Transfer Pricing News

In a recent judgement on the determination of ALP of used plant and machinery from an Associated Enterprise (‘AE’), the Delhi High Court in the case of SARENS HEAVY LIFT INDIA PVT. LTD. [ITA 256/2019] held that the approach adopted by the Transfer Pricing Officer (‘TPO’) to substitute the WDV of used plant and machinery as its ALP, is not in line with the prescribed Transfer Pricing scheme.

As per the facts of the captioned case, the taxpayer had justified the price paid for used plant and machinery based upon the valuation report obtained from an independent chartered engineer.​However, the TPO substituted the ALP by the WDV of the said used plant and machinery, as that was reflected in the books of the AE.

In an important ruling by the Delhi ITAT in the case of D Light Energy P. Ltd. [ITA No.516/DEL/2022], the Hon’ble ITAT rejected the approach of TPO in application of TNMM instead of RPM, wherein, the taxpayer was engaged in import of products from AEs and their re-sale in India without any value addition in the same. 

As per the facts of the captioned case, the taxpayer purchased solar products from its AEs for resale in India, wherein, no value addition to the said products was being carried out for by the taxpayer before their further resale. The taxpayer thus applied RPM as the most appropriate method (‘MAM’) to justify the ALP of its international transactions. 

However, during the assessment proceedings, the TPO rejected RPM as MAM, and applied Transactional Net Margin Method (‘TNMM’) for benchmarking purpose, and proposed Transfer Pricing Adjustment in the hands of the taxpayer. 

As the matter reached before Hon’ble ITAT, the ITAT based on the analysis of the relevant details and activities performed by the taxpayer, confirmed that no value addition was being made to the Products by the taxpayer and thus held that RPM was the MAM in the given case and not TNMM, and deleted the proposed Transfer Pricing Adjustment​.