“related party transaction”
The decision most relied on for related party transaction is Eastern Investments Ltd. v. CIT (38 ITR 601), cited in 346 judgments on BharatTax.
Leading authorities on related party transaction
Expenditure must be commercially expedient for carrying on the business, and it is not for revenue authorities to dictate how an assessee should conduct its business. The court will not question the business expediency of a transaction, even if a third party also benefits.
An expense incurred by an assessee for its own business, such as advertising, marketing, and promotional (AMP) expenses, cannot be disallowed merely because it incidentally or indirectly benefits the assessee's sister concerns or associated enterprises.
A transfer pricing adjustment for corporate guarantees provided by an Indian entity to its Associated Enterprises (AEs) where no fees are charged can be estimated at approximately 0.20%. The arm's length principle applies to such intra-group corporate guarantee transactions.
When transactions are part of a package deal with a composite price or are interdependent such that an assessee must accept all of them together, they must be aggregated and treated as a single international transaction for transfer pricing purposes.
Documents found in the possession of a searched person are presumed to belong to that person under Section 132(4A) and do not automatically belong to a third party merely because the transactions recorded therein pertain to or relate to such third party.
Companies with significantly different turnovers (e.g., one above Rs. 200 crores and another below) cannot be considered comparable in transfer pricing analysis. Turnover is a relevant factor in assessing comparability.
The assessee bears the initial burden to maintain and produce authentic documentation under Section 92D and Rule 10D to justify transactions with related parties, especially concerning the arm's length price for such transactions under Section 40A(2)(b). The discharge of this statutory obligation to maintain accurate data is a mandatory requirement of law.
An assessee is entitled to credit for TDS even if the certificate is issued in the name of a joint venture or related party, provided the income to which the TDS relates is offered by the assessee. This principle emphasizes looking at the substance of the transaction over strict adherence to the name on the TDS certificate.