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.
( 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.
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.
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.
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.
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.
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.