WDV as Reflected in Books of AE Can’t Be Considered While Computing ALP of Assets Purchased From AE | HC

Case Details: PCIT v. Sarens Heavy Lift India (P.) Ltd. - [2024] 163 taxmann.com 447 (Delhi)

Judiciary and Counsel Details

• Yashwant Varma & Purushaindra Kumar Kaurav, JJ.
• Indruj Singh Rai, Sr. SC, Sanjeev Menon, Rahul Singh, Jr. SCs & Anirudh, Adv. for the Petitioner. 
• Ved Jain, Nischay Kantoor & Ms Soniya Dodeja, Advs. for the Respondent.

Facts of the Case

The assessee, Sarens Heavy Lift India Pvt. Ltd., was engaged in the business of providing heavy lifting and transportation services. During the year under consideration, the assessee entered into a purchase transaction of cranes with its associated enterprise (AE). The assessee determined the arm’s length price (ALP) of the cranes by using the cranes’ price as derived from a Chartered Engineer’s valuation report. The case was referred to the Transfer Pricing Officer (TPO).

While computing the ALP of cranes, the Transfer Pricing Officer (TPO) considered the Written Down Value (WDV) of the assets as reflected in the books. The Tribunal rejected the method adopted by the TPO. The matter reached the Delhi High Court.

High Court Held

The Delhi High Court held that the WDV methodology appears to have been rejected, bearing in mind the undisputed mandate of Rule 10B of the Income Tax Rules, 1962, which requires the identification of ALP from the point of view of the uncontrolled price method as being referable to a comparable uncontrolled transaction.

The expression “uncontrolled transaction” has been defined in Rule 10A(ab) of the Rules as being a transaction between enterprises other than associate enterprises. Admittedly, the equipment had been purchased from the AE. Resort to WDV would have thus fallen foul of this fundamental precept. In any case and in the considered opinion, the WDV, as may be reflected in the books, would not be liable to be considered while answering the issue of ALP.