|CORAM:||P.M.Jagtap (AM), Saktijit Dey (JM)|
|CATCH WORDS:||PLI, Transfer Pricing|
|DATE:||September 19, 2014 (Date of pronouncement)|
|DATE:||October 4, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Operating Profit to operating Revenue should be taken as the PLI and not Operating Profit to Operating Cost|
The purpose of identifying the PLI is to ensure that the comparability of the controlled transactions is objective and reference in this regard was made by him to the OECD Transfer Pricing Guidelines 2010, wherein it was explained that the denominator should be reasonably independent from controlled transactions, as otherwise, there would be no objective starting point. Explaining further, it was observed in the OECD Transfer pricing Guidelines that when analyzing a transaction consisting in the purchase of goods by a distributor from an associated enterprise for resale to independent customers, one could not weigh the net profit indicator against the cost of goods sold because these costs are the controlled costs for which consistency with the arm’s length principle is being tested.
In the present case, the issue involved was relating to determination of Arms length price of the international transactions of the assessee company with its AE involving purchase of medical devices, and this being so, we are of the view that the CIT(A) was fully justified in accepting the Operating Profit to operating Revenue as the PLI, as claimed by the assessee for Transfer Pricing Analysis, and not Operating Profit to Operating Cost as taken by the Assessing Officer/TPO, relying on the relevant OECD Transfer Pricing Guidelines, 2010.