CEVA Logistics India P.Ltd, Gurgaon V. DCIT, Circle-1(1), Gurgaon

ITA 8124/DEL/2018

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CEVA Logistics India P. Ltd. appealed against the final assessment order for the assessment year 2014-15, which was passed under section 143(3) r.w.s. 144 C of the Income Tax Act, 1961. The primary contention was regarding the determination of the value of international transactions related to management services availed from associated enterprises, which was set at nil by the TPO. The Tribunal considered previous similar cases involving the same assessee and noted that the TPO had accepted the arm's length nature of other transactions but disputed the management fees. The Tribunal referenced decisions that established the TPO cannot apply the benefit test to determine the value of intra-group services, leading to the decision to delete the addition made to the assessee's income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115884 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: I
• Next Hearing Date: 20-10-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 20-12-2018
• Other Referred Cases: Avery Dennison India P. Ltd. Vs. ACIT, PCIT Vs. Avery Dennison India Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH T, NEW DELHI BEFORE SH. G.S. PANNU, PRESIDENT AND SH. SAKTIJIT DEY, JUDICIAL MEMBER 1TA No.8124/DEL/2018 Assessment Year: 2014-15 CEVA Logistics India P. Ltd. Sewa Tower, Plot No.19, Sector-18, 2nd Floor, Block- C, Maruti Industrial Complex, Udyog Vihar, Gurgaon-122015 PAN NO.AABCT7326A Vs DCIT Circle-1 (1) Gurgaon (APPELLANT) (RESPONDENT) Appellant by Sh. Salil Kapoor, Advocate Sh. Lalchandani, Advocate Ms. Ananya Kapoor, Advocate Respondent by Sh. Mahesh Shah, CIT DR Date of hearing: _ 21/10/2022 ORDER Date of Pronouncement: Jj^/01/2023 PER SAKTIJIT DEY, JM: The present appeal has been filed by the assessee challenging the final assessment order dated 30.10.2018 passed under section 143 (3) r.w.s. 144 C of the Income Tax Act, 1961 (for short the ‘Act) pertaining to assessment year 2014-15, in pursuance to directions of Learned Dispute Resolution Panel (DRP). % \ 2 A 2. In ground N o.l, the assessee has challenged the validity of the assessment order being passed in the name of a nonexistent entity. However, at the time of hearing, on instructions, Ld. Counsel did not press the ground and submitted for arguing the issue on merits. 3. Keeping in view of the aforementioned submission of learned Counsel, we dismiss ground No. 1 as not pressed. 4. In ground No.2 to 4, the assessee has challenged the decision of the departmental authorities in determining the value of the international transaction relating to management services availed from the associated enterprises at Nil. 5. Briefly the facts relating to the issue in dispute are, the assessee is a resident corporate entity engaged in the business as a logistic service provider, offering comprehensive freight and forwarding services. In the assessment year under dispute, assessee entered into various international transactions with the overseas Associated Enterprises (AE) one amongst them being management services availed from the AE. Assessee benchmarked the transactions as per the statutory provision and claimed that the transactions with AE are at arm’s length. After verifying the TP study report the TPO accepted the arm’s length nature of all transactions, except, payment made towards management fees amounting to Rs. 15,05,26,398/-. Accordingly, he issued a show cause notice to the assessee to furnish necessary details to 3 A demonstrate that not only it has received the services from the AE but such services has benefited the assessee. In response to the show cause notice, the assessee furnished copy of the agreement with AE and all other details including allocation key, invoices raised etc. to support its claim that payment made towards management fee is at arm’s length. However, the TPO did not accept assessee’s contention. Ultimately, he concluded that neither the assessee could establish that it has actually availed the services of the AE nor any benefit has accrued to it as a result of such services. Accordingly, he determined the arm’s length price of the transaction at Nil by applying Comparable Uncontrolled Price (CUP) method and suggested the fee paid of Rs. 15,05,26,398/- as adjustment to be made to the income of the assessee. While framing the draft assessment order, the Assessing Officer added back the amount to the income of the assessee. Challenging the addition, the assessee raised objections before learned DRP. However, Learned DRP referring to similar adjustment made in assessment year 2011-12, ultimately, upheld the decision of the TPO. 6. Before us, learned Counsel appearing for the assessee submitted, the issue is squarely covered by the decision of the Tribunal in assessee’s case in assessment year 2007-08, 2009- 10, 2010-11, 2011-12 and 2012-13. He submitted, though Ld. DRP has accepted that the assessee has received management services from the AE however it has upheld the adjustment by merely saying that no benefit has accrued to the assessee. Proceeding further, he submitted that now it is fairly well settled fr' that the TPO cannot apply the benefit test while determining the ALP of intra group services. In this context, he relied upon the decision of the Tribunal in case of Avery Dennison India P. Ltd. Vs. ACIT in ITA No. 4868/Del/2014 dated 04.12.2015 and the decision of the Hon’ble Jurisdictional High Court in case of PCIT Vs. Avery Dennison India Pvt. Ltd. in ITA No.386/D2016. 