Income Tax Appellate Tribunal - Mumbai
Nhava Sheva International Container ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL "L" Bench, Mumbai Before Shri D.Manmohan (VP) and Shri Rajendra Singh(AM) ITA No.4078/M/2009 Assessment Year 2003-04 The DCIT, Circle-2(2), Mumbai M/s. Nhava Sheva International Container Aayakar Bhava, Room No.545, Terminal Pvt. Ltd., Barabsha House 5th floor, M.K.Road, Mumbai 400 020. Level 1, N.M.Marg, Ballard Estate, Mumbai 400 038. PAN : AABCN0185H Appellant Respondent Revenue by : Shri Naresh Balodia Assessee by : None ORDER
PER RAJENDRA SINGH (AM) This appeal by the revenue is directed against the order dated 27.2.2009 of CIT(A) for the assessment year 2003-04. The dispute raised by the revenue is in relation to adjustment on account of arm's length price (ALP).
2. Briefly stated the facts of the case are that the assessee who was in the business of providing port service had international transactions with an associated enterprise (PE) which was its principal named, P & O group of Australia. The main heads of services provided by the AE were as under :
Overall technical services to assist the assessee in developing and efficiently managing the terminals. Providing staff training and human resources services by assisting the company to procure qualified personnel. Financial services to enable the assessee to establish accounting and Management information systems (MIS). Procurement services consisting of assistance in preparation of documents, purchase of equipment etc. Technology Transfer services consisting of ongoing transfer of technical operational and management know-how to local personnel. Marketing services.
Other services.
3. The assessee had claimed expenditure of Rs.5,76,10,658/- on account of technical services provided by the PE. The AO referred the matter to the Transfer Pricing Officer (TPO) who determined the arm's length price of the technical services at Rs.2,46,90,281/-. The AO therefore mad adjustment of Rs.3,29,20,375/- on account of arm's length price and after making some other additions determined the total income at Rs.1,67,36,60,301/- which was exempt under section 80IA of the Act. The book profit u/s.115JB was however computed at Rs.2,24,55,94,353/- and the total tax payable determined at Rs.17,68,40,555/-. The TPO in his order noted that out of 7 technical services mentioned by the assessee only 3 services were provided by the AE.
4. The assessee disputed the decision of the AO making adjustment based on TPO order and submitted that entire income of the assessee was exempt under section 80IA and therefore there was no incentive to the assessee to shift profit to any of the overseas jurisdiction. It was argued that the assessee had received certain benefits under the arrangement with AE which exceeded the cost in the form of technical services paid. It was also submitted that the assessee had submitted documents to substantiate the rendering of services and in cases where there was no documents the assessee had submitted qualitative information. The TPO was therefore not justified in not allowing the four types of services. It was pointed out that the assessee being part of P & O group had availed various technical services which had resulted in savings in the operational expenditure. For instance the parent had taken a combined group insurance policy and though the assessee had paid for it, it was more economical. The AE had also provided services in the matter of port safety, security, risk management, training and development, engineering review process as well as provision of port operations manual.
5. CIT(A) after considering submissions of the assessee and on perusal of records noted that the technical fees paid by the assessee consisted of two elements viz (i) fixed amount of US $ 4 Lacs and (ii) variable fees of 1.2% of profit before deduction of interest, depreciation, management fees, advertisement and tax liability. CIT(A) also noticed that the variable fees was increasing from year to year whereas the services that assessee would require for running the port would be more during the initial years. As regards the insurance benefits, CIT(A) observed that the cost of the insurance was borne by the assessee and the only benefit derived was better rate. There was no nexus established between payment made and benefits derived by the assessee. Further the arguments that the income of the assessee was exempt under section 80IA was not relevant as the assessee was taxed on the deemed total income under section 115JB. CIT(A) however agreed that the assessee definitely received services as per clauses (a), (b), & (c). As regards the services mentioned in clauses (d) & (e) relating to procurement services and technology transfer services CIT(A) observed that these services would be required mostly in initial years and would gradually get reduced thereafter. Therefore though some payments may be required for these services, quantum of payment was not justified. Further there was no evidence for marketing services as mentioned in clause (f) and also in respect of other services mentioned in clause (g). CIT(A) also observed that the assessee had followed TNMM method of analysis which was not a very accurate method. The proper method could have been CUP method in respect of which the assessee had not given the study report. Considering the entirety of facts and circumstances CIT(A) held that only 50% of the fees claimed by the assessee could be justified and accordingly upheld adjustments to the tune of Rs.2,88,05,328/-. Aggrieved by the said decision the revenue is in appeal.
6. Before us no one appeared on behalf of the assessee to represent the case. However a written submission dated 6.8.10 has been filed in which it has been mentioned that the assessee was being taxed under section 115JB and therefore the additions made in the regular assessment would have no impact on the tax payable. The assessee was therefore not pursuing the appeal to avoid unnecessary litigation. It has however been made clear that the assessee had not accepted the disallowance and it reserved its right to challenge such disallowances in future. The Learned DR on the other hand placed reliance on the order of AO.
7. We have perused the records and considered the matter carefully. The dispute is regarding transfer pricing adjustments based on arm's length price. The assessee had made payments of Rs.5,76,10,656/- to its overseas AE for various services claimed to have been rendered as listed in para 2 of this order. CIT(A) after detailed examination has given a finding that full services had been rendered only in respect of clauses (a), (b) & (c). As regards services mentioned in clauses (d) & (e) these were also rendered but these services were mostly required during the initial years and therefore quantum of payment for these services was not justified. In regard to the services mentioned in clauses (f) & (g), CIT(A) was given a finding that there was no evidences to substantiate the services. There is no material placed before us by the revenue to controvert the findings of CIT(A). We therefore see no infirmity in the order of CIT(A) which is a reasoned and speaking order and the same is therefore upheld.
8. In the result appeal of the revenue is dismissed.
9. The order was pronounced in open court on today 20.08.2010.
Sd/- Sd/-
( D. MANMOHAN ) (RAJENDRA SINGH)
VICE PRESIDENT ACCOUNTANT MEMBER
Date : 20.08.2010
At :Mumbai
Order pronounced on 20.08.2010
Sd/- Sd/-
(D.MANMOHAN) (A.L. GEHLOT)
VICE PRESIDENT ACCOUNTANT MEMBER
Copy to :
The Appellant
The Respondent
The CIT(A), Mumbai concerned
The CIT, Mumbai City concerned
The DR "L" Bench, ITAT, Mumbai
// True Copy//
By Order
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
Alk
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