TMI Blog2022 (3) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... ind the comparable was functionally accepted in earlier A.Y 2011-12 2012-13 and for A.Y 2013-14 it was rejected as it has some extraordinary event and no segmental information was available and further the TPO has rejected the comparable on the export operations. We considering the facts, submissions, information and judicial decisions in the assessee s own case and the department accepted it as comparable in the earlier years as discussed. We direct the TPO to include the comparable in determination of ALP. Since, one comparable is included and there are no arguments made by the Ld.AR on other comparables hence they are left open and allow the grounds of appeal for statistical purposes. Exclusion of comparable Om Logistic Ltd. - AR submitted that the comparable company is engaged in the transportation and logistics services of vehicle and tangible assets - We direct the TPO to exclude the comparable in determination of ALP and allow the ground of appeal of the assessee. Claim of depreciation on goodwill resulting from acquisition of business unit - HELD THAT:- As we follow the judicial precedence, and direct the Assessing officer to allow the claim of depreciation on goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d March 31, 2014 2.6 disregarding al l comparable companies selected by the Appellant in its TP documentation and further disregarding three out of four additional comparable companies identified by the Appellant by conducting a fresh search. 2.7 including Om Logistics Limited which is a functionally incomparable company in the final set of comparable companies. The Appellant prays that the book value of the international transactions pertaining to the freight forwarding segment of the Appellant should be held to be the arm's length price of the said transactions as per the Appellant's TP documentation, and the addition made on account of the above grounds should be deleted. 3. On the facts and in the circumstances of the case and in law, the learned A.O. erred in not allowing Depreciation of Rs. 4,26,46,129/- on the balance of WDV of Rs. 17,05,84,517/- [Net of WDV of Rs. 11.24.19,120/- transferred to DHL Supply Chain India Pvt. Ltd. in terms of D-Merger under Court Order] Seventh Year claim for Depreciation On Goodwill Resulting. From Acquisition Of Business Unit Of Lee Muirhead Pvt. Ltd. In A.Y. 2008-09. 3.1 On the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. No. Description of the transactions 2014-15 2013-14 Method Used 1 Freight Revenue 4,964,045,743 5,329,216,144 Transaction 1 Net Mrgin Method (TNMM) 2 Freight Express 7,202,693,840 7,763,645,253 TNMM 3 Management and IT Service 483,270,358 572,226,560 TNMM 4 Provisions of Warehousing support service NA 5,886,168 Internal TMM 5 Provisions of support service 540,176,824 220,966,117 TNMM 6 Purchase of supplies 689,182 38,306 TNMM 7 Other al located costs 56,507,682 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TKM Global Logistics Ltd P 14.31% 2 SRS Frieght Management Ltd P -4.68% 3 Gordon Woodroffe Logistics Ltd C 25.99% 4 Hindustan Cargo Ltd C 2.66% 5 Trade-Wings Ltd (Cargo) P-Seg -4.08% 6 AW Travel Logistic services Ltd AR 12.03% 7 Balurghat Technologies Ltd., (Transportation Operation / Travel Division) AR-Seg 24.08% Mean 10.15% The assessee compared its OP/VAE margin of 31.18% with that of the comparable 10.15%. The assessee vide its submission dated 8 August 2017 provided the OP/TC and OP/VAE margin of the comparables selected in the TP study for the FY 2013-14 considering the financial date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, the TPO has called for the information on OP/VAE and various costs pertaining to logistic segment. The TPO find the assessee is working with OP/VAE margin @ 31.18% and OP/PC margin @ 3.95% and computed the ALP of international transactions at page 19 Para 6.15 as under: 6.15 The working of adjustment comes out to be as under: Total revenue 15,59,97,91,699 Non-AE Revenue 10,58,34,25,634 AE Revenue A 5,01,63,66,065 ALP Revenue B 5,60,79,71,620 Difference C=B-A 59,16,05,555 3% of Assessee s Txn D=A x 3% 15,04,90,982 Adjustment Since D C 59,16,05,555 7. The TPO with these adjustments of international transactions of freight revenue and freight expenses of Rs.59,16,05,555/- has passed the order u/s 92CA(3) of the Act on 31.10.2017. The A.O. after rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration i.e rejection by the lower authorities of the PLI of OP/VAE by the assessee and substitution of the same by PLI of OP/TC. As is discernible from the orders of the lower authorities the PLI of OP/VAE had been rejected for the reasons viz. (i). that, as the freight element booked in the books by the assessee has a component of prof it (or value added), therefore, the assessee claiming the same as pass through costs had wrongly reduced the same from its turnover and costs while computing its margins; (ii). that, the recovery of third party costs at ports except for in few instances where invoices were produced by the assessee, in the absence of any evidence had wrongly been treated by the assessee as back to back costs; and (iii). that, the VAE could not be safely gathered from the books of account of the comparables. We shall deliberate on the aforesaid aspects, as under: (i). For a proper appreciation of the business module of the assessee, we shall briefly deliberate on the transactions undertaken by the assessee during the year under consideration: (a). Inbound Collect Air Shipments : Shipper (outside India) hands over the consignments to DHL India s AE to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L India invoices and collects from the Shipper the OC. The same is booked as revenue. DHL AE invoices and collects from the consignee the freight and DC. (e). Outbound Prepaid : Shipper (India) hands over the consignment to DHL India to forward the same to the consignee (outside India). DHL India takes the assistance of DHL AE for the same. DHL India negotiates the terms of the transaction with the Shipper. In the present case the Shipper pays for the freight. DHL India invoices and collects from the Shipper the OC and freight. The same is considered as revenue for DHL India. DHL India further pays the Freight to the carrier company. DHL AE invoices and collects from the consignee the DC. On a perusal of the aforesaid transactions carried out by the assessee in the course of its international logistic transactions, it can safely be gathered that the Origin charges ( OC ) in case of outbound shipments and Destination charges ( DC ) in case of inbound shipments, only form part of the revenue receipts/income of the assessee. (ii). As observed by the TPO, the main component of the income of the assessee is on account of differential freight elem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. As observed by us hereinabove, the costs pertaining to services obtained by the assessee from third parties viz. shippers/airliners, clearing and forwarding agents, transport service provider etc. neither involved any service element of the assessee nor the assessee had carried any risk or employed any of its assets with respect to the same. In our considered view, the net margin realised by the assessee pursuant to its international transactions with its AE s are to be determined only with reference to the cost incurred directly by the assessee itself and its prof it margin cannot be imputed on the basis of the cost incurred by the third party or unrelated parties. We are of the considered view that the payment made by the assessee to the third party for and on behalf of the AE which had thereafter been reimbursed by the AE, cannot be included in the total costs of the assessee for the purpose of determining its prof it margin. In fact, we find that Rule 10B(1)(e) does not enable consideration or imputation of cost incurred by third parties or unrelated enterprises to compute the assesse s net prof it margin for application of TNMM. Rule 10B(1)(e) provides that the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be concluded that the assessee while providing logistics support services in air business had merely acted as an agent of the airlines. A perusal of the terms and conditions of Cargo agency agreements which the assessee had entered into with various airline carriers which were members of IATA, reveals that the assessee was to act as an agent for the various member carriers. [(Page 804) of the assesse s Paper book (for short APB )]. As per the agreement , the assessee was vested with a limited authority to represent various member carriers while selling the air cargo transportation services to the customers and was bound to adhere to the various terms and conditions imposed by the member carriers.(Page 805 of APB ) In sum and substance, the assessee at all times was governed by the carriers. Also, as per the terms of the agreement the assessee was bound to represent itself as an agent in all its communications viz. letterheads, telephone listings, office signs etc. with the customers, and was specifically prohibited from representing or projecting itself as a Principal (Page 806 of APB ). Further, the agreement also provided for indemnification of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO, the element of freight could be considered as a pass through expense only if no prof it or mark up is obtained on freight. However, as observed by the TPO, the case of the present assessee would not fall in the said category as the handling charges which were charged by the assessee varied from customer to customer, as they depended on the mark up which it obtained from its customers based on negotiations. In our considered view, there is substantial force in the claim of the assessee that in order to characterize a particular item as pass through in nature an analysis has to be made with respect to the FAR of the assessee qua such activity. As the assessee does not perform any additional functions with respect to the third party cost, neither employs its assets, nor any risks are assumed for the same, therefore, it can safely be concluded that the assessee does not undertake any activity in relation to the said costs. (vi). As regards the observation of the TPO that PLI of OP/VAE could not be safely applied as the reporting of various companies as regards classification of various expenses is not uniform, we are unable to find favour with the same. In our considered vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of freight shipment and revenue becomes academic and treated as not pressed and dismissed. 12. The Ground of appeal No. 2.4 deals with respect to restrictions of TP adjustments to the extent of value of international transactions. We find the Hon ble Tribunal in assessee s own case for the A.Y 2015-16 has restored the matter to the file of the Assessing officer referred at page 12 Para 5 of the order as under: 5. In Ground No. 2.4, the Ld. AR submitted that TP adjustment, if any, should be restricted only to the extent of value of international transaction undertaken by the assessee. We find that is issue is also covered by para 27 of Tribunal order for Assessment Year 2010-11 wherein following directions have been rendered. 27. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them in context of the issue under consideration. Admittedly, a TP adjustment envisaged in Chapter X is only in respect of the international transactions of the assessee and cannot be extended to the transactions entered into by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine of working and directions restore the disputed issue to the file of the A.O to consider the proportionate adjustments in respect of the income to the extent of international transactions and allow the ground of appeal for statistical purposes. 14. The ground of appeal No. 2.5 is not pressed and is treated as withdrawn and dismissed 15. In respect of ground of appeal No. 2.6 for inclusion of comparables, the Ld. AR submitted that if the comparable the M/s Hindusthan Corgo Ltd is included in determination of the ALP, which covers the revenue aspects of the assessee and inclusion of other comparables is not pressed. The Ld.AR submitted that the TPO/DRP has rejected the comparable as it was not selected in the A.Y 2013-14. The Ld. AR submitted that it is functional comparable and was accepted in A.Y 2011-12 2012-13 by the Income Tax Department. Whereas in the A.Y 2013-14, due to an extraordinary event the comparable was rejected. The Ld AR referred to the observations and submissions before the TPO and DRP on the export earnings and the logistic transport services. We find the comparable was functionally accepted in earlier A.Y 2011-12 2012-13 and for A.Y 2013-14 it was r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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