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2017 (1) TMI 556 - AT - Income TaxTransfer pricing adjustment - ALP determination - import of natural gas - scope the term 'Person' - associate enterprises - whether Present of India can be termed as associate person / companies - rejection of CUP (comparable uncontrolled price) as the most appropriate method - whether comparable uncontrolled price method vis-à-vis resale price method, for the assessee’s benchmarking imports of LNG from its AEs, was indeed more appropriate to the facts of this case? - Held that:- What the TPO had suggested was the CUP method, but, for the detailed reasons set out earlier in this order, we have held that CUP method cannot be applied to the facts of this case. No method of determining ALP is perfect, but it is from these imperfect methods that we have to find out which is more appropriate a method. There is nothing on record or in the arguments of the learned Departmental Representative which can demonstrate to us as to why the RPM can be discarded and a more appropriate method of determining ALP can be adopted. Associate companies - scope of section 92A - Held that:- the equity shareholding of the asseesse, even though in the name of the President of India, is held by the Union of India. The shares are held by the Union of India which is a sovereign. As for the President of India being treated as an artificial juridical person, as is contended by the learned Departmental Representative, we are unable to see any merits in this plea either. An artificial juridical person is a creature of law but the President of India is a creation of the constitution. If all the public sector undertakings are to be treated as ‘associated enterprises’, the inter se transactions between all the public sector undertakings will be subject to arm’s length price determination- something which is seemingly quite incongruous and contrary to the scheme of the transfer pricing legislation. The assessee and Indian Oil, Bharat Petroleum, ONGC and GAIL, or, for that purpose, any other public sector undertaking, cannot be said to be associated enterprises. In the cases of public sector companies, even as all or majority of shareholdings may be by the Union or State Governments, these companies, for that reason alone, cannot be said to be associated enterprises for the purposes of Section 92A. In view of this finding, the issue regarding related party transactions ceases to hold good in law. Non suitability of comparable - Even under long term contracts, the prices of the LNG are not to remain static, as has been assumed by the learned Departmental Representative. This is also not in dispute that the PLL has purchased the LNG under long term arrangements as also by way of these spot deals. In any case, as is opined in the expert opinion filed by the assessee. ““It is, infact, a misnomer to refer to the short-term LNG trade as a ‘spot market,” and “there is no spot market because no one is making a market, in the sense of providing liquidity and posting quotes in exchange for a buy-sell spread. As a matter of fact, as opined in the expert report, “short-term trade is a collection of bilateral deals that may cover a single cargo to many cargoes, over period ranging from a single month to over a year.” In this view of the matter, we agree that the mere fact that PLL also has long term arrangements for purchases of LNG, it does not cease to be a valid comparable for this reason alone. As regards GAIL as a comparable GAIL is selling natural gas on administered prices, this objection is found to be incorrect inasmuch asin response to the RTI application dated June 24, 2013, it has been clarified that Government that it does not regulate / fix / control the prices of imported LNG. In any event, even if GAIL is to be excluded from comparables, it does not make any difference to the conclusion that the margin earned by the assessee are well within the comparable margin earned by PLL. In view of the above discussions, as also bearing in mind entirety of the case, we hold that the comparables adopted by the assessee are appropriate. We may also add that there is a specific finding in the order of the Dispute Resolution Panel that in the light of this Tribunal’s decision in the case of Liberty Agri Products (2011 (8) TMI 737 - ITAT, CHENNAI), even for the purposes of CUP, the prices prevailing on the day of transaction can only be compared with the comparable uncontrolled prices prevailing on that day only and not on some other dates, and that in none of the cases the TPO has used the prices prevailing on that particular day. This finding remains unchallenged and this principle has not been called into question by the appellant. Therefore, even if CUP method is to be applied, the impugned adjustment will have to be deleted anyway. Viewed thus, the grievances raised in this appeal may be viewed as somewhat academic and of no practical consequence. However, without any offence or prejudice to this line of reasoning, we have dealt with the issue on merits and given our categorical findings on the same. - Decided against the revenue.
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