AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 220
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....w, in rejecting appellants grounds of natural justice by stating that data used by appellant for determining arms length price were not reliable and thereby suo moto deciding that appellants case is covered by clause (c) of section 92C(3) of the Income tax Act, 1961 (ITA) without there being any finding by the Transfer Pricing Officer (TPO') or the Assessing Officer (AO) (b) The Ld. CIT (A) further erred in upholding the action of TPO of neither giving mandatory show cause notice to appellant u/s 92CA(3) rw.s 92C(3) of ITA nor confronting the appellant with data and information on the basis of which TPO made transfer pricing adjustment. 2. The Ld. CIT (A) grossly erred, in facts and in law, in upholding the upward transfer pricing adjustment u/s. 92 of the Act to the extent of Rs. 2,80,52,480/- in respect of appellant's international transactions of procurement of ship chartering services from its associated enterprise (AE) USL Shipping FZE. 3. The Ld. CIT (A) grossly erred in not appreciating that the appellant has earned higher profit margin of 7.91% when the ship chartering services are procured from AE and given to unrelated enterprise(s) as compared to profit mar....
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.... relief of Rs. 10,42,28,931/- to the assessee. 2. On the facts and circumstances and in law, the Ld CIT(A) has erred in holding that the adjustments should be done considering the ship chartering business of the appellant (assessee) which contains the international transaction" without appreciating the fact that the assessee does not carry on a distinct ship) chartering business and that its business of ship operation & related services is conducted in an integrated manner, which necessitated application of ALP to the entity level business to compute the adjustment to international transactions. 3. On the facts and circumstances and in law, the Ld CIT(A) has erred in grossly contradicting himself by upholding on the one hand, the TPO/AO's action of rejecting assessee's internal TNMM for want of reliable segmental accounting results in the audited accounts thereby confirming the benchmarking of ALP at entity level while for computing the adjustment he takes an opposite view to consider only the ship chartering business although no such business can be segregated from the accounts for reasons stated by him in his order. 4. On the facts and circumstances and in law and i....
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....aining and operating infrastructure facility of a port. It filed its return of income on 31/10/2007 showing total income of Rs. 134,358,252/-. 06. During the course of assessment proceedings, on examination of Form 3CEB, it was found that assessee has entered into certain international transaction and therefore the learned assessing officer made a reference to The Additional Commissioner Of Income Tax, Transfer Pricing Officer - 1 (ii) (3) (Learned Transfer Pricing Officer) for determination of arm's-length price [ ALP] of international transactions [ IT] . 07. Assessee has entered into an international transaction of ship chartering services of Rs. 38,96,90,370/- the assessee is carrying on the business of transportation of cargo by barges used for transporting of goods from mother vessel to port and port to mother vessel at minor ports in India. Where the assessee gets handling cum Chartering contracts from its customers, it uses chartering services of its associated enterprises. Assessee charters vessel as per requirement of the customers and for this the assessee take services of its associated enterprises. To benchmark above transaction, assessee has used Transactional Net M....
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....he total turnover as transaction with the associated enterprises and therefore it is not comparable with the third party transactions because of significant difference in the volumes. Therefore, the learned transfer-pricing officer considered the transactional net margin method as the most appropriate method and adopted the profit level indicator of operating profit to operating income/sales considering assessee as a tested party selected eight comparable companies. The assessee was given an opportunity to rebut the computation made by the learned transfer-pricing officer. After considering the objection of the assessee, the learned transfer pricing officer considered that all these eight comparable companies are having similar functional profile, whose arithmetic mean PLI was 13.84% and therefore the learned transfer pricing officer adopted the operating profit level indicator of 13.84% on the gross revenue of Rs. 205,87,97,018/- and determined the operating profit of 28,49,37,507/-. Resultant operating cost derived was Rs. 177,38,59,511/-, applying the above profit level indicator. Consequently the cost for ship chartering services of associated enterprise was determined at Rs. 2....
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....enditure Rs. 1,657,476/- on account of expenses incurred for earning the exempt income. He disallowed the same u/s 14 A of the act applying the provisions of rule 8D. 013. The learned assessing officer further examined the transshipment charges showing the credit balance of Rs. 2,628,351/- as liability provision 2006 - 07 in the balance sheet. On taking the explanation of the assessee, the learned AO noted that there are unpaid settlement charges of Rs. 1,816,155/-, which has not been claimed by any agent until date and still shown as outstanding. Therefore, he held that as the above transshipment charges are pertaining to assessment year, 2007 - 08 have not been paid until the date of passing of the assessment order, and there is no material proof or corroborative evidence of its existence, he added the above sum. 014. Accordingly the draft assessment order was passed. Assessee did not file any objection. Therefore, final order u/s 143 (3) of the act was passed on 14/2/2011 determining the total income of the assessee at Rs. 270,691,874/- against the returned income of the assessee at Rs. 134,358,252/-. 015. Aggrieved by assessment order, assessee preferred an appeal before the....
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....cial year 2010 - 11 by writing back as per the consistent policy of the appellant and also on the basis three years were elapsed since provision was made, therefore he deleted the addition. 018. Therefore, both parties are aggrieved with the order of ld CIT (A) and are in appeal before us. 019. We first address the appeal of the assessee. Ground number 1 of the appeal was not pressed, therefore, it is dismissed. 020. Ground number 2 - 5 are with respect to the transfer pricing adjustment upheld by the learned CIT - A of Rs. 28,052,580 in respect of the international transaction of procurement of ship chartering services from its associated enterprises. Ld AR submits that LD TPO has accepted as transactional net margin method as the most appropriate method, however, he rejected internal comparable available and adopted external transactional margin method. He further applied PLI on the total sales of ship chartering business instead of only ship chartering businesses arising from international transactions with associated enterprises. It is also aggrieved that the learned CIT - A has upheld the addition in the hands of the assessee which has exceeded the actual combined profit ea....
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....rantee charges. For this year, the assessee has also accepted the resale price method as the most appropriate method. He further referred to page number 249 of the paper book, which is international transaction for assessment year 2009 - 10, and the assessee has benchmarked above transaction adopting the resale price method as the most appropriate method for sipping services, which has been accepted by the learned transfer-pricing officer. 022. In view of this, he submitted that the benchmarking methodology adopted by the assessee deserves to be accepted. 023. Countering arguments of the learned authorised representative, the learned departmental representative stated that assessee has created the artificial segment and has compared the gross margin in adopting the transactional net margin method. It was stated that the transactional net margin method only considers the net profit and not the gross profit. Therefore, it was stated that method adopted by the assessee is flawed and the computation of the segments made by the assessee is also not backed by any reliable data and therefore the computation itself is flawed. In view of this it was stated that learned transfer pricing of....
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....ines the determination of arm's-length price u/s 92C of the act with respect to the several methods. In rule 10 B (1) (e), transactional net margin method is required to be computed with respect to the Net Profit Margin Only. We do not find that rules subscribe to the view taken by the assessee of computing Gross Profit margin while applying TNMM. Therefore as assessee has taken only the gross profit margin and stated that it has adopted internal transactional net margin method is an incorrect approach not supported by the income tax rules. In view of this, the benchmarking methodology adopted by the assessee taking the gross profit margin is correctly rejected by the revenue authorities. 025. As we have already held that transactional net margin method comparing the net profit is the correct methodology in accordance with the income tax rules, we reject the contentions of the assessee that there are no expenses incurred by the assessee or even if those are incurred the may be spread in the same ratio to arrive at the net profit. 026. Now coming to the aspect whether the learned transfer-pricing officer has taken the correct comparables or not. If the comparables are taken correc....
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.... honourable Bombay High Court in case of CIT versus Thyssen Krupp industries Ltd 95 CCH 187 (Bom) and principal Commissioner of income tax versus International SOS services India private limited (ITA 454/2016 Del). We have carefully considered the contention raised by the assessee with the annual report furnished before us at page number 1 - 62 of paper book - 2. Coming to the decision of the honourable Bombay High Court (385 ITR 612) engineers India Ltd which was directed to be excluded by the coordinate bench was upheld. The reasons for such exclusion were that engineers India Ltd was found to be a government company and its annual report indicated that the substantial part of its revenue in execution of turnkey project arose out of executed projects of public sector undertakings and further it did not pass the filter of 25% of related party transactions. The decision of the honourable Delhi High Court was also based on the decision of the Mumbai bench of ITAT in case of above case considered by the honourable Bombay High Court for exclusion of a government company. Before us, the assessee has produced the annual accounts of the above comparable company we find that the learned t....
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....assessee has adopted TNMM as the MAM based on detailed transfer pricing study report prepared by assessee. Based on this study report all the other methods were eliminated. It is not the contention of assessee that FAR in the T P Study Report for this year is fallacious. The LD TPO has also consciously reached at the decision that TNMM is the most appropriate method for this year. Therefore subsequent years' benchmarking methodology does not have any impact for this year, unless, the TP study report for the year is found fallacious. 030. We find no infirmity in Ground no 4 raised by the assessee that the profit margin needs to be applied only on International transactions. It is stated that International Transaction is only Rs 42.32 crores where as the LD CIT (A) applied PLI on appellants total sales of Ship Chartering Business segment of RS 47.22 Crs. We direct accordingly. 031. Ground number 5 of the appeal, assessee has stated that the profit margin of 7.91% on by the appellant is higher than the profit margin of 6.76% on by associated enterprises in the subject international transaction and further the profits of Rs. 61,540,110/- a lack it to appellant after considering trans....
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....ITA 2986/M/2012 filed by the assessee is partly allowed. 037. Now we come to the appeal of the learned assessing officer. Ground number 1 - 5 of the appeal are with respect to the transfer pricing adjustment on ship chartering income. These grounds have already been dealt with by us while deciding the appeal of the assessee. Therefore, as we have upheld largely the order of the learned CIT - A, except to the extent of inclusion/exclusion of comparable and application of profit level indicator only on the international transactions, we dismiss ground number of the appeal of the AO. 038. Now we come to ground number 6 and 7 wherein the learned and CIT - A deleted the adjustment made to the guarantee fee is challenged by the learned assessing officer before us. 039. With respect to the corporate guarantee benchmarked by the learned transfer pricing officer and deletion made by the learned CIT - A, the learned departmental representative vehemently stated that the learned CIT - A has wrongly followed the decision of the learned CIT - A his predecessor in earlier years. He submitted that each assessment year is a separate and facts of the each assessment year should be looked into fo....