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2012 (4) TMI 356 - AT - Income TaxArm s length price - Reference to TPO - TPO passed the order on 16.10.2008, in which upward revision of Rs. 2,95,42,104/- was suggested for bringing the value of the transactions in line with the ALP - AO adopted CUP method, which has been accepted by the assessee - it is mentioned that the assessee did not file form no. 3CEB either with the return of income or in the course of the determination of the ALP - ld. CIT(A) made adjustment of 7.40% on account of increase in the rate of copper in the months of January, February and March, 2005 - The contracts with unrelated parties were fixed-price contracts. The AO adopted ALP on the basis of rate charged from unrelated parties - It appears from the conduct of the parties that the contracts were valid till the end of the last quarter of financial year 2004-05, as sales to them at the fixed rate have been made in January and February, 2005 - the facts show that the fixed price-contracts with unrelated parties took into account the probable increase in prices in copper during the period in which they were entitled to buy the goods - it is held that the assessee is not entitled to get any deductions on account of increase in price quoted at LME Regarding deduction of expenditure incurred in opening the LC, granted by the ld. CIT(A) at 0.35% - e ALP shall be taken to be the arithmetical mean prices, or, at the option of the assessee, a price which may vary from arithmetical mean by an amount not exceeding 5% of such arithmetical mean - where there is only one price say in case of gold, copper, zinc etc., there is no possibility of different prices once purity is same - Decided in favor of the assessee
Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions. 2. Application of Comparable Uncontrolled Price (CUP) method. 3. Adjustments for price fluctuations and payment terms. 4. Applicability of 5% deduction under section 92C. Detailed Analysis: 1. Determination of Arm's Length Price (ALP) for international transactions: The assessee-firm filed its return declaring a total income of Rs. 18,68,721/-. During the assessment proceedings, it was found that the assessee had international transactions with its associated enterprise (AE) in Sri Lanka, involving the import of copper-ingots worth Rs. 99.27 crore. The assessee failed to file the required details in form no. 3CEB and did not maintain documentation for the arm's length price (ALP) of these transactions. Consequently, the AO referred the matter to the Transfer Pricing Officer (TPO) to determine the ALP. 2. Application of Comparable Uncontrolled Price (CUP) method: The TPO determined that the CUP method was the most appropriate for evaluating the ALP. It was found that the AE had sold similar goods to unrelated parties in India at a lower price (US$ 3200 PMT) compared to the price charged from the assessee (US$ 3600 PMT). The TPO suggested an upward adjustment of Rs. 2,95,42,104/- based on this difference. The AO issued a show cause notice and, after rejecting the assessee's contentions, made the suggested adjustment, resulting in a total income of Rs. 3,14,10,824/-. 3. Adjustments for price fluctuations and payment terms: The CIT (Appeals) noted that both the TPO and the assessee agreed that the CUP method was appropriate. However, the assessee argued for adjustments due to fixed-price contracts with unrelated parties, immediate payment terms, and price increases in the international market. The CIT (Appeals) granted a reduction of 0.35% for immediate payment terms and 7.40% for price increases, resulting in a total adjustment of 7.75% and a relief of Rs. 22,89,513/-. Both the assessee and the revenue challenged this order. 4. Applicability of 5% deduction under section 92C: The assessee argued for further adjustments, including a 5% deduction under section 92C, citing the use of multiple comparables. The revenue contended that the CIT (Appeals) erred in granting adjustments without hearing the AO and that the deductions were not justified. The Tribunal found that the CIT (Appeals) had considered all facts and granted deductions appropriately, but the major controversy was the adjustment for price fluctuations. The Tribunal concluded that no adjustment was necessary for price fluctuations and that the CIT (Appeals) erred in granting a 7.40% deduction. The deduction of 0.35% for LC expenses was also found to be unjustified due to lack of comparative data. However, the Tribunal accepted the principle of adjusting for credit terms and remanded the matter to the AO for appropriate deduction. The Tribunal also held that the 5% deduction under section 92C was not applicable as only one price was determined. Conclusion: The appeal of the revenue was allowed, and the appeal of the assessee was dismissed for statistical purposes. The Tribunal directed the AO to make appropriate adjustments for credit terms and to determine the adjusted ALP correctly.
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