TaxTMI 
TaxTMI 
2023 (6) TMI 275
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....to apply the provisions of Sec.92 of the I.T.Act when the net result of the business activity for the year under consideration is a loss and the appellant did not derive any income from the transaction. 4) The Assessing Officer erred in arriving at the adjustment on account of arms length price at Rs.6,68,92,985/-* 5(i) The learned DRP erred in confirming the action of the Assessing Officer and the TPO in holding that the provisions of Sec.92CA(3) are applicable to the facts of the case. 5(ii) The learned DRP erred in holding that the margin of profit with non AE was 18.22% and that the profit from AE segment was only 8.5% 5(iii) The learned DRP erred in holding that the difference worked out to Rs.6,27 ,51,897 I - and further erred in directing the Assessing Officer to make the adjustment of the income. 6) The learned DRP is not justified in holding that the deferred receivables would constitute international transaction. 7) The learned DRP erred in holding that adjustment can be made for non charging of interest in spite of the fact that the arms length price was determined based on ALP 8) The learned DRP erred in accepting the reasoning given by the TPO and ....
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....o recompute the adjustments. Accordingly, as per the directions of the Hon'ble DRP, the OCIT (TPO)-2, Hyderabad vide order dated 26.11.2018 has recomputed the adjustment for the purpose of arms length price at Rs.6,68,92,985/- and the same is added to the income of the assessee. 3. Feeling aggrieved, the assessee is before us for the grounds mentioned hereinabove. 4. The assessee has drawn our attention to Paras 2 to 11 of the order of TPO wherein the TPO has recorded the following finding : 2. As per 3CEB report/TP document, the International transactions reflected areas under(Table 1): A.E Nature of transaction Amount (in Rs. Maxicon Container Line Pte Limited Liner agency services 5,48,75,630 Seaways Shipping Line Pte Limited Container Line Income 2,41,35,243 Container Line Expenses 3,14,59,961 Slot Hire Income 5,38,495 Maxicon Shipping Agencies Sdn bhd Slot Hire Income 26,15,701 Slot Expenses 27,03,287 Seaways Shipping Line Pte Limited Reimbursement by AE 18,14,006 Maxicon Shipping Agencies Sdn Bhd Reimbursement by AE 3,93,978 3. The taxpayer has carried out the economic out the economic analysis in the TP report and has summarized the I....
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.... data has been perused. The taxpayer has given the list of AE transactions and the non-AE transaction, however, it Is not known how the prices have been compared. What is the break-up of the cost which is sought to be compared. For example the first entry for the month of April, 2011 with the AE Mexican Container Line pte. Ltd., Singapore states that amount of Rs.54,85,923 being credited towards F&F @ 10.5% of 5,48,75,630. It is not known how this has been compared with the non- AE transaction whose list running into 242 items. 7. Thus as the taxpayer failed to provide the CUP data or the TNMM data, which would enable the TPO to verify the transaction, it was proposed to reject the TP document and compute the Arm's Length Price applying PSM. The taxpayer was show caused vide letter dated 15-10-2017. The taxpayer has filed its reply which has again enclosed the copy of TP document which is the same as that which was filed earlier. It is also stated that they earn agency commission on the inbound and outbound transactions @ 10.5% as per the agency agreement. This rate of commission is quite high as compared to the going rate of other companies who earn around 2% to 4% on the basic....
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.... the LT. Act. 8.2 Slot Hire Income: As per the RPT disclosure the following are the details: Sales =Rs.31,54,196 Expenses =Rs.27,03,287 Balance =Rs4,50,909 50% of Rs. 4,50,909 = Rs.2,25,455 Less: Retained by the taxpayer = Rs.NIL Short fall proposed as adjustment =Rs/2,25,455 Thus the arm's length price of international transaction Slot Hire Income is computed as above and the sum of Rs. 2,25455/- is treated as adjustment u/s. 92 CA of LT. Act and the total income of the taxpayer will be enhanced accordingly u/s 92CA(3) of the LT. Act. 9. Interest on delayed trade receivables: It is observed from Notes to Audited financial statements for the year that an amount of Rs.5,59,37,618/- of trade receivables are outstanding from related parties. Therefore vide this office's questionnaire tax-payer was asked to furnish details of outstanding receivables like date on which invoice is raised, amount, date of actual receipt, amount received, credit period allowed, amount outstanding etc which were asked to be produced even by questionnaire dated 02-06-2017. The tax-payer company was asked to explain why interest should not be levied on outstanding rece....
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....3CEB or in TP document. Therefore, penalty u/s. 271BA needs to be initiated. Similarly, the taxpayer was required to report this transaction u/s.92D of ;0~ the Act, which he has failed to do so and for which penalty u/s. 271AA may be initiated. The Assessing Officer is requested to initiate penalties u/s.271BA and 271AA accordingly. This order is applicable only to the International transactions entered into by and between the taxpayer and its AE for FY 2009-10. The AO has to mandatorily follow provisions of section 144C of IT Act before passing the final order in the case for the year under consideration. 5. The assessee had filed the petition before the DRP and the DRP vide Para Paras 2.4.15 to 2.4.18 had partly granted relief to the assessee. The relevant finding of the Ld.DRP are as under: 2.5 Ground of Object No.5 Objection NO.5.1: The TPO and the Assessing Officer are not justified in adopting PSM method and in arriving at the sharing of Profit @50% on. The TPO erred in arriving at the profit at Res. 4,50,909/- 2.3.1 the assessee has contended that the PSM is not the most appropriate method; and that even if PSM is considered, the computation made by the TPO was ....
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....tions performed to the AE. At page 1 of the Director's report the profit from Logistic business was given to be at Rs. 34.89 crore, with reference to revenue of Rs.183.48 c:rore and expenses of Rs.148.59 crore. The other expenses debited towards 'Personnel Expenses' and 'Administration Expenses', in the P&L ale do not pertain to these divisions, as the employee expenditure relating to this division are already considered, as could be seen from the information given at Note 17 to the Financial Statement. In regard to depreciation, it could be seen that out of Rs.12.35 crore, the depreciation relating to vessels and heavy equipment do not pertain to this division. After excluding the same, the depreciation allowance proportionately relatable to this division would be RS.1.46 Crore. (Rs.12.35 - RS.8.11 - RS.2.31 = [email protected]%), If this is considered, the profit margin comes to Rs.33.43 Crore. Thus it can be seen that in the non AE segment the assessee had earned a margin of nearly 18.22% over revenue of 183.48 crore, as against which in the AF segment the profit earned was only 8,5%, Hence, the TPO is directed to take this 18.22% as ALP margin. Accordingly, the asses....
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....est rate, invoice wise till the date of realization, and it shall not be beyond the end of the financial year. The TPO is directed to recompute interest adjustment accordingly." 6. The Ld. AR for the assessee has submitted that the finding of the DRP mentioned in paragraph 2.3.4, is contrary to the ALP determination in respect of the international transactions between the assessee and it's AE. It was submitted that the Ld. DRP had taken into account the annual report wherein the assessee has categorised the revenue from logistic division shipping division. Whereas the issue before the DRP was whether the prices charged by the assessee from its AE for linear agency services are at arm length or not. The assessee in the 3CB report had mentioned the revenue from linear agency services at Rs.5,48,75,630/- The Ld. Assessing Officer/TPO had made the added Rs. 9,03,02,371/- to the income of the assessee on account of ALP adjustment. It was submitted that the whole premises of order passed by the DRP was that the Ld. DRP had compared the two segments of the assessee which are not comparable with each other for the purpose of benchmarking the transaction under the residual method. It was ....
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....he light of the above we are of the considered opinion that the matter is required to be sent back to the file of the Ld. TPO for fresh adjudication after affording opportunity of hearing to the assessee. While exercising the de novo assessment, the Ld. TPO shall keep in mind the profile and business activities of the assessee, the international transaction entered into by the assessee as mentioned in form 3CB. Needless to say that the above said exercise shall be carried out by the Ld. TPO, after following the due process of law and after affording opportunity of hearing to the assessee. The Ld. TPO may apply any method as may be applicable in the facts of the present case after affording opportunity of hearing to the assessee as provided under Rule 10B of Income Tax Rules . 10. As we are remanding back the TP adjustment to the file of the Ld. transfer pricing officer, we also deem it appropriate to remand back the addition on account of trade receivable to the file of the Ld. transfer of pricing Officer, with the direction to recompute the trade receivables in the light of our decision in the case of Apache Footwear India Pvt.Ltd. ITA 568/HYd/2022 wherein we have held as under ....
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....aid judgement, the Hon'ble Delhi High Court in Para 15 had mentioned that the issue receivable is essentially a question of fact. As mentioned hereinabove, in the present case, there is a delay in receiving the outstanding of Rs.62,38,68,941/- in respect of 519 invoices as mentioned hereinabove and there is no explanation given by the assessee for such a delay in receiving the amount. The very purpose of benchmarking the transaction is to ascertain whether assessee, who is similarly situated, would render the same kind of services at the same or similar price to a third party or not. If we examine the issue in the abovesaid context, it would be clear that the assessee would charge bank interest or any other interest with a view to compensate itself on account of delay in making the payment. Hence, we do not find any error in the same. 13. The reliance of the assessee in the case of Betchal India Pvt Ltd (supra) is also not correct as A.Y. in that case was 2010-11. By the Finance Act, 2012, the Explanation was inserted in Sec.92B of the Act and by virtue of which "payment or deferred payment or receivable or any other debt arising during the course of business" has been considere....