TaxTMI 
TaxTMI 
2022 (8) TMI 1325
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....3,950/- (i.e. Rs.One Crore Sixty Two Lacs Fifty Three Thousand Nine Hundred and Fifty only) under the provisions of Chapter X of the Income-tax Act, 1961 ("the Act") and the said additions being unjustified are wholly liable to be deleted." 2. Non-consideration of benchmarking analysis conducted by the Appellant On the facts and 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 disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') and the various submissions made by the Appellant, without assigning any reason in contravention to the provisions of section 92C(3) of the Act. 3. No search strategy carried out/ conducted by the learned TPO On the facts and 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 arbitrary selection of com....
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.... Act. Appellant prays that the adjustment in relation to transfer pricing matters made by the learned AO/TPO and upheld by the Hon'ble DRP be deleted." 3. The issues arising in grounds no. 2 to 4, raised in assessee's appeal, is pertaining to transfer pricing adjustment qua the comparables. 4. The brief facts of the case, as emanating from the record, are: For the year under consideration, assessee filed its return of income on 29/09/2008, declaring loss of Rs. 2,73,70,141. The assessee is an Indian subsidiary of M/s OOCL Logistics (Singapore) Pte. Ltd. The assessee is engaged in 'provision of logistics services' to its associated enterprises and also to non-associated enterprises. During the year, assessee entered into following international transactions with OOCL group entities ('Associated Enterprises'): Sl. No. Nature of International Transaction Amount (in INR) 1. Provision of logistics services 14,45,20,802 2. Receipt of logistics services 87,15,092 3. Corporate allocation of expenses 89,72,834 5. The assessee is engaged in the provision of logistics services in relation to movement of goods within India. In relation ....
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....ion company in relation to provision of logistics services: "4.1.1.1 Functions performed by the Origin Company ('OC') • Pre-Shipment packaging and other activities Many clients find it economical to outsource their pre-shipment activities to third party logistics, so that they can concentrate completely on their core area of competence like selling or manufacturing whichever the case may be. The OC may assist its clients in packing, sampling and making the products ready for shipment. • Transportation to the exportation point Upon instructions of the client, the OC hires the services of a third party asset provider and arranges the transportation of the shipment from the client's facilities to the point of the shipment, an airport or seaport whichever the case may. It is the responsibility of the OC to evaluate the performance and reliability of the third party service provider and ensure that the shipment is handled carefully and efficiently. • Custom clearance and documentation The OC assists the client in customs related formalities and documentation so that the shipment is cleared by the auth....
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....rrival notice in generated, and is sent to the consignee as intimation that the shipment has arrived and was collection DC prepares a document called the Delivery Order against which goods will be released to the consignee by the port authorities. • Customs clearance / transportation DC also co-ordinates the transportation of goods post clearance to the premises of the customer wing a third party service provider. DC is responsible for ensuring that the service provider is efficient and reliable and that the goods are not damaged during transit • Inventory management and control The different offices offer inventory management and warehousing services to their customers under an integrated logistics management package to client." 7. The Assessing Officer ('AO') made reference Transfer Pricing Officer ('TPO') for determination of ALP of the aforesaid international transaction. During the transfer pricing assessment proceedings, while analysing the comparables selected by the assessee the filters such as, related party transaction of less than 25%, the rejection of continuous loss making companies, functional similarity, data availabilit....
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....issions, we have confined our findings only in respect of these comparables in present appeal. (i) Balmer Lawrie and Company Ltd. 10. The first comparable under dispute is Balmer Lawrie and Company Ltd for the purpose of benchmarking of international transaction pertaining to 'provision of logistics services'. Balmer Lawrie and Company Ltd (logistics infrastructure and services segment) was selected as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that under TNMM only broad compatibility of the comparable needs to be seen and therefore, this company is functionally comparable to the assessee. In proceedings before the learned DRP, assessee's objection against selection of this company was rejected vide directions issued under section 144C(5) of the Act. Being aggrieved, the assessee is in appeal before us. 11. During the course of hearing, learned AR submitted that Balmer Lawrie and Company Ltd is multifunctional, multiproduct and multi-location company engaged in both manufacturing and services and therefore, is functionally not comparable to the assessee, as it is into diversified business. The learned AR also submitted that segmen....
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.... Balmer Lawrie and Company Ltd that apart from separate segment -wise revenues and costs available in the annual report, there is an item of 'un-allocable revenue' of Rs. 1812.76 lakhs and 'un-allocable expenditure' of Rs. 1320.35 lakhs. We find that for the very same reason, Balmer Lawrie and Company Ltd was considered to be not comparable by the coordinate bench of Tribunal in CEVA Freight India Private Limited vs DCIT, in ITA No. 4956/Del/2013, vide order dated 18/01/2018, as due to presence of 'un-allocable revenue' and 'un-allocable expenditure' the profit margin of relevant segment cannot be correctly computed. The relevant findings of the coordinate bench of the Tribunal, in aforesaid decision, are as under:- "10. We have heard both the sides and perused the relevant material on record. Page 764 onwards of the paper book is a copy of the Annual report of Balmer Lawrie & Co. Ltd. Page 804 is a copy of its Profit & Loss Account, which shows revenue from sale of Manufactured goods, Trading goods, Turkey projects and Services. The Director's report divulges that this company has several units, such as, Industrial packaging. Grease and lubricants, Logistics services,....
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....rs its inclusion invalid. This company is directed to be excluded." 14. Thus, we are of the considered view that Balmer Lawrie and Company Ltd (logistic infrastructure and services segment) is not comparable to the assessee in the present case. 15. Further, as regards the reliance placed by learned DR on the decision of coordinate bench of Tribunal in United Shippers Ltd. (supra), it is pertinent to note that in the aforesaid decision, assessee's submission to exclude Balmer Lawrie and Company Ltd as a comparable on the basis that it has shareholding of government of India was rejected by the coordinate bench of the Tribunal. However, in the present case, Balmer Lawrie and Company Ltd has been found to be functionally non-comparable to the assessee in addition to presence of 'un-allocable revenue' and 'un-allocable expenditure' in the segmental profitability of the company. Therefore, in view of the above, the TPO/AO is directed to exclude Balmer Lawrie and Company Ltd as comparable for benchmarking the international transaction of 'provision of freight services'. (ii) South India Corporation Ltd. 16. The next comparable under dispute is South India Corporation Ltd for ....
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....l and the contract with Chennai Container Terminal Limited for transporting goods from inside the harbour and the contract with Chettinad Lignite Transport Services Private Limited for ST-CMS Electric Company Private Limited for transport of lignite have been extended. During the year under review, the company has bagged a new contract for mining work from Indian Rare Earths Limited. The two year contract for transporting and unloading of food grains for Central Warehousing Corporation at Thanjavur is under progress. The contract from Neyveli Lignite Corporation Limited for transport of raw lignite has also been extended. Small contracts were awarded to the Company by SAIL. and Vizag Steel Plant for loading of Steel and unloading of limestone respectively at Vizag. Logistics operations have been modernised and the company hopes to achieve better results in the coming years. M/s.Bhatia Coal International Limited who is dealing with Stock and Sales of Steam Coal has given the Stevedoring work to our Company." 18. While, on the other hand, as noted above assessee is engaged in providing logistics services in the nature of pre-shipment packaging and other activities; transportation ....
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....22,582 21,808 29,986 Office Equipments 50,849 59,040 109,889 50,849 59,040 109,889 - - Computers 1,296,526 1,766,238 3,062,764 256,790 666,886 923,676 2,139,088 1,039,736 Total 1,391,765 1,825,278 3,217,043 322,043 734,104 1,056,147 2,160,896 1,069,722 Previous Year 269,542 1,122,223 1,391,765 35,376 286,667 322,043 1,069,722 21. While on the other hand, in case of Om Logistics Ltd., relevant details of the fixed assets, as per the schedule forming part of the financials, are as under: Plant and machinery 194.57 164.75 - 359.32 44.00 - 14.18 - 58.11 301.14 150.57 Computer and equipment 284.06 55.70 22.32 317.44 161.91 - 38.66 22.02 178.55 138.89 122.15 Furniture and Fixtures 117.42 123.64 - 241.06 18.80 - 10.52 - 29.32 211.74 96.62 Vehicles 1709.87 137.50 24.02 1823.15 203.13 - 264.51 14.20 453.44 1389.71 1506.54 Land 1399.69 2977.73 - 4377.42 - - - - - 4377.42 1399.69 Buildings ....
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....ore, the plea of the assessee that the aforesaid company be rejected as a comparable did not ment acceptance. Apart therefrom, it was observed by the TPO that as the OP/TC margin of the company was ranging from 9.76% to 17.37%, and in fact the same had gone down to 14.46% in the next year, therefore, there was no pattern to suggest any abnormality in the profit of the assessee. On the basis of his aforesaid deliberations the TPO had declined to accept the claim of the assessee that the aforesaid company was to be excluded from the final list of comparables. (b) Admittedly, the aforesaid company was selected by the assessee in its TP study report, but then as observed by us hereinabove, an assessee cannot be barred in law from withdrawing from its list of comparables a company, which had either been included on account of a mistake on facts or is not found to be comparable. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of The Commissioner of Income-tax-7 Vs. M/s Tata Power Solar Systems Ltd. (2017) 245 Taxman 93 (Bom) and Pr. CIT Vs. J.P Morgan India Pvt. Ltd. (ITA No. 912 of 2016, dated 14.01.2019) (Bom). It is in the b....
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....of the "annual report' of the aforesaid company, which reads as under: "Strengthening the Infrastructure As envisaged in the last report, Your company has taken vanous steps during the year to strengthen its infrastructure base across the country. We have successfully launched the warehouses at Jamalpur (Delhi NCR region), Sanad near Ahmedabad and Sriperambadur near Chennai and plan to setup more warehouses in near future at strategic locations throughout the country. Your company also set up about 20 more branches at strategic locations. Further the fleet strength owned by the company was also increased to smoothen the operational activities." As observed by us hereinabove, as the assessee company is not an asset owning company, therefore, the aforesaid company viz. M/s Om Logistics Limited which has a significant asset base, thus being functionally different could not have been feasibly selected as a comparable for the purpose of determining the arm's length price of its international transactions for the year under consideration. Accordingly, we direct the A.O/TPO to exclude the aforesaid company from the final list of comparables for ....
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.... June, 2008. On the other hand, the assessee, i.e. the tested party, in the present case is maintaining its accounts with year ending March, 2008. Thus, it is evident that the company sought to be included by the assessee as a comparable is having different financial year ending. At this stage, it is relevant to note that different financial ending filter was not specifically applied by the TPO, while benchmarking assessee's international transaction. Though, it is also pertinent to note that the TPO has applied the filter of data availability for the current year. Be that as it may, for the purpose of proper comparability, it is relevant that both the tested party as well as the comparable should have similar financial year ending for proper analysis of the functions performed, assets employed and risks assumed. Further, it is also pertinent to note that company which is otherwise functionally same cannot be rejected as a comparable merely on the basis that its accounts are maintained with different financial year ending provided that results for the relevant financial year can reasonably be extrapolated from the available data on record. In this regard, following findings of the ....
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....r passed under section 92CA(3) of the Act excluded the aforesaid company by applying filters such as, related party transaction of less than 25%, rejection of continuous loss making companies, data availability for the current year etc. The learned DRP upheld the filters applied by the TPO for selection of the comparables. Being aggrieved, the assessee is in appeal before us. 29. During the course of hearing, learned AR submitted that Gordon Woodroffe Logistics Limited satisfies all the filters applied by the TPO. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 30. We have considered the rival submissions and perused the material available on record. We find that TPO rejected Gordon Woodroffe Logistics Limited by generally stating the filters such as, related party transaction of less than 25%, rejection of continuous loss making companies, data availability for the current year etc. We find that there is no specific mention as to which filter is applicable for exclusion of the aforesaid company. From the perusal of relevant portions of financials of Gordon Woodroffe Logistics Limited, forming part of the paperbook, we find tha....