Transfer pricing

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Querist : Anonymous

Querist : Anonymous (Querist)

15 September 2012 Sir,
I want to know that while calculating tolerable band, the rate of 5% is applied on Arm's length Price or Actual Cost Incurred?

Thank You

Amol S Joglekar

Amol S Joglekar (Expert)
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15 September 2012 Income Tax, being revenue in nature, will decide the HIGHER price. The limit of 5 % is to be computed on this higher price. (Please note, if the situation is other way round, the income tax people will not strive for the BAND. They will be happy that the assessee is showing a higher price than the regular one)

Querist : Anonymous

Querist : Anonymous (Querist)

15 September 2012 Sorry sir i m unable to understand your answer, please explain in detail.

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CA Sumat Singhal

CA Sumat Singhal (Expert)
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15 September 2012 dear it is applied on actual cost price ...because if actual cost is more then ALP then there weill be no requirement of computation of all this

Querist : Anonymous

Querist : Anonymous (Querist)

15 September 2012 this means that if ALP is 100 and purchase price is 110, then 5 % band will be calculated on 110 i,e, 5.5 which will be added to ALP for computing tolerable band.
Is it so?

Amol S Joglekar

Amol S Joglekar (Expert)
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15 September 2012 If ALP is 100 and transfer price is 110, then there arises no question of any band. If transfer price is less than ALP, then the question of BAND will arise.

Querist : Anonymous

Querist : Anonymous (Querist)

17 September 2012 but if we purchase at higher rate from associate, that means we are transferring profit to our associate. Hence, transfer price provisions will apply and we have to calculate the band so as to check whether the 'purchase price' from associate is within the limit.

Amol S Joglekar

Amol S Joglekar (Expert)
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17 September 2012 Noe let us confine our attention to who is falling under Transfer pricing. Seller or Purchaser or Both... in your query. Please confirm.

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Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2012 an assessee who is purchasing goods from associate and as well as from unrelated party ans selling the same to associate and unrelated party as well..
Means in case of an assessee who is both buyer as well as seller and he add no value addition to the products purchased

Amol S Joglekar

Amol S Joglekar (Expert)
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18 September 2012 So, coming to ORIGINAL text of the query, the BAND will apply to "whichever is favourable" to revenue.

Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2012 did you mean that band will be calculated on ALP or Actual Cost, whichever is higher?

Amol S Joglekar

Amol S Joglekar (Expert)
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18 September 2012 Please explain the transaction. Purchase from Associated Enterprise at INR.XXXXXX. No value addition done. Sale of the same product to Associated Enterprise at INR.XXX And your query of 5% BAND

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Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2012 The transaction is of 'Merchant Trade'.
If we purchase from associate at $110 and the ALP comes out to be $100 according to Resale Price Methord, then tolrable band will br calculated on $110 or $100?

Amol S Joglekar

Amol S Joglekar (Expert)
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18 September 2012 Are you purchaser or seller? For the purchaser, BAND is calculated on 100. Because the purchaser is lowering the profit by increasing the purchase price.