TMI Blog2019 (10) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... REHOUSING CORPORATION - This is created by an Act of the Parliament being Central Warehousing Corporation Act, 1962 and being a Government company, earns income from warehousing charges, marketing facilitation fees, container rail transport, strategic alliance etc. The Annual Report of this company shows that it has acquired licence from the Indian Railways to run container train. Moreover, the segmental details are not available. In our considered opinion, a company engaged in two diversified services cannot be compared as comparables at entity level. We, accordingly, direct for exclusion of this company from the final list of comparables. INNOVATIVE B2B LOGISTICS SOLUTIONS LIMITED - this company has significant RPT at 37.10% of sales and hence fails RPT filter as applied by the TPO - We find that the TPO has applied RPT filter of 25%. We are of the considered view that the TPO must look into the calculation made by the assessee and decide afresh whether this company passed the RPT filter or not. We, accordingly restore this comparable to the file of the TPO. The TPO is directed to examine the RPT and whether it passes the filter. The TPO shall given reasonable opportunity of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectness of the order dated 24.08.2012 framed u/s. 143(3) r.w.s. 144C of the Income-tax Act, 1961 [hereinafter referred to as 'The Act']. 2. The assessee has raised as many as 13 grounds of appeal. However, the grievance of the assessee can be summarised as under: i) Tran sfer Pricing adjustments qua the comparables; ii) Assigning of NIL value to the value of international transactions in relation to receipt of Intra Group Services [IGS]; and iii) Disallowance made u/s. 40a(ia) of the Act. 3. Briefly stated the facts of the case are that the core business of the appellant company is international air and ocean export and import shipments. The basic function of the appellant company can be categorised into the following segments: a) Export Business [Air and Sea] b) Import Business [Air and Sea] 4. In case of the export business, the principal contractor with the shipper/consignor would be JAS India. JAS India would organize the collection of the goods from the Exporter's premises and load the same for transport (air or ship). It would also provide a copy of the airway/shipping bill and bill of lading to the Exporter. The copy of Bill of lading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Industrial Corporations Limited 2. VRL Logistics Limited 3. BIC Logistics Limited 4. Central Warehousing Corporation 5. Innovative B2B Logistics Solutions Limited 6. Sindhu Cargo Services Limited 7. Sical Logistics Limited 11. The arithmetic mean of the comparables was at 11.23% and when compared with the assessee's profit margin of 2.74%, the TPO made an upward adjustment of ₹ 8,18,45,970/- on account of TNMM in freight forward segment. 12. Proceeding further, the TPO noticed that the assessee was paying certain IGS charges to its AE stated to be the cost reimbursements as under: 13. The assessee was asked to explain the treatment given in its books of account and was also required to submit the cost benefit analysis of the above services. 14. The assessee filed detailed reply vide letter dated 11.10.2011. 15. Reply filed by the assessee did not find any favour with the Assessing Officer who was of the opinion that the assessee has failed to specify whether these services were actually received or not. 16. The TPO observed that the assessee has neither been able to specify the services nor been able to produce any evidence of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm belief that non compliance with TDS provisions attracts the provisions of section 40a(ia) of the Act and, accordingly, made disallowance of ₹ 19,95,53,304/-. 24. Before us, the ld. counsel for the assessee vehemently stated that the TPO as well as the DRP have grossly erred in not appreciating the true business profile of the assessee and hence erred in selecting comparables. It is the say of the ld. counsel for the assessee that the road transportation is different from freight forwarding activities. The ld. counsel for the assessee further stated that the comparables selected by the TPO are either owning trucks/ships or air-crafts and, therefore, cannot be taken as a good comparable. 25. The ld. DR reiterated what has been observed by the DRP stating that logistics, per se, is a big umbrella which includes all the services like transportation, shipment, etc. and, therefore, comparables selected by the TPO should be upheld. 26. We have given thoughtful consideration to the orders of the authorities below. There is no quarrel in so far as the most appropriate method is concerned. Both the appellant and the TPO have taken TNMM as the most appropriate method wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Government company, earns income from warehousing charges, marketing facilitation fees, container rail transport, strategic alliance etc. The Annual Report of this company shows that it has acquired licence from the Indian Railways to run container train. Moreover, the segmental details are not available. In our considered opinion, a company engaged in two diversified services cannot be compared as comparables at entity level. We, accordingly, direct for exclusion of this company from the final list of comparables. INNOVATIVE B2B LOGISTICS SOLUTIONS LIMITED 32. The ld. counsel for the assessee furnished calculation of Related Party Transactions [RPT] and pointed out that this company has significant RPT at 37.10% of sales and hence fails RPT filter as applied by the TPO. 33. We find that the TPO has applied RPT filter of 25%. We are of the considered view that the TPO must look into the calculation made by the assessee and decide afresh whether this company passed the RPT filter or not. We, accordingly restore this comparable to the file of the TPO. The TPO is directed to examine the RPT and whether it passes the filter. The TPO shall given reasonable opportunity of bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred wholly and exclusively for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above. 22. Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40. Similar view has been taken by the Hon'ble High Court of Delhi in the case of Bausch Lomb Eyecare [India] Pvt. Ltd. in ITA No. 643/2014 Ors. of 2014. Relevant finding of the Hon'ble High Court reads as under: 66. On the issue of the intra group services, the Assessee is justified in contending that the re-characterization of its transaction involving its AE for the two years which have been fully disclosed in the TP Study on the basis of it not being for commercial expediency of the Assessee is clearly beyond the powers of the TPO and contrary to the legal position explained in EKL Appliances (supra). 41. In the light of the aforementioned decisions of the Hon'ble High Court of Delhi, we are of the considered view that the only thing that a TPO can examine is the rendition of services and supporting evidences. We, accordingly, restore this issue to the file of the TPO. The TPO is directed to examine the rendition of services with supporting evidences and the assessee is directed to file the details for the same. This ground is treated as allowed for statistical purposes. 42. In so far as the disallowance u/s. 40a(ia) is concerned, we find that ..... 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