Aithent Technologies Pvt. Ltd v. DCIT (ITA No. 6446/Del/2012)

Transfer pricing not applicable to transactions with branch office (Oct 19, 2016)

The Delhi Bench of the Income-tax Appellate Tribunal held that transfer pricing provisions cannot apply in respect of transactions between the Indian head office and its overseas branch office in Canada.

Transactions between the taxpayer, an Indian company and its overseas branch office in Canada, were treated as international transactions and the arm’s length price was determined by the Transfer Pricing Officer. The taxpayer also entered into an international transaction with its wholly owned subsidiary in the United States, and adopted the Transactional Net Margin Method (TNMM) as the most appropriate method. The Transfer Pricing Officer, however, applied a number of search filters in selecting comparable companies and accordingly made a transfer pricing adjustment.

The tribunal held that there can be no profit from trade with one’s self and thus that there cannot be a valid sales transaction between a branch office and its head office. Concerning the transactions with the related party in the United States, the tribunal did not find support for the transfer pricing adjustment.

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