Income Tax Appellate Tribunal - Mumbai
Hapag -Lloyd Global Services Pvt. Ltd., ... vs Dcit Cir 14(2)(1), Mumbai on 18 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " K" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI NK PRADHAN, AM
ITA No. 2190/Mum/2017
(A.Y:2012-13)
Hapag-Llyod Global Services Dy. Commissioner of
Private Limited Income Tax 14(2)(1),
Unit No. 402 -403, Dosti Mumbai
Aayakar Bhawan, M.K.
Pinnacle, Plot No. E -7, Road Vs.
Road, Mumbai -20
No. 22, W agle Industrial
Esate, Thane (W ) Mumbai -604
P AN No. AACCC1314L
Appellant .. Respondent
Assessee by .. Shri Dhanesh Bafna, AR
Revenue by .. Shri Jayant Kumar, DR
Date of hearing .. 08-08-2017
Date of pronouncement .. 18-08-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of DRP, Mumbai, in Objection No. 28 date of direction 26-12-2016. The Assessment was framed by ACIT, Circle-14(2)(1), Mumbai for the A.Y. 2012-13 vide order dated 31-03-2017 under section 143(3) read with section 144C (13) of the Income Tax Act, 1961(hereinafter 'the Act').
2. At the outset, the learned Counsel for the assessee stated that the ground No. 1 is general in nature and only ground No. 2 (ix) is relevant for adjudication which reads as under: -
"On the facts and in the circumstances of the case and in law, the Assessment Order passed in pursuance to the directions issued by the Dispute Resolution Panel (DRP) is erroneous order as the DRP erred in upholding the action of the ACIT- 14(2)(1) (AO)/JCIT 2(2)(TPO) in making an adjustment of Rs. 2,17,65,903/- to the international I T A N o . 2 1 9 0 / Mu m / 2 0 1 7 Hapag-Llyod Global Services Private Limited (A.Y:2012-13) transaction of providing information technology enabled Service (ITES).
2. On the facts and in the circumstances of the case and in law, the DRP erred in upholding the action of the AO / TPO in:
ix. Not granting working capital adjustment; and
3. The learned Counsel for the assessee also stated that he has also raised additional ground for claim of net loss or gain on foreign exchange transactions, which is to be considered as operating in nature while computing the margins of the assessee. Since the same forms part of operating cost, based on which the assessee earns a markup from the AE. The learned Counsel for the assessee stated that these two issues is squarely covered in favour of assessee and against Revenue by the order of Tribunal in assessee's own case for AY 2009-10 and 2010-11 in ITA No.2300 and 7539/Mum/2014 dated 16-01-2017. The relevant additional grounds read as under: -
"On the facts and in the circumstances of the case and in law, the learned TPO erred in computing the operating margin of the Appellant and the comparable companies by treating the loss/gain on account of foreign exchange fluctuation as non- operating in nature.
It is prayed that the loss/gain on account of foreign exchange fluctuation be treated as operating in nature while computing the operating margin of the Appellant and the comparable companies for the purpose of transfer pricing analysis The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to Page 2 of 7 I T A N o . 2 1 9 0 / Mu m / 2 0 1 7 Hapag-Llyod Global Services Private Limited (A.Y:2012-13) submit such statements. documents and papers as may be considered necessary either at or before the appeal hearing."
4. Briefly stated facts are that the assessee (Hapag-Lloyd Global Services Pvt. Ltd.) a 100% subsidiary of Hapag-Lloyd AG, is engaged in the business of providing information technology enable back support services through its 100 per cent export oriented software technology particular units to its AE. The assessee entered into services agreement with the aforesaid AE for rendering the IT enable services on cost plus fixed markup basis but TPO during the relevant AY made adjustment of Rs. 2,17,65,903/-, in respect to international transaction of provision for information technology enable services. The AO while conducting transfer pricing analysis considered the loss/gain arising on account of foreign exchange provisions for information technology enable services. The AO while conducting transfer pricing analysis considered the loss/ gain arising on account of foreign exchange fluctuation as non-operating gain or loss in the nature of computation of operating margins of the assessee and that of the comparable transactions. In view of the above, the learned Counsel for the assessee stated that net loss or gain on foreign exchange transaction should be considered as operating margins of the assessee while computing margins of the assessee. Since the same form the parts of the operating cost based on which the assessee earns a markup from the AE, tt was argued by the learned Counsel that the forex loss or gain is the direct outcome of the export sale transactions undertaken by it and it thus partakes character of that very transaction to which it relates.
5. We have gone through the facts of the case and noticed that the assessee is a leading supplier in the global door to door contender transport industry and operates in nearly 320 locations all over the world and 130 countries. It has around 115 containership featuring a total capacity of around 4,70,000 TEU and which deployed across North Page 3 of 7 I T A N o . 2 1 9 0 / Mu m / 2 0 1 7 Hapag-Llyod Global Services Private Limited (A.Y:2012-13) Central America, South America, Europe, Africa, Middle-East, India, Fareast and Australia/ New Zealand. The assessee Hapag-Llyod Global Services Private Limited is hundred percent subsidiary of Hapang-Llyod AG, which performs information technology enable back office support services relating to documentation process. The back office support services provided by the assessee to Hapang-Llyod in the nature of documentation process services, which are as under: -
"Ensuring that the Bill of lading are issued error free as per the instructions received from Hapag-Lloyd;
Publishing service or customer contracts as required by Hapag-Llyod;
Filing of tariff rates and services contracts with the Federal Maritime Commission; and Supplier invoice verification and managing accounts payable, etc."
6. We find that the Tribunal order in ITA No. 2300 & 7539/Mum/2014 for AY 2009-10 and 2010-11 vide dated 16-01-2017 in assessee's own case is also considered the issue of operating margins by treating loss/ gains on account of foreign exchange fluctuation as operating in nature and allowed the comparability by observing in Para 9 & 10 and deleted this comparable on the ground of functional dissimilarity, which reads as under: -
"9. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record including the cited case laws for different propositions. The undisputed facts are that TNMM method has been used to benchmark the TP transactions by using data of impugned assessment year. After applying the various filters, TPO arrived at two comparables, Page 4 of 7 I T A N o . 2 1 9 0 / Mu m / 2 0 1 7 Hapag-Llyod Global Services Private Limited (A.Y:2012-13) the average PLI of which stood at 36.02% which resulted into impugned additions. Rule 10B(1)(e) deals with TNMM method which calls for suitable adjustment to net profit margins to make the two data comparable. We are unable to accept the contention of the Ld. DR that suitable adjustments could be made only in the margins of comparables and not in the margins of the Tested Party. Without making suitable adjustments in the margin, proper comparison could not be drawn. We find that the in case law relied upon by Ld. DR, the Tribunal had many alternative reason not to tinker with the PLI of the tested party. Further, the issue of treatment of forex gain / loss is now well settled by various judicial pronouncements and more specifically in judgments relied upon by assessee, wherein it has been held that forex gain/loss form part of the operating margin of the assessee as well as comparables. Further, we find that the assessee suffered net forex loss in AY 2010-11 and reflected the same as part of operating expenses under Schedule-12 which gives strengths to the arguments of Ld. AR. Since TPO has excluded forex gain / loss from operating margin, the same is not in line with these judicial pronouncements. Therefore, we find that matter is pure legal issue and do not raise any fresh issue and do not require investigation of additional facts and hence admit the same for adjudication by following apex court judgment in 'National Thermal Power Co. Ltd.' 1998 229 ITR
383.
10. Going further, the assessee has assailed inclusion of 'Cosmic Global Ltd.' on the premises of functional dissimilarity. After perusal of the decision Page 5 of 7 I T A N o . 2 1 9 0 / Mu m / 2 0 1 7 Hapag-Llyod Global Services Private Limited (A.Y:2012-13) in Mumbai Tribunal in Aegis Ltd. Vs. ACIT [supra], we find that this decision is related to AY 2009-10 which is impugned AY wherein Tribunal observed that this company had significantly outsourced its activities and therefore, could not be compared with ITES service provider. Following the same, we delete this comparable on the ground of functional dissimilarity."
7. Similarly, in respect to working capital adjustment Tribunal in AY 2009-10 and 2010-11 has considered this issue at Para 11 and 12 and directed the Revenue to allow suitable working capital adjustment by observing as under: -
"11. Further, we find that suitable working capital adjustment has not been granted to the assessee despite specific request and working provided by the assessee. A perusal of the decision of Mumbai Tribunal in Capgemini India Pvt. Ltd. (supra) shows that Tribunal, on similar facts and circumstances, had directed the lower authorities to grant the same and hence, following the same, we are of the considered opinion that the same is admissible to the assessee."
8. In view of the above, we find that both the issues are squarely covered in assessee's own case by Tribunals decision. Respectfully following the same, we allow both the issues of the assessee's appeal.
9. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 18-08-2017 .
Sd/- Sd/-
(NK PRADHAN) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 18-08-2017
Sudip Sarkar /Sr.PS
Page 6 of 7
I T A N o . 2 1 9 0 / Mu m / 2 0 1 7
Hapag-Llyod Global Services Private Limited (A.Y:2012-13) Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy// BY ORDER, Assistant Registrar ITAT, MUMBAI Page 7 of 7