Hazira LNG Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-4, Ahmedabad

ITA 2889/AHD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9721 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 14-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Capital expenditure
• Section: 143(3); 92A; 92E; 133(6); 154

Judgement Text

ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 1 OF 22 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM] ITA NO. 2889 / AHD / 2 0 1 2 ASSESSMENT YEAR: 20 0 8 - 09 HAZIRA LNG PVT . LTD . ............................ APPELLANT 101 - 103, ABHIJEET - II, MI THAKHALI CIRCLE, NAVRANGPURA, AHMEDABAD - 380006 [PAN AAACH 9143 C] VS. ASSTT. COMMISSIONER OF INCOME TAX ... .. . ..... RESPONDENT CIRCLE - 4, AHMEDABAD APPEARANCES BY: S AURABH SOPARKAR, ALONGWITH MUKESH BUTANI, VISHAL KALRA AND SUMISHA MU RGAI , FOR THE APPELLANT MAHESH SHAH FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : SEPTEMBER 30 TH , 201 6 DATE OF PRONOUNCING THE ORDER : DECEMBER 27 TH , 201 6 O R D E R PER PRAMOD KUMAR AM: 1. THIS APPEAL IS FILED BY THE ASSESSEE AND IS DIRECT ED AGAINST THE ORDER DATED 25/10/2012 PASSED BY THE LEARNED ASSTT. COMMISSIONER OF INCOME TAX , CIRCLE - 4, AHMEDABAD , IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 20 08 - 0 9 . 2. GRIEVANCES R AISED BY THE A SSESSEE ARE AS FOLLOWS: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HAZIRA LNG PRIVATE LIMITED (HEREINAFTER REFERRED TO AS 'THE APPELLANT'), RESPECTFULLY SUBMITS AN APPEAL ON THE ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 2 OF 22 FOLLOWING GROUNDS, WITH RESPECT TO THE ORDER PASSED BY T HE LEARNED ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 4, AHMEDABAD ('AO') UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT'): 1. THE LEARNED AO BASED ON THE DIRECTIONS RECEIVED FROM LEARNED DISPUTE RESOLUTION PANEL (' DRP') HAS ERRED IN LAW AND ON FACTS, IN UPHOLDING THE ADJUSTMENT TO THE TRANSFER PRICE MADE BY THE LEARNED TRANSFER PRICING OFFICER ('TPO') TO THE INTERNATIONAL TRANSACTIONS PERTAINING TO PURCHASE OF LIQUEFIED NATURAL GAS ('LNG'). 2. THE LEARNED AO/DRP/TPO HAS ERRED, IN LAW AND ON FACTS IN HOLDING THAT THE TRANSACTIONS BETWEEN THE APPELLANT AND ITS ASSOCIATED ENTERPRISE WERE NOT AT AN ARM'S LENGTH PRICE AS DEFINED UNDER SECTION 92F(II) OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LEARNED AO/DRP/TPO HAS ERRED IN NOT ACCEPTING THE TRANSACTION PRICE AS ADOPTED BY THE APPELLANT IN RELATION TO ITS INTERNATIONAL TRANSACTIONS OF PURCHASE OF LNG FROM ITS ASSOCIATED ENTERPRISES TO BE AT ARM'S LENGTH AND MAKING AN ADJUSTMENT OF INR 37 6,528,394. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAS ERRED IN MAKING SEVERAL OBSERVATIONS STATED UNDER AND FINDINGS WHICH ARE BASED ON INCORRECT UNDERSTANDING / INTERPRETATION OF THE FACTS SUCH AS: PETRON ET LNG LIMITED MADE ITS PLANT AVAILABLE ON A TOLLING BASIS TO OFF TAKERS FOR REGASIFYING LNG BOUGHT ON THE SPOT MARKET. PETRONET LNG LIMITED'S DELIVERY COMMITMENT ARE IN LINE WITH GOVERNMENT QUOTAS / GUIDELINES / GOVERNMENT ADMINIST ERED PRICE. THE ASSESSEE IS BEHAVING LIKE FRONT END OFFICE OF ITS ASSOCIATED ENTERPRISE WHEN IT STATES THAT IT HAS TO DISCLOSE PURCHASE PRICE TO ITS CUSTOMERS FOR GETTING LNG SUPPLY ORDERS WITHOUT APPRECIATING THE FACT ONLY IN THE CASE OF ONE CUSTOMER I .E. NTPC, THE APPELLANT FURNISHED INDICATIVE SUPPLY PRICE AND THAT TOO AS PER THE BID REQUIREMENT OF NTPC. IF INCOME FROM FOREIGN GAIN IS EXCLUDED THEN THE ASSESSEE HAS INCURRED A LOSS OVER RS.100 CRORES AT 62% CAPACITY UTILIZATION WITHOUT APPRECIATING THE FACT THAT IF THE EFFECT OF ONE TIME EXTRAORDINARY CHARGE OF RS.1,632,634,885/ - DUE TO A CHANGE IN THE METHOD OF DEPRECIATION IS EXCLUDED, THE APPELLANT MADE A PROFIT IN EXCESS OF RS.62 CRORES. SOURCES OR LOCATION OF SOURCES SHOULD NOT AFFECT THE P URCHASE PRICE FOR BUYERS IN INDIA. DISCHARGE DATE IS IRRELEVANT AND PURCHASE DATE, MANDATE DATE AND BOOKING DATE IS IMPORTANT ON THE BASIS OF WHICH PRICE IS FIXED. FREIGHT RATES FOR BOTH LOCATIONS WILL BE THE SAME AND THAT WILL NOT AFFECT THE CARGO PRICE. IN THIS CASE, AS THE DIFFERENCE IN CONTRACT TERMS ARE KNOWN, IT IS EASY TO APPLY AN ADJUSTMENT TO THEM. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 3 OF 22 GAIL IS A GOVERNMENT OWNED UNDERTAKING. THE COMPUTATION OF TRADING MARGIN NET OF VARIABLE REGASIFICATION AND PORT COSTS TAKES INTO ACCOUNT GAS TRANSPORTATION CHARGES OF RS.223,200,735/ - WHICH IS PERTAINING TO SUPPLY TO THE CUSTOMER AND NOT IMPORT OF LNG. ALTHOUGH IT WAS STATED THAT JAPANESE TRADE COMMANDS THE HIGHEST PRICE AND THEREFORE HAS NOT COMPARED JUST AS HENRY HUB HAS PRICE S LOWER THAN THAT OF INDIAN RATES AND HENCE NOT HAS COMPARED ON A SPOT BASIS, THE AO/TPO TRIED TO ESTABLISH CORRELATION BETWEEN APPELLANT'S PURCHASE PRICE BY COMPARING IT WITH COST OF PRODUCTION, LIQUEFACTION AND TRANSPORTATION. COMPARE, PETRONET LNG LIMI TED'S PRICES WITH PRICE TREND OF HENRY HUB PRICES. REFERENCE TO PURCHASE OF COMMISSIONING CARGO AT HENRY HUB PRICES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO / DRP / TPO HAS ERRED IN MAKING SEVERAL OBSERVATIONS WHICH A RE BASED ON THE INCORRECT INTERPRETATION OF LAW, INTERNATIONAL COMMENTARIES AND EXISTING JURISPRUDENCE. 6 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAS ERRED IN NOT APPRECIATING AND UNDERSTANDING THE BUSINESS MODEL OF T HE APPELLANT AND THE INDUSTRY IN WHICH IT OPERATES. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAS ERRED BY NOT PLACING RELIANCE ON THE MATERIAL SUBMITTED BY THE APPELLANT TO PROVE THAT THE PRICES CHARGED BY THE A SSOCIATED ENTERPRISES WERE AT ARM'S LENGTH. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAS ERRED IN NOT APPRECIATING THE FACT THAT BEING A JOINT VENTURE BETWEEN TWO INDEPENDENT COMPANIES, THE APPELLANT IS NECESSIT ATED TO OPERATE ON AN ARM'S LENGTH BASIS. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAS ERRED IN REJECTING THE TRANSFER PRICING METHODOLOGY ADOPTED BY THE APPELLANT BEING RESALE PRICE METHOD ('RPM') FOR BENCHMARK ING THE INTERNATIONAL TRANSACTIONS PERTAINING TO PURCHASE OF SPOT LNG AFTER ACCEPTING APPELLANT AS A TRADER OF LNG DEALING ENTIRELY IN SPOT DEALS. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAS ERRED BY INCORRECT LY REJECTING THE COMPARABLE COMPANIES (NAMELY, PETRONET LNG LIMITED ('PLL') AND GAS AUTHORITY OF INDIA LIMITED) CHOSEN BY THE APPELLANT UNDER RPM ANALYSIS ON THE GROUND THAT APPELLANT IS NOT FOUND FUNCTIONALLY COMPARABLE TO COMPARABLES SELECTED BY IT WHICH IS IN CONTRADICTION TO THE CONCLUSION MADE BY TPO IN PARA 8.12 THE ORDER U/S 92CA(3) AS TO PETRONET ENGAGED IN A SIMILAR BUSINESS. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAS ERRED IN ADOPTING COMPARABLE UNCO NTROLLED PRICE ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 4 OF 22 ('CUP') AS THE MOST APPROPRIATE METHODOLOGY TO BENCHMARK PURCHASE OF SPOT LNG BY THE APPELLANT AND IN NOT APPRECIATING THE INTRICACIES OF THE SPOT LNG INDUSTRY AND ALSO THAT ABSENCE OF A TRADING PLATFORM IS ONE OF THE FACTORS THAT HINDER LNG FROM BECOMING A LIQUID TRADED COMMODITY I.E. DESPITE SEVERAL YEARS OF LNG TRADING ACTIVITY, LNG IS STILL BEING TRADED OVER - THE - COUNTER (OTC) AND NO COMMODITY EXCHANGE TRADES LNG. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO/DRP/TPO ERRED IN NOT APPRECIATING THAT SPOT PRICING FOR LNG DEPENDS ON HOST OF FACTORS INCLUDING THE CUSTOMER AND THEIR ABILITY TO SWITCH BETWEEN LNG, DOMESTIC GAS, NAPHTHA OR OTHER ALTERNATIVE COMPETING FUEL OILS USED IN INDUSTRIAL APPLICATIONS, COMPETING SOURCE OF GAS ETC AND THEREFORE CUSTOMERS WHO CAN SWITCH BETWEEN FUEL OIL AND LNG, THE PRICE FOR A SPOT CARGO WOULD HAVE TO BE AT A DISCOUNT TO FUEL OIL TO BE ATTRACTIVE. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAS ERRED B Y PLACING RELIANCE ON INFORMATION NOT AVAILABLE TO THE APPELLANT OR IN THE PUBLIC DOMAIN WHIST ADOPTING CUP METHODOLOGY. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAS ERRED BY NOT SHARING A COPY OF THE LETTERS RECEIVE D FROM PLL VIDE EXERCISE OF POWERS UNDER SECTION 133(6) OF ACT AND CONSEQUENTLY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAS FAILED TO DEMONSTRATE SIMILARITY IN CONTRACT T ERMS APPLICABLE TO APPELLANT VIS - A - VIS PLL AND STATING THAT 'IN THIS CASE AS DIFFERENCES IN CONTRACT TERMS ARE KNOWN IT IS EASY TO APPLY ADJUSTMENT'. 16. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHILE COMPARING APPELLANT'S TRANSACTIONS WITH PLL'S TRANSACTIONS DATA UNDER THE CUP METHODOLOGY, THE AO/DRP/TPO FAILED TO APPRECIATE THAT NUMEROUS FACTORS IMPACTING THE PRICE OF SPOT LNG CARGOES IN THE OPEN MARKET MAKES ANY TWO TRANSACTIONS NON - COMPARABLE. FURTHER, THE LEARNED AO/TPO HAS ALSO NOT RELIED ON PLL'S RESPONSE TO TPO'S REQUISITION STATING THAT 'PLEASE NOTE THAT EACH SPOT CARGO TRANSACTION IS DISTINCT AND ARE NOT COMPARABLE'. 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAS FAILED TO OBTAIN A TECHNICA L OPINION FROM AN LNG INDUSTRY EXPERT; HAVING REGARD TO THE DIRECT TAX INSTRUCTION NO 5 DATED 30 MARCH 2011 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ('CBDT'). 18. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO HAS REJECTED THE T ECHNICAL OPINION SOUGHT BY THE APPELLANT FROM AN OIL AND GAS INDUSTRY EXPERT, POTEN & PARTNERS IN CRYPTIC AND LACONIC MANNER; WITHOUT PROVIDING ANY SUBSTANTIAL REASONING AND JUSTIFICATION TO NEGATE THE TECHNICAL ADVICE. 19. ASSUMING BUT NOT ACCEPTING TH E CUP METHOD AS THE MOST APPROPRIATE METHOD AND WITHOUT PREJUDICE TO WHAT IS STATED HEREIN ABOVE, THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAS ERRED BY COMPARING PLL'S SINGLE DATA POINT FOR THE PURPOSES OF BENCHMARKING TWO CARGO PURCHASES BY THE APPELLANT. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 5 OF 22 20. ASSUMING WITHOUT ADMITTING THE CUP METHOD AS THE MOST APPROPRIATE METHOD AND WITHOUT PREJUDICE TO WHAT IS STATED HEREIN ABOVE, THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO HAS ERRED IN APPL YING CUP METHODOLOGY ON THE GROUND THAT SPOT LNG PURCHASE DATA WERE AVAILABLE AND THE APPELLANT SHOULD HAVE USED THESE DATA FOR SELECTING THE MOST APPROPRIATE METHOD AFTER APPLYING SUITABLE ADJUSTMENT TO THEM AND WHILE OBSERVING SO, THE AO/TPO FAILED TO TA KE INTO ACCOUNT THAT IN FACT, NO DATA OF SPOT LNG PRICES WAS AVAILABLE IN PUBLIC DOMAIN. 21. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAS ERRED BY NOT UNDERTAKING ALL REASONABLE AND ACCURATE ECONOMIC ADJUSTMENTS FOR COMP UTING THE ARM'S LENGTH PRICE WHILST ADOPTING CUP METHODOLOGY. 22 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAS ERRED IN REJECTING RELIANCE ON DATA FOR FOREIGN LNG SPOT PRICES AS PROVIDED BY THE APPELLANT. 23. THAT ON THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN NOT ALLOWING THE CONSEQUENTIAL DEPRECIATION OF INR 1,976,067, COMPUTED AT THE RATE OF 15 PERCENT ON INR 13,173,783, IN RELATION TO INSTALLATION CHARGES HELD AS CAPITAL EXPENDITURE BY THE LEARNED AO IN THE ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2007 - 2008, PURSUANT TO THE APPELLANT FILING THE APPLICATION UNDER SECTION 154 OF THE ACT BASED ON THE DIRECTIONS ISSUED BY THE HONOURABLE DRP. 24. THAT THE LEARNED AO HAS ERRED IN INITIATING P ENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 3. THIS APPEAL WAS HEARD ALONGWITH, AMONGST OTHER APPEALS, ITA NO.1056/AHD/2014 I.E. REVENUE S APPEAL AGAINST THE SAME ASSESSEE, ON THE SAME ISSUE FOR THE ASSESSMENT YEAR 2009 - 10. IN THE ASSESSMEN T YEAR 2009 - 10, THE SAME ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND THE ASSESSING OFFICER WAS IN APPEAL AGAINST THE DIRECTION OF THE TRIBUNAL. WHILE REJECTING THE APPEAL SO FILED, WE HAVE, VIDE OUR ORDER OF EVEN DATE, HELD AS FOLLOWS: 4. THE RELEVAN T MATERIAL FACTS, AS RELEVANT FOR THE ADJUDICATING UPON THIS APPEAL, ARE AS FOLLOWS. THE ASSESSEE BEFORE US, I.E. HAZIRA LNG PVT LTD (HAZIRA LNG, IN SHORT) IS A JOINT VENTURE BETW EEN SHELL GAS BV (SHELL BV, IN SHORT) AND T OTAL GAZ ELECTRICITE HOLDINGS ( TOT AL GAZ, IN SHORT) HOLDING 74% AND 26% OF ITS SHAREHOLDING RESPECTIVELY. HAZIRA PNG, WITH THE APPROVAL OF THE FOREIGN INVESTMENT PROMOTION BOARD (GOVERNMENT OF INDIA), OWNS, OPERATES AND MAINTAINS TERMINAL FACILITIES OF LIQUEFIED NATURAL GAS (LNG, IN SHORT ) AT HAZIRA TERMINAL. THE ASSESSEE PURCHASES LNG FROM ITS FOREIGN ASSOCIATED ENTERPRISES (AES), AND SELLS RE - GASIFIED LNG (R - LNG ) TO ITS CUSTOMERS IN INDIA. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 6 OF 22 5. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD ENTERED SEVERAL TRANSACTIONS WITH ITS ASSO CIATED ENTERPRISES, INTER ALIA , FOR THE PURCHASE OF LIQUEFIED NATURAL GAS. THESE TRANSACTIONS INCLUDED PURCHASES OF LNG FOR 2,523.73 CRORES FROM SHELL EASTERN TRADING PTE LTD AND OF RS 2,226.98 CRORES FROM TOTAL GAZ AND POWER LTD, AND FOR RS 611.22 CRORES SHELL INTERNATIONAL TRADING MIDDLE EAST LIMITED, ITS ASSOCIATED ENTERPRISES. THE TOTAL TRANSACTIONS OF IMPORTS OF LNG FROM THE AES, AS NOTED BY THE TPO, AMOUNTED TO RS 4,794.85 CRORES CONSISTING OF 32 SPOT CARGOS. A SPOT TRANSACTION, WE MAY ADD, IS A TRA NSACTION WHICH IS NEGOTIATED FOR EACH TRANSACTION SEPARATELY WITHIN A PARTICULAR DELIVERY WINDOW, RATHER THAN FOR A SERIES OF SUCH INDIVIDUAL TRANSACTION SPREAD OVER A PERIOD OF TIME. THE ASSESSEE IMPORTED LNG , ESSENTIALLY ON THE BASIS OF EXPECTED DEMA ND AND OTHER MARKET CONDITIONS IN INDIA, ON CIF BASIS AND THE PRICE FOR SUCH IMPORTS, AS IS THE CONVENTION IN THIS LINE OF BUSINESS, WAS DECIDED ON THE BASIS OF PER MILLION BRITISH THERMAL UNITS (MMBTU). IN ITS TRANSFER PRICING REPORT, THE ASSESSEE USED R ESALE PRICE METHOD (RPM) AS MOST APPROPRIATE METHOD FOR ASCERTAINING THE ARM S LENGTH PRICE, AND JUSTIFIED THIS METHOD AS FOLLOWS: RPM RPM BEGINS WITH THE PRICE AT WHICH A PRODUCT PURCHASED FROM AN ASSOCIATED ENTERPRISE IS RESOLD TO AN INDEPENDENT ENTE RPRISE. THIS RESALE PRICE IS THEN REDUCED BY AN APPROPRIATE GROSS MARGIN REPRESENTING THE AMOUNT FROM WHICH THE RESELLER WOULD SEEK TO COVER ITS SELLING AND OTHER OPERATING EXPENSES AND MAKE REASONABLE PROFIT. WHAT IS LEFT AFTER SUBTRACTING THE GROSS MAR GIN CAN BE REGARDED, AFTER ADJUSTMENT FOR OTHER COSTS ASSOCIATED WITH THE PURCHASE OF THE PRODUCT, AS AN ARM S LENGTH PRICE FOR THE ORIGINAL TRANSFER OF PROPERTY BETWEEN THE ASSOCIATED ENTERPRISES. RULE 10B(1)(B) OF THE RULES PROVIDES THAT THE RPM IS APPL ICABLE IN A RESALE SITUATION WHERE THE PROPERTY OR SERVICES PURCHASED FROM AN ASSOCIATED ENTERPRISE ARE RESOLD TO AN UNRELATED ENTERPRISE. THE RPM IS APPLICABLE TO TRANSACTIONS INVOLVING A PURCHASE AND SUBSEQUENT SALE OF THE SAME PROPERTY OR SERVICES. TH US, IN CONSIDERATION OF THE CRITERIA PRESCRIBED BY THE RULES, NATURE, CLASS OF THE SERVICES RENDERED AND THE AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY, AND GUIDELINES ISSUED BY THE OECD IN THIS REGARD, INTER ALIA, RPM IS CONSIDERED WAS BEING THE MOST APPROPRIATE METHOD TO DETERMINE THE ARM S LENGTH VALUE OF THE TRANSACTION PERTAINING TO PURCHASE OF LNG. 6. THE ASSESSEE ADOPTED THE GROSS PROFIT MARGIN PER MMBTU WAS ADOPTED AS THE PROFIT LEVEL INDICATOR. THE ASSESSEE GAVE THE FOLLOWING JUST IFICATION FOR ADOPTING GP MARGIN PER MMBTU AS APPROPRIATE PROFIT LEVEL INDICATOR: THE ARM S LENGTH RESULT OF PROFITABILITY CAN BE ESTABLISHED BY ONE OF SEVERAL FINANCIAL INDICATORS. A VARIETY OF INDICATORS MAY BE USED IN A GIVEN ANALYSIS; THE CHOICE BET WEEN MEASURES DEPENDS UPON THE ACTIVITIES OF THE TESTED PARTY, THE RELIABILITY OF THE DATA FOR COMPARABLE UNCONTROLLED COMPANIES AND THE EXTENT TO WHICH THE INDICTOR WILL PRODUCE A RELIABLE MEASURE OF AN ARM S LENGTH RESULT. SINCE HLPL ACTS AS A DISTRIBUT OR AND PROCURES GOODS FROM ITS ASSOCIATED ENTERPRISES, WE HAVE SELECTED THE PROFIT LEVEL INDICATOR ( PLI ) BASED ON QUANTITY OF R - LNG SOLD IN ESTABLISHING ARM S LENGTH PROFITABILITY. THE PLI USED IS GROSS PROFIT MARGIN ( GPM ) PER MMBTU, WHICH IS THE RATI O OF GROSS PROFIT TO TOTAL QUANTITY OF R - LNG SOLD, MEASURED IN TERMS OF MMBTU. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 7 OF 22 GROSS PROFITS ARE TOTAL INCOME MINUS COST OF GOODS SOLD. TOTAL INCOME IS THE AGGREGATE OF TOTAL OPERATING INCOME EXCLUDING INTEREST INCOME, DIVIDEND INCOME AND NON - RECURRING I NCOME. COST OF GOODS SOLD IS THE SUM OF OPENING STOCK AND PURCHASES LESS CLOSING STOCK. R - LNG IS NOT GENERALLY SOLD PER UNIT OF VOLUME, BUT RATHER PER UNIT OF ENERGY THAT CAN BE PRODUCED BY BURNING THE GAS. THE HEAT ENERGY THAT THE GAS GENERATES DURING COMBUSTION MEASURES THE REAL WORTH OF THE GAS. THE HEAT ENERGY OF A PARTICULAR GAS STREAM IS MEASURED BY UNITS OF CALORIFIC VALUE, WHICH IS DEFINED BY THE NUMBER OF HEAT UNITS RELEASED WHEN A UNIT VOLUME OF THE GAS BURNS. THIS CAN BE MEASURED IN TERMS OF MMBTU. HENCE THE PLI USED IN ESTABLISHING THE ARM S LENGTH PROFITABILITY IS BASED ON PER MMBTU OF LNG SOLD. 7. THE ASSESSEE NARROWED DOWN TO TWO COMPARABLES, NAMELY PETRONET LNG LIMITED (PLL, IN SHORT) AND GAS AUTHORITY OF INDIA LTD (GAIL, IN SHORT) , WHICH SHOWED WEIGHTED AVERAGE OF GROSS PROFIT MARGIN PER MMTBU AT 31.97% AND 26.08% RESPECTIVELY. THE ARITHMETIC MEAN OF 29.02% WAS THUS ARRIVED AT, AND WAS COMPARABLE WITH ASSESSEE GROSS PROFIT MARGIN PER MMTBU AT 60.86%. ON THIS BASIS, THE LNG IMPORT TRANSACTIONS WITH THE AES WERE CLAIMED TO BE AT AN ARM S LENGTH. 