Transfer Pricing: Foreign associated enterprise can be taken as ‘Tested Party’

General Motors India Pvt. Ltd vs. DCIT (ITAT Ahmedabad)

The assessee bought CKD Kits from General Motor Daewoo Auto & Technology (GMDAT), a foreign associated enterprise. The assessee claimed that to determine whether the transactions were at arm’s length, GMDAT had to be selected as the tested party on the ground that the functions and risks of the assessee are more complex in nature and that numerous adjustments would have to be made if the assessee were taken as the selected part. The TPO & DRP rejected the assessee’s contention on the basis that (a) a foreign entity could not be a tested party, (b) GMDAT is a complex entity owing valuable intangibles & (c) the data for comparability of GMDAT is not available. On appeal by the assessee to the Tribunal, HELD:

While there is nothing in the transfer pricing law as to the selection of the tested party, the tested party normally should be the party in respect of which reliable data for comparison is easily and readily available and fewest adjustments in computations are needed. It may be local or foreign entity, i.e., one party to the transaction. The object of transfer pricing exercise is to gather reliable data, which can be considered without difficulty by both the parties, i.e., taxpayer and the revenue. It is also true that generally least of the complex controlled taxpayer should be taken as a tested party. But where comparable or almost comparable, controlled and uncontrolled transactions or entities are available, it may not be right to eliminate them from consideration because they look to be complex. If the taxpayer wishes to take foreign AE as a tested party, then it must ensure that it is such an entity for which the relevant data for comparison is available in public domain or is furnished to the tax administration. The taxpayer is not then entitled to take a stand that such data cannot be called for or insisted upon from the taxpayer. This is supported by the United Nation’s Practical Manual on Transfer Pricing for Developing Countries which stated that a foreign entity (a foreign AE) could also be taken as a tested party for comparison. The revenue’s argument that GMDAT should not be selected as a ‘tested party’ as it does not fall within the ambit of TPO’s jurisdiction and he can neither call for any additional information nor scrutinize their books of accounts is not acceptable because the Revenue can get all the relevant particulars around the globe by using the latest technology under its thumb or direct the assessee to furnish the same (Ranbaxy Laboratories 110 ITD 428 (Del), Mastek Limited, Development Consultants 136 TTJ 129 & Sony India 114 ITD 448 (Del) followed; Onward Technologies (Mum) & Aurionpro Solutions (Mum) not followed/ distinguished)