×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
04-01-2019, DRHL India Services, Section 92, 92CA, Tribunal Bangalore
These are appeals by the assessee against the common order dated 28 05.2014 of CIT(Appeals)-IV, Bangalore relating to assessment years 2006-07, 2007-08 & 2009-10.
2. The assessee is a company engaged in the business of freight forwarding activities. It is a wholly owned subsidiary of DRH Logistics International, Sri Lanka. During the previous year relevant to AY 2006-07, the assessee paid a sum of Rs.3,45,08,976 and Rs.1,88,86,235 in AY 2007-08 and another sum of Rs.1,74,97,984 in AY 2009-10. It is the plea of the assessee that the payment in question was made to the holding company for services rendered by the holding company. The assessee explained that the holding company has a network all over south-west Asia as well as connections worldwide with agencies at various locations who can procure orders from customers to and from India. The franchisee commission paid by the assessee was for such services rendered. Since the payment in question was a payment made to a holding company which was a payment made to AE, who happens to be a non-resident and therefore under the provisions of section 92 of the Income-Tax Act, 1961 [“the Act”], income arising from such transactions had to be determined having regard to arm’s length price. The question before the AO in AYs 2006-07 & 2007-08 was with regard to the determination of ALP in respect of transaction of payment for services rendered intra-group by the assessee to its holding company which is the intra-group payment substantiates the arm’s length test. The question of determination of ALP was referred to the TPO who by his order passed u/s. 92CA of the Act dated 30.10.2009 for AY 2006-07 came to the conclusion that the assessee failed to substantiate that services were rendered by the holding company to the assessee for which payment was made. The TPO suggestedaddition to the total nc me of the assessee on account of shortfall in arm’s length price of a sum of Rs.3,24,20,445. Similarly, in AY 2007-08, the addition on account of determination of ALP to the total income was determined at Rs.1,88,86,235.
3. Against the aforesaid adjustments, the assessee filed objections before the DRP. The DRP vide directions dated 26.8.2010 for AY 2006-07 dismissed the objection of the assessee. For AY 2007-08, the DRP dismissed the objections of the assessee to the order of TPO.
4. The additions suggested for both the AYs 2006-07 & 2007-08 was incorporated in the fair order of assessment passed by the AO. The assessee filed appeal against the aforesaid fair order of assessment for AYs 2006-07 & 2007-08 before the Tribunal. The Tribunal vide its order dated 10.07.2012 in ITA No.1211/Bang/2010 for AY 2006-07, set aside the order of the AO and remanded for fresh consideration by the TPO the determination of ALP. Similarly, the Tribunal vide order dated 05.10.2012 for AY 2007-08 in ITA No.1012/Bang/2011 set aside the order of assessment and remanded the question of determination of ALP to the TPO for fresh consideration. Consequent to the orders of the Tribunal, the TPO passed an order dated 25.09.2013 for both the AYs 2006-07 & 2007- 08 observing that the assessee did not render any ev dence to show that services were rendered by the AE and the benefit der ved by the assessee from such services. The TPO also held that there was no basis of valuation of the payments for services by independent entities. Pursuant to the order of Tribunal dated 25.09.2013, the AO passed order giving effect to the order of the Tribunal and the order of the AO dated 11.3.2013, wherein the original addition suggested by the TPO was again made by the AO.
5. Against the aforesaid orders of the AO, the assessee preferred appeals before the CIT(Appeals) for the AYs 2006-07 & 2007-08. As far as AY 2009-10 is concerned, the facts are identical. The payment for intragroup services to the holding company by the assessee for AY 2009-10 was a sum of Rs.1,74,97,984. Since the assessee did not substantiate the ALP, the entire consideration paid was added to the total income by way of adjustment to the ALP. Against the aforesaid order of assessment, the assessee filed appeal before the CIT(Appeals).
6. The CIT(Appeals) took up for consideration all the three appeals for AYs 2006-07, 2007-08 & 2009-10 for consideration. He noticed the