2019 (6) TMI 1373 - AT - Income Tax

TP Adjustment - adjustment made on the basis of Share Purchase Agreement ('SPA'/'Agreement') - HELD THAT - As decided in assessee s own case for AY 2010-11 2018 (8) TMI 1708 - ITAT MUMBAI same are not applicable to the facts of the present case and we are of the view that since chapter 10 pre-supposes the existence of income and lays down machinery provison to compute ALP of such income, if it arises from an International transaction . Section 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. Accordingly, since no income had accrued to or received by the assessee u/s 5, no notional income can be brought to tax u/s 92 - direct for deletion of impugned TP adjustment. Ground No. 1 stands allowed. Disallowance u/s 14A - assessee earned exempt dividend income of ₹ 9.16 Lacs during the impugned AY and held investment of ₹ 668.69 Lacs - HELD THAT - Since no disallowance was offered by the assessee against the same, AO compute expense disallowance of ₹ 3.21 Lacs, being 0.5% of average investments, in terms of Rule 8D(2)(iii). The same upon, confirmation by Ld. first appellate authority is under appeal before us. CIT(A) has directed AO to exclude those investments which may not be capable of yielding exempt income to the assessee. AR, briefly submitted that keeping in view the decision of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI AO may be directed to take into consideration only those investments which have actually yielded any exempt income during the year. Concurring with the same, we direct AO to take into consideration only those investments which have actually yielded any exempt income during the year. The assessee is directed to provide requisite information, in this regard. This ground stand partly allowed.

Issues Involved:
1. Transfer Pricing Adjustment based on Share Purchase Agreement (SPA)
2. Determination of Associated Enterprises (AE) under Section 92A
3. Classification of "International Transaction" under Section 92C
4. Computation of Arm's Length Price (ALP) using Comparable Uncontrolled Price (CUP) method
5. Disallowance under Section 14A read with Rule 8D

Detailed Analysis:

Issue 1: Transfer Pricing Adjustment based on Share Purchase Agreement (SPA)
The appellant contested the addition of ?5.40 crores made by the Assistant Commissioner of Income Tax (AO) based on a transfer pricing adjustment derived from a Share Purchase Agreement (SPA). The appellant argued that the SPA was executed on 02.02.2009, and therefore, any transfer pricing adjustment should have been made in AY 2009-10, not AY 2011-12. The Tribunal found that the appellant's case for AY 2010-11 had already been decided in their favor by the Tribunal, which concluded that the AO's jurisdictional defect could not be cured by the CIT(A). Consequently, the Tribunal directed the deletion of the impugned transfer pricing adjustment for AY 2011-12, making Grounds II to IV infructuous.

Issue 2: Determination of Associated Enterprises (AE) under Section 92A
The appellant challenged the AO's determination that M/s. Kuki Investments (Kuki) was an AE of the appellant under Section 92A of the Income Tax Act. The Tribunal noted that the CIT(A) did not uphold the AO's finding that the appellant and EMSHL were AEs, and the revenue did not challenge this. The Tribunal concluded that Section 92A(1) and 92A(2) must both be fulfilled to establish an AE relationship. The Tribunal found that the appellant's profession could not be considered a separate "enterprise" under Section 92F(iii), and thus, the appellant and Kuki were not AEs.

Issue 3: Classification of "International Transaction" under Section 92C
The appellant argued that agreeing to be associated with the Rajasthan Royals (RR) franchise did not amount to an "international transaction" under Section 92C. The Tribunal agreed, noting that the transaction between the appellant and Jaipur IPL Cricket Private Limited (JICPL) could not be considered an international transaction as neither party to the SPA was an AE of the appellant, and JICPL did not enter into a prior agreement with the AE of the appellant.

Issue 4: Computation of Arm's Length Price (ALP) using Comparable Uncontrolled Price (CUP) method
The appellant contested the computation of ALP by considering the agreement with Star India Private Limited and applying the CUP method. The Tribunal found that the AO's determination of ALP at ?540 Lacs based on a comparable price with M/s Star India Pvt Ltd. was not justified as the appellant did not receive any consideration for the services rendered to JICPL. The Tribunal directed the deletion of the transfer pricing adjustment, making this ground infructuous.

Issue 5: Disallowance under Section 14A read with Rule 8D
The AO disallowed ?3.21 Lacs under Section 14A read with Rule 8D, attributing it to the appellant's exempt dividend income. The Tribunal directed the AO to consider only those investments that actually yielded exempt income during the year, in line with the Delhi Tribunal's decision in ACIT Vs. Vireet Investment (P.) Ltd.

Conclusion:
The Tribunal allowed the appeal partly, directing the deletion of the transfer pricing adjustment and modifying the disallowance under Section 14A. The order was pronounced in the open court on 25th June 2019.

← Previous Next →