TaxTMI 
TaxTMI 
2014 (1) TMI 1861
X X X X Extracts X X X X
X X X X Extracts X X X X
....tested party. However, the TPO has not considered the contention of the assessee as to whether foreign party can be the tested party. Indeed, the TPO was under the impression that the assessee has done its TP study on the basis that the assessee is the tested party. The second limb of the argument of the Ld. A.R is that the Tribunal has not considered the decisions relied upon by the assessee in the following cases: i) Ranbaxy Laboratories Limited Vs ACIT 110 ITD 428 ii) Development Consultants Private Limited Vs DCIT ITA Nos. 79 and 80/Kol/2008 3. Thus, the Ld. A.R has submitted that in view of the decision of Hon'ble Supreme Court in case of Honda Siel Power Products Ltd. Vs CIT 295 ITR 466 non-consideration of a decision placed before the Tribunal is a mistake apparent on record which needs to be rectified. The third limb of the argument of the assessee is on the point that if this Tribunal does not agree with the view taken by the Co-ordinate Bench then the only course that is open would be to make reference for constitution of Special Bench to resolve the controversy. He has also relied upon the decision of Hon'ble Gujarat High Court in case of Affection I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Tax" dealing with the computation of income from international transactions having regard to ALP. Section 92(1) of the Act provides that : 'Any income arising from an international transaction shall be computed having regard to the arm's length price.' The term "international transaction" has been defined in section 92B to mean 'a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or...............' The methodology for the computation of arm's length price has been set out in section 92C(1) to be as per any of the prescribed methods, including 'Transactional net margin method' (TNMM). This method has been admittedly employed by the assessee in the present case as the most appropriate method for determining the ALP in respect of the international transactions under consideration. Sub-section (3) of section 92C provides that: 'Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that--(a) the price charged ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld he determined by one of the prescribed methods, which also include the TNMM. Under this method, the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base, which is then compared with the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction. The modus operandi of determining ALP of an international transaction under this method is that firstly, the profit rate earned by the assessee from a transaction with its AE is determined (say, profit A), which is then compared with the rate of profit of comparable cases (say, profit B) for ascertaining as to whether profit A is at arm's length vis-a-vis the profit B. If it is not, then the transfer pricing adjustment is made having regard to the difference between the rates of profit A and profit B. The rate of profit of comparable cases (profit B) may be computed from internally or externally comparable cases, depending upon the FAR analysis and the fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnot go beyond the overall profit of the group of AEs in determining the ALP of the international transaction. It has been noticed supra that the object of Chapter-X of the Act is to prevent the avoidance of tax from transactions between two or more AEs. Because of such internal relation, the affairs between the AEs are capable of being arranged in such a way so as to reduce the incidence of tax in India. it is with this avowed object that the legislature has come out with the Chapter-X by declaring that an income arising from an international transaction shall be computed having regard to the arm's length price. The matter does not end here. The legislature in its wisdom has inserted section 92C which contains apparatus for the determination of the ALP in respect of international transactions. Sub-section (1) of section 92C provides that: 'The arm's length price in relation to an international transaction shall he determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ested party. Thus, these decisions as relied upon by the assessee are sub-silentio on the issue of the scope of Indian Transfer Pricing Regulation. Even otherwise under the Indian Transfer Pricing Regulation as contained in the Chapter-X of the Income Tax Act the comparison of international transaction carried out by the assessee is to be made with the uncontrolled and unrelated transaction to arrive at arm's length price (ALP). Thus, the commercial/financial effect of an international transaction in the context of the assessee/taxpayer has to be compared with the finance/commercial outcome if the same transaction would have been carried out by the assessee with unrelated third party. In the matter of Transfer Pricing and determination of ALP which is factual in nature the principle of consistency or res judicata is not applicable until and unless the facts and circumstances governing the situation and legal position are identical in each case. The Tribunal in para 16.2 and 16.3 has considered this point as under: "16.2 The Hon'ble Supreme Court has held in several cases including M.M. Ipoh & Ors. vs CIT (1968) 67 ITR 106 (SC) that: The doctrine of res judicata does not ap....