Louis Dreyfus Commodities India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 1863/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6860 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Keywords: Transfer pricing; International transaction; Corroborative evidences; Set aside
• Section: 143(3); 234B; 205

Judgement Text

, -1, IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI !'#$% !'#$% !'#$% !'#$% &'& &'& &'& &'& ( ( ( ( BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ) )) ) / ITA NO. 1863/DEL/2016 *%% *%% *%% *%% / ASSESSMENT YEAR: 2005-06 LOUIS DREYFUS COMMODITIES INDIA PVT.LTD., BUILDING NO.5, TOWER A, 8 TH FLOOR, DLF CYBER CITY, DLF PHASE-III, GURGAON-122002. PAN-AAACL7361E .......... +, /APPELLANT VS THE ACIT, CIRCLE-4(1), C.R.BUILDING, NEW DELHI. . -+, / RESPONDENT +,./& / APPELLANT BY : SH. RAVI SHARMA, ADV. & MS. SHRUTI KHIMTA, AR -+,./& / RESPONDENT BY : SH. ROBIN RAWAL, CIT DR *.'0' / DATE OF HEARING : 18.09.2019 12.'0' / DATE OF PRONOUNCEMENT: 31.10.2019 &! &! &! &! / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF AS SESSING OFFICER DATED 22.12.2006 RELATING TO ASSESSMENT YEAR 2005-06 PASS ED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW; 1. THE ORDER PASSED BY LD. CIT(A) IN PURSUANCE OF T HE APPEAL FILED BY THE APPELLANT AGAINST THE ASSESSMENT ORDER PASSED B Y THE LD. AO IS A VITIATED ORDER AS THE LD. CIT(A) ERRED BOTH ON FACT S AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE LD. AO TO THE APPELLANTS INCOME IN RESPECT OF WASHOUT CHARGES BY ISSUING AN ORDER WITHOUT APPRECI ATION OF FACTS AND LAW/ 2. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF THE INCOME OF THE APPELLANT BY RS. 16,553,271 BY HOLDING THAT THE INT ERNATIONAL TRANSACTION OF THE APPELLANT PERTAINING TO PAYMENT OF WASHOUT C HARGES DOES NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. 2.1. IN DOING SO, THE LD. CIT(A) HAS GROSSLY ERRED IN AGREEING WITH THE LD. AO/LD. TRANSFER PRICING OFFICERS (LD. TPOS) ACTI ON OF DRAWING PERVERSE INTERFERENCE REGARDING THE ARM'S LENGTH BEHAVIOUR B ETWEEN THE PARTIES NOTWITHSTANDING SUPPORTING EVIDENCE PLACED ON RECOR D; 2.2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY HOLDING THAT THERE IS NO VALID AGREEMENT AT THE TIME OF WASHOUT OF THE CO NTRACT FOR PURCHASE OF BALANCE QUANTITY OF CRUDE SOYABEAN OIL. 2.3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS DOUBTING THE AUTHENTICITY AND GENUINENESS OF THE EVIDENCES PLACE D BY THE APPELLANT IN SUPPORT OF THE CONTENTION THAT THE WASHOUT TRANSACT ION WAS IN RESPECT OF THE VALID UNEXPIRED CONTRACT; 2.4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY NOT GIVING COGNIZANCE TO THE FACT THAT IMPUGNED TRANSACTION OF PAYMENT OF WASHOUT CHARGES WAS INDEPENDENTLY EXAMINED AND APPROVED BY THE REGULATORY BODY, RESERVE BANK OF INDIA (RBI); 2.5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY HOLDING THAT THE EVIDENCE PROVIDED BY THE APPELLANT WAS NOT RELIABLE AND AUTHENTIC. ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 3 3. THE LD. CIT(A) HAS GROSSLY ERRED BY PROPOSING T O DIRECT LD. AO TO COMPUTE INTEREST UNDER SECTION 234B AND 234D OF THE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHD RAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING. 3. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION HAD FURNISHED THE RETURN OF INCOME DE CLARING TOTAL INCOME OF RS.2,35,06,990/-. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF AGRICULTURAL COMMODITY TRADING. THE SAID COMMODITY TRADING WAS DONE BOTH IN THE DOMESTIC AND INTERNATIONAL MARKET. THE MAIN COMMOD ITIES WHICH WERE TRADED WERE SOYABEAN OIL, SUGAR, WHEAT AND RICE. THE ASSE SSING OFFICER MADE REFERENCE U/S 92CA(1) OF THE ACT TO THE TRANSFER PR ICING OFFICER (IN SHORT TPO) TO DETERMINE THE ARMS LENGTH PRICE (IN SHORT ALP ) OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE TPO AP PLIED COMPARABLE UNCONTROLLED PRICE METHOD (CUP IN SHORT) AND PROP OSED AN ADDITION OF RS.9,32,747/- IN THE TRANSACTION OF PURCHASE OF CRU DE SOYABEAN OIL BY THE ASSESSEE FROM ITS AE. THE SAID ADDITION HAS BEEN D ELETED AND THERE IS NO ISSUE RAISED WITH REGARD TO THE SAME BEFORE US. 4. FURTHER, THE TPO NOTED THAT THE ASSESSEE HAD SET UP THE OPERATIONS IN 1997 IN MUMBAI, WHICH WERE RE-LOCATED TO NEW DELHI DURING THE YEAR 2000. THE ASSESSEE WAS OPERATING FROM VARIOUS LOCATIONS/P ORTS IN INDIA. THE TPO NOTED THAT THE ASSESSEE WAS ENGAGED IN IMPORT AND E XPORT OF SUGAR, EXPORT OF ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 4 WHEAT, RICE, SOYA AND SUGAR AND IMPORT OF EDIBLE OI L FROM ITS ASSOCIATED COMPANIES. IT WAS ALSO PURCHASING THESE ITEMS FROM MANUFACTURERS AND EXPORTING TO THE GROUP COMPANIES. BESIDES THIS, TH E ASSESSEE WAS ENGAGED IN VARIOUS OTHER ACTIVITIES I.E. HIGH SEA SALES, COMM ODITY HEDGING, ETC. ANOTHER ASPECT WHICH WAS NOTED BY THE TPO WAS THAT THE ASSE SSEE KEPT REGULAR TRACK OF DEMAND, SUPPLY SCENARIO AND ENVIRONMENT RELATING TO COMMODITIES DEALT IN. THE TPO ANALYZED VARIOUS INTERNATIONAL TRANSACTION S UNDERTAKEN BY THE ASSESSEE AND ALSO TRANSFER PRICING APPROACH ADOPTED BY THE ASSESSEE. IT TRANSPIRED THAT THE ASSESSEE ON 04.01.2005 HAD CONT RACTED TO IMPORT FROM ITS AE 10,000 METRIC TONS (IN SHORT MT) OF CRUDE SOYA BEAN OIL @ USD 546 PMT. THE SAID CONTRACT WAS APPLICABLE FOR SHIPMENT DURIN G JANUARY, 2005. HOWEVER, THE ASSESSEE COULD IMPORT 3,064.618 MT OF CRUDE SOYABEAN OIL AND THE REMAINING QUANTITY OF 6,922 MT WAS NOT PURCHASE D DUE TO ALLEGED PRICE FALL IN INDIA AND INTERNATIONALLY. THE ASSESSEE EXPLAIN S THAT THERE WAS A DECREASE IN INTERNATIONAL PRICE OF CRUDE SOYABEAN OIL ACCORD INGLY, THE ASSESSEE HAD COMPENSATED THE AE AT USD 55 PMT. IN