Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARD :: cpt :: due date for vat payment :: VAT RATES :: empanelment :: list of goods taxed at 4% :: VAT Audit :: form 3cd :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: articles on VAT and GST in India
 
 
« News Headlines »
 Invoking Writ Jurisdiction For Income Tax Matters
 How to file income-tax returns online
 How Income Tax Returns Are Scrutinised
 All About New Income Disclosure Scheme to make Demonetisation successful
 Your deposit may draw income tax notice
 Accepting payment under IDS 2016
 New disclosure scheme could see 50% tax and 4-year limit on cash use for unaccounted deposits
 Pay 50% tax on unaccounted deposits, or 85% if caught, says Modi government
 Deadline to pay property tax in old currency extended
 Cabinet clears amendments to Income Tax Act
 Have you got interest on your income tax refund?

How to avoid rigour of transfer pricing
December, 31st 2007
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 Stanleys case (292 ITR 416) The object behind enactment of transfer pricing regulations is to prevent shifting of profits outside India.
 
But, where a taxpayer adopts the arms length price, no addition to income on account of transfer pricing provisions can be made.
 
However, determination of an arms length price and to substantiate the same with the prescribed documentation is primarily the taxpayers responsibility. Where the assessee discharges such onus and the data used for determining the arms length price is reliable and correct, there can be no intervention by the Assessing Officer.
 
In two recent Tribunal Judgments namely Aztec Software & Tech Ltd (2007) 107 ITD 141 (SB) and Mentor Graphics (Noida) (P) Ltd 165 Taxman 28, it has been judicially recognised that determination of arms length price may not always be an easy task.
 
The Honourable ble Tribunal observed it is true that transfer pricing is not an exact science, evaluation of transactions through which the process of determination is carried is an art where mathematical certainty is indeed not possible and some approximation cannot be ruled out, yet it has to be shown that analysis carried was judicial and was done after taking into account all the relevant facts and circumstances of the case.
 
A careful study of the above judgments would show that if a taxpayer takes following steps for determining the arms length price, the rigour of transfer pricing can be avoided.
 
The first step is to analyse the specific characteristics of the controlled transaction, whether it relates to transfer of goods, services or intangibles.
Selection of comparables.
 
Thereafter, the best method of determining arms length price is selected as per Rule 10C (2) of Income Tax Rules. Selection of the most appropriate method is to be substantiated by suitable documentation. Thereafter, FAR analysis is carried out to identify functions, risks and assets of uncontrolled transactions.
 
The next step is search of comparable companies. The objective of this search is to identify independent companies involved in similar or almost similar activities.
 
Lastly, suitable adjustments are made and then finally arms length price is determined.
 
In the case of Mentor Graphics (supra), the assessee adopted the aforesaid procedure. The Honourable Tribunal observed Computation of the arms length price is essentially a factual exercise. Each case depends on its own peculiar facts and circumstances.
 
In certain cases where an identical or almost similar uncontrolled transaction is available for comparison, determination of the arms length price is an easy task.
 
However, it is not so in most transactions and rarely is one able to locate an identical transaction. In such cases, the arms length price is determined by taking the results of a comparable transaction in comparable circumstances and making suitable adjustments for the differences. It could not be located even by the assessee, an attempt was made to find comparable transactions as close as possible to the controlled transaction.
 
Thereafter, there is nothing further for the taxpayer to establish that controlled transaction with Associate Enterprises was an arms length transaction.
 
The addition made on account of transfer pricing was thus deleted.

H P Aggarwal
 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Outsourcing Company Offshore Software Outsourcing Software Outsourcing Company India Offshore Outsourcing Company India Software BPO Software Business Process Outsourcing Software Outsourcing India Offsho

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions