Details

Service: Tax, Global Transfer Pricing Services
Type: Regulatory update
Date: 1/25/2012

India - Transfer pricing adjustments are to be limited to related-party international transactions—and not to include third-party uncontrolled transactions

January 25: The Bangalore Bench of the Income-tax Appellate Tribunal held that transfer pricing adjustments are to be limited to the related-party international transactions and not to be made with respect to third-party uncontrolled transactions. Genisys Integrating Systems (India) Private Ltd v. DCIT [2011-TII-96-ITAT-BANG-TP]

The tribunal’s decision addresses certain transfer pricing issues relating to the application of the “turnover filter,” the exclusion of comparable companies earning “super-profit margins,” and the allowance of a capacity adjustment. The case also confirms the application of the +/- 5% “standard deduction” variation to be allowed before arriving at the arm’s length price.

Overview

The taxpayer in this case was engaged in rendering software development and IT-enabled services to its group companies and to third-party customers.

During the course of assessment proceedings, the Transfer Pricing Officer rejected the taxpayer’s benchmarking analysis and instead conducted a fresh analysis (in which the Transfer Pricing Officer included certain comparables without providing an opportunity for the taxpayer to respond).

The Transfer Pricing Officer proposed a transfer pricing adjustment that included an adjustment using unrelated third-party segment information. The Assessing Officer and Dispute Resolution Panel agreed with the adjustment; eventually, the taxpayer sought review by the tribunal.

The tribunal remanded the case to the Transfer Pricing Officer / Assessing Officer with directions to provide the taxpayer a reasonable opportunity to make submissions and to examine the additional comparable companies considered by the Transfer Pricing Officer in the order. In its decision, the tribunal addressed a number of basic transfer pricing principles.

To read a January 2012 report on this case, prepared by the KPMG member firm in India: Bangalore tribunal confirmed transfer pricing adjustments are to be restricted to the related-party international transactions and do not apply in respect of third-party uncontrolled transactions

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© 2012 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.