3F INDUSTRIES LIMITED,TADEPALLIGUDEM vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, , ELURU

PER S. BALAKRISHNAN, Accountant Member :

This appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-11, Hyderabad [Ld. CIT(A)] in appeal No. 62/2018-19/CIT(A)-11/2018-19/Hyd, dated 30/09/2018 arising out of the order passed U/s. 143(3)

2 r.w.s 144 of the Income Tax Act, 1961 [the Act] for the AY 2013-

14.

engaged in the business of manufacture and trading of edible oils

and agro based produced filed its return of income for the AY

2013-14 admitting total loss of Rs. 20,24,08,309/-. The return

was subsequently processed U/s. 143(1) of the Act.

Subsequently, the case was selected for scrutiny under CASS.

During the year the assessee has entered into various

international transactions with its Associated Enterprises [AEs]

and also Specific Domestic Transactions with its subsidiary

companies situated in India and therefore the Ld. AO referred the

matter to the Ld. Transfer Pricing Officer [the TPO] for computing

the Arm’s Length Price [ALP]. The Ld. TPO considering the

submissions made by the assessee’s Representative, rejected the

TP documentation maintained by the assessee and a TP

adjustment of Rs. 1,08,98,025/- on the international

transactions pertaining to interest on working capital and term

loans of Rs. 61,64,747/- in respect of specified domestic

transaction with 3F Oil Palm Agrotech Private Limited [3F Oil

Palm] vide its order dated 31/10/2016 passed U/s. 92CA(3) of

3 the Act. The assessee noticed certain mistakes apparent on

record and filed a rectification petition U/s. 154 of the Act. The

Ld. TPO rectified the mistakes vide order dated 18/11/2016 by

revising the TP Adjustment of Rs. 14,05,566/- pertaining to

interest on working capital and term loans of Rs. 62, 64,747/- in

respect of specific domestic transactions. Considering the TPO’s

order, the Ld. AO completed the scrutiny proceedings and passed

a draft order U/s. 143(3) r.w.s 144C(3), dated 24/11/2016. The

Ld. AO later finalized the draft assessment order and issued a

final assessment order on 27/12/2017 incorporating the

adjustments proposed in the draft order since the assessee

company preferred to file an appeal before the Ld. CIT(A).

Aggrieved by the order of the Ld. AO, the assessee filed an appeal

before the Ld. CIT(A). Considering the submissions made by the

assessee’s representative, the Ld. CIT(A) uphold the adjustment

for specific domestic transactions amounting to Rs. 61,64,747/-

and also disallowed the Miscellaneous Expenditure amounting to

Rs. 64,895/-. The Ld. AO considered the disallowances upheld

by the Ld. CIT(A) and passed a consequential order dated

7/2/2019 by revising the total loss to Rs. 19,47,73,101/-.

Aggrieved by the order of the Ld. CIT(A), the assessee carried the

matter to the Tribunal.

“Each of the Grounds given below is independent and without prejudice to the other grounds of appeal preferred by the appellant.

On the facts and in the circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. CIT(A) erred in:

Transfer Pricing matters – Specified Domestic Transactions:

Ground No.1: Rejection of CUP and Application of TNMM

a) Rejecting the approach / analysis undertaken by the appellant to determine the ALP of the SDT relating to purchase of raw materials or semi-finished goods or finished goods and by products and making an adjustment of Rs. 61,64,747/-. b) Rejecting comparable uncontrolled Price (CUP) method as the most appropriate method of determining the ALP of purchase of raw materials or semi-finished goods or finished goods and by products with related parties by applying transaction Net Margin Method (TNMM). c) Not considering the prices published by Department of Horticulture, Government of Andhra Pradesh for determination of Arm’s Length Price (ALP).

Ground No.2 FAR Analysis:

a. Not undertaking an objective FAR analysis of 3F Oil Palm Agrotech Private Limited (tested party or 3F Oil Palm) and the comparable companies.

