Cargill India has won a potentially far reaching transfer pricing battle in the country's Income Tax Appellate Tribunal. The tribunal rejected multiple tax authority demands for documents from the company. It also overturned a penalty notice which the Income Tax Department issued when the documents which were supplied were deemed insufficient.
The ruling is expected to affect which company documents transfer pricing officers can demand and any penalties which could be levied for apparent failure to supply.
The food and risk management company had appealed against the penalty which a transfer pricing officer had imposed after Cargill, he said, had failed to supply the documents which he had requested.
Vispi Patel, executive director at PricewaterhouseCoopers in Delhi, said: "The tax authorities in India initiate penalty proceedings casually and mechanically in certain cases on account of procedural delay in compliance with the transfer pricing law.
"They do this without considering the fact that transfer pricing law is evolving in India and we are in the fourth round of transfer pricing audits. So, this ruling comes as a welcome relief to taxpayers, as it provides some assurance to the taxpayers that the powers conferred on the revenue authorities would be judiciously exercised."
During the financial year 2002/2003, Cargill had conducted various international transactions with related enterprises. In 2005, a tax authority transfer pricing officer wrote to the company to request three sets of documents: the balance sheet and profit and loss account for 2002-2003, along with a copy of the audit report and tax audit report filed with the return; a statement of computation of income filed with the return and various items required under the Income Tax Act 1961.
In November 2005, the company filed these documents but the tax officer requested more material. This second batch of documents did not meet his requirements and a penalty was issued.
The tribunal said that the scope of documents which could - potentially - be demanded under the present law is voluminous and far greater than any tax officer would need to make an accurate determination.
It outlined the scope of the information which could be demanded by the tax authorities and laid down a guide as to when such information could be requested.
