2018 (6) TMI 396 - AT - Income Tax

TPA - MAM - CUP method - Valuation as valued by the chartered engineer, are as valued by the customs authorities, or as valued by following the DCF method - Held that - In the circumstances, we are in agreement with the DRP that the assessee justified the price paid by them with the valuation done by the independent chartered engineers, or the customs authorities or determined under DCF method. The reasoning given by the DRP to reach the conclusion that the additions cannot be sustained is impeccable and we find it difficult to take a different view in view of the said legal position. Are of the opinion that the impugned directions given by the DRP do not suffer an illegal infirmity so as to invite the interference of this tribunal in this appeal. With this view of the matter we find the grounds of appeal are devoid of merits and the appeal is liable to be dismissed. Consequently while upholding the directions given by the DRP, we dismiss the appeal of the Revenue. Cross Objection is also dismissed.

Summary

Issues:
Transfer pricing adjustment under CUP method for purchase of cranes from associated enterprises.

Analysis:
1. The assessee, a subsidiary of a global leader in heavy equipment handling, purchased cranes from its associated enterprises. The Assessing Officer (AO) benchmarked the transaction using the TNMM, finding it compliant with arm's length standards. However, the Transfer Pricing Officer (TPO) rejected this, applying the CUP method and made adjustments totaling &8377; 18,46,04,600/-.

2. The assessee objected, arguing that the TPO erred in determining the arm's length price based on the written down value of cranes in the books of the associated enterprise. They contended that the ALP should consider fair market value, ascertained through methods like DCF or valuation by chartered engineers or customs authorities.

3. The Dispute Resolution Panel (DRP) considered the submissions and directed the TPO to accept the valuation report of the assessee, deleting the adjustments. The DRP emphasized that the written down value in the books of the AE did not reflect the ALP and accepted the assessee's justifications based on external valuations.

4. In the appeal, the Revenue challenged the DRP's directions. The Revenue argued that the written down value could be considered an internal CUP, but the authorized representative contended that it should not be deemed ALP as it did not involve transactions with non-associated enterprises.

5. The Tribunal upheld the DRP's decision, emphasizing that the ALP should be determined based on external valuations like those done by chartered engineers, customs authorities, or through the DCF method. The Tribunal found the DRP's reasoning sound and dismissed the Revenue's appeal, rendering the cross objection by the assessee moot.

6. Ultimately, the Tribunal concluded that the DRP's directions were legally sound, and the appeal lacked merit. Thus, the Tribunal dismissed the appeal by the Revenue and the cross objection by the assessee.

7. The judgment highlights the importance of determining arm's length pricing accurately in international transactions, emphasizing the need for external valuations to establish fair market value and adhere to transfer pricing regulations effectively.