TMI Blog2019 (10) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 153(2A) of the Act, which, in our view, could not have been bypassed, the assessment orders have to be declared as barred by limitation, hence, invalid. Accordingly, we have no hesitation in quashing the assessment orders passed for the assessment years 2008 09 and 2009 10. Grounds raised by the assessee on the issue are allowed. Addition made on account of transfer pricing adjustment made in respect of provision of business support service to AE - Selection of MAM - determination of arm's length price of Business Support Services provided to AE by applying internal CUP is correct or not ? - HELD THAT:- Admittedly, the assessee has benchmarked the provision of business support services applying TNMM. It is also observed, in subsequent assessment years i.e., A.Y. 2012 13 and 2014 15, the assessee had benchmarked the provision of business support service to the AE, applying TNMM and the Transfer Pricing Officer has accepted it. Thus, from the aforesaid facts, it can be concluded that when no external CUP is available, as submitted by the learned Counsel for the assessee and as has been admitted by the Transfer Pricing Officer, the transaction has to be benchmarke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 2009, declaring total income of ₹ 4,17,34,690. Similarly, for the assessment year 2009 10, the assessee filed its return of income on 26th September 2009, declaring total income of ₹ 5,53,32,310. In the course of assessment proceedings for the aforesaid two assessment years, the Assessing Officer noticing that the assessee had entered into international transactions with its overseas Associated Enterprises (AEs) made a reference to the Transfer Pricing Officer for determining the arm's length price of such transactions. After examining the nature of transactions, the documents on record as well as submissions of the assessee, the Transfer Pricing Officer proposed adjustment to the arm's length price of provisions of business support service in both the assessment years. On the basis of orders passed by the Transfer Pricing Officer, the Assessing Officer framed draft assessment orders incorporating the adjustment suggested by the Transfer Pricing Officer. Against such draft assessment orders, the assessee filed objections before learned DRP. However, learned DRP did not find merit in the objections of the assessee. Accordingly, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on 29th August 2018, which is beyond the period of limitation prescribed under section 153(2A) r/w its 4th proviso, as it stood prior to its amendment by Finance Act, 20016. He submitted, similarly for the assessment year 2009 10, the final assessment order in pursuance to the direction of the Tribunal was passed on 9th October 2018. Thus, he submitted, the impugned assessment orders are clearly barred by limitation. The learned Counsel for the assessee submitted, even by the time the Assessing Officer passed the draft assessment orders for the aforesaid assessment years, the limitation period of 24th months had already expired. Thus, he submitted, the assessment orders having been passed beyond the period of limitation prescribed under section 153(2A) of the Act are invalid in law, hence, should be quashed. In support of such contention, learned Counsel relied upon the following decisions: i) Nokia India Pvt. Ltd. v/s DCIT, [2017] 85 taxmann.com 291 (Del.); ii) Instruments Control Company v/s CCIT, [2012] 83 CCH 149 (Guj.); iii) CIT v/s Bhan Textile Pvt. Ltd., [2008] 300 ITR 176 (Del.); iv) Citicorp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the office of OCIT, Range 7(1)(2) on 1th September 2018. The then DCII -7(1)(2) completed the assessment on 28.08.2018 well within the time of receipt of order of DRP-1 . Kindly find enclosed herewith the DRP orders. Yours faithfully, Sd/ (Sonal L. Sonkavde, IRS) Deputy Commissioner of Income tax-7(1)(2), Mumbai 7. As stated by the Assessing Officer in the aforesaid report, since the final assessment orders were passed well within the time of receipt of directions of the DRP, they cannot be considered to be barred by limitation. 8. We have considered rival submissions and perused material on record. We have also carefully applied our mind to the decisions relied upon. For deciding the issue at hand, we have to take note of certain dates and events which have a crucial bearing on the issue: Sl. no. Dates Events 1. 14.01.2015 Common order passed by the Tribunal disposing off the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 4th March 2015. Therefore, ordinarily, as per section 153(2A) of the Act, the assessments should have been completed on/or before 31st March 2016. However, since a reference was made to the Transfer Pricing Officer under section 92CA(1) of the Act, the period of limitation gets extended by one more year i.e., till the end of 31st March 2017. Whereas, as discussed earlier, the final assessment order for the assessment year 2008 09 was passed on 29th August 2018 and the assessment order for assessment year 2009 10 was passed on 9th October 2018. Thus, the aforesaid facts indicate that the final assessment orders were passed much beyond the period of limitation prescribed under section 153(2A) r/w 4th proviso. In fact, the draft assessment orders, itself, were passed beyond the period of limitation prescribed under section 153(2A) of the Act. Thus, it is patent and obvious, the assessment orders passed for the assessment years 2008 09 and 2009 10 are beyond the period of limitation prescribed under section 153(2A) of the Act. 10. The Hon'ble Delhi High Court in case of Nokia India Pvt. Ltd. (supra) while considering an identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Since, we have quashed the assessment orders for the assessment years 2008 09 and 2009 10 as barred by limitation, the grounds raised on merits have become academic. However, the issue raised in these grounds have to be dealt with on substantive basis at a later stage while deciding the appeal for assessment year 2010 11 being ITA no.7145/Mum./2018, since, identical issue arises therein. ITA no.7145/Mum./2018 Assessment Year : 2010 11 12. Ground no.1, being general in nature does not require adjudication. 13. Ground no.2 to 6, relate to the addition made on account of transfer pricing adjustment made in respect of provision of business support service to AE. 14. Brief facts are, the assessee company is a wholly owned subsidiary of Hapag Lloyd AG. As stated by the Transfer Pricing Officer, the assessee is a captive unit engaged in providing business 13 Hapag Lloyd India P. Ltd. support services to its parent company. In other words, as stated by the Transfer Pricing Officer, the assessee is working as a shipping agent to the parent company. Whereas, the parent company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. After going through the transfer pricing study report and other material available on record, he was of the view that TNMM is not the most appropriate method. He found that as per the earlier agency agreement with Hapag Lloyd AG and sub agency agreement with the assessee, similar services were provided by GESA to Hapag Lloyd AG Thus, he issued a notice to the assessee to explain why the price charged by GESA to the assessee under the sub agency agreement should not be adopted as internal Comparable Uncontrolled Price (CUP) for determining the arm's length price of business support services provided by the assessee to the AE. Though, the assessee strenuously submitted before the Transfer Pricing Officer that sub agency agreement cannot be applied as internal CUP since GESA has not provided any service directly to Hapag Lloyd AG, however, the Transfer Pricing Officer rejecting the submissions of the assessee, held that CUP is the most appropriate method considering the fact that before appointment of the assessee as an agent, GESA was the sole agent of Hapag Lloyd AG for the entire territory of India and even after termination of agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided to the AE by applying the sub agency agreement with GESA as internal CUP which has been upheld by the DRP. He submitted, this action of the Departmental Authorities is in complete violation to the directions of the Tribunal. He submitted, from the year 1993, GESA was providing business support services to Hapag Lloyd AG directly. However, the agreement between Hapag Lloyd AG and GESA was terminated on 31st December 2006. He submitted that from 1st January 2007, the assessee is providing all support service directly to the A.E. for seven major Ports in India whereas in respect of five other ports / territories, the assessee is providing services to the A.E. by engaging GESA as a sub agent. He submitted that after 31st December 2006, there is no direct relationship between the A.E. and GESA. Therefore, the sub agency agreement between the assessee and the GESA cannot be treated as internal CUP. He submitted, since GESA was not providing any service to Hapag Lloyd AG and was only acting as a sub agent of the assessee, it cannot be considered as internal CUP. He submitted, for this reasons only the Tribunal, in no uncertain terms, has observed that the sub agency agreement betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement is reproduced as under: Article 2 Services to be rendered by the Sub-Agent 2.1 organisation of loading/ discharging activities for vessels of The Line including documentation accordingly to the instruction of The Agent Recipient of services Hapag India acts as an agent of the liner i.e. Hapag AG and provides business support services to Hapag AG German Express acts as a sub-agent of the agent i.e. Hapag India and provides services under the overall guidance and instructions of Hapag India. While shipping support activities performed by German Express are in relation to the liner services (as the vessels belong to the Line), the sub- agency agreement cannot be misinterpreted to conclude that German Express is providing services directly to the Line, ie. Hapag AG, and the sub-agency agreement clearly states that the activities performed by German Express in its capacity as H apag India‟s sub-agent Further, the freights collected by German Express are deposited directly by German Expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is respectfully submitted that the Appellant does not bear any credit risk in relation to the transaction of provision of business support services to its AE (i.e., it is remunerated for its functions regardless of collection of freight from the customers). As against this, the remuneration payable to German Express is contingent upon the receipt of freights from customers. Accordingly, in a scenario that the customers do not honor the payments under their contract, the risk is borne by German Express. The relevant extract of the sub-agency agreement is reproduced below: Article 4 Collection of sea/ inland freights and charges 4.4 The credit risk (del credere) rests with The Sub-Agent for all: a) prepaid freights (incl. surcharges etc.) for outbound traffic; b) collect freights (incl. surcharges etc. ) for inbound traffic. Market risk Market risk associated with the acquisition and retention of customers is not borne by the Appellant since it is captive service provider. Further, the Appellant works on a cost plus model and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and GESA and no payment has been made by Hapag Lloyd AG to GESA. Therefore, the Transfer Pricing Officer was totally wrong in considering the sub agency agreement with GESA as internal CUP. He submitted, though, the Tribunal had not ruled out applicability of external CUP, however, the Transfer Pricing Officer himself has not been able to find out any external CUP. He submitted, in such circumstances, benchmarking done by the assessee applying TNMM has to be accepted. Further, he submitted, in subsequent assessment years, the Transfer Pricing Officer has himself accepted benchmarking of the assessee under TNMM with same set of comparables. Thus, he submitted, adjustment made to the arm's length price of business support services should be deleted and the benchmarking of the assessee under TNMM should be accepted. In support, he relied upon the following decisions: i) Bhopal Sugar Industries v/s ITO, [1960 40 ITR 618 (SC); ii) CIT v/s Raza Textiles Ltd., [2007] 293 ITR 92 (All.); iii) Union of India v/s Kamlakshi Finance Corporation, AIR 1992 SC 711; iv) Gemini Oils Pvt. Ltd. v/s ITO, ITA no.2563/Mum./ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding afresh keeping in view the decision of the Tribunal in UCB India Pvt. Ltd. v/s ACIT, [2009] 121 ITD 131 (Mum.). Relevant observations of the Tribunal are as under: 6. We have considered the rival submissions as well as relevant material on record. Upto 31/12/2006 GESA was providing the services for booking shipments to HLAG under agency agreement of 1993. GESA was charging a certain percentage on the freight turnover as commission apart from fixed charges @ US$ 10 per inland box. Other fee is as per RBI guidelines as well a fee for consignment delivery and bill of lading. 6.1 On the other hand the assessee was appointed as agent w.e.f. 01/01/2007 and is remunerated for the services rendered to AE at cost plus 10% mark-up. The assessee was also authorized by the AE HLAG to appoint GESA as sub-agent for providing services for certain territories of India and the entire territory of Nepal. The sub-agent is remunerated on the same basis as it used to receive the commission under 1993 agreement. The assessee benchmarked its international transactions by adopting TNMM as most appropriate method. The TPO did not accept TNMM method and applied i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied in exclusion of current year data. In other words, in the case of existence of exceptional circumstances the prior two years data along with current year data can be used. Once the GESA ceases to be agent of HLAG w.e.f. 31.12.2006, then in the absence of current/contemporary data / uncontrolled price, the price of prior year cannot be considered for determination of ALP in relation to international transaction entered in current year. 6.2 The another aspect of considering the said price between GESA and assessee as internal CUP is that it does not satisfy the basic ingredient of a transaction between an unrelated party and associate enterprise of the assessee in the parity of the services provided by the assessee to the AE. United Nations Practical Manual on Transfer Pricing for Developing Countries has discussed the comparable uncontrolled price (CUP) in para6.2.1.1 as under :- 6.2.1.1 The comparable Uncontrolled Price (CUP) Method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6.2.3 We may clarify that the international transaction in question should be considered as one and price received by the assessee in total has to be compared with the ALP. The assessee received the price for providing the service as per the agency agreement. Therefore, the service provided by the assessee to the AE are closely interlinked and price of one part is dependent on the price of the other part. Therefore, the entire services provided by the assessee has to be treated as one international transaction for the purpose of determining the ALP. 6.2.4 In view of the above discussion, as well as the facts and circumstances of the case, we set aside the issue to the record of TPO/AO, to decide the same afresh, by considering in the light of the above observation as well as the decision of this Tribunal in the case of UCB India Pvt. Ltd. vs. ACIT dated February 06, 2009 (2009-TII-02- ITAT-MUM-TP) ITA No.428 429/Mum/2007 for assessment years 2002-03 and 2003- 04(supra). 19. A careful reading of the observations of the Tribunal reproduced above would make it clear that the Tribunal had clearly and categor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 92CA(3) of the Act, has expressed his inability to find any external CUP to benchmark the transaction. In such circumstances, the only other alternative for determining the arm's length price of the transaction is TNMM. Admittedly, the assessee has benchmarked the provision of business support services applying TNMM. It is also observed, in subsequent assessment years i.e., A.Y. 2012 13 and 2014 15, the assessee had benchmarked the provision of business support service to the AE, applying TNMM and the Transfer Pricing Officer has accepted it. Thus, from the aforesaid facts, it can be concluded that when no external CUP is available, as submitted by the learned Counsel for the assessee and as has been admitted by the Transfer Pricing Officer, the transaction has to be benchmarked by applying TNMM, as, it is the most appropriate method under the given facts and circumstances of the case. Thus, the only issue which now requires deliberation is the acceptability or otherwise of the comparables selected by the assessee under TNMM. As could be seen from the facts placed before us, the comparables selected by the assessee were also selected in subsequent assessment years i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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