Income Tax Appellate Tribunal - Mumbai
Dcit Rg 9(1)(2), Mumbai vs Anglo Eastern Shipping Management (I) ... on 3 January, 2018
आयकर अपीलीय अिधकरण, अिधकरण, मुबं ई "के " खंडपीठ Income-tax Appellate Tribunal "K"Bench Mumbai सव ी राजे , लेखा सद य एवं रिवश सूद, याियक सद य Before S/Sh. Rajendra,Accountant Member & Ravish Sood, Judicial Member आयकर अपील सं./I.T.A./1500/Mum/2016, िनधा रण वष /Assessment Year: 2011-12 DCIT - 9(1)(2), M/s.Anglo-Eastern Ship Management Mumbai. (India) Pvt. Ltd., 303, Third Floor,Leela Business Park, Vs. Marol, Andheri - Kurla Road, Andheri (East),Mumbai - 400 059.
PAN: AAECA6185F
(अपीलाथ /Appellant) ( यथ / Respondent)
आयकर अपील सं./I.T.A./1053/Mum/2017, िनधा रण वष /Assessment Year: 2012-13 M/s.Anglo-Eastern Ship Management DCIT - 9(1)(2), Vs. Mumbai.
(India) Pvt. Ltd., (अपीलाथ /Appellant) ( यथ / Respondent) C.O No.59/Mum/2016 (Arising out of आयकर अपील सं./I .T. A ./ 1 5 00 / M um/ 2 0 16 , िनधा रण वष /As s e s s me nt Y ea r : 2 01 1 - 12 ) M/s.Anglo-Eastern Ship Management DCIT - 9(1)(2), Vs. Mumbai. (India) Pvt. Ltd., (अपीलाथ /Appellant) ( यथ / Respondent) SA.No.330/Mum/2017,AY.2012-13 (Arising out of आयकर अपील सं./I .T. A ./ 1 0 53 / M um/ 2 0 17 , िनधा रण वष /As s e s s me nt Y ea r : 2 01 2 - 13 ) M/s.Anglo-Eastern Ship Management DCIT - 9(1)(2), Vs. Mumbai. (India) Pvt. Ltd., (अपीलाथ /Appellant) ( यथ / Respondent) Revenue by: Shri Saurabh Deshpande - DR Assessee by: Shri Madhur Agrawal सुनवाई क तारीख / Date of Hearing: 11/10/2017 घोषणा क तारीख / Date of Pronouncement: 03/01/2018 आयकर अिधिनयम ,1961 क धारा 254(1) अ तग त के आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) लेखासद य, राजे के अनुसार / PER RAJENDRA, AM-
Challenging the order,dated 20.01.2016,of the Assessing Officer (AO) passed in pursuance of the directions of the Dispute Resolution Panel(DRP),Mumbai, the assessee has filed the present appeal.It has also filed a cross objection (CO). The AO has challenged the directions of the DRP. We have also heard the stay application filed by the assessee for the AY.2012-13. Assessee-
ITA Nos.1500&1053/M/2017 M/s.Anglo Eastern Ship Mgmt.(India)Pvt. Ltd., company is engaged in the business of ship management services which include crew manage - ment,ship management and other services like maintenance, supervision, survey and repair of vessels. It filed its return of income on, 29/11/2011 declaring income of Rs. 2.21 crores. During the assessment proceedings,the AO found that assessee has entered into International Transactions(IT.s) with its Associated Enterprise(AE).He made a reference to the Transfer Pricing Officer(TPO) to determine the Arm's Length Price(ALP) of the IT.s entered into by the assessee. After considering the order of the TPO he issued a draft order to the assessee proposing adjustment of Rs. 5.77 crores. The assessee filed objections before the DRP. As stated earlier, the AO passed the order u/s.143 (3) r.w.s.144C of the Act.
ITA/1053/Mum/2017,AY.2012-13:
2.Effective ground of appeal,raised by the assessee, is about upward adjustment of Rs.5.77 crores to the total income of the assessee.During the Transfer Pricing (TP) proceedings the TPO found that assessee had entered into following IT.sn with its AE's :
SN. Nature of Transaction Amount(Rs.) Method used
1. Provision of other support services related to ship management 21,87,18,982 TNMM
2. Provision of technical management and related services 80,48,057 CUP
3. Reimbursement of expenses 16,81,072 At Actuals
22,84,48,111
He found that for computing the ALP of the transactions the assessee had adopted the following methodology.The Profit Level Indicator(PLI)was taken as operating profit/total costOP/TC).The assessee had identified six comparables for benchmarking ALP. As per the TP study report three-year averages OP/TC of the comparables was considered.He directed the assessee to provide updated margin considering the financials of the comparables for the year under consideration if same were available. The assessee submitted the same and the average OP/TC worked out (6.71%) ,as under:
S.No Name of the Comparable Company PLI as per TPSR Updated PLI (%)
1. Arcadia Shipping Ltd. 10.74% 13.42%
2. Central Investigation & Security Services Ltd. 2.35% 4.51%
3. Knight Watch Security Ltd. 5.31% 4.70%
4. Orient Express Ship Mgmt. Ltd. 5.05% NA
5. Tops Security Ltd. 6.35% 2.71%
6. Security & Intelligence Services (I) 7.84% 8.76 2 ITA Nos.1500&1053/M/2017 M/s.Anglo Eastern Ship Mgmt.(India)Pvt. Ltd., Arithmetic Mean (%) 6.28% 6.71% Assessee (%) 10% The assessee claimed that its profit margin (10%) was more than the PLI of the comparables,that the IT.s with its AE.s were at arm's length.The TPO directed the assessee to provide justification for considering the companies,engaged in security business,as comparables for benchmarking the IT.s. After considering the submission of the assessee, the TPO held that assessee was providing crew management services,technical management services,accounting services and other incidental and auxiliary services.He held that crew on shipboard included highly qualified engineers,persons holding degree in management to the unskilled labour, that the functions of the assessee included training the manpower apart from their recruitment,that it had chosen compar-
ables which were involved in providing security services and recruitment of unskilled labourers. He compared the functional profile of the comparables chosen by the assessee and rejected all of them.
2.1.Referring to the order of the DRP for the earlier assessment year, the TPO held that HSCC India Ltd.was a good comparable for determining the ALP.The assessee objected to inclusion of HSCC. However, rejecting the same he computed the ALP of the IT.s in following manner:
Particulars Reference Amount (Rs.)
Operating Revenue A 21,85,45,527
Operating Cost (as discussed above) B 19,86,77,688
Operating Profit C=A-B 1,98,67,839
OP / Operating Cost (as discussed above) D=C/B*100 10%
Arm's length margin E 39.08%
Arm's length income F 27,63,20,929/-
Adjustment G=F-A 5,77,75,402/-
Thus,he recommended an upward adjustment of Rs. 5,77,75,402/- to the total income of the assessee.
3.Before the DRP,the assessee made elaborate submissions.After considering the available material,the DRP held that the TPO had given detailed reason for rejection of comparables selected by the assessee,that he had given proper opportunity to the assessee to offer its comments on the comparable selected by him, that the objections of the TPO were mainly on the selection of final set of comparables for which he had given detailed reasons.With regard to Arcadia Shipping Ltd (ASL),the DRP held that it was providing services including shipping agency,liner-operations,ship-broking,ship-chartering,Project-cargo/coastal-cargo-movements,Off
-shore activities in oil and gas sector,chartering of ships like barges/vessels, transportation of 3 ITA Nos.1500&1053/M/2017 M/s.Anglo Eastern Ship Mgmt.(India)Pvt. Ltd., offshore structures,that the TPO had rejected the comparable holding that services rendered by ASL were not comparable to the services rendered by the assessee,that ASL was into the services same as of the assessee,that only the fields of services differ, that same could not vitiate the comparability,that all the services were similar and were rendered for fees, that in the earlier AY. ASL was considered as a valid comparable by the then DRP. Finally,it held that ASL was a valid comparable.
With regard to security services,the DRP held that all those companies would provide security personnel and security services,that the manpower provided by them was low-end,that same could not be compared with the skill/highly skilled manpower provided by the assessee, that security and intelligence services were providing most of the services through different subsidi - aries and joint ventures, that they could not be treated as valid comparable, that the TPO had rightly rejected them as good comparables.With regard to HSCC, the DRP held that in the earlier assessment year HSCC was treated a valid comparable, it was held that company was into services is of the assessee.
4.During the course of hearing before us, the Authorised Representative (AR) contended that while passing order for the year 2009-10,the TPO had not questioned the selection of ASL as a valid comparable,that the activities of ASL for the year under appeal were same as of that year, that the TPO had not compared the individual comparables,that HSCC was also having operation income,that there was no justification for selection HSCC as a valid comparable,that it was a Government undertaking having abnormal profit,that it was not engaged in providing the services that the assessee was rendering. He relied upon the cases of Honda R & D India Pvt. Ltd.(ITA.616 of 2015, dated 02/08/2016 of Hon'ble Delhi Court),Thyssen Krupp Industries (P.) Ltd.( 385 ITR 621) and Granite Services International P.Ltd.(ITA No.532/Del/2016-A.Y.2010- 11, dated 12/09/2017).
The Departmental Representative(DR) argued that ASL was not a valid comparable,that the turnover of ASL could not be compared with assessee,that there was vast difference in FAR analysis of both the entities,that as per page 352 of the paper book ASL was also having operational income,that ASL had earned project income,that ASL was doing much more than crew-management,that each year was a seprate AY.,that rule of res-judicata were not applicable to income tax proceedings,that HSCC was a good comparable,that HSCC should not be excluded 4 ITA Nos.1500&1053/M/2017 M/s.Anglo Eastern Ship Mgmt.(India)Pvt. Ltd., only because it was a Govt.enterprise. He relied upon the cases of Vishay Components India Pvt.Ltd.(ITA/133/PN/2011, A.Y.2006-07, dated 25/05/2012 & Rampgreen Solutions P.Ltd.(377 ITR 533).
5.We have heard the rival submissions and produce the material before us.We find that the assessee had selected final set of six comparables to determine ALP of the IT.s entered into it during the year under consideration,that the AO had rejected all the comparables selected by the assessee,that he held that HSCC was valid comparable to benchmark the transactions, that the DRP held that one of the comparables selected by the assessee,i.e.ASL,was a valid comparable, that the TPO was justified in holding that HSCC was a good comparable.
5.1.We find that the issue of inclusion/exclusion of two comparables i.e.ASL and HSCC is key to resolve the dispute before us.First.we will take the matter of ASL.We find that the DRP had held that overall functions of ASL were similar to the activities carried out by the assessee,that some of the activities of comparable were different.We are of the opinion that TP proceedings- especially selection of valid comparables-are not meant to put the proverbial fly in place of a fly(makshika-sthane-makshika).What has to be seen is that goods purchased/sold to/from AE.s or services rendered or availed to/from them are at market rate i.e.at Arm's length.The fundamental principle for introducing section 92 of the Act is that the entities having close proximity should not be allowed to manage their affairs in a manner that they shift their taxable income from India to other country.For that purpose FAR analysis has to be carried out and overall profit range is to be determined.As far as selection of comparables is concerned,it is said that an apple should not be compared with cabbage.But,while comparing apples each and every molecule of the apples should not be compared.There is going to be some difference in each model of business.So,two comparables cannot be expected to be mirror image of each other.If this broad principle about comparables is applied by the AO.s and the assessees most of the TP litigation would not arise.In other words, while determining the ALP of IT.s,what has to be seen is the basic similarities/ dissimilarities of two comparables.The functions performed by them, the assets employed and risks taken by them are the criteria is that determine exclusive/inclusion of comparables. It is true that some of the activities of ASL were not carried out by the assessee. But,most of the activities are similar.The both are in the shipping business.Both provide services to shipping activities.The assessee is an entity that is providing various services related with shipping business.In the 5 ITA Nos.1500&1053/M/2017 M/s.Anglo Eastern Ship Mgmt.(India)Pvt. Ltd., earlier year,the TPO himself had held that ASL was a valid comparable.He has not brought anything on record as to how the activities of the assessee for the year under appeal were different from the activities for the earlier year.There is no doubt that each AY.is a separate unit and that principles of res-judicata are not applicable to tax matters.But,there is no doubt that rule of consistency is applicable to tax proceedings and that without pointing out the difference in the facts of a year with that of earlier year the AO cannot say that decision of earlier year in not binding on him.To be covered by the umbrella of res-judicata,the AO has to clearly bring out the differences of both the years on record.But,in the case under consideration,there is nothing that could justify the exclusion of ASL as a valid comparable.The TPO has tried to distinguish the services rendered by ASL.But,in our opinion the overall performance of both the companies are same.Therefore,we are of the opinion that there is no need to interfere with the order of the DRP, as far as inclusion of ASL comparable is concerned.Upholding the order of the DRP, we hold that ASL is a valid comparable.
