JCB India Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Transfer pricing--Invocation of disallowanceTPO determined ALP of expense at lower rate--AO without examining section 37(1) made disallowance--Where TPO had computed ALP of any transaction, AO had to determine applicability of section 37(1) before invoking disallowance. Where AO made disallowance merely on the direction of TPO, without examining applicability of section 37(1), matter was remitted back to the file of AO for such examination.--Assessee made payment of royalty in respect of a particular product to its AE. TPO determined ALP of such transaction at nil. AO had taken its ALP at Nil on the basis of recommendation of the TPO, and made addition giving effect to the direction given by the DRP. Assessee contended that disallowance made by AO under section 37(1)was not on account of payment of royalty, AO was debarred from making addition towards transfer pricing adjustment on this score. Held: As the TPO, in the instant case initially determined nil ALP by holding that no benefit accrued to the assessee and the AO made the addition without examining the applicability of section 37(1), the case was remitted to the file of AO/TPO for deciding this issue in conformity with the law laid down by the jurisdictional High Court in the case of Cushman & Wakefield (India) (P.) Ltd.