HAPAG-LLOYD INDIA P LTD, MUMBAI V. ASST CIT 14(2)(1), MUMBAI

ITA 1134/MUM/2015

• Counselvise Citation: 113419914 RSA 2015
• Duration Of Justice: 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: AJAY JAIN MS RADHIKA THAKUR; ASTHA BHATIA
• Keywords: Transfer pricing; International transaction; Application of stay
• Section: 6; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, ( JM) . . , , ./I.T.A. NO1134/MUM/2015 ( / ASSESSMENT YEAR : 2010-11) HAPAG-LLOYD INDIA P LTD., 1501 ONE INDIAULLS CENTRE TOWER 2 WING-B,15 TH FLOOR, JUPITER MILLS, SENAPATI BAPAT RD, ELPHINSTONE, MUMBAI-400013 / VS. ASSTT.COMMISSIONER OF INCOME TAX 14(2)(1), ROOM NO.432, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) STAY.APPLICATION NO.59/MUM/2015 ARISING OUT OF I.T.A. NO.1134/MUM/2015 ( / ASSESSMENT YEAR : 2010-11) HAPAG-LLOYD INDIA P LTD., 1501 ONE INDIAULLS CENTRE TOWER 2 WING-B,15 TH FLOOR, JUPITER MILLS, SENAPATI BAPAT RD, ELPHINSTONE, MUMBAI-400013 / VS. ASSTT.COMMISSIONER OF INCOME TAX 14(2)(1), ROOM NO.432, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN/GIR NO. :AABCH7319B ! / APPELLANT BY S/SHRI AJAY JAIN, MS.RADHIKA THAKUR AND ASTHA BHATIA ' ! /RESPONDENT BY SHRI PAVAN KUMAR BEERLA # $ ' %& / DATE OF HEARING :27.2.2015 '( ' %& /DATE OF PRONOUNCEMENT :27.2.2015 ITA. NO.1134/MUM/2015 & SA 59/MUM/2015 2 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE STAY PETITION HAS BEEN FILED BY THE ASSESSEE S EEKING STAY OF COLLECTION OF OUTSTANDING DEMAND OF 11.46 CRORES AN D IT RELATES TO THE ASSESSMENT YEAR 2010-11. 2. THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBMIT TED THAT THE TAX DEMAND HAS ARISEN MAINLY DUE TO THE TRANSFER PRICIN G ADJUSTMENT MADE BY THE TPO. SHE SUBMITTED THAT THE ASSESSEE HAS BEEN PROVIDING BUSINESS SUPPORT SERVICES TO ITS PARENT COMPANY IN THE FORM OF ASSISTING IN BOOKING OF SHIPMENTS, FREIGHT COLLECTION, TRANSPORTATION OF CONTAINERS ETC. THE LD COUNSEL SUBMITTED THAT THE ASSESSEE HAD ADOPTED TNM M METHOD AS THE MOST APPROPRIATE METHOD FOR BENCH MARKING THE INTER NATIONAL TRANSACTIONS ENTERED WITH ITS AE. HOWEVER, THE TPO NOTICED THAT ANOTHER AE HAD PROVIDED SIMILAR KIND OF SERVICES IN THE EARLIER YE ARS AND ACCORDINGLY ADOPTED CUP METHOD FOR BENCH MARKING THE INTERNATIO NAL TRANSACTIONS AND ACCORDINGLY PROPOSED T.P ADJUSTMENT OF RS.22.36 CRO RES. THE AO, HAS ACCORDINGLY, ADDED THE ABOVE SAID AMOUNT TO THE TOT AL INCOME OF THE ASSESSEE AND THE LD DRP ALSO CONFIRMED THE SAME. T HE LD COUNSEL SUBMITTED THAT THE AO/TPO HAD MADE IDENTICAL T.P AD JUSTMENTS IN AY 2008-09 AND 2009-10 BY ADOPTING INTERNAL CUP RELATI NG TO PAST YEARS. HOWEVER, THE CO-ORDINATE BENCH OF THE TRIBUNAL, IN THE ABOVE SAID TWO YEARS, HAS REJECTED THE ADOPTION OF DATA OF PAST YE ARS FOR BENCH MARKING OF INTERNATIONAL TRANSACTIONS AND ACCORDINGLY RESTO RED THE MATTER TO THE FILE OF THE AO FOR FRESH CONSIDERATION, VIDE ITS ORDER D ATED 14-01-2015 PASSED IN ITA NO.7771/MUM/2012 AND ITA NO.1374/MUM/2014 RE LATING TO AY 2008-09 AND 2009-10 RESPECTIVELY. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE METHOD ADOPTED BY THE TPO FOR MAKING TP ADJUSTM ENTS HAS SINCE ITA. NO.1134/MUM/2015 & SA 59/MUM/2015 3 BEEN REJECTED BY THE TRIBUNAL AND ACCORDINGLY PRAYE D THAT THE ENTIRE DEMAND BE STAYED TILL THE DISPOSAL OF THE APPEAL. 3. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE O RDER PASSED BY LD DRP IS STILL IN FORCE AND ACCORDINGLY OBJECTED TO T HE PRAYER PUT FORTH BY LD A.R. 4. AT THIS JUNCTURE, THE BENCH PROPOSED TO TAKE UP THE APPEAL FOR HEARING, SINCE THE ISSUE CONTESTED BEFORE US HAS SI NCE BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE RELATING TO AY 2008-09 AND 2009-10 (REFERRED SUPRA). BOTH THE PAR TIES AGREED TO THE SAME AND ACCORDINGLY THE APPEAL WAS TAKEN UP FOR HE ARING. 5. WE HEARD THE PARTIES AND PERUSED THE RECORD. AS SUBMITTED BY LD A.R, THE ISSUE RELATING TO T.P ADJUSTMENT WAS CONS IDERED BY THE CO- ORDINATE BENCH IN AY 2008-09 IN THE ORDER REFERRED SUPRA. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER ON THE ABOVE SAID ISSUE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. UPTO 31/12/2006 GESA WAS PROVID ING THE SERVICES FOR BOOKING SHIPMENTS TO HLAG UNDER AGENCY AGREEMENT OF 1993. GESA WAS CHARGING A CERTAIN PERCENTAGE ON THE FREIGHT TURNOVER AS COMMISSION APART FROM FIXED CHARGES @ U S$ 10 PER INLAND BOX. OTHER FEE IS AS PER RBI GUIDELINES AS W ELL A FEE FOR CONSIGNMENT DELIVERY AND BILL OF LADING. 6.1 ON THE OTHER HAND THE ASSESSEE WAS APPOINTED AS AGENT W.E.F. 01/01/2007 AND IS REMUNERATED FOR THE SERVICES REND ERED TO AE AT COST PLUS 10% MARK-UP. THE ASSESSEE WAS ALSO AUTHOR IZED BY THE AE HLAG TO APPOINT GESA AS SUB-AGENT FOR PROVIDING SER VICES FOR CERTAIN TERRITORIES OF INDIA AND THE ENTIRE TERRITO RY OF NEPAL. THE SUB- AGENT IS REMUNERATED ON THE SAME BASIS AS IT USED T O RECEIVE THE COMMISSION UNDER 1993 AGREEMENT. THE ASSESSEE BENCH MARKED ITS INTERNATIONAL TRANSACTIONS BY ADOPTING TNMM AS MOST APPROPRIATE METHOD. THE TPO DID NOT ACCEPT TNMM METHOD AND APPL IED INTERNAL CUP BEING THE PRICE/COMMISSION RECEIVED BY GESA FRO M HLAG UNDER 1993 AGREEMENT, AS WELL AS UNDER SUB-AGENCY AGREEME NT DATED 27/02/2007 W.E.F. 01/01/2007. IT IS PERTINENT TO NO TE THAT AFTER THE ITA. NO.1134/MUM/2015 & SA 59/MUM/2015 4 TERMINATION OF AGREEMENT BETWEEN HLAG AND GESA W.E. F. 31/12/2006, GESA WAS NOT PROVIDING SERVICES TO HLAG , BUT UNDER THE SUB AGENCY AGREEMENT, THE SERVICES ARE BEING PR OVIDED TO THE ASSESSEE. THE QUESTION ARISES WHETHER THE PRICE CHA RGED FOR SERVICES BY GESA TO HLAG UPTO 31.12.2006 CAN BE CONSIDERED A S INTERNAL CUP FOR THE PURPOSE OF DETERMINATION OF ALP FOR THE SERVICES PROVIDED BY THE ASSESSEE TO AE DURING THE FY 2007-0 8 ONWARDS. THE TPO SUPPORTED HIS ACTION BY REFERRING RULE 10B(4) A ND TOOK THE OLD PRICE TO COMPARE WITH THE CURRENT YEARS PRICE. IT A PPEARS THAT THE TPO MISUNDERSTOOD THE PROVISO TO RULE 10B(4) OF THE INCOME TAX RULES. IN ORDINARY SITUATION ONLY CURRENT YEAR/CONT EMPORANEOUS DATA CAN BE USED FOR COMPARING UNCONTROLLED PRICE WITH T HE CONTROLLED PRICE. ONLY IN THE CASE OF EXCEPTIONAL CIRCUMSTANCE S, THE DATA RELATING TO EARLIER YEARS BUT NOT MORE THAN TWO YEA RS PRIOR TO THE CURRENT YEAR, CAN BE USED, IF, SUCH DATA REVEALS FA CTS WHICH CAN HAVE AN INFLUENCE ON THE DETERMINATION OF ARMS- LENGTH-P RICE IN RELATION TO THE INTERNATIONAL TRANSACTION. THEREFORE, THE TWO Y EARS PRIOR DATA CAN BE USED ALONG WITH THE CURRENT YEAR DATA. THE SITUA TION UNDER WHICH THE OLDER DATA CAN BE USED IS ILLUSTRATED UNDER PRO VISO TO RULE 10D(4) AS UNDER :- ' 10D(4) THE INFORMATION AND DOCUMENTS SPECIFIED UN DER SUB- RULE (1) AND (2), SHOULD, AS FAR AS POSSIBLE, BE CONTEMPORANEOUS AND SHOULD EXIST LATEST BY THE SPEC IFIED DATE REFERRED TO IN CLAUSE (IV) OF SECTION 92F: PROVIDED THAT WHERE AN INTERNATIONAL TRANSACTION CONTINUE TO HAVE EFFEC T OVER MORE THAN ONE PREVIOUS YEAR, FRESH DOCUMENTATION NEED NO T BE MAINTAINED SEPARATELY IN RESPECT OF EACH PREVIOUS Y EAR, UNLESS THERE IS ANY SIGNIFICANT CHANGE IN THE NATURE OF TE RMS OF THE INTERNATIONAL TRANSACTION, IN THE ASSUMPTIONS MADE, OR IN ANY OTHER FACTOR WHICH COULD INFLUENCE THE TRANSFER PRI CE, AND IN THE CASE OF SUCH SIGNIFICANT CHANGE, FRESH DOCUMENT ATION AS MAY BE NECESSARY UNDER SUB-RULES (1) AND (2) SHALL BE MAINTAINED BRING OUT THE IMPACT OF THE CHANGE ON TH E PRICING OF THE INTERNATIONAL TRANSACTION.' 6.1.1 THEREFORE, THE USE OF EARLIER DATA IS AN EXCE PTION AND CANNOT BE APPLIED IN EXCLUSION OF CURRENT YEAR DATA. IN OT HER WORDS, IN THE CASE OF EXISTENCE OF EXCEPTIONAL CIRCUMSTANCES THE PRIOR TWO YEARS DATA ALONG WITH CURRENT YEAR DATA CAN BE USED. ONCE THE GESA CEASES TO BE AGENT OF HLAG W.E.F. 31.12.2006, THEN IN THE ABSENCE OF CURRENT/CONTEMPORARY DATA / UNCONTROLLED PRICE, THE PRICE OF PRIOR YEAR CANNOT BE CONSIDERED FOR DETERMINATION OF ALP IN RELATION TO INTERNATIONAL TRANSACTION ENTERED IN CURRENT YEAR. ITA. NO.1134/MUM/2015 & SA 59/MUM/2015 5 6.2 THE ANOTHER ASPECT OF CONSIDERING THE SAID PRIC E BETWEEN GESA AND ASSESSEE AS INTERNAL CUP IS THAT IT DOES NOT SA TISFY THE BASIC INGREDIENT OF A TRANSACTION BETWEEN AN UNRELATED PA RTY AND ASSOCIATE ENTERPRISE OF THE ASSESSEE IN THE PARITY OF THE SER VICES PROVIDED BY THE ASSESSEE TO THE AE. UNITED NATIONS PRACTICAL MA NUAL ON TRANSFER PRICING FOR DEVELOPING COUNTRIES HAS DISCUSSED THE COMPARABLE UNCONTROLLED PRICE (CUP) IN PARA-6.2.1.1 AS UNDER : - '6.2.1.1 THE COMPARABLE UNCONTROLLED PRICE (CUP) ME THOD COMPARES THE PRICE CHARGED FOR PROPERTY OR SERVICES TRANSFERRED IN A CONTROLLED TRANSACTION TO THE PRIC E CHARGED FOR PROPERTY OR SERVICES TRANSFERRED IN A COMPARABLE UN CONTROLLED TRANSACTION IN COMPARABLE CIRCUMSTANCES. THE CUP ME THOD MAY ALSO SOMETIMES BE USED TO DETERMINE THE ARM'S L ENGTH ROYALTY FOR THE USE OF AN INTANGIBLE ASSET. CUPS MA Y BE BASED ON EITHER 'INTERNAL' COMPARABLE TRANSACTIONS OR ON 'EXTERNAL' COMPARABLE TRANSACTIONS. FIGURE 6.1 BELOW EXPLAINS THIS DISTINCTION IN THE CONTEXT OF A PARTICULAR CASE STU DY. FIGURE 6.1 COMPARABLE UNCONTROLLED PRICE METHOD 6.2.1 IN THE CASE OF THE ASSESSEE, GESA DOES NOT PR OVIDE SERVICES TO HLAG . THEREFORE, IT CANNOT BE CONSIDERED AS INTERN AL CUP. ITA. NO.1134/MUM/2015 & SA 59/MUM/2015 6 MOREOVER, THE ASSESSEE IS PROVIDING THE SERVICES TO THE AE AND RECEIVING THE REMUNERATION AND IN TURN GETTING PART OF THE JOB DONE THROUGH SUB AGENT GESA AND REMUNERATING IT BY PAYIN G THE COMMISSION AS PER SUB AGENCY AGREEMENT. OUT OF THE TOTAL SERVICES PROVIDED BY THE ASSESSEE A PART IS PERFORMED THROUG H SUB-AGENT AND THE REMAINING IS PERFORMED BY THE ASSESSEE ITSELF. IT IS LIKE EXPORT OF GOODS PARTLY MANUFACTURED BY THE ASSESSEE AND PARTL Y PURCHASED FROM THIRD PARTY. HOWEVER, PURCHASE PRICE OF THE GO ODS EXPORTED CANNOT BE APPLIED AS CUP FOR SALE PRICE CHARGED TO THE AE. ACCORDINGLY CONSIDERING THE PRICE RECEIVED BY GESA AS CUP IS CONTRARY TO THE TRANSFER PRICING REGULATION. WE DO NOT RULE OUT THE CUP AS MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP OF INTERNATIONAL TRANSACTION IN QUESTION. HOWEVER, THE COMPARABLE UNCONTROLLED PRICE MUST BE A PROPER UNCONTROLLED PR ICE IN COMPLIANCE OF PROVISIONS OF TRANSFER PRICING. 