INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Ad hoc determination without applying specified method -

Assessee entered into transactions with its AE abroad and benchmarked the same adopting TNMM as the MAM. TPO instead applied CUP method and suggested ALP adjustment. Assessee contended that TPO did not bring any material on record to show that CUP was the most appropriate method nor even in a single comparable instance was referred. Revenue's case was that TPO resorted to determine ALP related with inter-group services (IGS) on the basis of man hours of services by AEs. Held: While determining ALP, TPO can only decide as to what is the arm's length for services rendered but he has to do so on the basis of a legally recognized method. TPO estimated total man hours of services rendered by AEs to assessee at 10,000 hours purely on ad hoc basis and such ad hoc determination of ALP by TPO de hors section 92C(1) would not be sustainable. As TPO had not followed mandate of section 92C(1) in determining ALP, therefore, issue was remanded to TPO for adjudication afresh.

Relied:Kapoorhand Shrimal v. CIT (1981) 7 Taxman 6 )SC) : 1981 TaxPub(DT) 971 (SC).

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2013-14 to 2015-16

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