Higher AE Margin Leaves No Scope for TP Adjustment: Karnataka HC

PCIT Vs Sami Sabinsa Group Ltd. (Karnataka High Court)

Internal Comparables Must Prevail: Karnataka HC Upholds Deletion of Transfer-Pricing Adjustment

Internal TNMM Cannot Be Rejected When Segmental Accounts Are Properly Certified

The Karnataka High Court has upheld the Income Tax Appellate Tribunal’s decision accepting the assessee’s internal comparables for determining the arm’s-length price of its international transactions.

The Court held that where an assessee has undertaken similar transactions with associated enterprises and unrelated parties, the transactions with unrelated parties constitute reliable internal comparables and should ordinarily be preferred over external comparables.

The Court rejected the Transfer Pricing Officer’s finding that the chartered accountant had certified only the arithmetical accuracy of the segmental financial statements. The certificate also confirmed that the income and expenditure had been allocated on a rational basis generally accepted in the industry.

Since the assessee’s margin from transactions with associated enterprises was 11.32%, as against 2.42% from transactions with non-associated enterprises, the Court found that there was no scope for making an upward transfer-pricing adjustment.

International Transactions of ₹35.51 Crore

Sami Sabinsa Group Ltd. was engaged in exporting herbal extracts, fine chemicals, speciality chemicals, cosmeceuticals, phytonutrients and probiotics. It operated manufacturing facilities in and around Bengaluru.

For Assessment Year 2014-15, the assessee filed its return declaring nil income. The return was initially processed under Section 143(1) and was subsequently selected for scrutiny.