CIT vs. Tata Power Solar Systems Ltd |Party not barred in law to withdraw from the list of comparables a company which has been included on account of mistake of fact

(Bombay High Court) Aug 9, 2017

The High Court had to consider two questions of law at the instance of the department:

(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in excluding two comparables viz. Indowind Energy Ltd. and B. F. Utilities Ltd. for determination of Arm’s Length Price (ALP) of international transaction with AEs, when these two comparables were originally included by the assessee company among the comparables?

(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in directing for determination of Arm’s Length Price (ALP) with regard to Sales of Rs.641,49,36,255/made to AEs and not on entire sales of Rs.909,91,45,631?

HELD by the High Court dismissing the appeal:

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ACIT v. Rajratna Metal Industries Ltd.|Foreign exchange fluctuation gain or loss to be included for arm’s length pricing|

(Aug3, 2017)

The Ahmedabad Bench of the Income-tax Appellate Tribunal issued a decision finding, in part, that foreign exchange fluctuation gain or loss was an operating item, and was not to be excluded under the arm’s length price standard.

The taxpayer asserted that foreign exchange fluctuation gain or loss must be treated as operating in nature for the purpose of computing the arm’s length price. The tax department disagreed and proposed a transfer pricing adjustment.

The Tribunal upheld the decision of CIT(A) in treating foreign exchange income/(loss) as an operating item to be included for the purpose of computing ALP as the Income tax department could not present a rebuttal to the judicial pronouncements relied upon by the taxpayer.

India signs OECD pact to plug tax treaty loopholes

New Delhi, June 8, 2017:

India has signed a ground-breaking multilateral BEPS convention that will close loopholes in thousands of tax treaties worldwide. The multilateral instrument was signed by Finance Minister Arun Jaitley at the OECD headquarters in Paris on Wednesday.

The OECD multilateral convention aims to crack down on tax evasion around the world, be it companies or investors, anybody trying to create a structure primarily to avoid or evade taxes.

The convention will modify India’s treaties to curb revenue loss through treaty abuse and BEPS (Base Erosion and Profit Shifting) strategies by ensuring that profits are taxed where substantive economic activities generating the profits are carried out.

It will swiftly implement a series of tax treaty measures to update the existing network of bilateral treaties and reduce opportunities for tax avoidance by multinational enterprises.

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SABIC Innovative Plastics India Pvt Ltd. v. ACIT|Transfer pricing adjustments for intra-group services

5 April 2017

The Ahmedabad Bench of Income-tax Appellate Tribunal deleted a transfer pricing adjustment made by the Transfer Pricing Officer (as subsequently upheld by the Dispute Resolution Panel) concerning a payment for intra-group services made to a related party of the taxpayer. The tribunal rejected the Transfer Pricing Officer’s “nil” (zero) arm’s length price on management services under the comparable uncontrolled price method.

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DDIT v. Nipro Asia Pte Ltd. |Profits attributed to permanent establishment| transfer pricing study rejected

28 February 2017

The Delhi Bench of the Income-tax Appellate Tribunal held that the Assessing Officer correctly sought to apply Rule 10 of the Income-tax Rules, 1962 for purposes of determining the profits attributable to a branch in respect of the marketing activities related to direct sales made by the head office, absent a “correct” transfer pricing study report. The tribunal found 30% of the profits were attributable to the branch for its marketing activities in India.

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Pr.CIT v. Mitsui Prime Advanced Composites India Pvt. Ltd. |Penalty assessment for related-party transactions deleted

14 March 2017

The Delhi High Court agreed with the tribunal’s decision, to remove a penalty imposed on the taxpayer for an alleged concealment of income with respect to certain related-party transactions even though the taxpayer accepted the transfer pricing adjustment. The High Court held that because the taxpayer had entered a new line of business (manufacturing), the taxpayer’s failure to disclose certain benefits and advantages from related-party services could not have triggered the automatic presumptive application of the penalty.

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Hospira Healthcare India Private Limited v. DCIT|Related-party relationship upheld, sales constituted 20% of total sales

15 March 2017

The Chennai Bench of the Income-tax Appellate Tribunal held that under a provision of India’s tax law, “influence” implies dominant influence when “a person who purchased more than 1/5th of the total sales of the taxpayer would have a distinctly dominant influence on the pricing and can exercise a de facto control.” The tribunal, thus, concluded that sales to two customers constituting more than 20% of the taxpayer’s total sales constituted “dominant influence.” The related-party relationship was upheld.

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