(I) Xylo Ltd., operating in India, is the dealer for the goods manufactured by Yoyo Ltd. of Japan. Yoyo Ltd. owns 55% shares of Xylo Ltd. and out of…

(I) The facts of the case indicate that Xylo Ltd. and Yoyo Ltd. of Japan are associated enterprises since Yoyo Ltd. holds 55% shares of Xylo Ltd. and has appointed more than half of the board of directors of Xylo Ltd. Since Yoyo Ltd. is a non-resident, any transaction between Xylo Ltd. and Yoyo Ltd. would fall within the meaning of “international transaction” under section 92B. Therefore, the income arising from such transactions have to be computed having regard to the arm's length price. The action of the Assessing Officer in making addition to the declared income and issuing show cause notice for levy of various penalties is correct since Xylo Ltd. had committed defaults, as listed hereunder, in respect of which penalty, as briefed hereunder, is imposable - (i) Failure to report any international transaction or any transaction, deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X applies, would attract penalty @ 200% of the amount of tax payable since it is a case of misreporting of income referred under section 270A(9) read with section 270A(8). (ii) Failure to maintain the requisite records as required under section 92D in relation to international transaction makes it liable for penalty under section 271AA which will be 2% of the value of each international transaction. (iii) Failure to furnish report from an accountant as required under section 92E makes it liable for penalty under section 271BA i.e., a fixed penalty of 1 lakh. The Assessing Officer shall give an opportunity of hearing to the assessee with a notice as to why the arm's length price should not be determined on the basis of material or information or document in the possession of the Assessing Officer. (II) PT Inc, a foreign company, has advanced loan of ₹ 170 crores to Myra Ltd., an Indian company, which amounts to 56.67% of book value of assets of Myra Ltd. Since the loan advanced by PT Inc. is 51% or more of the book value of assets of Myra Ltd., PT Inc. and Myra Ltd. are deemed to be associated enterprises under the Indian transfer pricing regulations. The deeming provisions would be attracted even if there is a repayment of loan during the same previous year which brings down the said percentage below 51%.