ADDL CIT 5(1), MUMBAI V. ESSAR STEEL LTD, MUMBAI

ITA 3727/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8343 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 12-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI VIJAY PAL RAO , J M I TA NO. 3727 / MUM/20 11 ( ASSESSMENT YEAR : 200 6 - 0 7 ) ACIT - 5(1), MUMBAI - 400 020 VS. M/S ESSAR STEEL LIMITED, GROUP TAXATION, ESSAR HOUSE, NO.11, K.K.MARG, MAHALAXMI, MUMBAI - 400 034 PAN/GIR NO. : A A AC E 1741 P ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. S.D.SRIVASTAVA /ASSESSEE BY : MR. VIJAY MEHTA DATE OF HEARING : 12 TH AUGUST , 201 4 DATE OF PRONOUNCEMENT : 22 ND A U GUST , 201 4 O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) , DATED 21 - 2 - 2011, FOR THE ASSESSMENT YEAR 200 6 - 0 7 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T.ACT . 2 . IT IS PERTINENT TO MENTION HERE THAT APPEAL OF THE ASSESSEE AND REVENUE BOTH WERE HEARD TOGETHER. SINCE THE ISSUE INVOLVED ARE DIFFERENT IN CASE OF REVENUES APPEAL AS WELL AS IN ASSESSEES APPEAL, WE ARE DISPOSING OFF HEREWITH THE REVENUES APPEAL, WHEREIN G ROUNDS ARE ENTIRELY DIFFERENT AND INDEPENDENT OF THE GROUNDS TAKEN IN ASSESSEES APPEAL. ITA NO . 3727 / 11 2 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF HOT BRIQUETTE IRO N (HBI), HOT ROLLED COILS (HRC) SHEETS, PLATES ETC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE SALES OF R S.191 ,42,89,946/ - TO PT ESSAR INDONESIA, A NON - RESIDENT ASSOCIATE CONCERN OF THE ASSESSEE. SINCE IT FALLS UNDER THE TRANSFER PRICING RE GULATIONS, THIS WAS REFERRED TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF THE ARM'S LENGTH PRICE FOR THIS TRANSACTION. THE TPO PASSED THE ORDER U/S.92CA(3) DATED 16.06.2009 BY FIXING THE ARM'S LENGTH PRICE FOR THIS SALES. THE DIFFERENCE IN THE VALU E OF SALES AS PER THE TPO COMES TO RS.5,82,41,193/ - . ACCORDINGLY, THIS DIFFERENCE IN THE VALUE OF SALES OF RS.5,82,41,193/ - WAS ADDED TO THE DECLARED INCOME OF THE ASSESSEE IN CONFORMITY WITH THE ARM'S LE NGTH PRICE DETERMINED BY THE TPO. 4 . DURING THE CO URSE OF ASSESSMENT, THE AO ALSO FOUND THAT ASSESSEE COMPANY HAS NOT DEDUCTED TAX FROM EXPENDITURE OF RS. 14,37,53,592/ - INCURRED TOWARDS INTEREST ON EXTERNAL COMMERCIAL BORROWING (ECB) FROM A CONSORTIUM OF FOREIGN BANKS LED BY BEARISHCH LANDENSBANK, SINGAPO RE. THE ASSESSEE PO I NTED OUT THA T THE COMPANY HAD GOT THE APPROVAL OF THE CBDT FOR EXEMPTION OF THIS INTEREST FROM INCOME CHARGEABLE TO TAX IN INDIA U/S. 10(15)(IV)(C) OF THE ACT AS PER T HE CERTIFICATE DATED 12.03.1997 . THE AO OBSERVED THAT ASSESSEE DID NO T FULFILL THE PURPOSE AND CONDITIONS LAID DOWN UNDER SEC. 1 0(15)(IV)(C), THAT THE LOAN AMOUNT HAS BEEN UTILISED FOR THE PURCHASES OUTSIDE INDIA ITA NO . 3727 / 11 3 OF (1) RAW MATERIAL (2) COMPONENTS AND (3) CAPITAL PLANT AND MACHINERY. SINCE THE AMOUNT HAS BEEN RECEIVED IN RU PEES WHICH GOES TO SHOW THAT FOREIGN LOAN WAS CONVERTED INTO RUPEES. ACCORDINGLY IT WAS DISALLOWED IN THE ASSESSMENT FOR EARLIER YEARS FROM A.Y.2000 - 01 ONWARDS. 