Digest Of Important Judgments On Transfer Pricing, International Tax And Domestic Tax (Pronounced in the period from July 2017 to September 2017) By Sunil Moti Lala, Advocate

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Transfer Pricing International Tax Domestic Tax International Transactions /

Associated Enterprise Case 1 to4

Permanent Establishment Case 258 to 260

Income Case 273 to 281

Most Appropriate Method Royalty / Fees for Technical Services Case 261 to 265

Business Income Case 282 to 284

Comparable Uncontrolled Price Method Case 5 to 6

Capital Gains Case 266 Deductions/ Disallowances

Cost Plus Method Case 7 to 8

Withholding tax Case 267 to 268

Depreciation Case 285 to 289

Resale Price Method Case 9 to 11

Others Case 269 to 272 Section 35 (2AB) Case 290

Transactional Net Margin Method Case 12 to 20

Section 35AC Case 291

Comparability Inter and Intra Industry

Section 36 Case 292 to 295

ITES Sector - Software Development Services - Case 21 to 70

Section 37 Case 296 to 304

Support Services - Case 71 to 83

Section 43B Case 305

Distribution / Sales - Case 84 to 85

Section 14A Case 306 to 313

Investment Advisory Services 86 to 87

Chapter VIA / 10A / 10B Case 314 to 332

Manufacturing Case 88 to 89

Income from Capital Gains Case 333 to 344

Research Services - Case 90 to 91

Income from Other Sources Case 345 to 346

General - Case 92 to 125 Assessment / Re-assessment / Revision / Search Proceedings

Computation / Adjustments

Assessment Case 347 to 360

Profit Level Indicator - Case 126 to 128

Reassessment Case 361 to 384

Forex Fluctuation - Case 129

Revision Case 385 to 391

Segments - Case 130 to 131

Search / Survey Case 392 to 407

Working Capital Adjustment - Case 132 to 133

Withholding Tax Case 408 to 416

+/- 5% adjustment Case 134 to 135

Others

Others - Case 136 to 138 Appeals Case 417 to 423

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Specific Transactions Rectification Case 424 to 426 Advertisement, Marketing and Promotion / Brand Expenses Case 139 to 148

Deemed Dividend Case 427

Loan / Receivables / Corporate Guarantee - Case 149 to 167

Exempt Income / Income from charitable Trust Case 428 to 439

Royalty /Management fees / Intra Group Services / Reimbursements Case 168 to 176

Interest Case 440 to 444

Sale / Issue / Investment in Shares Case 177

Penalty Case 445 to 462

Miscellaneous Minimum Alternate Tax Case 463 to 464

Appeals Case 178 to 198 Refund Case 465 Assessment / Reassessment Case 199 to 222

Set off of losses Case 466

MAP / APA Case 223 to 233

Settlement Commission Case 467 to 470

Penalty Case 234 to 239 Stay of demand Case 471 Stay Case 240 to 252 Unexplained income /

expenses / investments Case 472 to 493

Others Case 253 to 257 Miscellaneous Case 494 to 500

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I. Transfer Pricing

a. International Transactions / Associated Enterprise

1. The Tribunal relying on the decision in assessees own case for earlier year [TS-1034-ITAT-2016 (Bang)-TP] held that the sharing of cost between (assessee) Nike India and its AE in respect of contract with BCCI for promotion and brand building of Nike was an international transaction. Noting that the assessee incurred the expenditure for the promotion of brand Nike and the agreement between assessee and AE acknowledged that BCCI Agreement would provide suitable benefit for Nike brands in the territory, it held that the payment of 50% of the cost paid to the BCCI borne by the AE of the assessee was under conscious understanding and agreement between the parties to promote and enhance the brand value of NIKE which belonged to the AE of the assessee, which was within the ambit of the definition of international transaction u/s 92B which provides that even an arrangement, understanding or an action in concert having a bearing on the profit income, losses or assets of the enterprises would qualify as international transaction. Accordingly, it remitted the issue to the file of AO/TPO for the limited purpose of determination of ALP. Nike India Private Limited vs DCIT-TS-647-ITAT-2017(Bang)-TP-ITA no. 1338/bang/2011 and 1181/bang/2012 dated 04.08.2017

2. The Court upheld the order of the Tribunal and held that for determining whether two parties are

Associated enterprises, the conditions laid down in both Section 92A(1) and 92A(2) were to be fulfilled. It held that Section 92A(1) broadly states that two enterprises would be AEs if they have common management, capital or control, but 92A(2) provides practical illustrations to determine whether Section 92A(1) is satisfied. Accordingly, it held that the assessee and a concern from which is purchased rough diamonds viz. Blue Gems were not AEs despite the fact that the two entities were being controlled by the same family or four brothers and their close relatives as none of the conditions provided in Section 92A(2) were satisfied. Pr.CIT vs. Veer Gems - TS-545-HC-2017(GUJ)-TP - TAX APPEAL NO. 338 of 2017 dated 20.06.2017 Pr. CIT vs. Veer Gems - TS-557-HC-2017(GUJ)-TP - TAX APPEAL NO. 339 of 2017 dated 20.06.2017

3. The Tribunal, relying on the decision in the case of Siro Clinpharm wherein it was held that amendment

to Sec 92B was not retrospective at least to the extent pertaining to issuance of corporate guarantee, set aside CITs revision order u/s 263 treating AOs order as erroneous & prejudicial to Revenues interest as no TP-adjustment was made in respect of corporate guarantee extended by assessee to subsidiary/AE for AY 2010-11. Noting assessees submission that corporate guarantee to an associate company was brought within the ambit of international transaction vide Finance Act 2012 (w.r.e.f. April 1, 2012). judicial precedents had held that such corporate guarantee was not an international transaction. Further, Form 3CEB was revised from April 1, 2013 (to cover transactions in the nature of guarantee) and assessee had already filed its tax return on October 8, 2010 (followed by revised return filed on March 30, 2012) for relevant AY 2010-11 i.e. before the amendment was made and before the new Form 3CEB had come into existence. Therefore, it held that when the amendment was brought in by the Finance Act, 2012 and when the Rules were notified on 10th June 2013, the assessee cannot be expected to have reported this transaction as international transaction prior to that. Accordingly, it held that there was no error in the order of the AO causing prejudice to the Revenue. EIH Ltd vs CIT-TS-609-ITAT-2017(KOL)-TP-ITA No. 530/kol/2015 dated 09.06.2017

4. The Tribunal ruling in favour of the assessee, held that the TP provisions under Chapter X of the Act

were not applicable to the assessees sale and purchase transactions with 2 concerns (viz. Durian Industries and General Woods). In noted that Durian Industries was an Indian Tax Resident incorporated under the Companies Act, 1956 and therefore the transactions with it would not be an international transaction u/s 92B as the section postulates at least one non-resident. In respect of General Woods, the AO sought to treat it as an AE on three counts, - (i) two shareholders of the

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assessee were also directors/shareholders in General Woods u/s 92A(2)(j), (ii) THE Shareholders were involved in fixing prices of transactions between assessee & General Woods u/s/ 92A(2)(i) (iii) the total purchases made by assessee form both the entities (Durian and Gneral Woods) exceeded 90% of total purchases. The Tribunal held / observed that i) 92A(2)(j) was not applicable as the TPO failed to demonstrate how the test mentioned in the said section was satisfied ii) Section 92A(2)(i) did not apply as the shareholders determined the purchase and selling prices for and on behalf of the assessee only and not for General Woods and iii) section 92A(2)(h) did not permit aggregation of purchases from different parties for the purpose of testing the limit of 90% prescribed. Accordingly, it held that the lower authorities had erred in considering transactions with Durian and General Woods as international transactions and deleted the TP adjustment. Elder Exim Pvt Ltd vs DCIT-TS-689-ITAT-2017(Mum)-TP-ITA No.5385/Mum/2014, (A.Y. 2008-09) ITA No.2744/Mum/2014, (A.Y. 2009-10) ITA No.5386/Mum/2014, (A.Y. 2010-11) dated 16.08.2017

b. Most Appropriate Method

Comparable Uncontrolled Price

5. The assessee provided two types of broking services to related as well as unrelated parties viz., Delivery Verses payment (DVP) and direct custodian settlement (DCS) and benchmarked these international transactions using TNMM as MAM. Since an internal CUP was available, the TPO rejected TNMM and applied CUP. However, it rejected assessees contention that it had incurred lower cost in providing broking services to related parties than to unrelated parties and accordingly adjustment for additional cost incurred in transaction with unrelated parties was to be allowed to the assessee. The CIT(A) observed that there were substantial differences between the functions undertaken and risks assumed by assessee while providing broking to related and unrelated parties, the TPO ought to have granted adjustment sought by the assessee for additional cost incurred for unrelated parties and accordingly deleted the adjustment. Tribunal upheld the order o