6.We find that HSCC is rendering comprehensive range of high-end professional consultancy services in the areas of healthcare in India as well as abroad. The assessee is involved in various services under the heads payroll arrangements, pension,insurance for the crew. It is true that it also recruits engineers.But,if we compare functionality of both the entities,it becomes clear that they are not in the similar areas of activities. HSCC is earning consultancy fee,as per financials of the company.70% of the total fee is received by it,on placement of supply order.Balance 30% of total fee is received by HSCC on receipt of supply/installation of equipments. It is also a fact that it is the government of India enterprises and provides services including conceptual studies and management consultancy,project-management,logistics and installations,procurement and purchases,healthcare facility design. The annual report of the company showed that during the year 2011-12 it was awarded the work of rendering consultancy services for design and engineering,project management procurement of medical equipments, drugs and pharmaceuticals for various prestigious and big projects,that it was participating exhibitions organised by various agencies.We also find that HSCC had shown abnormally high profit margin for the year ended on 31/03/2012 @ 39.08%,that in the earlier years it had shown profit @17.02%. We are of the opinion that a government enterprise cannot be rejected as a valid comparable just because it is a government undertaking.But, the basis of accepting/rejecting it is a valid comparable should be the functionality,especially when TNMM is applied.Cases relied upon by the representatives deal 6 ITA Nos.1500&1053/M/2017 M/s.Anglo Eastern Ship Mgmt.(India)Pvt. Ltd., with the issue of comparisons of government undertakings with private business entities.But,they lay down the general principles and hold that FAR is the decisive factor for comparing the valid comparables.
6.1.Considering the above,we hold that ASL is a valid comparable and HSCC is not a good comparable for benchmarking the IT.s,entered into by the assessee,for the year under consideration.If ASL is considered as a valid comparable,the assessee will fall within the safe zone of (+/ -)5% of the arithmetic mean.So,we hold that there was no justification in making the upward adjustment for the IT.s of the assessee.We decide effective ground of appeal, in favour of the assessee ITA/1500/Mumbai/2017:
7.The effective ground of appeal,raised by the AO is about holding ASL as a valid comparable for the year under consideration.In the earlier part of our order we,have discussed the issue at length.Following the same,we decide effective ground of appeal against the AO.
CO.No.59/MUM/20168.The AR stated that if the appeal filed by the assessee was to be allowed the CO would not survive.We have already decided the issue in favour of the assessee,so, the CO,filed by the assessee,is treated as infructuous.
SA.No.330/Mum/2017,AY.2012-13
9.We have already adjudicated the appeal filed for the A.Y.2012-13. Therefore, in our opinion, there is no need to pass a separate order for the Stay Application filed by the assessee. We allow it for statistical purposes.
As a result,appeal filed by the assessee is allowed.Appeal of the AO and the CO of the assessee stand dismissed.SA filed before us is allowed for statistical purposes.
फलतः िनधा
रती ारा दािखल क गई अपील मंजूर क जाती है.िनधा
रती ारा दािखल क गई अपील और िनधा
रती
अिधकारी
का या!ेप ना #कया
मंजूर $थगन आवेदन प( को सांि+यक उ-े.य/ के िलए मंजूर #कया जाता है
जात है. .
Order pronounced in the open court on 3rd January, 2018.
आदेश क घोषणा खुले यायालय म दनांक 03 जनवरी, 2018 को क गई ।
Sd/- Sd/-
(रिवश सूद /Ravish Sood) (राजे / RAJENDRA)
याियक सद य / JUDICIAL MEMBER लेखा सद
य / ACCOUNTANT MEMBER
Mumbai; #दनांक/Dated : 03.01.2018.
मुंबई
S.Gangadhara Rao, Sr.PS./JV, Sr.PS
7
ITA Nos.1500&1053/M/2017 M/s.Anglo Eastern Ship Mgmt.(India)Pvt. Ltd., आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ1 2. Respondent / यथ1
3.The concerned CIT(A)/संब3 अपीलीय आयकर आयु5, 4.The concerned CIT /संब3 आयकर आयु5
5.DR " K " Bench, ITAT, Mumbai /िवभागीय ितिनिध, के खंडपीठ,आ.अिध.मुंबई
6.Guard File/गाड फाईल स यािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.8