TaxTMI 
TaxTMI 
2018 (8) TMI 1942
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....nt or information on which he relied for invoking section 92C(3) of the Act and for computing the arm's length price thereunder. 2. The Ld. CIT(A) grossly erred, in fact and in law, in upholding that M/s. Kaybee Exim Pte Ltd, Singapore ('KEPTL') is an Associated Enterprise ('AE') of the appellant within the meaning of that term under section 92A of the Act. 3. The Ld. CIT(A) grossly erred, in fact and in law. in upholding the arm's length brokerage rate for yarn product at 2% as determined by Ld. AO as against 0.75% actually received by the appellant. (a) The Ld. CIT(A) grossly erred in not appreciating that the comparable instance of 2% brokerage rate adopted by Ld. AO cannot be taken as a comparable instance because it is appellant's own alleged international transaction with its alleged AE and hence it does not represent an arm's length price as defined u/s 92F(ii) of the Act. (b) The Ld. CIT(A) grossly erred in rejecting the market driven uncontrolled comparable instances of yarn brokerage rates ranging from 0.5% to 0.75% of Shipment value furnished by the Appellant. 4. The Ld. CIT(A) grossly erred, in fact and in law, in upholding the ....
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....jecting the market driven uncontrolled comparable instances of yarn brokerage rates ranging from 0.5% to 0.75% of shipment value furnished by the Appellant. 4. The Ld. CIT(A) grossly erred, in fact and in law, in not allowing the benefit of arm's length range of +1/-5% provided in proviso to section 92C(2) of Act. 3. Brief facts of the case are that the assessee is a company incorporated in India and engaged in the business of providing assistance in sources and procurement of yard textile etc. from sources within India and outside India to KB Exim Pte. Ltd., (KEPTL) Singapore. The assessee filed its return of income for Assessment Year 2010-11 on 11.02.2011 declaring total income of Rs. 2,45,672/- as per normal provision of Income-tax Act after setting off of brought forward losses. The assessee has shown book profit under section 115JB at Rs. 27,99,999/- which was treated as deemed total income and taxes were paid accordingly. The return of income was selected for scrutiny and assessment order under section 143(3) was passed on 12.03.2013 assessing the total income at Rs. 3,10,43,784/-. The Assessing Officer while passing the assessment order made the addition of Rs. 2.44 ....
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....ect. Show-cause notice was issued by Assessing Officer vide notice dated 08.08.2012 and again on 30.12.2013. The assessee chose not to reply the show-cause notice. The Assessing Officer has no option except to proceed on the basis of material available on record. The assessee who has not responding to the notice of Assessing Officer has no right to raise such technical objection. In the rejoinder submission the ld. AR of the assessee submits that the AO has not issued any show-cause notice for TP Adjustment as per section 92C(3) for AY 2010-11 and 2011-12. The notices referred and relied by ld. DR are notice under section 142(1). The AO has no reason to presume that the assessee has no objection to follow the assessment order of AY 2008-09 for making adjustment for AY 2010-11 and 2011-12. 6. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that first notice under section 142(1) was issued to the assessee on 20.06.2012. The hearing was fixed on 05.07.2012. On 05.07.2012 no reply or details were furnished in respect to the notice issued on 20.06.2012, rather the assessee is requested for adjournment. Other no....
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....h sub-section (1) and (2). However, as per the proviso attached to subsection (3) of section 92C , the Assessing Officer by serving a notice shall provide opportunity to show-cause, on date and time to be specified in the notice, why ALP should not be determined on the basis of material or information in possession of Assessing Officer. The Assessing Officer in its notice, though issued under section 142(1) has clearly made a show-cause as to why ALP should not be computed in assessee's case. The assessee failed to respond the said notice, when the assessee failed to respond to the notices issued by Assessing Officer, the Assessing Officer levied penalty under section 271(b). In our view, the Assessing Officer has given sufficient notice in conformity with the proviso of section 92C(3). It is the assessee who had not responded and now taken a plea that a mandatory notice as required under section 92C(3) is not served upon the assessee. 8. The case law relied by ld. DR for the Revenue are not applicable on the facts of the present case. With utmost regard to the decision of Hon'ble Delhi High Court in Moser Bear India Ltd. vs. ACIT (supra) and in Maruti Suzuki India Ltd. vs. ACIT (....
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....mission of the Appellant that conditions of section 92A(2) are not fulfilled in the Appellant's case. The Hon'ble ITAT referred to and relied on the judgment of coordinate bench in the case of Diageo India (P.) Ltd. Vis Deputy Commissioner of Income-Tax, Circle 7(3), Mumbai [142 TT J 287, Mumbai]. The Appellant submits that in the case of Diageo India (P.) Ltd. (Supra) the issue for adjudication before the Hon'ble ITAT was not whether section 92A(2) and section 92A(1) shall be read together and only when conditions of both section 92A(1) and section 92A(2) are satisfied then only AE relationship comes into existence. In light of aforesaid, it is respectfully submitted that the view taken by Hon'ble ITAT in the Appellant's case for AY 2008-09 in ITA No. 3749/Mum/2014 needs reconsideration and is no longer good law in view of subsequent decisions. 11. The ld. AR of the assessee further reiterated that assessee is not AE of KEP TL within the meaning of section 92A as assessee's case does not fall within sub-section (2) of section 92A. In support of his submission, the ld. AR of the assessee relied upon the decision PCIT vs. Veer Gems 83 taxmann.com 271 (Gujarat), ....
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....her enterprise. (2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,-- (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty- six per cent of the voting power in each of such enterprises; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or (d) one enterprise guarantees not less than ten per cent of the total borrowings of the other 9 ITA 3749/Mum/14 enterprise; or (e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or (f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed ....
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....t can be applied only in the specific facts of the case where any of the conditions stipulated in the clauses of this sub section are fulfilled. It has no general application in respect of the meaning "AE". Even otherwise, s.s. (1) of section 92A does not begun with the subjective clause "subject to s.s. (2)". The ld. Sr. counsel for the assessee has referred and placed reliance on the Memorandum explaining the provisions of the Finance Bill, 2002 whereby s.s (2) of section 92A has been amended and the clarification is provided as under:- "The existing provisions contained in section 92A of the Income-tax Act to provide as to when two enterprises shall be deemed to be associated enterprises. . It is proposed to amend sub-section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled." We have already discussed that s.s. (2) is a deeming fiction and, therefore, the con....
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.... adjudication either. This expression has been used in Article 9(1 of OECD and UN model conventions, but we find no assistance from the OECD and UN commentaries either. All that the OECD commentary says on the scope of this expression is that it refers to "parent and subsidiary companies and companies under common control". The true test of associated enterprise thus is control by one enterprise over the other, or control of two or more associated enterprises by a common interests, and such a control is essentially an effective control in decision making process. 11. In our considered view, therefore, the definition of associated enterprises in section 92A( 1 )(a) and (b ) is, what can be termed as, basic rule. In plain terms, the basic rule is that when one enterprise participates in the control or management or capital of the other enterprise (directly or indirectly or through one or more intermediaries) or when persons participating (directly or indirectly or through one or more intermediaries) in control or management or capital of two or more enterprises are the same, the enterprises are said to be associated enterprise. The expression used in the statute is 'participati....
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....onship meets the test of de facto control on decision making as set out in section 92A(2)(g). The assessee in turn, as evident from information in Form 3CEB, is controlled, by way of equity participation, by Diageo PLC which also similarly controls other entities in the Diageo group, including the entities from which CBU has imported the raw materials. Diageo PLC thus, through the assessee as an intermediary, controls the CBU as also the Diageo group entities from which the CBU has imported raw materials. Clearly, therefore, the assessee, as also the CBU and its Diageo group supplier of raw materials are associated enterprises, and de facto all these enterprises are controlled, directly or indirectly or through intermediaries, by the same person i.e. Diageo PLC. In this view of the matter, as also bearing in mind entirety of the case, the relationship of AEs exist between the assessee, the CBU and Diego group entities from which raw materials were purchased by the CBU. In any case, since the costs of all the raw materials is picked up by the assessee for all effective purposes. the transaction is actually between the assessee and the Diageo group concerns supplying the raw material....
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....aram Gurnami 07.05.1993 Director Director 3 Shri Govind Karunakaran 19.02.1996 Director Chief Operating Officer 4 kShri Nagendra Kumar Rallaoalli 19.02.1996 Director Finance Director 5 Shri Suresh Cahnd Gupa 18.08.1997 Director -- There is no denial of the fact that Mr. Govind Karunakaran is Director and 99.9% shareholder of the assessee company and also is a Director and Chief Operating Officer of Kaybee Exim Pte Limited, Singapore. Therefore, Mr. Govind Karunakaran is not only participates in management of both the companies by he is holding the key position in the management of Kaybee Exim Pte Limited, Singapore and is part of decision making process of the said company since 1996. Shri Govind Karunakaran is a common director in both the company and participating in the management of both the companies not for the name sake but he is holding the key position in taking decision being a Chief Operating Officer of Kaybee Exim Pte Limited, Singapore and almost the entire shareholding of the assessee company, therefore, the condition of one enterprise participates directly or indirectly or through one or more intermediaries in its manage....
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....ken as a base. The ld. DR for the revenue submits that the case may be restored to the file of Assessing Officer to bench mark the international transaction base on unrelated transaction. In support of his submission, the ld. DR for the revenue relied upon the decision of Chennai Tribunal in case of M/s. SCM Microsystems (India) Pvt. Ltd. (ITA No. 774/Mds/2011. 17. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that the Assessing Officer has not computed the ALP by adopting the method prescribed under section 92C(1). The Assessing Officer relied upon the order of Assessment Year 2008-09. The Assessing Officer has not made any attempt to select unrelated party transaction for making a base to bench marking international transaction. The Assessing Officer relied solely on the order of Assessment Year 2008-09 on his observation that no details was furnished by assessee despite repeated notices. Considering the factual matrix of the case as the Assessing Officer has not adopted the method prescribed under section 92C(1), therefore, we deem it appropriate to restore this ground of appeal to the file of Assessi....