UE TRADE CORPORATION (INDIA) PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

These cross appeals call into question correctness of the order dated 15th December 2010 passed by the CIT(A) in the matter of assessment under section 143(3) .: 1051 and 1225/Del/11 Assessment year: 2004-05 Page 2 of 5 of the Income Tax Act, 1961 for the assessment year 2004-05. These appeals pertain to the same assessee, are interconnected and were heard together. As a matter of convenience, therefore, both of these appeals are being disposed of by way of this consolidated order.

In order to understand, and properly adjudicate on, the issues requiring our consideration, it is necessary to take a look at some undisputed material facts of the case and the developments leading to these appeals before us. The assessee before us is a subsidiary of Singapore based company, by the name of UE Trade Corporation Pte Ltd, and is engaged in imports, exports, procurement, upgrading of local produce, trading and distribution of agricultural produce. During the relevant previous year, the assessee entered into international transactions with respect to, inter alia, purchases of pulses etc from its associated enterprises (AEs) abroad. These transactions were claimed to have been entered at an arm’s length price on the basis of the comparable uncontrolled price (CUP) method. When the scrutiny of the arm’s length price came up for scrutiny before the Transfer Pricing Officer, he noted that the import prices have been compared with prices at by computing the mean of prices of pulses obtained from agriwatch.com and by computing its mean. He noted that “it is found that generally the price charged by the associated enterprises from UE is equal to or less than the arm’s length price”. He further noted that “the methods presented by the assessee suggest a range of values on a particular date”. He had some issues with the data but reflecting a very fair and judicious approach, he proceeded to observe that “due to limitations of database to search the comparable for TNMM method and the exact CUP of the assessee, the TP methodology of the assessee is accepted for this year”. The agriwtach.com data was thus accepted by the Transfer Pricing Officer. He did note that “this is not a perfect CUP” but “a very good indicator and captures transactions”. On the basis of this approach, he computed the ALP adjustment as follows:

The adjustment thus made were as follows:

The amount of US$ 1,20,749.283 was converted into IRs by adopting conversion rate at 1 US $ as equivalent to Rs 44.125. The ALP adjustment thus worked out to Rs 53,28,093. Accordingly, the Assessing Officer, based on TPO’s workings, made the ALP adjustment of Rs 53,28,093. Aggrieved, inter alia, by the ALP adjustment so made, assessee carried the matter in appeal before the CIT(A) but without complete success. Learned CIT(A) noted that under the contract no. 109, the assessee has entered into transaction at a lower price of US $ 300 per MT as against accepted comparable of US$ 345 per MT, and yet an ALP adjustment is made for US $ 73.039.65. This was taken as completely erroneous and, accordingly, corresponding adjustment of RS 32,22,874 was deleted. The balance amount of Rs 16,17,327 was confirmed. None of the parties is satisfied. While the assessee is aggrieved of CIT(A) confirming the ALP adjustment to the extent of Rs 16,17,327, the Assessing Officer is aggrieved of deletion of ALP adjustment to the extent of Rs 32,22,874.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. .: 1051 and 1225/Del/11 Assessment year: 2004-05 Page 4 of 5

As for the relief granted by the CIT(A) to the extent of Rs 32,22,874, we find that admittedly the imports by the assessee were a price lower than the accepted comparable under the CUP by the TPO. The imports were at the rate of US$ 300 per MT, whereas accepted CUP rate was US $ 345. Under these circumstances, the AO was clearly in error in making the said ALP adjustment to that extent. Grievance of the Assessing Officer is thus devoid of any legal merits.

As for the ALP adjustment confirmed by the CIT(A), we have noted that the TPO has adopted the arithmetic mean of the prices, on a day to day basis, as the final comparable value. However, as a plain look at Section 92C(2) would show, the concept of arithmetic mean does not involve such a computation on day to day basis. When the prices are so time sensitive that even intra-day variations are significant, there cannot indeed be any rationale in adopting the arithmetic mean of the prices on that day. In any case, all the transactions entered into on a particular day, as reported on a website, will essentially include the related party transactions as well. We have also noted that the TPO, in his order, has himself accepted that “it is found that generally the price charged by the associated enterprises from the US (i.e. the assessee) is equal to or less than the arm’s length price” and yet he had made the ALP adjustment on the basis of arithmetic mean of the transaction values on that particular day- something which is not permissible under the scheme of the Act. When the arm’s length price is justified on the basis of the CUP accepted by the TPO, there cannot be an occasion to make adjustment on the basis of price averaging on day to day basis. In this view of the matter, and on the peculiar facts of this case, we direct the Assessing Officer to delete the impugned ALP adjustment of Rs 16,37,327 as sustained by the CIT(A). The assessee gets the relief accordingly.

As we part with the matter, we make it clear that the decision, as above, is on peculiar facts of this case, that in view of the smallness of the amount no further .: 1051 and 1225/Del/11 Assessment year: 2004-05 Page 5 of 5 verifications were directed, and that it should not be treated as a precedence of general application.

In the result, while appeal of the assessee is allowed, the appeal of the Assessing Officer is dismissed. Pronounced in the open court today on 11th day of January, 2016.