9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (6) TMI 94 - AT - Income TaxAddition u/s 92 - CIT(A) upholding the arm s length brokerage rate for yarn product at 2% as determined by Ld. AO as against 0.75% actually received by the appellant - whether 2nd proviso to section 92C(3) merely requires an opportunity of being heard to be given to assessee and nothing beyond that as held by CIT(A) - Held that - Since the costs of all the raw materials is picked up by the assessee for all effective purposes. the transaction is actually between the assessee and the Diageo group concerns supplying the raw material to the CBU, and since the assessee as also these vendors are admittedly under the control of Diageo PLC, the transactions are clearly between the associated enterprises The objection raised by the assessee to the effect that the transactions of imports of raw material by the CBU, i. e. Konkan Agro, from Diageo group entities cannot be treated as international transactions between the associated enterprises, therefore, is rejected. There is no denial of the fact that Mr. Govind Karunakaran is Director and 99.9% shareholder of the assessee company and also is a Director and Chief Operating Officer of Kaybee Exim Pte Limited, Singapore. Therefore, Mr. Govind Karunakaran is not only participates in management of both the companies by he is holding the key position in the management of Kaybee Exim Pte Limited, Singapore and is part of decision making process of the said company since 1996. Shri Govind Karunakaran is a common director in both the company and participating in the management of both the companies not for the name sake but he is holding the key position in taking decision being a Chief Operating Officer of Kaybee Exim Pte Limited, Singapore and almost the entire shareholding of the assessee company, therefore, the condition of one enterprise participates directly or indirectly or through one or more intermediaries in its management or control or capital as prescribed under clause (a) & (b) of s.s. (1) of section 92A is satisfied. Hence, the assessee and Kaybee Exim Pte Limited, Singapore falls under the meaning of AEs as per the provisions of section 92A. - Decided against assesse. TP adjustment on account of service charges/commission received by the assessee in respect of procurement of yarn on behalf of Kaybee Exim Pte Limited, Singapore (AE) - held that - The arm s length price in relation to an international transaction shall be determined by any of the method prescribed u/s 92C of the Act, therefore, in order to determine the arm s length price, the comparable uncontrolled price has to be considered as per the appropriate method applied in a particular case. In the case in hand, the A.O. has not determined the arm s length price by taking into consideration an uncontrolled price or uncontrolled transaction. The A.O. has adopted the price being the commission received by the assessee in respect of textile procurement from its AE for the purpose of arm s length commission for procurement of yarn, therefore, the price/transaction adopted by the A.O. is not an independent or uncontrolled price or transaction but it was a controlled transaction between related parties. Hence, the arm s length price adopted by the A.O. is not sustainable as per the provisions of the Act. - remit the issue to the record of the A.O. for determination of the same afresh - Decided in favour of assesse for statistical purposes. Disallowance of society charges and property tax - as per AO the lease agreement is silent on this ground - Held that - When the assessee has made the payment of property tax and society charges for the premises used for the business of the assessee, then, in the absence of any facts or material brought by the A.O. on record that the said payment was made by the assessee contrary to the terms and conditions of the agreement or on behalf of the owner of the property, then, the A.O. has proceeded only on the assumption and not on any tangible material or fact. Though the issue was decided by the Commissioner for the A.Y. 2004-05, however, the said order was not challenged before the Tribunal. We find that neither the A.O. has conducted the enquiry nor the assessee has produced any evidence in support of the claim that this payment was made by the assessee as per the mutual understanding. This issue required proper examination and verification -remit the issue to the record of the A.O. for determination of the same afresh - Decided in favour of assesse for statistical purposes.
Issues Involved:
1. Whether the assessee and Kaybee Exim Pte Limited, Singapore are Associated Enterprises (AEs) under section 92A(1)/92A(2)(i) of the Income Tax Act, 1961. 2. Determination of arm's length price for the commission received by the assessee for procurement of yarn. 3. Disallowance of society charges and property tax paid by the assessee. Issue-wise Detailed Analysis: 1. Associated Enterprises (AEs) Determination: The primary issue is whether the assessee and Kaybee Exim Pte Limited, Singapore qualify as Associated Enterprises (AEs) under section 92A(1)/92A(2)(i) of the Income Tax Act, 1961. The assessee contended that they do not fall within the ambit of section 92A as there is no direct or indirect shareholding between the two companies. The Assessing Officer (A.O.) noted that Mr. Govind Karunakaran, who holds 99.9% of the shares in the assessee company, is also a Director in Kaybee Exim Pte Limited, Singapore. The A.O. concluded that the two companies are AEs based on the participation in management and control. The CIT(A) upheld this view, stating that the presence of common directors and significant control by Mr. Karunakaran in both companies satisfies the conditions under section 92A. The Tribunal affirmed this decision, emphasizing that the participation in management and control by Mr. Karunakaran in both companies meets the criteria for AEs under section 92A(1). 2. Arm's Length Price for Commission: The second issue concerns the determination of the arm's length price for the commission received by the assessee for the procurement of yarn. The A.O. adopted a commission rate of 2% for yarn, similar to the rate for textile procurement, which the assessee contested. The assessee provided a letter from Shree Solapur Yarn Merchant Association indicating a market rate of 0.5% to 0.75%. The CIT(A) admitted this additional evidence but did not accept it, citing its issuance date as post the assessment year. The Tribunal noted that the A.O. did not determine the arm's length price based on an uncontrolled transaction but rather on a controlled transaction between related parties. Therefore, the Tribunal set aside the orders of the authorities below and remitted the issue back to the A.O. for fresh determination, considering the additional evidence provided by the assessee. 3. Disallowance of Society Charges and Property Tax: The final issue involves the disallowance of society charges and property tax paid by the assessee. The A.O. disallowed these expenses, arguing that they were not the liability of the assessee as per the lease agreement. The CIT(A) upheld this disallowance. The assessee argued that these expenses were incurred wholly and exclusively for business purposes and should be deductible under section 37(1) of the Act. The Tribunal found that the A.O. had not conducted a proper enquiry and that the assessee had not provided sufficient evidence to support the claim. Consequently, the Tribunal set aside this issue to the record of the A.O. for fresh examination and verification, directing the assessee to produce relevant evidence. Conclusion: The Tribunal partly allowed the appeal, affirming the determination of AEs under section 92A, remanding the issue of arm's length price for fresh determination, and directing a re-examination of the disallowed society charges and property tax.
|
