SHV Energy (P) Ltd., Hyderabad V. Dy. CIT, Circle -3(1), Hyderabad

ITA 1632/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69898 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 30-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1632/HYD/2012 ASSESSMENT YEAR 2008-09. SHV ENERGY (P) LTD., -V- DY. CIT, CIR-3(1), HYDERABAD. HYDERABAD. PAN:AACCS8676D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI Y. RATNAKAR RESPONDENT BY SHRI P. SOMA SEKHARREDDY DATE OF HEARING 10 - 09 - 2013 DATE OF PRONOUNCEMENT 08 - 11 - 2013 ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 3-8-2012 PASSED U/S 143(3) R EAD WITH SECTION 144C (5) ON THE INSTRUCTIONS OF THE DISPUTE RESOLUTION PANEL (DRP IN SHORT), HYDERABAD PERTAINING TO THE A SSESSMENT YEAR 2008-09. 2 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. 2. THE ASSESSEE HAS RAISED SEVEN GROUNDS OF APPEAL. GROUND NOS. 1, 6 AND 7 ARE GENERAL IN NATURE AND HENCE NOT REQUIRED TO BE ADJUDICATED UPON. 3. GROUND NOS. 2, 3, AND 4 PERTAIN TO THE ISSUE OF ADDITION OF RS.1,61,33,111/- AT THE DIRECTION OF THE DRP AS AG AINST THE TOTAL ADJUSTMENT OF RS.9,85,59,861/- TO ALP MADE IN THE DRAFT ASSESSMENT ORDER TOWARDS THE PRICE OF GAS IMPORTED FROM ITS AE. 4. BRIEFLY THE FACTS ARE, THE ASSESSEE IS WHOLLY OW NED SUBSIDIARY SHV ENERGY INDIA PVT. LIMITED (SHV INDIA IN SHORT) WHICH IN TURN WAS HELD BY SHV HOLDINGS NV (HEREINAF TER AS SHV HOLDINGS) THROUGH CALOR ASIA B.V. SHV ENERGY IS ENG AGED IN BOTTLING, DISTRIBUTION AND SALE OF LIQUEFIED PETROL EUM GASES (LPG) ALL OVER INDIA. IN COURSE OF ITS BUSINESS AC TIVITIES, THE ASSESSEE PURCHASES LPG (PROPANE, BUTANE AND LPG MIX ) FROM ITS ASSOCIATED ENTERPRISE (AE IN SHORT). SHV GAS S UPPLY AND RISK MANAGEMENT FROM ITS SINGAPORE OFFICE. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE PURCHASED 89,404.888 M.T OF LPG FROM I TS AE AND THE IMPORT OF GAS WAS MADE FROM 9 DIFFERENT PORTS O F ORIGIN TO THREE DIFFERENT PORTS IN INDIA I.E., PORBANDAR, VIS AKHAPATNAM AND MUMBAI. THE ASSESSEE IN ITS AUDIT REPORT SUBM ITTED AS PER 3CEB REPORT, DISCLOSED THE FOLLOWING INTERNATIONAL TRANSACTIONS: PURCHASE OF LPG RS.269 ,37,18,383 REIMBURSEMENT OF EXPENSES (PAID) RS. 5,32, 323 3 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. REIMBURSEMENT OF EXPENSES (RECEIVED) RS.90,95,79 7 5. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAD ENTERED INT O INTERNATIONAL TRANSACTION WITH ITS AE MADE A REFERE NCE U/S 92CA(1) OF THE ACT TO THE ADDL. CIT (TRANSFER PRICI NG), HYDERABAD (HEREINAFTER REFERRED TO AS TRANSFER PRIC ING OFFICER, IN SHORT TPO) FOR DETERMINING THE ALP. IN COURSE O F PROCEEDINGS BEFORE THE TPO, THE ASSESSEE SUBMITTED THE TP STUDY DONE BY AN EXTERNAL EXPERT AS PER WHICH THE A SSESSEE HAD ADOPTED COMPARABLE UNCONTROLLED PRICE (CUP) AS THE MOST APPROPRIATE METHOD TO BENCH MARK ITS PRICE PAID TO THE AE TO BE WITHIN THE ARMSS LENGTH PRICE. FOR COMPARABILITY ANALYSIS UNDER THE CUP METHOD, THE ASSESSEE HAS RELIED UPON THE PRICE PUBLISHED BY ARGUS MEDIA ON OIL AND GAS PRICES FOR THE SAME PERIOD DURING WHICH THE TRANSACTIONS WERE UNDERTA KEN. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE TPO THAT, ARG US MEDIA IS A LEADING PROVIDER OF PRICE ASSESSMENTS, BUSINESS I NTELLIGENCE AND MARKET DATA ON THE GLOBAL OIL, GAS, ELECTRICIT Y COAL, EMISSIONS AND TRANSPORTATION INDUSTRIES. IT WAS SU BMITTED THAT DECISION MAKERS AROUND THE WORLD RELY ON THE INDEP ENDENT MARKET COVERAGE AND ANALYSIS PROVIDED BY ARGUS 150 EMPLOYEES. SPECIALISING IN DISCOVERING PRICES FOR T HE OPAQUE OVER THE COUNTER ENERGY MARKETS REQUIRES ARGUS TO H AVE A CONSISTENT REPORTING METHODOLOGY. IT WAS SUBMITTED THAT ARGUS WAS FOUNDED IN 1970 WITH THE LAUNCH OF THE WE EKLY 4 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. EUROP-OIL PRICES AND IS OWNED BY THE FAMILY OF ITS FOUNDER AND ITS EMPLOYEES. 6. THE TPO ON GOING THROUGH THE TP REPORT SUBMITTED BY THE ASSESSEE NOTICED THAT THE TAX PAYER HAD TAKEN FREIG HT CHARGES ON APPROXIMATE BASIS FOR DEDUCTING THE SAME FROM CO NTRACT PRICE AT WHICH THE ASSESSEE ACTUALLY PURCHASES THE LPG. HE FURTHER NOTICED THAT THE FREIGHT CHARGES TAKEN ON A PPROXIMATE BASIS IS AT SIGNIFICANT VARIANCE, WHEN THE PORT OF IMPORT IS THE SAME. HE NOTICED THAT OUT OF 36 SHIPMENTS TO IMPOR T LPG FROM ITS AE, 14 SHIPMENTS WERE MADE TO VISAKHAPATNAM POR T, 21 SHIPMENTS WERE MADE TO PORBANDAR PORT AND ONE SHIP MENT WAS MADE TO MUMBAI PORT. ON FURTHER EXAMINING, THE TPO NOTED THAT THE FREIGHT CHARGES ADOPTED FOR DEDUCTION TO A RRIVE AT THE ADJUSTED COST PRICE IS VARYING SIGNIFICANTLY IN THE FOLLOWING MANNER:- PORT OF IMPORT RANGE OF FREIGHT CHARGES ADOPTED VARIANCE VISAKHAPATNAM FROM USD 70 TO USD 125 U SD 55 PORBANDAR FROM USD 34 TO USD 101 USD 67 THE TPO ON FURTHER ANALYSIS MADE BY HIM HELD THAT EVEN IF THE ARGUS LIST IS TAKEN AS BENCH MARK, THE FREIGHT CHAR GES ADOPTED ON APPROXIMATE BASIS SHOULD BE SIMILAR WHEN THE POR T OF DESTINATION IS THE SAME FOR THE SHIPMENTS LANDED. H E NOTED THAT THE FREIGHT CHARGES AT USD 70 AND USD34 IS ADOPTED FOR ADJUSTMENT TO THE ACTUAL COST PRICE PAID BY THE ASS ESSEE IN 5 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. RESPECT OF VISAKHAPATNAM PORT AND PORBANDAR PORT RE SPECTIVELY. FROM THE FREIGHT PAID AFTER ADJUSTMENT IN RESPECT O F SHIPMENT OF VISAKHAPATNAM PORT AND PORBANDAR PORT, THE TPO A NALYSING THE SAME GIVEN IN TABULAR FORM NOTED THAT THE PRICE PAID BY THE ASSESSEE TO ITS AE ON ACCOUNT OF IMPORT OF LPG MIX TURE IS NOT AT ARMS LENGTH. THE TPO NOTED THAT THE PRICE PAI D TO ITS AE IS IN EXCESS BY AN AMOUNT OF USD2449300.73 WHICH IF CO NVERTED TO INDIAN RUPEE WOULD AMOUNT TO RS.9,85,59,861 AT A EXCHANGE RATE OF 40.24 ON THE BASIS OF THE INFORMAT ION FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER T HEREFORE WORKED OUT THE ARMS LENGTH PRICE OF THE PURCHASES AND RESULTANT ADJUSTMENT U/92CA OF THE ACT AS UNDER:- ARMS LENGTH PRICE OF THE PURCHASES RS. 259,51,58,522 PRICE PAID RS.269,37,18,383 EXCESS PAID BEING ADJUSTMENT U/S 92CA RS. 9 ,85,59,861 7. ON THE BASIS OF THE ALP DETERMINED BY THE TPO, T HE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORDER P ROPOSING TO MAKE ADDITION OF RS.9,85,59,861/- AS THE TRANSFER P RICING ADJUSTMENT OF THE ALP. THE ASSESSEE OBJECTED TO TH E DRAFT ASSESSMENT ORDER BEFORE THE DRP. IN COURSE OF HEARI NG BEFORE THE DRP, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE DURING THE YEAR HAD