CASE LAWS

SUMITOMO CORPORATION INDIA PVT LTD Vs CIT: DELHI HIGH COURT (Dated: July 22, 2016)

Income tax - Section 92C & Rules 10B & 10C.

Keywords - ALP - AE - berry ratio - commission - flash title - FOB price - fair compensation - identing transactions - indent sales - risk adjustment - sale of goods on principal basis - TNMM & value addition.

Whether it is permissible for TPO to re-characterize the tested transactions - NO: HC

Whether trading transactions of an entity with non-AEs can be compared to the transactions of such entity with its AEs, when the indenting transactions reported by the entity are plainly in the nature of facilitating trade where the entity is required to do nothing more than to follow up the customers for facilitation of such transaction - NO: HC

Whether a satisfaction by the Revenue authority has to be reached that there is no significant variation in the rate of commission between different products, before applying the average rate of commission on the assessee's transaction with Non-AEs to the FOB value of the goods involved in the indenting transactions with AEs - YES: HC

Whether the TPO is required to simply follow the transfer pricing methodology adopted in the preceding years, for every subsequent A.Ys - NO: HC

Whether the use of Berry ratio is permitted under Rule 10B(1)(e) of the Rules - YES: HC

Whether where an assessee uses intangibles as a part of its business, the use of Berry ratio would not be an apposite PLI, since the value of such tangibles would not be captured in the operating cost and therefore, it would not be appropriate to compute the ALP based on net profit margin having regard to the operating cost as a relevant base - YES: HC

Whether Berry ratio can be an appropriate PLI for determining ALP in cases of assessees who have substantial fixed assets - NO: HC

Whether Berry ratio can only be applied where the value of the goods are not directly linked to the quantum of profits and the profits are mainly dependent on expenses incurred - YES: HC

Case remanded

2016-TII-37-HC-DEL-TP

PR CIT Vs BECHTEL INDIA PVT LTD: DELHI HIGH COURT (Dated: July 21, 2016)

Income tax - debt free company - interest on receivables & selection of comparables.

Whether any adjustment on account of 'interest on receivables' is warranted, when the ITAT being a fact finding authority has clearly recorded that no question of receiving any interest on receivables would arise since the assessee is a debt free company - NO: HC

Revenue's appeal dismissed