Search Results For: ALP


Eaton Fluid Power Limited vs. ACIT (ITAT Pune)

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DATE: March 12, 2018 (Date of pronouncement)
DATE: April 23, 2018 (Date of publication)
AY: 2008-09
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CITATION:
Transfer Pricing: Entire law on whether the TPO can sit in judgement over the business model of the assessee and determine the ALP of the transactions with AEs at Nil explained in the context of judgements in Kodak India 288 CTR 46 (Bom), Lever India Exports 292 CTR 393 (Bom), Cushman and Wakefield 233 TAXMAN 250 (Del), R.A.K. Ceramics 293 CTR 361 (AP) & Delloite Consulting 137 ITD 21 (Mum)

Now, coming to the issue of transfer pricing adjustment made by TPO on account of services availed by the assessee from its associated enterprises and taking the value of said international transactions at Nil. In the first instance, we hold that TPO cannot sit in the judgment of business module of assessee and its intention to avail or not to avail any services from its associated enterprises. The role of TPO is to determine the arm’s length price of international transactions undertaken by the assessee and whether the same is at arm’s length price when compared with similar transactions undertaken by external entities or internal comparables

Pr CIT vs. Amphenol Interconnect India P. Ltd (Bombay High Court)

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DATE: March 7, 2018 (Date of pronouncement)
DATE: March 13, 2018 (Date of publication)
AY: 2006-07, 2007-08, 2009-09
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CITATION:
Transfer Pricing: The Comparable Uncontrolled Price (CUP) method is not the Most Appropriate Method for determining the Arm's Length Price (ALP) in respect of the transactions of (sales of goods and sales commission) with Associated Enterprises (AEs) if there are geographical differences, volume differences, timing differences, risk differences and functional differences. If it is not shown that the selection of TNMM as the Most Appropriate Method is perverse, the same cannot be challenged

The TPO has while stating that FAR analysis has to be carried out, does not indicate that it was carried out. On the contrary, we find that the Tribunal in the impugned order has done the necessary FAR analysis. This is so as it has compared the risk and functional differences involved in finished goods being sold to AEs as against those sold to third parties as we have enumerated above to come to the conclusion that the prices at which the finished goods sold to the third parties are not comparables to the prices at which the goods sold to the AEs inter alia on the FAR analysis. We note that the finished goods are customized goods and the geographical differences, volume differences, timing differences, risk differences and functional differences, came to a conclusion that the CUP method would not be the MAM to determine the ALP

Avenues Asia Advisors Pvt Ltd vs. DCIT (Delhi High Court)

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DATE: September 18, 2017 (Date of pronouncement)
DATE: October 3, 2017 (Date of publication)
AY: 2009-10
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CITATION:
Transfer Pricing: Steps to be undertaken in identification of comparable transactions/entities while fixing the ALP and the margin explained. Though the TNMM method allows broad flexibility tolerance in the selection of comparables, broad functionality is not sufficient to find the comparable entity. There must be similarity with the controlled transaction

In so far as identifying comparable transactions/entities is concerned, the same would not differ irrespective of the transfer pricing method adopted. In other words, the comparable transactions/entities must be selected on the basis of similarity with the controlled transaction entity. Comparability of controlled and uncontrolled transactions has to be judged, inter alia, with reference to comparability factors as indicated under rule 10B(2) of the Income Tax Rules, 1962. Comparability analysis by the transactional net margin method may be less sensitive to certain dissimilarities between the tested party and the comparables. However, that cannot be the consideration for diluting the standards of selecting comparable transactions/entities. A higher product and functional similarity would strengthen the efficacy of the method in ascertaining a reliable arm’s length price. Therefore, as far as possible, the comparables must be selected keeping in view the comparability factors as specified. Wide deviations in profit level indicator must trigger further investigations/analysis

CIT vs. Tata Power Solar Systems Ltd (Bombay High Court)

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DATE: December 16, 2016 (Date of pronouncement)
DATE: August 9, 2017 (Date of publication)
AY: 2008-09
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CITATION:
Transfer Pricing: A party is not barred in law from withdrawing from its list of comparables a company found to have been included on account of mistake of fact. The Transfer Pricing Mechanism requires comparability analysis to be done between like companies and controlled and uncontrolled transactions by carrying out of FAR analysis. The assessee's submission in arriving at the ALP is not final. It is for the TPO to examine and find out the companies listed as comparables which are in fact comparable

We find that the impugned order of the Tribunal holding that a party is not barred in law from withdrawing from its list of comparables, a company, if the same is found to have been included on account of mistake as on facts, it is not comparable. The Transfer Pricing Mechanism requires comparability analysis to be done between like companies and controlled and uncontrolled transactions. This comparison has to be done between like companies and requires carrying out of FAR analysis to find the same. Moreover, the Assessee’s submission in arriving at the ALP is not final. It is for the TPO to examine and find out the companies listed as comparables which are, in fact comparable

CIT vs. Aurionpro Solutions Ltd (Bombay High Court)

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DATE: June 9, 2017 (Date of pronouncement)
DATE: June 30, 2017 (Date of publication)
AY: 2007-08
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CITATION:
Transfer Pricing ALP of foreign advances: If the advances are made to a AE situated abroad, the LIBOR rate has to considered to determine the Arms Length interest and not the interest rate in India (SBI PLR). This would be reasonable and proper in applying commercial principles

Advances were made to the company situated abroad. The LIBOR rate naturally will be considered to determine the Arms Length interest, the same would be reasonable and proper in applying the commercial principle. The Tribunal has directed the appropriate rate would be LIBOR plus 2% instead of LIBOR plus 3% applied by the TPO

CIT vs. Mettler Toledo India Pvt. Ltd (Bombay High Court)

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DATE: June 7, 2017 (Date of pronouncement)
DATE: June 21, 2017 (Date of publication)
AY: -
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CITATION:
S. 92C +/- 5%: The contention that there is an error because mere mathematical calculation shows that the arm's length purchase price as worked out by the TPO falls beyond (+)/(-) 5% range and consequently falls outside the scope of the second proviso to s. 92C(2) cannot be considered if it was not raised before the CIT(A) & ITAT

Whether on the facts and circumstances of the case and in law, the ITAT is correct in directing the Assessing Officer to allow benefit of +/5% to the assessee without considering Explanation (2A) to Section 92C(2) inserted by Finance Act 2012 w.e.f. 1.4.2002, whereby deduction of 5% earlier being allowed by appellate authorities has been explicitly prohibited w.e.f. 1.4.2002 and therefore, the ITAT ought not to have issued such directions to the A.O. as are in contravention of the provisions of the statute

Zee Entertainment Enterprises Ltd vs. ACIT (ITAT Mumbai)

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DATE: May 5, 2017 (Date of pronouncement)
DATE: May 11, 2017 (Date of publication)
AY: 2008-09
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CITATION:
Transfer Pricing: Law explained as to when the “Resale Price Method” (RPM) can be used with respect to related parties under Rule 10B (1)(b) + Law on determining arm’s length rate of the corporate guarantee commission/fee explained

The Transfer Pricing Officer has selected RPM as most appropriate method for determining the arm’s length price of the transaction of sale of programmes and film rights to ATL in contrast to the TNM method selected by the assessee. The first controversy is as to whether the Transfer Pricing Officer was justified in selecting the RPM as most appropriate method. Section 92(1) of the Act provides that the arm’s length price in relation to the international transaction shall be determined by any of the methods prescribed therein, being the most appropriate method. Notably, the phraseology of section 92C(1) of the Act makes it clear that the selection of the most appropriate method is to be made “having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors………………..”. Further, Rule 10B of the Rules enumerates the various methods to determine the arm’s length price of an international transaction and for the present purpose, what is relevant is clause(b) of Rule 10B(1) of the Rules, which prescribes the manner in which the RPM is to be effectuated

Kaypee Electronics & Associates Pvt. Ltd vs. DCIT (ITAT Bangalore)

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DATE: April 21, 2017 (Date of pronouncement)
DATE: April 21, 2017 (Date of publication)
AY: 2010-11
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CITATION:
Transfer Pricing: An international transaction can be clubbed / aggregated with other international transactions if such transactions are closely connected with each other. The onus is on the assessee to establish the justification for clubbing the transactions. If the TPO has not applied TNMM at the entity level and has bench marked the royalty payment on standalone basis and not subjected the cost of production or other transactions to bench marking, the contention that when TNMM is applied at the entity level, there was no necessity of separate bench marking in respect of royalty transactions cannot be accepted

