Case Details: GE Power Conversation India (P.) Ltd. vs. NFAC - [2024] 163 taxmann.com 718 (Madras)

Judiciary and Counsel Details

• C. Saravanan, J.
• S. Sivaraman for the Petitioner.
• Prabhu Mukunth Arunkumar, Jr. Standing Counsel & B. Ramana Kumar, Sr. Standing Counsel for the Respondent.

Facts of the Case

The petitioner was issued an order under section 143(3) read with 144C(1) proposing to make the transfer pricing adjustment to the total income. The petitioner challenged the Impugned Order before the Madras High Court, contending that although the order stated that such an order was a Draft Assessment, the order was indeed an Assessment Order as it was passed under Section 143(3) read with Section 144B of the Act.

High Court Held

The High Court held that the order under section 92CA(3) and the Assessing Officer (AO) should have ordinarily passed a draft assessment order in terms of Section 144B(1). Instead, in the present case, the order was formatted as an order under Section 143 r.w.s 144B.

The order also stated that it was a draft assessment order. The National Faceless Assessment Centre (NFAC), New Delhi, forwarded the order to the petitioner. A mistake crept in, as the order was formatted electronically by the National Faceless Assessment Centre under the mechanism evolved in Section 144B.

The mistake in formatting the preamble to the order based on a template meant for passing orders under Section 143(3) and Section 144B was not fatal. It will not render the order an assessment order.

The attempt by the Parliament to make an assessment faceless under the Income Tax Act, 1961, up to the appellate stage before the Appellate Commissioner, cannot be scuttled merely because the order formatting was improper. Mistakes that are not fundamental are not fatal to the assessment proceedings initiated. Assessment proceedings cannot be allowed to abate on account of technical glitches in the system-generated orders.

The impugned order was only a “Draft Assessment Order”, as was evident from a reading of the impugned order. It should have been correctly formatted as an Assessment Order in the system. Since the formatting and dissemination of all notices and orders are system-driven, the Assessment cannot be abated.

List of Cases Referred to

• • Vijay Television (P.) Ltd. v. Dispute Resolution Panel, Chennai [2014] 46 taxmann.com 100/225 Taxman 35/369 ITR 113 (Madras) (para 12)
  • Asstt. CIT v. Vijay Television (P.) Ltd. [2018] 95 taxmann.com 101/407 ITR 642 (Madras) (para 13)
  • SHL (India) (P.) Ltd. v. Dy. CIT [2021] 128 taxmann.com 426/282 Taxman 334/438 ITR 317 (Bombay) (para 18)
  • Bekaert Mukand Wire Industries Pvt.Ltd., v. Additional (para 18).

The post Assessment Couldn’t Be Abated if NFAC Forwarded an Assessment Order Instead of Draft Order Due to Technical Glitch appeared first on Taxmann Blog.

Case Details: Computer Sciences Corporation India (P.) Ltd. v. DCIT - [2024] 163 taxmann.com 693 (Hyderabad-Trib.)

Judiciary and Counsel Details

• • K. Narasimha Chary, Judicial Member & Madhusudan Sawdia, Accountant Member
  • Vikram Vijayaraghavan, AR for the Appellant.
  • Kumar Pranav, CIT-DR for the Respondent.

Facts of the Case

The assessee was a private limited company engaged in software development. During the year under consideration, the assessee filed its return of income under the normal provisions of the Income-tax Act and declared book profits under section 115JB of the Act.

The case was selected for scrutiny, and notices were issued to the assessee. The Assessing Officer (AO) completed the assessment under section 143(3) of the Act, determining the total income under the normal provisions of the Act and book profit under section 115JB.

On appeal, CIT(A) consolidated all the grounds of appeal into a single issue and disposed of the appeal. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Hyderabad Tribunal held that the CIT(A) adjudicated the grounds on only one issue, i.e., whether the comparables are valid or not, and dismissed the grounds on all the other issues without considering the merits.

