ABC Ltd. has 2 factories one of which is in SEZ, Company moves the produce of the non SEZ factory at a price considerably lower than the fair market value to the SEZ factory. This lowers the cost of production of the SEZ

CS Professional · Advanced Tax Laws · PYQS · June 2019
ABC Ltd. has 2 factories one of which is in SEZ, Company moves the produce of the non SEZ factory at a price considerably lower than the fair market value to the SEZ factory. This lowers the cost of production of the SEZ factory and the goods are sold from therein after insignificant value addition. Consequently, the SEZ factory shows higher profits and that entitles the assessee to claim a higher deduction from the computation of income. Can General Anti Avoidance Rules 'GAAR' specified under the Income Tax Act, 1961 be invoked in this case ?

Answer & Explanation:

There is no misrepresentation of facts in the situation given in the question and hence there is no tax evasion. In the given case, ABC Ltd. has made to shift the profits from a taxable zone to a zone with tax benefits being SEZ and hence this would be dealt with by the transfer pricing regulation. Hence, GAAR will not be invoked in this case.

Topics: Income Tax Act

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