Case Number: ITA 808/DEL/2021
Appellant: Louis Dreyfus Company India Pvt Ltd, Gurgaon
Respondent: DCIT Circle-2(1), New Delhi
Assessment Year: 2016-17
Case Filed On: June 30, 2021
Order Type: Final Tribunal Order
Date of Order: March 16, 2023
Pronounced On: March 16, 2023
Result: The tribunal upheld the use of customs data for determining the arm’s length price, rejecting the appellant’s arguments.
This article discusses the case between Louis Dreyfus Company India Pvt Ltd and the Deputy Commissioner of Income Tax (DCIT) Circle-2(1), New Delhi, where the central issue was the transfer pricing adjustments made by the DCIT for the assessment year 2016-17. The tribunal’s decision, pronounced on March 16, 2023, provided significant clarification on the use of customs data for determining the arm’s length price in transfer pricing cases.
The appellant, Louis Dreyfus Company India Pvt Ltd, filed an appeal against the order of the DCIT, Circle-2(1), New Delhi, for the assessment year 2016-17. The case involved complex issues related to transfer pricing adjustments, particularly concerning the import and export of agri-commodities with associated enterprises (AEs).
The assessee filed its return declaring a loss of Rs. 64,17,81,731, which was processed by the Central Processing Centre (CPC). Later, the case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS). The draft order under Section 144C of the Income Tax Act, 1961, was passed on December 21, 2019, assessing the income of the assessee at Rs. 42,49,43,801 after making a transfer pricing (TP) adjustment of Rs. 106,67,25,532. The assessee filed objections before the Dispute Resolution Panel (DRP) against the draft assessment order.
The final assessment order was passed on March 31, 2021, under Sections 143(3), 144C(13), 143(3A), and 143(3B) of the Income Tax Act. The DRP upheld the TP adjustment of Rs. 18,57,18,810, resulting in an assessed income of Rs. 45,60,62,921 against the returned loss of Rs. 64,17,81,731. The adjustment was primarily based on the data collected from customs authorities, which the assessee contested.
The assessee raised several substantive grounds of appeal, arguing that the TP adjustments were incorrectly made by rejecting the Comparable Uncontrolled Price (CUP) analysis undertaken by the assessee based on industry reports and independent broker quotes as on the date of the contract. The assessee contended that the customs data used by the DCIT did not account for economically relevant characteristics such as the date of contract, incoterms, and quality.
The representatives of both sides were heard at length. The assessee’s counsel argued that the CUP method was selected as the most appropriate method for benchmarking the transaction relating to import and export of agri-commodities. The counsel submitted that the rates/quotes offered by authenticated independent market reports and third-party broker quotes should be considered as CUP. They further contended that similar data was accepted in previous assessment years and by other tax authorities.
On the other hand, the Departmental Representative (DR) argued that the customs data provided a more reliable basis for benchmarking the transactions, as it reflected real-time transaction values. The DR emphasized that the broker data used by the assessee was unreliable and unauthenticated, and that the customs authorities’ data was scientifically formulated and credible.
The tribunal, comprising Shri Anil Chaturvedi (Accountant Member) and Shri Yogesh Kumar U.S. (Judicial Member), analyzed the arguments and the material available on record. The tribunal noted that there was no dispute between the assessee and the department regarding the applicability of the CUP method for benchmarking. However, the primary issue was whether the prices published by industry associations and brokerages constituted a more reliable CUP compared to customs data.
The tribunal observed that customs data, based on transaction values/tariff values of similar or identical products at the time of import/export, provided a more reliable basis for comparison. The tribunal referred to the OECD Transfer Pricing Guidelines, which allow for the adoption of a price-setting date different from the contract date, often based on shipment dates, as this reflects the actual transaction prices more accurately.
The tribunal further noted that the customs data included various relevant costs such as interest, insurance, freight, storage expenses, and port charges, making it a comprehensive indicator of the arm’s length price for identical or similar transactions. The tribunal found that the broker data relied upon by the assessee did not provide the same level of detail and reliability as the customs data.
The tribunal also cited several judicial precedents supporting the use of customs data for transfer pricing purposes, including the decisions in Coastal Energy Pvt. Ltd. vs. ACIT and Rohm And Haas India (P) Ltd. vs. ACIT, where the reliability of customs data as a CUP was upheld.
In conclusion, the tribunal dismissed the appeal of Louis Dreyfus Company India Pvt Ltd, upholding the TP adjustment made by the DCIT. The tribunal’s decision reinforces the credibility of customs data as a reliable source for determining the arm’s length price in transfer pricing cases, particularly when it includes comprehensive transaction details and associated costs.
This decision provides significant guidance for taxpayers and tax authorities on the application of the CUP method and the use of customs data in transfer pricing analyses, ensuring that the arm’s length principle is appropriately applied in international transactions.
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