TII Instant Update - 2018-TII-INSTANT-ALL-540

2018-TII-15-HC-MUM-TP

PR CIT Vs AMPHENOL INTERCONNECT INDIA PVT LTD: BOMBAY HIGH COURT (Dated: March 7, 2018)

Income tax - ALP - FAR analysis - international transaction - sale commission - TNMM

The Revenue Department preferred the present appeal challenging the action of ITAT in upholding the adoption of TNMM as MAM for determining the ALP in respect of the international transactions of sale of goods and sales commission carried out with with its AEs.

On appeal, the HC held that,

Whether TNMM is the most appropriate method for determining ALP in case of international transaction of export of goods & sales commission made to AEs - YES: HC

+ it is found that the TPO has while stating that FAR analysis has to be carried out, does not indicate that it was carried out. On the contrary, the Tribunal in the impugned order has done the necessary FAR analysis. This is so as it has compared the risk and functional differences involved in finished goods being sold to AEs as against those sold to third parties as we have enumerated above to come to the conclusion that the prices at which the finished goods sold to the third parties are not comparables to the prices at which the goods sold to the AEs inter alia on the FAR analysis. The finished goods are customized goods and the geographical differences, volume differences, timing differences, risk differences and functional differences, came to a conclusion that the CUP method would not be the MAM to determine the ALP. Thus, the view taken by the Tribunal on the facts before it, is a possible view on the application of appropriate tests.

Revenue's appeal dismissed

2018-TII-14-HC-MUM-TP

TOOLTECH GLOBAL ENGINEERING PVT LTD Vs ACIT: BOMBAY HIGH COURT (Dated: March 5, 2018)

Income tax - Sections 92B, 143(3) & 144C

Keywords - ALP - advances made to AE - international transaction - notional interest

The Assessee company preferred present appeal challenging the action of ITAT in confirming the action of AO in making adjustment u/s 92 with respect to a transaction between the holding company and 100% subsidiary company with respect to advance, on which no obligation to charge interest existed and the adjustment made u/s 92 resulted into a notional income and not real income.

On appeal, the HC held that,

Whether any international transaction between Indian entity with its overseas AE, resulting in transfer of profits and capital erosion, warrants ALP adjustment - YES: HC

+ Chapter X of the Income tax Act, is an antiavoidance measure and not an antievasion measure. It is not premised on the basis that the transactions entered into between the parties suffers from under/over invoicing. It accepts the value shown in the books of the Assessee. However, the value of the transactions by legislative mandate is brought in line with the consideration which would pass between two independent parties i.e. nonrelated/ non associated enterprises;

+ the Legislature has introduced a special provisions in respect of International Transactions to bring the income to tax having regard to ALP. In such case, the parties are obliged is to establish the ALP of the International Transactions entered into between the two AE is to bring to tax the real income i.e. the correct price of the transactions, shorn of, the price arrived at on account of relationship. It means the real income on application of a new measure. The object of the TPO is to put a stop to capital erosion and transfer of profits from one taxable territory to another taxable territory.

Assessee's appeal dismissed