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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Direct Tax Laws & International Taxation

Case: Veda Tech India Pvt Ltd purchased services from its Singapore parent, Veda Global Pte Ltd, for Rs 9 crore. An independent comparable price range under the arm's length analysis (using the most appropriate method) gives prices of Rs 7.6 crore, 7.8 crore, 8.0 crore, 8.2 crore, and 8.4 crore. The Finance Act provides that the arm's length price is the arithmetic mean where there are fewer than 6 comparables, and the tolerance range is 1% for non-wholesale traders (as applicable). What is the transfer pricing adjustment?

The arithmetic mean of the five comparables is Rs 8.0 crore. The price paid of Rs 9 crore exceeds this by more than the tolerance, so the adjustment is Rs 1.0 crore.

  1. ARs 1.0 crore
  2. BRs 0.8 croreCorrect
  3. CRs 0.6 crore
  4. DNo adjustment, because the price is within the tolerance range

Explanation

With five comparables, the ALP is the arithmetic mean: (7.6+7.8+8.0+8.2+8.4)/5 = Rs 8.0 crore. Price paid is Rs 9 crore, and 1% tolerance of 9 crore is Rs 0.09 crore, so the variation exceeds tolerance. Adjustment = 9.0 - 8.0 = Rs 1.0 crore, so option 2 is wrong.

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