DCIT 14(1)(1), MUMBAI V. APL LOGISTICS (INDIA) P. LTD, MUMBAI

ITA 1213/MUM/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9500 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 08-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL DESH
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 13

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) I.T.A.(TP) NO. 1213/MUM/2016 (ASSESSMENT YEAR 2011 -12) DCIT-14(1)(1) ROOM NO. 460 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. APL LOGISTICS (INDIA) PRIVATE LIMITED TRADE PLAZA, 2 ND FLOOR 414 VEER SAVARKAR MARG CADELL ROAD, PRABHADEVI MUMBAI-400 025. PAN : AACCA9694B (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI NIKHIL TIWARI DEPARTMENT BY SHRI SUNIL DESHPANDE DATE OF HEARING 23.06.2021 DATE OF PRONOUNCEMENT 01.07.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL DATED 14.10.2015 FOR ASSESSMENT YE AR 2011-12. 2. GROUNDS OF APPEAL READ AS UNDER :- 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP HAS ERRED IN REJECTING SEAWAYS SHIPPING LTD AS COMPARABLE FOR COMPUTATION OF ARM'S LENGTH PRICE. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE HONBLE DR P ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFIC ER BE RESTORED. 3. AT THE OUTSET IN THIS CASE LEARNED COUNSEL OF TH E ASSESSEE MADE SUBMISSION THAT EVEN AFTER GIVING EFFECT TO THE DRP S ORDER THE ASSESSEE ARMS LENGTH PRICE (ALP) WILL BE WITHIN THE TOLERANCE LIM IT OF 5%. HENCE NO TP ADJUSTMENT WOULD BE REQUIRED. THE DETAILED SUBMISS ION IS AS UNDER :- 1. APLLI IS ENGAGED IN THE BUSINESS OF PROVIDING L OGISTICS SUPPORT SERVICES TO ITS AES IN THE 'CARGO CONSOLIDATION' AND 'FREIGHT FOR WARDING' SEGMENTS. THE APPELLANT HAS BENCHMARKED ITS INTERNATIONAL TRANSACTION IN THE 'CARGO CONSOLIDATION' AND 'FREIGHT FORWARDING' SEGMENT USING TRANSACTION NET MARGIN METHOD BY SELECTING 10 COMPANIES AS COMPARAB LES. SINCE THE M/S. APL LOGISTICS (INDIA) PRIVATE LIMITED 2 ARITHMETIC MEAN OF THE MARGIN EARNED BY COMPARABLE C OMPANIES WORKED OUT TO 3.56% WHICH WAS LOWER THAN THE MARGIN OF 5% ON COST EARNED BY APLLI, IT CONCLUDED ITS INTERNATIONAL TRANSACTIONS TO BE AT AR M'S LENGTH. 2. THE LEARNED TRANSFER PRICING OFFICER ('TPO') REJECTED 1 COMPANY (GORDON WOODROFFE LIMITED) SELECTED BY THE APPELLANT AND ADDI TIONALLY IDENTIFIED 6 COMPANIES AS COMPARABLES TO ARRIVE AT AN ARM'S LENGTH MARGIN OF 10.81% USING A FINAL SET OF 15 COMPANIES AS COMPARABLES. SI NCE, APLLI'S MARGIN (5% ON COST) WAS LOWER THAN THE ARM'S LENGTH MARGIN OF 10. 81%, THE LEARNED TPO PASSED AN ORDER DATED 13 JANUARY 2015 MAKING A TRANS FER PRICING OF RS 3,06,47,938. 3. THE LEARNED ASSESSING OFFICER ('AO') PASSED A DRAFT ORDER DATED 4 MARCH 2015, INLERALIA, MAKING A TRANSFER PRICING ADJUSTMENT OF RS 3,06,47,93 8 IN ACCORDANCE WITH THE TRANSFER PRICING ORDER DATED 13 J ANUARY 2015. 4. SUBSEQUENTLY, THE ASSESSEE, INTERALIA, FILED ITS OBJECTIONS BEFORE THE HON'BLE DRP AGAINST THE ABOVE TRANSFER PRICING ADJUS TMENT. 5. THE HON'BLE DRP PASSED AN ORDER DATED 14 OCTOBE R 2015, SUCCINCTLY REJECTING 2 COMPANIES: SEAWAYS SHIPPING LIMITED (RE FER PARA 4.1.1 OF DRP ORDER) AND EMPIRE INDUSTRIES (REFER PARA 3.2.1 OF D RP ORDER). 6. FURTHER, IN RELATION TO INDIA CEMENTS CAPITAL LIMITED, THE HON'BLE DRP DID NOT PROVIDED A CLEAR FINDING ON THE CERTAINTY OF TH E COMPANY BEING EXCLUDED FROM THE FINAL COMPARABLE SET SINCE THE COMPA NY HAS BEEN ACCEPTED AS A COMPARABLE IN PARA 3.3.1 OF THE DRP ORDER AND S UBSEQUENTLY REJECTED IN PARA 4.2.1 OF THE DRP ORDER. IN THIS CONNECTION THE APPELLANT HAD FILED A LETTER DATED 08 JANUARY 2016 SEEKING CLARIFICATIONS FROM THE DRP OF EXCLUSION OF INDIA CEMENTS CAPITAL LTD. FROM THE FINAL COMPARABLE SET. 7. THEREAFTER, THE HON'BLE DRP VIDE ORDER DATED 18 FE BRUARY 2016 CLARIFIED THAT INDIA CEMENT BE CONSIDERED AS A COMPAR ABLE AND THE MARGIN OF THE COMPANY BE TAKEN AT 19.26% ON COST IN THE FINAL COM PARABLE SET. 8. BASED ON THE ABOVE DIRECTIONS OF THE HON'BLE DRP , THE LEARNED TPO DETERMINED THE ARM'S LENGTH MARGIN OF THE FINAL COMPAR ABLE COMPANIES AT 8.96% USING THE FOLLOWING COMPANIES AS COMPARABLES. SI. NO. NAME OF THE COMPANY AS PER TP STUDY AS PER TP ORDER AS PER DRP DIRECTIONS 1 GATI LTD 10.05% 10.05% 10.05% 2 GORDON WOODROFFE LOGISTICS LTD - 2.47% NC NC 3 SEAWAYS SHIPPING LIMITED -1.95% 23.10% REJECTED 4 CHARTERED LOGISTICS LIMITED 9.53% 9.53% 9.53% 5 COASTAL ROADWAYS LIMITED 1.35% 1.35% 1.35% 6 DELHI ASSAM ROADWAYS CORPN. LTD 3.96% 3.96% 3.96% 7 PATEL INTEGRATED LOGISTICS LIMITED 2.46% 2.46% 2.46% M/S. APL LOGISTICS (INDIA) PRIVATE LIMITED 3 8 TRANSPORT CORPORATION OF INDIA LTD 5.56% 5.56% 5.56% 9 HINDUSTAN CARGO LTD 4.48% 4.48% 4.48% 10 SICAL LOGISTICS LIMITED 2.67% 2.67% 2.67% 11 EMPIRE INDUSTRIES - 22.63% REJECTED 12 HSCC (INDIA) LTD - 16.99% 16.99% 13 HCCA BUSINESS SERVICES PVT LTD - 13.99% 13.99% 14 ICRA MANAGEMENT CONSULTING SERVICES LTD - 15.90% 15.90% 15 INDIA CEMENT CAPITAL LIMITED - 19.26% 19.26% 16 SPECTRUM BUSINESS SOLUTIONS LTD - 10.25% 10.25% ARITHMETIC MEAN 3.56% 10.81% 8.96% 9. SINCE, THE ARM'S LENGTH MARGIN OF 8.96% (AS DETE RMINED BY THE LEARNED TPO ABOVE) WAS WITHIN THE +1-5% RANGE (UPPER RANGE BEING 10.25%) AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT, THE LEARNED TPO DELETED THE ENTIRE TRANSFER PRICING ADJUSTMENT OF RS 3,06,47,938. COPY OF THE LETTER FORWARDED BY THE LEARNED TPO TO THE LEARNED AO DIRECTI NG THAT THE TRANSFER PRICING ADJUSTMENT IS REDUCED TO RS NIL IS ATTACHED AS ANNEXURE 1. 10. HOWEVER, THE FINAL ASSESSMENT ORDER INCORPORATING THE DIRECTIONS OF THE LEARNED TPO GIVING EFFECT TO THE DRP ORDER HAS NOT Y ET BEEN RECEIVED BY THE APPELLANT. ACCORDINGLY, WE REQUEST YOUR HONOUR'S TO DIRECT THE LEARNED AO TO PASS THE FINAL ASSESSMENT ORDER INCORPORATING TH E DIRECTIONS OF THE HON'BLE DRP DATED 18 FEBRUARY 2016. 11. FURTHER, IT IS SUBMITTED THAT THE REVENUE DEPARTMENT HAS FILED AN APPEAL BEFORE THE HON'BLE ITAT (IN ITAT NO. 1231/MU M/2016) AGAINST THE DIRECTIONS OF THE HON'BLE DRP TO REJECT SEAWAYS SHIPPI NG LIMITED ('SEAWAYS SHIPPING') AS A COMPARABLE. 