Pr. Commissioner of Income Tax, Delhi-1 v. M/S. Amadeus India Pvt. Ltd.

1. Present appeal has been filed by the Appellant, Revenue, under Section 260A of the Income Tax Act, 1961 (‘the Act’), to set aside the impugned order dated 23rd October, 2017, passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No. 1835/Del/2015 for the Assessment Year (‘AY’) 2010-11.

2. The following question of law was framed on 20th January, 2020: “Whether the Ld. ITAT is justified in holding that provisions of services of market development (services of carrying out advertisement, market & business promotion i.e. AMP) are not international transactions in the light of provisions of sub-clause

(d) of clause (i) of explanation to section 92B of the Income Tax

3. The facts relevant for determining the aforesaid question of law are that the Assessee filed its return of income (ITR) for AY 2010-11.

4. The Assessee’s case was selected for scrutiny assessment and a notice was issued under Section 143(2) of the Act, which was complied with. The Assessing Officer ('AO') observed that in the year under consideration, the Assessee had entered into international transactions with its Associated Enterprises (AEs) and in order to determine the Arm’s Length Price ('ALP') of the said international transactions, the AO made a reference to the Transfer Pricing Officer ('TPO'). During the transfer pricing, the TPO observed that the Assessee has incurred more than normal sales and marketing expenses to build ‘Amadeus’ brand in India, which is legally owned by the AE i.e. M/s Amadeus IT Group SA (‘Amadeus Spain’). The TPO concluded that such higher than normal market expenses i.e. AMP constitute an international transaction between the Assessee and its AE. The TPO computed the adjustment by applying the Bright Line method.

5. The AO issued a draft order dated 29th March, 2014, incorporating the additions made by the TPO. In response to the said draft order, the Assessee filed its objections before the Dispute Resolution Panel ('DRP'), which were dismissed and the additions made by the AO were upheld. Following the directions of the DRP, the AO passed the final assessment order dated 23rd February, 2015, and made additions which included an addition of transfer pricing adjustment for the AMP expenses at Rs. 81,16,72,668/-. The Assessee aggrieved by the assessment order filed an appeal before the ITAT.

6. The ITAT allowed the appeal and relied upon the order passed by its predecessor bench in Assessee’s own case for the AY 2009-10, to delete the said addition of transfer pricing adjustment made on account of AMP expenditure after holding that it does not constitute an international transaction. Pertinently, the earlier order of ITAT for AY 2009-10 was upheld by this Court in ITA No. 154/2017, decided on 22nd May, 2017.

7. The learned senior standing counsel for the Revenue, states that the ITAT erred in law while holding that the provision of services of market development (service of carrying out advertisement, market and business promotion i.e., AMP) are not international transaction by ignoring the provisions of sub-clause (d) of clause (i) of Explanation to Section 92B of the Act of 1961. He states that even though the transfer pricing adjustment made on account of AMP expenses was deleted by the ITAT in AY 2009- 10, which order was upheld by this Court in ITA No. 154/2017 decided on 22nd May, 2017, since the principles of res judicata are not applicable in tax proceedings, the Court can examine the legality of the impugned order passed by the ITAT.

8. In reply, learned counsel for the Respondent, Assessee, has drawn our attention to another order of the ITAT dated 27th February, 2019, in Assessee’s own case for subsequent AY 2011-12, wherein similarly the ITAT has deleted the transfer pricing adjustment made on account of AMP expenses and thereafter, this Court in ITA No. 901/2019 vide order 16th October, 2019, upheld the said order of the ITAT.

9. He states that this Court declined to refer any question of law for AY 2009-10 as well as AY 2011-12. He states that in fact, for both the years, the decision of the Appellate Tribunal to the effect that there is no international transaction between the Assessee and the AE, was not doubted by this Court and the appeals filed by the Revenue in the said two years were dismissed holding that no referable question of law arose for its decision.

10. He states that the ITAT for the assessment year under consideration i.e. AY 2010-11 has concluded there has been no change of facts and circumstances when compared with AY 2009-10 and he, therefore, contends that following the rule of consistency the ITAT rightly held that the transaction should be treated similarly in the assessment year under consideration.

11. The learned counsel for the Assessee has relied upon the judgment of this Court in the case of Bausch & Lomb Eyecare Pvt. Ltd. vs. Additional Commissioner of Income Tax, [2016] 381 ITR 227, to contend that expenses incurred by the Assessee under the head 'AMP' cannot be termed as an international transaction, in the absence of any provision for the same in the agreement in this regard with Associated Enterprise. He has also placed reliance on the judgment of this Court in the case of Maruti Suzuki vs. CIT, [2016] 381 ITR 117 to contend that there is no machinery provision for determining the Arm’s Length Price of AMP expenditure. Learned senior standing counsel for Revenue in rebuttal submits that the Department has not accepted the judgment in the case of Bausch & Lomb Eyecare Pvt. Ltd. (supra) and a Civil Appeal impugning the said judgment is pending before the Supreme Court, however, he admits there is no stay of the said judgment.

12. The learned counsel for the Respondent, Assessee, further states the the orders of the predecessor benches of this Court dismissing Revenue’s appeal for AY 2009-10 and 2011-12 are pending challenge before the Supreme Court. He states that Assessee has no objection if this Court observes that the order passed in this assessment year will abide by the final decision in the aforesaid appeals.

13. We have heard the learned counsel for the parties. A perusal of the impugned order shows that the ITAT in its impugned order concluded that the factual matrix has remained consistent in AY 2009-10 and AY 2010-11 and, therefore, relied upon the findings recorded for AY 2009-10 to hold that the expenses incurred on AMP does not constitute an international transaction between the Assessee and its AE. The findings of the ITAT in previous AY 2009-10, as relied upon in the impugned order reads as under:- “8.[2] On a careful consideration of the facts on record we are of the opinion that there is nothing on record to show that the appellant by incurring AMP expense wanted to promote its AE. The Ld TPO has failed to prove that the appellant by incurring AMP expenses wanted to benefit the AE and not to promote its own business. Submission of Ld TPO that clauses 10.02, 10.5, 11.01 and Article XVI of the agreement indicate existence of a "transaction" for brand promotion is not supported by contents of those clauses. Appellant's objections before the learned DRP, which we have quoted above, are acceptable. These clauses nowhere provide that the appellant will be incurring brand promotion expenses for and on behalf of its AE or solely for its business purposes and interests. Agreement dated 01st October 2004 between appellant and its AE is based upon revenue sharing model in which 46% revenue is being shared by Amadeus Spain with the appellant and hence it is difficult to visualize that appellant will not be incurring routine advertisement expenses in its entrepreneur capacity. Excluding payment of incentives, which in earlier years have been held, to be pure selling expenses the ratio of AMP/Sales of the appellant is mere 2.29%. Ld AR is also right in relying upon the decision of Hon'ble Jurisdictional High Court in case of Sony Mobile Communications (supra) for submitting that events which would transpire on termination of distribution might require a TP adjustment at that stage but the same will be immaterial to presume existence of an agreement, arrangement or understanding in the year under consideration. In this regard Hon'ble High Court at para 153 of its reported judgment has been pleased to be hold as under: