TaxTMI 
TaxTMI 
2025 (8) TMI 1272
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....at assessee company is carrying on business in providing international freight forwarding services to various customers. For the assessment year 2003-04, it filed a return on 01.12.2003 admitting a loss of Rs. 6,63,51,190/-. The case was taken up for scrutiny. In response to notices under Sections 143(2) and 142(1) of the Act, Shri D.C.Gupta, Sr. Manager (Finance & Accounts) of the company appeared and filed details. 4. The assessee had international transactions exceeding Rs. 5 crores with its associated enterprises. Hence the case was referred to the Transfer Pricing Officer under section 92CA(1) of the Act. The Transfer Pricing Officer passed order under section 92CA(3) on 22-02-2006 wherein he determined an adjustment of Rs. 2,23,96,778/- to be made to the value of international transactions entered into by the assessee. Hence, a sum of Rs. 2,23,96,778/- is reduced from the loss shown by the assessee. 5. The assessee has claimed a sum of Rs. 23,64,550/- as interest on working capital loan. The assessee has availed cash credit facility of Rs. 20 million with Credit Lyonasis Bank carrying interest at 13% per annum. Against this loan, the assessee had to receive a sum of Rs.....
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.... 8,82,612 Disallowance under travelling exp. : 11,43,193 Rs.3,78,90,097 Rs.2,84,61,093" 9. Likewise, in ITA No,3196/Del/2017 for assessment year 2004-05, Ld. AO vide order dated 18.12.2006 computed income/loss of assessee as under: "Loss declared by the assessee: (-) 2,95,31,820 Less: i. Disallowance on a/c of bad debts as Discussed above. 6,18,505 ii) Disallowance on a/c of provisions as discussed above. 10,76,500 iii) Disallowance on a/c of short/excess as discussed above. 51,786 iv) Disallowance on a/c of prior-period expenses - as discussed above. 9,03,600 v) Adjustment made as per TPO's order - as discussed above. 5,20,84,814 5,47,35,205 Total income 2,52,03,385 Less b/c losses 2,52,03,385 Net payable income NIL 10. Against orders dated 02.03.2006 and 18.12.2006 of Ld. AO, appellant/assessee preferred appeals before Ld. CIT(A) which were dismissed vide common order dated 16.03.2017. 11. Being aggrieved, appellant/assessee preferred present appeals with following grounds....
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....pertaining to freight charges paid / received. 6. That on the facts and circumstances of the case and in law, the CIT(A)/AO/TPO erred in not appreciating the business model, functional, asset and risk analysis undertaken by the Appellant and have further erred in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with Income-tax Rules, 1962 ("Rules") for the determination of the arm's length price. 7. That on the facts and circumstances of the case and in law, the AO/ TPO erred in not granting the economic adjustments on account of capacity utilization and working capital while computing the net profit margin of the Appellant. The CIT(A), further erred in upholding the action of the AO/TPO. 8. That on the facts and circumstances of the case and in law, the AO/TPO erred in not according comparability and economic adjustments as required under Rule 10B(1)(e)(iii) of the Rules. The CIT(A), further erred in upholding the action of the AO/TPΟ. 9. That on facts and circumstances of the case and in law, the AO/ TPO erroneously re-computing the margins of the Appellant and the com....
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....s adjustments, without appreciating the submissions furnished by the Appellant. 15. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of INR 8,82,612, made by the AO being communication expenses incurred by the Appellant, alleging to be in the nature of provision. 15.1 That on facts and circumstances of the case and in law, the CIT(A) erred in summarily disregarding the submissions and not admitting the additional evidence furnished by the Appellant in this regard." 11.1 Ground of ITA No.3196/Del/2017: "1. That on the facts and circumstances of the case and in law, the Assessing Officer ("AO") erred in completing the assessment of the Appellant at an income of INR 2,52,03,385 as against returned loss of INR 2,95,31,820. Further, the CIT(A) has erred in confirming the additions/disallowances made in the assessment order/transfer pricing order. 2. That on the facts and circumstances of the case and in law, the order passed by the CIT(A) is erroneous in law as the same is non-speaking and arbitrarily upholds the additions /disallowance made by the AO/ Transfer Pricing Officer ("TPO") on the bas....