7. Learned Departmental Representative submitted, the assessee has not made any separate benchmarking of the management services as the assessee has adopted an aggregate approach. He submitted that the AE has merely allocated certain cost to the assessee, which does not reveal whether any services were actually rendered or assessee benefitted through such services. Thus, he submitted, assessee having failed to demonstrate the actual rendering of services and benefit received, the adjustment is justified. 8. We have considered rival submissions and perused material on record. It is evident, the assessee had paid the amount in dispute to the AE towards ie 4 e ^ g ro u p services in the nature of management services. The details of services rendered broadly are as under B ro a d heads of a d m in is tra tiv e su pport fu n c tio n s % * N a tu re o f a d m in is tra tiv e su pport fu n c tio n s I T R u n & M aintain cost \ , ---------------------------------------------------------------------------it S olu tion s - Supply C hain Solutions, W arehouse M a n a gem en t and Value- a d d ed solution s; in ch a rg e o f cu stom er system s an d back o ffice a pplication s; res p on s ib le fo r developing, m an a g in g an d m a in ta in in g su ch system s. - G loba l In fra stru ctu re - design, build an d run p la tfo rm s that hosts 5 A a pplication s, respon sib le fo r the arch itectu re and a p p lication portfolio for all global and local application s • G lobal Service M an agem ent 86 G overn an ce - overh ead departm en t, In clu d in g the call cen ter support to C E V A affiliates w orldw ide • G lobal IT - actin g lin k betw een global dem an d (busin ess need) and dem an d (global IT organization) Business D evelopm en t • G lobal S ector Leaders for Autom otive, In dustrial, C on su m er & Retail, Energy, T ec h n olo gy focus sectors • G lobal Key A ccou n t M an agers for C en tu ry accou n ts Finance • D esign and operation o f fin an ce p rocesses w ith in the group • Fin ance Plan n in g & Analysis • T rea su ry - m an age bank relations, cash m an agem en t, etc • G lobal tax su pport • In su ran ce 8s risk - respon sib le for m a n a gin g and n ego tiatin g in tern al claim s CEO O ffice . Provide direction and leadersh ip tow ard s ach ievem en t o f m ission, strategy and ann u al goals • Sales and m ark etin g role; atten d in g key cu sto m er relation sh ip m eetings • A ctively in volved in acqu isition o f new custom ers « A tten dan ce at public press conferen ces, lo gistics con feren ces and o th er pu blic events. P rocurem en t • C oord in ated and capable procu rem en t program • C o n d u ctin g e S ou rcin g activities for the group G roup O peration s « B u sin ess processes 8s governan ce • G lobal security • P erform an ce m an agem en t • G lobal (lealth, safety 8s en viron m en t • G lobal n etw ork partn ers • B usin ess im p lem en tation S trategy and M &A • D esign in g and m an agin g the C E VA group strategy and im p lem en tation • Perform an ce o f strategic /analytical surveys - lookin g at co m p etitor and m arket in form ation to provide in sigh t to m an agem en t Legal • C om p lian ce - eg, policy d evelop m en t and im p lem en tation , bu sin ess rules • Litigation • C orp orate - eg, su p p o rtin g group fin a n cin g tran saction s, corporate secretarial activities • C om m ercial - eg, A pproval o f agreem en ts en tered by C E V A India w ith custom ers and sh ip p in g/air carriers. — Human • S uccession plan n in g, leadersh ip develop m en t, 'co m p en satio n and ben efits, execu tive recruitm en t, labou r issu e advice, su pport for 6 A ex p a tria te assiqnm ents, H R in fo rm a tion system s, etc G lobal C om m u m ca tio n • M ed ia rela tion s • In v e s to r relations • G lobal brand ing • In te rn a l com m u n ica tion • E xte rn a l com m u n ica tio n th rou g h w ebsite 9. It is further relevant to observe^ this is not the first year wherein the assessee received such services and made payment to the AE. The TPO himself has referred to similar nature of transaction made in assessment years 2012-13, 2013-14 and 2014-15. Thus, the assessee has made payment towards identical nature of transaction in various assessment years including assessment year 2011-12. In fact, Ld. DRP has referred to similar transaction in assessment year 2011-12. Notably, while deciding identical issue in assessee’s case in assessment years 2007-08, 2009-10, 2010-11, 2011-12 and 2012-13 the coordinate Bench, in ITA No.5682/Del/2011 and others dated 12.02.2019, deleted identical additions holding as under “15. We have heard both the parties and p eru sed all the relevant material available on record. It is pertin en t to note that the TPO did not dispute the fa c t that the m anagem ent fe e has been p a id to its AE f o r the services provided by the A Es to the assessee com pany and these services are interlinked transaction w ith the fre ig h t forw arding services, w hereas f o r A.Y. 2007-08, the TPO took the value o f the transaction at Nil by benchmarking the paym en t o f m anagem ent fe e as separate transaction. F or A. Y. 2008-09, the assessee company fu rn ish ed TP documentation, however, transactions o f the assessee was not disturbed. Thereafter again fro m A.Y. 2009-10 to 2012-13, the TPO treated the paym ent o f m anagem ent fe e as separate 7 A transaction. Thus, the TPO/AO ignored the evidences file d by the assessee company. The assessee did not incur expenditure outside India other than to have made pa ym en t to the A Es by way o f reim bursem ent under the agreement and on the terms and conditions as had been entered into. To support the case o f the assessee company, various evidences were subm itted before the TPO/AO by the assessee. The TPO accepted that services were rendered and received by the assessee. Once the rendering and receiving o f the services were not disputed w hich is supported by the evidences, the TPO is not correct in holding that arms length value o f the m anagem ent fe e is Nil and accordingly making an upw ard adjustment. Therefore, the fin d in g o f the TPO is not correct and this addition does not sustain. Ground No. I is allowed. 10. Facts being identical in the impugned assessment year, the aforesaid decision of the coordinate Bench will squarely apply. 11. In any case of the matter, while the TPO has observed that the assessee failed to demonstrate that services were actually received and benefit has accrued, learned DRP has acknowledged that voluminous documentary evidences were filed before the TPO as well as before the Panel including invoices to demonstrate that the assessee, indeed, had received management services. However, it appears, learned DRP ignored the evidences filed by the assessee demonstrating receipt of management services by merely stating that the assessee failed the benefit test. As per settled judicial principles the departmental authorities are not competent to apply the benefit test to determine the value of a transaction entered with the AE at Nil. In this regard, we may 8 A refer to the following observations of the Hon’ble Jurisdictional High Court in case PCIT Vs. Avery Dennison (India) Pvt. Ltd (supra) “3. The Com m issioner o f Income Tax (Appeals) [ ‘C IT (A )’] on appeal restricted the transfer p ricin g adjustm ent to Rs. 1,66,18,290. The contention o f the A ssessee was that agreem ent between the A ssessee and its A E was a com posite one and could not be split up f o r the purposes o f holding that som e services are at a rm ’s length and som e are not. The IT A T appears to have agreed with the above contention o f the A ssessee on viewing the agreem ent as a whole. It was not within the purview o f the TPO to determ ine i f some o f the services resulted in any actual benefit to the A ssessee or not. 4. H aving heard learned counsel f o r the Revenue at length and having peru sed the orders o f the TPO, CIT(A) and the ITAT, the Court is o f the view that the view taken by the IT A T is p la u sib le one and does not w arrant any interference. ” 12. Thus, considering the overall facts and circumstances of the case as well as the decisions cited before us, more particularly, the decision of the coordinate Bench in assessee’s own case in earlier assessment years, we hold that the adjustment made by the TPO by determining the arm’s length price of the management services at nil is unsustainable. Accordingly, we direct the Assessing Officer to delete the addition. 13. Ground No.6 being consequential and ground No.7 being pre mature at this stage, do not require adjudication. 9 14. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on lJ-01.2023. (G.S. PANNU) PRESIDENT *N E H A * D a t e : - f t .0 1 .2 0 2 3 C o p y fo rw a rd e d to: 1. Appellant 2. R e s p o n d e n t 3. C1T 4. C lT (A p p e a ls ) 5. D R: IT A T (SAKTIJIT4 JUDICIAL M BER A S S IS T A N T R E G IS T R A R IT A T N E W D E L H I ate o f dictation 16.01.2023 Date on which the typed draft is placed before the dictating Member { € ,© )- 2 J Date on which the typed draft is placed before the Other member l°i - o) • 2-S Date on which the approved draft comes to the Sr.PS/PS V * .