The CIT(A) held that assessee failed to furnish any evidence/documents before him. However, the relevant portion of the order of CIT(A) clearly mentioned that the assessee had filed all the necessary documents and evidence before him.

Accordingly, the Tribunal deemed it appropriate to remit the issue back to the file of the CIT(A) with a direction to look into the facts and decide the issue as per law by giving the assessee an opportunity to be heard.

The post ITAT Remanded Matter as CIT(A) Dismissed All Grounds of Appeal Based on a Single Issue appeared first on Taxmann Blog.

Case Details: PCIT v. Sarens Heavy Lift India (P.) Ltd. - [2024] 163 taxmann.com 447 (Delhi)

Judiciary and Counsel Details

• Yashwant Varma & Purushaindra Kumar Kaurav, JJ.
• Indruj Singh Rai, Sr. SC, Sanjeev Menon, Rahul Singh, Jr. SCs & Anirudh, Adv. for the Petitioner. 
• Ved Jain, Nischay Kantoor & Ms Soniya Dodeja, Advs. for the Respondent.

Facts of the Case

The assessee, Sarens Heavy Lift India Pvt. Ltd., was engaged in the business of providing heavy lifting and transportation services. During the year under consideration, the assessee entered into a purchase transaction of cranes with its associated enterprise (AE). The assessee determined the arm’s length price (ALP) of the cranes by using the cranes’ price as derived from a Chartered Engineer’s valuation report. The case was referred to the Transfer Pricing Officer (TPO).

While computing the ALP of cranes, the Transfer Pricing Officer (TPO) considered the Written Down Value (WDV) of the assets as reflected in the books. The Tribunal rejected the method adopted by the TPO. The matter reached the Delhi High Court.

High Court Held

The Delhi High Court held that the WDV methodology appears to have been rejected, bearing in mind the undisputed mandate of Rule 10B of the Income Tax Rules, 1962, which requires the identification of ALP from the point of view of the uncontrolled price method as being referable to a comparable uncontrolled transaction.

The expression “uncontrolled transaction” has been defined in Rule 10A(ab) of the Rules as being a transaction between enterprises other than associate enterprises. Admittedly, the equipment had been purchased from the AE. Resort to WDV would have thus fallen foul of this fundamental precept. In any case and in the considered opinion, the WDV, as may be reflected in the books, would not be liable to be considered while answering the issue of ALP.

The post WDV as Reflected in Books of AE Can’t Be Considered While Computing ALP of Assets Purchased From AE | HC appeared first on Taxmann Blog.

Case Details: Aldrin Alberto Araujo Soares v. Deputy Commissioner of Income-tax*- [2024] 162 taxmann.com 186 (Bombay)

Judiciary and Counsel Details

• • M.S. Sonak & Valmiki Sa Menezes, JJ.
  • Hanumant D. Naik, Adv. for the Petitioner. 
  • Ms Susan Linhares, Standing Counsel for the Respondent.

Facts of the Case

The assessee filed its return of income for the relevant assessment year, claiming the status of “resident in India” along with the tax audit report as per section 44AB of the Act. Afterwards, the assessee filed a revised return claiming the status of “non-resident” and declaring total income wherein a refund was claimed.

Subsequently, the Assessing Officer (AO) issued a draft order under Section 144C(1). The draft order was passed contending the assessee was a “resident in India” and not a “non-resident” as he claimed in his revised return. Aggrieved by the order, the assessee filed a writ petition to the High Court of Bombay.

High Court Held

The High Court held that unless it was established that the assessee is an “eligible assessee” as per section 144C(15)(b), there was no question of any reference to DRP.

As per section 114C(15)(b), an eligible assessee is defined as any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer passed under section 92CA(3) or any non-resident not being a company, or any foreign company. It was admitted that the assessee is not a person in whose case variation arose due to the order of the Transfer Pricing Officer.

