DCIT, Alappuzha V. Torry Harris sea Foods P.Ltd, Alappuzha

ITA 198/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58226 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 06-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-03-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: R SRINIVASAN
• Keywords: Gift; Transfer pricing; International transaction; Commercial expediency
• Section: 92C; 92B; 92F; 92A; 37; 92

Judgement Text

ITA NO38 & 198 /COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE: SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.38/COCH/2010 ASSESSMENT YEAR : 2005-06 M/S TORRY HARRIS SEA FOODS PVT LTD, ALLEPPEY. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, ALLEPPEY. (APPELLANT) VS. (RESPONDENT) P.A.NO. AAACT7603H ITA NO.198/COCH/2010 ASSESSMENT YEAR : 2005-06 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, ALLEPPEY. M/S TORRY HARRIS SEA FOODS PVT LTD, ALLEPPEY (APPELLANT) VS. (RESPONDENT) P.A.NO. AAACT7603H ASSESSEE BY: SHRI R.SRINIVASAN DEPARTMENT BY: MS. S.VIJAYAPRABHA, JR. D.R DATE OF HEARING: 06-01-2012 DATE OF PRONOUNCEMENT: 20-01-2012 ORDER PER SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER D ATED 03-11-2009 PASSED BY LEARNED CIT(A)-1, TRIVANDRUM AND THEY REL ATE TO THE ASSESSMENT YEAR 2005-06. SINCE BOTH THE APPEALS WERE HEARD TO GETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. WE SHALL FIRST CONSIDER THE APPEAL FILED BY THE ASSESSEE, IN WHICH FOLLOWING THREE ISSUES ARE CONTESTED. (A) DONATION PAID TO POLITICAL PARTIES - RS.34,3 00/- (B) PENALTY PAID ON VEHICLES - RS. 8,670/- (C) MARRIAGE GIFT GIVEN TO WORKERS - RS.30,0 00/- ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 2 3. BEFORE ADJUDICATING THESE ISSUES, WE SHALL F IRST SET OUT THE FACTS RELATING TO THE CASE IN BRIEF. THE ASSESSEE COMPANY IS AN E XPORTER OF MARINE FOODS. ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATIO N WAS TAKEN UP FOR SCRUTINY. IT WAS NOTICED THAT THE ASSESSEE WAS HAVI NG INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE CONCERNS. ACCORDIN GLY, THE A.O REFERRED THE MATTER RELATING TO INTERNATIONAL TRANSACTIONS TO TH E TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE. THE TPO PASSED ORDER U/S 92CA(3) OF THE ACT SUGGESTING AN ADJUSTMENT OF RS.6 6,00,543/- IN THE VALUE OF INTERNATIONAL TRANSACTIONS. ACCORDINGLY THE A.O ADDED THE AMOUNT CITED ABOVE TO THE TOTAL INCOME OF THE ASSESSEE. THE ASS ESSING OFFICER ALSO MADE OTHER ADDITIONS FROM OUT OF THE EXPENSES CLAIMED BY THE ASSESSEE. THE ASSESSEE CARRIED THE MATTERS IN APPEAL BEFORE LEARN ED CIT(A), WHICH WAS ALLOWED PARTLY. AGGRIEVED, BOTH THE PARTIES ARE IN APPEAL BEFORE US. 4. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSE E RELATES TO THE ADDITION OF RS.34,300/- PERTAINING TO THE DONATION MADE TO THE POLITICAL PARTIES. THE LEARNED A.R SUBMITTED THAT THE ASSESSEE ITSELF HAD DISALLOWED A SUM OF RS.2,38,268/- DEBITED UNDER THE HEAD DONATION AND CHARITY, WHILE PREPARING THE RETURN OF INCOME AND THE SAID DISALLO WANCE INCLUDES THE IMPUGNED AMOUNT OF RS.34,300/- ALSO. ACCORDINGLY HE SUBMITTED THAT THE ADDITION MADE BY ASSESSING OFFICER IS DUPLICATION A ND PRAYED FOR DELETION OF THE SAME. THE LEARNED D.R, HOWEVER, SUBMITTED THAT THE CLAIM OF THE LEARNED A.R REQUIRES VERIFICATION. 4.1 THERE CANNOT BE ANY DISPUTE THAT THE ANY EX PENDITURE CANNOT BE DISALLOWED TWICE UNDER THE INCOME TAX ACT. IF THE DISALLOWANCE OF RS.2,38,268/- MADE BY THE ASSESSEE ALREADY INCLUDES THE IMPUGNED AMOUNT OF RS.34,300/-, THEN THERE IS NO NECESSITY TO DISAL LOW THE SAME AGAIN SEPARATELY. HOWEVER, AS CONTENDED BY LEARNED D.R, THIS MATTER REQUIRES VERIFICATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE T HE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE AB OVE SAID CLAIM OF THE ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 3 ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANC E WITH THE LAW, AFTER AFFORDING NECESSARY OPPORTUNITY TO THE ASSESSEE. 5. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE PERTAINS TO DISALLOWANCE OF RS.8,670/- PERTAINING TO PENALTY LEVIED ON VEHICLES . THE LEARNED A.R CONTENDED THAT THE IMPUGNED AMOUNT INCLUDES PAYMENT S WHICH ARE CUSTOMARY IN NATURE AND HENCE THEY ARE INCIDENTAL T O THE BUSINESS OF THE ASSESSEE. HOWEVER, THE LEARNED D.R SUBMITTED THAT THIS EXPENSE RELATED TO AMOUNT PAID FOR OFFENCE AND HENCE IT IS NOT ALLOWAB LE AS DEDUCTION. WE ALSO NOTICE THAT THE PROVISO TO SEC. 37 OF THE ACT, WHIC H READS AS UNDER, SPECIFICALLY DEBARS DEDUCTION OF SUCH KIND OF PAYME NTS EVEN THOUGH THEY ARE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. EXPLANATION:- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR AN Y PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW S HALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUS INESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE M ADE IN RESPECT OF SUCH EXPENDITURE. THE LEARNED A.R FAILED TO DEMONSTRATE THAT THE IMPU GNED EXPENDITURE IS NOT HIT BY THE ABOVE SAID PROVISIONS OF THE ACT. ACCOR DINGLY WE CONFIRM THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 6. THE LAST ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF MARRIAGE GIFTS OF RS.30,000/- PAID TO THE EMPLOYEES OF THE ASSESSEE. THE LEARNED A.R CONTENDED THAT THE SAID EXPENDITURE WAS INCURRED OUT OF COMMERCIAL EXPEDIENCY AS A PART OF STAFF WELFARE AC TIVITIES AND HENCE THE SAME IS ALLOWABLE. ON THE CONTRARY, THE LEARNED D. R SUBMITTED THAT THE MARRIAGE GIFTS CANNOT BE CONSIDERED AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. 