8. THE APPROACH SO ADOPTED BY THE ASSESSEE DID NOT HAVE THE APPROVAL OF THE TRANSFER PRICING OFFICER. HE NOTED THAT IN THE FIRST YEAR OF ASSESSEE CARRYING ON THIS BUSINESS, THE ASSESSEE HAD PURCHASED 3 SPOT CARGOS FROM ITS AE AND BENCHMARKED THE SAME, ON CUP BASIS, WITH THE HENRY HUB PRICES AT USA. THE FORMULA ADOPTED BY THE ASSESSEE, AT THAT POINT OF TIME, WAS CUP PRICE AS EQUAL TO A X + B (WHERE A= 0.85 OF TRANSACTION ; X= HENRY HUB PRICE; AND B= TRANSPORTATION COST) . THE TPO NOTED THAT BY HIS OWN ADMISSION THE ASSESSEE HAD PURCHASED THE LNG AT PRICES LOWER THAN HENRY HUB PRICE. THE TPO WAS OF THE VIEW THAT THE ASSESSEE DID NOT HAVE AN GOOD REASONS TO DISCARD THIS APPROACH. IT WAS ALSO NO TED BY THE TPO THAT THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT PROFIT ELEMENT IN THE REGASIFICATION PROCESS AS ENTIRE DIFFERENCE BETWEEN MAKING THE PRODUCT SALEABLE AND THE REVENUE REALIZED IS TAKEN AS TRADING PROFIT. IT WAS ALSO NOTED THAT SINCE THE ASSESSE E IS DOING BUSINESS IN A COMPETITIVE MARKET AND IT CANNOT SELL AT A PRICE HIGHER THAN THE PREVAILING MARKET PRICE, SHORTFALL APPEARING IN THE MARGINS, LOGICALLY WOULD ARISE OUT OF THE PURCHASE PRICE PAID FOR THE LNG BOUGHT BY IT . IN OTHER WORDS, ACCORDIN G TO THE TPO, THE PROFIT MARGINS OF THE ASSESSEE WERE TOO LOW TO TAKE INTO ACCOUNT PROFIT ELEMENT IN REGASIFICATION PROCESS AND THESE PROFIT MARGINS WERE SO LOW BECAUSE THE LNG PRICES OF IMPORTS WERE HIGH. HE ANALYSED THE COST BREAK TO DEMONSTRATE THAT NE T MARGIN PER MMBTU WAS AS LOW AS RS 4.54 PER MMBTU WHEREAS THE GOVERNMENT OF INDIA SPECIFIES MARGIN OF 12% AS MARKETING CHARGE FOR IMPORTS AND THAT IF THIS AMOUNT IS CONSIDERED, THERE WILL BE HARDLY ANY MARGIN FOR THE ASSESSEE. WHEN THE TPO PROBED THE MATTER FURTHER, THE ASSESSEE EXPLAINED THAT THE ASSESSEE DOES NOT PROVIDES REGASIFICATION SERVICES, AND AS SUCH, THERE IS NO QUESTION OF CHARGING ANYTHING FOR REGASIFICATION. THE STAND TAKEN BY THE ASSESSEE WAS THAT HE IS ACTING AS A TRADER AND NOT A SERVI CE PROVIDER FOR REGASIFICATION. RELYING UPON THE OECD TRANSFER PRICING GUIDELINES, THE TPO WAS OF THE VIEW THAT RPM IS SUITABLE ONLY WHEN SALE TAKES PLACE WITHIN SHORT TIME OF RE - SELLER S PURCHASE OF GOODS AND THAT WITH THE INCREASE IN PASSAGE OF TIME, OT HER FACTORS, SUCH AS MARKET AND EXCHANGE RISKS WILL HAVE TO BE TAKEN INTO ACCOUNT FOR COMPARISON. IT WAS ALSO NOTED THAT THE SERVICES BEING RENDERED BY THE ASSESSEE AND THE COMPARABLES ARE NOT THE SAME INASMUCH AS PETRONET HAS CARRIED OUT TRANSACTIONS EI THER WITH LONG TERM CONTRACTS OR WITH GOVERNMENT ADMINISTERED RESALE PRICES OR IT AS MERELY PROVIDED REGASIFICATION FACILITIES TO ITS CLIENTS WHO HAVE UTILIZED ITS LNG TERMINAL WHICH WAS HAVING SOME SPARE CAPACITY AND GAIL IS NOT HAVING LNG TERMINAL OF I TS OWN AND AS SUCH WAS NOT ABLE TO PERFORM THOSE ACTIVITIES AS WERE CARRIED OUT BY THE ASSESSEE ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 8 OF 22 THE TPO ALSO NOTED THAT GAIL IS A GOVERNMENT OWNED UNDERTAKING HAVING LARGE NUMBER OF RELATED PARTY TRANSACTIONS AND MOST OF ITS SOURCES OF LNG ARE VERY LONG TERM CONTRACTS WHICH CANNOT BE COMPARED WITH SPOT PURCHASES . AS FOR PETRONET, THE TPO OBSERVED THAT OUT OF SALES OF RS 8,428 CRORES, RELATED PARTY SALES AMOUNTS TO RS 8,372 CRORES AND TO THIS EXTENT, GROSS MARGIN OF SALE OF THIS COMPANY CANNOT BE TAKEN AS COMPARABLE . IT WAS IN THE BACKDROP OF THIS ANALYSIS BY THE TPO THAT BOTH THE COMPARABLES ADOPTED BY THE ASSESSEE WERE REJECTED AND, IN ANY WAY, THE BENCHMARKING DONE BY THE ASSESSEE, ON THE BASIS OF GROSS PROFIT MARGIN PER MMBTU WAS HELD TO BE UNSUSTA INABLE IN LAW. THE TPO THEN PROCEEDED TO ADOPT CUP METHOD AND JUSTIFIED THE SAME, INTER ALIA, ON THE GROUND THAT, AS NOTED BY THE OECD TRANSFER PRICING MANUAL, CUP IS THE MOST APPROPRIATE METHOD IN THE CASE OF COMMODITY TRADING. HE THEN USED THE PRICES AT WHICH PETRONET HAD PURCHASED THE LPG IN SPOT DEALS AS VALID INPUTS - AN INFORMATION WHICH WAS ACQUIRED BY THE TPO UNDER SECTION 133(6) OF THE ACT. IT WAS IN THIS BACKDROP THAT THE LNG IMPORTS WERE BENCHMARKED ON CUP BASIS, BY TAKING PETRONET PURCHASE PRIC ES AS VALID CUP INPUT, AND, ACCORDINGLY, AN ALP ADJUSTMENT OF RS 19,05,74,124 WAS RECOMMENDED. AGGRIEVED BY THE ADJUSTMENT SO PROPOSED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE DISPUTE RESOLUTION PANEL. LEARNED DRP WAS OF THE VIEW THAT ON THE GIVEN FACTS, RPM IS THE MOST APPROPRIATE METHOD FOR ASCERTAINING THE ARM S LENGTH PRICE, THAT THE TWO COMPARABLES CHOSEN BY THE ASSESSEE ARE APPROPRIATE COMPARABLES AS THERE IS NOT MUCH OF A DIFFERENCE IN LONG TERM DEALS AND SPOT DEALS, AND THAT CUP IS NOT AN A PPROPRIATE METHOD FOR LNG IMPORTS IN VIEW OF VOLATILITY SURROUNDING SPOT LNG TRANSACTIONS. THE OPERATIVE PORTION OF THE DRP ORDER READS AS FOLLOWS: T HIS PANEL HAS TAKEN INTO CONSIDERATION ALL THE FACTS WHICH THE ASSESSEE AND THE TPO HAVE BROUGHT ON REC ORD. THIS PANEL FINDS THAT RPM IS THE MOST SUITABLE METHOD IN THIS CASE. EVEN THE TPO HAS ACKNOWLEDGED THIS FACT. THE TPO WRITES ON PAGE 14 OF TP ORDER THAT THERE IS NO DOUBT THAT RPM IS A MOST APPROPRIATE METHOD IN A CASE OF DISTRIBUTOR. HOWEVER, THE TPO REJECTED THIS METHOD ON THE GROUND THAT THERE APPEAR TWO DEFICIENCIES IN THE MARGIN DATA COMPUTATION BY THE ASSESSEE COMPANY. THE COMPARABLES CHOSEN BY THE ASSESSEE COMPANY ARE IN LONG TERM SUPPLY CONTRACTS AND HAVE A HIGH TURNOVER. THE TPO CONCLUDES T HAT BOTH THE COMPANIES BEING FUNCTIONALLY DIFFERENT, CANNOT BE TAKEN AS A COMPARABLE IN THE CASE OF THE ASSESSEE. THIS PANEL DOES NOT CONCUR WITH THE CONCLUSION OF THE TPO THAT TWO COMPANIES IDENTIFIED BY THE ASSESSEE ARE FUNCTIONALLY DIFFERENT. THIS PANE L AGREES WITH THE SUBMISSION OF THE ASSESSEE THAT RPM REQUIRES SIMILARITY IN FUNCTIONS PERFORMED AND A COMPARISON OF GROSS MARGINS. IN THE INSTANT CASE, IT MUST BE NOTED THAT BOTH HLPL AND PLI ARE ENGAGED IN PURCHASE OF LNG FROM OVERSEAS SELLERS OF LNG, R E - GASIFICATION OF IMPORTED LNG TO CONVERT INTO R - LNG AND THEREON RESALE OF R - LNG IN INDIA. FURTHER THE ASSETS EMPLOYED AND RESOURCES UTILIZED BY BOTH HLPL AND PLI ARE SIMILAR. THESE INCLUDE USE OF LNG TERMINAL, RE - GASIFICATION PLANT, AMONGST OTHERS. EVEN PLL DOES NOT DISCLOSE A BIFURCATION OF PROFITS EARNED FROM LONG TERM AND SPOT TRADE. THEREFORE EVEN PLL CONSIDERS LONG TERM AND SPOT TRADE AS SAME. THIS FACT FURTHER VALIDATES THE FACT THAT THE LNG INDUSTRY ALSO CONSIDERS TRADING IN LONG TERM AND SPOT CARG OES AS ONE BUSINESS SEGMENT. THE ASSESSEE IS A TRADER WHICH PURCHASES AND SALES THE LNG RE - GASIFICATION IS NOT VALUE ADDITION. RATHER IT IS THE PART OF PROCESS CONSIDERED NECESSARY TO TRANSPORT LNG OVERSEAS. IN LONG DISTANCE OVERSEAS TRANSPORTATION BY PIPE LINES IS NOT CONSIDERED VIABLE. THEREFORE RE - GASIFICATION CANNOT BE VIEWED SEPARATELY. IN THE CASE OF GHARDA CHEMICALS LIMITED VS. DCIT: (2010) 130 TTJ (MUM) 556, USE OF RPM HAS BEEN ADVOCATED IN SITUATIONS WHERE IN PROPERTY IS PURCHASED AND RESOLD. SINCE THE OPERATING MODEL OF PLL AND HLPL IS COMPARABLE, THIS PANEL DIRECTS THE TPO THAT RPM SHOULD BE ACCEPTED AS MOST APPROPRIATE METHOD IN THE CASE OF ASSESSEE. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 9 OF 22 THIS PANEL ALSO FINDS THAT THE CUP IS NOT THE RIGHT METHOD TO BE APPLIED IN THIS CASE. THE PRI CE OF LNG IN SPOT MARKET AS HIGHLY VOLATILE. THE HON BLE CHENNAI TRIBUNAL HAS RIGHTLY HELD IN THE CASE OF LIBERTY AGRI PRODUCTS PRIVATE LIMITED: [2012] 49 SOT 79 (CHENNAI), THAT, TO UNDERTAKE A PRICE COMPARISON IN CASE OF COMMODITIES, PRICE ENTERED INTO B ETWEEN THE PARTIES ON THE DATE OF CONTRACT MUST BE COMPARED TO SIMILAR TRANSACTIONS ENTERED INTO ON THAT DAY ONLY. THIS PANEL FINDS THAT LNG SPOT RATES FLUCTUATE ON A DAILY BASIS. SUCH HIGH LEVEL OF VOLATILITY NEGATES THE POSSIBILITY OF COMPARING PROCUREME NTS CONCLUDED ON DIFFERENT DATES. THE ASSESSEE HAS ALSO DEMONSTRATED BY REFERRING TO DOCUMENTARY EVIDENCE THAT PLL HAS SOURCED THE CARGO OF SEPTEMBER 17, 2008 FROM GDF SUEZ WHICH HAS A COMMON DIRECTOR WITH PLL. SINCE THE TRANSACTION CHOSEN BY TPO AS UNCON TROLLED TRANSACTION IS RELATED PARTY TRANSACTION THIS PANEL CANNOT APPROVE THE COMPARISON UNDER CUP AS IT IS AGAINST THE BASIC TENANTS OF TP. THE ASSESSEE HAS ARGUED THAT THIS CAN BE STATED TO BE A CRITICAL REASON FOR PLL TO GET A LOWER PRICE FOR SAID CAR GO. THE TPO HAS NOT GIVEN ANY COUNTER ARGUMENT TO DEMOLISH ASSESSEE S ARGUMENTS. THIS PANEL ALSO REFERS TO THE PLL LETTER DATED FEBRUARY 01, 2012 THAT MENTIONS EACH SPOT CARGO TRANSACTION IS DISTINCT AND ARE NOT COMPARABLE. THIS PANEL FINDS FORCE IN THE CONTENTION OF THE ASSESSEE THAT UNLESS SOURCES, DISCHARGE DATES, SHIPS AND SUPPLY AND DISCHARGE LOCATIONS AND OTHER CARGO PARAMETERS ARE IDENTICAL, LNG CARGO PRICES CANNOT BE COMPARED. THEREFORE IT CANNOT BE DENIED THAT THE ASSESSEE S DECISION TO PURCHASE ONE CARGO AT A SLIGHT PREMIUM OVER PLL'S PRICE WAS A PURE COINCIDENCE AND DOES NOT REFLECT ASSESSEE S INTENTION TO GIVE UNDUE BENEFITS TO ASSOCIATED ENTERPRISES AS THE ASSESSEE DOES NOT HAVE THE PRICE AT WHICH PLL HAS PURCHASED THE CARGOES. IN ABSENCE OF ANY MATERIAL LIKE SPECIALIST'S REPORT OBTAINED BY THE TPO, THIS PANEL ACCEPTS THE POTENT AND PARTNERS REPORT PRODUCED BEFORE THE TPO AND THIS PANEL BY THE ASSESSEE. IT HAS BEEN VERY CATEGORICALLY MENTIONED THAT LNG PRICE ARE VERY VOLATILE AND PRICE MAY C HARGE DUE TO NUMBER OF FACTORS ENUMERATED IN THE REPORT. THEREFORE USE OF CUP IN THE CASE OF ASSESSEE IS NOT UPHELD. THIS PANEL IS NOT INCLINED TO ACCEPT THE ARGUMENT OF THE TPO THAT GAIL AND PLL ARE NOT DOING BUSINESS IN A COMPETITIVE MARKET AS THEY SAL E THEIR PRODUCT AT A GOVERNMENT CONTROLLED PRICE. THEREFORE THIS PANEL DIRECTS THE TPO NOT TO USE CUP FOR DETERMINATION OF ALP OF PURCHASE TRANSACTIONS FROM ITS AES IN SPOT TRADE IN THIS CASE. DURING THE FINANCIAL YEAR 2008 - 09, HLPL PURCHASES 26 SPOT LN G CARGOES FROM ITS ASSOCIATED ENTERPRISES, NAMELY SHELL EASTERN LNG (PTE) LIMITED, SINGAPORE ( SELNG ) AND TOTAL GAS & POWER LIMITED, LONDON ['TGPL') FOR RESALE IN INDIA. BUT THE TPO HOWEVER DISREGARDED THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR BENCHMARK ING ITS INTERNATIONAL TRANSACTIONS AND MADE AN UPWARD ADJUSTMENT OF INR 190,574,124 TO THE TOTAL INCOME OF THE ASSESSEE UNDER CUP HOLDING THAT THE ASSESSEE HAS PURCHASED LNG FROM ITS AE AT A HIGHER PRICE AS COMPARED TO PRICE PLL PAID IN SPOT TRADE. ACCORD INGLY THE TPO HAS PROPOSED ADJUSTMENT TO ONE CARGO (MANDATE DATE SEPTEMBER 21, 2008). THIS PANEL HAS ALREADY REFERRED TO THE ARGUMENTS OF THE ASSESSEE. IN THIS CONNECTION IT IS ALSO RELEVANT TO NOTE THAT OUT OF 26 INTERNATIONAL TRANSACTIONS OF SPOT LNG CA RGOES THE TPO HAS FOUND ONLY ONE TRANSACTION AS AT HIGHER PRICE COMPARED TO PLL. THE ASSESSEE HAS ARGUES THAT IT IMPLIES THAT ASSESSEE HAS ENGAGED IN TRANSFER PRICING DEVICES TO TRANSFER THE PRICE TO ITS AE IN EXCESS BY RS.19 CRORE ON TOTAL TRANSACTIONS W ITH AE FOR RS.6100 CRORES. IN PERCENTAGE TERMS IT WORKS OUT TO 0.3 PERCENT ONLY. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 10 OF 22 IN THESE CIRCUMSTANCES THE APPROACH OF THE TPO IS REJECTED. ON ALL MAJOR GROUNDS OF OBJECTIONS THIS PANEL HAS ALREADY GIVEN DIRECTION TO THE TPO. THE DIRECTIONS GIVEN TO T HE TPO BY THIS PANEL ARE IN FAVOUR OF THE ASSESSEE. OTHER GROUNDS OF OBJECTIONS ARE ANCILLARY TO MAJOR GROUNDS OF OBJECTIONS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE AND HENCE STAND DISPOSE OF IN FAVOUR OF ASSESSEE. THE TPO IS DIRECTED TO DECIDE THE ALP O F INTERNATIONAL TRANSACTIONS TAKING ONLY RELEVANT YEAR DATA INTO CONSIDERATION IN RPM METHOD TREATING PLL AND GAIL AS UNCONTROLLED COMPARABLE COMPANIES. 9. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE DRP AND IS IN APPEAL BEFORE US . 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 11. AS TO THE QUESTION WHETHER COMPARABLE UNCONTROLLED PRICE METHOD VIS - - VIS RESALE PRICE METH OD, FOR THE ASSESSEE S BENCHMARKING IMPORTS OF LNG FROM ITS AES, WAS INDEED MORE APPROPRIATE TO THE FACTS OF THIS CASE, LEARNED DEPARTMENTAL REPRESENTATIVE S ARGUMENTS ARE TWO FOLD - FIRST, THAT CUP IS INHERENTLY MORE SUITABLE TO THE FACTS OF THIS CASE SIN CE THE TRANSACTIONS OF PURCHASE ARE PLAIN VANILLA COMMODITY PURCHASE TRANSACTIONS OF BUYING THE LNG; AND, SECOND, THAT, IN ANY EVENT, NEITHER RPM IS SUITABLE FOR APPLICATION IN THIS CASE SINCE THE PURCHASE OF LNG IS FOLLOWED BY A COMPLEX PROCESS OF REGASIF ICATION, FOR WHICH NO SEPARATE CHARGES ARE LEVIED, NOR SUITABLE COMPARABLES ARE AVAILABLE. 12. WE HAVE NOTED THAT THE LNG IS NOT AN ITEM WHICH IS SOLD AND PURCHASED IN AN OPEN COMMODITY MARKET SO THAT ITS PREVAILING PRICES CAN BE KNOWN TO ALL CONCERNED. A LOT OF EMPHASIS HAS BEEN PLACED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE FACT THAT THE PRICES OF LNG AND THE CRUDE OIL HAVE MOVED IN THE SAME DIRECTION, AND, THUS EVEN THE INFORMATION IN PUBLIC DOMAIN COULD INDEED BE USED FOR ARRIVING AT THE VAL ID CUP INPUT. HOWEVER, APART FROM WHATEVER BE THE LACK OF MERITS OF THIS ARGUMENT, THIS ARGUMENT IS BEING TAKEN UP FOR THE FIRST TIME AT THIS STAGE. WHAT THE TPO HAS ACTUALLY DONE IN THIS CASE IS TO ADOPT THE PRICES AT WHICH PLL HAS IMPORTED LNG AS CUP IN PUT, DESPITE THE VARIATION IN DATES AND VARIATIONS IN THE ORIGIN OF THE LNG. THEREFORE, TAKING UP THE CRUDE OIL PRICES, AS BASE MATERIAL, OR REFERRING TO HENRY HUB PRICES AT THIS STAGE WILL BE GIVING A NEW TWIST TO THIS CASE AND ATTEMPTING TO THEREBY IMPR OVE THE CASE OF THE REVENUE - WHICH IS NOT PERMISSIBLE. LEARNED DEPARTMENTAL REPRESENTATIVE HAS LAID A LOT OF EMPHASIS ON THE OBSERVATION MADE IN THE TP REPORT TO THE EFFECT THAT THE PRICE OF NATURAL GAS MIRRORED INTERNATIONAL CRUDE OIL PRICES IN TERMS OF VOLATILITY BUT THEN THEIR RATE OF VARIATION MAY NOT BE THE SAME EVEN AS IT MAY BE IN THE SAME DIRECTION. THAT IS CLEAR FROM THE GRAPH SHOWING MOVEMENT OF THESE PRICES, AS FILED BY THE ASSESSEE, CLEARLY SHOWS. IT IS NOT EVEN THE CASE OF THE DEPARTMENTAL RE PRESENTATIVE THAT THERE IS A DIRECT FORMULA WITH THE HELP OF WHICH PRICES OF LNG CAN BE DERIVED NOR IS IT CLEAR TO US AS TO HOW CAN THE PRICES OF LNG BE DERIVED FROM THE PRICES OF CRUDE OIL, WHICH ARE IN PUBLIC DOMAIN. LEARNED DEPARTMENTAL REPRESENTATIVE HAS POINTED OUT THAT T HE JAPANESE LNG IMPORT IS BENCH MARKED ON THE BASIS OF JCC PRICES WHICH IS BASED ON JAPAN S CUSTOMS CRUDE OIL CLEARANCE, AND THAT I N THE NORTH AMERICA, THE PRICES OF LNG ARE DETERMINED BY HENRY HUB PRICES, AND CONTENTED THAT THERE A RE PRICES AVAILABLE FOR DIFFERENT REGIONS IN THE WORLD CAN BE APPLIED WITH REASONABLE ADJUSTMENTS BUT THEN HE DOES NOT EXPLAIN THE MECHANISM OF THIS ADJUSTMENT PROCESS. IN ANY EVENT, WHAT APPLICATION OF CUP METHOD REQUIRES, AS A FIRST STEP, IS THAT THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED BUT THEN THE PRICE OF THE LNG PURCHASED BY THE ASSESSEE ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 11 OF 22 CANNOT BE IDENTIFIED BY REFERRING TO THE PRICES OF CRUDE OIL OR NATURAL GAS. THE REFERENCE TO THESE PRICES IS THUS OF NO RELEVANCE UNDER THE SCHEME OF THE TRANSFER PRICING LEGISLATION. IN ANY EVENT, HENRY HUB PRICES ARE RELEVANT TO THE US MARKET AND UNDOUBTEDLY GEOGRAPHIC DIFFERENCES PLAY A VERY VITAL ROLE AS IS IMPLICIT IN THE STAND OF THE TPO HIMSELF. AS A MATTER OF FACT, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, WHEN THE LNG PRICES IN JAPANESE TRADES OF LNG WERE FURNISHED BY THE ASSESSEE FOR COMPARISON, THE TPO HIMSELF REJECTED THE SAME BY OBSERVING THAT THE INFORMATION IS OF LITTLE RELEVANCE AS JAPANESE TRADE COMMANDS HIGHEST PRICES AND HENCE ARE NOT COMPARABLE JUST AS HENRY HUB PRICES LOWER THAN THAT OF INDIAN RATES AND HENCE NOT COMPARED ON SPOT BASIS AS FOR THE USE OF HENRY HUB PRICE S IN THE FIRST YEAR OF OPERATIONS, THE ASSESSEE S EXPLANATION FOR THE USE OF HENRY HUB PRICES IN THE FIRST YEAR IS AS FOLLOWS: (IN THIS YEAR) .. LNG CARGOES WERE PRIMARILY PURCHASED FOR COMMISSIONING OF HAZIRA TERMINAL AND NOT FOR TRADING. COMMISSIONING WAS AN ASCERTAINED ACTIVITY WITH DEFINED VOLUMES, TIME PERIOD ETC. HENCE, IT WAS POSSIBLE TO FIX FORWARD PURCHASES USING A FORMULA LINKED TO A COMMODITY INDEX. DUE TO UNAVAILABILITY OF ANY DOMESTIC UNCONTROLLED PRICE POINT AND ABSENCE OF ANY SUBSTANTIAL ( RE)SALE, HLPL HAD TO USE A PRICE DISCOVERY MECHANISM BASED ON AN INDEPENDENT EXCHANGE. HENRY HUB IS A NATURAL GAS TRADING HUB FOR SETTLEMENT OF GAS INFLOWS INTO THE US. IT IS NOT POSSIBLE TO BUY NATURAL GAS AT HENRY HUB FOR IMPORTS TO INDIA. THEREFORE PRIC E AT HENRY HUB EXCHANGE DOES NOT REFLECT THE SPOT LNG PRICES IN THE INTERNATIONAL MARKET AND THE SAME CAN IN NO WAY BE TAKEN AS AN INDICATIVE PRICE FOR THE PURPOSES OF BENCHMARKING THE SUBJECT INTERNATIONAL TRANSACTION 13. IN THE YEAR IN WHICH THE HENRY H UB PRICES WERE USED, PRIMARILY THE COMMISSIONING OF THE PROJECT WAS TO TAKE PLACE, AND, THEREFORE, THE OPERATIONS OF ASSESSEE S BUSINESS WERE OF DIFFERENT NATURE. THE FACT THAT THE ASSESSEE HAD USED HENRY HUB PRICES IN THE FIRST YEAR OF OPERATIONS, THEREFO RE, CANNOT BE USED AS ESTOPPEL AGAINST THE ASSESSEE. IN ANY CASE, THESE PRICES ARE OF A SIGNIFICANTLY DIFFERENT GEOGRAPHICAL MARKET AND A DIFFERENT PRODUCT INASMUCH NEITHER US, AS A MARKET, CAN BE COMPARED WITH INDIAN ENERGY MARKET, NOR LNG PRICES CIF HAZI RA CAN BE COMPARED WITH THE DOMESTIC PRICES OF NATURAL GAS IN US. THIS IS, OF COURSE, BESIDES THE FACT THAT THE TPO HAS NOT EVEN RELIED UPON HENRY HUB, OR, FOR THAT PURPOSE, ANY OTHER PRICES IN PUBLIC DOMAIN. 14. WHAT HAS BEEN DONE BY THE TPO IS TO ADOP T THE PRICES, AT WHICH PLL HAS IMPORTED LNG IN SPOT TRANSACTIONS, AS EXTERNAL COMPARABLES. THERE IS NO DISPUTE THAT THIS INFORMATION WAS NEVER IN PUBLIC DOMAIN, AND THAT IT WAS IN RESPONSE TO THE REQUISITION UNDER SECTION 133(6) OF THE ACT THAT THE PLL FUR NISHED, VIDE LETTER DATED 1 ST FEBRUARY 2012, TO THE TRANSFER PRICING OFFICER. IN THIS LETTER, PLL HAS, INTER ALIA , STATED THAT EACH SPOT CARGO TRANSACTION IS DISTINCT AND ARE NOT COMPARABLE AND THAT PLL IS PRESENTLY OPERATING IN ONE SEGMENT I.E. R - LNG . THE INFORMATION SO FURNISHED BY THE PLL IS AS FOLLOWS: SPOT CARGOES PURCHASED BY PETRONENT LNG LTD DURING FY 2008 - 09 LOADING PORT SUPPLIER SHIP UNLOADING DATE MMBTU PRICE USD/ MMBTU BOOKING DATE* LC REQUIRED RAS LAFFAN, QATAR RASGAS AI THAKHIRA 11/5 /2008 3,262,720.00 13,3000 24/4/2008 Y ARZEW, ALGERIA SONATRACH M DIDOUCHE 15/06/08 2,854,894.10 13,9500 28/5/2008 Y IDKU PORT, EGYPT GAZ DE FRANCE GASLEYS 11/10/2008 3,286,422.00 18,5000 17/09/2008 Y ARZEW, ALGERIA SONATRACH GALEA 20/10/08 3,190,940,23 16,0000 4/10/2008 Y WITHNELL BAY, AUSTRALIA NORTH WEST SHELF, AUSTRALIS AI THAKHIRA 26/10/2008 3,362,960.00 17,5000 10/10/2008 Y QALHAT, OMAN QALHAT IBARA LNG 7/11/2008 3,346,090.00 13,2500 4/11/2008 Y ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 12 OF 22 RAS LAFFAN, QATAR RASGAS MRL 22/11/08 3,092,090.00 12,3000 5/11/2008 Y POINT FORTIN T&T BG BLUE SKY 17/12/08 3,087,330.00 11,9000 25/11/2008 Y BONNY, NIGERIA BG LNG AKWA IBOM 3/1/2009 2,724,260.00 11,9000 25/11/2008 Y BINTULU, MALAYSIA BP SERI ANGKASA 11/3/2009 3,274,231.00 6,2500 3/3/2009 Y POINT F ORTIN T&T BP BRIT INNOVATOR 29/03/09 2,779,225.03 5,8000 12/3/2009 Y *DATE ON WHICH PURCHASE OF SPOT CARGO IS CONFIRMED. 15. THE ABOVE COMPARABLES HAVE BEEN USED TO EXAMINE THE FOLLOWING ACTUAL IMPORT TRANSACTIONS ENTERED INTO BY THE ASSESSEE: ANNEXUR E DETAILS OF PURCHASES MADE BY HLPL DURING FY 2008 - 09 S.NO. NAME OF SHIP SOURCE DATE OF CONFIRMAT - ION NOTICE DATE OF ARRIVAL PRICE USD NET QTY. UNLOADED VALUE IN BOOKS (USD) VALUE IN BOOKS (INR) 1 AL THAKIRA QATAR 2 - APR - 08 11 - APR - 08 13.98 3,264,240 45,6 34,075 1,845,898,342 2 GALEA ALGERIA 14 - APR - 08 23 - APR - 08 13.98 3,138,060 43,870,079 1,774,544,687 3 EXCEL ABU DHABI, UAE 17 - APR - 08 24 MAY - 08 13.42 3,221,030 43,226,223 1,750,662,015 4 ARCTIC LADY NIGERIA 21 - APR - 08 20 - MAY - 08 13.42 3,196,130 42,529,725 1, 722,453,846 5 LNG FINIMA NIGERIA 23 - APR - 08 1 - MAY - 08 13.35 2,829,290 37,771,022 1,527,837,820 6 EXCEL ABU DHABI, UAE 28 - APR - 08 15 - MAY - 08 13.40 2,069,420 27,730,228 1,123,074,234 7 SIMAISMA QATAR 5 - MAY - 08 9 - MAY - 08 13.48 3,262,990 43,985,105 1,781,396,761 8 GRACILIS EQUATORIAL GUINEA 13 - MAY - 08 15 - JUN - 08 13.59 3,016,290 40,991,381 1,766,728,525 9 GALEA ALGERIA 22 MAY - 08 30 - MAY - 08 13.59 3,150,350 42,813,257 1,733,936,888 10 MITHANE SHIRLEY ELISABETH IDKU, EGYPT 2 - JULY - 08 28 - JUL - 08 18.80 3,178,840 59,762,1 92 2,581,726,694 11 BERGE ARZEW ALGERIA 7 - JULY - 08 22 - JUL - 08 16.99 3,113,000 52,889,870 2,284,842,384 12 MAESK METHANE GUINEA 15 - JULY - 08 18 - SEP - 08 20.45 3,422,600 69,992,170 3,062,157,438 13 ARCTIC LADY NORWAY 21 - JULY - 08 13 - AUG - 08 19.55 3,272,270 63,972 ,879 2,722,045,980 14 SERI ALAM GUINEA 23 - JULY - 08 24 - SEP - 08 19.55 3,058,230 59,788,397 2,615,742,347 15 SERI ALAM NIGERIA 28 - JULY - 08 8 - AUG - 08 18.70 3,166,660 59,216,542 2,519,663,862 16 BERGE ARZEW ALGERIA 13 - AUG - 08 22 - AUG - 08 20.37 3,118,180 63,517,327 2,702,662,247 17 SERI BIJASKSANA GUINEA 18 - AUG - 08 12 - OCT - 08 20.50 3,158,740 64,754,170 3,027,257,448 18 BORNO NIGERIA 26 - AUG - 08 30 - AUG - 08 20.50 3,265,070 66,933,935 2,848,038,934 19 SERI BEGAWAN BELGIUM 4 - SEP - 08 10 - SEP - 08 20.00 3,234,050 64,681,000 2,82 9,793,750 20 SALALAH LNG OMAN 21 - SEP - 08 2 - OCT - 08 19.95 3,397,770 67,785,512 2,965,616,128 21 GALLINA NIGERIA 20 - OCT - 08 29 - OCT - 08 17.20 2,781,230 47,837,156 2,407,644,061 22 GRANOSA WESTERN AUSTRALIA 31 - DEC - 08 09 - JAN - 09 9.06 3,319,130 30,071,318 1,449,43 7,518 23 SOHAR LNG OMAN 26 - FEB - 09 3 - MAR - 09 7.15 3,162,030 22,608,515 1,137,208,279 24 BRITISH RUBY TRINIDAD, W.I. 6 - MAR - 09 31 - MAR - 09 5.65 3,153,020 17,814,563 869,072,519 25 AL MARROUNA QATAR 10 - MAR - 09 15 - MAR - 09 6.00 3,487,040 20,922,240 1,052,388,672 26 AL HAMLA QATAR 23 - MAR - 09 28 - MAR - 09 4.50 2,152,450 9,686,025 487,207,058 16. OUT OF 26 SPOT TRANSACTIONS THAT THE ASSESSEE HAD WITH ITS AE, ONLY ONE HAS BEEN FOUND TO BE NOT AT AN ARM S LENGTH. EVEN IN THIS CASE, THERE IS SIGNIFICANT VARIATIONS IN DAT ES OF TRANSACTION. THE ASSESSEE ENTERED INTO TRANSACTION ON 21 ST SEPTEMBER 2008, WHEREAS THE TRANSACTION USED AS EXTERNAL CUP INPUT WAS ENTERED INTO ON 17 TH SEPTEMBER 2008. IT IS BY NOW A SETTLED LEGAL POSITION THAT THE PRICES ENTERED INTO BY THE PARTIES O N THE DATE OF CONTRACT MUST BE COMPARED WITH THE PRICES OF SIMILAR TRANSACTIONS ON THAT DAY. IN ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 13 OF 22 THE CASE OF LIBERTY AGRI PRODUCTS PVT LTD VS ITO [(2012) 49 SOT 79 (CHENNAI)], A COORDINATE BENCH OF THIS TRIBUNAL HAS HELD THAT EVEN WHEN A COMPARISON WITH RES PECT TO CUSTOMS DATA IS TO BE MADE, IT SHOULD BE FOR THE DATA IN RESPECT OF THE DAY ON WHICH CONTRACT WAS ENTERED INTO AND NOT A DIFFERENT DATE. THE DATA OBTAINED BY THE TPO FROM PLL WOULD ALSO SHOW THAT THERE ARE VARIATIONS IN THE PRICES OF LNG IMPORTED W ITHIN A GAP OF EVEN 1 DAY. ON 4.11.2008, PLL ENTERED INTO SPOT DEAL @ US $ 13.2500 PER MMBTU BUT ON THE VERY NEXT DAY, I.E. ON 5.11.2008, THE NEXT SPOT DEAL WAS @ US $ 12.3000 PER MMBTU. SIMILARLY, ON 4.10.2008, PLL ENTERED INTO SPOT DEAL OF LNG IMPORTS @ US $ 16 PER MMBTU, BUT IN LESS THAN A WEEK, ON 10.10.2008, PLL ENTERED INTO ANOTHER SPOT DEAL OF LNG IMPORT @ USS $ 17.5 PER MMBTU. THE BUSINESS SITUATIONS CAN NEVER BE SO STATIC, PARTICULARLY IN THE CASE OF A PRODUCT LIKE LNG SPOT DEALS WHICH ARE PURELY BASED ON ONE TO ONE NEGOTIATIONS, THAT THE MARKET PRICES ON A DAY OTHER THAN THE DAY ON WHICH TRANSACTION HAS BEEN ENTERED INTO BY THE ASSESSEE CAN BE USED AS A VALID CUP INPUT, AND THAT IS PRECISELY WHAT THE COORDINATE BENCH HAS HELD AND THE INFORMATION GIVEN BY THE TPO CLEARLY CORROBORATES. ON THE BASIS OF INFORMATION USED BY THE TPO HIMSELF, AND IN THE LIGHT OF THE LAW LAID DOWN BY THE COORDINATE BENCH IN THE CASE OF LIBERTY AGRI PRODUCTS (SUPRA), EVEN IF CUP METHOD WAS TO BE ADOPTED IN THE MANNER IN WH ICH IT HAS BEEN ADOPTED BY THE TPO, THE IMPUGNED ADDITION WAS TO BE DELETED ANYWAY. WE HAVE ALSO NOTED THAT IN ALL THE ASSESSMENT YEARS IN WHICH SUCH ADJUSTMENTS ARE MADE, NOT ONLY THE DATA IS OF DATES, WHICH ARE DIFFERENT FROM THE DATE OF TRANSACTIONS, AN D IN MANY A CASES OF SUBSEQUENT DATES, AS WILL BE EVIDENT FROM THE CHART GIVEN BELOW: AY HLPL PLL AY 2007 - 08 SOURCE BOOKING DATE PRICE (USD) SOURCE BOOKING DATE PRICE (USD) QATAR 12 - 09 - 06 9.95 EGYPT 04 - 09 - 06 8.60 EGYPT 15 - 09 - 06 9.37 EGYPT 04 - 09 - 06 8.60 MALAYSIA 03 - 01 - 07 9.30 QATAR 28 - 12 - 06 8.30 AY 2008 - 09 SOURCE BOOKING DATE PRICE (USD) SOURCE BOOKING DATE PRICE (USD) OMAN 18 - 01 - 08 16.75 QATAR 29 - 01 - 08 15 OMAN 31 - 01 - 08 16.45 QATAR 29 - 01 - 08 15 AY 2009 - 10 SOURCE BOOKING DATE PRICE (USD) SOURCE BOOKING DATE PRICE (USD) OMAN 21 - 09 - 08 19.95 EGYPT 17 - 09 - 08 18.50 AY 2010 - 11 SOURCE BOOKING DATE PRICE (USD) SOURCE BOOKING DATE PRICE (USD) RUSSIAN FEDERATION 06 - 04 - 09 5 EGYPT 13 - 04 - 09 4.8 WITHNELL BAY, WA 25 - 05 - 09 3.87 AUSTRA LIA 22 - 05 - 09 3.50 RUSSIAN FEDERATION 02 - 06 - 09 3.87 AUSTRALIA 22 - 05 - 09 3.50 GUINEA 02 - 06 - 09 4.20 AUSTRALIA 22 - 05 - 09 3.50 RUSSIAN FEDERATION 25 - 08 - 09 5.15 QATAR 20 - 08 - 09 4.65 QATAR 03 - 09 - 09 5.15 QATAR 01 - 09 - 09 4.70 TRINIDAD, 02 - 09 - 09 5.15 QATAR 01 - 09 - 09 4.70 ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 14 OF 22 17. IN ANY CASE, THE INFORMATION AVAILABLE FOR EXTERNAL CUP INPUTS (I.E PLL DATA) IS CLEARLY INADEQUATE THAT IT IS ONLY IN RESPECT OF SOME OF THE TRANSACTIONS ENTERED BY THE ASSESSEE THAT SUCH AN INFORMATION CAN BE USED. THERE ARE T RANSACTIONS ENTERED BY THE ASSESSEE IN RESPECT OF WHICH THERE ARE NO PLL TRANSACTIONS AVAILABLE IN THE SAME WEEK OR EVEN SAME MONTH. WHEN VARIATIONS IN PRICES ARE EVIDENT ON DAY TO DAY BASIS, EVEN IN THE DATA USED BY THE TPO HIMSELF, IT IS ABSURD TO SUGGES T THAT DATA OF TRANSACTIONS A WEEK OR A MONTH AWAY FROM THE DATE OF EXTERNAL CUP INPUT CAN BE BENCHMARKED ON THAT BASIS. THESE TRANSACTIONS CANNOT, THEREFORE, BE BENCHMARKED ANYWAY. CLEARLY, CUP CANNOT, FOR THIS SHORT REASON ALONE, CANNOT BE THE MOST APPRO PRIATE METHOD IN THIS CASE. AS WE HOLD SO, WE MAY ALSO REFER TO RULE 10C(2C) WHICH STATES THAT, IN SELECTING THE MOST APPROPRIATE METHOD FOR ASCERTAINING THE ARM S LENGTH PRICE, THE AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF THE METHOD IS ESSENTIALLY TO BE TAKEN INTO ACCOUNT. THE APPROPRIATENESS OF A METHOD OF ASCERTAINING THE ARM S LENGTH PRICE CANNOT BE DECIDED IN A VACUUM AND DE HORS THE AVAILABILITY OF RELEVANT DATA. NO MATTER HOW DESIRABLE IS THE USE OF CUP METHOD IN A PARTICULAR TYPE OF TRANSACTION, OR IN EVERY PLAIN VANILLA COMMODITY PURCHASE TRANSACTION - AS LEARNED DEPARTMENTAL REPRESENTATIVE PUTS IT, IT ESSENTIALLY DEPENDS ON AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF SUCH A METHOD . LEARNED DEPARTMENTAL REPRESENTATIVE S CASE FAILS ON THIS TEST AS WELL. 18. THERE IS, HOWEVER, AN EVEN MORE FUNDAMENTAL ISSUE THAT WE MUST BRIEFLY TOUCH UPON, AND THAT IS WHETHER ON THE BASIS OF SECRET COMPARABLES, I.E. WHICH ARE NOT IN PUBLIC DOMAIN AT ALL, THE CUP METHOD CAN BE THRUST UPON THE ASSESSEE. THE INFORMATION OBTAINED BY THE TPO UNDER SECTION 133(6), ON THE BASIS OF WHICH THE USE OF CUP METHOD IS JUSTIFIED, WAS NOT IN THE PUBLIC DOMAIN, NOR DID THE ASSESSEE HAVE ANY INFORMATION ABOUT THE SAM E UNLESS THE ASSESSEE WAS CONFRONTED WITH THE SAME BY THE TPO. TO SUGGEST THAT IN VIEW OF THE INFORMATION SO MADE AVAILABLE TO THE ASSESSEE NOW, THE ASSESSEE SHOULD HAVE USED CUP METHOD IS TO EXPECT AN IMPOSSIBILITY BEING PERFORMED BY THE ASSESSEE. WHAT IS IMPORTANT TO NOTE IN THE PRESENT CASE IS THAT THE METHOD OF ASCERTAINING THE ALP IS BEING SOUGHT TO BE CHANGED ON THE BASIS OF ALLEGED AVAILABILITY OF NECESSARY CUP DATA IN THE NATURE OF SECRET COMPARABLES. THAT, IN OUR HUMBLE UNDERSTANDING, CANNOT BE DON E. AS WE SAY SO WE ARE ALIVE TO THE FACT THAT IN CERTAIN DECISIONS BY THE COORDINATE BENCHES, EVEN WHEN SECRET COMPARABLES ARE USED BY THE TPO, THE SAME HAS BEEN BROADLY UPHELD WITH THE RIDER THAT THE ASSESSEE SHOULD BE CONFRONTED WITH THE SECRET COMPARABL ES USED BY THE TPO BUT THEN THE PRESENT CASE IS MATERIALLY DIFFERENT. HERE IS A CASE IN WHICH SECRET COMPARABLES, WHICH HAVE BEEN OBTAINED BY THE TPO UNDER SECTION 133(6), ARE NOT IN RESPECT OF THE TRANSACTIONS ON THE SAME DAY ON WHICH THE ASSESSEE ENTERED INTO SIMILAR TRANSACTIONS, IN SOME CASES - NOT EVEN THE SAME WEEK OR THE SAME MONTH, AND YET BASED ON THE AVAILABILITY OF THIS DATA, THE METHOD OF DETERMINING ALP IS BEING CHANGED. THE DRP WAS QUITE JUSTIFIED IN REJECTING THE USE OF CUP METHOD ON THESE FAC TS, AND WE APPROVE THE STAND OF THE DRP. 19. LEARNED DEPARTMENTAL REPRESENTATIVE HAS THEN CONTENDED THAT RESALE PRICE METHOD IS NOT AN APPROPRIATE METHOD IN THIS CASE AS THERE IS SUBSTANTIAL VALUE ADDITION BY WAY OF COMPLEX REGASIFICATION PROCESS IN THE LNG TERMINAL OPERATED BY THE ASSESSEE, FOR WHICH THE ASSESSEE HAS NOT LEVIED ANY CHARGES, AND IT IS NOT A LIMITED RISK DISTRIBUTOR S CASE FOR WHICH RPM IS ACTUALLY BEST SUITED. 20. LET S TAKE A PAUSE HERE, AND TRY TO UNDERSTAND AS TO HOW DOES THE LNG TER MINAL, WHICH IS WHAT THE ASSESSEE OWNS, OPERATES AND MAINTAINS, WORKS. LNG TERMINAL IS A W.I ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 15 OF 22 RECEPTION FACILITY FOR UNLOADING OF CARGO FROM LNG TANKERS. SUCH A TERMINAL IS SPECIALLY USED FOR IMPORT OF LNG, AND IT CONTAINS A VARIETY OF FACILITIES FOR UNLOADING, REGASIFICATION, TANKING, METERING ETC. OF LNG. IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT NATURAL GAS IS TRANSPORTED IN LIQUEFIED STATE, USING SPECIALIZED LNG GAS TANKERS, AND AT THE LNG TERMINALS RECEIVING THIS LIQUEFIED GAS, THE LIQUEFIED NATURAL GAS IS TURNED BACK INTO GASEOUS STATE (REGASIFIED) AFTER UNLOADING FROM SHIPS, AND THEN DISTRIBUTED ACROSS THE NETWORK. WHILE ON THE SUBJECT, IT MAY BE USEFUL TO ALSO TAKE NOTE OF THE FACT THAT LIQUEFIED NATURAL GAS (LNG) WAS DEVELOPED IN 1964 AS A SOLUTION T O THE PROBLEM OF TRANSPORTING THE GAS, WHICH WAS, UNTIL THAT POINT OF TIME AND BECAUSE OF THE INHERENT LIMITATIONS OF TRANSPORTING THE GAS, SEEN AS A PRODUCT FOR DOMESTIC USE ONLY. WITH LNG, GAS IS LIQUEFIED AND TRANSPORTED INTERNATIONALLY VIA TANKERS AND THEN REGASIFIED INTO ITS ORIGINAL STATE FOR DISTRIBUTION AND SALE. ADDITIONALLY, THE HYDROCARBON TAKES UP SIGNIFICANTLY LESS SPACE AS A LIQUID THAN A GAS; LNG IS APPROXIMATELY 1/600TH THE VOLUME OF THE SAME AMOUNT OF NATURAL GAS. LNG HAS TRANSFORMED THE NATURAL GAS MARKET, MAKING PREVIOUSLY UNRECOVERABLE NATURAL GAS FINDS AN ECONOMIC REALITY. IN OTHER WORDS, STRANDED GAS RESERVOIRS, FOR WHICH PIPELINES WERE TOO COSTLY TO CONSTRUCT, CAN NOW BE PRODUCED, TRANSFORMED INTO LNG AND TRANSPORTED VIA TANKER. NAT URAL GAS IS LIQUEFIED BY LOWERING THE TEMPERATURE OF THE HYDROCARBON TO APPROXIMATELY - 260 DEGREES FAHRENHEIT ( - 160 DEGREES CELSIUS). THIS TEMPERATURE DROP LIQUEFIES THE METHANE PRESENT IN THE NATURAL GAS, MAKING TRANSPORTATION AT ATMOSPHERIC PRESSURE IN T HE FORM OF LNG POSSIBLE LNG IS THEN INTRODUCED INTO SPECIALLY INSULATED TANKERS AND TRANSPORTED AROUND THE WORLD. ONCE IT HAS REACHED ITS DESTINATION, THE LNG IS OFFLOADED FROM THE TANKER AND EITHER STORED OR REGASIFIED. THE LNG IS DEHYDRATED INTO A GASEO US STATE AGAIN THROUGH A PROCESS THAT INVOLVES PASSING THE LNG THROUGH A SERIES OF VAPORIZERS THAT REHEAT THE FUEL ABOVE THE - 260 DEGREE FAHRENHEIT ( - 160 DEGREES CELSIUS) TEMPERATURE MARK. THE FUEL IS THEN SENT VIA ESTABLISHED TRANSPORTATION METHODS, SUCH AS PIPELINES, TO THE END USERS. THE WORK TYPICALLY DONE AT THE LNG TERMINAL, BY WAY OF A DIAGRAM, CAN BE SHOWN AS FOLLOWS: (SOURCE: HTTP://WWW.MARINEINSIGHT.COM/WP - CONTENT/UPLOADS/2013/05/LNG - DIAGRAM.JPG) 21. WE HAVE NOTED THAT WHAT IS IMPORTED BY TH E ASSESSEE IS NATURAL GAS, WHICH IS LIQUEFIED BECAUSE IT CAN BE TRANSPORTED INTERNATIONALLY ONLY AFTER BEING LIQUEFIED, AND WHAT IS SOLD IS ALSO NATURAL GAS. THE PROCESS OF LIQUIFICATION AND REGASIFICATION IS THE COMPULSION OF INTERNATIONAL TRANSPORTATION AND AN INTEGRAL PART OF THIS BUSINESS MODEL. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 16 OF 22 WHAT IS IMPORTED, HOWEVER, IS NATURAL GAS AND WHAT IS SOLD IS ALSO NATURAL GAS. AS WE DEAL WITH THIS ASPECT OF THE MATTER, WE MAY REFER TO HON BLE SUPREME COURT IN THE CASE OF ASSOCIATION OF NATURAL GAS & ORS VS UNION OF INDIA & ORS [(2004) 4 SCC 489 (SC)] WHEREIN IT IS HELD THAT LIQUEFIED NATURAL GAS (LNG) IS ALSO A NATURAL GAS AND BELONGS TO THE SAME CATEGORY. RECOGNIZING THE ROLE OF LIQUIFICATION OF NATURAL GAS FOR TRANSPORTATION PURPOSES, THEIR LORDSHIPS HAV E OBSERVED AS FOLLOWS: 24. TO OBTAIN A MARKETABLE PRODUCT, THE RAW NATURAL GAS FLOWING FROM GAS OR OIL WELLS MUST BE PROCESSED TO REMOVE WATER VAPOR, INERT OR POISONOUS CONSTITUENTS, AND CONDENSABLE HYDROCARBONS. THE PROCESSED GAS IS PRINCIPALLY METHANE , WITH SMALL AMOUNTS OF ETHANE, PROPANE BUTANE, PENTANE, CARBON DIOXIDE AND NITROGEN. THIS GAS CAN EASILY BE TRANSPORTED FROM THE PRODUCING AREAS TO THE MARKET IN UNDERGROUND PIPELINES UNDER PRESSURE OR LIQUEFIED AT LOW TEMPERATURES AND TRANSPORTED IN SPEC IALLY DESIGNED OCEAN - GOING TANKERS. . 28. THE TECHNOLOGICAL ADVANCEMENT IN THE USE OF LIQUEFIED NATURAL GAS (LNG) PROVIDED, THE GAS INDUSTRY WITH NEW METHODS TO SOLVE THE PROBLEMS OF STORAGE AND TRANSPORTATION. NATURAL GAS CAN BE REDUCED TO 1/600 OF THE VOLUME OCCUPIED IN THE GASEOUS STATE BY CRYOGENIC PROCESSING, SAFELY STORED OR TRANSPORTED IN DOUBLE - WALLED INSULATED METAL CONTAINERS AT NEAR ATMOSPHERIC PRESSURE AND WHEN REQUIRED, CAN BE RE - GASIFIED. 22. IT CANNOT, THEREFORE, BE SAID THAT THE PR ODUCT BEING IMPORTED AND THE PRODUCT BEING SOLD IN THE MARKET ARE DIFFERENT FROM EACH OTHER. ONCE HON BLE SUPREME COURT HOLDS SO, IT CANNOT BE OPEN TO US TO TAKE ANY OTHER VIEW OF THE MATTER. 23. AS FOR THE PROCESS INVOLVED IN REGASIFICATION, IT IS THE S AME PROCESS WHICH IS INVOLVED IN THE COMPARABLE PLL, AND THE SAME IS THE POSITION WITH REGARD TO THE FOREIGN EXCHANGE RISK. THE PROCESS INVOLVED MAKES IT ALL THE MORE COMPARABLE. AS WE HAVE NOTED EARLIER, IT IS THE BUSINESS MODEL OF THE ASSESSEE TO IMPORT THE NATURAL GAS IN LIQUEFIED FORM AND THEN CONVERT IT BACK INTO NATURAL GAS FORM AGAIN SO AS TO MAKE IT SALEABLE, BUT THEN IT DOES NOT CHANGE THE CHARACTER OF THE TRANSACTION WHICH IS IN THE NATURE OF IMPORT OF A PRODUCT AND SELLING THE SAME. THE COSTS IN CIDENTAL TO STORAGE AND TRANSPORTATION DO NOT ALTER THE CHARACTER OF TRANSACTIONS CARRIED ON BY THE ASSESSEE. THE FAR ANALYSIS FOR THE ASSESSEE AND AT LEAST PLL ARE NOT ANY DIFFERENT. THERE IS A PROCESS OF CUSTOM CLEARANCE, UNLOADING, STORAGE, REGASIFICA TION AND DELIVERY TO THE AGREED POINT INVOLVED IN THE WORK OF THE ASSESSEE AS ALSO THE PLL. 24. A LOT OF EMPHASIS IS THEN PLACED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE PROPOSITION THAT SINCE THERE IS SPECIAL PROCESS INVOLVED IN STORAGE AND SALE OF PRODUCT, THE RPM SHOULD NOT APPLY. HOWEVER, AS WILL BE EVIDENT FROM THE FOLLOWING GUIDANCE IN THE UN TRANSFER PRICING MANUAL AND THE OECD TRANSFER PRICING GUIDELINES, SUCH A FACT ONLY CALLS FOR, AT BEST, ECONOMIC ADJUSTMENTS, WHERE REQUIRED, AND THE HI GHER MARGIN: 6.2.9.5. AS THE GROSS PROFIT MARGIN REMUNERATES A SALES COMPANY FOR PERFORMING MARKETING AND SELLING FUNCTIONS, THE RESALE PRICE METHOD ESPECIALLY DEPENDS ON COMPARABILITY REGARDING FUNCTIONS PER FORMED, RISKS ASSUMED AND ASSETS USED. THE RE SALE PRICE METHOD THUS FOCUSES ON FUNCTIONAL COMPARABILITY. A SIMILAR LEVEL OF COMPENSATION IS EXPECTED FOR PERFORMING SIMILAR FUNCTIONS ACROSS DIFFERENT ACTIVITIES. IF THERE ARE MATERIAL DIFFERENCES THAT AFFECT THE GROSS MARGINS EARNED IN THE CONTROLLED A ND THE ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 17 OF 22 UNCONTROLLED TRANSACTIONS, ADJUSTMENTS SHOULD BE MADE TO ACCOUNT FOR SUCH DIFFERENCES. IN GENERAL COMPARA BILITY ADJUSTMENTS SHOULD BE PERFORMED ON THE GROSS PROFIT MARGINS OF THE UNCONTROLLED TRANSACTIONS. THE OPERATING EXPENSES IN CONNECTION WITH THE FUNCTIONS PERFORMED AND RISKS INCURRED SHOULD BE TAKEN INTO ACCOUNT IN THIS RESPECT, AS DIFFERENCES IN FUNCTIONS PERFORMED ARE FRE QUENTLY REFLECTED IN DIFFERENT OPERATING EXPENSES. [UN TRANSFER PRICING MANUAL] 2.31 IT SHOULD BE EXPECTED THAT THE AM OUNT OF THE RESALE PRICE MARGIN WILL BE INFLUENCED BY THE LEVEL OF ACTIVITIES PERFORMED BY THE RESELLER. THIS LEVEL OF ACTIVITIES CAN RANGE WIDELY FROM THE CASE WHERE THE RESELLER PERFORMS ONLY MINIMAL SERVICES AS A FORWARDING AGENT TO THE CASE WHERE THE R ESELLER TAKES ON THE FULL RISK OF OWNERSHIP TOGETHER WITH THE FULL RESPONSIBILITY FOR AND THE RISKS INVOLVED IN ADVERTISING, MARKETING, DISTRIBUTING AND GUARANTEEING THE GOODS, FINANCING STOCKS, AND OTHER CONNECTED SERVICES. IF THE RESELLER IN THE CONTROLLED TRANSACTION DOES NOT CARRY ON A SUBSTANTIAL COMMERCIAL ACTIVITY BUT ONLY TRANSFERS THE GOODS TO A THIRD PARTY, THE RESALE PRICE MARGIN COULD, IN LIGHT OF THE FUNCTIONS PERFORMED, BE A SMALL ONE. THE RESALE PRICE MARGIN COUL D BE HIGHER WHERE IT CAN BE