In case of TP, If the assessee (Wholesale Trader) is following CUP method where basis for Arm lenght price has taken from internet site which discloses weekly price range of the product in the market(which includes manufacturer to retailer) & made some relevant changes to compare it with the transaction price, instead of taking third party transaction as the same is not available. Is the above rates taken are consistent with the law as the above rates are average rates which are derived after considering prices from wholseller to retailer?
First of all, thanks a lot for sharing your query. Before I come to the facts of your case, just a snapshot of CUP method – • CUP method can be of two types – internal or external. a. Internal CUP applies when your company has entered into an international transaction with its Associated Enterprises and into another transaction with an unrelated enterprise – In such cases, the latter transaction serves as an internal comparable to the former transaction b. External CUP applies when your company has entered into an international transaction with its Associated Enterprise, but it has not undertaken any such transaction with an unrelated enterprise. In such cases, if you can identify any outside transaction (i.e. one in which your company is not involved) with similar nature/terms/conditions, then it can serve as an external comparable • CUP method is very rigid if you talk about the permissible differences between the controlled and uncontrolled transaction [Controlled transaction means the one which you wish to benchmark i.e. transaction undertaken by your company with its Associated Enterprise. Uncontrolled transaction is essentially a comparable transaction (i.e. one which is not with the Associated Enterprise – could be internal or external) Now, I’ll deal with your query in parts – 1. Where the Assessee is identifying prices for transaction on the basis of information acquired from some internet site while applying CUP method – it will be a case of external comparable for CUP method. Further, I understand from the facts presented by you that an internal comparable is not available, so external comparable has to be used 2. As far as the usability of rates obtained from the internet is concerned, you’ll observe that the Indian Transfer Pricing Regulations are absolutely silent on this aspect. So, as long as the website and/or source are credible, I do not see any objection in use of data acquired from internet. For your knowledge, you may refer to the legal decision held in the case of DCIT vs. 3 Global Services Private Limited [ITA No 1812/Mum/09] 3. However, I am unclear at the facts as far as the portion pertaining to manufacturer, wholesaler and retailer is concerned. Nevertheless, what I can suggest you is that if both controlled and uncontrolled transaction are undertaken at same level (i.e. manufacturer to wholesaler or from wholesaler to retailer), then application of CUP method should not be difficult given any other visible differences are suitably adjusted. But, if there is a difference in the levels for controlled and uncontrolled transaction, then application of CUP method appears difficult because it will be extremely difficult to make appropriate adjustments to account for all such differences. And as I have already discussed above, CUP method is very rigid with respect to differences between controlled and uncontrolled transaction.
If you would like to pass on some more facts or to get something clarified, it would be a pleasure to be of any help.
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