Transfer Pricing News

berpublished on 31st October 2025 I reading time approx. 2 minutes

Important Transfer Pricing Updates and Judicial Rulings

1.TPO cannot disregard the valuation methodology prescribed for slump sale under Section 50B and substitute it with another method:

In a recent judgement by the Hon’ble Chennai Income Tax Appellate Tribunal (‘ITAT’) in the case of Schneider Electric Systems India Pvt Ltd [ITA Nos.: 2754, 2755, 2756 & 2757/Chny/2024], held that the jurisdiction of the Transfer Pricing Officer (‘TPO’) is restricted to determining the arm’s length price (‘ALP’) in accordance with the provisions of Section 92C(3) and cannot extend to other provisions of the Income-tax Act, 1961 (‘the Act’).

In the captioned case, the taxpayer had sold one of its business divisions to a third-party buyer pursuant to a global transfer agreement entered into by its group entity. However, the pricing and terms of sale in India were determined independently in accordance with the scheme of Section 50B, based on a Discounted Cash Flow (‘DCF’) valuation.

During transfer pricing assessment proceedings, the TPO disregarded the DCF method and the certified valuation report furnished by the taxpayer, and instead substituted the book value of land and building with the stamp duty value prescribed under Section 50C of the Act.

In subsequent appeals, the Commissioner of Income Tax (Appeals) ruled in favour of the taxpayer, and thereafter in current appeal, the Hon’ble ITAT upheld the CIT(A)’s decision. The Tribunal held that the TPO’s substitution of the DCF valuation was contrary to the provisions of the Act, and that valuation as per the DCF method, as certified in Form 3CEA by the accountant under Section 50B, must be accepted as being at arm’s length.

Overall, this ruling reinforces the principle that for ALP determination in a ‘slump sale’ arrangement, the valuation report prepared under Section 50B forms an integral basis for justifying the ALP and can be relied upon by taxpayers.

2. Cost of ‘depreciation on goodwill and amortization of non-compete fees’ to be treated as non-operating in nature for operating margin computation:

An important judgement pronounced by Hon’ble Mumbai ITAT in case of Novateur Electrical and Digital Systems Pvt. Ltd. [ITA No’s 944 & 1189/MUM/2020] held that depreciation on goodwill and amortization of non-compete fees are extraordinary items arising from a business acquisition under a slump sale and therefore cannot be treated as part of the taxpayer’s operating expenditure. Accordingly, such items are to be excluded while computing operating margins.

A key factual argument advanced by the taxpayer before the Hon’ble ITAT was that the comparable companies had not incurred similar expenses, thereby reinforcing that, for a like-to-like comparison, these costs must be excluded.

This ruling aligns with the recent decision of the Hon’ble Chennai ITAT in case of Hitachi Solutions India Private Limited [ITA No’s 17 & 1715/CHNY/2024], wherein, the same principle was applied to treat amortization of goodwill as non-operating in nature.

Overall, this ruling provides much needed clarity on treatment of amortization of goodwill and/ or non-compete fees as non-operating items while computing operating margins for transfer pricing comparability and margin computation purposes.

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