CUP method can be applied by a comparing a pricing formulae, rather than the pricing quantification in amount. Rule 10AB inserted w.e.f. 01.04.2012 is beneficial in nature and so retrospective w.e.f. 01.04.2002
The assessee followed the 50:50 business model of sharing residual profits in equal ratio with the service provider at the other end of the transaction i.e. at the consignee's end in the case of export transaction and at consigner's end in the case of import transaction. This is a standard practice in the Industry. Even with respect to transactions with unrelated parties in this line of activity, it is admitted practice to share the residual profit in equal ratio. The assessee accordingly claimed that its' transactions with the AE are at arms length as per the CUP method. However, though there is a standard formulae for computing the consideration, the data regarding precise amount charged or received for precisely the same services is not available for comparison. The TPO held that as data about exactly the same amount having been charged for exactly the same service in the uncontrolled transactions has not been furnished by the assessee, it is not a fit case for application of CUP and applied TNMM. On appeal by the assessee HELD by the Tribunal:
(i) Transfer pricing should not be viewed as a source of revenue. It is an anti-abuse measure in character and all it does is to ensure that the transactions are not so artificially priced, with the benefit of inter se relationship between associated enterprises, so as to deprive a tax jurisdiction of its due share of taxes. Our transfer pricing legislation as also transfer pricing jurisprudence duly recognize this fundamental fact and ensure that such pedantic and unresolved procedural issues, as have arisen in this case due to limitations of the prescribed methods of ascertaining arm's length price, are not allowed to come in the way of substantive justice, particularly when it is beyond reasonable doubt that there is no influence of intra AE relationship on the determination of prices in respect of intra AE transactions. A pedantic approach in determination of arm's length price, which serves letter of the law but leads to the conclusion diametrically opposed to the spirit of the law, has to be deprecated. We are in considered agreement with this school of thought.
(ii) The connotations of 'price', as set out in rule 10 B(1)(a) are required to be taken to be something much broader than the expression 'amount' inasmuch as it is required to cover not only quantification of price in terms of an amount but also in terms of a formulae according to which the price is quantified. Such an interpretation is a very purposive and realistic interpretation.
(iii) As one can come to the conclusion, under any method of determining the arm's length price, that price paid for the controlled transactions is the same as it would have been, under similar circumstances and considering all the relevant factors, for an uncontrolled transaction, the price so paid can be said to be arm's length price. The price need not be in terms of an amount but can also be in terms of a formulae, including interest rate, for computing the amount. In any case, when the expression 'price which….would have been charged on paid" is used in rule 10BA, dealing with this method, in this method the place of "price charged or paid", as is used in rule 10B(1)(a), dealing with CUP method, such an expression not only covers the actual price but also the price as would have been, hypothetically speaking, paid if the same transaction was entered into with an independent enterprise. This hypothetical price may not only cover bonafide quotations, but it also takes it beyond any doubt or controversy that where pricing mechanism for associated enterprise and independent enterprise is the same, the price charged to the associated enterprises will be treated as an arm's length price. In this view of the matter, the business model said to have been adopted by the assessee, in principle, meets the test of arm's length price determination under rule 10AB as well.
(iv) Rule 10B(1)(f) inserted vide notification dated 23rd May 2012 is not a residual method in the sense that it is not a condition precedent for the application of this method that all other methods set out in s. 92C (1)(a) to 92C(1)(e) and as elaborated under rule 10B(1)(a) to (e), must fail and only then this method can be applied. This method is at par with all other methods of determining the arm's length price as set out in sections 92C(1)(a) to (f), and, in terms of Section 92C(2), the most appropriate method, referred to in Section 92C(1), "shall be applied, for determination of arm's length price, in the manner prescribed". Therefore, as long as the method covered by rule 10AB, which is duly covered by Section 92C(1) satisfies the test of being the 'most appropriate method', it can be applied to a fact situation. The expression ' price which….would have been charged on paid" is used in rule 10BA, dealing with this method, in this method the place of "price charged or paid", as is used in rule 10B(1)(a), dealing with CUP method, such an expression not only covers the actual price but also the price as would have been, hypothetically speaking, paid if the same transaction was entered into with an independent enterprise. This hypothetical price may not only cover bonafide quotations, but it also takes it beyond any doubt or controversy that where pricing mechanism for associated enterprise and independent enterprise is the same, the price charged to the associated enterprises will be treated as an arm's length price. In this view of the matter, the business model said to have been adopted by the assessee, in principle, meets the test of arm's length price determination under rule 10BA as well.
