DCIT, Circle-3(1), Hyd, Hyderabad V. Seaways Shipping & Logistics Ltd., Hyd, Hyderabad

ITA 57/HYD/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5273 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 27-01-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 14-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AJIT TOLANI
• Keywords: Depreciation; Transfer pricing; International transaction; Condonation of delay
• Section: 143(3); 40(a)(ia); 201; 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. 57/H/2016 ASSESSMENT YEAR: 2011 - 12 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 3(1), HYDERABAD. VS. SEAWAYS SHIPPING AND LOGISTICS LTD., HYDERABAD. PAN AADCS 0845B (APPELLANT) (RESPONDENT) AND IT A NO. 1 656 /H/201 8 ASSESSMENT YEAR: 20 1 2 - 13 SEAWAYS SHIPPING AND LOGISTICS LTD., HYDERABAD. PAN AADCS 0845B VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 3(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI AJIT TOLANI REVENUE BY: S MT. NIVEDITA BISWAS SHRI SUNIL KUMAR PANDEY DATE OF HEARING: 27/01/2021 (ITA NO. 57/H/16) 28 /01/2021 (ITA NO. 1656/H/18) DATE OF PRONOUNCEMENT: 08 /0 2 /2021 O R D E R PER BENCH: ITA NO. 57/HYD/2016 THIS REVENUE S APPEAL ITA 57/HYD/2016 FOR AY 201 1 - 1 2 IS DIRECTED AGAINST THE D CIT , CIRCLE 3 (1) , HYDERABADS I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 2 - : ASSESSMENT DT. 17/11/2015 FRAMED IN FURTHERANCE TO THE DISPUTE RESOLUTE PANEL I, BENGALURU S ORDER/DIRECTIONS DT. 02/11/2015 IN F.NO. 148/CIT/DRP/2015 DELET ING SECTION 92CA ARMS LENGTH PRICE ADJUSTMENT ALP ADDITION OF RS. 5.63 CRORES, IN PROCEEDINGS U/S 143(3) RWS 144C(1) RWS 144C(5) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT. THE ASSESSEES APPEAL ITA 1656/HYD/2018 FOR AY 2012 - 13 ON THE OTHER HAND I S DIRECTED AGAINST THE CIT(A) - 3, HYDERABADS ORDER DATED 20/06/2018 PASSED IN CASE NO. 0523/DCIT - 3(1)/HYD/CIT(A)/2016 - 17 INVOLVING PROCEEDINGS U/S 143(3) RWS 144C(1) OF THE THE ACT. HEARD BOTH THE PARTIES. CASE FILE S PERUSED. 2 . THE REVENUE HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS IN ITS APPEAL ITA 57/HYD/2016: - 1. THE LD.DRP ERRED IN LAW AND ON FACTS OF THE CASE: 2. THE LD.DRP ERRED IN DELETING THE AMOUNT OF RS.5.63 CRORES MA DE BY WAY OF ADJUSTMENT U/S. 92CA OF THE ACT. 3. THE LD.DRP ERRED IN STATING THAT PROFIT EARNED ON THE WHOLE AS A RESULT OF LINEAR AGENCY SERVICES IS RS.10.42 CRORES AS AGAINST RS.26.73 CRORES. 4. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME OF HEARIN G. I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 3 - : 3 . BOTH THE LEARNED R EPRESENTATIVES TOOK US TO THE DISPUTE RESOLUTION PANELS (DRP) DIRECTIONS DATED 02.11.2015 UNDER CHALLENGE, WHICH READ AS FOLLOWS : - 3. DURING THE COURSE OF HEARING THE AR SUBMITTED THAT SEAWAYS SNIPPING & LOGISTICS LTD IS A 100% HOLDING COMPANY OF MAXICON CONTAINER LINE PTE LTD SINGAPORE. SEAWAYS SHIPPING & LOGISTICS LTD IS AN AGENT OF MAXICON CONTAINER LINE PTE LTD FOR ALL ITS OPERATIONS IN INDIA. DURING THE FY ENDED 31.03.2011 MAXICON CONTAINER LINE PTE LTD SINGAPORE HA S GENERATED TOTAL REVENUE OF S$ 57518137. (REVENUE USD 5707017 AND THE INCOME OF S$ 443120) AMOUNTING TO RS. 184.05 CRORES. THIS REVENUE INCOME INCLUDES RS. 73.60 CRORES FROM INDIA (ON AGENCY TO SEAWAYS SHIPPING &. LOGISTICS). 3.1. IT IS FURTHER S UBMITTED THAT THE PROFIT FOR THE YEAR GENERATED BY MAXICON CONTAINER LINE PTE LTD SINGAPORE WAS S $ 970688 (RS.3.10 CRORES) AS PER THE AUDITED ACCOUNTS. THE ABOVE PROFIT IS AFTER CHARGING RS.7.72 CR. AS AGENCY EXPENSES PAID TO SSLL. IN OTHER WORDS, T HE TOTAL PROFIT GENERATED (RS. 3.10 CR. + RS.7.72 CR.) = RS. 10.82 CR. IF THE RS10.82 CR. IS SHARED IN THE RATIO OF 50:50, IT AMOUNT TO 5.41 TO SEAWAYS SHIPPING & LOGISTICS AND RS. 5.41 TO MAXICON CONTAINER LINE PTE LTD. SINGAPORE. THE SEAWAYS SHIPP ING & LOGISTICS LTD. WOULD GET AN INCOME OF RS.5.41 CR. WHEREAS SEAWAYS SHIPPING & LOGISTICS LTD. HAS CHARGED THE AGENCY COMMISSION OF RS. 7.72 CR. BASED ON THE AGENCY AGREEMENT. SEAWAYS SHIPPING & LOGISTICS LTD. HAS CHARGED RS.2.31 CRORES MORE PRO FIT AND ACCOUNTED RS.7.72 CRORES IN THE INCOME STATEMENT. AS SUCH THE TPO HAS ARBITRARILY PROPOSED TO CHARGE ADDITIONAL RS.5.63 CRORES ON PSM WHICH IS NOT NECESSARY AS SEAWAYS SHIPPING & LOGISTICS LTD. CHARGED RS.7.72 CRORES AS AGENCY COMMISSION. I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 4 - : 3.2 IT WAS ALSO SUBMITTED THAT THE REVENUE GENERATED IN INDIA IS ACCOUNTED IN SINGAPORE CORRECTLY AT RS.73.60 CR AS FOR THE OPERATIONS COST ONLY RS.46.87 CR INCURRED IN INDIA IS TAKEN WHILE THE COSTS ARE ALSO INCURRED IN SINGAPORE. THERE ARE EST ABLISHMENT COSTS, OPERATIONS COST, FINANCE COST, DEPRECIATIONS COSTS ETC. ARE ALL INCLUDED IN THE PROFIT AND LOSS STATEMENT OF MAXICON CONTAINER LINE PTE LTD. SINGAPORE. THUS IF WE TAKE ALL THE COSTS INTO ACCOUNT THE TOTAL PROFIT BEFORE AGENCY COMMISSIO N WORKS OUT TO RS.10.82 CR. AS STATED AT POINT 4 ABOVE. 4. HAVING CONSIDERED THE SUBMISSIONS, IT IS NOTICED BY US THAT THE TPO HAS INCORRECTLY APPLIED THE PROFIT SPLIT METHOD, WHICH IS EVIDENT FROM THE FACT THAT THE PROFIT FOR THE YEAR OF MAXICON CONTAINER LINE PTE LTD SINGAPORE (AE) WAS S$970688 (RS. 3.10 CR.) AS PER THE AUDITED ACCOUNTS, AFTER CHARGING RS.7.72 AS AGENCY EXPENSES PAID TO THE ASSESSEE AND THEREFORE THE TOTAL PROFIT GENERATED IS RS. 10.82 CR. (RS. 3.10 + RS. 7.72 CR) EVEN IF RS. 10.82 CR IS SHARED IN THE RATIO OF 50:50 AS APPLIED BY THE TPO, IT COM ES TO RS. 5.41 CRORES TO THE ASSESSEE, WHEREAS IN THIS TRANSACTION THE RECEIPT HAS BEEN OFFERED BY THE ASSESSEE AT RS.7.72 CRORES. THEREFORE, THERE WAS NO RATIONALE TO MAKE A FURTHER ADJUSTMENT OF RS.5.63 CRORES. THE ASSESSING OFFICER IS ACCORDINGLY DIR ECTED TO DELETE THE ADDITION MADE. 4 . L EARNED CIT - DR VEHEMENTLY CONTENDED DURING THE COURSE OF HEARING THAT THE DRP ERRED IN LAW AND ON FACTS IN REVERSING TRANSFER PRICING OFFICER TP O S PROPOSED ACTION MAKING IMPUGNED ALP ADJUSTMENT OF RS.5,63,56,082/ - AFTER ADOPTING PROFIT SPLIT METHOD @ 50% BETWEEN THE ASSESSEE AND ITS O VERSEAS ASSOCIATE E NTERPRISE (AE) INVOLVING I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 5 - : AGGREGATE COST FIGURE S AT RS.26,72,77,158/ - . THE ASSESSEES CASE ON THE OTHER HAND SUPPORTS THE DRPS DIRECTIONS UNDER CHALLENGE THAT THE PA NEL HAS RIGHTLY TAKEN THE AGGREGATE OF THE TOTAL PROFITS AT RS.10.82 CRORES THEREBY REACHING TO THE CONCLUSION THAT ITS PROFITS ALREADY DECLARED OF RS.7.72 CRORES TURN OUT TO BE EXCESSIVE THAN THAT IN ISSUE OF RS.5. 63 CRORES. 5 . WE HAVE GIVEN OUR THOUGHTF UL CONSIDERATION TO THE FOREGOING RIVAL PLEADINGS PERTAINING TO THE SOLE ISSUE OF AGGREGATE FIGURE TO BE ADOPTED BETWEEN THE ASSESSEE AND ITS O VERSEAS A SSOCIATE E NTERPRISE(S) PERTAINING TO THE INTERNATIONAL TRANSACTIONS IN THE NATURE OF CONTAINER LINE I NCOME/ C ONTAINER LINE EXPENSES, REIMBURSEMENT OF EXPENSES PAID, LINER AGENCY SERVICES, SLOT HIRE INCOME & SLOT EXPENSES TOTALLING TO RS.19,60,49,865/ - DISCLOSED IN FORM 3 - CEB REPORT. WE NOTICE THAT NEITHER THE TPOS ORDER DATED 29.01.2015 NOR T HE DRPS ABOVE EXTRACTED DIRECTIONS UNDER CHALLENGE HAVE SPECIFIED AS TO WHETHER THEY HAVE ADOPTED COST/REVENUES OF THE INTERNATIONAL TRANSACTION S IN ISSUE ONLY OR THAT OF THE ENTIRE ACTIVITIES INVOLVING THE TWIN I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 6 - : ENTITIES GROSS TRANSACTIONS. WE QUOTE CIT VS. FIRESTONE INTERNATIONAL (P.) LTD. 378 ITR 558 (BOM.) AND RESTORE THE INSTANT ISSUE OF THE CORRECT ARMS LENGTH PRICE OF THE ASSESSEES INTERNATIONAL TRANSACTIONS WITH ITS A.E S WHICH DESERVE S TO BE ADJUDICATED AFRESH KEEPING IN MIND TH E SAID INTERNATIONAL TRANSACTIONS BET WEEN THEM ONLY . IT IS MADE ABUNDANTLY CLEAR BEFORE PARTING THAT THERE IS NO OTHER DISPUTE BETWEEN THE PARTIES REGARDING THE METHOD ADOPTED AS WELL THE BOOK RESULTS BEFORE US. 6. MR. TOLANI AT THIS STAGE SOUGHT TO CLARIFY THE FACT THAT THE ASSESSEE HAS CARRIED ITS TRANSACTIONS WITH ITS OVERSEAS ASSOCIATE ENTERPRISE(S) ONLY. THE FACT HOWEVER REMAINS THAT AS ALREADY INDICATED IN THE PRECEDING PARAGRAPH, THE CLINCHING ISSUE OF THE ENTITY LEVEL OR INTERNATIONAL TRANSACTION LEVELS GROSS RECEIPT S/INCOMES PERTAINING TO THIS ISSUE STILL STANDS UNRESOLVED. WE THUS REITERATE OUR FOREGOING DIRECTIONS AND RESTORE THE R EVENUES SOLE SUBSTANTIVE GRIEVANCE BACK TO THE TPO FOR HIS FRESH ADJUDICATION TO THIS LIMITED EXTENT. IT SHALL BE OPEN FOR THE ASSES SEE TO PLACE ON RECORD ALL THE RELEVANT DATA IN I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 7 - : CONSEQUENTIAL PROCEEDINGS TO BE CONCLUDED WITHIN THREE EFFECTIVE OPPORTUNITIES OF HEARING. 7 . THIS R EVENUES APPEAL ITA 57/HYD/10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES TO THE LIMITED EXTENT INDICATED HE REINABOVE. ITA NO. 1656/HYD/2018 8 . T H E ASSESSEE HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS: - 1) THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2) THE LEARNED CIT (A) OUGHT TO HAVE PROVIDED PROPER OPPORTUNITY TO THE APPELLANT BEFORE DECIDING THE APPEAL; 3) THE LEARNED CIT (A) ERRED IN REJECTING THE PETITION FOR CONDONATION OF DELAY IN FILING THE APPEAL WITHOUT CONSIDERING THE FACT THAT THE APPELLANT WAS PREVENTED BY SUFFICIENT REASON IN NOT FILING THE APPEAL WITHIN THE TIME. 4) THE LEARNED CIT (A) OUGHT TO HAVE CONSIDERED THE MERITS AND DECIDED THE GROUNDS OF APPEAL 5) THE CIT (A) ERRED IN NOT CONSIDERING THE VARIOUS GROUNDS RAISED BEFORE HIM 6) THE LEARNED CIT (A) ERRED IN NOT CONSIDERING THE GROUNDS AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.8,25,26,416 / - BEING THE ADDITION BY VIRTUE OF ORDER U / S 92CA; RS.94,39,321/ - MADE BY DISALLOWANCE I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 8 - : ON ACCOUNT OF SHARE ISSUE EXPENSES AND RS .13,64,308/ - MADE BY DISALLOWANCE U/ S 40(A)(IA) OF THE I.T. ACT. 7) ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING . WE HAVE HEARD BOTH THE PARTIES. CASE F ILE PERUSED. 9 . THE ASSESSEE S SUBSTANTIVE GROUNDS NO. 1 - 5 AND 7 ARE NOT PRESSED DURING THE COURSE OF HEARING. IT EMERGES FROM A PERUSAL OF ITS 6 TH SUBSTANTIVE GROUND THAT IT HAS RAISED TH REE SUBSTANTIVE ISSUES CHALLENGING CORRECTNESS OF THE LEARNED LOWER AUTHORITIES ACTION MAKING ALP ADJUSTMENT OF RS. 8,25,26,416/ - , DISALLOWANCE OF SHARE EXPENSES TO THE TUNE OF RS. 94,39,321/ - AND SECTION 40(A)(IA) DISALLOWANCE OF RS. 13,64,308/ - ; RESPECTI VELY. B OTH THE LEARNED REPRESENTATIVES ARE IN AGREEMENT DURING THE COURSE OF HEARING THAT TH E REVENUES APPEAL ITA NO. 57/HYD/2016 ON 27/01/2021 (SUPRA) HEREINABOVE HAS RESTORE D THE ABOVE FIRST ISSUE BACK TO THE TPO WITH DIRECTIONS TO COMPUTE THE EX PENSES AS WELL AS PROFIT MARGINS PERTAINING TO INTERNATIONAL TRANSACTIONS WITH OVERSEAS OR AE ONLY I.E., THOSE INCURRED AND RECEIVED FROM BOTH THE SIDES THAN AT ENTITYS LEVEL GROSS SUM(S) . WE THUS FOLLOW JUDICIAL CONSISTENCY FOR THIS FIRST ISSUE AND I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 9 - : RESTO RE THE SAME BACK TO THE TPO TO BE DECIDED AFRESH ALONG WITH HIS ADJUDICATION IN PRECEDING AY 2011 - 12 (SUPRA) . THE ASSESSEES INSTANT FIRST SUBSTANTIVE ISSUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN ABOVE TERMS . 1 0 . LEA RNED COUNSEL IS FAIR ENOUGH IN CONCEDING THAT THE ASSESSEE DOES NOT WISH TO PRESS FOR ITS 2 ND AND 3 RD GRIEVANCES PROVIDED THE SAME ARE NOT TAKEN AS PRECEDENT. THE REVENUE IS EQUALLY FAIR IN ACCEPTING THE CONDITIONAL STATEMENT. 1 1 . THIS ASSESSEES APPEAL ITA 1656/HYD/2018 IS PARTY ALLOWED FOR STATISTICAL PURPOSES IN ABOVE TERMS. 1 2 . B OTH THE R EVENUES AND ASSESSEE S APPEAL S ITA NO. 57/HYD/2016 AND ITA NO. 1656/HYD/2018 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES IN FOREGOING T ERMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES. PRONOUNCED IN THE OPEN COURT ON 8 TH FEBRUARY , 2021 . SD/ - SD/ - ( LAXMI PRASAD SAHU) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDE RABAD, DATED : FEBRUARY , 20 2 1 K V I TA NO S . 57/H/16 & 1656 /HYD/1 8 SEAWAYS SHIPPING AND LOGISTICS LTD., HYD. : - 10 - : C OPY TO : 1 SEAWAYS SHIPPING AND LOGISTICS LTD., SEAWAYS PRIDE, ROAD NO. 36, JUBILEE HILLS, HYDERABAD 500 034 2 DCIT, CIRCLE 3(1), SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 3 C I T(A) 3 , HYDERABAD. 4 PR. CIT - 3 , HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.