Chennai ITAT: Uncontrolled price on date of sales contract should be considered as CUP

In case of Liberty Agri Products (P) Ltd (IT APPEAL NO. 1610 (MDS.) OF 2010), the Income-tax Appellate Tribunal of Chennai (‘Chennai ITAT’) has observed that uncontrolled price on the date of sales contract should be considered as comparable uncontrolled price (‘CUP’) instead of uncontrolled price on the date of shipment received on the port.

Liberty Agri Products (P) Ltd. (‘Taxpayer’) is a part of M/s Kuok Group. During FY 2005-06, the taxpayer entered into transactions with its group company in Singapore, wherein the taxpayer purchased edible oil worth USD 23,530,749.06 and applied CUP as the most appropriate method. For the purpose of CUP, the taxpayer relied upon internal CUP (i.e. sales made by the associated enterprise in comparable transactions to third parties in India) and also on notification issued by the Custom Authorities in respect of tariff value on import of edible oils on the date of signing of sales contract. As corroborative evidence the taxpayer also documented the rates of oil published by Solvent Extractors Association of India in relation to degummed soya bean oil could also be well relied on.

During the transfer pricing scrutiny, the transfer pricing officer rejected the CUP data of the taxpayer and instead took Customs average rage at Kandla Port. As there was difference of more than 5% per metric ton, the transfer pricing officer suggested an addition of Rs. 26. 13 million.  

The taxpayer appealed before the Chennai ITAT, after an unsuccessful attempt before lower authorities.

Chennai ITAT agreed to the contentions of the taxpayer that instead of comparing the price with the Customs tariff rate on the date of entry into the port, the transfer pricing officer should have compared the price declared by the taxpayer with the Customs tariff rate at Kandla Port as it is stood on the day of contract of sale entered into between the taxpayer and its associated enterprise. Further, Chennai ITAT also observed that in these types of bulk purchases and sales, it is always better to compare the price of individual consignments rather than on a compromise of average price. 

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Best Regards

Gaurav Garg

JGarg Economic Advisors

New Delhi, India

www.jgarg.com

(P) +91 11 470 94934

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