9911796707
TMI Blog2013 (12) TMI 1575X X X X Extracts X X X X X X X X Extracts X X X X ..... is Ground No-2 and 2.1 which reads as under:- "2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in restricting the addition u/s 92CA of the Act to Rs. 71,45,622/- as against Rs. 2,11,23,382/- on account of TPO adjustment. 2.1. The Ld. CIT(A) ignored the fact recorded by the TPO and also the fact that the calculation has been correctly done by the TPO." 2. The grounds raised in ITA No-62/Del/2011 on the other hand reads as under :- "2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the remaining addition of Rs. 71,45,622/- made by the AO u/s 92CA of the Act on account of TPO adjustment. 2.2. The Ld. CIT(A) ignored the fact recorded by the TPO and also the fact that the calculation has been correctly done by the TPO." 2.1. The record shows that the assessee is incorporated as an Indian Company w.e.f 01.06.2004. As per its business profile it was engaged in the business of distribution and marketing of fertilizers in India. The assessee operates a 100% subsidiary of GNS II Corp USA which in turn is owned by the Mosaic Company, USA. In the year under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rejected the FOB CUP selected by the assessee and selected CFR CUP on the basis of the Fertecon Price Service while doing so he took into considertion the fact that the effective credit period of first shipment was 90 days consequently effective credit PLP was taken as US$ 1.17 and for the second shipment the credit period being 60 days the credit cost was taken was US$ 0.81. The reasons prevailing with the TPO for rejecting the assessee's methodology are set out in para 6.3 of the TPO's order which is extracted hereunder :- 6.3 Comments of TPO: I have carefully examined the purchase invoices, sale invoices and Fertecon Price Service quoted price and have reached to following important facts: "(i) DAP fertilizer of 41,140.90 mt was purchased @ US $ 277.53 mt on CFR basis under contract dated 12.10.2004 vide invoice dated 13.10.2004 and the same consignment was sold under high sea to another AE of the assessee in Hongkong on 18.10.2004. It is further noted from sale invoice that loading was undertaken at TAMPA, Florida USA and final destination of the consignment was Karachi port Pakistan. (ii) Similarly another consignment of DAP fertilizer of 41,066 mt was purchased @ US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Without prejudice to above conclusion, I also examined if freight adjustment of equal amount of FOB quoted value for both shipments was valid? It is pertinent to mention that first shipment of fertilizer was loaded from USA whereas second shipment was loaded from Australia and destination being the same i.e. India high sea, accordingly, equal amount of freight adjustment of US$ 47.50/mt to FOB value CUP by the assessee was incorrect and the same is not acceptable for the reason that both shipments from two different destinations would have two different freight rates. The Ferticon Price Service, does not have Australian freight accordingly, adjustment is not even possible to the FOB value CUP for consignment No.. 2." 2.6 Accordingly he computed the adjusted cups for both shipments as under:- (viii) In view of the above idsucssion I reject FOB CUP selected by the assesse and have selected CFR CUP on the basis of Ferticon Price Service, a document relied upn by the assesssee. Since both the purchases were on credit of 90 and 60 days CFR CUP shall be adjusted for effective credit PLL of US$ 1.17 for first shipment and US$ 0.81 for second shipment. "Consignment No.1 For the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on CFR basis were available in India he questioned the logic of taking FOB value rate and then making subsequent adjustment of freight etc despite the fact that direct CUP for India bound shipment having identical Contractual Form of Transportation (hereinafter referred as "CFR') was available. He was of the view that CUP for India specific price should be considered for making comparability analysis of import price of DAP fertilizers from AE instead of CUP with different terms of delivery were found to be wrongly chosen by the assessee. 2.9 The reasoning is extracted from his order for ready reference:- 6.6 Comments of TPO: I have carefully examined the purchase invoices, sale invoices and Fertecon Price Service quoted price and have reached to following important facts. (i)Consignment 3 of DAP fertilizer of 46,768 mt was purchased from the AE@ US$ 266.50/mt on CFR basis vide agreement dated 20/8/2004 on credit for 90 days and the same consignment was sold in India. It is further noted from sale invoice that loading was undertaken at USA and final destination of the consignment was Jamnagar, India. (ii) Similarly consignment 4 of DAP fertilizer of 12,7000 mt was purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was wrongly computed at US$ 277.97 in Annexure 1. These facts have proved tht even as compared with CUP selected by the assessee for consignment 4 the purchase of DAP @ US$ 272.14 was not at arm's length price. (viii) In view of above discussion I reject FOB CUP selected by the assessee and have selected CFR CUP on the basis of Ferticon Price Service, a document relied upon by the assessee. Since both the purchases, consignment 3 & 4 were on credit of 90 and 365 days respectively, CFR CUP shall be adjusted for effective credit PLL of US$ 1.11 for consignment 3 and US$ 4.50 for 4th consignment. The adjusted CUPs for both the shipment are computed as under: Consignment No.3 Contract dated 20/8/2004 for 46,768mt of DAP fertilizer Step 1 Purchase Price paid to AE =US$266.50/mt Step 2. Indian CFR bulk DAP fertilizer Rate on 19/8/2004 Average Of High/low rate =US$ 260-263/mt =US$261.4/mt Step 3. Adjustment for credit purchase (90 days) add effective PLR = US$1.11/mt Adjusted CUP =US$ 3.89/mt Step 4. Excess Purchase price paid to The AE as compared to CUP (US$3.89x46,768) = US$181927.52 Consignment 4 Contract dated 20/8/2004 for 12,70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. In view of above findings, I have rejected the adjusted CUP applied by the assessee to benchmark international transaction. (iv) Since purchase price of DAP fertilizer on CFR terms of delivery was noted on the relied upon document, I have selected purchase price on CFR terms (which was identical to terms of purchase by the assessee) as uncontrolled comparable CUP after making adjustment for credit purchases. (v) The assessee was given number of opportunities of being heard vide order sheet entry and issue of notices. (vi) The transfer pricing studies have proved that purchase prices of consignment 1 to 4 were not at arm's length price and this resulted in adjustment of Rs. 2,11,23,382." 3. Aggrieved by this, the assessee filed a petition u/s 154 before the TPO assailing the basis of the calculation of CUP regarding purchase of fertilizers from its AE stating that as per Annexure 1, Annexure 2A and Annexure 2B, the value of effective PLR had been mentioned in absolute terms and not in percentage terms which was not accepted by the TPO as a mistake apparent on the face of the record. Similarly the request that the +/- 5% adjustment benefit under the proviso to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,145,622 Thus, the above table clearly depicts that even the methodology adopted by the TPO the amount of adjustment should have been restricted to INR 7,145,622 instead of INR 2,11,23,382. Accordingly, the Appellant humbly submits that the addition made by the TPO be suitably rectified and the order of the TPO, denying the above rectification, be quashed." 4.2 The said issue was decided by the CIT(A) in the following manner:- "I have carefully examined this issue and also considered the submissions made by the appellant and all other relevant material placed on record. In this regard, I have the following comments: On perusal of the transfer pricing order and the submission made by the appellant there is no doubt that the TPO made an apparent order while calculating the amount of transfer pricing addition. The TPO erroneously considered the PLR to be an absolute number instead of percentage. Herein, it is important to note that the appellant in its submission dated 14th July 2008 very clearly mentioned the terms such as PLR and interest rates to denote the rates used by the appellant to compute the adjusted CUP. The terms use by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O also. It was submitted that the assessee has relied on the publicly available information on External CUP from a weekly report called Fertecon Phosphate Report of Fertecon Report which has a trade journal published weekly by Fertecon Limited. It was stated that the said report provides prices at which the DAP fertilizers are traded internationally and the data provided is widely acknowledged within the fertilizers industry to be the most accurate, comprehensive, and authoritative and it also provides a timely and detailed foresight into the development of the global fertilizer industry and the data published by the Fertecon Report is used by all the leading corporations, trade bodies and government agencies belonging to the fertilizers industry throughout the world. It was further submitted that it is also relevant that these prices are also adopted by the Government of India while determining the subsidy. The application of CFR prices was assailed on the ground that it is reported for port of destination without disclosing the port of origin or port of dispatch and in order to benchmark its imports of DAP, the assessee identified "US Gulf FOB prices" published in the Fertecon re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO erred in determining the CUP for consignment dated October 25, 2004. (iii) Whether the TPO erred in allowing the benefit of +\5% range." 4.6 In the circumstances the CIT(A) came to the following conclusion :- "24. I have carefully considered the submissions made by the appellant. In the current case there is no dispute regarding selection of most appropriate method. Instead the major point of dispute is with respect to application of US FOB gulf vis-a-vis India CFR prices. 25. After a consideration of the submission and Power Point Presentation and perusing the TPO's AO order made by the Appellant I am of the view that the Appellant has used the prices published in the Fertecon Report to establish the CUP. Fertecon Report is widely known amongst industry and is also used by the Government of India to compute the subsidy offered to the Fertilizer companies. Further, there is no dispute on the use of Fertecon report to establish the CUP. Further, it was observed that the Fertecon Report along with US FOB Gulf Prices also contains India CFR prices. The major difference between the two prices are with respect to geographical location of the transactions. While US FOB Gulf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove the appeal of the appellant is allowed and the proposed addition by the TPO amounting to Rs. 71,45,622 (Rs. 21,123,382) is deleted." 