GLOBEGROUND INDIA PVT. LTD.,,NEW DELHI vs. DEPUTY COMMISSIONER OF INCOME-TAX, NEW DELHI

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.

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:

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:

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.

In the result, appeal is partly allowed.