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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�, राजे� के अनुसार/ PER Rajendra A.M.- Challenging the orders dated 07.08.2014 of the CIT(A)- 15,Mumbai,the Assessee has filed present appeal.Assessee-company,engaged in providing project and freight forwarding business,filed its return of income on 29.09.2009,declaring total income at Rs.99.52lakhs.The Assessing Officer(AO)completed the assessment u/s.143(3) of the Act,on 12.04.2013, determining its income at Rs.3.43 crores.
2.First effective GOA (GOA-1-10)deal with confirming the adjustment of Rs.2.38 crores to the taxable income of the assessee,being the adjustment to the Arm’s-length price(ALP). During the assessment proceedings,the AO found that the assessee had entered into International Transaction (IT.s) with its associate enterprises (AE.s), he made a reference to TPO to determine the ALP of the transactions. During the TP proceedings the TPO found that assessee had entered into following IT.s SN. Nature of transaction FY.2008-09 Method Used 1. Freight & Forwarding services availed from AEs 33,05,82,863 CUP 2. Reimbursement of expenses (paid) 5,39,648 No method He further found that assessee had adopted the Comparable Uncontrolled Price(CUP) method, that assessee was the tested party,that it arrived at the gross margin earned from availing services from third party at 6.7%,that gross margin earned from availing similar services from its AE.s was found to be 11.61%. It was claimed by the assessee that gross margin earned by it on services availed from third parties was lower than that earned on services availed from the AE.s and that transactions were at arm’s length. The TPO observed
6761/M/14-Wilh Loesch India P.Ltd. that the assessee did not prove exact or near exact similarity between the services availed from AE.s and the non AE.s, that CUP was not the Most Appropriate Method (MAM).He carried out an alternative analysis and directed the assessee to submit suitable comparable who were engaged in freight forwarding and logistic services. In its response the assessee submitted the following comparables: SN. Company Name Year Ended PBT/Turnover FY. 2008-09 1. All Cargo Logistics Ltd.(Multimodal Segment) Dec-09 5.32% 2. Shreya Shipping and logistics Ltd.(Legistic Segment) Mar-09 -4.83% 3. Sical Logistic Ltd. Mar-09 1.22% 4. Arshiya International Ltd. Mar-09 7.15% 5. Dascher India Ltd. Dec.09 2.30% 6. North Eastern carrying Corporation Ltd. Mar-09 0.74% Arithmethic Mean 1.98% After eliminating the companies with different accounting year and making losses a final set of comparable was prepared.The Profit Level Indicator (PLI) of the comparable were re- worked as the assessee considered PBT to sales as the appropriate PLI.However, as per the AO the appropriate PLI was the operating profit, (PBIT) to operating revenue’s, that the IT.s were on expense side. The calculation of PLI of the assessee ,was worked out as under :- Particulars FY 2008-09 Income: Revenue from freight, forwarding & transportation 54,24,37,813 Operating Revenues (A) 54,24,37,813 Expenditure: Direct expenses 49,87,88,724 Salaries, wages and other benefit to employees 1,22,53,873 Establishment & Other Expenses 2,13,74,969 Depreciation 6,19,198 Total Expenditure (B) 53,30,36,764 Operating Profit (A-B)=C 94,01,049 PLI (OP/OR) 1.73% On the basis of above,the TPO concluded that information as well as data used in computation of ALP was not reliable and correct .Rejecting the TP documents of the assessee the TPO proceeded to determine the ALP of the IT in the nature of sale of goods to AE. He adopted the Arithmetic mean of PLI as the Arm’s-length margin.Based on the above the ALP of sale of goods sold by the assessee was computed as under :- Operating Revenues (a) Rs.54,24,37,813/- Arms Length Mean Margin 6.13% of the Operating Revenues Total Arm’s Length Price/Cost (ALP) @93.87% of operating cost (b) Rs.50,91,86,375/- Operating Cost (c ) Rs.53,30,36,764/- Price paid in international transactions (including reimbursement of Rs.33,11,22,611/- expenses paid) (d) Price paid unrelated parties (e)=(c)-( d) Rs.20,19,14,153/- Arm’s length Price of International transactions (f )=(b)-(e) Rs.30,72,72,222/-
6761/M/14-Wilh Loesch India P.Ltd.
Shortfall being adjustment u/s. 92CA (g)=(d)-(f) Rs.2,38,50,389/- 2.4.After receiving the order of the TPO the AO made an upward adjustment of Rs.2,38,50,389/- to the ALP in relation to the IT.s entered into by the assessee co. with its AE.s.
