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IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI `I-1' BENCH, NEW DELHI
[Coram: Pramod Kumar AM and Sudhanshu Srivastava JM]
I.T.A. No.: 1225/Del/2011
Assessment year: 2004-05
UE Trade Corporation India Pvt Ltd ........................Appellant
1C, Vandana Building, 11 Tolstoy Marg
New Delhi 110 001 [PAN: AAACU5261A]
Vs.
Income Tax Officer
Ward 18(2), Mumbai ......................Respondent
I.T.A. No.: 1051/Del/2011
Assessment year: 2004-05
Income Tax Officer
Ward 18(2), Mumbai ........................Appellant
Vs.
UE Trade Corporation India Pvt Ltd ......................Respondent
1C, Vandana Building, 11 Tolstoy Marg
New Delhi 110 001 [PAN: AAACU5261A]
Appearances by:
Ranjan Bhatia for the assessee
Swati Joshi for the revenue
Date of concluding the hearing : October 12, 2015
Date of pronouncing the order : January 11, 2016
O R D E R
Per Pramod Kumar AM:
1. These cross appeals call into question correctness of the order dated 15th
December 2010 passed by the CIT(A) in the matter of assessment under section 143(3)
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of the Income Tax Act, 1961 for the assessment year 2004-05. These appeals pertain to
the same assessee, are interconnected and were heard together. As a matter of
convenience, therefore, both of these appeals are being disposed of by way of this
consolidated order.
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2. In order to understand, and properly adjudicate on, the issues requiring our
consideration, it is necessary to take a look at some undisputed material facts of the
case and the developments leading to these appeals before us. The assessee before us is
a subsidiary of Singapore based company, by the name of UE Trade Corporation Pte Ltd,
and is engaged in imports, exports, procurement, upgrading of local produce, trading
and distribution of agricultural produce. During the relevant previous year, the
assessee entered into international transactions with respect to, inter alia, purchases of
pulses etc from its associated enterprises (AEs) abroad. These transactions were
claimed to have been entered at an arm's length price on the basis of the comparable
uncontrolled price (CUP) method. When the scrutiny of the arm's length price came up
for scrutiny before the Transfer Pricing Officer, he noted that the import prices have
been compared with prices at by computing the mean of prices of pulses obtained from
agriwatch.com and by computing its mean. He noted that "it is found that generally the
price charged by the associated enterprises from UE is equal to or less than the arm's
length price". He further noted that "the methods presented by the assessee suggest a
range of values on a particular date". He had some issues with the data but reflecting a
very fair and judicious approach, he proceeded to observe that "due to limitations of
database to search the comparable for TNMM method and the exact CUP of the assessee,
the TP methodology of the assessee is accepted for this year". The agriwtach.com data
was thus accepted by the Transfer Pricing Officer. He did note that "this is not a perfect
CUP" but "a very good indicator and captures transactions". On the basis of this
approach, he computed the ALP adjustment as follows:
Therefore, average of comparable has been taken for benchmarking
purposes on the date of contract. The average computed for comparable
will be compared (with) value of transaction and if average value of
comparable will be less than import value of transaction on that day, then
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suitable adjustment will be made to bring import price at arm's length
price.
3. The adjustment thus made were as follows:
Contract Date Qty Rate Average of Difference Value by which
No. In MT per MT Comparables import price is
(US$) (US $). Higher in US $
43 28.2.3 249.05 390 372.50 17.5 4,358.28
58 14..3.3 148.75 365 345.00 20.0 2,975.92
69 14.3.3 1,683.93 365 345.00 20.0 33,678.54
109 18.6.3 1,623.10 300 345.00 45.0 73,039.65
59 14.3.3 569.27 285 277.50 7.5 4,269.40
250 13.9.3 252.83 289.28 285.00 4.3 1,082.295
48 4.3.3 115.00 277 276 1.0 115.00
102 13.6.3 308.00 430 426 4.0 1,232.00
4. The amount of US$ 1,20,749.283 was converted into IRs by adopting conversion
rate at 1 US $ as equivalent to Rs 44.125. The ALP adjustment thus worked out to Rs
53,28,093. Accordingly, the Assessing Officer, based on TPO's workings, made the ALP
adjustment of Rs 53,28,093. Aggrieved, inter alia, by the ALP adjustment so made,
assessee carried the matter in appeal before the CIT(A) but without complete success.
Learned CIT(A) noted that under the contract no. 109, the assessee has entered into
transaction at a lower price of US $ 300 per MT as against accepted comparable of US$
345 per MT, and yet an ALP adjustment is made for US $ 73.039.65. This was taken as
completely erroneous and, accordingly, corresponding adjustment of RS 32,22,874 was
deleted. The balance amount of Rs 16,17,327 was confirmed. None of the parties is
satisfied. While the assessee is aggrieved of CIT(A) confirming the ALP adjustment to
the extent of Rs 16,17,327, the Assessing Officer is aggrieved of deletion of ALP
adjustment to the extent of Rs 32,22,874.
5. We have heard the rival contentions, perused the material on record and duly
considered facts of the case in the light of the applicable legal position.
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6. As for the relief granted by the CIT(A) to the extent of Rs 32,22,874, we find that
admittedly the imports by the assessee were a price lower than the accepted
comparable under the CUP by the TPO. The imports were at the rate of US$ 300 per MT,
whereas accepted CUP rate was US $ 345. Under these circumstances, the AO was
clearly in error in making the said ALP adjustment to that extent. Grievance of the
Assessing Officer is thus devoid of any legal merits.
7. As for the ALP adjustment confirmed by the CIT(A), we have noted that the TPO
has adopted the arithmetic mean of the prices, on a day to day basis, as the final
comparable value. However, as a plain look at Section 92C(2) would show, the concept
of arithmetic mean does not involve such a computation on day to day basis. When the
prices are so time sensitive that even intra-day variations are significant, there cannot
indeed be any rationale in adopting the arithmetic mean of the prices on that day. In
any case, all the transactions entered into on a particular day, as reported on a website,
will essentially include the related party transactions as well. We have also noted that
the TPO, in his order, has himself accepted that "it is found that generally the price
charged by the associated enterprises from the US (i.e. the assessee) is equal to or less
than the arm's length price" and yet he had made the ALP adjustment on the basis of
arithmetic mean of the transaction values on that particular day- something which is
not permissible under the scheme of the Act. When the arm's length price is justified
on the basis of the CUP accepted by the TPO, there cannot be an occasion to make
adjustment on the basis of price averaging on day to day basis. In this view of the
matter, and on the peculiar facts of this case, we direct the Assessing Officer to delete
the impugned ALP adjustment of Rs 16,37,327 as sustained by the CIT(A). The assessee
gets the relief accordingly.
8. As we part with the matter, we make it clear that the decision, as above, is on
peculiar facts of this case, that in view of the smallness of the amount no further
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verifications were directed, and that it should not be treated as a precedence of general
application.
9. In the result, while appeal of the assessee is allowed, the appeal of the Assessing
Officer is dismissed. Pronounced in the open court today on 11th day of January, 2016.
Sd/- Sd/-
Sudhanshu Srivastava Pramod Kumar
(Judicial Member) (Accountant Member)
Dated: 11th day of January, 2016.
Copies to: (1) The appellant (2) The respondent
(3) CIT (4) CIT(A)
(5) DR (6) Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Delhi benches, New Delhi
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