M/s. S-Net Freight (India) Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1398/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9348 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2004-2005
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASHISH GOEL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.1398/DEL/2016 ASSESSMENT YEAR: 2004-05 M/S S-NET FREIGHT (INDIA) PVT. LTD., A-250, LANE NO. 6, MAHIPALPUR EXTENSION NEW DELHI-110037 PAN-AAFCS3703G VS INCOME TAX OFFICER, WARD- 22(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY SH. ASHISH GOEL, CA DEPARTMENT BY H.K. CHOUDHARY, CIT DR DATE OF HEARING: 04/04/2019 DATE OF PRONOUNCEMENT: 04/04/2019 ORDER PER B. R. R KUMAR AM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER PASSED BY THE ITO 22(1), NEW DELHI GROUNDS OF APPEAL TAKEN BY THE ASSSSEE ARE AS UND ER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER PASSED BY THE LD. ASSESSING OFFICER (AO) IS BAD BOTH IN THE EYE OF LAW AND ON F ACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. AO HAS ERRED BOTH ON FACTS AND IN LAW IN PASSING THE ORDER WITHOUT GIVING ASSESSEE A PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. AO HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING THE ASSESSMENT AT AN INCOME OF RS.47, 98,780/-, AS AGAINST INCOME OF RS.27,76,765/- DECLARED BY THE ASSESSEE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. AO HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS.20,22,015/- ON ACCO UNT OF ADJUSTMENT OF DIFFERENCE IN ARMS LENGTH PRICE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. TPO HAS ERRED BOTH ON FACTS AND 2 IN LAW IN COMPUTING THE ADJUSTMENT ON ACCOUNT OF DI FFERENCE IN ARMS LENGTH PRICE NOT IN CONSONANCE WITH THE DIRECTION OF THE HONBLE ITAT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. TPO HAS ERRED BOTH ON FACTS AND IN LAW IN COMPUTING THE ARMS LENGTH PRICE ON THE B ASIS OF TNMM METHOD, DESPITE THERE BEING A CLEAR DIRECTION OF THE HONBLE ITAT F OR ADOPTING PSM METHOD. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. AO AS WELL AS LD. TPO HAS ERRED BOTH ON FACTS AND IN LAW IN COMPUTING THE ARMS LEN GTH PRICE ON THE BASIS OF TNMM METHOD, DESPITE THE FACT THAT THE PSM METHOD H AS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE COMPANY AND ACCEPTED BY TH E DEPARTMENT IN THE SUBSEQUENT YEARS. 8(I) WITHOUT PREJUDICE TO THE ABOVE, THE LD. TPO H AS ERRED IN TAKING COMPARABLES WITHOUT DOING APPROPRIATE FAR ANALYSIS. (II). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. TPO HAS ERRED BOTH ON FACTS AND IN LAW IN TAKING THOSE ENTITIES AS COMPARABLES WHICH A RE FUNCTIONALLY DISSIMILAR TO THAT OF THE ASSESSEE, WHILE COMPUTING THE ARMS LENGTH PRIC E. 9 (I). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. TPO HAS ERRED BOTH ON FACTS AND IN LAW IN WRONGLY COMPUTING THE OPERATING MARGINS O F THE COMPARABLES. (II). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. TPO HAS ERRED BOTH ON FACTS AND IN LAW IN COMPUTING MARGINS OF THE COMPARABLES BY NOT INCLUDING FOREIGN EXCHANGE FLUCTUATION AS A PART OF OPERATING REVENUE, WHILE C OMPUTING THE MARGINS. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. TPO HAS ERRED ON BOTH FACTS AND IN LAW, IN NOT ALLOWING THE ASSESSEE WITH THE B ENEFIT OF ARMS LENGTH RANGE OF +/- 5%, TO BE GIVEN IN VIEW OF THE PROVISO TO SECTION 9 2C(2) OF THE ACT. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. AO HAS ERRED BOTH ON FACTS AND IN LAW IN CHARGING INTEREST UNDER SECTION 234A, SEC TION 234B, SECTION 234C AND SECTION 234D OF THE ACT. 2. BRIEF FACTS AND HISTORY OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF AIR FREIGHT, OCEAN FREIG HT AND LAND TRANSPORT OR ANY BUSINESS OF FREIGHT CONTRACTORS AND AGENTS, FOR WARDING PACKING HAULING AND TRANSPORT AGENTS AND TO ARRANGE FOR THE TRANSPO RTATION OF GOODS, WARES AND MERCHANDISE OF ALL KINDS. THE ASSESSMENT WAS OR IGINALLY FRAMED U/S 143 (3) VIDE ORDER DATED 28.12.2006 AT RS. 61,52,715/- BY MAKING ADDITION OF RS.43,69,441/- ON THE BASIS OF ALP (ARM LENGTH PRIC E) CALCULATED BY THE TPO. THE ADDITION OF RS.43,69,441/- WAS DELETED BY LD. CIT(A)-XX VIDE HIS ORDER DATED 13.10.2009. THE ORDER OF THE CIT (A) DA TED 13.10.2009 WAS CONTESTED BEFORE THIS TRIBUNAL BY THE DEPARTMENT, WHICH VIDE ITS ORDER DATED 31.12.2013 IN ITA NO. 4670/DEL/2009 RESTORED THE MA TTER BACK TO THE FILE OF AO FOR FRESH ADJUDICATION WITH THE DIRECTIONS TO AL LOW THE ASSESSEE AN OPPORTUNITY TO FILE A FRESH T.P. STUDY WITH COMPARA BLES, IN ACCORDANCE WITH LAW AND THAT THE REVENUE WILL TAKE INTO ACCOUNT THE FRESH TRANSFER PRICING STUDY, FURNISHED BY THE ASSESSEE AND ADJUDICATE THE MATTER DE NOVO. 3. THE TPO ADOPTED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AND 3 DETERMINED THE ARMS LENGTH PRICE AS UNDER: PARTICULARS AMOUNT OPERATING REVENUE 9,47,87,792 ARMS LENGTH MARGIN 5.53% ARMS LENGTH MARGIN (PRICE) 52,41,765 ARMS LENGTH OPERATING COST 8,95,46,027 COST SHOWN BY ASSESSEE 9,33,32,079 DIFFERENCE 37,86,085 INTERNATIONAL TRANSACTIONS 4,43,99,085 5% OF INTERNATIONAL TRANSACTIONS 22,19,954 PROPORTION OF INTERNATIONAL TRANSACTIONS TO TOTAL COST (RS. 44399085/RS. 93332079)*100 47.57% PROPORTIONATE ADJUSTMENT 18,01,066 4. COMPLYING WITH THE DIRECTIONS OF HONBLE DRP, THE J CIT, TPO-3(1), NEW DELHI VIDE LETTER F.NO. JCIT/TPO-3(1)/2015-16/4 30 DATED 08.12.2015 HAS SENT A REPORT WHEREIN THE ADJUSTMENT IS INCREAS ED FROM RS. 18,01,066/- TO RS. 20,22,015/-. THE RELEVANT EXTRACT OF THE SAI D REPORT IS GIVEN BELOW:- IN VIEW OF THE DIRECTIONS ISSUED BY THE DRP, THE N ET OPERATING MARGINS OF THE COMPANIES FOR THE F.Y. 2003-04 ARE GIVEN IN THE FOLLOWING TABLE. THE OPERATING PROFIT HAS BEEN COMPUTED IN THE MANNE R SIMILAR TO THE MANNER IN WHICH THE NET OPERATING MARGIN OF THE ASS ESSEE HAS BEEN COMPUTED. S. NO. COMPANY NAME NPM (%) 1. ABC INDIA LTD. 4.86 2. PATEL ON BOARD COURIERS LTD 3.61 3. SOUTH ASIA CORPORATION (SICAL LOGISTICS) 8.10 4. INTER STATE OIL CARRIER LIMITED 7.52 AVERAGE 6.02% THEREFORE, THE ARMS LENGTH OPERATING MARGIN ON SAL ES IS 6.02% 5. ACCORDINGLY, THE ARMS LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION RELATED TO PROVIDING OF FREIGHT FORWARDING SERVICES TO AES IS COMPUTED BY THE TPO IN THE FOLLOWING MANNER:- PARTICULARS AMOUNT OPERATING REVENUE 9,47,87,792 ARMS LENGTH MARGIN 6.02% ARMS LENGTH MARGIN (PRICE) 57,06,225 ARMS LENGTH OPERATING COST 8,90,81,567 4 COST SHOWN BY ASSESSEE 9,33,32,079 DIFFERENCE 42,50,512 INTERNATIONAL TRANSACTIONS 4,43,99,085 5% OF INTERNATIONAL TRANSACTIONS 22, 19,954 PROPORTION OF INTERNATIONAL TRANSACTIONS TO TOTAL COST (RS. 44399085/RS. 93332079)*100 47.57% PROPORTIONATE ADJUSTMENT 20,22,015 6. IN VIEW OF ABOVE ADJUSTMENT AS PER REPORT OF TPO DATED 08.12.2015, RS. 20,22,015/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 7. DURING THE HEARING BEFORE US, THE LD. AR ARGUED THAT THE ADJUSTMENT FALL WITHIN 5% OF HARBOR RANGE OF ALP TAKEN BY THE TPO AND HENCE NO ADJUSTMENT CAN BE MADE. THE LD. CIT DR COULD NOT CO NTROVERT THE COMPUTATION ON FACTS OF THE CASE. 8. CALCULATION OF ARMS LENGTH PRICE TO BE DONE BY TPO WITHIN +/-5% IS AS UNDER: ALP AS PER TPO 89,081,567 105% OF ALP AS PER TPO 93,535,645 95% OF ALP AS PER TPO 84,627,489 COST SHOWN BY ASSESSEE 93,332,079 (WITHIN +/-5% SAFE HARBOUR RANGE OF ALP TAKEN BY TPO 9. SINCE THE CASE FALLS UNDER THE SAFE HARBOR RANGE OF +/-5% AS SHOWN ABOVE, WE HEREBY HOLD THAT NO ADJUSTMENT IS REQUIRE D IN THE CASE OF THE ASSESSEE AND THE ADDITION MADE IS HEREBY DIRECTED T O BE DELETED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND ALL THE GROUNDS ARE TREATED AS DISPOSED OF. ORDER PRONOUNCED IN THE OPEN COURT ON 04.04.2019. SD/- SD/- (AMIT SHUKLA) (B. R. R KUMAR) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED: 04-04-2019. 5 COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE CIT(A) 5) THE DR, I.T.A.T., NEW DELHI BY ORDER ASSISTANT REGISTRAR ITAT, NEW DELHI DATE OF DICTATION 04.04.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 04.04.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER