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DATE: September 24, 2018 (Date of pronouncement)
DATE: October 5, 2018 (Date of publication)
AY: 2009-10
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CITATION:
S. 260A: Transfer Pricing disputes with regard to exclusion and inclusion of comparables to determine Arm's Length Price (ALP) would not necessarily give rise to substantial questions of law except if there is perversity of finding or failure to adhere to the settled principles of law while determining comparables

This Court was rather surprised as to why the Revenue brings such Appeals to this court and regularly. The Courts in India seem to be taking a view that the Revenue has routinely brought such matters before this Court knowing fully well that the Transfer Pricing particularly with regard to exclusion and inclusion of certain comparables to determine Arm’s Length Price (ALP) would not necessarily give rise to purely legal questions or substantial questions of law

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DATE: August 23, 2018 (Date of pronouncement)
DATE: August 30, 2018 (Date of publication)
AY: 2009-10
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CITATION:
S. 92B Transfer Pricing of AMP Expenditure: In the absence of material to suggest that there was an "arrangement, understanding or action in concert" with respect of the AMP expenditure incurred by the assessee, the TPO is not justified in coming to the conclusion that there was an international transaction u/s 92B and that the assessee should have recovered an amount from its AE. The request of the Dept for a remand to the TPO is not acceptable. A remand to the assessment stage cannot be a matter of routine; it has to be so done only when there is anything in the facts and circumstances to so warrant or justify

On a careful consideration of all these factors, including the inconsistency in the approach of the AO/TPO with respect to the AMP expenditure being in the nature of an international transaction as expenditure incurred on behalf of the assessee, including the quantum and nature of expenditure and including lack of any material to suggest that there was “an arrangement, understanding or action in concert” with respect of the expenditure incurred by the assessee and including the fact that, in our considered view, the expenditure incurred by the assessee was in nature of bonafide business expenditure in furtherance of its legitimate business interests, we are of the considered view that there is no legally sustainable basis for the TPO coming to the conclusion that there was an international transaction, under section 92B, on the facts of this case

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DATE: August 21, 2018 (Date of pronouncement)
DATE: August 28, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 92 Transfer Pricing: (i) Chapter 10 presupposes the existence of “income” and lays down machinery provision to compute ALP of such income. S. 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. If no income has accrued to or received by the assessee u/s 5, no notional income can be brought to tax u/s 92 of the Act (ii) It is a jurisdictional requirement that the AO has to record satisfaction that there is “income” or potential of income. The recording of 'satisfaction' about the existence of an "international transaction" is also essential. This is only within the jurisdiction of the AO and the CIT(A) cannot substitute his satisfaction for that of the AO. Such substitution of satisfaction is impermissible in law as it amounts to curing a jurisdictional defect

We are of the view that since chapter 10 pre-supposes the existence of “income” and lays down machinery provison to compute ALP of such income, if it arises from an „International transaction‟. Section 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. Accordingly, since no income had accrued to or received by the assessee u/s 5, no notional income can be brought to tax u/s 92 of the Act

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DATE: June 26, 2018 (Date of pronouncement)
DATE: August 4, 2018 (Date of publication)
AY: 2008-09
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CITATION:
S. 260A Transfer Pricing: Appeals against exclusion or inclusion of comparables to determine ALP of tested parties should not be filed in a ritualistic manner. Any inclusion or exclusion of comparables per se cannot be treated as a question of law unless it is demonstrated to the Court that the Tribunal or any other lower authority took into account irrelevant consideration or excluded relevant factors in the ALP determination that impact significantly

However, before closing, we would like to record the fact that we find that the Revenue is regularly filing appeals from the orders of the Tribunal in respect of Transfer Pricing particularly with regard to exclusion and inclusion of certain companies as comparables to determine ALP of tested parties. These appeals are being filed in a ritualistic manner. This results in the orders of the Tribunal which are essentially findings of fact in respect of exclusion/inclusion of a comparable being challenged without pointing out in any manner perversity of finding or failure to adhere to the settled principles of law while determining comparables such as Rule 10B of the Income Tax Rules, 1961. This unnecessarily takes up the scarce time of the Court.

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DATE: June 25, 2018 (Date of pronouncement)
DATE: June 27, 2018 (Date of publication)
AY: 2006-07
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S. 260A: Entire law on when transfer pricing disputes constitute "substantial questions of law" for challenge in the High Court explained. Transfer Pricing Adjustments on the basis of the comparables are a matter of estimate of broad and fair guess-work of the Authorities based on relevant material. The exercise of fact finding or ‘Arm’s Length Price’ determination or ‘Transfer Pricing Adjustments’ should become final with a quietus at the hands of the final fact finding body, i.e. the Tribunal. The ITAT's findings of fact cannot be challenged in the High Court unless it is shown that the findings are ex-facie perverse and unsustainable and exhibit total non-application of mind by the Tribunal to the relevant facts of the case and evidence before it

This Court cannot be expected to undertake the exercise of comparison of the comparables itself which is essentially a fact finding exercise. Neither the sufficient Data nor factual informations nor any technical expertise is available with this Court to undertake any such fact finding exercise in the said appeals under Section 260-A of the Act. This Court is only concerned with the question of law and that too a substantial one, which has a well defined connotations as explained above and findings of facts arrived at by the Tribunal in these type of assessments like any other type of assessments in other regular assessment provisions of the Act, viz. Sections 143, 147 etc. are final and are binding on this Court. While dealing with these appeals under Section 260-A of the Act, we cannot disturb those findings of fact under Section 260-A of the Act, unless such findings are ex-facie perverse and unsustainable and exhibit a total nonapplication of mind by the Tribunal to the relevant facts of the case and evidence before the Tribunal.

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DATE: March 6, 2018 (Date of pronouncement)
DATE: May 3, 2018 (Date of publication)
AY: -
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S. 92CB Transfer Pricing Safe Harbour Rules: If the assessee has exercised the safe harbour option under Rule 10THD(1) & the AO has not passed any order under rule 10THD(4) declaring the exercising of option to be invalid, the option is treated as valid. Thereafter, the Transfer Pricing regime does not apply & the AO has no authority to make any reference to the TPO to ascertain the arm's length price of the assessee's specified domestic transactions. CBDT's circular dated 10.3.2006 could not have and does not lay down anything to the contrary

In the present case, admittedly, after the petitioner exercised such an option, the Assessing Officer passed no order under subrule (4) of rule 10THD declaring that the exercising of option was invalid. In terms of subrule (7) and subrule (8) of the said rule, therefore, the option exercised by the assessee would be treated as valid. Once this conclusion is reached, it follows as a natural and necessary corollary that the Transfer Pricing regime would not apply. That being the case, the Assessing Officer had no authority to make any reference to the TPO to ascertain the arm’s length price of the petitioner’s specified domestic transactions. Reference itself was therefore, invalid. CBDT’s circular dated 10.3.2006 could not have and does not lay down anything to the contrary. The circular merely prescribes the circumstances under which the Assessing Officer would make reference to the TPO. Nowhere does the circular provide that as soon as such circumstances exist, the Assessing Officer would make a reference to the TPO, irrespective of the fact that the assessee had opted for safe harbour and such option was treated or deemed to be treated as validly exercised. Legally speaking, CBDT could not have given any such directive. Eventually no such directive can be discerned from the circular.

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DATE: April 11, 2018 (Date of pronouncement)
DATE: April 27, 2018 (Date of publication)
AY: 2006-07
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CITATION:
Transfer Pricing: The "international transaction" as defined in s. 92F(v) has to be a genuine transaction. Transfer pricing provisions do not apply to non-genuine or sham transactions

It is elementary that the ALP is determined of an `international transaction’, which has been defined in section 92B of the Act. The term `transaction’, for the purposes of the Chapter–X containing transfer pricing provisions, has been defined in clause (v) of section 92F to include an arrangement, understanding or action in concert. It shows that the ALP is always determined of an international transaction, which is genuine, but may be formal or in writing and whether or not intended to be enforceable by legal proceeding. If a transaction itself is not genuine, there can be no question of applying the transfer pricing provisions to it. In such an eventuality of a supposed genuine transaction turning out to be non-genuine, all the consequences which would have flowed for a real transaction, are reversed. In other words, certain deductions which would have been otherwise allowed in case of a genuine international transaction, are denied. Nitty-gritty of the matter is that only a declared and accepted genuine international transaction can be subjected to the transfer pricing regulations. If an international transaction is proved to be not genuine, the transfer pricing provisions are not triggered

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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 23, 2018 (Date of pronouncement)
DATE: March 26, 2018 (Date of publication)
AY: 2006-07
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CITATION:
Transfer Pricing: CBDT's Instruction No. 3/2003 is binding on the AO. Consequently, the ALP of international transactions where the quantum is less than Rs. 5 crore has to be determined by the AO and cannot be referred to the TPO. If such reference is made, it is invalid and the extended time for completing the assessment is not available to the AO. The assessment is void as it is time-barred

At the time of hearing the Ld. AR has taken a ground which is on legal point that as per the Instruction No. 3/2003 issued by the CBDT, the Assessing Officer should have decided the issue of international transaction himself instead of referring it to Transfer Pricing Officer as the quantum of International Transaction is below the monetary limit of Rs.5 crore. Prima facie, it appears that the contention of the Ld. AR is supported by the Instruction No. 3/2003

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DATE: March 14, 2018 (Date of pronouncement)
DATE: March 24, 2018 (Date of publication)
AY: -
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CITATION:
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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