9911796707
TMI Blog2017 (12) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... led its return of income on 23.11.2006 declaring total income at Rs. 83,00,83,200/-. Subsequently, on 23.11.2007, the assessee filed a revised statement showing the total income of Rs. 81,77,08,959/-. The Assessing Officer made a reference to the TPO for determination of the arm's length price u/s 92CA(3) in respect of the international transactions entered into by the assessee during the financial year 2005-06. The TPO during the TP assessment proceedings observed that the assessee has undertaken the following international transactions during the year :- S.No. Nature of transaction Value of transaction 1. Import of SS Scrap 86,540,291 2. Export of Cold Rolled Product 22,68,203,983 3. The TPO observed that the assessee during the impugned assessment year has a total turnover of Rs. 3494.60 crores out of which Rs. 2297.28 crores is domestic turnover and Rs. 1197.31 crores is export turnover. He observed that the assessee has benchmarked its international transaction of sales to its AE, PT Jindal Stainless (Indonesia) of Rs. 226.82 crores using CUP method. Similarly, the assessee has also imported Scraps Grades valued at Rs. 86,540,291/- from PT Jindal Stainless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nearest date for comparison purpose after agreeing that nearest date should be applied for comparison purposes? 1.a. Whether in the facts and circumstances of the case, the Ld. CIT(A) erred in applying the average rate of 8-03-2005 and 11-3-2005 for comprising the single product sale transaction of 01-03-2005, when rate of single nearest date of 08-03- 2005 should have been applied? 1.b. Whether in the facts and circumstances of the case, the Ld. CIT(A) erred in considering the period of sale from 01-03-2005 to 15-03-2005 when the product being considered has been transacted on single dated of 01-03-2005 and the transaction in subsequent date pertain to different product? 2. Whether in the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 50,000/- u/s 14-A made by the A.O.? 3. Whether in the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 24.91 crores by ignoring the findings of the A.O. which were based on the decision of Tuticorin Alkalis Chemical & Fertilizers Ltd. Vs. CIT 227 ITR 172 (SC)? 4. Whether in the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are out of companies own funds was rejected by the Assessing Officer on the ground that such explanation is vague and general in nature and assessee has not proved any nexus whether investment has been made out of surplus fund or borrowed capital. However, he has also mentioned that the amount of investment and dividend income both are very nominal value looking to the size of the company. We find the ld. CIT(A) deleted the disallowance made by the Assessing Officer on the ground that the assessee has substantial funds of its own to make investment for earning exempt income and, therefore, the ad-hoc addition made by the Assessing Officer amounting to Rs. 50,000/- is not justified. He has also given a finding that no nexus has been established by the Assessing Officer to show that any expenditure has been incurred for earning exempt income. We find identical issue had come up before the Tribunal in assessee's own case in the immediately preceding assessment year. The Tribunal at para 46 of the order has restricted such disallowance to Rs. 25,000/- by observing as under :- "46. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer made disallowance or addition of Rs. 24,91,16,438/- on the ground that the assessee company on the one hand has made decapitalization of interest income of Rs. 3066.07 lacs and on the other hand has shown such interest expenses as revenue to the extent of Rs. 9539.99 lacs. Rejecting the various decisions including the decision of the Hon'ble Supreme Court in the case of CIT vs. Karnal Cooperative Sugar Mills Ltd. reported in 243 ITR 2 relied upon by the assessee, the Assessing Officer held that the interest earned as a result of apportionment of loan received for the purpose of green field project at Orissa Project is inextricably and intrinsically linked. 12. We find the ld. CIT(A) deleted the addition by observing as under :- "6.3. The facts of the case are not under dispute between the assessee and the AO. the appellant had reduced the cost of capital by interest earned on the borrowed fund for acquisition of capital. The AO had taxed this interest income. The AO has relied on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT (227 ITR 172). On the other hand, the appellant has relied on the decision of jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of Tuticorn Alkali Chemicals and Fertilizers Limited (supra) and various other decisions. It is the submission of the ld. counsel for the assessee that such interest income should be reduced from the capital work in progress. It is his alternate contention that if the interest income is taxed as "income from other sources" then deduction should be allowed on the interest expenditure for earning such interest income as per the provisions of section 57(iii). We find merit in the alternate contention of the ld. Counsel for the assessee. The assessee has submitted before the lower authorities that the interest received of Rs. 6,11,95,775/- is on account of investment out of loan funds raised for the Orissa Project. Copy of the loan sanction letter in respect of Orissa project was also submitted during the assessment proceedings. The assessee had categorically submitted before the lower authorities that such interest expenses and the interest income as a result of apportionment of loan received on account of Orissa Project a e inextricably and intrinsically linked with each other. 54. We find the Hon'ble Supreme Court in the case of Rajendra Prasad Mody [supra] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant for its various projects which were under pre-operative phase and no loan was used for operating these units where deduction under 80IA was claimed. The line by line items in the profit and loss account and in the balance sheet of the appellant which was the annexure to Form no.10CCB was filed by the appellant during the course of the appeal hearing and on going through the same, I find that there is no justification to calculate the 80IA on an arbitrary and estimation basis. The form no.3CEB is duly signed by the chartered accountant having verified account of the appellant and certifying that the units were eligible for deduction u/s 80IA. The claim of the appellant that the borrowed funds were for setting up of new units and such money was used in the units which claimed deduction u/s 80IA is also correct since the appellant has sufficient funds as its working capital as discussed in Ground No.1. In view of this, I hold that the appellant is eligible for 80IA deduction as claimed by the appellant in Form no.10CCB. Addition made on account of disallowance under this ground should be deleted." 