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2021 (6) TMI 1125
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.... providing Ground and Passenger Handling services to airlines. Since the assessee had entered into an international transaction of Rs 32,26,71,057/- pertaining to ground handling services which were rendered to its Associated Enterprise (AE) along with other international transactions, case of the assessee was referred to the TPO to determine the Arm's-Length Price (ALP) of such international transaction. From the Transfer Pricing Study filed before the lower authorities, it is apparent that the assessee had benchmarked its international transactions by adopting the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM). The assessee had selected a group of 13 comparable companies having a weighted average Profit Level Indicator (PLI) of Operating Profit / Operating Cost (OP/OC) of 10.05%. As per the Transfer Pricing Study, the assessee's PLI as the Tested Party is 13.84%. It was hence claimed before the lower authorities that the value of international transactions executed were at ALP. The TPO, however, was unsatisfied. Vide order dated 31st October 2011, the TPO observed that the assessee has not properly narrated / understood its functional profile.....
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.... and housing fee and terminal navigational landing charges. While non traffic revenue includes X' ray inspection charges, public admission fee royalty, cargo operations, seat interest income. The directors report shows key driver of growth in revenues has been duty free business which accounted for 30& of the income with traffic revenue being 23% royalty at 15%, Cargo lowest at 6%. 6.1.2 The employee expenses to total income account for 10% wherein in the case of assessee it is 60%. Thus we find there are functional dissimilarities. Annual report further states that, "the company is operating a composite airport with facilities for cargo movement and duty free shop. In the opinion of the management, this is the only primary reportable segments within the meaning of Accounting Standard 17 issued by the Institute of Chartered Accounts of India." (Schedule J) 6.1.3 If segmental data was available it may perhaps have been considered for comparison purpose but it is not. In the circumstances, CIAL cannot be considered as a comparable at entity level based on functional analysis and must be excluded from the list of comparables. TPO is directed to therefore exclude ....
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....s. (c) Companies having more that 25% related party transactions should not have been rejected. 5.2 that without prejudice on facts and in law the DRP/TPO erred in ignoring the alternate set comparable companies proposed vide written submissions dated 12th September, 2011. 6. That on facts and in law, the DRP erred in not adjudicating upon ground No.7 raised as an objection before it. 6.1 That on facts and in law, while computing the operating margins of the tested party the TRO/DRP erred in : (i) not reducing the FBT cost of 39,00,000/- from the total operating cost (ii) reducing the total operating revenues by Rs.98,00,361/- 7. That on facts and in law, the DRP erred in not taking into consideration contentions of assessee relating to factual errors committed by the TPO in past and recapitulated by him in the year under consideration. 8. That on facts and in law the TPO erred in comparing the operating margins of the assessee with the mean operating margins of the alleged comparable companies. 9. That without prejudice on facts and in law the DRP erred in not directing the AO to allow the benefit for....
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....ansport and handling charges. The assessee states that this does not imply that this income is from air cargo handling charges. It has never been the case of this office that this company is engaged in air cargo handling activities. This company has been chosen because it is involved in transport services and support systems. The assessee also runs the passenger buses, handles luggage, provides ramp services, loading and unloading etc. All these activities are akin to transport support services. Hence, this company can be used as a comparable." 5.0 We have carefully considered the facts of the case and the material available on record. The first issue to be decided by us is as to what is the correct functional profile of the assessee. The TPO has examined the website of the assessee on 26th August 2011 and has alleged that the assessee was rendering various other services which were not forming part of its functional profile stated in the TP Study. The Ld AR has submitted that during the year under consideration, the assessee was providing services to its AE as part of an agreement which has been analysed by the coordinate bench of this Tribunal in AY 2007-08. We have carefully ....
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....002 to 31st Dec 2006 SGHA Version l998 Section 1 Representation and accommodation 1.1.3 Indicate that the Handling Company is acting as handling agent for the Carrier. 1.1.4 Inform all interested Parties concerning movements of the Carrier's aircraft. Section 2 Load Control & Communications and Departure Control System 2.1 Load Control 2.1.2 (c) Distribute as appropriate, documents, including but not limited to, loading instructions, loadsheets, balance charts, Captain's load information and manifests, in accordance with local or international regulations or as reasonably required by the Carrier. 2.3 Departure Control System (DCS) 2.3.1 (b) Operate equipment and facilities to allow the Handling Company access to the Carrier's DCS, as mutually agreed. 2.3.2 Access the following facilities in the Carrier's DCS (b) Check-in. (c) Boarding Control (d) Baggage reconciliation. (e) Baggage tracing Sec....
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....d baggage services. Therefore according to the above finding the functional profile of the assessee is now undisputed. In the revenue profile of the assessee it derives income from providing ground services inclusive of all type of cargo and passenger handling services to the airlines at Indian airports. In its asset base it does not have any immovable property but the total asset base is INR 25,76,70,389/-." 5.1 The Ld CIT (DR) has not been able to highlight any distinguishable fact. Therefore, respectfully following the findings of coordinate bench for AY 2007-08, it held that the TPO, in the year under consideration also, has not properly appreciated the functional profile of the assessee. From the facts on record, it is discernible that the assessee is mainly providing passengers and baggage handling services to its AE and is not providing other specialized airport services as alleged by the TPO. For rendering such services, the assessee has a Net Gross Asset Base of Rs 31,22,65,835/- which comprises of Know How/ Royalty, Temporary Structures, Office equipment, safety equipment's, air-conditioners, data processing equipment, electrical equipment, furniture and fittings, ....
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....ight, Handling, Terminal Service charges, Demurrage and others of Rs. 3,347 crores. There are no segmental accounts prepared. It is now trite law that in absence of segmental data, a company should be rejected as a comparable. In this regard we draw support from wisdom of the Hon'ble Jurisdictional High Court in case of M/s Saxo India Limited reported in 397 ITR 160(Del) and M/s SEZ Gurgaon reported in 416 ITR 51(Del). Moreover, we find that Container Corporation of India is also not a service-oriented company as the ratio of employee cost is merely 1.65% (i.e. 55cr/ 3347cr). This is an important fact which merits consideration. The Ld DRP has itself made this as a ground while excluding M/s Cochin International Airport (CIAL) as a comparable which was originally proposed by the TPO. From perusal of the annual accounts of this company, we also find that Container Corporation of India is a Giant Company with turnover of more than Rs. 3,300/- crores, fixed asset base of around Rs.2,244/- crores, Container fleet of 13,517 units, Speed Wagons of 6,722 and owning Terminals. The assessee, on the other hand, is a service-oriented company with turnover of Rs 33.24 cr and fixed asset ba....
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.... 803.88 Agency and other charges earned 136.23 130.22 Warehousing charges earned 1577.05 947.56 4296.36 3269.14 5.3.2.2 Handling charges earned is 40.96% of the total revenue and balance is passive income i.e., hire charges earned and warehouse charges earned which is 59.03%. There are no segmental accounts prepared. M/s Sanco Trans has earned total operating revenue of Rs.4296.36 lakh and total employee cost incurred is 511.96 lakhs which in ratio terms is 11.91%. This shows that this is also not a service-oriented company. For reasons akin to that stated above we, therefore, hold that M/s Sanco Trans cannot be selected as a comparable. We direct accordingly. 5.4.0 Before us, the Ld AR has also submitted that the TPO had computed the PLI of companies selected by him by presuming that FBT expense is a non-operating item. In this regard we note that at page 28 his order it is held by the TPO as under: "The computations made by the assessee have been considered. It is seen that the assessee has considered fringe benefit tax as of operating nature, which is incorrect. The figures of operating income and operating expenses are being a....