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TMI Blog2018 (10) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 respectively. Since the facts are identical, both the appeals are clubbed, heard together and disposed off in a common order for the sake of convenience and the facts are extracted from I.T.A.No.93/Viz/2017 for the A.Y.2012-13. 2. For the A.Y. 2013-13, the assessee filed return of income declaring loss of ₹ 12,10,43,947/-. During the assessment proceedings, the Assessing Officer (AO) found the international transactions in respect of payment of Bareboat Charter Rentals and Ship Management Services to its AEs Lewek Shipping Pte.Ltd., and Emas Offshore services Ltd., for an amounts of ₹ 43.33 crores and 23.18 crores respectively apart from issue of shares of ₹ 82.75 lacs byTunis Oil Pte.Ltd., therefore, the AO referred the international transaction to Transfer Pricing Officer (TPO) u/s 92CA of the Income Tax Act, 1961 (hereinafter called as Act ) to determine the Arms Length Price( ALP in short). The assessee paid the Bareboat Charter Rentals to its Associate Enterprise (AE) for an amount of ₹ 43,35,50,310/- and ship management services of ₹ 23,18,30,814 and worked out the PLI of the tax payer (OP/OC) at 28.36% against the margin of comparables at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 730/- u/s 92CA and show caused the assessee to furnish the objections if any, for the proposed adjustment. The assessee filed objections for adoption of cost plus method which was rejected by the TPO stating that the internal comparable data supplied by the assessee was controlled transactions between the related parties (RPT) and the price of the transaction is controlled transaction. 2.3. The assessee has also requested for consideration of daily bareboat charges and ship management service charges which was also rejected by the TPO as the vessels are owned by the AEs and the consideration of daily rate chart for hiring / chartering of vessels would tantamount to controlled transaction. The objection of the tax payers of incurring losses due to governmental policies was rejected by the TPO stating that it is not a criteria for consideration. 2.4. The assessee has not commented on the search process conducted by the TPO nor has provided an alternative remedy for determination of ALP. Therefore, the TPO has rejected the comparables selected by the assessee taken the following comparables as final comparables after analyzing the databases, the annual reports. After considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osing the adjustments suggested by the TPO and the assessee filed objections before the DRP requesting for exclusion of the six comparable companies adopted by the TPO and argued that the said comparable companies adopted by the TPO are functionally divergent and incomparable in deployment of assets and risks also. The assessee submitted before the DRP with regard to the comparables selected by the TPO as under: Chowgule Steamships Ltd. 2.7. The assesse submitted before the DRP that as per the Directors Report Chowgule Steamships Ltd. was into Dry Bulk Market with fleet profile having DWT of 47,574 MT, which is completely divergent to the functions and assets of the assessee. Global Offshore Services Liimited. 2.8. The assessee objected before the DRP stating that the company s vessels support Oil and Gas exploration efforts involving transport of personnel to rigs / platforms from onshore bases and vice-versa, delivery of cargo / material to rigs / platforms, anchor handling operations, towing of rigs from one location to another, support to offshore, underwater construction projects. The platform supply vessels owned and operated by the company and its subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January 2012 after release of vessel by customs. With this two of your company s vessels are placed on Long Term Charter. Out of the balance, one had assured significant employment whilst the other had to struggle for Employment. The Vessel owned by Seamec International FZE, was taken under Bareboat Charter, deployed in West Africa for a Project with TECHNIP Effective from January, 2012. The assessee submitted that the company was mainly into diving support vessels, which is completely divergent to the functions of the assessee. Shahi Shipping Ltd. 3.1. According to the assessee, Shahi Shipping Ltd., owns the following vessels and the company s fleet are classified as bulk cargo carriers, liquid cargo carriers, multipurpose vessels which are completely divergent to the functions of the assessee. Sl. No. Type of Fleet Vessels (Nos.) 1. Bulk Cargo Carriers 10 2. Liquid Cargo Carriers 10 3. Multipurpose Vessels (Bulk Cargo / Container) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO are not appropriate, the onus is on the assessee to establish the transaction are at arm s length. Since the assessee failed to do so and analysis of the Profit Loss of the assessee company shows that the company had incurred losses to the extent of 34.42 crores during the year only due to the transactions with the AE and no independent enterprise would have entered into such transaction, the DRP rejected the objections raised by the assessee. With regard to the assessee s objection on external commercial borrowings, the DRP observed that instead of seeking transfer price adjustment, the DRP opined that the assessee should not have entered into such international transaction which would result into loss. Accordingly, the objections raised by the assessee were rejected. The alternate plea raised by the assessee to adopt any other method and cost plus method was also rejected by the DRP and confirmed the adjustment proposed by the TPO. The AO passed order u/s 143(3) r.w.s. 144-C and made the transfer pricing adjustment of ₹ 26,05,50,730/- on bareboat charges and shipping management services. 3.4. For the assessment year 2013-14 also, same issue of determining the arm s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lk market, and the freight earnings and charter hire receipts amounted to Rs.,2,270.83 lakhs. The company is owning fleet profile having DWT of 47574 MT and it is completely divergent to the functions of the assessee. 4.1. With regard to the Global Offshore Services Ltd., the Ld.AR submitted that the company s vessels support oil and gas exploration, involving transport of personnel to rigs / platforms from onshore bases and vice versa, delivery of cargo / material to rigs / platforms, anchor handling operations, towing of rigs from one location to another. It also supports off shore under water construction projects. The platform supply vessels owned and operated by the company and its subsidiaries in India. Therefore, the activities of the Global Offshore Services Ltd. are completely divergent to the functions of the assessee. 4.2. With regard to Great Eastern Shipping Company Ltd., as stated earlier in this order, the company owns 34 vessels and engaged in providing sea-logistics and venturing into tramp shipping to diversifying into offshore oil field services. The company s fleet is classified as crude oil carriers, product carriers, gas carriers and dry bulk carriers wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity of chartering of vessels and made the payment of bareboat charges and the ship management services to it s AE. In a nut shell, the company has taken two vessels on lease and sub leased them and receiving the charter rentals. For the assessment year 2012-13, the company paid the Bareboat charter rentals of ₹ 43,35,50,310/- apart from ship management services paid to Emas Offshore Services Pte Ltd., amounting to ₹ 23,18,30,814/- aggregating to operating cost of ₹ 68,63,58,779/- against operating revenue of ₹ 48,58,04,962/- and incurred loss of ₹ 20,05,53,817/- merely on leasing and sub-leasing activity before the administrative, marketing and finance expenses. The operating profit to OP/OR was (-)29.22%. The OP/OC was (-)41.28%. Similarly, for the assessment year 2013-14, the loss incurred was ₹ 53.96 crores which resulted in margin of Rs. (-)189.41%. Plain reading of the financial results of both the years clearly indicate that the payment made by the assessee company to it s AE is not at arm s length. Though the assessee assigned the reasons of delay in restrictions on external commercial borrowing and argued that had the RBI accorded permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctions. In this connection, the Ld.AR also could not explain whether the companies from which the assessee had received the bareboat rental are having related party transactions. The Ld.DR did not controvert the arguments advanced by the Ld.AR in respect of divergent comparables selected by both the TPO as well as the assessee in transfer pricing study. 6.2. We have gone through the submissions made by the assessee and observed that none of the companies selected by the TPO are engaged in the activity of lease and sub-lease of the vessels. The revenue did not place any evidence to controvert the argument of the Ld.AR. Therefore, we are of the opinion that the issue needs verification by the Ld.TPO/AO to select the correct comparables functionally, asset wise to arrive at the PLI to bench mark and arrive at the ALP. Therefore, in the interest of justice, we restore the matter back to the file of the Ld.TPO/AO to determine ALP after making proper transfer pricing study. Accordingly, the orders of the lower authorities for both the assessment years are set aside on the issue of determination of ALP and is remitted back to the file of the TPO/AO to redo the same afresh after givin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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