9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (11) TMI 1075 - AT - Income TaxTP Adjustment - international transaction involving provision of support/broker services to the overseas Associated Enterprise (AE) - applying TNMM as the most appropriate method - HELD THAT - Neither the assessee has provided same or similar service to third parties, nor the AE has entered into same or similar transaction with independent service provider and further, there is no publicly available information on price charged in independent transactions of similar or identical nature that are comparable to the transaction between the assessee and the AE. However, in the very same transfer pricing study report, the assessee did provide an alternative benchmarking under CUP method by applying the price at which the assessee has chartered ships from third parties as internal CUP to benchmark the price charged by the assessee to the AE for voyage charter of the very same vessels to the AE. A perusal of the impugned order of the Transfer Pricing Officer makes it clear that only because the assessee had treated TNMM as the most appropriate method over CUP, he has rejected CUP as the most appropriate method. No further reasoning has been provided by the Transfer Pricing Officer to strengthen his case that CUP cannot be applied as the most appropriate method. We hold that CUP is the most appropriate method in the present case to benchmark the transaction with the AE. relating to the provision of support/broker service. The internal CUP applied by the assessee being a valid CUP, no further adjustment can be made to the price charged to AE. The addition made should be deleted. Selection of comparable - From the website extracts of the company as submitted before us, it is noticed that the company provides services relating to DGFT, customs / excise duty and service tax. It also appears from the facts on record that the company is engaged in the business of trading in digital certificate. Considering the aforesaid factor, the Co ordinate Bench in Li Fung (I) Pvt. Ltd. (supra) has held that the company is not a comparable to a business support service provider. It is also relevant to observe, while excluding this company the Bench also took note of the fact that the finanacial statements of the company were not available in the public domain when the company was selected as a comparable. Before us also, AR has specifically submitted that the financial statements of the company were not provided to the assessee. In case of Li Fung (I) Pvt. Ltd. 2018 (5) TMI 1009 - ITAT DELHI the Bench also observed that even under TNMM, the requirement for selection of comparable transaction cannot be diluted. Axis Integrated Systems Ltd. cannot be treated as a comparable to the assessee, hence, should be excluded from the list of comparables. In the course of hearing, it was submitted by the learned Authorised Representative that on exclusion of this comparable, the margin shown by the assessee would be within the tolerance range of the average margin of the rest of the comparables, requiring no further adjustment. Thus, he had submitted that there is no need to consider the acceptability or otherwise of the other two comparables. We do not intend to venture into the comparability issues of Cyber Media and Adecco India Pvt. Ltd. for the present and leave it upon for adjudication if the issue arises in any other assessment year in future. Thus, looked at from any angle, the addition made on account of transfer pricing adjustment is unsustainable. Accordingly, it is deleted.
Issues Involved:
1. Transfer pricing adjustment related to international transactions involving provision of support/broker services to an overseas Associated Enterprise (AE). 2. Applicability of Transactional Net Margin Method (TNMM) versus Comparable Uncontrolled Price (CUP) method for benchmarking the transaction. 3. Selection of comparables under TNMM. Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue in the appeals is the addition sustained/deleted on account of transfer pricing adjustment related to the international transaction involving provision of support/broker services to the overseas AE, Essar Steel Minnesota LLC (ESML). The assessee, engaged in logistic services, provided ship broker services to ESML by hiring vessels on a voyage charter basis from third parties and providing them to ESML on a back-to-back basis. The Transfer Pricing Officer (TPO) observed that the assessee assisted ESML in availing six vessels on a voyage charter basis and received revenue of ?29,17,78,711 for these services. 2. Applicability of TNMM vs. CUP Method: The assessee initially benchmarked the transaction using the TNMM with Operating Profit to Total Cost (OP/TC) as the profit level indicator (PLI), selecting five comparables with an average margin of 7.93%, while the assessee's margin was 9.96%. The assessee also provided an alternative benchmarking using the CUP method, comparing the price charged by third-party vendors for hiring vessels as an internal CUP. The TPO rejected the CUP method, stating that the assessee itself had not considered it the most appropriate method in its transfer pricing study report. The TPO accepted TNMM but disagreed with the computation of margins based on multiple-year data, leading to an upward adjustment of ?3,07,66,604. 3. Selection of Comparables Under TNMM: The Commissioner of Income Tax (Appeals) [CIT(A)] removed one comparable (Inmacs Management Service Ltd.) and recalculated the arithmetic mean of the remaining comparables at 16.56%, resulting in a revised adjustment of ?1,75,25,130. Both the assessee and the Revenue appealed this decision. Revenue’s Appeal: The Revenue's appeal focused on the exclusion of Inmacs Management Service Ltd. as a comparable. The Tribunal dismissed this appeal as the tax effect was below the revised monetary limit of ?50 lakh as per CBDT Circular no.17/2019. Assessee’s Appeal: The assessee challenged the application of TNMM over CUP. The assessee argued that the terms and conditions for hiring vessels from third parties and providing them to the AE were similar, making CUP the most appropriate method. The Tribunal agreed, noting that CUP is a more direct method and that the internal CUP provided by the assessee was valid. The Tribunal also observed that in previous and subsequent assessment years, the TPO had accepted CUP as the most appropriate method for similar transactions. Consequently, the Tribunal held that CUP should be applied, and no further adjustment was necessary. Selection of Comparables: The assessee also contested the inclusion of three comparables under TNMM: Axis Integrated Systems Ltd., Cyber Media Research Ltd., and Adecco India Pvt. Ltd. The Tribunal excluded Axis Integrated Systems Ltd., finding it functionally different and lacking financial statements in the public domain. The exclusion of this comparable brought the assessee's margin within the tolerance range of the remaining comparables, making further adjustment unnecessary. The Tribunal did not address the comparability of Cyber Media and Adecco India Pvt. Ltd. due to the resolution of the primary issue. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, holding that CUP is the most appropriate method for benchmarking the transaction and deleting the addition made on account of transfer pricing adjustment. The Tribunal also criticized the CIT(A) for not addressing the CUP issue adequately. The order was pronounced in the open Court on 19.11.2019.
|
