AGILITY LOGISTICS P.LTD, MUMBAI v. ASST CIT 8(1), MUMBAI

ITA 7508/MUM/2012 | 2008-2009
Pronouncement Date: 23-07-2013 | Result: Partly Allowed

Appeal Details

RSA Number 750819914 RSA 2012
Assessee PAN AAACL3717A
Bench Mumbai
Appeal Number ITA 7508/MUM/2012
Duration Of Justice 7 month(s) 4 day(s)
Appellant AGILITY LOGISTICS P.LTD, MUMBAI
Respondent ASST CIT 8(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 23-07-2013
Date Of Final Hearing 23-07-2013
Next Hearing Date 23-07-2013
Assessment Year 2008-2009
Appeal Filed On 19-12-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . . . . '# ' $ % BEFORE SHRI I.P. BANSAL JM AND SHRI P.M.JAGTAP AM . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 AGILITY LOGISTICS PRIVATE LIMITED POLARIS A-501/502/503 B-501/503 5 TH FLOOR CST NO.604A/3 OFF MAROL MAROSHI ROAD MAROL ANDHERI (E) MUMBAI 400 059. & & & & / VS. ASSTT. COMMISSIONER OF INCOME TAX-8(1) 2 ND FLOOR AAYKAR BHAVAN MK ROAD MUMBAI- 400 020. ( '# ./ ) ./ PAN/GIR NO. : PAN: AAACL 3717A ( (* / APPELLANT ) .. ( + (* / RESPONDENT ) (* - ' / APPELLANT BY: S/SHRI KANCHUN KAUSHAL & DHANESH BAFNA + (* . - ' / RESPONDENT BY : SHRI AJEET KUMAR JAIN & . # / DATE OF HEARING : 23/07/2013 /0' . # / DATE OF PRONOUNCEMENT : 23/07/2013 '1 / O R D E R PER I.P.BANSAL J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS D IRECTED AGAINST THE ASSESSMENT ORDER DATED 10/10/2012 PASSED UNDER SECT ION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1961(THE ACT). THE GROUNDS OF APPEAL READ AS UNDER: 1. THAT THE ASSESSMENT ORDER PASSED IN PURSUANCE T O THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) IS A VITIATED ORDER AS THE DRP ERRED BOTH ON . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 2 FACTS AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER (AO) TO THE APPELLANTS INCOME; 2. THE DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE ADDITION OF RS.7 03 17 843/- TO THE INCOME OF THE APPELLANT BY HOLDING THAT ITS INTERNATIONAL TRANSACTION OF FREIGHT RECEIPTS AND EXPENSES DOES NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO THE DRP HAS ERRED IN AGREEING WITH THE TRANSFER PRICING OFFICERS (TPO) ACTION OF: 2.1. REJECTING COMPARABLE UNCONTROLLED PRICE (CUP ) METHOD AND THE CUP DATA AVAILABLE IN THE FORM OF COMPARABLE ARRANGEMENTS WI TH AGILITY NETWORK AGENTS WHICH ARE UNRELATED THIRD PARTIES; 2.2. REJECTING OPERATING PROFIT (OP) TO VALUE ADD ED EXPENSES (VAE) RATIO SELECTED BY THE APPELLANT AS THE PROFIT LEVEL INDIC ATOR (PLI) AND INSTEAD USING OP TO TOTAL COST (TC) RATIO AS THE PLI; 2.3. REJECTING ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT BY DISREGARDING SEARCH OF COMPARABLES UNDERTAKEN BY THE APPELLANT B Y CONSIDERING OP/VAE AS PLI; 2.4. NOT ALLOWING THE USE OF MULTIPLE YEAR DATA AS PRESCRIBED UNDER RULE 1OB(4) OF THE INCOME TAX RULES 1962 READ WITH THE OECD TP GUIDELINES AND DETERMINING THE ARMS LENGTH PRICE ON THE BASIS OF FINANCIAL INFORMATION OF THE COMPARABLES FOR THE YEAR ENDED MARCH 31 2008 IDENT IFIED PURSUANT TO A FRESH SEARCH FOR COMPARABLES PERFORMED DURING THE ASSESSM ENT PROCEEDINGS. THE AO/ TPO/ DRP ERRED IN REJECTING THE CONTEMPORANEOUS DOC UMENTATION MAINTAINED BY THE APPELLANT AS REQUIRED UNDER THE INDIAN TP REGUL ATIONS; 2.5. COMPUTING THE TP ADJUSTMENT ON FREIGHT RECEIPT S (AS AGAINST FREIGHT EXPENSE) MERELY TO DERIVE A LARGER ADJUSTMENT. THE TPO SHOUL D HAVE APPRECIATED THAT THE INDIAN TRANSFER PRICING LAW DOES NOT PRESCRIBE THE MANNER IN WHICH A TRANSFER PRICING ADJUSTMENT NEEDS TO BE COMPUTED UNDER THE T NMM WHERE THERE ARE MORE THAN ONE INTERNATIONAL TRANSACTION. GIVEN THIS THE AO/ TPO/ DRP OUGHT TO HAVE ADOPTED THE APPROACH THAT IS IN THE FAVOR OF T HE ASSESSEE (I.E. DETERMINE THE ARMS-LENGTH PRICE OF THE FREIGHT EXPENSES WHI LE KEEPING THE FREIGHT INCOME CONSTANT); AND 2.6. DENIED THE BENEFIT OF (+1-) 5 PERCENT RANGE ME NTIONED IN PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT 1961 (THE ACT) WHIL E COMPUTING THE ALP. 3. THE AO/ TPO ERRED BOTH ON FACTS AND IN LAW BY NO T COMPLYING WITH DIRECTIONS OF DRP TO VERIFY THE FINANCIAL DETAILS OF HINDUSTAN CARGO LIMITED (HCL) CONSIDERED AS COMPARABLE BY AO/ TPO. BASED ON THE D ISCLOSURE MADE IN FINANCIAL STATEMENT OF HCL FOR CALENDAR YEAR 2007 W HICH REPORTS INFORMATION FOR CALENDAR YEAR 2006 IT IS NOT POSSIBLE TO COMPUTE OP 1TC MARGIN AND THEREFORE THIS COMPANY OUGHT TO BE REJECTED. . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 3 THE APPELLANT PRAYS THAT THE BOOK VALUE OF THE INTE RNATIONAL TR.9NSACTIONS OF FREIGHT RECEIPTS AND EXPENSES BE HELD TO BE THE ARM S LENGTH PRICE OF THE SAID TRANSACTIONS AS PER TRANSFER PRICING DOCUMENTATION AND THE ADDITION MADE ON ACCOUNT OF THE ABOVE GROUNDS BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE AC ERRED IN DISALLOWING AND DRP ERRED IN CONFIRMING THE DISALLO WANCE OF RS.6.24 CRORES (BEING AD-HOC 2% OF THE EXPENDITURE OF RS.311.90 CR ORES) WITHOUT APPRECIATING THE FACT THAT THE RECORDS WERE DESTROYED IN A FIRE AT ITS OFFICE PREMISES. 4.1. WITHOUT PREJUDICE TO THE ABOVE THE APPELLANT SUBMITS THAT THE ABOVE EXPENDITURE AMOUNTING TO RS.311.90 CRORES INCLUDES AN AMOUNT OF RS.10.67 CRORES BEING DEPRECIATION AS PER BOOKS WHICH HAS A LREADY BEEN DISALLOWED WHILE COMPUTING THE TAXABLE INCOME AND HENCE DISAL LOWANCE TO THE EXTENT OF SUCH DEPRECIATION AMOUNTING TO RS.21 33 731/- (I.E. 2% OF RS.10 66 86 565) BE DELETED. 4.2. WITHOUT PREJUDICE TO THE ABOVE THE APPELLANT URGES THAT THE AD-HOC DISALLOWANCE OF RS.6.24 CRORES I.E. 2% IS EXTREMELY HIGH AND UNREASONABLE AND THEREFORE REDUCED APPROPRIATELY. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE AC AND DRP HAVE ERRED IN LEVYING INTEREST OF RS.80 63 401 UNDER SEC TION 234D OF THE ACT. 2. IT WAS SUBMITTED BY LD. AR THAT GROUND NO.1 IS G ENERAL IN NATURE AND GROUND NO.2 & 3 RELATE TO TRANSFER PRICING (TP) ADJ USTMENT OF RS.7 03 17 843/-. IT WAS SUBMITTED THAT GROUND REL ATING TO TP IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER ORDERS OF THE TRIBUNAL. REFERENCE IN THIS REGARD WAS MADE TO THE FOLLOWING ORDERS. (I) ORDER DATED 15/11/2012 IN ITA NO.2000 6004 814 6/MUM/2010 IN RESPECT OF ASSESSMENT YEARS 2004-05 2005-06 AND 2006-07. (II) ORDER DATED 13/4/2012 IN ITA NO.8648/MUM/2011 FOR ASSESSMENT YEAR 2007-08. IT WAS FURTHER SUBMITTED THAT PERUSAL OF PARA 5.3 OF ORDER PASSED BY LD. DRP WILL REVEAL THAT WHILE UPHOLDING THE TP ADJUSTMENT LD. DRP HAS RELIED UPON THE ORDER PASSED BY LD. DRP IN RESPECT OF A.Y 2007- 08. THUS IT WAS SUBMITTED BY HIM THAT THE ISSUE IS SQUARELY COVERED BY THE AFOREMENTIONED . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 4 ORDERS. FOR THE SAKE OF CLARITY LD. AR FURTHER SUB MITTED THAT DURING THE COURSE OF HEARING OF APPEAL BEFORE TRIBUNAL IN RES PECT OF ASSESSMENT YEAR 2007-08 IT WAS THE ARGUMENT OF DEPARTMENT THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF LD. DRP AS IT WAS DONE BY THE TRIBUNAL IN RESPECT OF ASSESSMENT 2006-07. HOWEVER ON FACTS SUCH ARGU MENTS OF DEPARTMENT WAS NOT ACCEPTED BY THE TRIBUNAL AND MATTER WAS DEC IDED IN FAVOUR OF THE ASSESSEE AFTER GOING THROUGH THE EARLIER ORDER. LD . AR HAS SUBMITTED BEFORE US COPY OF BOTH THE ORDERS AND THESE COPIES WERE ALSO GIVEN TO LD. DR. 3. LD. DR DID NOT DISPUTE THE CONTENTION OF LD. AR. HOWEVER HE RELIED UPON THE ORDERS PASSED BY AO AND LD. DRP. 4. WE HAVE HEARD BOTH PARTIES ON THIS ISSUE AND WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESEE BY THE EARLIER ORD ERS OF THE TRIBUNAL. IN PARA 5.3 OF HIS ORDER LD. DRP HAS CLEARLY OBSERVED THAT SIMILAR ADJUSTMENT WAS CONSIDERED BY ITS PREDECESSOR PANEL FOR A.Y 2007-0 8 AND PANEL HAD CONFIRMED THE ADJUSTMENT IN ITS DIRECTIONS DATED 12 /9/2011. SIMILAR DIRECTIONS HAVE BEEN ISSUED FOR THE YEAR UNDER CONS IDERATION AND TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN RESPECT OF A.Y 2007-08 FOLLOWING THE EARLIER ORDER DATED 25/1/2012. IT WA S EXPLAINED BY LD. AR THAT GROUNDS ON WHICH TP ADJUSTMENT HAS BEEN MADE FOR TH E YEAR UNDER CONSIDERATION ARE SIMILAR TO THE GROUND IN MAKING S IMILAR ADDITION IN RESPECT OF EARLIER ASSESSMENT YEARS. THIS CONCLUSION OF LD. A.R HAS NOT BEEN CONTROVERTED. THEREFORE WE HOLD THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. FOR THE SAKE OF COMPLETENESS RELEVANT PO RTION OF THE ORDER OF THE TRIBUNAL IN RESPECT OF ASSESSMENT YEAR 2007-08 IS R EPRODUCED BELOW: 11. AT THE OUTSET THE LD COUNSEL APPEARING FOR THE APPELLANT SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE YEAR UNDER APPEA L ARE IDENTICAL TO THE FACTS AS THEY WERE FOR THE AY 2004 -05 AY 2005-06 & 200 6-07 AND ACCORDINGLY PRAYED THAT THE ORDER OF THE TRIBUNAL FOR THESE YEA RS SHOULD BE FOLLOWED. THE LD DR SUBMITTED THAT FOR THE AY 2006 -07 THE TRIBUNAL HAS RESTORED THE MATTERS . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 5 BACK TO THE FILES OF THE DRP AND THERE FORE REQUEST ED THAT THE ISSUES IN THE PRESENT APPEAL MAY ALSO BE RESTORED BACK TO THE FIL ES OF THE DRP . THE LD COUNSEL RETORTED THAT THE ORDER OF THE DRP FOR THE AY 2006 -07 WAS LACONIC AND NOT A SPEAKING ORDER THEREFORE THE TRIBUNAL HAS RES TORED THE MATTER BACK TO THE FILES OF THE DRP FOR PASSING A SPEAKING ORDER . LD AR DREW OUR ATTENTION TO THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL A BE NCH FOR THE AY 2004 -05 & 2005-06 IN ITA NO. 2000/MUM/2010 ITA NO.6004/MUM/2 010 & RESPECTIVELY . 12. WE HAVE GONE THROUGH THE ORDER OF THE LOWER AUT HORITIES AND THE SUBMISSIONS OF THE LD AR AND ALSO PERUSED THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN APPEAL NUMBERS MENTIONED HERE IN ABOVE FOR THE ASSESSMENT YEARS 2004 -05 AND 2005-06 AND FIND FORC E IN THE CONTENTION OF THE LD AR THAT THE FACTS OF THE YEAR UNDER CONSIDERATIO N ARE IDENTICAL WITH THE FACTS OF THE PREVIOUS TWO ASSESSMENT YEARS AS MENTIONED H ERE IN ABOVE. THE TRIBUNAL WHILE DECIDING THE APPEALS FOR THE ASSESSMENT YEAR 2004 05 HAS GIVEN ITS FINDINGS ON PAGE 17 AS UNDER : 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. F ROM THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE IN THE PAPER BOOK AS WELL AS SUBMISSIONS BEFORE THE LD. CIT(A) WE FIND THE ASSE SSEE WAS REGULARLY ADOPTING THE CUP METHOD ON ITS INTERNATIO NAL TRANSACTIONS RELATING TO FREIGHT EXPENSES AND RECEI PTS WHICH HAS BEEN EXAMINED BY THE TPO AND ACCEPTED IN A.Y. 2002- 03 AND 2003-04. WE FIND THE TPO DID NOT FOLLOW THE EARLIER ORDER OF HIS PREDECESSOR AND REJECTED THE CUP METHOD USED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. HE ALSO REJECTED THE OP/VAE AS THE PLI AND INSTEAD USED OP/TC AS THE PLI ON THE GROUND THAT COMPANIES ARE OPERATING IN DIFFERENT GEOGRAPHICAL R EGIONS AND AGREEMENTS WITH THIRD PARTIES ARE ENTERED INTO ON A PROFIT SPLIT METHOD AND NOT ON THE BASIS OF RATE. WHILE DOING SO HE USED THE DATA OF SOME PRIVATE LIMITED COMPANIES THE DETAILE D INFORMATION OF WHICH ARE NOT AVAILABLE IN PUBLIC DOMAIN AND REJECT ED THE SEARCH UNDERTAKEN BY THE ASSESSEE IN THE TP STUDY. HE FURT HER USED THE SINGLE YEAR DATA FOR THE PURPOSE OF TNMM ANALYSIS A S AGAINST MULTIPLE YEAR DATA APPLIED BY THE ASSESSEE. IT IS T HE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSES SEE HAD CONSIDERED THE CUP METHOD AS THE MOST APPROPRIATE M ETHOD TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION. ACCORDING TO HIM THE ASSESSEE COMPANY ONLY CO-ORDINATES WITH TH IRD PARTY SERVICE PROVIDERS AND DOES NOT OWN ANY TRANSPORTATI ON ASSETS SUCH AS TRUCKS SHIPS AIR CRAFTS OR ANY OTHER TRAN SPORTATION ASSETS OF SIMILAR NATURE AND IT OWNS ONLY OFFICE PREMISES AND COMPUTERS. THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASS ESSEE COULD NOT BE CONTROVERTED BY THE LD. D.R. WE FIND FORCE IN TH E SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT BOTH THE ORIG IN COMPANY AND THE DESTINATION COMPANY ASSUME COMPARABLE RISKS WIT H THE RISK OF BAD DEBTS BEING MINIMAL AND THAT THERE IS NO INVENT ORY RISK SINCE . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 6 THE ASSESSEE COMPANY ENTERS INTO A CONTRACT WITH TH E SHIPPING LINE/AIR LINE FOR BOOKING SPACE ON A SHIP/AIR CRAFT ONLY UPON RECEIPT OF CONFIRMED ORDERS FROM THE CUSTOMERS. FROM THE VA RIOUS AGENCY AGREEMENTS BETWEEN GEOLOGISTICS GROUP AND UNRELATED PARTIES PRODUCED BY THE ASSESSEE WE FIND THE TERMS AND CON DITIONS ARE SUBSTANTIALLY SAME. THE PROFIT SPLIT INFORMATION CO NTAINED IN ALL THE AGREEMENTS IS TYPICAL TO THE INDUSTRY. WE ALSO FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TPO IN HIS TP STUDY REPORT HAS CONSIDERED CERTAIN COMPANIES WH ICH ARE NOT AVAILABLE IN THE PUBLIC DOMAIN BEING PRIVATE LIMITE D COMPANIES OR THEY ARE NOT COMPARABLE TO THE ASSESSEE COMPANIES. FROM THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE AND THE DE TAIL SUBMISSIONS IN THE PAPER BOOK WE FIND THE FOUR COM PANIES REJECTED BY THE TPO ARE FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THEREFORE SHOULD HAVE BEEN RETAINED IN THE COMP ARABLE STUDY . 12.1 THE TRIBUNAL FURTHER POINTED OUT THAT : 5.2 WE FURTHER FIND THE DELHI BENCH OF THE TRIBUNA L IN THE CASE OF SCHEFENACKER MOTHERSON LTD. VS. ITO REPORTED IN 200 9-TIOL-376- ITAT-DEL WHILE CONSIDERING THE FACTS OF THE TAX PAY ER INTERPRETED NET PROFIT FOR THE APPLICATION OF THE TNMM TO MEA N CASH PROFITS I.E EXCLUDING DEPRECIATION. THE RELEVANT OBSERVATIO N OF THE ORDER OF THE TRIBUNAL (AT PARA 19 OF THE ORDER) READS AS UND ER:- ...THERE IS NO FORMULA WHICH WOULD BE APPLICABLE UNIVERSALLY AND IN ALL CIRCUMSTANCES. NET PROFIT USED IN RULE 1OB CAN BE TAKEN TO MEAN COMMERCIAL PROFIT AS HELD BY THE TPO AND CONFIRMED ON APPEAL BY THE ID. CIT(A ). BUT DEPRECIATION IN SUCH PROFIT ON COMMERCIAL PRINCIPLE S HAS TO BE THE ACTUAL AMOUNT BY WHICH THE ASSETS OF BUSIN ESS GOT DEPLETED BETWEEN THE TWO DATES SEPARATED BY A YEAR. IT CANNOT BE DEPRECIATION UNDER TAX OR COMPANIES RULES OR AS PER POLICY OF THE COMPANY. IN THE CASE IN HAND REV ENUE AUTHORITIES WENT WRONG IN DISREGARDING THE CONTEXT AND PURPOSE FOR WHICH THE NET PROFIT WAS TO BE COMPUT ED. DEPRECIATION WHICH CAN HAVE VARIED BASIS AND IS AL LOWED AT DIFFERENT RATES IS NOT SUCH AN EXPENDITURE WHICH MUST BE DEDUCTED IN ALL SITUATIONS. IT HAS NO DIRECT CONNEC TION OR BEARING ON PRICE COST OR PROFIT MARGIN OF THE INTE RNATIONAL TRANSACTIONS. PRINCIPLES EMPHASIZED IN THE CASE OF BANGALORE CLOTHING BY BOMBAY HIGH COURT ARE ATTRACT ED HERE. OBJECT AND PURPOSE OF THE TRANSFER PRICING TO COMPARE LIKE WITH THE LIKE AND TO ELIMINATE DIFFERENCES I F ANY BY SUITABLE ADJUSTMENT IS TO BE SEEN. THEREFORE THERE WAS JUSTIFICATION ON THE PART OF THE TAXPAYER IN PLEADI NG THAT PROFITS BE TAKEN WITHOUT DEDUCTION OF DEPRECIATION AS DEPRECIATION WAS LEADING TO LARGE DIFFERENCES IN MA RGINS FOR VARIOUS REASONS. . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 7 5.3 WE FIND THE OECD IN THE REVISED T.P. GUIDELINES OF 2010 HAS RECOGNIZED THE USE OF DIFFERENT MEASURES OF PROFIT UNDER THE PROFIT SPLIT METHOD. THE RELEVANT PARA OF THE GUIDELINE RE ADS AS UNDER:- 2.131 GENERALLY THE COMBINED PROFITS TO BE SPLIT IN A TRANSACTIONAL PROFIT SPLIT METHOD ARE OPERATING P ROFITS. APPLYING THE TRANSACTIONAL PROFIT SPLIT IN THIS MAN NER ENSURES THAT BOTH INCOME AND EXPENSES OF THE MNE AR E ATTRIBUTED TO THE RELEVANT ASSOCIATED ENTERPRISE ON A CONSISTENT BASIS. HOWEVER. OCCASIONALLY IT MAY BE APPROPRIATE TO CARRY OUT A SPILT OF GROSS PROFITS A ND THEN DEDUCT THE EXPENSES INCURRED IN OR ATTRIBUTABLE TO EACH RELEVANT ENTERPRISE (AND EXCLUDING EXPENSES TAKEN I NTO ACCOUNT IN COMPUTING GROSS PROFITS). IN SUCH CASES WHERE DIFFERENT ANALYSES ARE BEING APPLIED TO DIVIDE THE GROSS INCOME AND THE DEDUCTIONS OF THE MNE AMONG ASSOCIAT ED ENTERPRISES CARE MUST BE TAKEN TO ENSURE THAT THE EXPENSES INCURRED IN OR ATTRIBUTABLE TO EACH ENTERPRISE ARE CONSISTENT WITH THE ACTIVITIES AND RISKS UNDERTAKEN THERE AND THAT THE ALLOCATION OF GROSS PROFITS IS LIKEWISE CONSISTENT WITH THE PLACEMENT OF ACTIVITIES AND RISKS. FOR EXAMPLE IN THE CASE OF AN MNE THAT ENGAGES IN HIGHLY INTEGRATED WORLDWI DE TRADING OPERATIONS. INVOLVING VARIOUS TYPES OF PROP ERLY IT MAY BE POSSIBLE TO DETERMINE THE ENTERPRISES IN WHI CH EXPENSES ARE INCURRED (OR ATTRIBUTED) BUT NOT TO A CCURATELY DETERMINE THE PARTICULAR TRADING ACTIVITIES TO WHIC H THOSE EXPENSES RELATE. IN SUCH A CASE IT MAY BE APPROPRI ATE TO SPLIT THE GROSS PROFITS FROM EACH TRADING ACTIVITY AND THEN DEDUCT FROM THE RESULTING OVERALL GROSS PROFITS THE EXPENSES INCURRED IN OR ATTRIBUTABLE TO EACH ENTERP RISE BEARING IN MIND THE CAUTION NOTED ABOVE. 5.4 FROM THE VARIOUS SUBMISSIONS MADE BY THE ASSESS EE IT IS ALSO CLEAR THAT THE GEOGRAPHICAL DIFFERENCE IS NOT MATER IAL SO FAR AS IT APPLIES TO THE LOGISTICS INDUSTRY. FROM THE VARIOUS AGREEMENTS WE FIND THERE IS SPLITTING OF GROSS PROFIT EQUALLY AT 50:50 EVEN IN PAKISTAN BANGLADESH AND SRI LANKA WHICH FALL UNDER THE SAME GEOGRAPHICAL REGION. IN VIEW OF THE ABOVE AND IN VI EW OF THE DETAILED REASONING GIVEN BY THE LD. CIT(A) WE DO NO T FIND ANY INFIRMITY IN THE CUP METHOD (50:50 MODULE) ADOPTED BY THE ASSESSEE. ACCORDINGLY THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISM ISSED. 12.2 WHILE DECIDING THE APPEAL FOR THE AY 2005 06 THE TRIBUNAL OBSERVED AS UNDER : 9. GROUND OF APPEAL NO. 2 BY THE REVENUE READS AS UNDER:- . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 8 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADJUSTMEN T U/S 92CA(3) OF THE I.T. ACT 1961 OF FREIGHT RELATED R ECEIPTS AND EXPENSES AMOUNTING TO `14 62 12 134/- MADE BY THE TRANSFER PRICING OFFICER & THE ASSESSING OFFICER A S PER THE ARMS LENGTH PRICE BY A SUM OF ` 27 54 34 623/-. 9.1 AFTER HEARING BOTH THE SIDES WE FIND THE ABOVE GROUND IS IDENTICAL TO GROUND NO. 1 BY THE REVENUE IN ITA NO. 2000/M/10. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RA ISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWING THE SAME RATI O THIS GROUND BY THE REVENUE IS DISMISSED. 4.1 SO FAR AS IT RELATES TO OBJECTION OF THE REVENU E THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF AO AS IT WAS DONE FOR A.Y. 2006 -07 TRIBUNAL HAS REJECTED SUCH CONTENTION WITH THE FOLLOWING OBSERVATIONS: 12.4 AFTER GOING THROUGH THE ORDER OF THE TRIBUNAL QUOTED HERE IN ABOVE WE FIND THAT THE TRIBUNAL HAS ALLOWED THE APPEALS OF THE AP PELLANT FOR THE AYS 2004 -05 AND 2005 06 AND RESTORED MATTER BACK TO THE FILES OF THE DRP FOR AY 2006 07 AS THE TRIBUNAL FOUND THAT THE ORDER OF THE DRP FOR AY 2006 -07 WAS LACONIC. 12.5 AS THE FACTS IN ISSUE FOR THE YEAR UNDER APPEA L ARE IDENTICAL WITH FACTS OF THE AY 2004 -05 & 2005 -06 RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL MENTIONED HERE IN ABOVE IN THE APPELLANTS OWN CASE FOR THE AY 2004 -05 & 2005 -06 WE ALLOW THE APPEAL FILED BY THE ASSESSEE AND HOLD THAT THE ADDITIONS ON ACCOUNT ADJUSTMENT IN ARMS LENGTH PRICE TO THE TU NE OF RS.110700000.00 IS UNCALLED FOR AND ACCORDINGLY THE ADJUSTMENT IS REJE CTED ON THE FACTS OF THE CASE DISCUSSED HERE IN ABOVE . THE SUBMISSIONS OF THE LD DR THAT THE MATTER BE RESTORED BACK TO THE FILES OF THE DRP AS WAS DONE I N AY 2006 07 DOES NOT HOLD ANY WATER AS WE FIND THAT FOR THE YEAR UNDER CONSID ERATION THE DRP HAS PASSED A SPEAKING ORDER WHERE AS IN AY 2006 -07 THE ORDER OF THE DRP WAS LACONIC AS FOUND BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE AY 06 07 AND THERE FORE WE REJECT THE SUBMISSIONS OF THE LD DR . RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION IN THE CASE OF ASSESSEE ITSELF FOR A.Y 2006-07 WE DELETE THE T.P ADJUSTMENT AND ALLOW GROUND NO.2& 3. 5. GROUND NO.4 RELATES TO ADDITION OF RS6.24 CRORES . DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY AO THAT IN THE TAX AUDIT REPORT . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 9 AUDITORS HAVE STATED THAT THEY HAVE NOT VERIFIED TH E EXPENDITURE TO THE TUNE OF RS.311 95 42 386/-. THE AO ASKED THE ASSESSEE TO PR ODUCE EVIDENCE/DOCUMENTS IN SUPPORT OF VARIOUS CLAIMS MA DE IN THE RETURN OF INCOME. IT WAS SUBMITTED THAT DUE TO A FIRE AT BHI WANDI WAREHOUSE VARIOUS RECORDS AND SUPPORTING DOCUMENTS WERE DESTROYED AND CANNOT BE PRODUCED. COPY OF FIR WAS ALSO SUBMITTED. THE AO NOT BEING SATISFIED WITH THE REPLY OF THE ASSESSEE OBSERVED THAT THERE WAS A SUBSTANTIAL INCREASE IN THE EXPENSES OVER THE LAST YEAR AND AS ASSESSEE HAS FAILED TO PR ODUCE REQUIRED DOCUMENTARY EVIDENCE 2% OF THE EXPENDITURE IS DISALLOWABLE. A CCORDINGLY A SUM OF RS.6 23 90 000/- WAS DISALLOWED. BEFORE LD. DRP IT WAS SUBMITTED THAT THERE IS NO SUBSTANTIAL VARIATION IN THE SALE COST RATIO AND FOLLOWING FIGURES WERE SUBMITTED: PARTICULARS 31 MARCH 2008 31 MARCH 2007 VARIATION SALES (OVERALL) 7 211 558 148 4 934 525 567 46 % COST OF SALES 6 284 584 853 4 264 987 845 47% REFERRING TO THE ABOVE CHART IT WAS SUBMITTED THAT ADDITION IF ANY CAN BE MADE OF 1% ONLY. HOWEVER LD. DRP DID NOT AGREE WI TH SUCH SUBMISSION ON THE GROUND THAT ASSESSEE DID NOT TAKE ANY EFFORT TO RECONSTRUCT THE RECORD EVEN AFTER A GAP OF 2 YEARS. 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. S UBMISSIONS MADE BY THE ASSESSEE BEFORE LD. DRP WERE REITERATED AND LD. DR RELIED UPON THE ORDERS PASSED BY AO AND LD. DRP. 7. AFTER HEARING BOTH THE PARTIES AND AFTER CONS IDERING THE FACTS AVAILABLE ON RECORD WE ARE OF THE OPINION THAT IN ABSENCE OF RECORDS SOME ESTIMATE OF DISALLOWANCE HAS TO BE MADE. THE CHART GIVEN BY TH E ASSESSEE BEFORE LD. DRP HAS NOT BEEN CONTROVERTED. THE DIFFERENCE IN THE S ALES AND COST OF SALES AS COMPARED TO EARLIER YEAR IS 1%. THEREFORE WE ARE OF THE OPINION THAT DISALLOWANCE UPTO 1% OF RS.311 95 42 386/- WILL ME ET THE INTEREST OF JUSTICE. . / IT(TP)A NO.7508/MUM/2012 & & & & ' ' ' ' / ASSESSMENT YEAR 2008-09 10 ACCORDINGLY THE ADDITION OF RS.3 11 95 000/- IS SUS TAINED AND REST OF THE ADDITION IS DELETED. THIS GROUND IS PARTLY ALLOWED . 8. GROUND NO.5 RELATES TO INTEREST UNDER SECTION 23 4D. IT WAS SUBMITTED BY LD. AR THAT LEVY OF INTEREST UNDER SECTION 234D IS CONSEQUENTIAL. ACCORDINGLY AO IS DIRECTED TO RECOMPUTE INTEREST LEVIABLE UNDER SECTION 234D AFTER GIVING EFFECT TO THIS ORDER. WE DIRECT ACCORDINGLY. THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. FRUCTIFIED ORDER PRONOUNCED IN THE OPEN COURT ON 23/07/201 3 '1 . /0' #' 2 3&4 23 /07/2013 0 . % SD/- SD/- ( . . P.M.JAGTAP ) ( . . / I.P. BANSAL ) '# / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 3& DATED 23/07/2013 '1 '1 '1 '1 . .. . + ;< + ;< + ;< + ;< ='<' ='<' ='<' ='<' / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. + (* / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5.