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TMI Blog2012 (4) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - IT APPEAL NOS. 4222 & 4248 (DELHI) OF 2009 - - - Dated:- 20-1-2012 - A.D. JAIN, K.G. BANSAL, JJ. Ajay Vohra, Neeraj Jain, Ranit Katyal and Abhishek Agarwal for the Appellant. H.L. Dihana for the Respondent. ORDER K.G. Bansal, Accountant Member The facts of the case are that the assessee-firm filed its return on 24.10.2006 declaring total income of Rs. 18,68,721/-. The return was processed u/s 143(1) of the Income Tax Act, 1961, on 30.03.2007. Thereafter, assessment proceedings were initiated by issuing notice u/s 143(2) on 23.10.2006. During the course of assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO did not accept this contention. She made an adjustment of Rs. 2,95,42,104/- as suggested by the 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 income of the appellant on account of Arm's Length Price (ALP) allegedly worked out by him/her under the CUP method @ US$ 400 PMT multiplied by 1641.228 MT @ Rs. 45/- per US$". 1.4 The ld. CIT (Appeals) mentioned in the impugned order that there is no dispute between the TPO and the assessee that CUP is the most appropriate method to determine the ALP. However, the plea of the assessee is the AE sold goods to unrelated parties at lower rate because of three reasons, -(i) it was bound by the rate mentioned in the agreements executed on 10.10.2004, (ii) the unrelated parties made payments through the letter of credit (LC), and (iii) the price of copper-ingots increased from December, 2004 to March, 2005, because of which the assessee had to pay higher price. 1.5 In re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase transactions with the AE. The AO adopted CUP method, which has been accepted by the assessee. The AE had sold similar goods to unrelated parties in last quarter of this year. The TPO has prepared annexure-2 which inter-alia contains the rate at which goods are sold to the assessee between 22.12.2004 and 16.03.2005 and the rate at which goods are sold to the unrelated parties in the months of January and February, 2005. The goods are sold to the assessee @ US$ 3600 PMT while the goods are sold to the unrelated party @ US$ 3200 PMT. There is a difference of US$ 400 PMT. Taking into account the quantity of goods purchased by the assessee and applying conversion 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 Ganapati Rollings (P) Ltd. and Abhishake Electricals entered into on 10.10.2004, in respect of 204 MT and 71 MT respectively of copper ingots. The price has been fixed at US$ 3200 PMT. Certain other conditions regarding delivery terms, origin of goods, insurance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order of the TPO. In particular, 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. No documentation has been maintained as prescribed under the statute for justifying the price paid to the AE. The assessee had, in fact, undertaken international transactions with AE of more than Rs. 99.00 crore. Since no documentation had been maintained, the TPO proceeded with the determination of ALP on the basis of information supplied by the assessee regarding transactions of sale undertaken by the AE with the unrelated parties. It was found that in the months of January and February, 2005, goods were sold to unrelated parties @ US$ 3200 PMT while the goods were sold to the assessee in the last quarter @ US$ 3600 PMT. Accordingly, the total income of the assessee 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties were fixed-price contracts. The AO adopted ALP 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 rate of copper may be granted from the date of contract with unrelated 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 while granting reduction @ 7.40%, the ld. CIT(A) did not hear the AO. However, it is also a fact that the ld. CIT(A) considered all the facts and thereafter granted the deduction. It has been submitted by the ld. counsel that in view of absence of any plea by the ld. DR that the matter may be restored to the file of the ld. CIT (Appeals), the issue may be decided on merits as both the parties have now been heard at length. Havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were purchased by the assessee. The assessee relies on LME rate for escalation. At the same time, there is no evidence on record that the quoted goods were different from the goods dealt in by the AE. Notwithstanding lack of evidence in this behalf, it is a fact that comparable cases have been furnished by the assessee and adopted by the TPO. Thus, 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. On the dates of purchase, the LME rates were still lower. Therefore, it is clear that no adjustment is necessary on this ground. Accordingly, it is held that the assessee is not entitled to get any deductions 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 incurred 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, which could be either through LC or through bank trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision, in sub-section (1) enumerates six distinct methods for computation of ALP. Sub-section (2) provides that the most appropriate of these six methods shall be applied for determination of ALP. Proviso to this sub-section states that where more than one price is determined by the most appropriate method, the 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. The case of the ld. counsel is 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 comparable cases, Ganapati Rollings (P) Ltd. and Abhishake Electricals. However, 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 appropriate method. In this case, sales to both these parties were made at US$ 3200 PMT. Thus, only one price has been determined notwithstanding the fact that two comparables were used. Therefore, on the plain language of the provision, the adjustment as sought is not admissible. We are also strengthene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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