{"id":4180,"date":"2012-01-14T06:03:16","date_gmt":"2012-01-14T06:03:16","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4180"},"modified":"2012-01-14T06:03:16","modified_gmt":"2012-01-14T06:03:16","slug":"demag-cranes-components-india-vs-dcit-itat-pune-transfer-pricing-tpo-is-duty-bound-to-eliminate-differences-in-comparables-data","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/demag-cranes-components-india-vs-dcit-itat-pune-transfer-pricing-tpo-is-duty-bound-to-eliminate-differences-in-comparables-data\/","title":{"rendered":"Demag Cranes & Components (India) vs. DCIT (ITAT Pune)"},"content":{"rendered":"\n\n
Click here to download the judgement (demag_cranes_transfer_pricing_differences.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nTransfer Pricing: TPO is duty bound to eliminate differences in comparables’ data
\n<\/strong><\/p>\n

In a Transfer Pricing matter, the Tribunal had to consider whether for purposes of making adjustment under Rule 10B (1)(e)(iii) \u2018working capital<\/em>\u2019 constituted a \u2018difference between the international transactions and the comparable uncontrolled transactions of between the enterprises entering into such transactions<\/em>\u2019 and if so whether the said difference \u2018could materially affect<\/em>\u2019 the amount of net profit margin of relevant transactions in the open market. HELD by the Tribunal:<\/p>\n

Rule 10B(e)(iii) provides that “the profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market<\/em>“. While the “differences” are not specified, it covers “any differences<\/em>” which could materially affect the amount of net profit margin<\/strong>. The litmus test to be applied is if the \u2018difference, if any, is capable of affecting the NPM in open market? If yes, then the TPO is under statutory obligation to eliminate such differences<\/em><\/strong>. The revenue cannot say that difference is likely to exist in all accounts and so the demands of the assessee should be ignored. The revenue’s stand that the assessee is ineligible for any adjustments if he provides the set of comparable is not correct because under Rule 10(3) it is the duty of the AO\/TPO\/DRP to minimize\/eliminate the difference which is likely to materially affect the price<\/strong>. It is the settled proposition that \u2018working capital\u2019 adjustment is an adjustment that is required to be made in TNMM. The revenue\u2019s contention that the \u2018differences\u2019 specified should refer to only (i) the factor of demand and supply; (ii) existence of marketable intangibles i.e. brand name etc; (iii) geographical location and the like is not acceptable. Further, as the difference in the Arm\u2019s length Operating Margin of the Comparables before and after making the adjustment for working capital was up to 3.77%, it was “material” and had to be eliminated (Mentor Graphics<\/a><\/strong> 109 ITD 101 (Del), E-gain Communication<\/a><\/strong> 118 ITD 243 (Pune) Sony India<\/a><\/strong> 114 ITD 448 (Del) & TNT India<\/a><\/strong> followed)<\/p><\/blockquote>\n

\ntransfer-pricing.in<\/a>: Download Latest & Important transfer pricing judgements\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Rule 10B(e)(iii) provides that “the profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market<\/em>“. While the “differences” are not specified, it covers “any differences<\/em>” which could materially affect the amount of net profit margin<\/strong>. The litmus test to be applied is if the \u2018difference, if any, is capable of affecting the NPM in open market? If yes, then the TPO is under statutory obligation to eliminate such differences<\/em><\/strong>. The revenue cannot say that difference is likely to exist in all accounts and so the demands of the assessee should be ignored. The revenue’s stand that the assessee is ineligible for any adjustments if he provides the set of comparable is not correct because under Rule 10(3) it is the duty of the AO\/TPO\/DRP to minimize\/eliminate the difference which is likely to materially affect the price<\/strong>. It is the settled proposition that \u2018working capital\u2019 adjustment is an adjustment that is required to be made in TNMM. The revenue\u2019s contention that the \u2018differences\u2019 specified should refer to only (i) the factor of demand and supply; (ii) existence of marketable intangibles i.e. brand name etc; (iii) geographical location and the like is not acceptable. Further, as the difference in the Arm\u2019s length Operating Margin of the Comparables before and after making the adjustment for working capital was up to 3.77%, it was “material” and had to be eliminated (Mentor Graphics<\/a><\/strong> 109 ITD 101 (Del), E-gain Communication<\/a><\/strong> 118 ITD 243 (Pune) Sony India<\/a><\/strong> 114 ITD 448 (Del) & TNT India<\/a><\/strong> followed)<\/p>\n

Read more ›<\/a><\/div>\n

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