6.1 IN THE CASE OF PAYMENTS MADE TO EMPLOYEES OR THEIR DEPENDENTS, THE TEST TO BE APPLIED IS WHETHER THE SAID EXPENDITURE IS INCURRED OUT OF BUSINESS EXPEDIENCY OR NOT. THE FOLLOWING OBSERVATIONS MADE BY HON'BLE SUPREME ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 4 COURT IN THE CASE OF SRI VENKATA SATYANARAYANA RICE MILL CS. CIT (223 ITR 101, PG.105) ARE WORTH MAKING REFERENCE HERE:- THE PRINCIPLES FOR DETERMINING WHETHER SUCH A PAYM ENT CAN BE REGARDED AS BEING ALLOWABLE AS A BUSINESS EXPENSE A RE, IN OUR OPINION, WELL SETTLED. AS LONG AGO AS IN THE CASE OF ATHERTON V BRITISH INSULATED AND HELSBY CABLES LTD (1925) 10 TC 155, 191 (HL), IT WAS OBSERVED THAT A SUM OF MONEY EXPENDED , NOT OF NECESSITY AND WITH A VIEW TO A DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUNDS OF COMMER CIAL EXPEDIENCY, AND IN ORDER INDIRECTLY TO FACILITATE T HE CARRYING ON OF THE BUSINESS, MAY YET BE EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSES OF TRADE. THE AFORESAID OBSERVATION WAS QUOTED WITH APPROVAL BY THIS COURT IN EASTERN INVESTMENTS LTD V S. CIT (1951) 20 ITR 1; SCR 594. 6.2 IN THE INSTANT CASE, IT IS STATED THAT THE IMPUGNED EXPENDITURE WAS INCURRED AT THE TIME OF MARRIAGE OCCASION OF THE EM PLOYEES. THERE CANNOT BE ANY DISPUTE THAT THE EMPLOYEES FORM AN INTEGRAL PAR T OF BUSINESS ENTITY AND HENCE IT IS QUIET CUSTOMARY TO PRESENT GIFTS AT THE TIME OF MARRIAGE OCCASIONS IN ORDER TO BOOST THE MORALE OF THE EMPLOYEES, WHIC H WILL GIVE LONG TERM BENEFIT TO THE BUSINESS ORGANIZATION. HOWEVER, THE DETAILS LIKE NAME OF EMPLOYEES, AMOUNT PRESENTED TO THEM, THE OCCASION E TC. ARE NOT AVAILABLE ON RECORD. IN OUR VIEW THE SAID DETAILS ARE REQUIRED T O BE VERIFIED BEFORE ACCEPTING THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME T O THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CALL FOR SUCH DETAILS A S MAY BE NECESSARY IN ORDER TO SATISFY HIMSELF THAT THE IMPUGNED PAYMENTS WERE MAD E ONLY TO THE EMPLOYEES OR THEIR DEPENDENTS ON SPECIAL OCCASIONS AND IF FOUND TO BE SO, ALLOW THE CLAIM OF THE ASSESSEE. 7. NOW WE SHALL TAKE UP THE APPEAL OF THE REVEN UE. THE ADDITION OF RS.66,00,543/- MADE UNDER SECTION 92CA(3) AS PER T HE REPORT OF TPO ON ARMS LENGTH PRICE WAS DELETED BY THE LEARNED CIT(A) ON THE GROUND THAT THE VARIATION BETWEEN THE PRICE DETERMINED BY TPO AND T HE PRICE RECORDED BY THE ASSESSEE WAS LESS THAN 5%. THE REVENUE IS CONTESTI NG THIS RELIEF ON THE GROUND THAT THE TPO HAS DETERMINED ONLY ONE PRICE B Y MOST APPROPRIATE ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 5 METHOD AND HENCE THE QUESTION OF ALLOWING VARIATION BENEFIT DOES NOT APPLY TO THE ASSESSEE. 