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard with B&L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also encure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear

1261 & 1238/M/15 Thomas Cook statutory mandate for such an· exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions",Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly -in-light of the fact that -the-BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT, 70. What is clear is that it. is the 'price' of an international transaction which is required to be adjusted: The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an adjustment had to be made. The -burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow.The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another.An 'assumed' price cannot form the reason for making an ALP adjustment. " 71- Since a quantitative adjustment is not permissible for the purposes of a TP adjust - ment under Chapter X,equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbetore,what the Revenue has sought to do in the present. case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on- application of the BLT,is excessive,thereby evidenc - ing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. 74.The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act.The problem does not stop here.Even if a transaction involving

1261 & 1238/M/15 Thomas Cook an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: "75. As an analogy; and for-no other purpose; in the- context of a domestic transaction involving two or more related parties, reference may' be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables' an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found' that there is an International transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand,which could be product specific, may be "impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on.A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance.” 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) and PNB Finance Ltd. v, CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore,where the existence of an international transaction involving AMP expense with an ascertainable price is- unable to be shown to exist, even if such price is nil,Chapter X provisions cannot be invoked to undertake a TP adjustment exercise.

1261 & 1238/M/15 Thomas Cook 65. As already mentioned, merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As mentioned-in- Sassoon -J David-(supra)- "the--fact that- somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". With reference to the submissions of the DR,we would like mention that first of all the issue before us is not an assessee that is engaged in distribution and manufacturing of certain goods,so the question of slicing of expense in two portions would not arise.However,the other part of the argument that matter should be restored back to the file of the AO/TPO as they were following the order of LG and did not have benefit of later judgments of the Hon’ble High Court,we would like to mention that matter can be restored back in certain conditions only.Restoration of matters to the AO.s is not a tool to give one more opportunity of hearing to the litigants.It is not advisable to prolong the judicial proceedings in the name of fair play.It is not a case where new evidences have been placed on record by the assessee, that were not made available to the AO at the time of original assessment.It is not also a matter wherein some ground of appeal has remained un-adjudicated.There is violation of principles of natural justice.So,we hold that it is not a fit case to be sent back to the TPO for fresh adjudication. 8.4.In the first ground of appeal for the earlier year,the assessee had raised the issue of non admission of additional evidence by the FAA,with regard to AMP expenses.As we have already decided the issue in favour of the assessee,so,the issue becomes academic.

9.Third ground deals with TP adjustment of Rs.20.20 Crores in relation to CG given by the assessee to its AE. Following our order for the earlier year (para No.3.2 pg.6-8 of our order,GOA-3 is decided in favour of the assessee.

1261 & 1238/M/15 Thomas Cook

10.Fourth ground is about TP adjustment of Rs. 3.07crores in relation to insurance cost.During the course of hearing before us,the AR stated that the identical issue had arisen in the AY.2005-06 and the Tribunal had decided it in favour of the assessee.The DR left the issue to the discretion of the Bench.

10.1.We find that in assessee’s own case(ITA/2465/M/2011-AY 2005-06 dt.31. 10. 2013) identical issue has been decided as under: 4. The facts relating to the issue relating to TP adjustment are that the assessee did not charge any fees from its Associated Enterprises (AE) (namely HSBC, Travellex and TCMOL), while he is charging the same from other related parties. Applying the Arm's Length Price (ALP) provisions, TPO made an addition of Rs.7,46,243/-. Matter travelled to the CIT (A). During the proceeding before the CIT (A), assessee submitted that in case of exports to non-AEs i.e., unrelated parties, assessee incurred losses as compared to the parties to the AE (TCMOL), therefore, it is a revenue loss. Further, he pointed out that with regard to exports to the AEs, assessee was not subject to any counting fees charged by AEs, unlike third parties (HSBC / Travelex). Normally, counting fees paid is often more than an incentive receipt. If the both service fees and counting fees were taken, it would lead to loss of income to the assessee. The assessee relied on various TP Guidelines of Organization for Economic Cooperation and Development (OECD) in favour of such counting principle and submitted that ALP principle need not be invoked in such circumstances.CIT (A) considered the same and allowed the claim of the assessee and deleted the adjustment as seen from para 2.10 of the impugned order. 5. During the proceedings before us, Ld DR relied on the order of the AO and the TPO and submitted that every transaction has to be independently benchmarked. However, there is no specific submission by the Ld DR to counter the reasoning given by the CIT (A) while granting the relief to the assessee. 6. We have heard both the parties on this issue and perused the orders of the Revenue Authorities. It is a fact that the assessee has not charged from AE. Further, it is also equally true that AE charges counting fees also on the transactions of the assessee. If both are taken into account quantitatively, it is the claim of the assessee that the assessee will put to losses and the same is not accounted by the income fact

1261 & 1238/M/15 Thomas Cook of figures. These kind of accounting issues are outside the scope of TP principles as discussed in para 2.9 of the impugned order. The CIT (A) discussed the issue at length in para 2.10 of his order, giving the reasoning. For the sake of completeness of this order, the said para 2.10 is reproduced here under: "2.10. I have perused the facts of the case and written submissions and verbal arguments of the appellant. The TPO has views the whole arrangement of the appellant with its AE in isolation. He has failed to take into account the fact that the appellant is required to pay counting fees to Its AE as well as third parties (HSBC / Travelex) in respect of currency exported and corresponding counting fees paid is more than what it received by way of incentive / service fee. As such if both the service fees and counting fee are included / taken together in transactions with the AE, the appellant would be worse off. As such It discontinued this arrangement. The appellant by an Internal CUP (Travelex / HSBC) has demonstrated that counting fees for export of currency entails more expense than corresponding service fees or / incentive receipts. Thus, It has passed the test of comparability. It is a fact that counting fees for currency exported is charged by third parties (HSBC / Travelex) and so if the appellant AE did not charge it last year or this year, does not in any way negate the crucial fact that a third independent part would have charged it any case. The fundamentals underlying transfer pricing involves setting of prices within an MNE In line with what third parties would have negotiated in similar circumstances. In the present case had the AE insisted on charging counting fees for currency exported then it would have been more than the corresponding incentives / service for income and the appellant would have been worse off. To sum up, the discontinuance of earlier arrangement of not paying any counting fees to it's AE at Mauritius and also foregoing the corresponding service / incentive fees, does not erode the tax base if one keeps in mind the ratio of such receipts and payment made which is tilted in favour of the payment side. Moreover, the appellant has demonstrated by an Internal CUP (HSBC / Travelex) on this aspect to establish its case. The adjustment of Rs.7,46,243/- so made is therefore, deleted." 7. Considering the above, we are of the opinion that the order of the CIT (A) does not call for any interference. Accordingly, ground no.1 raised by the Revenue is dismissed. Following the above we decide ground no.4 in favour of the assessee.

1261 & 1238/M/15 Thomas Cook 11.Next ground is regarding disallowance of claim on Jodhpur property. Following our order for the earlier year,(para No.5,pg.9-10)ground No.5 is decided against the assessee.

12.Last Ground of appeal deals with disallowance u/s. 14A r.w.r. 8D of the Rules of Rs.96.20 lakhs.During the year the assessee. During the assessment proceedings, the AO found that the assessee had received dividend income of Rs.11.01 lakhs on mutual funds and same was claimed exempt, that it had not allocated any expenditure towards the earning of the exempt income. He directed the assessee to file explanation in that regard.Vide its letter dated 3/02/2014,the assessee stated that it had Suo Motu disallowed Rs. 6,415/- under the provisions of section 14A of the Act,that the dividend income was claimed as exempt income predation of total income u/s.10 (35) of the Act,that it had not incurred any expenditure, direct or indirect, for earning the said exempt income, that the provisions of section 14A read with rule 8D of the Income-tax Rules, 1962(Rules)were not applicable in respect of strategic investment made in subsidiaries,that expenditure incurred for acquiring shares out of commercial expediency had already been capitalised,that own funds during the year were sufficient to make investment in subsidiary entities, that the interest expenditure for the year pertain to working capital loans,that domestic borrowings for making downstream investment were not permitted as per the guidelines of Ministry of Industry,that there was no nexus between interest expenditure and the investment made by the assessee, that no fresh investment was made during the year under consideration. The AO did not agree with the assessee and held that investments were made out of funds and the funds always involved time, cost and opportunity cost, that making investment was an informed decision and it would involve study and research, that required manpower time and funds to make investments, the cost would be in the form of direct as well as indirect costs,that the assessee’s

1261 & 1238/M/15 Thomas Cook explanation that no interest expenses were involved for earning exempt income was not acceptable, that investments were made from the pool of funds available to assessee, that it was option of the assessee to invest the surplus fund in the investments and used borrowed funds for business,that had the surplus funds being used for business purposes there would not had been any need to borrow and the interest expenses would have been proportionately reduced. Invoking the provisions of section 14A(2)r.w.r.8D of the Rules,he made a disallowance of Rs. 96,20, 694/-. Aggrieved by the order of the AO, the assessee filed objections before the DRP. After considering the submissions of the assessee and the draft order of the AO, the DRP held the AO had rightly applied provisions of Rule 8D of the Rules, that in the earlier years the tribunal had upheld the disallowance at the rate of 2% of the exempt income, that in those years Rule 8D was not applicable, that provisions of the Rule were applicable for the year under consideration. Finally, the DRP appellate the disallowance made by the AO.

12.1.Before us,the AR stated that strategic investment could not be considered for 14A disallowance,that almost all the investment(Rs.192.54 crores), was made in domestic(Rs.184.99 crores)or overseas subsidiaries(Rs.7.54 crores), that the AO and the DRP had not considered the above issue while making/ confirming the disallowance.DR left the issue to the discretion of the bench.

12.2.After hearing both the sides we are of the opinion that matter should be restored back to the file of the AO for fresh adjudication.The Hon’ble High Courts have laid down the principle that strategic investment should be excluded from the list of investments,while computing the disallowance u/s. 14Ar.w.r 8D of the Rules.As this vital issue has not been considered by the lower authoriries,so,we are of the opinion that the AO should decide the issue

1261 & 1238/M/15 Thomas Cook afresh after affording reasonable opportunity to the assessee.Sixth ground is decided in favour of the assessee,in part.

As a result,appeals filed by the assessee for both the AY.s.stand partly allowed. फलतःिनधा�रती �ारा दािखल क� ग� दोन� िन.वष� क� अपील� अंशतः मंजूर क� जाती ह�. Order pronounced in the open court on 31st May, 2016. आदेश की घोषणा खुले �ायालय म� िदनांक 31 मई, 2016 को की गई । Sd/- Sd/- (सी. एन. �साद / C.N. Prasad ) (राजे� / Rajendra) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER मुंबई Mumbai; िदनांकDated : 31.05.2016. Jv.Sr.PS. आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ� 2. Respondent /��थ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4.The concerned CIT /संब� आयकर आयु� 5.DR “K ” Bench, ITAT, Mumbai /िवभागीय �ितिनिध, खंडपीठ,आ.अिध.मुंबई 6.Guard File/गाड� फाईल स�ािपत �ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.