M/s. Coastal Energy Pvt Limited, CHENNAI V. ACIT, CHENNAI

ITA 2099/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4727 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: VIKRAM VIJAYARAGHVAN
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 2099/MDS/2010 ASSESSMENT YEAR : 2006-07 M/S. COASTAL ENERGY PVT. LTD. 5, BUHARI BUILDINGS, MOORES ROAD, THOUSAND LIGHTS, CHENNAI 600 006. PAN AAACC 4160 A VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(3), CHENNAI 34. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKRAM VIJAYARAGHVAN, ADVOCAT E RESPONDENT BY : SHRI P.B.SEKARAN, CIT-DR O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2006-07. THIS APPEAL ARISES OUT OF THE ASSESSMENT IN WHICH TRANSFER PRICING ADJUSTMENT HAS BEEN MADE BY THE ASSESSING AUTHORITY. THE SAID ADJUSTMENT HA S BEEN MADE IN THE LIGHT OF THE ORDER OF THE TRANSFER PRICING O FFICER (TPO) ITA 2099/10 :- 2 -: PASSED UNDER SEC.92CA(3) ON 28.10.2009 AND ALSO THE ORDER OF THE DISPUTE RESOLUTION PANEL (DRP) AT CHENNAI DATED 23.9.2010. 2. THE ASSESSEE-COMPANY IS ENGAGED IN THE IMPORT OF COAL AND SUPPLYING THE SAME TO VARIOUS CONSUMERS IN INDI A LIKE TATA POWER, GNFC, TCP LTD., MALABAR CEMENTS LTD., MYSORE PAPER MILLS, MADRAS CEMENTS ETC. THE ASSESSEE-COMPANY MA KES IMPORT OF COAL FROM ITS ASSOCIATE ENTERPRISE (AE). IN EFFECT, THIS IS A TRANSFER PRICING APPEAL. M/S. COAL & OIL LLC, DU BAI IS THE AE WHICH SUPPLIES COAL TO THE ASSESSEE FOR IMPORTING T HE SAME TO INDIA. 3. THE ASSESSING OFFICER REFERRED THE QUESTION OF D ETERMINING THE ARMS-LENGTH PRICE (ALP) TO THE TPO ON THE BASI S OF THIS RELATIONSHIP AND THE QUANTUM OF TRANSACTIONS THAT H AD TAKEN PLACE BETWEEN THE ASSESSEE-COMPANY AND ITS AE. ON GOING THROUGH THE DETAILS OF THE CASE, THE TPO FOUND AN INSTANCE OF IMPORT MADE BY THE ASSESSEE FOR A PRICE HIGHER THAN THE PRICE Q UOTED BY ANOTHER IMPORTER FOR THE SAME DAY. SHE OBSERVED TH AT THE ASSESSEE HAD IMPORTED 1000 MT OF COAL FROM ITS AE O N 26.5.2005. THE PURCHASE PRICE WAS 46.51 USD PER MT . ON THE SAME DAY ANOTHER COMPANY, M/S. ADAM & COAL RESOURCE S (P) ITA 2099/10 :- 3 -: LTD. HAD IMPORTED 1440 MT OF COAL. THE PRICE QUOTE D BY M/S. ADAM & COAL RESOURCES (P) LTD. WAS 43 USD PER MT. THE TPO FOUND THAT THE DIFFERENCE IN THE PRICE BETWEEN THE CONSIGNMENT OF THE ASSESSEE-COMPANY AND M/S. ADAM & COAL RESOURCES (P) LTD. IS SUBSTANTIAL WHICH HAS CROSSED THE TOLERANCE LIMI T OF PLUS OR MINUS 5%. IN VIEW OF THE ABOVE COMPARATIVE VALUES, THE TPO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS OVERST ATED ITS PURCHASE PRICE AND THEREBY MADE IT NECESSARY TO MAK E ADJUSTMENT IN THE PURCHASE PRICE OF COAL FOR THE PU RPOSE OF ASSESSMENT. ON THE BASIS OF THE ABOVE PRICE VARIAT ION, THE TPO COMPUTED THE ADJUSTMENT VALUE AT ` 3,49,14,706/- AND PROPOSED AN ADDITION TO THE INCOME OF THE ASSESSEE. 4. THE ISSUE WAS THEREAFTER BROUGHT BEFORE THE DRP AT CHENNAI. THE ASSESSEE HAD RELIED ON A DECISION OF THE I.T.A.T., MUMBAI BENCH B IN THE CASE OF UCB INDIA (P) LTD. V. ACIT (121 ITD 131) IN WHICH CASE, THE TRIBUNAL HAD UPHELD THE APPLICATION OF COMPARABLE CONTROLLED TRANSACTION. FOR THE PURPOS E OF EVALUATING THE ALP, AFTER CONSIDERING THE FACTS OF THE ABOVE C ASE AND THE PRESENT CASE, THE DRP CAME TO THE CONCLUSION THAT T HE DECISION OF THE I.T.A.T., MUMBAI BENCH IS LIMITED TO THE FACTS OF THAT CASE AND ITA 2099/10 :- 4 -: CANNOT BE TREATED AS A PRECEDENT TO BE FOLLOWED. THE DRP AFTER EXAMINING THE FACTS OF THE CASE HELD THAT THE MEANI NG OF THE CUP METHOD ITSELF IS THE COMPARISON OF VARIABLES IN AN UNCONTROLLED PRICE FACTORS, AND PARTICULARLY, IN THE PRESENT CAS E, COMPARISON OF UNCONTROLLED PRICES, IS THE MOST APPROPRIATE METHOD . THE DRP ACCORDINGLY, UPHELD THAT PROPOSAL OF THE TPO. FINA LLY, THE PROPOSAL WAS CONVERTED INTO ADJUSTMENT BY THE ASSES SING AUTHORITY RESULTING IN AN ADDITION OF ` 3,49,14,706/-. THE ASSESSEE IS AGGRIEVED AND THEREFORE, THE APPEAL BEFORE THE T RIBUNAL. 5. WE HEARD SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE AP PEARING FOR THE ASSESSE-COMPANY AND SHRI P.B.SEKARAN, THE L EARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E. AS ALWAYS STATED, FACTS SPEAK FOR THEMSELVES. THE TPO HAS IDENTIFIED A TYPICAL TRANSACTION FIT FOR COMPARISON IN UNCONTROLLED MARKET CONDITIONS. ON 26.5.2005, THE ASSESSEE-COMP ANY HAD IMPORTED 1000 MT OF COAL FROM ITS AE. THE PURCHASE RATE WAS 46.51 USD PER MT. ON THE VERY SAME DAY, 26.5.2005 ANOTHER COMPANY, M/S. ADAM & COAL RESOURCES (P) LTD. ALSO H AD IMPORTED COAL. A CONSIGNMENT OF 1440 MT WAS OFFLOA DED AT THE RATE OF 43 USD PER MT. THERE IS A STRIKING DIFFERE NCE IN THE PRICE ITA 2099/10 :- 5 -: QUOTED BY THE ASSESSEE AND M/S. ADAM & COAL RESOURC ES (P) LTD. AS RIGHTLY POINTED OUT BY THE DRP, THIS DIF FERENCE EXCEEDS EVEN THE TOLERANCE LIMIT. 6. THE NEXT QUESTION TO BE CONSIDERED IS WHETHER TH IS PRICE VARIATION NOTICED BY THE TPO SHOULD BE TAKEN AS THE BASIS FOR MAKING ADJUSTMENT IN THE TRANSFER PRICING. THE GRI EVANCE OF THE ASSESSEE IS THAT THE COMPARABLE PRICE HAS BEEN OBTA INED BY THE TPO FROM THE CUSTOMS AUTHORITIES AND THE VALUATION OF THE CUSTOMS AUTHORITIES NEED NOT NECESSARILY BE REALIST IC AS THAT DEPARTMENT IS MORE INTERESTED IN COLLECTING IMPORT DUTIES. WE SHOULD STATE WITHOUT FEAR OF CONTRADICTION THAT THE CUSTOMS AUTHORITIES ARE ASSIGNING VALUES TO THE IMPORTED GO ODS ON THE BASIS OF SCIENTIFICALLY FORMULATED METHODS AND THEY ARE RESPONSIBLE FOR MAKING A FAIR ASSESSMENT VALUE OF T HE IMPORTED GOODS. THE VALUATION MADE BY THE CUSTOMS AUTHORITI ES IS NOT AN ARBITRARY EXERCISE. BUT ON THE OTHER HAND, IT DEPE NDS UPON LARGE VOLUME OF INTERNATIONAL DATA CLASSIFIED ACCORDING T O INTERNATIONALLY ACCEPTED PROTOCOL. THEREFORE, IT IS NOT POSSIBLE T O SAY THAT THE CREDIBILITY OF THE PRICE RATE FURNISHED BY CUSTOMS AUTHORITIES NEEDS TO BE DISCOUNTED. ITA 2099/10 :- 6 -: 7. IT IS ALWAYS POSSIBLE FOR AN ASSESSEE TO ESTABLI SH ITS CASE FOR A DIFFERENT PRICE OTHER THAN THE CUSTOMS PRICE PROV IDED THE ASSESSEE HAS PRODUCED ACCEPTABLE MATERIALS TO SUPPO RT ITS PROPOSITION. IN THE PRESENT CASE, EXCEPT ITS OWN I NTERNATIONALLY GENERATED PRICE, THE ASSESSEE HAS NOT FURNISHED ANY COMPARABLE DATA. THEREFORE, THE ASSESSEE HAS NO LOCUS STANDI TO QUESTION THE CREDIBILITY OF THE CUSTOMS DATA RELIED UPON BY THE TPO. 8. THE ADVOCATE APPEARING FOR THE ASSESSEE