9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (3) TMI 425 - AT - Income TaxTP Adjustment - advances received by the assessee company from Sovereign Ship Management Ltd, UK - relationship between the assessee and Sovereign Ship Management Ltd, UK said to be that of the associated enterprises - AEs of the assessee company within the meaning of section 92A(2)( c) - HELD THAT - Language of section 92A(2)(c ) of the Act is unambiguous and clear that in order to fall within the ambit of deeming fiction of of becoming AEs, either Sovereign Ship Management Ltd, UK or Premier Ship Management Ltd, UK should have independently advanced loan to the assessee company which more than 51% of book value of total assets of the assessee company. In the instant case, only if the loans advanced by both Sovereign Ship Management Ltd, UK and Premier Ship Management Ltd, UK are combined, the said provision is satisfied. Advances received by the assessee company from Sovereign Ship Management Ltd, UK are in the nature of business advances for rendering ship management and consultancy services by the assessee company to the said party and hence the same cannot be construed as loan advanced to the assessee company. Once the same is excluded and the loans given by the aforesaid two entities are considered independently, we find that none of the aforesaid parties had advanced loans more than 51% of book value of total assets of the assessee company. Hence it could be safely concluded that the aforesaid two entities cannot be construed as AEs of the assessee company within the meaning of section 92A(2)( c) of the Act which is the case of the ld DRP. In this regard, the ld DR vehemently argued that the assessee itself had reported these two parties to be AEs in its Form 3CEB. We are unable to persuade ourselves to accept to this argument of the ld DR for more than one reason that the facts of the assessee company are staring on us from its financial statements; moreover the plain language of the statute is unambiguous and it is very well settled that there is no estoppel against the statute. See M/S VEER GEMS 2018 (7) TMI 382 - SC ORDER Thus we hold that Sovereign Ship Management Ltd, UK and Premier Ship Management Ltd, UK cannot be deemed to be AEs of the assessee company within the meaning of section 92A(2)( c) of the Act and hence no adjustment to ALP in respect of transactions carried out , need to be done. Decided in favour of assessee.
Issues Involved:
1. Definition of Associated Enterprises (AEs) under Section 92A of the Income Tax Act. 2. Rejection of Cost Plus Method (CPM) and adoption of Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM). 3. Acceptance and rejection of comparables in the application of TNMM. Detailed Analysis: 1. Definition of Associated Enterprises (AEs) under Section 92A of the Income Tax Act: The primary issue revolves around whether the entities mentioned as AEs fall within the definition of AEs as per Section 92A of the Income Tax Act, 1961. The assessee argued that the entities involved in the transaction do not qualify as AEs under Section 92A. The Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) held that the entities are AEs based on the 'combined loan' granted to the assessee, constituting more than 51% of the book value of total assets. The Tribunal observed that the language of Section 92A(2)(c) is clear and unambiguous, requiring that each enterprise independently advance a loan constituting more than 51% of the book value of total assets of the assessee. The Tribunal concluded that the combined loans from Sovereign Ship Management Ltd, UK and Premier Ship Management Ltd, UK do not satisfy this criterion. Therefore, these entities cannot be deemed AEs under Section 92A(2)(c). 2. Rejection of Cost Plus Method (CPM) and adoption of Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM): The assessee used the Cost Plus Method (CPM) in its Transfer Pricing Study Report, which was rejected by the TPO in favor of the Transactional Net Margin Method (TNMM). The DRP upheld the TPO's decision without assigning proper and valid reasons for rejecting CPM. The Tribunal noted that the DRP directed the exclusion of certain comparables and remanded others back to the TPO for further examination. However, since the primary issue of whether the entities are AEs was resolved in favor of the assessee, the Tribunal did not delve into the merits of the method selection. 3. Acceptance and rejection of comparables in the application of TNMM: The DRP made several observations regarding the comparables used in the application of TNMM: - EDCIL (India) Limited was excluded as a comparable. - ICRA Management Consulting Services Ltd was included as a comparable. - IDC (India) Ltd was excluded as a comparable. - Several other comparables were remanded back to the TPO for further examination. - The DRP rejected the argument that comparables should be excluded based on turnover and data availability in the public domain. The Tribunal, however, did not need to address these points in detail due to the resolution of the primary issue regarding the definition of AEs. Conclusion: The Tribunal held that Sovereign Ship Management Ltd, UK and Premier Ship Management Ltd, UK cannot be deemed AEs of the assessee under Section 92A(2)(c) of the Income Tax Act. Consequently, no adjustment to the Arm's Length Price (ALP) in respect of transactions carried out with these entities was necessary. The appeal of the assessee was partly allowed, and other grounds on the merits of the case were deemed academic.
|
