TMI Blog2008 (12) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... mination sought for in terms of the Explanation to section 80-I(8) of the Income-tax Act is not the cost of the goods but the market value of the goods. The goods to be sold in the open market would naturally include not only the cost of the goods but also such additional expenses. In addition to the expenses referred to above, the notional profit to which the seller would be entitled to, could be added to arrive at the market rate of the inputs. The availability of the goods at the nearest market is a question of fact. The said market could either be next door or miles apart either way, the cost of the goods at the nearest avail- able market would have to be reckoned and to that the cost of transportation, octroi, local taxes, etc., has to be added. The figures so arrived at would in terms of the Explanation to section 80-I(8) would constitute the market value. Question No. 3 is answered against the Revenue and in favour of the assessee. - I. T. A. No 509 of 2002. - - - Dated:- 17-12-2008 - GOPALA GOWDA V., RAVI MALIMATH, JJ. JUDGEMENT Ravi Malimath J.- This appeal is preferred by the Revenue under sec- tion 260A of the Income-tax Act, 1961, being aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner on fatty acid and glycerin. It used to pay transport charges for transportation of raw materials from Amalner to Mumbai and from Mum- bai to Amalner for transportation of the finished goods, i.e., fatty acid and glycerin. During the year 1987-88, the assessee set up its own unit to man- ufacture fatty acid and glycerin. For the purpose of claiming deduction under section 80HH and section 80-I of the Act, the assessee submitted a calculation of profit in respect of fatty acid and glycerin plant (FAGP) and soap unit. The assessee gave a working of the cost of fatty acid which was certified by its cost accountant. The Assessing Officer noted that the work- ing of the interim transfer price of fatty acid was scrutinized for the pre- ceding assessment year. It was found that the assessee-company was working out such transfer price by including, inter alia, the Mumbai octroi, the Amalner octroi and the transportation of fatty acids from Mumbai to Amalner to the cost of raw material and conversion charges of raw mate- rials into fatty acids. Alter examining the issue in detail, it was held, for the assessment year 1992-93 that the octroi at Mumbai municipality, freight from Mumbai to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further held that the Mumbai octroi ; freight from Mumbai to Amalner and Amal- ner octroi should be excluded for computing the transfer price of fatty acid. The Appellate Commissioner addressed himself to the market value of the fatty acid. He relied on the Explanation to section 80-I of the Income-tax Act. That the octroi at Mumbai and Amalner and transportation charges from Mumbai to Amalner could be part of the cost which the assessee would have to bear if the fatty acid are purchased at Mumbai which is stated to be the nearest market at which these are available. That the mar- ket at Amalner is not a free market in the sense that it is not the place where the said goods are available. Therefore, considering hypothetically that fatty acid could be sold at Amalner as if there is a free market there, any hypothetical purchaser would take into account the octroi, transpor- tation charges and compare the total cost including the price with the cost including octroi, transportation charges, etc., from a place like Mumbai where an open market for fatty acids is available. That if the assessee as the seller agrees to supply the goods at the premises of the purchaser and includes oct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the hypothetical market value should be presumed as if an independent person intended to sell the goods at Amalner. In such a case, the cost of the goods at Amalner would definitely include not only the cost of the goods at Mumbai but also expenses like freight, octroi, etc. Consequently, the Appellate Tribunal held that the Assessing Officer was not right in determining the market value of the goods by reducing the expenses like freight, octroi, etc. Consequently, it was held that the said amount should be included as profit derived from the industrial undertaking for the purpose of computation deduction under section 80HH and section 80-I of the Act. Determination of the market value of the raw material in terms of the Explanation to section 80-I(8) of the Income-tax Act has arisen for con- sideration in this case. On the existence of a market where the goods under assessment are available, the question of determination of the market value of the raw material goods would not arise for consideration. Therefore, the consideration would be as to what constitutes the market value of the raw material in terms of the Explanation to section 80-I(8) of the Income-tax Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods, he would not be incurring expenses such as octroi, local taxes, etc. Therefore, the cost of the goods applicable to the assessee would only be the cost of manufacturing and at the most the cost of transpor- tation. Therefore, this, according to him, would constitute the market value of the goods. It is an undisputed fact that the FAGP, after manufacturing the goods transfers it to its toilet soap unit and that neither octroi nor local taxes are being paid when such transfer/sale is made. However, determination sought for in terms of the Explanation to section 80-I(8) of the Income-tax Act is not the cost of the goods but the market value of the goods. The market value would mean, that which the price of the goods would ordi- narily fetch in the open market. It connotes the price at which the seller is willing to sell and the price at which the purchaser is willing to buy. It does not mean only the cost of production. The goods to be sold in the open market would naturally include not only the cost of the goods but also such additional expenses. In addition to the expenses referred to above, the notional profit to which the seller would be entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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