TaxTMI 
TaxTMI 
2020 (7) TMI 659
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.... both the appeals by a consolidated order but however proceed with the facts for A.Y. 2010-11. 3. The relevant facts as culled from the material on records are as under: 4. Assessee is a company which is stated to be engaged in the business of international freight forwarding and providing logistics support services. Assessee electronically filed its return of income for A.Y. 2010-11 on 11.10.2010 declaring loss of Rs. 63,80,691/-. The case was selected for scrutiny and accordingly, notice u/s 143(2) and questionnaire u/s 142(1) of the Act was issued. On the basis of the details furnished by the assessee, it was noticed that during the relevant assessment year, assessee had entered into international transactions with Associated Enterprises (AE's). Accordingly a reference was made to the Transfer Pricing Officer (TPO) u/s 92CA(3) to determine the Arms Length Price (ALP) in respect of "International transactions". TPO vide order dated 30.01.2014 passed u/s 92CA(3) recommended an upward adjustment to the income to the extent of Rs. 3,00,29,592/- on account of transfer pricing adjustment by inter alia rejecting the CUP method followed by the Assessee to benchmark the internat....
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....actional Net Margin Method ("TNMM") instead; 2.3 not appreciating that the pricing basis followed by the Appellant in respect of its international transactions of import/ export of freight forwarding services from/ to AEs is in line with well accepted/ prevalent business models followed in the global/ Indian freight forwarding industry by independent freight forwarding companies; and 2.4 not appreciating/ taking cognizance of the evidentiary documents submitted by the Appellant during the TP audit proceedings, to establish that the pricing basis followed by it in respect of its international transactions of import/ export of freight forwarding services from/ to AEs is same/ similar to the pricing basis followed by it while transacting with third parties for similar services. 3. The Ld. AO (following the directions of the Hon'ble DRP) erred on facts and in law, by rejecting CUP as the most appropriate method and instead selecting the TNMM as most appropriate method and in doing so have, grossly erred in. 3.1 not appreciating that the Appellant is operating as an independent service provider assuming entrepreneurial risks and its corresponding returns may b....
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....ion 274 of the Act. That the above grounds of appeal are without prejudice to each other. That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal" 5. Similar grounds have been raised by the Assessee for AY 2011-12 which reads as under: "1. The Ld. Deputy Commissioner of Income-tax ('Ld. AO') / Transfer Pricing Officer (T PO) pursuant to directions of the Hon'ble Dispute Resolution Panel ('DRP') have erred in facts and in law in enhancing the income of Appellant by INR 1,12,05,372/-. 2. The Ld. AO / DRP erred in ignoring the favorable decision of the Hon'ble Income Tax Appellate Tribunal (ITAT) in Appellant's own case for Assessment year 2006-07 and 2007-08, which was subsequently upheld by the Hon'ble High Court ('HC') by dismissing the appeal made by the department, wherein the Hon'ble ITAT: 2.1 . accepted the use of 'Other Method' as enumerated in Rule 10AB of Income Tax Rules, 1962; 2.2 . held that the pricing basis followed by Appellant in respect of its international transactions of import/ export of freight forwarding services fro....
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....sks and its corresponding returns may be volatile depending upon various market factors and that the application of TNMM in such a case would not be most appropriate; 4.2 disregarding the ALP as determined by the Appellant in the fresh search sought by the Ld. TPO, and instead conducting a fresh comparability analysis himself based on certain erroneous additional/ modified filters in determining the ALP for the Appellant's international transactions of import/ export of freight forwarding services from/ to AEs; 4.3 considering the current year (i.e. FY 2010-11) data for comparability analysis despite the fact that such data was not available to the Appellant at the time of preparing its TP documentation report for the year; 4.4 not appreciating the Fonctional-Asset-Risk ("FAR") profile of the Appellant and benchmarking the Appellant against companies which were not at all comparable to the Appellant in terms of their FAR profiles; and 5. The Ld. AO/TPO has erred in incorrectly calculating the amount of proportionate adjustment whereby the total adjustment was computed at INR 1,12,05,372 instead of INR 61,55,070. 6. That the Ld. AO grossly erred in ....
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....wed where the assessee engages (or is engaged by) third party agents for the forwarding activities. Since, sharing of profit in the equal proportion model i.e. 50:50 ratio was followed for both the AEs and unrelated third parties, CUP method was considered as the Most Appropriate Method ('MAM') by the assessee to benchmark the arm's length nature of the transfer prices of its transactions with its overseas AE's. TPO rejected the CUP method followed by the assessee as he was of the view that assessee did not benchmark all international transactions in the freight and forwarding segment, the impact of other transactions between the AE of the assessee and other distributors is not known, geographical locations differences impact not captured, and the CUP method followed by the assessee was rejected in earlier years by the TPO. Thereafter, TPO used Transactional Net Margin Method ('TNMM') to benchmark the assessee's international transactions with AEs. The action of TPO/AO was upheld by DRP. Aggrieved by the order consequent to the directions of DRP, assessee is now before us. 8. Before us, Learned AR at the outset, submitted that identical issue arose in assessee's own case in A....
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.... available in the TP study of the assessee nor the same was provided by the assessee to the TPO during the course of TP proceedings to examine the applicability of CUP method. A detailed showcause was issued to the assessee which forms part of the TP order [show-cause dt.13.12.2013 at page 140-150 of appeal set of AY 2010-11 and dt.12.01.2015 at page 164-172 of appeal set of AY 2011-12 as ]. 2. Even copy of relevant agreements were not provided by the assessee to the TPO [para-8 of showcause dt.13.12.2013, page-143 of appeal set for AY 2010-11]. 3. The assessee was specifically asked to file 3 bills for each month in r/o its international transactions with both AE and non-AE so as applicability of CUP method can be examined. However in compliance the assessee expressed its inability to provide the same [TPO order for AY 2011-12, P/181 of appeal-set for AY 2011-12]. Thus it may be seen that even sample verification could not be carried out by the TPO in absence of requisite detail. 4. Instead of providing relevant detail/evidences w.r.to 'Price' in accordance with I.T. Rule 10B(1)(a), the assessee insisted that he has followed the industry norms of....
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....ct on the price. Product comparability is absolutely key, in particular physical features such as size, weight, appearance alongwith volume, reliability, storage requirement, regulatory requirements etc. Pricing of a product is a very subjective exercise and is true value, as received by the receiver, can differ from that received by others in the market place. This decision of Hon'ble ITAT Mumbai has not been discussed in the order of Hon'ble ITAT in its order dt.18.11.2014 for AY 2006-07 & 2007-08 (ITA No. 5025/Del/2010 and 774/Del/2012; available in paper-book) in the case of the assessee which have been cited by the appellant with a claim that the issue is covered. This needs to be examined & adjudicated accordingly. 7. Before the order of Hon'ble ITAT in assessee's own case for AY 2006-07 & 2007-08 is discussed, kind attention of Hon'ble Bench is drawn to one more crucial fact. The entire share holding of the assessee company is held by M/s Toll Global Forwarding International (BVI) Ltd whcih is a company registered in BVI. It is a common knowledge that BVI is a known tax heaven. Further out of the 3 directors of the assessee company, two of them a....
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....ed & adjudicated accordingly. (v) Thereafter Hon'ble ITAT also discussed CBDT notification dt.23.05.2012 wherein 'Additional method' was introduced for benchmarking in addition to CUP, RPM, CPM, PSM & TNMM. [page-24 to 28 of PB]. Hon'ble ITAT discussed certain case-laws and finally relying on the observations of Hon'ble SC in para-33 of its order in the case of M/s Vatika Township Ltd [2014 TIOL 78 SC] held that in view of the CBDT notification, Rule 10BA is held to be effective from 01.04.2002 i.e. the time when TP provisions were introduced in India. Hon'ble ITAT also held that the additional method relaxes the rigors of CUP method. [page-24 to 28 of PB]. On this ground the addition was deleted. (a) In first place the reliance of ITAT on the decision of Hon'ble SC in the case of Vatika Township Ltd. to hold the retrospective operation of Rule 10BA need to be revisited in the light of detailed observation of Hon'ble Sc in para31 to para-36 (in place of only para-32) of its order. Copy of order of Hon'ble SC is attached. (b) Secondly the CBDT notification in no way can be said to have relaxed the rigors of CUP method. I....
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....ect being below the prescribed limit, no SLP may have been preferred. Under these circumstances, this may not be construed as acceptance of the order of Hon'ble High Court by the Department on merit. The issue may accordingly be considered keeping this into consideration. In view of the detailed discussions in the order of TPO/AO, order of Hon'ble DRP and the above submissions, it is requested that the rejection of CUP method & application of TNMM by the TPO and consequently the addition made on account of adjustment on TP issues may kindly be upheld. Without prejudice to the same, if the Hon'ble Bench is still inclined to uphold the applicability of the CUP method, then alternatively the matter may at least kindly be remanded to the AO/TPO with a direction to the assessee to provide complete requisite detail which would help the TPO to determine whether the price charged by the assessee for the international transactions from AE is at arm's length, the issue which has been left open for consideration by Hon'ble Delhi High Court (para-12 of order dt.10.12.2015, at page 1 to 7 of paper book)) in assessee's own case for AY 2006-07 & 2007-08." 10. L....
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....ed hereunder for ready reference: "1. These are two appeals by the Revenue under Section 260A of the Income Tax Act 1961. 2. ITA No. 374/2015 is directed against the impugned order dated 18th November, 2014 passed by the Income Tax Appellate Tribunal ('ITAT') in ITA No.5025/Del/2010 for Assessment Year ('AY') 2006-07. ITA No. 396/2015 is directed against the impugned order dated 18th November, 2014 passed by the ITAT in ITA No. 774/DEL/2012 for the AY 2007-08. 3. The Respondent Assessee is a logistics service provider, offering a bouquet of international and domestic freight handling services including time defined air and ocean transport and freight forwarding services. The Assessee has been using the Comparable Uncontrolled Price ('CUP') Method for benchmarking its international transactions with its Associated Enterprises ('AEs'). The residual profits were split between the Assessee and the AEs in the ratio of 50:50. 4. A reference was made by the Assessing Officer (AO) to the Transfer Pricing Officer ('TPO') to determine the Arm's Length Price (ALP) under Section 92CA(3) in respect of the international transactions entered into by the Assesse....
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....." 7. The ITAT acknowledged that where a standard formula is adopted, the data regarding the precise amount charged or received for precisely the same services may not be available. Since the Assessee failed to furnish data to show that exactly the same amount was charged for the same service in the uncontrolled transactions, the TPO rejected the CUP method and instead adopted the TNMM, which is normally deployed as a method of last resort for computation of ALP. 8. The ITAT then proceeded to examine, in light of Rule 10B(1)(a), the appropriateness of adopting the CUP Method in the present case notwithstanding that the Assessee "has not even made any efforts to demonstrate nor claimed that actual amount charged for comparable services rendered to, or received from, associated enterprise is the same as in the case of the independent enterprise." What the Assessee fell back on, and was accepted by the ITAT as sufficient for arriving at the conclusion that the price charged was at arm's length, was the fact that the profit sharing ratio of the transaction between the Assessee and the AEs was no different from that with a third party, viz., 50:50. In para 19 of the im....
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....garding the appropriateness of adopting CUP method as against the TNMM for determination of the ALP. The question urged before the Court, not having been projected in the present appeals, is left open for consideration in an appropriate case where it is properly raised consideration in accordance with law. 13. As far as the present appeals are concerned, the Court finds the impugned order of the ITAT to be well reasoned and researched. The legal principles governing the determination of ALP in a TP adjustment exercise have been expounded lucidly by the ITAT in the impugned orders. 14. The Court does not find any substantial question of law arising from the impugned orders of the ITAT. 15. The appeals are accordingly dismissed." 12. Before us, in the written submissions, Learned DR has tried to point out the reasons as to why the order of the Hon'ble Delhi High Court need not be followed in the year under consideration. We do not find much force in the argument placed by the Revenue. We further find that the aforesaid decision of Hon'ble High Court has not been stayed/overruled/set-aside by higher judicial forum. Considering the totality of the a....