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Income Tax Appellate Tribunal, DELHI BENCH: ‘I’ NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI SAKTIJIT DEY
ORDER PER SAKTIJIT DEY, JM: This is an appeal by the assessee challenging the final assessment order dated 29.12.2014 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 (in short ‘the Act’) pertaining to assessment year 2010-11, in pursuance to the direction of learned Dispute Resolution Panel (DRP).
Basically the dispute in the present appeal is confined to the addition made of Rs.2,22,73,117/- on account of transfer pricing adjustment relating to international transaction undertaken with the overseas Associated Enterprise (AE).
Briefly the facts are, the assessee is a resident corporate entity stated to be engaged in Airport Ground Handling Services for Lufthansa Airlines. Such services are provided in pursuance to an agreement executed with the concerned AE. Though, in the year under consideration the assessee had entered into various international transactions, however, presently, we are concerned with determination of arm’s length price of the transaction relating to the provision of ground handling services. In the year under consideration, the assessee had received revenue of Rs.28,43,28,866/- from the provision of ground handling services. In the transfer pricing study report, the assessee benchmarked the transaction by applying Comparable Un- controlled Price (CUP) method. The assessee has applied internal CUP of price charged to other Lufthansa group entities at predetermined rate and claimed that the transaction is at arm’s length. Further, to corroborate the benchmarking done under CUP, the assessee did a benchmarking applying internal 2 | P a g e Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO), however, did not accept the benchmarking of the assessee. Applying TNMM method, the Assessing Officer determined the Profit Level Indicator (PLI) of the assessee as 13.96%. Whereas, he selected 3 comparables with average arithmetic mean of 22.88%. Due to the difference in the margin of the assessee and the comparables, the TPO proposed upward adjustment of Rs.2,22,73,117/- to the ALP. The adjustment proposed by the TPO was added to the income of the assessee by the Assessing Officer while framing the draft assessment order.
Against the draft assessment order, the assessee raised objections before learned DRP. However, assessee’s objection did not find favour with learned DRP. Accordingly, assessment was finalized.
Before us, learned counsel appearing for the assessee has restricted his arguments only in respect of two comparables selected by the TPO. The first comparable objected by the assessee is Container Corporation of India. In respect of the aforesaid comparable, learned counsel for the assessee submitted that the TPO has selected this comparable following the past history of inclusion of comparable by him in assessee’s own case and directions of learned DRP upholding the selection of such 3 | P a g e comparable. He submitted, this comparable is predominantly a Government company as the Government holds 63.09% of share capital. Further, he submitted, the company is not functionally similar as the revenue earned is from freight, handling, terminal service charges, demurrage and other operating income. Whereas, no segmental account is prepared. Further, he submitted, it is not an employee oriented company as the ratio of employees cost is 2.26% as compared to assessee’s employees cost ratio of 46%. He submitted, even the turnover of this company is Rs.3705.68 crores, which is substantially higher than the turnover of the assessee at Rs.63.82 crores. Finally, he submitted, in assessee’s own case in assessment years 2008-09 and 2009-10, under the similar facts and circumstances, the Tribunal has excluded this company from the list of comparables.
The second company objected by learned counsel for the assessee is, Sanco Trans Limited. In respect of this company, learned counsel submitted, the company is functionally dissimilar as it is principally engaged in a single business segment, viz., customs clearing and forwarding, container freight station and related activities. He submitted, handling charges earned by the company is 45.21% of the total revenue. Whereas, the balance 4 | P a g e revenue is in the nature of passive income, i.e., from hire charges and warehouses charges. He submitted, considering the aforesaid factors, the Tribunal in assessee’s own case in assessment years 2008-09 and 2009-10 has excluded this company as a comparable. Thus, he submitted, in view of the decision of the Tribunal in assessee’s own case under similar facts and circumstances, these two companies have to be rejected as comparable.
Learned Departmental Representative strongly relied upon the observations of learned TPO and learned DRP.
We have considered rival submissions and perused the materials on record. Undisputedly, while selecting Container Corporation of India and Sanco Trans Ltd. as comparables, the Departmental Authorities have basically gone by the past history of transfer pricing assessment in assessee’s own case. However, it is observed, while examining the acceptability or otherwise of Container Corporation India in assessee’s own case in assessment year 2009-08 [reported in (2021) 133 taxmann.com 491 (Delhi – Trib.)], the Tribunal has rejected the comparable with the following observations:
“5.3.1.0 M/s Container Corpn. Of India Ltd:
With assistance from both the sides, we have perusal the annual accounts of this company. It is apparent that this is a Government Globe Ground India Pvt. Ltd. Vs. DCIT Company. Container Corporation of India's income from operation is from Freight, Handling, Terminal Service charges, Demurrage and others of Rs. 3,347 crores. There are no segmental accounts prepared. It is now trite law that in absence of segmental data, a company should be rejected as a comparable. In this regard we draw support from wisdom of the Hon'ble Jurisdictional High Court in case of M/s Saxo India Limited reported in 397 ITR 160(Del) and M/s SEZ Gurgaon reported in 416 ITR 51(Del). Moreover, we find that Container Corporation of India is also not a service-oriented company as the ratio of employee cost is merely 1.65% (i.e. 55cr/ 3347cr). This is an important fact which merits consideration. The Ld DRP has itself made this as a ground while excluding M/s Cochin International Airport (CIAL) as a comparable which was originally proposed by the TPO. From perusal of the annual accounts of this company, we also find that Container Corporation of India is a Giant Company with turnover of more than Rs. 3,300/- crores, fixed asset base of around Rs.2,244/- crores, Container fleet of 13,517 units, Speed Wagons of 6,722 and owning Terminals. The assessee, on the other hand, is a service-oriented company with Globe Ground India Pvt. Ltd. Vs. DCIT turnover of Rs 33.24 cr and fixed asset base (gross) of only Rs 31.22 crores. Container Corporation of India is also operating in Virtual Monopoly conditions. From the above cumulative reasons, we find that FAR of Container Corporation of India is not akin to that of the assessee. It should, therefore, be rejected as a comparable. We direct accordingly.”
Same view was reiterated by the Tribunal while deciding assessee’s appeal in assessment year 2009-10 vide order dated 30.08.2022 in ITA No.1479/Del/2014. There being no material change in facts involved in the impugned assessment year, respectfully following the decisions of the Tribunal in assessee’s own case in assessment years 2008-09 and 2009-10, we direct the Assessing Officer to exclude Container Corporation of India from the list of comparables.
Insofar as Sanco Trans Limited is concerned, this company was also a subject matter of dispute in assessment years 2008-09 and 2009-10. While dealing with the issue in assessment year 2008-09 (supra), the Tribunal held as under:
“5.3.2.0 M/s Sanco Trans Ltd:
M/s Sanco Trans is a company, which per audited accounts, is principally engaged in a single business segment viz. Customs Clearing & Forwarding, container freight station and related activities. Director's Report acknowledges that the main growth area for the company was business of Container Freight Station (CFS) and therefore, the future strategies are as under: "Strategies and future plans
The operations in CFS is expected to show favourable results in the current year as well. Your company is therefore, taking necessary steps to augment the operating fleet further by the acquisition of Reach Stockers of a cost of nearly Rs.300 lakhs and trailers and forklifts at a cost of Rs.200 lakhs which will make the CFS one of the most modernized and state of the art Globe Ground India Pvt. Ltd. Vs. DCIT facilitates of world class in this part of the country. Apart from the above, your Company is planning to replace certain operating equipments which will go a long way to improve its operating efficiency and also result in reduction in operation cost. These affirmative actions, it is hoped will have a favourable impact on productivity and profitability of the CFS operations.
Apart from the above, your Company is planning to develop the existing warehousing facilities by acquiring similar facilities on outright / lease basis and also creating enhanced volumes in the existing facility, which, it is hoped, will improve its capability to meet the anticipated increase in the volume of business in the sold operations and also result in reduced operating cost. With these actions, planned and anticipated, your directors are confident, barring unforeseen circumstances of reporting better working results in the current year. 7 | P a g e
5.3.2.1 This clearly highlights the nature of business of this company is primarily in from earning passive income. Revenue shown in Profit &Loss Account is as under:
Operating Earnings (Rs. Lakhs) 2008 2007 Handling charges earned 1760.18 1387.48 Equipment and Fleet hire charges earned 822.90 803.88 Agency and other charges earned 136.23 130.22 Warehousing charges earnued 1577.05 947.56
5.3.2.2 Handling charges earned is 40.96% of the total revenue and balance is passive income i.e., hire charges earned and warehouse charges earned which is 59.03%. There are no segmental accounts prepared. M/s Sanco Trans has earned total operating revenue of Rs.4296.36 lakh and total employee cost incurred is 511.96 lakhs which in ratio terms is 11.91%. This shows that this is also not a service-oriented company. For reasons akin to that stated above we, therefore, hold that M/s Sanco Trans cannot be selected as a comparable. We direct accordingly.”
The same view was expressed by the Tribunal in assessment year 2009-10 as well. Facts being identical, respectfully following the decisions of the Tribunal in assessee’s own case in preceding assessment years, as discussed above, we hold that Sanco Trans Limited cannot be treated as comparable to the assessee.
In course of hearing, learned counsel for the assessee submitted before us that with the exclusion of the aforesaid two comparables, the assessee’s margin would be within the acceptable range of the margin of the other comparables selected by the TPO, requiring no further adjustment.
In view of the aforesaid submission of learned counsel for the assessee, the rest of the grounds have become redundant.
Hence, not adjudicated.
In the result, appeal is partly allowed.
Order pronounced in the open court on 13th June, 2023