M/S KNORR BREMSE INDIA PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX

ITA/182/2013HC Punjab & HaryanaPHHC01105034201306 November 2015Author: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE A.B. CHAUDHARI44 pages
AI SummaryRemanded

What were the facts?

These are cross-appeals by M/s. Knorr-Bremse India Pvt. Ltd. (assessee) and the Assistant Commissioner of Income Tax (Revenue) against an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 2007-08. The dispute arises from an assessment order of Rs. 6,25,65,160/-, which followed directions from the Dispute Resolution Panel (DRP) based on objections to the draft assessment order by the Assessing Officer (AO). The AO had referred international transactions of the assessee with its associated enterprises (AEs) to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP). The assessee is a wholly owned subsidiary of Knorr-Bremse Asia Pacific (Holding) Limited and is involved in manufacturing and distribution of air brake sets and related components. The assessee had prepared a transfer pricing report using the Transactional Net Margin Method (TNMM).

What did the High Court hold?

The High Court found that the entire approach of the authorities in determining the ALP would need to be reconsidered in light of its observations. It noted that the Tribunal's finding that the TPO is not authorized to judge the allowability of business expenditure, relying on CIT vs. EKL Appliances Ltd., was based on a potentially contradictory interpretation of the DRP's order. The Tribunal held that the DRP had only described circumstances to test benefits, not to question commercial expediency, yet also concluded that only incidental and passive association benefits were provided. The High Court observed that the TPO and DRP did question commercial expediency and the actual delivery and benefit of services. Regarding the Revenue's appeal, the High Court noted the Tribunal's reasoning that since the DRP found SAP license and MS Office were purchased at a lower rate, benefiting the assessee, the addition by the TPO was improper. However, due to the findings on questions of law in the assessee's appeal, this matter also needed reconsideration. Consequently, the High Court set aside the ITAT's order and remanded the matter to the Tribunal for fresh consideration, directing it to decide whether to consider evidence itself or further remand. The High Court did not decide the specific questions of law raised but found them relevant for re-assessment.

What were the issues?

The High Court had to decide several substantial questions of law. For the assessee's appeal, the questions were: 1. Whether the Tribunal was correct in upholding an adjustment to the declared value of international transactions for professional consultancy (Rs. 1,52,07,206/-) and management fee for support services (Rs. 1,40,56,800/-) under Section 92C(1) read with Section 92CA(3) of the Income Tax Act. 2. Whether the Tribunal's order was perverse for non-consideration of material and evidence, leading to a conclusion that services availed were shareholder activities. Additional questions permitted were: 3. Whether the TPO could apply the Comparable Uncontrolled Price (CUP) method to analyze specific international transactions separately, even though the Net Profit Margin (NPM) under TNMM was accepted for others. 4. Whether the TPO could compute ALP at nil for professional consultancy and management fees using CUP, without referring to comparables. For the Revenue's appeal, the question was: 5. Whether the ITAT was right in deleting the addition of Rs. 1,61,36,323/- (60% of Rs. 2,68,93,871/-) on account of consultancy charges, despite the DRP rejecting the assessee's objection on the grounds that SAP license and MS Office were purchased at a lower rate, benefiting the assessee. The assessee argued that the services were genuine and not merely shareholder activities. The Revenue contended that the addition was justified. The judgment notes that the TPO and DRP questioned the commercial expediency and benefits derived from the transactions.

Which sections of the Income-tax Act were involved?

Section 92C,Section 92CA,Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

1.

INCOME TAX APPEAL No.182 of 2013 (O&M) DATE OF DECISION: 06.11.2015

M/s. Knorr-Bremse India Pvt. Ltd. …..Appellant versus

Assistant Commissioner of Income Tax, Circle-I, Faridabad.

…..Respondent

2.

INCOME TAX APPEAL No.172 of 2013 (O&M)

Commissioner of Income Tax, Faridabad. …..Appellant Versus

M/s Knorr Bremse India P. Ltd.

…..Respondent

CORAM:- HON'BLE MR.JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE G.S. SANDHAWALIA

Present: Mrs. Radhika Suri, Senior Advocate with

Ms. Rinku Dahiya, Advocate for the assessee

Mr. Tejinder K. Joshi, Advocate for the Revenue

..

S.J. VAZIFDAR, ACTING CHIEF JUSTICE:

These are cross appeals under Section 260-A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT) allowing partly the assessee’s appeal against the order of the Assistant Commissioner of PARKASH CHAND 2015.11.19 14:35 I attest to the accuracy and authenticity of this document

ITA Nos.182 & 172 of 2013 Income Tax assessing the assessee’s income at Rs

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 92C

All 1,740 judgments and leading authorities on Section 92C →

Recent GST High Court judgments

Search GST case law →