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2012 (4) TMI 354 - AT - Income TaxTreating the Appellant's wholly owned subsidiary in UAE as its proprietary concern and treating income earned by the said wholly owned subsidiary as that earned by the Appellant – A.O stated since the assessee is the only shareholder and holding 100% shares of Vega UAE, it is not a valid company as two shareholders are required - Held that:- Article (1) of the said Memorandum of Incorporation states that this entity is established with corporate entity and independent and separate financial liability from those of its owner and the only situation where the owner will be treated as personally responsible is regarding omission of some specified information that the entity FZE - this is a situation where it specifies that corporate veil may be lifted therefore, because of this restriction alone, it cannot be said that Vega UAE is not a separate legal entity - as per these provisions of Section 2(17) UAE is definitely not an Indian company - As per this Amiri Decree No. (2) of 1996 promulgated by His Highness the Ruler of Emirates of Ajman, Free Zone Establishment can be established with limited liability and shall have the body corporate capacity and it shall belong either to one natural person or one judicial person - in favour of assesee. TP adjustment made by the A.O in respect of sales made to Vega UAE and commission payment considering the controlled transactions of the assessee as comparable for benchmarking the international transaction – Held that:- Vega UAE is carrying both the inventory risk as well as credit risk and therefore is not a marketing service provider but a distributor of the assessee company - ALP has to be determined on the basis of profit on sale of goods by the assessee company as compared to the comparable companies - If the operating cost is higher in Vega US, it cannot be said that the profit margin of other Vega Entities should be at par with the profit margin of Vega US and hence, TP adjustment proposed by TPO and confirmed by DRP on the basis of operating cost/operating profit of Vega US is not sustainable – in favour of assessee. Disallowance u/s 14A of the Income tax Act, 1961 - Held that:- the assessee working regarding interest expenditure and indirect expenditure accepted without any mistake - confirm the disallowance u/s 14A to the extent ₹ 11,48,609/- and delete the balance disallowance made by the A.O - appeal assessee is partly allowed. Disallowance u/s 40a(ia) for non deduction of tax on commission paid on non residents for the services rendered outside India - Held that:- nothing has been brought on record by the revenue to show that the foreign agent to whom commission was paid, had any operation carried out in India as per the provisions of Section 9(1)(i) of Income tax Act,1961- the provisions of Section 40a(ia) are not applicable – in favour of assessee.
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