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TMI Blog2010 (12) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... e the final determination has to be made by the AO only. Thus, failure to act on the part of the TPO cannot lead to the presumption that the order has become time barred. - The cases decided under this chapter and discussed above show that the AO can refer the matter to the TPO for determining arm's length price of an international transaction or he may determine it on his own. Therefore, it is held that the AO was within his jurisdiction when he determined the price of six items of imports made by the assessee. Variation in price - allowance of 5% of arm's length price - the words in the first and second limbs will have to be read to have the same meaning, i.e., the assessee has determined the arm's length price and thereafter declared such price for the purpose of transfer pricing adjustment. Neither such a price is determined nor declared as the transaction has been shown in the books and the return at the purchase price. Therefore, we are of the view that the aforesaid circular is not applicable on the facts and in the circumstances of the case - deciding in favor of assessee Addition on account of difference in value of closing stock - Held that: - AO valued the stock on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with associated enterprises regarding export of pulses, payment of interest and reimbursement of expenses. The assessee relied on "Agriwatch" data base for justifying the contention that import of pulses was undertaken at arm's length price. However, the AO noted that in six instances, the price paid by the assessee was in excess of the quotation in the "Agriwatch". The details of the difference were tabulated, which show that the assessee paid an amount of Rs. 9,76,369 in excess of arm's length price. Therefore, this amount was deducted from the loss declared by the assessee. The details of the transactions are shown in a tabular form below :- S. No. Invoice No. Invoice date Rate per unit(US$) Arms Length Price per unit (US$) Total difference in (Rs.) 1 EX02/1822 27.08.2002 305.01 295 55793.73 2 EX02/2044 19.01.2003 260 250 121731.46 3 EX02/2045 19.01.2003 260 250 121731.46 4 EX02/2047 30.01.2003 233 230 36530.87 5 EX02/2049 03.02.2003 260 230 110371.70 6 EX02/2050 03.02.2003 270 210 530210.13 Total 1588.01 1465 976369.35 2.1 The assessee had shown the value of closing stock at Rs. 15,87,84,036. This included the closing stock of cof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US$ 230. If the value is correctly taken at US$ 250 per unit, the difference between arm's length and the cost price falls within the permissible range of 5%. Therefore, it is argued that no addition can be made in respect of this item. Thereafter, he drew our attention to page No. 35 of the paper book, which shows the quoted price in respect of item No. 6 of the AO's table at US$ 210 per unit on 24.1.2003. No quotation is available on 3.2.2003. The subsequent quotation on 10.2.2003 is US$ 280 per unit. He further drew our attention to page nos. 28 to 31 of the paper book, which show that quotation for a few days remained the same, thereafter increased and remained the same for a few days and this pattern is repeated. In view thereof, it is argued that the arm's length price remained same for quite some time and when it moved, it became more or less the same as the purchase price of the assessee. Therefore, it is argued that no adjustment should be made in respect of this transaction also. 3.1 The assessee also took certain other pleas, which are summarized as overleaf:- (i) Second proviso to section 92C(2) permits a variation of 5% in all cases and for all years; (ii) reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not received, the AO is within his right to determine arm's length price on his own. In case a report is received, the AO may adopt the value arrived at in the report or may take his own decision depending upon the facts of the case and the contents of the report. Accordingly, it is agitated that the assessment is not barred by limitation. Alternatively, if non-making of report means that the TPO accepted the value of the assessee, the AO can make suitable adjustment on his own as mentioned earlier. 3.6 The chapters XXA and X regarding "Acquisition of immovable properties in certain cases of transfer to counteract evasion of tax" and "Special provision relating to avoidance of tax" respectively stand on totally different footings. In the case of the latter, there is no need to prove evasion or avoidance of tax. The only issue is to determine arm's length price so that the profit could be determined as if the enterprise acted in a free manner without control or superintendence which undermines its capacity to undertake business transactions. As all the transactions are independent transactions, which have been sought to be justified independently on the basis of "Agriwatch" data ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of import do not constitute a series of connected transactions, but each transaction is a separate transaction. Therefore, the AO was right in examining each transaction separately for this purpose. It is seen that the assessee has not been able to bring anything on record that various purchases were a part of pre-arranged scheme or agreement so as to constitute a part of the indivisible transactions of purchase. Accordingly, it is held that the AO was within his right to evaluate each transaction separately. 4.3 The third ground is that since the TPO did not carry out the transfer pricing study with a view to determine arm's length price in spite of a reference having been made to him, the order of assessment has become time barred. There are two limbs of the argument in this behalf, namely, that - (i) it is deemed that he accepted the transactions at recorded value; and (ii) the assessment order has become barred as it has been passed without the existence of TPO's order. The learned DR has countered both the arguments. In the case of Sony India Pvt. Ltd. v. Central Board of Direct Taxes & Another (2007) 288 ITR 52, the Hon'ble High Court of Delhi mentioned that on receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case. In reply, the ld. DR relied on the decision of the Special Bench of Bangalore Tribunal in the case of Aztec Software & Technology Services Ltd. v. ACIT (2007) 294 ITR (AT) 32. In this case, it has been inter-alia held that where the language of the statute is clear and unambiguous, it should be interpreted on the plain and natural meaning of the words. In such a case, courts are not required to look into the object or intention of the legislature by resorting to the aid of rules of interpretation. It has been further held that in such a case there is also no need to take the help from speech of the Finance Minister, notes on clauses, marginal notes or headings. It has been also held that the pre-conditions for determining arm's length price are mentioned in section 92C. Once these conditions are satisfied, the AO can proceed to determine such price. There is no other condition required to be satisfied for invoking these provisions. Further, reliance has been placed on the decision of Hon'ble Punjab & Haryana High Court in the case of Coca Cola India Inc. v. ACIT & Others (2009) 309 ITR 194. In this case, it has been held that international transactions with an associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his juncture look at the provision contained in section 92C(2), interpretation of which is under dispute. The provision as it stands now reads as under:- "(2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed: Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices: Provided further that if the variation between the arm's length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length price." 5.1 However, for the year under consideration, this provision had only one proviso, which reads as under:- "Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n contained in the second proviso to section 92C(2). This contention was upheld by mentioning that if the difference is less than five percent, then the actual price paid should be considered as arm's length price under the aforesaid proviso. It was also mentioned that similar view has been taken in the case of Sony India Pvt. Ltd. (supra). 5.3 On the other hand, the ld. DR has relied on the decision of "F" Bench of Delhi Tribunal in the case of Perot System TSI (India) Ltd. v. DCIT 2010-TIOL-51-ITAT-DEL for assessment years 2002-03 to 2004-05 in ITA Nos. 2320 to 2322(Del)/2008 dated 30.10.2009, a copy of which has been placed before us. The Tribunal came to the conclusion that since only one rate was used as a comparable transaction, it cannot be equated with more than once price. Therefore, the tolerance limit of five per cent was not available in the relevant proviso applicable to the proceedings of these years. For the sake of ready reference, paragraph Nos. 15.2 to 15.5. of the order are reproduced below:- "15.2 We can gainfully refer here the relevant provisions of section 92C(2) of the IT Act. "Provided that where more than one price is determined by the most appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. The argument of the ld. counsel is that this proviso has been substituted by two provisos by Finance (No. 2) Act, 2009 with effect from 01.10.2009. The newly inserted provisos are clarificatory in nature and, therefore, they act retroactively. Accordingly, these will apply to assessment year 2003-04 also. We have considered this matter also. In the first instance, the provisos deal with the determination of arm's length price of an international transaction. Therefore, these provisions are in the nature of substantive provisions and not procedural provisions. A substantive provision can be amended retrospectively by the legislature. However, such amendment is taken retrospectively only if it has been so specifically provided by the legislature itself. The proviso was substituted with effect from 01.10.2009 and not retrospectively. Therefore, it comes into operation from assessment year 2009-10 and applies to subsequent years. In the second place, we have already seen that arm's length price has to be determined as per statutory provisions. Therefore, the concession of 5% cannot be read in the statute by interpretation. Accordingly, it is held that newly inserted provisos do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the substituted provisos are clarificatory in nature. Therefore, it is held that in a case where there is only one price determined, the option of five per cent is not available to the assessee. 