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Apply transfer pricing on Associate Enterprise only: Bombay HC
September, 08th 2015

In a breather to famed jewellery designer Nirav Modi promoted Firestone International, the Bombay High Court ruled that the transfer pricing addition should be considered only on international transactions with Associated Enterprise (AE) and not on entire turnover of the company.

According to the facts of the case, Firestone International is into import and export of polished diamonds to its associate company. At the time of the calculation of the tax, the tax officer determined the Arm's Length Price and made transfer pricing (TP) addition on the basis of the entire turnover of the company.

The transfer pricing is the practice of arm's length pricing for transaction between group companies to ensure that a fair price is levied. In the matter, the tribunal held that the tax addition is not justified on the entire turnover of the company but had to be restricted only to transactions with its associate company.

"The court observed that the decision of the Tribunal is a factual determination of the Arm's Length Price and the same is found within +/- 5 per cent safe harbour range," said said Kunal Gandhi, partner of tax & forensic consulting firm US Gandhi & Co. "Arm's Length Price can only be considered on value of international transactions alone and not on entire turnover of assessee (company)."

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