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2019 (10) TMI 1441 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - VRL LOGISTICS LIMITED - The business profile of this company is far different from that of the appellant company. Moreover the segmental accounts are also not clear so as to make this company find a place in the final list of comparables. Considering the dissimilarity in the functioning alongwith unclear segmental report we direct for exclusion of this company from the final list of comparables. BIC LOGISTICS LIMITED - Similar view was taken by the co-ordinate bench in the case of CEVA Freight India Private Limited 2018 (1) TMI 1408 - ITAT DELHI wherein the Tribunal has held that road transportation company is functionally dissimilar to freight forwarding companies. It would not be out of place to mention here that the DRP itself excluded Agarwal Industrial Corporation on this count. Considering the functional profile of this company with that of the appellant in the light of the decision of the co-ordinate bench supra we direct for exclusion of this company from the final list of comparables. CENTRAL WAREHOUSING CORPORATION - This is created by an Act of the Parliament being Central Warehousing Corporation Act 1962 and being a Government company earns income from warehousing charges marketing facilitation fees container rail transport strategic alliance etc. The Annual Report of this company shows that it has acquired licence from the Indian Railways to run container train. Moreover the segmental details are not available. In our considered opinion a company engaged in two diversified services cannot be compared as comparables at entity level. We accordingly direct for exclusion of this company from the final list of comparables. INNOVATIVE B2B LOGISTICS SOLUTIONS LIMITED - this company has significant RPT at 37.10% of sales and hence fails RPT filter as applied by the TPO - We find that the TPO has applied RPT filter of 25%. We are of the considered view that the TPO must look into the calculation made by the assessee and decide afresh whether this company passed the RPT filter or not. We accordingly restore this comparable to the file of the TPO. The TPO is directed to examine the RPT and whether it passes the filter. The TPO shall given reasonable opportunity of being heard to the assessee. GORDON WOODROFEE LOGISTICS LTD - Earlier when the assessee applied filter of 75% of Revenue this comparable was excluded. But later on the TPO applied the filter and included the companies having turnover of more than 1 crore. Since this company now fits in the filter adopted by the TPO we direct the TPO to include this company in the final list of comparables. Adjustment on account of IGS - TPO has taken arm s length price of IGS at NIL and made an adjustment of 35.89 lakhs. The reimbursement received by the assessee has already been exhibited elsewhere. A perusal of the order of the TPO shows that the TPO has constantly hit upon the fact that the assessee has failed to demonstrate the need and benefits derived from such services - we are of the considered view that the only thing that a TPO can examine is the rendition of services and supporting evidences. We accordingly restore this issue to the file of the TPO. The TPO is directed to examine the rendition of services with supporting evidences and the assessee is directed to file the details for the same. This ground is treated as allowed for statistical purposes. TDS u/s 195 - Disallowance u/s. 40a(ia) - HELD THAT - Disallowance u/s. 40a(ia) is concerned we find that the quarrel is squarely covered in favour of the assessee and against the revenue by the decision of the Tribunal in assessee s own case 2019 (5) TMI 1882 - ITAT DELHI payments to non residents for providing freight and logistics services outside India 29 is not within the purview of fees for technical services and in the absence of any permanent establishment or business connection in India the same is not taxable. Since as held above that there is no business connection in India therefore we hold that the Assessee was not under an obligation to deduct tax u/s. 195 of the Act. Correspondingly no disallowance could be made u/s. 40(a)(i) of the Act. Thus we uphold the order of the CIT (A) and the appeal filed by the Revenue accordingly is dismissed
Issues Involved:
1. Transfer Pricing adjustments regarding comparables. 2. Assigning NIL value to the value of international transactions related to receipt of Intra Group Services (IGS). 3. Disallowance under section 40a(ia) of the Income-tax Act, 1961. Detailed Analysis: 1. Transfer Pricing Adjustments Regarding Comparables: The appellant company, engaged in international air and ocean export and import shipments, challenged the Transfer Pricing Officer's (TPO) selection of comparables. The TPO rejected the comparables selected by the assessee and conducted a fresh search, resulting in an upward adjustment of ?8,18,45,970/- based on the arithmetic mean of the new comparables, which was 11.23% compared to the assessee's profit margin of 2.74%. The Dispute Resolution Panel (DRP) accepted the TPO's broader comparability approach but directed the exclusion of Agarwal Industrial Corporation Limited. The Tribunal further analyzed the comparables: - VRL Logistics Limited: Excluded due to dissimilar business functions and unclear segmental accounts. - BIC Logistics Limited: Excluded as it is engaged in road transportation, unlike the appellant's non-vessel owning freight forwarding services. - Central Warehousing Corporation: Excluded due to its diversified services and lack of segmental details. - Innovative B2B Logistics Solutions Limited: Restored to the TPO for re-examination of Related Party Transactions (RPT) filter. - Gordon Woodrofee Logistics Ltd: Included in the final list as it fits the turnover filter applied by the TPO. The Tribunal allowed the grievance relating to transfer pricing adjustment regarding comparables, directing specific inclusions and exclusions. 2. Assigning NIL Value to the Value of International Transactions Related to Receipt of Intra Group Services (IGS): The TPO assigned NIL value to the IGS payments made to the Associated Enterprises (AE), amounting to ?35,89,000/-, due to the assessee's failure to demonstrate the need and benefits derived from such services. The Tribunal referred to the Delhi High Court's decisions in EKL Appliances Ltd. and Bausch & Lomb Eyecare (India) Pvt. Ltd., emphasizing that the TPO can only examine the rendition of services and supporting evidences, not the necessity or prudence of the expenditure. The Tribunal restored the issue to the TPO, directing an examination of the rendition of services with supporting evidences. 3. Disallowance Under Section 40a(ia) of the Income-tax Act, 1961: The Assessing Officer disallowed ?19,95,53,304/- under section 40a(ia) for the assessee's failure to deduct tax at source on payments made to non-residents. The Tribunal noted that the payments were for business activities, not technical or professional services, and there was no business connection in India, thus not requiring tax deduction under section 195. The Tribunal upheld the decision in the assessee's favor, referencing the Mumbai ITAT decision in UPS SCS (Asia) Limited, and directed the deletion of the disallowance. Conclusion: The appeal was allowed in part for statistical purposes, with specific directions for the TPO regarding the comparables and IGS adjustments, and the disallowance under section 40a(ia) was deleted. The order was pronounced in the open court on 23.10.2019.
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