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2016 (11) TMI 946 - ITAT CHENNAI

2016 (11) TMI 946 - ITAT CHENNAI - [2016] 50 ITR (Trib) 43 - Transfer pricing adjustment - MAM selection - adoption of written down value as the arm's length price under the comparable uncontrolled price method - Held that:- When the price was determined by comparing the uncontrolled transaction, the difference between the price paid by the assessee and the price so determined in a comparable uncontrolled transaction has to be worked out and the difference between the two shall be taken as the a .....

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w of the specific provision in rule 10B(1)(a) of the Income-tax Rules, the written down value cannot be a determining factor to decide the arm's length price. The value of the machinery has to be compared with identified transaction in the uncontrolled market. Since such an exercise was not done by the Transfer Pricing Officer, this Tribunal is of the considered opinion that the Dispute Resolution Panel has rightly found that the sale price between the two parties cannot be merely on the basis o .....

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mber) For the Appellant : Jasdeep Singh, Departmental Representative For the Respondent : R. E. Balasubramanyam, Chartered Accountant ORDER N. R. S. Ganesan (Judicial Member) 1. This appeal of the Revenue is directed against the assessment order consequent to the direction of the Dispute Resolution Panel, dated December 16, 2014, and pertains to the assessment year 2010-11. 2. Shri Jasdeep Singh, the learned Departmental representative, submitted that the assessee is a wholly owned subsidiary co .....

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chased the machinery which was in perfect working condition and continued to perform the same function as it was performing in Italy. The assessee also claimed before the Transfer Pricing Officer that what was purchased by the assessee is not a standalone machine but an entire set of plant and machinery with a proven and time tested production capacity for a well established product. The Transfer Pricing Officer, after considering the objection of the assessee, found that the advantage in purcha .....

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en down value as the arm's length price under the comparable uncontrolled price method is not justified and accepted the assessee's objection. According to the learned Departmental representative, the written down value of the machinery is the most appropriate value for estimating the cost of machinery purchased by the assessee. According to the learned Departmental representative, when the machinery was put to use, it would automatically depreciate at a particular rate which was recogni .....

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be the most appropriate value for estimating the arm's length price. Therefore, the Dispute Resolution Panel ought to have accepted the adjustment made by the Transfer Pricing Officer. 3. On the contrary, Shri R. E. Balasubramanyam, the learned representative for the assessee, submitted that under the comparable uncontrolled price method, the price paid for the property transferred shall be compared with uncontrolled transactions which are identified. Such compared price with uncontrolled t .....

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ays reflect the market value of the property. The Assessing Officer without identifying any transaction, has simply taken the written down value of the machinery. No doubt, every machinery used for manufacturing activity would naturally depreciate its value on passage of time. Even though a statutory deduction was provided under the Income-tax Act and the Companies Act, the price of the machinery has to be compared with comparable machinery in the uncontrolled market. Such an exercise was not do .....

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material available on record. We have carefully gone through the provisions of rule 10B of the Income-tax Rules, 1962. Rule 10B(1) provides method for determination of arm's length price in comparable uncontrolled price method. For the purpose of convenience, we reproduce below rule 10B(1) : "10B.(1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction or a specified domestic transaction shall be determined by any of .....

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r between the enterprises entering into such transactions, which could materially affect the price in the open market ; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction or the specified domestic transaction." As rightly submitted by the learned representative for the assessee, when the transaction was compared by taking comparable uncontrolled price .....

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y the comparable transaction so as to compare the price paid by the assessee for purchasing the machinery from its holding company. When the price was determined by comparing the uncontrolled transaction, the difference between the price paid by the assessee and the price so determined in a comparable uncontrolled transaction has to be worked out and the difference between the two shall be taken as the arm's length price. Unfortunately, the Transfer Pricing Officer has not taken any pain eit .....

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