DCIT, New Delhi V. M/s Vipin Enterprises, New Delhi

ITA 4248/DEL/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7477 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 09-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 03-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H L DIHANA
• Assessee Lawyers: ABHISHEK AGARWAL S
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI. BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL I.T.A. NO. 4222(DEL)/2009 ASSESSMENT YEAR: 2005-06 VIPIN ENTERPRISES, ADD ITIONAL COMMISSIONER OF BT-61, SHALIMAR BAGH, VS. INCOME-TAX , RANGE-39, NEW DELHI. NEW DELHI-110088. I.T.A. NO. 4248(DEL)/2009 ASSESSMENT YEAR: 2005-06 ADDITIONAL COMMISSIONER OF VIPIN ENTE RPRISES, INCOME-TAX, RANGE-39, VS. BT-61, S HALIMAR BAGH, NEW DELHI. NEW DELHI. (APPLICANT) (RESPONDENT) ASSESSEE BY : S/SHRI AJAY VOHRA, ADVOCATE, NEERAJ JAIN, RANIT KATYAL & ABHISHEK AGARWAL, ADVOCATES DEPARTMENT BY: SHR I H.L. DIHANA, CIT, DR DATE OF HEARIN G: 09.01.2012 DATE OF PRONOUN CEMENT: 20.01.2012. ORDER PER K.G.BANSAL :AM THE FACTS OF THE CASE ARE THAT THE ASSESSEE-FIR M FILED ITS RETURN ON 24.10.2006 DECLARING TOTAL INCOME OF RS. 18,68,72 1/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961, ON 30.03.2007. ITA NOS. 4222 & 4248(DEL)/2009 2 THEREAFTER, ASSESSMENT PROCEEDINGS WERE INITIA TED BY ISSUING NOTICE U/S 143(2) ON 23.10.2006. DURING THE COURSE OF ASSESS MENT PROCEEDINGS, IT WAS INTER-ALIA FOUND THAT THE ASSESSEE HAS UNDERTAKE N INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE (AE), SRI CHIRAG PRIVATE LTD., SRI LANKA. THE TRANSACTIONS ARE OF IMPORT OF COPPER-INGOT S AGGREGATING TO RS. 99.27 CRORE. HOWEVER, THE ASSESSEE HAD NOT FILED DETAI LS OF THESE TRANSACTIONS IN PRESCRIBED FORM NO. 3CEB, AS REQUIRED UNDER THE L AW. FURTHER, IT WAS FOUND THAT THE ASSESSEE HAS NOT MAINTAINED DOCUMENTATIO N IN RESPECT OF ARMS LENGTH PRICE (ALP) OF THESE TRANSACTIONS. CONSEQ UENTLY, THE AO REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ALP OF THE TRANSACTIONS. 1.1 THE TPO PASSED THE ORDER ON 16.10.2008, IN W HICH UPWARD REVISION OF RS. 2,95,42,104/- WAS SUGGESTED FOR BRINGING T HE VALUE OF THE TRANSACTIONS IN LINE WITH THE ALP. IT IS MENTI ONED THAT SRI CHIRAGE PRIVATE LTD. IS UNDISPUTEDLY AN AE. THE ASSESS EE HAS NOT SUBMITED STATUTORY FORM AND IT HAS ALSO NOT MAINTAINED T HE REQUISITE DOCUMENTATION TO JUSTIFY THAT THE TRANSACTIONS WERE UNDERTAKEN AT ARMS LENGTH. THE FORM HAS NOT BEEN FILED EVEN IN THE COURSE OF DETERMIN ATION OF THE ALP. HE CAME TO THE CONCLUSION THAT CUP IS THE MOST APPRO PRIATE METHOD TO ITA NOS. 4222 & 4248(DEL)/2009 3 EVALUATE THE ALP. THE ASSESSEE ALSO AGREED THA T CUP METHOD IS THE MOST APPROPRIATE METHOD. FOR THIS PURPOSE, IT W AS FOUND THAT THE AE HAD SOLD SIMILAR GOODS TO 3-AAY, GANPATI ROLLINGS, ABH ISHEK AND JAIN METAL WORKS IN INDIA. THE TPO TABULATED THE PRICE CHA RGED FROM THE ASSESSEE AND FROM THE UNRELATED PARTIES IN THE PERIOD 2 2.12.2004 TO 16.03.2005. IT WAS FOUND THAT WHILE COPPER-INGOTS WERE SO LD TO THE ASSESSEE @ US$ 3600 PER METRIC TON (PMT), AND THEY WERE SOLD TO T HE UNRELATED PARTIES @ US$ 3200 PMT. THUS, EXCESS AMOUNT OF US$ 400 PMT WAS CHARGED FROM THE ASSESSEE. THE TPO ALSO DISCUSSED THE REASON S FOR CHARGING HIGHER RATE FROM THE ASSESSEE. IN VIEW OF AFORESAID FINDINGS , UPWARD ADJUSTMENT OF RS. 2,95,42,104/- WAS SUGGESTED ON THE BASIS OF TH IS DIFFERENCE. 1.2 ON RECEIPT OF THE REPORT, THE AO ISSUED A SH OW CAUSE NOTICE AS TO WHY THE ADJUSTMENT, AS SUGGESTED BY THE TPO, SH OULD NOT BE MADE TO THE TOTAL INCOME RETURNED BY THE ASSESSEE. IT WAS S UBMITTED THAT THE TPO DETERMINED THE ALP ON CUP METHOD BY USING ONE PRICE ONLY, BEING THE PRICE BETWEEN 22.12.2004 TO 23.03.2005. ON OTH ER DATES, THE ASSESSEE HAS PURCHASED THE GOODS AT A LOWER RATE THAN TH E RATE CHARGED FROM UNRELATED PARTIES. THE AO DID NOT ACCEPT THIS C ONTENTION. SHE MADE AN ITA NOS. 4222 & 4248(DEL)/2009 4 ADJUSTMENT OF RS. 2,95,42,104/- AS SUGGESTED BY TH E TPO, AND COMPUTED THE TOTAL INCOME OF RS. 3,14,10,824/-. 1.3 THE ONLY GROUND TAKEN BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS) WAS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. ADDITIONAL COMMISSIONER OF INCOME TAX WAS NOT JUSTIFIED IN MAKING AN ADDITION OF RS. 2,95,42,104/- TO THE RETURNED INCOM E OF THE APPELLANT ON ACCOUNT OF ARMS LENGTH PRICE (ALP) ALLEGEDLY WO RKED OUT BY HIM/HER UNDER THE CUP METHOD @ US$ 400 PMT MULTIPLIED B Y 1641.228 MT @ RS. 45/- PER US$. 1.4 THE LD. CIT(APPEALS) MENTIONED IN THE IMPUGNED ORDER THAT THERE IS NO DISPUTE BETWEEN THE TPO AND THE ASSESSEE TH AT CUP IS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP. HOWEVE R, THE PLEA OF THE ASSESSEE IS THE AE SOLD GOODS TO UNRELATED PART IES AT LOWER RATE BECAUSE OF THREE REASONS, -(I) IT WAS BOUND BY THE RAT E MENTIONED IN THE AGREEMENTS EXECUTED ON 10.10.2004, (II) THE UNRE LATED PARTIES MADE PAYMENTS THROUGH THE LETTER OF CREDIT (LC), AND (III) THE PRICE OF COPPER- INGOTS INCREASED FROM DECEMBER, 2004 TO MARCH, 20 05, BECAUSE OF WHICH THE ASSESSEE HAD TO PAY HIGHER PRICE. ITA NOS. 4222 & 4248(DEL)/2009 5 1.5 IN REGARD TO THE FIXED-PRICE CONTRACTS OF THE AE WITH THE UNRELATED PARTIES, IT IS MENTIONED THAT THEY WERE ENTERED IN TO IN THE MONTH OF OCTOBER, 2004. THE GOODS WERE SUPPLIED BETWEEN JANUARY, 2005 TO FEBRUARY, 2005. A PRUDENT BUSINESSMAN WILL NOT SELL GOODS AT A L OWER PRICE IN A SITUATION WHERE LC IS OPENED AFTER A PERIOD OF TWO TO THREE MONTHS. IN SUCH A SITUATION, HE WILL REVIEW THE MARKET RATE AND FIX THE PRICE ACCORDINGLY. 1.6 COMING TO THE DEDUCTION TO BE GIVEN ON ACCO UNT OF IMMEDIATE PAYMENT BY UNRELATED PARTIES, IT IS MENTIONED THAT THERE WILL BE DIFFERENCE IN PRICE IN THE CASE OF CASH SALE AND CREDIT SAL E. HE GRANTED REDUCTION OF 0.35% ON THIS GROUND. 1.7 THE LD. CIT(APPEALS) ALSO NOTED THAT AS PER QUOTATIONS OF COPPER ON LONDON METAL EXCHANGE (LME), THE RATE INCREA SED FROM US$ 3022 IN JANUARY TO US$ 3110 IN FEBRUARY, AND TO US$ 3245 IN MARCH. IN VIEW THEREOF, HE ACCEPTED THE PLEA THAT THE ASSESSEE HAD TO PAY HIGHER PRICE BECAUSE OF INCREASE IN INTERNATIONAL MARKET. HE WORKED OUT THE DEDUCTION IN THIS RESPECT AT 7.40%. ITA NOS. 4222 & 4248(DEL)/2009 6 1.8 ACCORDINGLY, IT HAS BEEN DECIDED THAT ADJUSTM ENT OF 7.75% SHOULD BE GIVEN TO THE ASSESSEE TO DETERMINE THE ALP. HE QUANTIFIED THE RELIEF AT RS. 22,89,513/-, WHICH MEANS THAT THE ADDITION OF RS. 2,72,52,591/- WAS CONFIRMED. 1.9 BOTH THE PARTIES ARE AGGRIEVED BY THIS ORDER . THE ASSESSEE HAS TAKEN UP SEVEN GROUNDS IN THE APPEAL. IN THE COUR SE OF HEARING BEFORE US, IT HAS BEEN EXPLAINED BY THE LD. COUNSEL FOR THE AS SESSEE THAT ONLY GROUND NO. 1 IS THE EFFECTIVE GROUND WHICH IS THAT THE LD. CIT(APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 2,72,5 2,591/- ON ACCOUNT OF THE ALLEGED DIFFERENCE IN ARMS LENGTH PRICE OF INTE RNATIONAL TRANSACTIONS OF IMPORT OF FINISHED PRODUCTS, VIZ., FERROUS META LS. IT IS FURTHER EXPLAINED THAT OTHER GROUNDS ARE IN THE NATURE OF FACTS OR ARGUMENTS, WHICH MAY BE DISPOSED OFF TO THE EXTENT TAKEN UP IN THE COUR SE OF HEARING. ON THE OTHER HAND, THE REVENUE HAS CHALLENGED THE RELIEF GRA NTED BY THE LD. CIT(A) BY TAKING ONLY ONE GROUND THAT THE LD. CIT(APPEALS ) ERRED IN REDUCING THE ADDITION BY 7.75%, I.E., RS. 22,89,153/- (7.75% OF RS. 2,95,42,104/-) MADE ITA NOS. 4222 & 4248(DEL)/2009 7 BY THE AO IN THE ASSESSMENT ORDER PASSED U/S 143 (3) READ WITH SECTION 92CA(4) OF THE ACT. 2. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE DISPUTE IN THIS CASE IS IN RESPECT OF THE COMPUTATION OF ALP OF PURCHASE TRANSACTIONS WITH THE AE. THE AO ADOPTED CUP M ETHOD, WHICH HAS BEEN ACCEPTED BY THE ASSESSEE. THE AE HAD SOLD SIMI LAR GOODS TO UNRELATED PARTIES IN LAST QUARTER OF THIS YEAR. THE TPO HAS PREPARED ANNEXURE-2 WHICH INTER-ALIA CONTAINS THE RATE AT WHICH G OODS ARE SOLD TO THE ASSESSEE BETWEEN 22.12.2004 AND 16.03.2005 AND THE RATE AT WHICH GOODS ARE SOLD TO THE UNRELATED PARTIES IN THE MONTHS OF JANUARY AND FEBRUARY, 2005. THE GOODS ARE SOLD TO THE ASSESS EE @ US$ 3600 PMT WHILE THE GOODS ARE SOLD TO THE UNRELATED PARTY @ US$ 3200 PMT. THERE IS A DIFFERENCE OF US$ 400 PMT. TAKING INTO AC COUNT THE QUANTITY OF GOODS PURCHASED BY THE ASSESSEE AND APPLYING CONV ERSION RATE OF RS. 45/- PER DOLLAR, THE TPO SUGGESTED UPWARD REVISION OF INCOME BY AN AMOUNT OF RS. 2,95,42,104/-. THIS ADJUSTMENT HAS BEEN MADE BY THE AO. 2.1 HE DRAWS OUR ATTENTION TO PAGE NOS. 56 AND 65 OF THE PAPER BOOK. THESE ARE SALE CONTRACTS OF THE AE WITH GANAPAT I ROLLINGS (P) LTD. AND ITA NOS. 4222 & 4248(DEL)/2009 8 ABHISHAKE ELECTRICALS ENTERED INTO ON 10.10.2004, IN RESPECT OF 204 MT AND 71 MT RESPECTIVELY OF COPPER INGOTS. THE P RICE HAS BEEN FIXED AT US$ 3200 PMT. CERTAIN OTHER CONDITIONS REGARDING DELIVERY TERMS, ORIGIN OF GOODS, INSURANCE AND PAYMENT HAVE BEE N MENTIONED. BOTH THE CONTRACTS ARE IDENTICALLY WORDED. IT IS HIS CA SE THAT THESE CONTRACTS ARE FIXED-PRICE CONTRACTS. THEREFORE, THE AE WAS OBL IGED TO SELL THE GOODS TO THESE UNRELATED PARTIES AT FIXED PRICE OF US$ 3200 PMT AS PER THE AGREEMENTS. THE PRICE OF COPPER FLUCTUATED DUR ING THE WHOLE YEAR AS SEEN FROM LME QUOTATIONS. THE CLOSING QUOTATION ON 01.04.2004 WAS 3015, WHICH CAME DOWN TO 2650 ON 30.06.2004. I T INCREASED TO 2998 ON 30.09.2004. IT FURTHER INCREASED TO 3150 ON 31.1 2.2004. IN THE MONTHS OF JANUARY AND FEBRUARY, THE CLOSING RATES VARIED BETWEEN 2912 AND 3242. IT CLOSED AT 3290 ON 31.03.2005. ON THE BASIS OF THIS DATA, IT IS MENTIONED THAT THE RATE STARTED INCREASING FRO M THE MIDDLE OF NOVEMBER, 2004. IN VIEW OF THE FLUCTUATING RATE, IT WAS SUBMITTED BEFORE THE LD. CIT(APPEALS) THAT ADJUSTMENT SHOULD BE MADE FROM THE RATE CHARGED BY AE FROM THE ASSESSEE AS THE TRANSACTIONS WITH UNR ELATED PARTIES WERE FIXED-PRICE CONTRACTS. THE LD. CIT(APPEALS) ACCEP TED THIS CONTENTION AND GRANTED REDUCTION @ 7.40%. WHILE DOING SO, HE HAS TAKEN INTO ACCOUNT THE PREVAILING RATES IN THE MONTHS OF JANUARY, FEBRUA RY AND MARCH, 2005. IF ITA NOS. 4222 & 4248(DEL)/2009 9 HE HAD TAKEN THE DATE OF CONTRACTS OF THE AE WITH UNRELATED PARTIES INTO ACCOUNT, WHICH IS 10.10.2004, THE REDUCTION OF 12.03% SHOULD HAVE BEEN ALLOWED BY HIM. 2.2 HE FURTHER SUBMITS THAT THE LD. CIT(A) GRANTED REDUCTION OF 0.35% ON ACCOUNT OF THE FACT THAT CONTRACTS WITH UNRELAT ED PARTIES WERE SPOT PAYMENT CONTRACTS BY OPENING LC. HOWEVER, HE OUGHT TO HAVE GIVEN FURTHER DEDUCTION IN RESPECT OF CREDIT FACILITY O F TWO MONTHS GRANTED BY THE AE TO THE ASSESSEE. 2.3 IT IS ALSO SUBMITTED THAT ALL THESE DEDUCTIO NS SHOULD HAVE BEEN GRANTED FROM THE ALP FOR THE PURPOSE OF OBTAINING , WHAT WE MAY CALL THE ADJUSTED ALP. HOWEVER, THE LD. CIT(A) GRANTE D THE DEDUCTION FROM THE ADJUSTMENT OF RS. 2,95,42,104/- MADE BY THE AO. THIS ERROR WAS PROBABLY UNINTENTIONAL. THEREFORE, IT IS URGED THAT THE ADJUSTMENT OF 12.38% AND A FURTHER ADJUSTMENT ON ACCOUNT OF CREDIT FACILITY SHOULD BE MADE TO THE RATE OF US$ 3200 PMT PAID BY UNRELATED PARTIES. 2.4 IT IS ALSO HIS CASE THAT THE LD. CIT(A) HA S USED TWO COMPARABLES AND THEREAFTER COMPUTED THE MEAN ALP OF THESE COM PARABLES. AS MORE ITA NOS. 4222 & 4248(DEL)/2009 10 THAN ONE COMPARABLE HAS BEEN USED, THEREFORE, THE ASSESSEE IS ENTITLED TO A FURTHER ADJUSTMENT OF 5% TO THE ADJUSTED ALP. 2.5 IT IS ARGUED THAT IF ALL THESE ADJUSTMENTS ARE MADE, THE PRICE AT WHICH GOODS WERE PURCHASED BY THE ASSESSEE WILL BECOME THE ACCEPTABLE PRICE UNDER THE CUP METHOD. 3. IN REPLY, THE LD. CIT, DR REFERS TO THE ORDE R OF THE TPO. IN PARTICULAR, IT IS MENTIONED THAT THE ASSESSEE DI D NOT FILE FORM NO. 3CEB EITHER WITH THE RETURN OF INCOME OR IN THE COUR SE OF THE DETERMINATION OF THE ALP. NO DOCUMENTATION HAS BEEN MAINTAINED AS PRESCRIBED UNDER THE STATUTE FOR JUSTIFYING THE PRICE PAID TO THE A E. THE ASSESSEE HAD, IN FACT, UNDERTAKEN INTERNATIONAL TRANSACTIONS WITH AE O F MORE THAN RS. 99.00 CRORE. SINCE NO DOCUMENTATION HAD BEEN MAINTAINE D, THE TPO PROCEEDED WITH THE DETERMINATION OF ALP ON THE BASIS OF INF ORMATION SUPPLIED BY THE ASSESSEE REGARDING TRANSACTIONS OF SALE UNDERT AKEN BY THE AE WITH THE UNRELATED PARTIES. IT WAS FOUND THAT IN THE MO NTHS OF JANUARY AND FEBRUARY, 2005, GOODS WERE SOLD TO UNRELATED P ARTIES @ US$ 3200 PMT WHILE THE GOODS WERE SOLD TO THE ASSESSEE IN THE LAST QUARTER @ US$ ITA NOS. 4222 & 4248(DEL)/2009 11 3600 PMT. ACCORDINGLY, THE TOTAL INCOME OF THE A SSESSEE WAS INCREASED BY AN AMOUNT OF RS. 2,95,42,104/-. 3.1 THEREAFTER, HE FURTHER REFERS TO THE ORDER OF THE LD. CIT(APPEALS). ACCORDING TO THE LD. CIT(A), THE OBJECT OF TRANSFE R PRICING LEGISLATION IN THE CASE OF CROSS-BORDER TRANSACTION IS THAT THE COU NTRIES SHOULD GET DUE SHARE OF THEIR TAXES. 3.2 COMING TO FACTS AGAIN, HE REFERS TO CONTRAC T NOTES OF THE AE WITH UNRELATED PARTIES OF OCTOBER, 2004. THE LD. CI T(A) MADE ADJUSTMENT OF 7.40% ON ACCOUNT OF INCREASE IN THE RATE OF COPPE R IN THE MONTHS OF JANUARY, FEBRUARY AND MARCH, 2005. WHILE DOING SO , HE DID NOT GRANT ANY OPPORTUNITY OF BEING HEARD TO THE AO OR THE TPO. THIS ADJUSTMENT HAS BEEN WRONGLY MADE IF WE EXAMINE THE PRICE QUO TED ON LME, WHICH NEVER EXCEEDED 3290. HE FURTHER GRANTED ADJUSTM ENT OF 0.35% ON ACCOUNT OF THE FACT THAT UNRELATED PARTIES MADE PAYMEN TS THROUGH LC, WHICH INVOLVES COST. THE AO WAS NOT HEARD ON THIS POINT ALSO. THIS DEDUCTION HAS ALSO BEEN WRONGLY GRANTED. IT IS HIS CASE THAT THE DETERMINATION OF THE PRICE AT US$ 3200 PMT HAS BE EN MADE ON THE BASIS OF DATA FURNISHED BY THE ASSESSEE IN A SCENARIO WH ERE NO DOCUMENTATION WAS ITA NOS. 4222 & 4248(DEL)/2009 12 MAINTAINED AND EVEN FORM 3CEB WAS NOT FILED A T ANY TIME. IT HAS NOT BEEN FILED EVEN DURING THE COURSE OF HEARING OF THE CASE BY THE TRIBUNAL. THEREFORE, IT IS ARGUED THAT THE ORDER OF THE LD. CIT(APPEALS) IS NOT SUSTAINABLE IN LAW AS IT SUFFERS NOT ONLY FROM VI OLATION OF PRINCIPLE OF NATURAL JUSTICE BUT ALSO BECAUSE UNDUE ADJUSTMEN TS HAVE BEEN MADE WHILE DETERMINING THE ALP. CONSEQUENTLY, IT IS URGED TH AT THE ORDER OF THE CIT(APPEALS) MAY BE SET ASIDE AND THAT OF THE AO MAY BE RESTORED. 4. IN THE REJOINDER, THE LD. COUNSEL SUBMITS THA T NON-MAINTENANCE OF CONTEMPORARY DATA AND NON-FILING OF FORM NO. 3 CEB HAVE NO BEARING ON DETERMINATION OF ALP ALTHOUGH THESE FAILURES HAVE THEIR OWN CONSEQUENCES. THE CUP METHOD HAS BEEN ADOPTED BY THE TPO A ND ACCEPTED BY THE ASSESSEE. THEREFORE, THERE IS NO GOING BACK ON IT EXCEPT MAKING ADJUSTMENTS TO MAKE RELATED AND UNRELATED PARTY TRANSACTIONS FULLY COMPARABLE. THE MOVEMENT OF PRICE IS APPARENT F ROM THE FACE OF RECORD FROM THE QUOTATIONS AT LME. THEREFORE, IT IS U RGED THAT THE APPEALS MAY BE DECIDED ON THE BASIS OF THE MERITS OF THE CAS E. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT IN THE LAST QUA RTER OF THE YEAR, THE ASSESSEE ITA NOS. 4222 & 4248(DEL)/2009 13 PURCHASED GOODS FROM THE AE @ US$ 3600 PMT. TH E AE HAD SOLD SIMILAR GOODS TO THE UNRELATED PARTIES IN INDIA IN THE MONTHS OF JANUARY AND FEBRUARY @ US$ 3200 PMT. THE CONTRACTS WITH U NRELATED PARTIES WERE FIXED-PRICE CONTRACTS. THE AO ADOPTED A LP ON THE BASIS OF RATE CHARGED FROM UNRELATED PARTIES. THE CIT(APPEALS ) MADE ADJUSTMENTS IN RESPECT OF FLUCTUATION IN RATE OF COPPER IN THE LAST QUARTER AND EXPENDITURE INCURRED BY THE UNRELATED PARTIES IN OPENING LC. THE ASSESSEE WANTS THAT ADJUSTMENT ON ACCOUNT OF FLUCTUATION IN RAT E OF COPPER MAY BE GRANTED FROM THE DATE OF CONTRACT WITH UNRELATE D PARTIES AND A FURTHER ADJUSTMENT OF 5% MAY BE GRANTED FROM THE MEAN PRICE DETERMINED BY THE TPO. ON THE OTHER HAND, THE LD. CIT (DR) WANTS RESTORATION OF THE ASSESSMENT ORDER. 