The only issue that arises for consideration before us is whether the TPO was justified in making the ALP adjustment in respect of royalty payment made to M/s. Falco Limited in the given facts of the present case. The royalty payment is made to M/s. Falco Limited for manufacturing electronic components by using technology, expertise and knowhow of Falco and marketing and selling components under the brand name of Falco in India as well as abroad by the assessee company. In consideration of same, royalty at the rate of 8% of sales was made by the appellant to M/s. Falco Limited. No doubt the law is settled to the extent that an international transaction can be clubbed / aggregated with other international transactions provided such transactions are closely connected with each other. In the cases cited by the ld. counsel for the appellant, this proposition of law was reiterated. But in the present case, the TPO had not applied TNMM at entity level. The TP study report submitted by the assessee company had been rejected by the TPO. This action of the TPO is confirmed by the Hon’ble DRP. But the TPO proceeded to bench mark the transaction of the royalty payment on stand alone basis. In the process, the cost of production or other transactions are not subjected to bench marking by the TPO. Therefore the contention of the ld. counsel that when the TNMM was applied at the entity level, there was no necessity of separate bench marking in respect of royalty transactions cannot be accepted

CIT vs. ALSTOM Projects India Limited (Bombay High Court)

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DATE: September 14, 2016 (Date of pronouncement)
DATE: December 14, 2016 (Date of publication)
AY: 2006-07
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CITATION:
Transfer Pricing adjustment has to be done only in respect of International Transactions with Associated Enterprises. The fact that the assessee has chosen entity level PLI to benchmark the AE transactions and that it has not maintained segmental accounts is irrelevant. If segmental accounts are not available, proportionate adjustments have to be made only in respect of the international transactions with Associated Enterprises

One must not lose sight of the fact that the transfer pricing adjustment is done under Chapter X of the Act. The mandate therein is only to redetermine the consideration received or given to arrive at income arising from for International Transactions with Associated Enterprises. This is particularly so as in respect of transaction with non Associated Enterprises, Chapter X of the Act is not triggered to make adjustment to considerations received or paid unless they are Specified Domestic Transactions. The transaction with non Associated Enterprises are presumed to be at arms length as there is no relationship which is likely to influence the price. If the contention of the Revenue is accepted, it would lead to artificial increase in the profits of transactions entered into with non Associated Enterprises by applying the margin at entity level which is not the object of Chapter X of the Act. Absence of segmental accounting is not an insurmountable issue

Shell Global Solutions International BV vs. DDIT (ITAT Ahmedabad)

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DATE: November 17, 2016 (Date of pronouncement)
DATE: November 26, 2016 (Date of publication)
AY: 2007-08
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CITATION:
Interplay between Article 9 of the DTAA and Transfer Pricing law in the Act explained. While Article 9 is an enabling provision, the TP mechanism under the domestic law is the machinery provision. There is no occasion to read Article 9 as confined to enabling ALP adjustment in respect of only domestic entities. The mere fact that the OECD Commentary etc give examples related to economic double taxation situations does not imply that the Article 9 (1) cannot be applied to other situations

Once it is not in dispute that the arms length standards are, therefore, to be applied in computation of taxable profits, as is specific mandate of article 9, it is only axiomatic that the manner in which arm’s length standards are to be applied is something which has not been defined by the treaties and the mechanism provided under the domestic law, therefore, must hold good. Article 9(1) does not, and cannot, provide the basis of the ALP adjustments as tax treaties restrict application of domestic law of taxation rather than create independent rights of taxation. Article 9(1) is thus, in a way, an enabling provision, and the TP mechanism under the domestic law is the machinery provision. The provisions of article 9(1) permit ALP adjustment in all situations in which the arm’s length standards require higher profits in the hands of any “one of the enterprises, but by reason of those conditions, have not so accrued” to be “included in the profits of that enterprise and taxed accordingly”. The provisions are clear and unambiguous. There is no occasion to read this provision as confined to enabling ALP adjustment in respect of only domestic entities

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