THE PROCESS, THE ASSESSEE INCURRED LOSS OF USD 55 PMT FOR WASHOUT QUANTITY OF 6,922 MT . SINCE THE CONTRACT RATE WAS APPLICABLE FOR SHIPMENT DURING THE MONTH OF JAN UARY, 2005, AND THE CONTRACT TO IMPORT BALANCE SHIPMENT WAS CANCELLED ON 03.02.2005, ON THE BASIS OF LETTER OF THE ASSESSEE DATED 02.02.2005; T HE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF LOSS, BY THE TPO. THE ASSESSE E SUBMITTED THAT THERE WAS A MUTUAL AGREEMENT TO CANCEL THE BALANCE UNSHIPPED QU ANTITY ON PAYMENT OF USD 55 PMT. THE PLEA OF THE ASSESSEE IN THIS REGAR D WAS THAT IN ORDER TO AVOID ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 5 THE LOSS WHICH THE COMPANY WOULD HAVE SUFFERED BECA USE OF THE FALL IN PRICE OF OIL IN INDIA, THE CONTRACT WAS CANCELLED. THE ASSE SSEE ALSO EXPLAINED THAT INFACT IF IT HAD PURCHASED THE CRUDE SOYABEAN OIL IN TERMS OF CONTRACT ENTERED INTO WITH LD ASIA, IT WOULD HAVE INCURRED LOSS TO THE EX TENT OF USD 75 TO 79 PMT. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD PAID ONLY USD 55 PMT, WHICH WAS LOWER THAN LOSS ON ACCOUNT OF PRICE OF CRUDE SOYABE AN OIL OF USD 75 TO 79 PMT. IT WAS ALSO POINTED OUT THAT LD ASIA ON CANCELLATIO N OF CONTRACT SOLD THE SAID ITEM TO A CONCERN IN CHINA @ USD 488 PMT, SUFFERIN G LOSS EVEN AFTER THE COMPENSATION RECEIVED ON CANCELLATION OF CONTRACT B Y THE ASSESSEE COMPANY. THE ASSESSEE THUS, CLAIMED THAT THE LOSS ARISING ON THE PAYMENT OF COMPENSATION SHOULD BE ALLOWED AS A DEDUCTION IN TH E HANDS OF THE ASSESSEE. THE TPO WAS OF THE VIEW THAT THE CONTRACT PRICE OF USD 456 PMT WAS APPLICABLE FOR PURCHASE MADE IN THE MONTH OF JANUAR Y, 2005 ONLY. AS THE CONTRACT WAS NOT EXTENDED FURTHER, THEN THERE WAS N O QUESTION OF CANCELLATION OF CONTRACT FOR THE BALANCE AMOUNT ON 02.02.2005. HE WAS OF THE VIEW THAT IT WAS A CASE OF CANCELLATION OF AN EXPIRED CONTRACT. THE TPO HELD THAT SINCE ON THE DATE I.E. 03.02.2005, THE CONTRACT HAD ALREADY EXPIRED AND THE ASSESSEE HAD NOT PURCHASED THE BALANCE AMOUNT OF CRUDE SOYABEAN OIL, NO LIABILITY ACCRUED TO THE ASSESSEE TO MAKE PAYMENT OF DIFFERENTIAL AMO UNT ON THE BASIS OF EXPIRED CONTRACT. THE EVIDENCES FILED BY THE ASSESSEE IN R ESPECT OF THE TRANSACTION UNDERTAKEN BY LD ASIA, AFTER THE CANCELLATION OF CO NTRACT, TO ESTABLISH THAT THE SAID CONCERN HAD ALSO INCURRED LOSS, WAS NOT ACCEPT ED BY THE TPO. CONSEQUENTLY, THE INCOME OF THE ASSESSEE WAS PROPOS ED TO BE ENHANCED BY ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 6 RS.1,74,86,018/-. THE ASSESSING OFFICER ISSUED THE ASSESSMENT ORDER MAKING THE AFORESAID ADDITION VIDE ORDER DATED 22.12.2006. 5. THE CIT(A) DELETED THE FIRST ADJUSTMENT OF RS.9, 32,747/- AGAINST WHICH NO APPEAL HAS BEEN FILED BY THE REVENUE. 6. NOW COMING TO THE SECOND ISSUE RAISED OF WASHOU T CHARGES CLAIMED BY THE ASSESSEE AS DEDUCTIBLE, THE CIT(A) NOTED THAT T HE ASSESSEE HAD ENTERED INTO CONTRACT DATED 04.01.2005 FOR THE PURCHASE OF 10,0 00 MT OF CRUDE SOYABEAN OIL @ USD 546 PMT (CIF), WITH ITS AE I.E. LD ASIA. ONLY 3,078 MT OF CRUDE SOYABEAN OIL WAS SHIPPED IN JANUARY, 2005 AND THE B ALANCE WAS MUTUALLY AGREED TO BE SHIPPED NEXT MONTH I.E. IN FEBRUARY, 2 005. THE ASSESSEE CLAIMED THAT THERE WAS A STEEP FALL IN OIL PRICE, BOTH IN D OMESTIC AND GLOBAL MARKET AND IN SUPPORT REPORT WAS OBTAINED FROM SOYABEAN PROCES SOR ASSOCIATION OF INDIA AND ALSO QUOTATION FROM RECOGNIZED BROKER IN SOYABE AN OIL TRADING BUSINESS. HE DEMONSTRATED THE FALL IN MARKET PRICE BETWEEN TH E DECEMBER, 2004 TO FEBRUARY, 2005. THE PLEA OF THE ASSESSEE IN THIS R EGARD WAS THAT DUE TO STEEP FALL IN THE PRICE OF OIL IN THE INDIAN MARKET, THE ASSESSEE REQUESTED ITS AE TO CANCEL THE SUPPLY OF BALANCE UNSHIPPED QUANTITY OF CRUDE SOYABEAN OIL VIDE LETTER DATED 02.02.2005. HOWEVER, LD ASIA POINTED OUT THAT IT WOULD SUFFER BIGGER LOSS AND COMPENSATION @ USD 61 PMT ON THE B ALANCE UNSHIPPED CRUDE SOYABEAN OIL WAS ASKED FOR. THE PARTIES AGREED TO THE COMPENSATION @ USD 55 PER MT VIDE LETTER DATED 03.02.2005. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED LETTER DATED 10.01.2005 FROM ITS AE INFOR MING THAT OUT OF TOTAL QUANTITY OF 10,000 MT APPROXIMATELY 3,100 MT OF CRU DE SOYABEAN OIL WOULD BE ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 7 SHIPPED IN NEXT FEW DAYS AND THE REMAINING QUANTITY WOULD BE SHIPPED BY THE END OF FEBRUARY, 2005. THIS LETTER WAS EVEN FILED BEFORE THE ASSESSING OFFICER AND THE CASE OF THE ASSESSEE WAS THAT BASED ON THE MUTUAL AGREEMENT BETWEEN THE PARTIES, THERE WAS EXTENSION OF THE CONTRACT BE TWEEN THE PARTIES AND THE CONTENTION OF THE TPO THAT CONTRACT WAS VALID ONLY FOR SHIPMENT IN THE MONTH OF JANUARY, 2005 WAS COMPLETELY INCORRECT. THE ASS ESSEE ALSO FILED EVIDENCE OF THE AE SELLING 5,000 MT OF CRUDE OIL AT USD 488 PM T. THE CASE OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT ALL THESE EVIDE NCES WERE FILED BEFORE THE TPO VIDE LETTER DATED 22.10.2008 WHEREAS THE TPO PA SSED AN ORDER WITHIN 5 DAYS I.E. 27.10.2008 WITHOUT CONSIDERING THE SAME. THE CIT(A) VIDE PARA 3.3(II) OBSERVED THAT THE CANCELLATION OF THE CONTRACT WAS AGREED ON 02.02.2005 ON THE REQUEST OF THE ASSESSEE, WHICH WAS CONFIRMED BY THE AE VIDE LETTER DATED 03.02.2005. THE SAID CORRESPONDENCES HAD NO REFERE NCE TO ANY OTHER CORRESPONDENCE IN THE MONTH OF JANUARY, 2005 FOR EX TENDING THE DATE OF SUPPLY TO FEBRUARY, 2005. IN THIS REGARD, THE ASSESSEE PO INTED OUT THAT THERE WAS FAX MESSAGE DATED 10.01.2005 WHEREIN THE AE COMMUNICATE D THAT THE BALANCE QUANTITY WOULD BE SHIPPED IN FEBRUARY, 2005. SINCE THIS EVIDENCE WAS NOT SUBMITTED BEFORE THE TPO, THE SAME WAS CONFRONTED T O HIM AND HE POINTED OUT THAT THE SAME SHOULD NOT BE ADMITTED. THE ASSESSEE FILED RE-JOINDER