UPS EXPRESS P LTD. (FORMERLY KNOWN AS UPS JETAIR EXPRESS P. LTD.),MUMBAI vs. DY CIT -11(1)(2), MUMBAI

PER ANIKESH BANERJEE, J.M.

The instant appeal filed by the Assessee is

directed against the Order of the Learned Commissioner

Income Tax (Disputes Resolution Panel)-2 [In short “Ld. CIT”

& “DRP”] bearing Din & Order No.ITBA/DRP/F/144C(5)/

2020-21/1031567827(1) vide order dated 17.03.2021

2 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

passed under section 144C(5) of the Income Tax Act, 1961

[In short “Act”] and arises out of the draft assessment order

passed by the Learned ACIT, Circle-11(10(2)], Mumbai [in

short “A.O.”], vide order dated 13.12.2019 passed under

section 143(3)/144C(1) of the I.T. Act, 1961.

assessee viz., M/s. UPS Jetair Express Private Limited is

engaged in the business of International Integrated

transportation services. During the under consideration, the

assessee company filed it’s return of income on 30.11.2016

declaring total income of Rs.43,08,88,530/- and claimed a

refund of Rs.47,46,097/-. Subsequently, the assessee

revised it’s return of income on 28.03.2018 declaring total

income at Rs.43,08,88,530/- and claimed a refund of

Rs.68,05,230/-. The assessee company showed it’s income

in the profit and loss from Business and Profession.

Further, the assessee along with it’s return of income filed

tax audit report in Form No.3CA and 3CD as required under

section 44AB of the I.T. Act, 1961. The assessee has also

filed the report in Form No.3CEB relating to international

3 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

transactions. The case of the assessee was selected for

scrutiny under CASS and accordingly notice dated

04.7.2017 under section 143(2) of the I.T. Act, 1961 was

issued to the assessee company, which was duly served

upon the assessee company. Further, the A.O. also issued

notice under section 142(1) and served upon the assessee

along with questionnaire. In response to the said notice, the

assessee’s Authorised Representative appeared before the

A.O. from time to time and filed their submissions which

were duly considered and the A.O. made an addition of

Rs.12,93,94,377/- towards transfer pricing adjustment as

per the TP Oder under section 92CA(3) of the I.T. Act dated

28.03.2019 and assessed the total income of the assessee

company at Rs.56,02,82,910/- [rounded-off].

2.1. Aggrieved by the draft assessment order of the

A.O. the assessee company filed it’s objections before the

DRP. The DRP with respect to transfer pricing adjustment of

Rs.12,66,16,031/- in respect of payment of technical know-

how fees observed as under :

4 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

“4.2.2. This DRP is in agreement with the view taken

by the DRP for the A.Y. 2011-12. The DRP for the A.Y.

2011-12 has upheld the determination of the

Comparable Uncontrolled Prices [“ CUP” ] of the so called

technical know how fees at NIL by the TPO and the

consequent recommendation of the entire actual

payment made as a transfer pricing adjustment to the

returned income. This DRP is also in agreement with the

view taken by the DRP for the A.Y. 2011-12 that the

entity level TNMM, by itself, would not satisfy the

statutory requirement of testing the arm's length nature

of the international transaction of the payment of

technical knowhow fees, and that to determine whether

the assessee would have made such a payment if it

was dealing with an unrelated party in similar

conditions, it is necessary to look at the basis for the

quantification of the payment to be made. There is no

change in the facts of the case during the year under

reference. Again No effort to establish the cost, if any, to

the concerned AE in providing such services to the

5 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

assessee has been made. Therefore, following the

judicial precedence of the earlier years the

determination of the Comparable Uncontrolled Price

(CUP) of the so called technical knowhow fees at nil by

the TPO and the consequent recommendation of the

entire actual payment made as a transfer pricing

adjustment to the returned income is hereby upheld.”

2.2. The DRP accordingly observed that since the

material facts and circumstances in the instant case for the

A.Y. 2016-17 remain the same, therefore, following the

findings of the DRP in earlier years, the objection raised by

the assessee company was rejected.

proposed mark up of 1.74 percent on recovery of expenses

from M/s. UPS Worldwide Forwarding Inc., USA. observed

as under :

“6.3.1. We have considered the submissions of the

assessee company on this issue. We find that this issue

too was consistently a subject matter of dispute before

6 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

the DRP in earlier AYs. The DRP has vide its direction

dated 16.11.2015 for AY 201 1-1 2 in Para No. 6.3 held

the following :

“ 6.3.1. The DRP has considered the

submissions of the assessee company on this

issue, the legal position under the I. T. Act 1961

and the international practices, where a charge for

an infra-group service is justified, the amount

charged should be determined in accordance with

the arm's length principle. The arm's length service

suppliers would usually expect to recover their

costs plus an element of profit. A careful read of

paragraphs 7.33 of the OECD guidelines on the

issue suggests :

For intra-group services, the issue may arise

whether it is necessary that the charge be

such that it results in a profit for the service

provider. In an arm's length transaction, an

independent enterprise normally would seek

to charge for services in such a way as to

7 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

generate profit, rather than providing' the

services merely at cost.

6.3.2. Therefore, the determination of the mark

up of 3% for providing services by the assessee to

its AE as service compensation / transfer pricing

adjustment in respect of international transaction

of recovery of expenses by the TPO, is hereby

upheld.

6.1.1. Further, in the AY 2012-13, in para 8.3.2 of

the directions dated 02.12.2016, the DRP held

following:

8.3.3. The facts of the case remain the same

during the year under reference. Hence, there is no

reason to deviate from the decision of the DRP for

the preceding year.

8.3.4. The ALP of the markup determined at

4.84% by the TPO has not been disputed before us.

Therefore, the determination of the mark up of

4.84% for providing services by the assessee to its

8 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

AE as service compensation / transfer pricing

adjustment in respect of international transaction

of recovery of expenses by the TPO, is hereby

upheld.

8.3.4. Regarding Assessee's contention that

coordination / liaising with airlines is an activity

incidental to the Assessee’s export pick up services

for which it is already being compensated and the

incidental cost, if any are considered under TNMM

analysis, we find that it has not been shown

before us how the recovery of the expenses are

closely linked with various other transactions and

cannot be evaluated independently. Secondly, the

ALP is determined on a "transaction-by-

transaction" basis, using the most appropriate

method having regard to functional analysis and

availability of the comparable uncontrolled

benchmark. If the aggregation of non-closely linked

transaction is allowed as sought by the assessee

provisions of 92(3) would become otiose, as the

9 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

negative adjustment of one of the international

transactions would automatically be set-off

against the positive adjustment of another

international transaction. Therefore, this plea of

the assessee is also rejected.

6.1.2 Material facts remaining same during the

year under reference, we find no reason to deviate from

the decision of the DRP for the preceding years. The ALP

of the mark up determined at 1.31% by the TPO has not

been disputed before us. Therefore, the determination of

the mark up of 1.31% for providing services by the

assessee to its AE as service compensation / transfer

pricing adjustment in respect of international

transaction of recovery of expenses by the TPO, is

hereby upheld.

The Ground No.2 of the Objection is rejected

accordingly”

3.1. The DRP accordingly noted that since the

material facts and circumstances in the instant case for the

10 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

A.Y. 2016-17 remain the same, therefore, following the

findings of the DRP in earlier years, the objection raised by

the assessee company was rejected.

company filed the present appeal before the Tribunal by

raising the following grounds :

“The grounds stated here under are independent of, and

without prejudice to one another.

respect of Technical know-how fees of INR.

126,616,031 paid by Appellant to its Associated

Enterprise ('AE')

1.1. On the facts and circumstances of the case and

in law, the learned Transfer Pricing Officer ('TPO') /

Assessing Officer ('AO')/ National E-Assessment Centre

('NeAC') erred in holding, and the Hon'ble Dispute

Resolution Panel ('DRP') further erred in directing, that

the arm's length price in respect of Technical know-how

11 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

fees of INR 12,66,16,031 paid by the Appellant to its AE

was 'NIL'.

1.2. On the facts and circumstances of the case

and in law, the learned TPO/AO/NeAC erred and the

Hon'ble DRP further erred in not accepting the

computation of arm's length price carried out by the

Appellant which was in accordance with the

Transactional Net Margin Method prescribed under

Section 92C(1) of the Income-tax Act, 1961 ('the Act')

read with Rule 10B(l)(e) of Income-tax Rules,1962 ('the

Rules').

1.3. On the facts and circumstances of the case

and in law, the learned TPO/AO/NeAC erred and the

Hon'ble DRP further erred by not following any of the

methods prescribed under Section 92C(1) of the Act for

benchmarking the said international transaction.

1.4. Without prejudice, on the facts and

circumstances of the case and in the law, the Hon'ble

DRP erred in considering hypothetical comparable

uncontrolled price as against TNMM adopted by the

12 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

Appellant for determination of arm's length price

wherein the Hon'ble DRP held that the third party will

not pay anything for these services.

1.5. On the facts and circumstances of the case

and in law, the learned TPO / AO erred and the Hon'ble

DRP further erred in making certain observations and

findings which are based on incorrect interpretation /

understanding and without appreciating the intricacies

of the facts of the case.

The Appellant prays that the said international

transaction be considered to be at arm's length.

Ground No. 2 - Incorrect imputation of mark-up of

1.74 percent (INR 27,78,346) on recovery of

expenses by the Appellant from its AE

On the facts and circumstances of the case and in law,

the learned TPO/AO/NeAC erred in holding, and the

Hon'ble DRP further erred in directing, that the

Appellant provides services to its AE throughout the

year and thereby levying a mark-up on recovery of

expenses.

13 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

The Appellant prays that the said international

transaction be considered to be at arm's length.

Ground No. 3 - The transactions with JV entities

are inherently at arm's length

On the facts and circumstances of the case and in law,

the learned TPO / AO / NeAC erred by ignoring the fact

that the two independent parties had an equity stake in

the Appellant and commercially both the parties would

be inclined to ensure that the prices charged for services

rendered even by other group companies to the

Appellant are not more than arm's length rates.

Ground No.4 – Initiation of penalty proceedings

The learned AO / NeAC, based on the facts of the case

and in law, has erred in initiating penalty proceeding

under Section 270(A) of the Act.

The Appellant craves leave to add, alter, amend and/or

withdraw any of the above grounds of appeal and to

submit such statements, documents and papers as may

be considered necessary either at or before the hearing

of this appeal as per law.”

14 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

Counsel for the Assessee has not pressed ground of appeal

No.3. We, therefore, dismiss the same as not pressed.

adjudicated by the Tribunal are – (i) T.P. adjustment in

respect of Technical know-how fee of Rs.12,66,16,031/-

paid by the assessee company to it’s Associated Enterprise

[in short “AE” ] ; (ii) Incorrect computation of mark-up of

1.74 percent [Rs.27,78,346/-] on recovery of expenses by

the appellant from it’s AE and (iii) the penalty proceedings

initiated by the A.O. under section 270(A )of the I.T. Act,

1961.

in respect of Technical know-how fee of Rs.12,66,16,031/-

paid by the assessee company to it’s Associated Enterprise,

the Learned Counsel for the Assessee strongly relied on the

order of the Mumbai Bench of the Tribunal in assessee’s

own case for the A.Y. 2013-14 wherein the Tribunal vide

order dated 27.09.2019 in ITA.No.6318/Mum/2017 has

15 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

allowed the claim of assessee. He, therefore, prayed that the

impugned claim of assessee company be allowed.

the orders of the lower authorities and submitted that while

determining the ALP the authorities below have followed the

statutory provisions of law and, therefore, the Ld. D.R.

prayed that the orders of the lower authorities be confirmed.

parties on this issue and perused the material available on

record. We find that the Coordinate Bench of Mumbai

Tribunal in assessee’s own case for the A.Y. 2013-14 in

ITA.No.6318/Mum/2017 vide order dated 27.09.2019

allowed the claim of assessee. The relevant observations of

the Tribunal are as under :

“ 6.1. We find that the Id. TPO having not

determined the ALP in conformity with the statutory

provision and in the process having failed to

demonstrate that ALP shown by the assessee is

incorrect, the contentions of the Id. DR to restore the

16 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

issue to the file of the Id. TPO for fresh determination of

the ALP, is unacceptable. Respectfully following the

aforesaid decision, we hold that there is no provision

made in the statute empowering the Id. TPO for

determining the ALP of a particular international

transaction at Nil without resorting to any methods

prescribed. Since, the relief is granted to the assessee

on the preliminary issue of the Id. TPO not following the

prescribed methods as provided in the statute for

determination of ALP, the other arguments advanced by

the Id. AR and the Id. DR on merits of ALP adjustment

are left open and not adjudicated herein. Accordingly,

the ground Nos.1.1 to 1.3 raised by the assessee are

allowed.”

9.1. Since the assessee has raised identical ground for

this impugned assessment year and seeking for similar

relief as was granted by the Coordinate Bench of the

Tribunal in assessee’s own case for the A.Y. 2013-14

(supra), we respectfully following the decision of Coordinate

Bench of the Tribunal in assessee’s own case for the A.Y.

17 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

2013-14 and the reasons for decision arrived therein, with

similar directions, the grounds of appeal no.1 of the

assessee is allowed.

respect to incorrect computation of mark-up of 1.74 percent

[Rs.27,78,346/-] on recovery of expenses by the assessee

company from it’s AE.

this issue is also covered by the order of the Mumbai Bench

of the Tribunal in assessee’s own case for the A.Y. 2013-14

wherein the Tribunal vide order dated 27.09.2019 in

ITA.No.6318/Mum/2017 wherein the Tribunal has allowed

the claim of assessee. He, therefore, prayed that the

impugned claim of assessee company be allowed.

the orders of the lower authorities and submitted that the

ALP adjustments made by the authorities below be

confirmed.

18 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

parties on this issue and perused the material available on

record. We find that the Coordinate Bench of Mumbai

Tribunal in assessee’s own case for the A.Y. 2013-14 in

ITA.No.6318/Mum/2017 vide order dated 27.09.2019

allowed the claim of assessee. The relevant observations of

the Tribunal are as under :

“ 9.1. Respectfully following the said

decision, we direct the Ld. A.O./TPO to delete the

ALP adjustment made on recovery of expenses.

The other arguments made by the Ld. AR and DR

on inclusion / exclusion of comparables are not

adjudicated herein as the relief is granted on

preliminary issue. Accordingly, the Ground No.2.1

raised by the assessee is allowed.”

13.1. Since the assessee has raised identical ground for

this impugned assessment year and seeking for similar

relief as was granted by the Coordinate Bench of the

Tribunal in assessee’s own case for the A.Y. 2013-14

19 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

(supra), we respectfully following the decision of Coordinate

Bench of the Tribunal in assessee’s own case for the A.Y.

2013-14 and the reasons for decision arrived therein and

with similar directions, the grounds of appeal no.2 of the

assessee is allowed.

press grounds of appeal No.3. Therefore, the same is

dismissed being not pressed.

allowed.

Order pronounced in the open Court 29.07.2022.

Sd/- Sd/- (B.R. BASKARAN) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated 29th July, 2022

VBP/-

20 ITA.No.1221/Mum./2021 UPS Express Pvt. Ltd. Mumbai.

Copy to

// By Order //

Assistant Registrar : ITAT Delhi Benches : Mumbai.

Sl.No. Particulars Date 1. Date of Dictation 27.07.2022 Sr. P.S. 2. Date of draft order placed before the Hon’ble 28.07.2022 Sr. P.S. Member 3. Date of draft order approved by the Hon’ble JM/AM Second Member 4. Date of receipt of approved draft order Sr. P.S. 5. Date of pronouncement Sr. P.S. 6. Order uploaded on the website of the Sr. P.S. Tribunal 7. Order sent to Bench clerk Sr. P.S. 8. Order signed by the Head Clerk 9. Order Signed by Asst. Registrar 10. Date of Dispatch of order