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: articles on VAT and GST in India :: ACCOUNTING STANDARD :: cpt :: empanelment :: ACCOUNTING STANDARDS :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ARTICLES ON INPUT TAX CREDIT IN VAT :: list of goods taxed at 4% :: VAT RATES :: TAX RATES - GOODS TAXABLE @ 4% :: VAT Audit :: form 3cd :: Central Excise rule to resale the machines to a new company :: TDS :: due date for vat payment
 
 
News Headlines »
 How to time your buys to have best of two tax regimes
 Here's why you must always check Form 26AS before filing tax return
 Want to file your income tax return after June 30? Having Aadhaar card is a must
 Timeline for filing of tax returns extended by two months
 Top 5 common mistakes to avoid while filing your income tax returns
 GST rollout on July 1: Deadline for filing tax returns extended
 What is GST?
 Income-tax (15th Amendment) Rules, 2017?
 Banks get a breather as GST Council extends deadline for tax filing
 Income Tax filing: Your easy guide in 7 steps
 E-filing income tax return: How individuals can upload any ITR using excel utility

Judicial reading of transfer pricing provisions
April, 14th 2008
The Income tax department has created a special cell to deal with foreign companies and international transactions entered. The above cell has the position of Transfer Pricing Officers (TPOs) who are authorised to decide transfer pricing issues.
 
Where the TPO is not satisfied about the margin of profit charged or received by an Indian assessee from its transaction with foreign enterprises, he can make an adjustment in the taxable income of the Indian enterprise.
 
According to instruction number 3/2003 dated May 20, 2003 issued by the Central Board of Direct Taxes (CBDT), it is mandatory for an Assessing officer (AO) to refer transfer pricing matters to the TPO in all cases where the aggregate value of international transaction in that year exceeds Rs 5 crore. If reference to TPO is not made, the assessment could be declared as bad in law.
 
Transfer pricing provisions are intended to regulate the profit margins of Indian parties on their transactions with foreign parties. The law requires that the cross-border transactions should be at arms length price (ALP). For this purpose, the margins of the Indian party need to be compared with the margins charged on similar transactions by other enterprises.
 
For the purpose of this comparison, an Indian taxpayer has a choice to either treat himself as a tested party or to treat its associated enterprises (AEs) (parties with whom the Indian assessee has made international transactions) as the tested party. Thereafter, in order to determine the ALP, the margin of the tested party is compared with the margin charged by other enterprises who are also involved in similar business.
 
In case of Ranbaxy Laboratories versus Addl CIT [2008] (299 ITR 175), the Indian assessee elected to treat its 17 AEs as tested parties. Then the average of margins of all the 17 parties was compared with the margins of some other foreign pharmaceuticals companies.
 
However, the Honourable ITAT held that: The taxpayer is wrong in selecting overseas AEs as tested party for purposes of comparison to apply TP regulaions...if a taxpayer wishes to take foreign AEs as the tested party and compared the margin with the foreign comparables, then it must ensure that it is such an entity for which relevant data for comparison is available in public domain or is furnished to tax administration.
 
The Honourable Tribunal also held that separate transactions should not be aggregated to arrive at an average if they are of different companies in different countries.
 
It is also important that the audit report furnished by Ranbaxy was found incomplete as the same did not contain details like:
 
a. Specific characteristics of the transactions
b. Evidence that Functional, Asset and Risk (FAR) analysis was carried out.
c. Specific details of International transactions carried out with the 17 AEs.
d. Other Details
 
Ranbaxys case lays down the judicial thinking that unless the required documents are maintained by an assessee and are provided to the AO for verification, the assessment would be bad in law and could be reopened according to the provisions contained in the Act.
 
It is clear that a mere certificate from a Chartered Accountant does not suffice. It is also clear that reliance on foreign companies data for the purpose of comparison may not be acceptable to India.

H P Aggarwal
 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Application Management Solutions Application Management System Application Management Software System Application Management Development Application Management Software Development

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