ACIT 15(3), MUMBAI V. DHL DANZAS LEMUIR P. LTD, MUMBAI

ITA 4427/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9291 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 31-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI R.S. SYAL (A.M.) AND SHRI VIVEK VARMA (J.M.) ITA NO. 4427/MUM /2010 ASSESSMENT YEAR : 2004-05 ASSTT. COMMISSIONER OF INCOME- TAX 8(1), R. NO. 260-A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. DHL DANZAS LEMUIR P. LTD., 101/102, PRIME CORPORATE PARK, SAHAR ROAD, ANDHERI (E), MUMBAI 400 059. PAN AABCD 7475N (APPELLANT) (RESPONDENT) REVENUE BY: SHRI AJEET KUMAR JAIN ASSESSEE BY : SHRI P.J. PARDIWALA SHRI MADHUR AGARWAL DATE OF HEARING 06-12-2012 DATE OF PRONOUNCEMENT 12-12-2012 O R D E R PER R.S. SYAL, AM THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 10-03-2010 IN RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE DELETION OF ADDITION OF RS. 19,82,31,349/- MADE BY THE TPO/A.O. IN RESPECT OF ARMS LENGTH PRICE (ALP) DETERMINED BY THE TPO, COMPRISI NG OF TWO PARTS VIZ. ITA NO. 4427/MUM/2010 2 RS. 7.68 CRORES TOWARDS FREIGHT RECEIPTS AND RS. 12 .13 CRORES TOWARDS FREIGHT PAYMENTS. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE A JOINT VENTURE BETWEEN LEMUIR AIR EXPRESS, INDIA (51%) AND DEUTSCH E POST INTERNATIONAL B.V., NETHER LANDS (49%) CARRIED ON T HE BUSINESS AS A LOGISTICS SERVICE PROVIDER OFFERING A COMPREHENSIVE PORTFOLIO OF INTERNATIONAL, DOMESTIC AND SPECIALISED FREIGHT HAN DLING SERVICES. THE ASSESSEE CONDUCTED FIVE TYPES OF INTERNATIONAL TRAN SACTIONS TOTALLING RS. 129.72 CRORES. PRESENTLY WE ARE CONCERNED ONLY WIT H TWO INTERNATIONAL TRANSACTIONS I.E PAYMENT OF FREIGHT EXPENSES TO AES AMOUNTING TO RS. 73.71 CRORES AND RECEIPT OF FREIGHT REVENUE FROM AE S AT RS. 50.14 CORES. THE NUTSHELL OF THE ASSESSEES BUSINESS ACTIVITY IS TO ENTER INTO CONTRACT WITH THIRD PARTIES FOR LIFTING THEIR CARGO FROM SOU RCE TO DESTINATION ABROAD. THE EXECUTION OF THIS JOB INVOLVES LIFTING OF CARGO FROM THE PLACE OF CUSTOMERS IN INDIA, SENDING IT TO THE INDIAN POR T/AIRPORT, SHIPPING OR AIRLIFTING AS THE CASE MAY BE TO THE COUNTRY OF ITS DESTINATION, COLLECTING IT FROM SUCH PORT/AIRPORT OF THE OTHER COUNTRY AND THEN SUPPLYING IT TO THE ULTIMATE BUYER. IN SO FAR AS THE ACTIVITIES IN INDIA ARE CONCERNED, THESE ARE DONE BY THE ASSESSEE AND THE ACTIVITIES A BROAD ARE EXECUTED BY CERTAIN FOREIGN ENTITIES, WITH WHOM THE ASSESSEE HA S ENTERED INTO CONTRACTS FOR THIS PURPOSE. IN THE LIKE MANNER, SU CH FOREIGN ENTITIES ALSO UNDERTAKE SHIPPING/AIRLIFTING OF CARGO FROM THEIR RESPECTIVE COUNTRIES. ITA NO. 4427/MUM/2010 3 THE ACTIVITIES IN INDIA, SIMILAR TO WHICH ARE PERF ORMED BY SUCH FOREIGN ENTITIES IN THEIR COUNTRIES FOR THE BOOKINGS MADE B Y THE ASSESSEE IN INDIA, ARE DONE BY THE ASSESSEE FOR THE BOOKINGS MADE BY SUCH FOREIGN ENTITIES ABROAD. THE TOTAL EXPENSES INCURRED IN INDIA BY THE ASSESSEE AND ABROAD BY THE FOREIGN ENTITIES OR VICE-VERSA WERE COMBINED AND THEN REDUCED FROM THE GROSS RECEIPTS. THE RESIDUAL WAS SHARED IN THE RATIO OF 50:50 BETWEEN THE ENTITY OF ORIGIN COUNTRY AND THE ENTITY OF DESTINATION COUNTRY. THAT IS HOW THE ASSESSEE DISCLOSED THE PAYMENT OF F REIGHT EXPENSES TO ITS AES AT RS. 73.71 CRORES BEING DESTINATION COMPANIES ABROAD AND RECEIPTS FROM ITS AES AT RS. 50.14 CRORES IN THE CAPACITY O F DESTINATION COMPANY IN INDIA. HERE IT IS RELEVANT TO MENTION THAT THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) IN ITS TRANS FER PRICING STUDY AS THE MOST APPROPRIATE METHOD FOR WORKING OUT THE ALP OF THESE INTERNATIONAL TRANSACTIONS. DURING THE COURSE OF PR OCEEDINGS BEFORE THE TPO, THE ASSESSEE FILED A LETTER DTD. 3 RD OCTOBER, 2006 ADVOCATING THE APPLICATION OF COMPARABLE UNCONTROLLED METHOD (CUP) STATING THAT DHL GROUP OF COMPANIES ENTERED INTO AGREEMENTS WITH THI RD PARTY STRATEGIC ALLIANCE IN VARIOUS COUNTRIES WHERE DEUTSCHE POST I NTERNATIONAL PV NETWORK DID NOT EXIST. IT WAS STATED THAT THE TERMS AND CONDITIONS APPLICABLE TO THE COMPANIES WERE THE SAME FOR AGENT S AND THIRD PARTIES AFFILIATES. TWO SAMPLE AGREEMENTS WERE ALSO FILED ALONG WITH SUCH LETTER SHOWING THE GROSS PROFIT SPLIT IN THE RATIO OF 50:5 0 BETWEEN THE GROUP HEAD OFFICE AND THIRD PARTY CONTRACTOR. VARIOUS SUB MISSIONS WERE ITA NO. 4427/MUM/2010 4 ADVANCED IN SUPPORT OF ALLOCATION OF PROFIT IN THE RATIO OF 50:50. THE TPO WAS NOT CONVINCED WITH THE 50:50 SHARING OF THE REV ENUES. HE REJECTED THE ASSESSEES CONTENTION AND PROPOSED THE ADJUSTME NT OF RS. 19.82 CRORES BY APPLYING THE TNMM. 4. IT WAS ARGUED BEFORE THE LD. CIT(A) THAT BOTH ORIGIN COMPANY AND DESTINATION COMPANY OWNED COMPARABLE ASSETS FOR PRO VIDING SIMILAR FUNCTIONS AND BEARING COMPARABLE RISK. IT WAS FURT HER ARGUED THAT THE SHARING OF PROFIT IN EQUAL RATIO WAS PERFECTLY JUST IFIED BECAUSE OF THE SIMILARITY IN THE FUNCTIONAL PROFITS OF BOTH THE AE S. THE LD. CIT(A) GOT CONVINCED WITH THE ASSESSEES SUBMISSION AND DELETE D THE ADDITION. THE REVENUE HAS COME UP IN APPEAL AGAINST SUCH DELETION . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISCUSSION IN THE ORDERS OF THE AUTHORITIES BELOW ABOUT THE RELATION OF SUCH PARTIE S WITH THE ASSESSEE WITH WHOM THE ASSESSEE SHARED THE REVENUES OF FREIG HT AND SUCH TRANSACTIONS HAVE BEEN PROCESSED UNDER CHAPTER X. IT APPEARS THAT THESE OUTSIDE ENTITIES ARE OTHERWISE UNRELATED PART IES. BECAUSE OF THEIR RESPECTIVE AGREEMENTS WITH THE ASSESSEES AE IN THI S REGARD, THESE ENTITIES AND