AI Drafter 
TaxTMI 
TaxTMI 
2018 (8) TMI 1942
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.... In not furnishing, by way of show cause notice, the material or document 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 f....
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....ional 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 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 o....
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....Maruti Suzuki India Ltd. vs. ACIT [2010] 328 ITR 210 (Delhi.). 5. On the contrary, the ld. DR for the Revenue submits that the submission made on behalf of the assessee is factually incorrect. 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....
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....ch he was required to furnished by a notice issued under sub-section (3) of 92D. The Assessing Officer may proceed to determine ALP in relation to said international transaction in accordance with 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....
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.... and section 92A(2) shall be read independently; Hon'ble ITAT held that the AE relationship can be brought about u/s 92A(1) de'hors section 92A(2). The Hon'ble ITAT has not rejected the submission 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 ....
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....tly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other 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....
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....atisfied then the two enterprises for the purpose of section 92B to 92E of the Act will be treated as AEs. Sub Sec. (2) of section 92A is a deeming fiction and therefore, it expends/enlarges the scope and meaning of expression "AE" provided under s.s. (1) of section 92A. Since s.s. (2) is a deeming fiction, 10 ITA 3749/Mum/14 therefore, it 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 managem....
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....required to be treated as 'associated enterprise'. Interestingly even as definition of 'associated enterprises' has crucial references to 'participation in management or control or capital' at some places, the precise scope of this expression has not been defined under the provisions of the Income- tax Act, and it has not come up for judicial 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 o....
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....the situations of more than two associated enterprises envisaged in section 92A(1)(b). In this light, let us analyse the situation before us. The manufacture of goods is carried out by the CBU Konkan Agro, which is controlled by the assessee inasmuch as the CBU is wholly dependent on the use of trade- marks in respect of which the assessee has exclusive rights. This relationship 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 ....
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..... has recorded the facts regarding the position of the Management/Director in the Kaybee Exim Pte Limited, Singapore as under:- Sr No. Name (as per ROC filing) Date of appointment (as per filing) Designation in Kaybeen Pvt. Ltd. (as per ROC filing) Designation in Grupokaybee as www.kaybeegroup 1 Shri Vikram Kumar Chand 07.05.1993 Chairman cum Managing Director Managing Director 2 Shri Deepak Atmaram 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....
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....opt the rate of 2% to compute the service income on yarn has not complied with the provision of section 92C. 16. On the other hand, the ld. DR for the Revenue submits that the assessee has not furnished the details during the course of assessment proceeding. Under those circumstances, the Assessing Officer was constraint to take related party transaction as a base to bench marking international transaction. However, as per provision of bench mark international transaction, the unrelated party transaction has to be taken 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. ....