TaxTMI 
TaxTMI 
2022 (3) TMI 1438
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....961 ('the Act'). 2. In doing so, The Ld. DRP / Ld. TPO/Ld. AO grossly erred in: 2.1. disregarding the arm's length price ('ALP') and the scientific benchmarking process carried out by the Appellant in the Transfer Pricing ('TP') documentation maintained by the Appellant in terms of section 92D of the Act read with Rule ioD of the Income-tax Rules, 1962 ('Rules'); 2.2. failing to appreciate the economic rationale of using "Operating Prof it/ Value Added Expenses" as the Prof it Level Indicator ('PL'), and instead using "Operating Prof it/ Total Cost" ('OP/TC') as the PU. 2.3. not allowing the exclusion of pass through costs as mentioned in Note 18.1 to the Notes to the Financial Statements of the appellant for AY 2014-15 and thereby enhancing the cost base for the purpose of computing the operating margin (OP/TC) of the assessee; 2.4. not restricting the TP adjustment to the extent of the value of the international transaction undertaken by the assessee. 2.5- not allowing the use of multiple year data as prescribed under Rule 1013(4) of the Rules read with the OECD TP Guidelines....
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....tion as principal, agent at home and overseas, customs clearing agents, to provide every kind of operations in connection with transportation, import, export, packing, warehousing and handling of goods by sea and air or land. The assessee has filed the return of income electronically for the A.Y 2014-15 on 29.11.2014 disclosing a total income of Rs. 94,44,89,320/-. The assessee has filed the revised return of income on 05.10.2015 with a total income of Rs.99,38,72,270/-.Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and submitted the details and the information. The A.O find that the assessee has international transactions exceeding Rs.15crores with its Associate Enterprises(A.E), therefore the matter was referred to the Transfer Pricing Officer (TPO) for determination of Arms length price (ALP) in relation to international transactions with its associate enterprises (AE). The TPO has perused the international transactions and specified domestic transactions as per Form-3CEB. The TPO dealt on the international transactions with its AEs referred at page 2 Pa....
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....Ltd P -4.68% 3 Gordon Woodroffe Logistics Ltd C 25.99% 4 Hindustan Cargo Ltd C 2.66% 5 Trade-Wings Ltd (Cargo) P-Seg -4.08% 6 AW Travel & Logistic services Ltd AR 12.03% 7 Balurghat Technologies Ltd., (Transportation Operation / Travel Division) AR-Seg 24.08% Mean 10.15% The assessee compared its OP/VAE margin of 31.18% with that of the comparable 10.15%. The assessee vide its submission dated 8 August 2017 provided the OP/TC and OP/VAE margin of the comparables selected in the TP study for the FY 2013-14 considering the financial date of only FY 2013-14 from the annual reports of the comparable companies. S. No. Name of Company OP/VAE OP/TC 1 TKM Global Logistics Ltd -9.87% -0.93% 2 SRS Frieght Management Ltd 38.36% 2.22% 3 Gordon Woodroffe Logistics Ltd 16.32% 3.20% 4 Hindustan Cargo Ltd 8.22% 0.75% 5 Trade-Wings Ltd (Cargo) -46.33% -46.33% 6 AW Travel & Logistic services Ltd 18.03% 3.18% 7 Balurghat Technologies Ltd., (Transportation Operation / Travel Division) 35.26% 5.29% ....
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....ly allowed the objections of the assessee. As per the directions of the DRP, the AO has determined the total income with TP adjustments and disallowance of depreciation on goodwill and assessed the total income of Rs. 141,19,37,436/- and passed order u/s 143(3) r.w.s 144C(13) of the Act dated 30.11.2018. Aggrieved by the final assessment order, the assessee has filed an appeal before the Hon'ble Tribunal. 8. At the time of hearing, the Ld. AR has restricted the submissions on the issues and filed the synopsis chart. The contentions of the Ld.AR are that the transfer pricing issues are covered by the earlier Hon'ble ITAT orders in the assesses own case and there is no change in functions performed and risk assumed. The Ld.AR substantiated the submissions with the judicial decisions and voluminous paper book. Contra, the Ld. DR supported the order of the lower authorities. 9. We heard the rival submissions and perused the material on record. First, we consider the grounds of appeal No. 2.1 and 2.2 in respect of selection of profit level indicator(PLI) basis being operating profit by value add expenses instead of operating profit by total cost adopted by the TPO and DRP. The Ld.....
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....s from DHL India the OC and Freight. Only DC is¬ considered as revenue for DHL India. Given that the actual amount of OC and Freight (Air) agreed between the Shipper and¬ DHL AE are merely collected by DHL India from the consignee and passed on back to back basis to DHL AE, the OC and Freight (Air) are netted off in the Prof it & Loss Account of DHL India i.e the assessee. (b). Inbound Collect - Ocean Shipments : The Shipper (outside India) hands over the consignment to DHL AE to forward the¬ same via ocean to the consignee in India. DHL AE takes the assistance of DHL India for the same. DHL AE negotiates the terms of the transaction with the Shipper. In this case, the¬ consignee pays for the freight (ocean). DHL India invoices and collects from the consignee the OC, Freight (ocean) and the¬ DC. Freight and DC are considered as revenue for DHL India. DHL AE invoices and collects from DHL India the OC and Freight (ocean).¬ (c). Inbound Prepaid : The Shipper (outside India) hands over the consignment to DHL AE to forward the¬ same to the consignee in India. DHL AE takes the assistance of DHL India for the same. ....
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....nd the world at the competitive rates so offered to them by the shipping companies. The TPO held a conviction that the assessee after making bulk bookings with the carriers would enter into bargains depending upon the time, space and the paying capacity of the client. It was observed by the TPO, that though the assessee would collect freight from the customers at an amount in excess of the rate it had negotiated with the shipping company, however, it would issue a "House Airway Bill" of a similar amount of fare and the difference would be collected as handling charges. On the basis of his aforesaid observations, it was concluded by the TPO that the additional amount charged by the assessee from its client would in fact represent the "mark up" on freight. Accordingly, it is in the backdrop of his aforesaid observations that the TPO had concluded that the handling charges which were charged by the assessee varied from customer to customer because they were dependent upon the "mark up" on freight which it was obtaining from them on the basis of negotiations. Accordingly, it was observed by the TPO that the fright element booked by the assessee in its books of accounts had a component ....
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.... the considering of the freight cost of the airlines/ship liners in the total cost base of the assessee had resulted to a distorted picture of the "net margin" realized by the assessee from its international transactions. Our aforesaid view is fortified by the order of the ITAT, Mumbai in the case of FedEx Express Transportation and Supply Chain Services India Pvt. Ltd. Vs. Dy. CIT, Range 8(1), Mumbai [ITA No. 435/Mum/2014; dated 10.12.2014]. In the said case, it was observed by the Tribunal that the payment made by the assessee to the third party for and on behalf of the AE which had been reimbursed by the AE, could not have been included in the total costs of the assessee for the purpose of determining its prof it margin. Also, the Hon'ble High Court of Delhi in the case of LI and Fung India Pvt. Ltd. Vs. CIT (2014) 361 ITR 85 (Del), had observed, that for applying the TNMM the assesse's net prof it margin realised from the international transactions had to be calculated only with reference to the cost incurred by it and not by any other entity either third party vendors or the associated enterprise. It was further observed by the Hon'ble High Court, that Rule 10B(e)(i) of the In....
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....ed that the assessee had executed the same as an agent of the carrier. Also, we find that the functions (carriage of goods) and liabilities (indemnification of the loss etc.) assumed by the assessee visa- vis the customer (as per its standard terms and conditions) corresponds to those assumed by the carrier vis-à-vis assessee. Accordingly, we are of the considered view that the functions and liabilities were effectively delegated by the assessee to the carrier and no part of the same was effectively assumed by the assessee. On a similar footing, we find that in the case of "ocean business" also the assessee had merely acted as an agent. Further, we find that all the "agreements" entered into by the assessee with the carriers (under both air and ocean business) were soft block agreements which provided an option to the assessee to cancel the same without incurring any penal ty, therefore, no inventory risk was assumed by the assessee. (Page 860 to 865 of "APB"). As regards the observation of the TPO, that the main component of the income of the assessee is on account of the differential freight element which it is able to obtain from the shipping companies on account of bulk ....
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....of the assessee nor the assessee had carried any risk or employed any of its assets with respect to the same, therefore, inclusion of the freight cost in the total cost base of the assessee by the TPO was not permissible. We thus are persuaded to subscribe to the claim of the assessee that the TPO/DRP were in error in rejecting the PLI of OP/VAE adopted by the assessee and substituting the same by PLI of OP/TC. As such, we herein restore the matter to the file of the A.O/TPO for the purpose of benchmarking the international transactions of the assessee by adopting the PLI of OP/VAE. Grounds of appeal Nos. 1, 3.1 and 3.2 are allowed in terms of our aforesaid observations The same findings have been applied by the bench in assessee's own case for Assessment Year 2011-12 vide ITA Nos. 1385/Mum/2016 & ors; order dated 10.08.2020. No change in assessee's business model has been demonstrated before us. Also no distinguishing facts/ features has been pointed out by the revenue in this year. Therefore, respectfully following the same consistent stand of Tribunal, we restore the matter to the file of Ld. AO / TPO on similar lines as above for the purpose of benchmarking the impugne....
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....(2016) 381 ITR 413 (Bom), had clearly observed, that in terms of Chapter X of the Act the TP adjustment is mandated only in respect of International transactions and not the transactions entered into by the assessee with independent unrelated parties. In fact, we find that in case if a TP adjustment is allowed in respect of transactions entered into by the assessee with unrelated third parties then the same would be result into increasing of the prof it in respect of such independent transactions which would be beyond the scope and ambit of Chapter X of the Act. Apparently, the claim of the ld. A.R that the TPO had wrongly worked out the TP adjustment in respect of the AE transactions by considering the total operating costs instead of the operating costs attributable to the AE sales prima facie is found to be correct. However, we are of the considered view that the claim of the ld. A.R that the TP adjustment worked out in respect of the AE sales of the assessee after considering the operating cost attributable to the same would be within the safe harbour range of +/- 5% of the ALP and no adjustment would be called for in its hands cannot be summarily accepted and would require ver....
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....nation of ALP. Since, one comparable is included and there are no arguments made by the Ld.AR on other comparables hence they are left open and allow the grounds of appeal for statistical purposes. 16. Whereas, the ground of appeal No. 2.7 pertains to exclusion of comparable Om Logistic Ltd. The Ld. AR submitted that the comparable company is engaged in the transportation and logistics services of vehicle and tangible assets and in the assessee's own case for A.Y 2015-16 it was excluded and dealt at page 13 Para 6 of the order as under: 6. In grounds Nos. 2.5 & 2.6, the assessee has contested the issue of comparable entities. However, Ld. AR during hearing, pleaded for exclusion of one comparable entity namely Om logistics Ltd in terms of Tribunal order for Assessment Year 2010-11. We find that vide para 30 & 31 of the order for Ay 2010-11, a finding has been rendered by the bench that though the assessee was not an asset owning company, M/s Om Logistics Ltd had significant asset and hence, functionally different and therefore, to be excluded from the list of comparable entities. Respectfully following the same, we direct for exclusion of the said entity from the list o....