Income Tax Appellate Tribunal - Delhi
Ceva Logistics India P.Ltd, Gurgaon vs Dcit, Circle-1(1), Gurgaon on 19 January, 2023
Author: G.S. Pannu
Bench: G.S. Pannu
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
Assessm ent Year: 2014-15
CEVA Logistics India P. Ltd. DCIT
Sewa Tower, Plot No.19, Vs Circle-1 (1)
Sector-18, 2nd Floor, Block- Gurgaon
C, Maruti Industrial
Complex, Udyog Vihar,
Gurgaon-122015
PAN NO.AABCT7326A
(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
Date of Pronouncement: Jj^/01/2023
ORDER
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 f r ' 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 ie4 e^ gro u p services in the nature of management services. The details of services rendered broadly are as under
Broad heads of % * adm inistrative N ature o f adm inistrative support fu n ction s support fu n ction s \ , --------------------------------------------------------------------------- i t Solutions - Supply IT R un & Chain Solutions, W arehouse M anagem ent and Value- added solutions; in M aintain cost charge o f custom er system s and back office applications; responsible for developing, m anaging and m aintaining su ch system s. -
G lobal Infrastructure - design, build and run p la tform s that hosts 5 A applications, responsible for the arch itectu re and application portfolio for all global and local applications • G lobal Service M anagem ent 86 G overnance - overhead departm ent, In clu din g the call center support to CE V A affiliates w orldw ide • G lobal IT - actin g link betw een global dem and (business need) and dem and (global IT organization) • G lobal Sector Leaders for Autom otive, Industrial, C onsu m er & Retail, Energy, Business Tech n ology focus sectors D evelopm ent • G lobal Key A ccou nt M anagers for C entu ry accounts • Design and operation o f finance processes w ithin the group • Finance Planning & Analysis Finance • Treasu ry - m an age bank relations, cash m anagem ent, etc • G lobal tax support • Insurance 8s risk - responsible for m an agin g and n egotiatin g internal claim s . Provide direction and leadership tow ards ach ievem ent o f m ission, strategy and annual goals • Sales and m arketing role; attendin g key cu stom er relationship CEO Office m eetings • A ctively involved in acquisition o f new custom ers « Attendance at public press conferences, logistics conferen ces and oth er public events.
Procurem ent • C oordin ated and capable procurem ent program • C on du cting e Sou rcing activities for the group « B u siness processes 8s governance • G lobal security Group • Perform ance m anagem ent O perations • G lobal (lealth, safety 8s environm ent • G lobal netw ork partners • Business im plem entation • D esignin g and m anaging the CEVA group strategy and im plem entation Strategy and • Perform ance o f strategic /analytical surveys - looking at M &A com petitor and m arket inform ation to provide in sigh t to m anagem ent • Com pliance - eg, policy developm en t and im plem en tation , business rules • Litigation Legal • Corporate - eg, su pportin g group fin ancin g transactions, corporate secretarial activities • Com m ercial - eg, A pproval o f agreem ents entered by C E V A India with custom ers and sh ippin g/air carriers. -- • Succession planning, leadership developm ent, 'com pensation and Human benefits, executive recruitm ent, labour issue advice, support for 6 A expatriate assiqnm ents, H R inform ation system s, etc • M edia relations G lobal • In vestor relations C om m um catio • G lobal branding n • Interna l com m unication • E xternal com m unication through 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 natureof 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 perused all the relevant material available on record. It is pertinent to note that the TPO did not dispute the fa c t that the management fe e has been paid to its AE f o r the services provided by the AEs to the assessee company and these services are interlinked transaction with the fre ig h t forw arding services, whereas fo r A.Y. 2007-08, the TPO took the value o f the transaction at Nil by benchmarking the paym ent o f management fe e as separate transaction. For A. Y. 2008-09, the assessee company furnished 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 management fe e as separate 7 A transaction. Thus, the TPO/AO ignored the evidences filed by the assessee company. The assessee did not incur expenditure outside India other than to have made paym ent to the AEs by way o f reimbursement 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 submitted 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 which is supported by the evidences, the TPO is not correct in holding that arms length value o f the management fe e is Nil and accordingly making an upward adjustment. Therefore, the find ing 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 Comm issioner o f Income Tax (Appeals) [ 'C IT(A )'] on appeal restricted the transfer pricing adjustment to Rs. 1,66,18,290. The contention o f the Assessee was that agreement between the Assessee and its A E was a composite one and could not be split up fo r the purposes o f holding that some services are at a rm 's length and some are not. The ITA T appears to have agreed with the above contention o f the Assessee on viewing the agreement as a whole. It was not within the purview o f the TPO to determine i f some o f the services resulted in any actual benefit to the Assessee or not.
4. Having heard learned counsel fo r the Revenue at length and having perused the orders o f the TPO, CIT(A) and the ITAT, the Court is o f the view that the view taken by the ITA T is plausible one and does not warrant 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 l J- 01.2023.
(G.S. PANNU) (SAKTIJIT4
PRESIDENT JUD IC IA L M BER
*N E H A *
D a t e : - f t .0 1 .2023
C o p y fo rw a rd e d to:
1. Appellant
2. R espon dent
3. C1T
4. C lT (A p p ea ls)
5. D R: IT A T
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 of dictation 16.01.2023
Date on which the typed draft is placed
{ € ,© )- 2 J
before the dictating Member
Date on which the typed draft is placed
l ° i - o) •2 -S
before the Other member
Date on which the approved draft comes to the Sr.PS/PS V * .<rf < 2s?
Date on which the fair order is placed before Vi the Dictating Member for Pronouncem ent Date on which the fair order comes back to the Sr. PS/ PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench A Clerk Date on which file goes to the Head Clerk. The date on which file goes to the Assistant \ Registrar for signature on the order Date of dispatch of the Order