Income Tax Appellate Tribunal - Mumbai
Ups Jetair Express P. Ltd, Mumbai vs Department Of Income Tax on 1 November, 2012
ITA No.6838 of 2010 UPS Jetair Express Pvt Ltd Mumbai
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), 2nd Floor, Room Vs. M/s UPS Jetair Express Pvt.
No.229 Aayakar Bhavan, MK Ltd., Plot No.6A, Shyam
Road, Mumbai 400020 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
ORDER
Per Bench:
This is a Revenue appeal against the orders of the CIT (A)-15 Mumbai, dated 27.07.2010. The Revenue has raised the following grounds:
"1. On the facts and in the circumstances of the case and in in law, the learned CIT (A) erred in deleting the addition of `.9,35,48,886/- in relation to arm's length price pertaining to international transactions, ignoring the observations in the assessment order under section 92C(4) read with section 92CA(3) of the I.T. Act, 1961.
2. On the facts and in the circumstances of the case and in in law, the learned CIT (A) erred in holding that payments made to Provident Fund and ESIC authorities even beyond the grace period provided under the respective law are allowable as deductions, contrary to the provisions of section 43B of the I.T. Act, 1961".
2. Ground No.1 pertains to the issue of transfer pricing, while Ground No.2 pertain to the issue of amounts paid beyond the grace period towards PF an ESIC disallowed under section 43B.
Page 1 of 6ITA No.6838 of 2010 UPS Jetair Express Pvt Ltd Mumbai
3. Assessee is an Indian company engaged in the business of international transportation services and domestic pickup and delivery services. Assessee is a joint venture between UPS International Forwarding Inc, the United States of America ('USA') and Jetair Limited, India ('Jetair') with equity holding of 60 percent and 40 percent respectively. During the A.Y, assessee has entered into the following international transactions with its Associated Enterprises ('AEs') within the meaning of Section 92 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 152,647,723 NA
transportation services to
assessee within India
2 Provision of international NA 998,970,718
transportation services by
assessee outside India
3 Allocation of leased line 22,293,580
expenses
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 with 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 Commissioner of Income Tax (Transfer Pricing-V) (TPO) for determining the arm's length price (ALP) in respect of the international transactions entered into by assessee.
5. Assessee based on the functional analysis, the comparable uncontrolled price (CUP) method was determined to be the most appropriate method. For the purpose of the CUP analysis, 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 the TP Report that the international transactions were undertaken at arm's length standard.
Page 2 of 6ITA No.6838 of 2010 UPS Jetair Express Pvt Ltd Mumbai
6. During the assessment proceedings, the TPO asked assessee to provide reasoning as to why the Transactional Net Margin Method ('TNMM') should not be applied and comparable companies from courier industry should not be considered for determining the ALP of assessee's transactions. The TPO also mentioned the fact that assessee was reporting continuous losses in its 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 Elbee arrangement is not contemporaneous as per provisions of Rule 10D(4).
8. Further, the TPO in its order dated 28 November 2006 was of' the view that TNMM is the most appropriate method and identified two companies - Patel On-Board On Board Couriers Limited ('Patel On-Board') and Skypak Services Specialist Limited ('Skypak') as comparable companies for benchmarking the Appellant's international transactions. Based on the TNMM analysis, the TPO arrived at the arm's length margin of 3.61% (using margins of the two comparables as follows: Patel on-Board 3.85% and Skypark 3.37%) in respect of the international transactions of assessee. Given that the margin earned by assessee did not fall within the permissible range of +/-5% from the arm's length operating margin as determined by the TPO, a transfer pricing adjustment 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 transactions of assessee. AO relied upon the order of the TPO and made an addition of `.9,35,48,886/- to the total income of assessee in the order issued under section 143(3) of the Act.
10. Before the CIT (A) it was contended that the TPO wrongly considered the entity-wise margin of one of the comparable companies i.e. Patel On-Board for the purpose of bench marking Page 3 of 6 ITA No.6838 of 2010 UPS Jetair Express Pvt Ltd Mumbai assessee's margin under TNMM. On furnishing the segmental profitability of the above company and also other two 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 assessee's contention for the use of segmental results for Patel On-Board on the basis that only the co-loading segment of the company is engaged in comparable activity i.e. courier services. The TPO-II also agreed with assessee on the second issue i.e. erroneous computations of the margins of the comparables and that of assessee. The TPO-II agreed and concluded that consistency needs to be followed while calculating the margins of the comparables vis-à-vis that of assessee. The TPO-II however, did not agree with assessee's contention on the third issue on the basis that working capital difference between assessee and the two comparables is not highly varied. The relevant extracts from the remand report 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 activities 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 assessee's case".
..
..
The revised margin computation of UJEL, Patel On-Board and Skypark is as follows:
Particulars UJEL (as per Skypark Patel On-
TPO order Service Board Private
dated Specialist Limited (Co-
28.6.2006) Limited loading
segment)
Operating Income 1,312,298,53 269,919,243 1,086,801,494
(A)
Expenses
Operating Expenses 1,344,232,269 258,628,921 1,086,801,494
Other Expenses
Bank charges (refer 946,092 874,867 7,194,331
note in case of Patel
on Board)
Page 4 of 6
ITA No.6838 of 2010 UPS Jetair Express Pvt Ltd Mumbai Provision for 7,224,021 214,929 -
doubtful advances Unallocated - - 72,979,390 operating items of expenses allocated in the ratio of segment revenue/total revenue (in case of Patel On Board) Total operating 1,352,402,382 259,718,717 1,166,975,216 expenses (B) Operating profits (40,103,829) 1,200,526 22,551,410 (C=A-B) Operating Margin -3.06% 0.46% 1.90% (operating profit/ operation revenue (C/A)
12. Considering the remand report of the TOP-II, the CIT (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. Based 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-II, 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 assessee's 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 revised TPO report in the remand proceedings. Once TPO accepts and adjusts the computations on the basis of which CIT(A) deleted the addition, Page 5 of 6 ITA No.6838 of 2010 UPS Jetair Express Pvt Ltd Mumbai 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 of 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 allowable grace period of 5 days, the Revenue is aggrieved. We do not see any reason to interfere with the order of the CIT (A) as the disallowance under section 43B is not required when the amounts are paid within the grace period allowed under the respective Acts. Not only on legal principles but also on the fact that the entire amount was paid before the closure of the financial year or within the due date for filing the return as provided, we uphold the order of the CIT (A) and dismiss the Revenue ground 2.
15. In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 7th 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
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