M/s. Liberty Agri Products Pvt. Ltd., CHENNAI V. ITO, CHENNAI

ITA 1610/CHNY/2010

• Counselvise Citation: 161021714 RSA 2010
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI J
• Assessee Lawyers: ASHIT MEHTA; GYANESHWAR Y KATARAM
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 1610/MDS/2010 (ASSESSMENT YEAR : 2006-07) M/S. LIBERTY AGRI PRODUCTS PVT. LTD., NO.3/284, MUTTUKADU ROAD, NEELANGARAI, CHENNAI 600 041. PAN AAACL 8485 F VS. THE INCOME-TAX OFFICER, COMPANY WARD-II(1), CHENNAI 41. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI ASHIT MEHTA, CA & GYANESHWAR Y. KATARAM, CA RESPONDENT BY : SHRI T.N.BETGIRI, JCIT-DR DATE OF HEARING : 18 TH AUGUST, 2011 DATE OF PRONOUNCEMENT : 24 TH AUGUST, 2011 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. IT IS A TRAN SFER PRICING CASE. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE TRANSFER PRICING OFFICER (TPO) MAKING AN ADDITIONAL ADJUSTME NT OF ITA 1610/10 :- 2 -: ` 2,61,32,175/- AFTER DETERMINING THE ARMS LENGTH PR ICE (ALP) WORKED OUT ON COMPARISON OF UNCONTROLLED PRICE (CUP ) METHOD. 2. THE ASSESSEE IS AN ASSOCIATE OF A MULTI NATIONAL GROUP M/S. KUOK GROUP. THE ASSESSEE ENTERS INTO BUSINESS TRAN SACTIONS WITH M/S. KUOK OILS AND GRAINS PVT. LTD., HAVING IT S HEAD QUARTERS AT SINGAPORE. THE ASSOCIATE CONCERN IS ENGAGED IN FOOD BUSINESS FROM PROCESSING TO PACKAGING. IT IS ALSO TRADING IN OILS, OIL SEEDS, GRAINS AND OTHER PRODUCTS. THE ASSESSEE IMPORTS EDIBLE OIL FROM THE ASSOCIATE CONCERN AND SELLS THE SAME ON HIGH SEAS SALE BASIS AND ALSO IN LOCAL MARKETS. 3. FOR THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESS EE HAS REPORTED INTERNATIONAL TRANSACTIONS IN THE FORM OF EDIBLE OILS WORTH US$ 2,35,30,749.06 . ACCORDING TO THE ASSESSEE, THE TRANSACTIONS HAVE BEEN ENTERED INTO AT ALP, COMPUTE D ON CUP METHOD. 4. THE METHOD OF PRICE FIXATION AS CUP ADOPTED BY T HE ASSESSEE HAS BEEN ACCEPTED BY THE TPO. THE ASSESSE E COMPANY EXPLAINED BEFORE THE TPO THAT THE ASSESSEE HAS NOT PURCHASED EDIBLE OILS FROM INDEPENDENT THIRD PARTIE S WHEREAS ITS ITA 1610/10 :- 3 -: ASSOCIATE CONCERN HAS EXPORTED CRUDE PALM OIL TO OT HER PARTIES AS WELL IN INDIA. ACCORDING TO THE ASSESSEE, THE INTE RNAL COMPARABLE PRICE CAN BE TAKEN AS TO COMPARE THE TRANSACTIONS F OR ARRIVING AT ALP AND ALSO ON NOTIFICATION ISSUED BY THE CUSTOM A UTHORITIES IN RESPECT OF TARIFF VALUE ON IMPORT OF EDIBLE OILS. THE ASSESSEE ALSO STATED THAT THE RATES OF OIL PUBLISHED BY SOLVENT E XTRACTORS ASSOCIATION OF INDIA IN RELATION TO DEGUMMED SOYA B EAN OIL COULD ALSO BE WELL RELIED ON. AFTER CONSIDERING THE FUNC TIONAL, ASSET UTILIZATION AND RISK ANALYSIS, THE TPO HAS OBSERVED THAT THE ASSESSEE DID NOT SUFFER FROM ANY PRODUCT LIABILITY, RISK OR INTELLECTUAL PROPERTY RISK AND NO FOREIGN EXCHANGE RATE FLUCTUATION RISK. OVER ALL, IT WAS THE VIEW OF THE TPO THAT TH E ASSESSEE DID NOT HAVE ANY SIGNIFICANT MARKET RISK. 5. ON COMPARISON OF THE PRICES, THE TPO HAS OBSERVE D THAT THE RATE PAID BY THE ASSESSEE WAS 572 US$ PER METRIC TO N WHEREAS THE TARIFF RATE BY THE CUSTOMS AT KANDLA PORT ON AN AVERAGE WORKED OUT AT 504.61 US$ PER METRIC TON. THE TPO H AS TAKEN THE CUSTOMS RATE AT KANDLA PORT ON THE ENTRY DATES OF A SSESSEES CONSIGNMENT AND WORKED OUT ITS AVERAGE TO COME TO T HE RATE OF ITA 1610/10 :- 4 -: US$ 504.61 PER METRIC TON. THE TPO HAS ALSO STATED THAT HE HAS MADE EXTENSIVE COMPARISON OF SIMILAR CASES. 6. THE ASSESSEE REPLIED THAT THE ASSESSEE WAS PAYIN G THE PRICE FOR IMPORT OF OILS TO ITS ASSOCIATE ENTERPRIS E (AE) ON THE BASIS OF SALE CONTRACTS ENTERED INTO BETWEEN THE PA RTIES WHICH OF COURSE, WAS DETERMINED ON THE PREVAILING MARKET CON DITIONS. BUT THE TPO HAS ADOPTED THE AVERAGE OF THE CUSTOMS TARI FF RATE AT KANDLA PORT, ON THE DATE OF ENTRY. THERE IS A TIM E GAP BETWEEN THE ORIGINAL CONTRACT OF SALE AND ENTRY OF THE GOOD S INTO KANDLA PORT AS THE GOODS ARE TRANSPORTED FROM OVERSEAS ONL Y AFTER THE EXECUTION OF SALE CONTRACT AND REACHES AT KANDLA PO RT AFTER DAYS OF VOYAGE. BECAUSE OF THIS TIME GAP BETWEEN THE SA LE AGREEMENT AND DATE OF PORT ENTRY, IT IS POSSIBLE THAT THERE W OULD BE RATE FLUCTUATION. IT DOES NOT MEAN THAT THE CUSTOMS TAR IFF RATE AT KANDLA PORT IS MORE PREFERABLE THAN THE CONTRACT PR ICE ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE. 7. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE ISSUE. THE TPO HAS NO OBJECTION TO THE METHOD OF PRICE ANA LYSIS ADOPTED BY THE ASSESSEE-COMPANY. THERE IS NO DOUBT THAT THE ASSESSEE-COMPANY HAS ENTERED INTO CONTRACTS OF SALE WITH ITS AE. ITA 1610/10 :- 5 -: AFTER NEGOTIATIONS A CONTRACT PRICE IS AGREED UPON AND THE INVOICE IS RAISED BY THE AE ON THE BASIS OF THAT CONTRACT P RICE. THAT CONTRACT PRICE IS COMPARABLE TO THE MARKET RATE AVA ILABLE ON THE DAY OF CONTRACT. ONCE THE CONTRACT IS ENTERED INTO , THE GOODS ARE MOVED FROM EXPORT DESTINATION TO KANDLA PORT WHICH IS THE IMPORT DESTINATION. OBVIOUSLY, THERE IS A TIME GAP BETWEE N THE CONTRACT DATE AND THE DATE OF ENTRY. BECAUSE OF THIS TIME G AP BETWEEN THE CONTRACT DATE AND ENTRY DATE, THERE WOULD BE PRICE FLUCTUATION AND THE TARIFF RATE FURNISHED BY THE CUSTOMS NEED NOT B E COMPARABLE TO THE PRICE REFLECTED IN THE IMPORT INVOICES. 8. AS RIGHTLY ARGUED BY THE ASSESSEE-COMPANY, INSTE AD OF COMPARING THE PRICE WITH THE CUSTOMS TARIFF RATE ON THE DATE OF ENTRY INTO THE PORT, THE TPO SHOULD HAVE COMPARED T HE PRICE DECLARED BY THE ASSESSEE WITH THE CUSTOMS TARIFF RA TE AT KANDLA PORT AS IT IS STOOD ON THE DAY OF CONTRACT OF SALE ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE. THE TPO HAS NOT A DOPTED THIS REASONABLE METHOD. ON THE OTHER HAND, THE TPO IS G OING FOR CUSTOMS TARIFF RATE RELEVANT FOR A SUBSEQUENT DATE. THIS METHOD IS NOT A PROPER ONE. ITA 1610/10 :- 6 -: 9. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE PRICE ENTERED INTO BETWEEN THE PARTIES ON THE DATE OF CON TRACT WAS NOT COMPARABLE TO SIMILAR TRANSACTIONS ENTERED INTO ON THAT DAY. IT MEANS THAT A PRICE REFLECTED IN THE SALE CONTRACT E NTERED INTO BETWEEN THE ASSESSEE AND ITS AE IS VERY MUCH COMPAR ABLE TO THE MARKET RATE PREVAILED ON THAT DAY. THEREFORE, COMP ARED TO THE ILLOGICAL COMPARISON MADE BY THE TPO, THE PRICE FIX ED BY THE PARTIES ON THE BASIS OF SALE CONTRACT IS MORE AUTHE NTIC AND ACCEPTABLE. THE DIFFERENCE BETWEEN THE ASSESSEES INVOICE RATE AND THE AVERAGE CUSTOMS RATE AT KANDLA PORT IS NOMI NAL. THE DIFFERENCE GOES BEYOND THE PERMISSIBLE 5% RANGE ONL Y WHEN THE TPO HAS ADOPTED THE AVERAGE OF THE TARIFF PRICES AT KANDLA PORT. IN THESE TYPES OF BULK PURCHASES AND SALES, IT IS A LWAYS BETTER TO COMPARE THE PRICE OF INDIVIDUAL CONSIGNMENT RATHER THAN ON A COMPROMISE OF AVERAGE PRICE. 10. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY HARD AND FAST REASON TO DISTURB THE PRICE DISCL OSED BY THE ASSESSEE-COMPANY AS THE ALP FOR WHICH THE IMPORTS H AVE BEEN MADE. THEREFORE, WE FIND THAT THE ADDITIONAL ADJUS TMENT OF ITA 1610/10 :- 7 -: ` 2,61,32,175/- MADE BY THE TPO IS NOT SUSTAINABLE IN FACTS AS WELL AS IN LAW. THE ADDITION IS ACCORDINGLY DELET ED. 11. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 24 TH OF AUGUST, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 24 TH AUGUST, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR