9911796707
TMI Blog2011 (3) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of appeal read as under:- "Based on the facts and circumstances of the case, Geodis Overseas Private Limited (hereinafter referred to as "the Appellant"), respectfully submits with respect of the order passed by the ld. DCIT, Circle 12(1), New Delhi (AO) u/s. 143(3)/144C of the Income Tax Act, 1961 (hereinafter referred to as the "Act") appeal on the following grounds: 1. The ld. Assessing Officer ("AO") based on the directions received from ld. Dispute Resolution Panel (DRP) has erred in law and on facts, in upholding the adjustment in its entirety to the transfer price made by the ld. Transfer Pricing Officer (TPO). 2. The ld. AO/DRP/TPO has erred, in law and on facts by making an adjustment of Rs.69,792,811 to the income of the appellant and in holding that the transactions between the appellant and its associated enterprise were not at an arm's length price. 3. That the ld. DRP has erred in overlooking the submissions made by the Appellant to the DRP, thus, not providing an equal opportunity of being heard to the appellant. The ld. DRP has consequently erred in ignoring the argument of the appellant that since only a small part of activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law in the adjustment on account of depreciation without providing an opportunity of being heard to the appellant. No discussion was undertaken with the appellant with respect to this adjustment during the course of assessment proceedings. 15. The ld. Collegium of Commissioner's comprising the DRP erred in law and on facts, by not adhering to the principles of natural justice by summarily rejecting the appellant's objections and disregarding the material placed on records. That the procedure laid down in sec. 144C(5), 144C(6) and 144C(7) has not been followed. 16. The ld. AO has erred, in law and on facts, in initiating penalty proceedings with respect to Transfer Pricing additions, claim of brought forward loss and excess depreciation. 17. The ld. AO has erred, in law and on facts, in charging interest under sections 234B and 234D of the Act. The above grounds are independent and without prejudice to each other. The Appellant prays for leave to add, alter, amend any/or modify any of the grounds of appeal at or before the hearing of the appeal." 2. The draft order came to be passed on 4th December, 2009 which was forwarded to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and working capital adjustment. 3.4. Ground Nos. 7 and 10 represent the grievances of the assessee regarding non-appreciation of business modalities of its business by the TPO/DRP as a result of which proper adjustment has not been granted. 3.5. Ground No. 8 is regarding user of multiple year data of comparables to arrive at mean margin of comparables. 3.6. Ground No. 9 is regarding grant of benefit of 5% range. 3.7. Ground No. 11 express the grievance regarding non-grant of adequate opportunity by the TPO. 3.8. Ground Nos. 12, 13 and 14 are against disallowance of depreciation amounting to Rs.16,057 3.9. Ground No. 15 represent the grievance of the assessee against violation of principles of natural justice by DRP. 3.10. Ground No. 16 assails the initiation of penalty proceedings. 3.11. Ground No. 17 assails charging of interest under sections 234B and 234D. 4. The assessee is a domestic company having 94.03% equity holding with Geodis Asia and 5.97% equity holding with INDEV Shipping Services. The assessee is primarily engaged in the business of transportation of time sensitive packages, documents and cargo t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat according to the guidelines of OECD capacity utilisation adjustment was required to be effected and, therefore, the assessee has computed its net profit margin in the transfer pricing study at 4.95%. Certain other reasons were also given which have been dealt with in length by the TPO in his order. The TPO after analyzing the provisions, the contentions of the assessee and the relevant case law has come to the conclusion that the actual data of the assessee was to be taken into consideration and he rejected the claim of the assessee that the figures of sales, etc. should be taken after the so called capacity utilisation adjustment. 7. So far as it relates to the issue regarding transfer pricing adjustment, the assessee had calculated arithmetical means on the basis of 16 comparable parties which are described as below in the order of the TPO at page 80 of the paper book. Table C S. No. Name of the company NPM (March, 2006) 1. A B C India Ltd. 6.00 2. Balmer Lawrie and Co. Ltd. 23.52 3. Coastal Roadways Ltd. NA 4. Delhi Assam Roadways Corpn. Ltd. 3.27 5. Elbee Services Ltd. NA 6. Gati Limited 10.05 7. Lee and Muirhead Ltd. NA 8. North E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the income of the assessee on account of difference between the arm's length profit and the operating profit of the assessee. He rejected the claim of the assessee regarding 5% adjustment on account of application of proviso to section 92C (2) as, according to learned TPO, the difference in the arm's length price is more than 5%. In this manner, the TPO has arrived at a conclusion that international transaction of the assessee is to be adjusted by a sum of Rs.6,97,92,811. Accordingly, the said addition was made by the Assessing Officer and has been upheld by the DRP as per order reproduced in the above part of this order. 10. On the basis of arguments submitted by both the parties, the issues on which we are called upon to adjudicate are summarized as follows:- (i) The DRP has rejected the objections of the assessee by way of a non-speaking and cryptic order. Unless reasons are given to reject the same, the order passed by the DRP is violative of principles of natural justice. (ii) The net profit margin of the assessee should be taken at 4.95% (after the adjustment of capacity utilization) as against 0.34% arrived at in the books of account and, hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the assessee if he proposes to make, on or after the first day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. Under sub-section (2) of section 144, the assessee within 30 days of the receipt of such draft order can accept the variation made by the Assessing Officer or he can file objections either to Dispute Resolution Panel or to the Assessing Officer. Since the assessee had filed his objections with DRP, then, under sub-section (5) the DRP, upon receipt of objection is under obligation to issue directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and under sub-section (6) such directions which are put up under sub-section (5) would be further considering the following documents: (a) draft order; (b) the objection filed by the assessee; (c) the evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, valuation officer, or TPO or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be colleted by, it; and (g) result of any inquiry made by, or caused to be made by, it. Under su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid fair concession, the order dated 30th September, 2010 passed by the respondent No. 1 is quashed and the matter is remanded to the said respondent to adjudicate afresh. Be it noted, when a quasi judicial authority deals with a list, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heard and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. Needless to say that the competent authority, while passing the order, shall keep in mind the order dated 29th November, 2010 wherein we had directed that the period from the date of filing the write petition and four weeks after its disposal shall stand excluded, while computing the limitation for the department to pass an assessment order. The writ petition is allowed to the extent indicated above without any order as to costs. Order dasti under the signatures of the Court Master." 13. The order passed by the DRP has already been reproduced in the above part of this order. It is observed that the rejection of objections raised by the assessee lack of reasons. So, principally, the argument o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margin on the basis of hypothetical sale i.e., as against disclosed sale of Rs.97.10 crore in audited financials, the assessee had assumed sale of Rs.154.57 crore in order to computed net operating margin. 15. The assessee has supported this issue on the basis of submissions made by it before the TPO and has justified its move to claim the net profit margin at 4.95% on the basis of aforementioned assumed full capacity utilization. 16. As against that, apart from relying on the reasoning recorded by the TPO for rejection of such claim of the assessee, learned DR has drawn our attention towards the provisions of Rule 10B(1)(e)(i) which read as under:- "10B(1)(e) transactional net margin method, by which, - (i) the net profit margin realized 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;" 17. Emphasizing on the expression "net profit margin realized", it has been the contention of learned DR that the word used is "realized", which means the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t found place in the order of the TPO, but the assessee while filing the objection before the DRP has specifically taken such objection vide letter dated 31st May, 2010 a copy of which is placed at page 16-18 of the paper book wherein it has been specifically stated by the assessee that the difference in the arm's length price should have been only with respect to international transactions of the assessee which are restricted to Rs.20,39,25,826 out of total sales of Rs.97,10,55,854. DRP has not given any specific finding on such submission of the assessee. Section 92C authorize the department to compute the arm's length price only in relation to an international transactions by adopting any of the methods described therein, which should be the most appropriate method, having regard to the nature of transaction or class of transaction or class of associate persons or functions performed by such persons or such other relevant factors, one of which is a method of transactional net margin method (TNMM). In the present case there is no dispute that the method is adopted by the assessee as TNMM and the said method has also been accepted by the TPO. This claim of the assessee should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared. Thus, according to the law, the data relating to relevant financial year is only the contemporaneous data and the proviso is applicable only in some specified conditions. No material has been brought on record by the assessee to suggest that there were circumstances prevailing for application of proviso. Apart from this, learned TPO while rejecting the claim of the assessee has relied upon the Special Bench decision in the case of Aztec Software and Technology Services Ltd. (2007) 294 ITR (AT) 32 and the decisions of Delhi Tribunal in the cases of Mentor Graphics Pvt. Ltd. (2007) 109 ITD 101 and Customer Services India (P.) Ltd. v. ACIT [2009] 30 SOT 486 in which it has been held that the comparability analysis is to be conducted on the basis of current year data. Therefore, this issue is decided against the assessee and it is held that no case has been made out by the assessee for applicability of proviso to sub-rule (4) of Rule 10B. Whether current year data in respect of two concerns, namely Coastal Roadways Ltd. and North Eastern Carrying Corpn. Ltd. which was made available to DRP should be considered to compute net profit margin. 22. This issue was argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute Resolution Panel) Rules, 2009, additional evidence could not be submitted unless the said evidence is called upon by the Panel by deeming it necessary to be furnished or permitted to be submitted. He submitted that even before the Tribunal, no request has been made for admission of these documents and, therefore, current financial data of these companies should not be admitted. He submitted that the assessee is precluded from doing so and if the assessee is permitted to do so, then, there will be no end to the proceedings which may linger on for infinite time. 25. We have heard both the parties on this issue. We find force in the submission of learned AR that the proceedings before the DRP are continuation of assessment proceedings as by that time what has been prepared by the Assessing Officer is only a draft assessment order. As per the principles of natural justice, if anything which goes in favour of the assessee and which has been ignored, if can be produced before the completion of the assessment, must be taken into consideration while framing the assessment. The relevant submission of the assessee before the DRP vide letter dated 21st May, 2010 have already been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation of India Limited on account of negative net worth. In this regard, it is submitted that as on March 31,2006, the net worth of Transport Corporation of India was 103.76 crores (back up document is being attached as Annexure 1). 28. In this view of the situation, as the issue raised by the assessee before DRP has not been dealt with, we restore this issue to the file of DRP with a direction to adjudicate the same as per law after giving the assessee a reasonable opportunity of hearing. The issue regarding adjustment of 5% as standard deduction. 29. It is seen that before DRP the assessee has raised objection No. 12 as under:- "12. The learned Assessing Officer/TPO has erred by not allowing the assessee the benefit of 5 per cent range as provided by the proviso of section 92C (2) of the Act." 30. Before us, learned AR had argued this issue at length. He has relied upon various judicial pronouncements to contend that in any case adjustment of 5% is allowable as standard deduction. On the other hand, learned DR objected to such argument of learned AR and contended that 5% adjustment cannot be granted as standard deduction and it is app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters and UPS. It is the grievance of the assessee that the DRP has not adjudicated this issue and the Assessing Officer has erred in law in making the said adjustment without providing opportunity of hearing to the assessee. In these circumstances, after hearing both the parties, this issue is also restored back to the file of DRP for adjudication thereof after giving the assessee a reasonable opportunity of hearing. This issue is allowed for statistical purposes in the manner aforesaid.
Initiation of penalty proceedings
35. This ground is premature, therefore, need not be adjudicated at this stage, therefore, dismissed.
Charging of interest u/ss. 234B and 234D.
36. At the time of hearing, learned AR submitted that the levy of interest is consequential, hence the Assessing Officer is directed to charge interest on the finally computed income after giving effect to this order. We direct accordingly. This issue is allowed for statistical purposes in the manner aforesaid.
37. In the result, the appeal filed by the assessee is partly allowed in the manner aforesaid.
The order pronounced in the open court on 11.03.2011. X X X X Extracts X X X X X X X X Extracts X X X X
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