UPS EXPRESS P LTD. (FORMERLY KNOWN AS UPS JETAIR EXPRESS P. LTD.), MUMBAI V. DY CIT -11(1)(2), MUMBAI

ITA 1221/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1676 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: J
• Assessment Year: 2016-2017
• Appeal Filed On: 20-06-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 142(1); 201; 143(2); 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “J” : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA.No.1221/Mum./2021 Assessment Year 2016-2017 UPS Express Pvt. Ltd. [Formerly known as UPS Jetair Express P. Ltd.] 6-A Shyam Off JVLR Majas Village Jogeshwari East, Mumbai – 400 060 PAN AAACU4322N vs. The DCIT-11(1)(2), Aayakar Bhawan, M.K. Road, Mmbai – 400 020 (Appellant) (Respondent) For Assessee : Shri Siddhesh Chaugule For Revenue : Shri Rakesh Ranjan (CIT-DR) Date of Hearing : 26.07.2022 Date of Pronouncement : 29 .07.2022 ORDER PER ANIKESH BANERJEE, J.M. The instant appeal filed by the Assessee is directed against the Order of the Learned Commissioner Income Tax (Disputes Resolution Panel)-2 [In short “Ld. CIT” & “DRP”] bearing Din & Order No.ITBA/DRP/F/144C(5)/ 2020-21/1031567827(1) vide order dated 17.03.2021 2 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. passed under section 144C(5) of the Income Tax Act, 1961 [In short “Act”] and arises out of the draft assessment order passed by the Learned ACIT, Circle-11(10(2)], Mumbai [in short “A.O.”], vide order dated 13.12.2019 passed under section 143(3)/144C(1) of the I.T. Act, 1961. 2. Briefly stated facts of the case are that the assessee viz., M/s. UPS Jetair Express Private Limited is engaged in the business of International Integrated transportation services. During the under consideration, the assessee company filed it’s return of income on 30.11.2016 declaring total income of Rs.43,08,88,530/- and claimed a refund of Rs.47,46,097/-. Subsequently, the assessee revised it’s return of income on 28.03.2018 declaring total income at Rs.43,08,88,530/- and claimed a refund of Rs.68,05,230/-. The assessee company showed it’s income in the profit and loss from Business and Profession. Further, the assessee along with it’s return of income filed tax audit report in Form No.3CA and 3CD as required under section 44AB of the I.T. Act, 1961. The assessee has also filed the report in Form No.3CEB relating to international 3 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. transactions. The case of the assessee was selected for scrutiny under CASS and accordingly notice dated 04.7.2017 under section 143(2) of the I.T. Act, 1961 was issued to the assessee company, which was duly served upon the assessee company. Further, the A.O. also issued notice under section 142(1) and served upon the assessee along with questionnaire. In response to the said notice, the assessee’s Authorised Representative appeared before the A.O. from time to time and filed their submissions which were duly considered and the A.O. made an addition of Rs.12,93,94,377/- towards transfer pricing adjustment as per the TP Oder under section 92CA(3) of the I.T. Act dated 28.03.2019 and assessed the total income of the assessee company at Rs.56,02,82,910/- [rounded-off]. 2.1. Aggrieved by the draft assessment order of the A.O. the assessee company filed it’s objections before the DRP. The DRP with respect to transfer pricing adjustment of Rs.12,66,16,031/- in respect of payment of technical know- how fees observed as under : 4 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. “4.2.2. This DRP is in agreement with the view taken by the DRP for the A.Y. 2011-12. The DRP for the A.Y. 2011-12 has upheld the determination of the Comparable Uncontrolled Prices [“ CUP” ] of the so called technical know how fees at NIL by the TPO and the consequent recommendation of the entire actual payment made as a transfer pricing adjustment to the returned income. This DRP is also in agreement with the view taken by the DRP for the A.Y. 2011-12 that the entity level TNMM, by itself, would not satisfy the statutory requirement of testing the arm's length nature of the international transaction of the payment of technical knowhow fees, and that to determine whether the assessee would have made such a payment if it was dealing with an unrelated party in similar conditions, it is necessary to look at the basis for the quantification of the payment to be made. There is no change in the facts of the case during the year under reference. Again No effort to establish the cost, if any, to the concerned AE in providing such services to the 5 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. assessee has been made. Therefore, following the judicial precedence of the earlier years the determination of the Comparable Uncontrolled Price (CUP) of the so called technical knowhow fees at nil by the TPO and the consequent recommendation of the entire actual payment made as a transfer pricing adjustment to the returned income is hereby upheld.” 