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TMI Blog2019 (11) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of February, 2005. Simultaneously, there was fall in the prices of crude soyabean oil and as a business decision, the assessee communicated to LD Asia, supplier, to cancel the delivery of balance goods. The said decision was taken in order to save the losses that the assessee would have incurred after receipt of the balance crude soyabean oil, as the market had collapsed and the assessee could not have been in a position to sell the goods on profit. Another aspect of issue is that in order to make the aforesaid payment to LD Asia, permission had to be sought from RBI, for such remittance. The permission had been awarded by the RBI, consequent to which only the assessee made the payment to LD Asia. In such a scenario on the ground that the extension of contract, not being available before the TPO, could not be the reason to deny the claim of the assessee, especially where the assessee claims that it had filed the same before TPO. The said communication was filed before the CIT(A), who had accepted that there was fall in prices in the soyabean oil in the market. The only objection was whether there was a valid contract of 2/3rd February, when the contract was cancell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantity of crude soyabean oil. 2.3. The Ld. CIT(A) has erred in law and on facts doubting the authenticity and genuineness of the evidences placed by the Appellant in support of the contention that the washout transaction was in respect of the valid unexpired contract; 2.4. The Ld. CIT(A) has erred in law and on facts by not giving cognizance to the fact that impugned transaction of payment of washout charges was independently examined and approved by the regulatory body, Reserve Bank of India ( RBI ); 2.5. The Ld. CIT(A) has erred in law and on facts by holding that the evidence provided by the Appellant was not reliable and authentic. 3. The Ld. CIT(A) has grossly erred by proposing to direct Ld. AO to compute interest under section 234B and 234D of the Act. The above grounds are without prejudice to each other. The Appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing. 3. Briefly in the facts of the case the assessee for the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee incurred loss of USD 55 PMT for washout quantity of 6,922 MT. Since the contract rate was applicable for shipment during the month of January, 2005, and the contract to import balance shipment was cancelled on 03.02.2005, on the basis of letter of the assessee dated 02.02.2005; the assessee was asked to justify the claim of loss, by the TPO. The assessee submitted that there was a mutual agreement to cancel the balance unshipped quantity on payment of USD 55 PMT. The plea of the assessee in this regard was that in order to avoid the loss which the company would have suffered because of the fall in price of oil in India, the contract was cancelled. The assessee also explained that infact if it had purchased the crude soyabean oil in terms of contract entered into with LD Asia, it would have incurred loss to the extent of USD 75 to 79 PMT. The claim of the assessee was that it had paid only USD 55 PMT, which was lower than loss on account of price of crude soyabean oil of USD 75 to 79 PMT. It was also pointed out that LD Asia on cancellation of contract sold the said item to a concern in China @ USD 488 PMT, suffering loss even after the compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed quantity of crude soyabean oil vide letter dated 02.02.2005. However, LD Asia pointed out that it would suffer bigger loss and compensation @ USD 61 PMT on the balance unshipped crude soyabean oil was asked for. The parties agreed to the compensation @ USD 55 per MT vide letter dated 03.02.2005. Before the CIT(A), the assessee submitted letter dated 10.01.2005 from its AE informing that out of total quantity of 10,000 MT approximately 3,100 MT of crude soyabean oil would be shipped in next few days and the remaining quantity would be shipped by the end of February, 2005. This letter was even filed before the Assessing Officer and the case of the assessee was that based on the mutual agreement between the parties, there was extension of the contract between the parties and the contention of the TPO that contract was valid only for shipment in the month of January, 2005 was completely incorrect. The assessee also filed evidence of the AE selling 5,000 MT of crude oil at USD 488 PMT. The case of the assessee before the CIT(A) was that all these evidences were filed before the TPO vide letter dated 22.10.2008 whereas the TPO passed an order within 5 days i.e. 27.10.2008 without cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 2005. The assessee had claimed that it had cancelled the contract in February, 2005. 9. The Ld.AR for the assessee took us through the order of the CIT(A) and pointed out that even if there was nothing in writing, there could be extension of contract. He then, referred to the order of TPO and pointed out that while determining the Arm's Length Price, the TPO held that contract was not in existence. However, by way of conduct of the parties itself, it was proved that there was existence of contract. A contract can be extended between the parties and the TPO cannot challenge the business decision between the two parties. He also pointed that both the CIT(A) TPO accepted that there was reduction in price of crude soyabean oil, but rejected the claim on the ground that there was no extension of contract between the parties, as in the consequent letter, there was no mention of any extension. He referred to page 205 of the Paper Book on which details of washout charges has been filed and pointed out that during the year, the assessee received washout charges of ₹ 77.45 lacs and paid ₹ 1.65 crores. The Ld.AR for the assessee submitted that the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruary, 2005. The assessee vide written communication dated 10.01.2005 placed at page 370 of the Paper Book acknowledged the aforesaid fact and accepted the shipment of balance quantity of 6,900 MT in February, 2005. However, on 02.02.2005, the assessee communicated to LD Asia that oil market in India had collapsed and as there was possibility of further drop in prices, request was made to cancel the balance quantity of the contract. The said letter is placed at page 93 of the paper Book. In reply LD Asia communicated to the assessee that they had already fixed the vessel to ship the balance quantity of oil to the assessee. It was also communicated that there was drop in the prices of oil in the international market and the current price was USD 420 PMT (FOB). It was communicated that incase the price difference of USD 61 per MT was paid, then the contract could be cancelled. The said letter is placed at page 91 of the Paper Book. On 3rd February itself, the assessee replied that as per mutual agreement, they were ready to compensate LD Asia price difference @ USD 55 PMT. This communication is placed at page 92 of the Paper Book. As was the procedure at the relevant time, assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and as a business decision, the assessee communicated to LD Asia, supplier, to cancel the delivery of balance goods. The said decision was taken in order to save the losses that the assessee would have incurred after receipt of the balance crude soyabean oil, as the market had collapsed and the assessee could not have been in a position to sell the goods on profit. Another aspect of issue is that in order to make the aforesaid payment to LD Asia, permission had to be sought from RBI, for such remittance. The permission had been awarded by the RBI, consequent to which only the assessee made the payment to LD Asia. In such a scenario on the ground that the extension of contract, not being available before the TPO, could not be the reason to deny the claim of the assessee, especially where the assessee claims that it had filed the same before TPO. The said communication was filed before the CIT(A), who had accepted that there was fall in prices in the soyabean oil in the market. The only objection was whether there was a valid contract of 2/3rd February, when the contract was cancelled. We find no merit in the orders of the authorities below in this regard as the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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