+Ita 174/2020 & Cm Appl. Nos.8721-8722/2020Pr. Commissioner Of Income Tax-I v. Amadeus India Pvt. Ltd

Signature Not Verified $~ 43 and 44 IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 174/2020 & CM APPL. Nos.8721-8722/2020PR. COMMISSIONER OF INCOME TAX-I..... AppellantThrough:Mr.ZohebHossain,Sr.StandingCounselfortheRevenuewithMr.Vipul Agrawal and Mr.ParthSemwal, Advocates.PR. COMMISSIONER OF INCOME TAX-I..... AppellantThrough:Mr.ZohebHossain,Sr.StandingCounselfortheRevenuewithMr.Vipul Agrawal and Mr.ParthSemwal, Advocates. versus AMADEUS INDIA PVT. LTD...... RespondentThrough:Mr.Mayank Nagi with Mr.TarunSingh, Advocates.Through:Mr.Mayank Nagi with Mr.TarunSingh, Advocates. +ITA 175/2020 & CM APPL. Nos.8825/2020, 8827/2020 PR. COMMISSIONER OF INCOME TAX-1 ..... Appellant Through:Mr.ZohebHossain,Sr.StandingCounselfortheRevenuewithMr.Vipul Agrawal and Mr.ParthSemwal, Advocates.CounselfortheRevenuewithMr.Vipul Agrawal and Mr.ParthSemwal, Advocates. versus AMADEUS INDIA PVT. LTD. ..... Respondent Through:Mr.Mayank Nagi with Mr.TarunSingh, Advocates. Date of Decision: 27[th]October, 2022 % CORAM:HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N TMANMEET PRITAM SINGH ARORA, J (ORAL): CM APPL Nos. 8721-22/2020 in ITA 174/2020 ITA 174/2020 and 175/2020 CM APPL. Nos. 8825/2020, 8827/2020 in ITA 175/2020 Keeping in view the averments in the applications, the delay infiling and re-filing the appeals is condoned. Accordingly, the present applications stand disposed of. ITA 174/2020ITA 175/2020 1.The present appeals have been filed by Revenue under Section260A of the Income Tax Act, 1961 (the 'Act'), against the commonimpugned order and judgment dated 27[th]February 2019, passed by theIncome Tax Appellate Tribunal ('ITAT') in ITA Nos. 1811/Del/2017 and7691/Del/2017, dated 27[th]February, 2019, for the Assessment Years('AYs') 2012-13 and 2013-14 respectively. 2.The facts in assessment years forming subject matter of the presentappeal(s), with respect to the substantive addition on account ofAdvertisement, Marketing and Promotion ('AMP') expenditure, are similarto that of previous AYs 2009-10 to 2011-12, with the only distinctionbeing that in the assessment years under consideration the TPO has madeprotective as well as substantive addition on account of AMP expenditure.The agreement between the Assessee and its Associated Enterprise (‘AE’)which formed the basis for previous AYs, remained operational for theyears under consideration as well. It is pertinent to mention here that theAMP expenditure issue already stands settled in favour of the Assessee bythis Court and the said addition has been deleted in the previous AYs. For the assessment years under consideration the protective additionhas been made by the TPO by applying the Bright Line Test to the alleged ITA 174/2020 and 175/2020 AMP expenditure of the Assessee including incentives paid to the travelagent; and substantive addition has been made by applying Cost PlusMethod to the AMP expenditure while excluding payments of expensesmade to the travel agent. In the assessment years under consideration thereis also an addition on account of disallowance made under Section 14A ofthe Act. For the assessment years under consideration the protective additionhas been made by the TPO by applying the Bright Line Test to the alleged ITA 174/2020 and 175/2020 AMP expenditure of the Assessee including incentives paid to the travelagent; and substantive addition has been made by applying Cost PlusMethod to the AMP expenditure while excluding payments of expensesmade to the travel agent. In the assessment years under consideration thereis also an addition on account of disallowance made under Section 14A ofthe Act. 3.Learned counsel for the Appellant, Revenue, states that the ITATerred in deleting the addition on account of AMP expenditure and fell inerror in holding that provisions of Chapter X of the Act cannot be invokedfor the said expenses. He states that the ITAT failed to consider that as perthe distribution agreement dated 01[st]October, 2004, entered betweenAmadeus Global Travel Distribution SA Madrid ('Amadeus Spain') andthe Assessee, Amadeus India Pvt. Ltd., receipts in the hands of theAssessee were in the nature of distribution fee and as per the saidagreement, the main income of the Assessee was in the nature ofmarketing and distribution of products of Amadeus Spain. He states thatITAT failed to appreciate that the Assessee by means of AMP expenditurehas assisted its foreign AEs in penetrating the Indian market and buildinga brand in India. He states that the ITAT failed to consider that by meansof AMP expenditure, the Assessee is creating a market of intangible for itsforeign AE which translates into higher sales of brand loyalty in India. 4.He states that as per the agreement, the Assessee is termed as theNational Marketing Agent ('NMA') of Amadeus Spain, which makes itevident that it is the responsibility of the Assessee to carry out marketingwork for its AE and it is remunerated for the same. He, further, states that the Assessee is the agent of the parent company and has earned incomeunder the name of the distribution agreement from the foreign company. 5.He lastly states that the ITAT erred in deleting the disallowancemade by the Assessing Officer under Section 14A of the Act, withoutconsidering the CBDT Circular No. 5/2014, dated 11[th]February, 2014. 6.We have heard the submissions made by the learned senior standingcounsel for the Revenue. 7.It is pertinent to mention here that qua both the protective andsubstantive addition made on account of AMP expenditure, the ITAT hasobserved that the said action of the TPO appears to have been prompteddue to the decision of this Court in the case of Sony Ericsson MobileCommunications India (P.) Ltd. v. Commissioner of Income-tax – III,(2015) 374 ITR 118, wherein, inter alia, this Court has held that theBright Line Test cannot be used as a method for computing Arm's LengthPrice and selling expenses are to be excluded from the ambit of AMPexpenditure. The ITAT also noted the decision of its predecessor bench inAssessee’s own case for AY 2007-08, wherein it was observed thatincentive paid to travel agents constitutes selling expenses and are to beexcluded from the ambit of AMP expenditure. The ITAT on the basis ofthe findings of the TPO and DRP presumed that since Revenue has notaccepted either of the said decisions and has filed a petition before theSupreme Court, the TPO to keep the issue alive, has made both theprotective and substantive AMP adjustments in the assessment years underconsideration. Signature Not Verified Signature Not Verified 8.However, the ITAT, following the law laid down by this Court inBausch & Lomb Eyecare Pvt. Ltd. vs. Additional Commissioner ofIncome Tax, [2016] 381 ITR 227 and Maruti Suzuki vs. CIT, [2016] 381ITR 117, held that in the facts and circumstances of the present appeals,there is no international transaction between the Assessee and its AE forincurring AMP to promote the brand of AE.Consequently, the ITAT,mutatis mutandis applied the conclusion drawn by it while deciding theappeal for AY 2011-12 to the facts of the present appeals. The ITATconcluded that in the absence of a transaction for brand promotionbetween the Assessee and its AE, the TPO and the Dispute ResolutionPanel ('DRP') were not justified in proposing either a protectiveadjustment or a substantive adjustment and accordingly, directed deletion. In this regard, we may note that the order of the ITAT in Assessee'sown case for AY 2011-12, deleting the transfer pricing adjustment madeon account of AMP expenditure has been upheld by the predecessor benchof this Court in ITA No. 901/2019 vide order dated 16[th]October, 2019.The ITAT’s orders for AY 2009-10 and 2010-11 deleting the disallowanceon account of AMP expenditure has also been upheld by this Court in ITA154/2017 and ITA 548/2018 respectively. 9.With respect to the disallowance under Section 14A of the Act, it isadmitted that no exempt income was earned by the Assessee in AYs 2012-13 and 2013-14. The ITAT following the judgment of this Court inCheminvest Ltd. v. Commissioner of Income Tax - VI, (2015) 378 ITR33, has deleted the said disallowance made on account of Section 14A ofthe Act. ITA 174/2020 and 175/2020 10.We are of the considered view that the deletion of the saiddisallowance under Section 14A of the Act, by the ITAT is correct in thefacts of this case. The contention of the Revenue that ITAT failed toconsider the CBDT Circular 5/2014 dated 11[th]February, 2014, is alsountenable inasmuch as, another division bench of this Court in PrincipalCommissioner of Income Tax - 04 v. IL & FS Energy DevelopmentCompany Ltd., (2017) 399 ITR 483, has held as under: - “… 18. The CBDT Circular upon which extensive reliance is placedby Mr. Hossain does not refer to Rule 8D(1) of the Rules at allbut only refers to the word “includible” occurring in the title toRule 8D as well as the title to Section 14A. The Circularconcludes that it is not necessary that exempt income shouldnecessarily be included in a particular year's income for thedisallowance to be triggered. 19. In the considered view of the Court, this will be a truncatedreading of Section 14 A and Rule 8D particularly when Rule8D(1) uses the expression ‘such previous year’. Further, it doesnot account for the concept of ‘real income’. It does not notethat under Section 5 of the Act, the question of taxation of‘notional income’ does not arise. As explained in Commissionerof Income Tax v. Walfort Share and Stock Brokers Pvt. Ltd.[2010] 326 ITR 1 (SC), the mandate of Section 14A of the Act isto curb the practice of claiming deduction of expenses incurredin relation to exempt income being taxable income and at thesame time avail of the tax incentives by way of exemption ofexempt income without making any apportionment of expensesincurred in relation to exempt income. Consequently, the Courtis not persuaded that in view of the Circular of the CBDT dated11 May 2014, the decision of this Court in CheminvestLtd.(supra) requires reconsideration. Signature Not Verified XXXXXXXXX 24. For all of the aforementioned reasons, this Court is of theview that the CBDT Circular dated 11 May 2014 cannotoverride the expressed provisions of Section 14A read with Rule8D. …” 11.Admittedly, the issues of law and fact raised by the Appellant in thepresent appeals, with respect to the addition on account of AMPexpenditure, are similar to the case decided by the Division Bench of thisCourt in ITA Nos. 154/2017, 548/2018 and 901/2019. Signature Not Verified XXXXXXXXX 24. For all of the aforementioned reasons, this Court is of theview that the CBDT Circular dated 11 May 2014 cannotoverride the expressed provisions of Section 14A read with Rule8D. …” 11.Admittedly, the issues of law and fact raised by the Appellant in thepresent appeals, with respect to the addition on account of AMPexpenditure, are similar to the case decided by the Division Bench of thisCourt in ITA Nos. 154/2017, 548/2018 and 901/2019. 12.With respect to the deletion of the disallowance made under Section14A of the Act, the said issue is also covered against the Revenue by thedecision of this Court in Cheminvest (supra) and therefore, the same doesnot give any rise to any substantial questions of law. 13.Consequently, on the issue of transfer pricing adjustment onaccount of AMP expenditure, the present appeals are disposed of in termsof the judgment of the Division Bench in the aforesaid Income TaxAppeals, however, it is made clear that the present decision will abide bythe judgment of the Supreme Court in S.L.P.(C) No. 5968/2018 preferredby the Revenue against the order passed by this Court in ITA No.154/2017. MANMEET PRITAM SINGH ARORA, J MANMOHAN, J OCTOBER 27, 2022/msh/aa ITA 174/2020 and 175/2020