ACIT 9(3), MUMBAI V. UPS JETAIR EXPRESS P. LTD, MUMBAI

ITA 6838/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8282 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 01-11-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 30-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAINDR
• Assessee Lawyers: M P LOHIA MS SUPRIA SORTUR
• Keywords: Transfer pricing; International transaction
• Section: 43B; 143(3); 92

Judgement Text

ITA NO.6838 OF 2010 UPS JETAIR EXPRESS PVT LTD MUMB AI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.6838/MUM/2010 (ASSESSMENT YEAR: 2004-05) ACIT 9(3), 2 ND FLOOR, ROOM NO.229 AAYAKAR BHAVAN, MK ROAD, MUMBAI 400020 VS. M/S UPS JETAIR EXPRESS PVT. LTD., PLOT NO.6A, SHYAM NAGAR, OFF: JOGESHWARI VIKHROLI, LINK ROAD, MAJAS VILLAGE, JOGESHWARI (E) MUMBAI 400060 PAN: AAACU 4322 N (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI AJEET KUMAR JAIN,DR ASSESSEE BY: SHRI M.P.LOHIA/ MS.SUPRIA SORTUR DATE OF HEARING: 01/11/2012 DATE OF PRONOUNCEMENT: 07/11/2012 O R D E R PER BENCH: THIS IS A REVENUE APPEAL AGAINST THE ORDERS OF THE CIT (A)-15 MUMBAI, DATED 27.07.2010. THE REVENUE HAS RAISED TH E FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN IN LAW, THE LEARNED CIT (A) ERRED IN DELETIN G THE ADDITION OF ` .9,35,48,886/- IN RELATION TO ARMS LENGTH PRICE PERTAINING TO INTERNATIONAL TRANSACTIONS, IGN ORING THE OBSERVATIONS IN THE ASSESSMENT ORDER UNDER SECT ION 92C(4) READ WITH SECTION 92CA(3) OF THE I.T. ACT, 1 961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN IN LAW, THE LEARNED CIT (A) ERRED IN HOLDING THA T PAYMENTS MADE TO PROVIDENT FUND AND ESIC AUTHORITIE S EVEN BEYOND THE GRACE PERIOD PROVIDED UNDER THE RESPECTIVE LAW ARE ALLOWABLE AS DEDUCTIONS, CONTRAR Y TO THE PROVISIONS OF SECTION 43B OF THE I.T. ACT, 1961 . 2. GROUND NO.1 PERTAINS TO THE ISSUE OF TRANSFER PRICI NG, WHILE GROUND NO.2 PERTAIN TO THE ISSUE OF AMOUNTS PAID BE YOND THE GRACE PERIOD TOWARDS PF AN ESIC DISALLOWED UNDER SECTION 43B. ITA NO.6838 OF 2010 UPS JETAIR EXPRESS PVT LTD MUMB AI PAGE 2 OF 6 3. ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE BUSINE SS OF INTERNATIONAL TRANSPORTATION SERVICES AND DOMESTIC PICKUP AND DELIVERY SERVICES. ASSESSEE IS A JOINT VENTURE BETW EEN UPS INTERNATIONAL FORWARDING INC, THE UNITED STATES OF AMERICA ('USA') AND JETAIR LIMITED, INDIA ('JETAIR') WITH EQUITY HO LDING OF 60 PERCENT AND 40 PERCENT RESPECTIVELY. DURING THE A.Y, ASSESS EE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ('AES') WITHIN THE MEANING OF SECTION 9 2 OF THE ACT WHICH IS A SUBJECT MATTER OF THE PRESENT APPEAL. S.NO NATURE OF TRANSACTION VALUE OF TRANSACTION ( ` `` ` .) RECEIPT ( ` `` ` .) PAID ( ` `` ` .) 1 PROVISION OF INTERNATIONAL TRANSPORTATION SERVICES TO ASSESSEE WITHIN INDIA 152,647,723 NA 2 PROVISION OF INTERNATIONAL TRANSPORTATION SERVICES BY ASSESSEE OUTSIDE INDIA NA 998,970,718 3 ALLOCATION OF LEASED LINE EXPENSES 22,293,580 4 TRANSFER OF MINOR EQUIPMENTS 152,659 4. THE ABOVE REFERRED TRANSACTIONS WERE DULY REPORTED BY ASSESSEE IN THE FORM 3CEB WHICH WAS FILED ALONG WIT H THE RETURN OF INCOME FOR A.Y 2004-05. AO UNDER SECTION 92CA(1) OF THE ACT, REFERRED THE CASE OF ASSESSEE TO THE ADDITIONAL COM MISSIONER OF INCOME TAX (TRANSFER PRICING-V) (TPO) FOR DETERMINI NG THE ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE. 5. ASSESSEE BASED ON THE FUNCTIONAL ANALYSIS, THE COMP ARABLE UNCONTROLLED PRICE (CUP) METHOD WAS DETERMINED TO B E THE MOST APPROPRIATE METHOD. FOR THE PURPOSE OF THE CUP ANAL YSIS, A SIMILAR AGREEMENT BETWEEN THE AE AND ELBEE SERVICES LTD. (' ELBEE'), WAS CONSIDERED TO CONSTITUTE A COMPARABLE UNCONTROLLED TRANSACTION. BASED ON THE ABOVE ANALYSIS, IT WAS CONCLUDED IN TH E TP REPORT THAT THE INTERNATIONAL TRANSACTIONS WERE UNDERTAKEN AT A RM'S LENGTH STANDARD. ITA NO.6838 OF 2010 UPS JETAIR EXPRESS PVT LTD MUMB AI PAGE 3 OF 6 6. DURING THE ASSESSMENT PROCEEDINGS, THE TPO ASKED AS SESSEE TO PROVIDE REASONING AS TO WHY THE TRANSACTIONAL NE T MARGIN METHOD ('TNMM') SHOULD NOT BE APPLIED AND COMPARABL E COMPANIES FROM COURIER INDUSTRY SHOULD NOT BE CONSIDERED FOR DETERMINING THE ALP OF ASSESSEES TRANSACTIONS. THE TPO ALSO MENTIO NED THE FACT THAT ASSESSEE WAS REPORTING CONTINUOUS LOSSES IN IT S FINANCIAL RESULTS. 7. THE TPO REJECTED THE CUP METHOD ADOPTED BY ASSESSEE IN BENCHMARKING ITS INTERNATIONAL TRANSACTION RELATING TO PROVISION OF TRANSPORTATION SERVICES ON THE GROUND THAT THE ELBE E ARRANGEMENT IS NOT CONTEMPORANEOUS AS PER PROVISIONS OF RULE 10D(4 ). 8. FURTHER, THE TPO IN ITS ORDER DATED 28 NOVEMBER 200 6 WAS OF' THE VIEW THAT TNMM IS THE MOST APPROPRIATE METHOD A ND IDENTIFIED TWO COMPANIES - PATEL ON-BOARD ON BOARD COURIERS LI MITED ('PATEL ON-BOARD') AND SKYPAK SERVICES SPECIALIST LIMITED ( 'SKYPAK') AS COMPARABLE COMPANIES FOR BENCHMARKING THE APPELLANT 'S INTERNATIONAL TRANSACTIONS. BASED ON THE TNMM ANAL YSIS, THE TPO ARRIVED AT THE ARMS LENGTH MARGIN OF 3.61% (USING MARGINS OF THE TWO COMPARABLES AS FOLLOWS: PATEL ON-BOARD 3.85% AN D SKYPARK 3.37%) IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF ASSESSEE. GIVEN THAT THE MARGIN EARNED BY ASSESSEE DID NOT FA LL WITHIN THE PERMISSIBLE RANGE OF +/-5% FROM THE ARMS LENGTH OP ERATING MARGIN AS DETERMINED BY THE TPO, A TRANSFER PRICING ADJUST MENT OF ` .9,35,48,886/- WAS MADE IN THIS CASE. 9. ON THE ABOVE BASIS THE TPO PASSED AN ORDER DATED 28.11.2006 UNDER SECTION 92CA(3) AND MADE AN UPWARD ADJUSTMENT OF ` .9,35,48,886/- TO THE VALUE OF THE INTERNATIONAL TR ANSACTIONS OF ASSESSEE. AO RELIED UPON THE ORDER OF THE TPO AND M ADE AN ADDITION OF ` .9,35,48,886/- TO THE TOTAL INCOME OF ASSESSEE IN T HE ORDER ISSUED UNDER SECTION 143(3) OF THE ACT. 10. BEFORE THE CIT (A) IT WAS CONTENDED THAT THE TPO WR ONGLY CONSIDERED THE ENTITY-WISE MARGIN OF ONE OF THE COM PARABLE COMPANIES I.E. PATEL ON-BOARD FOR THE PURPOSE OF BE NCH MARKING ITA NO.6838 OF 2010 UPS JETAIR EXPRESS PVT LTD MUMB AI PAGE 4 OF 6 ASSESSEES MARGIN UNDER TNMM. ON FURNISHING THE SEG MENTAL PROFITABILITY OF THE ABOVE COMPANY AND ALSO OTHER T WO COMPARABLE COMPANIES, THE MATTER WAS REFERRED TO THE THEN CIT- TP-II (TPO-II) UNDER SECTION 250(4) OF THE ACT BY THE CIT (A). 11. IN HIS REPORT THE TPO-II HAS AGREED WITH ASSESSEES CONTENTION FOR THE USE OF SEGMENTAL RESULTS FOR PATEL ON-BOARD ON THE BASIS THAT ONLY THE CO-LOADING SEGMENT OF THE COMPANY IS ENGAG ED IN COMPARABLE ACTIVITY I.E. COURIER SERVICES. THE TPO- II ALSO AGREED WITH ASSESSEE ON THE SECOND ISSUE I.E. ERRONEOUS COMPUTA TIONS OF THE MARGINS OF THE COMPARABLES AND THAT OF ASSESSEE. TH E TPO-II AGREED AND CONCLUDED THAT CONSISTENCY NEEDS TO BE FOLLOWED WHILE CALCULATING THE MARGINS OF THE COMPARABLES VIS--VI S THAT OF ASSESSEE. THE TPO-II HOWEVER, DID NOT AGREE WITH AS SESSEES CONTENTION ON THE THIRD ISSUE ON THE BASIS THAT WOR KING CAPITAL DIFFERENCE BETWEEN ASSESSEE AND THE TWO COMPARABLES IS NOT HIGHLY VARIED. THE RELEVANT EXTRACTS FROM THE REMAND REPOR T OF THE TPO-II WAS AS UNDER: . ON PERUSAL OF THE PAGES 25 AND PAGE 36 OF THE ANNUAL REPORT, IT IS SEEN THAT AN ENTITY WIDE LEVEL PATEL ON-BOARD IS ENGAGED IN CARRYING OUT OTHER ACTIVITIE S BESIDES PROVIDING COURIER SERVICES. THE CO-LOADING SEGMENT OF PATEL ON-BOARD IS ENGAGED IN PROVIDING COURIER SERVICES AND THE SAME HAS TO BE BENCHMARKED IN ASSESSEES CASE. .. .. THE REVISED MARGIN COMPUTATION OF UJEL, PATEL ON-BO ARD AND SKYPARK IS AS FOLLOWS: PARTICULARS UJEL (AS PER TPO ORDER DATED 28.6.2006) SKYPARK SERVICE SPECIALIST LIMITED PATEL ON- BOARD PRIVATE LIMITED (CO- LOADING SEGMENT) OPERATING INCOME (A) 1,312,298,53 269,919,243 1,086,801,494 EXPENSES OPERATING EXPENSES 1,344,232,269 258,628,921 1,086, 801,494 OTHER EXPENSES BANK CHARGES (REFER NOTE IN CASE OF PATEL ON BOARD) 946,092 874,867 7,194,331 ITA NO.6838 OF 2010 UPS JETAIR EXPRESS PVT LTD MUMB AI PAGE 5 OF 6 PRO VISION FOR DOUBTFUL ADVANCES 7,224,021 214,929 - UNALLOCATED OPERATING ITEMS OF EXPENSES ALLOCATED IN THE RATIO OF SEGMENT REVENUE/TOTAL REVENUE (IN CASE OF PATEL ON BOARD) - - 72,979,390 TOTAL OPERATING EXPENSES (B) 1,352,402,382 259,718,717 1,166,975,216 OPERATING PROFITS (C=A-B) (40,103,829) 1,200,526 22,551,410 OPERATING MARGIN (OPERATING PROFIT/ OPERATION REVENUE (C/A) - 3.06% 0.46% 1.90% 12. CONSIDERING THE REMAND REPORT OF THE TOP-II, THE CI T (A) ALLOWED THE RELIEF TO ASSESSEE BY STATING AS UNDER : 3.20 I HAVE EXAMINED THE ABOVE CONTENTIONS OF THE APPELLANT AS WELL AS THE REMAND REPORT. THE TPO HAS FAIRLY CONCEDED TO THE APPELLANT'S CONTENTION THAT THE SEGMENTAL DATA FOR PATEL ON-BOARD NEEDS TO BE TAKEN AND THAT THERE WAS INCONSISTENCY IN CONSIDERING CERTAIN INCOME/EXPENSE ITEMS IN MARGIN CALCULATION OF THE COMPARABLE VIS-A-VIS THAT OF THE APPELLANT. BAS ED ON THAT, THE TPO-II IN HIS REMAND REPORT HAS CONSIDERED THE MARGIN OF THE APPELLANT AT -3.06 PERCENT AND THE ARITHMETIC MEAN OPERATING MARGIN OF THE COMPARABLES AT 1.18 PERCENT (BASED ON 0.46 PERCENT FOR SKYPAK AND 1.90 PERCENT FOR PATEL ON- BOARD). IN PRICE TERMS THE (-)5% FIGURE COMES TO ` 12,31,972,759/- WHILE THE (+) 5% COMES TO ` 13,61,654,102/- WHEREAS THE APPELLANT'S PRICE IS ` 13,52,402,382/ -. AS SUCH IT FALLS WITHIN THE PERMITTED + / - 5 RANGE UNDER SECTION 92C. 3.21. TO CONCLUDE, THE APPELLANT'S CORRECTED MARGIN OF -3.06 PERCENT AS PER THE REMAND REPORT OF THE TPO-I I, IS CONSIDERED TO BE AT AN ARM'S LENGTH LEVEL. ACCORDINGLY, THE ADDITION OF RS 93,548,886/- MADE BY THE AO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS DELETED 13. AFTER HEARING THE LEARNED DR AND THE LEARNED ASSESS EES COUNSEL, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) AS THE CIT (A) BASED HIS ORDER ON THE REVIS ED TPO REPORT IN THE REMAND PROCEEDINGS. ONCE TPO ACCEPTS AND ADJUST S THE COMPUTATIONS ON THE BASIS OF WHICH CIT(A) DELETED T HE ADDITION, ITA NO.6838 OF 2010 UPS JETAIR EXPRESS PVT LTD MUMB AI PAGE 6 OF 6 THERE CAN NOT BE ANY GRIEVANCE TO REVENUE. IN VIEW OF THIS, THE REVENUE GROUND IS REJECTED. 14. GROUND NO.2 PERTAINS TO THE ISSUE OF DISALLOWANCE O F EMPLOYEES CONTRIBUTION TO PF AMOUNTING TO ` .7,85,325/- AND TO EMPLOYEES STATE INSURANCE CORPORATION AMOUNTING TO ` .20,841/- UNDER SECTION 43B. SINCE THEY WERE PAID BEYOND THE DUE DATE THE CIT (A) ALLOWED THE AMOUNT AS THEY ARE WITHIN THE A LLOWABLE GRACE PERIOD OF 5 DAYS, THE REVENUE IS AGGRIEVED. WE DO N OT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) A S THE DISALLOWANCE UNDER SECTION 43B IS NOT REQUIRED WHEN THE AMOUNTS ARE PAID WITHIN THE GRACE PERIOD ALLOWED UNDER THE RESPECTIV E ACTS. NOT ONLY ON LEGAL PRINCIPLES BUT ALSO ON THE FACT THAT THE E NTIRE AMOUNT WAS PAID BEFORE THE CLOSURE OF THE FINANCIAL YEAR OR WI THIN THE DUE DATE FOR FILING THE RETURN AS PROVIDED, WE UPHOLD THE OR DER OF THE CIT (A) AND DISMISS THE REVENUE GROUND 2. 15. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH NOVEMBER, 2012. SD/- SD/- (AMIT SHUKLA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED NOVEMBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI