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2013 (9) TMI 195 - ITAT MUMBAITransfer pricing Adjustments - ALP - Preference in choosing comparable, be it internal or external - Held that:- the application of proposed arm's length requires comparison of conditions in a controlled transaction with the condition of uncontrolled transaction and for a difference between the situations, reasonable adjustment of profit can be made to offset the effect of such difference, if any. Thus such a comparability analysis has to be carried out to compare the controlled transaction with the conditions of uncontrolled transactions and then only the arm's length price can be determined. Once the determination of arm's length price is triggered, it has to be determined by following any of the prescribed methods under the statute i.e. prescribed in section 92C of the Act read with Rule 10B. There is no other way ALP can be examined in transfer pricing mechanism. In this case, admittedly neither CUP method nor Cost Plus Method is applicable because in CUP, the price at which a controlled transaction is carried cut is compared to the price obtained in a comparable uncontrolled transaction. In CPM, ALP is determined by adding an appropriate gross profit margin to an AE's cost of producing products or services. None of the factors required in both the methods are existing for carrying out the comparability analysis in this case. The only method which could be said to be applicable for bench marking the margin of international transactions of the assessee, as admitted by both the parties before us can be TNMM. Once internal comparable was available, along with the segmental details, TPO was required to examine the same and carry out the comparability analysis. It is only when internal TNMM fails, the TPO can go into search for external TNMM because external comparable require lot of functionality test and adjustments - It is only when the internal comparable and its segmental details are not found to stand the test of comparability analysis, then external comparable's should be looked into. In such a situation, the TPO will carry out fresh search after taking into consideration all the assessee's objection and submission - All those contentions about search/filter criteria, comparable companies, can be raised before the TPO. Though this will be done only when analysis on internal TNMM is not workable at all - Restored this matter to the file of the AO to verify the segmental details of the AE as well as non-AE and carry out comparability analysis for arriving at the margin of both parties and, accordingly, determine the arm's length price – Decided in favor of Assessee.
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