M/S. Madura Coats Private Ltd. v. the Deputy Commissioner

Madras HC14 Sept 2020TCA/739/2017

Case brief

AI extract

What is this about?

The Madras High Court set aside the Tribunal's order for AY 2009-10 which mandated the CUP method for transfer pricing. The High Court held the Tribunal misread a prior open remand order, causing multiplicity of litigation. It remitted the two issues on TP method and commission disallowance to the Tribunal for a final decision on merits.

What did the court decide?

The impugned order of the Tribunal dated 16 November 2016 setting the TP method and disallowing commission was set aside. The Tribunal was directed to decide both issues on merits within six months.

What the court decided

M/S. Madura Coats Private Ltd. Vs the Deputy Commissioner — Income Tax | Madras HC (2020)

¶49

this view taken by the Hon’ble Delhi High Court. Nor can there be any quarrel on the view taken by the same Court that ld. TPO should not question how to conduct the business. These judgments cannot in our opinion be extra-polated to mean that there rested no onus on the assessee, to show the business purpose for which payments were effected by it. Commercial necessity of a payment is something which is well within the power of an assessee to decide considering its business interest. However, it cannot say that such commercial necessity or expediency has to be presumed. Assessee was bound to show the agency services rendered by M/s. TCA which it failed to do. Mere raising of bills cannot give rise to presumption of rendering any services. As already noted by us the orders on which commission was paid was only on items sold to group concerns and not to any third parties. There is much strength in the argument of the ld. Departmental Representative that in such a situation onus of the assessee was much more than in a scenario where orders on which commission was received were on supplies to third parties. Assessee had failed to discharge this. Consolidation of fragmented orders could have been done by the assessee itself and did not require services of an Associated Enterprise or knowledge of any sublims stalls. When assessee was unable to bring on record anything to show for what reason agency commission was paid, in our opinion there arose an exceptional circumstance where by Arms Length Price could be taken as Nil. As for decision of the Delhi Bench of the Tribunal in the case M/s. McCann Erickson India (P) Ltd (supra) strongly relied by the ld. Authorised Representative, assessee therein was able to demonstrate the type of services, description of service and benefits received by the it from its Associated Enterprise. Further, the payment was not agency commission but management commission fees. In the host of other judicial decisions relied by the ld. Authorised Representative also the question dealt was on the

M/S. Madura Coats Private Ltd. v. the Deputy Commissioner

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M/S. Madura Coats Private Ltd. v. the Deputy Commissioner

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What is this about?

What did the court decide?

What the court decided

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

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