5. Aggrieved by these findings by way of these the two appeals the Revenue is in appeal before the Tribunal. 6. The hearing in the present appeals continued on various dates wherein the Ld. CIT DR heavily relying upon the TPO's order assailed the impugned order on the ground that the CIT(A) has erred in deciding that the international transaction with respect to purchase of fertilizers should be bench-marked by the use of US FOB Gulf prices instead of India CFR prices. It was his submission that the assessee has failed to prove that the transaction was at arm's length and the arguments that the prices are favourable when compared to the adjusted CUP based on US FOB prices is irrelevant as the market is India and it is India specific prices which should have been quoted. It was his vehement stand that only to oblige it's AE, the assessee has necessarily made purchases from the US and when the product is available in India, at a much lesser price the occasion to refer to US FOB Gulf Price for benchmarking the transaction has no logic. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts on record it was argued that the CIT(A) on the peculiar facts and circumstances of the case has come to a correct finding as admittedly the Associated Enterprise of the assessee is located in Florida, USA. Accordingly the US Mexico and Gulf FOB prices close to the date of transaction have been taken. Referring to the arguments before the TPO and the CIT(A) at length it was argued that it had been demonstrated that after making necessary adjustments for freight rate which again is quoted from the Fertecon Manual and the credit rate the assessee has made adjustments. It was also stated that it had been argued that Fertecon rates from various markets in the world are available and no doubt India CFR rates are also available but when in the facts of the present case the goods are sourced from Florida, USA than the most appropriate rate was the US Gulf FOB rate. In support of the impugned order it was argued that India CFR rates did not address the port of origin of the goods and the goods may have been sourced from China or various other countries which may be more economical for the buyer however the facts remains that the quality of goods which the assessee was supplying m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de thereupon. 4. The geographical market is India since the tested party is the Indian Entity which has purchased/bought goods for consumption in India. The assessee in its bid to accommodate its AE, has changed the market to USA. Since goods are purchased for India and there are prices available for goods to be sold in India, the market is India and the prices are India prices (These India prices are available in USA and everywhere) Moreover, the Port of Origin is not important, as the prices are average prices, and the TPO has duly considered them. 5. The assessee has not been able to counter the case of Clear Plus India (P.) Ltd., ITA No.3944/D/2010. In the case of Clear Plus India (P) Ltd.; the market was taken to be the place, where the buyer was situated, and the prices were taken to be the prices available to the buyer (including 3rd party buyers). Similar facts are obtaining here also. The assessee, here, is accommodating, its AE and therefore going in for seller's price (and the seller is the American AE)." 9. A perusal of the written submissions advanced on behalf of the assessee shows that at pages 1 to 2 of the written submissions filed, paras 1to 6 address the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price, the destination is India, but which part of India is not known. The destination could be Vishakhapatnam, on the east coast and Mundra on the west coast of India. During the previous year, the Respondent had operated on the west coast. e. The 'India CFR Cash' price is a spot price and the payment has to be made immediately. The Ld. TPO adopted the 'India CFR Cash' price but for the purpose of adjustment in respect of credit period has adopted the US interest rates. It is humbly submitted that the approach of the Ld. TPO is inconsistent. If 'India CFR Cash' price is taken, then, the adjustment for credit period should be the India interest rate prevailing at that time and not at the US interest rate. This aspect also supports the decision of the Ld. CIT(A) -XX, New Delhi." 9.1 Since the written submissions were exchanged by the parties before the Bench, it is seen that the department had countered the assessee's stand, these arguments were rebutted by the Ld. AR in the following manner:- "40. The Ld. CIT (DR) submitted that the Respondent adopted the US FOB price to accommodate its AE despite having India specific rate in the Fertecon report. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e specific price which should be applied and not the 'US Gulf FOB' price. It is humbly submitted that the ratio laid down in Clear Plus India Pvt. Ltd (supra) doesn't support the contention of the Ld. CIT(DR)." 