THE COMMISSIONER OF INCOME TAX vs. M/S.BONFIGIOLI TRANSMISSIONS PVT LTD

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TCA/811/2018HC Madras11 June 2025Bench: Honourable The CHIEF JUSTICE5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court noted that both parties agreed that Question No.3, concerning the deletion of additions for belated payment of employees' contribution to provident fund, was covered by the Supreme Court decision in Checkmate Services P. Ltd. V. Commissioner of Income Tax – 1 (448 ITR 518) in favour of the Revenue. Therefore, Question No.3 was answered in favour of the Revenue. The appeal was admitted on Questions 1, 2, and 4. Subsequently, the Revenue sought to withdraw the appeal on Questions 1, 2, and 4 due to the monetary limit prescribed by CBDT Circular No.09/2024. The Court declined to reverse the decision on Question No.3 despite a submission regarding low tax effect. The appeal was dismissed as withdrawn concerning Questions 1, 2, and 4. For Question No.3, since the assessee accepted the Apex Court's decision, the Revenue was directed to immediately calculate the amount payable and recover it from the assessee. No issue was expressly left undecided, but the withdrawal meant no decision on merits for questions 1, 2, and 4.

What were the facts?

The Revenue, Commissioner of Income Tax, Chennai, filed an appeal under Section 260A of the Income Tax Act, 1961, against the order dated 14.05.2018 passed by the Income Tax Appellate Tribunal (ITAT), Madras 'D' Bench. The appeal pertains to Assessment Year 2013-14 and challenges the ITAT's decision concerning the deletion of disallowance of sales commission, relief granted to the assessee regarding services from a German subsidiary, and deletion of additions made on belated payment of employees' contribution to provident fund, as well as transfer pricing issues. The High Court initially admitted the appeal on questions 1, 2, and 4, while question 3 was agreed to be covered by a Supreme Court decision in favour of the Revenue. Subsequently, the Revenue sought to withdraw the appeal due to the monetary limit prescribed by CBDT Circular No.09/2024.

What were the issues?

The substantial questions of law before the High Court were: 1. Whether the Tribunal was right in deleting the disallowance of sales commission solely because no disallowance was made in the previous year, disregarding the principle of res judicata in income tax matters? 2. Whether the Tribunal was right in granting relief to the Assessee when no evidence was produced to substantiate services rendered by the German subsidiary, given that all sales were made from India? 3. Whether the Tribunal was right in deleting additions made under Section 36(1)(va) of the Act on account of belated payment of employees' contribution to provident fund? 4. Whether the Tribunal was right in not appreciating that closely linked transactions can be benchmarked using an integrated approach, and management services (accounting, finance, marketing) are not closely linked with the import/export of gearboxes and components, especially when OECD guidelines, approved by Indian Transfer Pricing, advocate transaction-to-transaction benchmarking? Contentions: The Revenue argued that the principle of res judicata does not apply to income tax matters and that the assessee failed to provide evidence for services rendered by the German subsidiary. The Revenue also contended that management services are distinct from import/export transactions for benchmarking purposes. The Assessee, through its counsel, agreed that question 3 was covered by a Supreme Court decision in favour of the Revenue. Later, the Revenue sought to withdraw the appeal due to the monetary limit.

Which sections of the Income-tax Act were involved?

Section 260A,Section 36(1)(va)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Madras D Bench, for the

T.C.A. No.811 of 2018 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 11.06.2025 CORAM THE HON'BLE MR.K.R.SHRIRAM, CHIEF JUSTICE AND THE HON'BLE MR.JUSTICE SUNDER MOHAN Tax Case Appeal No.811 of 2018 The Commissioner of Income Tax, Chennai. .. Appellant -vs- M/s.Bonfigioli Transmissions Private Limited, Plot No.AC7-AC11, SIDCO Industrial Estate, Thirumudivakkam, Chennai 600 044. PAN: AABCB1675N .. Respondent Prayer: Appeal filed under Section 260A of the Income Tax Act, 1961, against the order dated 14.05.2018 passed in ITA No.2977/Chny/2017 on the file of Income Tax Appellate Tribunal, Madras 'D' Bench, for the Assessment Year 2013-14. For Appellant : Mr.Ravikumar T. Sr. Standing Counsel For Respondent : Ms.Lakshmi Page 1 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 12/06/2025 08:53:17 pm ) T.C.A. No.811 of 2018 ORDER (Order of the Court was made by the Hon'ble Chief Justice) On 06.01.2025, the following order was passed: " The substantial questions of law raised for consideration are as follows: "1. Whether the Tribunal was right in deleting the disallowance of sales commission merely on the ground that no disallowance was made in the previous year especially when the Principle of resjudicata will not applicable to I. T Act, 1961 ? 2. Whether the Tribunal was right in granting relief to the Assessee especially when no evidence was produced by the Assessee tosubstantiate the fact that the German subsidiary had rendered anyservice to the assessee when all the sales were made only from India by the Assessee company ? 3. Whether the Tribunal was right in deleting the additions made u/s.36 (1)(va) of the Act on belated payment of Employees' contribution made towards provident fund ? 4. Whether the Tribunal was right in not appreciating the fact that when the closely linked transactions can be benchmarked using the integrated approach and management services in the nature of accounting, finance, marketing etc which are not closely linked with the Import and Export of gear boxes and components especially when OCED guidelines which had been approved by the Indian Transfer Pricing provides for bench marking on transaction to transaction basis ?" Page 2 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 12/06/2025 08:53:17 pm ) T.C.A. No.811 of 2018 2. Both Mr.Ravikumar, learned Senior Standing Counsel for theappellant/revenue and Ms.Lakshmi, learned counsel for the respondent/assessee would accede to the position that question No.3, Whether the Tribunal was right in deleting the additions made u/s.36 (1)(va) of the Act on belated payment of Employees' contribution made towards provident fund ? is covered by a decision of the Hon'ble Supreme Court in Checkmate Services P. Ltd. V. Commissioner of Income Tax – 1 (448 ITR 518) in favour of the Revenue. 3. Hence, the third question of law is answered in favour of the revenue and this Tax Case (Appeal) is admitted on questions 1, 2 and 4 alone. 4. Ms.Lakshmi states that the appeal filed may be less than the tax effect. Let this be looked into by the Department. 5. List on 29.01.2025." 2. Today, Mr.Ravikumar seeks leave to withdraw the appeal in view of the monetary limit involved in the appeal as prescribed in Circular No.09/2024 dated 17.09.2024, issued by the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, Government of India. Counsel also states that the withdrawal is only due to the monetary limit and without conceding the stand of the Department. 3. Mr.Balaji states that even the order passed as regards Question No.3 should be reversed because of the low tax effect. We decline to do that. Page 3 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 12/06/2025 08:53:17 pm ) T.C.A. No.811 of 2018 4. Appeal stands dismissed as withdrawn only as regards Question Nos.1, 2 and 4. Since the assessee has accepted that Question No.3 is covered by a decision of the Apex Court, the Revenue shall immediately calculate the amount payable and recover it from the assessee. There shall be no order as to costs. (K.R.SHRIRAM, CJ.) (SUNDER MOHAN, J.) 11.06.2025 Index : Yes/No Neutral Citation : Yes/No sra To 1. The Income Tax Appellate Tribunal Madras 'D' Bench. 2. The Commissioner of Income Tax, Chennai. Page 4 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 12/06/2025 08:53:17 pm ) T.C.A. No.811 of 2018 The Hon'ble Chief Justice and Sunder Mohan, J. (sra) T.C.A. No.811 of 2018 11.06.2025 Page 5 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 12/06/2025 08:53:17 pm )

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