Upon considering the material on record, the AO categorically held that the assessee was a “resident in India” and not a “non-resident”. This was the Department’s finding, and the Department cannot distance itself from it merely because the assessee may have claimed otherwise in his revised returns.

The assessee also accepted that he was a “resident in India” and, based upon such acceptance, submitted that the authorities need not consider his revised return because the same proceeded on an erroneous premise that the assessee was a “non-resident”. Therefore, the assessee cannot now be held as an “eligible assessee” as defined under Section 144C(15) of the IT Act.

Accordingly, if the assessee is not an “eligible assessee”, then there is no question of applying the procedure under Section 144C to the assessee.

List of Cases Referred to

• • Pankaj Extrusion Ltd. v. Asstt. CIT (OSD) [2011] 10 taxmann.com 17/241 CTR 390/198 Taxman 6 (Gujarat) (para 4).

The post NR Not Eligible to Approach DRP if He Was Declared as Resident by AO During Draft Assessment Proceedings appeared first on Taxmann Blog.

Case Details: Principal Commissioner of Income-tax v. Phoenix Comtrade (P.) Ltd. - [2024] 162 taxmann.com 99 (Bombay)

Judiciary and Counsel Details

• • Dr Neela Gokhale & K.R. Shriram, JJ.
  • Suresh Kumar & Dr. Dhanalakshmi Krishnaiyer for the Appellant.
  • Paras S. Savla, Pratik B. Poddar & Harsh R. Shah for the Respondent.

Facts of the Case

The assessee adopted the Resale Price Method (RPM) for the import of coal and the Transactional Net Margin Method (TNMM) for the import of pulses from its Associate Enterprise (AE) to determine the Arms Length Price (ALP). Assessee also exported rice to its AE and followed TNMM to ascertain ALP.

The Transfer Pricing Officer (TPO) collected the details of rice export prices from the Bloomberg database and compared them with the price realized by the assessee with respect to each of the exports. Accordingly, the TPO proposed an addition.

On appeal, the Dispute Resolution Panel (DRP) accepted the assessee’s contention that there were mistakes in the computation made by the TPO. The DRP accepted that the rates prevailing on the date of entering into the agreement should be compared, not the rates that prevailed on the invoice date. Accordingly, rectification was made. ITAT also upheld the order of DRP.

The matter reached before the Bombay High Court.

High Court Held

The High Court held that the TPO searched the Bloomberg database to find the sale price of rice. Without ascertaining or explaining in detail whether the rates were for products exported from India or any other country or specifying whether the rates relate to controlled or uncontrolled transactions or whether they relate to the retail or wholesale market, the TPO proceeded based on the Bloomberg database.

The assessee had even provided the rates accepted by the Indian Customs Department for the export of rice and requested that the same be considered for CUP analysis as it would be more reliable. The assessee also submitted that it realized more price on exports than the rates quoted by the Customs Authorities. The TPO proceeded to fix the ALP, relying on the Bloomberg database that was available to him.

Thus, ITAT rightly directed the Assessing Officer to delete the addition made for TP adjustment.

The post ITAT Justified Rejection of TNMM Method as TPO Considered Rates as on Invoice Date Instead of Agreement Date appeared first on Taxmann Blog.

Case Details: CRM Services India (P.) Ltd. v. DCIT - [2024] 161 taxmann.com 508 (Delhi-Trib.)

Judiciary and Counsel Details

• • Shamim Yahya, Accountant Member & Anubhav Sharma, Judicial Member
  • Ajay Vohra, Sr. Adv., Neeraj Jain, Adv. & Abhishek Aggarwal, AR for the Appellant.
  • Rajesh Kumar, CIT-DR for the Respondent.

Facts of the Case

In the instant case, the Transfer Pricing Officer (TPO) held that the agreement and its addendum, entered by the appellant with its associated enterprise, lack registration and dating, which suggests the addendum is a belated attempt to evade tax liability resulting from earlier Transfer Pricing proceedings.

This forms the crux of the dispute: whether the addendum should be disregarded in establishing the Arm’s Length Price of the transaction.

ITAT Held

The Tribunal held that there is no requirement under the provisions of the Income-tax Act to have an underlying agreement, much less a registered or notarized agreement for undertaking an international transaction with the group companies. The mutual conduct of parties over time is often determinative of actual intentions.

In case of any ambiguity, the conduct is the best evidence to establish the real intention and effect of respective promises. The discrepancies pointed out by the TPO do not have much consequence when the parties do not question the document. Revenue is not alleging the document to be false, but only the intention of execution post facto is questioned.

Accordingly, the Tribunal held that the TPO and DRP both have fallen in error in first rejecting the addendum as a piece of evidence showing the consistency of the conduct and the actual intentions of the parties to the agreement and then making erroneous interpretation of the clauses of the Collaboration Agreement and the Licence Agreement to conclude that the assessee was providing services to the TP USA only and not to third parties for whom TP USA had acted as an intermediary.

List of Cases Referred to

• • CIT v. Motors & General Stores (P.) Ltd. [1967] 66 ITR 692 (SC) (para 15)
  • CIT v. B.M. Kharwar [1969] 72 ITR 603 (SC) (para 15)
  • CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) (para 17)
  • CIT v. Walchand and Co. (P.) Ltd. [1967] 65 ITR 381 (SC) (para 17)
  • J.K. Woollen Mfg. v. CIT [1969] 72 ITR 612 (SC) (para 17)
  • CIT v. Birla Cotton Spinning & Weaving Mills Ltd [1971] 82 ITR 166 (SC) (para 17)
  • Madhav Prasad Jatia v. CIT [1979] 10 CTR 375/118 ITR 200/1 Taxman 477 (SC) (para 17)
  • S.A. Builders Ltd. v. CIT (Appeals) [2006] 206 CTR 631/[2007] 288 ITR 1/158 Taxman 74 (SC) (para 17)
  • CIT v. Bharti Televenture Ltd. [2011] 11 taxmann.com 356/331 ITR 502/200 Taxman 39 (Delhi) (para 17)
  • CIT v. Rockman Cycle Industries (P.) Ltd. [2011] 15 taxmann.com 306/238 CTR 363/331 ITR 401/203 Taxman 302 (Punjab & Haryana) (para 17)
  • CIT v. EKL Appliances Ltd.: ITA No. 1068/2011 (para 17)
  • CIT v. Dalmia Cement (P.) Ltd. [2002] 174 CTR 188/254 ITR 377/121 Taxman 706 (Delhi) (para 17)
  • Vodafone International Holdings B.V. v. Union of India [2012] 17 taxmann.com 202/247 CTR 1/341 ITR 1/204 Taxman 408 (SC) (para 18).

The post No Need for a Registered/Notarized Agreement for Undertaking International Transactions With Group Cos | ITAT appeared first on Taxmann Blog.

Case Details: PCIT v. ITC Infotech India Ltd. - [2024] 159 taxmann.com 323 (Calcutta)

Judiciary and Counsel Details

• • T.S. Sivagnanam & Supratim Bhattacharya, JJ.
  • Ms Smita Das De & Soumen Bhattacharjee, Advs. for the Appellant.
  • J.P. Khaitan, Sr. Adv & Nilanjana Banerjee Pal, Adv. for the Respondent.

Facts of the Case

The instant appeal was filed by the Assessing Officer (AO) under Section 260A of the Income Tax Act, 1961 against the order passed by the Tribunal. AO has raised the following questions of law for consideration:

“Whether the Tribunal was justified in law in not considering the fact that foreign AEs cannot be taken as ‘tested party’ as per Indian Transfer Pricing Regulation in as much as the tested party should be an Indian entity and the level of margin has to be considered for establishing arm’s length comparability?”

High Court Held

The Calcutta High Court held that the issues that arose for consideration had been decided by the Tribunal in favour of the assessee in the assessee’s case in past years. The order passed in favour of the assessee for the assessment years 2005-06, and the High Court has also affirmed 2006-07.

