Adani Wilmare Ltd., Ahmedabad V. The ACIT., Circle-1, Ahmedabad

CO 78/AHD/2006

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8636 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 3 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-05-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 10-03-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S N SOPARKAR
• Assessee Lawyers: Y P VERMA
• Keywords: Transfer pricing; International transaction; Earning of tax free income
• Section: 14A; 92

Judgement Text

ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.) I.T. A. NO. 214 /AHD/2006 (ASSESSMENT YEAR:2002-03) C.O. NO. 78/AHD/2006 (ASSESSME NT YEAR: 2002-03) A.C.I. T., CIRCLE-1, 3 RD FLOOR, JITENDRA CHAMBERS, R.B.I. LANE, ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. ADANI WILMAR LIMITED. 10 TH FLOOR, SHIHAR, NR. ADANI HOUSE, MITHAKHALI CIRCLE, AHMEDABAD (RESPONDENT) ADANI WILMAR LIMITED. 10 TH FLOOR, SHIHAR, NR. ADANI HOUSE, MITHAKHALI CIRCLE, AHMEDABAD (RESPONDENT) VS. A.C.I. T., CIRCLE-1, 3 RD FLOOR, JITENDRA CHAMBERS, R.B.I. LANE, ASHRAM ROAD, AHMEDABAD. (APPELLANT) PAN: AABCA8056G APPELLANT BY : SHRI Y.P. VERMA SR. D.R. RESPONDENT BY : SHRI S.N. SOPARKAR A.R. ( )/ ORDER DATE OF HEARING : 10.05.201 3 DATE OF PRONOUNCEMENT : 21 -06-2013 PER SHRI ANIL CHATURVEDI,A.M. ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 2 1. THE PRESENT APPEAL IS FILED BY THE REVENUE AGAIN ST THE ORDER OF LD. CIT(A)-VI, AHMEDABAD DATED 7.11.2005 FOR ASSESS MENT YEAR 2002-03 AND ASSESSEE HAS ALSO HELD CROSS OBJECTION AGAINST THE ORDER OF CIT(A). 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUTHORITIES ARE AS UNDER. 3. WE FIRST TAKE UP APPEAL OF REVENUE (ITA NO. 214/ AHD/2006). 4. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING/ REFINING AND TRADING OF EDIBLE OIL. IT FILED ITS RETURN OF INCOME FOR A.Y. 2002-03 ON 23.10.2002 DECLARING INCOME OF RS. 2,22,63,600/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3)VIDE ORDER DATED 23.02.2005 AND THE TOTAL INCOME WAS DETERMINED AT R S. 2,87,68,781/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE VIDE OR DER DATED 7.11.2005 GRANTED PARTIAL RELIEF TO THE ASSESSEE. A GGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REVENUE IS NOW IN A PPEAL BEFORE US AND HAS RAISED THE FOLLOWING TWO GROUNDS:- [1] THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DIRECTING TO RESTRICT THE ADDITIONS MADE U/S. 14A TO RS. 7,536/- AS AGAINST RS. 75,360/-. ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 3 [2] THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE ADDITIONS OF RS. 58,48,771/- MADE U/S. 9 2CA(3) OF THE ACT. 1 ST GROUND IS WITH RESPECT TO DISALLOWANCE U/S. 14A:- 5. ON PERUSING THE DETAILS FILED BY THE ASSESSEE , ASS ESSING OFFICER NOTICED THAT ASSESSEE HAS RECEIVED TOTAL DIVIDEND O F RS. 1,21,565/- WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(33) OF THE ACT. ASSESSING OFFICER WAS OF THE VIEW THAT IN THE ABSEN CE OF SPECIFIC EVIDENCE PROVIDED BY THE ASSESSEE TO ESTABLISH THAT NO ADMINISTRATIVE AND OTHER EXPENSES ARE ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME, PROPORTIONATE AMOUNT NEEDS TO BE D ISALLOWED UNDER SECTION 14A. HE THUS DISALLOWED THE ADMINIST RATIVE AND OTHER EXPENSES IN THE RATIO OF DIVIDEND RECEIPTS TO GROSS RECEIPTS AND WORKED OUT TO DISALLOWANCES OF RS. 75,360/-. 2.2 AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FACTS OF THE CASE CAREFULLY. THIS IS THE FACT THAT DURIN G THIS YEAR APPELLANT HAD RECEIVED DIVIDEND INCOME OF RS. 1,21, 565/- ON INVESTMENT WHICH HAS BEEN SHOWN AS EXEMPT. WHEN TH E APPELLANT IS EARNING INCOME WHICH IS EXEMPT FROM TH E TAX, THE EXPENDITURE WHICH HAS BEEN INCURRED OR ATTRIBUT ED TOWARDS SUCH INCOME IS TO BE DISALLOWED U/S. 14A OF THE I.T. ACT. AS THERE WAS NO SEPARATE SET UP TO LOOK AFTER THE INVESTMENT AND DIVIDEND INCOME, THE ONLY PROPER MET HOD IS TO DISALLOW THE PROPORTIONATE ADMINISTRATIVE EXPEND ITURE ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 4 WHICH HAS BEEN ADOPTED BY THE ASSESSING OFFICER. THEREFORE, I AGREE WITH THE ASSESSING OFFICER IN DI SALLOWING THE PROPORTIONATE EXPENDITURE ATTRIBUTABLE TO SUCH TAX EXEMPT INCOME. HOWEVER, I FIND THAT THERE IS A CALCULATIO N ERROR IN DETERMINING THE DISALLOWANCE AS THE ASSESSING OFFIC ER HAS TAKEN THE GROSS RECEIPT AS RS. 116,36,98,3777/- IN PLACE OF RS. 116,38,69,8377/- AFTER CONSIDERING CORRECT GROS S RECEIPTS WHICH HAVE BEEN MENTIONED BY THE ASSESSING OFFICER HIMSELF IN PARA-2 OF THE ASSESSMENT ORDER, THE DISALLOWANCE U/S. 14A COMES TO RS. 7536/-. THEREFORE, THE DISALLOWANCE T O THE EXTENT OF RS. 7536/- IS CONFIRMED AND REMAINING AMO UNT IS DELETED. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWE D. 6. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, THE LEARNED D.R. RELIED ON THE ORDER OF ASSESSING OFFICER AND ON THE OTHER HAND THE LD. A.R. DID NOT SERIOUSLY PRESS THE ISSUE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, THE LEARNED D.R. COULD NOT CONTR OVERT THE FINDINGS OF CIT(A) AND THUS WE FIND NO REASON TO IN TERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 2 IS WITH RESPECT TO ADDITION OF RS. 58, 48,771/- MADE UNDER SECTION 92 CA(3) OF THE ACT. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O NOTICED THAT ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH ONE OF ITS ASSOCIATE ENTERPRISE BY WAY OF PURCHASE OF EDIBLE OIL. SINCE THE ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 5 TOTAL VALUE OF TRANSACTION WAS IN EXCESS OF 5 CRORE . THE MATTER WAS REFERRED TO T.P.O. TPO AFTER EXAMINING THE DETAILS FILED BY THE ASSESSEE DIRECTED FOR THE PRICE DIFFERENTIAL BETWEE N THAT CHARGED TO A.E AND MALAYSIAN PALM OIL BOARD (MPOB) PRICE BE AD DED TO THE INCOME OF THE ASSESSEE. THUS THE ADJUSTMENT OF RS. 58,48,771/- WAS MADE TO THE SALES OF ASSESSEE AND THE INCOME WA S CONSEQUENTLY INCREASED. AGGRIEVED BY THE ORDER OF A SSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE DE LETED THE ADDITION BY HOLDING AS UNDER:- 4.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND FACTS OF THE CASE CAREFULLY. THE APPELLANT AS WELL AS TPO HAVE ADOPTED THE CUP METHOD AS THE MOST APPROPRIATE METHOD TO DE TERMINE THE ARM'S LENGTH PRICE. THE APPELLANT HAS MAINTAINED NE CESSARY STATUTORY RECORDS AND SUBMITTED REPORT PRESCRIBED U /S.92E OF THE I.T.ACT. THE APPELLANT HAS MENTIONED THAT NO ADJUST MENT U/S.92C IS NECESSARY AS THE TRANSACTIONS WITH AE ARE AT ARM LENGTH. WHILE DETERMINING THE ALP THE APPELLANT HAS USED TWO RATE S/QUOTATIONS, ONE FROM 'MPOB' (MALAYSIA PALM OIL BOARD) AND OTHER FROM 'OIL WORLD' AND HAS TAKEN THE ARITHMETICAL MEAN OF BOTH THE QUOTATIONS TO WORK OUT THE ARM'S LENGTH PRICE. FROM THE CHA RT SUBMITTED BEFORE THE TPO, IT WAS EXPLAINED, THAT THE PRICE PA ID TO THE ASSOCIATE ENTERPRISES WAS WITHIN 5% OF THE ARITHMET ICAL MEAN OF QUOTATION OF MPOB AND OIL WORLD. THE TPO HAS MADE ADJUSTMENT BY SIMPLY IGNORING THE QUOTATION OF OI L WORLD MENTIONING THAT THOUGH IT IS INDEPENDENT ORGANIZATI ON BUT IT IS NOT A GOVERNMENT AGENCY AND IT WAS NOTHING TO DO WITH THE PRICES OF MALAYSIA. 4.4. I HAVE ALSO GONE THROUGH THE FEW PUBLICATIONS OF OIL WORLD WHICH IS INDEPENDENT ORGANIZATION ESTABLISHED IN 19 58 IN GERMANY. THIS PROVIDES THE INDEPENDENT FORECASTING SERVICES FOR OIL SEEDS, OILS AND MEALS AND PROVIDING PRIMARY INF ORMATION AND ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 6 PROFESSIONAL ANALYSIS. THE OIL WORLD COMPILES INFOR MATION OF VARIOUS COUNTRIES IN THE OIL SECTOR. THIS PUBLISHES DAILY, MONTHLY AND YEARLY JOURNALS IN OIL SECTOR. THIS COMPILES INFORMATION O F VARIOUS COUNTRIES AND, THEREFORE, IS BROAD BASED DATA BASE. THE QUOTATION ADOPTED BY THE APPELLANT FROM OIL WORLD IS FOR MALA YSIA AND NOT FOR GERMANY. THEREFORE, IT IS AN AUTHENTIC INDEPENDENT TRADE QUOTATIONS AND IS DULY COVERED UNDER THE VARIOUS DO CUMENTS WHICH HAS BEEN LISTED IN SUB-RULE (3)(B) & (C)-,OF RULE 1 0D OF THE IT. RULES. AS THIS IS AN INDEPENDENT-ORGANIZATION WHICH IS GIVING QUOTATION OF DIFFERENT COUNTRIES, THIS CANNOT BE IG NORED BY THE TPO WITHOUT ANY VALID REASON. AS THE INTERNATIONAL TRAN SACTION ENTERED WITH AE IS LESS THAN 5% OF THE ARITHMETICAL MEAN OF THESE TWO QUOTATIONS I.E. MPOB AND OIL WORLD, AS PER PROVISO OF SECTION 92(C) THE APPELLANT WAS JUSTIFIED IN TAKING THE INT ERNATIONAL TRANSACTION AT ARM LENGTH. THEREFORE, NO ADJUSTMENT U/S.92(C) WAS REQUIRED AS ALL THE PRICES AT WHICH THE PURCHASE HA VE BEEN MADE ARE LESS THAN 5% OF THE ARITHMETICAL MEAN. BESIDES THE ABOVE, I ALSO FIND THAT THE APPELLANT HAS ENTERED INTO CONTA CT WITH AE ON LONG TERM BASIS FOR CONTINUOUS SUPPLY OF CONSTANT Q UALITY TO ENSURE CONTINUITY IN PRODUCTION INTO CONTINUOUS PLANT WHIC H IS ALSO AN IMPORTANT FACTOR FOR CONSIDERING THE ALP AND DUE WE IGHTAGE IS REQUIRED TO BE GIVEN WHILE COMPARING THE RATES GIVE N BY MPOB. EVEN THE AVERAGE PRICE PAID BY THE APPELLANT IS LOW ER THAN AVERAGE PRICE ON THE BASIS OF RATES OF MPOB. THEREF ORE, IN VIEW OF THESE FACTS, CIRCUMSTANCES AND THE LEGAL POSITION T HE AO/TPO WERE NOT JUSTIFIED IN MAKING THE ADJUSTMENT TO THE PURCHASE PRICE AND, ACCORDINGLY, THE ADDITION ON ACCOUNT OF ADJUST MENT OF THE PRICE IS HEREBY DELETED. ACCORDINGLY, THIS GROUND I S DECIDED IN FAVOUR OF THE APPELLANT. 