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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

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DATE: March 14, 2018 (Date of pronouncement)
DATE: March 24, 2018 (Date of publication)
AY: -
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S. 148: The AO is not entitled to issue a reopening notice only on the basis that the foreign company has a permanent establishment (PE) in India if the transactions in respect of which it is alleged that there has been an escapement of income had already been disclosed by the Indian subsidiary and found by the Transfer Pricing Officer (TPO) to be at arm's length

In the judgment of this Court dated 24th October, 2017 in Assistant Director of Income Tax-I, New Delhi v. M/s. E-Funds IT Solution Inc., Civil Appeal NO.6082 of 2015 and connected matters, it has been held that once arm’s length principle has been satisfied, there can be no further profit attributable to a person even if it has a permanent establishment in India. Since the impugned notice for the reassessment is based only on the allegation that the appellant(s) has permanent establishment in India, the notice cannot be sustained once arm’s length price procedure has been followed

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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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CITATION:
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

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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

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DATE: December 2, 2015 (Date of pronouncement)
DATE: December 21, 2015 (Date of publication)
AY: 2007-08
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CITATION:
Transfer Pricing: An adjustment with respect to transfer pricing has to be confined to transactions with Associated Enterprises and cannot be made with respect to transactions with unrelated third parties

In terms of Chapter X of the Act, re-determination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered into with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act

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DATE: November 6, 2015 (Date of pronouncement)
DATE: November 23, 2015 (Date of publication)
AY: 2007-08
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CITATION:
Rule 10A(d): Law on when multiple transactions can be regarded as a single composite transaction for determining arm’s length price explained. Fact that a transaction results in a profit or a loss has no bearing on whether it is at arm’s length price

The answer to the issue whether a transaction is at an arm’s length price or not is not dependent on whether the transaction results in an increase in the assessee’s profit. A view to the contrary would cause considerable confusion and lead to arbitrary, if not illogical, results. A view to the contrary would then raise a question as to the extent of profitability necessary for an assessee to establish that the transaction was at an arm’s length price. A further question that may arise is whether the arm’s length price is to be determined in proportion to the extent of profit. Thus, while profit may reflect upon the genuineness of an assessee’s claim, it is not determinative of the same

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DATE: February 4, 2015 (Date of pronouncement)
DATE: February 9, 2015 (Date of publication)
AY: 2010-11
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CITATION:
TPO/ DRP's action of reducing the quantum of royalty paid to AE by applying the "benefit test" is surprising and improper

It is an accepted principle of law that TPO has to determine the ALP by adopting any one of the methods prescribed u/s 92C of the Act. Mode and manner of computation of ALP under different methods have been laid down in rule 10B. Even, assuming that TPO has followed CUP method for determining ALP of royalty payment, as held by ld. DRP, it needs to be examined if it is strictly in compliance with statutory provisions. Rule 10B(1)(a) lays down the procedure for determining ALP under CUP method

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DATE: December 30, 2014 (Date of pronouncement)
DATE: January 8, 2015 (Date of publication)
AY: 2008-09
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CITATION:
Transfer Pricing: ALP of interest on funds advanced to AEs has to computed on LIBOR and not as per domestic Prime Lending Rate (PLR)

While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable

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DATE: November 25, 2014 (Date of pronouncement)
DATE: December 3, 2014 (Date of publication)
AY: 2003-04
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CITATION:
Transfer Pricing: ALP adjustments can only be made in respect of international transactions with the AEs and cannot extend to the transactions with non AEs

It is well settled legal position that the ALP adjustments can only be made in respect of international transactions with the AEs and cannot extend to the transactions with non AEs. There are large number decisions of the coordinate benches, …

DCIT vs. Alcatel India Limited (ITAT Delhi) Read More »

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DATE: November 21, 2014 (Date of pronouncement)
DATE: December 3, 2014 (Date of publication)
AY: 2008-09
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CITATION:
Transfer Pricing: Law on aggregation of several international transactions to determine the Arms' Length Price explained

1) Whether the payment of royalty is interlinked and interconnected with the other international transactions of the assessee with its AE’s? 2) Where different international transactions with the AE are interconnected and interlinked, whether the aggregation of the transactions is …

Toyota Kirloskar Auto Parts Pvt. Ltd vs. ACIT (ITAT Bangalore) Read More »