Ground No.3: Selection of companies: a) Not undertaking an objective comparability analysis and accepting companies not engaged in same or similar activities of the tested party. b) Not undertaking an objective comparative analysis and selecting the following companies as comparable to 3F Oil Palm. i. Vimal Foods Private Limited. ii. Amira Pure Foods Private Limited. iii. JMD Oil Mills Private Limited iv. Mauria Udyog Limited v. Kirti Dall Mills Limited vi. Poona Dal and Oil Industries Limited vii. Kirti Agrotech Limited

Ground No.4: Rejecting of entrepreneurial companies:

Notwithstanding an objective comparative analysis rejecting entrepreneurial companies engaged in palm tree plantation and production inter alia including: i. Godrej Agrovet Limited (Vegetable Oil Segment). ii. Ruchi Soya Industries Limited (Extractions segment) iii. Navabharat Agro Products Private Limited iv. Oil Palm India Limited Corporate Tax Matters Ground No.5: Disallowing Miscellaneous Expenditure incurred towards business of the appellant of Rs. 64,895/- Ground No.6: Initiating penalty proceedings U/s. 271(1)(c) of the Act.”

CUP method and application of TNMM method and also objected

to the selection of companies which comprises of the grounds No.

1 to 4. The assessee in Ground No.5 raised the issue of

disallowance of miscellaneous expenditure amounting to Rs.

64,895/-. The assessee in Ground No.6, challenged the penalty

proceedings U/s. 271(1)(c) of the Act.

request for admitting the additional grounds of appeal as follows:

“7. Based on the facts and circumstances of the case and in law, the appellant contends that since the provisions of section 92BA(i) of the Act relating to expenditure referred in section 40A(2)(b) of the Act were omitted by Finance Act, 2017 w.e.f 1/4/2017, the impugned specified domestic transaction is not covered U/s. 92BA of the Act. Once clause (i) to section 92BA of the Act is omitted by FA 2017, it is deemed not to be operative on statute since its inception.

6 Various judicial pronouncements mentioned above have upheld the principle that once a provision is omitted from the statute, it has effect of not being enacted unless there is a saving clause for continuation of pending proceedings.”

outset argued on Ground No.7 raised by way of additional

grounds of appeal. The Ld. AR vehemently argued that since the

provisions of clause(i) to section 92BA of the Act has been

omitted by the Finance Act, 2017 w.e.f 1/4/2017 and hence it

would be deemed that clause (i) of section 92BA of the Act was

never in the statute. The Ld. AR further argued that since clause

(i) of section 92BA of the Act was omitted, payments made by the

assessee U/s. 40A(2)(b) of the Act cannot be considered as

specified domestic transaction. The Ld. AR placed heavy reliance

on the decision of the Hon’ble Karnataka High Court in the case

of Pr. CIT vs. Texport Overseas (P.) Ltd reported in [2020] 272

Taxman 170 (Karnataka). The Ld. AR also relied on the following

case laws:

(i) M/s. Raipur Steel Casting India (P) Ltd vs. PCIT,

Kolkata – ITAT, Kolkata.

(ii) M/s. Bhartia-SMSIL (JV) vs. ITO – ITAT, Kolkata

(iii) M/s. DVC Emta Coal Mines Ltd vs. Bengal Emta Coal

Mines Ltd; M/s. Panem Coal Mines Ltd vs. ACIT – ITAT

Kolkata

(iv) M/s. SKM-UMSL JV vs. ITO – ITAT, Cluttack Bench

(v) Swastik Coal Corporation Pvt Ltd vs. PCIT, Indore –

ITAT, Indore Bench

(vi) Shree Shai Smelters (I) Ltd vs. ACIT – ITAT

Ltd (supra) held as under:-

“5. Having heard learned Advocates appearing for parties and on perusal of records in general and order passed by tribunal in particular it is clearly noticeable that Clause (i) of section 92BA of the Act came to be omitted w.e.f. 01.04.2019 by Finance Act, 2014. As to whether omission would save the acts is an issue which is no more res intigra in the light of authoritative pronouncement of Hon'ble Apex Court in the matter of Kolhapur Canesugar Works Ltd. v. Union of India AIR 2000 SC 811 whereunder Apex Court has examined the effect of repeal of a statute vis- a-vis deletion/addition of a provision in an enactment and its effect thereof. The import of section 6 of General Clauses Act has also been examined and it came to be held: "37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute-book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in section 6 or in special Acts may modify the position. Thus the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the

8 pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision."

held that in case where a particular provision in a statute is

omitted with a saving clause in favour of the pending

proceedings, then it can be reasonably inferred that the intention

of the Legislature is that pending proceedings shall not continue.

Therefore, the omission of clause (i) of section 92BA w.e.f

1/42017 shall render the pending proceedings invalid. However,

in this case, the assessment was completed on 27/12/2016 much

before the amendment came into effect by the Finance Act, 2017.

We therefore find no merit in the argument of the Ld. AR and

hereby dismiss the additional ground raised by the assessee.

the assessee on merits. The Ld. AR argued that the Ld. TPO while

considering the comparables have not considered the

entrepreneurial companies which are engaged in the Palm Tree

Plantation as well as production. The Ld. AR further contended

that the comparative analysis selected by the Ld. TPO does not

engage in the seller activities of 3F Oil Palm Agrotech Pvt Ltd.

The Ld. AR further submitted that the Government of Andhra

9 Pradesh by way of Notification specified the Monthly Rates of the

CPO price per Metric Ton of Oil Palm. The Ld. AR further

submitted that the Government Order [GO] is being passed by the

Ld. Commissioner of Horticulture (FAC), A.P., Hyderabad

notifying the CPO price of Oil Palm. The Ld. AR further

submitted that the assessee has procured Oil Palm from 3F Oil

Palm Agrotech Pvt Ltd., at a price which is lower than the prices

published by the Government of Andhra Pradesh. Further, the

Ld. AR submitted that the margins of comparable companies

which are engaged in the similar activities has an arithmetic

mean of 15.75% as against the margin of 11.66% k of 3F Oil Palm.

The Ld. AR therefore argued that hence these transactions should

be considered at ALP and therefore, the assessee has procured

Oil Palm from 3F Oil Palm Agrotech Pvt Ltd., at a price lesser

than the other cultivators and manufacturers. The Ld. AR

further pleaded that the Ld. TPO should be considering the right

comparables and hence the matter may be remitted back to the

Ld. TPO for consider the same and similar companies engaged in

manufacture and production of Oil Palm.

miscellaneous expenditure by the Ld. CIT(A), the Ld AR

10 submitted that these expenses are incurred towards the business

of the appellant and hence pleaded to be allowed.

Per contra, the Ld. DR relied on the orders of the Ld.

Revenue Authorities. The Ld. DR further submitted that the 3F

Oil Palm is a tax exempt entity as they claimed exemption benefit

U/s. 80IB of the Act and hence they charged over pricing of the

Oil Palm supplied to the assessee company. The Ld. DR further

submitted that the 3F Oil Palm has earned a margin of 11.66%

against the profit of 3.85% of the assessee which implies that 3F

Oil Palm has over priced the product by the assessee. The Ld.