5.1 THE MAJOR CONTROVERSY IN THIS CASE RELATES TO THE ADJUSTMENT GRANTED ON ACCOUNT OF FLUCTUATION IN THE RATE OF COPPER, AS SEEN FROM QUOTATIONS ON LME. IT IS NO DOUBT TRUE THAT W HILE GRANTING REDUCTION @ 7.40%, THE LD. CIT(A) DID NOT HEAR THE AO. H OWEVER, IT IS ALSO A FACT THAT THE LD. CIT(A) CONSIDERED ALL THE FACTS A ND THEREAFTER GRANTED THE DEDUCTION. IT HAS BEEN SUBMITTED BY THE LD. COU NSEL THAT IN VIEW OF ABSENCE OF ANY PLEA BY THE LD. DR THAT THE MATTER MAY BE RESTORED TO THE FILE ITA NOS. 4222 & 4248(DEL)/2009 14 OF THE LD. CIT(APPEALS), THE ISSUE MAY BE DECID ED ON MERITS AS BOTH THE PARTIES HAVE NOW BEEN HEARD AT LENGTH. HAVING CONSIDERED THE SUBMISSIONS FROM BOTH THE PARTIES, WE PROCEED TO DECIDE THE ISSUE ON MERITS. 5.2 FROM THE CONTRACTS WITH UNRELATED PARTIES EN TERED INTO ON 10.10.2004, IT IS SEEN THAT BOTH OF THEM ARE FI XED-PRICE CONTRACTS. BOTH THE CONTRACTS MENTION THAT SHIPMENT SHALL BE PROM PT. AS AGAINST THE AFORESAID, IT IS SEEN THAT THE GOODS WERE SOLD BY THE AE TO THE UNRELATED PARTIES IN THE MONTHS OF JANUARY AND FEBRUARY, 200 5. THEREFORE, THE ADDITIONAL FACT IS THAT THE CONTRACTS WERE NOT F IXED-TIME CONTRACTS. IT APPEARS FROM THE CONDUCT OF THE PARTIES THAT THE CONTRACTS WERE VALID TILL THE END OF THE LAST QUARTER OF FINANCIAL YEAR 200 4-05, AS SALES TO THEM AT THE FIXED RATE HAVE BEEN MADE IN JANUARY AND FEB RUARY, 2005. THERE ARE NO PRIOR SALES TO THESE PARTIES. THE ASSESSEE D ID NOT RECEIVE ANY ADVANCE FROM THE UNRELATED BUYERS AS PAYMENTS ARE STA TED TO HAVE BEEN RECEIVED THROUGH LCS ON SHIPMENT OF GOODS. IT MAY BE MENTI ONED HERE THAT THE ASSESSEE RAISED TWO INVOICES ON GANAPATI ROLLINGS (P) LTD. ON 22.01.2005 AND 07.02.2005, AND IT RAISED ONLY ONE INVOICE ON ABHISHAKE ELECTRICALS ON 20.01.2005. FROM THESE FACTS, IT CAN BE CONCLUDE D THAT BOTH THE UNRELATED ITA NOS. 4222 & 4248(DEL)/2009 15 BUYERS WERE NOT OBLIGED TO PURCHASE COPPER-INGOTS FROM THE AE ON OR ABOUT 10.10.2004. IN THIS CONNECTION, IT IS ALSO OF INTEREST TO NOTE THAT THE CLOSING RATE ON LME ON 11.10.2004 WAS 3140 AND O N 12.10.2004 IT WAS 3094. THE QUOTATION ON 10.10.2004 IS NOT AVAILA BLE. FURTHER, THE CLOSING RATES AT LME ON 20.01.2005 WAS 3040, ON 21.01.2 005 IT WAS 3082, AND ON 07.02.2005 IT WAS 3000. THE QUOTATION OF 21.01.20 05 IS NOT AVAILABLE. THUS, IT CAN BE SAFELY INFERRED THAT THE LME RATE ON ALL THESE DATES WAS LOWER THAN THE RATE AT WHICH GOODS ON THESE DA TES WERE SOLD TO THE UNRELATED PARTIES. THE AVERAGE RATE OF THESE THREE DATES IS 3067. THEREFORE, THE INCREASE IN RATES BETWEEN 10.10. 2004 TO 07.02.2005 STANDS COVERED AS THE GOODS WERE SOLD TO THESE PARTI ES AT US$ 3200 PMT AGAINST THE AVERAGE QUOTED PRICE ON LME OF US $ 3067. TO PUT IT MORE SUCCINCTLY, THE POSSIBILITY IN FLUCTUATION OF RA TE HAD BEEN TAKEN INTO ACCOUNT BY THE AE AND THE UNRELATED PARTIES WH EN FIXED-PRICE CONTRACTS WERE ENTERED INTO AND THAT IS WHY THE CONTRACTS W ERE NOT MADE FIXED-TIME CONTRACTS. THE RATE QUOTED AT LME TOUCHED A HI GH OF 3242 ON 22.02.2005 AND 3292 ON 16.03.2005 IN THIS QUARTER. HOWEVE R, IT NEVER TOUCHED 3600, WHICH IS THE PRICE AT WHICH GOODS WERE PURCHASED BY THE ASSESSEE. THE ASSESSEE RELIES ON LME RATE FOR ESCALATIO N. AT THE SAME TIME, THERE IS NO EVIDENCE ON RECORD THAT THE QUOTED GOODS WE RE DIFFERENT FROM THE ITA NOS. 4222 & 4248(DEL)/2009 16 GOODS DEALT IN BY THE AE. NOTWITHSTANDING LACK OF EVIDENCE IN THIS BEHALF, IT IS A FACT THAT COMPARABLE CASES HAVE BEEN FUR NISHED BY THE ASSESSEE AND ADOPTED BY THE TPO. THUS, THE FACTS SHOW THAT T HE FIXED PRICE-CONTRACTS WITH UNRELATED PARTIES TOOK INTO ACCOUNT THE PROB ABLE INCREASE IN PRICES IN COPPER DURING THE PERIOD IN WHICH THEY WERE ENT ITLED TO BUY THE GOODS. ON THE DATES OF PURCHASE, THE LME RATES WERE S TILL LOWER. THEREFORE, IT IS CLEAR THAT NO ADJUSTMENT IS NECESSARY ON THIS GROUN D. ACCORDINGLY, IT IS HELD THAT THE ASSESSEE IS NOT ENTITLED TO GET ANY D EDUCTIONS ON ACCOUNT OF INCREASE IN PRICE QUOTED AT LME. THEREFORE, IT FOLLOWS THAT THE LD. CIT(APPEALS) ERRED IN GRANTING THE DEDUCTION @ 7. 40% FROM THE PRICE CHARGED BY THE AE FROM THE UNRELATED PARTIES. 5.3 COMING TO THE DEDUCTION OF EXPENDITURE INCURR ED IN OPENING THE LC, GRANTED BY THE LD. CIT(A) AT 0.35%, IT IS TO BE APPRECIATED THAT EVEN THE ASSESSEE HAD TO USE SOME METHOD FOR PAYMENT, WH ICH COULD BE EITHER THROUGH LC OR THROUGH BANK TRANSFER. BOTH THESE M ETHODS INVOLVE INCURRING OF COST. NO COMPARATIVE DATA HAS BEEN FURNISHE D BY THE ASSESSEE REGARDING THE EXPENDITURE INCURRED BY IT IN PAYING THE PURCHASE CONSIDERATION TO THE AE. THEREFORE, THE DEDUCTIO N OF 0.35% GRANTED TO THE ASSESSEE IS ALSO NOT BASED ON COMPARATIVE CONSIDE RATION OF THE POSITION OF ITA NOS. 4222 & 4248(DEL)/2009 17 THE ASSESSEE AND UNRELATED PARTIES IN REGARD TO MO DE OF PAYMENT. ACCORDINGLY, IT IS HELD THAT THE DEDUCTION OF 0. 35% WAS ALSO WRONGLY GRANTED BY THE LD. CIT(A). 5.4 THE LD. CIT(A) DID NOT GRANT ANY DEDUCTION I N RESPECT OF THE DIFFERENCE IN PAYMENT TERMS GRANTED TO THE ASS ESSEE AND THE UNRELATED PARTIES. THE UNRELATED PARTIES WERE BOUND TO P AY THE PURCHASE CONSIDERATION IMMEDIATELY ON SHIPMENT OF GOODS. IT IS THE CLAIM OF THE ASSESSEE THAT IT HAS BEEN GRANTED A CREDIT OF TWO MONTHS AFTER SHIPMENT OF GOODS. THIS ISSUE HAS NOT BEEN DISCUSSED BY ANY O F THE LOWER AUTHORITIES. IT IS AN ACCEPTED POSITION THAT DIFFERENCE I N TERMS OF PAYMENT DO HAVE AN IMPACT ON THE PRICE. THE LD. COUNSEL HAS SU BMITTED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF 1.75% ON THIS COUNT. WHIL E THE SUBMISSION OF THE LD. COUNSEL IS ACCEPTED IN PRINCIPLE, IT IS NOT FEASIBLE FOR US TO WORK OUT THE DEDUCTION TO BE GRANTED ON THIS GROUND. THEREFORE , THE MATTER IS RESTORED TO THE FILE OF THE AO TO GRANT APPROPRIATE DEDUCTION AFTER CONSIDERING THE RELEVANT DATA ABOUT TERMS OF PAYMENT ACTUALLY GRA NTED TO UNRELATED PARTIES AND THE ASSESSEE. THUS, THIS MATTER IS RESTORED TO THE FILE OF THE AO TO BE DECIDED AFRESH AFTER GIVING THE ASSESSEE A RE ASONABLE OPPORTUNITY OF BEING HEARD. ITA NOS. 4222 & 4248(DEL)/2009 18 5.5 IT HAS ALSO BEEN SUBMITTED THAT THE LD. CIT(AP PEALS) GRANTED DEDUCTION FROM THE ADJUSTMENT MADE TO THE TOTAL INCOME. IT IS ARGUED THAT THE ADJUSTMENT SHOULD HAVE BEEN GIVEN TO T HE ALP DETERMINED BY THE TPO. NO CONTRARY ARGUMENT HAS BEEN MADE. OB VIOUSLY THE FIRST STEP IN THE WHOLE EXERCISE IS TO DETERMINE THE MEAN O F THE PRICE OF THE COMPARABLE CASES. THEREAFTER ADJUSTMENT HAS TO BE MADE TO SORT OUT DIFFERENCES. THIS LEADS TO THE COMPUTATION OF AD JUSTED ALP. THIS ADJUSTED ALP HAS TO REPLACE THE PRICE CHARGED FROM THE AS SESSEE. THEREFORE, THE AO IS DIRECTED TO MAKE ADJUSTMENT IN RESPECT OF D IFFERENCE IN PAYMENT TERMS TO THE PRICE OF US$ 3200 PMT. 5.6 IT HAS ALSO BEEN ARGUED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF 5% FROM THE ADJUSTED ALP UNDER THE PROVISION C ONTAINED IN SECTION 92C. THIS PROVISION, IN SUB-SECTION (1) ENUMERATES SI X DISTINCT METHODS FOR COMPUTATION OF ALP. SUB-SECTION (2) PROVIDES THA T THE MOST APPROPRIATE OF THESE SIX METHODS SHALL BE APPLIED FOR DETER MINATION OF ALP. PROVISO TO THIS SUB-SECTION STATES THAT WHERE MORE THA N ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ALP SHALL BE TA KEN TO BE THE ARITHMETICAL MEAN PRICES, OR, AT THE OPTION OF THE ASSESSEE , A PRICE WHICH MAY VARY ITA NOS. 4222 & 4248(DEL)/2009 19 FROM ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDIN G 5% OF SUCH ARITHMETICAL MEAN. THE CASE OF THE LD. COUNSEL I S THAT UNDER THIS PROVISO, THE ASSESSEE IS ENTITLED TO DEDUCTION OF 5% OF THE ARITHMETICAL MEAN AS THE LD. CIT(APPEALS) HAS USED DATA OF TWO COMP ARABLE CASES, GANAPATI ROLLINGS (P) LTD. AND ABHISHAKE ELECTRICALS. HOWE VER, THIS ARGUMENT IS NOT IN LINE WITH THE CONTENT OF THE PROVISO, WHICH IS APPLICABLE WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPR IATE METHOD. IN THIS CASE, SALES TO BOTH THESE PARTIES WERE MADE A T US$ 3200 PMT. THUS, ONLY ONE PRICE HAS BEEN DETERMINED NOTWITHSTAND ING THE FACT THAT TWO COMPARABLES WERE USED. THEREFORE, ON THE PLAIN L ANGUAGE OF THE PROVISION, THE ADJUSTMENT AS SOUGHT IS NOT ADMISSIBLE. W E ARE ALSO STRENGTHENED IN THIS VIEW BY THE FACT THAT THE QUESTION OF DEDUCTI ON WOULD COME WHERE DIFFERENT COMPARABLES THROW UP DIFFERENT PRICES. THE ADJUSTMENT IS MADE TO THE MEAN OF THE COMPARABLE PRICES AS IN SUCH A SITUATION THERE IS NO STANDARD PRICE. THUS, THE PRICE PAID BY THE AS SESSEE COULD BE SOMEWHAT DIFFERENT FROM THE PRICE PAID BY ANY OTHER COMPA RABLE CASES. HOWEVER, WHERE THERE IS ONLY ONE PRICE SAY IN CASE OF GOLD, COPPER, ZINC ETC., THERE IS NO POSSIBILITY OF DIFFERENT PRICES ONCE PURITY I S SAME. THUS, IN SUCH A CASE, THE ADJUSTMENT IS NEITHER PROVIDED IN STA TUTE NOR JUSTIFIED ON GENERAL ITA NOS. 4222 & 4248(DEL)/2009 20 CONSIDERATION. ACCORDINGLY, IT IS HELD THAT THE L D. CIT(A) WAS RIGHT IN NOT GRANTING THE ADJUSTMENT TO THE ASSESSEE. 6. THE RESULT OF AFORESAID DISCUSSION IS THAT TH E APPEAL OF THE REVENUE IS ALLOWED; AND THE APPEAL OF THE ASSESSEE IS TREA TED AS DISMISSED FOR STATISTICAL PURPOSES, AS DISCUSSED ABOVE.. SD/- SD/- (A.D. JAIN) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- VIPIN ENTERPRISES, NEW DELHI. ADDITIONAL CIT, RANGE-39, NEW DELHI. CIT(A) CIT, THE D.R., ITAT, NEW DELHI. ASSISTANT REGISTRAR.