(v) Though rule 10BA as also the corresponding enabling rule 10B(1)(f) are inserted by the Income Tax (Sixth Amendment) Rules 2012 and are specifically stated to be effective from 1st April 2012, i.e. assessment year 2012-13 onwards, it has to be treated as being retrospective in view of the law laid down in Vatika Townships that a legislation conferring a benefit but without inflicting a corresponding detriment would warrant it to be given a retrospective effect. As rule 10BA, confers the benefit of an additional method of ascertaining arm's length price and, inter alia, relaxes the rigour of CUP method, it can only be retrospective in effect and effective from 1st April 2002.
Disallowance u/s 184(5) of interest, salary etc paid by a firm to partners cannot be made if the Best Judgement assessment u/s 144 is due to incompleteness of accounts & not due to failures referred to in s. 144
The Tribunal had to consider whether disallowances for payments in respect of remuneration and interest on capital paid to the partners, in computation of taxable income of the firm, can be made under section 184(5) when even though assessment is completed under section 144 but the assessee has not committed any such failure as is set out in section 144. HELD:
The disallowance under section 184(5) comes into play not as a result of the assessment under section 144 but as a result of the lapses as mentioned in section 144. In other words, the disallowance under section 184(5) does not have a cause and effect relationship with assessment being framed under section 144. Section 184(5) categorically states that when "there is, on the part of a firm, any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income". This disabling provision comes into play only when the assessment is framed under section 144 only as a result of the assessee's committing any such failure as is contemplated under section 144. However, in a situation in which the assessment is completed in the manner as prescribed in section 144 but such a course of action has been adopted because of "the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee", referred to in section 145(3), clearly the disabling provisions of Section 184(5) do not come into play. On facts, the assessment under section 144 has been upheld on the basis of section 145(3) even as it is not disputed that the failures enumerated in section 144 itself were not committed. In these circumstances, section 184(5) cannot be invoked to make disallowances for interest and salaries paid to the partners.
Appeal was not maintainable as it was signed and verified by the ex-Managing director of a company
November 19, 2014[2014] 50 taxmann.com 86 (Hyderabad - Trib.)/[2014] 34 ITR(T) 539 (Hyderabad - Trib.)
IT : Where 'S' was neither Managing Director nor director of assessee company when appeal was filed before Tribunal, therefore, he was not an authorised person to sign and verify appeal filed on behalf of assessee company
IT : Where 'S', former managing director of assessee-company, was liable to penalty, 'S' could file an appeal against said penalty order in his individual capacity but not in name of assessee-company, as he was not authorised to do so
No reference to Valuation Officer to ascertain undisclosed investment unless AO had rejected books of account
November 19, 2014[2014] 50 taxmann.com 94 (Gujarat)/[2014] 365 ITR 470 (Gujarat)
IT : Where Assessing Officer made a reference to Valuation Officer without rejecting books of account of assessee, addition under section 69B was to be deleted
ITAT directs AO to examine revised TDS return for deciding issue of sec. 40(a)(ia) disallowance
November 19, 2014[2014] 50 taxmann.com 46 (Bangalore - Trib.)/[2013] 28 ITR(T) 369 (Bangalore - Trib.)
IT : Where revised TDS return was filed by assessee during appellate proceedings, matter was restored to Assessing Officer to examine same
IT : Where assessee-society, engaged in manufacturing and marketing of milk products, granted sums to different milk producer societies being suppliers of milk to put up a building to facilitate milk collection and testing, said expenditure was revenue expenditure
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