ITAT Mumbai Rules: No Profit in Intra-Group Sales, Not Liable for Commission Income
Tribunal Clarifies Tax Treatment of Circular Group Transactions
Avance Technologies Appeal Partly Allowed, Additions Deleted
By Our Legal Reporter
New Delhi: January 14, 2026:
In a significant ruling that will impact corporate taxation in India, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench on 13 January 2026 held that intra-group sales without profit cannot be treated as commission income. The decision came in the appeal filed by Avance Technologies Limited against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for the Assessment Year 2017–18.
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The Tribunal observed that profit cannot arise from circular transactions within the same group, and therefore, additions made by the tax department on account of alleged commission income were unjustified. This ruling provides clarity on how intra-group transactions should be treated under the Income-tax Act, 1961, especially in cases where no real profit is generated.
Background of the Case
- Company Involved: Avance Technologies Limited.
- Assessment Year: 2017–18.
- Dispute: The tax department treated intra-group sales as commission income, alleging profit generation.
- Appeal: Avance Technologies challenged the additions before ITAT.
- Tribunal’s Decision: ITAT partly allowed the appeal, deleting additions arising from intra-group sales.
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Tribunal’s Observations
- No Profit in Intra-Group Sales:
- The Tribunal emphasized that no entity could earn profit from dealings within its own controlled group.
- Circular transactions do not generate commission income.
- Commission Income Not Applicable:
- Commission income arises only when there is a third-party transaction involving services.
- Intra-group sales are internal adjustments and cannot be taxed as commission.
- Relief to Assessee:
- The Tribunal deleted the additions made by the tax department.
- The appeal was partly allowed, giving relief to Avance Technologies.
Why This Ruling Matters
- Corporate Tax Clarity: Provides clear guidance on treatment of intra-group transactions.
- Prevents Double Taxation: Ensures companies are not unfairly taxed on internal adjustments.
- Encourages Transparency: Reinforces the principle that only real profits are taxable.
- Judicial Precedent: Sets a benchmark for future cases involving group companies.
Broader Implications
- For Companies:
- Relief for businesses engaged in intra-group sales.
- Encourages smoother internal restructuring without fear of tax penalties.
- For Tax Authorities:
- Must distinguish between genuine commission income and intra-group adjustments.
- Cannot mechanically treat all transactions as taxable.
- For Judiciary:
- Reinforces ITAT’s role in ensuring fairness in tax administration.
- Provides clarity for future disputes.
Challenges Ahead
- Documentation: Companies must maintain clear records to prove intra-group transactions are non-profitable.
- Interpretation Issues: Tax authorities may still challenge transactions if they suspect profit shifting.
- Compliance Burden: Firms must ensure transparency to avoid litigation.
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Conclusion
The ITAT Mumbai’s ruling of January 2026 in the Avance Technologies case is a landmark in corporate taxation. By holding that intra-group sales without profit cannot be treated as commission income, the Tribunal has provided much-needed clarity and relief to businesses.
This judgment ensures that taxation is based on real profits, not artificial adjustments, and strengthens the principle of fairness in India’s tax system. For companies, it is a reminder to maintain transparent documentation, while for tax authorities, it is a directive to focus on genuine income rather than internal group dealings.
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