Schneider Electric: A Transfer Pricing Case Where Remand Was Ignored

Introduction: When the System Stops Listening

Imagine spending years in a complex legal process. You collect the evidence with care, present your case, and then the country’s highest fact-finding tribunal gives directions in your favour. And then nothing happens. The tax officer simply ignores the order. That isn’t fiction. It’s what happened to Schneider Electric India Private Limited.

In an order dated April 9, 2025, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) found a serious lapse. The Transfer Pricing Officer (TPO) had been told to look at the adjustments afresh. Instead, the old conclusions came back. The issues sent back were never examined. This case isn’t about one firm. It shows how a broken process erodes trust, drags out litigation and costs taxpayers and the exchequer time and money.

The Case in Focus: What Really Happened

Schneider Electric split its business into three parts for transfer pricing benchmarking: manufacturing, contract R&D services, and business support services. After a long dispute, the ITAT in 2012 accepted Schneider’s plea for a fresh look at all three. That included its unique transaction-by-transaction method, and its points on comparable selection, functional differences and working capital adjustments.

The ITAT’s order was clear. The TPO and the Assessing Officer were to re-examine the case in the light of fresh evidence and submissions. In the second round, the TPO rejected that evidence. The earlier conclusions were copied across, and a binding judicial direction was set aside.

This isn’t just a technical glitch. It’s a breakdown in procedural discipline.

Why It Matters: Beyond One Company’s Grievance

Transfer pricing is complex by nature. It calls for judgement, records and economic analysis. But one of its pillars is process. When ITAT directions are brushed aside, a dangerous precedent is set. The reasons are plain.

1. It weakens judicial hierarchy. The ITAT is the final fact-finding authority under the Indian Income Tax Act. To ignore its directions is to dilute the weight of judicial rulings.

2. It breeds needless litigation. When officers don’t carry out remand directions, taxpayers must appeal again. That means more time, more cost and more doubt.

3. It punishes those who comply. Schneider filed segmented accounts, full functional analyses and reconciled cost allocations. All of it was set aside without review.

Technical Deep Dive: What Were the Core Issues?

1. Segmentation and Business Models

Schneider’s manufacturing had four segments: licensed manufacturing, contract manufacturing, full-fledged local manufacturing and a start-up unit. Each carried its own risks, functions and intangibles. The TPO folded them into one segment with little reasoning, which skewed the arm’s length outcome.

2. Transaction-by-Transaction Approach

Schneider used this approach to benchmark its imports one by one. It’s a method now widely accepted for its accuracy. The TPO refused to test it and dismissed it with no real analysis.

3. Comparables and Filters

The company also objected to functionally dissimilar comparables being included, and to valid ones being left out. It argued that filters such as export revenue thresholds and on-site revenue ratios were applied at random. Some firms stayed in the set despite high year-on-year swings or a clear functional mismatch.

4. Working Capital Adjustments

The DRP had given clear directions. Even so, the TPO gave Schneider no working capital adjustment. That adjustment is standard under OECD guidance and Indian case law, above all where functional comparability is otherwise met.

Bigger Picture: A Warning to Tax Authorities—and Taxpayers

The Tribunal sent every issue back once more. That isn’t a mere procedural restart. It’s a signal: in tax matters, the rule of law isn’t open to debate. Tax authorities must honour directions and must decide the issues in substance. Copy-paste assessments aren’t only lazy. They don’t survive legal challenge.

For businesses, the ruling carries a lesson. Strong facts aren’t enough. Your defence is only as good as your records, your segmentation logic and your arguments at each level. Challenge breaches of process, firmly and with respect.

Conclusion: Compliance Isn’t a One-Way Street

The Schneider Electric case reminds us that tax justice must be procedural as well as substantive. When orders aren’t acted on, the system loses credibility.

As the Tribunal observed, the point isn’t only the adjustments. It’s fairness, respect for directions, and the taxpayer’s right to be heard.

Every company in a transfer pricing dispute should take note. If your facts are sound, your strategy should make the system listen. Where it doesn’t, your strategy should say so.

In transfer pricing litigation, one win isn’t enough. You also need that win to be respected.