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The provision of section 147 is not, in any manner, controlled by section 92 nor there is any limit to consideration of any material having nexus with the opinion on the issue of escapement of assessment of income; requirement of section 147 is fulfilled if the AO can legitimately form an opinion that income chargeable to tax has escaped assessment; for forming such opinion, any relevant material can be considered and the order of TPO can certainly have nexus for reaching the conclusion that income has been incorrectly assessed or has escaped assessment; in such a situation, it cannot be held that the notice proposing reassessment is vitiated merely because one of the reasons referred to order of TPO.
The method adopted by a company to arrive at a transfer price is valid unless the tax officer can prove that the company had manipulated the price to shift profits outside India, the Income-Tax Appellate Tribunal (ITAT) has ruled. The tribunal has also observed that the transfer pricing officer (TPO) should have sufficient ground to suspect the shift in profits before invoking the transfer pricing rules.
The proviso to s. 92C (2) consists of two limbs. Under the first limb, where, through the Most Appropriate Method, more than one price is determined, the arithmetic mean of such price has to be taken to be the Arm’s Length Price in relation to the international transaction. The second limb gives “an option” to the taxpayer to take Arm’s Length Price which may vary from the arithmetic mean by an amount not exceeding 5% of such arithmetic mean. This option is applicable even to cases where the taxpayer intends to challenge the Arm’s Length Price taken as arithmetic mean and determined through the Most Appropriate Method. The argument of the Revenue that where the difference is much more than 5%, then the taxpayer cannot have the benefit of the said provision, particularly where the taxpayer has not accepted such arithmetic mean, is not correct. Sony India (P) Ltd. v. DCIT
Therefore, there cannot be a formula which had no connection with the value of the individual assets and the liabilities. The price was determined that of the business and therefore, there is no question of picking up any portion of such price and charging its capital gains. It appears to us that before transfer of the company, the said company had issued subscribed share capital and the original share certificates
The transfer pricing concept is new to the Indian tax system. These provisions are intended to curb the mischief of avoidance of payment of tax in India either by understating the receipt or by overstating the expenses in respect of international transaction with Associates Enterprises. As observed by the Honourable Supreme Court in Morgan Stanley’s case (292 ITR 416) The object behind enactment of transfer pricing regulations is to prevent shifting of profits outside India.
The Income-Tax Appellate Tribunal has held that transfer pricing is not an exact science in which mathematical certainty is possible and some approximations cannot be ruled out. The case relates to transfer pricing of captive software development services rendered by an Indian subsidiary Mentor Graphics to its US-based overseas parent.