DEMONSTRATED THAT THE RESELLER HAS SOME SPECIAL EXPERTISE IN THE MARKETING OF SUCH GOODS, IN EFFECT BEARS SPECIAL RISKS, OR CONTRIBUTES SUBSTANTIALLY TO THE CREATION OR MAINTENANCE OF INTANGIBLE PROPERTY ASSOCIATED WITH THE PR ODUCT. HOWEVER, THE LEVEL OF ACTIVITY PERFORMED BY THE RESELLER, WHETHER MINIMAL OR SUBSTANTIAL, WOULD NEED TO BE WELL SUPPORTED BY RELEVANT EVIDENCE. THIS WOULD INCLUDE JUSTIFICATION FOR MARKETING EXPENDITURES THAT MIGHT BE CONSIDERED UNREASONABLY HIGH; FOR EXAMPLE, WHEN PART OR MOST OF THE PROMOTIONAL EXPENDITURE WAS CLEARLY INCURRED AS A SERVICE PERFORMED IN FAVOUR OF THE LEGAL OWNER OF THE TRADEMARK. IN SUCH A CASE THE COST PLUS METHOD MAY WELL SUPPLEMENT THE RESALE PRICE METHOD. [OECD TRANSFER PRICIN G GUIDELINES] 25. AS FOR THE POINT REGARDING THE ASSESSEE BEING A FULL RISK DISTRIBUTOR, AND FOR THAT REASON RPM SHOULD NOT APPLY, WE ARE UNABLE TO SEE MERITS IN THIS APPROACH EITHER. FIRSTLY, THE TPO HAS NOT ADOPTED ANY ALTERNATE APPROACH, WHICH IS SUST AINABLE IN LAW AND WHICH IS MORE APPROPRIATE THAN THE APPROACH OF THE ASSESSEE. SECONDLY, THE COMPARABLE, PARTICULARLY PLL, IS ASSUMING THE SAME RISKS. THIRDLY, AT BEST SOME ECONOMIC ADJUSTMENTS, AS MAY BE APPROPRIATE IN A CASE, MAY BE DONE IN SUCH A SITUA TION BUT THEN NO SUCH ADJUSTMENTS ARE MADE BY THE TPO NOR EVEN SUGGESTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. FINALLY, IT IS FOR THE TAX ADMINISTRATION TO SHOW AS TO HOW ANOTHER APPROACH TO THE BENCHMARKING, IN A PARTICULAR FACT SITUATION, WILL BE M ORE APPROPRIATE AND UNLESS THAT IS DONE, THE ASSESSEE S APPROACH TO BENCHMARKING THE TRANSACTIONS CANNOT BE DISCARDED. WHAT THE TPO HAD SUGGESTED WAS THE CUP METHOD, BUT, FOR THE DETAILED REASONS SET OUT EARLIER IN THIS ORDER, WE HAVE HELD THAT CUP METHOD CANNOT BE APPLIED TO THE FACTS OF THIS CASE. NO METHOD OF DETERMINING ALP IS PERFECT, BUT IT IS FROM THESE IMPERFECT METHODS THAT WE HAVE TO FIND OUT WHICH IS MORE APPROPRIATE A METHOD. THERE IS NOTHING ON RECORD OR IN THE ARGUMENTS OF THE LEARNED DEPARTME NTAL REPRESENTATIVE WHICH CAN DEMONSTRATE TO US AS TO WHY THE RPM CAN BE DISCARDED AND A MORE APPROPRIATE METHOD OF DETERMINING ALP CAN BE ADOPTED. WE ARE, THEREFORE, NOT PERSUADED BY THIS PLEA EITHER. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 18 OF 22 26. LET US NOW MOVE ON TO THE THIRD AND LAST LIMB OF REVENUE S GRIEVANCE AND THAT IS AGAINST NON COMPARABILITY OF THE COMPARABLES, NAMELY PLL AND GAIL. 27. THE FIRST ISSUE AGAINST THE COMPARABILITY IS OF HIGH RELATED PARTY (I.E. INTRA AE) TRANSACTIONS. 28. SO FAR AS PLL IS COMPARED, AS POINTED OUT BY THE L EARNED DEPARTMENTAL REPRESENTATIVE, TOTAL SALES OF THIS COMPARABLE IS 8,428.70 CRORES, OUT OF WHICH THE SALES TO THE RELATED PARTIES, NAMELY (1) INDIAN OIL CORP LTD, (2) BHARAT PETROLEUM LIMITED, (3) OIL AND NATURAL GAS CO LTD AND (4) GAIL INDIA LTD, IS 8,372.95 CRORES. IT IS POINTED OUT THAT THE SALES WITH RELATED PARTIES BEING ALMOST 99%, THE COMPARABLE WITH SUCH HIGH RELATED PARTY TRANSACTIONS CANNOT BE TAKEN AS A VALID COMPARABLE. LEARNED DEPARTMENTAL REPRESENTATIVE RELIES UPON THE PROVISIONS OF SEC TION 92A(2)(B) TO HOLD THESE COMPANIES AS ASSOCIATED COMPANIES AS MORE THAN 26% OF THE SHARES OF ASSESSEE ARE HELD, DIRECTLY OR INDIRECTLY, BY THE GOVERNMENT OF INDIA. 29. THE EQUITY CAPITAL OF PLL IS HELD BY INDIAN OIL, BHARAT PETROLEUM, ONG AND GAIL A T 12.5% EACH, AND, IN TURN, 74.14%, 78.92%, 84.93% AND 57.36% RESPECTIVELY OF THE EQUITY CAPITAL OF THESE COMPANIES IS HELD BY THE PRESIDENT OF INDIA. IN EFFECT, THUS, THE INDIRECT SHAREHOLDING OF THE PRESIDENT OF INDIA IN THESE COMPANIES CAN BE COMPUTED A S FOLLOWS: SR. NO. % OF HOLDING OF GOVERNMENT OF INDIA % HOLDING IN PLL HOLDING 1 74.14 12.5% 9.2675 2 78.92 12.5% 9.865 3. 84.93 12.5% 10.61625 4. 57.36% 12.5% 7.17 TOTAL 36.91875 30. THE QUESTION THAT WE ARE NOW CALLED UPON TO ADJUDICATE IS W HETHER THESE FOUR COMPANIES CAN BE SAID TO BE ASSOCIATED ENTERPRISES OF THE ASSESSEE BEFORE US. 31. SECTION 92 A, AS RELEVANT TO THE ISSUE REQUIRING OUR ADJUDICATION, PROVIDES AS FOLLOWS: MEANING OF ASSOCIATED ENTERPRISE. 92A. (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92B, 92C, 92D, 92E AND 92F, ASSOCIATED ENTERPRISE , IN RELATION TO ANOTHER ENTERPRISE, MEANS AN ENTERPRISE (A) WHICH PARTICIPATES, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEMENT OR CONTROL O R CAPITAL OF THE OTHER ENTERPRISE; OR (B) IN RESPECT OF WHICH ONE OR MORE PERSONS WHO PARTICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN ITS MANAGEMENT OR CONTROL OR CAPITAL, ARE THE SAME PERSONS WHO PARTICIPATE, DIRECTLY OR IND IRECTLY, OR THROUGH ONE OR MORE ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 19 OF 22 INTERMEDIARIES, IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHER ENTERPRISE. (2) FOR THE PURPOSES OF SUB - SECTION (1), TWO ENTERPRISES SHALL BE DEEMED TO BE ASSOCIATED ENTERPRISES IF, AT ANY TIME DURING THE PREVIOUS YEAR , (B) ANY PERSON OR ENTERPRISE HOLDS, DIRECTLY OR INDIRECTLY, SHARES CARRYING NOT LESS THAN TWENTY - SIX PER CENT OF THE VOTING POWER IN EACH OF SUCH ENTERPRISES; OR . .. .. 32. IT IS THUS CLEAR THAT WHERE A PERSON OR AN ENTERPRISE HOLDS, DIRECTLY OR INDIRECTLY, SHARES CARRYING NOT LESS THAN 26% OF VOTING POWERS IN EACH SUCH ENTERPRISES, THE REQUIREMENTS OF SE CTION 92A(2)(B) WILL BE FULFILLED, AND THAT WHERE A PERSON, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, PARTICIPATES IN TH E MANAGEMENT, CONTROL OR CAPITAL OF THESE COMPANIES, THE REQUIREMENTS OF SECTION 92A(1)(B) WILL BE FULFILLED. THE LAW IS ALSO SETTLED THAT CONDITIONS OF BOTH THE LIMBS OF SECTION 92A ARE TO BE FULFILLED, AND ONLY THEN THE ENTERPRISES CAN BE SAID TO BE ASSO CIATED ENTERPRISES. IT IS ONLY WHEN BOTH OF THESE CONDITIONS ARE FULFILLED THAT THESE FOUR COMPANIES AND THE ASSESSEE CAN BE SAID TO BE ASSOCIATED ENTERPRISES. 33. THE EXPRESSION PERSON , UNDER SECTION 2(31), HAS BEEN DEFINED TO INCLUDE (I)AN INDIVIDUAL , (II) A HINDU UNDIVIDED FAMILY, (III) A COMPANY, (IV) A FIRM, (V) AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS, WHETHER INCORPORATED OR NOT, (VI) A LOCAL AUTHORITY, AND (VII) EVERY ARTIFICIAL JURIDICAL PERSON, NOT FALLING WITHIN ANY OF THE PRECEDING SUB - CLAUSES. HOWEVER, AS IT IS AN INCLUSIVE DEFINITION, AND IN ANY CASE VALID ONLY UNLESS THE CONTEXT OTHERWISE REQUIRES, A SCHOOL OF THOUGHT MAY INDEED EXIST TO JUSTIFY INCLUSION OF THE PRESIDENT OF INDIA IN THIS DEFINITION OF PERSON AS WELL. HOWEVER, IT APPEARS TO US THAT SUCH AN APPROACH WOULD BE FALLACIOUS. THE PRESIDENT OF INDIA IS A CONSTITUTIONAL HEAD AND, UNDER THE CONSTITUTIONAL PROVISIONS, THE UNION CARRIES ON BUSINESS IN HIS NAME. ARTICLE 53(1) OF THE CONSTITUTION OF INDIA STATES THAT THE EXECUTIVE POWER OF THE UNION SHALL BE VESTED IN THE PRESIDENT AND SHALL BE EXERCISED BY HIM EITHER DIRECTLY OR THROUGH OFFICERS SUBORDINATE TO HIM IN ACCORDANCE WITH THIS CONSTITUTION . IT IS ALSO IMPORTANT TO NOTE THAT THE VOTING RIGHTS ARE NOT EXERCISED OR CONTROLLED BY THE PRESIDENT OF INDIA, BUT BY THE UNION OF INDIA. ESSENTIALLY, THEREFORE, THE EQUITY SHAREHOLDING OF THE ASSEESSE, EVEN THOUGH IN THE NAME OF THE PRESIDENT OF INDIA, IS HELD BY THE UNION OF INDIA. THE SHARES ARE HELD BY THE UNION OF INDIA WHICH IS A SOVEREIGN . AS FOR THE PRESIDENT OF INDIA BEING TREATED AS AN ARTIFICIAL JURIDICAL PERSON, AS IS CONTENDED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE ARE UNABLE TO SEE ANY MERITS IN THIS PLEA EITHER. AN ARTIFICIAL JURIDICAL PERSON IS A CR EATURE OF LAW BUT THE PRESIDENT OF INDIA IS A CREATION OF THE CONSTITUTION. IN THE CASE OF IC GOKAL NATH & ORS VS STATE OF PUNJAB & ANR (AIR 1967 SC 1643) , AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, HON BLE SUPREME COURT HAS OBSERVED THAT, TH E DISTINCTION BETWEEN THE CONSTITUTION AND THE LAWS IS SO FUNDAMENTAL THAT THE CONSTITUTION IS NOT REGARDED AS A LAW OR A LEGISLATIVE ACT . CLEARLY, THEREFORE, PRESIDENT OF INDIA CANNOT BE TREATED AS A CREATION OF LAW, WHICH, AS HAS BEEN NOTED ABOVE, QUALI TATIVELY DIFFERENT FROM CREATION OF THE CONSTITUTION. WHILE ON THIS ISSUE, IT IS ALSO USEFUL TO TAKE NOTE OF THE CIRCULAR NO.9/76 [13/127/6 - CL - VI AND 1/1/76 - CL - V] DATED 19.5.1976 ISSUED UNDER THE COMPANIES LAW BY THE MINISTRY OF CORPORATE AFFAIRS FOR THE PURPOSE OF SECTION 370(1B)(3) OF THE ERSTWHILE COMPANIES ACT, 1956. IN THE SAID CIRCULAR THE ISSUE WAS WHETHER THE GOVERNMENT COMPANIES WILL BE DEEMED TO BE FALLING UNDER THE SAME MANAGEMENT FOR THE PURPOSES OF ABOVE STATED SECTION AS THE PRESIDENT ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 20 OF 22 OF IN DIA OR THE GOVERNOR OF A STATE, AS THE CASE MAY BE, HOLDS THE MAJOR SHARES AND EXERCISE AND CONTROL THE VOTING RIGHTS , AND IN THE MINISTRY OF CORPORATE AFFAIRS CLARIFIED THAT FOR THE PURPOSE OF SECTION 370, THE COMPANIES WILL NOT BE DEEMED TO BE UNDER THE SAME MANAGEMENT AS THE PRESIDENT OR THE GOVERNOR DOES NOT HOLD SHARES AND EXERCISES OR CONTROLS VOTING RIGHTS AS AN INDIVIDUAL IN THE GOVERNMENT COMPANIES. OF COURSE, THE SCOPE OF SECTION 370 (1B), IN THE COMPANIES ACT IN FORCE AT THAT POINT OF TIME, WA S WITH RESPECT TO THE EXPRESSION INDIVIDUAL AS AGAINST PERSON IN THE PRESENT CASE, BUT THEN THE SAME POSITION, FOR THE DETAILED REA SONS SET OUT ABOVE, HOLDS GOOD IN THE PRESENT CONTEXT, I.E. IN THE CONTEXT OF PERSON , AS WELL. IF ALL THE PUBLIC SECTOR UNDERTAKINGS ARE TO BE TREATED AS ASSOCIATED ENTERPRISES , THE INTER SE TRANSACTIONS BETWEEN ALL THE PUBLIC SECTOR UNDERTAKINGS WILL BE SUBJECT TO ARM S LENGTH PRICE DETERMINATION - SOMETHING WHICH IS SEEMINGLY QUITE INCONGRUOUS AND CONTRARY TO THE SCHEME OF THE TRANSFER PRICING LEGISLATION. 34. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSIDERED VIEW THE ASSESSEE AND INDIAN OIL, BHARAT PETROLEUM, ONGC AND GAIL, OR, FOR THAT PURPOSE, ANY OTHER PUBLIC SECTOR UNDERTAKING, CANNOT BE SAID TO BE ASSOCIATED ENT ERPRISES. IN THE CASES OF PUBLIC SECTOR COMPANIES, EVEN AS ALL OR MAJORITY OF SHAREHOLDINGS MAY BE BY THE UNION OR STATE GOVERNMENTS, THESE COMPANIES, FOR THAT REASON ALONE, CANNOT BE SAID TO BE ASSOCIATED ENTERPRISES FOR THE PURPOSES OF SECTION 92A. IN VI EW OF THIS FINDING, THE ISSUE REGARDING RELATED PARTY TRANSACTIONS CEASES TO HOLD GOOD IN LAW. 35. THE NEXT POINT MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS REGARDING THE NON SUITABILITY OF PLL AS A COMPARABLE FOR THE VARIATIONS IN FUNCTIONAL PARAM ETERS. IT IS POINTED OUT THAT SEPARATE REGASIFICATION CHARGES ARE BEING LEVIED BY THE PLL WHEREAS THE ASSESSEE DOES NOT LEVY ANY SUCH CHARGES. IT IS ALSO CONTENDED THAT ENTIRE COST OF PLL IS PASSED THROUGH INCLUDING FOREIGN EXCHANGE RISK WHICH MAKES ITS BUSINESS MODEL A LOW RISK BUSINESS MODEL NOT COMPARABLE WITH THE ASSESSEE. IT IS THEN POINTED OUT THAT PLL HAS ENTERED INTO CERTAIN LONG TERM CONTRACTS FOR PURCHASE OF LNG WHEREAS THE ASSESSEE HAS SOLELY PURCHASED LNG IN SPOT DEALS. 36. WE FIND NOTHING ON RECORD TO SUBSTANTIATE THE CLAIM OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE PLL WAS CHARGING SEPARATE FEES FOR REGASIFICATION. IN OUR CONSIDERED VIEW, REGASIFICATION IS AN INTEGRAL PART OF ASSESSEE S TRADING ACTIVITY AS UNPACKING OF A CONSIGNM ENT TO PUT THE SAME IN A SALEABLE STATE AND FIT FOR TRANSPORTATION BY THE AVAILABLE MODE. THE PROCESS OF REGASIFICATION CANNOT BE SEEN IN ISOLATION WITH THE MAIN ACTIVITY CARRIED ON BY THE ASSESSEE. WHAT HAS BEEN SOLD BY THE ASSESSEE IS REGASIFIED LNG (R - L NG) AS IS EVIDENT FROM THE FINANCIAL STATEMENTS OF THE ASSESSEE. THE BUSINESS MODELS OF HLPL AND PLL ARE SIMILAR IN THE SENSE THAT T HE ENTIRE COST, WHETHER IT IS A LONG TERM OR A SHORT TERM CONTRACT , IS PASSED ON TO THE CUSTOMER IN INDIA AS NO TRADER WILL KEEP THE COST TO ITSELF INCLUDING TH E FOREIGN EXCHANGE FLUCTUATION. TO THAT EXTENT, LEANED DEPARTMENTAL REPRESENTATIVE INDEED SEEMS TO HAVE ERRED IN OBSERVING THAT IN THE CASE OF PLL, THE ENTIRE FUEL COST INCLUDING THE EXCHANGE RATE FLUCTUATION IS PASSED O N TO THE CUSTOMERS, WHEREAS THE SAME IS NOT THE CASE OF HLPL AS IT IS A FULL RISK DISTRIBUTOR. IN ANY CASE, AS A PLAIN LOOK AT THE FINANCIAL STATEMENTS OF PLL WOULD SHOW THE PLL HAS BOOKED, IN ITS PROFIT AND LOSS ACCOUNT, FOREIGN LOSS EXCHANGE LOSS SEPARA TELY TO THE TUNE OF RS 33 CRORES APPROXIMATELY, AND THUS IT CANNOT BE SAID THAT THE PLL HAD PASSED ON ENTIRE FOREIGN EXCHANGE FLUCTUATION RISK TO ITS CUSTOMERS. IT HAS ALSO BEEN NOTED THAT SAL E TO CUSTOMERS IN INDIA BY BOTH PLL AS ALSO THE ASSESSE IS FORE IGN CURRENCY (USD) DENOMINATED AND, THEREFORE, THE FOREIGN CURRENCY RISK IS A PASS THROUGH COSTS FOR BOTH HLPL AND PLL TO THAT EXTENT. WE HAVE ALSO NOTED, AS POINTED OUT BY THE LEARNED COUNSEL, THAT LNG PRICES ARE FLOATING IN LONG TERM TRADE AS WELL SINCE THEY ARE GENERALLY LINKED TO ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 21 OF 22 CERTAIN OIL EXCHANGE PRICES. AS AN EXAMPLE, IT HAS BEEN NOTED THAT PLL SOURCED LNG FROM RASGAS, QATAR UNDER A 25 YEAR SPA FOR WHICH PRICES WERE LINKED TO JAPAN CUSTOM CLEARED ( JCC ) CRUDE OIL OF US$ 20/BBL IN THE PERIOD F ROM APRIL 2004 TO DECEMBER 2008, AND I N THE PERIOD FROM JANUARY 2009 TO DECEMBER 2013, LNG PRICES WOULD GRADUALLY FLOAT IN LINE WITH THE SPECIFIED FORMULA, WITH PRICES FULLY INDEXED TO THE PREVIOUS 12 MONTH JCC FROM JAN 2014, SUBJECT TO CAP AND FLOOR PRICE. I T WOULD THUS FOLLOW THAT JUST BECAUSE PLL HAS ENTERED INTO LONG TERM CONTRACTS, IT DOES NOT ESSENTIALLY FOLLOW THAT THE PRICES WILL NOT BE SUBJECTED TO VARIATIONS. IN OTHER WORDS, EVEN UNDER LONG TERM CONTRACTS, THE PRICES OF THE LNG ARE NOT TO REMAIN STAT IC, AS HAS BEEN ASSUMED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THIS IS ALSO NOT IN DISPUTE THAT THE PLL HAS PURCHASED THE LNG UNDER LONG TERM ARRANGEMENTS AS ALSO BY WAY OF THESE SPOT DEALS. IN ANY CASE, AS IS OPINED IN THE EXPERT OPINION FILED BY THE ASSESSEE. IT IS, INFACT, A MISNOMER TO REFER TO THE SHORT - TERM LNG TRADE AS A SPOT MARKET, AND T HERE IS NO SPOT MARKET BECAUSE NO ONE IS MAKING A MARKET, IN THE SENSE OF PROVIDING LIQUIDITY AND POSTING QUOTES IN EXCHANGE FOR A BUY - SELL SPREAD. AS A MATTER OF FACT, AS OPINED IN THE EXPERT REPORT, S HORT - TERM TRADE IS A COLLECTION OF BILATERAL DEALS THAT MAY COVER A SINGLE CARGO TO MANY CARGOES, OVER PERIOD RANGING FROM A SINGLE MONTH TO OVER A YEAR . IN THIS VIEW OF THE MATTER, WE AGREE THAT THE MERE FACT THAT PLL ALSO HAS LONG TERM ARRANGEMENTS FOR PURCHASES OF LNG, IT DOES NOT CEASE TO BE A VALID COMPARABLE FOR THIS REASON ALONE. 37. AS REGARDS GAIL AS A COMPARABLE, THE FIRST OBJECTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS WITH RESPECT TO TH E RELATED PARTY TRANSACTIONS BUT THEN, IN VIEW OF THE DISCUSSIONS EARLIER IN THIS ORDER, THE INTER SE TRANSACTIONS BETWEEN THE PUBLIC SECTOR UNDERTAKINGS CANNOT BE TREATED AS TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISES, AND, FOR THIS REASON ALONE, THIS OBJECTION IS TO BE DELETED. THE SECOND POINT IS REGARDING THE GAIL NOT OWNING ANY REGASIFICATION FACILITIES AND IT IS DEALING IN ONLY NATURAL GAS. THAT OBJECTION DOES NOT HOLD GOOD EITHER AS EVEN GAIL IS TRADING IN NATURAL GAS AND HAS MADE CONSIDERABLE I NVESTMENTS IN ITS DISTRIBUTION NETWORK OF GAS PIPES. LEARNED DEPARTMENTAL REPRESENTATIVE DOES ACCEPT THAT GAIL IS ALSO INVOLVED IN TRADING IN NATURAL GAS THOUGH WITH A DIFFERENCE THAT IT DOES NOT HAVE ITS OWN TERMINAL AND REGASIFICATION FACILITIES BUT THEN HE HAS NOT POINTED AS TO WHAT COMPARABILITY ADJUSTMENT IS REQUIRED ON THAT ACCOUNT. AS FOR THE POINT THAT THE GAIL IS SELLING NATURAL GAS ON ADMINISTERED PRICES, THIS OBJECTION IS FOUND TO BE INCORRECT INASMUCH AS IN RESPONSE TO THE RTI APPLICATION DATED JUNE 24, 2013, IT HAS BEEN CLARIFIED THAT GOVERNMENT THAT IT DOES NOT REGULATE / FIX / CONTROL THE PRICES OF IMPORTED LNG. IN ANY EVENT, EVEN IF GAIL IS TO BE EXCLUDED FROM COMPARABLES, IT DOES NOT MAKE ANY DIFFERENCE TO THE CONCLUSION THAT THE MARGIN EARN ED BY THE ASSESSEE ARE WELL WITHIN THE COMPARABLE MARGIN EARNED BY PLL. 38. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE HOLD THAT THE COMPARABLES ADOPTED BY THE ASSESSEE ARE APPROPRIATE. 39. WE MAY ALSO ADD THAT THERE IS A SPECIFIC FINDING IN THE ORDER OF THE DISPUTE RESOLUTION PANEL THAT IN THE LIGHT OF THIS TRIBUNAL S DECISION IN THE CASE OF LIBERTY AGRI PRODUCTS (SUPRA), EVEN FOR THE PURPOSES OF CUP, THE PRICES PREVAILING ON THE DAY OF TRANSACTION CAN ONLY BE C OMPARED WITH THE COMPARABLE UNCONTROLLED PRICES PREVAILING ON THAT DAY ONLY AND NOT ON SOME OTHER DATES, AND THAT IN NONE OF THE CASES THE TPO HAS USED THE PRICES PREVAILING ON THAT PARTICULAR DAY. THIS FINDING REMAINS UNCHALLENGED AND THIS PRINCIPLE HAS N OT BEEN CALLED INTO QUESTION BY THE APPELLANT. THEREFORE, EVEN IF CUP METHOD IS TO BE APPLIED, THE IMPUGNED ADJUSTMENT WILL HAVE TO BE DELETED ANYWAY. VIEWED THUS, THE GRIEVANCES RAISED IN THIS APPEAL MAY BE VIEWED AS SOMEWHAT ACADEMIC AND OF NO PRACTICAL CONSEQUENCE. HOWEVER, WITHOUT ANY OFFENCE OR PREJUDICE TO THIS LINE OF REASONING, WE HAVE DEALT WITH THE ISSUE ON MERITS AND GIVEN OUR CATEGORICAL FINDINGS ON THE SAME. ITA NO. 2889 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 PAGE 22 OF 22 40. IN THE LIGHT OF THESE DISCUSSIONS ABOVE, AND FOR THE DETAILED REASONS SET OUT ABOVE , WE SEE NO MERITS IN THE GRIEVANCES RAISED BEFORE US. ALL THE GROUNDS OF APPEAL, WHICH WE HAD TAKEN UP TOGETHER, ARE, THEREFORE, DISMISSED. 4. LEARNED REPRESENTATIVE HAVE FAIRLY AGREED THAT IN THE EVENT OF OUR CONFIRMING THE FINDING OF THE DRP FOR ASSES SMENT YEAR 2009 - 10, THIS APPEAL WILL HAVE TO BE ALLOWED AND IMPUGNED ALP ADJUSTMENT TO BE DELETED. 5. IN VIEW OF THE ABOVE AGREED POSITION, AND FOR THE DETAILED REASONS SET OUT IN OUR ORDER OF EVEN DATE FOR THE ASSESSMENT YEAR 2009 - 10, THE IMPUGNED ALP ADJ USTMENT OF RS.37,65,28,394/ - MUST STAND DELETED. WE DIRECT SO. 6. NO OTHER ISSUE WAS RAISED BEFORE US. 7. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE. P RONOUNCED IN THE OPEN COURT ON THIS 27 TH D AY OF DECEMBER , 201 6 . - SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 27 TH DAY OF DECEMBER , 201 6 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD