Income Tax Appellate Tribunal - Mumbai
Teekay Shipping India P.Ltd, Mumbai vs Dcit 3(3), Mumbai on 8 March, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"J" BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND
SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER
ITA no.4037/Mum/2017
(Assessment Year :2011-12)
Teekay Shipping India Pvt. Ltd.
4th Floor, Metro House
Mahatma Gandhi Marg ................ Appellant
Metro House, Mumbai 400 020
PAN - AAACS9808H
v/s
Dy. Commissioner of Income Tax
................ Respondent
Ward-3(3), Mumbai
Assessee by : Shri Sushil Lakhani
Revenue by : Shri Manish Kumar Singh
Date of Hearing - 17.12.2018 Date of Order - 08.03.2019
ORDER
PER SAKTIJIT DEY, J.M.
This appeal has been filed by the assessee challenging the order dated 20th March 2017, passed by the learned Commissioner (Appeals)-58, Mumbai, for the assessment year 2011-12.
2. Ground no.1, is not pressed, hence, dismissed. 2
Teekay Shipping India Pvt. Ltd.
3. Ground no.3, being general in nature, does not require adjudication.
4. The only surviving ground is ground no.2, wherein the assessee has disputed selection of certain comparables.
5. Brief facts are, the assessee is an Indian Company. For the assessment year under dispute the assessee filed its return of income on 28th November 2011, declaring total income of ` 54,59,480, under the normal provisions and book profit of ` 33,02,759, under section 115JB of the Income Tax Act, 1961 (for short "the Act"). During the assessment proceedings, the Assessing Officer on examining the functional profile of the assessee noticed that it provides manning services to its holding company, Teekay Shipping Ltd., Bahamas, and other companies in the Group. From the transfer pricing study report, the Assessing Officer found that the assessee has aggregated all international transactions and benchmarked them by applying Cost Plus Method (CPM) as the most appropriate method with Operative Profit / Operating Income (OP/OI) as the Profit Level Indicator (PLI) for computing the margin. He observed, the assessee has selected two companies viz. Idea Cellular Services Ltd. and Heathway Krishna Cable Pvt. Ltd. as comparables with average weighted margin of (-)12.44%. Since, the margin shown by the assessee at 2.50% is more than the 3 Teekay Shipping India Pvt. Ltd.
margin of the comparables selected, the international transaction was claimed to be at arm's length. The Assessing Officer, however, neither accepted the most appropriate method selected by the assessee nor comparables. He observed, for benchmarking the international transactions entered into by the assessee, Transactional Net Margin Method (TNMM) is the most appropriate method with Operating Profit / Operating Cost (OP/OC) as the PLI. Having held so, the Assessing Officer selected following six companies as comparables with arithmetic mean of 15.57%.
Sr. OP/OC
Comparable Name
no. F.Y. 2010-11 (%)
1. Cyber Media Research Ltd. 10.33
2. Empire Industries Ltd. 22.36
3. HCCA Business Services Pvt. Ltd. 17.32
4. HSCC India Ltd. 16.99
5. ICRA Management Consulting Ltd. 15.90
6. Spectrum Business Solutions Ltd. 10.25
Arithmetic Mean 15.57
6. Applying the aforesaid arithmetic mean of the comparables, the Assessing Officer determined the arm's length profit at ` 90,86,413, which resulted in an upward adjustment of ` 75,90,042. This adjustment made to the arm's length price was added back to the income of the assessee.
4
Teekay Shipping India Pvt. Ltd.
7. In course of the appeal proceedings before the first appellate authority, the assessee furnished a fresh list of comparables by applying certain filters. Learned Commissioner (Appeals), after verifying the fresh list of comparables furnished by the assessee, selected nine companies as comparables with arithmetic mean of 13.22%. Accordingly, he directed the Assessing Officer to adopt the margin of 13.22% for computing the adjustment. Of course, he issued further directions to the Assessing Officer to adopt correct operating expenses, with which we are not concerned in the present appeal.
8. The learned Authorised Representative, at the outset, submitted, out of the comparables selected by the learned Commissioner (Appeals), the assessee is disputing three comparables. Hereinafter we will deal with the comparables disputed by the assessee before us.
i) MERCER INDIA PVT. LTD. 9. Objecting to the selection of this company, the learned
Authorised Representative submitted, related party transaction (RPT) of this company is more than 75%, therefore, it cannot be treated as comparable. He submitted, even otherwise also the company is functionally different from the assessee which is evident from the functional profile of the company appearing in the functional analysis done by the first appellate authority. To support his contention, the 5 Teekay Shipping India Pvt. Ltd.
learned Authorised Representative drew our attention to the financial report of the company enclosed in the paper book.
10. The learned Departmental Representative relying upon the observations of learned Commissioner (Appeals) submitted, some of the other companies selected by learned Commissioner (Appeals) and not disputed by the assessee are also not purely into providing human resource services. Therefore, assessee's objections with regard to functional dissimilarity of this company cannot be accepted.
11. We have considered rival submissions and perused material on record. The major ground on which the assessee has sought exclusion of this company is, the RPT of the company is more than 75%. On a perusal of the annual report of the company submitted in the paper book it is observed that out of the total turnover of ` 203.303 crore, transactions with group companies constitutes ` 164.78 crore. Therefore, prima-facie, this company fails the RPT filter of more than 25%. In fact, learned Commissioner (Appeals) himself has rejected Idea Cellular Services Ltd. selected by the assessee since it is providing 100% related party transaction. Applying the same logic, Mercer India Pvt. Ltd. cannot be selected as a comparable. Therefore, we direct the Assessing Officer to examine this aspect and if it is found that RPT of this company is more than 25%, it should be excluded 6 Teekay Shipping India Pvt. Ltd.
from the list of comparable. The Assessing Officer is also directed to examine assessee's contention regarding functional dissimilarity of this company.
ii) CHARAN GUPTA CONSULTANTS PVT. LTD.
12. Objecting to the selection of this company, learned Authorised Representative submitted, while the assessee is basically providing manning/recruitment services, this comparable provides technical consultancy. In this context, he drew our attention to the business profile of the company at Page-13 of learned Commissioner (Appeals)'s order. Further, learned Authorised Representative submitted, OECD guidelines make it clear that manning services comes in the category of low value added services, hence, cannot be comparable to technical consultancy services. Thus, he submitted, this company cannot be treated as comparable..
13. The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals). Further, he submitted that many other comparables having different functional profile have not been objected to by the assessee.
14. In rejoinder, the learned Authorised Representative submitted, the comparables not objected to by the assessee though may not be in 7 Teekay Shipping India Pvt. Ltd.
shipping business but they are in the business of human resource (recruitment).
15. We have considered rival submissions and perused material on record. As could be seen from the functional profile of this comparable, as mentioned in Page-13 of the learned Commissioner (Appeals), it provides services of advising of designing and re-structuring employees benefit scheme, management of trust funds, pay roll management and arranging valuation of employee benefit schemes started in 1972. Whereas, the functional profile of the assessee as reproduced in Para-6.8 of the learned Commissioner (Appeals)'s order is basically confined to marine H.R. services relating to arranging and managing sea going personnel requirement for all the Teekay Group Vessels. Thus, basically, he assessee provides manning services relating to recruitment of employees for sea going vessels of the group companies. Therefore, the functional profile of the aforesaid comparable is different from the assessee, as the assessee does not undertake any such services which the aforesaid company provides. Therefore, we direct the Assessing Officer to exclude this company from the list of comparables.
ii) EMPLOYMENT MANAGEMENT INDIA LTD.
16. Objecting to the selection of this company learned Authorised Representative submitted, the company provides services relating to 8 Teekay Shipping India Pvt. Ltd.
technical administration, marketing, secretarial and other services and providing service of technicians. Thus, he submitted that the company is functionally different from the assessee.
17. The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals).
18. We have considered rival submissions and perused material on record. The functional profile of this company, as mentioned in Page- 14 of learned Commissioner (Appeals)'s order is as under:-
"Employment Management (India) Ltd., carry on the business and profession services including technical administration, marketing, secretarial and other services and providing service of technicians."
19. From the functional profile of the aforesaid comparable reproduced herein above, though, it appears that it is in diversified activities, however, it also provides secretarial and other services and service of technicians. Therefore, if this company is also engaged in providing H.R. services and segmental details in respect of H.R. segment are separately maintained and available, then comparability of this company can be considered. However, the aforesaid aspect requires factual verification for coming to a definite conclusion that the company is comparable to the assessee. Since, the aforesaid comparable was not in the list of comparable selected by the Assessing 9 Teekay Shipping India Pvt. Ltd.
Officer and was selected by learned Commissioner (Appeals), and since it appears from learned Commissioner (Appeals)'s order that the functional profile of this company was not properly examined qua audited financial statements, we are inclined to restore the issue relating to the comparability of this company to the Assessing Officer for fresh adjudication keeping in view our observations herein above and only after due opportunity of being heard to the assessee.
20. Since, the assessee has not disputed selection/rejection of any other comparable except the aforesaid three comparables, we restrict our finding to the comparables specifically disputed before us.
21. In the result, assessee's appeal is partly allowed.
Order pronounced in the open Court on 08.03.2019 Sd/- Sd/-
MANOJ KUMAR AGGARWAL SAKTIJIT DEY
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 08.03.2019
Copy of the order forwarded to:
(1) The Assessee;
(2) The Revenue;
(3) The CIT(A);
(4) The CIT, Mumbai City concerned;
(5) The DR, ITAT, Mumbai;
(6) Guard file.
True Copy
By Order
Pradeep J. Chowdhury
Sr. Private Secretary
(Sr. Private Secretary)
ITAT, Mumbai