9911796707
TMI Blog2018 (6) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... y. A return declaring total income of Rs. 26,42,940/- was filed. The assessee reported five international transactions in Form No. 3CEB. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of the international transactions. 3. The TPO observed that the first four international transactions, namely, 'Purchase of components and accessories'; 'Payment of interest under purchase agreement'; 'Payment of installments of principal under hire purchase agreement'; and 'Repossession of Rig' revolved around the assessee purchasing a drilling Rig from Mitchell Drilling Operations Pty. Ltd. on hire purchase under an agreement executed on 1.4.2004 for consideration of Rs. 4,88,79,856/- with interest at the rate of 10%. The TPO found that the Rig was in possession of the assessee company from 1.4.2004 till 30th June, 2005 and thereafter the same was repossessed by the seller. The assessee was called upon to furnish a copy of invoice for purchase of Rig by the associated enterprise so that it could be seen as to whether any mark-up was charged on the transaction so entered into. In the absence of the assessee furnishing such evidence, the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,78,123/-; Payment made to overseas entity disallowed u/s 40(a)(i) at Rs. 822096/-; and Transfer pricing adjustment of Rs. 3,58,67,002/- as proposed by the TPO. The assessee is aggrieved against the additions made by the AO in the final assessment order impugned in the instant appeal. 5. We have heard both the sides and perused the material on record. It is manifest that the TPO determined Nil ALP of the international transactions as tabulated above without holding the hire purchase transaction as not genuine. It is the AO who held such hire purchase of Rig as a sham transaction and thereafter made transfer pricing additions as proposed by the TPO in addition to the disallowances of depreciation and invoking the provisions of section 40(a)(i) of the Act. Given the fact that the AO treated this transaction as non-genuine in his final assessment order, let us first examine the genuineness or otherwise of the international transaction of hire purchase. When we ventured to examine this aspect from varied perspectives, the learned AR did not press the ground challenging the hire purchase transaction treated as bogus. As such, we proceed to treat the hire purchase transaction as not ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Before espousing the transfer pricing additions made in the impugned order, we deem it appropriate to note that it is elementary that the ALP is determined of an 'international transaction', which has been defined in section 92B of the Act. The term 'transaction', for the purposes of the Chapter-X containing transfer pricing provisions, has been defined in clause (v) of section 92F to include an arrangement, understanding or action in concert. It shows that the ALP is always determined of an international transaction, which is genuine, but may be formal or in writing and whether or not intended to be enforceable by legal proceeding. If a transaction itself is not genuine, there can be no question of applying the transfer pricing provisions to it. In such an eventuality of a supposed genuine transaction turning out to be non-genuine, all the consequences which would have flowed for a real transaction, are reversed. In other words, certain deductions which would have been otherwise allowed in case of a genuine international transaction, are denied. Nitty-gritty of the matter is that only a declared and accepted genuine international transaction can be subjected to the transfer p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et eligible for depreciation. In case the international transaction of Payment results into incurring of an expenditure, the Department's case can be that either its ALP is less than the amount of expenditure declared or Nil, so that the excess amount of expenditure over its ALP could be disallowed. In case the international transaction of Payment results into creation of an asset eligible for depreciation, the Department's case can be that either its ALP is less than the amount of expenditure declared or Nil, so that the amount of depreciation on the excess amount of the asset, being the difference between the transacted value of asset over its ALP, could be disallowed. In the third scenario of Payment by the assessee, which is neither towards some expenditure debited to the profit and loss account nor results into creation of an asset eligible for depreciation, there can arise two situations, viz., one in which the assessee may have advanced loan to its AE on which the transfer pricing adjustment on account of interest income can be made; and the second in which the nature of transaction is such that there can be no possibility of earning any sort of income. Such later category o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule of Fixed Assets, shown by the assessee at Rs. 3.02 crore towards Repossession of Rig. Now let us see the sequitur of this action. If the amount of Rs. 3.02 crore is substituted with Nil, the value of the assets under this block eligible for depreciation will go up to the extent of Rs. 3.02 crore and a fortiori, the amount of depreciation allowance, will also correspondingly go up resulting in to reduction in the total income. We have noted above that in case of an international transaction of Receipt by the assessee, the Department can be interested in computing its ALP at a level higher than that declared, so that income could be increased. It cannot be a converse situation, as has happened instantly, in which the Revenue is seeking to determine the ALP of an international transaction of 'Receipt' at Nil, which would have the effect of putting the assessee in a more advantageous position vis-à-vis the non-application of the transfer pricing provisions. 18. In case the ALP of an international transaction of 'Receipt' turns out to be less than the amount of transacted value, the ALP determination is liable to be ignored and not given effect to. Sub-section (3) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