DR further contended that the comparables taken by the Ld. TPO

is mixed bunch of traders and manufacturers and hence it is

valid. The Ld. DR pleaded that the order of the Ld. Revenue

Authorities be upheld.

available on record and the orders of the Ld. Revenue

Authorities. Admitted facts are that the Government of Andhra

Pradesh through Ld. Commissioner of Horticulture (FAC) passed

GO notifying the CPO price per Metric Ton of Oil Palm on a

Monthly basis. The Ld. AR submitted a table showing the price

per Metric Ton notified by Government of Andhra Pradesh and

11 the price at which sales made by 3F Oil Palm to the assessee. The

comparable chart is extracted below for reference:

Monthly Prices of Crude Palm Oil Product: Crude Palm Oil AY 2013-14 CPO Average Rate 3F Oil Palm Sales to Month as per Govt. of AP 3F Industries GO’s Limited Price per MT Price per MT April-12 62890 60410 May-‘12 59767 58102 June-12 57502 57276 July-12 59750 54786 Aug-12 58138 54788 Sept-12 55748 50800 Oct-12 44822 41053 Nov-12 45510 43300 Dec-12 44222 No sales Jan-13 45411 45000 Feb-13 46419 44800 Mar-13 46820 44100

3F Oil Palm sales to Non-Associated Enterprises at a higher rate

against the price charged to the assessee. The price charged by

3F Oil Palm to the assessee and to third parties is extracted

below for reference:

Monthly Prices of Crude Palm Oil Product: Crude Palm Oil AY 2013-14 Sales to 3F Sales to Third Month Industries Parties

Price per MT Price per MT April-12 60410 No sales May-‘12 58102 No Sales

12 June-12 57276 No sales July-12 54786 57005 Aug-12 54788 55986 Sept-12 50800 53148 Oct-12 41053 41000 Nov-12 43300 43589 Dec-12 No sales 41239 Jan-13 45000 44304 Feb-13 44800 44725 Mar-13 44100 45036

submitted by the Ld. AR that 3F Oil Palm sells at a price lower

than the notified rates to the assessee and hence we are of the

considered view that there is no over-charging of price of the Oil

Palm by 3F Oil Palm to the assessee. Similarly, we also note that

the price charged to third parties ie., Non-Associated Enterprises

is more than the price charged to the assessee by 3F Oil Palm.

Further, from the financials submitted by the Ld. AR, we find

that 3F Oil Palm has sold Rs. 7.68 Crs worth goods / services to

the assessee as against the total sales of goods by 3F Oil Palm

aggregating to Rs. 88.51 Crs. From the above, we find that the

sales made by 3F Oil Palm to the assessee by less than 10% of

the total sales of 3F Oil Palm.

the matter back to the file of the Ld. TPO to verify the claim made

13 by the assessee-company with respect to price chart to third

parties vis-à-vis price supplied to the assessee. Similarly, the Ld.

TPO may also verify the price charged by 3F Oil Palm to the

assessee as against the notified rates by the Government of

Andhra Pradesh vide its Government Orders on Monthly basis.

We therefore, direct the Ld. TPO to compare the rates and decide

the matter in accordance with law after affording a reasonable

opportunity of being heard to the assessee.

Miscellaneous Expenditure of Rs. 64,895/-, we could not accept

the arguments of the Ld. AR that it is wholly and exclusively for

the purpose of business or profession. The Ld. CIT(A) in his

order in para 6.1 has considered this issue and has disallowed

the gift expenses and Vaastu expenses which do not constitute as

wholly and exclusively for the purpose of business or profession.

In our considered view, since the Ld. CIT(A) has rightly

considered the issue we find no infirmity in the order of the Ld.

CIT(A) and hence this ground raised by the assessee is dismissed.

proceedings u/s. 271(1)(c) of the Act, we are of the view that the

14 penalty proceedings U/s. 271(1)(c) is a consequential proceedings and hence this ground need not be adjudicated.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated :15.12.2022 OKK - SPS आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – 3F Industries Limited, Post Box No.15, 1. Tanuku Road, Tadepalligudem, PIN-534101, Andhra Pradesh. राज�व/The Revenue – The Assistant Commissioner of Income Tax, 2. Circle-1, KKS Towers, RR Pet, Eluru, Andhra Pradesh-534002. 3. The Principal Commissioner of Income Tax (Central), Hyderabad. (ii) The Principal Commissioner of Income Tax, Rajahmundry. आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals)- 4. 11, Hyderabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam