Search Results For: Transfer Pricing


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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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. Ut Starcom Inc. (India Branch) (Delhi High Court)

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DATE: September 25, 2017 (Date of pronouncement)
DATE: October 3, 2017 (Date of publication)
AY: 2007-08
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Transfer Pricing: A giant risk taking company like Infosys Technologies with huge significant intangibles and having huge assets leading to the exorbitant turnover is not comparable with a captive unit which is subject to minimum/ limited risk. The fact that the functional profile of Infosys is similar to that of the assessee is irrelevant

When we examine the profile of the assessee company vis-à-vis Infosys Technologies Limited in the light of the judgment in CIT vs. Agnity India Technologies Pvt. Ltd. (supra), there is no comparability for benchmarking the international transactions for the reasons inter alia that Infosys Technologies Limited is a giant risk taking company whereas, on the other hand, the assessee is a captive unit of its parent company and prone to minimum/ limited risk; that the Infosys Technologies Limited is having huge significant intangibles and having huge assets leading to the exorbitant turnover; that it is not in dispute that functional profile of assessee company and CIT vs. Agnity India Technologies Pvt. Ltd. is similar

Fresenius Kabi India Private Limited vs. DCIT (ITAT Pune)

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DATE: June 16, 2017 (Date of pronouncement)
DATE: September 12, 2017 (Date of publication)
AY: 2008-09
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Transfer Pricing: In the case of an assessee engaged in distribution activity there is no value addition to the product in question even if the selling and marketing expenses are borne by the assessee. Accordingly, the Resale Price Method is the most appropriate method for bench marking the transaction and determining whether it is at arms' length. The TPO is not entitled to thrust TNMM to evaluate the transaction

It is settled legal position at the various Benches of the Tribunal that, in case of distribution activity, even when there are selling and marketing expenses are borne by the assessee, there cannot be any value addition to the product in question. In such cases, Resale Price Method is the most appropriate one and accordingly we reverse the decision given by the AO/TPO/DRP in thrusting on the assessee the TNM method to the transaction under consideration

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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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

Pr CIT vs. M/s Veer Gems (Gujarat High Court)

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DATE: June 20, 2017 (Date of pronouncement)
DATE: July 13, 2017 (Date of publication)
AY: 2008-09
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S. 92A Transfer Pricing: The mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises "associated enterprises" so as to subject their transactions to the rigors of transfer pricing law

A plain reading of Section 92A makes the legal position quite clear. The basic rule for treating the enterprises as associated enterprises is set out in Section 92A(1). The illustrations in which basic rule finds application are set out in Section 92A(2). Section 92A(1) lays down the basic rule that in order to be treated as associated enterprise one enterprise, in relation to another enterprise, participate, directly or indirectly, or through one or more intermediaries, “in the management or control or capital of the other enterprise” or when “one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise” . Section 92(A)(2) only provides illustrations of the cases in which such an enterprise participates in management, capital or control of another enterprise. In other words, what Section 92A (1) decides is the principle on the basis of which one has to examine whether or not two or more enterprise are associated enterprise or not.

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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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)
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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

Hyundai Motor India Limited vs. DCIT (ITAT Chennai)

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DATE: April 27, 2017 (Date of pronouncement)
DATE: May 9, 2017 (Date of publication)
AY: 2009-10
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Transfer Pricing AMP Adjustment: Entire law on whether the advertisement expenditure incurred by the Indian AE towards brand of a foreign company can be treated as an “international transaction” and whether a notional adjustment can be made in the hands of the Indian AE towards compensation receivable from the foreign AE for “deemed brand development” explained

A service has to be conscious activity and it cannot be a subliminal exercise- as is the impact on brand value in this case. A service, by definition, is an act of helping, or doing something on behalf of, someone. A passive exercise cannot be defined as a service. Every benefit accruing to an AE, as a result of dealing with another AE, is not on account of service by the other AE. What I benchmarked is not the accrual of ‘benefit’ but rendition of ‘service’. All benefits are not accounts or services by someone, just as all services do not result in benefits to the parties. The expressions ‘benefit’ and ‘service’ have different connotations, and what is truly relevant, for the purpose of definition of ‘international transaction’ in Indian context, is ‘service’- not the benefit. There is no rendition of service in the present context

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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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

Orchid Pharma Limited vs. DCIT (ITAT Chennai)

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DATE: November 30, 2016 (Date of pronouncement)
DATE: February 6, 2017 (Date of publication)
AY: 2011-12
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CITATION:
Transfer Pricing - Meaning of “Associated Enterprises”: The fact that an enterprise can “influence prices and other conditions relating to sale” does not make it an “associated enterprise” of the assessee if it does not participate in the (a) capital, (b) management, or (c) control of the assessee and thus does not fulfil the basic rule u/s 92A(1). S. 92A(2)(i) has to be read with s. 92(A)(1). Even if the conditions of s. 92A(2)(i) are fulfilled, these enterprise cannot be treated as ‘associated enterprise’ if the requirements of s. 92A(1) are not fulfilled

The definition of ‘associated enterprise’, as the above academic analysis shows, has two approaches- wider approach and narrow approach. A narrow approach to the concept of associated enterprises takes into account only “de jure” association i.e. though formal participation in the capital or participation in the management. A wider approach to the concept of ‘associated enterprises’ takes into account not only the de jure relationships but also de facto control, in the absence of participation in capital or participation in management, through other modes of control such as commercial relationships in which one has dominant influence over the other. This wider concept is clearly discernible from the principles underlying approach to the definition of ‘associated enterprises’ in the tax treaties and has also been adopted by the transfer pricing legislation in India in an unambiguous manner. There is no other justification in the Indian transfer pricing legislation, except the participation in capital of an enterprise, management of an enterprise or control of an enterprise, which can lead to the relationship between enterprise being treated as ‘associated enterprises’. What essentially follows is that clause (i) of Section 92A(2) has, at its conceptual foundation, de facto control by one of the enterprise over the other enterprise, on account of commercial relationship of its buying the products, either on his own or through any nominated entities, from such other enterprise and in a situation in which it can influence the prices and other related conditions. The wordings of clause (i), however, do not reflect this position in an unambiguous manner inasmuch as it does not set out a threshold of activity, giving de facto control to the other enterprise engaged in such commercial activity, in percentage terms or otherwise- as is set out in clause (g) and (h) or, for that purpose, in all other operative clauses of Section 92A(2)

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