9.2 The order of the Co-ordinate Bench in the case of Clear Plus India (P.) Ltd. (cited supra) which has followed the ratio laid down in SNF (Australia (P.) Ltd.) it was argued has been wrongly applied to the present case on the following grounds:- Brief facts in Clear Plus India Pvt. Ltd A. The assessee is engaged in the manufacture of all seasons wipers and snow wipes, which were sold to its AE in USA. The AE also purchased the similar goods from the Chinese manufacturers and the Assessee maintained the details of invoices of Chinese goods purchased by its AE in USA. The Assessee adopted the CUP method as the most appropriate method by comparing its selling price with the purchase price by its AE from the Chinese manufacturers as the goods were similar and the price paid for the India products was more than the price paid for the Chineses products. B. On the basis of the above facts, the Hon'ble ITAT observed that goods were sold by the Chinese manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer and unique features of the market in which the taxpayer sells is of no importance". Thus, the ratio laid down by the Australian Federal Court applies to the facts of the Respondent (the kind attention of the Hon'ble bench is drawn to the paras 3, 4, 68, 74, 75, 78, 82, 140, 144 & 146 of the decision). Thus, the ratio laid down in Clear Plus India Pvt. Ltd & SNF (Australia) Pty Ltd support the Respondent's case. 44. The Ld. CIT(DR) has submitted that the tested party is the Respondent, therefore, the India specific price should be adopted. He further submitted that the method of computation of ALP by the Respondent is against the ratio laid down in Clear Plus India Pvt. Ltd. it is humbly submitted that there are various differences between the 'India CFR Cash' price and the 'US Gulf FOB' price (as submitted at Para 29). The concept of Tested Party doesn't come in the way of adoption of US Gulf FOB price as the imported DAP price is compared with the prevailing uncontrolled price in USA (as reported in the Fertecon Report). 9.3 Addressing the interest charged by the assessee in order to compute the correct adjustment, the assessee's stand was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents starting from India specific prices. Even the order in the case of UCB, India, as referred to by the assessee, in para 31.1 of its submissions speaks of "(d) an independent terms from other independent enterprises in a similar market (an external comparable) The facts are squarely applicable in case of the assessee also. Since the Indian assessee is buying/purchasing goods, the prices are the ones that are India specific. Any third party buying goods in India, will buy at the best prices which clearly are Indian specific pries. Counter to Para 32 The assessee, chose the prices to suit its foreign AE. The assessee did not buy at the best price which was the India Specific Price, which was lower than the US price. This has been detailed by the TPO. Counter to Para 33 to 38 This relates to claim of safe harbour benefit, and involves a set of calculations, which was not before the TPO. Counter to Para 39 The TPO, as per law, is allowed to choose the Most Appropriate Method. The assessee might have, in the subsequent years, imported/purchased goods at ALP, as per the TPO and the TPO would have thought it proper not to make any adjustments on the basis of facts before him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is a matter of record that there is no discussion in any material on record in regard to grading or quality of the product. Moreover even before us there is no plea to consider fresh evidence qua the difference either in grading or quality of the product sourced from USA or Asia. Thus in the absence of any material or evidence in regard to the same the argument forwarded for the first time now that too in passing in regard to justification of arm's length price on the reasoning of possibility of superior quality of goods has no merit or relevance and has to be dismissed as based on no evidence. 12.2 Similarly the arguments based on unique market conditions prevalent in USA by way of stringent Regulatory condition adding to costs of the product for the assessee is not relevant as the tested party should be in India and the quality of products has never been argued before any of the two forums and even before us as observed no attempt to plead for placing such evidence let alone placing necessary evidence on record has been done. Considering the legal precedent as laid down in Clear Plus we hold that for the purposes of considering the arm's length price of the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from or abdicated on the alter of convenience or there being no impact on the adjustment ultimately unless the aggrieved party pleads that on account of this reasoning they choose to give up the argument which as observed is not a fact in the present case as the Revenue has insisted upon a finding. 12.5 We may also deal with the argument advanced on behalf of the assessee that in subsequent year the TPO has accepted the assessee's stand. Considering the same we hold that this argument also cannot form the basis of a finding in the present case warranting a dismissal of department's appeal as not only it is a settled legal position that res-judicata does not strictly apply to income tax proceeding as each assessment year is an independent year. Apart from that we are of the considered view that lack of action on the part of the AO in a subsequent year on facts which did not warrant interference or warranted interference despite which the methodology was accepted cannot be the edifice on which it can be held that the department's appeal be dismissed. Once an issue is agitated before us for laying down the legal position as to whether in the facts of the present case benc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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