In a recent decision,
The Revenue preferred an appeal before the Tribunal. The two issues which came up for the consideration of the Tribunal related to whether transfer pricing provisions for calculation of arms length price could be resorted to in the case of an assessee exempt from income tax (therefore, presumably, there being no tax avoidance motive); and if they could be so resorted to, what would be the appropriate method to be used for calculating arms length price.
On the question of whether a tax avoidance motive is necessary before invoking transfer pricing provisions, the Philips Software v.
ITAT Online had summarized an important portion of the Philips judgment as holding, “While the motive of tax avoidance need not be shown at the time of initiating transfer pricing provisions, the same is required to be shown at the stage of making the assessment. The AO has to show that the assessee manipulated prices to shift profits outside
The Pune Bench in
On the merits of the adjustment, the Bench provided relief to the assessee. It was held (taking into consideration Rule 10C of the Income Tax Rules, 1962) that in a case where the Revenue sought determine the arms length price by a method different from that which had been adopted by the assessee, it was for the Revenue to demonstrate that its proposed method would be more appropriate than the assessee’s method. Also, it was held that the transaction profit methods of determination of arms length price should be used only when other standard or traditional methods are incapable of being properly applied to the facts of the case. On the facts of the case, the Revenue’s burden was held to be not discharged.
Thus, while the final result was that the Revenue’s appeal was dismissed, the case will be of use to the Revenue authorities in invoking transfer pricing provisions.