TMI Blog2010 (12) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... esumption that the order has become time barred. - The cases decided under this chapter and discussed above show that the AO can refer the matter to the TPO for determining arm's length price of an international transaction or he may determine it on his own. Therefore, it is held that the AO was within his jurisdiction when he determined the price of six items of imports made by the assessee. Variation in price - allowance of 5% of arm's length price - the words in the first and second limbs will have to be read to have the same meaning, i.e., the assessee has determined the arm's length price and thereafter declared such price for the purpose of transfer pricing adjustment. Neither such a price is determined nor declared as the transaction has been shown in the books and the return at the purchase price. Therefore, we are of the view that the aforesaid circular is not applicable on the facts and in the circumstances of the case - deciding in favor of assessee Addition on account of difference in value of closing stock - Held that: - AO valued the stock on the basis of inventory and valuation furnished by the assessee in the course of hearing. However, the assessee took up a ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociated enterprises regarding export of pulses, payment of interest and reimbursement of expenses. The assessee relied on "Agriwatch" data base for justifying the contention that import of pulses was undertaken at arm's length price. However, the AO noted that in six instances, the price paid by the assessee was in excess of the quotation in the "Agriwatch". The details of the difference were tabulated, which show that the assessee paid an amount of Rs. 9,76,369 in excess of arm's length price. Therefore, this amount was deducted from the loss declared by the assessee. The details of the transactions are shown in a tabular form below :- S. No. Invoice No. Invoice date Rate per unit(US$) Arms Length Price per unit (US$) Total difference in (Rs.) 1 EX02/1822 27.08.2002 305.01 295 55793.73 2 EX02/2044 19.01.2003 260 250 121731.46 3 EX02/2045 19.01.2003 260 250 121731.46 4 EX02/2047 30.01.2003 233 230 36530.87 5 EX02/2049 03.02.2003 260 230 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the appeal of the assessee at the first instance. 3. Before us, the ld. counsel referred to the fifth item in the table furnished by the AO, which shows the purchase price per unit at US$ 260 and the arm's length price as per "Agriwatch" data base at US$230. Our attention has been drawn to page No. 69 of the paper book, being the reproduction from the data base, which shows the single quotation on 3.2.2003 at US$ 250. It is contended that the lower authorities erred in taking arm's length price at US$ 230. If the value is correctly taken at US$ 250 per unit, the difference between arm's length and the cost price falls within the permissible range of 5%. Therefore, it is argued that no addition can be made in respect of this item. Thereafter, he drew our attention to page No. 35 of the paper book, which shows the quoted price in respect of item No. 6 of the AO's table at US$ 210 per unit on 24.1.2003. No quotation is available on 3.2.2003. The subsequent quotation on 10.2.2003 is US$ 280 per unit. He further drew our attention to page nos. 28 to 31 of the paper book, which show that quotation for a few days remained the same, thereafter increased and remained the same for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er question. For each transaction there is only one arm's length price found on the basis of quotation in the data base. It is not a case where a number of comparable transactions are available, whose mean is determined. Therefore, there is no question of granting concession of 5% as per the provision existing for this year. 3.5 Coming to general observations, it is submitted that the report of the TPO is advisory in nature and the AO is not bound by the same. In case a reference is made for valuation and the report of the TPO is not received, the AO is within his right to determine arm's length price on his own. In case a report is received, the AO may adopt the value arrived at in the report or may take his own decision depending upon the facts of the case and the contents of the report. Accordingly, it is agitated that the assessment is not barred by limitation. Alternatively, if non-making of report means that the TPO accepted the value of the assessee, the AO can make suitable adjustment on his own as mentioned earlier. 3.6 The chapters XXA and X regarding "Acquisition of immovable properties in certain cases of transfer to counteract evasion of tax" and "Special provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the irregularity, if any, committed by the AO stands cured. Therefore, we do not think it necessary to remand the matter to the AO in respect of any transaction. 