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....ital while computing the net profit margin of the Appellant. The CIT(A), further erred in upholding the action of the AO/TPO. 8. That on the facts and circumstances of the case and in law, the AO/TPO erred in not according comparability and economic adjustments as required under Rule 10B(1)(e)(iii) of the Rules. The CIT(A), further erred in upholding the action of the AO/TPΟ. 9. That on facts and circumstances of the case and in law, the AO/ TPO erroneously re-computing the margin of the Appellant. The CIT(A), further erred in upholding the action of the ΑΟ/ΤΡΟ. 10. That on the facts and circumstances of the case and in law, the CIT(A) erred in not directing the AO/TPO to allow the benefit of (+/-) 5 percent range as provided by the proviso to section 92C (2) of the Act. 11. That on facts and circumstances of the case and in law, the CIT(A) have erred in not directing the AO/TPO to use multiple years data for comparable companies as advocated by the provisions of Rule 10B(4) of the Rules for the purposes of determination of arm's length price. CORPORATE TAX GROUNDS: 12. That on facts and....
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....ing that the same is not at arm's length in terms of the provisions of the Act. The Appellant has benchmarked the international transactions pertaining to freight forwarding using. Transactional Net Margin Method ("TNMM") as the most appropriate method with net profit margin ("NPM") on sales (refer pages 461 to 469 of the paper book). 12.2 The TPO vide order dated February 22, 2006, has proposed adjustment of INR 2,23,96,778 by taking single year margins and modifying the comparable set chosen by the Appellant for benchmarking the subject international transactions (refer page 66 of the appeal set). 12.3 The Appellant has challenged the transfer pricing adjustment made by the AO/ TPO by filing an appeal before the CIT(A). During appellate proceedings, the Appellant filed an application for admission of additional ground on 50:50 revenue split business model of the Appellant (refer pages 267 and 268 of the paper book). The Appellant vide application dated August 26, 2015 also submitted additional evidences, being the inter-company agreement between the Appellant and its AE's and also copy of invoices depicting 50:50 revenue sharing model adopted by the Appellant (refer pag....
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....he Appellant had itself applied TNMM for benchmarking the freight forwarding transaction and never contended to apply comparable uncontrolled price ("CUP") method either in the transfer pricing study or during the assessment proceedings. The CIT(A) has erred in not appreciating that change in methodology for benchmarking a particular transaction during assessment proceedings cannot act as an estoppels against the assessee. c. The CIT(A) has further erred in not appreciating that after calling of remand report, as contemplated in sub-Rule (3) of Rule 46A, the additional evidence deserves to be admitted. In other words, once the remand report has been called for by the CIT(A) from TPO as per subrule (3) of Rule 46A, the CIT(A) was duty bound to admit the evidence. Reliance in this regard is placed on the following decisions: a. - Dhanna Ram Garg vs ITO: [2012] 49 SOT 73 (Delhi) b. - Shahrukh Khan vs DCIT: [2007] 13 SOT 61 (Mumbai) d. The CIT(A) has further erred in not following the order dated November 18, 2014 passed by this Hon'ble Bench of the Tribunal for assessment years 2006-07 to 2008-09 (refer pages14 to 34 of the compilation of case l....
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....by the AO alleging that the Appellant should have recovered proportionate interest from AEs. Ld. CIT(A) has erred in disregarding the additional evidence submitted by the Appellant during the course proceedings. The AO made a disallowance amounting to INR 17,57,358 by the arbitrarily applying 13% on the being outstanding sum to be received by concluding that huge amounts are the outstanding from the associate concerns of the Appellant on the billed amount and the Appellant is not the belated payments. On the other hand, of the Appellant is paying 13% interest on the cash credit loans, (Refer page 54 of the Appeal set). The CIT(A) erroneously has concluded that the Appellant has not filed any application under Rule 46A for placing the additional evidence to negate the claim of the AO without considering the application admission of additional evidence in for relation to the appeal filed under affiliates. Similarly, overseas group affiliates also utilized the services of the Appellant for delivering goods in India. Therefore, the amount payable by the Appellant to the group affiliatesm is reflected under the head sundry creditors (refer page 409 read with page 178 of the paper book) ....
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....on Industries Pvt. Ltd. ITA No.1146/Pune/2012. 12.8 Learned Authorised Representative for the appellant/assessee submitted that ground nos. 13 to 13.2 challenged that Ld. CIT(A)'s directions to the Ld. AO to verify the admissibility of bad debts claimed by the appellant amounting to INR 1,12,76,967/-, which were disallowed by the Ld. AO alleging that the same to be in the nature of provision for doubtful debts. 12.9 The Appellant had written off bad debts amounting to INR 1,90,57,785 (refer page 410 of the paper book) and the same were debited to the profit and loss account. The Appellant had also created a provision for bad debts amounting to INR 1,05,50,624 (refer page 410 of the paper book) in the books of account and had also reversed the excess provision for bad debts created during the earlier years amounting to INR 1,90,41,046 (refer page 410 of the paper book). The Appellant has suo-moto disallowed the amount of provision for bad debt created during the year and reduced the excess provision reversal from the total income since the same was offered INR 1,90,41,046/- is a provision of bad and doubtful debts was reversed this year and treated as admissible item (as was n....
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....was disallowed while computing the total income, reversal of such provisions written back is allowed as deduction. a. Bank of Tokyo Ltd. vs. Joint Commissioner of Income Tax: [2010] 36 SOT 8 (Delhi) (URO). b. CIT, Gulbarga vs. Progathi Gramina Bank; [2018] 91 taxmann.com 343 (Karnataka); c. Integra Engineering India Ltd. vs ACIT: ITA No.1316/Ahd/2016. d. Harmuny Entertainment (P) Ltd. vs. DCIT [2023] 157 taxmann.com 547 (Kolkata Trib.); e. Rolls Royce Industrial Power India Ltd. vs. ADIT - ITA No.1599/Del/2011 [2010]; f. Nivea India P. Ltd. Mumbai vs ACIT 10(3)(1) ITA/1105/Mum/2015 [2018]. 12.14 Learned Authorised Representative for the appellant submitted that ground no.14 is qua upholding disallowance, it is submitted that Appellant had charged an expenditure amounting to INR 1,330,432 in the books of account under the head "Miscellaneous expenditure" (Refer page 410 of the 8 paper book). The expenditure debited under this head included miscellaneous items like short of excess, adjustment of minor differences under various accounts etc. Refer page 332 of the paper book. 12.15 The AO/CIT(A) have erred in not appreciating ....
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....s have been offered as income of the earlier years. Ld. CIT(A) has erred in disregarding the submissions and evidence furnished by the appellant in this regard. 13.2. Ground nos. 13 to 13.1 regarding disallowance of Rs. 120,76,500/- made by the Ld. AO being provision made for legal and professional fee alleging that the provisions made were contingent and ad hoc in nature. 13.13 During the year under consideration, the appellant/assessee had incurred certain expenditure on account of legal and professional expenses (refer page 368 of the paper books). The Ld. AO sought details of the expenses pertaining to the same and in response the appellant/assessee submitted that the party-wise details legal and professional before the Ld. AO (refer pages 202 to 210 of the paper books). Cases wherein, it is held that legal and professional expenses incurred will be allowed as deduction while computing the income of the assessed are: a. Times Internet Ltd. v. ACIT: [2017] 88 taxmann.com 387 (Delhi- Trib.); b. CIT vs. Onmobile Global Ltd.: [2021] 129 taxmann.com 254 (Karnataka); c. CIT vs. HMA Data Systems (P) Ltd.: [2015] 63 taxmann.com 144 (Karnataka); ....
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.... by the AO during the course of assessment proceedings. Ld. AO has disallowed this expenditure without giving any reasoning by merely stating that the same needs to be disallowed due to non-availability of evidence without considering the principles laid down by the courts that expenses which are petty in nature should be allowed as expenditure even though supporting documents are not available for the same. In view of above submissions, it is prayed that disallowance made by the Ld. AO amounting to Rs. 51,786/- on account of miscellaneous expenses should be added. 14. Learned Authorised Representative for the for Revenue relied on orders of Departmental Authorities. 15. From examination of record in light of aforesaid rival contentions, it is crystal clear that ground of appeal nos. 1 and 2 of ITA No.3195/Del/2017 are general. Ground nos. 4 to 11 are regarding transfer pricing adjustment amounting to Rs. 2,23,96,775/- on account of provision and receipt of freight forwarding services alleging that the same is not at arm's length in terms of the provisions of the Act. 16. Ld. CIT(A) summarily rejected additional evidence submitted by appellant/assessee for substantiating 5....
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....tional points of entry. These services are offered either directly by the appellant to its customers, or, as a part of deliverables sold to overseas customers by the assessee's AEs as also unrelated third party agents abroad. In respect of the cases in which services are rendered to the overseas customers, the assessee receives these shipments from such AEs or independent third party associates, obtains customs clearance at the port of entry, and organizes delivery of these consignments to the consignees in India. In essence, thus, the assessee, along with its associated enterprise, offers multi modal transportation services to business to business shippers through global freight forwarding services. The company is having two types of international transactions - (a) arranging import of cargo from other countries to India by air and sea transportation and delivering the same to consignees in India; (b) arranging export of cargo from India to other countries by air and sea transportation wherein consignments are picked up in India by assessee and are sent to destination as per instruction of shippers/consigners for the purpose of delivering to consignees through its associated enter....
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....MM) for determining the arm's length price. In the computation of arm's length price in accordance with TNMM, an arm's length price adjustment of Rs 2,09,00,179, but, for the reasons we will set out in a short while, it is not really necessary to go into fine points about adjustments under TNMM in this case. Suffice to note that CUP was rejected at the assessment stage. Based on the arm's length adjustment so recommended by the TPO, the Assessing Officer proposed to frame the assessment. The assessee was not satisfied with the assessment so proposed by the Assessing Officer and did raise the grievances before the Dispute Resolution Panel but without any success. It was in this backdrop that an arm's length price adjustment of Rs 2,09,00,179 was made in the assessment order. The assessee is aggrieved and is in appeal before us. 4. We have heard the rival contention, perused the material available on record, and duly considered factual matrix of the case in the light of the applicable legal position. 5. We find that in the present case it is not really even in dispute that in this field of business activity, the 50:50 business model (i.e. the business model of shari....
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....ice is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; and (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction. 19. In view of above material facts and judicial precedents, respectfully following the same, it is considered expedient to restore the issue to the file of the Ld. CIT(A). Accordingly, ground nos. 4 to 11 are partly allowed. 20. Ground of appeal; nos. 12 to 12.2 are regarding disallowance of Rs. 17,17,358 being interest on working capital loan, made by Ld. AO alleging that appellant should have recovered the proportionate interest from a AE Ld. CIT(A) erred in disregarding additional evidence submitted by appellant. Ld. AO only considered the receivable of the appellant from its affiliated entity and ignored the payable amount of Rs. 5,29,20,227/- to its affiliates as is evident from 178 of the paper books. The amounts appeared as rece....
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....being miscellaneous expenses. Ld. AO and Ld. CIT(A) failed to appreciate that miscellaneous expenditure on page no.410 of paper books of the books of accounts was petty in nature. The genuineness of the incurrence of the expenses by assessee disputed by the Ld. AO during the assessment proceeding. Ld. AO had disallowed the expenditure without giving any reasoning and considering the plea that the expenses which are petty in nature should be allowed. Reference to judgment in ACIT vs. Oxigen Services India Pvt. Ltd. (ITA No.5467/Del/2016) in above context is important. Accordingly, ground no.14 is allowed. 25. Ground nos. 15 and 15.1 are regarding upholding of disallowance of Rs. 8,82,612/- made by the Ld. AO being communication expenses incurred by the appellant, alleging to be in the nature of provision. Ld. AO and Ld. CIT(A) failed to appreciate that the accounting methodology consistently followed by the appellant. Amount of Rs. 8,82,112/- appearing in the ledger, Ld. AO flagged provision amounting to Rs. 1,50,000/- for the month of December, 2002. The provision so created for the month of December 2002 was adjusted with actual expenditure incurred and excess was recovered on ....