Tribunal orders fresh determination of Arm's Length Price, dismisses rectification appeal.

The Tribunal allowed the appeal for statistical purposes, remitting the matter back to the assessment stage for fresh determination of the Arm's Length Price (ALP) in accordance with the law and the Tribunal's directions. The Transfer Pricing Officer (TPO) was instructed to discard the Net Asset Value (NAV)-based computations and adopt an appropriate method for determining the ALP. The related appeal concerning rectification of mistakes was dismissed as infructuous since the main assessment was remitted back. The case outcomes were as follows: ITA No. 2/Del/2017 was allowed for statistical purposes, while ITA No. 5030/Del/17 was dismissed as infructuous.

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Issues Involved:
1. Arm’s Length Price (ALP) adjustment for the sale of shares.
2. Correct conversion rate for foreign currency.
3. Method of valuation for unquoted shares.
4. Role of Transfer Pricing Officer (TPO) versus Assessing Officer (AO).

Detailed Analysis:

1. Arm’s Length Price (ALP) Adjustment for Sale of Shares:
The primary grievance of the assessee was regarding the ALP adjustment of Rs. 1,28,39,903 for the sale of shares in an Indian company to a non-resident entity. The assessee, a Singapore-based company, sold shares of Topcon Sokkia India Pvt Ltd (TSIPL) to Topcon Corporation, Japan (TC-J) based on a 'Stock Purchase Agreement'. The sale price was US $35,08,000, which was higher than the fair market value determined by an independent valuer using the discounted cash flow (DCF) method but lower than the Net Asset Value (NAV) method. The TPO, however, determined the ALP based on the NAV method, concluding that the shares should have been sold for US $37,98,298.50, leading to an addition of Rs. 1,39,16,235 in capital gains. The Tribunal found the TPO's approach flawed, emphasizing that the TPO's role is limited to determining the ALP and not extending to the AO's domain of determining taxable income.

2. Correct Conversion Rate for Foreign Currency:
The TPO noted discrepancies in the conversion rates used by the assessee for converting the sale consideration from USD to INR. The assessee used a conversion rate of 44.23, whereas the TPO argued that the correct rate should be 45.21, based on the date of receiving the first and major amount. This adjustment was made as per Section 48 read with Rule 115A of the Income Tax Act, 1961, which mandates using the conversion rate on the date of receipt of the consideration.

3. Method of Valuation for Unquoted Shares:
The Tribunal discussed the appropriate method for valuing unquoted shares, referencing the Supreme Court judgment in CGT Vs Kusumben D Mahadevia. The Court emphasized that for a going concern, the profit-earning method is generally applicable, while the NAV method is suitable only in exceptional circumstances or when the company is ripe for liquidation. The Tribunal rejected the TPO's reliance on the NAV method, directing that the ALP should be determined using a method that considers the price charged or paid in similar transactions between non-associated enterprises.

4. Role of Transfer Pricing Officer (TPO) versus Assessing Officer (AO):
The Tribunal reiterated that the TPO's role is confined to determining the ALP and should not extend to determining the taxable income, a domain exclusive to the AO. Citing the jurisdictional High Court's decision in Cushman & Wakefield India Ltd Vs CIT, the Tribunal emphasized that the TPO should not intrude into areas earmarked for the AO, such as determining whether a service benefits the assessee.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remitting the matter back to the assessment stage for fresh determination of the ALP in accordance with the law and the Tribunal's directions. The TPO was instructed to discard the NAV-based computations and adopt an appropriate method for determining the ALP. The related appeal concerning rectification of mistakes was dismissed as infructuous since the main assessment was remitted back.

Orders:
- ITA No. 2/Del/2017: Allowed for statistical purposes.
- ITA No. 5030/Del/17: Dismissed as infructuous.

Pronounced in the open court on the 23rd day of August, 2018.

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