Associated enterprise test failed where no qualifying control or interest link existed, sustaining deletion of transfer pricing adjustment.

The Tribunal held that the assessee and its foreign supplier were not associated enterprises under section 92A because the Revenue's relied-upon clauses did not fit the facts: the supplier merely purchased rough diamonds for onward supply, and the record did not show the required control, shareholding, or other qualifying interest relationship between the two partnership firms. As transfer pricing provisions could not be invoked without such a relationship, the arm's length price adjustment made under section 92CA(3) was deleted and that deletion was sustained in favour of the assessee.

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Issues: Whether the assessee and its foreign supplier were associated enterprises within the meaning of section 92A of the Income-tax Act, 1961, and whether the arm's length price adjustment made under section 92CA(3) was liable to be deleted.

Analysis: The Tribunal had examined the clauses of section 92A(2) relied upon by the Revenue and found them inapplicable. The supplier did not manufacture or process goods and merely purchased rough diamonds for onward supply. Both concerns were partnership firms, and the record did not establish the kind of control or qualifying share/interest relationship required by the invoked clauses. On that basis, the Tribunal held that the two entities were not associated enterprises, so the transfer pricing machinery could not be applied.

Conclusion: The finding that the parties were not associated enterprises was upheld, and the deletion of the arm's length price adjustment was sustained in favour of the assessee.

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