India: Taxpayer allowed to change from TNMM to CUP during proceedings

Most appropriate method in India

The Delhi Bench of the Income-tax Appellate Tribunal upheld the use of the Comparable Uncontrolled Price (CUP) method as the most appropriate method.

Related content

The tribunal further held that merely because the taxpayer had used the Transactional Net Margin Method (TNMM) in its transfer pricing report did not bar the taxpayer from change to use the CUP method during the transfer pricing proceedings, provided that reasonable data was available for comparability purposes. 

The case is: Liugong India Private Ltd. v. ACIT (ITA No. 1482/Del/2015)


The taxpayer is the distributor for sales within India and South Asia of heavy earth-moving equipment and spare parts manufactured by a foreign related entity. The taxpayer’s international transactions, thus, included purchases of machinery and spare parts and the receipt of commission income from its related entity. In its transfer pricing report, the taxpayer selected the Transactional Net Margin Method (TNMM) as the most appropriate method, and selected the net profit on sales of (-)2.12% as the profit level indicator.

On audit, the Transfer Pricing Officer rejected one of the taxpayer’s comparables and introduce 12 more comparables and thus, using 13 comparable companies, reached a 20.81% finding to propose a transfer pricing adjustment. During the course of the transfer pricing proceedings, the taxpayer sought to change its method from TNMM to the CUP method. Following administrative appeals by the taxpayer, the taxpayer filed for review by the tribunal which concluded that when comparables are available, the CUP method is the best method to use in computing the arm’s length price.

In this matter, the tribunal determined that the CUP method was the most appropriate method. Tribunal noted that merely because the taxpayer adopted the TNMM as the most appropriate method in its transfer pricing study did not prevent the taxpayer from applying the CUP method if there was reasonable data available for a comparability analysis.

The tribunal also emphasized the need for making accurate adjustments to eliminate material factors (including geographical differences) that may affect price, and that may include adjustments of freight and other relevant expenses to arrive at the free on board (FOB) value from the cost, insurance and freight values, cost, or the profit arising from the international transactions.


Read an August 2016 report [PDF 338 KB] prepared by the KPMG member firm in India: CUP method accepted for purchase of heavy earthmoving machinery and change of method by the taxpayer during TP assessment proceedings upheld

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG's new digital platform