Transfer Pricing


ACIT v Nimbus Comunications Ltd [2013] 34 taxmann.com 298 (Mumbai – Trib.) Facts • The assessee had given corporate guarantee of US $ 30,00,000 through ICICI Bank, U.K. for a term loan given to its AE namely Nimbus Communication Worldwide Ltd. • Another guarantee of US $ 1,50,00,000 was given by the assessee to the same Bank for the financial facility given to another AE namely Nimbus Sports International Pte Limited.

TP is applicable on commission on corporate guarantee given for loan availed by AE – ...


Marubeni India Pvt. Ltd. v DIT (ITA 1042/2011 dtd 25.04.2013) Delhi High Court Background: The assessee is a private limited company incorporated in India under the Companies Act, 1956. It is a 100% subsidiary of Marubeni Corporation, Japan(MCJ). It carries on mainly two types of business – agency and market research business. The assessee filed a return of income on 31.10.2002 declaring “nil” income for AY 2002-03. In the course of the assessment proceedings, the assessee’s case was referred to the transfer pricing officer (TPO). The TPO proposed an addition of Rs 2,60,49,881/- on the ground that the commission and service fees received by the assessee from MCJ did not represent arm’s length price. The TPO treated the interest income of Rs 1.72 crores received by the assessee as non-operating income. Because of this treatment accorded to the interest, the profits of the companies which were taken for comparison purposes were found to be more than the profits earned by the assessee. The TPO was further of the view that in respect of the services rendered by the assessee, it should be remunerated on a cost-plus basis and the total costs should be made the basis of computing its earnings and not merely the commission and fixed feespaid to it. 

Interest being non-operating income & other non-operating expenses to be excluded from computing ALP – ...


Cotton Naturals (I) Pvt. Ltd. v DCIT (I.T.A. No. 5855/Del/2012 dtd 8/2/2013) Delhi ITAT Background: The assessee is a company engaged in the business of manufacturing & export of Ready made Garments. The assessee had entered into international transactions with with its associated enterprise (‘AE’) during the year 2007-08. It had provided loan amounting to USD 10,50,000 to its AE at the rate of 4%. As per Form 3CEB, CUP method was chosen to bench mark the interest received on loan. The assessee has contended that since it has received interest at a rate of 4% which is comparable with the export packing credit rate obtained from independent Banks in India, the interest is at arm’s length price. The TPO by making comparison with uncomparables like government bonds and the amount advanced by the Indian banks in foreign currency to entities in India and by making arbitrary additions of transaction cost, security and risk etc. to such rate determined the arm’s length rate of interest at 17.26% per annum and proposed an addition of RS.68,02,619.  The assessee carried the matter to DRP. The DRP ignored all the contentions and held that loan is in Indian currency hence LIBOR is not the relevant rate and ordered that PLR (Prime Lending Rate of RBI for FY 2007-08 be applied. AO accordingly applied the PLR of 13.25%..

LIBOR to be considered for benchmarking intra-group loan transactions – Delhi ITAT



Petro Araldite P Ltd v DCIT (IT APPEAL NO. 6217 (MUM.) OF 2012 dtd 18.1.2013) Mumbai ITAT Background: Assessee is a concern engaged in the manufacture of `Specialty Chemicals’. Its main product is Epoxy Resins. The chemicals manufactured by it are used in the industries operating in Paints, Civil engineering applications, Structural composites, Electrical insulation material, Adhesive and Tooling material. The assessee followed Transactional Net Margin Method (TNMM) to benchmark its international transactions in a composite way for all such transactions taken together. It adopted Profit Level Indicator (PLI) as Operating Profit / Sales which was shown at 4.20%.

TP Update: Mumbai ITAT lays down rules for functional comparability


Zavata India Pvt Ltd v ITO [IT APPEAL NO. 628 (HYD.) OF 2008 dtd 31-01-2013] Hyd ITAT Background: Assessee is in the business of rendering back office processing services in the field of health-care administration. Its services are not akin to call centre services, wherein tele-communication expenses constitute more than 24%. The assessee’s service centre is registered under the Software Technology Parks of India and provides services exclusively to Samsung Data Corporation USA (SDC US), its Associate Enterprise (AE). The SDC US markets services in USA. The revenue sharing policy was determined at the ratio of 85:15 on the gross receipts received from third parties. For the financial year 2003-04, i.e. AY 2004-05, the assessee filed return of income and claimed deduction under S.10A to the extent of Rs. 3,15,69,530.

Once TPO has accepted ALP, AO cannot say that assessee has earned more than ordinary ...


Welspun Zucchi Textiles Ltd. v ACIT [ITA No 6539 (MUM.) OF 2009 & 898 (Mum.) of 2010] dtd 11.1.2013 Background: During the year under consideration, the assessee company had exported bathrobes to its associated enterprises in Italy. The said transactions were benchmarked by the assessee using CUP method as the most appropriate method. In order to determine the arms length price of these transactions, a reference was made by the AO to the TPO u/s 92CA(1) of the Act. Before the TPO, the assessee submitted the comparative chart of sales to AEs and non AEs. It was submitted that out of the total bathrobes exported to non AEs, about 95% bathrobes were exported to Wallmart USA at an average unit price of US Dollars 6.42 while the average unit price of export made by the assessee to its AEs in Italy was US Dollars 8.80. It was contended that since the price charged to AEs was more than the price charged to non AEs, the international transactions with AEs involving export of bathrobes should be considered at arms length.

CUP method fails where there are differences in location, market size and product prices sold ...



LG Electronics India Pvt Ltd v ACIT (Delhi ITAT) (SB) Background: L.G. Electronics Inc, a Korean company, set up a wholly owned subsidiary in India (the assessee) to which it provided technical assistance. The assessee agreed to pay royalty at the rate of 1% as consideration for the use of technical know how etc. The Korean company also permitted the assessee to use its brand name and trade marks to products manufactured in India on a royalty-free basis. The AO, TPO & DRP held that as the Advertising, Marketing and Promotion (“AMP expenses”) expenses incurred by the assessee were 3.85% of its sales and such percentage was higher than the expenses incurred by comparable companies (Videocon & Whirlpool), the assessee was promoting the LG brand owned by its foreign AE and hence should have been adequately compensated by the foreign AE.

TP: Landmark judgement for benchmarking advertising exp – Del ITAT (SB)


Mainetti India (P.) Ltd. v. ACIT [IT APPEAL NO. 1789 (MDS.) OF 2011] Chennai ITAT Background: The assessee is in the business of manufacturing plastic garment hangers. As the assessee is a part of the Mainetti global group, it used to buy and sell the hangers from/ to its group concerns. The assessee has purchased from its AE in Hongkong, Srilanka, Malayasia, Pakistan and RANDY Asia and has sold to its AE in Srilanka, Korea, Hongkong, Gulf, Egypt, Bangladesh, Malayasia, Taiwan, UK and Pakistan. On the purchase, the assessee has a positive differential i.e. the assessee purchases at a lower price from its AE than the non-AE and when its sales to the AE, its selling price is lower than the selling price as compared with the non-AE When computing the ALP, the AO had taken into account only those transactions where the sale price to Associate Enterprise (AE) was lower than the sale price to non-Associated Enterprise (non-AE) and ignoring the instances where the purchase-price from and sale price to AE exceeded the purchase-price from and the sale price to non-AE. Thus, while applying CUP method for determining the ALP, TPO had considered only positive deviations and had ignored negative deviations.

TP Update: Both positive & negative adjustments to be considered while computing ALP – Chennai ...


Nokia India (P.) Ltd. v Addln CIT [2012] 22 taxmann.com 109 (Delhi – Trib.) Facts of the case Assessee incurred certain advertisement, marketing and promotion expenditure. The AO in order to determine the arm’s length price of international transaction with associated enterprise referred the matter to TPO u/s 93CA(3) of the act. The TPO passed an order u/s 92CA(3) of the Act, wherein he determined the arm’s length price on Advertisement, Marketing and Promotion (AMP) expenses amounting to Rs. 253,48,30,000.

TP adjustments by a TPO for such international transactions which are not reported by AO ...