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2018 (9) TMI 212 - AT - Income TaxArm’s length price adjustment in respect of consideration for sale of shares in an Indian company - assessee company to another non-resident entity, is unsustainable in law - Held that:- On a technical note, a price decided, even if that be so, between the associated enterprises-as the assessee and the buyer of shares are, can never be a valid CUP input for the simple reason that it is only the transaction value for transactions between the independent enterprises that the transaction value can be considered as a comparable uncontrolled price. - In an intra AE situation, the transaction value cannot be said to be an uncontrolled price at all. Nothing, therefore, turns on the original agreement terms and it has no relevance in determination of arm’s length price. The very approach of the TPO is thus vitiated in law. In the present case, the company in which shares were transferred was not in the winding up nor was there any reasonable prospect of its going into liquidation. In these circumstances, the adoption of Net Asset Value or book value was not really warranted. We reject the same. Given the fact that it was treating as a going concern, the valuation on the basis of future earnings was quite justified. To this extent, we disapprove the stand of the authorities below. However, since the TPO has not examined that aspect of the matter at all and simply proceeded on the basis of net asset value, we also deem it fit and proper to remit the matter at the assessment stage in the light of fresh determination of arm’s length price in the light of our directions above. TPO shall discard the computations based on Net Asset Value and adopt an appropriate method of determining the ALP of shares sold by the assessee to its AE, and if such an ALP is found to be more than the transaction value of US $ 35,08,000, the ALP adjustments will be required. The matter is thus required to be adjudicated afresh in a fair and reasonable and legally sustainable manner. While doing so, he will decide the matter in accordance with the law, by way of a speaking order and after giving a fair and reasonable opportunity of hearing to the assessee.
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