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TMI Blog2022 (8) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Nine Hundred and Fifty only) under the provisions of Chapter X of the Income-tax Act, 1961 ("the Act") and the said additions being unjustified are wholly liable to be deleted." 2. Non-consideration of benchmarking analysis conducted by the Appellant On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding / confirming the action of the TPO of disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') and the various submissions made by the Appellant, without assigning any reason in contravention to the provisions of section 92C(3) of the Act. 3. No search strategy carried out/ conducted by the learned TPO On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding / confirming the action of the TPO of arbitrary selection of comparables, using non-contemporaneous data without conducting an independent search, bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues arising in grounds no. 2 to 4, raised in assessee's appeal, is pertaining to transfer pricing adjustment qua the comparables. 4. The brief facts of the case, as emanating from the record, are: For the year under consideration, assessee filed its return of income on 29/09/2008, declaring loss of Rs. 2,73,70,141. The assessee is an Indian subsidiary of M/s OOCL Logistics (Singapore) Pte. Ltd. The assessee is engaged in 'provision of logistics services' to its associated enterprises and also to non-associated enterprises. During the year, assessee entered into following international transactions with OOCL group entities ('Associated Enterprises'): Sl. No. Nature of International Transaction Amount (in INR) 1. Provision of logistics services 14,45,20,802 2. Receipt of logistics services 87,15,092 3. Corporate allocation of expenses 89,72,834 5. The assessee is engaged in the provision of logistics services in relation to movement of goods within India. In relation to logistics services involving cross-border movement of goods, the assessee received the logistics services from the group entity in respective countries. In relation to corporate allocation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistics, so that they can concentrate completely on their core area of competence like selling or manufacturing whichever the case may be. The OC may assist its clients in packing, sampling and making the products ready for shipment. * Transportation to the exportation point Upon instructions of the client, the OC hires the services of a third party asset provider and arranges the transportation of the shipment from the client's facilities to the point of the shipment, an airport or seaport whichever the case may. It is the responsibility of the OC to evaluate the performance and reliability of the third party service provider and ensure that the shipment is handled carefully and efficiently. * Custom clearance and documentation The OC assists the client in customs related formalities and documentation so that the shipment is cleared by the authorities without any complications and is ready for transport. The OC needs to have an in-depth understanding of origin country rules and procedures, in order to add value to the customer. * Cargo consolidation and shipment of cargo Finally, the OC co-ordinates the handling of the cargo with the international transport company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for ensuring that the service provider is efficient and reliable and that the goods are not damaged during transit * Inventory management and control The different offices offer inventory management and warehousing services to their customers under an integrated logistics management package to client." 7. The Assessing Officer ('AO') made reference Transfer Pricing Officer ('TPO') for determination of ALP of the aforesaid international transaction. During the transfer pricing assessment proceedings, while analysing the comparables selected by the assessee the filters such as, related party transaction of less than 25%, the rejection of continuous loss making companies, functional similarity, data availability for the current year etc. were applied. During the transfer pricing assessment proceedings, the assessee was asked to update the PLI based on figures of financial year 2007-08. Applying the revised PLI as Operating Profit / Total Cost, the assessee arrived at revised arithmetic mean margin of comparables of 5.30%, whereas assessee's PLI is 1.20%. The TPO rejected 5 out of 8 comparables selected by the assessee and proposed 3 more comparables for benchmarking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er TNMM only broad compatibility of the comparable needs to be seen and therefore, this company is functionally comparable to the assessee. In proceedings before the learned DRP, assessee's objection against selection of this company was rejected vide directions issued under section 144C(5) of the Act. Being aggrieved, the assessee is in appeal before us. 11. During the course of hearing, learned AR submitted that Balmer Lawrie and Company Ltd is multifunctional, multiproduct and multi-location