M/s. Karl Storz Endoscopy India Pvt. Ltd. Vs. The Income Tax Officer Ward-5(2) New Delhi

Parties Involved

Facts Summary

The assessee, a subsidiary of Karl Storz GmbH & Co. KG, Germany, is engaged in the import and sale of endoscopic instruments and providing after-sale services in India. The company also provides marketing support and warranty services on behalf of Karl Storz Germany. The assessee filed an income return declaring Rs. 65,000/- for the assessment year 2008-09, which was processed under section 143(1) of the Income Tax Act, 1961. The case was taken for scrutiny under section 143(2) of the Act, and the assessee filed a revised return declaring NIL income. The Assessing Officer (AO) found that the assessee had undertaken international transactions exceeding Rs. five crore and referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price under section 92CA of the Act. The TPO rejected the information and data used by the assessee for computing the arm's length price and invoked section 92C(3)(c) of the Act. The TPO conducted a fresh search using the Transactional Net Margin Method (TNMM) and added Rs. 2,08,15,974/-. The assessee appealed to the Commissioner of Income Tax (Appeals) who partly allowed the appeal, leading to an adjustment of Rs. 1,76,15,974/-. The assessee further appealed to the Income Tax Appellate Tribunal (ITAT).…

Legal Issues

• 1. Whether the Assessing Officer and Transfer Pricing Officer erred in making an addition of Rs. 2,08,15,974 to the taxable income of the Appellant under Section 143(3) of the Income Tax Act, 1961.
• 2. Whether the Assessing Officer, Transfer Pricing Officer, and Commissioner of Income Tax (Appeals) erred in conducting a fresh Transfer Pricing Analysis based on the keywords 'Commission Agents Services' and 'Commission/Brokerage', whereas the Appellant is engaged in marketing service support (MSS) activities.
• 3. Whether the Assessing Officer, Transfer Pricing Officer, and Commissioner of Income Tax (Appeals) erred in selecting companies as comparables that are functionally different from the Appellant in relation to the international transactions under consideration.
• 4. Whether the Assessing Officer, Transfer Pricing Officer, and Commissioner of Income Tax (Appeals) erred in selecting ICC International Agencies Ltd. as a comparable, despite it failing the filter of a minimum 75% commission income to total income applied by the TPO in the fresh search.
• 5. Whether the Assessing Officer, Transfer Pricing Officer, and Commissioner of Income Tax (Appeals) erred in computing the Operating Profit/Operating Cost (OP/OC) of the Appellant and of the comparables.
• 6. Whether the Assessing Officer and Transfer Pricing Officer erred in failing to make appropriate adjustments to account for differences in working capital employed by the Appellant vis-à-vis the comparable companies.

Judgment Outcome

Decided in favour of Partly Assessee / Partly Revenue.

Precedents Relied Upon

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