Only international and not entity level transactions covered in transfer pricing adjustment

Huntsman International (India) Pvt Ltd Vs DCIT (ITAT Ahmedabad)

ITAT Ahmedabad held that transfer pricing adjustment should be restricted only in respect of turnover of assessee-company relating to international transactions. In nut-shell, transfer pricing addition should be restricted only qua international transaction and not entity level transactions.

Facts- The issue for consideration here is that whether the transfer pricing adjustment should be restricted to international transactions by the assessee with its associated enterprise or whether the adjustment is required to be computed at entity level.

Another issue involved here is disallowance of contribution of Rs. 11,04,588/- made by the assessee to “ Baroda Textile Effects Pvt. Ltd. Employees Gratuity Assurance Scheme” (Gratuity Scheme).

Conclusion- In the case of KHS Machinery (P.) Ltd. [2023] 151 taxmann.com 122, the Ahmedabad ITAT held that adjustment of PLI of comparables ought to be made at transaction level and not entity level. In the case of Kemrock Industries & Exports Ltd [2022] 141 taxmann.com 130 (Ahmedabad – Trib.), the Ahmedabad ITAT held that transfer pricing adjustment should be restricted only in respect of turnover of assessee-company relating to international transactions, sale of resins to its associated enterprises, and same should not be done in relation to all transactions. In the case of Bekaert Industries (P.) Ltd. [2022] 136 taxmann.com 355 (Pune – Trib.), the Pune ITAT held that Transfer pricing addition should be restricted only qua international transaction and not entity level transactions.

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