TaxTMI 
TaxTMI 
2012 (12) TMI 606
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....her grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored." 2. The assessee has also filed Cross Objection mostly in support of the order passed by the CIT(A) in deleting the addition of Rs. 1,58,20,996/- made on account of adjustment in Arms Length Price (ALP) on various alternative grounds. 3. The facts in brief are that the assessee company CMA CGM Global India Private Limited (in short GIPL), was incorporated in September, 2003 and is a subsidiary of CMA CGM, France, which is one of the major worldwide Container Shipping Lines and is a tax resident of France. The assessee company is a joint venture between CMA CGM holding 51% equity shares and Maritime Commerce Agency India Private Limited holding 49% shares. The assessee was appointed as a shipping agent of CMA CGM for undertaking its shipping business in India based upon the terms and conditions of the agency agreement dated 17th September, 2003. Prior to incorporation of the assessee, the CMA CGM had appointed Container Maritime Agencies Private Limited as its shipping agent and such agency continued upto August 2003 based on terms and conditions menti....
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....NL Singapore Pte. Ltd. Singapore Recovery Communication expenses 2,92,781 CUP Total 16,07,11,172 From the above, he further noted that the assessee had shown aggregate total fees of Rs. 93.58 Lakhs on account of 'container control fees' in respect of rendering its services to its two AEs. The assessee has benchmarked the said transaction by using the CUP Method and has considered the activities carried out by erstwhile Container Marine Agency Pvt. Ltd. as independent third party for benchmarking the rate for various activities performed by the assessee for its AEs. This is because untill September, 2003, this company was rendering similar services to CMA CGM and other shipping lines as per market practices in an uncontrolled transactional regime. While examining the agency agreement entered into with the said party by CMA CGM and also with the assessee company, the TPO noted that the assessee is charging container control fees' of US $2.5 per container, whereas the earlier third party was charging US$5 per container for the same services. Similarly, the assessee was charging US $5 per container from ANL Singapore another associate ent....
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....6% increase over FY 2003-04) In FY 2007-08 also the agency earned Container Control Fee @USD 2.5 per container, which by logic of a one to one comparison can be much lower than this. We therefore again request you that having earned a very healthy margin, it may be concluded that we, as agent, have been compensated on arms-length basis." 6. The TPO rejected the said contention of the assessee and after applying the CUP Method as followed by the assessee, he came to the conclusion that the assessee has under charged CMA CGM in respect of 'container control fees', which should be US $ 5 instead of US $ 2.5 per container. Accordingly, he made an adjustment of Rs. 91,07,412/-. Likewise, he made similar adjustment in recovery of 'communication expenses' and made an upward adjustment of Rs.67,13,584/-. 7. In the first appeal before the CIT(A), the assessee submitted that the TPO and the AO has erroneously considered that the stream of income i.e. 'container control fee' and recovery of 'communication expenses', in isolation with other stream of incomes without appreciating that income of the assessee from CMA CGM has to be seen as composite activity having various stream of inco....
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....the assessee to furnish a summary regarding what should be the profit earned in India, had the rates at which earlier third party was doing the business with the CMA CGM. The assessee furnished a comparative chart reflecting the revenue which could have been earned as per the rates of earlier third party, the same is incorporated in the appellate order at page 10, which is also reproduced herein below for the sake of ready reference :- "Actual revenues as per the existing arrangement with the assessee. Amount in Rupees Particulars Rate AY 2005-06 AY 2006-07 AY 2007-08 Export Commission 3% of Net ocean revenues 95,184,437 103,538,647 112,566,713 Container Control Fees USD 2.5 per container 9,107,412 9,664,878 12,949,919 Communication Fees USD 3.5 cent container 15,665,030 9,034,015 11,232,762 TOTAL(A) 119,956,879 122,956,879 136,749,394 Estimated Revenues as per the Erstwhile Arrangement Particulars Rate AY 2005-06 AY2006-07 AY 2007-08 Export Commission 2.5% of Net ocean revenues 79,320,364 86,282,....
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....ys be benchmarked. He, thus, strongly relied upon the reasonings given by the TPO. After a query put by this Bench to him at the time of hearing as to whether earlier agreement, which was entered in the year 1999 can be held to be comparable with the present agreement, which was entered into 2003 and whether such rates can be applied in the CUP Method. To this, he fairly admitted that if the rates applied do not fall within the same financial year, the earlier years rates cannot be compared in CUP Method. He further admitted that there are no internal comparables or external comparables, therefore, TNMM Method can be held to be the most appropriate method. However, he vehemently objected the reasoning and conclusion drawn by the CIT(A) as well as by the TPO as neither of them have examined the comparables nor any other appropriate comparables having similar nature of business were looked into. In case if it is held that TNMM Method is to be applied, then matter should be restored back to the file of the TPO to carry out fresh search of comparables and evaluate the ALP. 11. On the other hand, learned counsel on behalf of the assessee strongly relied upon the reasonings given by t....
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....ile applying CUP Method, there could be internal CUP or external CUP. The internal CUP could be available if the assessee or one of its group entities entered into comparable transaction with an unrelated party where the goods or services under consideration are same or similar. On the other hand, in an external CUP, transaction between two independent enterprises involved comparable goods or services under comparable conditions. Here, in this case, the internal CUP, 'ANL Singapore' cannot be applied as it is an AE having related party transactions. There are also no external CUP for making any comparison in the relevant year as the earlier agency agreement with the third party CMAPL had expired prior to September, 2003 and rates which were applicable in the earlier years cannot be made applicable in this year. Thus, the rates of the earlier agreement will not be appropriate parameter for determining the ALP for the international transaction undertaken by the assessee with its AE in the current assessment year. In these circumstances, the CUP Method fails in this case for benchmarking the ALP. 13. Now, coming to the applicability of most appropriate method, both the parties have....