The entire scheme in the Act & Rules for determining the ALP of an international transaction is based on making comparison with certain comparable uncontrolled transactions. The various methods prescribed for determining ALP clearly divulge that the comparison is always sought to be made of the assessee’s international transactions with comparable ‘uncontrolled transactions’. An ‘uncontrolled transaction‘ is defined under Rule 10A(a) to mean ‘a transaction between enterprises other than associated enterprises whether resident or non-resident‘. A transaction between two associated enterprises goes out of the ambit of ‘uncontrolled transaction’ under Rule l0A. There is no statutory sanction for roping in a comparable controlled transaction for the purposes of benchmarking. If the view that a controlled transaction should not be shunted out for the purposes of benchmarking, is accepted, then all the relevant provisions contained in Chapter X in this regard, will become otiose. The argument that once controlled transactions are verified by the TPO and found at ALP, then the difference between controlled and controlled transactions is obliterated cannot be accepted because it is possible that higher/lower prices for India may have been charged to reduce the overall incidence of tax. The TPO may accept that the transaction does not require adjustment if it benefits India even though the transaction may not be at ALP and cannot be used as a benchmark for purposes of making comparison in other cases. That is why the legislature has ignored controlled transactions, even though at ALP, and restricted the ambit only to uncontrolled transactions for computing ALP in respect of international transactions between two AEs

In view of the judgment of the Allahabad High Court in Jagran Prakashan, there is a paradigm shift in the manner in which recovery provisions u/s 201(1) can be invoked. S. 201 is intended to make good the loss of revenue suffered by the revenue as a result of non-deduction of tax. However, the question of making good the loss arises only when the recipient of income has not paid tax and, therefore, the department has to establish that the recipient of income has not paid due taxes thereon. The non payment of taxes by the recipient is a condition precedent to invoking s. 201(1) & the onus is on the AO to demonstrate that the condition is satisfied. The assessee has to submit all such information about the recipient as he is obliged to maintain under the law. Once this information is submitted, it is for the AO to ascertain whether or not the taxes have been paid by the recipient of income

The assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognised as a 100% EOU division and the Department had no case that the assessee’s unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial unit of the assessee’s 100% EOU, it would defeat the very object of s. 10B of the Act. When the products for which the assessee’s unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs and the assessee is exclusively engaged in blending and packing of tea for export may not be manufacturer or producer of any other article or thing in common parlance. However, for purposes of s. 10A, 10AA & 10B, the definition of the word “manufacture” as defined in s. 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, etc have to be considered. The definition of ‘manufacture’ as per s. 2(r) of SEZ Act, 2005 is incorporated in s. 10AA of the I. T. Act w.e.f. 10.02.2006. This amendment is clarificatory in nature. The definition of ‘manufacture’ under the SEZ Act etc is much wider than what is the meaning of the term ‘manufacture’ under the Income-tax Act

The AO’s objection that a non-compete right is not an “intangible asset” u/s. 32(1)(ii) on the ground that (a) it is not “any other business or commercial right of a similar nature” and (b) it is not capable of transfer like other intangible assets is not acceptable because (i) the right of absence of competition or the ‘non-compete right’ is an asset which is capable of being transferred and is of a similar nature as the other items referred to. This is shown by the fact that the right was transferred by the assessee at the time of its amalgamation and (ii) the expenditure resulted in the acquisition of an unrivaled and non-competed business territory for 10 years which brought advantages in the capital field. Though in Srivatsan Surveyors 125 TTJ 286 (Chennai), it was held that a restrictive covenant is a “right in persona” and not a “right in rem”, a contrary view was taken in ITO vs. Medicorp Technologies India Ltd 30 SOT 506 (Chennai). When two views are possible, the view favourable to the assessee should be followed held in CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC).

It is very sad that the AO without following the principles of natural justice and inspite of clear findings of the ITAT in the order dated 18.06.2010 has repeated the same orders as was done originally way back in 1998. Inspite of levying cost of Rs. 5000 on AO there is no change in the attitude of the Revenue with reference to the assessee. By taking up the assessment at the fag end of the time barring period and by denying natural justice and not considering the evidence on record, the assessee was forced to file appeals before the ITAT unnecessarily by incurring heavy cost of not only appeal fees but also engaging Counsels to defend the case. There should be an end to this sorry state of affairs

Though the allotment of the shares was not done as of 31.3.2006, the number of shares to be allotted to the employees as on 31.3.2006 was specified and immediately thereafter the said shares were so allotted. Consequently, the mere non-allotment of the shares pending completion of certain formalities does not merit the disallowance of said expenditure as being a contingent liability. The fact that the scheme provided for a lock in period of five years under which in case the employee left employment before the expiry of five years, the shares so allotted to him would revert to the assessee, did not make the liability contingent because where the shares were forfeited, the value thereof would be offered to tax in that year (S.S.I. Ltd. vs. DCIT 85 TTJ 1049 (Chennai) followed; Ranbaxy Laboratories 124 TTJ 771 (Del) & VIP Industries (ITAT Mum) distinguished)