2.2. The DRP accordingly observed that since the material facts and circumstances in the instant case for the A.Y. 2016-17 remain the same, therefore, following the findings of the DRP in earlier years, the objection raised by the assessee company was rejected. 3. The DRP with respect to objection No.2 relating to proposed mark up of 1.74 percent on recovery of expenses from M/s. UPS Worldwide Forwarding Inc., USA. observed as under : “6.3.1. We have considered the submissions of the assessee company on this issue. We find that this issue too was consistently a subject matter of dispute before 6 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. the DRP in earlier AYs. The DRP has vide its direction dated 16.11.2015 for AY 201 1-1 2 in Para No. 6.3 held the following : “ 6.3.1. The DRP has considered the submissions of the assessee company on this issue, the legal position under the I. T. Act 1961 and the international practices, where a charge for an infra-group service is justified, the amount charged should be determined in accordance with the arm's length principle. The arm's length service suppliers would usually expect to recover their costs plus an element of profit. A careful read of paragraphs 7.33 of the OECD guidelines on the issue suggests : For intra-group services, the issue may arise whether it is necessary that the charge be such that it results in a profit for the service provider. In an arm's length transaction, an independent enterprise normally would seek to charge for services in such a way as to 7 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. generate profit, rather than providing' the services merely at cost. 6.3.2. Therefore, the determination of the mark up of 3% for providing services by the assessee to its AE as service compensation / transfer pricing adjustment in respect of international transaction of recovery of expenses by the TPO, is hereby upheld. 6.1.1. Further, in the AY 2012-13, in para 8.3.2 of the directions dated 02.12.2016, the DRP held following: 8.3.3. The facts of the case remain the same during the year under reference. Hence, there is no reason to deviate from the decision of the DRP for the preceding year. 8.3.4. The ALP of the markup determined at 4.84% by the TPO has not been disputed before us. Therefore, the determination of the mark up of 4.84% for providing services by the assessee to its 8 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. AE as service compensation / transfer pricing adjustment in respect of international transaction of recovery of expenses by the TPO, is hereby upheld. 8.3.4. Regarding Assessee's contention that coordination / liaising with airlines is an activity incidental to the Assessee’s export pick up services for which it is already being compensated and the incidental cost, if any are considered under TNMM analysis, we find that it has not been shown before us how the recovery of the expenses are closely linked with various other transactions and cannot be evaluated independently. Secondly, the ALP is determined on a "transaction-by- transaction" basis, using the most appropriate method having regard to functional analysis and availability of the comparable uncontrolled benchmark. If the aggregation of non-closely linked transaction is allowed as sought by the assessee provisions of 92(3) would become otiose, as the 9 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. negative adjustment of one of the international transactions would automatically be set-off against the positive adjustment of another international transaction. Therefore, this plea of the assessee is also rejected. 6.1.2 Material facts remaining same during the year under reference, we find no reason to deviate from the decision of the DRP for the preceding years. The ALP of the mark up determined at 1.31% by the TPO has not been disputed before us. Therefore, the determination of the mark up of 1.31% for providing services by the assessee to its AE as service compensation / transfer pricing adjustment in respect of international transaction of recovery of expenses by the TPO, is hereby upheld. The Ground No.2 of the Objection is rejected accordingly” 3.1. The DRP accordingly noted that since the material facts and circumstances in the instant case for the 10 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. A.Y. 2016-17 remain the same, therefore, following the findings of the DRP in earlier years, the objection raised by the assessee company was rejected. 4. Aggrieved by the order of the DRP, the assessee company filed the present appeal before the Tribunal by raising the following grounds : “The grounds stated here under are independent of, and without prejudice to one another. 1. Ground No. 1 - Transfer Pricing adjustment in respect of Technical know-how fees of INR. 126,616,031 paid by Appellant to its Associated Enterprise ('AE') 1.1. On the facts and circumstances of the case and in law, the learned Transfer Pricing Officer ('TPO') / Assessing Officer ('AO')/ National E-Assessment Centre ('NeAC') erred in holding, and the Hon'ble Dispute Resolution Panel ('DRP') further erred in directing, that the arm's length price in respect of Technical know-how 11 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. fees of INR 12,66,16,031 paid by the Appellant to its AE was 'NIL'. 1.2. On the facts and circumstances of the case and in law, the learned TPO/AO/NeAC erred and the Hon'ble DRP further erred in not accepting the computation of arm's length price carried out by the Appellant which was in accordance with the Transactional Net Margin Method prescribed under Section 92C(1) of the Income-tax Act, 1961 ('the Act') read with Rule 10B(l)(e) of Income-tax Rules,1962 ('the Rules'). 1.3. On the facts and circumstances of the case and in law, the learned TPO/AO/NeAC erred and the Hon'ble DRP further erred by not following any of the methods prescribed under Section 92C(1) of the Act for benchmarking the said international transaction. 1.4. Without prejudice, on the facts and circumstances of the case and in the law, the Hon'ble DRP erred in considering hypothetical comparable uncontrolled price as against TNMM adopted by the 12 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. Appellant for determination of arm's length price wherein the Hon'ble DRP held that the third party will not pay anything for these services. 1.5. On the facts and circumstances of the case and in law, the learned TPO / AO erred and the Hon'ble DRP further erred in making certain observations and findings which are based on incorrect interpretation / understanding and without appreciating the intricacies of the facts of the case. The Appellant prays that the said international transaction be considered to be at arm's length. Ground No. 2 - Incorrect imputation of mark-up of 1.74 percent (INR 27,78,346) on recovery of expenses by the Appellant from its AE On the facts and circumstances of the case and in law, the learned TPO/AO/NeAC erred in holding, and the Hon'ble DRP further erred in directing, that the Appellant provides services to its AE throughout the year and thereby levying a mark-up on recovery of expenses. 13 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. The Appellant prays that the said international transaction be considered to be at arm's length. Ground No. 3 - The transactions with JV entities are inherently at arm's length On the facts and circumstances of the case and in law, the learned TPO / AO / NeAC erred by ignoring the fact that the two independent parties had an equity stake in the Appellant and commercially both the parties would be inclined to ensure that the prices charged for services rendered even by other group companies to the Appellant are not more than arm's length rates. Ground No.4 – Initiation of penalty proceedings The learned AO / NeAC, based on the facts of the case and in law, has erred in initiating penalty proceeding under Section 270(A) of the Act. The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law.” 14 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. 5. During the course of hearing, the Learned Counsel for the Assessee has not pressed ground of appeal No.3. We, therefore, dismiss the same as not pressed. 6. In a nut-shell the remaining grounds to be adjudicated by the Tribunal are – (i) T.P. adjustment in respect of Technical know-how fee of Rs.12,66,16,031/- paid by the assessee company to it’s Associated Enterprise [in short “AE” ] ; (ii) Incorrect computation of mark-up of 1.74 percent [Rs.27,78,346/-] on recovery of expenses by the appellant from it’s AE and (iii) the penalty proceedings initiated by the A.O. under section 270(A )of the I.T. Act, 1961. 7. On grounds of appeal No.1 i.e., T.P. adjustment in respect of Technical know-how fee of Rs.12,66,16,031/- paid by the assessee company to it’s Associated Enterprise, the Learned Counsel for the Assessee strongly relied on the order of the Mumbai Bench of the Tribunal in assessee’s own case for the A.Y. 2013-14 wherein the Tribunal vide order dated 27.09.2019 in ITA.No.6318/Mum/2017 has 15 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. allowed the claim of assessee. He, therefore, prayed that the impugned claim of assessee company be allowed. 8. The Ld. D.R. on the other hand strongly relied on the orders of the lower authorities and submitted that while determining the ALP the authorities below have followed the statutory provisions of law and, therefore, the Ld. D.R. prayed that the orders of the lower authorities be confirmed. 9. We have heard the rival submissions of both the parties on this issue and perused the material available on record. We find that the Coordinate Bench of Mumbai Tribunal in assessee’s own case for the A.Y. 2013-14 in ITA.No.6318/Mum/2017 vide order dated 27.09.2019 allowed the claim of assessee. The relevant observations of the Tribunal are as under : “ 6.1. We find that the Id. TPO having not determined the ALP in conformity with the statutory provision and in the process having failed to demonstrate that ALP shown by the assessee is incorrect, the contentions of the Id. DR to restore the 16 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. issue to the file of the Id. TPO for fresh determination of the ALP, is unacceptable. Respectfully following the aforesaid decision, we hold that there is no provision made in the statute empowering the Id. TPO for determining the ALP of a particular international transaction at Nil without resorting to any methods prescribed. Since, the relief is granted to the assessee on the preliminary issue of the Id. TPO not following the prescribed methods as provided in the statute for determination of ALP, the other arguments advanced by the Id. AR and the Id. DR on merits of ALP adjustment are left open and not adjudicated herein. Accordingly, the ground Nos.1.1 to 1.3 raised by the assessee are allowed.” 9.1. Since the assessee has raised identical ground for this impugned assessment year and seeking for similar relief as was granted by the Coordinate Bench of the Tribunal in assessee’s own case for the A.Y. 2013-14 (supra), we respectfully following the decision of Coordinate Bench of the Tribunal in assessee’s own case for the A.Y. 17 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. 2013-14 and the reasons for decision arrived therein, with similar directions, the grounds of appeal no.1 of the assessee is allowed. 10. Grounds of appeal no.2 of the assessee is with respect to incorrect computation of mark-up of 1.74 percent [Rs.27,78,346/-] on recovery of expenses by the assessee company from it’s AE. 11. Learned Counsel for the Assessee submitted that this issue is also covered by the order of the Mumbai Bench of the Tribunal in assessee’s own case for the A.Y. 2013-14 wherein the Tribunal vide order dated 27.09.2019 in ITA.No.6318/Mum/2017 wherein the Tribunal has allowed the claim of assessee. He, therefore, prayed that the impugned claim of assessee company be allowed. 12. The Ld. D.R. on the other hand strongly relied on the orders of the lower authorities and submitted that the ALP adjustments made by the authorities below be confirmed. 18 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. 13. We have heard the rival submissions of both the parties on this issue and perused the material available on record. We find that the Coordinate Bench of Mumbai Tribunal in assessee’s own case for the A.Y. 2013-14 in ITA.No.6318/Mum/2017 vide order dated 27.09.2019 allowed the claim of assessee. The relevant observations of the Tribunal are as under : “ 9.1. Respectfully following the said decision, we direct the Ld. A.O./TPO to delete the ALP adjustment made on recovery of expenses. The other arguments made by the Ld. AR and DR on inclusion / exclusion of comparables are not adjudicated herein as the relief is granted on preliminary issue. Accordingly, the Ground No.2.1 raised by the assessee is allowed.” 13.1. Since the assessee has raised identical ground for this impugned assessment year and seeking for similar relief as was granted by the Coordinate Bench of the Tribunal in assessee’s own case for the A.Y. 2013-14 19 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. (supra), we respectfully following the decision of Coordinate Bench of the Tribunal in assessee’s own case for the A.Y. 2013-14 and the reasons for decision arrived therein and with similar directions, the grounds of appeal no.2 of the assessee is allowed. 14. The Learned Counsel for the Assessee did not press grounds of appeal No.3. Therefore, the same is dismissed being not pressed. 15. In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court 29.07.2022. Sd/- Sd/- (B.R. BASKARAN) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 29 th July, 2022 VBP/- 20 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai. Copy to 1. The appellant 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT ‘J’ Bench, Mumbai 6. Guard File. // By Order // Assistant Registrar : ITAT Delhi Benches : Mumbai. Sl.No. Particulars Date 1. Date of Dictation 27.07.2022 Sr. P.S. 2. Date of draft order placed before the Hon’ble Member 28.07.2022 Sr. P.S. 3. Date of draft order approved by the Hon’ble Second Member JM/AM 4. Date of receipt of approved draft order Sr. P.S. 5. Date of pronouncement Sr. P.S. 6. Order uploaded on the website of the Tribunal Sr. P.S. 7. Order sent to Bench clerk Sr. P.S. 8. Order signed by the Head Clerk 9. Order Signed by Asst. Registrar 10. Date of Dispatch of order