No Separate PE Profits Taxable After TP Acceptance: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 29 May 2026 held that no further profit can be attributed to a Permanent Establishment (PE) in India where transactions between the foreign enterprise and its Indian associated entities have already been accepted at arm’s length under transfer pricing provisions.

A Bench comprising Vice President Saktijit Dey and Accountant Member Prabhash Shankar allowed the appeal filed by FedEx Express International B.V. and directed the Assessing Officer to delete the addition made towards profit attribution to its Indian dependent agent permanent establishments (DAPEs).

“The transaction between the Indian group entities, which are DAPEs of the assessee, and the assessee having been found to be at arm’s length, no further profit can be attributed to the PEs.”

The Assessing Officer held that the Indian entities constituted dependent agent permanent establishments (DAPEs) of the assessee under Article 5(5) of the India-Netherlands Double Taxation Avoidance Agreement (DTAA). After concluding that substantial business activities were being carried out in India through these entities, the Assessing Officer attributed profits to the alleged PEs and made an addition of Rs 17.37 crore.

Before the Tribunal, the assessee did not dispute the existence of DAPE. However, it contended that no further profits could be attributed to the PE because the transactions with the Indian entities had already been benchmarked and accepted at arm’s length. It was also submitted that in transfer pricing proceedings involving the Indian entities, the Tribunal had accepted the arm’s length price declared by them.

The Tribunal observed that the issue was squarely covered by the Supreme Court decisions in Morgan Stanley & Co. and E-Funds IT Solution Inc., which held that once an associated enterprise in India is remunerated at arm’s length, no further profits are required to be attributed to the PE. It further noted that in the assessee’s own cases for AYs 2018-19 and 2019-20, the Mumbai Bench had already taken the same view.

“Once the transactions have been found to be at arm’s length, no further profit attribution can be made.” The Bench also noted that the profits already offered and taxed in the hands of the Indian entities were higher than the profits attributed by the Assessing Officer to the PE. It found no material to show that the transfer pricing analysis failed to capture the functions performed, assets employed, or risks assumed by the Indian entities.

Thus, the ITAT directed the Assessing Officer to delete the addition made on account of profit attribution to the Indian PE. The issue relating to attribution methodology was treated as academic in view of the decision on the principal issue. The Tribunal also directed the Assessing Officer to verify the assessee’s claim for interest under Section 244A in accordance with law.

To Read Full Order, Download PDF Given Below.