DHL LOGISTICS P.LTD, MUMBAI V. DCIT CIR 9(3)(1), MUMBAI

ITA 7286/MUM/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6206 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2014-2015
• Appeal Filed On: 19-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; TDS
• Section: 143(3); 92D; 142(1); 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “K ” BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 7286/Mum/2018 (A.Y: 2014-15) DHL Logistics Pvt Ltd 201A, Silver Utopia, Cardinal Gracias Road Chakala, Andheri (E) Mumbai – 400099 Vs. ACIT – 9(3)(1) Room No. 215, 2 nd Floor, Aayakar Bhavan, M.K.Road, Mumbai – 400020 ./ज आइआर ./PAN/GIR No. : AAACM6824A Appellant .. Respondent Appellant by : Shri. Madhur Agarwal.AR Respondent by : Dr. Yogesh Kamat.CIT.DR Date of Hearing 27.01.2022 Date of Pronouncement 15.03.2022 आद श / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the final assessment order u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 passed in pursuance to directions of the Dispute Resolution Panel (DRP) u/s 144C(5) of the Act.The assessee has raised the following grounds of appeal: 1. On the facts and circumstances of the case and in law, the Ld. Dispute Resolution Panel ('DRP') erred in upholding the action of the Ld. Assessing Officer ('AO') / Ld. Transfer Pricing ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 2 - Officer (TPO) in confirming the addition of INR 37,53,73,494 /- to the income of the Appellant by holding that its international transactions pertaining to its freight forwarding segment do not satisfy the arms length principle envisaged under the Income Tax Act,1961 ('the Act'). 2. In doing so, The Ld. DRP / Ld. TPO/Ld. AO grossly erred in: 2.1. disregarding the arm's length price ('ALP') and the scientific benchmarking process carried out by the Appellant in the Transfer Pricing ('TP') documentation maintained by the Appellant in terms of section 92D of the Act read with Rule ioD of the Income-tax Rules, 1962 ('Rules'); 2.2. failing to appreciate the economic rationale of using "Operating Profit/ Value Added Expenses" as the Profit Level Indicator ('PL'), and instead using "Operating Profit/ Total Cost" ('OP/TC') as the PU. 2.3. not allowing the exclusion of pass through costs as mentioned in Note 18.1 to the Notes to the Financial Statements of the appellant for AY 2014-15 and thereby enhancing the cost base for the purpose of computing the operating margin (OP/TC) of the assessee; 2.4. not restricting the TP adjustment to the extent of the value of the international transaction undertaken by the assessee. 2.5- not allowing the use of multiple year data as prescribed under Rule 1013(4) of the Rules read with the OECD TP Guidelines, and determining the arm's length price on the basis of financial information of the comparables for the year ended March 31, 2014 2.6 disre g arding all comparable companies selected by the Appellant in its TP documentation and further disregarding three out of four additional comparable companies identified by the Appellant by conducting a fresh search. 2.7 including Om Logistics Limited which is a functionally incomparable company in the final set of comparable ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 3 - companies. The Appellant prays that the book value of the international transactions pertaining to the freight forwarding segment of the Appellant should be held to be the arm's length price of the said transactions as per the Appellant's TP documentation, and the addition made on account of the above grounds should be deleted. 3. On the facts and in the circumstances of the case and in law, the learned A.O. erred in not allowing Depreciation of Rs. 4,26,46,129/- on the balance of WDV of Rs. 17,05,84,517/- [Net of WDV of Rs. 11.24.19,120/- transferred to DHL Supply Chain India Pvt. Ltd. in terms of D-Merger under Court Order] Seventh Year claim for Depreciation On Goodwill Resulting . From Acquisition Of Business Unit Of Lee & Muirhead Pvt. Ltd. In A.Y. 2008-09. 3.1 On the facts and in the circumstances of the case and in law, the Ld. A.O. erred in not allowing depreciation of Rs. 4,26,46,129/- on the balance of WDV of Rs. 17,05,84,517/- [Net of WDV of Rs. 11,24,19,120/- transferred to DHL Supply Chain India Pvt. Ltd. in terms of D-Merger under Court Order] claimed @ 25% under applicable provisions of Section-32 of IT Act, under the Head Intangible Assets-Goodwill consisting of various Intangible Assets arising out of the acquisition of business unit of Lee & Muirhead Pvt. Ltd in the F.Y 2007-08 3.2. On the facts and in the circumstances of the case and in law, the Ld. A.O. erred in holding that the ratio laid by the Hon'ble Supreme Court in case of Smifs Securities Ltd. (348 ITR 302) is not applicable in the present case and consequently erred in disallowing depreciation on intangible assets including goodwill. 3.3. On the facts and in the circumstances of the case and in law, the DRP erred in rejecting the valuation ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 4 - 2. The Brief facts of the case are that, the assessee company is engaged in the business of transportation as principal, agent at home and overseas, customs clearing agents, to provide every kind of operations in connection with transportation, import, export, packing, warehousing and handling of goods by sea and air or land. The assessee has filed the return of income electronically for the A.Y 2014-15 on 29.11.2014 disclosing a total income of Rs. 94,44,89,320/-. The assessee has filed the revised return of income on 05.10.2015 with a total income of Rs.99,38,72,270/-.Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and submitted the details and the information. The A.O find that the assessee has international transactions exceeding Rs.15crores with its Associate Enterprises(A.E), therefore the matter was referred to the Transfer Pricing Officer (TPO) for determination of Arms length price (ALP) in relation to international transactions with its associate enterprises (AE). The TPO has perused the international transactions and ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 5 - specified domestic transactions as per Form-3CEB. The TPO dealt on the international transactions with its AEs referred at page 2 Para 4 of the order as under: International transactions and specified domestic transactions (SDT) (as mentioned in the Form 3CEB): S. No . Description of the transactions 2014-15 2013-14 Method Used 1 Freight Revenue 4,964,045,74 3 5,329,216,14 4 Transaction 1 Net Mrgin Method (TNMM) 2 Freight Express 7,202,693,84 0 7,763,645,25 3 TNMM 3 Management and IT Service 483,270,358 572,226,560 TNMM 4 Provisions of Warehousing support service NA 5,886,168 Internal TMM 5 Provisions of support service 540,176,824 220,966,117 TNMM 6 Purchase of supplies 689,182 38,306 TNMM 7 Other allocated costs 56,507,682 155,361,378 Comparable uncontrolle d price (CUP) 8 Reimbursemen t (Payments) 53,100,998 45,201,747 CUP 9 Reimbursment (Receipts) 767,47,157 84,824,021 CUP 10 Advance to service providers 10,47,56,773 NA Other method 3. The specified domestic transactions entered by the assessee referred at page 3 as under: ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 6 - During the year, the assessee has entered into the following specified Domestic Transactions (SDT’s): S. No. Description of the transactions 2014-15 Method Used 1 Provisions of Manpower support service 3,38,81,829 TNMM 2 Provisions of Transportation Services 2,16,46,605 Other method 3 Provision of Customs Clearance services 3,68,55,435 Other method 4 Payments related to Directors remunerations 93,39,752 Other method 5 Reimbursement of expenses 14,35,949 Other method 4. The TPO has considered the adjustments in respect of the international transactions for the earlier assessment years (A.Y)2004-05to2012-13.The TPO has made analysis of freight levy, freight expenses and management services. The TPO considered the funcational facts and the nature of transactions and observed that the assessee has adopted TNMM as Most Appropriated Method (MAM) and PLI (OP/VAE) @ 31.18%. The assessee as per transfer pricing study report has selected comparables for services as under: Comparables selected The margin of the comparable companies as per the TP study is as follows. S. No. Name of Company Data Source OP/VAE 1 TKM Global Logistics Ltd P 14.31% 2 SRS Frieght Management Ltd P -4.68% 3 Gordon Woodroffe Logistics C 25.99% ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 7 - Ltd 4 Hindustan Cargo Ltd C 2.66% 5 Trade-Wings Ltd (Cargo) P-Seg -4.08% 6 AW Travel & Logistic services Ltd AR 12.03% 7 Balurghat Technologies Ltd., (Transportation Operation / Travel Division) AR-Seg 24.08% Mean 10.15% The assessee compared its OP/VAE margin of 31.18% with that of the comparable 10.15%. The assessee vide its submission dated 8 August 2017 provided the OP/TC and OP/VAE margin of the comparables selected in the TP study for the FY 2013-14 considering the financial date of only FY 2013-14 from the annual reports of the comparable companies. S. No. Name of Company OP/VAE OP/TC 1 TKM Global Logistics Ltd -9.87% -0.93% 2 SRS Frieght Management Ltd 38.36% 2.22% 3 Gordon Woodroffe Logistics Ltd 16.32% 3.20% 4 Hindustan Cargo Ltd 8.22% 0.75% 5 Trade-Wings Ltd (Cargo) -46.33% -46.33% 6 AW Travel & Logistic services Ltd 18.03% 3.18% 7 Balurghat Technologies Ltd., (Transportation Operation / Travel Division) 35.26% 5.29% Mean 8.57% -4.67% 5. The TPO find the operating profit to VAE margin at 31.18%. Further the assessee has selected OP/VAE margin of comparables in TP study considering the financial data for F.Y 2013-14 as per the annual report of the comparable companies. The TPO has ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 8 - issued notice u/s92CA(2) of the Act along with questionnaire to submit the details and documents in support of the determination of ALP. The TPO on perusal of the details and Form-3CEB find that the assessee has selected 7 comparable companies based on the one year financial data and dealt on the functional profile, margins and applied the filters and determined the OP/TC margin of@ 8.95%.The TPO has selected the final set of comparables referred at page 16 of the order as under: S. No. Name of Company OP/TC (in %) 1 Arishya International Ltd -6.46 2 Om Logistics Ltd 8.95 3 Sical Logistics Ltd 5.32 4 GATI Ltd 3.71 6. Further, the TPO has called for the information on OP/VAE and various costs pertaining to logistic segment. The TPO find the assessee is working with OP/VAE margin @ 31.18% and OP/PC margin @ 3.95% and computed the ALP of international transactions at page 19 Para 6.15 as under: 6.15 The working of adjustment comes out to be as under: ITA No. 7286/Mum/2018 DHL Logistics P Ltd, Mumbai. - 9 - Total revenue 15,59,97,91,699 Non-AE Revenue 10,58,34,25,634 AE Revenue A 5,01,63,66,065 ALP Revenue B 5,60,79,71,620 Difference C=B-A 59,16,05,555 3% of Assessee’s Txn D=A x 3% 15,04,90,982 Adjustment Since D