3.Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the First Appellate Authority (FAA) and argued that CUP method was the MAM, that the method was rejected summarily without giving proper show cause notice, that it had produced all the necessary documents with regard to the transactions with its AE.s and non- AE.s during the TP proceedings, that the TPO had not pointed out any defects, that he had not given any reason as to on what basis he came to the conclusion that services availed from AE and non-AE were not exact or near exact similar, that he had not pointed out any dissimilarity. It was further argued that if TNMM was to be considered as MAM, then internal TNMM had to be considered first to determine the ALP. The assessee relied upon the case of Cybertech Systems and Software System(144ITD620)and argued that the TPO had rejected three comparables, that he had not discussed the submissions made by the assessee, the TPO took PLI as PBIT to operating revenue. After considering the submission of the assessee,the FAA held that assessee did not mention exact or near exact similarity between the services availed from AE.s and non-AE.s, that CUP method was not the most appropriate MAM, that due opportunity was given to the assessee before applying the TNMM , that the onus was on the assessee to justify that CUP was the most suitable method,that during the course of appellate proceedings the assessee failed to prove the similarity between the services availed from its AE.s and non AE.s, that the case of Cybertech Systems was distinguishable 3.Before us,the Authorised Representative(AR)stated that the assessee had followed CUP method to determine the ALP of the IT.s, that the TPO had applied TNMM, that TNMM was applied at entity level,that transactions with the AE.s were only to be considered for adjustment,that if Most Appropriate Method(MAM)was applied to AE-transactions the assessee was within the range of plus minus 5%. The Departmental Represnetative(DR) supported the order of the lower authorities. 4.We have heard the rival submissions and perused the material before us. We find that while deciding the appeal,the FAA had not adjudicated the issue of applying
6761/M/14-Wilh Loesch India P.Ltd.
MAM to International transaction only, that he had not decided the issue as to whether the margin of the assessee was within the permissible limit i.e. in the range of 5%, that the assessee had specifically raised the issue in that regard in the Grounds of appeal filed before the FAA.We are of the opinion that in the interest of justice matter should be restored back to the file of the FAA for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee. Effective Ground of appeal is decided in favour of the assessee,in part.
5.Second effective ground (GOA-11) is about confirming the disallowance of Rs.3.01 lakhs u/s. 40A(3) of the Act. During the assessment proceedings the AO found that the assessee had made payment in cash in contravention of section 40A(3).He directed it to file an explanation.In response to the same, assessee filed letter dt.12.2.13.The AO held that the explanation furnished by the assessee was not convincing and made a disallowance of Rs.3.01 lakhs. In the appellate proceedings the FAA held that the assessee had reiterated the submission made before the AO and had not brought any fresh material on record. Accordingly he upheld the order of the AO. 5.1.Before us, the AR argued that neither the AO nor the FAA had considered the submissions made by the assessee. DR left the issue to the discretion of the Bench.We find that the FAA had dismissed the Ground stating that no fresh material was produced before him and the AO had, in his one line order,held that the explanation furnished by the assessee was not convincing. Both the authorities have not discussed as what was the explanation and why it was not convincing. In short, the order is not a reasoned order. Therefore, we are restoring the issue to the file of the FAA for fresh adjudication. He is directed to pass a reasoned order after considering the explanation of the assessee. He is directed to afford a reasonable opportunity of hearing to the assessee. Second effective ground is allowed in favour of the assessee in part.
Third effective Ground (GOA -12) is about confirming the disallowance of Rs.1.37 lakhs u/s. 37 of the Act. We find that the FAA had confirmed the addition holding that the assessee had not filed fresh material before him and had only relied upon the explanation filed before the AO. While deciding the effective Ground No.2 we have remanded the matter to the file of the FAA.Following the same, matter is restored to back to him for passing a speaking order after affording a reasonable opportunity of hearing to assessee. Third effective Ground of the assessee is partly allowed in favour of the assessee.
6761/M/14-Wilh Loesch India P.Ltd.
7.Last Effective Ground (GOA-13) is about disallowance of Rs.70,553/- . During the assessment proceedings the AO found that the assessee had failed to deposit the employees contribution to the PF within the stipulated time mentioned in the Act.Invoking the provisions of section 24(x) r.w.s. 36(1)(va) of the Act, he disallowed the amount in question. 7.1.During the appellate proceedings the assessee argued that payments had been made before the due date of return .However, the FAA , following the case of Gujarat State Road Transport Corpn. (41taxmann.com 100) decided the issue against the assessee.Before us, AR argued that payments were made before due date of filing of return, that expenditure was allowable as per the provisions of the Act. DR left the issue to the discretion of the Bench. 7.2.We find that there is no dispute about the fact that the payment on account of employees contribution to PF was made before the due date of filing of return of income .In our opinion, no disallowance can be made if an assessee deposits the contribution money before due date of filing of return of income. Reversing the order of the FAA we decide effective Ground No.4 in favour of the assessee.