The Pr. Commissioner Of Income Tax-1 vs Cummins India Limited

This Appeal, filed by the Revenue, under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as “the Act of 1961”) is directed against the Judgment and Order dated 3^rd March 2017 passed by the learned Income Tax Appellate Tribunal (“ITAT”) in Income Tax Appeal No. 115/PUN/2011 (A.Y.2006-07).

We have heard Mr Arjun Gupta, learned counsel for the Appellant and Mr Percy Pardiwala, learned Senior Advocate appearing for the Respondent. The facts of the case, in a nutshell, are that the Assessee/Respondent in this case is a company registered under the provisions of the Companies Act, 1956. It is inter alia engaged in the business of manufacturing and sale of Internal Combustion (IC) Engines, Spares, Components (Including Bought-Outs) and Generating Sets, Service of Engines & Genesets, Trading in Power Generating Sets and Allied Equipment etc. The Assessee also has a 100% export oriented unit through which, it conducts manufacture and export of IC Engines and its accessories as well as generating sets and its accessories. The Respondent-Assessee had submitted its return for income for the Assessment Year 2006-07, on 23^rd November 2006, declaring the total income of Rs.2,10,40,80,385/-, which was processed under Section 143(1) of the Act of 1961. The return of the company was selected for scrutiny and a reference was thereafter, made under Section 92CA(1) of the Act of 1961, to the Transfer Pricing Officer (“TPO”). In the proceeding before the TPO, addition to the value of international transaction amounting to Rs.40,64,87,070/- was proposed. Accordingly, the Assessing Officer (“AO”) passed a Draft Assessment Order dated 24^th December 2009 under Section 143(3), read with Section 144C (1), making the addition of Rs.40,64,87,070/- to the income of the Assessee, as proposed by the TPO. In the result, the AO has assessed that the total income of the Assessee was Rs.261,48,72,472/-. Aggrieved by the Draft Assessment Order dated 24^th December 2009 passed by the Assessing Officer, the Assessee/Respondent had filed objection before the Dispute Resolution Panel (“DRP”), Pune in Form No. 35A. However, the DRP had rejected the objections raised by the Assessee thus, confirming the Draft Assessment Order. Consequently, the Assessing Officer had passed order dated 29^th November 2010 whereby, the total income of the Assessee was determined as Rs.260,98,88,908/-, which included transfer price adjustment for a sum of Rs.40,64,87,070/- and Corporate Tax Disallowance leading to addition of a further amount of Rs.9,93,21,355/-. Aggrieved thereby, the Assessee had approached the Income Tax Appellate Tribunal by filing Appeal No. 115/PUN/2011 which was disposed of by the impugned order dated 3^rd March 2011, partly allowing Appeal filed by the Assessee. Hence, the present Appeal under Section 260-A of the Income Tax Act, 1961.

In the memorandum of the Appeal, the Appellant-Revenue has projected the following substantial questions of law.

During the course of admission hearing of the Appeal, Mr Gupta, learned counsel for the Appellant has addressed elaborate arguments to contend that the aforesaid substantial questions of law would arise in the Appeal, which, if answered in favour of the Revenue, would lead to reversal of the Judgment and Order of the ITAT, to the extent the same has partly allowed the Appeal of the Assessee. It would be pertinent to mention herein that the Assessee has not preferred any Appeal against the Judgment and Order dated 3^rd March 2017, to the extent the grounds taken by the Assessee were rejected by the learned Tribunal.

According to Mr Gupta, the Tribunal has erred in accepting the benchmarking analysis by aggregating export transactions with associate enterprises and domestic sales to the third parties at entity level. The learned counsel for the Appellant has further argued that the learned Tribunal has committed an error in relying upon the case of Demag Cranes & Components (India) Pvt. Ltd. Vs. Dy. CIT,^{11.ITA no.1683/PN/2011: A.Y2007-08.} although the ratio laid down in that case was not applicable in the facts of the present case. It is also the submission of Mr Gupta that the decision in case of Denso India Limited Vs Commissioner of Income Tax (133 DTR 33) was not considered by the learned Tribunal and, therefore, the impugned Judgment and Order is liable to be set aside on the ground that the same being perverse.

Countering the said arguments, Mr Pardiwala, learned Senior Counsel appearing for the Respondent, has argued that the Transitional Net Margin Method (“TNMM”) for benchmarking international transaction was the most appropriate method for the transfer pricing analysis in a case of this nature and, therefore, the learned Tribunal was wholly justified in setting aside the order of the Assessing Officer. Mr Pardiwala has further argued that in view of the decision rendered in the Demag Cranes & Components (India) Pvt. Ltd. (Supra) as well as Cumins India Limited and in the case of Sony Ericson Mobile Communication India Pvt Ltd Vs. Commissioner of Income Tax (2015) 374 ITR 188 (Del), the substantial questions of law projected by the learned counsel for the Appellant would not arise for consideration of this Court in the present matter.

We have considered the submissions made by the learned counsel for both sides and have meticulously gone through the material on record as well as the decision relied upon by the learned counsel appearing for the Respondent. Although, at the first blush, it did occur to us that the substantial questions of law projected by the Appellant in the memo of Appeal are nothing but mere legal objections raised against the impugned Judgment and Order dated 3^rd March 2017 passed by the Tribunal and, therefore, cannot be treated as substantial questions of law, yet, after a careful examination of the record and after going through the impugned Judgment, we are convinced that there are substantial questions of law that would arise for consideration of this Court in the present Appeal. Therefore, the Appeal is admitted to be heard on the following substantial questions of law:-

Issue notice returnable after eight weeks.

Since, Mr Jitendra Singh waives service of notice on behalf of the Respondent, no formal notice is required to be sent in this case.

Let the matter be listed for hearing in due course

The Appellant would be at liberty to urge any other additional substantial question of law, at the time of hearing, with the leave of the Court.