TaxTMI 
TaxTMI 
TaxTMI 
2021 (6) TMI 1125
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....vices 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. In this regard, the TPO noted that the webs....
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.... 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 it as a comparable at entity level as segmental data is not available. 6.1.4 We have considered t....
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....n 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 adjustment of the Arm's Length price ("ALP") by +- as per the proviso to section 92C(2). 3.0 It was submitted by the Ld. AR that the TPO has not properly appreciated the functional profile of the assessee. It was submitted that the assessee is merely rendering few facets of Ground Handling Se....
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.... 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 perused the order dated 18th February 2019 passed by the coordinate bench for AY 2007-08. The coordinate bench has held as under: "7. We have carefully considered the rival contentions and also perused the orders of the lower authorities. Firstly it is important to identify the exact nature of the services rendered by the assessee to understan....
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.... 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 Section 3 Unit Load Device Control 3.1 Handling 3.1. (b) Arrange for 1 suitable storage space for ULD's, as mutually agreed. 3.1.2 Apply correct storage and handling techniques in accordance with the Carrier's requirements. 3.1.3 Take appropriate action to prevent theft or unauthorized use of, or damage to the Carrier's ULD's in the custody of the Handli....
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....er 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, Motor Car, and Plant and Machinery. In the year under consideration, the assessee has incurred total expenditure of Rs 34,73,49,275/- out of which Personnel Expenditure incurred is Rs 20,16,09,112/- which is 60% of the total expense. Therefore, clearly the assessee is a service oriented company deriving its sole stream of income from providing passengers and baggage handling services at the airport. 5.2 Once the functional profile of the assessee is clear, we proceed to examine whether lthe ower authorities were correct in selecting M/s Container Corporation Of India Ltd. and M/s Sanco Trans Ltd as a comp....
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....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 base (gross) of only Rs 31.22 crores. Container Corporation of India is also operating in Virtual Monopoly conditions. From the above cumulative reasons, we find that FAR of Container Corporation of India is not akin to that of the assessee. It should, therefore, be rejected as a comparable. We direct accordingly. 5.3.2.0 M/s Sanco Trans Ltd: M/s Sanco Trans is a company, which per audited accounts, is principally engaged in a single business segment viz. Customs Clearing & Forwarding, container freight station and related activities. Director's Report acknowledges that the main growth area for the company was business of Contai....