DCIT CEN CIR 8(1), MUMBAI vs. ALLCARGO LOGISTICS LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “K”, MUMBAI BEFORE SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No.4786/Mum/2015 (Assessment Year- 2010-11) DCIT. CC -8(1), M/s Allcargo Logistics Ltd. Room No. 656, 6th Floor, 5th Floor, Diamond Square, CST Aayakar Bhavan, M. K. Road, Vs. Ropad, Kalina, Santacruz(E), Mumbai-400020 Mumbai-400098 PAN: AACCA2894D (Appellant) (Respondent)

C.O. No.108/Mum/2016 (Assessment Year- 2010-11) M/s Allcargo Logistics Ltd. DCIT. CC -8(1), 5th Floor, Diamond Square, CST Room No. 656, 6th Floor, Ropad, Kalina, Santacruz(E), Vs. Aayakar Bhavan, M. K. Road, Mumbai-400098 Mumbai-400020 PAN: AACCA2894D (Appellant) (Respondent)

Revenue by Shri Saurabh Deshpande : (DR) Assessee by : Shri B.V. Jhaveri with Shri I.M. Contractor Advocates Date of hearing : 04.09.2019 Date of Pronouncement : 05.09.2019 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue u/s 253 of the Income-tax Act (the Act) is directed against the order of ld. CIT(A)-55, Mumbai dated 30.05.2015 for Assessment Year (2010- 11). On the service of the notices of the appeal the assessee has filed its cross objection. The Revenue has raised the following grounds of appeal:

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(1) “On the facts and in the circumstances of the case and in law, the CIT(A) erred, in directing the AO to accept charging of interest to AEs at LIBOR plus rate as ALP and delete the transfer pricing adjustment made by TPO?” (2) On the facts and in the circumstances of the case and in law, the CIT(A) erred, in rejecting the observation of TPO that, LIBOR plus 300 basis relates to external commercial borrowing policy and in the case of assessee which is under consideration, the assessee in advancing loan to AE and not making external commercial borrowing abroad? (3) "On the facts and in the circumstances of the case and in law, the CIT(A) erred, in ignoring the facts that International Transaction of advancing of loan to be benchmarked by taking assessee as tested party and rates in Indian geography?" (4) "On the facts and in the circumstances of the case and in law the CIT(A) erred, in rejecting the arms length interest rate 13.37% by the TPO, is based on the information, collected by CRISIL U/ S. 133(6) and has been already confronted to the assessee by issuing show cause notice?" (5) "On the facts and in the circumstances of the case and in law, the CIT(A) erred, in deleting the addition made by TPO and holding that LIBOR is applicable without bringing any such transaction on record." (6) "On the facts and in the circumstances of the case and in law, the CIT(A) erred, in without considering the fact that advancing the loan by assessee to AE is by converting Rupee to Dollar and this conversion is closely linked transaction and profit of loss arising out of this conversion is to be taken into account" (7) "On the facts and in the circumstances of the case and in law, the CIT(A) erred, in not considering that fact the transaction of share application, no third party would have ever agreed to retain these money as application money without share being allotted for a period of 12 months?" (8) "On the facts and in the circumstances of the case and in law the CIT(A) erred, in rejecting the TPO s conclusion that delay in allotment of share entitles the assessee to receive interest and the transaction between the AE and the assessee should be recorded as to have taken without influence or has been taken between two parties acting at arms lengths? (9) "On the facts and in the circumstances of the case and in law the CIT(A) erred, in law the CIT (A) erred in deleting the transfer pricing adjustment made by the TPO on the issue of share application money advanced to the AEs relying on the decision of the Delhi ITAT in the case of Bharti Airtel Ltd. (ITA No. 5816/ Del./ 12) wherein, the basis of negating TPOs action of arriving at the arm's length interest on the funds lying with the AE has not been discussed and dealt with? (10) "On the facts and in the circumstances of the case and in law the CIT(A) erred, in rejecting the TPOs action of working out the guarantee commission @4.13% p. a based on credit rating of AE and on number of days, guarantee was outstanding during the F. Y. 2009-10 without pointing out any defect in the computation of TPO?" (11) "On the facts and in the circumstances of the case and in law the CIT(A) erred in directing guarantee commission @ 0.05% without entering any CUP which is contrary to Law? (12) "On the facts and in the circumstances of the case and in law the CIT(A) erred in not considering two comparable transaction relied upon by the assessee, of

