2016 (8) TMI 561 - BOMBAY HIGH COURT

Transfer pricing adjustment - whether the transactions of import of pigments and fees for technical knowhow were at arm's length? - Held that:- Chapter X of the Act provides for computation of income arising from an International Transaction on the basis of the ALP in respect of transactions between AEs. Section 92(3) of the Act, which is part of Chapter X of the Act provides that the Transfer Pricing provisions will not apply where it results in reduction of income chargeable to tax. The result of accepting the Revenue's contention that the import of pigments is at a price lower than the ALP, would increase the import price of pigments, resulting in a reduction in income chargeable to tax. This is not permitted. Therefore, the reliance upon the email dated 27th August, 2002 submitted by the Assessee establishes a pricing policy with a view to finish local competition, does not in any manner have any impact on determining the ALP on import of pigment. The finding arrived at by the Tribunal on the basis of imposition of antidumping duty by the Customs is not challenged before us. The finding of the Tribunal that no adjustment is called for in the price paid by the Assessee for import of pigments for its AE's is a finding of fact which is not shown to be perverse and/or arbitrary.

Technical knowhow/ Consultancy Fee -The finding of the Tribunal that the agreement for technical knowhow / consultancy was in respect of all the twelve services and Respondent-Assessee could avail of all or any one of these twelve areas listed out in the agreement as and when the need arose. We find the Agreement is similar to a retainer agreement. Consequently, the finding of the Assessing Officer attributing nil value to nine of the services listed in the agreement which were not availed of by the Respondent-Assessee in the present facts was not justified. Moreover, not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the Respondent-Assessee to its AE, makes the entire Transfer PricingAgreement unsustainable in law.

Entitlement to deduction under Section 80HHC - non reduction of the amount credited to the Profit & Loss Account on revaluation of assets - Held that:- Explanation (baa) to Section 80HHC of the Act applies only to receipt by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature included in the profits. The amount credited on account of revaluation of the assets though included in the business income does not fall in the nature of receipts spelled out in Explanation (baa) to Section 80HHC of the Act nor is it a receipt of similar nature. In the above view, the impugned order held that Explanation (baa) to Section 80HHC of the Act cannot be invoked in the case of the amount credited to the Profit & Loss Account on account of revaluation of the assets. Resultantly, holding that the Respondent-Assessee is entitled to the deduction under Section 80HHC of the Act without reduction of the amount credited to the Profit & Loss Account on revaluation of assets.