The Tribunal observed that the Indian Transfer Pricing guidelines issued by the Institute of Chartered Accountants of India vide guidance note on report under Section 92E by Institute of Chartered Accountants of India and transfer pricing guidelines issued by OECD do not prohibit associated enterprises to be tested party.

The Tribunal accepted the stand taken by the assessee that the associated enterprises could be selected as a tested party. Accordingly, the finding rendered by the Tribunal was just, proper and legally valid. Thus, the appeal filed by AO was to be dismissed.

List of Cases Reviewed

• • PCIT v. Almatis Alumina (P.) Ltd. [2022] 137 taxmann.com 202/[2022] 286 Taxman 378 (Calcutta) (para 5) followed.

The post No Legal Bar in Selecting Foreign AE as Tested Party for Determining ALP | HC appeared first on Taxmann Blog.

CA Mohit Manav Sharma & CA Mohit Manav Sharma – [2024] 158 taxmann.com 151 (Article)

Birth of Transfer Pricing in India

• India is a globalizing and it depicts rapid increase in the number of transactions, with the foreign countries, by businesses established in India.
• Since the businesses have Multinational Corporations (“MNCs”), hence it also enhances the risks of shifting profit from high tax jurisdiction to no or low tax jurisdiction through inter-group transactions in books at manipulated prices. Thus, it will result into “Tax Arbitrage” for many companies, by executing transactions at their own will.
• In this purview, the concept of Transfer Pricing (“TP”) emerges and TP provisions are introduced in Income Tax Act by introducing Section 92, 92A to 92F vide Finance Act, 2001

To Whom TP Applicable?

On analyzing Section 92, applicability of TP depends upon satisfaction of below setout conditions: –

1. There should be an international transaction* or specified domestic transaction*;
   *Transactions can be of income as well as of expense
2. The transaction should be between two or more Associated Enterprise (“AE”)
3. When two or more AEs enters into mutual agreement or arrangement for allocation or any contribution to any cost or expense or any allowance of expense

Transfer Pricing Glossary

What to do When TP Applicable?

When the TP provisions are applicable in accordance with Chapter X, the transaction shall be computed having regard to its arm’s length price (“ALP”).

Further Section 92E requires to furnish a report i.e. Form 3CEB from a Practicing Chartered Accountant, if any person entered into an international transaction (as defined under Section 92B).

Now the following question arises:

1. Whether TP provisions are only applicable to Resident i.e. Non-Residents are also liable to comply with the TP provisions?
2. Whether Non-Residents are also required to report transactions by filing Form 3CEB?
3. Whether documentation maintained under Section 92D by Indian AE suffice the requirement for NR AE too?
4. Whether there should be any income for application of TP provisions?

Let’s talk about it in ensuing paragraphs!!

Whether TP Provisions are Only Applicable to Resident?

• ‘Resident’ is defined under Section 6, and Non-Resident is the person who is not Resident as per Section 6.
• As per Section 5(2), total income, for the purpose of this Act, of Non-resident includes following: –

1. Income received or deemed to be received in India; or
2. Income accrue or arises or deemed to be accrue or arises from India.

• By combined reading of Section 92 and Section 5(2), it can be established that: –

1. Non-residents are not out of scope of Income Tax Act, 1961 as the income received in India or accrue or arise from India are taxable in India
2. There is not any particular exception, which carves out applicability of TP provisions to non-resident.

Thus, considering the aforementioned legal position, Non-residents are also liable to comply with TP provisions, if they are covered under the ambit of Chapter X (Section 92 to 94B).

Click Here To Read The Full Article

The post [Opinion] All About Form 3CEB by Non-Residents appeared first on Taxmann Blog.

CA Mohit Manav Sharma & Kavita Das – [2024] 158 taxmann.com 59 (Article)

Background and Global History of Safe Harbour

Introduction

The UN TP manual defines Safe Harbour as-

“A provision in the tax laws, regulations or guidelines stating that transactions falling within a certain range will be accepted by the tax authorities without further investigation.”

Safe Harbour Rules (“SH Rules”), in the Transfer Pricing (“TP”) regime, are a set of rules or conditions, which relieve taxpayers from certain obligations, which are generally imposed on the taxpayers by provisions of Chapter X i.e. Transfer Pricing Regulations.

Determination of Arm’s Length Price (“ALP”) is often time-consuming, burdensome and costly, considering an Associated Enterprise (“AE”) has a variety of intra-group transactions. Further, there have been many litigations on TP issues.

Hence, SH Rules provide certainty to taxpayers by ensuring that tax authorities will accept the price charged or paid by taxpayers with a limited scope of verification.

Need of SH Rules

• Difficulties faced by taxpayers in finding comparable for low-value-adding services.
• Significant increase in litigation w.r.t. TP issues.
• Increased amount of confusion w.r.t. determination of ALP in sectors such as KPO Services, R&D Services and certain low value-adding services.
• Burdon of TP compliances on smaller taxpayers or for low-value transactions.

Objectives behind SH Rules

• Provide simplified methods for determining ALP for international transactions by AEs.
• Reduce the number of litigations and compliance cost for eligible taxpayers.
• ‘Administrative Simplicity’ i.e. helps tax authorities to focus on more complex and higher risk areas.
• Providing Certainty that the taxpayer’s transaction value will be accepted by tax authorities.

OECD Guidelines on SH Regulation

Recap to 1995

• The Organization for Economic Co-operation and Development (“OECD”) issued guidelines in relation to SH Regulations.
• However, it was believed that such regulations will have negative impact on the tax revenues of the country.
• Accordingly, the SH was not acceptable at that point of time.
• Still, many countries implemented SH Rules and used them for limited type of transactions which were having less complications.

May 2013

• After realizing how SH Rules affected the nations who adopted them, OECD concluded that, when implemented properly, the advantages of SH Rules would exceed the drawbacks.
• Thereafter, on 16 May 2013, OECD issued revised Section E on SH in Chapter IV of its TP Guidelines.

Drawbacks Associated With SH Rules

• Resulted into providing scope for Tax Planning and Tax Avoidance.
• Resulted into risks which inter-alia includes double taxation, double non-taxation and mutual agreement concerns.

Click Here To Read The Full Article

The post [Opinion] All about Safe Harbour Rule appeared first on Taxmann Blog.

Case Details: Pall India (P.) Ltd. v. DCIT - [2023] 157 taxmann.com 238 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Pavan Kumar Gadale, Judicial Member & Prashant Maharishi, Accountant Member
  • Dhanesh Bafna & Manish Garg for the Assessee.
  • Amol Mahajan, ARs & Shyam Prasad, DR for the Respondent.

Facts of the Case

Assessee-company had entered into a multi-lateral service agreement with its Associated Enterprises for various intra-group services. These services are related to strategic inputs such as product information, marketing field engineering services, scientific and laboratory services, logistics, administrative, etc.

The Transfer Pricing Officer (TPO) held that the evidence submitted by the assessee was only data excel sheets of cost allocation. Further, these were duplicative in nature and a shareholder’s activity. Therefore, he determined the ALP of such services to be nil.

The matter was reached before the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee had submitted an agreement showing the description of services and benefits received therefrom. Various email correspondences were also submitted, which said that services had been rendered by AE and received by the assessee.

Further, certificates of various AE were produced to show the basis of allocation and exact cost allocation to assessee and employee wise cost sheet which showed distribution and allocation of such cost. Assessee had reasonably substantiated benefit, need, and rendition tests for said intra-group services. Thus, there was no justification for determining ALP as nil.

The post ALP of Intra-group Services Cannot be Considered Nil If Services Were Backed by Agreement & Evidence | ITAT appeared first on Taxmann Blog.