2016 (2) TMI 1100 - HC - Income Tax

TPA - addition to the arm s length price of its international transaction pertaining to the import of edible oil from the Assessee s associated enterprise by using the Comparable Uncontrolled Price ( CUP ) method - Held that - As noticed by the ITAT in the impugned order the ground on which the AO rejected the CUP method adopted by the Assessee was that the price charged or paid was on the basis of a broker quote though based on the prices prevailing in the market and was not a price charged or paid because it did not reflect the price of an actual transaction. As noted by the ITAT Rule 10 D (3) (c) of the Income Tax Rules 1962 envisages that the TPO should take into consideration price publications including stock exchange and commodity market quotations. Therefore such published data available from stock or commodity exchanges could form the basis of the prices in both uncontrolled and controlled transactions. Nothing to hold that the above reasoning by the ITAT is perverse and suffers from any legal infirmity

Summary

Issues:
1. Justification of deletion of addition by ITAT in relation to arm's length price of international transaction.
2. Rejection of CUP method by AO based on broker quote.
3. Consideration of price publications by TPO as per Rule 10 D (3) (c) of Income Tax Rules, 1962.
4. Judicial determination of the reasoning by ITAT.

The High Court addressed the appeal under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) concerning the addition made by the Assessing Officer (AO) in relation to the arm's length price of an international transaction for the Assessment Year 2006-07. The main issue raised by the Revenue was the deletion of the addition of a specific amount, questioning the justification of ITAT in using the Comparable Uncontrolled Price (CUP) method for the import of edible oil. The AO had rejected the CUP method adopted by the Assessee, citing that the price was based on a broker quote and did not reflect the price of an actual transaction.

The ITAT, as highlighted in the judgment, noted that Rule 10 D (3) (c) of the Income Tax Rules, 1962, allows the Transfer Pricing Officer (TPO) to consider price publications, including stock exchange and commodity market quotations. This provision indicates that data from stock or commodity exchanges could be used to determine prices in both controlled and uncontrolled transactions. The ITAT's decision was based on this provision, emphasizing the relevance of published data in determining arm's length prices.

After considering the arguments presented by the parties, the Court found no legal infirmity in the ITAT's reasoning. The Court concluded that the ITAT's decision was not perverse, and no substantial question of law arose for determination. Therefore, the Court dismissed the appeal, affirming the ITAT's decision regarding the deletion of the addition made by the AO. The judgment underscores the importance of adhering to the provisions of the Income Tax Rules and utilizing relevant data sources for determining arm's length prices in international transactions.

In summary, the High Court upheld the ITAT's decision regarding the arm's length price of an international transaction, emphasizing the permissible use of price publications as per the Income Tax Rules. The judgment serves as a reminder of the significance of following statutory provisions and utilizing appropriate methods for determining transfer pricing in such transactions.