2016 (5) TMI 145 - HC - Income Tax

Transfer pricing adjustment - most appropriate method - Held that:- A purchaser of goods or of services is not concerned with the price at which its vendor of goods or supplier of services in turn acquired the same. This, at the highest, would be a factor while negotiating the purchase of goods or the acquisition of services. Even if the vendor or supplier acquired the assets or the know-how as a gift, it would be irrelevant as far as the onward sale thereof is concerned. The purchaser determines the price it is willing to pay for the goods or services independent of what the same cost its vendor/service provider. The TPO, therefore, proceeded on an entirely erroneous basis while computing the arm’s length price.

We have with respect disagreed partly with the approach adopted and the legal principles applied by the authorities while computing the arm’s length price. We have also disagreed with Mrs. Suri’s contention that the TNM method ought to be applied to the various transactions merely because each of them aided and resulted in the manufacture of the assessee’s final product. It is not possible to assess the weightage given to each of these questions by the authorities while determining the arm’s length price. There is nothing on record that indicates the same. It is not necessary that each aspect would have been given the same weightage. Further, this would be so not merely in computing the quantum but also the very question as to whether the services were rendered by the AEs and availed of by the assessee. These are issues of fact which must, in the first instance at least, be determined by the authorities under the Act.

As we are remanding the matter, it is not necessary to deal with the voluminous evidence produced and relied upon by the assessee. The authorities have come to the conclusion that the same did not reflect that any valuable services were in fact rendered. As we are remanding the matter, we do not wish to make any observation in this regard, least it prejudices either of the parties while considering the matter upon remand. Suffice it to state that the assessee has relied upon voluminous evidence which cannot be ignored. The same must be considered and analyzed. It cannot by any stretch of imagination be held that the evidence is irrelevant. For instance, the assessee has produced all the invoices and proof of payments including in respect of services rendered by the employees of the AE’s. The assessee has also established that such employees of the AE had actually visited India. Mrs. Suri also relied upon the tax structure in Germany and in India in support of her contention that the transactions were genuine. It is also difficult to understand the basis on which it was held that some of the services rendered were only shareholder activities. The nature of the services prima facie at least does not indicate that the said four transactions, which have been separated and segregated and the ALP whereof was determined by the CUP Method, were shareholder activities.

In view of our findings on the questions of law in the assessee’s appeal, it would be necessary for the authorities to consider this matter afresh in the light of those observations as well. It would be necessary upon remand for the authorities under the Act to consider whether the transactions ought to be separately benchmarked or whether the TNM Method ought to be adopted in respect of the same as well.