Country-by-country report due date extended to 31 March 2018

In India, Finance Act, 2016 added section 286 of the Income-tax Act, 1961 and includes rules for certain multinational corporate groups filing a country-by-country (CbC) report. A provision of section 286 provides that the due date for filing the CbC report is to be tied to the “due date” for filing the income tax return for the relevant accounting year—that is, a due date of 30 November.

Financial year (FY) 2016-17 will be the first reporting year for filing a CbC report. The Central Board of Direct Taxes, being aware of potential hardships encountered by taxpayers in preparing their first CbC report, issued a circular on 25 October 2017 that extends the due date for filing the first CbC report to 31 March 2018.

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Principal Commissioner of Income Tax v. Interra Infotech (India ) Pvt. Ltd.

August 25, 2017

The High Court upheld ITAT order rejecting adoption of comparables by AO for preceding AY.

The assesssee is engaged in the business of development of computer software. The AO observed that there were no abnormal changes in the facts and circumstances of the instant case of AY 09-10 from assessee’s own case of AY2008-09. Therefore  the AO did not make any reference to the TPO and proceeded to apply those comparables which were adopted for preceding AY.

CIT (A) ruled in favour of the assessee .  ITAT also ruled in favour of the assesse holding that the AO was not justified in adopting comparables selected for AY2008-09 without undertaking proper analysis.

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Mitsubishi Corporation India vs DCIT, Circle- 16(2), New Delhi

( ITAT New Delhi) (22 September, 2017)

The taxpayer is a part of Sogo Sosha group which play an important role in linking buyers and sellers for products ranging from bulk commodities to specialized equipments. Mitsubishi Corporation India Private Limited (MCIPL) is a wholly owned subsidiary of Mitsubishi Corporation (MC) and was incorporated in 1996. The company is a part of Sogo Shosha function performed by MC as a whole. Its equity share capital is held by MC and Mitsubishi Australia Limited.

Accordingly, MC Group entitles constituted MCIPL’s AEs by virtue of common control and capital. Major business groups that MCIPL deals in are Chemical, Energy, Metal Machinery Living Essentials and Industrial Finance, Logistics & Development Group.

Within these groups, Mitsubishi India deals in various commodities. However, majority of operations of the company are from “Chemicals” group.

Assessing Officer noticed from the financials of the assessee that the assessee has made purchases from AEs without deducting tax at source in compliance to the provisions contained u/s 195 of the Act.

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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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