9911796707
TMI Blog2013 (11) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... s) through Calor Asia B.V. SHV Energy is engaged in bottling, distribution and sale of liquefied Petroleum Gases (LPG) all over India. In course of its business activities, the assessee purchases LPG (propane, Butane and LPG Mix) from its Associated Enterprise (AE in short). SHV Gas Supply and risk management from its Singapore office. During the previous year relevant to the assessment year under dispute, the assessee purchased 89,404.888 M.T of LPG from its AE and the import of gas was made from 9 different Ports of origin to three different ports in India i.e., Porbandar, Visakhapatnam and Mumbai. The assessee in its audit report submitted as per 3CEB report, disclosed the following international transactions: Purchase of LPG Rs.269,37,18,383 Reimbursement of expenses (paid) Rs. 5,32,323 Reimbursement of expenses (received) Rs.90,95,797 5. During the scrutiny assessment proceedings, the Assessing Officer noticing that the assessee had entered into international transaction with its AE made a reference u/s 92CA(1) of the Act to the Addl. CIT (Transfer Pricing), Hyderabad (hereinafter referred to as Transfer Pricing Officer, in short TPO) for determining the ALP. In course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Visakhapatnam Port and Porbandar Port respectively. From the freight paid after adjustment in respect of shipment of Visakhapatnam Port and Porbandar Port, the TPO analysing the same given in tabular form noted that the price paid by the assessee to its AE on account of import of LPG mixture is not at arm's length. The TPO noted that the price paid to its AE is in excess by an amount of USD2449300.73 which if converted to Indian rupee would amount to Rs.9,85,59,861 at a exchange rate of 40.24 on the basis of the information furnished by the assessee. The Assessing Officer therefore worked out the arm's length price of the purchases and resultant adjustment u/92CA of the Act as under:- Arm's length price of the purchases Rs.259,51,58,522 Price paid Rs.269,37,18,383 Excess paid being adjustment u/s 92CA Rs. 9,85,59,861 7. On the basis of the ALP determined by the TPO, the Assessing Officer passed a draft assessment order proposing to make addition of Rs.9,85,59,861/- as the transfer pricing adjustment of the ALP. The assessee objected to the draft assessment order before the DRP. In course of hearing before the DRP, it was submitted on behalf of the assessee that the assessee du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strate the fact that freight rates for all the shipments were not the same and hence adopting uniform ocean freight rate of US$70 per MT for the shipment between Visakhapatnam and Singapore cannot be applied to all shipments. It was submitted that the shipments were spread over for a period from March, 2007 up to 2008 and the price of fuels for the ships change depending upon these factors and these lead to change in freight charges and so cannot be taken to be uniform for the entire year. To demonstrate this fact, the assessee submitted a chart showing the variation of fuel price from March, 2007 to July, 2007 and contended that the proposed adjustment of Rs.1,96,84,163/- was uncalled for. 10. So far as shipments to Porbandar Port is concerned, the assessee contended that the total number of shipments imported through Porbandar Port were 21 and shipments were made from different ports of origin situated in three different countries namely Oman, Bahrain and Saudi Arabia. Whereas the TPO adopted iniform freight charges at US$ 34 per M.T and worked out the difference in price at US$19,60,131-66 or Rs.7,88,75,698.00. The assessee submitted that as is the fact in case of Visakhapatnam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the internal comparables with DES/CIF price was available for 18 shipments out of total 21 shipments and internal comparables were not available for only one month imports i.e., July, 2007. It was therefore submitted that since internal comparables were available for majority shipments except imports in one month, the TPO should not have ignored these internal comparables without proper reason and made unilateral adjustment. It was further contended by the assessee that the statutory benefit of +/-5% u/s 92C(2) of the Act has to be allowed in case of Porbandar and Visakhapatnam shipments. 12. The DRP after considering the submissions of the assessee, vis-a-vis the materials available on record as well as the order of the TPO felt that the only area of disagreement between the assessee and the TPO is the freight charges. The DRP observed that the assessee had not given granular detail for the freights which was essential for the determination of arm's length price under the CUP method. The DRP was also of the view that TPO was not correct to adopt the lowest rate with the index price thereby totally ignoring the various factors which might have an impact on the freigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bai Port. The DRP after analysing the import from the Port of Origin at Saudi Arabia to Mumbai Port found that in respect of two shipments made from the Port in Saudi Arabia in the month of May, 2007 and October, 2007 were in excess than the ALP. Therefore, the DRP worked out the adjustment of ALP as under:- Contract date Quantity imported Adjustments $per MT Total adjustment in US$ Adjustment in Rs.(1US$=Rs.40.24 22-5-07 6,504,835 34.74 2,21,164.39 88,99,655 5-10-07 3,998.173 44.96 1,79,757.86 72,33,456 14. Thus, the DRP worked out the total adjustment on account of excess payment made towards freight at R.1,61,33,111 and directed it to be treated as income of the assessee on account of adjustment to ALP. As a consequence of the direction of the DRP, the Assessing Officer passed a final assessment order making addition of an amount of Rs.1,61,33,111/- to the income of the assessee. 15. The learned authorised representative for the assessee mostly reiterating the submissions made before the DRP contended orally as well as in writing that out of the total 35 shipments of LPG imported, the DRP was satisfied that in respect of 33 shipments the freight charges paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distance alone ignoring the other factors is not the correct approach. It was therefore submitted that if all the factors are also considered, the variation can be easily explained, actually there would be no difference. The learned AR submitted that freight cost would also be affected by the changes in crude prices which in turn will affect the fuel cost of ship for transportation. In this context, the learned AR submitted a chart indicating the cost of crude in the month of October, 2007 on daily basis. Referring to the said chart, it was submitted that crude prices varied between the range of -3.37% to 4.59% It was submitted that the changes in crude prices are significant and more so on daily basis. The learned AR submitted that if the cumulative effect of various factors which have an effect on the price is considered then even a marginal reduction in the prices on account of those factors will bring the difference within the (+)/(-)5% tolerance level and in which case no adjustment is warranted. 18. The learned Departmental Representative, strongly supporting the order of the DRP submitted that the order of the DRP would clearly reveal the reasonableness with which the DRP h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion all aspects of the matter, and in our view is the most appropriate method under the given circumstances. It is also a fact that in case of similar method adopted for shipments to Visakhapatnam Port, the assessee has no issue as price paid for all the shipments were found to be within Arm's length and no addition has been made in that regard. Therefore, considering the totality of facts and circumstances of the case, we find no reason to interfere with the finding of the DRP and accordingly sustain the addition made by the Assessing Officer. Hence these grounds are accordingly dismissed.
20. In ground No.5, the assessee has challenged the initiation of proceeding for imposition of penalty u/s 271(1)( c) of the Act. After hearing the submissions of the parties on this issue, we do not find any reason to interfere with the finding of the learned DRP as the assessee can very well make out a case for dropping the proceedings for imposition of penalty when the Assessing Officer actually takes up such proceedings. Hence, this ground of the assessee is also dismissed.
21. In the result, assessee's appeal is dismissed.
Order pronounced in the court on 8-11-2013. X X X X Extracts X X X X X X X X Extracts X X X X
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