company engaged in both manufacturing and services and therefore, is functionally not comparable to the assessee, as it is into diversified business. The learned AR also submitted that segmental profitability has un-allocable expenses and income, which are not allocated to the logistics infrastructure and services segment. On the other hand, learned DR by vehemently relying upon the orders passed by the lower authorities submitted that the company is broadly similar to the assessee and under TNMM broad similarity is to be seen. The learned DR also placed reliance upon the decision of coordinate bench of Tribunal in ACIT vs United Shippers Ltd., In ITA No. 3036/Mum/2012 and 2986/Mum/2012, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able revenue' and 'un-allocable expenditure' the profit margin of relevant segment cannot be correctly computed. The relevant findings of the coordinate bench of the Tribunal, in aforesaid decision, are as under:- "10. We have heard both the sides and perused the relevant material on record. Page 764 onwards of the paper book is a copy of the Annual report of Balmer Lawrie & Co. Ltd. Page 804 is a copy of its Profit & Loss Account, which shows revenue from sale of Manufactured goods, Trading goods, Turkey projects and Services. The Director's report divulges that this company has several units, such as, Industrial packaging. Grease and lubricants, Logistics services, Project and engineering consultancy. Travel and tours, Container freight station. It is axiomatic that this company, on entity level, cannot be considered as comparable with the assessee company. The TPO has considered 'Logistics services' segment of this company for comparing it with the assessee. In our considered opinion, even the segment of this company cannot be considered as comparable for the reason that apart from separate segment-wise revenues and costs available in the Annual report, there is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the basis that it has shareholding of government of India was rejected by the coordinate bench of the Tribunal. However, in the present case, Balmer Lawrie and Company Ltd has been found to be functionally non-comparable to the assessee in addition to presence of 'un-allocable revenue' and 'un-allocable expenditure' in the segmental profitability of the company. Therefore, in view of the above, the TPO/AO is directed to exclude Balmer Lawrie and Company Ltd as comparable for benchmarking the international transaction of 'provision of freight services'. (ii) South India Corporation Ltd. 16. The next comparable under dispute is South India Corporation Ltd for the purpose of benchmarking of international transaction pertaining to 'provision of logistics services'. South India Corporation Ltd (clearing and forwarding segments) was selected as comparable by the TPO vide order passed under section 92CA (3) of the Act. In proceedings before the learned DRP, assessee's objection against selection of this company was rejected vide directions issued under section 144C (5) of the Act. Being aggrieved, the assessee is in appeal before us. 17. Having considered the rival submissions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yveli Lignite Corporation Limited for transport of raw lignite has also been extended. Small contracts were awarded to the Company by SAIL. and Vizag Steel Plant for loading of Steel and unloading of limestone respectively at Vizag. Logistics operations have been modernised and the company hopes to achieve better results in the coming years. M/s.Bhatia Coal International Limited who is dealing with Stock and Sales of Steam Coal has given the Stevedoring work to our Company." 18. While, on the other hand, as noted above assessee is engaged in providing logistics services in the nature of pre-shipment packaging and other activities; transportation to the exportation port; custom clearance and documentation; cargo consolidation and shipment of cargo; tracking the shipment and processing the receipt of the same; arranging transshipment of goods as per the instructions; preparing necessary shipment documentation and intimating the consignee; custom clearance/transportation; and inventory management and control. Thus, from the above, it is evident that the functions performed by South India Corporation Ltd, in the segment of clearing and forwarding division, are not comparable to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery 194.57 164.75 - 359.32 44.00 - 14.18 - 58.11 301.14 150.57 Computer and equipment 284.06 55.70 22.32 317.44 161.91 - 38.66 22.02 178.55 138.89 122.15 Furniture and Fixtures 117.42 123.64 - 241.06 18.80 - 10.52 - 29.32 211.74 96.62 Vehicles 1709.87 137.50 24.02 1823.15 203.13 - 264.51 14.20 453.44 1389.71 1506.54 Land 1399.69 2977.73 - 4377.42 - - - - - 4377.42 1399.69 Buildings 1801.57 1938.42 - 3739.99 44.56 - 45.35 - 89.91 3650.08 1757.02 Leasehold Improvement - 96.21 - 96.21 - - 5.31 - 5.31 90.90 - Total 5506.98 5493.95 48.34 10954.59 472.40 - 378.53 38.22 814.71 10139.88 5034.59 Previous Year 3912.82 1906.01 311.85 5506.98 619.16 (345.06) 206.30 8.00 472.40 5034.58 22. We find that the coordinate bench of the Tribunal in DHL Logistics Pvt. Ltd. v/s DCIT, in ITA No. 1030/Mum./2015, vide order dated 20/12/2019, for the assessment year 2010-11, while directing exclusion of Om Logistics Limited for the purpose of benchmarking with the company, which was engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of comparables a company, which had either been included on account of a mistake on facts or is not found to be comparable. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of The Commissioner of Income-tax-7 Vs. M/s Tata Power Solar Systems Ltd. (2017) 245 Taxman 93 (Bom) and Pr. CIT Vs. J.P Morgan India Pvt. Ltd. (ITA No. 912 of 2016, dated 14.01.2019) (Bom). It is in the backdrop of our aforesaid conviction, that we shall deliberate upon the aspect as to how the aforesaid company could not have been feasibly selected as a comparable for determining the arm's length price of its international transactions for the year under consideration. On a perusal of the 'annual report' of the aforesaid company for the year under consideration viz. F. Y 2009-10, we find, that unlike the assessee company it has a significant asset base. For the sake of clarity, the Fixed asset schedule of the aforesaid company for the FY 2009-10 is reproduced as under: SCHEDULE-5 FIXED ASSETS Particulars Land 4,377.42 231.16 - 4,808.58 - - - - 4,608. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O/TPO to exclude the aforesaid company from the final list of comparables for the purpose of benchmarking its international transactions for the year under consideration." 23. As, the assessee is also not an asset owning company, while on the other hand, Om Logistics Limited is having significant asset base including having warehousing facility, therefore, same cannot be considered to be comparable to the assessee. Insofar as the submission of the learned DR that assessee is seeking exclusion of its own comparable, it is pertinent to note that Special Bench of the Tribunal in DCIT vs Quark Systems Private Limited, [2010] 38 SOT 307 (Chd.) (SB) held that there is no estoppel on the taxpayer from pointing out that a particular company has been wrongly taken as a comparable. We further find that the aforesaid decision rendered by Special Bench of the Tribunal has been affirmed by Hon'ble Punjab and Haryana High Court in CIT vs Quark Systems Private Limited, [2011] 244 CTR 542 (P&H). Accordingly, in view of the above, the TPO/AO is directed to exclude Om Logistics Limited as comparable for benchmarking the international transaction of 'provision of freight services'. (iv) Gati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the available data on record. In this regard, following findings of the Hon'ble Delhi High Court in CIT v/s Mckinsey Knowledge Centre India Private Limited, in ITA No. 217 of 2014, judgment dated 07/03/2015, are relevant to note: "14. The Revenue is in appeal before this Court questioning the admissibility of the above mentioned comparables while computing Arm's Length Price regarding the IT Support services after the TPO and AO rejected the above mentioned companies but was later allowed by the CIT (A) and ITAT. While the AO had confirmed the findings of the TPO, the Ld. CIT(A) after considering the Assessee's submissions accepted all the four companies rejected by the TPO. The revenue submits that Fortune Infotech Ltd. was correctly rejected by TPO because the company had different financial year ending on December, 2006, whereas Assessee's financial year ended on March, 2006. There is nothing shown to the court that supports the revenue's argument that the ITAT fell into error in holding that if a comparable is following different financial year then the same cannot be included in the list of comparables selected for benchmarking the international transaction. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istics Limited, forming part of the paperbook, we find that related party transactions is less than 25% and thus the said filter is not applicable. Further, the relevant data for the purpose of comparability with year ending March 2008 is also available, and thus this company cannot be rejected by application of data availability for the current year filter as mentioned by the TPO. We also find that this company has earned net operating margin of 2.16% in the relevant assessment year and therefore, the filter of continuous loss making can also not be applied. Thus, it is evident that Gordon Woodroffe Logistics Limited satisfies all the filters as mentioned by the TPO and upheld by the learned DRP. Therefore, we find no reason to uphold the orders passed by the lower authorities in this regard. Accordingly, TPO/AO is directed to include Gordon Woodroffe Logistics Limited as comparable for benchmarking the international transaction of 'provision of Logistics services'. 31. In view of the above, grounds no. 2 to 4, raised in assessee's appeal pertaining to selection of comparables are allowed for statistical purpose. 32. Grounds no. 1 and 5 are general in nature and therefore, need ..... X X X X Extracts X X X X X X X X Extracts X X X X
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