2017 (9) TMI 515 - AT - Income Tax

International transaction within the meaning of section 92B(1) - transactions have been entered by the assessee with the USA branch of Durian - Held that - There is no denying the fact that Durian is an Indian tax resident being a company incorporated under the provisions of the Companies Act 1956 in India. As assessee is also an Indian tax resident therefore neither the assessee and nor Durian are nonresident so as to include the transactions between them as international transaction for the purposes of Sec. 92B(1) of the Act. Therefore in our view the lower authorities erred in applying the provisions of Chapter X with respect to the impugned transactions. Thus on this aspect assessee succeeds. Transactions between the Appellant and GWVL - international transaction - Held that - There is no material led by the Revenue as to how the test prescribed in the said clause (j) of Sec. 92A(2) is satisfied in the present case. Before parting we may refer to another aspect contained in the assessment order. In the assessment order the Assessing Officer has referred to the statement of one Ms. Rita Dasgupta recorded in the course of the search to justify that Shri Satish Chawla was deciding the selling and purchase price. The relevant question put to Ms. Rita Dasgupta in the course of the search and her reply has been reproduced by the Assessing Officer. We have perused the same and find that there is no justification to infer that Shri Satish Chawla was deciding the selling and purchase price on behalf of the assessee as well as on behalf of General Woods and Durian. Therefore in our view the Assessing Officer misdirected himself in understanding the reply of Ms. Rita Dasgupta in a wrong perspective and coupled with the other factual matrix brought out in the earlier paragraphs we find no reason to hold that General Woods was an associated enterprise of the assessee within the meaning of Sec. 92A of the Act. Therefore for the said reasons the lower authorities erred in subjecting the transactions of the assessee with General Woods to the provisions of Chapter X of the Act. Therefore on the basis of the preliminary issue which is contained in Grounds of appeal no. 1 & 2 the impugned addition deserves to be deleted. - Decided in favour of assessee.

Issues Involved:
1. Treating transactions with General Woods and Veneers Ltd., Canada as "international transaction" under section 92B(1) of the Act.
2. Treating transactions with Durian Industries Limited as "international transaction" under section 92B(1) of the Act.
3. Making adjustment under section 92C of the Act.
4. Levying interest under sections 234B, 234C, and 234D of the Act.

Issue-wise Detailed Analysis:

1. Treating transactions with General Woods and Veneers Ltd., Canada as "international transaction" under section 92B(1) of the Act:
The appellant argued that General Woods and Veneers Ltd. (GWVL) is not an Associated Enterprise (AE) under section 92A of the Act, and thus, transactions with GWVL do not qualify as "international transactions" under section 92B(1). The Assessing Officer (AO) had treated GWVL as an AE based on the involvement of common directors and shareholders, and the significant volume of transactions. However, the Tribunal found that neither Shri Satish Chawla nor Shri Stevan Elefant were shareholders or directors of GWVL, thus invalidating the AO's assertion. Additionally, the Tribunal noted that the AO's reliance on clause (h), (i), and (j) of section 92A(2) was misplaced as the necessary conditions were not met. Consequently, the Tribunal concluded that the transactions with GWVL should not be considered "international transactions" under section 92B(1).

2. Treating transactions with Durian Industries Limited as "international transaction" under section 92B(1) of the Act:
The appellant contended that Durian Industries Ltd. (DIL) is an Indian company and a tax-resident of India, and thus, transactions with its USA branch should not be considered "international transactions" under section 92B(1). The Tribunal agreed, noting that section 92B(1) applies to transactions between two or more associated enterprises where either or both are non-residents. Since both the appellant and DIL are Indian tax residents, the Tribunal held that the transactions do not fall within the scope of "international transactions" under section 92B(1).

3. Making adjustment under section 92C of the Act:
Given the Tribunal's decision on the first two issues, the adjustment of ?1,44,70,074 made by the AO under section 92C, which was based on the assumption that the transactions were "international transactions," was rendered moot. The Tribunal thus treated this ground as academic and infructuous.

4. Levying interest under sections 234B, 234C, and 234D of the Act:
The Tribunal noted that the issue of levying interest under sections 234B, 234C, and 234D is consequential in nature and does not require specific adjudication.

Conclusion:
The Tribunal allowed the appeal for the assessment year 2008-09, concluding that the transactions with GWVL and DIL do not qualify as "international transactions" under section 92B(1). Consequently, the adjustments and interest levied based on these transactions were also dismissed. The Tribunal applied the same reasoning to the appeals for the assessment years 2009-10 and 2010-11, resulting in all appeals being allowed. The order was pronounced on 16/08/2017.

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