5 . BY THE IMPUGNED ORDER, CIT(A) DELETED THE DISALLOWANCE MADE IN RESPECT OF INTEREST PAYMEN T ON EXTERNAL COMMERCIAL BORROWINGS TO THE TUNE OF RS. 14.37 CRORES. THE CIT(A) ALSO DELETED THE ADDITION OF RS. 5.82 CRORES MADE ON ACCOUNT OF TRANSACTION WITH ASSOCIATE ENTERPRISES. AGAINST THE ABOVE ORDER OF CIT(A), THE REVENUE IS IN APPEAL B EFORE US, W HEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN : - 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WAS THE LD. CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE MADE BY THE AO IN RESPECT OF INTEREST PAYMENT ON EXTERNAL COMMERCIAL BORROWINGS TO THE TUNE OF RS. 14.37 CRORES, DESPITE THE FACT THAT THE AO IN IT'S ASSESSMENT ORDER HAD CLEARLY BROUGHT OUT THE FACT THAT THE ASSESSEE DID NOT FULFILL THE CONDITIONS LAID DOWN IN SECTION 10 (15) (IV) (C) OF THE IT ACT, IN ORDER TO QUALIFY FOR THE DEDU CTION' . 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE ADJUSTMENT RS.5.82 CRORES MADE ON ACCOUNT OF TRANSACTIONS WITH THE ASSOCIATES ENTERPRISES WITHOUT APPRECIATING THE FACT THAT METHODOLOGY ADOPTED FOR ACCEPTANCE OR REJECTION OF THE PRICE IS THE SAME AND WHERE THE CONTRACT PRICE IS LESS THAT THE PRICE OF THAT DAY THE AVERAGE PRICE ADJUSTMENT HAS BEEN MADE. FURTHER, WHETHER THE DECISION OF LD.CIT(A) TO CONSIDER THE AGGREGATE OF THE SALES MADE TO THE ASSOCIATE ENTERPRISES AND THEN COMPARE IT WITH THIRD PARTIES AS AGAINST INDIVIDUAL ITEM IS IN ACCORDANCE WITH LAW' 6 . WITH REGARD TO DISALLOWANCE OF INTEREST ON EXTERNAL COMMERCIAL BORROWINGS, WE FOUND THAT SIMILAR DISALLOWANCE WAS MADE BY THE AO IN THE ASSESSMENT YEAR 2000 - 01, WHICH WAS DELETED BY THE CIT(A). THE ITA NO . 3727 / 11 4 CIT(A) HAS DELETED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATION : - 1.4 I HAVE PERUSED THE ASSESSMENT ORDER, WRITTEN SUBMISSIONS OF THE APPELLANT. THIS IS AN OLD RECURRING ISSU E WHICH HAS BEEN DECIDED IN APPELLANTS FAVOUR BY DIFFERENT FIRST APPELLATE AUTHORITIES SINCE A.Y.2000 - 01. THE NATURE OF THE TRANSACTION REMAINS THE SAME, SO THERE ARE NO COMPELLING REASONS TO DEVIATE FROM THE EARLIER POSITIONS. THE INTEREST PAID BY THE A PPELLANT CANNOT BE TREATED AS INCOME TAXABLE IN THE HANDS OFF THE RECIPIENT BY VIRTUE OF SECTION 10(15)(IV)(C). IN THAT CASE, THE TDS PROVISION ARE NOT APPLICABLE AND CONSEQUENTLY THE PROVISIONS OF SECTION 40(A) CANNOT BE INVOKED. THUS, FOLLOWING THE PRI NCIPLE OF JUDICIAL CONSISTENCY THE DISALLOWANCE OF RS.14,37,53,592/ - IS DELETED. 7 . GROUND WAS RAISED BY REVENUE WITH REGARD TO DELETION OF DISALLOWANCE IN RESPECT OF INTEREST PAYMENT ON EXTERNAL COMMERCIAL BORROWINGS WAS ALSO CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE AND MATTER WAS DECIDED IN FAVOUR OF ASSESSEE AFTER HAVING FOLLOWING OBSERVATION : - 10. GROUND NO. IV PERTAINS TO THE DISALLOWANCE OF AN AMOUNT OF RS.11.94.CRORES. ASSESSEE MADE A BORROWAL OF US$ 40 MILLION (WORKING OUT TO INDIAN RS. 143.46 CRORES) FROM ABROAD IN MARCH, 1997 BY WAY OF EXTERNAL COMMERCIAL BORROWING (ECB) FROM A CONSORTIUM OF FOREIGN BANKS SYNDICATED BY BEARISHCH LANDENSBANK, SINGAPORE. ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF RS. 11,94,87,216 IN THE YEAR UNDER CONSI DERATION ON THIS LOAN. AO HAS DISALLOWED THE SAME UNDER SECTION 40(A)(IA) STATING THAT NO TDS HAS BEEN MADE FROM THIS INTEREST. ASSESSEE HAS SUBMITTED THAT THE INTEREST ON THE ABOVE LOAN WAS EXEMPTED UNDER SECTION 10(15)(IV)(C) AND THUS NO TDS WAS REQUIRED TO BE MADE ON THIS INTEREST. THE LEARNED CIT (A) ALLOWED ASSESSEES CONTENTION ON THE REASON THAT THE SAME ISSUE WAS DECIDED BY HIS PREDECESSOR IN FAVOUR OF ASSESSEE. 11. THE LEARNED CIT (DR) RELIED ON THE ORDERS OF AO. LD COUNSEL HAS SUBMITTED THAT APP ROVAL UNDER SECTION 10(15)(IV)(C) OF THE ACT WAS GRANTED BY THE CBDT VIDE LETTER DATED 12.03.1997. ASSESSEE HAS NOT DEDUCTED TDS WHILE MAKING THE PAYMENT SINCE IT HAD OBTAINED APPROVAL UNDER SECTION 10(15)(IV)(C) OF THE ACT. THE APPROVAL GRANTED BY THE CBD T HAS NOT BEEN WITHDRAWN. APPROVAL ONCE GRANTED CONTINUES TO BE VALID UNLESS SPECIFICALLY WITHDRAWN. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CHOTATINGRAI TEA AND OTHERS (258 ITR 529). ITA NO . 3727 / 11 5 12. WE HAVE CONSIDERED THE ISSUE. THERE IS NO DISPUTE WITH REFERENCE TO ASSESSEE OBTAINING ECB LOAN OF US$ 40 MILLION ON 20.03.1997 WHICH COMES TO INDIAN RS. .143,45,99,850 AT THE RELEVANT TIME. FROM 20.03.1997 AND 30.03.1998 ASSESSEE MADE PAYMENTS IN FOREIGN EXCHANGE OF OVER RS . .400 CRORES IN RESPECT OF PLANT & MACHINERY, RAW MATERIALS AND COMPONENTS. AO HAS NOT TREATED THE PAYMENTS OF INTEREST AS ALLOWABLE ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE WITH THE FOLLOWING ARGUMENTS. DISALLOWANCE OF INTEREST PAYABLE ON EXTERNAL COMMERCIAL BORROWING IN THE LETTER DATED 19.12.2003, THE ASSESSEE COMPANY STATED THAT INTEREST PAYABLE DURING THE RELEVANT PREVIOUS YEAR ON THE EXTERNAL COMMERCIAL BORROWING (ECB) RAISED IN MARCH 1997 SYNDICATED BY BEARISH LANDENS BANK, SINGAPORE IS RS. 1 1,94,87,216/ - . HOWEVER, NO TDS HAS BEEN DEDUCTED ON THIS INTEREST PAYABLE. THE ASSESSEE POINTED OUT THAT THE COMPANY HAD GOT THE APPROVAL OF THE CBDT FOR EXEMPTION OF THIS INTEREST FROM INCOME CHARGEABLE TO TAX IN INDIA U/S. 1 0(15)(IV)(C) OF THE ACT AS P ER THE CERTIFICATE DATED 12.03.1997. THE CERTIFICATE OF THE CBDT APPROVED ONLY THE RATE OF INTEREST AND IT DOES NOT GRANT EXEMPTION FROM TDS. MOREOVER, THE EXEMPTION IS SUBJECT TO THE CONDITIONS MENTIONED IN THAT SECTION. AS DESCRIBED IN DETAIL IN THE ASSE SSMENT ORDER DATED 07.03.2003 FOR THE A.YR. 2000 - 01, THE ASSESSEE HAS NOT FULFILLED THE PURPOSE AND CONDITIONS LAID DOWN U/S. 1 0(15)(IV)(C) THAT THE LOAN AMOUNT HAS BEEN UTILISED FOR THE PURCHASES OUTSIDE INDIA OF (1) RAW MATERIAL (2) COMPONENTS AND (3) C APITAL PLANT AND MACHINERY SINCE THE AMOUNT HAS BEEN RECEIVED IN RUPEES WHICH GOES TO SHOW THAT FOREIGN LOAN WAS CONVERTED INTO RUPEES. THEREFORE, THE ASSESSEE WAS ASKED AS TO WHY INTEREST OF