ORDER

PER R.K. PANDA, AM:

These are cross appeals. The first one is filed by the Revenue and the second one is filed by the assessee and are directed against the order dated 28.11.2014 of the DRP-II, New Delhi, relating to assessment year 2010-11.

2. Facts of the case, in brief, are that the assessee is a company and is engaged in the business of developing and managing franchisees for restaurants and running own restaurants. There is no change in the nature of business from earlier years. It filed its return of income declaring loss of Rs.25,26,67,915/-. A reference u/s 92CA(1) of the IT Act was made by the Assessing Officer to the TPO for determination of the ALP of the international transactions undertaken by the assessee during the F.Y. 2009-10. The TPO, during the course of TP assessment proceedings observed that the assessee has entered into the following international transactions:-

3. From the various details furnished by the assessee, he observed that the assessee has returned a margin at 8.75% in respect of the international transaction related to providing franchisee support service. The updated margin of the comparables, on cost, using multiple year data is -4.05%. The assessee has used TNMM as the method and OP/TC is the PLI. In the international transaction related to payment of royalty for providing systems and system property for franchisee business, the margin of the assessee is 12.95%. The assessee has used the same set of comparables as used in the former transaction. The method remains TNMM but the PLI is OP/OR. The weighted average margin of comparables is 6.06%. Based on this analysis, the assessee has concluded that its international transactions are at arm’s length. The TPO, therefore, issued a show cause notice asking the assessee to justify the transfer pricing analysis. After considering the submissions made by the assessee, the TPO observed that the assessee has contributed to the brand building exercise of the AE for which it should have been reimbursed with a mark up. Since the sum of Rs.8,07,48,889/- has been placed at the disposal of the YRMPL, this is the amount that should have been reimbursed with a mark up. He observed that an amount of Rs.1,46,02,381/- is part of the cost base of the market support segment on which a mark up of 9.69% has been earned. According to him, the assessee should have been reimbursed the remaining amount of Rs.6,61,46,508/- with a mark up. This, according to the TPO would be a sum equal to the PLR of State Bank of India which would have been the standard return on this amount. Therefore, the TPO proposed an upward adjustment of Rs.7,44,14,821/- on account of reimbursement of marketing, advertisement and brand promotion. So far as the provision of marketing support services are concerned, he observed that the assessee has benchmarked the transactions related to provision of support services by taking 11 comparables as per page 16 of the TPO’s order wherein average has been worked out at 7.32%. He rejected certain comparables selected by the assessee and added certain other comparables and selected the final list of comparables which are as under:-