TMI Blog2009 (11) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the closing stock and at the same time for the purposes of giving effect to section 145 A, there must necessarily be made a corresponding adjustment in the value of opening stock of that year - we set aside the impugned order on this issue and restore the matter to the file of Assessing Officer for giving effect to the provisions of section 145 A in entirety and not restricting its operation to the value of closing stock alone. Disallowance of deduction u/s 80HHC - absence of any profit available to the assessee from exports - HELD THAT:- CIT(A) was justified in rejecting the ground of the assessee on the claim of deduction under section 80HHC in the absence of any eligible profit. This ground is, therefore, not allowed. TP Adjustment - most appropriate method for determining of ALP - Internal CUP method as per Revenue or the External CUP method as argued by the assessee - HELD THAT:- The price on which a particular product is available in one country may largely vary from the price prevailing in other countries due to host of factors. The country which is producer of a particular commodity or its raw material may have lower sale price in comparison with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low have gone by the determination of ALP on the basis of Internal CUP method, which in our considered opinion is not appropriate in the given circumstances, it will be in the interest of justice if impugned order is set aside on this score and the matter is restored to the file of Assessing Officer. We order accordingly and direct him to get the fresh ALP determined from the TPO in the light of our foregoing discussion. - R.S. SYAL AND SMT. P. MADHAVI DEVI, JJ. Percy Pardiwala for the Appellant. Narender Singh for the Respondent. ORDER R.S. Syal, Accountant Member. - This appeal by the assessee emanates from the order passed by CIT(A) IX, Mumbai on 7-2-2006 in relation to the Assessment year 2002-03. 2. First ground is against the confirmation of addition of Rs. 6 ,06 ,70 ,534 made to the value of the closing stock on account of unutilized Modvat Credit. The facts of this ground are that the Assessing Officer, taking note of the provisions of section 145 A, came to the conclusion that the assessee had not made correct valuation of the closing stock by not including the unutilized Modvat Credit. Resultantly the said sum was added to the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the international transactions covered by section 92E of the Act. A reference was made to TPO vide letter dated 14-8-2003 with the approval of the CIT, Mumbai. The Addl. CIT (TP-I) passed an order under section 92 CA(3) of the Act dated 7-7-2004 requiring adjustment of Rs. 6.44 cores to the total income. The said amount was added by the Assessing Officer. At this stage it will be useful to make reference to the order passed by the Transfer Pricing Officer under section 92CA of the Act. In the present appeal we are concerned only with the international transactions entered into by the assessee towards sale of Dicamba to Gharda USA lnc. (hereinafter called as A.E ) , a wholly owned subsidiary of the assessee company. Total amount received/receivable by the assessee as ALP towards export of Dicamba was declared at Rs. 20.71 crores. The assessee had determined the ALP by Comparable Uncontrolled Price method (hereinafter referred as CUP method). The TPO noted that the sale of Dicamba to unrelated parties was also made by the assessee in various other countries at the rates ranging between 19.47 US$ to 25.00 US$ per Kg. As against that the Dicamba sold by the assessee to its AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of freight differential and excess credit period. This resulted into an addition of Rs. 6.44 crores. 7. During the course of first appellate proceedings the assessee filed detailed submissions and paper book containing several new evidences. The ld. CIT(A) called for the remand report from the TPO through Assessing Officer. The said remand report was tendered before the ld. CIT(A) by which no change was made in the original opinion of the TPO reiterating that in making sales to the AE, the assessee has earned gross profit of 2.11 per cent as against 31.2 per cent earned on sale to independent parties. Again no credibility was given to Mr. Buhn s report. It was suggested that : "Therefore, the additional evidence submitted by the assessee and the further submissions made by the assessee need to be rejected". The ld. CIT(A) approved the view taken by the Assessing Officer by holding that the assessee sold Dicamba at a very cheaper rate to its AE as compared to the international price of the same charged from uncontrolled parties. He further observed that the various evidences filed before him for the first time in support of the credibility of the report of Mr. Buhn, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 F deal with the computation of income from international transactions having regard to ALP. Section 92(1) states that income arising from an international transaction shall be computed having regard to the ALP. There is no dispute on the fact that M/s. Gharda USA Inc. is an Associated Enterprise of the assessee within the meaning section 92 A and as such the transactions of the sale of Dicamba by the assessee to its AE are international transactions as per section 92 B of the Act. In such a situation computation of ALP is required to be made according to the provisions of section 92C. The rationale behind the transfer pricing provisions is to curtail the avoidance of tax in India. The argument advanced by the ld. A.R. that the transfer pricing provisions are not applicable in view of the total incidence of tax remaining at the same leval due to losses incurred by AE offsetting the income of the assessee, does not merit acceptance. The intent and purpose of these provisions is not to ensure that there is no diminution in the tax liability of Indian Enterprise as well as its AE on a total basis. Rather the logic is to make certain that the transactions between the Associated Enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t due to local laws of USA it was not possible for the assessee to make direct exports to the customers, which necessitated the bringing into existence its AE so that Dicamba could be sold in USA. At this stage the ld. A.R argued that the assessee categorically submitted before the ld. CIT(A) that instead of CUP method, the Resale price method for determination of ALP should be considered. By referring to certain pages of the paper book it was stated that Gharda USA Inc. had actually suffered losses and the resale price method was most appropriate as the ALP cannot be ascertained at an exorbitant figure in disregard to the stark reality of there being loss in the hands of the AE. In such situation, it was submitted, that there was no reason to consider the price of 19.587 US$ per Kg. of Dicamba as ALP. The arguments were concluded by stating that either the Resale price method should be considered for determining the ALP or External CUP method based on the report of Mr. Buhn be employed for the said purpose. 11. In the opposition the ld. D.R. stated that the Internal CUP method pressed into service by the TPO was most appropriate in this case and there was no need for relying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and providing the same or similar services, in a comparable uncontrolled transaction, or a number of such transactions; ( iii )the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services; ( iv )the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; ( v )the adjusted price arrived at under sub-clause ( iv ) is taken to be an arm s length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise;" [Emphasis supplied] 14. A bare perusal of sub-rule ( b ) brings to fore that it is applicable with reference to the property purchased or services obtained by an enterprise from its AE which is thereafter resold or are provided to the unrelated enterprise. It shows that if the Indian Enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances. In case of difference, the price settled in the uncontrolled transactions, as adjusted as per rule is taken as ALP with the AE. The Internal CUP method envisages comparing the uncontrolled transactions of the assessee itself with other unrelated parties so as to determine the ALP with the AE. However, the External CUP method disregards the price charged or paid by the assessee to or from its unrelated parties and contemplates the comparison of the price so charged from or paid to its AE with some external independent reliable price data under similar circumstances of transactions with AE. Ordinarily the Internal CUP method should be preferred over the External CUP method as it neutralizes several distinguishing factors, such as the local factors and the economies available or unavailable to the assessee in particular, having bearing over the comparison of price charged from unrelated parties and AE. The essence of determining ALP under CUP method is to ensure that the price charged by the Indian Enterprise from its AE should be consistent with that charged from unrelated parties under similar circumstances. The importance of the "similar circumstances" cannot be lost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee from its AE with that at which the goods are available in the open market in that country from transactions between the unrelated third parties. With a view to determine the price at which such goods are available in the open market in that country, it is sine qua non to consider the price at which such goods are imported by other parties on an average basis. Such an average price should be some realistic price representing the price from the whole or the large part of whole of the imports made in USA of this product and not some isolated or a stray transaction. If product A is imported by hundred parties at the rates ranging between 50 US$ to 70 US$ from different countries, then the lowest price of 50 US$ cannot be treated as ALP. Rather in such a situation the average price of 60 US$ should be taken as ALP. Adverting to the facts of the case, we find that the assessee is relying on the report of Mr. Buhn in support of the price shown by it as ALP. In our opinion the report of Mr. Buhn, as it is, cannot be the sole basis for determining the ALP on comparable uncontrolled price method for the reason that Mr. Buhn is not a Government Agency of USA, who coul ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
