TMI Blog2016 (10) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... order, we hold that since the parameters laid down in sub section (1) and (2) of section 92A are not fulfilled, there is no relationship of AE between the Assessee Company and GLATIPL and therefore, the provisions of Chapter X of I. T. Act have no application. Disallowance of Transportation charges - Disallowance of Expenses under Explanation to section 37 (1) and Addition made on account of sale of Land - Held that:- Hence in line with the tribunal order in A.Y. 2010 - 11 in assessee's own case, we delete first two disallowances i.e. (1) Disallowance of Transportation charges, and (2) Disallowance of Expenses under Explanation to section 37 (1) and in respect of third issue i.e. Addition made on account of sale of Land, we set aside the order of CIT (A) on that issue and restore the matter to A.O. for a fresh decision with same directions as were given by the tribunal in A. Y. 2010 - 11. Ground No. 6 is allowed in this manner. - IT (TP) Appeal No. 182 (Bang.) of 2014 - - - Dated:- 20-10-2016 - S.K. Yadav, JUDICIAL MEMBER AND A.K. Garodia, ACCOUNTANT MEMBER Mayank Jain and Madhur Jain, Advocates-For the Appellant. Sanjay Kumar, CIT DR- For the Respondent. ORDE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (C) The Learned authorities failed to appreciate that in the absence of an A.E. as defined in Sec.92A there can be no application of Sec. 92B(2) of the Act. (D) The learned DRP has erred in holding that there is no basis for the argument of the appellant that the Transfer Pricing Officer (the TPO) has no jurisdiction to resort to an implied provisions of law or a deeming provision for the purpose of determination of the actual state of affairs in a business arrangement without appreciating the settled legal position as noted in para 5.3 of the order of the Learned DRP. (E) The Learned authorities erred in applying the decision in Mcdowell Ltd. v. CTG, 154 ITR 148 (SC) without appreciating the fact that this transaction entered into was meant to safeguard the appellant against price fluctuation on a long term basis and not with any view to avoid a tax liability that might arise at a later stage, which the appellant even could not have foreseen. (F) The Learned Authorities failed to appreciate that when the contract was entered into with M/s. GLA Ltd., admittedly Sri. Gali Janardhana Reddy was not the director of the said M/s. GLA Ltd., and as such, there was no com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should have appreciated that the prices of DGCIS adopted are only the list of prices and not comparable uncontrolled transactions since the enterprises entering to such transactions and their financial profile is not known in order to determine the ALP applying CUP under rule 10B(a) read with Rule 10C. (D) The ALP determined is not in accordance with the rules prescribed and therefore liable to be cancelled and treating the purported international transactions as at arm's length. (E) The 5 percent standard deduction ought to have been given while determining the ALP. (F) The authorities erred in not appreciating that M/s.GLA International PTE Ltd., is responsible for the payment delivery of goods and further obliged to pay minimum of 35% on cost which is a significant risk while evaluating the ALP. (G) The authorities should have appreciated that the price /profit margin of minimum of 35% on cost at all times even under depressed market conditions is what the appellant could not have secured from any other importer and therefore, such a price even under alleged controlled conditions, is at arm's length. (H) The authorities should have appreciated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire issued and paid up share capital of M/s GLA Trading International Ltd. was held by M/s GJR Holdings International Company (M/s GJR Holdings International) where he had control over the activities and management of the said company. In brief, these facts clearly establish that M/s OMCPL and M/s GLA Trading International Pte. Ltd., Singapore are AEs with the meaning of Sec.92A of the IT Act, 1961 . 4. Before us, learned AR of the assessee submitted that even if the allegation of the A.O. is accepted that this company i.e. M/s (GLAITPL) is an AE of the assessee company for this reason that entire share capital i.e. one Share of M/s (GLAITPL) was transferred by Shri Arangannal to M/s (GJRHIL) on 21.12.2007, then also it is an AE of the assessee company for two days only because the said one share of GLATIPL was transferred by GJRHIL to Inter Link Services Group Ltd. ILSGL on 22.12.2007 and with this company or its directors, the assessee company or its directors has no relationship. It was submitted by the learned AR of the assessee that regarding TP issues, this is the submission that TP provisions cannot be applied in the present case because the parameters specified u/s 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of this section and Sections 92, 92B, 92C, 92D, 92E and 92F, associated enterprise , in relation to another enterprise, means an enterprise- (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. (2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons or body of individuals; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed.' 7. Now we take note of the objections of the A.O., assessee's explanations and relevant facts in this regard. The objections of the A.O. as reproduced above are these that Shri GJR, one of the directors of the assessee company was appointed a director of (GLATIPL) also on 19.12.2007 and on 21.12.2007, the entire share capital of (GLATIPL) being one equity share was transferred to (GJRHIL) in which, Shri GJR is one of the directors. Hence, as per the objections of the A.O., the entire share capital of (GLATIPL) is held by (GJRHIL) on 21.12.2007 and on that date, Shri GJR, one of the directors of the assessee company is director of (GJRHIL) also being a company holding entire share capital of (GLATIPL). We will see that whether these facts make (GLATIPL) an AE of the assessee company later but before that, we first examine the facts in the present year and see that whether during the period from 01.04.20208 to 31.03.2009 also, the facts were same or not because if the facts are not same in this later period, then even if it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any shareholding in that company or without any relationship with the directors of holding company of GLATIPL i.e. ILSGL or with the director of ILSGL. 9. Now, in the light of these facts, we examine the applicability of the tribunal order rendered in the case of Page Industries Ltd. (supra). Para No. 11, 11.1 and 11.2 of this tribunal order are relevant and hence, these paras are reproduced herein below:- '11. It is the case of the AO that the assessee-company and JII are AEs as they fall within the parameters of clause (g) of sub- sec. (2) of sec.92A of the Act. It is not the case of the AO that the present case falls within parameters of sub-section (1) of sec.92A of the Act. In this background, we are called upon to adjudicate whether both the entities are AEs within the meaning of sec.92A of the Act. The definition of the term 'AE' is divided into two sub-sections (1) and (2). Sub-sec. (1) contains (means) definition of AE is .para meters of management control or capital of that enterprise. Sub-sec. (2) contains a deeming provision and also enumerates circumstances when the enterprise can be deemed to be AE. The opening words of sub-sec. (2) are amended by Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly applicable because as per the revenue, only because one of the directors of the assessee company and of GLATIPL is common, section 92CA is applicable but it was held by the tribunal in this case that in order to constitute relationship of an AE, the parameters laid down in both sub sections (1) and (2) should be fulfilled. As per the explanation, amendment carried out in sub section (2) of section 92A by Finance Act, 2002 w.e.f. 01.04.2002, as reproduced by the tribunal in Para 11 reproduced above, mere participation of one or more persons in the management or control or capital of both the enterprises shall not make them AE unless the criteria specified in sub section (2) are fulfilled. We have seen that even as per the learned DR of the revenue, clause (j) of sub section (2) of section 92A is attracted but this claim is also devoid of merit because he could only point out that one director of the assessee company and of GLATIPL is common but this fact alone does not establish that the said common director is controlling GLATIPL when the said company is a subsidiary of ILSGL and the assessee company or its directors are not having any relationship with ILSGL or director of ILSG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduce A for cross examination by the assessee on the specific demand in this regard and thereafter, it was held that the violation of the revenue to produce A for cross examination by the assessee assumes fatal consequences. Hence, as per these two judgments, for this reason alone that the revenue has not made available these persons for cross examination of the assessee despite such request by the assessee before the AO, these statements cannot be used against the assessee and without taking help from these statements of the transporters, the disallowance made by the AO out of transportation charges is not sustainable as per these two judgments relied upon by the Id. AR of the assessee and no contradictory judgment of the Hon'ble jurisdictional High Court or Apex Court or of any other High Courts could be made available before us by the ld. DR of the revenue and therefore, respectfully following these two judgments of the Hon'ble Delhi High Court, we hold that in the facts of the present case, these disallowance out of transportation allowance is not sustainable. Ground 0.2 of the assessee is allowed. 14. In the present case, we are not concerned as to whether he asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and income has to be assessed after allowing deduction regarding cost of acquisition, if any incurred by the assessee but since there is no discussion on this aspect in the orders of the authorities below, we feel it proper that this issue should be restored back to the file of the AO for a fresh decision in the light of the above discussion after providing adequate opportunity of being heard to the assessee. We order accordingly. This ground is partly allowed for statistical purposes. 13. Since, learned DR of the revenue could not point out any difference in facts, we find no reason to take a contrary view in the present year. Hence in line with the tribunal order in A.Y. 2010 - 11 in assessee's own case, we delete first two disallowances i.e. (1) Disallowance of Transportation charges, and (2) Disallowance of Expenses under Explanation to section 37 (1) and in respect of third issue i.e. Addition made on account of sale of Land, we set aside the order of CIT (A) on that issue and restore the matter to A.O. for a fresh decision with same directions as were given by the tribunal in A. Y. 2010 - 11. Ground No. 6 is allowed in this manner. 14. In view of our above decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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