AI Drafter 
TaxTMI 
TaxTMI 
2019 (10) TMI 136
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....ny, is engaged in the business of shipping agency. For the assessment year 2008-09, the assessee filed its return of income on 28th February 2009, declaring total income of Rs. 4,17,34,690. Similarly, for the assessment year 2009-10, the assessee filed its return of income on 26th September 2009, declaring total income of Rs. 5,53,32,310. In the course of assessment proceedings for the aforesaid two assessment years, the Assessing Officer noticing that the assessee had entered into international transactions with its overseas Associated Enterprises (AEs) made a reference to the Transfer Pricing Officer for determining the arm's length price of such transactions. After examining the nature of transactions, the documents on record as well as submissions of the assessee, the Transfer Pricing Officer proposed adjustment to the arm's length price of provisions of business support service in both the assessment years. On the basis of orders passed by the Transfer Pricing Officer, the Assessing Officer framed draft assessment orders incorporating the adjustment suggested by the Transfer Pricing Officer. Against such draft assessment orders, the assessee filed objections before ....
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.... Whereas, the assessment order for the assessment year 2008-09 was passed on 29th August 2018, which is beyond the period of limitation prescribed under section 153(2A) r/w its 4th proviso, as it stood prior to its amendment by Finance Act, 20016. He submitted, similarly for the assessment year 2009-10, the final assessment order in pursuance to the direction of the Tribunal was passed on 9th October 2018. Thus, he submitted, the impugned assessment orders are clearly barred by limitation. The learned Counsel for the assessee submitted, even by the time the Assessing Officer passed the draft assessment orders for the aforesaid assessment years, the limitation period of 24th months had already expired. Thus, he submitted, the assessment orders having been passed beyond the period of limitation prescribed under section 153(2A) of the Act are invalid in law, hence, should be quashed. In support of such contention, learned Counsel relied upon the following decisions:- i) Nokia India Pvt. Ltd. v/s DCIT, [2017] 85 taxmann.com 291 (Del.); ii) Instruments & Control Company v/s CCIT, [2012] 83 CCH 149 (Guj.); iii) CIT v/s Bhan Textile Pvt. Ltd., [2008] 300 ITR 1....
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....he DRP orders. Yours faithfully, Sd/- (Sonal L. Sonkavde, IRS) Deputy Commissioner of Income tax-7(1)(2), Mumbai" 7. As stated by the Assessing Officer in the aforesaid report, since the final assessment orders were passed well within the time of receipt of directions of the DRP, they cannot be considered to be barred by limitation. 8. We have considered rival submissions and perused material on record. We have also carefully applied our mind to the decisions relied upon. For deciding the issue at hand, we have to take note of certain dates and events which have a crucial bearing on the issue:- Sl. no. Dates Events 1. 14.01.2015 Common order passed by the Tribunal disposing off the appeals for the A.Y. 2008-09 and 2009-10. 2. 04.03.2015 Order passed by the Tribunal was received by the Principal Commissioner of Income Tax. 3. 30.11.2017 Draft assessment order passed for the A.Y. 2008-09. 4. 04.12.2017 Draft assessment order passed for A.Y. 2009-10. 5. 29.08.2018 Final assessment order passed for the A.Y. 2008-09. 6. 09.10.2018 Final assessment order passed for A.Y. 2009-10. 9. From the aforesaid date....
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....08-09 and 2009-10 are beyond the period of limitation prescribed under section 153(2A) of the Act. 10. The Hon'ble Delhi High Court in case of Nokia India Pvt. Ltd. (supra) while considering an identical issue held that even if the assessment order is not set aside in its entirety, still, the provisions of section 153(2A) of the Act would be applicable. Since, in the said case the final assessment order was not passed within the period of limitation prescribed under section 153(2A) of the Act, the High Court quashed it. The Tribunal, Pune Bench, in Honeywell Automation India Ltd. (supra), expressed similar view. Even, the other decisions cited by the learned Counsel for the assessee support the aforesaid view. It is relevant to observe, in the course of hearing of appeal, the learned Departmental Representative had sought the indulgence of the Bench to furnish a report from the Assessing Officer with regard to the applicability of the limitation prescribed under section 153(2A) of the Act. In the report dated 19th July 2019, though, the Assessing Officer has clearly admitted that the order of the Tribunal was received by the learned Principal Commissioner of Income Tax on 4t....
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....y the Transfer Pricing Officer, the assessee is working as a shipping agent to the parent company. Whereas, the parent company is engaged in global containers line shipping and operates about 320 offices in over 130 Countries with 8,000 employees worldwide. As evident from the facts on record, the parent company initially entered into an agreement in the year 1993 with German Express Shipping Agency (GESA) for availing business support services. The said agreement continued till the year 2006 and was terminated on 31st December 2006, after incorporation of the assessee company in India. With advent of the assessee company, the agency agreement was entered into between Hapag-Lloyd AG and the assessee effective from 1st January 2007, under which the assessee acts as a captive service provider to Hapag-Lloyd AG in booking shipments required to be moved from one location to another and to provide support services in relation to freight collection, vehicle husbandry, transportation of container in India. Though, the agreement between Hapag-Lloyd AG and GESA was terminated in 31st December 2006, however, considering the long standing relationship with GESA and its involvement with Hap....
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....Lloyd AG for the entire territory of India and even after termination of agreement, GESA is providing some services to Hapag-Lloyd AG under the sub-agency agreement for certain territories in India. Accordingly, applying the rate/price charged by GESA under the sub-agency agreement as internal CUP, the Assessing Officer determined the arm's length price of the business support services provided by the assessee to the AE, which resulted in transfer pricing adjustment of Rs. 22,36,67,342. The assessee challenged the addition made on account of the aforesaid adjustment before learned DRP. However, after rejection of the objections by learned DRP, final assessment order was passed confirming the addition made in the draft assessment order. Against the final assessment order so passed, the assessee preferred appeal before the Tribunal. While disposing off assessee's appeal in ITA no.1134/Mum./2015, dated 27th February 2017, the Tribunal following its earlier order passed for the A.Y. 2008- 09 and 2009-10, restored the issue to the Assessing Officer for deciding the issue afresh in the light of the directions of the Tribunal. In pursuance to the directions of the Tribunal, the Ass....
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....has observed that the sub-agency agreement between the assessee and GESA cannot be treated as internal CUP. He submitted, despite such clear observations of the Tribunal, the Transfer Pricing Officer has again adopted the sub-agency agreement between the assessee and GESA as internal CUP which is unsustainable. Further, he pointed out the following functional and risk differences which completely rules out adoption of sub-agency agreement with GESA as internal CUP. Functional differences Functions/ activities Agreement between Hapag India and Hapag AG Sub-agency agreement between Hapag India and German Express Territories Responsible for the entire territory of India. Hapag India has not appointed sub-agent for the following regions and performs the support activities on its own: • Mumbai • Nhava Sheva • Delhi • Dadra (ICD) • Tutlakabad (ICD) • Patparganj (ICD) • Chennai Responsible for regions other than the regions specifically handled byHapag India on its own, some of which include: • Tuticorin • Pipavav • Mundra ....
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....volved in the Guarantee is contractually and economically borne by German Express In relation to the bank guarantee provided by German Express to Hapag AG, though the 'charges'were borne by Hapag AG, the'entire risk'as such involved in the guarantee was contractually and economically borne by German Express.Therefore, while there is no additional financial burden on German Express, it is submitted that the existence of such economic risk would impact the comparability of the said agreement under CUP. The relevant extract of the sub-agency agreement is reproduced below: Article 4 - Collection of sea/ inland freights and charges 4.2 "The Sub-Agent" undertakes to provide "The Line" with a bank guarantee for sea/ inland freights and/ or other charges collected or not collected from customers through "The Sub-Agent" but due to "The Line" as may be required by the "The Agent". All cost incurred in order to obtain a bank guarantee shall be covered by "The Line". Credit risk The Appellant does not bear the credit risk German Express is required to remit money irrespective of whether the same has been collected. Thus, German Express assumes the risk of default of ....
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....It is respectfully submitted that the Appellant is remunerated on a cost-plus basis and accordingly, all costs incurred by the Appellant (including fixed and common costs) are recovered alongwith the agreed mark-up. Therefore, the Appellant bears no utilization risk arising out of non-recovery of fixed costs. On the other hand, German Express is remunerated on a commission basis which is contingent on the volume of business as well as the collection of freights from customers (without any defaults). 16. The learned Counsel for the assessee submitted, even the sub- agency agreement was determined in March 2010, after which there was no relationship even between the assessee and GESA. He submitted, even between January 2007 and March 2010, there is no direct relationship between Hapag-Lloyd AG and GESA and no payment has been made by Hapag-Lloyd AG to GESA. Therefore, the Transfer Pricing Officer was totally wrong in considering the sub- agency agreement with GESA as internal CUP. He submitted, though, the Tribunal had not ruled out applicability of external CUP, however, the Transfer Pricing Officer himself has not been able to find out any external CUP. He submitted, in such ....
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....hmarking and has determined the arm's length price by applying the sub-agency agreement between the assessee and GESA as internal CUP. Pertinently, in assessment years 2008-09 and 2009-10, under identical facts and circumstances, the Transfer Pricing Officer had determined the arm's length price of the business support services provided by the assessee to the AE applying the aforesaid agreement between the assessee and GESA as internal CUP. When the dispute ultimately cam up for consideration before the Tribunal, vide order dated 14th January 2015, in ITA no.7771/Mum./2012 and ITA no.1374/Mum./2014, the Tribunal dealt with the issue and restored it back to the Assessing Officer for deciding afresh keeping in view the decision of the Tribunal in UCB India Pvt. Ltd. v/s ACIT, [2009] 121 ITD 131 (Mum.). Relevant observations of the Tribunal are as under:- "6. We have considered the rival submissions as well as relevant material on record. Upto 31/12/2006 GESA was providing the services for booking shipments to HLAG under agency agreement of 1993. GESA was charging a certain percentage on the freight turnover as commission apart from fixed charges @ US$ 10 per inland b....
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....nternational transaction continue to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature of terms of the international transaction, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under sub-rules (1) and (2) shall be maintained bring out the impact of the change on the pricing of the international transaction." 6.1.1 Therefore, the use of earlier data is an exception and cannot be applied in exclusion of current year data. In other words, in the case of existence of exceptional circumstances the prior two years data along with current year data can be used. Once the GESA ceases to be agent of HLAG w.e.f. 31.12.2006, then in the absence of current/contemporary data / uncontrolled price, the price of prior year cannot be considered for determination of ALP in relation to international transaction entered in current year. 6.2 The another aspect of considering the said price between GESA and assessee as internal....
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....t had ignored the CUP and took the price charged by the assessee as ALP. Further, the services provided by the assessee on its own were compared with CUP. Therefore, two separate ALP were determined by the TPO for the same service provided by the assessee to AE. Even if the CUP is adopted as most appropriate method ALP cannot be more than price received by GESA. Whereas the TPO has taken into consideration the price charged by the assessee with 10% markup. Hence, the computation of ALP is otherwise not based on correct uncontrolled price. 6.2.3 We may clarify that the international transaction in question should be considered as one and price received by the assessee in total has to be compared with the ALP. The assessee received the price for providing the service as per the agency agreement. Therefore, the service provided by the assessee to the AE are closely interlinked and price of one part is dependent on the price of the other part. Therefore, the entire services provided by the assessee has to be treated as one international transaction for the purpose of determining the ALP. 6.2.4 In view of the above discussion, as well as the facts and....
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....ver, the Tribunal has specifically observed that the price paid to GESA cannot be applied as internal CUP. At this stage, we must observe, on verification of the nature of services provided by the assessee to the AE and GESA to the assessee under the sub-agency agreement, we are of the considered opinion that both cannot be compared due to their functional and risk differences as pointed out in a tabular form hereinbefore. It is evident, the Transfer Pricing Officer in his order passed under section 92CA(3) of the Act, has expressed his inability to find any external CUP to benchmark the transaction. In such circumstances, the only other alternative for determining the arm's length price of the transaction is TNMM. Admittedly, the assessee has benchmarked the provision of business support services applying TNMM. It is also observed, in subsequent assessment years i.e., A.Y. 2012-13 and 2014-15, the assessee had benchmarked the provision of business support service to the AE, applying TNMM and the Transfer Pricing Officer has accepted it. Thus, from the aforesaid facts, it can be concluded that when no external CUP is available, as submitted by the learned Counsel for the assess....