Case Note & Summary
The appellant, Cummins India Limited, filed three appeals under Section 260A of the Income Tax Act, 1961, against the order dated 28th September 2022 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Years 2015-2016, 2016-2017, and 2017-2018. The common issue in all appeals pertained to transfer pricing adjustments. The appeals were admitted on 11th April 2023, and three questions of law were framed. The first question was whether the Tribunal erred in passing an order contrary to the view taken by a co-ordinate bench in the appellant's own case for earlier assessment years on identical facts and law without referring the issue to a Special Bench. The second question was whether the order was bad in law for ignoring the fact that the department had accepted the same methodology for benchmarking transactions for transfer pricing purposes in seven earlier years. The third question was whether the Tribunal erred in relying on the Delhi High Court decision in Magneti Marelli Power Train India P. Ltd. v. Deputy Commissioner of Income-tax, which did not support and was contrary to the view taken in the impugned order. The High Court, after hearing the parties, allowed the appeals and set aside the impugned order, restoring the matters to the Tribunal for fresh consideration in accordance with law. The court held that the Tribunal should have followed the earlier co-ordinate bench decision or referred the matter to a larger bench, and that consistency in tax treatment is a relevant factor. The court also noted that the reliance on Magneti Marelli was misplaced as it did not support the Tribunal's conclusion.
Headnote
A) Income Tax - Transfer Pricing - Consistency - The Tribunal erred in passing an order contrary to the view taken by a co-ordinate bench in the assessee's own case for earlier assessment years on identical facts and law without referring the issue to a Special Bench. Held that the Tribunal should have followed the earlier decision or referred the matter to a larger bench. (Paras 1-3) B) Income Tax - Transfer Pricing - Rule of Consistency - The order was bad in law as it ignored the fact that the department had accepted the same methodology applied by the assessee for benchmarking transactions for transfer pricing purposes in seven earlier years. Held that consistency in tax treatment is a relevant factor. (Paras 1-3) C) Income Tax - Transfer Pricing - Reliance on Precedent - The Tribunal erred in relying on the decision of the Delhi High Court in Magneti Marelli Power Train India P. Ltd. v. Deputy Commissioner of Income-tax, which ex-facie did not support and was contrary to the view set out in the impugned order. Held that reliance on a precedent that does not support the conclusion is erroneous. (Paras 1-3)
Issue of Consideration
Whether the Income Tax Appellate Tribunal erred in law in passing an order contrary to the view taken by a co-ordinate bench in the assessee's own case for earlier assessment years on identical facts and law, and whether the order was bad in law for ignoring the department's acceptance of the same methodology in seven earlier years.
Final Decision
The appeals are allowed. The impugned order dated 28th September 2022 passed by the Income Tax Appellate Tribunal is set aside. The matters are restored to the Tribunal for fresh consideration in accordance with law.
Law Points
- Transfer pricing adjustments
- Consistency in tax treatment
- Binding nature of co-ordinate bench decisions
- Rule of consistency
- Section 260A of Income Tax Act
- 1961
