The profit earned cannot be handed over to an Indian company
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled in favor of a United Arab Emirates (UAE)-based firm, terming it as an independent entity. The profit earned by such a company could not be added to the Indian company under the Income Tax Act, 1961. It could happen in case of proof that the firm was a paper entity and it was used as a tool for tax evasion.
The IT department alleged that the UAE entity was a sham arrangement to divert the profits of the Indian entity and thereby evade tax.
The two-member bench of the tribunal comprising ITAT President G S Pannu and judicial member Amit Shukla dismissed the department's plea.
It observed, "The Chadha Projects JLT, Dubai is an independent entity incorporated under the laws of the UAE government. It was carrying out various activities - helping, assisting and getting contracts and procurements of orders for the assessee firm. It has also disclosed profits in its balance sheet of AED 7,92,674 including the mark-up."