The Income Tax Appellate Tribunal (ITAT), Pune Bench ruled that no addition can be made for Transfer Pricing adjustment related to Specified Domestic Transactions.
The assessee has been engaged in the business of manufacturing sugar. Major activities of the company are crushing sugarcane and the production of refined sugar and other by-products. The assessee filed its return declaring total income at Nil but paid taxes under section 115JB of the Act. An audit report in Form No.3CEB was furnished declaring seven SDTs totaling Rs.8,64,70,983. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of SDTs. In this appeal, we are concerned with the SDT of Rent payment amounting to Rs.4,91,89,500. The assessee applied the Comparable Uncontrolled Price (CUP) method for demonstrating the transaction to be at ALP.
The whole controversy revolves around the fact of the assessee having used or not used the Sawant Corner premises for which it paid the rent. The TPO rejected the assessee’s CUP method and proceeded to apply the `Other method’ determining Nil ALP of the SDT of payment of Rent. Rule 10AB provides that “For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm’s length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.”
The TPO opined that since the premises was not occupied by the assessee, no independent party would have paid anything for it and thus determined Nil ALP of the transaction.
The coram headed by the Vice President R.S.Syal and Judicial Member S.S.Visvanethra Ravi noted that the Sawant Corner property was used by the assessee for its business purpose and the Revenue brought no contrary reliable evidence on record, the case of the TPO applying `Other method‟ and determining Nil ALP on the ground that no independent party would have paid any rent for not having occupied the premises, fails.
“Reverting to the CUP method applied by the assessee as the most appropriate method for benchmarking the SDT of rent payment, the assessee has given a comparable instance of rent paid @ Rs.112 per sq. ft. by ICICI bank under a lease agreement dated 17.02.2012 for nearby premises. As against that, the assessee paid rent @ Rs.75.28 per sq.ft., which shows that the rent paid by the assessee was less in comparison with the comparable uncontrolled transaction. Thus, the ALP of the SDT of payment of rent cannot be disputed,” the ITAT said while upholding the deletion of transfer pricing addition.
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