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2014 (5) TMI 517 - AT - Income TaxApplicability of Transfer pricing provisions - Transactions with joint venture - Transaction with associated enterprises - International transaction - DTAA with Malaysia - Held that - Following IJM (India) Infrastructure Ltd. Versus Assistant Commissioner of Income-tax 2013 (9) TMI 564 - ITAT HYDERABAD All the decisions relating to the affairs of the Joint Venture are taken in India and the business is executed in India through a Joint Venture Agreement in India. Indisputably, Joint Ventures are residents in India. Even otherwise, Clause 3 of Article 4 of Malaysia provides that a person which includes AOPs also shall be deemed to be residents of the State in which its place of effective management is situated. On perusal of the Joint Venture agreements, it can be seen that all the decisions relating to the Joint Venture are taken in India and, therefore, the JVs are to be treated as residents only. The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act. After considering the entire facts and circumstances of the present case and the findings of the DRP, we are of the opinion that the transactions taken place are with domestic enterprises and at least one among the AEs are not non-resident. Both the assessee and other parties which whom the assessee entered into transactions are the residents for the purpose of Indian Taxation. Any transaction between them will not constitute an international transaction. The transactions between the assessee and IJMII do not fall under section 92B(2) of the Act and same is the position in case of other entities with whom assessee carried on the impugned transactions - Provisions of transfer pricing not applicable - Decided against the revenue.
Issues Involved:
1. Adjustment to Arm's Length Price (ALP) 2. Transactions with Associated Enterprises (AEs) 3. Control of AEs from abroad 4. Classification of AEs as domestic entities Detailed Analysis: Adjustment to Arm's Length Price (ALP): The primary issue was whether the Dispute Resolution Panel (DRP) was correct in granting relief to the assessee regarding the adjustment to ALP. The Transfer Pricing Officer (TPO) had determined the ALP at Rs. 62,45,39,693/-, which led to a computed total loss of Rs. 15,45,41,576/- for the assessee. The TPO rejected the Transfer Pricing (TP) analysis conducted by the taxpayer and made an independent analysis, selecting 15 comparables and determining an arithmetic mean PLI (OP/OC) of 15.36% on sales, which was outside the arm's length range of plus/minus five percent. The DRP, however, followed the jurisdictional Tribunal's decision which held that the transactions in question were not international transactions and thus, transfer pricing adjustments were not applicable. Consequently, the DRP's decision to delete the addition made towards transfer pricing transactions was upheld. Transactions with Associated Enterprises (AEs): The second issue was whether the DRP was correct in holding that there were no transactions with AEs, despite the assessee voluntarily declaring the transactions in the 3CEB report. The assessee argued that the transactions with IJM Corporation Berhad's MCD project office in Delhi and various joint ventures were not international transactions as defined under Section 92B(2) of the Act. The DRP agreed, noting that the transactions were with domestic entities and not with non-residents, thus not constituting international transactions. This position was supported by the Tribunal's previous ruling in the assessee's case for A.Y. 2008-09. Control of AEs from Abroad: The third issue questioned whether the DRP was correct in holding that the Revenue needed to establish that the AEs were controlled from abroad. The DRP observed that the transactions were with entities that were considered residents for tax purposes in India. The Tribunal had previously ruled that since the business decisions and profits attributable to the Permanent Establishment (PE) were managed and taxed in India, the transactions did not fall under the purview of international transactions requiring transfer pricing adjustments. Classification of AEs as Domestic Entities: The fourth issue was whether the DRP was correct in classifying the AEs as domestic entities without evidence that their business was controlled and managed in India. The DRP and the Tribunal both held that the entities involved, including the IJM Corporation Berhad's MCD project office and the various joint ventures, were residents for tax purposes in India. The Tribunal emphasized that the PE and joint ventures were assessed to income tax in India, and there was no shifting of profits outside India or erosion of the country's tax base. Therefore, the transactions did not constitute international transactions. Conclusion: The Tribunal upheld the DRP's decision, confirming that the transactions in question were not international transactions and thus not subject to transfer pricing regulations. The appeal by the Revenue was dismissed, and the DRP's order was confirmed. Order Pronounced: The appeal of the Revenue was dismissed, and the order was pronounced in Open Court on 29th April, 2014.
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