Sunil Moti Lala, Advocate, has prepared a compilation how to get non pdf ca 540 tax return 2015 important judgements on transfer pricing, international tax and domestic tax reported in the period from August to October 2015. The author has meticulously and systematically classified the judgements into various categories to enable ease of reference. A pdf copy of the digest is available for download.
The Tribunal held that where it was a concerted action intended in a manner as not to attract section 92B of the Act but in substance the agreements indicated a transaction between two AEs along with an intervening third party, the said transaction was to be classified as a deemed international transaction. Therefore in-spite of the first condition being satisfied in the case of the assessee, since there was no influence exercised over the prices, no deemed AE relationship existed. The Tribunal held that outstanding receivables on account of services cannot be equated with international transactions in the nature of capital financing as provided for in Explanation to section 92B of the Act as it related to services rendered to the AE and was not in the nature of loans or advances given for capital financing. Accordingly the addition made by the TPO on account of notional interest on outstanding balances was deleted. The Tribunal held that the CUP method was the MAM for benchmarking the brokerage transactions rendered by the assessee as it rendered similar services to non-related parties as well.
Non-AE transactions could be taken into account for calculating the said adjustment. The Court held that In application of the CUP method the authorities have to go by what was actually paid or charged in the comparable uncontrolled transaction and not the price payable or chargeable in case of an eventuality, which never occurred. Therefore, the Revenue was incorrect in considering the additional discretionary interest rate chargeable by the Bank in the event of default in repayment of loan taken by assessee for benchmarking the interest receivable by the assessee on loans given to its AEs, since the assessee had neither defaulted in its repayments nor paid the additional interest. The Tribunal upheld the use of the CUP method for the import of raw cashes from the AE and held that the TPO was to compare the average price published by the Cashew Export Council with the average price charged by the assessee and not the price mentioned in individual transactions.
The Tribunal also held that due weightage was to be given to the fact that the assessee had availed credit for 150 days which required to be factored in while determining the ALP. Non-AEs used the financial year which was a temporary difference. The Tribunal held that where the services provided to the AEs are similar to those provided to non AEs the CUP method was the most appropriate method as opposed to TNMM and therefore approved hourly rates charged to non-AEs as internal CUP. CUP method was held to be the most appropriate method since the assessee had similar transactions with its Non-AEs and its AEs. The Tribunal upheld the use of the Profit Spilt Method as the activities performed by the assessee and its AE were inextricably linked, with both entities contributing significantly to the value of the services.
The Tribunal held that where the assessee was engaged in the importing of goods from its AE without making any value additions, the most appropriate method for benchmarking the international transactions was the Resale Price Method. The Tribunal held that charging lesser rates to Non-AEs as compared to AEs was not a reason to reject internal TNMM as it is possible to make a reasonably accurate adjustment for such differences. It also held that internal CUP could not be accepted as the CUP method visualizes comparison on a project to project basis, if similar in all respects which was not the case of the assessee. The Tribunal accepted the internal TNMM method adopted by the assessee as the MAM for the software development services provided by it since the transactions with Non-AEs abroad were more than 25 percent of the total value of international transactions and that the assessee was able to demonstrate that the services rendered to unrelated parties were similar to those rendered to the AEs. The Tribunal held that TNMM and not CUP was to be used for benchmarking the assessee’s activity of sale and purchase of diamond and gold jewellery from AEs as the transaction from Non-AEs amounting to 0.
The Tribunal held that where Revenue has accepted the method adopted by the assessee for benchmarking international transactions, in the absence of reasons brought on record, there is no merit in deviating from the stand accepted in the previous and succeeding years. The Tribunal held that an internal comparable is always preferable over external comparable when relevant data is available. The Tribunal held that companies providing agency services, companies providing commissioning agency services and engaged in trading, companies engaged in publishing news-papers and other publications and companies earning commission from air tickets and transaction fees from sale of holiday packages were not comparable to the assessee who was engaged in the business of manufacturing and trading of mineral processing equipment and provision of market support services. It also held that merely because the assessee had included the said company it in TP study it did not preclude the assessee from raising the objection that the said company was not comparable, if the assessee is able to demonstrate the functional dissimilarity.
The Tribunal held that the assessee providing repair services, computer hardware and software related services, erection, commissioning and installation services could not be compared to Capital Trust Ltd which provided consultancy services to foreign banks. The Tribunal excluded Motilal Oswal as a comparable as it was into merchant banking, capital markets, finance markets and therefore functionally dissimilar to the assessee who merely provided non-binding advisory services. IT Product company in absence of segmental breakup. It further held difference in depreciation rates warrants appropriate adjustment and not exclusion from the margin of comparables. Companies having turnover in excess of Rs. 200 crore were rejected as the assessee’s turnover was Rs.