2016 (12) TMI 1822 - HC - Income Tax

TP Adjustment - Tribunal restricting the adjustment only on International Transactions where the assessee has selected TNMM and applied the same on entity level - HELD THAT - Transfer Pricing Adjustment has to be done only in respect of the transaction entered into with the Associated Enterprises and not in respect of all transactions of the entity. See The Commissioner of Income Tax1 Mumbai v/s. Hindustan Unilever Ltd. 2016 (7) TMI 1245 - BOMBAY HIGH COURT AND CIT v/s. Alstom Projects India Ltd 2016 (12) TMI 1408 - BOMBAY HIGH COURT Delhi High Court has also in CIT v/s. Keihin Panalfa Ltd 2016 (5) TMI 203 - DELHI HIGH COURT has also independently taken the same view. - Decided against revenue

Summary

Issues:
- Challenge to order of Income Tax Appellate Tribunal related to Assessment Year 2006-07
- Interpretation of Arms Length Principle in International Transactions
- Transfer Pricing Adjustment only for Associated Enterprises

Analysis:
The High Court of Bombay heard an appeal challenging the order of the Income Tax Appellate Tribunal related to the Assessment Year 2006-07 under Section 260A of the Income Tax Act, 1961. The main issue raised by the Revenue was whether the Tribunal was correct in restricting the adjustment only on International Transactions where the assessee had selected TNMM and applied it on the entity level. The Revenue argued that if overall margins are less than Arms Length Margins, the shortfall should be on account of Associated Enterprises transactions only and not on a pro rata basis. However, the Court noted that previous decisions had concluded against the Revenue and in favor of the Respondent-Assessee. The Court referred to various cases where it was held that Transfer Pricing Adjustment should only be done in respect of transactions with Associated Enterprises and not for all transactions of the entity.

Moreover, the Court highlighted that the Delhi High Court, in a separate judgment, had independently taken the same view regarding Transfer Pricing Adjustment. The Counsel for the Revenue mentioned a potential appeal to the Supreme Court against one of the High Court's orders but confirmed that no appeal had been filed in respect of another order. Consequently, the Court concluded that the formulated question did not raise any substantial question of law based on the previous decisions. Therefore, the Appeal was dismissed with no order as to costs.