AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 922
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....tal income under the provisions of Chapter X of the Income-tax Act, 1961 ("the Act"). 2. On the sand in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding confirming the action of the TPO of rejecting the companies selected by the Appellant as comparable for the purpose of benchmarking the international transaction entered into by the Appellant. 3. On the facts and in the circumstance of the case and in law, the learned TPO erred and the Hon'ble DRP farther erred in upholding the action of the TPO of selecting companies as comparables for the purpose of determining the arm's length price without considering the fact that their functions undertaken, assets employed and risks borne were not comparable to those of the Appellant. 4. Without prejudice to the above, on the facts and in circumstances of the case and in law, the learned AO TPO failed to consider the correct calculations of the operating margins of the comparable companies selected by the learned Transfer Pricing Officer. The Appellant pays that the transfer pricing adjustment of Rs. 293.56,738 be deleted. Gr....
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....thod with Profit Level Indicator ('PLI‟) of Operating Profit to Total Sales. By considering itself as the tested party, the assessee identified following 7 companies as comparable with three-year average weighted margin of 5.25%: (a) Gati Ltd (seg); (b) Gordon Woodroff Logistics Limited; (c) PL Shipping and Logistics Limited ; (d) Patel Integrated Logistics Limited; (e) Savani Transport Private Limited; (f) Seaway Shipping And Logistics Limited (seg); and (g) Sical Logistics Limited (seg). 7. As the assessee computed its own PLI at 2.14% from its logistics operations with associated enterprises, accordingly, it claimed that international transactions pertaining to logistics operations with associated enterprises are at arm's length price ('ALP‟). As per the assessee's transfer pricing study report, assessee and its associated enterprises are in business of providing services with respect to sea/ocean and air freight forwarding. To supplement these activities assessee also provided certain ancillary services like cargo handling, logistics management etc. Depending on origin and destination of a freight pac....
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.... responsibility of managing the movement of goods thereon is passed on to the DC. The DC scrutinizes the documentation from the OC to ascertain whether they are complying with local regulations or not. It co-ordinates with the international transport service provider (shipping company) and tracks the goods in real time. For instance in the case of air shipment, there is a possibility, that the portions of the total consignment have been separated and have not arrived on the same flight. This is called short landing and could create problems for the consignee in clearing the goods. The DC is responsible for assessing the amount of short landing and communicating the same to the OC. Additionally; it is the DC, which liaises with the shipping company offices and customs. •  Arranging transshipment of goods as per the instructions Once the shipment arrives at the main destination port, it may be shipped inland by another service provider. For instance, a shipment landing at Mumbai port is transported to final destination of the shipment through local transporter. The DC is responsible for scheduling and hiring the inland transport service provider and eval....
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....India Corporation Ltd. (Seg.) 26.82% 7. Balmer Lawrie & Co. Ltd. (Seg.) 17.17% Arithmetic Mean 14.52% 10. The average OP/TS of comparables selected by the TPO was computed at 14.52%. By applying the arm's length margin, the TPO proposal an upward adjustment of Rs.2,93,56,738, in respect of international transaction of 'provision of logistics services'. In conformity, the AO, passed order under section 143(3) read with section 144C of the Act. The assessee filed detailed objections before the learned Dispute Resolution Panel ('learned DRP') against the adjustment proposed by the TPO/AO. The learned DRP vide directions dated 26/12/2014, issued under section 144C(5) of the Act dismissed the objections filed by the assessee in respect of selection of comparables by following its approach adopted in assessee's own case for assessment year 2008-09. Learned DRP further directed the TPO to verify the margins of the comparables and adopt correct margin for computation of adjustment. The TPO vide letter dated 29/01/2015, communicating the effect of learned DRP's direction to the AO, submitted that the assessee has not filed any computation of PLI in support of ....
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....n assessee's appeal is allowed for statistical purpose. 13. As stated above, exclusion of Balmer Lawrie and Company Ltd, South India Corporation Ltd, and Om Logistics Limited has been sought by the learned AR. During the course of hearing, learned representatives appearing for both the parties submitted that they rely on their arguments made in respect of these comparables in assessee's appeal, in ITA No. 7024 of 2012, as there is no change in functional profile of the assessee as well as these companies. We further find that even the learned DRP rejected the objections filed by the assessee in respect of these companies by following its approach adopted in assessee's own case for assessment year 2008-09. It is pertinent to note that in assessee's appeal for assessment year 2008-09 these companies were found to be, inter-alia, functionally not comparable to the assessee. In the present appeal, nothing has been brought on record to show any change in functional profile of these comparables in the year under consideration vis-à-vis assessment year 2008-09. From the perusal of annual reports of these companies, forming part of the paper book, we find that there is no change ....
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.... and perused the material available on record. From the perusal of annual report and Director‟s report of Balmer Lawrie and Company Ltd for the relevant year, forming part of the paper book, we find that the services offered by this company are industrial packaging, greases and lubricants manufacturing, logistics services, tours and travels, logistics infrastructure, performance chemicals, tea production and refinery and oil field services. For the purpose of comparability with assessee, the TPO considered logistic infrastructure and services as the relevant segment. We find that under the logistics services, Balmer Lawrie and Company Ltd offers services including import consolidation by air, air and sea freight forwarding, customs house agency, handling of project cargo, Multimodal transportation, chartering of aircraft and vessels and door-to-door services. Further, in respect of logistic infrastructure, the services offered by Balmer Lawrie and Company Ltd include aggregation of long distance cargo, in transit storage, warehousing, custom house clearance and transportation to and from ports. Further, the company has Container Freight Stations (CFS), which operates as an ex....
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.... crore, which has been apportioned by the TPO amongst all the segments, including 'Logistics services, on the basis of their revenue. This approach of bifurcation of "Unallocable expenditure' cannot be countenanced. Unallocated expenses obviously comprise several items of expenses of distinct nature and hence there cannot be a uniform key of apportionment. For example, Rent paid by an assessee cannot be bifurcated on the basis of revenue from different segments, such as, Manufacturing. Trading and services. The extent of area used by each business segment varies as per the nature of transaction, which may have no relation with the gross revenue. For example, a manufacturing unit will need relatively more area than a trading unit. Similarly, a service unit will need still lesser area. In such circumstances, apportioning common Rent expenditure on the basis of gross revenue from such varied divisions, will give skewed results of segment profitability. Similarly, contribution of various segments to other items of expenses varies depending upon the nature of transaction, extent of capital and labour required etc. etc. So all common expenses cannot be apportioned in one stroke i....
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....rival submissions and perused the material available on record, we find that South India Corporation Ltd (clearing and forwarding segments) was selected as comparable by the TPO. In proceedings before the TPO, assessee objected to the selection of this comparable on the basis that the data pertaining to this company is not available in public data base and therefore, the same cannot be selected as comparable. We find that vide order passed under 92CA (3) of the Act, the TPO though accepted that the data pertaining to this company is not available in public domain, however, rejected the contention of the assessee on the basis that PLI working of the company has been provided to the assessee, during transfer pricing assessment proceedings. The learned DRP also rejected the objections of the assessee against the selection of this comparable and upheld the findings of the TPO. We find that the TPO considered carrying and forwarding segment of South India Corporation Ltd as comparable to the assessee. As per the Director‟s report of South India Corporation Ltd, forming part of the paper book, we find that the company is performing stevedoring activities e.g, handling of coal, food....
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....g and forwarding division, are not comparable to the assessee. Therefore, in view of the above, the TPO/AO is directed to exclude South India Corporation Ltd as comparable for benchmarking the international transaction of "provision of freight services". (iii) Om Logistics Limited 19. The next comparable sought to be excluded by the assessee for the purpose of benchmarking of international transaction pertaining to "provision of logistics services‟ is Om Logistics Limited. This company was selected as a comparable by the assessee on the basis of three-year financial data. The TPO also vide order passed under section 92CA (3) of the Act retained this company for the purpose of benchmarking. In proceedings before the learned DRP, the assessee raised no objections for exclusion of Om Logistics Limited as a comparable. It is only in the present appeal, assessee has sought exclusion of Om Logistics Limited for the benchmarking the aforesaid international transaction. The learned DR submitted that this company was selected by the assessee and since it had passed all the filters, therefore, was considered as a comparable to the assessee by the TPO. The learned DR f....
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.... 22. We find that the coordinate bench of the Tribunal in DHL Logistics Pvt. Ltd. v/s DCIT, in ITA No. 1030/Mum./2015, vide order dated 20/12/2019, for the assessment year 2010-11, while directing exclusion of Om Logistics Limited for the purpose of benchmarking with the company, which was engaged in providing logistics services i.e., international, domestic and specialised freight handling services, observed as under: "(iii) Om Logistics Ltd: (a) It was the claim of the assessee that as the aforesaid company owned transportation assets and had started warehousing business, therefore, it could not have been selected as a comparable to the assessee. However, the TPO had observed that the 'annual report' of the aforesaid company for financial year 2008-09 and financial year 2009-10 revealed that its composition of assets had remained the same. In fact, it was observed by the TPO that in financial year 2008-09 the assets of the aforesaid company were more than those during the year under consideration i.e financial year 2009-10. Also, it was observed by the TPO that the operations as well as the background of the aforesaid company had remained the sam....
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....it has a significant asset base. For the sake of clarity, the Fixed asset schedule of the aforesaid company for the FY 2009-10 is reproduced as under: SCHEDULE-5 FIXED ASSETS Particulars Land 4,377.42 231.16 - 4,808.58 - - - - 4,608.58 4,377.42 Building 3,739.99 909.10 - 4,649.09 89.90 69.45 - 159.35 4,489.74 3,850.09 Plant and Machinery 359.32 95.34 14.14 440.52 58.18 20.50 7.11 71.57 368.95 301.14 Computer and equipment 317.44 39.29 76.79 279.94 178.55 41.35 76.78 143.12 136.82 138.89 Furniture and Fixture 241.06 12.80 7.53 246.33 29.32 15.54 4.05 40.81 205.52 211.74 Leasehold Improvement 96.21 114.48 - 210.69 5.31 24.77 - 30.08 180.81 90.90 Vehicles 1,823.15 121.89 53.47 1,891.57 453.45 283.69 19.56 717.59 1,713.98 1,389.70 1,984.59 1,524.08 151.93 12.328.72 814.71 455.630 107.49 1.162.52 11,164.2....
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.... comparable, it is pertinent to note that Special Bench of the Tribunal in DCIT vs Quark Systems Private Limited, [2010] 38 SOT 307 (Chd.) (SB) held that there is no estoppel on the taxpayer from pointing out that a particular company has been wrongly taken as a comparable. We further find that the aforesaid decision rendered by Special Bench of the Tribunal has been affirmed by Hon‟ble Punjab and Haryana High Court in CIT vs Quark Systems Private Limited, [2011] 244 CTR 542 (P&H). Accordingly, in view of the above, the TPO/AO is directed to exclude Om Logistics Limited as comparable for benchmarking the international transaction of "provision of freight services‟." 14. Therefore, in view of the above, TPO/AO is directed to exclude Balmer Lawrie and Company Ltd, South India Corporation Ltd, and Om Logistics Limited as comparables for benchmarking the international transaction pertaining to 'provision of logistics services'. 15. The assessee has sought inclusion of Gordon Woodroffe Logistics Limited for benchmarking the international transaction pertaining to 'provision of logistics services'. This company was selected as a comparable by the assessee in its transfe....