TP Adjustment Invalid as AE Relationship Lasted Only 2 Months | ITAT

Case Details: Inlogic Technologies (P.) Ltd. vs. Deputy Commissioner of Income-tax - [2025] 175 taxmann.com 721 (Chennai-Trib.)

Judiciary and Counsel Details

• George K, Vice President & S.R. Raghunatha, Accountant Member
• Vikram Vijayaraghavan, Adv. for the Appellant.
• A. Sasikumar, CIT for the Respondent.

Facts of the Case

The assessee provided software development services to a company incorporated in Australia, which was its Associated Enterprise (AE) for a period of 2 months during the previous year. The assessee furnished the details of such international transactions in Form 3CEB. However, during the Transfer Pricing proceedings, the assessee furnished an Addendum to Form 3CEB, updating the value of international transactions, contending that the AE relationship existed only for 2 months.

The assessee also submitted the TP Documentation and a certified segmented profit and loss account as additional evidence. DRP rejected the additional evidence and upheld the TPO’s order, which also disregarded the assessee’s contention and made the transfer pricing adjustment. Aggrieved by the order, the assessee filed an appeal to the Chennai Tribunal.

ITAT Held

The Tribunal held that the assessee was an AE of Medtech Global Ltd, Australia, only for the duration of two months. Therefore, all transactions entered into outside the two-month duration will not be considered “international transactions” and hence will not be subject to the transfer pricing provisions of the Act.

The phrase “at any time during the previous year” in section 92A(2) cannot be interpreted to mean that the assessee is to be subjected to transfer pricing provisions even at times during which it was not an AE. All it posits is that the AE relationship may occur at any time during the year, depending on the facts and circumstances, and it is only for that time period that international transactions between AE’s are subject to TP, which in the instant case is April and May 2020. Therefore, the international transaction amounting to only Rs. 1.86 Crores for those two months should be considered, not the entire 12-month period.

List of Cases Referred to

• CIT v. Shahzadanand Charity Trust [1998] 96 Taxman 494/228 ITR 292 (Punjab & Haryana) (para 11)
• Sambhaji v. Gangabai [2008] 17 SCC 117 (para 31)
• Mangalore Chemicals & Fertilisers Ltd. v. Deputy Commissioner 1992 Supp (1) SCC 21 (para 32)
• CIT v. Jayant Patel [2001] 117 Taxman 707/248 ITR 199 (Madras) (para 33)
• Zenith Processing Mills v. CIT [1996] 219 ITR 721 (Gujarat) (para 33)
• Ashok Leyland Ltd. v. DCIT [IT Appeal No. 2086 (Mds) of 2010, dated 16-2-2016] (para 33).