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TMI Blog2023 (8) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable companies in the case of both Indian AEs was 2.85% of income while the assessee has remunerated at a higher margin of 4% on their gross income. Apart from that, the ld. TPO has not recorded any finding that suggests that all the FAR undertaken by each of the parties were not adequately captured which negates any requirement for further attribution of profits in the absence of any left-out functions and risk taking activities. Accordingly, we agree with the contention of the ld. Counsel that once the transactions have been found to be at arm s length, no further profit attribution can be made. In any case, it has been brought on record that assessee had incurred losses in the fiscal year 2018, 2019 and 2020 and ld. AO without analyzing the transactions had made the losses of the assessee into profit just merely rely on the draft report of the CBDT and a recommendary course of action for the profit attribution to the PE. Before, us, ld. Counsel has also demonstrated as to how no income can be taxable in the hands of the assessee looking to the fact that already in relation to the operations carried out by the assessee for its Indian AE already income has been subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and destination country- to compute taxable revenue attributable to the alleged PE of the Appellant in India 2. 3. d. Considering a deemed profitability rate of 2 percent despite losses incurred by the Appellant 3. 4. e. Not allowing a deduction of profits already taxed in the hands of the Indian AEs, whose activities are alleged to be creating a PE while computing income taxable in the hands of the Appellant. 4. (4.1. -4-2.) 5. (5.1-5-2) f. Not providing an opportunity of being heard to the Appellant 5. 6. g. On the facts and circumstances of the case, the learned AO erred in not granting the appropriate interest under Section 244A of the Act amounting to Rs. 11,51,739 On the facts and circumstances of the case, the learned AO erred in not granting the appropriate interest under Section 244A of the Act of Rs. 1,37,45,313 7. 4. At the outset grounds mentioned at Sr. No. 'a' and Sr. No. 'f' have not been pressed, therefore, same are dismissed as not pressed and in so far as ground mentioned at 'g' is consequential. 5. The brief facts and background of the case are that Fedex Express International B.V. (the assessee) is a part of the multinational Federal Express Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up, TNT India became part of FedEx Group. It is engaged in the business of international express distribution of freight, parcels and documents. In the course of its business operations, TNT India contracts with Indian customers to deliver freight, parcels and documents to destinations outside India, utilizing the services of the overseas Group Network. 9. In this regard, the assessee entered into a Transportation Services Agreement (TSA) with FETSC and TNT India. Pursuant to the said TSA, FETSCS and TNT India engaged the assessee for provision of transportation services outside India (i.e, from and to India), in respect of their respective customers' packages, against payment of International Transportation Fee (TTF) and International Hub Service Fees (IHSF) respectively to the assessee. The assessee is responsible for the transportation and delivery of the said packages from an Indian airport to its ultimate destination outside of India, and vice-versa. The details of the amounts received by the assessee for the impugned AYs are tabulated below: AY 2018-19 Amount (INR) ITF from FETSCS 82,97,81,497 IHSF from TNT India 9,80,96,213 Assessee's Total Income from its In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above, the ld. TP Officer passed the TP order dated 22.07.2021, under section 92CA (3) of the Act, without making any adjustments in respect of the assessee's international transactions with the Indian AES. 14. However, the AO concluded the assessment, alleging that the assessee has a business connection under section 9(1)(1) of the Act and a DAPE in terms of Article 5 of the India-Netherlands DTAA . The AO contended that FETSCS and TNT were acting as the Agents of the assessee in India, thereby constituting its DAPE and undertook profit attribution to the alleged India business of the assessee. Accordingly, the AO determined the revenue attributable to the India business by applying an ad hoc ratio of 55% of the work done in the country of origin, 22.5% in the country of trans- shipment and 22.5% in the country of destination, on the gross revenues. The said revenue was therefore, computed as 55% of the amounts earned by the assessee towards outbound consignments and 22.5% in respect of inbound consignments (excluding pass through components such as freight). 15. As regards the revenue attributable to India business from inbound shipments, the amount paid by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 162 8.Adobe Systems Incorporated Hon'ble Delhi High Court 69 taxmann.com 228 9. Asia Today Ltd. 1 Hon'ble ITAT, Mumbai 124 taxmann.com 1 10. ESS Advertising (Mauritius) SNC et Compagnie Hon'ble ITAT, Delhi 101 taxmann.com 312 20. On the other hand, ld. DR strongly relied upon the order of the ld. AO and ld. CIT (A) and submitted that once profit attribution is to be decided, then it has to be seen what are the functions performed as assets required and estimates while determining the transactions whose margin / profit are to be determined and ld. AO has correctly determined the revenue attributed to India business and the ratio for computing profits. 21. We have heard rival submissions and also perused the relevant finding given in the impugned orders as well as the orders referred to before us. In so far as the issue of dependent agency PE of the assessee in India, it has not been contested by the ld. Counsel and only issue before us is the issue of profit attribution from the alleged DAPE which is to be decided. As discussed above, assessee is engaged in transportation of time-sensitive and time-definitive shipments to various destinations around the worl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70,837,078 Total LSF paid to the Indian AES [A+B] 226,105,880 A.Y.2019-20 Amount (INR) LSF to FETSCS 1,83,65,06,785 LSF to TNT India 91,39,33,547 Total LSF paid to the Indian AES [A+B] 2,75,04,40,332 23. As per Article 7(2) of India-Netherlands treaty, not all the profits of foreign enterprises in India would be taxable in India and it is only those which have economic nexus with India. If compensation to the foreign enterprise in India is justified by FAR analysis and transfer pricing analysis and if it has been found to be at arm's length, then no further income should be attributed to its PE in India, because when for the same transaction, arm's length analysis has been undertaken and is equated with attribution of profits, then we do not find any reason as to why such adhoc attribution should be made as done by the ld. AO. Here, in this case Indian companies whose activities constitutes a PE for the foreign enterprise, and it has been remunerated on an arm's length basis upon taking into account all the functions and assets and risks of the foreign enterprise in India and if the same are found at arm's length, then there is hardly any scope left from making any f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arm's length and additionally one of the two Indian AEs have also been subjected to TP adjustment and its transaction with assessee also to be at arm's length and new adjustments have been made. 27. Before us, ld. Counsel had also brought on record and also showed from TP documentation for A.Y.2018-19 of the assessee and both the Indian AEs and also from the TP order of the assessee and TNT India for the same year, that the international transactions of the Indian AEs with the assessee, are at arm's length price wherein the mean margin determined based on five comparable companies in the case of both Indian AEs was 2.85% of income while the assessee has remunerated at a higher margin of 4% on their gross income. Apart from that, the ld. TPO has not recorded any finding that suggests that all the FAR undertaken by each of the parties were not adequately captured which negates any requirement for further attribution of profits in the absence of any left-out functions and risk taking activities. Accordingly, we agree with the contention of the ld. Counsel that once the transactions have been found to be at arm's length, no further profit attribution can be made. 28. In any case, i ..... 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