TaxTMI 
TaxTMI 
2010 (12) TMI 224
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.... revenue has taken following two grounds in its appeal:- (i) "On the facts and in the circumstances of the case, ld. CIT(A) has erred in deleting the addition of Rs. 3,35,787 out of the total addition of Rs. 9,76,369 made by the AO on the basis of ALP worked out by TPO, on the ground that after allowing the benefit of +/- 5%, there is no difference in ALP in respect of four invoices. (ii) On the facts and in the circumstances of the case, ld. CIT(A) has erred in deleting the addition of Rs. 7,79,812 made by the AO on account of difference in closing stock." 1.2 As the appeals were argued in a consolidated manner, we think it fit to pass a consolidated order. 2. The facts of the case are that the assessee filed its return on 2.12.2003 showing loss of Rs. 1,19,21,769. The return was processed on 21.3.2004. Thereafter, the return was selected for scrutiny by issuing notice u/s 143(2) on 15.10.2004. In the course of hearing, it was found that the assessee undertook international transactions with associated enterprises regarding export of pulses, payment of interest and reimbursement of expenses. The assessee relied on "Agriwatch" data base for justifying the contentio....
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....de in respect thereof. This argument was accepted. Therefore, the addition in respect of only two items was upheld. 2.4 In respect of the valuation of closing stock of the coffee, it was submitted that the assessee valued the same on the basis of weighted average method. This method has been followed consistently in all the subsequent years. Therefore, no addition should have been made in valuation of the closing stock. This contention was also accepted. 2.5 The assessee is in appeal in regard to transfer pricing adjustment sustained by the ld. CIT(A) and the revenue is in appeal against deletion in respect of transfer pricing adjustment as aforesaid and valuation of closing stock. We proceed with the appeal of the assessee at the first instance. 3. Before us, the ld. counsel referred to the fifth item in the table furnished by the AO, which shows the purchase price per unit at US$ 260 and the arm's length price as per "Agriwatch" data base at US$230. Our attention has been drawn to page No. 69 of the paper book, being the reproduction from the data base, which shows the single quotation on 3.2.2003 at US$ 250. It is contended that the lower authorities erred in taking arm....
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....d periodically or at the beginning of the year. Therefore, each transaction of import is a separate and distinct transaction. Accordingly, it is argued that the lower authorities were justified in making adjustment on transaction to transaction basis. 3.3 It is further submitted that the quotations of the commodity under reference and quotations for other items also, in respect of which no adjustment has been made, remain stagnant for some time and then move. This is quite natural as the prices are not expected to move from day-to-day. Therefore, what is to be seen is the arm's length price on the date on which the assessee imported the goods. 3.4 It is also submitted that transactions are under question. For each transaction there is only one arm's length price found on the basis of quotation in the data base. It is not a case where a number of comparable transactions are available, whose mean is determined. Therefore, there is no question of granting concession of 5% as per the provision existing for this year. 3.5 Coming to general observations, it is submitted that the report of the TPO is advisory in nature and the AO is not bound by the same. In case a reference is m....
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....ile of the AO to determine arm's length price in respect of only those transactions which have been disputed by the assessee. Thus, the request is conditional that where relief has been granted by the CIT(Appeals), the Tribunal may decide the appeal of the revenue, but where no relief has been given by the CIT(Appeals), the matter may be restored to the file of the AO. The correct position is that the assessment order has merged with the order of the ld. CIT (Appeals) and, therefore, it ceases to have any force to the extent it is contrary to the order of the ld. CIT (Appeals). There is no submission that the ld. CIT(Appeals) has not granted proper opportunity to the assessee. In this situation, the irregularity, if any, committed by the AO stands cured. Therefore, we do not think it necessary to remand the matter to the AO in respect of any transaction. 4.2 The second ground is that the position should be seen as a whole with respect to all the transactions and not only with respect to the disputed transactions. In other words, if transfer pricing study is made for all the transactions, the variation made by the AO would be of insignificant amount warranting no addition. On the....
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....failure to do so does not bar the jurisdiction of the AO to determine the arm's length price as in any case the final determination has to be made by the AO only. Thus, failure to act on the part of the TPO cannot lead to the presumption that the order has become time barred. Therefore, this argument is also rejected. 4.4 The fourth point is that transfer pricing provisions are in the nature of ante-tax evasion provisions. Therefore, the provision should be construed strictly and benefit of doubt, if any, should go to the assessee. In this connection, reliance is placed on the decision of Hon'ble Supreme Court in the case of C.B. Gautam v. Union of India & Others (1993) 199 ITR 530. In this case, it has been held that the historical setting, in which the provisions of chapter XXC were enacted, indicates that the provisions were to be resorted to only in cases where there is an attempt to evade payment of tax by significantly under-valuing the immovable property agreed to be sold. This intention of the legislature also becomes clear from Board instruction No. IA 88. Since there is no attempt to evade the tax or to significantly reduce the value of the transactions, it is argued t....
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....mining its arm's length price. The overall scheme of the Act is that such price has to be determined by him as per the statutory provisions after hearing the assessee. On receipt of the report, the AO has to hear the assessee again in respect of the price determined by the TPO. The effect of this is that the assessee gets two opportunities to demonstrate that the price declared by him is arm's length price and, therefore, it should be accepted. Having considered the ratio of the aforesaid cases, we are of the view that the provisions contained in chapter XXC and chapter X stand on totally different footings. Therefore, the case law decided under chapter XXC cannot be relied upon while deciding a case under chapter X. The cases decided under this chapter and discussed above show that the AO can refer the matter to the TPO for determining arm's length price of an international transaction or he may determine it on his own. Therefore, it is held that the AO was within his jurisdiction when he determined the price of six items of imports made by the assessee. 5. The substantive argument to justify the price of international transactions undertaken by the assessee is that the variati....
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....on only to marginal cases where price disclosed by the tax payer does not exceed five per cent of the arithmetical mean. The price determined on application of most appropriate method is only an approximation and it is not a scientific evaluation. Therefore, the legislature thought it fit to allow marginal benefit to those tax-payers who opt for such benefit. It may be seen from this decision that the benefit is available only when the arm's length is determined to be the mean of a number of prices of comparable transactions. However, the case of the assessee is that since the whole exercise leads to only approximate result, such benefit is also available to the assessee where there is only one comparable case. Further, reliance is placed on the decision of Mumbai Bench of the Tribunal in the case of DCIT v. BASF India Ltd. 2010-TII-40-ITAT-Mum-TP dated 16.07.2010 in ITA No. 195/Mum/2006 for assessment year 2002-03, a copy of which has been placed before us. In this case, transfer pricing adjustment was made inter-alia in respect of items Amdea-05 and Butyl Acrylate. The case of the assessee was that in both cases the difference in price is about four per cent, which is less than f....
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....lowing deduction of 5% from the arm's length interest is the fact that there are not more than once price in respect of each of the transaction, as specific one year LIBOR rate has been held to be arm's length price for the transactions. Therefore, he held that 5% allowance itself is infructuous. 15.5 We have carefully considered this aspect. We find ourselves in agreement that no more than once price has been used for each transaction. Only the LIBOR rate has been applied which has been adjusted for some basis points as required. This cannot be equated with more than once price in respect of each transaction. Hence, we uphold the ld. CIT(A)'s order on this issue." 5.4 We have considered the facts of the case and submissions made before us. The proviso, which is applicable to the proceedings of this year, contemplates an option to the assessee to choose a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean. This proviso is applicable where more than one price is determined and thereafter the mean of such prices is taken to be arm's length price. However, there is only one comparable instance in this case. The deci....
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....g CUP method. In the case of Sony India Pvt. Ltd. (supra), the TPO did not allow the benefit of the provision in respect of arithmetical mean of more than one price determined by the most appropriate method. Thus, in that case more than once price was determined. Such is not the case here. In the case of DASF India Ltd., the decision of Sony India Pvt. Ltd. (supra) was followed. This case does not deal with the controversy at all. Even the ld. DR did not bring this controversy to the fore. Therefore, the decision in the case of Sony India Pvt. Ltd. was mechanically followed. However, in the case of Perot Systems TSI (India) Ltd., it has been specifically held that the tolerance level of five per cent is countenanced only when there is more than one price and not when there is only one comparable price, LIBOR in that case. Therefore, we find that the decision of the aforesaid Perot Systems is preferable to the decision in the case of DASF India Ltd. It is mentioned that in circumstances such as obtaining in various decisions on the issue, the plea of two views being possible on the same issue is also not sustainable. The language of the proviso as it existed for the relevant year is....
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....the ld. counsel took some further arguments in the matter based upon board circular No. 12/2001 dated 23.8.2001, we may delve upon this issue further. 6.1 It is mentioned in the circular that the AO shall not make any adjustment to the arm's length price determined by the tax-payer, if such price is up to 5% less or up to 5% more than the price determined by the AO. In such cases, the price declared by the tax-payer may be accepted. The case of the ld. DR is that the relevant provision is clear and, therefore, there is no need to take recourse to the circular. In this very connection the meaning of the expression "arm's length price determined by the tax-payer" also came for discussion during the course of hearing and the case of the ld. counsel is that if the price entered in the books for the transaction is within the tolerance limit of 5%, the AO may not disturb the price on account of transfer pricing adjustment. Further, it is submitted that the circular is in the nature of a beneficial circular, which should be given effect to, as held in the case of Navnit Lal C. Javeri v. K.K. Sen, Appellate Commissioner (1965) 56 ITR 198. In this case, the Hon'ble Minister for revenue h....
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....he first limb of this paragraph, the board has used the words "arm's length price determined by the tax payer", which means that on the basis of pricing study, the assessee has determined a price. In this case, the price has not been determined by the assessee. He has merely relied upon the "Agriwatch" data base. This very data base has been used by the AO. Thus, the price determined by the assessee and the AO is the same. In the second limb, the words used are "price declared by the tax payer". To our mind, the words in the first and second limbs will have to be read to have the same meaning, i.e., the assessee has determined the arm's length price and thereafter declared such price for the purpose of transfer pricing adjustment. Neither such a price is determined nor declared as the transaction has been shown in the books and the return at the purchase price. Therefore, we are of the view that the aforesaid circular is not applicable on the facts and in the circumstances of the case. It was also the case of the ld. counsel that if statutory provisions, on plain reading, leads to an absurd result, they should be interpreted suitably by taking into account the equitable considerati....
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....based on findings of fact made on cogent evidence and in accordance with correct principles. 7.2 In reply, the ld. counsel submitted that the stock was valued on the basis of Accounting Standards-2, issued by Institute of Chartered Accountants of India, thus, valuing the stock of coffee on weighted average value basis. This Accounting Standard is binding in nature, as held in the case of J.K. Industries Ltd. & Another v. Union of India & Others (2008) 297 ITR 176. This method has been accepted in the immediately succeeding year. Therefore, in view of the decision of Hon'ble Supreme Court in the case of CIT v. Bilahari Investment (P) Ltd. (2008) 299 ITR 1, the book results should have been accepted. He also distinguished the facts of the case of British Paints India Ltd. (supra), as in that case production cost was not taken into account. In this case, all costs have been aggregated in respect of raw, processed and finished coffee and thereafter the average price is found out. Therefore, it was agitated that the method adopted by the assessee ought to have been accepted by the AO. 7.3 In the rejoinder, it is submitted that the finding of the ld. CIT (Appeals) is based upon alt....