4.2 The second ground is that the position should be seen as a whole with respect to all the transactions and not only with respect to the disputed transactions. In other words, if transfer pricing study is made for all the transactions, the variation made by the AO would be of insignificant amount warranting no addition. On the other hand, the case of the ld. DR is that purchases by way of import do not constitute a series of connected transactions, but each transaction is a separate transaction. Therefore, the AO was right in examining each transaction separately for this purpose. It is seen that the assessee has not been able to bring anything on record that various purchases were a part of pre-arranged scheme or agreement so as to constitute a part of the indivisible transactions of purchase. Accordingly, it is held that the AO was within his right to evaluate each transaction separately. 4.3 The third ground is that since the TPO did not carry out the transfer pricing study with a view to determine arm's len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 530. In this case, it has been held that the historical setting, in which the provisions of chapter XXC were enacted, indicates that the provisions were to be resorted to only in cases where there is an attempt to evade payment of tax by significantly under-valuing the immovable property agreed to be sold. This intention of the legislature also becomes clear from Board instruction No. IA 88. Since there is no attempt to evade the tax or to significantly reduce the value of the transactions, it is argued that transfer pricing provisions were not rightly invoked in this case. In reply, the ld. DR relied on the decision of the Special Bench of Bangalore Tribunal in the case of Aztec Software Technology Services Ltd. v. ACIT (2007) 294 ITR (AT) 32. In this case, it has been inter-alia held that where the language of the statute is clear and unambiguous, it should be interpreted on the plain and natural meaning of the words. In such a case, courts are not required to look into the object or intention of the legislature by resorting to the aid of rules of interpretation. It has been further held that in such a case there is also no need to take the help from speech of the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relied upon while deciding a case under chapter X. The cases decided under this chapter and discussed above show that the AO can refer the matter to the TPO for determining arm's length price of an international transaction or he may determine it on his own. Therefore, it is held that the AO was within his jurisdiction when he determined the price of six items of imports made by the assessee. 5. The substantive argument to justify the price of international transactions undertaken by the assessee is that the variation is within the permissible tolerance level of 5%. We may at this juncture look at the provision contained in section 92C(2), interpretation of which is under dispute. The provision as it stands now reads as under:- "(2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed: Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices: Provided further that if the variation between the arm's length price so determined and price at which the international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee where there is only one comparable case. Further, reliance is placed on the decision of Mumbai Bench of the Tribunal in the case of DCIT v. BASF India Ltd. 2010-TII-40-ITAT-Mum-TP dated 16.07.2010 in ITA No. 195/Mum/2006 for assessment year 2002-03, a copy of which has been placed before us. In this case, transfer pricing adjustment was made inter-alia in respect of items Amdea-05 and Butyl Acrylate. The case of the assessee was that in both cases the difference in price is about four per cent, which is less than five per cent and, thus, no adjustment could be made in view of the provision contained in the second proviso to section 92C(2). This contention was upheld by mentioning that if the difference is less than five percent, then the actual price paid should be considered as arm's length price under the aforesaid proviso. It was also mentioned that similar view has been taken in the case of Sony India Pvt. Ltd. (supra). 5.3 On the other hand, the ld. DR has relied on the decision of "F" Bench of Delhi Tribunal in the case of Perot System TSI (India) Ltd. v. DCIT 2010-TIOL-51-ITAT-DEL for assessment years 2002-03 to 2004-05 in ITA Nos. 2320 to 2322(Del)/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue." 5.4 We have considered the facts of the case and submissions made before us. The proviso, which is applicable to the proceedings of this year, contemplates an option to the assessee to choose a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean. This proviso is applicable where more than one price is determined and thereafter the mean of such prices is taken to be arm's length price. However, there is only one comparable instance in this case. The decision in the case of Perot Systems TSI (India) Ltd. (supra) supports the case of the revenue. The argument of the ld. counsel is that this proviso has been substituted by two provisos by Finance (No. 2) Act, 2009 with effect from 01.10.2009. The newly inserted provisos are clarificatory in nature and, therefore, they act retroactively. Accordingly, these will apply to assessment year 2003-04 also. We have considered this matter also. In the first instance, the provisos deal with the determination of arm's length price of an international transaction. Therefore, these provisions are in the nature of substantive provisions and not procedural provisions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fically held that the tolerance level of five per cent is countenanced only when there is more than one price and not when there is only one comparable price, LIBOR in that case. Therefore, we find that the decision of the aforesaid Perot Systems is preferable to the decision in the case of DASF India Ltd. It is mentioned that in circumstances such as obtaining in various decisions on the issue, the plea of two views being possible on the same issue is also not sustainable. The language of the proviso as it existed for the relevant year is quite clear. None of the decisions relied upon by the ld. counsel holds in any manner that the substituted provisos are clarificatory in nature. Therefore, it is held that in a case where there is only one price determined, the option of five per cent is not available to the assessee. 5.6 Coming to the merits of two adjustments under question, it is a matter of fact on record that the comparable price in respect of item No. 5 of the Assessing Officer's table is 250 and not 230. Therefore, the AO is directed to take arm's length price at US$250 per unit. 5.7 In respect of item No. 6, the case of the ld. counsel, to put in simple terms, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the tax-payer" also came for discussion during the course of hearing and the case of the ld. counsel is that if the price entered in the books for the transaction is within the tolerance limit of 5%, the AO may not disturb the price on account of transfer pricing adjustment. Further, it is submitted that the circular is in the nature of a beneficial circular, which should be given effect to, as held in the case of Navnit Lal C. Javeri v. K.K. Sen , Appellate Commissioner (1965) 56 ITR 198. In this case, the Hon'ble Minister for revenue had given an assurance that outstanding loans and advances which are otherwise liable to be taxed as dividends will not be subjected to tax if it is shown that they had been genuinely refunded to the respective companies before 30.06.1955. In order to carry out this assurance, circular No. 20(XXI-6)/55 was issued by Central Board of Revenue on 10.5.1955. At page 203 of the report, it is mentioned that it is clear that a circular of the kind, which was issued by the Board, would be binding on all officers and persons employed in the execution of the Act. As a consequence of the circular, past transactions which would normally have attracte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arm's length price and thereafter declared such price for the purpose of transfer pricing adjustment. Neither such a price is determined nor declared as the transaction has been shown in the books and the return at the purchase price. Therefore, we are of the view that the aforesaid circular is not applicable on the facts and in the circumstances of the case. It was also the case of the ld. counsel that if statutory provisions, on plain reading, leads to an absurd result, they should be interpreted suitably by taking into account the equitable consideration, as held in the case of CIT v. J.H. Gotle (1985) 156 ITR 223. We have seen that there is no absurdity when the provisions, applicable to this case, are interpreted literally. Therefore, relying on our order in the assessee's appeal (supra), this ground is allowed. 7. Ground No. 2 is regarding adjustment of Rs. 7,79,812 made on account of difference in the value of closing stock. We have already summarized the facts relating to this addition. It may be recapitulated that the assessee had shown the value of closing stock at Rs. 8,75,961. In the course of hearing, the inventory was filed along with valuation, which showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bilahari Investment (P) Ltd. (2008) 299 ITR 1, the book results should have been accepted. He also distinguished the facts of the case of British Paints India Ltd. (supra), as in that case production cost was not taken into account. In this case, all costs have been aggregated in respect of raw, processed and finished coffee and thereafter the average price is found out. Therefore, it was agitated that the method adopted by the assessee ought to have been accepted by the AO. 7.3 In the rejoinder, it is submitted that the finding of the ld. CIT (Appeals) is based upon altogether different consideration. No details has been filed regarding the method used for working out average weighted price. 8. We have considered the facts of the case and submissions made before us. It is seen that the AO valued the stock on the basis of inventory and valuation furnished by the assessee in the course of hearing. However, the assessee took up a plea before the ld. CIT (Appeals) that the assessee has been using weighted average value method. This method has been used in this year, being the first year, and in all subsequent years. It was submitted that during the course of assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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