EFFECTED PURCHASES FRO M ITS AE WHICH ARE IMPORTED FROM 9 DIFFERENT PORTS OF ORIGIN AND WAS SHIPPED TO PORTS OF DESTINATION AT VISAKHAPATNAM AN D PORBANDAR. IT WAS SUBMITTED THAT THE PURCHASES WER E ALL DES 6 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. (EQUIVALENT TO CIF). IT WAS FURTHER SUBMITTED THAT THE PRICE OF IMPORT OR CONTRACT PRICE AS PER THE ASSESSEE WAS BE NCH MARKED ON AN INTERNATIONALLY ACCEPTED BASIS DECLARED BY SA UDI ARAMCO, AND PUBLISHED BY ARGUS MEDIA. IT WAS SUBMITTED THA T THE PUBLISHED CONTRACT PRICE IS FOB PRICE IN SAUDI ARAB IA WHICH IN OTHER WORDS WOULD MEAN THAT THE PRICE DID NOT INCLU DE FREIGHT AND INSURANCE. IT WAS SUBMITTED BY THE ASSESSEE, O UT OF THE TOTAL SHIPMENTS, 14 SHIPMENTS WERE TO THE VISAKHAP ATNAM PORT FROM 5 DIFFERENT PORTS OF ORIGIN IN SINGAPORE, OMA N, MALAYSIA, CHINA AND TAIWAN. THE ASSESSEE SUBMITTED THAT THE TPO TOOK THE ARGUS PUBLISHED PRICE AS THE FOB PRICE AND ADD ED FREIGHT CHARGES AT AN UNIFORM RATE OF US$70 PER MT TO CALCU LATE THE LANDED PRICE OR THE PURCHASE PRICE OF THE IMPORTED LPG AT VISAKHAPATNAM PORT AND BASED ON THE ABOVE METHODOLO GY, THE TPO ARRIVED AT THE LANDED PRICE WHICH RESULTED IN A DIFFERENCE IN PRICE OF US$4,89,169.07 OR RS.1,96,84,163/-. 8. ON THAT BASIS, THE TPO ARRIVED AT THE TOTAL EXCE SS AMOUNT PAID WAS RS.US$4,89,169.07. IT WAS SUBMITTED BY TH E ASSESSEE WHILE WORKING OUT THE ABOVE ADJUSTMENT, T HE TPO DID NOT CONSIDER VARIOUS FACTORS WHICH ARE AS UNDER:- A) CHANGE IN DISTANCE B) CHANGES IN FUEL COSTS (CRUDE PRICES) C) AGE OF THE VESSEL D) CHANGES IN SIZE OF THE VESSEL, CAPACITY UTILISATION E) AVAILABILITY OF THE VESSELS F) BUNKER COSTS AT PORT OF ORIGIN AND DESTINATION 7 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. G) DIFFERENT OWNERS, FUEL USED, PROBABLE TIMELINES (BU SY SCHEDULED/NON-PEAK BUSINESS PORTS) 9. THE ASSESSEE SUBMITTED THAT WITHOUT TAKING INTO CONSIDERATION THE IMPACT OF THE ABOVE FACTORS, THE TPO TOOK THE LOWEST RATE OF US$ 70 PER MT TO CALCULATE THE LANDE D PRICE OF THE PURCHASE PRICE OF IMPORTED LPG AT VISAKHAPATNAM PORT. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT US$ 70 P ER M.T WAS THE SHIPMENT FREIGHT IN THE MONTH OF MARCH, 2007 FR OM SINGAPORE TO VISAKHAPATNAM BUT THIS IS THE SHORTEST DISTANCE AT THE LOWEST PRICE. THE DISTANCE FROM OTHER PORTS OF ORIGIN IS MUCH MORE THAN THE DISTANCE BETWEEN SINGAPORE AND VISAKHAPATNAM. IN THIS CONTEXT, THE ASSESSEE ALSO SUBMITTED A CHART SHOWING THE DISTANCE FROM VARIOUS PORTS OF OR IGIN TO VISAKHAPATNAM TO DEMONSTRATE THE FACT THAT FREIGHT RATES FOR ALL THE SHIPMENTS WERE NOT THE SAME AND HENCE ADO PTING UNIFORM OCEAN FREIGHT RATE OF US$70 PER MT FOR THE SHIPMENT BETWEEN VISAKHAPATNAM AND SINGAPORE CANNOT BE APPLI ED TO ALL SHIPMENTS. IT WAS SUBMITTED THAT THE SHIPMENTS WERE SPREAD OVER FOR A PERIOD FROM MARCH, 2007 UP TO 2008 AND T HE PRICE OF FUELS FOR THE SHIPS CHANGE DEPENDING UPON THESE FAC TORS AND THESE LEAD TO CHANGE IN FREIGHT CHARGES AND SO CANN OT BE TAKEN TO BE UNIFORM FOR THE ENTIRE YEAR. TO DEMONSTRATE THIS FACT, THE ASSESSEE SUBMITTED A CHART SHOWING THE VARIATION OF FUEL PRICE FROM MARCH, 2007 TO JULY, 2007 AND CONTENDED THAT T HE PROPOSED ADJUSTMENT OF RS.1,96,84,163/- WAS UNCALLE D FOR. 8 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. 10. SO FAR AS SHIPMENTS TO PORBANDAR PORT IS CONCE RNED, THE ASSESSEE CONTENDED THAT THE TOTAL NUMBER OF SHIPMEN TS IMPORTED THROUGH PORBANDAR PORT WERE 21 AND SHIPMEN TS WERE MADE FROM DIFFERENT PORTS OF ORIGIN SITUATED IN TH REE DIFFERENT COUNTRIES NAMELY OMAN, BAHRAIN AND SAUDI ARABIA. W HEREAS THE TPO ADOPTED INIFORM FREIGHT CHARGES AT US$ 34 P ER M.T AND WORKED OUT THE DIFFERENCE IN PRICE AT US$19,60,131- 66 OR RS.7,88,75,698.00. THE ASSESSEE SUBMITTED THAT AS IS THE FACT IN CASE OF VISAKHAPATNAM PORT, FREIGHT CANNOT BE TA KEN AT AN UNIFORM RATE AS THERE ARE DIFFERENCES IN DISTANCE B ETWEEN PORTS OF ORIGIN TO PORBANDAR PORT. IT WAS FURTHER CONTEND ED BY THE ASSESSEE THAT IN ADDITION TO THE DIFFERENCES IN DIS TANCE BETWEEN THE PORT OF ORIGIN AND PORT OF DESTINATION, OTHER F ACTORS SUCH AS AGE OF THE VESSEL (OLD VESSEL CHARGES ARE LOWER THA N THE NEW VESSEL DUE TO AGE RESTRICTION), FUEL USED, AVAILAB ILITY OF VESSEL ETC., WOULD HAVE IMPACT ON THE FREIGHT CHARGES, HE NCE THE FREIGHT CHARGES AT UNIFORM RATE CANNOT BE TAKEN FO R THE ENTIRE YEAR UNLESS THERE IS CHARTER ARRANGEMENT. IT WAS C ONTENDED THAT SINCE THE ASSESSEES IMPORT PRICE IS DES (CIF ) WHICH IS INCLUSIVE OF FREIGHT INSURANCE ETC., FREIGHT CANNOT BE THE SAME FOR ALL THE TRANSACTIONS. HE FURTHER SUBMITTED THAT USER CHARGES, STORAGE CHARGES, BUNKER CHARGES ETC., TO BE PAID BY THE SHIPPING COMPANY TO THE PORT AUTHORITIES ALSO VARY FROM PORT TO PORT. SO FAR AS THE LPG PRICE OR THE CONTRACT PRICE IS CONCERNED, THE ASSESSEE STATED THAT THIS IS DECLARED BY SAUDI ARAMCO ON THE LAST WORKING DAY OF PRECEDING MONTH AND THIS I S THE FOB 9 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. PRICE FOR THE MONTH. DURING THE RELEVANT YEAR, THE ASSESSEE STATED, THE FOB PRICE HAD UNDERGONE WIDE VARIATION MOVING FROM US$506 IN MARCH, 2007 WHICH WAS THE LOWEST TO A HIGHEST RATE OF US$ 878 IN DEC.2007 AND FINALLY CLOSING AT US$804 IN FEB. 2008. 11. THE ASSESSEE FURTHER BROUGHT TO THE NOTICE OF THE DRP THAT DURING THE YEAR UNDER DISPUTE THE ASSESSEE HAD IMPORTED VARIOUS LPG CONSIGNMENTS FROM 3 RD PARTY (NON-ASSOCIATE ENTERPRISES) SUPPLIERS AT MUMBAI. THE DISTANCE BET WEEN PORBANDAR AND MUMBAI IS ONLY 245 NAUTICAL MILES. T HESE IMPORTS AT MUMBAI WERE FROM THE PORT OF RASTANURA, SAUDI ARABIA AND THE PORT SITRA, BAHRAIN AND IMPORTS WERE MADE FROM THESE PORTS TO PORBANDAR ALSO. IT WAS THUS STATED B Y THE ASSESSEE THOUGH THE ORIGIN PORT WAS THE SAME AND MA TERIAL IMPORTED WAS THE SAME, IMPORTS SHOULD HAVE BEEN IND EXED WITH THE IMPORTS TO THE MUMBAI PORT, ADJUSTING FOR THE S HORT DISTANCE OF 245 NAUTICAL MILES. IN THIS CONTEXT, T HE ASSESSEE FURNISHED DETAILS OF IMPORTS AT MUMBAI FROM THE THI RD PARTIES. ON THE BASIS OF THE DETAILS FURNISHED, THE ASSESSEE SUBMITTED THAT THE PRICES PAID BY THE ASSESSEE WERE LOWER EXC EPT IN CASE OF 3 SHIPMENTS, OUT OF WHICH IN TWO CASES THE DIFFE RENCE WAS SMALL AND IN ANOTHER CASE DIFFERENCE WAS HIGHER DU E TO CHANGE IN CP DUE TO MONTH END CONTRACT. IT WAS SUBMITTED THAT THE INTERNAL COMPARABLES WITH DES/CIF PRICE WAS AVAILAB LE FOR 18 SHIPMENTS OUT OF TOTAL 21 SHIPMENTS AND INTERNAL C OMPARABLES WERE NOT AVAILABLE FOR ONLY ONE MONTH IMPORTS I.E., JULY, 2007. 10 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. IT WAS THEREFORE SUBMITTED THAT SINCE INTERNAL COMP ARABLES WERE AVAILABLE FOR MAJORITY SHIPMENTS EXCEPT IMPORT S IN ONE MONTH, THE TPO SHOULD NOT HAVE IGNORED THESE INTERN AL COMPARABLES WITHOUT PROPER REASON AND MADE UNILAT ERAL ADJUSTMENT. IT WAS FURTHER CONTENDED BY THE ASSESS EE THAT THE STATUTORY BENEFIT OF +/-5% U/S 92C(2) OF THE ACT HA S TO BE ALLOWED IN CASE OF PORBANDAR AND VISAKHAPATNAM SHIP MENTS. 12. THE DRP AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, VIS-A-VIS THE MATERIALS AVAILABLE ON RECO RD AS WELL AS THE ORDER OF THE TPO FELT THAT THE ONLY AREA OF D ISAGREEMENT BETWEEN THE ASSESSEE AND THE TPO IS THE FREIGHT CHA RGES. THE DRP OBSERVED THAT THE ASSESSEE HAD NOT GIVEN GRANUL AR DETAIL FOR THE FREIGHTS WHICH WAS ESSENTIAL FOR THE DETERM INATION OF ARMS LENGTH PRICE UNDER THE CUP METHOD. THE DRP W AS ALSO OF THE VIEW THAT TPO WAS NOT CORRECT TO ADOPT THE LOWE ST RATE WITH THE INDEX PRICE THEREBY TOTALLY IGNORING THE VARIOU S FACTORS WHICH MIGHT HAVE AN IMPACT ON THE FREIGHT CHARGES, SUCH AS THE DISTANCE BETWEEN THE TWO PORTS OF SHIPMENT, FUEL C OST, AGE OF THE VESSEL, SIZE OF THE VESSEL, AVAILABILITY OF VES SEL, BUNKER COST AT PORT OF ORIGIN AND DESTINATION AND TIME OF SHIPMENT ETC. THE DRP ALSO ACCEPTED THE FACT THAT THE BASE RATE O F FREIGHT WHICH THE TPO HAD TAKEN WAS $70 PER MT FOR IMPORT T O VISAKHAPATNAM AND $35PER MT TO PORBANDER WERE RELAT ED PARTY TRANSACTIONS, HENCE CANNOT BE THE BASIS OF ANY ARM S LENGTH DETERMINATION. SINCE THE ASSESSEE AS WELL AS DRP FELT THAT DETERMINATION OF FREIGHT CHARGES WOULD BE VERY CU MBERSOME, 11 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. IF ALL FACTORS WERE TO BE TAKEN INTO ACCOUNT, THE A SSESSEE SUBMITTED THAT A SIMPLE METHODOLOGY CAN BE BUILT ON THE BASIS OF THE DISTANCE BETWEEN THE TWO PORTS OF SHIPMENT W HICH CAN BE TAKEN AS THE BASE FOR DETERMINING THE FREIGHT AND A CCORDINGLY PROPOSED THAT BASIS WHICH WAS ALSO AGREED TO BY THE PANEL. THE DRP FELT THAT THE QUESTION WAS TO FIND A VESSEL WHICH HAS BEEN ARRANGED FOR BY THE AE OF THE ASSESSEE FOR AN UNRELATED PARTY. IN THIS CONTEXT, IT WAS FOUND THAT THE ASSE SSEES AE HAD ARRANGED A VESSEL FOR M/S CHEVRON, USA TO CARRY LPG TO ITS SUBSIDIARY AT TUTICORIN. THEREFORE, THE FREIGHT CH ARGES WERE CONSIDERED AND TAKEN AS A BASIS TO PROPORTIONATELY WORK OUT THE FREIGHT CHARGE ON THE BASIS OF THE DISTANCE. THE D ISTANCE BETWEEN THE PORT OF RAS TANURA IN SAUDI ARABIA TO T HE PORT OF TUTICORIN IN INDIA WAS FOUND TO BE 2486 NAUTICAL MI LES AND FREIGHT CHARGED FOR THIS SHIPMENT WAS US$95.92 PER MT. ON THE AFORESAID BASIS, FREIGHT CHARGES FOR SHIPMENTS TO T HE VISAKHAPATNAM PORT WAS WORKED OUT BY TAKINGINTO CONSIDERATION THE VARIABLE OF DISTANCE AND OTHER VA RIABLES LIKE SIZE OF SHIP, PORT OF CALLING AND RELATED PORT CHAR GES. 13. ON AN ANALYSIS OF THESE DETAILS AS GIVEN IN TH E TABULAR FORM AT PAGES 12 AND 13 OF THE ORDER PASSED BY THE DRP, IT WAS NOTICED THAT THERE IS EXCESS FREIGHT CHARGES PAID I N CASES OF TWO SHIPMENTS I.E., ONE FROM SINGAPORE IN APRIL, 2007 WHERE EXCESS PAYMENT IS US$ 7 PER MT AND SECOND ONE IS FROM OMAN IN THE MONTH OF NOV. 2007 WHERE THE EXCESS PAY MENT WAS 19 PER MT. HOWEVER, SINCE THE EXCESS PAYMENT IN CASE OF 12 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. THE AFORESAID TWO SHIPMENTS WERE WITHIN THE TOLERAN CE LEVEL OF +/(-)5%,THE DRP WAS OF THE VIEW THAT NO ADJUSTMENT IS REQUIRED TO BE MADE TO THE ALP. SIMILAR TESTS WERE ALSO APPLIED IN CASE OF SHIPMENTS TO PORBANDER PORT BY CONSIDERI NG THE FREIGHT CHARGES FOR IMPORT AT THE MUMBAI PORT. THE DRP AFTER ANALYSING THE IMPORT FROM THE PORT OF ORIGIN AT SAU DI ARABIA TO MUMBAI PORT FOUND THAT IN RESPECT OF TWO SHIPMENTS MADE FROM THE PORT IN SAUDI ARABIA IN THE MONTH OF MAY, 2007 AND OCTOBER, 2007 WERE IN EXCESS THAN THE ALP. THERE FORE, THE DRP WORKED OUT THE ADJUSTMENT OF ALP AS UNDER:- CONTRACT DATE QUANTITY IMPORTED ADJUSTMENTS $PER MT TOTAL ADJUSTMENT IN US$ ADJUSTMENT IN RS.(1US$=RS.40.24 22-5-07 6,504,835 34.74 2,21,164.39 88,99,655 5-10-07 3,998.173 44.96 1,79,757.86 72,33,456 14. THUS, THE DRP WORKED OUT THE TOTAL ADJUSTMENT O N ACCOUNT OF EXCESS PAYMENT MADE TOWARDS FREIGHT AT R.1,61,3 3,111 AND DIRECTED IT TO BE TREATED AS INCOME OF THE ASSESSEE ON ACCOUNT OF ADJUSTMENT TO ALP. AS A CONSEQUENCE OF THE DIR ECTION OF THE DRP, THE ASSESSING OFFICER PASSED A FINAL ASSESSMEN T ORDER MAKING ADDITION OF AN AMOUNT OF RS.1,61,33,111/- TO THE INCOME OF THE ASSESSEE. 15. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE A SSESSEE MOSTLY REITERATING THE SUBMISSIONS MADE BEFORE THE DRP CONTENDED ORALLY AS WELL AS IN WRITING THAT OUT OF THE TOTAL 35 13 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. SHIPMENTS OF LPG IMPORTED, THE DRP WAS SATISFIED TH AT IN RESPECT OF 33 SHIPMENTS THE FREIGHT CHARGES PAID TO THE AE IS WITHIN THE ARMS LENGTH, EXCEPTING IN CASES OF TWO SHIPMENTS AT PORBANDER ON 22-5-2007 AND 5-10-2007. IT WAS SUBMIT TED THAT THE SHIPMENTS OF LPG GAS IMPORTED FROM BOMBAY PORT AND PORBANDER PORT IN MAY, 2007 WERE FROM THE SAME PORT OF ORIGIN IN SAUDI ARABIA. THE LEARNED AR SUBMITTED A CHAR T STATING TO BE INDICATING THE PRICES OF LPG AT BOMBAY PORT I N THE MONTH OF MAY, 2007 AND OCTOBER, 2007 WHICH ARE AS UNDER:- DATE NAME OF SELLER PORT OF ORIGIN DES RATE PER MT(US $) 12-5-07 NAFTOMAR SHIPPING SAUDI ARABIA 639 & TRADING CO.LTD. (INC) PANAMA 29-5-07 NAFTOMAR SHIPPING -DO 675 & TRADING CO.LTD. (INC) PANAMA 12-10-07 NAFTOMAR SHIPPING BAHRAIN 725 & TRADING CO.LTD. (INC) PANAMA 27-10-07 NAFTOMAR SHIPPING SAUDI ARABIA 725 & TRADING CO.LTD. (INC) PANAMA 14 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. 16. THE LEARNED AR SUBMITTED THAT THE DISTANCE FROM SAUDI ARABIA TO MUMBAI IS 1630 NAUTICAL MILES WHEREAS FR OM SAUDI ARABIA TO PORBANDAR IS 1329 N.M. THUS, ON THAT BAS IS, IT WAS SUBMITTED THAT THE EXCESS PRICE PAID AS HELD BY THE DRP IS NOT CORRECT. THE LEARNED AR SUBMITTED THAT ALL 35 SHIP MENTS FROM ITS AE ARE AT ALP. OUT OF WHICH THE DRP ACCEPTED 33 SHIPMENTS TO BE WITHIN ARMS LENGTH. THAT BEING THE CASE, THERE IS NO REASON TO SUSPECT THAT THE PRICE FOR TWO SHIP MENTS TO BE NOT WITHIN THE ARMS LENGTH. THE LEARNED AR SUBMIT TING A CHART COMPARING THE COST OF MUMBAI SHIPMENT WITH PORBAN DER SHIPMENT SUBMITTED THAT THE BASIC PRICE BEING ALMOS T THE SAME NO ADDITION IS CALLED FOR AND IF THERE IS ANY DIFFE RENCE IT CAN BE ATTRIBUTED TO VARIOUS FACTORS WHICH ARE AS FOLLOWS: - (I) INCREASE IN CRUDE COST LEADING TO INCREASED FR EIGHT 2) AGE OF VESSEL 3) CAPACITY UTILISATION OF VESSEL 4) AVAILABILITY OF VESSEL 5) BUNKER COST AT PORT OF DESTINATION AND ORIGIN 6) DIFFERENT OWNERS 7) NATURE OF FUEL USED 8) PEAK OR NON PEAK SCHEDULE OF TIMING 17. WITH REGARD TO IMPORTATION IN OCTOBER, 2007, TH E LEARNED AR SUBMITTED THAT A REFERENCE TO COST COMPARISON OF MUMBAI 15 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. SHIPMENT WITH PORBANDER SHIPMENT WOULD SHOW THE DIF FERENCE AT US$44.96 PER MT. IN THIS CONTEXT, IT WAS SUBMIT TED THAT THE COST OF IMPORTATION DEPENDS NOT ONLY UPON THE BASI C COST BUT ALSO VARIOUS OTHER FACTORS WHICH IMPACT THE FREIGHT COST. THE LEARNED AR SUBMITTED THAT THE DRPS FINDING THAT T HE CALCULATIONS TO SHOW VARIATION FOR EACH OF THE FACT ORS WOULD BECOME CUMBERSOME AND THEREFORE ADOPTION OF A SIMPL E METHOD OF TAKING PROPORTIONATE COST BASED ON DISTAN CE ALONE IGNORING THE OTHER FACTORS IS NOT THE CORRECT APPRO ACH. IT WAS THEREFORE SUBMITTED THAT IF ALL THE FACTORS ARE ALS O CONSIDERED, THE VARIATION CAN BE EASILY EXPLAINED, ACTUALLY THE RE WOULD BE NO DIFFERENCE. THE LEARNED AR SUBMITTED THAT FREIG HT COST WOULD ALSO BE AFFECTED BY THE CHANGES IN CRUDE PRIC ES WHICH IN TURN WILL AFFECT THE FUEL COST OF SHIP FOR TRANSPOR TATION. IN THIS CONTEXT, THE LEARNED AR SUBMITTED A CHART INDICATIN G THE COST OF CRUDE IN THE MONTH OF OCTOBER, 2007 ON DAILY BASIS. REFERRING TO THE SAID CHART, IT WAS SUBMITTED THAT CRUDE PRIC ES VARIED BETWEEN THE RANGE OF -3.37% TO 4.59% IT WAS SUBMIT TED THAT THE CHANGES IN CRUDE PRICES ARE SIGNIFICANT AND M ORE SO ON DAILY BASIS. THE LEARNED AR SUBMITTED THAT IF THE CUMULATIVE EFFECT OF VARIOUS FACTORS WHICH HAVE AN EFFECT ON THE PRICE IS CONSIDERED THEN EVEN A MARGINAL REDUCTION IN THE PR ICES ON ACCOUNT OF THOSE FACTORS WILL BRING THE DIFFERENCE WITHIN THE (+)/(-)5% TOLERANCE LEVEL AND IN WHICH CASE NO ADJU STMENT IS WARRANTED. 16 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE, STRON GLY SUPPORTING THE ORDER OF THE DRP SUBMITTED THAT THE ORDER OF THE DRP WOULD CLEARLY REVEAL THE REASONABLENESS WITH WH ICH THE DRP HAS CONSIDERED THE ENTIRE ISSUE SINCE OUT OF T HE TOTAL SHIPMENTS EXCEPTING 2, ALL OTHER HAVE BEEN ACCEPTED TO BE WITHIN ARMS LENGTH. THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT SUBMITTED ANY E VIDENCE OR ANY OTHER INDICATOR ON THE BASIS OF WHICH A PROPER WORK OUT CAN BE MADE TO SHOW THAT THE PRICE IN RESPECT OF THOSE TWO TRANSACTIONS WOULD HAVE BEEN LOWER. IT WAS THEREFO RE SUBMITTED THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE DRP. 19. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PE RUSED THE MATERIAL ON RECORD AS WELL AS THE RESPECTIVE ORDERS OF THE TPO AND DRP. IT IS EVIDENT FROM THE WELL REASONED ORDE R PASSED BY THE DRP THAT, THEY HAVE EXAMINED ALL THE FACTUAL A SPECTS IN RESPECT OF EACH OF THE SHIPMENTS AND HAS ACCEPTED 3 3 OUT OF TOTAL 35 SHIPMENTS TO BE WITHIN THE ARMS LENGTH PR ICE. HOWEVER, IN RESPECT OF TWO SHIPMENTS FROM SAUDI ARA BIA TO PORBANDAR IN MAY, 2007 AND OCTOBER, 2007 SINCE THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE OR COMPARABLE DATA W ITH REGARD TO THE PRICE PAID, THE DRP FOUND THEM TO BE UNACCE PTABLE. AS WOULD BE FURTHER EVIDENT FROM THE ORDER OF THE DRP, THE ASSESSEE HIMSELF HAD PROPOSED THE CALCULATION OR ME THODOLOGY BEING CONSCIOUS OF FACT THAT CALCULATING THE PRICE S ON THE BASIS OF VARIOUS FACTORS WOULD BE CUMBERSOME PROCESS, HE NCE PRICE 17 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. CAN BE COMPUTED ON THE BASIS OF DISTANCE BETWEEN PORT OF ORIGIN AND PORT OF DESTINATION WHICH WAS ALSO ACCEP TED BY THE DRP. ON THE BASIS OF THE SAID METHODOLOGY, THE DRP NOT ONLY COMPUTED THE PRICES FOR SHIPMENTS MADE TO VISAKHAP ATNAM PORT BUT ALSO SHIPMENTS MADE TO PORBANDER PORT. AS CAN BE SEEN FROM THE DETAILS GIVEN IN A TABULAR FORM AT PA GE-15 OF THE ORDER OF THE DRP, THE PRICE IN RESPECT OF TWO SHIPM ENTS IN MAY, 2007 AND OCTOBER, 2007 FROM THE PORT OF ORIGIN FROM SAUDI ARABIA WERE FOUND TO BE IN EXCESS THAN THE ALP AT U S$ 34.74 AND 44.96 PER M.T. EXCEPTING THESE TWO ALL OTHER SHIPMENTS WERE FOUND TO BE WITHIN THE ARMS LENGTH. ADMITTED LY, ASSESSEE HAS NOT PRODUCED ANY COMPARABLE DATA IN SO FAR AS T HE PRICE IS CONCERNED IN RESPECT OF MAY, 2007 AND OCTOBER, 2007 TO INDICATE THAT THE PRICE PAID BY IT IN RESPECT OF TW O SHIPMENTS WERE WITHIN THE ARMS LENGTH. IN THIS VIEW OF THE M ATTER, THE FINDING OF THE DRP IN RESPECT OF THE AFORESAID TWO SHIPMENTS CANNOT BE CALLED INTO QUESTION AS IT HAS BEEN MADE ON A REASONABLE BASIS AFTER TAKING INTO CONSIDERATION A LL ASPECTS OF THE MATTER, AND IN OUR VIEW IS THE MOST APPROPRIATE METHOD UNDER THE GIVEN CIRCUMSTANCES. IT IS ALSO A FACT TH AT IN CASE OF SIMILAR METHOD ADOPTED FOR SHIPMENTS TO VISAKHAPAT NAM PORT, THE ASSESSEE HAS NO ISSUE AS PRICE PAID FOR ALL THE SHIPMENTS WERE FOUND TO BE WITHIN ARMS LENGTH AND NO ADDITIO N HAS BEEN MADE IN THAT REGARD. THEREFORE, CONSIDERING THE TOT ALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO REASON TO INTERFERE WITH THE FINDING OF THE DRP AND ACCORDINGLY SUSTAIN THE ADDITION 18 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD. MADE BY THE ASSESSING OFFICER. HENCE THESE GROUNDS ARE ACCORDINGLY DISMISSED. 20. IN GROUND NO.5, THE ASSESSEE HAS CHALLENGED THE INITIATION OF PROCEEDING FOR IMPOSITION OF PENALTY U/S 271(1)( C) OF THE ACT. AFTER HEARING THE SUBMISSIONS OF THE PARTIES ON THIS ISSUE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FIN DING OF THE LEARNED DRP AS THE ASSESSEE CAN VERY WELL MAKE OUT A CASE FOR DROPPING THE PROCEEDINGS FOR IMPOSITION OF PENALTY WHEN THE ASSESSING OFFICER ACTUALLY TAKES UP SUCH PROCEEDING S. HENCE, THIS GROUND OF THE ASSESSEE IS ALSO DISMISSED. 21. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 8-11-2013. SD/- ( CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 8 TH NOVEMBER, 2013 COPY TO:- 1) M/S. SHV ENERGY (P LTD., 8-2-334, ROAD NO.7, BANJARA HILLS, HYDERABAD. 2) DCIT, CIR-3(1), HYDERABAD. 3) DISPUTE RESOLUTION PANEL, IT TOWERS, AC GUARDS, HYDERABAD. 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. JMR* 19 ITA NO.1632 OF 2012 SHV ENERGY PVT LTD., HYD.