6.2.2 THERE IS ONE MORE FALLACY IN THE TPO'S ORDER REGARDING BIFURCATING THE INTERNATIONAL TRANSACTIONS INTO TWO SEGMENTS FOR DETERMINING THE ALP. THE TPO ACCEPTED THE PRICE CHA RGED BY THE ASSESSEE IN RESPECT OF SERVICES PROVIDED THROUGH SU B- AGENCY, BUT WHILE COMPUTING THE ALP IT HAD IGNORED THE CUP AND TOOK THE PRICE CHARGED BY THE ASSESSEE AS ALP. FURTHER, THE SERVIC ES PROVIDED BY THE ASSESSEE ON ITS OWN WERE COMPARED WITH CUP. THE REFORE, TWO SEPARATE ALP WERE DETERMINED BY THE TPO FOR THE SAM E SERVICE PROVIDED BY THE ASSESSEE TO AE. EVEN IF THE CUP IS ADOPTED AS MOST APPROPRIATE METHOD ALP CANNOT BE MORE THAN PRICE RE CEIVED BY GESA. WHEREAS THE TPO HAS TAKEN INTO CONSIDERATION THE PRICE CHARGED BY THE ASSESSEE WITH 10% MARK-UP. HENCE, TH E COMPUTATION OF ALP IS OTHERWISE NOT BASED ON CORREC T UNCONTROLLED PRICE. 6.2.3 WE MAY CLARIFY THAT THE INTERNATIONAL TRANSAC TION IN QUESTION SHOULD BE CONSIDERED AS ONE AND PRICE RECEIVED BY T HE ASSESSEE IN TOTAL HAS TO BE COMPARED WITH THE ALP. THE ASSESSEE RECEIVED THE PRICE FOR PROVIDING THE SERVICE AS PER THE AGENCY A GREEMENT. THEREFORE, THE SERVICE PROVIDED BY THE ASSESSEE TO THE AE ARE CLOSELY INTERLINKED AND PRICE OF ONE PART IS DEPEND ENT ON THE PRICE OF THE OTHER PART. THEREFORE, THE ENTIRE SERVICES PROV IDED BY THE ASSESSEE HAS TO BE TREATED AS ONE INTERNATIONAL TRA NSACTION FOR THE PURPOSE OF DETERMINING THE ALP. 6.2.4 IN VIEW OF THE ABOVE DISCUSSION, AS WELL AS T HE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THE ISSUE T O THE RECORD OF TPO/AO, TO DECIDE THE SAME AFRESH, BY CONSIDERING I N THE LIGHT OF THE ABOVE OBSERVATION AS WELL AS THE DECISION OF TH IS TRIBUNAL IN THE ITA. NO.1134/MUM/2015 & SA 59/MUM/2015 7 CASE OF UCB INDIA PVT. LTD. VS. ACIT DATED FEBRUARY 06, 2009 (2009- TII-02- ITAT-MUM-TP) ITA NO.428 & 429/MUM/2007 FOR ASSESSMENT YEARS 2002-03 AND 2003- 04(SUPRA). 6. CONSISTENT WITH THE VIEW TAKEN IN AY 2008-09, W E SET ASIDE THE ORDER OF LD DRP ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF TPO/AO WITH THE DIRECTION TO DECIDE THE SAME AFRESH IN THE LIGHT OF DIRECTIONS ISSUED IN THE ABOVE SAID ORDER. 7. IN THE RESULT, THE STAY APPLICATION FILED BY TH E ASSESSEE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27 TH FEB, 2015. '( # ) * + 27 TH FEB, 2015 ( ' ,$ - SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER # $ MUMBAI:27 TH FEB,2015. . . ./ SRL , SR. PS !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. # /% ( ) / THE CIT(A)- CONCERNED 4. # /% / CIT CONCERNED 5. 0, %1 , & 1 , # $ / DR, ITAT, MUMBAI CONCERNED 6. ,2 3$ / GUARD FILE. 4 # / BY ORDER, TRUE COPY 5 (ASSTT. REGISTRAR) & 1 , # $ /ITAT, MUMBAI