5.6 Coming to the merits of two adjustments under question, it is a matter of fact on record that the comparable price in respect of item No. 5 of the Assessing Officer's table is 250 and not 230. Therefore, the AO is directed to take arm's length price at US$250 per unit. 5.7 In respect of item No. 6, the case of the ld. counsel, to put in simple terms, is that "Agriwatch" data base is not reliable in respect of "black urd", which has been mentioned as "black mapte" in the data base. A statement is made at the bar by the ld. counsel that both the items are same. On the other hand, the case of the ld. DR is that absence of quotation on some dates is because of lack of transaction. Further, his argument is that it is quite natural that the price may stay stable for an item over a number of days and thereafter move. It is not necessary that the price vary from day-to-day. Variation or absence thereof depends upon a particular item and market conditions prevailing in respect of that item. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividends will not be subjected to tax if it is shown that they had been genuinely refunded to the respective companies before 30.06.1955. In order to carry out this assurance, circular No. 20(XXI-6)/55 was issued by Central Board of Revenue on 10.5.1955. At page 203 of the report, it is mentioned that it is clear that a circular of the kind, which was issued by the Board, would be binding on all officers and persons employed in the execution of the Act. As a consequence of the circular, past transactions which would normally have attracted the stringent provisions were substantially granted exemption from the operation of the said provision by making it clear to all the companies and their shareholders that if past loans were genuinely refunded to the companies, they would not be taken into account. Further, reliance has been placed on the decision of Hon'ble Supreme Court in the case of Ellerman Lines Ltd. v. CIT (1971) 82 ITR 913. It is mentioned that the Central Board of Revenue had issued the notification datedFebruary 10, 1942, under which instructions were issued to the assessing authorities laying down the principles to be applied for assessing the foreign shipping compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity when the provisions, applicable to this case, are interpreted literally. Therefore, relying on our order in the assessee's appeal (supra), this ground is allowed. 7. Ground No. 2 is regarding adjustment of Rs. 7,79,812 made on account of difference in the value of closing stock. We have already summarized the facts relating to this addition. It may be recapitulated that the assessee had shown the value of closing stock at Rs. 8,75,961. In the course of hearing, the inventory was filed along with valuation, which showed the value at Rs. 26,55,773. Therefore, an addition of Rs. 7,79,812 was made to the total income. Before the ld. CIT (Appeals), it was submitted that the assessee has regularly followed the weighted average method for valuation of closing stock. It was further submitted that the valuation of stock is a tax neutral issue as the closing stock of this year becomes the opening stock of immediately succeeding year. The ld. CIT(A) mentioned that this is the first year of operation of the assessee. The assessee has followed weighted average method in this and subsequent years. Therefore, the addition was deleted. 7.1 Before us, the ld. DR submitted that being the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weighted price. 8. We have considered the facts of the case and submissions made before us. It is seen that the AO valued the stock on the basis of inventory and valuation furnished by the assessee in the course of hearing. However, the assessee took up a plea before the ld. CIT (Appeals) that the assessee has been using weighted average value method. This method has been used in this year, being the first year, and in all subsequent years. It was submitted that during the course of assessment proceedings, the MIS report was wrongly furnished to the AO, who made addition on this basis without giving an opportunity of being heard to the assessee. The gist of the arguments of the ld. counsel before us is that the MIS report contained the realizable value of the stock, while the assessee is entitled to value it on the basis of cost or market price, whichever is lower. Since the assessee had closing stock consisting of raw, processed and finished coffee, the weighted average value method was used. We find that the ld. counsel has not referred to any valuation report made by the assessee on the aforesaid method and has also not filed AS-2, mandating weighted average method in such a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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