RS. 11,94,87,2161 - SHOULD NOT BE DISALLOWED AS PER SEC. 40(A)(I) OF THE INCOME TAX ACT. TO THE ABOVE, THE ASSESSEE REPLIED AS UNDER IN ITS LETTER DATED 01.03.2004 : THE COMPANY HAS OBTAINED THE APPROVAL FROM THE GOVERNMENT OF INDIA U/S. 10(15)(IV)(C) OF THE INCOME TAX ACT, 1961 VIDE THEIR LETTER DATED 12.03.1997. A S PER THE AFORESAID SECTION, INTEREST RECEIVED BY THE FOREIGN BANK IS EXEMPT FROM INDIAN INCOME TAX PROVIDED THE COMPANY HAS OBTAINED AN APPROVAL FROM THE GOVERNMENT OF INDIA U/S.10(15)(IV)(C). AS THE INTEREST INCOME IS EXEMPTED FROM TAX IN THE HANDS OF RE CIPIENT, THE COMPANY HAD NOT DEDUCTED THE TDS SINCE NO TDS CAN BE DEDUCTED ON A PAYMENT WHICH IS NOT TAXABLE. SECTION 10(15)(IV) (C) READS AS UNDER: 10 IN COMPUTING THE TOTAL INCOME OF PREVIOUS YEAR, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLA USES SHOULD NOT BE INCLUDED. 15(IV) INTEREST PAYABLE. ITA NO . 3727 / 11 6 (C) BY AN INDUSTRIAL UNDERTAKING IN INDIA ON ANY MONIES BORROWED OR DEBT INCURRED BY IT IN A FOREIGN COUNTRY IN RESPECT OF PURCHASE OUTSIDE INDIA OF RAW MATERIALS OR COMPONENTS OR CAPITAL PLANT AND M ACHINERY, TO THE EXTENT TO WHICH INTEREST DOES EXCEED THE AMOUNT OF INTEREST CALCULATED AT THE RATE APPROVED BY THE CENTRAL GOVERNMENT IN THIS BEHALF, HAVING REGARD TO THE TERMS OF LOAN OR DEBT AND ITS REPAYMENT. EXPLANATION - FOR THE PURPOSE OF THE ITEM, PURCHASE OF CAPITAL PLANT AND MACHINERY INCLUDE THE PURCHASE OF SUCH CAPITAL PLANT AND MACHINERY UNDER THE PURCHASE AGREEMENT OR LEASE AGREEMENT TO PURCHASE SUCH PLANT AND MACHINERY' FROM THE AFORESAID SECTION, IT IS CLEAR THAT, TO GET THE EXEMPTION FOLL OWING CONDITIONS SHOULD BE SATISFIED: I) INTEREST SHOULD BE PAID BY AN INDUSTRIAL UNDERTAKING IN INDIA II) MONEY SHOULD BE BORROWED OR DEBT SHOULD BE INCURRED IN A FOREIGN COUNTRY III) IT IS BORROWED IN RESPECT OF PURCHASE OF RAW MATERIALS, COMPONE NTS OR CAPITAL PLANT AND MACHINERY IV) INTEREST RATE SHOULD BE EXEMPTED TO THE EXTENT OF APPROVAL GRANTED BY CENTRAL GOVERNMENT. FROM THE ABOVE, IT IS VERY CLEAR THAT TO GET EXEMPTION, MONEY SHOULD BE BORROWED BY INDUSTRIAL UNDERTAKING IN INDIA. FURTH ER, THE MONEY SHOULD BE BORROWED FROM A FOREIGN COUNTRY AND PURPOSE OF SUCH BORROWALS SHOULD BE IN RESPECT OF IMPORT OF RAW MATERIAL ETC. AS CAN BE SEEN FROM THE ABOVE, THE APPELLANT HAS COMPLIED WITH ALL THE CONDITIONS LAID DOWN IN THE AFORESAID SECTION. DICTIONARY MEANING OF THE WORD 'IN RESPECT OF' IS ACT OF NOTICING WITH ATTENTION, GIVING PARTICULAR CONSIDERATIONS TO, IN REGARD TO, IN RESPECT OF THESE MATTERS OR IN RELATION TO OR WITH REGARD TO OR WITH RESPECT. FROM THE ABOVE DICTIONARY MEANING IT IS CLEAR THAT LEGISLATIVE INTENTION WAS TO GIVE THE EXEMPTION FOR THE INTEREST PAYABLE ON THE FUNDS BORROWED ABROAD IN RELATION TO BUYING THE RAW MATERIALS, CAPITAL GOODS, ETC. IT WAS NOT NECESSARY THAT BORROWING OF FUNDS SHOULD BE FOLLOWED BY THE SUBSEQUENT UTILIZATION OF THE FUNDS, NOR IS IT NECESSARY THAT THE SAME BORROWED FUNDS SHOULD BE UTILISED