M/S.ANDRITZ SEPARATION AND P vs. THE DEPUTY COMMISSIONER OF I

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TCA/544/2019HC Madras09 December 2020Bench: Hon`ble Mr Justice T. S. SIVAGNANAM8 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court did not decide the substantial questions of law. The Court noted that the Government of India enacted the Direct Tax Vivad Se Vishwas Act, 2020, providing a mechanism for resolving disputed tax matters. The assessee informed the Court that they had filed a declaration under Section 4 of the Vivad Se Vishwas Act on 30.06.2020. In light of this development, the Court found no useful purpose in keeping the appeal pending. The Tax Case Appeal was disposed of on the ground that the assessee had availed the benefit under the Vivad Se Vishwas Act. The Court granted liberty to the assessee to restore the appeal if the decision on their declaration under the Act was not in their favour, with the Registry to entertain such a restoration request without insisting on a delay condonation application. Consequently, the substantial questions of law were left open.

What were the facts?

The assessee, M/s. Andritz Separation and Pump Technologies India Pvt. Ltd., filed a Tax Case Appeal before the High Court of Judicature at Madras against an order dated 06.06.2019 passed by the Income Tax Appellate Tribunal (ITAT), 'D' (TP) Bench, Chennai. The appeal pertains to Assessment Year 2013-14. The appeal was filed under Section 260-A of the Income Tax Act, 1961. The dispute involved the determination of the arm's length price of international transactions by the Transfer Pricing Officer (TPO) and the subsequent order of the ITAT. The High Court heard arguments from both the assessee and the Revenue. However, the Court did not proceed to decide the substantial questions of law due to subsequent developments.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the TPO was correct in determining the arm's length price of an international transaction as NIL by inappropriately applying the Comparable Uncontrolled Price (CUP) method without providing comparable uncontrolled transactions, thereby contravening Rules 10B and 10C of the Income-tax Rules, 1962. 2. Whether the TPO was correct in rejecting the aggregated approach adopted by the assessee under the Transactional Net Margin Method (TNMM) when the net operating profit margin, after deducting management charges and based on TNMM, was higher than the arithmetic mean of comparable companies, thus confirming the arm's length nature of international transactions, as required by Section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962. 3. Whether the TPO could usurp the powers of the Assessing Officer (AO) under Section 37 of the Act when the AO had referred the international transaction to the TPO for computing the arm's length price under Chapter X of the Act and its rules. 4. Whether the TPO could question the need-benefit test and the genuineness of the international transaction when the reference to the TPO under Section 92CA of the Act was solely for determining the arm's length price as per the prescribed methods. 5. Whether the Tribunal's order declaring the management services transaction as sham was perverse, given the material on record proving the rendition/receipt of services from Associate Enterprises. Assessee's Contentions: The assessee argued that the TPO erred in applying the CUP method and rejecting the TNMM approach. They also contended that the TPO exceeded its jurisdiction by questioning the genuineness and need-benefit of the transactions, which were matters for the AO. The assessee also argued that the Tribunal's finding of sham was perverse. Revenue's Contentions: The judgment records that the Revenue was represented by its Senior Standing Counsel, but their specific contentions are not detailed.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 92D,Section 92CA,Section 37,Section 10B,Section 10C,Section 4,Section 3

AI-generated summary — verify with the full judgment below

T.C.A.No.544 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 09.12.2020 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.544 of 2019 M/s.Andritz Separation and Pump Technologies India Pvt. Ltd., S.No.389, 400/2A, 400/2C, Padur Road, Kuttampakkam Village, Poonamallee Taluk, Tiruvalluvar District, Chennai – 600 124 PAN:AAACN1940M .. Appellant Versus The Deputy Commissioner of Income Tax, Corporate Circle 1(1), Chennai. .. 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' (TP) Bench, Chennai, made in I.T.A.No.2012/CHNY/2017 dated 06.06.2019 relating to the Assessment Year 2013-14. 1/8 http://www.judis.nic.in T.C.A.No.544 of 2019 For Appellant : Mr.Sandeep Bagmar

For Respondent : Mr.T.Ravikumar Senior Standing counsel JUDGMENT [Order of the Court was made by

T.S.SIVAGNANAM

, J.]

This appeal filed by the assessee under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity), is directed against the order dated 06.06.2019 passed by the Income Tax Appellate Tribunal, 'D' (TP) Bench, Chennai ('the Tribunal' for brevity) in I.T.A.No.2012/Chny/2017 for the Assessment Year 2013-14. The assessee has raised the following Substantial Questions of Law for consideration: “1. Whether the TPO was right in determining the arm's length price of international transaction as NIL, when the TPO inappropriately applied CUP method by not providing any comparable uncontrolled transaction, thereby the entire exercise being contrary to Rules 10B and 10C of the Income-tax Rules, 1962? 2. Whether the TPO was right in rejecting the aggregated approach adopted by the Appellant under TNMM Method, when the net operating profit margin after deducting management charges of the Appellant based on TNMM Method as required under section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962, was higher than the 2/8 http://www.judis.nic.in T.C.A.No.544 of 2019 arithmetic mean of comparable companies, thereby confirming the arm's length nature of international transactions? 3. Whether the TPO can usurp the powers of the AO conferred under Section 37 of the Act, when the AO has referred the international transaction to TPO to compute the arm's length price under Chapter X of the Act and rules provided therein? 4. Whether the TPO can question the need benefit test and the genuineness of the international transaction when the same was referred to the TPO under Section 92CA of the Act to determine only the Arms Length Price of the international transaction in accordance with the methods prescribed under Chapter X of the Act and rules provided therein? 5. Whether on facts and circumstances of the case, the order of the Tribunal declaring the transaction of management services is sham is perverse as the Tribunal failed to consider the material available on record which prove the rendition / receipt of service from its Associate Enterprises?” 2. We have heard Mr.Sandeep Bagmar, learned counsel for the appellant/assessee and Mr.T.Ravikumar, learned Senior Standing counsel for the respondent/Revenue. 3. It may not be necessary for this Court to decide the Substantial 3/8 http://www.judis.nic.in T.C.A.No.544 of 2019 Questions of Law framed for consideration on account of certain subsequent developments. The Government of India enacted the Direct Tax Vivad Se Vishwas Act, 2020 (Act 3 of 2020) to provide for resolution of disputed tax and for matters connected therewith or incidental thereto. The Act of the Parliament received the assent of the President on 17th March 2020 and published in the Gazette of India on 17th March 2020.

4.

In terms of the said Act, the assessee has been given an option to put an end to the tax disputes, which may be pending at different levels either before the First Appellate Authority or before the Tribunal or before the High Court or before the Hon'ble Supreme Court of India. Under Section 2(j) “disputed tax” has been defined. In terms of Section 3, where a declarant means a person, who files a declaration under Section 4 on or before the last date files a declaration to the designated authority in accordance with the provisions of Section 4 in respect of tax arrears, then, notwithstanding anything contained in the Income Tax Act or any other law for the time being in force, the amount payable by the declarant shall be determined in terms of Section 3(a-c) thereunder. 4/8 http://www.judis.nic.in T.C.A.No.544 of 2019 5. The First Proviso to Section 3 states that in case, where an Appeal or Writ Petition or Special Leave Petition is filed by the Income Tax authority on any issue before the Appellate Forum, the amount payable shall be one-half of the amount in the table stipulated in Section 3 calculated on such issue, in such a manner as may be prescribed. The second proviso deals with the cases, where the matter is before the Commissioner (Appeals) or before the Dispute Resolution Panel. The third proviso deals with cases, where the issue is pending before the Income Tax Appellate Tribunal. The filing of the declaration is as per Section 4 of the Act and the particulars to be furnished are also mentioned in the Sub Sections of Section 4. Section 5 of the Act deals with the time and manner of the payment and Section 6 deals with Immunity from initiation of proceedings in respect of offence and imposition of penalty in certain cases. Section 9 of the Act deals with cases, where the Act 3 of 2020 will not be applicable. 6. We are informed by the learned counsel for the appellant/assessee that the assessee has already filed the declaration under Section 4 of the Act on 30.06.2020. 5/8 http://www.judis.nic.in T.C.A.No.544 of 2019 7. In the light of the fact that the assessee has already availed the benefit under the Act, no useful purpose would be served in keeping this appeal pending. At the same time, safeguarding the interest of the assessee in the event the order to be passed by the Department under the Act is not in favour of the assessee. Accordingly, the Tax Case Appeal stands disposed of on the ground that the assessee has already filed a declaration and the Department shall process the application at the earliest in accordance with the said Act and communicate the decision to the assessee at the earliest. As observed, the assessee is given liberty to restore this appeal in the event the ultimate decision to be taken on the declaration filed by the assessee under Section 4 of the said Act is not in favour of the assessee. If such a prayer is made, the Registry shall entertain the prayer without insisting upon any application to be filed for condonation of delay in restoration of the appeal and on such request made by the assessee by filing a Miscellaneous Petition for Restoration, the Registry shall place such petition before the Division Bench for orders. 8. With this observation, the Tax Case Appeal stands disposed of 6/8 http://www.judis.nic.in T.C.A.No.544 of 2019 with the aforementioned liberty and Consequently, the Substantial Questions of Law are left open. No costs. (T.S.S.,J) (V.B.S.,J) 09.12.2020 Kak Index: Yes / No Internet: Yes / No Speaking Order/Non-Speaking Order To The Income Tax Appellate Tribunal, 'D' (TP) Bench, Chennai. T.S.SIVAGNANAM, J. AND 7/8 http://www.judis.nic.in T.C.A.No.544 of 2019 V.BHAVANI SUBBAROYAN, J. Kak T.C.A.No.544 of 2019 09.12.2020 8/8 http://www.judis.nic.in

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