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TMI Blog2022 (12) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... ESIDENT AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER Assessee by : Shri Siddhesh Chaugule Revenue by : Ms. Vatsalaa Jha O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee challenging the impugned final assessment order dated 04/02/2015, passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 ( the Act‟), for the assessment year 2010-11. 2. In this appeal, assessee has raised following grounds: The following grounds of appeal are independent of and without prejudice to each other Ground relating to Transfer Prising 1. On the sand in the circus of the case and in law, the learned Transfer Pricing Officer (TPO) the loaned Assessing Officer (AO) under directions issued by the Hon'ble Dispute Resolution Panel (DRP) in making an addition of Rs. 2,93,56,738/- to the Appellant's total income under the provisions of Chapter X of the Income-tax Act, 1961 ( the Act ). 2. On the sand in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding confirming the action of the TPO of rejecting the companies selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee entered into following international transactions with OOCL group entities ( associated enterprises ): Sl. No Nature of International Transaction Amount (in INR) 1. Provision of logistics services 7,75,37,599 2. Availing of logistics services 15,49,08,951 3. Corporate allocation of expenses 71,01,979 6. The assessee is engaged in the provision of logistics services in relation to movement of goods within India. In relation to logistics services involving cross-border movement of goods, the assessee received the logistics services from the group entity in respective countries. In relation to corporate allocation of expenses, the assessee has received information technology and management support services. For benchmarking, the assessee used Transactional Net Margin Method ( TNMM‟) as most appropriate method with Profit Level Indicator ( PLI‟) of Operating Profit to Total Sales. By considering itself as the tested party, the assessee identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any complications and is ready for transport. The OC needs to have an in-depth understanding of origin country rules and procedures, in order to add value to the customer. Cargo consolidation and shipment of cargo Finally, the OC co-ordinates the handling of the cargo with the international transport company and negotiates for availability of cargo space. The cargo is put on board the vessel. Dispatch of documentation Logistics is a document-intensive business and accuracy of documentation is necessary to transfer the goods from the consignor to the consignee, OC consigns the goods to the OOCL Group office in the destination country and passes on the responsibility of handling the goods to the destination country. Functions when OLIPL acts as Destination Company ( DC ): Tracking the shipment and processing the receipt of the same Once the shipment has been dispatched, the responsibility of managing the movement of goods thereon is passed on to the DC. The DC scrutinizes the documentation from the OC to ascertain whether they are complying with local regulations or not. It co-ordinates with the international transpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gati Ltd. (Seg.) N.A. 2. Gordon Woodroff Logistics Ltd. N.A. 3. P.L. Shipping Logistics Ltd. N.A. 4. Patel Integrated Logistics Ltd. 9.38% 5. Savani Transport Pvt. Ltd. N.A. 6. Seaways Shipping Logistics Ltd. (Seg.) N.A. 7. Sical Logistics Ltd. (Seg.) 6.57% Arithmetic Mean 7.98% 9. The TPO rejected 3 out of 7 comparables selected by the assessee and proposed 3 more comparables for benchmarking the international transaction pertaining to provision of logistics services . Accordingly, the TPO vide order dated 27/01/2014 passed under section 92CA(3) of the Act arrived at a set of following 7 comparables: Sl. No. Company Name F.Y. 2009 10 1. Gati Ltd. (Seg.) 13.79% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Logistics Limited (seg) and Seaway Shipping And Logistics Limited (seg). Learned AR also sought exclusion of Balmer Lawrie and Company Ltd, South India Corporation Ltd, and Om Logistics Limited. Learned AR further sought inclusion of Gordon Woodroffe Logistics Limited for benchmarking the international transaction pertaining to provision of logistics services . Thus, in view of the above submissions, we have confined our findings only in respect of these comparables in present appeal. 12. As regards the consideration of correct margin of Gati Ltd (seg), Sical Logistics Limited (seg) and Seaway Shipping And Logistics Limited (seg), learned AR referred to the computation of margin of the aforesaid comparables, during the course of hearing. We find that though the learned DRP had directed the TPO to consider correct margin of companies considered as comparable, however, in absence of any details being submitted by the assessee, TPO made no change in the transfer pricing adjustment in its order giving effect to the learned DRP s directions. Now in the present appeal, the learned AR has referred to the computation of margin of aforesaid companies considered as comparables. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 10. The first comparable under dispute is Balmer Lawrie and Company Ltd for the purpose of benchmarking of international transaction pertaining to provision of logistics services‟. Balmer Lawrie and Company Ltd (logistics infrastructure and services segment) was selected as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that under TNMM only broad compatibility of the comparable needs to be seen and therefore, this company is functionally comparable to the assessee. In proceedings before the learned DRP, assessee‟s objection against selection of this company was rejected vide directions issued under section 144C(5) of the Act. Being aggrieved, the assessee is in appeal before us. 11. During the course of hearing, learned AR submitted that Balmer Lawrie and Company Ltd is multifunctional, multiproduct and multi-location company engaged in both manufacturing and services and therefore, is functionally not comparable to the assessee, as it is into diversified business. The learned AR also submitted that segmental profitability has un-allocable expenses and income, which are not allocated to the logistics infrastructure an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e annual report, there is an item of un-allocable revenue‟ of Rs. 1812.76 lakhs and un-allocable expenditure‟ of Rs. 1320.35 lakhs. We find that for the very same reason, Balmer Lawrie and Company Ltd was considered to be not comparable by the coordinate bench of Tribunal in CEVA Freight India Private Limited vs DCIT, in ITA No. 4956/Del/2013, vide order dated 18/01/2018, as due to presence of un-allocable revenue‟ and un-allocable expenditure‟ the profit margin of relevant segment cannot be correctly computed. The relevant findings of the coordinate bench of the Tribunal, in aforesaid decision, are as under: 10. We have heard both the sides and perused the relevant material on record. Page 764 onwards of the paper book is a copy of the Annual report of Balmer Lawrie Co. Ltd. Page 804 is a copy of its Profit Loss Account, which shows revenue from sale of Manufactured goods, Trading goods, Turkey projects and Services. The Director's report divulges that this company has several units, such as, Industrial packaging. Grease and lubricants, Logistics services, Project and engineering consultancy. Travel and tours, Container freight station. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are of the considered view that Balmer Lawrie and Company Ltd (logistic infrastructure and services segment) is not comparable to the assessee in the present case. 15. Further, as regards the reliance placed by learned DR on the decision of coordinate bench of Tribunal in United Shippers Ltd. (supra), it is pertinent to note that in the aforesaid decision, assessee‟s submission to exclude Balmer Lawrie and Company Ltd as a comparable on the basis that it has shareholding of government of India was rejected by the coordinate bench of the Tribunal. However, in the present case, Balmer Lawrie and Company Ltd has been found to be functionally non-comparable to the assessee in addition to presence of un-allocable revenue‟ and un-allocable expenditure‟ in the segmental profitability of the company. Therefore, in view of the above, the TPO/AO is directed to exclude Balmer Lawrie and Company Ltd as comparable for benchmarking the international transaction of provision of freight services . (ii) South India Corporation Ltd. 16. The next comparable under dispute is South India Corporation Ltd for the purpose of benchmarking of international transaction p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Terminal Limited for transporting goods from inside the harbour and the contract with Chettinad Lignite Transport Services Private Limited for ST-CMS Electric Company Private Limited for transport of lignite have been extended. During the year under review, the company has bagged a new contract for mining work from Indian Rare Earths Limited. The two year contract for transporting and unloading of food grains for Central Warehousing Corporation at Thanjavur is under progress. The contract from Neyveli Lignite Corporation Limited for transport of raw lignite has also been extended. Small contracts were awarded to the Company by SAIL. and Vizag Steel Plant for loading of Steel and unloading of limestone respectively at Vizag. Logistics operations have been modernised and the company hopes to achieve better results in the coming years. M/s.Bhatia Coal International Limited who is dealing with Stock and Sales of Steam Coal has given the Stevedoring work to our Company. 18. While, on the other hand, as noted above assessee is engaged in providing logistics services in the nature of pre-shipment packaging and other activities; transportation to the exportation port; custom cleara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niture and Fixtures 44,390 44,390 14,404 8,178 22,582 21,808 29,986 Office Equipments 50,849 59,040 109,889 50,849 59,040 109,889 Computers 1,296,526 1,766,238 3,062,764 256,790 666,886 923,676 2,139,088 1,039,736 Total 1,391,765 1,825,278 3,217,043 322,043 734,104 1,056,147 2,160,896 1,069,722 Previous Year 269,542 1,122,223 1,391,765 35,376 286,667 322,043 1,069,722 21. While on the other hand, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10139.88 5034.59 Previous Year 3912.82 1906.01 311.85 5506.98 619.16 (345.06) 206.30 8.00 472.40 5034.58 22. We find that the coordinate bench of the Tribunal in DHL Logistics Pvt. Ltd. v/s DCIT, in ITA No. 1030/Mum./2015, vide order dated 20/12/2019, for the assessment year 2010 11, while directing exclusion of Om Logistics Limited for the purpose of benchmarking with the company, which was engaged in providing logistics services i.e., international, domestic and specialised freight handling services, observed as under: (iii) Om Logistics Ltd: (a) It was the claim of the assessee that as the aforesaid company owned transportation assets and had started warehousing business, therefore, it could not have been selected as a comparable to the assessee. However, the TPO had observed that the 'annual report' of the aforesaid company for financial year 2008-09 and financial year 2009-10 revealed that its composition of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany could not have been feasibly selected as a comparable for determining the arm's length price of its international transactions for the year under consideration. On a perusal of the 'annual report' of the aforesaid company for the year under consideration viz. F. Y 2009-10, we find, that unlike the assessee company it has a significant asset base. For the sake of clarity, the Fixed asset schedule of the aforesaid company for the FY 2009-10 is reproduced as under: SCHEDULE 5 FIXED ASSETS Particulars Land 4,377.42 231.16 4,808.58 4,608.58 4,377.42 Building 3,739.99 909.10 4,649.09 89.90 69.45 159.35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.01 12.97 9.57 22.64 6.3 16.04 Previous Year 22.01 7.00 29.01 3.93 9.04 12.97 18.04 Also, a perusal of the 'annual report' of the aforesaid company reveals that unlike the assessee it has various warehouses across the country and has increased the fleet of its vehicles. In order to fortify his aforesaid claim, the Id. A.R had drawn our attention to Page No. 7 of the annual report' of the aforesaid company, which reads as under: Strengthening the Infrastructure As envisaged in the last report, Your company has taken vanous steps during the year to strengthen its infrastructure base across the country. We have successfully launched the warehouses at Jamalpur (Delhi NCR region), Sanad near Ahmedabad and Sriperambadur near Chennai and plan to setup more warehouses in near future at strategic locations throughout the country. Yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct rejected this company on the basis of non-availability of data for the relevant financial year in public domain. We find that learned DRP rendered no findings in respect of this company. It is the plea of the assessee that data for relevant financial year was submitted before the TPO. However, the TPO did not consider the same. The annual report of this company is forming part of the paper book from page No. 216 237. In the present case, it is not in dispute that none of the lower authorities has examined the relevant data to determine the comparability of Gordon Woodroffe Logistics Limited with the assessee. Therefore, in view of the above, we deem it appropriate to remand the issue of comparability of Gordon Woodroffe Logistics Limited to the file of TPO/AO for de novo adjudication in view of the data now referred by the assessee, during the course of hearing. The assessee as well as the TPO/AO shall be at liberty to furnish/seek any other information/document as may be required for determining the comparability of the aforesaid company with the assessee. 16. As a result, grounds no. 2 and 3 raised in assessee s appeal are allowed for statistical purpose. 17. As the is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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