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DCIT, Circle-7, Pune Versus W.B. Engineers International Private Limited

2015 (9) TMI 438 - ITAT PUNE

Transfer pricing adjustment - whether Terex GB Ltd. is not assessee’s Associate Enterprise? - Held that:- The finding given by DRP that the prices and other conditions relating thereto are not influenced either by the assessee or Terex GB Ltd. could not be controverted by the Ld. Departmental Representative. A bare perusal of the various clauses of the distributor agreement shows that both are independent parties. We therefore do not find any infirmity in the order of the DRP holding that Terex .....

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R.K. PANDA, AM : This appeal filed by the Revenue is directed against the order dated 18-12-2013 of the DRP, Pune relating to Assessment Year 2009-10. 2. Facts of the case, in brief, are that the assessee company is engaged in trading and sales and services of earth moving equipment, mining equipment, steel items, fuel energizers and also into agency business. It filed its return of income on 30-09-2009 declaring total loss of ₹ 2,08,66,575/-. Subsequently, the assessee filed a revised re .....

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e the details/explanations with regard to the computation of the ALP. 4. From the various details furnished by the assessee, the TPO noted that the assessee was importing trading goods only from a single source. It was importing heavy machinery used in mining etc. It has earned income of ₹ 41,03,20,951/- and had loss before tax of ₹ 3,24,32,211/- which was (-)7.9% of income as compared to 9.6% for the previous year. The TPO, therefore, confronted the assessee regarding the applicabil .....

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e assessee. 5. However, the TPO was not satisfied with the explanation given by the assessee and held that the foreign company exercises complete influence on the activities of the assessee company. The assessee is liable to get a commission of 5% of the net sales value for the orders which are directly executed by the foreign entity. The duties and obligations of the distributor, i.e. the assessee have also been clearly defined. The agreement is a 45 page long with various stipulations. This ac .....

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o 95.43% which is a substantial portion of the purchases from a single party. The TPO accordingly held that the assessee is the Associate Enterprise of the Terex Corporation in the current TP audit. 7. The assessee approached the DRP. It was submitted that the contention of the TPO is not correct. The assessee company and Terex GB Limited are independent entities. They have entered into contract for the distribution of goods manufactured by Terex GB Ltd. Ireland in the territory of South India a .....

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Limited' is influencing terms of the contract for the business decisions of the assessee company. Referring to Clause 16 of the distribution agreement, which states that no variation in the terms agreed as per the distribution agreement shall be effective unless such variation is agreed in writing by both the parties, it was stated that no party has right to influence or vary the agreed terms at own discretion because variation has to be agreed upon by both the parties. Further, right to te .....

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essee company is not AE of Terex GB Limited. 9. The assessee analysed the provision of 92A(2)(i) and argued that the said clause is attracted only in the cases in which, the goods manufactured by one entity are sold to the 'other entity' and the prices and other conditions relating thereto are influenced by 'such other entity i.e. the party, which purchases the goods from the manufacturing entity. The section is applicable only in cases where the party purchasing the goods influences .....

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as per the provisions of Section 90(2), more beneficial provisions between the Income tax Act and the DTAA would be applicable. In this case, provisions of the DTAA are more beneficial to the assessee. Thus, Terex GB Limited is not an AE of the assessee and transfer pricing provisions are not applicable to it. It was accordingly argued that the TP provisions are not applicable to the facts of the present case and therefore the TP adjustment made by the TPO at ₹ 4,04,08,285/- should be dele .....

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is reproduced as under: (2) For the purposes of subsection (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise. 2.2.9 The reading of clause (i) makes it clear that the clause refers to the goods ma .....

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first condition of clause (i) is met with, accordingly, the goods manufactured by Terex GB Limited are purchased by the assessee. However, the second condition i.e. 'prices and other conditions relating thereto' are influenced by the assessee .is not satisfied. We have gone through the agreement and we do not find anything, which would suggest that the assessee has influenced prices and other conditions relating thereto of Terex GB Limited. On the contrary, we agree with the assessee th .....

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7; 4,04,08,285 is not in accordance with the provisions of law and hence is deleted. 2.2.12 We have decided that the transfer pricing provisions are not applicable to the assessee. Therefore, the other grounds of objections have become infructuous and we do not decide the same. 12. Aggrieved with such order of the DRP the Revenue is in appeal before us with the following grounds 1. Whether Hon'ble DRP was correct in law and facts in holding that the transfer pricing provisions will not be ap .....

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e attention of the Bench to page 83 of the paper book which gives the details of shareholding pattern. Referring to the said chart he submitted that the entire shares are held by Barreto family and their Associates and Terex GB Ltd. is not at all a shareholder of the assessee company. He drew the attention of the Bench to provisions of section 92A which reads as under (2) For the purposes of subsection (1), two enterprises shall be deemed to be associated enterprises if, at any time during the p .....

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