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ALP of Slump Sale Can be Based on Valuation Report Under the CUP Method
The Bangalore Bench of the Income-tax Appellate Tribunal ("Tribunal") has delivered an important ruling in the case of Intel Asia Electronics Inc observing that the written down value of the assets under the Companies Act, 1956 is not an acceptable basis to compute arm's length price ("ALP") in a slump sale situation. It has held that the value determined by a registered valuer can be adopted for the purpose of determining ALP. However, if such valuation report is not reliable, the written down value as per the Income-tax Act, 1961 ("Act") could be adopted as the basis for determination of ALP. Taxand India explores the facts of the case behind this important ruling.
This is an important ruling in the context of benchmarking of transactions such as transfer of business, intangibles, used assets etc, where it could be difficult to find appropriate comparable transactions. The Tribunal has in the past held that the taxpayers had to necessarily benchmark all international transactions with associated enterprises under one of the prescribed five methods. In practice however, taxpayers often rely on a valuation report or the written down value as per the books as a benchmark under the CUP method. This ruling endorses the appropriateness of an expert valuation report as a comparable. However, it has to be ensured that such report is based on sound reasoning and is capable of being accepted as reliable. Where book values are taken as comparable, such as in the case of transfer of used assets, the reliability of such book values should also be examined in light of the present ruling.
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