Case Law Details
Air tech Private Limited Vs. Deputy Commissioner of Income Tax, New Delhi for Assessment Year 2006- 07, ITA No. 3591(DEL)/2010)
Executive Summary- The Delhi bench of the Income Tax Appellate Tribunal (Tribunal) recently pronounced its ruling in the case of Airtech Private Limited (Appeal no. ITA 3591 Del )/2010) on documentation aspect of transfer pricing (TP). The Tribunal held that contemporaneous TP Documentation was to be maintained by the taxpayer annually as the transaction was separate and was influenced by changing market dynamics.
Facts- Airtech Private Limited (“Taxpayer”) is engaged in production of metal bed steads out of a factory in Sahibabad. The Taxpayer sold all the goods manufactured by it to its wholly owned subsidiary company in the United Kingdom. The company had a long standing understanding with the subsidiary company to sell the goods at a cost plus fixed fee basis per unit in Indian currency. The Assessing Officer (AO) had conducted a transfer pricing scrutiny in the year 2002-03 and had accepted that the international transactions of the Taxpayer in that year adhered to the arm’s length principle laid down under the Indian Regulations. Further, the I.R.S., U.K. had also analysed the arm’s length nature of the international transactions of the subsidiary company for the FY 2000-01 and had not drawn any adverse inference. Accordingly, the Taxpayer argued that it was not required to maintain any transfer pricing documentation as per the proviso to Rule 1 0D(4) of the Income Tax Rules, 1962. This proviso carved out an exception to Rule 1 0D of the Income Tax Rules, 1962 and held that fresh documentation was not necessary where a transaction continued for more than one year, unless there was a significant change in the nature or terms of the international transaction.
The Transfer Pricing Officer (TPO) disagreed with the Taxpayer’s contention and made a TP adjustment to the arm’s length price of the international transactions of the Taxpayer by adopting a transactional net margin method (TNMM) analysis using two external comparables.
Being aggrieved by the said transfer pricing order, the Taxpayer filed its objections before the Dispute Resolution Panel (DRP). Before the DRP, the Taxpayer objected to the TP addition and sought certain economic adjustments. However, the DRP did not find any clear methodology in the adjustments sought by the Taxpayer and upheld the order of the TPO.
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