IN THIS REGARD. THE CIT(A) AFTER ADMITTING THE EVIDENCES F ILED BY THE ASSESSEE AND CONSIDERING THE REMAND REPORT OBSERVED THAT ONLY DI SPUTE WHICH NEEDS TO BE RESOLVED IS WHETHER ON THE DATE OF CANCELLATION OF SUPPLY OF BALANCE QUANTITY OF SOYABEAN OIL ON 2/3 RD FEBRUARY, 2005 WAS THERE ANY VALID CONTRACT. THE CIT(A) ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 8 HOLDS THAT THE CORRESPONDENCE DATED 10.01.2005 DO N OT FIND MENTION IN THE CANCELLATION LETTER OF FEBRUARY, 2005 AND EVEN THE CERTIFICATE FROM THE AUDITOR IN SUPPORT, WAS HELD TO CARRY NO EVIDENTIARY VALUE. FURTHER, THE ASSESSEE FILED SEVERAL DOCUMENTS, WHICH WERE FILED BEFORE THE RBI AND OBSERVED THAT THE LETTER DATED 10.01.2005 WAS NOT EXAMINED BY THE RBI. ACCO RDINGLY, HE UPHOLDS THE ORDER OF THE TPO, AS THE OBLIGATION OF THE AE WAS T O SUPPLY ENTIRE SOYABEAN EDIBLE OIL DURING THE MONTH OF JANUARY, 2005. HE H OLDS THAT THE ARM'S LENGTH PRICE OF THE WASHOUT CHARGES TO BE ZERO, SINCE THER E WAS NO VALID CONTRACT AT THE TIME OF CANCELLATION OF CONTRACT. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF C IT(A). 8. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS MAKING PURCHASES FROM AE AND SELLING THE GOODS IN THE DOME STIC AND OVERSEAS MARKETS. SOMETIMES WHEN THE TRANSACTION WAS NOT BE NEFICIAL BECAUSE OF THE MARKET CONDITIONS, THE CONTRACTS WERE CANCELLED AND WASHOUT CHARGES WERE PAID. THE ASSESSEE POINTS OUT THAT DURING THE YEAR , THE ASSESSEE HAD RECEIVED AND PAID WASHOUT CHARGES AND ONE TRANSACTION WAS IN DISPUTE. AFTER TAKING US THROUGH THE SEQUENCE OF EVENTS, THE LD.AR FOR THE A SSESSEE SUBMITTED THAT THE TPO HAD BENCHMARKED THE ARM'S LENGTH PRICE OF TRANS ACTION AT NIL AS THERE WAS NO AGREEMENT IN FEBRUARY, 2005. THE ASSESSEE H AD CLAIMED THAT IT HAD CANCELLED THE CONTRACT IN FEBRUARY, 2005. 9. THE LD.AR FOR THE ASSESSEE TOOK US THROUGH THE O RDER OF THE CIT(A) AND POINTED OUT THAT EVEN IF THERE WAS NOTHING IN WRITI NG, THERE COULD BE EXTENSION ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 9 OF CONTRACT. HE THEN, REFERRED TO THE ORDER OF TPO AND POINTED OUT THAT WHILE DETERMINING THE ARM'S LENGTH PRICE, THE TPO HELD TH AT CONTRACT WAS NOT IN EXISTENCE. HOWEVER, BY WAY OF CONDUCT OF THE PARTI ES ITSELF, IT WAS PROVED THAT THERE WAS EXISTENCE OF CONTRACT. A CONTRACT CAN BE EXTENDED BETWEEN THE PARTIES AND THE TPO CANNOT CHALLENGE THE BUSINESS D ECISION BETWEEN THE TWO PARTIES. HE ALSO POINTED THAT BOTH THE CIT(A) & TP O ACCEPTED THAT THERE WAS REDUCTION IN PRICE OF CRUDE SOYABEAN OIL, BUT REJEC TED THE CLAIM ON THE GROUND THAT THERE WAS NO EXTENSION OF CONTRACT BETWEEN THE PARTIES, AS IN THE CONSEQUENT LETTER, THERE WAS NO MENTION OF ANY EXTE NSION. HE REFERRED TO PAGE 205 OF THE PAPER BOOK ON WHICH DETAILS OF WASHOUT C HARGES HAS BEEN FILED AND POINTED OUT THAT DURING THE YEAR, THE ASSESSEE RECE IVED WASHOUT CHARGES OF RS.77.45 LACS AND PAID RS.1.65 CRORES. THE LD.AR F OR THE ASSESSEE SUBMITTED THAT THE DECISION WAS TOTALLY DRIVEN BY THE MARKET CONDITIONS, DEPENDING ON THE PRICES IN THE INTERNATIONAL MARKET, CHARGES WERE FI XED AND THIS BUSINESS DECISION WAS AS PER COMMERCIAL EXIGENCIES AND SAME MERITS TO BE ALLOWED. 10. THE LD.DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDERS OF THE AUTHORITIES BELOW AND POINTED OUT THAT IT IS NOT CL EAR AS TO WHETHER IN THE CONTRACT, THERE WAS ANY SUCH CLAUSES AND THE SECOND STAGE WAS WHETHER IT WAS AT ARMS LENGTH. HE STATED THAT THE TRIBUNAL BEING THE LAST FACT FINDING AUTHORITY, THE MATTER MAY BE SET ASIDE TO THE ASSES SING OFFICER TO LOOK AT THE ARMS LENGTH PRICE OF THE TRANSACTION. ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 10 11. THE LD.AR FOR THE ASSESSEE IN RE-JOINDER POINTE D OUT THAT THE FACT OF ARMS LENGTH PRICE OF TRANSACTION IS NOT DISPUTED BY THE ASSESSING OFFICER OR BY THE CIT(A) AND ONLY DISPUTE WHICH NEEDS TO BE DECIDED I S WHETHER THE CONTRACT WAS EXTENDED OR NOT. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES IN THE PRESENT APPEAL IS CLAIM O F DEDUCTION ON ACCOUNT OF WASHOUT CHARGES TOTALING TO RS.1,65,53,271/-. THE ASSESSEE HAD ENTERED INTO CONTRACT WITH ITS AE FOR THE PURCHASE OF 10,000 MT OF CRUDE SOYABEAN OIL @ USD 546 PMT. THE SAID CONTRACT WAS BY WAY OF CONTR ACT AGREEMENT DATED 04.01.2005, COPY OF WHICH IS PLACED AT PAGES 78 TO 83 OF THE PAPER BOOK. THE PRICE WHICH WAS FIXED WAS USD 546 PMT (CIF) AND TH E SHIPMENT HAD TO BE MADE DURING THE MONTH OF JANUARY, 2005. IN CONSID ERATION OF THE SAID CONTRACT, GOODS WEIGHING 3,064.618 MT WERE RECEIVED BY THE ASSESSEE; HOWEVER, BALANCE GOODS WEIGHING 6,922 MT WERE NOT R ECEIVED BY THE ASSESSEE IN THE MONTH OF JANUARY, 2005. IN THIS REGARD, THE PLEA OF THE ASSESSEE WAS THAT IT HAD EXTENDED THE CONTRACT ON THE COMMUNICAT ION RECEIVED BY THE SUPPLIER THAT IT WOULD NOT BE IN A POSITION TO DELI VER THE BALANCE GOODS IN THE MONTH OF FEBRUARY, 2005. THE SAID COMMUNICATION IS DATED 10.01.2005. IT IS A FAX TRANSMISSION FROM LD ASIA TO THE ASSESSEE CO MPANY REQUESTING FOR EXTENSION OF THE CONTRACT VIS--VIS THE PERIOD OF S HIPPING. COPY OF THE SAME IS PLACED AT PAGE 88 OF THE PAPER BOOK. THE PERUSAL O F THE FAX DATED 10.01.2005 POINTS THAT LD ASIA CLARIFIES THAT THEY WERE PLANNI NG TO SHIP APPROXIMATELY 3,100 MT OF CRUDE SOYABEAN OIL, BUT THE REMAINING Q UANTITY OF 6,900 MT WOULD ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 11 BE SHIPPED VIDE THE NEXT SHIPMENT SCHEDULED FOR END OF FEBRUARY, 2005. THE ASSESSEE VIDE WRITTEN COMMUNICATION DATED 10.01.200 5 PLACED AT PAGE 370 OF THE PAPER BOOK ACKNOWLEDGED THE AFORESAID FACT AND ACCEPTED THE SHIPMENT OF BALANCE QUANTITY OF 6,900 MT IN FEBRUARY, 2005. HO WEVER, ON 02.02.2005, THE ASSESSEE COMMUNICATED TO LD ASIA THAT OIL MARKET IN INDIA HAD COLLAPSED AND AS THERE WAS POSSIBILITY OF FURTHER DROP IN PRICES, REQUEST WAS MADE TO CANCEL THE BALANCE QUANTITY OF THE CONTRACT. THE SAID LET TER IS PLACED AT PAGE 93 OF THE PAPER BOOK. IN REPLY LD ASIA COMMUNICATED TO THE A SSESSEE THAT THEY HAD ALREADY FIXED THE VESSEL TO SHIP THE BALANCE QUANTI TY OF OIL TO THE ASSESSEE. IT WAS ALSO COMMUNICATED THAT THERE WAS DROP IN THE PR ICES OF OIL IN THE INTERNATIONAL MARKET AND THE CURRENT PRICE WAS USD 420 PMT (FOB). IT WAS COMMUNICATED THAT INCASE THE PRICE DIFFERENCE OF US D 61 PER MT WAS PAID, THEN THE CONTRACT COULD BE CANCELLED. THE SAID LET TER IS PLACED AT PAGE 91 OF THE PAPER BOOK. ON 3 RD FEBRUARY ITSELF, THE ASSESSEE REPLIED THAT AS PER MUTUAL AGREEMENT, THEY WERE READY TO COMPENSATE LD ASIA PR ICE DIFFERENCE @ USD 55 PMT. THIS COMMUNICATION IS PLACED AT PAGE 92 OF TH E PAPER BOOK. AS WAS THE PROCEDURE AT THE RELEVANT TIME, ASSESSEE HAD TO INT IMATE THE RBI SEEKING PERMISSION FOR FOREIGN EXCHANGE REMITTANCE. THE SA ID COMMUNICATION IS PLACED AT PAGES 97 TO 107 OF THE PAPER BOOK. THE LETTER I S DATED 05.05.2005. CONSEQUENT THERETO, RBI GAVE APPROVAL VIDE LETTER D ATED 31.05.2005 AND THE ASSESSEE REMITTED USD 3,80,710 ON 03.06.2005. THE TRANSACTION WAS RECORDED IN THE BOOKS OF ACCOUNTS FOR ASSESSMENT YEAR 2005- 06. IN SUCH A SCENARIO WHEREIN THE PERMISSION HAD ALREADY BEEN GIVEN BY TH E RBI FOR REMITTANCE OF ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 12 WASHOUT CHARGES ON THE CANCELLATION OF PART OF THE CONTRACT BETWEEN THE PARTIES, THE ISSUE WHICH ARISES IS ALLOWABILITY OF EXPENDITURE IN THE HANDS OF THE ASSESSEE. SIMILAR PRACTICE OF PAYMENT OF WASHOUT C HARGES IS BEING FOLLOWED IN THE NATURE OF TRADE CARRIED ON BY THE PARTIES. THE DETAILS OF WASHOUT CHARGES ARE PLACED AT PAGE 126 OF THE PAPER BOOK UNDER WHIC H ASSESSEE HAD RECEIVED SUCH WASHOUT CHARGES TOTALING TO RS.77,45,987/- FRO M DIFFERENT PARTIES OVER PERIOD OF SEVERAL YEARS. THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION HAD CLAIMED AN EXPENDITURE OF RS.1.65 CRORES. 13. THE EXISTENCE OF A VALID CONTRACT BETWEEN THE P ARTIES WAS NOT DOUBTED BY THE AUTHORITIES BELOW. THE ONLY DISPUTE WHICH WAS RAISED WAS WHETHER THERE WAS AN EXTENSION OF CONTRACT OR NOT AS THE SAID DOC UMENT I.E. FAX TRANSMISSION DATED 10.01.2005 WAS NOT BEFORE THE TPO. THUS, TPO CAME TO CONCLUSION THAT IT WAS NOT A CASE OF CANCELLATION OF CONTRACT, BUT A CASE OF CANCELLATION OF EXPIRED CONTRACT, AS THE SAID CONTRACT WAS VALID FO R THE MONTH OF JANUARY, 2005 ITSELF. ANOTHER REASON ON WHICH THE TPO DID NOT AC CEPT THE PLEA OF THE ASSESSEE WAS THAT THE REASON FOR NOT SHIPMENT OF BALANCE AMO UNT WAS NOT EXPLAINED BY THE ASSESSEE. 14. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THERE WAS A CONTRACT BETWEEN THE PARTIES TO PURCHASE THE GOODS IN THE MONTH OF JANUARY, 2005. ONLY PART OF GOODS COULD BE PURCHASED BY THE ASSESSEE, AS THE SUPPLIER OF THE GOODS HAD REQUESTED FOR AN EXTENSION OF CONT RACT I.E. TO EXTEND THE PERIOD OF SHIPPING/DELIVERY. THE COMMUNICATION IS DATED 1 0.01.2005 AND IS ALSO PRIOR TO SHIPPING OF PART OF THE CONTRACT RECEIVED BY ASS ESSEE. THE REASON FOR ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 13 EXTENDING THE CONTRACT WAS ALSO MENTIONED IN THE SA ID LETTER ITSELF I.E. AVAILABILITY OF THE VESSEL AT THE END OF FEBRUARY, 2005. SIMULTANEOUSLY, THERE WAS FALL IN THE PRICES OF CRUDE SOYABEAN OIL AND AS A BUSINESS DECISION, THE ASSESSEE COMMUNICATED TO LD ASIA, SUPPLIER, TO CANC EL THE DELIVERY OF BALANCE GOODS. THE SAID DECISION WAS TAKEN IN ORDER TO SAV E THE LOSSES THAT THE ASSESSEE WOULD HAVE INCURRED AFTER RECEIPT OF THE B ALANCE CRUDE SOYABEAN OIL, AS THE MARKET HAD COLLAPSED AND THE ASSESSEE COULD NOT HAVE BEEN IN A POSITION TO SELL THE GOODS ON PROFIT. ANOTHER ASPECT OF ISS UE IS THAT IN ORDER TO MAKE THE AFORESAID PAYMENT TO LD ASIA, PERMISSION HAD TO BE SOUGHT FROM RBI, FOR SUCH REMITTANCE. THE PERMISSION HAD BEEN AWARDED BY THE RBI, CONSEQUENT TO WHICH ONLY THE ASSESSEE MADE THE PAYMENT TO LD ASIA . IN SUCH A SCENARIO ON THE GROUND THAT THE EXTENSION OF CONTRACT, NOT BEIN G AVAILABLE BEFORE THE TPO, COULD NOT BE THE REASON TO DENY THE CLAIM OF THE AS SESSEE, ESPECIALLY WHERE THE ASSESSEE CLAIMS THAT IT HAD FILED THE SAME BEFORE T PO. THE SAID COMMUNICATION WAS FILED BEFORE THE CIT(A), WHO HAD ACCEPTED THAT THERE WAS FALL IN PRICES IN THE SOYABEAN OIL IN THE MARKET. THE ONLY OBJECTION WAS WHETHER THERE WAS A VALID CONTRACT OF 2/3 RD FEBRUARY, WHEN THE CONTRACT WAS CANCELLED. WE FIND NO MERIT IN THE ORDERS OF THE AUTHORITIES B ELOW IN THIS REGARD AS THE CONTRACT WAS BETWEEN THE TWO PARTIES AND IN CASE O F BUSINESS EXIGENCIES THEY TOOK A DECISION TO EXTEND THE CONTRACT AND THE SAID CONTRACT WAS THEN CANCELLED BETWEEN THE PARTIES BECAUSE OF THE MARKET CONDITION S. THE PAYMENT OF THE WASHOUT CHARGES HAS BEEN MADE AFTER SANCTION OF RBI AND IN SUCH CIRCUMSTANCES, WE HOLD THAT THE ASSESSEE IS ENTITLE D TO CLAIM DEDUCTION OF ITA NO1863/DEL/2016 ASSESSMENT YEAR: 2005-06 PAGE | 14 RS.1.65 CRORES. ACCORDINGLY WE HOLD SO. THUS, GRO UNDS OF APPEAL RAISED BY THE ASSESSEE IN THIS APPEAL ARE ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF OCTOBER, 2019. SD/- SD/- (PRASHANT MAHARISHI) (SUSHMA CHOWLA) &' &' &' &' /ACCOUNTANT MEMBER /JUDICIAL MEMBER / * DATED : 31 ST OCTOBER, 2019 . * AMIT KUMAR * &!. '$3&$'4 COPY OF THE ORDER IS FORWARDED TO : 1. +, / THE APPELLANT 2. -+, / THE RESPONDENT 3. 5 6 7 / THE CIT(A) 4. 8 5 / THE PR. CIT 5. 6. $9: '* / DR, ITAT, DELHI :;%<4 GUARD FILE. &!* &!* &!* &!* / BY ORDER , -$' ' // TRUE COPY // # =>? , ASSISTANT REGISTRAR, ITAT, DELHI