Transfer Pricing international tax law Related partytransactions cs notes
Related party transactions
· ADP Private Ltd. v. Dy. CIT
The assessee company was engaged in providing software development services,the relevant assessment year was 2004-05, where he received a sum of Rs 39crore for its services at a cost plus mark up of 10%. The assessment whensubmitted with the TPO was rejected as the data for 2002-03 and 2003-04 wasused by the assessee for computation and the comparables used by the assesseewere rejected on the grounds that they had substantially related partytransactions and some of the companies were functionally different.
The assessee submitted that since for transfer pricing sufficient adjustmentswith regards to the risk faced by independent enterprises, since in the presentcase the is in a kind of contractual transaction wherein it has been makingprofits year after year and does not have to incur any losses due toultilization of capacity or insufficient business subsequent effect has beencontemplated and proper adjustments have been made.
The court however held that risk adjustments have to be made only in certaincases depending on the facts and circumstances of the cases, a thumb rulecannot be applied in such cases. Also with regards to the facts of the instantcase it was held that the previous year data was not relevant.