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TMI Blog2012 (12) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... third party CMAPL had expired prior to September, 2003 and rates which were applicable in the earlier years cannot be made applicable in this year. Thus, the rates of the earlier agreement will not be appropriate parameter for determining the ALP for the international transaction undertaken by the assessee with its AE in the current assessment year. In these circumstances, the CUP Method fails in this case for benchmarking the ALP. Both the parties have agreed that TNMM Method should be most appropriate method for benchmarking the ALP. - TPO has neither examined the comparables nor the application of TNMM Method for benchmarking the ALP in relation to the international transactions. Even the CIT(A) has not called for any remand report from the TPO or the AO asking for any comment upon the comparables shortlisted by the assessee. The comparables have to be examined objectively and the TPO should be given an opportunity to rebut the same. - Matter remanded back to TPO, who will require the assessee to furnish comparables into similar line of business and activities and examine the same for benchmarking the ALP. Decided partly in favor of revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ome for various functions performed like export freight, import freight, container control fee etc. During the relevant year, the assessee was also appointed as a representative agent of ANL Singapore Pte Ltd., which is a subsidiary of ANL Container Line Pty. Ltd. Australia and is a group company of CMA CGM. Thus, ANL Singapore is also a kind of AE. The assessee has received besides commission income, container control fees and communication expenses from the two of its AEs, (i.e. CMA CGM & ANL Singapore Pte. Ltd.), which was a part of host of services rendered. During the relevant financial year, the assessee had shown its turn over at Rs.26.52 Crores with a net profit of Rs.15.13 Crores. The operating margin on the operating cost was at 133.43%. In its transfer pricing analysis, which was based mainly on Comparable Uncontrolled Method (CUP) was also corroborated with Transactional Net Margin Method (TNMM). 4. The Transfer Pricing Officer (TPO), to whom matter was referred under Section 92CA(1) by the Assessing Officer, observed that the assessee has entered into following international transactions :- Sl. No Name of the AE Nature of Transaction Amount in Rupees(Rs) Meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty which is evident that the commission received by the assessee is more than the third party, which was given earlier. The relevant submissions of the assessee before the TPO in this regard are as under :- "(a) (1) "As you are kindly aware, all streams of remuneration selected for the CUP method flow from the same principal to us, as the agent. Therefore, we request you to consider the remuneration received as a whole, rather than a review of each stream independently. We substantiate this with an example. The erstwhile agent was paid commission on export freight @2.5%, where we are paid @3%, addition 0.5% paid to us is equivalent to Rs. 1,58,64,073/- (i.e. commission which is Rs. 9,51,84,437 less 2.5% commission Rs. 7,93,20,364). This amount more than compensate the reduction container control fees of Rs. 91,07,412/-. Therefore, we again request you to review remuneration in totality. (2) CUP was selected because there was a direct comparable available in previous year, which is permitted as per Rules. However, since it is not a comparables for the current year, we request you to the use of CUP data with corroborative TNMM data for the current year, which you will agree does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related party transactions. Fourthly, the most appropriate method for determining the ALP in the case of the assessee should be TNMM Method which was canvassed before the TPO and in its study it had shown that the arithmetic mean of the comparables were at 14.94%, whereas the assessee's operating margin was very huge at 133.43%. Lastly, if without prejudice CUP is to be considered to be most appropriate method, then all the streams of income viz. export commission, 'container control fee' and others have to be considered on a composite basis as they are arising out of the same business activities and then compare with the income which could be as per the arrangement and as per the agreed rates with the comparable company. If such an exercise would be carried out, then there would be surplus profit of Rs.43,047/-. Besides this, other arguments were also made. 8. Learned CIT(A) duly appreciated the assessee's contention and observed that if the CUP is taken to be most appropriate method for 'container control fees' then similarly the 'export commission' should also have been benchmarked accordingly. As considering one stream of the income i.e. container control fees/realization of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UP, therefore, the same cannot be applied and TNMM Method would not be most appropriate method. In coming to his conclusion that even though the assessee had adopted a particular method in his TP Study Report, however, it is always open to the assessee or the TPO to deviate from such method and adopt most appropriate method for determining the ALP, he relied upon the decision of Special Bench of Chandigarh Tribunal in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 and the decision of ITAT Mumbai Bench in the case of A.M. Tod Co. India (P.) Ltd. v. ITO, passed in ITA No.492/Mum/2006, vide order dated 24-6-2009. Thus, he held that the TNMM Method should be applied and the three comparables, which were identified by the assessee in its TP Study Report, gives arithmetic mean of operating profit on total cost of 14.94%, which is far less than the assessee's operating profit of 133.43%. Accordingly, he deleted the entire adjustment. 10. The learned CIT DR after analyzing the facts in detail, which has been mostly incorporated above, drew our attention to the terms and conditions of agreement entered into by the CMA CGM and third party i.e. Container Maritime Agency Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has already undertaken the exercise of searching for the comparables and has provided the arithmetic mean of operating margin of such comparables which has not been rebutted by the TPO. He, therefore, submitted that the order passed by the CIT(A) should be upheld. 12. We have carefully considered the rival submissions, perused the material placed on record and the orders of the CIT(A) and the TPO. The assessee, which is a subsidiary of CMA CGM, France, is acting as its shipping agent under an agency agreement dated 17th September, 2003. Prior to that the same services was provided by a third party Container Maritime Agency Pvt. Ltd. under a similar agency agreement dated 20th October, 1999 which had expired in August, 2003. Hence, the assessee as well as the TPO have compared and relied upon the rates of various fees and commissions with the earlier third party with that of the assessee for benchmarking the ALP while applying the CUP Method. The difference in approach is only on account of the fact that the assessee had taken the composite stream of income, whereas, the TPO has taken only two streams i.e. container control fee and communication expenses, wherein there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the perusal of the record, we find that the TPO has neither examined the comparables nor the application of TNMM Method for benchmarking the ALP in relation to the international transactions. Even the CIT(A) has not called for any remand report from the TPO or the AO asking for any comment upon the comparables shortlisted by the assessee. The comparables have to be examined objectively and the TPO should be given an opportunity to rebut the same. In this case, during the course of Transfer Pricing proceedings both the parties were heavily relying upon CUP Method and data of erstwhile third party, which now admittedly cannot be applied. Therefore, there was no occasion to examine the comparables and the applicability of TNMM . Thus, in the interest of justice, we restore the matter back to the file of the TPO, who will require the assessee to furnish comparables into similar line of business and activities and examine the same for benchmarking the ALP. The assessee will provide necessary information and material to carry out proper assessment of ALP. Once, the TNMM method is applied, other issue relating to taking of composite income or considering only one stream of income will not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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