INCOME TAX ACT, 1961

Section 92CA

Transfer pricing - Determination of ALP - To be restricted to international transactions only -

In its Income Tax Return, the assessee had reported certain international transactions in Form No. 3CEB. The AO made a reference to the TPO for determining the ALP of the international transactions. The assessee applied the Transactional Net Margin Method (TNMM) as the most appropriate method which was accepted by the TPO. The TPO made the transfer pricing adjustment on entity level basis and worked out the adjusted arithmetic mean of the operating profit/operating Revenue at 2.40%. Applying it as arm's length margin, the TPO worked out the transfer pricing adjustment at Rs. 13,10,50,362. The AO notified draft order with such an adjustment. No reprieve was provided by the DRP (Dispute Resolution Panel) which led to the passing of the final assessment order with the transfer pricing addition of Rs. 13,10,50,362. Held: The transfer pricing adjustment should be restricted only to the international transactions, and not the entity level transactions. The assessee had placed on record a computation of value of the international transactions in the 'Manufacturing activity', warranting adjustment towards expenses, at Rs. 14.15 crore and also the percentage of such costs to total operating costs of the assessee at 4.26%, thereby working out the proportionate transfer pricing adjustment at Rs. 55,87,148. This calculation has not passed through the eyes of the AO/TPO. Under these circumstances, the impugned order was set aside and the matter was restored to the file of the AO/TPO for verifying the correctness of the above figures given by the assessee and determining fresh ALP.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2015-16

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