PCIT-1 Vs Cummins India Limited (Bombay High Court)
The Bombay High Court admitted a Revenue appeal under Section 260A of the Income Tax Act, 1961 against the ITAT order dated 3 March 2017 concerning Assessment Year 2006-07. The assessee, engaged in manufacturing and sale of IC Engines, spares, components and generating sets, also operated a 100% export-oriented unit manufacturing and exporting IC Engines, accessories and generating sets.
For the relevant assessment year, the assessee filed its return declaring total income of Rs.2,10,40,80,385. Following scrutiny, a reference was made to the Transfer Pricing Officer (TPO) under Section 92CA(1). The TPO proposed an adjustment of Rs.40,64,87,070 in respect of international transactions. A draft assessment order under Sections 143(3) and 144C(1) was consequently passed. The Dispute Resolution Panel rejected the assessee’s objections, after which the Assessing Officer passed the final order dated 29 November 2010 determining total income at Rs.260,98,88,908, including the transfer pricing adjustment and a corporate tax disallowance of Rs.9,93,21,355.
The assessee approached the ITAT, which partly allowed its appeal. The Revenue challenged that decision before the High Court. Its proposed questions included whether the Tribunal was justified in accepting benchmarking by aggregating exports to associated enterprises (AEs) of Rs.461.15 crore with domestic sales to third parties of Rs.609.63 crore at entity level, despite Section 92 requiring benchmarking of international transactions. The Revenue also questioned the Tribunal’s reliance on Demag Cranes & Components (India) Pvt. Ltd. Vs. Dy. CIT, its treatment of separate transaction benchmarking, the reallocation of costs between domestic and export segments, the direction to use OP/OR as the Profit Level Indicator, and treatment of interest income as operating income.
