TMI Blog2020 (7) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has not been stayed/overruled/set-aside by higher judicial forum. Considering the totality of the aforesaid facts, we are of the view that the ratio of the decision of Hon ble High Court in assessee s own case for A.Y. 2006-07 and 2007-08 would be applicable to the facts of the case in the year under consideration. AO/TPO was not justified in directing the adjustment to the arm s length price. - Decided in favour of assessee. Disallowing setting off of previous years losses claimed by the Assessee in the return of income - HELD THAT:- e. In view of the submissions of the Ld AR, we restore the issue to the file of AO. If the contentions of the assessee are found correct by the AO, then the AO is directed to grant set off of previous years losses in accordance with law. Assessee is also directed to furnish the necessary details as called for by the AO. - ITA No.5533/Del/2015, ITA No. 778/Del/2016 - - - Dated:- 17-7-2020 - Sh. Anil Chaturvedi, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. Ravi Sharma, Adv. For the Respondent : Sh. Mritunjay Baranwal, Sr. D.R. ORDER PER ANIL CHATURVEDI, AM: These two appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in terms of DRP s directions at ₹ 39,87,670 (the details of which are noted by the AO in para 6 of the order dtd 26.12.2014). AO thereafter, vide order dated 26.12.2014 passed u/s 143(3) r.w.s 144C(13) assessed the total loss at ₹ 23,93,020/-. Aggrieved by the order of AO pursuant to the directions of DRP, assessee is now before us and has raised following grounds: 1. The assessment order passed by the Learned Deputy Commissioner of Income Tax, Circle 25(2) ( Ld. AO ) pursuant to the directions of Honorable Dispute Resolution Panel ( Hon ble DRP ) is bad in facts and law. 2. The Ld. AO (following the directions of the Hon ble DRP), erred on facts and in law, in reducing the loss claimed by the Appellant by ₹ 39,87,670 Crores on account of transfer pricing ( TP ) adjustment u/s 92CA(3) of the Income Tax Act, 1961 ( Act ) made by the Learned Deputy Director of Income-tax, Transfer Pricing Officer - II(7) ( Ld. TPO ), by holding that the international transactions of provision / receipt of freight forwarding services to / from associated enterprises ( AEs ) by the appellant during the relevant assessment year do not satisfy the arm s length principle en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrent year (i.e. FY 2010-11) data for comparability analysis despite the fact that such data was not available to the Appellant at the time of preparing its TP documentation report for the year; 3.4 not appreciating the Functional-Asset-Risk ( FAR ) profile of the Appellant and benchmarking the Appellant against companies which were not at all comparable to the Appellant in terms of their FAR profiles; and 4. The Ld. AO (following the directions of the Hon ble DRP), erred on facts and in law, in disregarding the various submissions and documentary evidences filed by the appellant during the course of the DRP proceedings to establish the arm s length nature of its pricing model for the international transactions of provision / receipt of freight forwarding services to / from AEs. 5. The Hon ble DRP and the Ld. AO (following the directions of the Hon ble DRP), erred on facts and in law, in upholding the Ld. TPO s stand of considering other income as operating item while computing operating margin of the companies used as comparable by Ld. TPO. 6. Without prejudice and notwithstanding the above grounds, the application of Other method in view of judgement in Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of freight forwarding services from/ to associated enterprises (AEs) during the year do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 3.1 not appreciating that none of the conditions set out in section 92CC3) of the Act are satisfied in the instant case before proceeding to determine the arm s length price ( ALP ) himself; 3.2 rejecting the economic analysis undertaken by the Appellant in its TP Documentation for the relevant previous year, which specified Comparable Uncontrolled Price ( CUP ) method as the most appropriate method ( MAM ), without any cogent reasons, evidence, or basis whatsoever and, instead selecting the Transactional Net Margin Method ( TNMM ); 3.3 not appreciating that the pricing basis followed by the Appellant in respect of its international transactions of import/ export of freight forwarding services from/ to AEs is in line with well accepted/ prevalent business models followed in the global/ Indian freight forwarding industry by independent freight forwarding companies; and; 3.4 not appreciating/ taking cognizance of the evidentiaiy documents submitted by the Appellant during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. 6. Before us, at the outset, Learned AR submitted that though the assessee has raised various grounds in the appeal but the sole controversy is with respect to rejecting the Comparable Uncontrolled Price ( CUP ) method followed by the assessee for the benchmarking of international transactions and selecting the Transactional Net Margin Method ( TNMM ). He further submitted the facts of the case in the year under consideration are similar in 2010-11 and AY 2011-12 and therefore, the arguments made by him while arguing the appeal for A.Y. 2010-11 will apply equally to A.Y. 2011-12. 7. Before us, Learned AR submitted that assessee is primarily engaged in freight forwarding through air and ocean transportation. The assessee does not own or operate vessels or aircraft but utilizes third party ocean/air carriers to transport goods from origin (where the goods are collected from) to the destination (where the goods are delivered to). In conducting its freight forwarding business, the assessee sources shipments from its customers, consolidates the shipments for common destinations, arranges for transportation of shipments to various destinations and at the destination effects d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court vide order dated 10.12.2015 in ITA Nos. 374/2015 and 396/2015 had dismissed the appeals of the Revenue. He pointed to the relevant orders which is placed in the paper book. He, therefore, submitted that since the issue is identical to that of earlier years the matters stand covered in favour of the assessee by the earlier year s decision. He, therefore, submitted that the addition made by the TPO/AO be set aside. 9. Learned DR on the other hand has filed written submission which reads as under: In its appeal for both the AYrs the appellant has raised several ground of appeals (GOA) and all such GOA emerge from one fundamental issue as to justification of rejection of the CUP method, applied by the appellant in its TP study and application of TNMM by the TPO for benchmarking of international transactions. In its synopsis, the appellant has stated that the issue is covered by the order of Hon'ble Delhi High Court and Hon'ble ITAT in assessee's own case for AY 2006-07 2007-08. In this regard it is stated that the res-judicata is not applicable to the income-tax proceedings and in the name of consistency, the decision of Hon'ble Higher authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal-set for AY 2011-12]. The discussions of the TPO may kindly be referred to for the sake of brevity the same are not reproduced here. The assessee has himself stated that it also facilitates clearance of goods through Customs at international port of entry in India in respect of incoming international shipments. The assessee has not stated anything about its impact on pricing. In nutshell the TPO observed that products similarity, market comparability, contractual terms, impact of geographical locations/territories of origin/destination and other factors influencing comparability e.g. market strategies, fewer economies of scale, higher operating expenses are required to be compared to apply CUP method. In case of difference necessary comparability adjustments are required to be carried out to eliminate to eliminate material differences between controlled and uncontrolled transactions and as per Rule 10B(3)(ii) only reasonable accurate adjustment can be made. Undeniably this is not the case of the assessee. 6. In his discussions in the TP order, the TPO has also discussed the decision of Hon'ble Mumbai ITAT in the case of UCB India (P) Ltd vs ACIT [2009] 30 SOT 95. [pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the TPO rejected CUP method and applied TNMM. [page-14 of PB] (ii) Hon'ble ITAT also recorded the controversy with respect to dimension in terms of ALP price charged by the assessee in accordance with Rule 10B(1)(a). [page-14 15 of PB] (iii) Despite the above discussed deficiencies, Hon'ble ITAT observed that the assessee's case was on profit sharing formulae prevalent in the logistics industry. Thereafter Hon'ble ITAT proceeded to evaluate the scope/ambit of 'Price', defined in the Rule. [page-15 16 of PB] (iv) In its discussion to examine the scope/ambit of 'Price' Hon'ble ITAT discussed the order of Hon'ble ITAT, Delhi in a similar case i.e. M/s Agility Logistics Pvt. Ltd. [136 ITD 46] wherein the CUP method was upheld on the basis of 'Pricing method' to include profit sharing ratio in the logistics industry. Hon'ble ITAT also discussed the decision of Hon'ble ITAT, Mumbai in a similar case i.e. M/s DHL Danzas Lemuir Pvt. Ltd [TS-752- ITAT -Mumb (2012) TP] which was passed relying the case decision of Hon'ble ITAT in the case M/s Agility Logistics Pvt. Ltd. [page 16 to 20 of PB]. Therefore, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of these provisions clearly states that the comparability is on price charged/received for same / similar uncontrolled transactions with or between non-AE under similar circumstances, considering all the relevant facts. Accordingly, the price, similarity of products/services, prevailing circumstances and the differences due to various other factors (as briefly mentioned above and discussed by TPO in his order) which may have an impact on the 'Price' have to be considered/examined. In the light of the above discussions, the issue may not be said to be squarely covered and the appeal may be decided on merit accordingly. 8. Discussions in brief on order dt. 10.12.2015 of Hon'ble High Court for AY 2006-07 2007-08 in assessee's case which have been cited with a claim that the issue is covered: (i) Though the Revenue's appeal were dismissed, Hon'ble High Court was requested that the matter may at least be remanded to the AO/TPO with a direction to the assessee to provide complete requisite detail which would help the TPO to determine whether the price charged by the assessee for the international transactions from AE is at arm's length. [par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transactions with its AE s are at arms length. He therefore submitted that the order of the AO be upheld. Learned AR in the rejoinder submitted that the submissions of the Learned DR about the non-submissions of the complete relevant information in the TP report/ the non-submission of the relevant agreements before the TPO is factually incorrect and in support he pointed to the copy of the documents which are placed in the paper book evidencing its submissions before the TPO. He further submitted that the order of Hon ble High Court in Assessee s own case for earlier years has attained finality as no SLP has been filed by the Revenue. 11. We have heard the rival submissions and perused the material available on record. The issue in the present grounds is with respect to the rejection of CUP method followed by the assessee and holding the TNMM method as the most appropriate method to benchmark the international transactions with AE's. We find that the assessee has been following the CUP method for benchmarking the international transactions which is an accepted industry norm in the year under consideration and the same method was also followed by it in earlier years. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profitability of the Assessee with comparable companies engaged in a similar business by application of the TNMM at the entity level by using operating margin as the profit level indicator. On this methodology, the TPO determined that there was a difference of ₹ 20,900,179/- between the booked value and the ALP and since the same was more than 5%, the said difference was added back to the income of the Assessee. 5. On the basis of the above order of the TPO for AY 2006-07 the AO passed a draft assessment order on 26th November, 2009 which was taken up before the Dispute Resolution Panel (DRP) by the Assessee unsuccessfully. Ultimately, the AO passed the final assessment order on 20th September, 2010 in line with the order of the TPO. A similar exercise was performed for AY 2007-08 and against both the orders of the AO appeals were filed before the ITAT. 6. The impugned order of the ITAT for AY 2006-07 noted at the outset in para 5 as under: We find that in the present case it is not really even in dispute that in this field of business activity, the 50:50 business model (i.e. the business model of sharing residual profits in equal ratio with the service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is on the same terms and as per the same business model, which is admittedly unique to that line of business, but, owing to the limitations of the methods prescribed under Rule 10B(1)(a) to (e), as the prescribed method of determining the arm s length price existed at the relevant point of time, there are certain, what can at best be described as, unresolved procedural issues. 9. The ITAT concluded in para 29 of the impugned order as under: We hold that the assessee s contention to the effect that the arm s length price of services rendered to, or received from, the associated enterprises, which was computed on the basis of the same 50:50 model as is the industry norm and as has been employed by the assessee for computing similar services to the independent enterprises, was at arm s length. Accordingly, the impugned arm s length price adjustment of ₹ 2,09,00,179/- stands deleted. 10. Accordingly, the ALP adjustment for the AY 2006-07 was deleted. The same result followed in the Assessee's appeal AY 2007-08. 11. It was urged by Ms Suruchi Aggarwal, learned Senior Standing Counsel for the Revenue, that even if it is accepted that CUP is the mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the return of income. He fairly agreed that the necessary directions be given to the AO for verification before allowing the assessee s claim. Ld DR did not controvert the submissions of Ld AR. 14. We have heard the rival submissions and perused the material on record. As far the grounds raised by the Assessee on transfer pricing issues are concerned, since it is admitted by both the parties before us that the facts of the case on the grounds relating to transfer pricing issues are identical to that of AY 2010-11, we for the reasons stated herein while deciding the appeal of the assessee for AY 2010-11 and for similar reasons hold that the AO/TPO was not justified in making the addition on account of transfer pricing adjustments. Thus the grounds of the Assessee are allowed. 15. As far the ground no 6 is concerned, it is w.r.t not allowing the setoff of previous year s losses claimed in the return of income. In view of the submissions of the Ld AR, we restore the issue to the file of AO. If the contentions of the assessee are found correct by the AO, then the AO is directed to grant set off of previous years losses in accordance with law. Assessee is also directed to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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