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TMI Blog2015 (11) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... on relating to the transactions of a particular month. (2a)On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in deleting the addition of A28,55,313/- made by the Assessing Officer towards disallowance u/s. section 40(a)(i) relating to interest payments relating to Andhra Pradesh Mineral Development Corporation. (2b) The learned Commissioner of Income Tax (Appeals) has failed to note that interest has wide meaning as per section 2(28A) which includes other charges paid/payable in respect of debt incurred as clearly explained in the case of CIT vs. Vijay Ship Breaking Corporation 261 ITR 113 (Guj) 2003''. 3. The facts of the case regarding first issue is that the assessee is an exporter of minerals exporting to its associate enterprise (A.E) as well as Non-AE. The assessee adopted CUP method, where ever the assessee has comparable transctions, and TNMM method, when comparable transactions are not available. However, A.O/T.P.O has followed CPU method for all products by obtaining export data from Customs department of various ports. The Assessing Officer compared the assessee's export and originally proposed to add A9,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and risks assumed in CIF sale. It is therefore natural that the sales made under CIF terms might command higher premium to compensate the additional investment and the higher risks assumed. The Annexure-A gives the details of comparison made by the department which formed part of assessment order and Annexure-B gives the variance in average realisation for each month. It may be noted from Annexure - B that except in the month of June where the average realisation is less by $3.05/-- sales in other months fetched much higher rates. Accordingly, the Commissioner of Income Tax (Appeals) deleted the addition made by the Assessing Officer. Against this, the Revenue is in appeal before us. 5. The ld. Departmental Representative relied on the order of the Assessing Officer. 6. The ld. Authorised Representative submitted that the transfer pricing officer and in turn the Assessing Officer was not justified in making adjustment to the sale price on account of transfer pricing. The TPO has failed to appreciate that during the year there were six instances of sale of Barite lumps to Associated Enterprise and that in all but one instance the sale price compared favourbly with the arms length ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through our order of even date in ITA No.527/Mds/12. The findings arrived at by the Tribunal in the said order are equally applicable to the present case, as the pattern of transfer pricing analysis made by the TPO in both cases is exactly similar. The facts are identical. Therefore, the said order also may be read along with this impugned order. 21. The TPO has considered the sale value of five items, Barite Powder, Bentonite Lumps, Bentonite Powder, Potash Feldspar Lumps and Soda Feldspar Lumps. In respect of Bentonite Lumps, Bentonite Powder, Potash Feldspar lumps, the assessee has adopted TNMM method. In respect of other two items, CUP method has been used. But the TPO has made the studies by adopting CUP method for all these five items. As far as this case is concerned, the CUP method is also equally acceptable and, therefore, we are not inclined to discuss on the proper method of comparison to be adopted in this case. That study would be only academic. 22. In fact, the assessee has compared its sale price to the AE with that of the export rate of the competitor, M/s. IBC Ltd. In the case of Barite Powder, the export price by M/s. IBC Ltd. was US$ 51.65 per MT, whereas the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng items. 26. The most glaring feature of the transfer pricing study placed before us, is that the TPO has overlooked the simple arithmetic of the case discussed in our order passed for the earlier assessment year 2005-06. We have made this point very clear that the assessee is making sales to AE on FOB basis. The assessee is making sales to non AE on CIF terms. There is a difference between CIF and FOB value. When the freight and insurance factors are excluded from the CIF value reflected in the invoice issued against the sales made to non AE, it is very clear that the said amount is very much comparable to FOB value reflected in the invoice issued against the sales made to AE. It is evident from the records that the price variation between the sale made to AE and non AE is predominantly, because of the different methods of invoicing as FOB and CIF. 27. In addition to the above, it is to be seen that the TPO has not considered the quality variation in the minerals exported by the assessee. The assessee has in fact filed chemical analysis report before the TPO to show that different consignments have different qualities depending upon the contents of potash, nitrogen etc. The che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer towards disallowance u/s. section 40(a) (i) relating to interest payments to Andhra Pradesh Mineral Development Corporation. 10. The facts of the case are that the interest expenditure includes a sum of A.28,56,735/- classified as interest paid to others. This interest includes a sum of A1422/- paid towards interest on service tax and the balance of A28,55,313/-was paid to APMDC [Andhra Pradesh Mineral Development Corporation). As per the agreement with APMDC [supplier of Barites] the buyer is required to pay 104% of the value of the cargo in advance of every lot of 5000MTs. However the assessee company instead of paying advance has opened Letter of Credit (LC) in favour of APMDC Immediately upon LC opening the suppliers gives a Delivery order. These LCs are discounted by the supplier after complying with the terms of LC. APMDC claims compensation/ interest from the date of delivery order till the date of LC realization. This entire interest paid is grouped under interest paid to others. This expense is nothing but a part of purchase costs as the supplier has different arrangements with different buyers and accordingly the prices are adjusted. Further it is so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio of the said decision cannot be applied to the case of the assessee for the simple reason that in the assessee's case, as per the agreement with APMDC (supplier of Barytes) the buyer is required to pay 104% of the value of the cargo in advance for every lot of 5000 MTs. The assessee company instead of paying advance has opened Letter of Credit in favour of APMDC. Immediately upon LC opening the supplier gives Delivery Order. The supplier claims compensation/interest from the date of Delivery Order to the date of realization of LC. In contract, in the case relied on by the department, the purchase price became payable on the delivery being effected. Here, the contract of sale itself has considered the purchase price of the ship as payable on delivery after notice of release, and that is why the interest is computed at the rate agreed for the usance period of 180 days being the credit facility given to the buyer. It is further submitted that the said case law was delivered in relation to disallowance under section 40(a)(i) and not in relation to Sec 40(a)(ia). In the light of the foregoing discussion, it is respectfully submitted that the case law relied on by the assessee is dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letter from the undertaking dated 4-9-2004, and the undertaking charged A28,55,313/- as compensation charges for the credit period utilised by the assessee. The payment made is compensatory and the decision relied upon by the assessed holds that the definition of interest covers interest payable in any manner in respect of loans, debts, deposits, claims and other similar rights or obligation. It may even include service charges but only with regard to money borrowed. In this case, it is not a question of money borrowed, and interest thereon, but a payment made for purchase and a compensatory charge for the period of credit utilized for payment of the amount due. Though the compensation is referred to as interest, it cannot fall under the definition of interest and the hence the disallowance made is not warranted and accordingly he deleted the addition. In our opinion, the impugned payment which has direct link or immediate nexus with the trading liability being connected with the purchase payment and it will not fall under the category of interest as defined in Sec. 2(28A) of the Act. Payment made by the assessee in the present appeal cannot be termed as interest and accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already paid the amount, provisions of section 40(a)(ia) is applicable only in respect of amount which remains to be payable on the last day of the financial year. The Ld. representative placed his reliance on the decision of Special Bench of this Tribunal in Merilyn Shipping and Transport v. Addl.CIT (2012) 70 DTR 81 and also the judgment of the Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd. I.T.A. No. 122 of 2013 judgment dated 09-07-2013 and submitted that the SLP filed by the revenue in the Apex Court against the judgment of the Allahabad High Court in M/s Vector Shipping Services (P) Ltd. (supra) is dismissed by the Apex Court. It is well settled principles of law that the law laid down by the Apex Court is binding on all courts and authorities including this Tribunal under Article 141 of the Constitution of India. It is also equally settled principle that a dismissal of SLP without any discussion is not the law declared by the Apex Court. The Apex Court thought it fit that it was not a fit case to be admitted for consideration. Therefore, while dismissing the SLP, the Apex Court did not declare any law. Hence, we cannot say that the Apex Court has dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Gujarat High Court in Sikandarkhan N Tunvar (supra) have to be preferred when compared to the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra). 13. For the purpose of convenience we reproducing below the observations made by the Calcutta High Court in Crescent Exports Syndicate & Another (supra) and Gujarat High Court in Sikandarkhan N Tunvar (supra): Calcutta High Court in Crescent Exports Syndicate & Another (supra) "Before dealing with the submissions of the learned Counsel appearing for the assessees in both the appeals we have to examine the correctness of the majority views in the case of Merilyn Shipping. We already have quoted extensively both the majority and the minority views expressed in the aforesaid case. The main thrust of the majority view is based on the fact "that the Legislature has replaced the expression "amounts credited or paid" with the expression 'payable' in the final enactment. Comparison between the preamendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. This is precisely what was done by the Apex Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bill was rejected by the Supreme Court by holding as follows: "It must, at this juncture, be noted that in spite of Section 2(11), which included the words "but for the provisions of this Act is not adequately protected by legislation for welfare and benefits of the labour force in the State", these precise words were removed by the legislature and the definition was made limited as it has been finally legislated upon. It is to be noted that when the Bill came to be passed and received the assent of the Vice- President on 05-06-1969 and was first published in the Maharashtra Government Gazette Extraordinary, Part IV on 13-06- 1969, the aforementioned words were omitted. Therefore, t his would be a clear pointer to the legislative intent that the legislature being conscious of the fact and being armed with all the Committee reports and also being armed with the factual data, deliberately avoided those words. What the appellants are asking was to read in that definition, these precise words, which were consciously and deliberately omitted from the definition. That would amount to supplying the casus omissus and we do not think that it is possible, particularly, in this case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of Mr. Bagchi. The submission of Mr. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping & Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected." Gujarat High Court in Sikandarkhan N Tunvar(supra) "23. Despite this narrow interpretation of section 40(a)(ia), the question still survives if the Tribunal in case of M/s Merilyn Shipping &Transpors vs. ACIT (supra) was accurate in its opinion. In this context, we would like to examine two aspects. Firstly, what would be the correct interpretation of the said provision. Secondly, whether our such understanding of the language used by the legislature should waver on the premise that as propounded by the Tribunal, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight tht we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of he Supreme Court in the case of Commissioner of Income-Tax, Gujarat vs. AshokbhaiChimanbhai (supra), would no6t alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period i.e. the accounting y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. By following the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N Tunvar (supra), this Tribunal is of the considered opinion that the decision of the Special Bench of this Tribunal in the case of M/s Merilyn Shipping & Transports (supra) and the judgment of the Allahabad High Court in Vector Shipping Services (P) Ltd (supra) are not applicable to the facts of the case under consideration whereas the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N Tunvar (supra) are squarely applicable to the facts of the case. Respectfully following the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N Tunvar (supra), we do not see any infirmity in the orders of the lower authorities. Accordingly, the orders of the lower authorities are confirmed." 3. In view of the above, I am of the considered opinion that the Members cannot take a different view merely because we are sitting in Chennai Bench. The assessee, Shri Thomas George Muthoot, in fact, challenged the order of the Cochin Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X
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