TaxTMI 
TaxTMI 
2026 (6) TMI 1070
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.... disposed off by this consolidated order. We shall first adjudicate the appeal in IT(TP)A No. 63/CHNY/2024. IT(TP)A No. 63/CHNY/2024, (AY 2020-21) 4. Brief facts in relation to the above appeal are as follows: The assessee is a company incorporated in the year 2006, which is engaged in the business of freight forwarding services, logistics and distribution services. The assessee is wholly held subsidiary of CCH Robinson Investments Ltd., SARL, which is ultimately held by CH Robinson Worldwide Inc USA, (CHR USA). For the assessment year 2020-21, the assessee filed its return of income on 29.01.2021 declaring total income of Rs. 6,74,75,520/-. The return was selected for scrutiny and notice u/s.143(2) of the Act was issued on 29.06.2021. Thereafter, notices u/s.142(1) of the Act was issued on various dates. During the course of assessment proceedings, it was noticed that assessee had entered into numerous international transactions with its Associated Enterprises (AE). The AO referred the matter to the Transfer Pricing Officer (TPO) to determine the Arms' Length Price of international transaction undertaken by the assessee with its AE during the previous year. The TPO passed an....
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..... The Hon'ble DRP and the Ld. TPO/ Ld. AO have grossly erred in law by rejecting working capital adjusted margins for comparable companies in the Freight Forwarding Segment. (Grounds of Appeal - 2 to 5) Issue 3: Corporate Overhead Charges 3. The Hon'ble DRP and the Ld. TPO/Ld. AO have grossly erred in disallowing payment of corporate overhead charges to C.H. Robinson Worldwide Inc, USA ('CHR USA'), in ignorance of the evidence of receipt of services, by rejecting the commercial expediency test, by incorrectly classifying activities as shareholder activities and by wrongly computing ALP as NIL in the absence of any comparative analysis using CUP method. (Grounds of Appeal - 6 to 7) Issue 4: Objections against imputation of Notional interest on Trade receivables 4. The Hon'ble DRP and the Ld. TPO/Ld. AO have erred, in law and in facts, by treating the outstanding receivables of the Appellant from its AE as a separate international transaction under Section 92B of the Act in ignorance of the fact that TP documentation of Freight Forwarding segment includes working capital adjusted margins that subsumes delayed c....
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....ble transaction to eliminate the material effects of differences on the price, cost of profits. The assessee has argued for working capital adjustment contending that there exist differences in the payable and receivable position between the assessee and the comparables. However, it was not demonstrated with any data or information as to the impact of such difference on the price, cost or profits, and as to whether such difference materially affect the price, cost or profits. The 'Accounts payables and Receivables shown in the balance sheet only reflects the position as at the end of the financial year, and as such it would not enable to measure the impact of working capital on the costs, price or profits. The working capital requirements and impact depends on various factors such as business cycle, the nature of business activity with its correlation on the general economic trends, the fund and capital position of the company, its marketing strategies, its market share etc. all of which cannot be captured in the year end Receivable or Payable position. Besides, the 'Payable' and 'Receivable' position stated in the Balance Sheet may not exactly reflect as to whe....
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....orking capital position and also details of working capital days and proved that there is difference between working capital cycle of assessee with that of comparables. Therefore, suitable adjustment should be made to provide working capital for comparing operating margin of the assessee with that of comparables selected for testing international transactions of the assessee. The learned CIT(A), while doing so, has relied upon the decision of the ITAT., Chennai in the case of M/s. Foxteq Services India Pvt. Ltd. in ITA No. 174/Mds/2016, where it was clearly held that working capital employed by the assessee and that of comparable companies needs to be taken into consideration and further, without making suitable adjustments there cannot be any transfer pricing adjustments to international transactions of the assessee. The relevant findings of the learned CIT(A) are as under:- 10. I have carefully' considered the facts in issue, order of the AO/TPO, submissions made by the Appellant and materiel on record, Alter taking into consideration detailed submissions made by the appellant, the following issues arise for consideration: (i) Rule 108(3) of the Income-tax R....
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....considered opinion that the capital employed on the assessee, including working capital, is one of the relevant factors for the purpose of determining the arm's length price. Therefore, the capital employed by the assessee, including the working capital, and that of comparable companies needs to be taken into consideration. Without comparing working capital employed by the comparable companies and that of the assessee, this Tribunal is of the considered opinion that there cannot be any transfer pricing adjustment. 12. Hence, I am of the considered view that for the purposes of transfer pricing analysis any difference arising on account of working capital positions is required to be factored, so as to make the comparability analysis more equitable. Accordingly. the working capital adjustment sought for needs be granted to the appellant." 8. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that there is no error in the reasons given by the learned CIT(A) to direct the TPO to provide working capital adjustments and thus, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken b....
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....is in appeal before us. 16. The ld.AR for the assessee submitted that there were nil related period transactions for the financial year 2019-20 corresponding to assessment year 2020-21 for these two companies. It is further submitted that the RPT filter was applied by the TPO himself for the first time in his TP order. The ld.AR stated that the financials are silent in related period transactions. Hence, this has to be presumed that no RPT took place during the relevant year. In respect of AP Logistics the ld.AR submitted that in the paperbook at Page no. 7 of annual report in auditor report of RPT Para XIII, the declaration have been made wherever applicable. Similarly in respect of dimension logistics, the paperbook at page 27 of the annual report, the declaration have been made wherever applicable. Therefore, the ld.AR prayed that the above two companies has to be included as comparables. 17. Per contra, the ld. DR submitted that the RPT details are not available and hence, the TPO has rightly rejected these two companies and prayed for confirming the same. 18. We have heard the rival submissions, perused the material available on record and gone through the orders of t....
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....led corporate overhead charges) was benchmarked using TNMM method by aggregating the same with freight services. The TPO determined the ALP of corporate overhead charges as 'nil'. The TPO held that each transaction should be analyzed individually. Further, it is held by the TPO that there was no proof for retention of services. Accordingly, the ALP was determined 'nil', by applying CUP method consequent to the TPO order TP adjustment of Rs. 7,27,51,579/- was proposed. The relevant finding of the TPO reads as follows:- "As per the provisions envisaged in Rule 10B and 10C, the most appropriate method has to be chosen keeping in mind the factors which have been prescribed in the rules. The assessee cannot choose a method which does not provide the most reliable measure of an arm's length price in relation to an international transaction. In this case 'Such Other Method' cannot actually prove that the services have been received and it certainly does not put a value to them. As the purpose of this audit is to determine the arm's length nature of the transaction, it has to start with the basics, in this case the receipt of services. As already discussed in the p....
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....tion. The payment is made in the form of Business support services is a class of its own and requires separate benchmarking analysis. The TNMM method is not the MAM for benchmarking this transaction. As per rule 108(1)(e) the TNMM is applied In the cases where the net profit margin realised by the enterprise from an international transaction entered into with an Associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base. The net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. 4.2.2 The TPO has rightly selected comparable uncontrolled price method (CUP) under rule 108(1)(a). Under CUP method the price charged or paid for services provided in a comparable uncontrolled transaction or a number of such transactions is identified. Such price is adjusted to account for difference if any between the international transaction and the comparable uncontrolled transaction which would materially affect the price in the open m....
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....ered by the foreign entity to the assessee. It is also clear from the said order, some proof/evidence has been furnished for rendering of such services to the assessee company. The Ld.AR also placed specific reliance of the TPO's finding that assessee's company is having a lien structure and these services were indeed required. Therefore, it's contended that after admitting there was some services rendered and having given some proof, the TPO has erred in taking the ALP at 'nil' without doing any benchmarking and finding out other comparables. The Ld.AR has took us through the paper-book, TP compilation wherein assessee company had furnished some evidences with regard to retention and receipt of services such as agreement concerning, snapshot of Navisphere software received by the assessee, screenshot of how Navisphere was used to store details of freight shipment, sample invoices raised by CHR USA for services rendered to the assessee, various email communications, etc. The Ld.AR further submitted that ALP cannot be determined at 'nil' by simply stating that no evidence was furnished and it is necessary for the TPO to undertake the benchmarking analysis and identify the comparable....
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....ar some evidence also been furnished by assessee company for having received certain service from its AE. Due to assessee's lean structure, it is clear some support service was indeed required from its foreign AE. The TPO after having admitted these factual aspect has taken the ALP to intragroup services as 'nil' by applying CUP method without doing any benchmarking and finding out comparables. The Chennai Bench of the Tribunal in the case of Gates India Company Pvt. Ltd., (supra), has held that ALP cannot be determined at 'nil' by stating that no evidence was furnished. It was further held it is necessary for the TPO to undertake the benchmarking analysis and identify the comparables. The relevant finding of the Chennai Bench of the Tribunal in the case of Gates India Company Pvt. Ltd., (supra), reads as follows:- 3. Sh. B. Ramakrishnan, the Ld. representative for the assessee, submitted that the DRP made downward adjustment in respect of international transaction relating to management service fee holding that the arm's length price of the management service fee paid to Associated Enterprise to be NIL. According to the Ld. representative, when the services rendered b....
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....Act." 27. From the service agreement dated 01.01.2017 from Article 2, it is clear the manner in which the payment has to be made by the assessee to CHR USA. The assessee in this instant case has not given the specific details how and in what manner the services were rendered and for which assessee had made payment of Rs. 7,27,51,576/- to CHR USA. In the absence of these details, we deem it appropriate to restore the matter to the TPO. The assessee is directed to substantiate payment of Rs. 7,27,51,579/- with all the evidences/material to the satisfaction of the TPO that assessee company was in receipt of support services from its foreign AE justifying the said payment. It is ordered accordingly. 28. In the result, the issue No. 3 (Ground Nos. 6 & 7 in original grounds of appeal) is allowed for statistical purposes. Issue No. 4: Objections against imputation of Notional interest on Trade receivables (Ground Nos. 8 to 11 in original grounds of appeal and additional grounds of appeal) : 29. The brief facts of the issue are that the TPO has made an adjustment by adding interest on trade receivables to the tune of Rs. 26,73,71,147/- by calculating the details provided by the....
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....ed for deleting the TP adjustments made on account of interest on trade receivables. 32. Per contra, ld. DR argued that the DRP has made a detailed observation relying on various judicial precedents and hence, prayed for confirming the addition. 33. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities along with the paper book filed and judicial precedence relied on by both the parties. On perusal of the audited financials of the assessee, the company is not having any borrowings, consequently, no interest has been debited to the profit and loss account by claiming any interest expenditure. Further, the company neither has paid any interest to the trade payables nor collected any interest on delayed collection of trade receivables as well from both AE and Non-AE receivables. On perusal of the decision of the Chennai Bench in the case of Temenos (supra) it is clearly stated that "once the company is debt free and no interest has been debited to the profit and loss account as an expenditure the separate addition of interest on trade receivables need not to be made". The relevant extract of the decision is g....
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....nson Worldwide Inc, USA (CHR USA'), in ignorance of the evidence of receipt of services, by rejecting the commercial expediency test, by incorrectly classifying activities as shareholder activities and by wrongly computing ALP as NIL in the absence of any comparative analysis using CUP method (Grounds of Appeal-2 to 4) Issue 3: Objections against imputation of Notional interest on Trade receivables. 2. The Hon'ble DRP and the Ld. TPO/Ld. AO have erred, in law and in facts, by treating the outstanding receivables of the Appellant from its AE as a separate international transaction under Section 92B of the Act in ignorance of the fact that TP documentation of Freight Forwarding segment includes working capital adjusted margins that subsumes delayed credit period. 3. Without prejudice to the above contentions, if interest needs to be charged on receivables under Section 92B of the Act, we wish to submit that such outstanding payables/advances from AEs should be netted off against outstanding receivables. Issue 4: Incorrect computation of tax liability 4. The Ld. AO erred in law and facts, by initiating penalty proceedings u....