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corporate guarantee by Yes Bank @ 0.85% and after making suitable adjustment for parpasu charge available to Yes Bank? (13) "On the facts and in the circumstances of the case and in law the CIT(A) erred in not considering the observation of the TPO that the assessee did not produce any valid documentary evidence in connection with the corporate guarantee of HDFC Bank ?" (14) "On the facts and in the circumstances of the case and in law the CIT(A) erred in directing the TPO adjustment @ 0.05% whereas the decision relied by him suggest the rate at 0.45%?” (15) "On. the facts and in the circumstances of the case and in law the CIT(A) erred , in directing the AO to delete the addition on account of purchase of seven cranes of Rs. 2,49,56,596/- without appreciating the fact of that the charter engineer has carried out valuation of said cranes by stating that " It has been informed to us that the equipment has been tested and was confirmed. as being in full working order ( this was not witnessed) ? (16) "On the facts and in the circumstances of the case and in law the CIT(A) erred, in holding that the valuation report of the Chartered Engineers acceptable whereas the same was rejected by the ITAT, Bangalore Bench in the case of M/s. Intel Asia Electronics on which the CIT(A) placed reliance? (17) "On the facts and in the circumstances of the case and in law the CIT(A) erred , in deleting the adjustment made by TPO in the absence of any invoices regarding the purchase price for the AE in connection to the crane referred as CK2500? (18) "On the facts and in the circumstances of the case and in law the CIT(A) erred, in holding that the value of machinery has increased from 1192000 to 1435000 in 16 months time from the date of purchase by AE to sale of AE to assessee without considering the depreciation value?". (19) "On the facts and in the circumstances of the case and in law the CIT(A) erred , in accepting the claim of the assessee that AE had verified the machines to be in working condition by carrying out detail running test from independent engine without any valid documentary evidence in support of the contention of the assessee? (20) "On the facts and in the circumstances of the case and in law the CIT(A) erred, in holding that the assessee was entitled to deduction u/s. 80IA(4) with taking in to consideration the CBDT circular No. 10/2005 dated 16/12/2005 and the fact that JNPT port had withdrawn its certification of the company? The Appellant prays that the order of the CIT-(A), on the above grounds be set aside and that of the Assessing Officer be restored. 2. In Cross Objection the assessee has raised the following grounds: “The ld. CIT(A) erred in not directing the AO/TPO to delete the addition made on account of guarantee commission on the ground that provision of guarantee is not an international transaction. 3. We have seen that the Cross Objection of the assessee is barred by 228 days of

prescribed period of limitation. The assessee has filed application for condonation

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of delay which is supported by the affidavit of Shri Shashi Kiran Shetty, Managing

Director of the company. In the affidavit, the assessee has contended that after

service of notice of appeal the assessee was required to file Cross Objection within

30 days. However, the same could be filed after 229 days of service of notice of

appeal filed by Revenue. It is further contended that the assessee has raised a purely

legal issue in the objection that guarantee commission is not an international

transaction. The ld. AR of the assessee argued that the Cross Objection raised by

assessee is purely point of law and does not require any fresh fact for consideration

before the Tribunal. The ld. AR of the assessee further argued that a lenient view

may be taken while deciding the application for condonation of delay. On the other

hand, the ld. DR for the Revenue not objected in case the delay is condoned.

Considering the contention of both the representative of the parties and the cause of

delay explained in the application for condonation of delay, the delay in filing the

Cross Objection by assessee is allowed.

Group and is engaged in the business of logistic services provider in domestic as

well as in international markets. The assessee is a leading “Less than a Container

Load” (“LLC”) consolidator in India offering direct outbound and inbound LCL

group services to and from major cargo destinations worldwide. The assessee

primarily operates in multimodal transport operations (MTO) and container freight

station (CFS) business in Mumbai, Chennai and Mundra. The assessee filed its return of income for relevant AY on 27th September 2010 declaring total income of

Rs. 74,68,19052/-. Subsequently, a revised return of income was filed on

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29.03.2011declaring total income of Rs. 22,93,20,910/-. In the return of income, the

assessee has shown international transaction with its Associate Enterprises (AE)

exceeding Rs. 15 Crore. Considering the nature of transaction as contained audit

report in Form No. 3CEB a reference u/s 92CA(1) was made on 26.11.2010. The

following details of international transaction were reported in Form No. 3CEB for

relevant AY with its AE:

S.No. Nature of transaction Amount in Rs. 1 Purchase of cranes 21,64,83,567 2 Incentive (receipts) 27,94,04,356 3 Incentive (payments) 15,51,79,882 4 Loan provided 15,29,67,774 5 Cost allocation 2,64,07,157 6 Investment in shares 6,86,88,000 7 Reimbursement of freight (receipts) 17,59,03,995 Reimbursement of miscellaneous expenditure (receipts) 8 20,05,28,507 Reimbursement of expenses (others) 9 63,47,676 Reimbursement of freight (payments) 10 25,02,47,534 Reimbursement of miscellaneous expenditure (payments) 11 8,31,32,767 Total: 161,52,91,175 5. The Transfer Pricing Officer (TPO) entered into reference and vide notice dated

08.02.2013 asked the assessee to make the submission in support of Arm’s Length

Price (ALP) reported in Form No. 3CEB. After hearing the assessee, the TPO

made the following upward adjustment into the international transaction:

S.No. International transaction Adjustment Amount (Rs.) 1 Arm’s length interest receivable 18021952 on loans advanced to AE 2 Arm’s length compensation 1428409 receivable on money advanced as share capital lying as share application money. 3 Arm’s length compensation for 32633608 guarantees issued on behalf of AEs 4 Adjustment to the international 29360700 0 transaction of purchases of crane is Rs. 2,93,60,700/-. The 5

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AO is requested to consider this price for allowance of depreciation in respect of these cranes in future Less: Depreciation @ 15% 4404105 24956595 Total arm/s length price as per TPO 7,70,40,564 6. Besides the Transfer Pricing Adjustment (TPA), the AO disallowed the deduction

u/s 80IA of the Act. On appeal before the ld. CIT(A), the TPA and disallowance u/s

80IA of the Act was allowed. However, with regard to the adjustment by bench

marking guarantee charges @ .05% guaranteed amount given to the AE, the AO

was directed to re-compute the charges. Aggrieved by the order of ld. CIT(A), the

Revenue has filed the present appeal challenging the deletion of disallowance u/s

80IA and the deletion on account of adjustment of international transaction with

regard to purchase of 7 cranes. The assessee in its Cross Objection has challenged

the order for re-computing the Guarantee Commission. 7. We have heard the ld. DR for the Revenue and ld. AR of the assessee and perused

the material available on record. The ld. DR for Revenue submits that Ground No. 1

to 6 relates to T.P Adjustment of Rs. 1.80 crore on account of interest of loan

advanced to its AE, Ground No. 7 to 9 relates to T.P. Adjustment of Rs. 14,28,409/-

being interest for delayed allotment of shares, Ground No. 10 to 14 relates to T.P.

Adjustment on account of Corporate guarantee of Rs. 3.26 crore, Ground No. 15 to

19 relates to T.P. Adjustment of Rs. 2.49 crore for purchase of cranes from its AE

and Ground No. 20 relates to deduction u/s 80IA(4). Thus, basically there is five

effective grounds of appeal are raised in the present appeal. 8. Ground No. 1 to 6 relates to T.P Adjustment of Rs. 1.80 Crore on account of

interest of loan advanced to its AE. The ld. DR for the Revenue argued that

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assessee has advanced a loan of Rs. 4,14,02,724/- its AE, Asia Lines Pvt. Ltd. and

Rs.11,15,65,050/- to Allcargo Belgium NV respectively, this loan was advanced to

Asia Lines Pvt. Ltd. for five years and Allcargo Belgium NV for three years @

Libor + 300 points. In the T.P. study the assessee stated that the rate at which

interest is received by assessee from its AE are in line with interest rate bench mark

as per R.B.I. Policy and submitted that the same was at ALP. The TPO on the basis

of Crisil Credit Rating determined the bench mark and suggested the adjustment of

Rs. 1,80,21,952/-. The ld. CIT(A) deleted the adjustment directing the AO/TPO to

delete the adjustment on the basis of decision of Hon’ble Bombay High Court in

CIT vs. Tata Autocomp System Pvt. Ltd. (374 ITR 516). On the other hand, the ld.

AR of the assessee is relied upon the order of ld. CIT(A). the ld AR for assessee

further argued that the ld CIT(A) decided the ground of appeal on the basis of the

decision of jurisdictional High Court in CIT vs. Tata Autocomp System Pvt Ltd.

and by Mumbai Tribunal in case of Ion Exchange (I) Ltd. vs. ACIT in ITA No.

5109/Mum/2013 and . 9. We have considered the rival contention of the parties and gone through the orders

of authorities below. The ld. TPO while making adjustment observed that for Asia

Lines Pvt. Ltd. as no details regarding Credit Rating for Asia Lines Pvt. Ltd. was

produced and claimed that Credit Rating of Asia Lines Pvt. Ltd. should be adopted

as A+. However, the assessee produced the Credit Rating by Crisil for its AE

Allcargo Belgium NV as “A+”. Thus, the Credit Rating for Asia Lines Pvt Ltd. was

considered by TPO at BBB-. For Allcargo Belgium the TPO observed that the

Credit Rating was obtained on 31.10.2013, which cannot be said to be a valid

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documentation. Further, the Credit Rating was arrived by taking into consideration

the result of Allcargo Belgium on 31.12.2001, 31.03.2012 and 31.03.2013 and all

three years are subsequent to the year under consideration. Thus, the Credit Rating

claimed by assessee for its AE “A+” was deducted and adopted as “BBB-” and on

the basis of information collected by the TPO from Crisil u/s.133(6) for Financial

Year 2009-10. The TPO suggested the adjustment of Rs. 1,80,21,952/-. Before the

ld. CIT(A) it was argued that Asia Lines Pvt. Ltd. was set up to engage in the

business of acquiring and leasing equipment and cranes in the territory of middle

east. The loan was provided to AE as capital to enable it to set up its business and to

acquire necessary operational resources. Allcargo Belgium mainly was a special

purpose vehicle set up by the assessee for holding its various group companies. The

loan was given to AE for funding acquisition of company abroad and for providing

capital to downstream subsidiaries. The assessee-company given a trade advance to

its AE which did not result any income. Further, an amount of Rs. 1,72,30,927/-

and Rs. 21,64,83,567/- were adjusted against purchase of cranes by assessee. The

ld. CIT(A) while relying upon the decision of Hon’ble Bombay High Court in Tata

Autocomp System Ltd. (supra) wherein it was held that ALP in case of loan

advanced to Overseas AE should be determined on the basis of rate of interest

being charged in the country where the loan is received/consumed. The Hon’ble

High Court made the following observations:

“7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel 8

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for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law.” 10. Considering the decision of jurisdictional High Court, we do not find any illegality

or infirmity in the order passed by ld. CIT(A). The ld CIT(A) applied Libor +300 as

Arms Length rate for the loan advanced the assessee to its AE, which is proximate

to similar rate approved by the Hon’ble High Court in case of Tata Autocoup

System Ltd. (supra). Hence, Ground No.1 to 6 raised by Revenue is dismissed. 11. Ground No.7 to 9 relates to T.P. Adjustment of interest on the issue of share

application money. The ld. DR for the Revenue further relied upon the order of

TPO. On the other hand, the ld. AR of the assessee argued that these grounds of

appeal are covered in favour of assessee in assessee’s own case for Assessment

Years 2007-08 & 2008-09. It was explained that the Share application money was

given in the assessment year 2009-10, but no adjustment by way of interest on

delayed allotment of Shares was made. 12. We have considered the rival contention of the parties and have gone through the

orders of authorities below. We have seen that similar grounds of appeal arised for

consideration of Tribunal in assessee’s own case for AY 2007-08 & 2008-09 in ITA

No. 4909, 4910/M/2012 and the same was decided by Tribunal in favour of

assessee holding as under:

“6. We have heard the arguments of both the sides and also perused the relevant material available on record. In ground No. 1 of both the present appeals, the assessee has raised a 9

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preliminary issue challenging the validity of assessments made by the A.O. u/s 143(3) r.w.s. 147 of the Act for both the years under consideration while in ground No. 2, the assessee has challenged the addition made by the A.O. and sustained by the ld. CIT(A) by way of TP adjustment on account of interest chargeable on the amount of share application money paid to its AE and lying unutilized for a period beyond 60 days treating the same as loan. As agreed by the ld. Representatives of both the sides, the common issue involved in ground No. 2 of the assessee’s appeals for both the years under consideration is squarely covered in favour of the assessee by the latest decision of Delhi Bench of ITAT in the case of Bharti Airtel Ltd., vs. ACIT rendered vide its order dated 11-3-2014 passed in ITA No. 5816/Del/12 wherein a similar issue was decided by the Tribunal in favour of the assessee holding that the transactions involving payment of share application money could not be treated as international transactions of loan given by the assessee company to its AE merely because there was a delay in allotment of shares. A copy of the said order of the tribunal is also placed on record before us and perusal of the same shows that a similar issue has been decided by the Tribunal in favour of the assessee vide para No. 47 of its order which reads as under:- “47. We find that in the present case the TPO has not disputed that the impugned transactions were in the nature of payments for share application money, and thus, of capital contributions. The TPO has not made any adjustment with regard to the ALP of the capital contribution. He has, however, treated these transactions partly as of an interest free loan, for the period between the dates of payment till the date on which shares were actually allotted, and partly as capital contribution, i.e. after the subscribed shares were allotted by the subsidiaries in which capital contributions were made. No doubt, if these transactions are treated as in the nature of lending or borrowing, the transactions can be subjected to ALP adjustments, and the ALP so computed can be the basis of computing taxable business profits of the assessee, but the core issue before us is whether such a deeming fiction is envisaged under the scheme of the transfer pricing legislation or on the facts of this case. We do not find so. We do not find any provision in law enabling such deeming fiction. What is before us is a transaction of capital subscription, its character as such is not in dispute and yet it has been treated as partly of the nature of interest free loan on the ground that there has been a delay in allotment of shares. On facts of this case also, there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of ‘inordinate delay’ and not the entire period between the date of making the payment and date of allotment of shares. Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares. That aspect of the matter is determined by the relevant statute. This situation is not in purl materia with an interest free loan on commercial basis between the share applicant and the company to which capital contribution is being made. On these facts, it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE. Since the TPO has not brought on record anything to show that an unrelated share applicant was to be paid any interest for the period between making the share application 10

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payment and allotment of shares, the very foundation of impugned ALP adjustment is devoid of legally sustainable merits.”

appeal for AY 2007-08 & 2008-09 in ITA No. 4909, 4910/M/2012, we do not find

any merit in the grounds of appeal raised by Revenue and the same are dismissed. 14. Ground No. 10 to 14 relates to T.P. Adjustment on account of corporate guarantee

of Rs. 3.26 crore. The assessee has also raised cross objection against the direction

of ld. CIT(A) for not deleting the guarantee commission on the ground that

provision of guarantee is not an international transaction. The ld. DR for the

Revenue relied upon the order of TPO/AO. 15. On the other hand, the ld. AR of the assessee argued that assessee-company has

given guarantee to All Cargo Belgium NV of Rs. 458160000/- and to ECO

International NV of Rs. 332000000/-. The TPO computed ALP @ 4.13% on the

outstanding corporate guarantee. However, the ld. CIT(A) restricted the T.P.

Adjustment to 0.5% based on decision of Mumbai Tribunal in case of Manugraph

India Ltd. Vs DCIT in ITA No. 4761/M/2013 dated 25.03.2015. In alternative, it

was argued that the T.P. Adjustment may be restricted to amount determined by the

ld CIT(A). The ld. AR of the assessee relied upon the decision of Hon’ble Bombay

High Court in CIT v/s Everest Kento Cylinders Ltd. [2015] 378 ITR 57/232

Taxman 307/58 taxmann.com 254 (Bom.) and the decision of Delhi Tribunal in 11

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Bharti Airtel Ltd. vs. ACIT (63 SOT 113). In the rejoinder argument, the ld. DR for

the Revenue fairly conceded on factual position. The ld. AR of the assessee would

argue that in case the grounds of appeal raised by Revenue is dismissed, the

assessee would not press the grounds raised in cross objection that guarantee

commission is not an international transaction. However, the issue may be kept

open for future reference in case the assessee wishes to agitate again before the

court of law. 16. We have considered the rival contention of the parties and gone through the order

of authorities below. The TPO noted that the assessee has not reported the aforesaid

guarantees as international transaction in Form No. 3CEB and not bench marked in

the T.P. study report. The assessee was given show-cause notice dated 19.12.2013

as to why it should not be made bench marked. The assessee furnished in reply

dated 06.02.2014. The assessee contended that corporate guarantee transaction is

not an international transaction as the condition of relevant transaction having a

bearing on profits, income, loss or asset still exist for transaction to qualify as an

international transaction. The contention of assessee was not accepted by TPO

holding that the amendment in section 92B with retrospective effect from

01.04.2002 brings the transaction within the net of international transaction. This

aspect has been upheld by the ld CIT(A) above, and the assessee is in appeal before

us by way of Cross Objections. This aspect of the matter has not been seriously

pursued before us, as the Cross Objections are quite belated and the ld

representative has addressed the issue more on the quantum of the addition made by

assessing officer. Accordingly, we proceed to adjudicate the issue based on the

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assessment made by the CIT(A) on this aspect. The TPO calculated the guarantee

@ 4.13% p.a. on amount based on number of days the guarantee was outstanding

during the relevant Financial Year and worked the adjustment of Rs. 3,26,33608/-.

On the rate of guarantee commission, before ld. CIT(A), the assessee submitted that

4.13% was excessive and unreasonable. The assessee referred to the proposal “Yes

Bank” to charge guarantee fees of 0.85% p.a., and also to the quotation from

HDFC Bank proposing to charge guarantee commission of 1% of the value of

guarantee. The ld. CIT(A) observed that rate of interest @ 4.13% for bench

marking guarantee adopted by TPO was not supported by any valid material and

relying upon the decision of Mumbai Tribunal in Manugraph India Ltd. vs. DCIT in

ITA No. 4761/2013 dated 25.03.2015 directed the AO to recompute the T.P.

Adjustment by bench marking guarantee charge at 0.5% of the guarantee given by

assessee to its AEs and granted partial relief to the assessee. This is in line with the

judgment of Hon’ble Bombay High Court in Case of Everest Kanto Cylinders Ltd

(supra). 17. We have seen that the ld. CIT(A) decided the issue on the basis of decision of

jurisdictional ITAT in the case of Manugraph India Ltd (supra), which is in

consonance with the judgment of Hon’ble Bombay High Court in Everest Kanto

Cylinder Ltd (supra). Thus, considering the aforesaid decision of co-ordinate bench

of Tribunal, we do not find any illegality and infirmity in the order passed by ld.

CIT(A). However, we may make it clear that the issue whether the guarantee

commission not fall within the purview of international transaction or not is left

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open. With these observations, the ground of appeal raised by Revenue is dismissed

and the cross objection raised by assessee is dismissed being infructuous. 18. Ground No. 15 to 19 relates to T.P. Adjustment of Rs. 2,49,56,595/- for purchase of

cranes. The ld. DR for the Revenue argued that the AEs had purchased the cranes

from third parties in and around the same time and sold the cranes to assessee. The

TPO after allowing the depreciation suggested the adjustment of Rs. 2,49,56,595/-.

The approach of ld. CIT(A) was not correct while accepting the bench mark. 19. On the other hand, the ld. AR of the assessee argued that the assessee submitted the

entire details of purchase of cranes. The cranes was old and used assets and

therefore, the assessee obtained a valuation certificate from Chartered Engineer

evaluated expected market value. The Custom Authority has accepted the said

valuation for payment of custom duty. The TPO rejected the value of the cranes,

which was certified by Chartered Engineer without referring matter to Department

Valuation Officer (DVO). It was argued that the TPO cannot reject valuation of

Chartered Engineer without the opinion of Expert. It was further argued that TPO

gave a direction to the AO to consider depreciation portion on the value of cranes.

However, the AO disallowed the entre T.P. Adjustment without allowing

depreciation which was considered by ld. CIT(A) and allowed accordingly. The ld.

AR relied upon the decision of Mumbai Tribunal in case of Global Payments Asia

Pacific (India) (P.) Ltd. v. DCIT [2017] 78 taxmann.com 262 (Mumbai Trib.) and

in ACIT vs. Koch Chemical Technology Group (I) Ltd. (ITA No. 8091/M/11 dated

30.11.2015).

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of authorities below. The TPO noticed from the report in Form 3CEB that assessee

has purchased two cranes from its AE for Rs. 21,64,83,567/-. Two cranes was

purchased from Asia Lines Pty. Ltd., Dubai for Rs. 6,92,11,500/- and five cranes

from ECU Heavy Lift WIJ, Doha, Quatar for Rs. 147272067/-. The assessee bench

marked the transaction by CUP Method. In support of valuation, the assessee

furnished a certificate of Chartered Engineer. The TPO further observed that the

Chartered Engineer has not specified that equipment (cranes) in full working order

or were tested for full working order before valuing the same and rejected the bench

mark. The assessee was asked to produce alternative bench marking and to produce

the copies of invoices by which cranes were purchased. The assessee furnished the

following information:

S. Particulars Year Dt. Of Sale Price Purchase Difference No. of purchase/ (USD) for price USD mfr. sale for AE the AE (USD) for the AE 1 CK 2500 crane 2000 1150000 Invoice not available 2 Terex American HC-110 1994 24.6.2008/ 625000 1192000 243000 Crawler Crane 11.10.2009 Manitowoc Terex American HC-110 24.6.2008/ 3 2007 810000 Crawler Crane AC 4209 11.10.2009 4 Crane 2000 Demag AC- 2000 31.01.2008 464642 620429 80 Hydraulic Truck /8.7.2009 5 Terex American HC-110 2002 21.07.2008 599960 1173880 0 Crawler Crane AC 3914 /8.10.2009 6 Terex American HC-110 2001 21.07.2008 573920 Crawler Crane AC 3803 /8.10.2009 7 Crane AC-3893 2000 13.09.2009 240000 272000 /30.09.200 9

ITA No.4786/M/2015 & C.O. 108/M/2016- M/s Allcargo Logistics Ltd.

After perusing the details and the invoices furnished by assessee, the TPO made the adjustment in the following manner: “9.5 On going through the above tabulation it is seen that the cranes at S.No. 2 & 3 above purchased for USD $ 11,92,000 by the AE at USD $ 1435000. Thus the AE has purchased the cranes used them for a year and yet sold them for USD 1435000. As can be seen from the purchase invoices produced by the assessee, the purchases of the AE are from 3rd parties and hence can be taken to be as CUP. Having used these cranes for a year, it would be reasonable to assume a minimum depreciation of 10%. Hence the arm's length sales value of the crane in the hands of the AE would be 1192000 X 90% i.e. = 1072800. Hence the assessee has paid an excess consideration on these cranes amounting to USD 362200. Assessee was therefore required to show cause as to why an adjustment of USD 362200 should not be made to the transaction of purchase of two cranes by the assessee from the AE. The rupee equivalent of the adjustment is proposed to be taken at Rs. 1,62,99,000/- (taking one USD @ Rs. 45/-). 9.6 Similarly as regards the crane listed at S.No.1 of the tabulation, the assessee has not been able to produce the purchase invoice. The crane is also very old (manufactured in the year 2000). In the absence of any supporting documentation, the same ratio of adjustment proposed in para 6.5 above, is proposed to be applied to this transaction as well. This crane is purchased by the assessee for a consideration of USD $ 1150000. The adjustment as proposed in para 6.5 above is 25.24% of the purchase price paid by the assessee. Hence applying this ratio, the adjustment of USD $ 290260 or INR 1,30,61,700/- is proposed to be made to the transaction of purchase of this crane. Assessee was therefore required to show cause as to why this adjustment of INR 1,30,61,700/- should not be made. 9.7 To sum u this discussion an adjustment of Rs.2,93,60,700/- was proposed to the international transaction of purchase of cranes.”

expenditure on freight, insurance, transport, performance of working test,

supervision of process of inspection, approval purchases, dispatch and delivery of

Cranes. All the expenses were born by assessee. In alternative, it was pleaded that

ld. TPO cannot make cherry picking of only those transaction wherein the sale

price of cranes were more than the purchase price by the AE and the adjustment if

any should be only on net profit earned by AE i.e. USD 14651/- (which is without

considering expenses). The ld. CIT(A) after considering the fact of the case, the

submission made and the decision of Bangalore Tribunal in case of Asia

Electronics vs. ADIT (2011) 9 taxman.com(Bangalore) wherein it was held that in

absence of identical transaction,as opted by assessee, the valuation determined by 16

ITA No.4786/M/2015 & C.O. 108/M/2016- M/s Allcargo Logistics Ltd.

registered Valuer would be the most appropriate means under the CUP Method and directed the AO to delete the addition. Though, the ld. CIT(A) has referred

to the decision of the Bangalore Bench of the Tribunal for the proposition

that the valuation report of an expert is a valid cup data. So, however, in the

present case, the certificate so given by the Chartered Engineer is a qualified

one. It has been noted by the TPO in para-9.2 of his order. Moreover, we

find that in relation to the transaction of purchase of CK-2500 Crane for

USD 11,50,000, there was no information regarding the purchase price in

the hands of AE. Secondly, with respect to purchase of other two Cranes,

one of the Cranes was purchased from AE for USD 8,10,000 as against the

purchase price in the hands of the AE of USD 5,22,000/-. At the time of

hearing, it was put to the ld. representative for the assessee that in the

context of the purchase of Crane for a consideration of USD 8,10,000, the

principle adopted by the CIT(A) is not tenable. However, the plea of the ld.

representative was that an appropriate reduction on account of depreciation

be allowed by determining the ALP in such transaction. This plea of the

assessee in our view is quite reasonable and therefore, we affirm the

decision of the CIT(A) except to the extent of retaining adjustment in

relation to purchase of Crane for USD 8,10,000 from the AE (depict as item

3 in the tabulation in para-9.4 of the order of the TPO). In this regard, the

ALP shall be determined after allowing for a depreciation of 10%. The

ITA No.4786/M/2015 & C.O. 108/M/2016- M/s Allcargo Logistics Ltd.

Assessing Officer is directed to re-compute the ALP accordingly. Thus, on

this aspect revenue partly succeeds.

conceded that this ground of appeal is covered in favour of assessee in assessee’s

own case for AY 2004-05 to AY 2009-10. The ld. AR of the assessee appreciated

the fairness of ld. DR for the Revenue and would argue that the ld. CIT(A) granted

the relief to the assessee on the basis of special bench decision in assessee’s own

case for AY 2004-05 to 2009-10. It was further argued that against the decision of

Special Bench, the Revenue filed appeal before the Hon’ble jurisdictional High

Court and the same has been dismissed vide order dated 21.04.2015 in ITA No.

1969 of 2013 [374 ITR 645 (Bom.)]. 23. Considering the contention of ld. representatives of the parties wherein both the

parties agreed that the grounds of appeal is covered in favour of assessee. Thus, the

ground no. 20 raised by Revenue is dismissed. 24. In the result the appeal filed by the revenue is dismissed.

CO No. 108/Mum/2016 25. Considering the facts that the appeal filed by the Revenue is dismissed, the C.O.

filed by assessee have become infructuous, hence, dismissed.

Order pronounced in the open court on 05day of September 2019. Sd/- Sd/- (G.S. PAN NU) (PAWAN SINGH) VICE PRESEDENT JUDICIAL MEMBER Mumbai; Dated 05/09/2019 S.K.PS Copy of the Order forwarded to : 1. The Appellant 18

ITA No.4786/M/2015 & C.O. 108/M/2016- M/s Allcargo Logistics Ltd.