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1.7. By disregarding the approach followed by the Appellant for benchmarking international transaction pertaining to receipt of management services. In this regard, the Ld. TPO has artificially created separate business segments on fallacious assumptions, contrary to the fact that receipt of management services are received in the course of routine business activity and are integral part /inextricably linked to the business model of the Appellant (viz. freight forwarding services).

We are taking up ITA No. 5682/Del/2011 for A.Y. 2007-08 first.

3. The assessee company is engaged in business of freight forwarding services, consignment handling services and other services. The freight forwarding services are carried out through air and ocean. Other services include custom clearances, storage and warehousing services. E-return non digitally signed declaring total income of Rs. 14,37,37,780/- was filed on 30.10.2007. The hard copy of the return was submitted on 14.11.2007. The return was processed u/s 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny. Notice u/s 143(2) was issued on 22.09.2008 which was duly served upon the assessee. The case was assigned to ACIT Circle 10(1). Therefore, fresh notice u/s 143(2) along with notice u/s 142(1) of the Act and with a detailed questionnaire was issued on 13.10.2010 which was also duly served upon the assessee. In response to these notices, Chartered Accountant/Authorised Representative of the assessee attended from time to time and the details as required was filed before the Assessing Officer which was placed on record after perusal. During the year under consideration, the assessee company made the international transaction with the associated enterprises of total value of more than Rs. 15.0 crore and a reference was made to Transfer Pricing Officer u/s 92CA(3) of the Act, in respect of international transaction entered into by the assessee during F.Y. 2006-07. The transfer pricing order dated 11.10.2010 was passed directing the Assessing Officer to make total addition of Rs. 17,97,78,755/- in respect of payment of management fee (Rs.5,16,58,369/-) and income from freight forwarding (Rs.12,81,20,386/-). The Assessing Officer passed draft assessment order and the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP with certain direction disposed off the objections of the assessee vide order dated 08.08.2011. Thereafter, the Assessing Officer made addition on account of arm's length price for Rs. 17,97,78,755/- and on account of disallowances under Section 14A of the Act for Rs. 1,00,000/-.

4. Being aggrieved by the Assessment Order, the assessee filed the present appeal before us.

5. The Ld. AR submitted that the TPO held that transaction of payment made by the assessee to its AEs on account of management consultancy services of Rs.5,16,58,369/- should be segregated from the transaction of freight forwarding. The Ld. AR further submitted that after segregating the aforesaid transaction, the TPO computed the NCP of the transaction of freight forwarding at 9.03% as against the NCP of 6.10% computed by the assessee from both the transactions. The Ld. AR submitted that in respect of the payment of management fee, the TPO applied CUP method and computed the arm's length price of the aforesaid transaction at NIL, however, in respect of the transactions of freight forwarding and cargo handling, he accepted the TNMM as most appropriate method adopted in the TP study and Accountant's Report in Form 3CEB by the assessee. However, the TPO concluded that the payment of Rs. 5,16,58,369/- as management service fee was not at arm's length and by the application of CUP, the arm's length price of this transaction was reduced to Nil. The TPO also observed that PLI used shall be OP/TC as the assessee has higher portion of uncontrolled transaction on the cost side and the Arithmetic Mean of comparables was at 15.91% and made an upward adjustment of Rs. 12,81,20,386/-. The adjustment made by him are tabulated as under:

Aggregated approach followed by the assessee 2 Income from 2,03,29,93,910 21,61,14,296 12,81,20,386 TNMM freight forwarding The Ld. AR submitted that in respect of the transaction of freight forwarding and cargo handling services, the TPO did not dispute the most appropriate method selected by the assessee. However, the TPO held that since the freight cost is a key driver as such, same should be used as diagnostic tool for selection of the comparable and therefore he applied a filter of freight cost/freight income. The TPO held that since the freight cost/freight income of the assessee is 80.90% as such, he applied a range of 75%-85% (freight cost/freight income) for selection of the comparables. The Ld. AR submitted that by applying the aforesaid filter, the TPO selected only 2 comparable which are as under: