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ACIT vs. UE Trade Corporation (India) (ITAT Delhi)

DATE: (Date of pronouncement)
DATE: January 12, 2011 (Date of publication)

Click here to download the judgement (ue_trade_transfer_pricing_5.pdf)

Transfer Pricing Benefit u/s 92C of +/- 5% variation from ALP not available if only one price determined

The assessee undertook international transactions with associated enterprises for export of pulses. The AO made a reference to the TPO for determination of the arms’ length price (ALP) but the TPO did not furnish the report. Thereafter, the AO himself determined the ALP and concluded, by adopting “CUP” method, that in six instances the price paid by the assessee was in excess of the quotation in “Agriwatch” database. In appeal, the CIT (A) accepted that in respect of the transactions where the variation between the price paid and the price given in “Agriwatch” was less than 5% no adjustment could be made though he confirmed the other adjustments. On cross appeals before the Tribunal, HELD:

(i) The argument that as the TPO did not determine the ALP despite a reference to him by the AO, the AO had no jurisdiction to determine the ALP is not acceptable because the TPO’s report is not binding on the AO. The TPO’s failure does not bar the AO’s jurisdiction to determine the ALP (ratio of Sony India 288 ITR 52 (Del) followed but amendment to s. 92CA(4) w.e.f. 1.6.2007 not noted);

(ii) The argument that transfer price regulations are meant for curbing tax avoidance and if such intention is absent, no adjustment should be made is not acceptable (Aztec Software 294 ITR (AT) 32 (SB) & Coca Cola India Inc 309 ITR 194 (P&H) followed);

(iii) Under the Proviso to s. 92C(2) (pre-amendment w.e.f. 1.10.09) the option to the assessee to choose a price which may vary from the arithmetical mean by an amount not exceeding five per cent is available only where more than one price is determined and not where there is only one comparable instance (Sony India vs. DCIT 114 ITD 448 (Del) & DCIT vs. BASF India not followed. Perot System TSI (India) Ltd 130 TTJ 685 followed);

(iv) The said Proviso as amended w.e.f 1.10.09 is a substantive provision and not clarificatory and applies only from AY 2009-10 and onwards. Even otherwise, the exception provided in both the provisos of s. 92C(2) with regard to the +/- 5% variation applies only when more than one price is determined. Even under the amended law, the benefit is not available to the assessee if only one price has been determined by applying CUP method.

(v) Circular No. 12/2001 dated 23.8.2001 which states that the AO shall not make any adjustment to the ALP determined by the assessee if such price is upto +/- 5% the price determined by the AO is not applicable because the assessee has not “determined” a price but has relied upon the “Agriwatch” data base. Even the AO has relied on the same data base. So, “the price determined by the assessee and the AO is the same” and the Circular is not applicable. There is also no absurdity in this interpretation;

(vi) The argument that the position should be seen as a whole with respect to all the transactions and not only with respect to the disputed transactions is not acceptable because the assessee has not shown that various purchases were a part of pre-arranged scheme or agreement so as to constitute a part of the indivisible transactions of purchase.

Note: Apart from Sony India vs. DCIT 114 ITD 448 (Del) & DCIT vs. BASF India in SAP Labs India vs. ACIT 6 ITR 81 (Bang) & Philips Software 26 SOT 226 it was held that the +/- 5% variation was a “standard deduction” and the adjustment had to be confined to the difference after allowing the said “standard deduction

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