Arm's length pricing limits further profit attribution to an alleged permanent establishment on the same facts.

Where transactions between a foreign enterprise and its Indian associated enterprise are accepted at arm's length, no further profit attribution should be made to an alleged dependent agent or fixed place PE on the same functions and risks. The Tribunal relied on earlier coordinate bench rulings in the assessee's own case and noted that the PE allegation lacked cogent basis. On that settled position, arm's length remuneration to the Indian entity was treated as exhausting additional attribution on the same facts, and the PE-based addition was deleted.

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Issues: Whether, in the assessee's case, any further attribution of profits could be made to the alleged permanent establishment in India when the transactions with the Indian associated enterprise had been accepted at arm's length.

Analysis: The assessment and DRP directions proceeded on the basis that the Indian associated enterprise constituted a dependent agent and fixed place permanent establishment. The Tribunal noted that in the assessee's own earlier years the coordinate benches had already held that once transfer pricing analysis in respect of the Indian associated enterprise had been undertaken and the transactions were accepted at arm's length, no further profits could be attributed to the alleged permanent establishment. The Tribunal also relied on the earlier findings that the PE allegation lacked cogent basis and that the issue stood covered by the settled position that arm's length remuneration to the Indian entity exhausts further attribution on the same facts.

Conclusion: The addition on account of attribution to the alleged permanent establishment was deleted and the issue was decided in favour of the assessee.

Ratio Decidendi: Where the transactions between a foreign enterprise and its Indian associated enterprise are accepted at arm's length, no further profit attribution can be made to an alleged permanent establishment on the same functions and risks.

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