2013 (11) TMI 572 - AT - Income Tax

Addition at the direction of DRP as against the total adjustment to ALP made in the draft assessment order purchase of LPG (propane, Butane and LPG Mix) from its Associated Enterprise (AE in short). - Held that - TPO and DRP have examined all the factual aspects in respect of each of the shipments and has accepted 33 out of total 35 shipments to be within the Arm s length price - In respect of two shipments from Saudi Arabia to Porbandar in May, 2007 and October, 2007, assessee could not produce any evidence or comparable data with regard to the price paid - Assessee himself had proposed the calculation or methodology being conscious of fact that calculating the prices on the basis of various factors would be cumbersome process, hence price can be computed on the basis of distance between Port of origin and Port of destination which was also accepted by the DRP. The price in respect of two shipments in May, 2007 and October, 2007 from the port of origin from Saudi Arabia were found to be in excess than the ALP at US 34.74 and 44.96 per M.T. Excepting these two all other shipments were found to be within the arm s length. Admittedly, assessee has not produced any comparable data in so far as the price is concerned in respect of May, 2007 and October, 2007 to indicate that the price paid by it in respect of two shipments were within the arm s length Decided against the Assessee. Penalty u/s 271(1)(c) of the Income Tax Act Held that - No any reason to interfere with the finding of the learned DRP as the assessee can very well make out a case for dropping the proceedings for imposition of penalty when the Assessing Officer actually takes up such proceedings Decided against the Assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,61,33,111/- to ALP for gas imported from AE.
2. Methodology for determining arm's length price (ALP) and freight charges.
3. Adjustment to ALP for shipments to Visakhapatnam and Porbandar Ports.
4. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Addition of Rs. 1,61,33,111/- to ALP for Gas Imported from AE:
The assessee, a wholly-owned subsidiary of SHV Energy India Pvt. Limited, imported LPG from its Associated Enterprise (AE). The Transfer Pricing Officer (TPO) determined that the price paid by the assessee was not at arm's length, leading to an adjustment of Rs. 9,85,59,861/-. The Dispute Resolution Panel (DRP) later directed a reduced adjustment of Rs. 1,61,33,111/-.

2. Methodology for Determining ALP and Freight Charges:
The assessee adopted the Comparable Uncontrolled Price (CUP) method, using prices published by Argus Media. The TPO noted discrepancies in freight charges and adjusted the cost price accordingly. The DRP found the TPO's method of using the lowest freight rate inappropriate and agreed to a methodology based on the distance between ports. The DRP used a shipment arranged by the AE for M/s Chevron, USA, as a benchmark, calculating freight charges proportionately based on distance.

3. Adjustment to ALP for Shipments to Visakhapatnam and Porbandar Ports:
The DRP analyzed shipments to Visakhapatnam and Porbandar Ports. For Visakhapatnam, the DRP found that the excess freight charges for two shipments were within the tolerance level of +/-5%, so no adjustment was required. For Porbandar, the DRP found excess payments for two shipments in May and October 2007, leading to an adjustment of Rs. 1,61,33,111/-. The assessee argued that various factors like distance, fuel costs, and vessel age should be considered, but the DRP maintained its methodology based on distance alone.

4. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings. The court found no reason to interfere with the DRP's findings, stating that the assessee could argue for dropping the penalty during actual proceedings.

Conclusion:
The court upheld the DRP's findings and dismissed the assessee's appeal. It sustained the addition of Rs. 1,61,33,111/- to the income of the assessee and found no reason to interfere with the initiation of penalty proceedings under section 271(1)(c). The judgment emphasized the reasonableness and appropriateness of the DRP's methodology in determining the ALP and freight charges based on distance.