TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1408
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....cer (TPO) for determining their arm's length price (ALP). There is no dispute on the international transaction of `Receipt for back office services' amounting to Rs. 2.28 crore, which has been accepted by the TPO at the ALP. 4. The international transaction in dispute is "Freight forwarding and logistics", with transacted value wrongly mentioned at Rs. 286,89,84,115/- (which is, in fact, the amount of total revenue, including from non-AEs). The assessee selected the Transactional net margin method (TNMM) as the most appropriate method for demonstrating that the ALP of this transaction was at ALP. The assessee selected 16 companies as comparable with the multiple year data. The TPO considered the data for the current year alone in respect of comparable companies to benchmark the international transaction. Out of 16 companies selected by the assessee, the TPO shortlisted 3 companies as comparables with their Profit Level Indicator (PLI) of Operating Profit/Total Cost (OP/TC) at 19.27 % as under :- i. Balmer Lawrie & Co. Ltd. 3 0.74% ii. Gati Ltd. 11.17% iii. Sical Logistics Ltd. 15.90% Arithmetic mean 19.27% 5. Applying the average OP/TC of the three companies at 19.27% as ....
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....ccounts and some submissions have also been recorded in the assessee's written submissions on this score, but the same was admitted by the ld. AR to be treated as having become infructuous. Consequently, we are desisting from dealing with the issue of segmental accounts and corresponding ground is dismissed as not pressed. 7. Before considering the comparability or otherwise of the companies assailed before us, let us first examine the functional profile of the assessee under international transaction in dispute. The assessee is a part of CEVA group, which, during the year under consideration, had its AEs located in over 100 countries with around 400 facilities, agents and distribution centres. 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. The assessee obtained the services of its AEs located in destination countries and ....
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....lso undertakes related services, such as, Custom clearance, documentation, storage and handling of cargo etc., compensation for which is also separately awarded to the assessee, but all such receipts have been considered as a part and parcel of Freight receipts for the purposes of benchmarking on consolidated basis. 8. With the above background of the functional profile of the assessee company in mind, let us first examine the only company, whose inclusion has been challenged by the assessee before us. Balmer Lawrie & Co. Ltd. 9. This company was initially offered by the assessee as comparable in its Transfer pricing study report. However, it was submitted before the TPO that the same was not comparable and, hence, should be excluded. This contention was rejected by the TPO who included the same in the final list of comparables. No relief was allowed by the DRP. That is how, the assessee is before the Tribunal seeking exclusion of this company. 10. We have heard both the sides and perused the relevant material on record. Page 764 onwards of the paper book is a copy of the Annual report of Balmer Lawrie & Co. Ltd. Page 804 is a copy of its Profit & Loss Account, which shows reven....
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....n of common expenses in the ratio of gross revenue from each segment. That being the position, the computation of the profit margin of the relevant segment of Balmer Lawrie & Co. sheds credibility which renders its inclusion invalid. This company is directed to be excluded. 11. Apart from challenging the inclusion of Balmer Lawrie & Co. P. Ltd., the assessee has also challenged the exclusion of some of the companies, which we will deal herewith. 12. Before taking up such a comparison, it is relevant to deal with the argument of the rule of consistency bolstered by both the sides. Whereas the case of the assessee is that the TPO wrongly excluded some companies from the assessee's list of comparables, which were accepted as comparable in the preceding year, the ld. DR has justified the exclusion of some other companies on the ground that such companies were either not treated as comparable by the assessee or argued against their inclusion in subsequent years. 13. We express our reservations in concurring with this argument advanced by both the sides. A company considered as comparable in a preceding or a succeeding year does not necessarily become comparable for the current year a....
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....company is considered, which ex facie shows striking dissimilarities rendering it totally non-comparable. This company has two streams of income, namely, Transport division and Petrol pump division. Obviously Petrol pump division of this company can, by no standard, be considered as a match with the assessee company. Even the Transport division of this company caters only to Road transportation business. As against this, the assessee company is engaged in Air and Ocean freight forwarding and is also earning revenue from certain ancillary service, like, Cargo Handling and Logistics Management etc., revenue from which has been merged with the amount of freight. This sharp distinction in the nature of work carried out by ABC India Limited even under the Transport division makes it non-comparable. Further, a look at the Annual report of this company, whose copy is available in the paper book, divulges that apart from net segmental revenue of these two divisions, there are certain common `Unallocated expenses' to the tune of Rs. 148.31 lac. The assessee computed profit margin of this company on segment level by allocating common unallocated expenses in the ratio of revenue from two divi....
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....of his order. The assessee is aggrieved against the exclusion of this company from the list of comparables. 20. Having heard both the sides and perused the relevant material on record, we find from the Annual report of this company, a copy of which is placed from page 721 onwards of the paper book, that apart from Trading income, this company has also earned income from Sales, Bus operations, Commission and other services. The ld. DR invited our attention towards the Transfer pricing study reports of the assessee for succeeding years in which the assessee itself excluded this company from the list of comparables. The assessee is urging for the inclusion of this company on the strength of segmental results given on page 34 of the Annual report. 21. It is discernible that though there are separate figures of revenue and costs from Transport division in addition to XPS division, Trading, division, Power division and TCI sea ways division, but we find that there are common `Unallocated corporate expenses' amounting to Rs. 482.17 million. The assessee has computed the profit margin of the Transportation Division of this company by allocating common unallocated expenses in the proporti....
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.... assets to sales is 3.27% as against the assessee having 0.67%. There is not much difference in these two factors. Since the TPO has not treated this company as functionally dissimilar, we hold that the same should not be excluded for minor variations in the ratio of lease rent to sales and net fixed assets to sales. We, therefore, direct the inclusion of this company in the list of comparables. vi) Roadways India Ltd. 26. This company was excluded by the TPO on the ground of declining profits. He recorded that for the Financial year 2003-04, this company had a margin of 1.79% and for the Financial years 2004-05 and 2005-06, 1.17% and 0.96% respectively. This company was not held to be functionally different. The ld. DR brought to our notice that the assessee itself did not include this company in the list of comparables for the assessment year 2008-09 and rejected this company because of different functional profile in its TP study documentation for the assessment year 2009-10. 27. Having heard both the sides and gone through the relevant material on record, it is manifest that no company can be excluded simply on the basis of a higher or lower profit margin registered in the ....
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....s India Ltd., we direct to include this company in the final tally of comparables. 30. After arguing the inclusion/exclusion of companies in the list of comparables, the ld. AR submitted that the TPO went wrong in determining the amount of transfer pricing adjustment by considering the entity level gross revenue shown by the assessee at Rs. 286.89 crore. It was submitted that the transfer pricing adjustment, if any, could have been restricted to the amount of international transactions and not the transactions with unrelated parties. 31. Section 92 is a substantive provision in this regard. Sub-section (1) of sec. 92 provides that ; `Any income arising from an international transaction shall be computed having regard to the arm's length price.' The term "international transaction" has been defined u/s 92B to mean: "a transaction between two or more associated enterprises,.......". A conjoint reading of section 92 with section 92B clearly brings out that computation of income at ALP is permissible only in respect of international transaction, which, in turn, means a transaction between two or more associated enterprises. Similar position has been reiterated in the machinery provis....
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....Act as well as the respective Double Taxation of Avoidance Agreements (DTAA) and accordingly made disallowance for non-deduction of tax at source. The disallowance so made was sustained by the DRP as well. This is how, the Assessing Officer in the final assessment order dated 10.4.2013 passed under section 143(3) read with section 144C(5) of the Act, impugned in the extant appeal, made the addition. 35. We have heard both the sides and perused the relevant material on record. It is noticed that while making the disallowance, the authorities below have taken assistance from the similar view of making disallowance in the immediately preceding year. The Tribunal, while dealing with the similar disallowance for the preceding year, in its order dated 19.1.2017 in ITA No. 1527/Del/2011, has 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 ye....