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It was held that :- (a) Companies with extra-ordinary circumstances, like those which suffered events like merger/de-merger, impacting the financial results, could not be treated as comparables. (b) Companies having supernormal profit cannot be considered as comparable; (c) Companies which are functionally dissimilar cannot be taken as comparables. (d) Companies acting merely as intermediary having outsourced its activity cannot be considered as comparable.
TPO as well as the DRP have not considered the objections raised by the assessee against the comparables selected by the TPO for arriving at the ALP. As seen from the submissions of the assessee, the glaring differences that appears to us are that India Products Ltd., is in the business of processing and trading in spices, whereas the assessee is in the business of trading in Coffee.
As per the mandate of section 92(1), income from International transaction between AEs has to be computed having regard to ALP. Thus, there is nothing in the statutory language to suggest that the AO must demonstrate the avoidance of tax before invoking these provisions.
Recently on 18th October 2012, The Supreme Court of Canada gave its decision on the case of Majesty of Queen vs Glaxosmithkline Inc. Many Transfer Pricing Professionals had keen eye on this case as it involved huge stakes & would also serve as Benchmark cases for other Transfer Pricing Cases in future. Before looking at the case lets see its development.
The assessee made a claim for working capital adjustment before the TPO. The TPO made a detailed analysis exhibiting how such an adjustment is to be granted. According to the assessee, the TPO made reference to Rule 10B(3) demonstrating comparability adjustment. On the strength of this Rule, the TPO opined that Indian transfer pricing provisions prescribed only reasonable accurate adjustment. He also pointed out that thereafter the TPO made reference to OECD Commentary and also the judicial precedents on comparability adjustment.
It is a fact on record that the assessee has adopted the CUP method for computing the Arms’ Length Price for the international transaction entered into by it with its AE for the medical transcription service rendered by it to the AE. In this regard, the assessee has considered two external comparables and three internal comparables.
It is for the AO when he considers it necessary or expedient so to do, he may refer the computation of arm’s length price in relation to the said international transaction under section92C to the Transfer Pricing Officer. It was argued by Ld. DCIT (DR) Mr. Tarsem Lal that the Ld. counsel for the assessee, Mr. Surinder Mahajan, could not point out any specific mention in the statute.
Vide Finance Act, 2012, certain retrospective amendments were made in Income-tax Act, 1961 (hereinafter referred to as the Act), intended to clarify and restate the legislative intent of the source rule of taxation for non-residents in India. In particular, they addressed situations where transfers took place exclusively between such non-residents—hence indirectly—of underlying assets in India. The relevant section 9(1)(i) of the Act became effective retrospectively as of 01 April 1962.
There is nothing whatsoever in the order of TPO which required or recommended any adjustment to the value of the international transactions. TPO did not deem it necessary to effect any revision of the sales price as shown by the assessee in its books.
Even if the assessee as well as the authorities below agree that the internal comparables are sufficient for the TP study in the present case, that does not justify the legal compulsion of examining the external comparables as well. An agreement, arrived at on the basis of incorrect premises between the contending parties, does not determine the legality or otherwise of the course of action opted by them. The course of action must be determined strictly on the basis of the words of the statute and not by the consensus of the contending parties.
