ARKAY LOGISTICS LIMITED, MUMBAI v. DEPUTY COMMISSIONER OF INCOME TAX 6(2)(2), MUMBAI

ITA 765/MUM/2018 | 2013-2014
Pronouncement Date: 19-11-2019 | Result: Allowed

Appeal Details

RSA Number 76519914 RSA 2018
Assessee PAN AABCE4028N
Bench Mumbai
Appeal Number ITA 765/MUM/2018
Duration Of Justice 1 year(s) 9 month(s) 11 day(s)
Appellant ARKAY LOGISTICS LIMITED, MUMBAI
Respondent DEPUTY COMMISSIONER OF INCOME TAX 6(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted K
Tribunal Order Date 19-11-2019
Last Hearing Date 08-05-2019
First Hearing Date 08-05-2019
Assessment Year 2013-2014
Appeal Filed On 07-02-2018
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY JUDICIAL MEMBER AND SHRI N.K. PRADHAN ACCOUNTANT MEMBER ITA NO. 765 / MUM ./201 8 ( ASSESSMENT YEAR : 20 13 14 ) ARKAY LOGISTICS LTD. ESSAR HOUSE 11 K.K. MARG MAHALAXMI MUMBAI 400 034 PAN AABCE4028N . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 6 ( 2 ) (2) MUMBAI . RESPONDENT ITA NO.791/MUM./2018 ( ASSESSMENT YEAR : 2013 14 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 6(1)(1) MUMBAI . APPELLANT V/S ARKAY LOGISTICS LTD. ESSAR HOUSE 11 K.K. MARG MAHALAXMI MUMBAI 400 034 PAN AABCE4028N . RESPONDENT ASSESSEE BY : SHRI ANUJ KISNADWALA REVENUE BY : SHRI SUHAS KULKARNI DATE OF HEARING 22 .08 .2019 DATE OF ORDER 19.11.2019 2 ARKAY LOGISTICS LTD. O R D E R PER SAKTIJIT DEY J.M. T HE AFORESAID CROSS APPEALS ARISE OUT OF THE ORDER DATED 27 TH NOVEMBER 2017 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 55 MUMBAI PERTAINING TO THE ASSESSMENT YEAR 2013 14. 2. THE DISPUTE IN THE PRESENT APPEALS IS CONFINED TO THE ADDITION SUSTAINED/ DELETED ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT RELATING TO INTERNATIONAL TRANSACTION INVOLVING PROVISION OF SUPPORT / BROKER SERVICE S TO THE OVERSEAS ASSOCIATED ENTERPRISE (AE) VIZ. ESSAR STEEL MINNESOTA LLC (ESML). 3. BRIEF FACTS ARE AS STATED BY THE TRANSFER PRICING OFFICER THE ASSESSEE EARLIER KNOWN AS ESSAR LOGISTICS LTD. IS ENGAGED IN PROVIDING WET BULK AND DRY BULK LOGISTIC SERVICES IN THE AREA OF STEVEDORING LIGHTERAGE TRANS SHIPMENT SEA AND LAND TRANSPORTATION AND PROJECT CARGO HANDLING TO VARIOUS CLIENTS. IT IS STATED ASSESSEES BUSINESS IS DIVIDED INTO TWO SEGMENTS I.E. ROAD (SURFACE) AND SEA TRANSPO RTATION. IN THE COURSE OF ITS BUSINESS THE ASSESSEE PROVIDED SHIP BROKER SERVICES TO ESML BY TAKING ON HIRE ON VOYAG E CHARTER BASIS FROM THIRD PARTIES AND PROVIDING THEM TO ESML ON VOYAGE CHARTER ON BACK TO BA C K BASIS. IT IS OBSERVED BY THE TRANSFER PRICI NG OFFICER THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS ASSISTED ESML IN 3 ARKAY LOGISTICS LTD. AVAILING SIX VESSELS ON VOYAGE CHARTER BASIS FROM THIRD PARTY VENDORS. IT IS STATED THAT THE ASSESSEE PROVIDES SERVICE TO ESML RELATING TO ASSISTANCE IN EXECUTING THE AR RANGEMENT NEGOTIATION OF FREIGHT CHARGES AND OTHER SERVICES FOR AVAILING VESSELS ON HIRE CHARTER ARRANGEMENT FROM THIRD PARTY VENDORS. FOR PROVIDING SUCH SERVICE TO ESML DURING THE YEAR THE ASSESSEE RECEIVED REVENUE OF ` 29 17 78 711. IN THE COURSE OF TR ANSFER PRICING PROCEEDINGS THE ASSESSEE FURNISHED THE TRANSFER PRICING STUDY REPORT WHEREIN IT HAD BENCH M ARKED THE AFORESAID TRANSACTION WITH THE AE BY ADOPTING TNMM AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT TO TOTAL COST ( OP/TC ) AS THE PROFIT LEVEL INDICATOR (PLI) . THE ASSESSEE HAD SELECTED FIVE COMPARABLES WITH AVERAGE MARGIN OF 7.93%. SINCE THE MARGIN SHOWN BY THE ASSESSEE @ 9.96% WAS MORE THAN THE AVERAGE MARGIN OF THE COMPARABLES THE ASSESSEE CLA IMED THE TRANSACTION WITH TH E AE TO BE AT ARM'S LENGTH. BESIDE BENCH MARKING THE TRANSACTION UNDER THE TNMM THE ASSESSEE HAD ALS O CARRIED OUT ALTERNATIVE BENCH MARKING UNDER COMPARABLE UNCONTROLLED PRICE (CUP) METHOD . FOR SUCH PURPOSE THE ASSESSEE USED THE PRICE CHARGED BY THE THIRD PARTY VENDORS TOWARDS HIRE OF VESSELS AS INTERNAL CUP TO BENCHMARK THE ARM'S LENGTH PRICE OF THE TRANSACTION. SINCE THE PRICE CHARGED BY THE ASSESSEE TO THE AE IS MORE THAN THE PRICE AT WHICH THE ASSESSEE HAD HIRED THE VESSELS FROM THIRD PARTIES THE TR AN SACTION WITH THE AE WAS CONSIDERED 4 ARKAY LOGISTICS LTD. TO BE AT ARM'S LENGTH UNDER CUP METHOD ALSO . THE TRANSFER PRICING OFFICER HOWEVER DID N OT ACCEPT THE ALTERNATIVE BENCH MARKING MADE BY THE ASSESSEE UNDER CUP METHOD. HE OBSERVED THE ASSESSEE ITSELF IN TRANSFER PRICING S TUDY REPORT HAS ACCEPTED THAT CUP IS NOT THE M OST APPROPRIATE METHOD TO BENCH MARK THE TRANSACTION. ACCORDINGLY HE REJECTED APPLICABILITY OF CUP METHOD. INSOFAR AS THE BENCH MARKING OF TRANSACTION UNDER TNMM THOUGH THE TRANSFER PRICING OFFICER ACCEPTED T NMM AS THE MOST APPROPRIATE METHOD WITH OP ERATING PROFIT/TOTAL COST (OP/TC) AS PLI HOWEVER HE DID NOT ACCEPT THE COMPUTATION OF MARGIN OF COMPARABLES SELECTED BY THE ASSESSEE ON THE BASIS OF MULTIPLE YEAR DATA. THEREFORE HE CALLED UPON THE ASSESSEE TO F URNISH UPDATED MARGIN OF THE SELECTED COMPARABLES. THOUGH IN RESPONSE TO THE QUERY RAISED BY THE TRANSFER PRICING OFFICER THE ASSESSEE FURNISHED UPDATED MARGIN OF THE SELECTED COMPARABLES HOWEVER STILL THE TRANSFER PRICING OFFICER DID NOT ACCEPT THEM A S GOOD COMPARABLE S . ACCORDINGLY HE PROCEEDED TO SELECT COMPARABLES INDEPENDENTLY. IN THE PROCESS HE SHORT LISTED FIVE COMPARABLES INCLUDING THREE OF THE COMPARABLES SELECTED BY THE ASSESSEE. THE ARITHMETIC MEAN OF THE COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER WORKED OUT TO 21.55%. APPLYING THE ARITHMETIC MEAN OF THE COMPARABLES SELECTED THE TRANSFER PRICING OFFICER DETERMINED THE ARM'S LENGTH PRICE OF THE TRANSACTION AT ` 32 25 45 315 RESULTING IN UPWARD ADJUSTMENT OF ` 5 ARKAY LOGISTICS LTD. 3 07 66 604 TO THE PR ICE C HARGED BY THE ASSESSEE TO THE A E. THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE TRANSFER PRICING OFFICER WAS ADDED TO THE INCOME OF THE ASSESSEE WHILE FRAMING THE ASSESSMENT ORDER. BEING AGGRIEVED WITH SUCH ADDITION THE ASSESSEE PREFERRED APPEAL B EFORE THE FIRST APPELLATE AUTHORITY. 4. THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE REMOVED ONE OF THE COMPARABLES I.E. INMACS MANAGEMENT SERVICE LTD. FROM THE LIST OF COMPARABLES AND COMPUTED ARITHMETIC MEAN OF T HE REST OF THE FOUR COMPARABLES @ 1 6.56% . B Y APPLYING THE REVISED ARITHMETIC MEAN OF COMPAR ABLES TO THE OPERATING COST LEARNED COMMISSIONER (APPEALS) DETERMINED THE ARM'S LENGTH PRICE OF THE TRANSACTION AT ` 30 93 03 841 WHICH RESULTED IN TRANSFER PRICING ADJUSTMENT OF ` 1 75 25 130. BEING AGGRIEVED WITH THE AFORESAID DECISION OF THE LEARNED COMMISSIONER (APPEALS) BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. ITA NO.791/MUM./2018 RE VENUES APPEAL 5. THE ONLY DISPUTE IN TH IS APPEAL IS WITH REGARD TO EXCLUSION OF INMACS MANAGEMENT SERVICE LTD. AS A COMPARABLE. 6. AT THE OUTSET THE LEANED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THE TAX EFFECT ON THE AMOUNT DISPUTED BY THE REVENUE IS 6 ARKAY LOGISTICS LTD. BELOW THE REVISED MONETARY LIMIT OF ` 50 LAKH APPLICABLE TO APPEALS BEFORE THE TRIBUNAL AS PER CBDT CIRCULAR NO.17 OF 2019 DATED 8 TH AUGUST 2019. FURTHER HE SUBMITTED NONE OF THE EXCEPTIONS PROVIDED IN CBDT CIRCULAR NO.3 OF 2018 DATED 11 TH JULY 2018 R/W CIRCULAR F. NO.279/MISC./142/2007 ITJ (PT) DATED 20.08.2018 WOULD APPLY TO REVENUES APPEAL. THUS THE COUNSEL FOR THE ASSESSEE SUBMITTED REVENUES APPEAL BEING COVERED UNDER THE AFORESAID CIRCULARS IS NOT MAINTAINABLE. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED THAT THE TAX EFFECT ON THE AMOUNT DISPUTED BY THE REVENUE IS BELOW THE MONETARY LIMIT OF ` .50 LAKH. 8. HAVING CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD WE ARE OF THE VIEW THAT THE TAX EFFECT ON THE AMOUNT DISPUTED BY THE REVENUE IN THE PRESENT APPEAL IS BELOW THE REVISED MONETARY LIMIT OF ` 50 LAKH AS PER CBDT CIRCULAR NO.17/2019 DAT ED 8 TH AUGUST 2019 R/W CBDT CIRCULAR NO.3/2018 DATED 11 TH JULY 2018. IT ALSO STANDS CLARIFIED BY THE CBDT THAT THE REVISED MONETARY LIMIT OF ` 50 LAKH AS PER THE AFORESAID CBDT CIRCULARS WOULD ALSO APPLY TO ALL PENDING APPEALS. IN VIEW OF THE AFORESAID REVENUES APPEAL DESERVES TO BE DISMISSED. 9. IN THE RESULT REVENUES APPEAL IS DISMISSED. 7 ARKAY LOGISTICS LTD. ITA NO. 765 /MUM./2018 ASSESSEES APPEAL 10. GROUNDS NO.1 AND 2 IN ASSESSEES APPEAL BEING GENERAL IN NATURE DO NOT REQUIRE ADJUDICATION. 11. IN GROUNDS NO.3 AND 4 THE ASSESSEE HAS CHALLENGED THE DECISION OF THE REVENUE AUTHORITIES IN APPLYING TNMM AS THE MOST APPROPRIATE METHOD. I) THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE ASSESSEE CHARTER HIRED VESSELS FROM THIRD PARTY VENDORS AND IN TURN HIRED THEM TO THE A ES ON BACK TO BACK BASIS. HE SUBMITTED THE TERMS AND CONDITIONS ON THE BASIS OF WHICH THE ASSESSEE GOT THE V ESSSELS HIRED FROM NON A ES ARE MORE OR LESS SIMILAR TO THE TERMS AND CONDITIONS ON THE BASIS OF WHICH THE ASSESSEE HIRED THE VERY SAME VESSELS TO THE A ES. HE SUBMITTED THE ASSESSEE HAS PROVED BEFORE THE REVENUE AUTHORITIES THAT THE PRICE CHARGED T O THE AE TOWARDS HIRING THE VESSELS IS MORE THAN THE PRICE CHARGED BY THE NON A ES TO THE ASSESSEE FOR HIRING THE VERY SAME VESSELS. HE SUBMITTED IN SUCH TYPES OF BACK TO BACK TRANSACTIONS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE IS CUP. HE SUBMITTED AS PER RULE 10B(1)(A)(I) PRICE CHARGED OR PAID IN RESPECT OF A SIMILAR UNCONTROLLED TRANSACTIONS CAN BE CON SIDERED AS A VALID CUP TO BENCHMARK THE TRANSACTION WITH AE. HE 8 ARKAY LOGISTICS LTD. SUBMITTED IN COURSE OF PROCEEDINGS BEFORE THE TRANSFE R PRICING OFFICER AS WELL AS LEARNED COMMISSIONER (APPEALS) TH E ASSESSEE HAD FURNISHED ALL EVIDENCES IN SUPPORT OF THE INTERNAL CUP AVAILABLE BY WAY OF PRICE CHARGED BY NON AES FOR HIRING VESSELS. HE SUBMITTED THOUGH IN TH E TRANSFER PRICING STUDY REPORT THE ASSESSEE HAD BENCH MARKED THE SUBJECT TRANSACTION BY APPLYING TNMM AS THE MOST APPROPRI ATE METHOD HOWEVER IT IS EQUALLY TRUE THAT THE ASSESSEE HAS ALSO CA RRIED OUT AN ALTERNATIVE BENCH MARKING UNDER CUP METHOD. HE SUBMITTED CUP METHOD BEING A DIRECT METHOD IF A VALID CUP IS AVAILABLE IT WILL GET PRECEDENCE OVER ANY OTHER METHOD. HE SUBMIT TED THE TRANSFER PRICING OFFICER WAS TOTALLY UNJUSTIFIED IN REJECTING CUP AS THE MOST APPROPRIATE METHOD ON THE MISTAKEN REASONING THAT THE ASSESSEE ITSELF HAS REJECTED IT AS THE MOST APPROPRIATE METHOD. HE SUBMITTED CONTRARY TO WHAT THE TRANSFER PRICING OFFICER SAYS THE ASSESSEE HAS ACTUALLY MADE AN ALTE RNATIVE BENCHMARKING APPLYING CUP. HE SUBMITTED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012 31 AS WELL AS SUBSEQUENT ASSESSMENT YEARS THE TRANSFER PRICING OFFICER HIMSELF HAS ACCEPTED CUP AS TH E MOST APPROPRIATE METHOD BY APPLYING THE PRI CE CHARGED BY NON A ES TOW ARDS HIRING OF VESSELS TO THE A ES AS A VALID INTERNAL CUP. THUS HE SUBMITTED CUP SHOULD BE HELD AS THE M OST APPROPRIATE METHOD TO BENCH MAR K THE TRANSACTION AND THE BENCH MARK ING DONE BY THE ASSESSEE APPLYING CUP METHOD SHOULD BE 9 ARKAY LOGISTICS LTD. ACCEPTED. IN SUPPORT SUCH CONTENTION THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE TRIBUNAL DELHI BENCH DECISION IN DCIT V/S CALANCE SOFTWARE PVT. LTD. [2018] 191 TTJ (DEL.) 259. 12. THE LEARNED AUTHORISE D REPRESENTATIVE SUBMITTED EVEN ASSUMING THAT THE ASSESSEE HAD SELECTE D TNMM OVER CUP METHOD IF THE METHOD SELECTED BY THE ASSESSEE IS NOT THE MOST APPROPRIATE METHOD THE ASSESSEE CERTAINLY CAN CHANGE THE METHOD TO A MORE APPROP RIATE METHOD TO BENCH MARK THE TRANSACTION. FOR SUCH PROPOSITION HE RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN PCIT V/S PFIZER LTD. [2019] 308 CTR 389 (BOM.). 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THE ASSESSEE ITSELF IN THE TRANSFER PRICING STUDY HAS SELECTED TNMM AS THE MOST APPROPRIATE METHOD OVER CUP METHOD. DRAWING OUR ATTENTION TO THE TRANSFER PRICING STUDY REPORT THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE ITSELF HAS STATED THAT THE CUP METHOD IS NOT THE MOST A PPROPRIATE METHOD TO DETERMINE THE ARM'S LENGTH PRICE BECAUSE THE ASSESSEE HAS NOT PROVIDED SAME OR SIMILAR SE RVICE TO THE THIRD PARTY THE AE HAS NOT ENTERED INTO SAME OR SIMILAR TRANSACTIONS WITH THIRD PARTIES VENDORS AND THERE IS NO PUBLICLY AVAILABLE I NFORMATION ON THE PRICE CHARGED IN INDEPENDENT TRANSACTION S OF A SIMILAR OR IDENTICAL NATURE WHICH CAN BE COMPARAB LE TO THE 10 ARKAY LOGISTICS LTD. INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND THE A E. HE SUBMITTED WHEN THE ASSESSEE ITSELF HAS NOT CONSIDERED CUP AS THE MOST APPROPRIATE METHOD BECAUSE OF THESE REASONS THE TRANSFER PRICING OFFICER HAS COMMITTED NO WRONG BY REJECTING CUP AS THE MOST APPROPRIATE METHOD. HE SUBMITTED THE PRICE CHARGED BY NON A ES TO THE ASSESSEE CANNOT BE CONSIDERED AS INTERNAL CUP AS THE TERMS AND CONDITIONS ON THE BASIS OF WHICH THIRD PARTIES CHARGED THE PRICE TO THE ASSESSEE AND TERMS AND CONDITIONS ON THE BASIS OF WHICH THE ASSE SSEE CHARGED THE PRICE TO THE A ES ARE NOT AVAILABLE AS NO AGREEMENT RELATING TO THE BACK TO BACK TRANSACTIONS WERE FILED EITHER BEFORE THE TRANSFER PRICING OFFICER OR LEARNED COMMISSIONER (APPEALS). HE SUBMITTED UNLES S THE SERVICES RENDERED BY NON A ES TO THE ASSESSEE AND THE ASS ESSEE TO THE A ES ARE SIMILAR IN ALL RESPECT THE PRICE CHAR GED BY THE NON AES TO THE ASSESS EE CANNOT BE CONSIDERED AS INTERNAL CUP. 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. UNDI SPUTEDLY FOR PROVIDING SUPPORT/ BROKER SERVICE TO ESML THE ASSESSEE HAS HIRE D SIX VESSELS ON VOYAGE CHARTER BASIS FROM THIRD PARTY VENDORS AND PROVIDED / HIRED THEM TO ITS A E ESML ON VOYAGE CHARTER BASIS . THE TRANSFER PRICING OFFICER HIMSELF HAS ADMITTED THAT THE HIRING OF VESSELS BY THIRD PARTY VENDORS TO THE ASSESS EE AND BY THE ASSESSEE 11 ARKAY LOGISTICS LTD. TO THE AE IS ON BACK TO BACK BASIS. NO DOUBT IN THE TRANSFER PRICING STUDY REPORT THE ASSESSEE HAS GIVEN PRECEDENCE TO TNMM AS THE MOST APPROPRIATE METHOD IN COMPARISON TO CUP METHOD. THE REASON BEING NEITHER THE ASS ESSEE HAS PROVIDED SAME OR S IMILAR SERVICE TO THIRD PARTIES NOR THE AE HAS ENTERED INTO SAME OR SIMILAR TRANSACTION WITH INDEPENDENT SERVICE PROVIDER AND FURTHER THERE IS NO PUBLICLY AVAILABLE INFORMATION ON PRICE CHARGED IN INDEPENDENT TRANSACTION S OF SIMILAR OR IDENTICAL NATURE T HAT ARE COMPARABLE TO THE TRANSACTION BETWEEN THE ASSESSEE AND THE A E. HOWEVER IN THE VERY SAME TRANSFER PRICING STUDY REPORT THE ASSESSEE D ID PROVIDE AN ALTERNATIVE BENCH MARKING UNDER CUP METHOD BY APPLYING THE PRICE AT WHICH THE ASSESSEE HAS CHARTERED SHIPS FROM THIRD PARTIES AS INTERNAL CUP TO BENCH MARK THE PRICE C HARGED BY THE ASSESSEE TO THE AE FOR VOYAGE CHARTER OF THE VERY SAME VESSELS TO THE A E. A PERUSAL OF THE IMPUGNED ORDER OF THE TRANSFER PRICING OFFICER MAKES IT CLEAR THAT ONLY BECAUSE THE AS