In the context of sale of the taxpayer’s PE as a ‘going concern’ to the AE and where no similar transactions in an uncontrolled situation to compare are available, The ITAT observed that the valuation determined by the registered valuer could be the most appropriate means under the CUP method. However, the ITAT finally directed to apply the depreciation rates as provided by the Income-Tax Act on the ground that they are more dynamic and registered valuer report was arbitrary.
Facts
The taxpayer was a foreign company having a branch office in India. The taxpayer also had an AE – M/s Intel Technologies India Pvt. Ltd. (ITIPL). The taxpayer took a decision to close down its branch office and transfer all its assets and liabilities to ITIPL as a going concern, for a consideration to be determined by the difference between the value of assets and liabilities in the books of the taxpayer. The taxpayer adopted CUP method as MAM and justified its ALP on the basis of valuation report obtained from registered valuer.
The tax department however rejected the valuation report of registered valuer (Chartered Engineer) on the ground that the same is arbitrary and erroneous. The tax department took a view that since entire business of PE in India was transferred to AE, the best method would be to adopt the net book value. The TP adjustment was accordingly made.
The CIT(A) confirmed the TP addition. The taxpayer filed an appeal to the ITAT.
Decision
The ITAT observed that under CUP method the uncontrolled transaction should reflect goods of a similar type, quantity and quality as between the associate enterprises and relate to transactions taking place at a similar time and stage with similar conditions applying. The ITAT observed that in the instant case it was an isolated transaction of sale of the taxpayer’s PE as a ‘going concern’ to the AE and, therefore, there were no similar transactions in an uncontrolled situation to compare with the controlled situation. The ITAT therefore held that in order to determine the actual market value, in the absence any such identical transaction/transactions, the valuation determined by the registered valuer could be the most appropriate means under the CUP method.
The ITAT rejected the valuation report of registered valuer on the ground that it is arbitrary. The ITAT observed that in the present case the only option available was to adopt the value of the assets sold as per the written down value arrived at by following the provisions of the Company Law or Income-Tax Law. The ITAT finally concluded that the only reasonable approach for valuation is to value the assets by applying the depreciation rates as provided by the Income-Tax Act, since it is more dynamic.