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TMI Blog2019 (2) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... n fact, assessee could not establish that it has not claimed any expenditure on exempt income. Therefore, we do not see any valid ground to interfere in the findings given by the Assessing Officer. Ground No. 2 is dismissed. Tansfer pricing relating to intra group services - Held that:- TPO accepted that services were rendered and received by the assessee. Once the rendering and receiving of the services were not disputed which is supported by the evidences, the TPO is not correct in holding that arms length value of the management fee is Nil and accordingly making an upward adjustment. Therefore, the finding of the TPO is not correct and this addition does not sustain. Ground No. 1 is allowed. Disallowance u/s 14A - AR submitted that no further investment has been made and therefore no expense incurred. The change in investment balance is on account of re-investment of dividend income - Held that:- It is pertinent to note that no further investment has been made and therefore no expense incurred. The change in investment balance is on account of re-investment of dividend income, since the “ABN AMRO Cash Mutual Fund” plan was a Dividend Reinvestment Plan. Thus, Ground No. 2 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t giving any cogent basis and without demonstrating the inadequacy or infirmity in the economic analysis so conducted by the Appellant. In this regard, the Ld. TPO erred in demonstrating correctness of the presumption/hypothesis so framed to reject the comparability analysis of the Appellant and has accordingly violated the applicable provisions of Section 92C (3) (c) of the Act. 1.2. By misunderstanding/ misinterpreting the functional and risk profile of the Appellant resulting in erroneous application of benchmarking methodology based on his own conjectures and surmises. 1.3. By making modification to the set of comparable companies identified by the Appellant by applying freight cost-to-freight income ratio based upon his conjectures and surmises. Further, the Ld. TPO has also erred in applying an arbitrary tolerance range of +/- 5 percent (viz. 75 percent to 85 percent) based on freight cost-to-freight income ratio of the Appellant without following a cogent economic basis and without establishing any statistical veracity of the presumption/ hypothesis so framed. The Ld. TPO has erroneously used the taxpayer's data as a fulcrum for computing the tolerance range ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o receipt of management services. Further, the Ld. TPO has failed to provide the detailed methodology/ reasoning or CUP data for assigning NIL value to the underlying transaction. The Ld. TPO has also erred by not providing the relevant material available on record which has been relied upon by the Ld. TPO in framing a hypothesis/ presumption in this regard. 1.9. By rejecting the profit level indicator used by the Appellant. 1.10. By not providing any subsequent opportunity of hearing. In this regard, the Ld. TPO has not discussed the arguments/ comments against the response to the show cause notice issued prior to framing the order u/s 92CA (3) and has not passed a speaking order. 1.11. By relying upon data of the comparables for financial year 2006-07 only, disregarding the multiple year data approach followed by the Appellant. Further, the Ld. TPO has also erred in laws and on facts by relying upon updated data of the Comparables which was not available to the Appellant at the time of maintenance of Transfer Pricing Documentation within the time-frame mentioned in Rule 10D(4) of the Income Tax Rules. 1.12. By not allowing the benefit of (+/-) 5 percent as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the transfer pricing adjustment without due application of mind and without affording a reasonable opportunity of being heard in the matter. 1.2. The Ld. TPO has erred in law and on facts in not adhering to the directions of DRP by not allowing relief to the Appellant of ₹ 1,28,98,385 on account of intra-group services received from EGL Eagle Global Logistics LP for various IT solutions offered to the Appellant. 1.3. The Ld. TPO has erred in law and on facts by summarily disregarding the approach followed by the Assessee for benchmarking international transaction pertaining to receipt of management services without assigning any cogent reasons. In this regard, the Ld. TPO has artificially created separate business segments on fallacious assumptions, contrary to the fact that management services are received in the course of routine business activity and are integral part /inextricably linked to the business model of the Assessee (viz. freight forwarding services). 1.4. The Ld. TPO has erred in law and on facts by assigning 'NIL' value to the value of international transaction in relation to receipt of management services except charges r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble DRP has further erred in confirming the transfer pricing adjustment without due application of mind and without affording a reasonable opportunity of being heard in the matter. 1.2. While confirming the transfer pricing adjustment, Hon'ble DRP has placed reliance on DRP's own directions in Appellant's case for AY 2009-10. Hon'ble DRP has erred on facts in considering that arm's length price for intra-group services is held 'nil' in directions for AY 2009-10. Whereas, intra-group charge pertaining to information technology paid by the Appellant to EGL Eagle Global Logistics, USA were held to be at arm's length by Hon'ble DRP in directions for AY 2009-10. 1.3. The Ld. TPO has erred in law and on facts by summarily disregarding the approach followed by the Assessee for benchmarking international transaction pertaining to receipt of management services without assigning any cogent reasons. In this regard, the Ld. TPO has artificially created separate business segments on fallacious assumptions, contrary to the fact that management services are received in the course of routine business activity and are integral part /inextri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r- I (1), New Delhi vide order under Section 92CA(3) of the Act dated November 03, 2014. 1.1 On the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have erred in proposing and the Hon'ble DRP has further erred in confirming the transfer pricing adjustment without due application of mind and without affording a reasonable opportunity of being heard in the matter. 1.2 On the facts and in the circumstances of the case, the Ld. TPO has erred by summarily disregarding the approach followed by the Appellant for benchmarking international transaction pertaining to receipt of management services without assigning any cogent reasons. In this regard, the Ld. TPO has artificially created separate business segments on fallacious assumptions, contrary to the fact that management services are received in the course of routine business activity and are integral part /inextricably linked to the business model of the Appellant (viz. freight forwarding services). 1.3 On the facts and in the circumstances of the case, the Ld. TPO has erred by assigning 'NIL' value to the value of international transaction in relation to receipt of management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd merely relied on the reasoning given by the Deputy Commissioner of Income-tax, Transfer Pricing Officer-1 (2)(1), New Delhi ( Ld. TPO ) vide order under Section 92CA(3) of the Act dated January 15, 2016. 1.1. On the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have erred in proposing and the Hon ble DRP has further erred in confirming the transfer pricing adjustment without due application of mind and without affording a reasonable opportunity of being heard in the matter. 1.2. On the facts and in the circumstances of the case, the Ld. TPO has erred by summarily disregarding the approach followed by the Appellant for benchmarking international transaction pertaining to receipt of management services without assigning any cogent reasons. In this regard, the Ld. TPO has artificially created separate business segments on fallacious assumptions, contrary to the fact that management services are received in the course of routine business activity and f-e integral part /inextricably linked to the business model of the Appellant (viz. freight forwarding services). 1.3. On the facts and in the circumstances of the case, the Ld. TPO has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also filed rectification application before the DRP to rectify its directions to this effect being mistake apparent from record. 2.3. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in not allowing the claim by not appreciating that the said amount of ₹ 5,12,90,218 is included in Freight account instead of Consignment handling services account since the appellant has produced ledger accounts of Freight expense account and foreign currency exchange gain/loss account and correlated the entries in both the ledger accounts. We are taking up ITA No. 5682/Del/2011 for A.Y. 2007-08 first. 3. The assessee company is engaged in business of freight forwarding services, consignment handling services and other services. The freight forwarding services are carried out through air and ocean. Other services include custom clearances, storage and warehousing services. E-return non digitally signed declaring total income of ₹ 14,37,37,780/- was filed on 30.10.2007. The hard copy of the return was submitted on 14.11.2007. The return was processed u/s 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny. Notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate method adopted in the TP study and Accountant s Report in Form 3CEB by the assessee. However, the TPO concluded that the payment of ₹ 5,16,58,369/- as management service fee was not at arm s length and by the application of CUP, the arm s length price of this transaction was reduced to Nil. The TPO also observed that PLI used shall be OP/TC as the assessee has higher portion of uncontrolled transaction on the cost side and the Arithmetic Mean of comparables was at 15.91% and made an upward adjustment of ₹ 12,81,20,386/-. The adjustment made by him are tabulated as under: Sr. No. Particulars ALP as per assessee (INR) ALP as per this order (INR) Difference (INR) Method adopted accepted 1 Payment of Management fee 5,16,58,369 NIL 5,16,58,369 CUP adopted by the TPO. Aggregated approach followed by the assessee 2 Income from freight forwarding 2,03,29,93,910 21,61,14,296 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. The Ld. DR further submitted that Balmer, Lawrie Co. Ltd.is comparable chosen by the assessee only in its TP study. 7. We have heard both the parties and perused all the relevant material available on record. As regards to the first issue of Transfer pricing in respect of the transaction of freight forwarding and cargo handling services, the TPO did not dispute the most appropriate method selected by the assessee. However, the TPO held that since the freight cost is a key driver as such, same should be used as diagnostic tool for selection of the comparable and therefore he applied a filter of freight cost/freight income. The TPO held that since the freight cost/freight income of the assessee is 80.90% as such, he applied a range of 75%-85% (freight cost/freight income) for selection of the comparables. While doing so, the TPO has not looked into the functions of the comparable i.e. Balmer, Lawrie Co. Ltd. In fact, the TPO s own filters are not in proportionate with the range of 75%-85% (freight cost/freight income) for selection of the said comparable. Therefore, we direct the TPO/AO to exclude this comparable from the list of the comparables. 8. As regards to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India other than to have made payment to the AEs by way of reimbursement under the agreement and on the terms and conditions as had been entered into. The Ld. AR submitted that various evidences were submitted before the TPO/AO. In fact, the TPO accepted that services were rendered and received by the assessee, still held that arms length value of the management fee is Nil and accordingly made an upward adjustment. The Ld. AR submitted that the TPO has not taken into consideration the evidences given by the assessee. 14. The Ld. DR relied upon the Assessment Order and the order of the TPO. 15. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the TPO did not dispute the fact that the management fee has been paid to its AE for the services provided by the AEs to the assessee company and these services are interlinked transaction with the freight forwarding services, whereas for A.Y. 2007-08, the TPO took the value of the transaction at Nil by benchmarking the payment of management fee as separate transaction. For A.Y. 2008-09, the assessee company furnished TP documentation, however, transactions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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