2010 (10) TMI 21

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....n, the key question which arose for determination before the Authorities below was, whether the assessee-Company and it's service provider [GSKCH] are related Companies in terms of Section 40A(2) of the Income Tax Act, 1961? If the answer to the said question was to be in the affirmative, then the next question on merits which arose for determination was, whether allocation of cross-charges by the assessee was the correct test applied by the assessee? In other words, whether allocation of cross-charges should be allowed or disallowed by the Department? The Authorities below have recorded a concurrent finding that the said two Companies are not related Companies under the said section. Being aggrieved by the said decision, the matter has com....

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.... one of the related Companies is loss making and the other is profit making and profit is shifted to the loss making concern; and   [ii] If there are different rates for two related units [on account of different status, area based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of tax arbitrage. For example, sale of goods or services from non-SEZ area [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less profit taxable and non-taxable division will have a higher profit exemption. All these complications arise in cases where fair market value is required to be assigned to the transactions between related parties i....