TMI Blog2012 (12) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... le in this year. Thus, the rates of the earlier agreement will not be appropriate parameter for determining the ALP for the international transaction undertaken by the assessee with its AE in the current assessment year. In these circumstances, the CUP Method fails in this case for benchmarking the ALP. Both the parties have agreed that TNMM Method should be most appropriate method for benchmarking the ALP. - TPO has neither examined the comparables nor the application of TNMM Method for benchmarking the ALP in relation to the international transactions. Even the CIT(A) has not called for any remand report from the TPO or the AO asking for any comment upon the comparables shortlisted by the assessee. The comparables have to be examined objectively and the TPO should be given an opportunity to rebut the same. - Matter remanded back to TPO, who will require the assessee to furnish comparables into similar line of business and activities and examine the same for benchmarking the ALP. Decided partly in favor of revenue. - IT Appeal No. 5979 (Mum) of 2010, C.O. No. 130 (Mum.) of 2011 - - - Dated:- 21-11-2012 - B. RAMAKOTAIAH AND AMIT SHUKLA, JJ. Ajeet Kumar Jain for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various functions performed like export freight, import freight, container control fee etc. During the relevant year, the assessee was also appointed as a representative agent of ANL Singapore Pte Ltd., which is a subsidiary of ANL Container Line Pty. Ltd. Australia and is a group company of CMA CGM. Thus, ANL Singapore is also a kind of AE. The assessee has received besides commission income, container control fees and communication expenses from the two of its AEs, (i.e. CMA CGM ANL Singapore Pte. Ltd.), which was a part of host of services rendered. During the relevant financial year, the assessee had shown its turn over at Rs.26.52 Crores with a net profit of Rs.15.13 Crores. The operating margin on the operating cost was at 133.43%. In its transfer pricing analysis, which was based mainly on Comparable Uncontrolled Method (CUP) was also corroborated with Transactional Net Margin Method (TNMM). 4. The Transfer Pricing Officer (TPO), to whom matter was referred under Section 92CA(1) by the Assessing Officer, observed that the assessee has entered into following international transactions :- Sl. No Name of the AE Nature of Transaction Amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd party was charging US$5 per container. He, therefore, required the assessee as to why the adjustment should not be made in the ALP on these two transactions. 5. The assessee submitted that its overall composite activity carried on with the AEs is part of one business activity only and the assessee is receiving more income than the erstwhile third party which is evident that the commission received by the assessee is more than the third party, which was given earlier. The relevant submissions of the assessee before the TPO in this regard are as under :- "(a) (1) "As you are kindly aware, all streams of remuneration selected for the CUP method flow from the same principal to us, as the agent. Therefore, we request you to consider the remuneration received as a whole, rather than a review of each stream independently. We substantiate this with an example. The erstwhile agent was paid commission on export freight @2.5%, where we are paid @3%, addition 0.5% paid to us is equivalent to Rs. 1,58,64,073/- (i.e. commission which is Rs. 9,51,84,437 less 2.5% commission Rs. 7,93,20,364). This amount more than compensate the reduction container control fees of Rs. 91,07,412/-. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparable which has been chosen do not pertain to the year under appeal as they are for the earlier years. Thirdly, the TPO has erroneously relied upon the amount received from the ANL Singapore as reflecting the ALP without appreciating that for TP analysis the comparables chosen should be from uncontrolled transactions and not with the AEs, who are having related party transactions. Fourthly, the most appropriate method for determining the ALP in the case of the assessee should be TNMM Method which was canvassed before the TPO and in its study it had shown that the arithmetic mean of the comparables were at 14.94%, whereas the assessee's operating margin was very huge at 133.43%. Lastly, if without prejudice CUP is to be considered to be most appropriate method, then all the streams of income viz. export commission, 'container control fee' and others have to be considered on a composite basis as they are arising out of the same business activities and then compare with the income which could be as per the arrangement and as per the agreed rates with the comparable company. If such an exercise would be carried out, then there would be surplus profit of Rs.43,047/-. Besides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner Control Fees USD 5 per container 18,214,824 19,329,756 25,899,838 Communication Fees USD 5 per container 22,378,614 12,905,736 16,046,803 TOTAL(B) 119,913,802 118,517,698 135,752,235 From the above table, it is seen that if the composite income is taken into consideration then the assessee has earned more in contrast to the rates to which earlier third party has charged. 9. Regarding contention of adoption of TNMM Method for determining the ALP, he held that there are no external comparables available for adopting the CUP Method for the year under appeal and the earlier year data of third party will not be applicable while applying the CUP, therefore, the same cannot be applied and TNMM Method would not be most appropriate method. In coming to his conclusion that even though the assessee had adopted a particular method in his TP Study Report, however, it is always open to the assessee or the TPO to deviate from such method and adopt most appropriate method for determining the ALP, he relied upon the decision of Special Bench of Chandigarh Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A) and submitted that not only in the TP Study Report the assessee has given the detail analysis of comparables and applicability of TNMM Method as a corroborative method but also made detail submissions before the TPO as well as the AO. He drew our attention to such reply submitted before the TPO and submitted that this aspect of the matter has been considered by the TPO even though he has not mentioned specifically in his order. Alternatively, he submitted that the assessee was a shipping agent and was receiving the income on composite activities and one has to see the entire activity for the benchmarking the ALP, even as per the method adopted by the TPO. However, his main contention was that the appropriate method should be TNMM Method and the assessee has already undertaken the exercise of searching for the comparables and has provided the arithmetic mean of operating margin of such comparables which has not been rebutted by the TPO. He, therefore, submitted that the order passed by the CIT(A) should be upheld. 12. We have carefully considered the rival submissions, perused the material placed on record and the orders of the CIT(A) and the TPO. The assessee, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve agreed that TNMM Method should be most appropriate method for benchmarking the ALP. The contention of learned CITDR is that before the TPO, even though this plea of applicability of TNMM Method was taken by the assessee by way of corroborated method, has neither considered the same nor examined it properly. Whereas, the argument of the learned counsel has been that the assessee has provided all the relevant data based on TNMM Study not only in the TP Study Report but also during the course of Transfer Pricing proceedings and no fault has been found in the comparables shortlisted by the assessee. In view of these facts and in our considered opinion, though we agree with the conclusion drawn by the CIT(A) that TNMM Method should have been adopted, however, on the perusal of the record, we find that the TPO has neither examined the comparables nor the application of TNMM Method for benchmarking the ALP in relation to the international transactions. Even the CIT(A) has not called for any remand report from the TPO or the AO asking for any comment upon the comparables shortlisted by the assessee. The comparables have to be examined objectively and the TPO should be given an opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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