2008 (9) TMI 418 - AT - Income Tax

Tribunal Emphasizes Clarity in Purchase Details for Section 92 Compliance

The Tribunal allowed the appeal for statistical purposes, emphasizing the need for clarity on the purchase details to determine the application of section ... Tax Avoidance Issues:- Addition of Rs. 1,79,29,096 under section 92 of the IT Act, 1961 based on the purchase price payable to the parent company.Analysis:Issue 1: Addition under Section 92 of the IT ActThe main issue in this case revolves around the addition of Rs. 1,79,29,096 under section 92 of the IT Act, 1961. The Assessing Officer (AO) invoked section 92 based on the close connection between the resident and non-resident parent company, suspecting that the transactions were arranged to result in no profits or less than ordinary profits for the resident. The AO added 15% of the net import value from the parent company to the assessee's income. The CIT(A) upheld the addition, finding the explanation for the gross loss unconvincing and invoking section 92 justified. The appellant argued that the transactions were not arranged to earn less than ordinary profits, citing unexpected sales-tax liabilities and subsequent amendments to section 92. The appellant contended that the transaction with the parent company was at arm's length, supported by the Transfer Pricing Officer's findings. The Tribunal found crucial discrepancies in the facts presented, especially regarding the timing of purchases in relation to the receipt of the purchase order and awareness of sales-tax liabilities. The Tribunal set aside the matter to the AO, directing the assessee to provide detailed purchase information for further assessment under section 92.In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for clarity on the purchase details to determine the application of section 92 accurately. The case highlights the importance of establishing the arm's length nature of transactions with associated enterprises and the significance of providing clear and timely information for tax assessments under section 92 of the IT Act, 1961.