COMPANY HAS ARGUED AT LENGTH ON THE POSSIBILITY OF DIFFERENTIAL PRICE FOR DIFFERENT CONSIGNMENTS DEPENDING UPON THE QUALITY OF GOODS IM PORTED BY EACH ASSESSEE. HE ARGUED THAT THE COAL IS USUALLY PRICED ON THE BASIS OF HCV (HIGH CALORIFIC VALUE), MCV (MEDIUM CA LORIFIC VALUE) AND LCV (LOW CALORIFIC VALUE). IT IS ON THE BASIS OF THE COAL VALUE THAT THE PRICING OF COAL IS DETERMINED I N THE INTERNATIONAL MARKET. THIS ASPECT HAS NOT BEEN LOO KED INTO BY THE TPO. THEREFORE, THERE IS NO RULE THAT THE COAL IMP ORTED BY THE ASSESSEE SHOULD BE AT THE SAME PRICE FOR WHICH ANOT HER ASSESSEE MIGHT HAVE IMPORTED. WHEN WE EXAMINED THIS ARGUMEN T, WE FOUND THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAI LS ON THE ITA 2099/10 :- 7 -: CALORIFIC VALUE OF THE COAL IMPORTED BY THE ASSESSE E-COMPANY FROM ITS AE. THE STATEMENT MADE BY THE ADVOCATE IS ACCEPTABLE AS A GENERAL PROPOSITION IN COMPARING THE PRICES OF DIFFERENT IMPORT CONSIGNMENTS. BUT THAT GENERAL PROPOSITION CAN BE APPLIED IN A PARTICULAR CASE ONLY IF RELEVANT MATERIALS ARE AVAILABLE ON RECORD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT FURNISHED ANY INFORMATION ON THE CALORIFIC VALUE OF THE COAL IMPO RTED BY THE ASSESSEE OR ON ANY OTHER DISTINGUISHING FEATURES TH AT THE COAL IMPORTED BY THE ASSESSEE COMPANY HAD ADVANTAGE OVER THE COAL IMPORTED BY M/S. ADAM & COAL RESOURCES (P) LTD. TH IS CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED. 9. ANOTHER IMPORTANT ISSUE IS REGARDING ADAPTABILIT Y OF CUP METHOD BY THE TPO. IT IS A METHOD OF COMPARING UNCO NTROLLED PRICES. WE AGREE WITH THE DRP THAT THE ESSENCE OF CUP METHOD IS A FREE COMPARISON OF VARIABLES IN A FREE MARKET CONDITION. CONTROLLED MARKET CONDITION IS NOT AS SUCH RECOGNIZ ED BY THE STATUTE FORMULATED FOR TRANSFER PRICING. BUT AS A PRACTICAL MANIFESTATION, A COMPARISON OF CONTROLLED PRICES MA Y BECOME NECESSARY. IT OF COURSE, DEPENDS UPON THE FACTS A ND CIRCUMSTANCES OF A PARTICULAR CASE. IN THE PRESENT CASE, WE DO NOT FIND ANY SPECIAL REASON TO RELY ON A COMPARISON BASED ON ITA 2099/10 :- 8 -: CONTROLLED PRICES. THE CUP METHOD AS CONSTRUED IN THE STATUTE HAS TO BE APPLIED IN THE PRESENT CASE. WHEN IT IS SO APPLIED, WE FIND THAT THE IMPORT OF COAL MADE BY THE ASSESSEE F ROM ITS AE HAS BEEN OVER-INVOICED. THEREFORE, THE AUTHORITIES BEL OW ARE JUSTIFIED IN MAKING APPROPRIATE ADJUSTMENT IN THE TRANSFER PR ICING. 10. ONCE THE ADJUSTMENT IS JUSTIFIED, THE NEXT QUES TION IS THE QUANTIFICATION OF THE ADJUSTMENT. IN THE PRESENT C ASE, THE TPO HAS WORKED OUT THE ADJUSTMENT AMOUNT EXACTLY ON THE BASIS OF PRICE VARIATION BETWEEN THE COMPANIES. THIS IS THE MOST SIMPLE AND ACCEPTABLE METHOD. IT HAS TO BE UPHELD. 11. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE FIND THAT THE ASSESSING AUTHORITY HAS RIGHTLY DETER MINED THE TRANSFER PRICING ADJUSTMENT TO ` 3,49,14,706/- AND MADE THAT ADDITION TO THE INCOME OF THE ASSESSEE COMPANY. 12. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. ITA 2099/10 :- 9 -: ORDER PRONOUNCED ON WEDNESDAY, THE 13 TH DAY OF JULY, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 13 TH JULY, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR