Transfer pricing applies to associated enterprise transactions despite cash accounting, and nil valuation requires proper evidence review.

Transactions with associated enterprises that fall within the definition of international transaction under section 92B remain subject to transfer pricing provisions even where the assessee follows cash accounting and does not claim a deduction in the relevant year; the jurisdictional objection therefore failed. The arm's length price for services and equipment hire could not be fixed at nil without examining the evidence supporting the actual receipt and value of those transactions, so the nil adjustment was set aside. The matter was remanded for fresh verification and redetermination after giving the assessee an effective opportunity of hearing.

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Issues: (i) Whether the impugned dealings with associated enterprises were international transactions exigible to transfer pricing provisions notwithstanding the assessee's cash system of accounting and non-claim of deduction in the relevant year; (ii) Whether the determination of arm's length price at nil for services and equipment hire was sustainable and whether the matter required fresh verification of the evidence produced by the assessee.

Issue (i): Whether the impugned dealings with associated enterprises were international transactions exigible to transfer pricing provisions notwithstanding the assessee's cash system of accounting and non-claim of deduction in the relevant year.

Analysis: The definition of international transaction under section 92B covers, inter alia, provision of services, leasing of tangible property, and lending or borrowing of money. The applicability of Chapter X does not depend only on whether the assessee claimed a deduction in the return or followed cash accounting. Transactions falling within the defined categories remain subject to benchmarking even if the income or expenditure is not booked on an accrual basis in the relevant year.

Conclusion: The transactions were held to be international transactions and the assessee's challenge on this jurisdictional ground failed.

Issue (ii): Whether the determination of arm's length price at nil for services and equipment hire was sustainable and whether the matter required fresh verification of the evidence produced by the assessee.

Analysis: The assessee had produced material to support the existence and value of the services and equipment hire. The arm's length price could not be fixed at nil merely on the basis of collateral material without examining the evidence relevant to the actual receipt and valuation of the transactions. The record required proper verification by the transfer pricing authority and the assessing authority after giving the assessee an effective opportunity of hearing.

Conclusion: The adjustment on these grounds was set aside and the matter was remanded for fresh determination of arm's length price.

Final Conclusion: The appeal succeeded only to the extent of remand on the valuation of the disputed transactions, while the core objection to the applicability of transfer pricing provisions was rejected.

Ratio Decidendi: Transactions expressly falling within section 92B remain subject to transfer pricing analysis even where the assessee follows cash accounting and has not claimed a deduction, but an arm's length price cannot be fixed at nil without examining the evidence supporting the transaction value.

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