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TMI Blog2012 (8) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... logistics services provider, offering a comprehensive portfolio of international, domestic and specialized freight handling services. It is an indirect subsidiary of Geologistics Corporation, US('Geo US'). Agility India and its associated enterprises in the Geonetwork may be characterized as freight handling companies with normal risk operating in the international logistics business. Agility India and other companies perform mirror freight handling functions at each end of the base line port to port/ airport to airport product and deploy similar assets in the execution of these services. 2. The original return of income for the A.Y.2007-08 was e-filed by the assessee on 29.10.2007, declaring total income at Rs. 122150240/-. Thereafter, the assessee has e-filed its revised return of income on 30.03.2009, declaring total income at Rs. 124694684/-. 3. As the assessee company had transactions with the Associated Enterprises exceeding Rs. 15 crore, a reference was made to the Transfer Pricing Officer, Mumbai to ascertain the Arms Length Price. Vide order u/s.92CA(3) of the I.T. Act, 1961 dated 20.10.2010, the Addl. Commissioner of Income Tax, Transfer Pricing Officer - I(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We may now examine the case of the assessee. The assessee company is a point to point logistic service provider. The assessee company is a part of Geologistics Corporation, US which operates from about 1000 locations in 100 countries around the globe through a network of over 900 independent offices/agents. The various transactions under taken by the assessee can be as under: 1. Export of goods from a seller in India. Normally assessee would take the responsibility of carrying the goods from the warehouse of the exporter and delivering the same to the warehouse of the buyer outside India. 2. Import of goods on behalf of buyer in India. In such transaction the assessee will bear the responsibility to pick up the goods from the warehouse of the suppliers and deliver the same to the godown of the importer. 3. To deliver the goods received from overseas in respect of a contract entered into by its AE for export of goods to India. 4. To obtain and dispatch the goods out of India in respect of a contract entered into by its AE for import of goods in the AEs country. The point of collection and delivery may vary depending on the terms f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween GeoUKMgt and the third party network members are the same - i.e. the residual gross profit is shared between eh origin company and the destination company in a 50-50 ratio. 10. He has further sought reliance on the facts that it has entered into similar profit sharing arrangements with the third parties in countries where it does not have its own presence. He has also given some examples of its AE in UK which has entered into such arrangements with other licences. The analysis of four agency agreement used by the assessee is reproduced below: Licensor Licensee Services Profit Split 1. GeoUKMgt United Freight International Pvt. Ltd. Air and ocean Air : 50:50 Ocean: 50/50 2. GeoUKMgt Abdul Rahman Mohaman Al- Bahar & Sons W.LL Air and ocean Air : 50:50 Ocean: 50/50 3. GeoUKMgt Delta Trans- Transport Sp. Zo.o Air Ocean and Overland Air : 50:50 Ocean: 50/50 Overland: Pool Rate 4. LEP International Management Ltd. Florde Assessoria & Despacheos Ltd. Air and ocean Air : 50:50 Ocean: 50/50 10.1 The said transaction between GeoUKMgt could not be considered as an internal CUP due to the following reasons: (i) GeoUKMgt is situated in UK whereas the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s client and the shipping agent. This will again depend on the entity entering into the contract and not the transaction. Why should the other AE reap a benefit or incur a loss on account of the efficiency or inefficiency of the other party. What the assessee emphasizes is the equivalent distribution of profits while what we are bench marking is the freight revenue and the freight expenses. 10.5 Even considering the argument of distribution of profits on a 50-50 basis, one has to consider whether all costs have been appropriated. One such cost shall be the interest. The party who does a bulk booking has to pay the money in advance, the cost of those funds is not taken as a cost. Similarly in to collect and prepaid transactions interest has to be an element to constitute a cost. Secondly there are various intangibles in the transactions which cannot be measured. One AE may have better negotiations skills and therefore can obtain better bargains from clients and the shipping lines, while other may not. In such a case why should the first AE not be entitled to a higher share. Such adjustments are not feasible and therefore CUP cannot be applied. The CUP Method is therefore not the M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned assessment year. He also rejected the OP/VAE as the PLI and instead used OP/TC as the PLI on the ground that companies are operating in different geographical regions and agreements with third parties are entered into on a profit split method and not on the basis of rate. While doing so, he used the data of some private limited companies, the detailed information of which are not available in public domain and rejected the search undertaken by the assessee in the TP study. He further used the single year data for the purpose of TNMM analysis as against multiple year data applied by the assessee. It is the submission of the learned counsel for the assessee that the assessee had considered the CUP method as the most appropriate method to determine the ALP of the international transaction. According to him, the assessee company only coordinates with third party service providers and does not own any transportation assets such as trucks, ships, air crafts or any other transportation assets of similar nature and it owns only office premises and computers. The above submission of the ld. counsel for the assessee could not be controverted by the ld. D.R. We find force in the submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on price, cost or profit margin of the international transactions. Principles emphasized in the case of Bangalore Clothing by Bombay High Court are attracted here. Object and purpose of the transfer pricing to compare like with the like, and to eliminate differences, if any, by suitable adjustment is to be seen. Therefore, there was justification on the part of the taxpayer in pleading that profits be taken without deduction of depreciation as depreciation was leading to large differences in margins for various reasons." 5.3 We find the OECD in the revised T.P. guidelines of 2010 has recognized the use of different measures of profit under the profit split method. The relevant para of the guideline reads as under:- "2.131 Generally, the combined profits to be split in a transactional profit split method are operating profits. Applying the transactional profit split in this manner ensures that both income and expenses of the MNE are attributed to the relevant associated enterprise on a consistent basis. However. occasionally, it may be appropriate to carry out a spilt of gross profits and then deduct the expenses incurred in or attributable to each relevant enterprise (and exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the same ratio, this ground by the Revenue is dismissed. 12.3 And while deciding the appeal for the AY 2006 -07 the tribunal observed as under : "14. Grounds of appeal Nos. 4 & 5 are as under:- "Ground No. 4: On the facts and circumstances of the case, the learned DRP has erred in law in not disposing the objection raised by the assessee against the proposed addition of unexplained receipts of Rs. 21,42,582/-. Ground No. 5 : On the facts and circumstances of the case, the learned A.O. has erred in law in confirming the proposed addition of unexplained receipts of Rs. 21,42,582/-." 14.1 After hearing both the sides, we find the above two grounds have not been adjudicated by the DRP. Accordingly, the above two grounds are restored to the file of DRP for adjudication of the same in accordance with law and after giving due opportunity of being heard to the assessee. The above grounds are accordingly allowed for statistical purpose. 15. Ground No. 6 by the assessee reads as under;- "The learned Assessing Officer for the purpose of computing the demand for the year under consideration has erred in considering the refund withdrawn for A.Y. 2007-08 of Rs. 2,91,29,970/- and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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