Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2014 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (11) TMI 844 - AT - Income TaxDetermination of ALP – CUP method rightly rejected or not – CUP method or TNMM - Transactions with Associated enterprises - International transactions of provision/ receipt of freight forwarding services to/from AEs – Whether the mechanism for computing the amount of profit, so agreed upon between the parties, can indeed be taken as a comparable for the purposes of CUP analysis in transfer pricing - Held that:- Availability of precise amount having been charged for precisely the same service is a sine qua non for application of CUP method - the TPO has held that it is not a fit case for application of CUP and, accordingly, the TNMM, which is usually referred to as method of last resort for computation of arm’s length price, has been put in service resulting in impugned ALP adjustment - as decided in ACIT Vs Agility Logistics Pvt Ltd [2012 (4) TMI 260 - ITAT MUMBAI] the application of CUP method by a comparing a pricing formulae, rather than the pricing quantification in amount as was considered sine qua non by the TPO - even in a situation in which the comparables were the formulas on the basis of which exact quantification for price of services was done, it could be accepted as a price for the purposes of application of CUP method of ascertaining arm’s length price - when connotations of ‘price’ under rule 10B(1)(a) are treated to include not only an amount stated in monetary terms but also a mechanism in terms of a formulae to arrive at consideration, such an interpretation is certainly a very purposive and realistic interpretation. As long as one can come to the conclusion, under any method of determining the arm’s length price, that price paid for the controlled transactions is the same as it would have been, under similar circumstances and considering all the relevant factors, for an uncontrolled transaction, the price so paid can be said to be arm’s length price - the price need not be in terms of an amount but can also be in terms of a formulae, including interest rate, for computing the amount - the business model adopted by the assessee, in principle, meets the test of arm’s length price determination under rule 10BA as well - the operation of rule 10BA, which confers the benefit of an additional method of ascertaining arm’s length price and, inter alia, relaxes the rigour of CUP method, can only be retrospective in effect - rule 10BA is to be held as effective from 1st April 2002, i.e. the time when transfer pricing provisions were introduced in India. The business model of 50:50, as was admittedly prevalent in the line of business activity of the assessee and as is followed by the assessee, thus indeed satisfies the test for determination of arm’s length price - the contention of the assessee is accepted to the effect that the arm’s length price of services rendered to, or received from, the associated enterprises, which was computed on the basis of the same 50:50 model as is the industry norm and as has been employed by the assessee for computing similar services to the independent enterprises, was at arm’s length - the arm’s length price adjustment is to be set aside – Decided in favour of assessee.
|