2018 (1) TMI 1408 - AT - Income Tax

Tax Appeal Partially Allowed: Fresh Price Determination, Section 40(a)(i) Deletion, Higher Depreciation

The appeal was partly allowed with directions for a fresh determination of the arm's length price, deletion of disallowance under Section 40(a)(i), ... Transfer pricing adjustment - Freight forwarding and logistics with transacted value wrongly mentioned - selection criteria for comparable or non-comparable - Held that:- The assessee is engaged in rendering freight and forwarding services in domestic and international sectors. It earns its revenue from the customers in India, whose cargos are booked to be delivered by it outside India through its AEs network and it also earns revenue in respect of inbound cargo received from the goods booked by its AEs from outside India, which have to be delivered to the customers in India, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Companies not be excluded for minor variations in the ratio of lease rent to sales and net fixed assets to sales. Also no company can be excluded simply on the basis of a higher or lower profit margin registered in the year relevant to the assessee company. When average of the profit margins of the otherwise functionally comparable companies is taken, the differences due to particular higher or lower profit margins are ironed out. Determining the amount of transfer pricing adjustment by considering the entity level gross revenue shown by the assessee at ₹ 286.89 crore - Held that:- No income arising from non-AE transaction can be computed having regard to its ALP. In fact, price/profit from comparable transactions of the assessee with non- AEs, is one of the subtle and most reliable modes for determining ALP in respect of international transactions. Thus, it boils down that the Act does not contemplate an addition by way of transfer pricing adjustment in respect of transactions with non-AEs. As the authorities below have ventured to make a composite addition, so, that part of the addition which relates to the transactions with non-AEs is untenable and hence cannot be sustained. We, therefore, vacate the impugned orders pro tanto. TDS u/s 195 - disallowance u/s 40 (a)(i) - non deduction of tds by assessee paid administrative fee to EGL, US and EGL Singapore for providing non-technical day-to-day administrative supports functions - Held that:- The Tribunal, while dealing with the similar disallowance for the preceding year held that such an amount paid by the assessee is not chargeable under Article 12 of the DTAA because no services were `made available’ to the assessee by the service providers. A copy of such order has been placed on record. On a pertinent query, the learned DR fairly admitted that the facts and circumstances of the ground for the instant year are mutatis mutandis similar to those of the preceding year - order for deletion of the disallowance. Depreciation on computer peripherals at the reduced rate - assessee claimed depreciation @ 60% on computers and printers etc. - Held that:- This issue of allowing depreciation at higher rate on computer peripherals is no more res integra in view of the judgment of the Hon'ble Delhi High Court in CIT vs. BSES Yamuna Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT]. We, therefore, direct to allow depreciation on the computer printers at the higher rate as claimed by the assessee. As regards the direction of the DRP for suitably adjusting the opening written down value of computer peripherals, we direct the AO to enhance the written down value with the excess amount of depreciation disallowed in the preceding years provided such decision of the AO was accepted by the assessee. Levy of interest u/s 234A - AR contended that the return was filed within the extended time allowed by the CBDT vide order u/s 119 of the Act (F.No.133/38/2006-TPL (Pt.) - Held that:- We direct the AO to verify the assessee’s contention and suitably amend the charging of interest u/s 234A, if warranted. Issues Involved:1. Transfer Pricing Adjustment2. Disallowance under Section 40(a)(i) of the Income Tax Act3. Depreciation on Computer Peripherals4. Levy of Interest under Section 234A of the Income Tax ActIssue-wise Detailed Analysis:1. Transfer Pricing Adjustment:The primary issue in this appeal pertains to the addition on account of transfer pricing adjustment amounting to Rs. 33,23,41,378. The assessee reported certain international transactions in Form No. 3CEB, and the Assessing Officer referred these to the Transfer Pricing Officer (TPO) for determining their arm's length price (ALP). The dispute centers around the international transaction 'Freight forwarding and logistics' with a transacted value incorrectly mentioned at Rs. 286,89,84,115. The assessee selected the Transactional Net Margin Method (TNMM) as the most appropriate method and identified 16 comparable companies. However, the TPO shortlisted only three companies with an average Profit Level Indicator (PLI) of 19.27%, resulting in a transfer pricing adjustment of Rs. 33,23,41,378.The Tribunal noted that the Dispute Resolution Panel (DRP) did not properly address the segmental accounts presented by the assessee, leading to the restoration of the matter to the DRP. The Tribunal further examined the functional profile of the assessee, which is part of the CEVA group and engaged in rendering freight and forwarding services. The Tribunal directed the exclusion of Balmer Lawrie & Co. Ltd. from the list of comparables due to the inappropriate allocation of common unallocated expenses. Additionally, the Tribunal upheld the exclusion of other companies like ABC India Limited, S.E.R. Industries Ltd., Transport Corporation of India Ltd., and Delhi-Assam Roadways Corporation Ltd. based on functional dissimilarities. However, the Tribunal directed the inclusion of Premier Road Carriers Ltd., Roadways India Ltd., and Skypack Service Specialists Ltd. in the list of comparables.The Tribunal also emphasized that the transfer pricing adjustment should be restricted to the amount of international transactions and not transactions with unrelated parties, vacating the impugned orders to the extent they included non-AE transactions.2. Disallowance under Section 40(a)(i) of the Income Tax Act:The second issue concerns the disallowance of Rs. 2,91,95,210 under Section 40(a)(i) for non-deduction of tax at source on administrative fees paid to EGL, US, and EGL Singapore. The Assessing Officer treated the payment as 'Royalty' and made the disallowance. The Tribunal, following its earlier order for the preceding year, held that the amount paid by the assessee is not chargeable under Article 12 of the DTAA as no services were 'made available' to the assessee by the service providers. Consequently, the Tribunal ordered the deletion of the disallowance.3. Depreciation on Computer Peripherals:The third issue involves the disallowance of excess depreciation on computer peripherals. The assessee claimed depreciation at 60% on computers and printers, but the Assessing Officer allowed it at a reduced rate, resulting in a disallowance of Rs. 35,279. The Tribunal directed the allowance of depreciation at the higher rate following the judgment of the Hon'ble Delhi High Court in CIT vs. BSES Yamuna Powers Ltd. and the Special Bench order of the ITAT in DCIT vs. Data Craft India Ltd. The Tribunal also directed the Assessing Officer to enhance the written down value with the excess amount of depreciation disallowed in preceding years, provided the decision was accepted by the assessee.4. Levy of Interest under Section 234A of the Income Tax Act:The final issue pertains to the levy of interest under Section 234A. The assessee contended that the return was filed within the extended time allowed by the CBDT. The Tribunal directed the Assessing Officer to verify the assessee's contention and suitably amend the charging of interest under Section 234A, if warranted.Conclusion:The appeal was partly allowed for statistical purposes, with directions for fresh determination of ALP, deletion of disallowance under Section 40(a)(i), allowance of higher depreciation on computer peripherals, and verification of the levy of interest under Section 234A. The order was pronounced in the open court on 18.01.2018.