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TMI Blog2013 (11) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... ents 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. - ITA No.1632/Hyd/2012 - - - Dated:- 8-11-2013 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Shri Y. Ratnakar For the Respondent : Shri P. Soma SekharReddy ORDER Per Saktijit Dey, J.M: This appeal by the assessee is directed against the assessment order dated 3-8-2012 passed u/s 143(3) read with section 144C (5) on the instructions of the Dispute Resolution Panel (DRP in short), Hyderabad pertaining to the assessment year 2008-09. 2. The assessee has raised seven grounds of appeal. Ground Nos. 1, 6 and 7 are general in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It was submitted that decision makers around the world rely on the independent market coverage and analysis provided by Argus 150 employees. Specialising in discovering prices for the opaque over the counter energy markets requires Argus to have a consistent reporting methodology. It was submitted that Argus was founded in 1970 with the launch of the weekly Europ-Oil Prices and is owned by the family of its founder and its employees. 6. The TPO on going through the TP report submitted by the assessee noticed that the tax payer had taken freight charges on approximate basis for deducting the same from contract price at which the assessee actually purchases the LPG. He further noticed that the freight charges taken on approximate basis is at significant variance, when the port of import is the same. He noticed that out of 36 shipments to import LPG from its AE, 14 shipments were made to Visakhapatnam Port, 21 shipments were made to Porbandar Port and one shipment was made to Mumbai Port. On further examining, the TPO noted that the freight charges adopted for deduction to arrive at the adjusted cost price is varying significantly in the following manner:- Port of Impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, out of the total shipments, 14 shipments were to the Visakhapatnam Port from 5 different ports of Origin in Singapore, Oman, Malaysia, China and Taiwan. The assessee submitted that the TPO took the Argus published price as the FOB price and added freight charges at an uniform rate of US$70 per MT to calculate the landed price or the purchase price of the imported LPG at Visakhapatnam Port and based on the above methodology, the TPO arrived at the landed price which resulted in a difference in price of US$4,89,169.07 or Rs.1,96,84,163/-. 8. On that basis, the TPO arrived at the total excess amount paid was Rs.US$4,89,169.07. It was submitted by the assessee while working out the above adjustment, the TPO did not consider various factors which are as under:- a) Change in distance b) Changes in fuel costs (crude prices) c) Age of the vessel d) Changes in size of the vessel, capacity utilisation e) Availability of the vessels f) Bunker costs at Port of Origin and destination g) Different owners, fuel used, probable timelines (busy scheduled/non-peak business ports) 9. The assessee submitted that without taking into consideration the impact of the above factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's import price is DES (CIF) which is inclusive of freight insurance etc., freight cannot be the same for all the transactions. He further submitted that user charges, storage charges, bunker charges etc., to be paid by the shipping company to the port authorities also vary from port to port. So far as the LPG price or the contract price is concerned, the assessee stated that this is declared by Saudi Aramco on the last working day of preceding month and this is the FOB price for the month. During the relevant year, the assessee stated, the FOB price had undergone wide variation moving from US$506 in March, 2007 which was the lowest to a highest rate of US$ 878 In Dec.2007 and finally closing at US$804 in Feb. 2008. 11. The assessee further brought to the notice of the DRP that during the year under dispute the assessee had imported various LPG consignments from 3 rd party (non-associate enterprises) suppliers at Mumbai. The distance between Porbandar and Mumbai is only 245 Nautical Miles. These imports at Mumbai were from the Port of Rastanura, Saudi Arabia and the Port Sitra, Bahrain and imports were made from these ports to Porbandar also. It was thus stated by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see submitted that a simple methodology can be built on the basis of the distance between the two Ports of shipment which can be taken as the base for determining the freight and accordingly proposed that basis which was also agreed to by the Panel. The DRP felt that the question was to find a vessel which has been arranged for by the AE of the assessee for an unrelated party. In this context, it was found that the assessee's AE had arranged a vessel for M/s Chevron, USA to carry LPG to its subsidiary at Tuticorin. Therefore, the freight charges were considered and taken as a basis to proportionately work out the freight charge on the basis of the distance. The distance between the port of Ras Tanura in Saudi Arabia to the port of Tuticorin in India was found to be 2486 Nautical miles and freight charged for this shipment was US$95.92 per MT. On the aforesaid basis, freight charges for shipments to the Visakhapatnam Port was worked out by takinginto consideration the variable of distance and other variables like size of ship, port of calling and related port charges. 13. On an analysis of these details as given in the tabular form at pages 12 and 13 of the order passed by the DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 639 Trading Co.Ltd. (INC) Panama 29-5-07 Naftomar Shipping -do 675 Trading Co.Ltd. (INC) Panama 12-10-07 Naftomar Shipping Bahrain 725 Trading Co.Ltd. (INC) Panama 27-10-07 Naftomar Shipping Saudi Arabia 725 Trading Co.Ltd. (INC) Panama 16. The learned AR submitted that the distance from Saudi Arabia to Mumbai is 1630 Nautical Miles whereas from Saudi Arabia to Porbandar is 1329 N.M. Thus, on that basis, it was submitted that the excess price paid as held by the DRP is not correct. The learned AR submitted that all 35 shipments from its AE are at ALP. Out of which the DRP accepted 33 shipments to be within arm's length. That being the case, there is no reason to suspect that the price for two shipments to be not within the arm's length. The learned AR submitting a chart comparing the cost of Mumbai shipment with Porbander shipment submitted that the basic price being almost the same no addition is called for and if there is any difference it can be attributed to various factors which are as follows:- (i) increase in crude cost leading to increased freight 2) Age of vessel 3) capacity utilisation of vessel 4) availability of vessel 5) Bunker cost at port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d submissions of the parties and perused the material on record as well as the respective orders of the TPO and DRP. It is evident from the well reasoned order passed by the DRP that, they 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. However, in respect of two shipments from Saudi Arabia to Porbandar in May, 2007 and October, 2007 since the assessee could not produce any evidence or comparable data with regard to the price paid, the DRP found them to be unacceptable. As would be further evident from the order of the DRP, the 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. On the basis of the said methodology, the DRP not only computed the prices for shipments made to Visakhapatnam Port but also shipments made to Porbander Port. As can be seen from the details given in a tabular form at page-15 of the order of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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