TPO cannot reject TP method adopted by assessee on the ground that the comparables are wrongly chosen

TPO cannot reject TP method adopted by assessee on the ground that the comparables are wrongly chosen. Further the ALP has to be determined with respect to an international transaction and not at an entity level

Star Diamond Group Vs. Dy. Director of Income Tax (Mumbai Bench), ITA No: 3923/Mum/2008

Executive Summary

The Mumbai bench of the Income Tax Appellate Tribunal (Tribunal) recently pronounced its ruling in the case of branch of Star India Diamond Co. (Belgium) N.V. (Taxpayer), on transfer pricing issues arising from import of rough diamonds by the Taxpayer from its Associated enterprise (AE). The Tribunal ruled in favour of the Taxpayer stating that the determination of Arm’s Length Price (ALP) of an international transaction has only to be made with respect to international transaction and the adjustment cannot be made at entity level. Further without proper reasoning, the department cannot apply another method for determination of ALP. Further value of adjustment in the international transactions can be made on purchases net of returns to AE and not on gross international transaction value.

Facts

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