KODAK INDIA PVT LTD v ACIT (2013) 155 TTJ 697 (Mum ITAT)

The Tribunal rejected the action of the TPO of computing ALP by allocating the consideration received on sale of business on the basis of revenue ratio on the ground that it is not prescribed method and no seventh method could be adopted by the TPO.


The taxpayer sold its medical – imaging business to Carestream Health India Pvt. Ltd. (Carestream India) for USD 13.543 million. The taxpayer filed its return of income but did not disclose this transaction as international transaction.

During the course of assessment proceedings, the tax department concluded that the sale transaction of imaging business by the taxpayer to Carestream India was pursuant to a larger sale transaction, on global basis, wherein, holding company of taxpayer sold its imaging business to Onex Healthcare Inc. (now Carestream Inc.)

The TPO concluded that the sale transaction is a deemed international transaction as per the provisions of s 92B(2). While computing the ALP, the TPO did not apply any of the prescribed methods but computed the ALP on the ratio of revenue. The TPO determined the ALP, based on the worldwide revenue break up amongst countries, and concluded that India accounted for 1.4 per cent thereof, which came to USD 32.9 million. The TPO therefore, allocated further USD 19.36 million, being the difference of USD 32.9 million and USD 13.54 million, received by the taxpayer as the sale consideration and made the TP adjustment of Rs 79.96 crore.

The DRP upheld the TP addition. The taxpayer filed an appeal to ITAT.


Referring to s 92C(1), the ITAT held that by the use of the word ‘shall’, for computing the ALP by adopting one of the following methods, the legislature has cast an embargo that no seventh method could be adopted by the TPO for computing the ALP. The ITAT therefore held that the method adopted (being revenue ratio of India vis-à-vis global revenue) by the tax department in the instant case is not sustainable.

With respect to the request of the DR that the issue be restored to the TPO, the ITAT observed that methods, as prescribed by the legislature are mandatory, not directory. When mandatory provision is either superseded or ignored, it straightaway affects the jurisdiction. The ITAT observed that since the TPO did not adhere to the prescribed methods, another innings to rectify the mistake cannot be allowed.

In appeal before HC [2016] 288 CTR 46 (Bombay HC), the tax department did not challenge the finding of the ITAT that TPO has not followed the prescribed method.

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