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TMI Blog2017 (10) TMI 1488X X X X Extracts X X X X X X X X Extracts X X X X ..... ors (India) Pvt. Ltd. vs. DCIT [ 2015 (4) TMI 949 - DELHI HIGH COURT] has held that the mere fact that an entity makes high/extremely high profits/losses does not, ipso facto , lead to its exclusion from the list of comparables for the purposes of determination of ALP. In such circumstances, an enquiry under Rule 10B(3) ought to be carried out, to determine as to whether the material differences between the assessee and the said entity can be eliminated. Unless such differences cannot be eliminated, the entity should be included as a comparable. Current year vs. Multiple year data - Data of only the relevant year should be considered for comparison. This is what Rule 10B(4) prescribes. In order to analyze comparability of an uncontrolled transaction with an international transaction, data relating to the financial year in which the international transaction or specified domestic transaction has been entered into should be used. Proviso to Rule 10B(4) carves out the exception i.e. data relating to two years prior to such financial year may be considered if such data reveals facts which could have an influence on determination of transfer prices. In Chryscapital Investment Advisors ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable to the Appellant Company and thereby excluding the same while determining arm's Length price. 2. On the facts and circumstances of the case and in law, the learned TPO erred in treating Five Star Shipping Pvt. Ltd. as not comparable to the Appellant Company and thereby excluding the same while determining arm's length price. 3. On the facts and circumstances of the case and in law, the learned TPO erred in treating SVS Marine Services Pvt. Ltd. as not comparable to the Appellant Company and thereby excluding the same while determining arm's length price. 4. On the facts and circumstances of the case and in law, the learned TPO erred in treating Bippy Ship Management (India) Pvt. Ltd. as not comparable to the Appellant Company and thereby excluding the same while determining arm's length price. 5. On the facts and circumstances of the case and in law, the learned TPO erred in treating Ashapura Logistics Pvt. Ltd. as not comparable to the Appellant Company and thereby excluding the same while determining arm's length price. 6. On the facts and circumstances of the case and in law, the learned TPO legally erred in selectively picking Sealio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .w.s. 143(3) dated 23.03.2015 made a TP adjustment by adding the above sum of ₹ 83,90,834/- to the income shown by the assessee. After receipt of the draft assessment order, the assesseecompany filed its objection before the Dispute Resolution Panel (DRP)-1 Mumbai. The DRP vide its order dated 29.12.2015 directed the AO to consider only Sealion Sparkle Port and Terminal Services (Dahej) Ltd. as suitable comparable to benchmark the international transaction of the assessee for the purpose of computing arm's length price. The AO following the direction of the DRP passed the assessment order u/s 143(3) r.w.s 144C(13) dated 24.02.2016 making an addition of ₹ 1,18,34,132/- as TP adjustment. 4. Aggrieved by the order of the AO, the assessee has filed the present appeal before the Tribunal. The assessee - company is a branch of the British Marine PLC United Kingdom (BMPLCUK). As per the corporate background, BMPLCUK is an international ocean freight transportation group, which operates and manages a portfolio of owned and chartered vessels of Supermax, Handymax and Paramax types. The group is headquartered in London and has offices in Mumbai, New Delhi and Singapore. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of another group company I. e. BHN Shipping Offshore Company Private Limited, with that of the Applicant. This is evident from the website of the group as attached in pages 292 to 293 of the paper book. • The Applicant had submitted the financials of the company vide submission dated 28th July 2014, as seen in pages 61 to 67 of the paper book. • The TPO has erred in not considering the Director's Report of the Company submitted vide submission dated 28th July 2014, Where in it is stated that the Company is engaged in shipping services as seen in page 66 of the paper book. • Further, it is submitted that the average used is the simple average and not the weighted average, as it appears in the benchmarking report. 2. Five Star Shipping Agency Pvt. Ltd. Reasons for Rejection by TPO • Functionally dissimilar as can be seen from page 30 of the paper book • Applicant failed to clarify whether segmental results are available or not, • Weighted average PLI used to arrive at final PLI. Applicant's Contention • The TPO has erred in functionally comparing the business description of another group company i.e. Five Star Shipping Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersified business as seen from pages 30 to 31 of the paper book • Weighted average PLI used to arrive at final PLI. Applicant's Contention • The TPO has erred in functionally comparing the business description of another company i.e. Ashapura Group, with that of the Applicant, which is evident from the website extract, attached as page 295 of the paper book. • The company is presently called 'Ambica Logistics Private Limited' and is earning revenue from ship and technical management fees, as seen in page 166 of the paper book. • Further, it is submitted that the average used is the simple average and not the weighted average, as it appears in the benchmarking report. 4.4 Thereafter, the Ld. counsels have submitted that the comparable selected by the AO is a functionally different company. 1. Sealion Sparkle Port & Services (Dahej) Ltd. Reason for selection given by TPO • Considered functionally similar on the grounds that it is a joint venture between Ocean Sparkle and PSA Marine (PTE) Limited i.e. executing a 12 year contract for provision- of comprehensive port operation, management services. Applicant's Contention Functional Diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ping Agency Pvt. Ltd., the assessee failed to clarify whether segmental results were available or not and weighted average PLI was used to arrive at final PLI, (iii) in the case of SVS Marine Services Pvt. Ltd. the assessee failed to file financials so as to verify the comparable segment of the company and also failed to file single year updated margin, (iv) in the case of Bibby Ship Management (India) Pvt. Ltd., the company has been making losses persistently for the FY 2008-09 and FY 2009-10 and the assessee failed to file updated margins for FY 2010-11 and (v) in the case of Ashapura Logistics Pvt. Ltd., it was having functionally dissimilar, diversified business. Thus the Ld. DR submits that the AO has rightly rejected the above five comparables mentioned by the assessee. Further, the Ld. DR submits that though Sealion Sparkle Port and Terminal Services (Dahej) Ltd. is not engaged in ship management, the function is same as it is engaged in port management. In Transactional Net Margin Method (TNMM), the broad functional comparability is required to be seen and not product comparability. The Ld. DR thus supports the order passed by the DRP and the AO. 6. We have heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out, to determine as to whether the material differences between the assessee and the said entity can be eliminated. Unless such differences cannot be eliminated, the entity should be included as a comparable.' (iv) Current year vs. Multiple year data Data of only the relevant year should be considered for comparison. This is what Rule 10B(4) prescribes. In order to analyze comparability of an uncontrolled transaction with an international transaction, data relating to the financial year in which the international transaction or specified domestic transaction has been entered into should be used. Proviso to Rule 10B(4) carves out the exception i.e. data relating to two years prior to such financial year may be considered if such data reveals facts which could have an influence on determination of transfer prices. In Chryscapital Investment Advisors (India) Pvt. Ltd. vs. DCIT (2015) 376 ITR 0183 (Delhi), the Hon'ble Delhi High Court has held that while determining the comparability of transactions, multiple year data can only be included in the manner provided in Rule 10B(4) and thus, it is not open to assessee to rely upon previous year's data as a general rule. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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