TRANSACTIONS OF ASSESSEE WITH SUCH ENT ITIES HAVE ASSUMED THE CHARACTER OF DEEMED INTERNATIONAL TRANSACTIONS AND ASSOCIATED ENTERPRISES IN TERMS OF SECTION 92B(2). ITA NO. 4427/MUM/2010 5 6. THE SHORT CONTROVERSY BEFORE US IS TO DETE RMINE THE ALP IN RESPECT OF TRANSACTIONS BETWEEN THE ASSESSEE AND ITS AES TO WARDS RECEIPT/PAYMENT OF FREIGHT. THE ASSESSEE SHARED PR OFIT IN THE RATIO OF 50:50 BOTH ON THE PAYMENTS MADE BY IT AND THE RECEI PTS OF FREIGHT FROM ITS AES. WE HAVE PERUSED THE SUBMISSIONS AND THE F INDING OF THE LD. CIT(A) ON THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK UNDERTAKEN BY BOTH THE AES IN SUCH TRANSACTIONS. THE LD. DR C OULD NOT CONTROVERT SUCH FINDING THAT THE FUNCTIONS PERFORMED, ASSETS E MPLOYED AND RISK UNDERTAKEN IN BOTH THE AES IS SAME. THE ASSESSEE PA ID CERTAIN SUM TO ITS AES ABROAD FOR DOING THE WORK SIMILAR TO WHICH IT DID FOR WHICH IT RECEIVED FREIGHT REVENUE FROM ITS AES. THE CRUX OF THE MATTER IS THAT IN BOTH THE SITUATIONS, THE TOTAL RECEIPTS ARE TAKEN ON ONE HAND, FROM WHICH ALL THE EXPENSES INCURRED IN CONNECTION WITH THE TR ANSPORTATION OF CARGO IN BOTH THE COUNTRIES ARE EXCLUDED. THE REMAINING A MOUNT IS DISTRIBUTED BETWEEN THE ENTITY OF ORIGIN COUNTRY AND THE ENTITY OF DESTINATION COUNTRY IN EQUAL SHARE. AS THE ASSESSEE HAS EARNED/PAID RE VENUE FROM/TO ITS AES IN THE SAME PROPORTION, IN OUR CONSIDERED OPINI ON, THE TRANSACTIONS HAVE BEEN RECORDED AT ARMS LENGTH PRICE AND THERE WAS NO JUSTIFICATION FOR MAKING SUCH ADDITION. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER. 7. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACE D ON RECORD COPIES OF THE ORDERS PASSED BY THE TRIBUNAL IN THE CASE OF ACIT V S. M/S AGILITY LOGISTICS PVT. LTD. FOR ASSESSMENT YEARS 2004-05 T O 2006-07. IN THESE ITA NO. 4427/MUM/2010 6 TWO SEPARATE ORDERS, THE FACTS ARE ALMOST SIMILAR W HEREBY VARIOUS AGENCY AGREEMENTS WERE ENTERED INTO BETWEEN THE COMPANY OF ORIGIN COUNTRY AND THE COMPANY OF DESTINATION COUNTRY IN THE BUSINESS OF LOGISTICS SERVICE PROVIDER. THE REVENUES WERE SHARED BETWEEN THE TWO IN THE RATIO OF 50:50. THE TRIBUNAL HAS ACCEPTED THE SHARING OF PR OFIT IN THE EQUAL PROPORTION AT ARMS LENGTH PRICE. THE LD. DR COULD NOT DISTINGUISH THE FACTS OF THAT CASE VIS-A-VIS THE CASE IN HAND. RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE ORDER PASSED BY THE LD. CI T(A). 8. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED ON 12-12-2012. SD/- (VIVEK VARMA ) JUDICIAL MEMBER SD/- (R.S. SYAL) ACCOUNTANT MEMBER MUMBAI, DATED : 12-12-2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 15, MUMBA I 4. CIT 8, MUMBAI. 5. DEPARTMENTAL REPRESENTATIVE, BENCH K, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI