2023 (7) TMI 844 - AT - Income Tax

TP Adjustment - ALP adjustment on account of payment for freight without considering demurrage and brokerage charges thereon - HELD THAT - We find for the purpose of benchmarking the international transactions, actual quantity i.e. the subject matter of shipment should be considered together with the exchange rate prevailing on the date of shipment. The purpose of transfer pricing regulation in Chapter X of the Act is only to ensure that on the date of relevant international transaction, whether the said transaction had been carried out by the assessee with the AE at arm s length. The quantity to be shipped as mentioned in the agreement and exchange rate prevailing on the date of agreement is only a promise or a contract entered into between assessee and other parties. That promise gets fructified / materialized only when actual shipment is made. Hence, the benchmarking of the said international transaction should be done on the date of actual shipment of the goods by applying the exchange rate of conversion of USD into Indian rupees prevailing on the date of the said transaction and not on the date of agreement. Thus the interpretation of provisions of Chapter X of the Act in this manner alone would be just and fair and serve the intended purpose of the said Chapter. When this is done, there will be no scope of any ALP adjustment in respect of freight charges paid by the assessee as is evident from the aforesaid table. Hence, we direct the Ld. AO / TPO to delete the ALP adjustment. Computation of Long-term Capital Gains - non considering the INDEX COST of assets purchased u/s. 48 - HELD THAT - As in the case of CIT vs. Pruthvi Brokers Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT had categorically held that any valid claim of assessee could be made for the first time either by way of filing a revised computation or before the appellate authorities. We find that the benefit of indexation while computing long term capital gains had been statutorily provided to the assessee. Hence, we direct the Ld.AO to grant the benefit of indexation to the assessee while computing long term capital gains after verifying the veracity of the workings thereon. Accordingly, the ground No.6 raised by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Transfer pricing adjustment for A.Y. 2009-10.
2. Computation of Long-term Capital Gains for A.Y. 2010-11.

Summary:

Issue 1: Transfer Pricing Adjustment for A.Y. 2009-10
The assessee, an Indian Shipping Company, challenged the transfer pricing adjustment of Rs. 11,77,31,845/- made by the Assessing Officer (AO) based on the directions of the Dispute Resolution Panel (DRP). The AO had referred the international transactions to the Transfer Pricing Officer (TPO) due to the transactions exceeding Rs. 15 crores. The TPO determined that the freight rates paid by the assessee to its Associated Enterprises (AEs) were not at Arm's Length Price (ALP) and made adjustments based on the exchange rate and quantity specified in the agreement rather than the actual shipment details.

The Tribunal found that for benchmarking international transactions, the actual quantity shipped and the exchange rate prevailing on the date of shipment should be considered. The Tribunal directed the AO/TPO to delete the ALP adjustment of Rs. 11,77,31,845/- as the transactions were at arm's length based on the actual shipment data. Consequently, the grounds 1 to 3 raised by the assessee were allowed.

Issue 2: Computation of Long-term Capital Gains for A.Y. 2010-11
The assessee contested the computation of Long-term Capital Gains of Rs. 3,41,33,536/- by the AO without considering the indexed cost of assets. The assessee claimed that if the indexation benefit was considered, there would be a Long-term Capital Loss of Rs. 32,05,603/-. The DRP had rejected this claim based on the Supreme Court decision in Goetze (India) Ltd. v. CIT, which stated that new claims cannot be made before the AO without revising the return.

However, the Tribunal noted that appellate authorities could entertain valid claims as per the Supreme Court's decision and the Bombay High Court ruling in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. The Tribunal directed the AO to grant the benefit of indexation after verifying the workings, thereby allowing ground 6 for statistical purposes.

Conclusion:
Both appeals for A.Y. 2009-10 and A.Y. 2010-11 were partly allowed. The Tribunal directed the deletion of the transfer pricing adjustment and granted the benefit of indexation for computing long-term capital gains.