SESSEE HAD TREATED TNMM AS THE MOST APPROPRIATE METHOD OVER CUP HE HAS REJECTED CUP AS THE MOST APPROPRIATE METHOD. NO FURTHER REASON ING HAS BEEN PROVIDED BY THE TRANSFER PRICING OFFICER TO STRENGTHEN HIS CASE THAT CUP CANNOT BE APPLIED AS THE MOST APPROP RIATE METHOD. UNDISPUTEDLY CUP IS A MORE DIRECT METHOD COMPARED TO TNMM. A READING OF RULE 10B)(1)(A)(I) MAKES IT CLEAR THAT IF THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICE PROVIDED IN A COMPARABLE 12 ARKAY LOGISTICS LTD. U NCON TROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS CAN BE IDENTIFIED AND ARE AVAILABLE IT CAN BE APPLIED TO DETERMINE THE ARM'S LENGTH PRICE OF THE TRANS ACTION BETWEEN THE RELATED PARTIES . IN THE PRESENT CASE ADMITTED FACTUAL POSITION IS THE ASSESSEE HAS TAKEN ON HIRE SIX VESSELS FROM THIRD PARTY VENDORS AND IN TURN HAS HIRED THEM TO THE AE ON BACK TO BACK BASIS. THE REVENUE HAS ALSO NOT DISPUTED THAT THE PRICE CHARGED BY THE THIRD PARTY VENDORS TO THE ASSESSEE FOR HIRING VESSELS IS LESSER THAN THE PRICE C HARGED BY THE ASSESSEE TO THE A E ON HIRING THE VERY SAME VESSELS ON BACK TO BACK BASIS. THIS DIFFERENCE IN PRICE SUGGESTS THAT THE TRANSACTION BETWEEN THE ASSESSEE AND THE AE IS AT ARM'S LENGTH. THEREFORE WHEN A VALID INTERNAL CUP IS AVAILABLE IN THE SHAPE OF PRICE CHARGED BY NON A ES F OR HIRING VESSELS TO THE ASSESSEE CUP METHOD IN OUR VIEW IS THE MOST APPROPRIATE METHOD TO DETERMINE THE ARM'S LENGTH PRICE. THE CO ORDINATE BENCH IN CALANCE SOFTWARE PVT. LTD. (SUPRA) HAS HELD THAT IN CASE OF BACK TO BACK TRANSACTION CUP IS THE MOST APPROPRIATE METHOD. MERELY BECAUSE IN THE TRANSFER PRICING STUDY REPORT THE ASSESSEE HAD SELECTED TNMM AS THE MOST APPROPRIATE METHOD IT CANNOT BE ESTOPPED FROM CONTENDING THAT CUP IS THE MOST APPROPRIATE METHOD TO BENCH MARK THE TRANSACT ION. OF COURSE ASSESSEES CASE STANDS O N A MUCH BETTER FOOTING AS IN THE TRANSFER PRICING STUDY REPORT THE ASSESSEE HAS ALS O PROVIDED AN ALTERNATIVE BENCH MARKING APPLYING CUP METHOD. IF THE 13 ARKAY LOGISTICS LTD. ASSESSEE APPLIES A WRONG M ETHOD IT IS OPEN FOR HIM AS WELL AS T HE TR ANSFER PRICING OFFICER TO BENCH MARK THE TRANSACTION BY APPLYING A MORE APPROPRIATE METHOD . IN FACT IN A NUMBER OF CASES WE HAVE NOTICED THAT THE METHOD ADOPTED BY THE ASSESSEE IN TRANSFER PRICING STUDY REPORT HAVING FOUND TO BE UNSUITABLE / INAPPROPR IATE THE TRANSFER PRICING OFFICER REJECTS SUCH METHOD AND APPLIES A MORE SUITABLE METHOD TO BENCH MARK THE TRANSACTION. THEREFORE THE METHOD A PPLIED BY THE ASSESSEE TO BENCH MARK THE TRANSACTION IN THE TRANSFER PRICING STUDY REPORT CANNO T BE CONSIDERED TO BE SACROSANCT AS ONE HAS TO ANALYSE THE NATURE OF TRANSACTION AND THE AVAILABLE DATA TO APPLY A PARTICULAR METHOD AS THE MOST APPROPRIATE METHOD AS PROVIDED UNDER SECTION 92C R/W RULE 10B. THE DECISIONS RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUPPORT THIS VIEW. IT IS ALSO RELEVANT TO OBSERVE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2012 13 THE TRANSFER PRICING OFFICER IN ORDER DATED 28 TH JANUARY 2016 HAS ACCEPTED CUP AS THE MOST APPROPRIATE METHO D TO BENCH MARK THE IN TERNATIONAL TAXATIO N WITH THE AE RELATING TO THE PROVISION OF SUPPORT/ BROKER SERVICE S . IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT IN SUBSEQUENT ASSESSMENT YEAR S ALSO CUP HAS BEEN ACCEPTED AS THE MOST APPROP RIATE METHOD TO BENCH MARK THE AFORESAID TRANS ACTION. CONSIDE RING THE ABOVE WE HOLD THAT CUP IS THE MOST APPROPRIATE METH OD IN THE PRESENT CASE TO BENCH MARK THE TRANSACTION WITH THE AE. 14 ARKAY LOGISTICS LTD. RELATING TO THE PROVISION OF SUPPORT/ BROKER SERVICE. THE INTERNAL CUP APPLIED BY THE ASSESSEE BEING A VALID CUP NO FURTHER ADJUSTMENT CAN BE MADE TO THE PRICE CHARGED TO AE. THE ADDITION MADE SHOULD BE DELETED. 15. IN GROUNDS NO.5 6 AND 7 THE ASSESSEE HAS CHARGED SELECTION OF FOLLOWING THREE COMPARABLES UNDER TNMM. I) AXIS INTEGRATED SYSTEMS LTD; II) CYBER MEDIA RESEARCH LTD; AND III) ADECCO INDIA PVT. LTD. 16. BEFORE WE PROCEED TO DECIDE THIS GROUND WE MUST OBSERVE THAT THE ISSUES RAISED IN THESE GROUNDS ARE ASSOCIATED WITH THE DETERMINATION OF ARM'S LENGTH PRICE UNDER TNMM. SINCE WHILE DECIDING GROUNDS NO.3 AND 4 WE HAVE HELD THAT CUP IS THE M OST APPROPRIATE METHOD TO BENCHMARK THE TRANSACTION THESE GROUNDS HAVE BECOME ACADEMIC. HOWEVER SINCE THE ISSUES RAISED IN THESE GROUNDS RELATE TO SELECTION OF CERTAIN COMPARABLES AND PARTIES WERE HEARD ON THE ISSUES WE PROPOSE TO DEAL WITH THESE GROUNDS HEREIN AFTER. I) AXIS INTEGRATED SYSTEMS LTD; 17. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THIS COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN DIGITAL CERTIFICATE AND PROVIDING LICENSING SERVICE SUCH AS VERIFICATION OF SERVICE TAX EXCISE DUTY ETC. IN 15 ARKAY LOGISTICS LTD. THIS CONTEXT HE DREW OUR ATTENTION TO THE FUNCTIONAL PROFILE OF THE COMPANY AS AVAILABLE I N ITS WEBSITE. HE SUBMITTED THE COMPANY IS ENGAGED IN PROVIDING LICENSING SERVICE IN PROFESSIONAL FIELD. THE NATURE OF SUPPORT SERVICE FOR DI FFERENT LINE OF BUSINESS VARIES IN EACH BUSINESS SEGMENT. THEREFORE SUPPORT SERVICE S IN TWO DIFFERENT FIELDS CANN OT BE COMPARED WITH EACH OTHER. HE SUBMITTED EVEN THE FINANACIALS OF THE COMPANY FOR THE CURRENT YEAR WERE NOT PROVIDED TO THE ASSESSEE. THUS HE SUBMITTED THE COMPANY BEING FUNCTIONALLY DIFFERENT CANNOT BE TREATED AS COMPARABLE. IN SUPPORT OF SUCH CONT ENTION HE RELIED UPON THE DECISION OF THE TRIBUNAL DELHI BENCH IN LI AND FUNG (I) PVT. LTD. V/S ACIT ITA NO.7549/DEL./2017 DATED 14 TH MAY 2018. 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS) SUBMITTED THE ASSESSEE COMPANY BEING FUNCTIONALLY SIMILAR TO THE ASSESSEE HAS BEEN CORRECTLY SELECTED AS A COMPARABLE. 19. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE WEBSITE EXT RACTS OF THE COMPANY AS SUBMITTED BEFORE US IT IS NOTICED THAT THE COMPANY PROVIDE S SERVICE S RELATING TO DGFT CUSTOMS / EXCISE DUTY AND SERVICE TAX. IT ALSO APPEARS FROM THE FACTS ON RECORD THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING 16 ARKAY LOGISTICS LTD. IN DIGITA L CERTIFICATE. CONSIDERING THE AFORESAID FACTOR THE CO ORDINATE BENCH IN LI & FUNG (I) PVT. LTD. (SUPRA) HAS HELD THAT THE COMPANY IS NOT A COMPARABLE TO A BUSINESS SUPPORT SERVICE PROVIDER. IT IS ALSO RELEVANT TO OBSERVE WH ILE EXCLUDING THIS COMPANY THE B ENCH ALSO TOOK NOTE OF THE FACT THAT THE FINANACIAL STATEMENTS OF THE COMPANY WERE NOT AVAILABLE IN THE PUBLIC DOMAIN WHEN THE COMPANY WAS SELECTED AS A COMPARABLE. BEFORE US ALSO THE LEARNED AUTHORISED REPRESENTATIVE HAS SPECIFICAL LY SUBMITTED THAT THE FINANCIAL STATEMENT S OF THE COMPANY WERE NOT PROVIDED TO THE ASSESSEE. IN CASE OF LI & FUNG (I) PVT. LTD. (SUPRA) THE BENCH A LSO OBSERVED THAT EVEN UNDER TNMM THE REQUIREMENT FOR SELECTION OF COMPARABLE TRANSACTION CANNOT BE DILUTED. THUS APPLYING THE RATIO LAID DOWN IN THIS DECISION OF TH E CO ORDINATE BENCH WHICH IS FOR THE VERY SAME A SSESSMENT YEAR WE HOLD THAT AXIS INTEGRATED SYSTEMS LTD. CANNOT BE TREATED AS A COMPARABLE TO THE ASSESSEE HENCE SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE S . IN T HE COURSE OF HEARING IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT ON EXCLUSION OF THIS COMPARABLE THE MARGIN SHOWN BY THE ASSESSEE WOULD BE WITHIN THE TOLERANCE RANGE OF THE AVERAGE MARGIN OF THE REST OF THE COMPARABLES REQUIRING NO FU RTHER ADJUSTMENT. THUS HE HAD SUBMITTED THAT THERE IS NO NE ED TO CONSIDER THE ACCEPTABILITY OR OTHERWISE OF THE OTHER TWO COMPARABLES. CONSI DERING THE AFORESAID SUBMISSION OF THE LEARNED AUTHORISED 17 ARKAY LOGISTICS LTD. REPRESENTATIVE W E DO NOT INTEND TO VENTURE INTO THE COMP ARABILITY ISSUE S OF CYBER MEDIA AND ADECCO INDIA PV T. LTD. FOR THE PRESENT AND LEAVE IT UPON FOR ADJUDICATION IF THE ISSUE ARISES IN ANY OTHER ASSESSME NT YEAR IN FUTURE. THUS LOOKED AT FROM ANY ANGLE THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUS TMENT IS UNSUSTAINABLE. ACCORDINGLY IT IS DELETED. GROUND NO.5 IS ALLOWED AND GROUNDS NO.6 AND 7 HAVING BECOME ACADEMIC ARE DISMISSED. 20. BEFORE PARTING WE MUST OBSERVE BEFORE LEARNED COMMISSIONER (APPEALS) THE ASSESSEE HAD NOT ONLY RAISED A SPECIFIC GROUND ON THE ISSUE OF CUP AS THE MOST APPROPRIATE METHOD BUT THE SUBMISSIONS IN THIS REGARD WERE ALSO ADVANCED IN THE COURSE OF APPEAL PROCEEDINGS. IN FACT THE LEARNED COMMISSIONER (APPEALS) HAS ALSO NOTED THE SUBMISSION S OF THE ASSESSEE IN HER ORDER. UNFORTUNATELY SHE HAS NOT RECORDED ANY FINDING ON THE ISS UE. HAD LEARNED COMMISSIONER (APPEALS) DEALT WITH THE ISSUE IN A PROPER MANNER IT WOULD HAVE MADE OUR JOB EASIER. 21. IN THE RESULT REVENUES APPEAL IS DISM ISSED AND ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI DATED: 19.11.2019 18 ARKAY LOGISTICS LTD. COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR ITAT MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT MUMBAI