TNT India Private Limited vs. ACIT (ITAT Bangalore)

Transfer Pricing: Prior Years’ data cannot ordinarily be relied upon to justify ALP. Non-operating income & expenditure should be excluded while comparing

The assessee, a courier company, paid Rs. 43.46 crores to its holding co in Netherlands towards the reimbursement of cost in transport of consignments. The TPO & CIT (A) adopted the TNMM and claimed that as the operating profit /operating income of the comparables was higher than that earned by the assessee, an adjustment had to be made. It was also claimed that the assessee was not entitled to rely on the data of earlier years. On appeal to the Tribunal, HELD:

(a) In respect of FY 2001-02, the assessee used data pertaining to AYs 1999-2000 & 2000-01. While the argument that at the time of TP study, the data relating to relevant comparable for FY 2001-02 is acceptable, the assessee has to adopt the data available for the TP study at the time of filing of the return. By the time of filing of return, the data relevant to FY 2001-02 was available. Further, prior year data is relevant only if the assessee is able to prove that the pricing pattern of the assessee for the relevant financial year has been influenced by the market conditions/business cycle/product life cycle of the earlier years (which is not there in the courier business). The OECD guidelines are not of binding nature and even the Proviso to Rule 10B (4) provides that any subsequent year data cannot be considered. The contemporaneous data of relevant financial year is to be used for making the comparable analysis for arriving at the ALP unless it is proved otherwise;

(b) For arriving at the net margin of operating income, only operating income and operating expenses for the relevant business activity of the assessee has to be taken into consideration. Other income, such as dividend income, profit on sale of assets, donations as well as non-operating expenses which are included in the operating incomes of other comparable companies should be excluded as it effects the net margin of the operating profits of the comparables. Working capital adjustments also have to be considered while arriving at the operating net margins.

(c) The assessee is entitled to a standard deduction of 5% as provided under proviso to s. 92C (2) before making adjustments of the transfer price. (Schefenacker Motherson 123 TTJ (Del) 509 and SAP Labs 6 ITR 81 (Bang)(Trib) followed)