Destination of the World (Subcontinent) Pvt. Ltd. Vs Asst. CIT (ITAT Delhi) The Tribunal held that in the first instance, the attempt should be made to determine arm’s length price of controlled transactions by comparing the same with internal uncontrolled transactions undertaken in same or similar economic scenario. The Tribunal relied on the following in arriving at this conclusion.
OECD Transfer Pricing Guidelines in paragraph 3.26 suggest preference for internal comparable, and suggest use of external independent enterprises only when such internal comparison is not possible.
The Tribunal ruling in the case of UCB India Pvt. Ltd. (above), indirectly concludes that internal comparable are preferable to external comparable. Also, in the case of Birla soft (India) Ltd. (above), the Tribunal ruled that the taxpayer was justified in undertaking internal comparison.
Internal comparison is valid under all methods.
In the current case, the Revenue had not made a case for economic scenarios of controlled and uncontrolled transactions to be different.
Destination of the World (Subcontinent) Pvt. Ltd.,-vs.- Asstt. CIT
C. L. Sethi (JM) & K.G. Bansal (AM)
ITA No. 5534(Del)/2010
Date of Decision – 08th July 2011
PER K.G. BANSAL : AM
The facts of the case are that the assessee filed its return on 22.11.2006 declaring loss of Rs. 2,86,62,238/-. The return was processed u/s 143(1) of the Income-tax Act, 1961, on 01.03.2008, and thereafter it was taken up for scrutiny by serving notice u/s 143(2) dated 27.09.2007 by post. Another notice under section 143(2) was served on the assessee by hand on 11.11.2008. The assessee-company has been carrying on the business of out-bound and in-bound travel services. It undertook international transactions with the Associated Enterprises (“AEs” for short) of the value of more than Rs. 5.00 crore. Therefore, reference was made to the Transfer Pricing Officer (“TPO” for short) for determining arm’s length value of the international transactions undertaken with the AEs. In order dated 15.10.2009, the TPO suggested upward revision in the value recorded in the books by an amount of Rs. 2,07,07,267/-. This revision was incorporated in the draft order. The assessee objected to the upward revision on this ground before the Dispute Resolution Panel-I, New Delhi (“the DRP” for short). In order dated 09.09.2010, the ld. DRP approved the draft order. Consequently, the assessment order was passed on 16.09.2010 determining the loss at Rs. 79,30,570/-as under:
