|COURT:||Bombay High Court|
|CORAM:||G. S. Kulkarni J, S. V. Gangapurwala J|
|CATCH WORDS:||+/- 5% adjustment, ALP, Transfer Pricing|
|COUNSEL:||Dr. K. Shivram, Sashank Dandu|
|DATE:||June 7, 2017 (Date of pronouncement)|
|DATE:||June 21, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|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|
(a) The High Court had to consider the following substantial question of law at the instance of the department:
“1. Whether on the facts and circumstances of the case and in law, the ITAT is correct in holding that the price charged by the assessee in the international transactions entered into with its AE in respect of the trading segment is within the +/range without appreciating the fact that since the quantum of international transactions for the year under consideration is Rs.5,10,88,530/( on the cost side), the corresponding (+)/() 5% range would be Rs.5,36,42,957/to Rs.4,85,34,103/and thus the arm’s length purchase price of Rs.4,42,31,397/as worked out by the TPO in his order, fails beyond the (+.) 5% range and consequently, falls outside the scope of the Second Proviso to section 92C(2) of the Act?
2. 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?
3. Without prejudice to the above, whether on the facts and circumstances of the case and in law, the ITAT was justified in arriving at their findings without adjudicating on the department’s specific ground of appeal before the Tribunal that the CIT(A) was not justified in ignoring other two comparable cases adopted by the TPO?”
(b) The department submitted that Section 92C(2) has not been properly considered by the Commissioner of Income Tax (Appeals) and the Tribunal. By mere mathematical calculation, it would be seen that the arm’s length purchase price as worked out by the TPO in his order falls beyond (+)/() 5% range and consequently falls outside the scope of second proviso to Section 92C(2) of the Income Tax Act. Learned Counsel submitted that it was an error on the part of the Commissioner of Income Tax (Appeals) to discard the comparison of two companies made by the TPO, no reasons were put forth while discarding the said two comparable instances to be considered as Benchmark. According to the learned Counsel, the Tribunal also persisted with the same error. The transaction is beyond the arm’s length. As such the order deserves to be set aside.
(c) The assessee submitted that even if the case as put forth before the Commissioner of Income Tax(Appeals) and the Tribunal is considered as it is, still the same is within the permissible arm’s length. The case put forth by the Revenue in the present appeal was not at all put forth before the authorities below. As such the appellant cannot be permitted to raise a new ground in the present appeal which can only to be considered on the substantial questions of law.
(d) HELD by the High Court dismissing the appeal:
“Naturally this appeal has to be considered on the substantial questions of law. The grounds which were never agitated before the Commissioner of Income Tax (Appeals) and the Tribunal and those grounds based on the facts, cannot be agitated in the present appeal. In the light of the above, the appeal being sans substantial question of law. The appeal is dismissed.”