18. Since the Tribunal has already upheld the order of the ld. CIT(A) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings against the debtor would also not automatically lead to the inference that the assessee is not entitled to write off the amount of the bad debt. In view of the above, we find no infirmity in the order of the ld. CIT(A) deleting the disallowance. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed. 22. So far as the ground no.1 to 1.1 by the Revenue and 1.1 to 1.2 by the assessee are concerned, these relate to the partial relief given by the ld. CIT(A) on account of transfer pricing adjustment made by the Assessing Officer. 23. As mentioned earlier in para 4 of this order, we find based on the arguments advanced by the assessee, the ld. CIT(A) sustained the amount of Rs. 28,89,032/- and directed the Assessing Officer to delete the balance amount. The relevant observations of the ld. CIT(A) reads as under :- "3.2. The appellant had entered into international transaction with its AE in Indonesia of import of scrap amounting to Rs. 8.6 crores and export of cold rolled products amounting to Rs. 226.82 crores. As per the order of the TPO, the appellant had 6.87% net profit and 11.99% gross profit during the year. 3.3. The appellant had used C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the comparable transactions have happened on the same day between the AE and the non AEs, the date of transaction should be the same. However, if the same or similar products are not transacted on the same date, then, the nearest date on which the similar products are transacted should be dates for comparison. In the transfer pricing report, appellant has taken monthly average rates. However, it is clear from the same TP report similar transactions have happened either on the same day or within the same week wherein similar products are traded with a AE as well as non AEs. Therefore, the transaction happening on the nearest date should be taken for comparison. It is possible that a fluctuation may happen in the same month. Therefore, a transaction happening in the beginning of the month may substantially vary from the one which had happened at the end of the same month. This may call for 'suitable adjustment' which is difficult to quantify. This difficulty can certainly be overcome if the nearest date of transaction is taken for comparison since the variation in prices of the steel products sold by the appellant, in the facts and circumstances of this case, does not vary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinction was made about the products and it was available for everybody to see. 4.1.2. In Table No. III of the TPO order, TPO has considered 7 transactions dated 22.04.2005 of different quantity of Grade J4 coils sold to the AE. The invoice rate taken is 1100 USD per metric ton. On the same day, the appellant had exported to SON HA CO., LTD. at Vietnam. This transaction was taken as comparable by the TPO. The "material of supply" as mentioned in the invoice is "hot rolled stainless steel premium quality". The finish is no. I. Whereas the finish as mentioned in the invoice sold to the AE mentions the finish as 'Black as rolled'. Therefore, the appellant was right in pointing out that the TPO has ended up comparing different products. 4.1.3. On the other hand, the appellant has compared the Black rolled coils sold to M/s Foshan Shi Shiwanqu at Foshan City on 18.04.2005 to the sale made to the AE on 22.04.2005. The rate per metric ton is 1100 USD in this transaction. Therefore, the international transaction should be treated as at arm's length. No addition is required to be made on this transaction. 4.2. Transaction dated 19.08.2005: The appellant had sold Gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions with the AE on this date. The average price was USD 915 per metric ton. On the same day, there were relevant transactions wherein the rate charged to third parties was USD 930 per metric ton. The appellant contends that the " proviso to Section 92C(2) should be invoked in this case. Similarly, in Table No. IV, the dispute is about calculation of + / -5% as per the proviso to Section 92C(2). The date of comparison is 30.04.2005 and the quality of product being compared is also Grade J4 Black coil. The appellant contends that the international transaction is within +/-5% of the comparable transaction. 4.4. I fail to understand the argument of the appellant since there is only one price of the comparable transaction on 27.02.2006 and 30.04.2005 which is USD 930 per metric ton and USD 1120 per metric ton respectively of the same quality goods sold which is taken as arm's length price by the TPO. As per proviso to Section 92C(2), the triggering factor to invoke calculation of +/-5% is "where more than one price is determined by the most appropriate method .... ". In the present case, the TPO has certainly taken 11 transactions for the transaction dated 27.02.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 5 J4 HRAP Coils 580 I-Mar-2005 15.535 1,325 20,584 20,584 1,325 6 J4 HRAP Coils 580 I-Mar-2005 218.370 1,325 289,340 289,340 1,325 7 J4 HRAP Coils 1,325 580 I-Mar-2005 94.985 1,325 125,855 125,855 8 J4 HRAP Coils 1,325 580 I-Mar-2005 47.980 1,325 63,574 63,574 9 J4 HRAP Coils 1,325 580 I-Mar-2005 47.105 1,325 62,414 62,414 659.970 874,460 874,460 1,325 10 J4 Black Coil 1,250 604Al 9-Mar-2005 181.650 1,250 227,063 227,063 11 J4 Black Coil 1,250 604Al 9-Mar-2005 147.225 1,250 184,031 184,031 12 J4 Black Coil 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the adjustment made by the TPO is liable to be deleted. Even otherwise, he submitted that the TPO while benchmarking the international transaction, failed to allow adjustment on commission expense of USD 15 PMT in the price of uncontrolled transaction. He filed a chart to substantiate the same and submitted that after considering the adjustment on account of payment of commission of USD 15, the price charged by the assessee from the AE works out the same as the price charged by the unrelated third party. Therefore, the adjustment made by the TPO is liable to be deleted. 26. So far as the appeal of the Revenue is concerned, the ld. AR submitted that during the period 01.03.2005 to 15.03.2005, the assessee has undertaken 9 transactions of sales of J4 HRAP Coils at 1325 PMT and 6 transactions of sales of J4 Black Coils at 1250 PMT. The TPO benchmarked the said transactions considering the sale of goods undertaken by the assessee. The ld. counsel for the assessee also relied on the order of the Mumbai Bench of the Tribunal in the case of DCIT vs. The Development Bank of Singapore in ITA No.6631/Mum/2006 order dated 17.05.2013 to support the order of the ld. CIT(A) for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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