2011 (7) TMI 154 - AT - Income Tax

Arm s-Length Price (ALP) - Assessing Officer referred the question of determining the Arm s-Length Price (ALP) to the TPO on the basis of this relationship and the quantum of transactions that had taken place between the assessee-company and its AE - TPO has identified a typical transaction fit for comparison in uncontrolled market conditions - There is a striking difference in the price quoted by the assessee and M/s. Adam & Coal Resources (P.) Ltd whether this price variation noticed by the TPO should be taken as the basis for making adjustment in the transfer pricing - assessee has not furnished any details on the calorific value of the coal imported by the assessee-company from its AE - The CUP method as construed in the statute has to be applied in the present case. When it is so applied, we find that the import of coal made by the assessee from its AE has been over-invoiced Regarding quantification of the adjustment - TPO has worked out the adjustment amount exactly on the basis of price variation between the companies. This is the most simple and acceptable method - Decided against the assessee

Summary

Issues:
Transfer pricing adjustment based on comparison of prices between the assessee and another company for imported coal. Application of Arm's-Length Price (ALP) determination. Use of Comparable Uncontrolled Price (CUP) method. Justifiability of adjustment made by the Transfer Pricing Officer (TPO) and upheld by the Dispute Resolution Panel (DRP).

Transfer Pricing Adjustment:
The appeal involves a transfer pricing adjustment made by the assessing authority based on the order of the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP). The TPO identified a discrepancy in the purchase price of coal imported by the assessee from its Associate Enterprise (AE) compared to another importer on the same day. The TPO concluded that the assessee overstated its purchase price, necessitating an adjustment. The adjustment value was computed at Rs. 3,49,14,706, leading to an addition to the assessee's income.

Arm's-Length Price Determination:
The Assessing Officer referred the determination of the Arm's-Length Price (ALP) to the TPO due to the relationship between the assessee and its AE. The TPO's adjustment was based on a specific import transaction where the assessee's purchase price was significantly higher than that of another importer on the same day. The DRP upheld the TPO's decision, rejecting the assessee's reliance on a previous ITAT decision and emphasizing the use of the CUP method for ALP evaluation.

Comparable Uncontrolled Price (CUP) Method:
The DRP emphasized the CUP method for determining the ALP, highlighting the comparison of uncontrolled prices as the most appropriate approach. The Tribunal agreed with this assessment, stating that the essence of the CUP method lies in comparing variables in a free market condition. The Tribunal found that the import of coal by the assessee from its AE was over-invoiced, justifying the adjustment in transfer pricing.

Justifiability of Adjustment:
The Tribunal concluded that the authorities were justified in making the adjustment based on the price variation between the companies. The quantification of the adjustment by the TPO was deemed appropriate, as it was based on a straightforward comparison of prices. Ultimately, the Tribunal upheld the assessing authority's determination of the transfer pricing adjustment at Rs. 3,49,14,706, resulting in an addition to the income of the assessee company. Consequently, the appeal filed by the assessee was dismissed.