AS SUCH FOR BUYING THOSE MATERIALS. RELIANCE WAS PLACED ON CIT VS. CHUNILAL RAMESHWARLAL 70 ITR 167 (PATNA) WHERE THE HIGH COURT HAD OCCASION TO INTERPRET THE WORD IN RESPECT OF AS UNDER: THE EXPRESSION IN RESPECT OF IS VITAL CONNOTATIONS THAT THE WORD IN OR ON. HENCE A CLAUSE OF MUNICIPAL TAX THOUGH NOT THE TAX OF PREMISE OR BUILDING MAY NEVERTHELESS BE TAXED IN RESPECT OF THE PREMISES OR BUILDING US ED FOR THE BUSINESS. THUS TAX PAID TO MUNICIPALITIES FOR CARRYING ON A PROFESSION MADE WITHIN THE MUNICIPALITY UNDER SECTION 150(A) OF THE BIHAR AND ORISSA ITA NO . 3727 / 11 7 MUNICIPALITY ACT WAS HELD TO BE TAXED IN RESPECT OF THE TERMS IN WHICH THE BUSINESS WAS CARRIED ON A ND COVERED BY THIS. 13. ON SIMILAR ISSUE THE LEARNED CIT (A) IN AY 2000 - 01 (COPY PLACED ON RECORD) HAS HELD AS UNDER: 7.3 SHRI AHMED ARGUES THAT IT WILL BE UNREASONABLE TO INTERPRET THE LAW AS REQUIRING THAT, SAY, IF A NOTE WITH NUMBER X HAS BEEN BORR OWED, THE SAME NOTE BEARING NUMBER X SHOULD BE PAID OUT. AS HAS BEEN EMPHASISED ON BEHALF OF THE APPELLANT, THE PIVOTAL WORDS ARE IN RESPECT OF'. IF THE MONIES HAVE BEEN BORROWED/DEBT INCURRED IN RESPECT OF PURCHASE OUTSIDE INDIA OF RAW MATERIALS OR COMPO NENTS OR CAPITAL PLANT AND MACHINERY AND THE OUTGOING BY WAY OF INTEREST IS AT THE FATE APPROVED BY THE GOVERNMENT, THERE WILL BE NO REQUIREMENT OF TDS. AS THE WORDS 'IN RESPECT OF' HAVE NOT BEEN DEFINED, I CHECKED UP WEBSTER'S UNABRIDGED DICTIONARY AND FI ND THE FOLLOWING MEANINGS : (I) INSOFAR AS CONCERNS (II) AS REGARDS SUBSTANTIVELY THE WORDS IN RESPECT OF' IMPLY THAT IF AN AMOUNT X HAS BEEN BORROWED FOR PAYMENT TO A, THE AMOUNT X SHOULD REACH A. THE WORDS 'IN RESPECT OF' DO NOT REQUIRE THAT THE NO TES BEARING NUMBER, SAY A - L TO A - 100, ALONE SHOULD GO TO A; AS LONG AS A GETS THE AMOUNT X, THE REQUIREMENT SUGGESTED BY THE WORDS 'IN RESPECT OF IS SATISFIED. THE ASSESSING OFFICER'S CONTENTION IS THAT THE LOAN SHOULD NOT HAVE BEEN CONVERTED INTO RUPEES BY BRINGING IT INTO INDIA AND THE APPELLANT SHOULD NOT HAVE SPENT IT FOR VARIOUS PURPOSES. FROM THE PERUSAL OF DETAILS AND SAMPLE VOUCHERS SUBMITTED BY THE APPELLANT, IT IS SEEN THAT DURING THE PERIOD MARCH 1997 TO MARCH 1998 ITSELF, THE APPELLANT SPENT OV ER RS. 400 CRORE IN RESPECT OF PURCHASES OUTSIDE INDIA OF RAW MATERIALS/COMPONENTS/PLANT AND MACHINERY. SINCE THE APPELLANT HAS PAID OUT MORE THAN THE BORROWED AMOUNT IN RESPECT OF THE PURCHASE OF RAW MATERIALS/COMPONENTS/ CAPITAL EQUIPMENT AFTER THE BORRO WING, WITHIN A PERIOD OF ABOUT A YEAR, I AM OF THE VIEW THAT THE APPELLANT HAS SATISFIED THE REQUIREMENT OF LAW. THEREFORE NO TDS WAS REQUIRED TO BE MADE FROM THE INTEREST PAID/CREDITED TO THE LENDERS. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO ALLOW THE APPELLANT'S CLAIM OF INTEREST. 14. IN THE PRESENT ORDER, THE LEARNED CIT (A) WITHOUT ELABORATE DISCUSSION HAS ALLOWED ASSESSEES CLAIM ON THE SAME REASON AS THAT OF AY 2000 - 01. THEREFORE, IN ORDER TO EXAMINE THE ISSUE, WE HAD TO EXTRACT THE ABOVE OR DER OF THE CIT (A) FOR CONSIDERING THIS GROUND. AS CAN BE SEEN FROM THE ABOVE, THE LEARNED CIT (A) DISCUSSED THE ISSUE BOTH ON FACTS AS WELL AS ON LAW. IT IS A FACT THAT THE CBDT HAS EXAMINED THE RECEIPT OF INTEREST AS PER THE PROVISIONS OF SECTION 10(15)( IV)(C) OF THE ACT. THEREFORE, WHERE THE UTILIZATION IS FOR PURCHASE OUTSIDE INDIA OF RAW MATERIAL, COMPONENTS OR PLANT & MACHINERY, SO LONG AS EXEMPTION GRANTED IS VALID, THE INTEREST RECEIVED BY THE OTHER PARTY IS NOT COVERED BY THE IT ACT AND BY VIRTUE O F EXEMPTION GRANTED BY THE CENTRAL GOVT., THE QUESTION OF ITA NO . 3727 / 11 8 TDS ON THE ABOVE AMOUNT DOES NOT ARISE AT ALL. SINCE THERE IS NO REQUIREMENT OF TDS, QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(IA) FOR NON DEDUCTION OF TAX ALSO DOES NOT ARISE. MOREOVER, AS SEEN FROM THE CORRESPONDENCE WITH THE MINISTRY OF FINANCE BY THE ASSESSEE COMPANY WAY BACK IN DECEMBER, 1996 AND FEBRUARY, 1997 IT CAN BE NOTICED THAT THE CBDT ALSO INSISTED ON VERIFYING THE DEPLOYMENT OF FUNDS AND ASSESSEE VIDE THE LETTER DATED 7.2.1997 ENCLOS ED THE AUDITORS CERTIFICATE CERTIFYING THE ATTACHED STATEMENT SHOWING THE DEPLOYMENT OF FUNDS EQUIVALENT TO US$ 40.22 MILLION AND CORRESPONDING INVOICES FOR IMPORT OF CAPITAL GOODS FOR THE HOT ROLLED COILS PROJECT OF THE COMPANY OUT OF EURO CONVERTIBLE BO NDS ISSUE OF US$ 75.00 MILLION. THEY ALSO PLACED ON RECORD THE APPROVAL OF THE RBI FOR THE PURPOSE OF FINANCING THE PUT OPTION UNDER EURO CONVERTIBLE BONDS ISSUE OF USD 75 MILLION. AFTER EXAMINING THE RELEVANT CERTIFICATES THE CBDT FOREIGN TAX DIVISION VID E LETTER DATED 12.03.1997 GRANTED THE APPROVAL UNDER SECTION 10(15)(IV)(C). THEREFORE, THE CONTENTION OF ASSESSEE NOW MADE AT THE TIME OF PAYMENT OF INTEREST DOES NOT SURVIVE AS THE ISSUE OF UTILIZATION OF THE FUNDS WAS ALREADY EXAMINED BY THE CBDT AT THE TIME OF GRANTING EXEMPTION. AS ALREADY STATED ONCE THE INTEREST INCOME IS NOT TAXABLE IN THE HANDS OF RECIPIENT AND WAS EXEMPTED BY THE GOVT. OF INDIA, QUESTION OF TDS ON THE INTEREST PAID BY ASSESSEE DOES NOT ARISE. THEREFORE, THE GROUND HAS NO MERIT AND ACCORDINGLY REJECTED. AS THE FACTS AND CIRCUMSTANCES OF THE CASE DURING THE YEAR UNDER CONSIDERATION ARE SAME AND THE SAME LOAN IS BEING CONTINUED DURING THE YEAR UNDER CONSIDERATION, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CAS E, WE DISMISS THE GROUND RAISED BY THE REVENUE. 8 . WITH REGARD TO ADDITION OF RS. 5.82 CRORES IN RESPECT OF SALE TO AE, WE FIND THAT D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD SOLD 108614.73 METRIC TON OF HOT ROLLED COILS ('HRC') TO ITS ASSOCIATE ENTERPRISE, PTESSAR INDONESIA, FOR AN AGGREGATE OF RS.191, 42,89,946. FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS THE ASSESSEE COMPANY HAD USED THE COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD. FOR THIS PURPOSE ASSESSEE HAS COMPARED THE PRICE OF HRC PREVAILING IN THE INTERNATIONAL MARKET. THE MARKET RATES HAVE BEEN ITA NO . 3727 / 11 9 OBTAINED FROM THE WEBSITE WWW.STELLBB.COM. IT PROVIDES THE DATA REGARDING MINIMUM AND MAXIMUM PRICE IN THE MARKET ON A PARTICULAR DA Y. HOWEVER, TRANSFER PRICING ADJUSTMENT WAS DONE IN THE CASE OF FOLLOWING TWO TRANSACTIONS: SALES ON 25/08/2005 OF 19822.969 TONNE@ USD 400 PER TONNE . SALES ON 03/11/2005 OF 24598.038 TONNE @ USD 400 PER TONNE.. WE FOUND THAT INSTEAD OF THE ACTUAL SALE OF PRICE OF USD 400 PER TONNE WHICH WAS WIT HIN THE RANGE OF MINIMUM AND MAXIMUM PRICE ON THAT DATE, THE TRANSFER PRICING OFFICER CONSIDERED THE AVERAGE OF THE MINIMUM AND MAXIMUM PRICE ON THAT DATE AND THUS CONSIDERED THE PRICE OF USD 425 AND USD 435 PER TONNE RESPECTIVELY AS ARMS LENGTH PRICE. 9 . BY THE IMPUGNED ORDER, THE CIT(A) DELETED ADDITION AFTER HAVING FOLLOWING OBSERVATIONS : I HAVE PERUSED THE TPO'S ORDER AND THE WRITTEN SUBMISSIONS. IT IS OBSERVED THAT EXTERNAL CUP HAS BEEN EMPLOYED BY THE APPELLANT BY USING THE WEBSITE WWW.STEUBB.CCOM TO ESTABLISH ITS ALP. THE TPO HAS NO OBJECTION TO THE DATA OBTAINED FROM THIS WEBSITE IMPLYING THEREBY THAT THE DATA IS WIDELY AND ROUTINELY USED IN THE ORDINARY COURSE OF THIS INDUSTRY TO NEGOTIATE PRICES FOR UNCONTROLLED SALES. 3.5 THE ONLY BONE OF CO NTENTION IS THAT WHILE THE APPELLANT HAD CONSIDERED ALL THE EIGHT TRANSACTIONS WITH ITS AE IN TOTALITY BY AGGREGATING THE SAME WHEREAS THE TPO PICKED UP TWO TRANSACTION WHERE THE PRICE CHARGED WAS LESS THAT THE AVERAGE MARKET PRICE AND ALSO BEYOND 5% PERMI SSIBLE BANDWIDTH TO MAKE THE ADDITION IGNORING OTHER TRANSACTION WHERE THE AVERAGE PRICE CHARGED WAS MORE. RULE 10(A)(A) OF THE RULES DEFINES A TRANSACTION TO INCLUDE A NUMBER OF CLOSELY LINKED TRANSACTION. IN CASE THEY ARE CLOSELY LINKED THEN THEY CAN B E AGGREGATED FOR DETERMINING THE ALP. IN THE PRESENT CASE THE APPELLANT HAS EXPORTED HOT ROLLED COILS TO ITS AE IN INDONESIA BETWEEN 30U1 JUNE 2005 TO 10TH MARCH,2006. THE PRICE HAS BEEN DETERMINED FROM THE WEBSITE WHOSE DATA IS NOT SUBJECT TO CHALLENGE. ITA NO . 3727 / 11 10 T HE PRODUCT REMAINS THE SAME AND THE SOURCE OF (WEBSITE) FROM WHICH THE AVERAGE PRICE HAS BEEN TAKEN REMAINS THE SAME. AS SUCH THIS IS A FIT CASE FOR AGGREGATION. IN FACT OUT OF 8 TRANSACTIONS, THERE ARE ONLY 3 TRANSACTIONS WHERE THE AVERAGE PRICE CHARGED BY THE APPELLANT TO ITS AE IS LESS. IN FACT IF THE AVERAGE PRICE IS ADOPTED FOR ALL THE 8 TRANSACTIONS, THEN THE AVERAGE COMES EXACTLY TO 420.71 WHICH IS WHAT THE PRICE CHARGED BY THE APPELLANT TO ITS AE. THUS THE ACTION OF THE TPO IN RESORTING TO PICK AND CHOOSE IS NEITHER MANDATED BY L.T. RULES NOR EXPECTED FROM A QUASI JUDICIAL AUTHORITY. 3.7 THE MUMBAI TRIBUNAL IN THE CASE OF AUDCO INDIA LTD. VS ACIT (2010 TII 57 - ITAT - MUM - TP) HAD OCCASION TO EXAMINE A CASE WITH IDENTICAL FACTS. IN THE ABOVE CASE, THE ASSESSEE SOLD VALVES TO ITS AE'S, WHICH CONSTITUTES 1 PERCENT OF THE TOTAL SALES. THE APPELLANT HAD ADOPTED CUP METHODOLOGY TO JUSTIFY ITS ARM'S LENGTH CRITERION. TPO MADE ADJUSTMENT BY COMPARING THE PRICE OF VALVES SOLD AT LOWER PRICES AND IGNORED THE VAL VES SOLD AT HIGHER PRICES. THUS WHILE MAKING THE ADJUSTMENTS TPO DISREGARDED THE FACT THAT THE APPELLANT HAS ALSO SOLD VALVES TO ITS AE AT PRICES HIGHER AS COMPARED TO THE AVERAGE CHARGED TO THE THIRD PARTIES. IN THE ABOVE RULING, IT WAS EMPHASIZED THAT, IT WOULD HAVE BEEN FAIR AND REASONABLE ON THE PART OF THE TPO TO CONSIDER THE AGGREGATE OF THE SALES MADE TO THE AE AND THEN COMPARE IT WITH THIRD PARTIES AS AGAINST THE INDIVIDUAL ITEMS CONSIDERED BY HIM. TPO HAS BEEN SELECTIVE IN HIS APPROACH AND MADE T HE ORDER ARBITRARY. IT IS NOT FAIR FOR A QUASI - JUDICIAL AUTHORITY TO PICK UP THOSE DATA, WHICH ARE CONVENIENT AND SUITABLE TO IT AND IGNORE THE CORRESPONDING DATA WHICH GOES AGAINST IT: ULTIMATELY AN ORDER TO STAND HAS TO HAVE A MARK OF FAIRNESS, REASONABL ENESS AND JUDICIOUSNESS. CONSIDERING THE DIFFERENCE BETWEEN THE SALE PRICE TO AE AND ARM'S LENGTH PRICE IS ONLY 3.35 PERCENT, WHICH IS WELL WITHIN THE LIMIT OF 5 PERCENT, TRIBUNAL UPHELD THE FINDING OF THE CIT(A). TO SUM UP, THE AVERAGE PRICE CHARGED F OR THE 8 TRANSACTIONS AT RS.420.71 IS EXACTLY WHAT THE ARMS LENGTH PRICE SHOULD BE AFTER AGGREGATION AND SO THERE IS NO SCOPE FOR ADJUSTMENTS. THIS ADDITION OF RS.5,82,41,193/ - IS DELETED . 1 0 . W E HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE OR DERS OF THE AUTHORITIES BELOW. A CLEAR FINDING HAS BEEN RECORDED BY THE CIT(A) TO THE EFFECT THAT ASSESSEE HAS ALREADY CONSIDERED ALL THE 8 TRANSACTIONS WITH ITS AE IN TOTALITY BY AGGREGATING THE SAME WHEREAS THE TPO PICKED UP TWO TRANSACTIONS WHERE THE PR ICE CHARGE WAS LESS THAN THE AVERAGE MARKET PRICE. RULE 10(A)(A) DEFINES A TRANSACTION TO ITA NO . 3727 / 11 11 INCLUDE A NUMBER OF CLOSELY LINKED TRANSACTION. IN CASE THEY ARE CLOSELY LINKED THEN THEY CAN BE AGGREGATED FOR DETERMINING THE ALP. WE FOUND THAT ASSESSEE HAS EXPORT ED HOT ROLLED COILS TO ITS AE BETWEEN 30 - 6 - 2005 TO 10 - 3 - 2006, THE PRICE HAS BEEN DETERMINED FROM THE WEBSITE WHOSE DATA IS NOT SUBJECT TO CHALLENGE. THE PRODUCT REMAINS THE SAME AND THE SOURCE FROM WHICH THE AVERAGE PRICE HAS BEEN TAKEN REMAINS THE SAME. ACCORDINGLY, IT IS A FIT CASE FOR AGGREGATION. WE FOUND THAT IF THE AVERAGE PRICE IS ADOPTED FOR ALL THE 8 TRANSACTIONS, THEN THE AVERAGE COMES EXACTLY TO 420.71 WHICH IS WHAT THE PRICE CHARGED BY THE ASSESSEE TO ITS AE. FURTHERMORE, THE DETAILED FINDING R ECORDED BY THE CIT(A) AT PARA 3.4 TO 3.8 HAS NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY COGENT MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION IN RESPECT OF ADJUSTMENT MADE O F RS. 5,82,41,193/ - . 1 1 . IN THE RESULT , APPEAL OF REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 /08/2014 . 22 /08/2014 SD/ - SD/ - ( ) ( VIJAY PAL RAO ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 22 /0 8 /2014 /PKM , PS COPY OF THE ORDER FORWARD ED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. ITA NO . 3727 / 11 12 / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. // TRUE COPY//