I.T.A. No. 383/Mum/2016. Case: Thomas Cook (India) Limited Vs DCIT-1(3)(2). ITAT (Income Tax Appellate Tribunal)
| Case Number | I.T.A. No. 383/Mum/2016 |
| Counsel | For Appellant: P.J. Pardiwala, Adv. and For Respondents: Rupinder Brar, Adv. |
| Judges | R.C. Sharma, Member (A) and Amit Shukla, Member (J) |
| Issue | Income Tax Act, 1961 - Sections 10(35), 143(3), 144C(13), 14A, 14A(2), 40A(2)(a), 92, 92(1), 92B, 92B - 92F, 92B(1), 92C, 92C(1), 92D, 92E, 92F(ii), 92F(v); Indian Income-tax Act, 1922 - Section 10(2)(xv) |
| Judgement Date | January 30, 2017 |
| Court | ITAT (Income Tax Appellate Tribunal) |
Order:
Amit Shukla, Member (J), (ITAT Mumbai' K' Bench)
1. The aforesaid appeal has been filed by the assessee against the final assessment order dated 14/01/2016, passed by the Assessing Officer for the quantum of assessment u/s. 143(3) r.w.s. 144C(13) of the IT Act for the assessment year 2011-12 in pursuance of direction given by the Dispute Resolution Panel-II, Mumbai (DRP), vide order dated 14/12/2015.
2. In various grounds of appeal, assessee has challenged the following additions/transfer pricing adjustments.
(i) Transfer Pricing Adjustment of Rs. 2,64,66,824/- in relation to the 'travel related segment' (Ground No. 1);
(ii) Transfer Pricing Adjustment on account of disallowance of advertising, marketing and sales promotion expenses of Rs. 14,89,21,569/- (Ground No. 2);
(iii) Transfer Pricing Adjustment of Rs. 2,12,060/- in relation to the disallowance of insurance cost incurred by the assessee towards export and foreign currency (Ground No. 3);
(iv) Disallowance of claim of depreciation of Rs. 1,36,098/- on Jodhpur Property (Ground No. 4);
(v) Disallowance of Rs. 96,20,608/- u/s. 14A (Ground No. 5).
3. At the outset, learned Senior Counsel, Mr. P.J. Pardiwala submitted that all the issues raised in the grounds of appeal are squarely covered by the decision of Tribunal for the Assessment Year 2009-10. Explaining the brief facts and the background of the case, he submitted that the assessee, Thomas Cook India Ltd., is part of Thomas Cook Group which is engaged in the business of rendering travel and financial services. The assessee offers spectrum of travel related services that include Foreign Exchange, Corporate Travel, Leisure Travel and Insurance. It had entered into international transactions of payment towards name and license fees, export of foreign currency, travel services - inbound and outbound travel and reimbursement of expenses. The operational segments of the assessee were divided in two; firstly, travel and related services segment; and secondly, financial services segment. Under travel related services segment, the assessee had shown operating margin of 10.78%. To benchmark the said margin, assessee carried out detailed transfer pricing analysis and after adopting TNMM as the most appropriate method by taking Profit Level Indicator (PLI) as Operating Profit/Total Cost (OP & TC), it identified six comparable companies, the arithmetic mean of which was arrived at 5.42%, accordingly, it was stated that the assessee's operating margin are at arm's length. The summary of such comparables and the computed margin are as under:-
4. The learned Transferring Pricing Officer however, rejected most of the above comparables after giving detailed reasons and parameters which were earlier discussed by the TPO in his order for the A.Y. 2010-11. After detail analysis, the ld. TPO accepted only one comparable i.e., Trade Wings Ltd., and after eliminating the amount of bad debts from the operating cost of said company, he recomputed the margin of the said company at 19.34% from 17.68%. The relevant discussion of TPO appears from pages 10 to 12 of the TPO's order. Based on one comparable only, he made an upward adjustment of Rs. 2,64,66,824/-. Before the Ld. DRP, assessee pointed out that out of six comparables, four comparables were common and were also subject matter of dispute in the A.Y. 2010-11, however the DRP held that in that year the four comparables of the assessee were rejected after detail discussion. For the other two new comparables namely, M/s. Indo Asia Leisure and M/s. Pearl International Tours and Travels Ltd., (which were not in the comparability list in the earlier years), the ld. DRP gave independent reason for the rejection of the comparables. Before us, Mr. Pardiwala submitted that now the Tribunal in the earlier year has accepted the said four comparables in the comparability list and if same are taken as the comparables, then assessee's margin vis-à-vis. margin of comparables would be within the tolerance range of +/-5%. In that case the two new comparables may not be adjudicated as it will become purely academic. The learned CIT DR strongly relied upon the order of the DRP and submitted that the detailed reasons have been given by the DRP for rejecting these comparables chosen by the assessee.
5. After considering relevant findings given by the impugned orders as well as the order of the Tribunal for the A.Y. 2010-11, we find that the four comparables namely, Crown Tours Ltd., Tamarind Tours Pvt. Ltd., Balmer Lawrie & Co. Ltd., and Trade Wings Ltd., were subject matter of dispute in the earlier year also. The tribunal after detailed discussion accepted all the four comparables of the assessee as good comparables. The relevant observation and the findings of the Tribunal in this regard reads as under:-
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 ITs-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 ITs., 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 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, (367 ITR 319), 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 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 margin, 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 occasion. 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...
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