10. BEFORE US, THE LEARNED D.R. FILED ITS WRITTEN S UBMISSION WHICH READS AS UNDER:- A: SELECTION OF COMPARABLES - REJECTION OF WORLD OI L PUBLISHED PRICES AS A COMPARABLE. 1. THE CIT(A) HAS WRONGLY PRESUMED AT PARA 4.3 TH AT THE TPO HAS MERELY IGNORED THE QUOTATION OF 'OIL WORLD'. THE CIT(A) HA S REPRODUCED THE ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 7 DOCUMENTATIONS WHICH CAN BE RELIED AT PAGE 26 OF HI S ORDER. HOWEVER, HE HAS ERRONEOUSLY COME TO A CONCLUSION AT PAGE 27 (PARA 3 .4) THAT THE RULE DOES NOT ENVISAGE THAT 'ONLY GOVERNMENT PUBLICATION IS TO BE CONSIDERED AND ALL OTHER DOCUMENTS RELIED ON BY THE ASSESSEE ARE TO BE IGNOR ED.' > AS DISCUSSED BELOW, THE TPO HAS DULY WEIGHED AL L THE DOCUMENTS SUBMITTED BY THE APPELLANT AND HAS REJECTED THE DOC UMENTS WHICH ARE NOT FOUND RELEVANT TO THE PRICING OF THE PRODUCT UNDER CONSIDERATION. THE CIT(A) HAS ALSO WRONGLY CONCLUDED THAT ALL THE DOCUMENTS LISTED UNDER RULE 10D(3) CAN BE RELIED UPON AND THAT THE ACT DOES NOT PROVIDE FOR ANY PREFERENCE OF ONE DOCUMENT OVER ANOTHER. THE DOCUMENTS ENUMERATED UNDER THIS RULE ARE DOCUMENTS ON WHICH R ELIANCE CAN BE PLACED FOR JUSTIFYING ARM'S LENGTH NATURE OF RELATE D PARTY TRANSACTION. HOWEVER, THIS BY NO MEANS STATES THAT ALL THESE DOC UMENTS ARE AT EQUAL FOOTING. AT NO PLACE, IT IS IMPLIED THAT ALL THE DOCUMENTS ARE AT EQUAL FOOTING. FURTHER, IT IS MANDATED BY THE RULES TO FIND OUT BEST CUP IF COMPARABLE UNCONTROLLED PRICE METHOD IS SELECTED. FOR EXAMPLE, AN INTERNAL CUP WOULD AUTOMATICALLY BE A SUPERIOR DOCUMENT TO PRICE PUBLICATION. IT IS BY NOW AN ACCEPTED NORM THAT AN INTERNAL CUP WOULD HOLD PREFERENCE OVER AN EXTERNAL CUP. SIMILARLY, CUP PERTAINING TO THE SAME TIME FRAME WO ULD BE PREFERABLE TO AN AVERAGED OUT CUP. SIMILARLY PRICE INSTANCE OF THE SAME GEOGRAPHY WOULD BE PREFERABLE TO A PRICE INSTANCE I N ANOTHER GEOGRAPHY. HENCE, IS IMPERATIVE TO GO THROUGH THE NATURE OF DO CUMENT ON WHICH RELIANCE HAS BEEN PLACED AND TO EXAMINE WH ETHER SUCH DOCUMENT IS ACCEPTABLE IN LIGHT OF THE METHOD SELEC TED BY THE ASSESSEE. EQUAL WEIGHTAGE TO ALL DOCUMENTS IS NEITHER IMPLIED IN THE RULES NOR IS ACCEPTABLE AS A RATIONALE INFERENCE . > IT IS AN ESTABLISHED FACT THAT CUP ENTAILS STR ICT COMPARABILITY. SUCH A VIEW HAS ~ ALSO BEEN SUPPORTED BY A NUMBER OF ITAT JUDGMENTS. IT IS ALSO ACCEPTED THAT COMMODITY PRICES FLUCTUATE DAILY AS WELL AS OVER DIFFERENT GEOGRAPHIES. HENCE IF THERE IS AN EVIDENC E OF DAILY FLUCTUATION, A WEEKLY PRICE PUBLICATION WOULD NOT SERVE AS RELIA BLE CUP. COMMODITY PRICES HAVE EXTREME GEOGRAPHICAL SENSITIVITY. HENCE , A PRICE QUOTE WITHOUT REVEALING THE BASKET OF QUOTES WHICH HAVE B EEN AVERAGED CANNOT BE TAKEN AS A REPRESENTATIVE QUOTE FOR A PARTICULAR GEOGRAPHY. > IN FACE OF AVAILABILITY OF PROPER AND RELIABLE CUP BEING AVAILABLE, AN INDIRECT PRICE INDEX BASED ON TRADER INTERVIEWS CAN NOT BE HELD TO BE AT ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 8 EQUAL FOOTING WITH DIRECT TRADE PRICES IN THE SAME MARKET. THE OIL WORLD QUOTE IS LIABLE TO BE REJECTED ON THIS GROUND ALONE . 