Transfer Pricing Report, Appellate Authorities Can Adopt Different Method From That Adopted By Assessee: Delhi High Court

The Delhi High Court has held that the appellate authorities are not precluded from adopting a method different from that adopted by the assessee in the transfer pricing report.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that the ultimate aim of the transfer pricing exercise is to determine an accurate value of the arms length price for the purpose of taxation.

The Assessing Officer, having noticed that the assessee during the year under consideration operated as a freight forwarding company in the domestic and international arena, providing land, air, and ocean transport services besides warehousing and customs clearance services, made a reference to the Transfer Pricing Officer (TPO).

The Assessing Officer recorded that the respondent/assessee, a wholly owned subsidiary of Hellmann International Forwarders GmbH, Germany, started its operations on December 1, 2006, and the year under consideration was the first year for full operations of the company. The assessee, being a part of Hellmann Network A.V.V., has been offering its services directly to the customers of Hellmann India or as a part of deliverables sold to overseas customers by Hellmann Network personnel in other parts of the world, and the primary international transactions of the company during the year comprised freight on imports and exports received from and paid by it to its Associated Enterprises (AE).

The assessee had applied the Comparable Uncontrolled Price (CUP) method as the primary method for benchmarking freight transactions entered into with the AE.

The TPO rejected the CUP method applied by the assessee, holding it to be unreliable and not representing true comparability. The TPO held that the external Transactional Net Margin Method (TNMM) in respect of international transactions is the most appropriate method. The TPO directed to enhance the income of the assessee by Rs. 28,87,81,961/- for Assessment Year 2008–09.

The draft assessment order was prepared by the Assessing Officer under Section 143(3) by determining the total taxable income. The draft assessment order was forwarded by the Assessing Officer under Section 144C to the assessee, granting it an opportunity to oppose the proposed variation.

The Dispute Resolution Panel (DRP), which although concurred with the views of the TPO as regards the method applied for the determination of arm’s length price, reduced the TP adjustment to Rs. 9,57,51,817.

The department contended that in the original proceedings that led to the order, neither the assessee nor the assessing officer sought to apply internal TNMM as MAM. The Tribunal had no authority to direct the application of the same, and therefore, the order is not sustainable.

The assessee contended that there is no infirmity in the view taken by the Tribunal by which the assessee and the Assessing Officer were directed to apply the internal or external TNMM under Section 92C read with Rule 10B.

The court held that since the ultimate aim of the transfer pricing exercise is to determine an accurate value of the arm-length price for the purpose of taxation, the appellate authorities would not be barred from adopting a method different from that adopted by the assessee in the transfer pricing report if the latter is not found to be the most appropriate method.

Counsel For Petitioner: Sanjay Kumar

Counsel For Respondent: Ananya Kapoor

Case Title: PCIT Versus Hellmann Worldwide Logistics India Pvt.

Citation: 2023 LiveLaw (Del) 976

Case No.: ITA 1424/2018

Click Here To Read The Order