C.H.Robinson Worldwide Freight India Pvt Ltd., CHENNAI V. DCIT, CHENNAI

CO 63/CHNY/2015

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4045 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 19-06-2015
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Reopening of assessment; Revision of order; Depreciation; Transfer pricing; Difference of opinion; Change of opinion
• Section: 147; 148; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.488, 489 & 490/MDS/2015 & C.O.NO.63/MDS/2015 [IN I.T.A.NO. 488/MDS/2015] / ASSESSMENT YEARS : 2007-08, 2008-09 & 2009-10 THE DY. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE I(2) CHENNAI VS. M/S C.H.ROBINSON WORLDWIDE FREIGHT INDIA PVT. LTD NO.18, LOKESH TOWERS NO.4, 2 ND FLOOR KODAMBAKKAM HIGH ROAD CHENNAI 600 034 [PAN AACCC 9617 L ] (APPELLANT) ( R ESPONDENT /CROSS OBJECTOR ) DEPARTMENT BY : DR. B. NISCHAL, JCIT ASSESSEE BY : SHRI T. BANUSEKAR, CA / DATE OF HEARING : 16 - 03 - 2016 / DATE OF PRONOUNCEMENT : 01 - 0 6 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER ALL THE THREE APPEALS OF THE REVENUE ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, CHENNAI, ALL DATED 28.11.2014 FOR ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-10. THE ASSESSEE HAS ALSO FILED CROSS O BJECTION AGAINST THE ITA NO.488/15 ETC. :- 2 -: ORDER OF THE CIT(A) FOR ASSESSMENT YEAR 2007-08. T HEREFORE, WE HEARD ALL THE APPEALS AND THE CROSS OBJECTION TOGET HER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE COMMON ISSUE ARISES FOR CONSIDERATION IS WITH R EGARD OF DEPRECIATION ON THE NON-COMPETE FEE. 3. DR. B. NISCHAL, LD. DEPARTMENTAL REPRESENTATIVE SUB MITTED THAT THE ASSESSEE CLAIMED DEPRECIATION ON THE NON-C OMPETE FEE. INITIALLY, DEPRECIATION WAS ALLOWED BY THE ASSESSIN G OFFICER. THE ASSESSMENT ORDER WAS ALSO SUBJECTED TO REVISION U/ S 263 OF THE ACT. THE ASSESSING OFFICER SUBSEQUENTLY REOPENED THE ASS ESSMENT ON THE GROUND THAT DEPRECIATION ON THE NON-COMPETE FEE WA S WRONGLY ALLOWED BY HIM. THE CIT(A), HOWEVER, BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN M/S AB MARUTI INDIA PVT. LTD IN I.T.A.N O.1520/MDS/2007 FOR ASSESSMENT YEAR 2001-02 AND ALSO THE JUDGMENT OF TH E MADRAS HIGH COURT IN THE CASE OF PENTASOFT TECHNOLOGIES LTD, 41 TAXMANN.COM 120, ALLOWED THE CLAIM OF THE ASSESSEE. THE CIT(A) HAS ALSO FOUND THAT HE REOPENING OF ASSESSMENT IS INVALID. ACCORDING TO T HE LD. DR, THE ASSESSING OFFICER HAS NOT EXPRESSED ANY OPINION IN THE ORIGINAL ASSESSMENT ORDER, THEREFORE, THE CIT(A) IS NOT JUST IFIED IN SAYING THAT REOPENING OF ASSESSMENT IS DUE TO CHANGE OF OPINION . REFERRING TO THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF PE NTASOFT ITA NO.488/15 ETC. :- 3 -: TECHNOLOGIES LTD(SUPRA), THE LD. DR SUBMITTED THAT THE DEPARTMENT HAS ALREADY FILED SLP BEFORE THE APEX COURT, THEREF ORE, THE CIT(A) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSE E. 4. ON THE CONTRARY, SHRI T. BANUSEKAR, LD. REPRESENTAT IVE FOR THE ASSESSEE SUBMITTED THAT ORIGINALLY, THE ASSESS ING OFFICER ALLOWED THE CLAIM OF THE ASSESSEE TOWARDS DEPRECIATION ON NON-COMPETE FEE. SUBSEQUENTLY, THE CIT IN EXERCISE OF HIS REVISIONAL POWER U/S 263 OF THE ACT EXAMINED THE PAYMENT OF NON-COMPETE FEE AND FOUND THAT DEPRECIATION ON THE NON-COMPETE FEE WAS RIGHTLY ALL OWED BY THE ASSESSING OFFICER. SUBSEQUENTLY, THE ASSESSING OF FICER REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 OF THE ACT ON THE GROUND THAT DEPRECIATION ON NON-COMPETE FEE WAS WRONGLY ALLOWE D. THEREFORE, THE CIT(A) FOUND THAT THE REOPENING OF ASSESSMENT WAS D UE TO CHANGE OF OPINION IN THE LIGHT OF THE JUDGMENT OF APEX COURT IN THE CASE OF KELVINATOR OF INDIA LTD., 320 ITR 561. ON MERIT AL SO THE CIT(A) FOUND THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON NON-COMPETE FEE IN THE LIGHT OF THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF PENTASOFT TECHNOLOGIES LTD (SUPRA). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E ISSUE BEFORE THIS TRIBUNAL IS WHETHER THE ASSESSEE IS ENTITLED FOR D EPRECIATION ON NON- ITA NO.488/15 ETC. :- 4 -: COMPETE FEE. THIS ISSUE WAS EXAMINED BY THIS TRIBU NAL IN THE CASE OF M/S AB MARUTI INDIA PVT. LTD(SUPRA) AND FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON NON-COMPETE FEE. THE MADRAS HIGH COURT HAD AN OCCASION TO EXAMINE THIS ISSUE IN PENTASOFT TECHNOLOGIES LTD.(SUPRA). THE MADRAS HIGH COURT FOUND THAT DEPR ECIATION CAN BE ALLOWED ON NON-COMPETE FEE. FURTHERMORE, IN THE OR IGINAL ASSESSMENT, THE ASSESSING OFFICER HIMSELF ALLOWED THE CLAIM OF THE ASSESSEE. THE ORIGINAL ASSESSMENT WAS SUBJECT MATTER OF REVISION U/S 263 OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER REOPENED THE AS SESSMENT U/S 147 OF THE ACT. NO FRESH MATERIAL WAS AVAILABLE ON REC ORD TO REOPEN THE ASSESSMENT. THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT IN THE ABSENCE OF ANY FRESH MATERIAL ON THE FILE OF THE AS SESSING OFFICER, THE ASSESSMENT CANNOT BE REOPENED AT THE WHIMS AND FANC IES OF THE ASSESSING OFFICER. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. A CCORDINGLY, THE SAME IS CONFIRMED. 6. FOR ASSESSMENT YEAR 2009-10, THE REVENUE HAS RAISED AN ISSUE WITH REGARD TO TRANSFER PRICING. 7. DR. B. NISCHAL, LD. DR SUBMITTED THAT THE ASSESSEE- COMPANY IS ENGAGED IN THE BUSINESS OF FREIGHT FORWARDING AN D ALLIED SERVICES TO ITS ASSOCIATED ENTERPRISES. THE ASSESSING OFFICER REFERRED THE MATTER ITA NO.488/15 ETC. :- 5 -: TO THE TPO TO DETERMINE THE ARMS LENGTH PRICE. TH E TPO REJECTED THE TRANSFER PRICING DOCUMENTS PREPARED BY THE ASSESSE E AND RECOMPUTED THE MARGIN OF THE COMPARABLE COMPANIES AT 7.30% INS TEAD OF 1.76% DISCLOSED BY THE ASSESSEE. ACCORDINGLY, THE ASSESS ING OFFICER MADE ADJUSTMENT TO THE EXTENT OF ` 81 LAKHS TO THE TAXABLE INCOME OF THE ASSESSEE. ON APPEAL BY THE ASSESSEE, THE CIT(A) F OUND THAT THE ASSESSEE HAS TAKEN WEIGHTED AVERAGE OF 3.27% OF THE FIVE COMPARABLE COMPANIES. REFERRING TO THE TPOS ORDER, THE CIT(A ) FOUND THAT THE TPO SHOULD NOT HAVE COMPARED M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. FOR COMPARING THE MARGIN OF THE ASSESSEE. TH E CIT(A) FOUND THAT M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. WAS HAVIN G VERY HIGH MARGIN OF 39.32%. THEREFORE, THE CIT(A) DIRECTED T HE ASSESSING OFFICER TO OMIT M/S HYDERABAD MENZIES AIR CARGO PVT . LTD. FROM THE COMPARABLE COMPANIES. ACCORDING TO THE LD. DR, M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. IS ONE OF THE COMPANY W HICH CAN BE FUNCTIONALLY COMPARABLE WITH THE TRANSACTION OF THE ASSESSEE. ACCORDING TO THE LD. DR, THE OTHER COMPANIES SELECT ED BY THE ASSESSEE ALSO PERFORM THE SAME FUNCTION AS THAT OF M/S HYDE RABAD MENZIES AIR CARGO PVT. LTD. THE LD. DR FURTHER SUBMITTED THAT UNDER TNMM, NET PROFIT INDICATORS ARE LESS AFFECTED BY TRANSACTIONA L DIFFERENCES AND MORE TOLERANT TO SOME FUNCTIONAL DIFFERENCES BETWEEN THE CONTROL AND UNCONTROLLED TRANSACTIONS. THEREFORE, THE CIT(A) OU GHT NOT TO HAVE ITA NO.488/15 ETC. :- 6 -: DIRECTED THE ASSESSING OFFICER TO OMIT M/S HYDERABA D MENZIES AIR CARGO PVT. LTD. AS ONE OF THE COMPARABLE COMPANIES . 8. ON THE CONTRARY, SHRI T. BANUSEKAR, LD. REPRESENTAT IVE FOR THE ASSESSEE SUBMITTED THAT THE FUNCTION OF THE A SSESSEE IS PROVIDING FREIGHT FORWARDING AND ALLIED SERVICES. HOWEVER, M/ S HYDERABAD MENZIES AIR CARGO PVT. LTD. IS IN THE BUSINESS OF GROUND HANDLING AGENT FOR CARGO TERMINAL OPERATIONS BY AIRLINES. T HEREFORE, THE ASSESSEE-COMPANY AS WELL AS M/S HYDERABAD MENZIES A IR CARGO PVT. LTD. ARE NOT FUNCTIONALLY SIMILAR, HENCE, IT CANNO T BE COMPARED WITH THE ASSESSEE-COMPANY FOR THE PURPOSE OF DETERMINING ALP. IN RESPECT OF THE OTHER COMPARABLES, THE TPO, IN FACT, AGREED WITH THE ASSESSEE. IN VIEW OF THE FUNCTIONAL DIFFERENCE, THE CIT(A) HA S RIGHTLY DIRECTED THE ASSESSING OFFICER TO OMIT M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. AS ONE OF THE COMPARABLE COMPANIES. THE LD. REPRES ENTATIVE FURTHER SUBMITTED THAT M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. WAS HAVING HIGH MARGIN OF 39.32% AT THE RELEVANT POINT OF TIME . SINCE M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. WAS HAVING H IGH MARGIN WHEN COMPARED TO OTHER COMPARABLE COMPANIES, ACCORDING T O THE LD. REPRESENTATIVE, THE CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO OMIT THE SAME FROM COMPARABLE COMPANIES. ITA NO.488/15 ETC. :- 7 -: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMI TTEDLY, THE ASSESSEE DECLARED THE PROFIT AT 1.76% WHEREAS THE T PO DETERMINED IT AT 7.30% BASED UPON SOME COMPARABLES. MAJORITY OF THE COMPARABLES SELECTED BY THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER. THE DISPUTE IS WITH REGARD TO M/S HYDERAB AD MENZIES AIR CARGO PVT. LTD. IT IS NOT IN DISPUTE THAT M/S HYDE RABAD MENZIES AIR CARGO PVT. LTD. WAS HAVING 39.32% MARGIN AT THE REL EVANT POINT OF TIME. MOREOVER, THE FUNCTIONS OF M/S HYDERABAD MEN ZIES AIR CARGO PVT. LTD. ARE TOTALLY DIFFERENT FROM THAT OF THE A SSESSEE. FOR THE PURPOSE OF DETERMINING ALP, THE FUNCTIONAL SIMILARI TY IS ONE OF THE TESTS TO BE ADOPTED. IT IS NOT IN DISPUTE THAT THE ASSES SEE-COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING FREIGHT FORWAR DING AND ALLIED SERVICES. HOWEVER, M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. IS PROVIDING ONLY GROUND HANDLING AGENT FOR CARGO TERM INAL OPERATIONS BY AIRLINES, THEREFORE, THE FUNCTIONS OF THE ASSESS EE-COMPANY AS THAT OF M/S HYDERABAD MENZIES AIR CARGO PVT. LTD. ARE TO TALLY DIFFERENT AND HENCE, THE SAME CANNOT BE COMPARED AS ONE OF THE CO MPARABLE COMPANIES. MOREOVER, M/S HYDERABAD MENZIES AIR CAR GO PVT. LTD. WAS HAVING HIGH PROFIT OF 39.32%. THEREFORE, EVEN ON THE PROFIT RATIO, IT CANNOT BE COMPARED. IN VIEW OF THE ABOVE DISCUS SION, WE DO NOT ITA NO.488/15 ETC. :- 8 -: FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND ACCORDINGLY, THE SAME IS CONFIRMED. 10. NOW COMING TO THE CROSS OBJECTION FILED BY THE ASS ESSEE FOR ASSESSMENT YEAR 2007-08, IT IS ONLY TO SUPPORT THE ORDER OF THE CIT(A). THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE CAN SUPPORT THE ORDER OF THE CIT(A) WITHOUT FILING THE CROSS OBJECTION. THEREFORE, THE CROSS OBJECTION FILED BY THE ASSESS EE BECOMES INFRUCTUOUS. 11. IN THE RESULT, THE APPEALS OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JUNE, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER / CHENNAI ! / DATED: 1 ST JUNE, 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF