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TMI Blog2013 (9) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... stice – Decided partly in favor of Assessee. - IT(TP)A No.7508/MUM/2012 - - - Dated:- 23-7-2013 - I.P. BANSAL AND P.M.JAGTAP , JJ. For the Appellant : Kanchun Kaushal and Dhanesh Bafna. For the Respondent : Ajeet Kumar Jain. ORDER:- PER : I.P. Bansal This is an appeal filed by the assessee. It is directed against the assessment order dated 10/10/2012 passed under section 143(3) r.w.s. 144C(13) of the Income tax Act, 1961 (the Act). The grounds of appeal read as under: "1. That the Assessment Order passed in pursuance to the directions issued by the Dispute Resolution Panel ('DRP') is a vitiated order as the DRP erred both on facts and in law in confirming the addition made by the Assessing Officer ('AO') to the appellant's income; 2. The DRP erred both on facts and in law in confirming the addition of Rs.7,03,17,843/- to the income of the Appellant by holding that its international transaction of 'Freight receipts and expenses' does not satisfy the arm's length principle envisaged under the Act. In doing so the DRP has erred in agreeing with the Transfer Pricing Officer's ('TPO') action of: 2.1 rejecting Comparable Uncontrolled Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, and the addition made on account of the above grounds be deleted. 4. On the facts and in the circumstances of the case and in law, the AC erred in disallowing and DRP erred in confirming the disallowance of Rs.6.24 crores (being ad-hoc 2% of the expenditure of Rs.311.90 crores) without appreciating the fact that the records were destroyed in a fire at its office premises. 4.1 Without prejudice to the above, the Appellant submits that the above expenditure amounting to Rs.311.90 crores includes an amount of Rs.10.67 crores being depreciation as per books, which has already been disallowed while computing the taxable income and hence, disallowance to the extent of such depreciation amounting to Rs.21,33,731/- (i.e. 2% of Rs.10,66,86,565) be deleted. 4.2 Without prejudice to the above, the Appellant urges that the ad-hoc disallowance of Rs.6.24 crores i.e. 2% is extremely high and unreasonable and therefore reduced appropriately. 5. On the facts and circumstances of the case and in law, the AC and DRP have erred in levying interest of Rs.80,63,401 under section 234D of the Act." 2. It was submitted by Ld. AR that Ground No.1 is general in nature an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion of the order of the Tribunal in respect of assessment year 2007-08 is reproduced below: 11. At the outset the ld counsel appearing for the appellant submitted that the facts and circumstances of the year under appeal are identical to the facts as they were for the AYs 2004 -05, AY 2005-06 2006-07 and accordingly prayed that the order of the Tribunal for these years should be followed. The ld DR submitted that for the AY 2006-07 the Tribunal has restored the matters back to the files of the DRP and there fore requested that the issues in the present appeal may also be restored back to the files of the DRP. The ld counsel retorted that the order of the DRP for the AY 2006-07 was laconic and not a speaking order therefore the tribunal has restored the matter back to the files of the DRP for passing a speaking order. ld AR drew our attention to the order of the Income tax Appellate Tribunal 'A' bench for the AYs 2004-05, 2005-06 in ITA No. 2000/mum/2010, ITA No.6004/mum/2010 respectively. 12. We have gone through the order of the lower authorities and the submissions of the Ld AR and also perused the order of the Income tax Appellate Tribunal in appeal numbers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sks with the risk of bad debts being minimal and that there is no inventory risk since the assessee company enters into a contract with the shipping line/air line for booking space on a ship/air craft only upon receipt of confirmed orders from the customers. From the various agency agreements between Geologistics group and unrelated parties produced by the assessee, we find the terms and conditions are substantially same. The profit split information contained in all the agreements is typical to the industry. We also find merit in the submission of the ld. counsel for the assessee that the TPO in his TP study report has considered certain companies which are not available in the public domain being private limited companies or they are not comparable to the assessee companies. From the various submissions made by the assessee and the detail submissions in the paper book, we find the four companies rejected by the TPO are functionally comparable to the assessee and therefore should have been retained in the comparable study." 12.1 The Tribunal further pointed out that : "5.2 We further find the Delhi Bench of the Tribunal in the case of Schefenacker Motherson Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, where different analyses are being applied to divide the gross income and the deductions of the MNE among associated enterprises, care must be taken to ensure that the expenses incurred in or attributable to each enterprise are consistent with the activities and risks undertaken there, and that the allocation of gross profits is likewise consistent with the placement of activities and risks. For example, in the case of an MNE that engages in highly integrated worldwide trading operations. involving various types of properly, it may be possible to determine the enterprises in which expenses are incurred (or attributed), but not to accurately determine the particular trading activities to which those expenses relate. In such a case, it may be appropriate to split the gross profits from each trading activity and then deduct from the resulting overall gross profits the expenses incurred in or attributable to each enterprise, bearing in mind the caution noted above". 5.4 From the various submissions made by the assessee it is also clear that the geographical difference is not material so far as it applies to the logistics industry. From the various agreements we find there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold any water as we find that for the year under consideration the DRP has passed a speaking order where as in AY 2006-07 the order of the DRP was laconic as found by the Tribunal while deciding the appeal for the AY 06-07 and there fore we reject the submissions of the ld DR." Respectfully following the aforementioned decision in the case of assessee itself for A.Y 2006-07 we delete the T.P adjustment and allow Ground No.2 3. 5. Ground No.4 relates to addition of Rs6.24 crores. During the course of assessment proceedings it was noticed by AO that in the tax audit report, Auditors have stated that they have not verified the expenditure to the tune of Rs.311,95,42,386/-. The AO asked the assessee to produce evidence/documents in support of various claims made in the return of income. It was submitted that due to a fire at Bhiwandi warehouse, various records and supporting documents were destroyed and cannot be produced. Copy of FIR was also submitted. The AO not being satisfied with the reply of the assessee observed that there was a substantial increase in the expenses over the last year and as assessee has failed to produce required documentary evidence, 2% of the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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