8. THE LEARNED A.R, BY PLACING RELIANCE ON A CI RCULAR ISSUED BY CBDT, SUBMITTED THAT THE ASSESSING OFFICER IS NOT REQUIRE D TO MAKE ANY ADJUSTMENT IF THE VARIATION IS WITHIN 5%. HOWEVER, HE COULD N OT FURNISH A COPY OF THE SAID CIRCULAR. HE FURTHER PLACED RELIANCE ON THE S ECOND PROVISO TO SEC. 92C(2) OF THE ACT. 9. ON THE OTHER HAND, THE LEARNED D.R SUBMITTED THAT THE QUESTION OF ALLOWING SAFE HARBOUR LIMIT OF 5% SHALL APPLY ONLY IF MORE THAN ONE PRICE IS DETERMINED BY MOST APPROPRIATE METHOD. SINCE THE T PO HAS DETERMINED ONLY ONE PRICE IN THE INSTANT CASE, THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF VARIATION OF 5%. 10. THE VISAKHAPATNAM BENCH OF THE ITAT HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE IN THE CASE OF ASST. CIT VS. ESSAR STEEL LTD (131 ITD 22) AND THE TRIBUNAL, AFTER CONSIDERING THE CIRCULAR NO.12 DATED 23.8.2001 ISSUED BY CBDT AND OTHER RELEVANT PROVISIONS OF THE ACT HAS H ELD THAT THE QUESTION OF APPLICATION OF THE PROVISO DOES NOT ARISE IN A CASE WHERE ONLY ONE PRICE IS DETERMINED UNDER MOST APPROPRIATE METHOD. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE IN THE CASE OF ESSAR STEEL LTD, (SUPRA). 12. THE ASSESSEE PLACES RELIANCE ON THE CIRCULAR NO.12 DATED 23.8.2001 ISSUED BY CBDT EXPLAINING THE PROVISIONS GOVERNING TRANSFER PRICE IN AN INTERNATIONAL TRANSACTION, AS AMENDED B Y FINANCE ACT 2001. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE R ELEVANT PORTIONS OF THE CIRCULAR: THE FINANCE ACT, 2001 HAS SUBSTITUTED THE EXISTING SECTION 92 OF THE INCOME TAX ACT BY NEW SECTIONS 92 AND 92A TO 92 F. THESE NEW PROVISIONS LAY DOWN THAT INCOME ARISING FROM AN INT ERNATIONAL TRANSACTION BETWEEN ASSOCIATED ENTERPRISES SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. THE TERM ASSOCIATED ENTERPRISE HAS BEEN DEFINED IN SECTION 92A. SECTI ON 92B DEFINES AN INTERNATIONAL TRANSACTION BETWEEN TWO OR MORE ASS OCIATED ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 6 ENTERPRISES. THE PROVISIONS CONTAINED IN SECTION 9 2C PROVIDE FOR METHODS TO DETERMINE THE ARMS LENGTH PRICE IN RELA TION TO THE INTERNATIONAL TRANSACTION, AND THE MOST APPROPRIATE METHOD TO BE FOLLOWED OUT OF THE SPECIFIED METHODS. HOWEVER, THIS IS A NEW LEGISLATION. IN THE INITIAL Y EARS OF ITS IMPLEMENTATION, THERE MAY BE ROOM FOR DIFFERENT INT ERPRETATIONS LEADING TO UNCERTAINTIES WITH REGARD TO DETERMINATI ON OF ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. WHILE IT WOU LD BE NECESSARY TO PROTECT OUR TAX BASE, THERE IS A NEED TO ENSURE THA T THE TAXPAYERS ARE NOT PUT TO AVOIDABLE HARDSHIP IN THE IMPLEMENTA TION OF THESE REGULATIONS. IN THIS BACKGROUND THE BOARD HAVE DECIDED THE FOLL OWING: (I) THE ASSESSING OFFICER SHALL NOT MAKE ANY ADJUSTMENT TO THE ARMS LENGTH PRICE DETERMINED BY THE TAXPAYER, IF SUCH PRICE IS UNTO 5% LESS OR UNTO 5% MORE THAN THE PRIC E DETERMINED BY THE ASSESSING OFFICER. IN SUCH CASES THE PRICE DECLARED BY THE TAXPAYER MAY BE ACCEPTED. (II) THE PROVISIONS OF SECTIONS 92 AND 92A TO 92F COME I NTO FORCE WITH EFFECT FROM 1 ST APRIL, 2002 AND ARE ACCORDINGLY APPLICABLE TO ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. THUS IT CAN BE SEEN THAT THE FINANCE ACT 2001 HAS INSERTED NEW SECTIONS 92 AND 92A TO 92F IN THE PLACE OF OLD SECT ION 92. THE ABOVE SAID CIRCULAR HAS BEEN ISSUED IN ORDER TO EXPLAIN T HE AMENDMENTS SO MADE BY THE FINANCE ACT 2001, WHICH WERE MADE APPLI CABLE FROM THE ASSESSMENT YEAR 2002-03 ONWARDS. 13. THE PROVISO TO SECTION 92C(2), WHICH WAS IN SERTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1.4.2002 (I.E. ASSESSMEN T YEAR 2002-03 ONWARDS) READS AS UNDER : PROVIDED THAT WHERE MORE THAN ONE PRICE MAY BE DET ERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES. THE CBDT, VIDE ITS CIRCULAR NO.14/2001 DATED 12.12. 2001 (2001) (252 ITR (ST.) 65), EXPLAINED THE SCOPE AND EFFECT OF NE W PROVISIONS. THE RELEVANT PARAGRAPH DEALING WITH THE PROVISO CITED A BOVE READS AS UNDER : APPLYING THE MOST APPROPRIATE METHOD TO DIFFERENT SETS OF COMPARABLE DATA CAN POSSIBLY RESULT IN COMPUTATION OF MORE THAN ONE ARMS LENGTH PRICE. WITH A VIEW TO AVOID UNNEC ESSARY DISPUTES, THE PROVISO TO SECTION 92C(2) PROVIDES THAT IN SUCH A CASE THE ARITHMETIC MEAN OF THE PRICES SHALL BE ADOPTED AS T HE ARMS LENGTH ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 7 PRICE. IN THE NORMAL COURSE, IF THE DIFFERENT SETS OF COMPARABLE DATA ARE EQUALLY RELIABLE THERE MAY NOT BE ANY SIGNIFICA NT DIVERGENCE BETWEEN THE VARIOUS ARMS LENGTH PRICES DETERMINED. THUS IT CAN BE SEEN THAT UNDER THE PROVISO TO SEC. 92C(2) AS INSERTED BY THE FINANCE ACT, 2001, ONLY ARITHMETICAL MEAN OF TH E PRICES HAS TO BE TAKEN AND THE STATUTE DID NOT PROVIDE FOR ANY CONCE SSION. HENCE, CONSIDERING THE PRACTICAL DIFFICULTIES, IT APPEARS THAT THE CBDT HAS ISSUED CIRCULAR NO.12 DATED 23.8.2001, WHICH WAS RELIED UP ON BY THE ASSESSEE, IN ORDER TO GIVE CONCESSION OF +/- 5%. THOUGH THE CBDT HAS EXPLAINED THE AMENDMENTS BROUGHT OUT BY FINANCE ACT , 2001 IN A SUBSEQUENT CIRCULAR NO. 14 DATED 12.12.2001, YET IT DID NOT PREFER TO REFER THERE IN, ITS PREVIOUS CIRCULAR NO.12 DATED 2 3.8.2001. 14 HOWEVER, IT IS PERTINENT TO NOTE THAT THE FI NANCE ACT, 2002 HAS AMENDED THE ABOVE SAID PROVISO TO SEC. 92C(2) WITH EFFECT FROM 1.4.2002, I.E. THE AMENDMENT SO MADE SHALL ALSO BE APPLICABLE FROM THE ASSESSMENT YEAR 2002-03 ONWARDS. THE AMENDED PROVI SO WHICH IS APPLICABLE FROM ASSESSMENT YEAR 2002-03 READS AS UNDER . PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD , THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES, O R, AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITH METICAL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PERCENT OF SUCH ARITHM ETICAL MEAN. THE CBDT HAS EXPLAINED THE SAID AMENDMENT IN ITS CI RCULAR NO.8/2002 DATED 27.8.2002 (2002) (258 ITR (ST.) 13) AS UNDER: UNDER THE EXISTING PROVISIONS CONTAINED IN THE PRO VISO TO SUB- SECTION (2) OF SECTION 92C OF THE INCOME TAX ACT, I F THE APPLICATION OF THE MOST APPROPRIATE METHOD LEADS TO DETERMINATION OF MORE THAN ONE PRICE, THE ARITHMETICAL MEAN OF SUCH PRICES SHA LL BE TAKEN TO BE THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATI ONAL TRANSACTION. WITH A VIEW TO ALLOW A DEGREE OF FLEXIBILITY IN ADO PTING AN ARMS LENGTH PRICE, THE FINANCE ACT, 2002, HAS AMENDED TH E PROVISO TO SUB-SECTION (2) OF SECTION 92C TO PROVIDE THAT WHER E THE MOST APPROPRIATE METHOD RESULTS IN MORE THAN ONE PRICE, A PRICE WHICH DIFFERS FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PER CENT OF SUCH MEAN MAY BE TAKEN TO BE THE ARMS LENGTH PRICE, AT THE OPTION OF THE ASSESSEE. 15. IT IS INTERESTING TO NOTE THAT THE FINANCE A CT 2001 HAS ORIGINALLY INSERTED SEC. 92C ALONG WITH THE IMPUGNED PROVISO W ITH EFFECT FROM 1.4.2002, I.E. ASSESSMENT YEAR 2002-03 ONWARDS. HO WEVER THE FINANCE ACT 2002 AMENDED THE PROVISO SO INSERTED BY FINANCE ACT 2001 AND THE AMENDED PROVISO WAS ALSO MADE APPLICABLE FROM 1.4.2 002, I.E ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 8 ASSESSMENT YEAR 2002-03 ONWARDS, MEANING THERE BY, THE PROVISO, WHICH WAS INSERTED BY THE FINANCE ACT 2001, NEVER C AME INTO OPERATION. IT CAN BE NOTICED THAT THE CIRCULAR NO.12 OF 2001 WA S ISSUED ONLY TO EXPLAIN THE AMENDMENTS MADE BY THE FINANCE ACT 2001 , WHICH NEVER CAME INTO OPERATION. 16. NOW THE QUESTION THAT ARISES IS WHETHER AN ASSESSEE COULD PLACE HIS RELIANCE ON A CIRCULAR ISSUED FOR EXPLAINING CE RTAIN PROVISIONS, WHICH NEVER CAME INTO OPERATION. THE CBDT DERIVES ITS PO WER TO ISSUE THE CIRCULARS FROM SEC. 119 OF THE ACT. THE OBSERVATIO NS MADE BY HON'BLE SUPREME COURT IN THIS REGARD IN THE CASE OF UNION O F INDIA VS. AZADI BACHAO ANDOLAN (2003) (263 ITR 706 (S.C)) HAS BEEN JUDICIALLY NOTICED IN THE CASE OF THE DECISION OF HON'BLE JURISDICTION AL A.P. HIGH COURTS DECISION IN THE CASE OF CIT VS. RAAJENDRA PRASAD (2 99 ITR 227 (AP)) AS UNDER: RELIANCE HAS ALSO BEEN PLACED BY MR. SWAMY ON THE JUDGMENT REPORTED IN UNION OF INDIA V. AZADI BACHAO ANDOLAN [ 2003] 263 ITR 706 (SC). WHILE DEALING WITH THE POWERS OF THE CENT RAL BOARD OF DIRECT TAXES, THE SUPREME COURT, IN THIS JUDGMENT, CONSIDERED THE EFFECT OF CIRCULAR UNDER SECTION 119 OF THE ACT AND WAS OF THE VIEW (PAGE 727): SECTION 119, STRATEGICALLY PLACED IN CHAPTER XIII WHI CH DEALS WITH INCOME-TAX AUTHORITIES IS AN ENABLING POWER OF TH E CENTRAL BOARD OF DIRECT TAXES, WHICH IS RECOGNISED AS AN AUTHORITY U NDER THE INCOME TAX ACT UNDER SECTION 116(A). THE CENTRAL BOARD OF DIRECT TAXES UNDER THIS SECTION IS EMPOWERED TO ISSUE SUCH ORDER S, INSTRUCTIONS AND DIRECTIONS TO OTHER INCOME-TAX AUTHORITIES AS IT MAY DEEM FIT FOR PROPER ADMINISTRATION OF THIS ACT. SUCH AUTHORITIES AND ALL OTHER PERSONS EMPLOYED IN THE EXECUTION OF THIS ACT ARE BOUND TO OBSERVE AND FOLLOW SUCH ORDERS, INSTRUCTIONS AND DI RECTIONS OF THE CENTRAL BOARD OF DIRECT TAXES. THE PROVISO TO SUB-S ECTION (1) OF SECTION 119 RECOGNISES TWO EXCEPTIONS TO THIS POWER . THE FIRST, THAT THE CENTRAL BOARD OF DIRECT TAXES CANNOT REQUIRE AN Y INCOME-TAX AUTHORITY TO MAKE A PARTICULAR ASSESSMENT OR TO DIS POSE OF A PARTICULAR CASE IN A PARTICULAR MANNER. THE SECOND IS WITH REGARD TO INTERFERENCE WITH THE DISCRETION OF THE COMMISSIONE R (APPEALS) IN EXERCISE OF HIS APPELLATE FUNCTIONS. SUB-SECTION (2 ) OF SECTION 119 PROVIDES FOR THE EXERCISE OF POWER IN CERTAIN SPECI AL CASES AND ENABLES THE CENTRAL BOARD OF DIRECT TAXES, IF IT CO NSIDERS IT NECESSARY OR EXPEDIENT SO TO DO FOR THE PURPOSE OF PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND COLLECTION OF REVENUE, TO ISSUE GENERAL OR SPECIAL ORDERS IN RESPECT OF AN Y CLASS OF INCOMES OR CLASS OF CASES, SETTING FORTH DIRECTIONS OR INST RUCTIONS AS TO THE GUIDELINES, PRINCIPLES OR PROCEDURES TO BE FOLLOWED BY OTHER INCOME- TAX AUTHORITIES IN THE DISCHARGE OF THEIR WORK RELA TING TO ASSESSMENT OR INITIATING PROCEEDINGS FOR IMPOSITION OF PENALTI ES. THE POWERS OF ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 9 THE CENTRAL BOARD OF DIRECT TAXES ARE WIDE ENOUGH T O ENABLE IT TO GRANT RELAXATION FROM THE PROVISIONS OF SEVERAL SEC TIONS ENUMERATED IN CLAUSE (A). SUCH ORDERS MAY BE PUBLISHED IN THE OFFICIAL GAZETTE IN THE PRESCRIBED MANNER, IF THE CENTRAL BOARD OF DIRE CT TAXES IS OF THE OPINION THAT IT IS SO NECESSARY. THE ONLY BAR ON TH E EXERCISE OF POWER IS THAT IT IS NOT PREJUDICIAL TO THE ASSESSEE . WE ARE NOT CONCERNED WITH THE PROVISIONS IN CLAUSES (B) AND (C ) IN THE PRESENT APPEALS. THUS THE CBDT IS EMPOWERED UNDER SECTION 119 OF THE ACT TO ISSUE SUCH ORDERS, INSTRUCTIONS AND DIRECTION TO OTHER INCOME TAX AUTHORITIES, AS IT MAY DEEM FIT FOR PROPER ADMINISTRATION OF ACT. IN THE INSTANT CASE, THE PROVISO, FOR WHICH THE CIRCULAR NO.12, (SUPRA) WAS ISSUED, HAS NEVER COME INTO OPERATION AND HENCE THE QUESTION OF THE A DMINISTRATION OF THE SAID PROVISO TO SEC. 92C(2) DOES NOT ARISE AT ALL. IN VIEW OF THE SUBSEQUENT AMENDMENT BROUGHT IN BY FINANCE ACT, 200 2, THE SAID CIRCULAR HAS BECOME OTIOSE. IN VIEW OF THE ABOVE, W E ARE OF THE VIEW THAT THE ASSESSEE COULD NOT PLACE RELIANCE ON THE C IRCULAR NO.12 AND FOR THE YEAR UNDER CONSIDERATION, ONLY THE PROVISO TO S EC. 92C(2), AS AMENDED BY FINANCE ACT 2002 IS APPLICABLE. IN THA T CASE, THE SAID PROVISO SHALL APPLY ONLY IF THE MOST APPROPRIATE M ETHOD RESULTS IN MORE THAN ONE PRICE, IN WHICH CASE THE ARITHMETICAL MEAN OF SUCH PRICES SHALL BE TAKEN AS THE ALP. HOWEVER, THE ASSESSEE S HALL HAVE AN OPTION TO ADOPT A PRICE WHICH MAY VARY FROM THE ARITHMETIC AL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PERCENT OF SUCH ARITHMETICAL MEAN. 17. IN THE INSTANT CASE, ONLY ONE PRICE HAS BEEN DETERMINED UNDER MOST APPROPRIATE METHOD. HENCE, IN OUR VIEW, THE QUESTION OF APPLICATION OF THE PROVISO DOES NOT ARISE. ACCORDI NGLY, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE CONCESSION, AS PRES CRIBED IN THE PROVISO TO SEC. 92C(2). ACCORDINGLY WE REVERSE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE ORDER OF THE ASSESSING OFFICE R . IT IS PERTINENT TO NOTE THAT THE DELHI BENCH OF ITAT HAS ALSO TAKEN SIMILAR VIEW IN THE CASE OF HAWORTH (INDIA) (P) LTD VS. DCIT (131 ITD 215). CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE CITED CASES, WE AL SO HOLD THAT THE SECOND PROVISO TO SEC. 92C(2) SHALL APPLY ONLY IF MORE THA N ONE PRICE IS DETERMINED UNDER MOST APPROPRIATE METHOD AND RESULTANTLY ARI THMETICAL MEAN OF SUCH PRICES IS TAKEN AS ARMS LENGTH PRICE. IT IS ALSO P ERTINENT TO NOTE THAT IN THE CASE OF ESSAR STEEL LTD., (SUPRA), IT HAS BEEN HELD THAT THE CIRCULAR NO.12 DATED 23.8.2001 ISSUED BY CBDT HAS BECOME OTIOSE. ITA NO38 & 198/COCHIN/2010 TORRY HARRIS SEA FOODS PVT LTD 10 11. IN THE INSTANT CASE, THERE IS NO DISPUTE WI TH REGARD TO THE FACT THAT THE TPO HAS DETERMINED ONLY ONE PRICE UNDER MOST APPROP RIATE METHOD. HENCE THE QUESTION OF APPLICATION OF SECOND PROVISO TO SE C. 92C(2) DOES NOT ARISE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT( A) ON THIS ISSUE AND RESTORE THE ADDITION OF RS.66,00,543/- MADE BY THE ASSESSING OFFICER. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS ALLOWED. PRONOUNCED ON 20/01/2012 SD/- SD/- (N.R.S.GANESAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN, DATED 20 TH JANUARY, 2012 COPY TO 1 DCIT, CIRCLE-1, ALLEPEY. 2 M/S TORRY HARRIS SEA FOODS PVT. LTD., C/O M/S RAN GAMANI & CO., CHARTERED ACCOUNTANTS, CARD BANK BUILDING, II FLOOR, V.C.S.B. ROAD, ALLEPPEY-688001. 3 CIT, KOTTAYAM 4 THE CIT(A)-1, TRIVANDRUM 5 THE DR, ITAT, COCHIN. 6 GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL COCHIN