9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (12) TMI 99 - AT - Income TaxTransfer pricing adjustment - International express delivery services freight forwarding services and domestic distribution services to the customers worldwide and in India Held that - The assessee-company is engaged in the business of courier services which involves transportation of time sensitive packages documents and cargo to various destinations in the domestic and international sectors - The assessee has carried out international express services and freight forwarding services with its AE on which it had earned a huge profit margin - In the domestic freight services / distribution services the assessee has suffered heavy losses - the assessee had suffered a loss of 5, 30, 05, 227 on a total revenue of 95, 83, 69, 199 - on other two segments which were mainly international transactions the assessee had shown huge profit margin of 26.5% in express segment and in freight segment it had shown profit margin of more than 27% - For benchmarking the express segment the assessee has selected five comparables having average mean margin of 0.07% - For the freight segment the assessee has taken internal TNMM as it had transactions with the third parties also and reported that the assessee s margin with the AE as compared to the unrelated parties was far better. The TPO has mainly discussed the losses as a premise for applying the Arm s Length at the entity level - this cannot be a ground for rejecting the segmental results unless the losses itself has been found to be superficial on the basis of material or evidence on record - Even the books of account for the domestic results or as a matter of fact for the entire entity level have not been rejected - Loss in a particular segment sans any material to doubt cannot be the basis for rejecting the segmental results especially when they are duly audited and certified. Delivery of shipments free of charge Held that - The AE have rendered similar services for the assessee for its international services - The assessee has also given the following details to demonstrate that ultimately if overall inbound and outbound services are taken into consideration which are free of charge the assessee has benefitted on a net consideration - such an arrangement has been accepted under arm s length conditions among the related parties - The only factor which is to be seen that only the net gain or loss has to be considered for assessing the tax liabilities - If under the arm s length situation the tested parties the assessee has benefitted overall then there cannot be any reason for doubting the transaction or making the transfer pricing adjustment - the AE has also provided similar kind of services to the assessee no adverse inference should be drawn insofar as ground for rejecting the segmental results. Allocation of costs / expenses for all the three segments Held that - The assessee has mainly allocated the costs mostly on the basis of volume and weight - because there are huge salary expenses which has been debited on the basis of weight and volume which cannot be said to be based on purely actuals - the margin of express segment is 5.25% which is comparable to the finally determined margin by the TPO which is less than 5.25% and therefore the margin of express segment is at arm s length - the assessee s margin on the basis of revenue is 15.78% which again is on much higher side as compared to the average margin of comparables finally adopted by the TPO - This computation of segmental margin was given before the DRP the figures of which have not been rejected or doubted - the assessee s overall segmental results are liable to be accepted and the margins shown in the freight segment and expenses segment are at arm s length margin. The transfer pricing adjustments can be made only on the international transactions with the AE and not for the entire sales at entity level - the deeming provision of transfer pricing is to be applied only on the international transactions among group concerns i.e. the associated enterprises because the transactions with the uncontrolled party is always assumed that they are at arm s length - the assessee had suffered losses in the domestic segment which is with the third parties and this had led to shifting of profit to the AE - This premise of the income tax authorities cannot be sustained either in law or in facts - the transfer pricing adjustment of 8, 91, 71, 424 made in pursuance of DRP s order is deleted Decided in favour of assessee.
Issues Involved:
1. Transfer pricing adjustment. 2. Levy of interest under sections 234B, 234C, and 234D. 3. Initiation of penalty under section 271(1)(c). Detailed Analysis: 1. Transfer Pricing Adjustment: The assessee, Aramex India Private Limited (AIPL), challenged a transfer pricing adjustment of Rs. 8,91,71,424 to its total income. AIPL is part of the Aramex Group, providing various delivery and freight services. The assessee reported international transactions with its associated enterprises (AEs) and used the Transactional Net Margin Method (TNMM) to benchmark the arms-length price (ALP). The Transfer Pricing Officer (TPO) noted several issues: - Losses in Domestic Operations: The assessee consistently incurred losses in domestic operations while showing significant profits in transactions with AEs. - Free/Discounted Shipments: The assessee delivered shipments for AEs free of charge or at substantial discounts, which the TPO argued distorted the comparability analysis. - Unallocated Expenses: The TPO found issues with the allocation of overhead costs, leading to unallocated expenses of Rs. 25,72,77,615. The TPO rejected the segmental results and applied an entity-level TNMM, resulting in an adjustment of Rs. 13,05,72,973, later rectified to Rs. 8,91,71,424. The Dispute Resolution Panel (DRP) upheld the TPO's approach, rejecting the assessee's segmental results and cost allocation methods. Upon appeal, it was argued that: - The segmental results should be accepted as they were audited and certified. - The free shipment arrangement with AEs was reciprocal and beneficial overall. - The cost allocation method based on weight and volume was appropriate. The Tribunal found that: - The domestic losses alone were insufficient to reject segmental results. - The reciprocal free shipment arrangement was consistent with OECD guidelines. - The cost allocation method was reasonable, and the segmental results should be accepted. The Tribunal concluded that the transfer pricing adjustment should only apply to international transactions with AEs, not at the entity level. Thus, the adjustment of Rs. 8,91,71,424 was deleted. 2. Levy of Interest under Sections 234B, 234C, and 234D: - Section 234B (Grounds 18 and 19): The levy of interest under section 234B is consequential and depends on the assessed income. - Section 234C (Ground 20): Interest under section 234C should be levied only on the returned income, not the assessed income. - Section 234D (Grounds 21 and 22): There was a computational error in the interest calculation, and the Assessing Officer (A.O.) was directed to rectify it. 3. Initiation of Penalty under Section 271(1)(c) (Ground 23): The initiation of penalty proceedings under section 271(1)(c) was deemed premature and academic, given the Tribunal's findings on the transfer pricing adjustment. Conclusion: The Tribunal allowed the appeal partly, deleting the transfer pricing adjustment and providing directions for the correct levy of interest under sections 234B, 234C, and 234D. The initiation of penalty proceedings was rendered academic.
|
