COMMISSIONER OF INCOME TAX vs. LAKSHMI MACHINE WORKS LIMITED

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TCA/195/2024HC Madras30 September 2024Bench: Honourable Mr Justice R. SURESH KUMAR6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the Tax Case Appeal. The Court noted that the Revenue itself had accepted the assessee's position in respect of subsequent assessment years (2005-06 to 2007-08) and that no adjustments were made by the TPO for those years. Applying the same logic, the Court found no further adjudication necessary for assessment year 2004-05. Consequently, the appeal was dismissed. The Court explicitly stated that the substantial questions of law were kept open for decision at a later point in an appropriate case. No order as to costs was made. The judgment does not provide reasoning on the merits of the individual issues raised, as the appeal was disposed of based on the concession regarding subsequent years.

What were the facts?

The Revenue, represented by the Commissioner of Income Tax, Corporate Circle, Coimbatore, filed a Tax Case Appeal against an order of the Income Tax Appellate Tribunal (ITAT), 'D' Bench, Chennai, dated August 17, 2022. The appeal pertains to assessment year 2004-05 and challenges the ITAT's decision concerning transfer pricing adjustments and eligibility for deductions under Sections 10A or 10B. The assessee is M/s. Lakshmi Machine Works Limited. The Revenue's primary argument is that similar issues for subsequent assessment years (2005-06, 2006-07, and 2007-08) were accepted by the Assessing Authority, implying a different treatment for the current year. The High Court noted that the Revenue itself had accepted the assessee's case for subsequent years.

What were the issues?

The High Court was to decide four substantial questions of law: 1. Whether the Tribunal was correct in accepting the Cost Plus Method (CPM) as the most appropriate method over the Transactional Net Margin Method (TNMM) adopted by the Transfer Pricing Officer (TPO), without a speaking order, based on the assessee being a contract manufacturer not bearing risk? 2. Whether the Tribunal erred in observing that the TPO accepted the assessee's valuation method (CPM) for earlier and subsequent years, when the TPO had actually adopted TNMM and found no adjustment due to comparable margins being less than 5%? 3. Whether the Tribunal was right in allowing the assessee's claim that the Resale Price Method was appropriate for raw material imports, despite the price paid being higher than the original supplier's cost? 4. Whether the Tribunal was correct in holding the assessee eligible for deduction under Section 10A or 10B, notwithstanding the proviso to Section 92C(4) which disallows such deductions if income is determined by enhanced income after ALP computation? Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Revenue argued that similar issues were accepted by the Assessing Authority for subsequent assessment years (2005-06, 2006-07, 2007-08), while the present appeal concerns assessment year 2004-05.

Which sections of the Income-tax Act were involved?

Section 260A,Section 10A,Section 10B,Section 92C

AI-generated summary — verify with the full judgment below

T.C.A.No.195 of 2024 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 30.09.2024 CORAM THE HONOURABLE MR.JUSTICE R.SURESH KUMAR and THE HONOURABLE MR.JUSTICE C.SARAVANAN T.C.A.No.195 of 2024 The Commissioner of Income Tax, Corporate Circle, Coimbatore. ... Appellant -Vs- M/s.Lakshmi Machine Works Limited, (Successor of LMW Machinery Limited Previously known as Reiter LMW Machinery Limited) Sulur Railway Feeder Road, Muthudoundenpudur, Coimbatore 641 406. PAN: AABCR0309M

... Respondent PRAYER : Tax Case Appeal filed under Section 260 A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal 'D' Bench, Chennai dated 17.08.2022 in I.T.A.No.2253/Chny/2016 for the assessment year 2004-05. For Appellant : Mr.Karthick Ranganathan Senior Standing Counsel For Respondent : Mr.R.Venkatanarayanan for M/s.Subaraya Iyer Padmanabhan 1/6 https://www.mhc.tn.gov.in/judis T.C.A.No.195 of 2024 J U D G M E N T (Judgment of the Court was delivered by R.SURESH KUMAR, J) The following substantial questions of law have arisen in this tax case appeal: i. Whether on the facts and in the circumstances of the case, the Tribunal was right in accepting the Cost Plus Method (CPM) as the most appropriate method against the Transactional Net Margin Method (TNMM) adopted by the TPO without passing a speaking order claiming that it was a contract manufacturer and that it did not bear any risk? ii. Whether on the facts and in the circumstance of the case the Tribunal was correct in observing that the TPO had accepted the method of valuation by the assessee that is CPM for earlier and subsequent years when the TPO has actually adopted TNMM and conducted independent search and compared with identical companies and made no adjustment because of margin of comparable was less than 5%? iii. Whether on the facts and in the circumstances of the case the Tribunal was right in allowing the claim of the assessee that Resale Price Method was the most appropriate method in respect of import of raw material when the price paid by the assessee was higher than the cost from original supplier? 2/6 https://www.mhc.tn.gov.in/judis T.C.A.No.195 of 2024 iv. Whether on the facts and in the circumstances of the case the Tribunal was right in holding assessee is eligible for deduction u/s.10A or 10B when as per proviso to Section 92C (4) no deduction u/s.10A or 10B or chapter VIA shall be allowed if the amount of income is determined by enhanced of income after computation of income by determining the Arm's Length Price? 2. It is submitted by Mr.Kartick Ranganathan, learned Senior Standing Counsel appearing for the appellant Revenue that, the similar issue had been accepted by the Assessing Authority against the very same assessee in respect of the subsequent assessment years, namely, assessment years 2005-06, 2006-07 and 2007-08, whereas the present issue relates to assessment year 2004-05. 3. Heard Mr.R.Venkatanarayanan, learned counsel appearing on behalf of Mr.Subaraya Iyer Padmanabhan for the respondent assessee. 4. In view of the aforestated factual position, where the Revenue itself have accepted the case of the assessee in respect of the subsequent assessment 3/6 https://www.mhc.tn.gov.in/judis T.C.A.No.195 of 2024 years and no such adjustment was made by the Transfer Pricing Officer (TPO) for assessment years 2005-06 to 2007-08, the same logic would apply to the present year, ie., assessment year 2004-05, hence nothing more to be adjudicated on the issue raised in this appeal. 5. Hence, this Tax Case Appeal is dismissed, however keeping open the substantial questions of law arising in this appeal for decision at a later point of time in the appropriate case. However, there shall be no order as to costs. (R.S.K., J.) (C.S.N., J.) 30.09.2024 NCC : Yes / No Index : Yes / No Speaking Order : Yes / No vji To 4/6 https://www.mhc.tn.gov.in/judis T.C.A.No.195 of 2024 M/s.Lakshmi Machine Works Limited, (Successor of LMW Machinery Limited Previously known as Reiter LMW Machinery Limited) Sulur Railway Feeder Road, Muthudoundenpudur, Coimbatore 641 406. PAN: AABCR0309M 5/6 https://www.mhc.tn.gov.in/judis T.C.A.No.195 of 2024 R.SURESH KUMAR, J. and C.SARAVANAN, J. vji T.C.A.No.195 of 2024 30.09.2024 6/6 https://www.mhc.tn.gov.in/judis

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