M/s. Reliable Cashew Co. (P) Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2237/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96075 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 27-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 23-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI IRS
• Assessee Lawyers: K BALASUBR AMANIAN
• Keywords: Transfer pricing; International transaction; Cost of acquisition
• Section: 92C; 234B; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A. NO. 2237/MDS/2013 / ASSESSMENT YEAR : 2009-2010. M/S. RELIABLE CASHEW CO. (P). LTD, NO.44, C.P.RAMASWAMY ROAD, KALPATARU COMPLEX, CHENNAI 600 018. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI. (PAN AADCR 1456K) ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : SHRI. K. BALASUBRAMANIAN, ADV /RESPONDENT BY : SHRI. ABKOLI, IRS, JCIT. / DATE OF HEARING : 27-08-2015 / DATE OF PRONOUNCEMENT : 04-09-2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, CHENNA I, DATED 02.09.2013 FOR THE ASSESSMENT YEAR 2009-2010. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RAISED THE FOLLOWING GROUNDS:- ITA NO.2237/MDS/2013. :- 2 -: 2.1 THE LEARNED ASSESSING OFFICER HAS ERRED IN ADDING C77,58,955/- TOWARDS ADJUSTMENT IN ARMS LENGTH PRIC E, DETERMINED BY TPO AS PER THE ORDERS OF THE LATTER D ATED 31.12.2012. 2.2 THE LEARNED TPO ERRED IN DETERMINING ARMS LENGTH PRICE OF THE AE PURCHASE AT C37,13,20,434/- AS AGAINST C37,90,79,389/- ADMITTED BY ASSESSEE. 2.3 THE LEARNED TOP ERRED IN NOT CORRECTLY APPRECIATING THE CONTENTS OF 2 ND PROVISO AND EXPLANATION THERE UNDER TO SEC.92C. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10 HAD FILED THE RETURN OF II ELECTRONICALLY ON 06.08.2009, DECLARING A TOTAL INCOME OF RS.40,88,90 0/-. THE CASE WAS SELECTED FOR SCRUTINY AS THE ASSESSEE INTERNATIONA L TRANSACTIONS WITH THE ASSOCIATED ENTERPRISE (AE), THE DETERMINATION O F LENGTH PRICE (ALP) BY REDUCING THE PURCHASE PRICE OF RAW CASHEW FROM A SSOCIATED ENTERPRISE BY C77,58,995/-. THE NECESSARY APPROVAL OF THE CIT, CHENNAI III WAS CONVEYED VIDE C.NO.3027/III/2011-12 , DATED 19.07.2011. THE ASSESSEE HAD DECLARED THE VALUE OF PURCHASE OF RAW MATERIALS FROM ITS ASSOCIATED ENTERPRISE NAMELY M/S . PADWORTH COMPANY PRIVATE LIMITED AT C37,90,79,389/-. THE TPO HAS DETERMINED THE ARMS LENGTH PRICE OF THE ASSOCIATED ENTERPRISE PURCHASERS AT C37,12,20,434/- THEREBY REDUCING THE PURCHASE PRICE BY C77,58,955/-. AS PER THE PROVISIONS OF SECTION 92CA(4) ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3) THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C IN ITA NO.2237/MDS/2013. :- 3 -: CONFORMITY WITH THE ARMS LENGTH PRICE AS SO DETERM INED BY THE TPO. ACCORDINGLY THE ASSESSING OFFICER HAS PASSED THE OR DER U/S.143(3) BY ADDING THE DIFFERENTIAL PURCHASE COST OF C77,58,955 /- AS DETERMINED BY THE TPO TO THE TOTAL INCOME WHICH HAS RESULTED IN A N ADDITIONAL TAX DEMAND OF C38,12,210/- INCLUDING THE INTEREST UNDER SECT. 234B AND SECTION 234C OF THE ACT. AGGRIEVED , THE ASSESSEE P REFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED T HAT THE DEDUCTION OF PURCHASE PRICE BY C77,58,955/- BY THE ASSESSING OFFICER BASED ON THE TRANSFER PRICING OFFICERS ORD ER DETERMINED THE ARMS LENGTH PRICE (ALP) OF THE ASSOCIATED ENTERPRI SE PURCHASED FROM M/S. PADWORTH COMPANY PVT. LTD. AS PER THE PROVISI ONS OF SEC.92CA(4), THE ASSESSING OFFICER ON RECEIPT OF OR DER U/S.92C (3) COMPUTED THE TOTAL INCOME OF THE ASSESSEE UNDER SUB -SECTION (4) OF 92C. THE ASSESSING OFFICERS COMPUTATION OF TOTAL INCOME OF THE ASSESSEE IS BASED ON THE ARMS LENGTH PRICE DETERMIN ED BY THE TPO AND ACCORDINGLY AN ADDITION OF C77,58,955/- IS MADE . AS THE ASSESSING OFFICER HAS FOLLOWED THE TPO ORDER FOLLOWING THE TO TAL VARIATION ON ACCOUNT OF GROSS PRICE DIFFERENCE BASED ON INDIVIDU AL COMPARISON OF TRANSACTIONS AS COMPUTED BY THE TPO AGAINST THE AVE RAGE MONTHLY IMPORT PRICE METHOD FOLLOWED BY THE ASSESSEE. HOWE VER, AS PER THE VIEW TAKEN BY THE TPO WHICH WAS ADOPTED BY THE ASSE SSING OFFICER ITA NO.2237/MDS/2013. :- 4 -: WHICH ARRIVED THE DIFFERENCE OF PRICE VARIATION AT C77,58,955/- BY THE ASSESSING OFFICER THE SAME WAS CONFIRMED AGAINST TH E ASSESSEES METHOD OF AVERAGE MONTHLY IMPORT PRICE WHICH DOES G IVE ACCURATE ESTIMATION VARIATION IN PRICE AND ACCORDINGLY, THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL B EFORE US. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. IN THIS CASE, THE MAIN CONTENTION OF THE A SSESSEES COUNSEL IS THAT THE ASSESSEE IS ENTITLED FOR THE BENEFIT OF + 5% TOLERANCE MARGIN FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PR ICE OF THE INTERNATIONAL TRANSACTION AS VARIATION BETWEEN THE ARMS LENGTH PRICE COMPUTED BY THE TRANSFER PRICING OFFICER AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN WHICH DOES NOT EXCEED 5% OF THE LATTER. BEING SO, THERE CANNOT BY ANY TRANSFER PRICING ADJUSTMENT. IN OUR OPINION, THIS PLEA OF THE ASSESSEE IS TO BE UPHELD IN VIEW OF THE SECOND PROVISO TO SEC 92C(2) . PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARM S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES . PROVIDED FURTHER THAT IF THE VARIATION BETWEEN TH E ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED FIVER PER CENT OF THE LATTER, THE PRICE AT W HICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE . ITA NO.2237/MDS/2013. :- 5 -: 6. IN OUR OPINION, THE SECOND PROVISO TO BE READ INDEP ENDENTLY. THE LOWER AUTHORITIES INSTEAD OF FOLLOWING ABOVE SE COND PROVISO FOLLOWED THE FIRST PROVISO. BEING SO, THE TRANSFER PRICING OFFICER WRONGLY CAME TO THE CONCLUSION THAT LEVERAGE OF 5% IS NOT ALLOWABLE TO THE ASSESSEES CASE WHERE ONCE PRICE BASED ON A P ARTICULAR METHOD OF ARMS LENGTH PRICE IS NOT APPLICABLE. THIS VIEW OF US WAS ALSO SUPPORTED BY THE ORDER OF THE SPECIAL BENCH IN THE CASE OF M/S. IHG IT SERVICES (INDIA) PRIVATE LIMITED IN ITA NO.5890/DEL/2010, DA TED 30.04.2013 . 7. ACCORDINGLY, WE ARE IN COMPLETE AGREEMENT WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO BENEFIT FOR THE ADJUSTM ENT OF + 5% VARIATION, WHILE COMPUTING THE ARMS LENGTH PRICE. THIS GROUND OF THE ASSESSEE IS ALLOWED. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE SUBMITTED THAT THE TRA NSFER PRICING OFFICER COMPARED THE PRICE OF THE ASSESSEES PRODUC T SUPPLIED AT AVERAGE RATE PUBLISHED IN CASHEW BULLETIN OF THE CASHEW EXPORT COUNCIL. ACCORDING TO HIM, IT IS WRONG TO COMPARE THE MONTHLY AVERAGE WITH THE INDIVIDUAL TRANSACTION. ACCORDING TO HIM, MONTHLY AVERAGE PRICE TO BE COMPARED WITH AVERAGE MONTHLY PRICE CHA RGED BY THE ASSESSEE IN RESPECT OF PRODUCT SUPPLIED BY THE ASSE SSEE. WE FIND MERIT IN THE ARGUMENT OF THE ASSESSEES COUNSEL. T HE TRANSFER PRICING OFFICER IS NOT JUSTIFIED IN COMPARING WITH THE AVER AGE PRICE PUBLISHED ITA NO.2237/MDS/2013. :- 6 -: BY THE CASHEW BULLETIN OF CASHEW EXPORT COUNCIL WIT H THAT OF PRICE MENTIONED IN INDIVIDUAL TRANSACTION FOR THE PRODUC TS. ACCORDINGLY, WE DIRECT THE TPO TO COMPARE THE AVERAGE MONTHLY PRICE TO THE PRODUCT PUBLISHED IN CASHEW BULLETIN WITH THE AVERAGE PRIC E CHARGED BY THE ASSESSEE FOR ITS PRODUCT AND DECIDE ACCORDINGLY. 9. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF I NTEREST. THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE SUB MITTED THAT OUT OF THE TOTAL DIFFERENCE OF C77,58,955/- AS PER THE TRA NSFER PRICING OFFICER AN AMOUNT OF C39,80,5311- PERTAINS TO INTEREST ON T HE CREDIT PERIOD AVAILED BY THE ASSESSEE FROM ASSOCIATE ENTERPRISES (AE). THE AE DURING THE PERIOD HAS EXPORTED ALL THE CONSIGNMENTS TO THE UNRELATED PARTIES ON IMMEDIATE PAYMENT TERMS EITHER BY CASH O R BY WAY OF LETTER OF CREDIT. THE ASSESSEE ALSO PRODUCED BEFO RE THE ASSESSING OFFICER A FEW TRANSACTIONS RELATED TO UNRELATED PAR TIES AS PROOF. HOWEVER, THE ASSESSEE HAS IMPORTED RAW CASHEW AT AN AVERAGE CREDIT TERM OF 150 DAYS FROM THE AE . THE ASSESSEE DID NOT AVAIL ANY WORKING CAPITAL LOAN FROM THE BANKS AND THE ENTIRE REQUIREM ENT OF WORKING CAPITAL WAS MET BY THE CREDIT TERM EXTENDED BY THE AE. ACCORDINGLY THE ASSESSEE HAS COMPUTED INTEREST ON ALL THE IMPOR T TRANSACTIONS AT THE BANK RATE OF 12% ON THE CREDIT TERM IN EXCESS O F 30 DAYS. ALSO AS PER THE INDUSTRIAL NORMS THE IMPORTS OF CASHEW ARE BEING CARRIED OUT ONLY ON IMMEDIATE PAYMENT TERMS WHICH CAN ALSO BE C ONFIRMED FROM ITA NO.2237/MDS/2013. :- 7 -: THE WEB SITE OF CASHEW EXPORT PROMOTION COUNCIL. TH E TRANSFER PRICING OFFICER HAS TOTALLY IGNORED THE INTEREST ON THE GRO UND THAT THE AVAILING CREDIT PERIOD FOR THE PAYMENT IS A STANDARD INDUSTR IAL PRACTICE.. NO CONCESSION HAS BEEN GIVEN TO THE ASSESSEE FOR THE E XTENDED CREDIT PERIOD AND THE FULL AMOUNT OF INTEREST CLAIMED BY T HE ASSESSEE HAS BEEN REDUCED FROM THE PURCHASE PRICE. HOWEVER THE C ASHEW EXPORT COUNCIL HAS VERY CLEARLY DETAILED THE GENERAL TERMS AND CONDITIONS OF CASHEW IMPORT INTO INDIA WHICH NEEDS TO BE CONSIDER ED. ALSO RULE 10B(1)(A)(II) OF THE INCOME TAX RULES CLEARLY STIPULATES FOR ARRIVING AT THE COMPARABLE UNCONTROLLED PRICE METHOD: SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTIONS AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET . BASED ON RULE 10B THE ASSESSEE HAS CLAIMED INTEREST TO BE ADJUSTED FROM THE PRICES AT WHICH THE AE SUPPLIED THE CASHE W. THE ASSESSING OFFICER TOTALLY IGNORED THE RULE AND REDUCED THE EN TIRE INTEREST CLAIM FROM THE PURCHASE PRICE. 10. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE CONTENTION OF THE LD. DEPARTMENTAL REP RESENTATIVE IS THAT FOR IMPORTING CASHEWS FROM ITS ASSOCIATED ENTERPRIS ES FROM BENIN, THE ITA NO.2237/MDS/2013. :- 8 -: ASSESSEE PAID MORE THAN THE PRICE MENTIONED IN THE CEPC JOURNAL (EXTERNAL DATA), SO THE ASSESSING OFFICER MADE TRAN SFER PRICE ADJUSTMENT. THE PLEA OF THE ASSESSEE IS THAT THE A SSESSEE AVAILED 150 DAYS CREDIT FOR PAYMENT. BEING SO, THE PRICE WAS C HARGED LITTLE MORE THAN THE RATE MENTIONED IN THE CEPC JOURNAL (EXTERN AL DATA). IF DUE CREDIT IS GIVEN TO INTEREST @12% FOR THE CREDIT PER IOD, THERE IS NO NECESSITY FOR TP ADJUSTMENT. THIS PLEA OF THE ASSE SSEE IS CORRECT. IN OUR OPINION, DUE WEIGHTAGE IS TO BE GIVEN TOWARDS I NTEREST BENEFIT ENJOYED BY THE ASSESSEE BY AVAILING CREDIT FOR 150 DAYS FOR PAYMENT AND RULE 10B(1)(A)(II) OF THE INCOME TAX RULES, 196 2 ALSO PERMITS SUCH BENEFIT TO THE ASSESSEE. HENCE, THE LOWER AUT HORITIES ARE NOT JUSTIFIED IN MAKING SUCH ADJUSTMENTS. THIS GROUND IS ALLOWED. 12. IN THE RESULT, ALL THE GROUNDS RAISED BY THE ASSESS EE IN ITA NO.2237/MDS/2013 ARE ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 4TH DAY OF SEPTEMB ER 2015, AT CHENNAI. SD/- SD/- ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:04.09.2015 KV %&'' ()'*) / COPY TO: ' 1. / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF