TaxTMI 
TaxTMI 
2019 (5) TMI 1741
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....d. 2.2. Ground No.6 raised by the assessee is with regard to the action of the ld. DRP upholding the action of ld. TPO by considering certain additional comparables which are functionally different with that of the assessee for the purpose of benchmarking the international transactions of the assessee. The assessee further elaborated ground No.6 by specifically mentioning the name of comparables by way of separate grounds in ground Nos.20 to 23 as under:- Ground No.20:- In respect of comparable TSR Darashah Ltd., Ground No.21:- In respect of comparable Apitco Ltd., Ground No.22:- In respect of comparable Global Procurement Consultant Ltd., Ground No.23:- In respect of comparable HCCA Business Services Pvt. Ltd., 3. The brief facts of this issue are that the assessee company is engaged in providing local logistics of freight forwarding services in India which includes cargo consultation services, international freight forwarding services, warehousing management services and other local logistic support services. The assessee is a wholly owned subsidiary of APL Logistics Ltd. Singapore (APLL, Singapore in short) which is part of the Neptune O....
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....om India to deliver outside India and origination services for shipment originated outside India to deliver in India). In relation to above, the assessee had entered into international freight services agreement and consultation services agreement dated 01/01/2009 with APLL Singapore. In the transfer pricing documentation, the assessee has adopted Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) to benchmark its international transactions. The net cost plus (NCP) was selected as the Profit Level Indicator (PLI). In the TP study report, it is mentioned that assessee opts as a low risk logistics and freight forwarding support services provider being insulated from all kinds of business and operational risks and entrepreneurial third party service provider. On the other hand, markets its services thereby incurring substantial expenses on account of such marketing and sales promotional activities. The weighted average NCP earned by comparable independent companies in logistics and freight forwarding support services worked out to arithmetical mean of 3.43%. The assessee earned NCP of 5% from its logistics and freight forwarding support services. Since, the as....
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....erms of the agreement, which is cost plus 5%. * The ships are owned by AE and 3rd parties. The shipping line delivers the goods at the destination port. The Assessee collects the shipping freight on behalf of the AE from the exporter customer which is treated as pass through the cost as per agreement. An amount of Rs. 281,630,514 are Charges in respect of international . freight forwarding shipments collected by the Assessee from the shippers / consignees in India on behalf of AEs. Out of these Rs. 281,630,514 depending upon the customer contract, APLL India would either pay the freight charges to the Shipping tines in India or would remit it to the AE on whose behalf it has collected the freight charges. During the year, assessee has paid Rs. 185,182,967/- to shipping lines in India. * Sometimes the exporter asks the assessee that the shipping freight would be paid to the consignee so the AE collects shipping on behalf of the assessee for payment to shipping lines. Such amount is Rs. 143,479,830. * The delivery of the goods from destination port to the customer's location is performed by the AEs and is neither collected by the assessee nor is reflect....
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....ngth return (if relevant) accrue to APLL Singapore, as the principal and entrepreneurial risk taker in the structure. 3.8. During the year under consideration, the assessee paid Network Fee amounting to Rs, 115,681,483 to APLL Singapore which is calculated in the following manner. Particulars Amount (Rs.) Total revenue (from JFS and consolidation business) without pass through cost A 57,07,88,484 Operating costs (i.e. base cost as defined in the IPS and Consolidation service agreement) B 43,34,35,239 .Add: Mark-up of 5% C 2,16,71.762 D=B+C 45,51,07,001 Network Fee A-D 11,56,81,483 Particulars FY 2009-10 Operating Income (A) 455,107,001 Operating Expenses (B) 433,435,239 Adjusted Net Profit (A-B = C) 21,671,762 Adjusted NCP (C/B) 5% 3.9. The assessee submitted before the ld. TPO further as under:- * The assesses has bench marked the transaction by TNMM * Assessee is the tested party. * PLI is Operation Profit/Cost. * The assessee searched for comparables on Prowess and Capitaline in the Transfer Pricing Study, who....
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....CA Business Services Pvt. Ltd., 3.13. The TPO arrived at the final margin of all comparables at 14.66% and accordingly made an adjustment of Rs. 4,18,69,844/- to arm's length price as under:- Particulars As per Assessee Amount (Rs,) As per TPO Amount (Rs,) Total revenue (from IPS and consolidation business) without pass through cost A 57,07,88,484 57,07,83,484 Operating costs (i.e. base cost as defined in the IPS and Consolidation service agreement) B 43,34,35,239 43,34,35,239 | Add: Mark-up of 5% (14.66%) C 2,16,71,762 6,35,41,606 Profit retained by the assesses 21,67,17,621 Adjustment 4,18,69,844 Fee Paid to the AE D=B+C 45.51,07,001 49,69,76.845 Network fee payable to the AE A-D 11,56,81,483 7,38,11,639 Adjustment 4,18,69,844 3.14. The ld. DRP granted partial relief to the assessee with regard to inclusion / exclusion of certain comparables. The ld. AO/TPO arrived at the revised adjustment figure to ALP at Rs. 3,39,81,323/-. 4. Aggrieved, the assessee i....
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....red thereon. He also placed on record the order of the ld. DRP dated 12/09/2017 in assessee's own case passed for the A.Y.2013-14 wherein the ld. DRP had held that Registrar and share transfer agent activities cannot be construed as business support services in assessee's own case. He also drew our attention to para 7.9.4 of the said order of ld. DRP dated 12/09/2017 passed for the A.Y.2013-14 which is enclosed in page 470 of the paper book wherein it has been held by the ld. DRP that back office support services such as HR management, payroll management etc., are in the nature of ITES services and that ITES services could not be compared with logistic support services. The ld. AR also placed on record the order passed by the ld. DRP in assessee's own case on 15/05/2018 for A.Y.2014-15 wherein, in the context of inclusion of comparable i.e., Tata Consultancy Engineering Ltd., (TCE in short) by the ld. TPO, the ld. DRP held that the said comparable is found to be operating in the area of engineering consultancy and not in the area of support services and therefore, the same cannot be selected as an appropriate comparable to the assessee. 5.1.3. The ld. AR also drew our attention ....
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....ds" section in any organization, including interface with regulatory authorities. When we compare all the three broader activities undertaken by this company, namely, R&T, Records and Payroll, with the overall pre and post sale services rendered by the assessee to its AE, on a cost plus basis, we find that there is a huge functional disparity between the two. That apart, the consideration of this company on an entity level by the TPO has rendered the entire exercise of comparison meaningless. Finding striking dissimilarities between this company and the assessee, we order to exclude this company from the final set of comparables." 5.1.5. We also find that against this decision, the revenue had preferred an appeal to Hon'ble Delhi High Court which was dismissed on the ground that no substantial question of law arises thereon requiring examination by the court vide order dated 26/07/2016 in ITA No.447/2016. 5.1.6. We find that this comparable of M/s. TSR Darashaw Limited had been sought to be excluded from the final list of comparables by the Coordinate Bench decision of Delhi Tribunal in the case of M/s.Gecas Services India Pvt. Ltd., vs. ITO in C.O. No.217/Del/2015 dated 18/1....
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....rt, the consideration of this company on an entity level by the TPO has rendered the entire exercise of comparison meaningless. Finding striking dissimilarities between this company and the assessee, we order to exclude this company from the final set of comparables. Similar view has been taken by the Tribunal in its order for the immediately preceding year in assessee's own case." 5.1.7. We hold that in the light of functions performed by the assessee and the functions performed by the AE which remain undisputed before us and in the light of the functions performed by TSR Darashaw Limited (i.e., comparable chosen by the ld. TPO) and further in the light of the aforesaid judicial precedents, we hold that the comparable TSR Darashaw Limited cannot be treated as a good comparable with the assessee in view of the functional dissimilarities. The ld. TPO accordingly is directed to exclude the same from the list of final comparables. 5.2. Apitco Limited The assessee sought for exclusion of this comparable from the list of final comparables chosen by the ld. TPO. The ld. TPO observed that as per the information downloaded from the website of the said comparable, the said comp....
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.... the Engineering India Ltd. is a Government Company and its annual report indicates that a substantial part of its revenue in execution of turnkey projects arose out of executing projects of public sector undertakings. In the circumstances, the impugned order of the Tribunal holds that the Engineers India Ltd. could not be considered to be comparable for the reason that contracts between Public Sector undertakings are not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc. Thus, it is not comparable. Moreover, from the annual report, it is clear that the revenue earned in executing turnkey project for other public sector undertakings was much more than the filter of 25%, which has been applied by the TPO in his order under Section 92CA(3) of the Act, while taking TRF Ltd. as a comparable on the ground that its related party transaction was not in excess of 25% of its total turnover. Thus, applying consistent filter of 25% or less of related party transaction alone to be considered comparable, Engineers India Ltd. could not be considered to be comparable. (b) We find that the view taken by the Tribunal in the impu....
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....obal Procurement Consultant Ltd., also on the very same footing i.e., the said comparable being a Government company. Hence we direct the ld. TPO to exclude the same from the list of comparables. 5.4. HCCA Business Services Pvt. Ltd., With regard to exclusion sought by the assessee in respect of comparable HCCA Business Services Pvt. Ltd., we find that the ld. DRP in its order for A.Y.2013-14 in assessee's own case had excluded this from the list of comparables. The ld. DR relied on the observations of the ld. DRP with regard to this comparable. Hence, following the directions of DRP in assessee's own case in the A.Y.2013-14, we direct the ld. AO to remove this comparable from the list of comparables. 5.5. The ld. TPO is directed to re-compute the ALP of the assessee after excluding the aforesaid four comparables and arrive at the revised margin of the comparables and decide as to whether ALP adjustment, if any, need to be made thereafter, in the case of the assessee. Accordingly, Ground No.6, 20,21,22 & 23 are allowed. 6. Ground No.7 to 9 raised by the assessee are only with regard to the adoption of correct margins of the aforesaid comparables which we direct the ld. ....