Pr. CIT Vs PMP Auto Components Pvt. Ltd (Bombay High Court)
Conclusion: Transfer Pricing provisions on shares purchased at value in excess of FMV was not applicable as the same could only be invoked to bring to tax any income arising from an international transaction.
Held: Assessee was investing an amount of Rs.2.67 Crores to acquire shares of its AE (subsidiary company), which had a fair market value of 8.19 lakhs. It was this excess payment of Rs.2.58 Crores, when compared to fair market value of the shares which was sought by Revenue to be brought to tax under the transfer pricing provisions under Chapter X.T It was contended that the additional investment of capital by assessee in its AE’s shares vis-a-vis its fair market value was subject to transfer pricing adjustment as done by TPO and upheld by DRP. It was held Chapter X of the Act was machinery provision and could only be invoked to bring to tax any income arising from an international transaction. It was necessary for the Revenue to show that income as defined in the Act did arise from the international transaction. The distinction between inbound and outbound investment was a distinction which did not take the case of Revenue any further, as the Legislature had made no such distinction while providing for determination of any income on adjustments to arrive at ALP arising from an international transaction.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
This appeal under section 260A of the Income Tax Act (Act for short) challenges the order dated 13th January 2016 passed by the Income Tax Appellate Tribunal (Tribunal for short). The appeal relates to the assessment year 2010-2011.
2] The Revenue has urged following two questions of law for our consideration_
(A) Whether on the facts and circumstances of the case and in law, was the Tribunal correct in deleting the adjustment of Rs.2,58,94,765/- on account of excess money paid to PMP Bakony (AE) for acquiring share?
(B) Whether on the facts and circumstances of the case and in law was the Tribunal correct in upholding the deletion of the adjustment of Rs.2,50,95,228/- being interest chargeable on deemed loan transaction with PMP Bakony (AE)?
3] The common facts leading to the aforesaid two questions are as under:-
(a) On 14th October 2010, the respondent filed its return of income declaring income at Rs.2.56 Crores. As the respondent had shown some international transactions, the Assessing Officer referred the same to the Transfer Pricing Officer (TPO) for determining the Arms length Price (ALP) of such international transactions. The TPO by an order dated 20th September 2013, inter alia made following two adjustments :-