2. THE MALAYSIAN BOARD PRICE OFFERS A DIRECT CUP WHICH IS TO BE PREFERRED OVER OTHER PRICES - BEING DIRECT CUP IN THE SAME GEOGRAPHY IN THE INSTANT CASE, IT IS UNDISPUTED THAT THE I MPORT HAS TAKEN PLACE FROM MALAYSIA. THE DOCUMENT SUBMITTED BY THE ASSESSEE TO THE TPO DURING TP PROCEEDINGS, IS ENCLOSED AS ANNEXURE A. IT IS SEEN THAT MPOB QUOTATION IS BASED ON AVERAGING OF QUOTATIONS IN MALAYSIA. THE 'OIL WORLD' QUOTE IS ALSO ATTACHED WITH THE LETTER. IT IS SEEN THAT THE OIL WORLD QUOTE IS BASED ON LOWEST REPRESENTATIVE ASKIN G PRICE FOR NEAREST FORWARD SHIPMENT. IT IS FOB PRICE OF MALAYSIAN CRUD E PALM IN INTERNATIONAL MARKET AND NOT IN MALAYSIA ALONE. HEN CE, THE LOCATION OF THE PERSON OFFERING THE QUOTE IS NOT KNOWN. IT MAY BE A PERSON OUTSIDE MALAYSIA WHO HAS ALREADY STOCKED MALAYSIAN CRUDE PA LM OR A PERSON WHO HAS SUFFICIENT STOCK OF EARLIER MALAYSIAN CRUDE . THE WEB-SITE DETAILS SUBMITTED BY THE ASSESSEE VIDE ITS LETTER DATED 9-1 2-2004 TO THE TPO IS ALSO ENCLOSED AT ANNEXURE B. THE WEBSITE DOES NOT T HROW ANY LIGHT ON THE SOURCE OF QUOTATIONS UTILIZED BY OIL WORLD WHIL E PUBLISHING ITS RATES. SINCE THE PARAMETERS ON WHICH THE PRICE QUOT E IS BASED IS NOT CLEAR AND WITHOUT DOUBT, SUCH QUOTES ARE NOT LIMITE D TO MALAYSIAN QUOTES, THE PRICE QUOTED AT 'OIL WORLD' CANNOT BE A CCEPTED AS A VALID CUP FOR PURCHASES BEING MADE FROM MALAYSIA. IN SUBSEQUENT YEARS, EVEN THE APPELLANT HAS DISCARDED USE OF OIL WORLD P RICES AS REFERENCE PRICES. 3. OIL WORLD PRICE IS NOT TRADE B ASED INDEX BUT INTERVIEW BASED INTERNATIONAL INDEX AND H ENCE CANNOT BE ACCEPTED AS A CUP > THE CIT(A), AT PARA 4.4, HAS ERRONEOUSLY COME T O A CONCLUSION, WITHOUT ANY EVIDENCE ON RECORD, THAT THE CUP IN THE FORM OF QUOTATION CONTAINED IN OIL WORLD REPRESENTS PRICE WHICH CONFORMS TO THE TE STS LAID DOWN FOR SELECTING SUCH COMPARABLES. > AS MENTIONED AT 5, THE OIL WORLD PRICE IS NOT T RANSACTION BASED PRICE BUT INTERVIEW BASED LIKELY PRICE OR INDEX. THIS IS CLEAR FROM THE OIL WORLD INDEX SUBMITTED BY THE ASSESSEE AND ENCLOSED AT ANN EXURE A. THE INDEX IS ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 9 BASED ON INTERVIEWS CONDUCTED FOR 'ON LOWEST REPRES ENTATIVE ASKING PRICE FOR NEAREST FORWARD SHIPMENT' AND IT IS NOT NECESSA RY THAT ANY DEAL HAS TAKEN PLACE AT THIS PRICE. SINCE THERE IS NO EVIDENCE OF ANY DEAL HAVING TAKEN PLACE IN MALAYSIA AT THIS PRICE, THE INDEX CANNOT REPRESE NT SUITABLE CUP FOR THIS TRANSACTION. AS AGAINST THIS, THE MPOB PRICE IS BASED ON ACTUAL DELIVERIES MADE DURING THE DAY AND HENCE REPRESENT ACTUAL TRAN SACTIONS AND HENCE REPRESENT PROPER CUP. > AGAINST THE VARIOUS LACUNE OBSERVED IN THE PUBL ISHED DATA OF OIL WORLD AS FAR AS ITS ADOPTION AS VALID CUP WITH RESPECT TO IMPORTS MADE BY THE ASSESSEE FROM MALAYSIA, THE MPOB PRICE QUOTATIONS A RE FOUND TO BE AN EXACT CUP. THE GEOGRAPHICAL SIMILARITY, THE PRICING BASED ON LOCAL QUOTATIONS AND AVAILABILITY OF DAILY PUBLISHED DATA GIVES A TRANSP ARENT AND RELIABLE MEANS TO BENCHMARK THE PRICE PAID TO THE AE. 4. ISSUE OF LONG TERM SUPPLY IS NOT BASED ON ANY DOCUMENT SUBMITTED BY THE APPELLANT AND IS HENCE IRRELEVANT THE FINDING GIVEN BY CIT(A) AT PARA 4.4. THAT VARIA TION IN PRICES IS JUSTIFIED AS THE APPELLANT HAS ENTERED INTO LONG TE RM CONTRACT FOR SUPPLY OF GOODS IS ERRONEOUS AND IS NOT BASED ON ANY DOCUM ENTATION ON RECORD. THE CIT(A) HAS WRONGLY RELIED ON MERE CONTENTION MA DE BY THE APPELLANT THAT THE CONTRACTS WERE LONG TERM CONTRAC TS. NEITHER COPY OF LONG TERM CONTRACTS HAVE BEEN SUBMITTED BEFORE TPO NOR IT HAS BEEN DEMONSTRATED THAT THE LONG TERM CONTRACTS RESULTED IN HIGHER COST OF GOODS PURCHASED FROM THE AE. IN VIEW OF ABSENCE OF BOTH THE ABOVE DATA. IF AT ALL, THE CIT(A) COULD HAVE EFFECTED ADJUSTMEN T TO THE ARM'S LENGTH PRICE BASED ON DATA SUPPLIED BY THE APPELLANT REGAR DING IMPACT OF ITS LONG TERM CONTRACTS ON THE ARM'S LENGTH PRICE. IN A BSENCE OF ANY SUCH DATA, THE FINDING IS WRONG, BAD IN LAW AND DESERVES TO BE QUASHED. B: COMPARABILITY AT TRANSACTION LEVEL: > THE TPO HAS RIGHTLY COMPARED EACH TRANSACTION O F PURCHASE WITH THE ARM'S LENGTH PRICE AND MADE ADDITIONS WHERE THE ALP IS LOWER THAN THE CONSIDERATION PAID. THE CIT(A) HAS WRONGLY COMMENTE D AT PARA 4.4 (PAGE 28) THAT THE LEGAL POSITION OF THE TPO IS NOT JUSTIFIED AS THE AVERAGE PRICE PAID BY THE APPELLANT IS LOWER THAN A VERAGE PRICE ON THE BASIS OF RATES OF MPOB. ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 10 IN THE CASE OF UE TRADE CORPORATION (INDIA) (2011) 44 SOT 457 (DELHI) (DECISION ENCLOSED AT ANNEXURE-C), THE HON'BLE DELH I ITAT HAS DISCUSSED THE ISSUE AND HAS ENDORSED THE PROCESS OF COMPARISON OF EACH TRANSACTION WITH THE ALP FOR THAT TRANSACTION WHERE CUP HAD BEEN ADOPTED AS THE METHOD FOR BENCHMARKING (P.ARA 3.6 A ND PARA 4.2). C: CLAIM FOR BENEFIT OF 5% > THE TPO HAS ALLOWED THE BENEFIT OF 5% TO THE AS SESSES AND HAS NOT ADJUSTED PRICES WHERE TRANSACTIONS ARE WITHIN 5% OF ALP. IT IS NOW ACKNOWLEDGED THAT IF ONLY ONE COMPARABLE IS USED FOR CUP, EVEN THE BENEF IT OF 5% CANNOT BE ALLOWED TO AN ASSESSEE. IN THE CASE OF VIPIN ENTERPRISES 18 TAXMANN.COM 85(DEL), THE HON'BLE ITAT HAS HELD THAT THERE COULD NOT BE ANY DEDUCTION FOR ONE PRICE. THE CRITICAL POINT IS THAT ALP DETERMINED SHOULD BE MORE THAN ON E FOR DEDUCTION. IF PRICE DETERMINED IS ONE EVEN IF MORE THAN ONE COMPARABLES ARE USED, NO DEDUCTION IS AVAILABLE. SINCE ONLY ONE CUP IS UTILIZED HERE, BEN EFIT OF 5% SHOULD BE DENIED TO APPELLANT. BOARD'S CIRCULAR ON THE ISSUE OF 5% IS A MERE REITE RATION OF THE AVAILABILITY OF 5% SAFE HARBOR TO THE ASSESSEES. IT DOES NOT MEAN THAT THE ASSESSEE IS ELIGIBLE FOR 5% VARIATION AS PER THE AC T AND A FURTHER 5% VARIATION IN TERMS OF THE CIRCULAR. BY NOW, IT IS E STABLISHED THAT THE 5% VARIATION IS ALLOWED FOR JUSTIFYING ARM'S LENGTH PR ICE AND IS NOT TO BE TAKEN AS STANDARD DEDUCTION WHILE DETERMINING TP AD JUSTMENT. > IN ESSAR STEEL LTD (2011-TII-17-ITAT-VIZAG-TP), THE ITAT UPHELD THE TPO'S VIEW THAT IF THERE IS ONLY ONE PRICE THEN BEN EFIT OF +/- 5% UNDER PROVISO TO SECTION 92C(2) IS NOT APPLICABLE. > IN UE TRADE CORPORATION (INDIA) (2011-TII-04-I TAT-DEL-TP), ITAT HELD THAT WHERE THERE IS ONLY ONE PRICE BENEFIT OF +/- 5% IS NOT AVAILABLE. ITAT HELD THAT EVEN UNDER AMENDED PROVISIONS SUCH B ENEFIT IS NOT AVAILABLE. 11. THE LEARNED A.R. ON THE OTHER HAND SUPPORTED TH E ORDER OF CIT(A). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) BY WELL REASONED ORDER HAS GIVEN A FINDING THAT THE OIL WORLD IS AN INDEPENDENT ORGANIZATION ESTABLISHE D IN 1958 IN ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 11 GERMANY AND PROVIDES INDEPENDENT FORECASTING SERVIC ES FOR OIL SEEDS, OILS AND MEALS AND PROVIDING PRIMARY INFORMA TION AND PROFESSIONAL ANALYSIS. HE HAS FURTHER NOTED THAT T HE QUOTATION ADOPTED BY ASSESSEE FROM OIL WORLD IS FOR MALAYSIA AND NOT FOR GERMANY. THE QUOTATION ON IS AN INDEPENDENT AUTHEN TIC TRADE QUOTATION WHICH CANNOT BE IGNORED WITHOUT ANY VALID REASON. HE HAS FURTHER NOTED THAT NO ADJUSTMENT UNDER SECTION 92 (C) WAS REQUIRED AS ALL THE PRICES AT WHICH THE PURCHASES W ERE MADE WERE LESS THAN 5% OF THE ARITHMETICAL MEAN OF THE QUOTAT ION FROM MPOB AND OIL WORLD. HE HAS FURTHER NOTED THAT THE ASSES SEE HAD ENTERED INTO CONTRACT WITH A.E ON LONG TERM BASIS F OR CONTINUOUS SUPPLY OF CONSTANT QUALITY AS TO ENSURE CONTINUITY IN PRODUCTION WHICH WAS ALSO AN IMPORTANT FACTOR FOR CONSIDERING THE ALP. 12. BEFORE US THE REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN VIE W OF THESE FACTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CI T(A) AND THIS GROUND OF REVENUE IS DISMISSED. 13. IN THE RESULT THE APPEAL OF REVENUE IS DISMISSE D. CO. NO. 214/AHD/2006 14. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS:- ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 12 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.7,536/- AS E XPENDITURE PERTAINING TO THE EXEMPT INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN NOT ACCEPTING THE ASSESSEES CLAIM THAT TH E PRIOR PERIOD EXPENSES OF RS.5,67,308/- WERE NOT REQUIRED TO BE ADDED BACK. 15. GROUND NO. 1 WAS NOT PRESSED AND THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 16. GROUND NO. 2 IS WITH RESPECT TO PRIOR PERIOD EX PENSES OF RS. 5,67,308/-:- ASSESSING OFFICER NOTICED THAT THE AS SESSEE HAD DEBITED RS. 5,81,050/- TO THE P & L ACCOUNT. ASSE SSING OFFICER FURTHER NOTICED THAT THE EXPENSES RELATED TO PURCHA SE OF STORE COMMUNICATION PAYMENT AND OTHER MISCELLANEOUS EXPEN SES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ASSESSI NG OFFICER CONCLUDED THAT ASSESSEE HAS FAILED TO PUT UP ANY EV IDENCE TO SUBSTANTIATE ITS CLAIM THAT THE LIABILITIES FOR EXP ENSES HAVE CRYSTALLIZED DURING THE YEAR. HE THUS HELD THAT SI NCE THE ASSESSEE HAS FAILED TO ESTABLISH ITS CLAIM AND THEREFORE THE PRIOR PERIOD EXPENSES CLAIMED BY THE ASSESSEE WAS REJECTED. AGG RIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF ASSESSING OFFICE R BY HOLDING AS UNDER:- 3.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND FACTS OF THE CASE CAREFULLY. THE APPELLANT IS MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, THE ASSESSEE S HOULD HAVE ACCOUNTED FOR THE EXPENDITURE ON ACCRUED BASIS IN T HE EARLIER YEAR. THE APPELLANT HAS NOT SUBMITTED ANY EVIDENCE TO PRO VE THAT THESE EXPENSES WERE CRYSTALLIZED/ACCRUED DURING THIS YEAR IN SPITE OF ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 13 GIVING OPPORTUNITY BY THE AO AS WELL AS AT THE APPE LLATE STAGE. THE ONUS WAS ON THE APPELLANT TO PROVE THAT THESE EXPEN DITURE HAVE BEEN ACCRUED/CRYSTALIZED DURING THIS YEAR. IN THE A BSENCE OF ANY PROOF FOR THE SAME THIS EXPENDITURE WHICH RELATED T O EARLIER YEAR CANNOT BE ALLOWED AS DEDUCTION DURING THIS YEAR AND , ACCORDINGLY, THE AO WAS JUSTIFIED IN DISALLOWING THIS EXPENDITUR E OF EARLIER YEAR. HOWEVER, I FIND THAT THE APPELLANT HAS AISO OFFERED INCOME OF RS.13,742/- OF EARLIER YEAR. THEREFORE, THE NET EXP ENDITURE OF EARLIER YEAR AFTER OFFSETTING THIS INCOME WILL REMA IN RS.5,67,308/-. THEREFORE, THE DISALLOWANCE - TO.- THE EXTENT OF RS .5,67,308/- IS HEREBY CONFIRMED. ACCORDINGLY, THIS GROUND OF APPEA L IS PARTLY ALLOWED. 17. BEFORE US, THE LEARNED A.R. SUBMITTED THE STATE MENT OF EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT AT PAGE 55 OF THE PAPER BOOK WHICH WAS FORMING PART OF TAX AUDIT REPO RT HE SUBMITTED THAT THE EXPENSES HAVE CRYSTALLIZED DURIN G THE YEAR AND THEREFORE THAT SAME SHOULD BE ALLOWED. HE FURTHER P LACED RELIANCE ON THE DECISION IN THE CASE OF TOYO ENGINEERING LI MITED VS. JCIT 065SOT (616) AND THE DECISION IN THE CASE OF CIT VS . JAGATJIT INDUSTRIES LIMITED. 339 ITR 382. THE LEARNED D.R. O N THE OTHER HAND SUPPORTED THE ORDER OF ASSESSING OFFICER AND C IT(A). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE UPHOLDING THE DISALLOWANCE TH E EXPENSES HAS NOTED THAT THE ASSESSEE HAS NOT SUBMITTED ANY E VIDENCE TO PROVE THE THAT THE EXPENSES CRYSTALLIZED DURING THE YEAR EITHER BEFORE THE ASSESSING OFFICER OR BEFORE CIT(A). FRO M THE PAPER BOOK PLACED ON RECORD AT PAGE 55 IT IS SEEN THAT T HE STATEMENT OF EXPENSES VERY CLEARLY INDICATES THAT THE EXPENSES R ELATES TO A.Y. 2000-01. CONSIDERING THE AFORESAID FACTS WE FIND N O REASON TO ITA NO 214/A/2006 & CO. NO78/A/2006 . A.Y. 2002 - 03 14 INTERFERE WITH THE ORDER OF CIT(A) AND THUS DISMISS ED THIS GROUND OF ASSESSEE CO ARE DISMISSED. 19. THUS THE CO OF ASSESSEE IS DISMISSED. 20. THUS THE APPEAL OF THE REVENUE AND CO OF THE AS SESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 21-06 -2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD