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TMI Blog2010 (10) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... s, whether the assessee-Company and it's service provider [GSKCH] are related Companies in terms of Section 40A(2) of the Income Tax Act, 1961? If the answer to the said question was to be in the affirmative, then the next question on merits which arose for determination was, whether allocation of cross-charges by the assessee was the correct test applied by the assessee? In other words, whether allocation of cross-charges should be allowed or disallowed by the Department? The Authorities below have recorded a concurrent finding that the said two Companies are not related Companies under the said section. Being aggrieved by the said decision, the matter has come to this Court by way of special leave petition filed at the instance of the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is shifted to the loss making concern; and [ii] If there are different rates for two related units [on account of different status, area based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of tax arbitrage. For example, sale of goods or services from non-SEZ area [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less profit taxable and non-taxable division will have a higher profit exemption. All these complications arise in cases where fair market value is required to be assigned to the transactions between related parties in terms of Section 40A(2) of the Income Tax Act, 1961 [`Act', for short]. To get over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10D of the Income Tax Rules in respect of such domestic transactions and whether the taxpayer should obtain an audit report from his Chartered Accountant so that the taxpayer maintains proper documents and requisite Books of Accounts reflecting the transactions between related entities as at arm's length price based on generally accepted methods specified under the Transfer Pricing Regulations? Normally, this Court does not make recommendations or suggestions. However, as stated above, in order to reduce litigation occurring in complicated matters, we are of the view that the question of amendment, as indicated above, may require consideration expeditiously by the Ministry of Finance. In the meantime, CBDT may also consider issuing appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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