12. IN THIS CONNECTION, WITHOUT PREJUDICE TO OUR SUBM ISSIONS AGAINST THE RE-INSTATEMENT OF SEAWAYS SHIPPING AS A COMPARABLE, IT IS SUBMITTED THAT EVEN IF THE DEPARTMENT SUCCEEDS ON THE ABOVE GROUND A ND SEAWAYS IS REINSTATED THEN TOO APLLI'S MARGIN MEETS THE ARM'S LENGTH TEST. 13. THE ARM'S LENGTH MARGIN OF THE FINAL COMPARA BLE SET AFTER INCLUSION OF SEAWAYS SHIPPING AS A COMPARABLE IS 9.97% USING THE FOLLOWING COMPANIES AS COMPARABLES: SI. NO. NAME OF THE COMPANY AS PER TP STUDY AS PER TP ORDER AS PER DRP DIRECTIONS AS PER DEPARTMENT APPEAL 1 GATI LTD 10.05% 10.05% 10.05% 10.05% 2 GORDON WOODROFFE LOGISTICS LTD -2.47% NC NC NC 3 SEAWAYS SHIPPING LIMITED -1.95% 23.10% REJECTED 23.10% 4 CHARTERED LOGISTICS LIMITED 9.53% 9.53% 9.53% 9.53% M/S. APL LOGISTICS (INDIA) PRIVATE LIMITED 4 5 COASTAL ROADWAYS LIMITED 1.35% 1.35% 1.35% 1.35% 6 DELHI ASSAM ROADWAYS CORPN. LTD 3.96% 3.96% 3.96% 3.96% 7 PATEL INTEGRATED LOGISTICS LIMITED 2.46% 2.46% 2.46% 2.46% 8 TRANSPORT CORPORATION OF INDIA LTD 5.56% 5.56% 5.56% 5.56% 9 HINDUSTAN CARGO LTD 4.48% 4.48% 4.48% 4.48% 10 SICAL LOGISTICS LIMITED 2.67% 2.67% 2.67% 2.67% 11 EMPIRE INDUSTRIES - 22.63% REJECTED REJECTED 12 HSCC (INDIA) LTD - 16.99% 16.99% 16.99% 13 HCCA BUSINESS SERVICES PVT LTD - 13.99% 13.99% 13.99% 14 ICRA MANAGEMENT CONSULTING SERVICES LTD - 15.90% 15.90% 15.90% 15 INDIA CEMENT CAPITAL LIMITED - 19.26% 19.26% 19.26% 16 SPECTRUM BUSINESS SOLUTIONS LTD - 10.25% 10.25% 10.25% ARITHMETIC MEAN 3.56% 10.81% 8.96% 9.97% UPPER RANGE 10.25% 10.25% 10.25% 10.25% 14. IT IS SUBMITTED THAT APLLI HAS EARNED A MARGIN OF 5% ON COST AND THAT THE ARM'S LENGTH MARGIN OF 9.97% (AFTER REINSTATING SE AWAYS SHIPPING) FALLS WITHIN THE +/-5% RANGE PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT (UPPER RANGE BEING 10.25%). THUS, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT MEETS THE ARM'S LENGTH TEST. 15. THEREFORE, IT HUMBLY SUBMITTED THAT THE DEPART MENT APPEAL IS ACADEMIC IN NATURE AND SHOULD BE DISMISSED. 4. WE FURTHER NOTE THAT IN A SUBMISSION BY THE ASSE SSEE, THE REVENUE HAS ACCEPTED THAT THE ASSESSEE HAS EARNED A MARGIN OF 5% ON COST AND THE ARM'S LENGTH MARGIN O: 8.96% FALLS WITHIN THE +/-5% RANGE AS PROVIDED UNDER PROVISO TO SECTION 92C(2J OF THE ACT. HENCE, THE ADJUSTMENT IN THIS CASE, IS REDUCED TO NIL. THAT THE EFFECT TO DRP'S ORDER IS PASSED WITH THE PRIOR APPROVAL OF THE ADD'. COMMISSIONER OF INCOME-TAX (TP)-L(L), MUMBAI CONTAINED IN THE LETTER BEARING F.NO. ADDL.CIT/TP-1(1)/APPROVAL/2017-18 DA TED 03.05.2017. 5. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO ACCEPTE D THAT EVEN AFTER GIVING EFFECT TO THE DRP ORDER NO TP ADJUSTMENT IS REQUIRED. AS SUCH WE ACCEPT M/S. APL LOGISTICS (INDIA) PRIVATE LIMITED 5 THE ASSESSEES PLEA THAT THIS APPEAL BY THE REVENUE IS INFRUCTUOUS. HENCE, THE REVENUE APPEAL IS DISMISSED AS INFRUCTUOUS. PRONOUNCED IN THE OPEN COURT ON 1.7.2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; DATED : 01/07/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI