Transfer Pricing study

Our Transfer Pricing Division assists Indian and Multi-National Corporations develop and implement economically justifiable transfer pricing policies and documentation. Management Team will work closely with you, to help manage the tax impact of your domestic as well as cross-border related party transactions. Together, we will explore an effective, integrated organization wide strategy for managing many complex Transfer Pricing issues involved with inter-company transactions involving goods, services and intangibles.

Identification of Most Appropriate Method (MAM) is most critical issue while determine Arm Length Price (ALP) in respect of international transaction or deemed international transaction amongst the Associate Enterprises (AE), as the Transfer Pricing Officer (TPO) mostly touched upon this crucial area.

As the finance act 2020, introduce one-time tax @ rate of 20.16% in respect of secondary adjustment. If your earlier TP tax assessment any addition has been made in respect of primary adjustment and such considered advance has been repatriated into India than in that case you may opt for one-time tax.

We can also assist in arranging APA, an advance pricing agreement(“APA”) with any person, determining the ALP or specifying the manner in which ALP is to be determined, in relation to an international transaction to be entered by that person. APA provides tax certainty in determination of ALP for 5 future years as well as for four earlier years.

Our range of services include :

  • Transfer Pricing Documentation – We assist our clients to design and implement compliance policies, and prepare robust documentation
  • Transfer Pricing Planning & Supply Chain Structuring – We provide assistance in developing and implementing viable Transfer Pricing policies, harmonization of existing Transfer Pricing policies, adopting new Transfer Pricing structures or alignment of prices with business restructuring.
  • Filing of audit report with the Indian tax authorities – We assist you with a full array of documentation services, including function, asset and risk analysis, industry overview, bench marking study, preparation and issuance of accountant’s report, customized to your specific needs.
  • Litigation Support / Transfer Pricing Controversy Management – Management Team will work with you to develop strategies and appropriate practices to manage the audit/appeal proceedings.

Case Law Judicial Precedence
Mckinsey Knowledge Centre India (P.) Ltd. v. Principal Commissioner of Income-tax, Delhi [2018] 407 ITR 450 (Delhi) Delay in realization of trading debt arising out of sale of goods or services in the course of carrying on business will be a international transaction requiring transfer pricing adjustment on account of interest income short charged/uncharged.
Devas Multimedia (P.) Ltd. v. Principal Commissioner of Income-tax, Bangalore [2019] 419 ITR 391 (Karnataka) department does not have right to appeal filed against order passed u/s 263 of the Act in a case where the assessment order passed by the AO
Principal Commissioner of Income-tax-7 v. PMP Auto Components (P.) Ltd. [2019] 416 ITR 435 (Bombay) In this case assessee purchased shares from its subsidiary at a high price. Department assessed the difference between the purchase price and market price. It was held that difference could not be assessed as income under transfer pricing provisions as the same was on capital account and it was prior to amendment brought on the statute as section 56(2)(viib) of the Act, w.e.f August 1, 2013 and transaction related to AY 2010-11. SLP Pending
Bausch & Lomb Eyecare (India) (P.) Ltd. v. Additional Commissioner of Income-tax [2016] 381 ITR 227 (Delhi) It was observed that the parent company having 99.9% share of the assessee would not ipso facto would not lead to the conclusion that mere incurrence of AMP expenditure by the assessee cannot be termed as international transaction with its parent company. Hon’ble High Court also rejected the contention of the revenue that even mention of explicit agreement the occurrence of benefit of such expenditure would also enure to the AE is in itself sufficient to infer the existence of international transaction. Thus, it was held that the provisions of Chapter X of the Act could not be invoked to undertake a TP adjustment exercise. SLP Granted
The Principal Commissioner of Income Tax-4, Mumbai Vs. S.G. Asia Holdings (India) Pvt. Ltd. (2019)310CTR(SC)1 In this case a TP adjustment was made on account of lower rate of brokerage without making any reference to the TPO. It was held by the Tribunal that this was in breach of the CBDT instruction. SC. TP adjustment was contrary to instructions issued by the CBDT but it is held that the Tribunal ought to have restored the matter to the file of the AO with a direction to follow the CBDT instructions
Ericsson India (P.) Ltd. v. Additional Commissioner of Income Tax [2019] 411 ITR 333 (Delhi) penalty u/s 271G of the Act for failure to produce requisite documents u/s 93D(3) of the Act in respect of notice dated February 18, 2014 issued by the TPO. Hon’ble High Court deleted the penalty on the ground that before October 01, 2014 the AO could only initiate penalty u/s 271G of the Act and such power was vested with TPO only w.e.f October 01, 2014
Celltick Technologies Ltd vs. DCIT (ITAT Mumbai) ITA No.4167/Mum/2017 order dated 11.06.2019 AY 2014-15 held that if the international transaction satisfies the test of arms length price(“ALP”), it is not appropriate to attribute further profit to the assessee in India even if it is held that the later had a PE in India.
Doshi Accounting Services Pvt. Ltd vs. DCIT (ITAT Ahmedabad) (Special Bench) dated 24.10.2019 “that even if an assessee is eligible for tax exemption at the rate of hundred percent under section 10A/10B of the Act, then also the arm’s length price on international transactions deserve to be determined under section 92C of the Act.”
Atlas Copco (India) Limited vs. DCIT (ITAT Pune) order dated 29.08.2019 assessee should not be deprived off an adjudication on merits unless it is found that the litigant deliberately delayed the filing of appeal. The delay due to improper legal advice should be condoned. Following the decision of Hon’ble Supreme Court in the case of Anil Kumar Nehru Vs. ACIT 103 CCH 0231(SC) it was held that if the legal issue has to be decided for other years the appeal should not be dismissed on the ground of delay by adopting a technical view.
ACIT vs. Netafim Irrigation India Pvt. Ltd order dated 25.04.2019 held that if the TPO was not satisfied with the assessee’s method of benchmarking royalty payments, he should independently benchmark the ALP by adopting one of any of the prescribed methods and he cannot determine the ALP at NIL or on adhoc basis. On facts it was held that for determining the ALP of royalty, the most appropriate method was TNMM instead of CUP method. It was held that if an authority like the RBI or commerce ministry has approved the rate of royalty then it carries persuasive value and that rate of royalty can be taken as ALP.
Times Global Broadcasting Company Ltd vs. UOI March 15, 2019 In this case, during the proceedings before the TPO the assessee was required to submit the details of a SDT for the purpose of determining ALP which was not subject matter of reference made by the AO to the TPO. Thus, the TPO suo-moto initiated proceedings for determination of ALP of specified domestic transaction(“SDT”). The action of the TPO was subject matter of writ filed before the Hon’ble HC. It was the case of the assessee that the TPO could not have exercised such power as the same is beyond the statutory provisions.
CLSA India Private Limited vs. DCIT January 16, 2019 It is mandatory for the AO to determine the arm's length price (ALP) of the international transactions by following one of the prescribed methods. He is not entitled to follow any other method or to resort to estimation. The failure to follow one of the prescribed methods makes the entire transfer pricing adjustment unsustainable in law. The legal infirmity cannot be cured by restoring the issue to the TPO. The TPO cannot be allowed another innings to rectify the mistake.
PCIT vs. Aegis Limited 28th January, 2019. The TPO cannot re-characterize a transaction of subscription to redeemable preferential shares as being equivalent to interest free loans advanced by the assessee to the AE & charge notional interest thereon. The TPO cannot disregard the apparent transaction and substitute the same without any material or exceptional circumstances pointing out that the assessee had tried to conceal the real transaction or that the transaction in question was sham. The TPO cannot question the commercial expediency of the assessee entered into such transaction.