TaxTMI 
TaxTMI 
2022 (11) TMI 529
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....llant by holding that its international transactions pertaining to its freight forwarding segment do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 ('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 920 of the Act read with Rule loD of the Income-tax Rules, 1962 ('Rules'); 2.2. failing to appreciate the economic rationale of using "Operating Profit/ Value Added Expenses" as the Profit Level Indicator ('PLI'), and instead using "Operating Profit/ Total Cost" ('OP/TC') as the PLI. ;, 2.3. not allowing the exclusion of pass through costs of the appellant for AY 2017-18 and thereby enhancing the cost base for the purpose of computing the operating margin (OP/TC) of the assessee; 2.4. disregarding all comparable companies selected by the Appellant in its TP documentation including Om Logistics Limited which is a f....
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....ansaction was referred to the TPO. The Ld.TPO, vide his order dated 24/01/2021 proposed adjustment of Rs.63,81,53,199/- to the international transaction of freight revenue and freight expenses. The assessee objected the transfer pricing adjustment communicated to it by way of draft assessment order. The Ld.DRP, after considering submission of the assessee on the objections, issued certain directions to the Ld.AO / TPO. After complying with the directions of the Ld.DRP, the Assessing Officer passed impugned final assessment order. Aggrieved with the same, the assessee is before the Tribunal by way of raising the grounds as reproduced above. 4. Before us, the learned counsel of the assessee has filed two paper books containing pages 1 to 1245. 5. The Ground No.1 raised by the assessee is general in nature and, therefore, same is dismissed, as infructuous. 6. The Ground No.2.1 of the appeal was not specifically argued and, therefore, dismissed as not pressed. 7. Regarding ground No.2.2 of the appeal, the learned counsel of the assessee submitted that the issue in dispute is in respect of denominator of the profit level indicator (PLI). The Ld.TPO has taken operating profit....
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....t (Air) are netted off in the Profit & 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. * DHL AE negotiates the terms of the transaction with the Shipper. DHL AE invoices the shipper for OC and Freight. The Shipper pays for OC and Freight to DHL AE. DHL AE further pays the freight to the carrier. * DHL India invoices and collects from the consignee the DC. The same ....
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.... 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 of profit in it. In order to fortify his aforesaid observations, it was further observed by the TPO that the fact that the assessee had debited the 'freight expenses' and credited the 'freight receipts' in its books of accounts revealed that the operating profit of the assessee comprise....
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....e 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 profit 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 profit 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 Income-tax Rules, 1962, does not enable consideration or imputation of cost incurred by third parties or unrelated parties for the purpose of computing the assesse's 'net profit' margin for application of the TNMM. Accordingly, it was concluded by the Hon'ble High Court, that attribution by the ....
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....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 penalty, 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 booking of space on the liner, we are in agreement with the contention advanced by the ld. A.R that the advantage to the assessee on account of bulk booking was on account of its value addition activities i.e generating more customers and not on account of transportation function. In fa....
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....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 8. Further, Tribunal has followed above finding in subsequent year as under:- A.Y. 2011-12 ITA No.1923/Mum/2016 & Ors "13.We have considered the submission of parties and gone through the order of Tribunal. We have noted that Tribunal in assessee's own case for A.Y. 2010- 11 has accepted PLI of assessee on the basis of OP/VAE as noted in para-7 of this order. Considering the submission of ld.AR of assessee and the decision of Tribunal for A.Y. 2010-11, ground no.2.2 of the appeal is allowed." A.Y. 2015-16 ITA No.7166/Mum/2019 "4. Upon perusal of Ld. DRP's directions, we find that TP adjustment under both the heads i.e. (i) intra-group services; (ii) support services and inter corporate loans adjustment; has been confirmed following Ld. DRP's directio....
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....hicle 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 of comparable entities. These grounds stand allowed to the extent. Accordingly, we direct the TPO to exclude the comparable in determination of ALP and allow the ground of appeal of the assessee." 14. We find that the fact of assets owned by M/s Om Logistics Pvt Ltd has not been disputed whereas the assessee is only a low asset based company and, therefore, respectfully following the finding ....