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2016 (5) TMI 203 - DELHI HIGH COURT

2016 (5) TMI 203 - DELHI HIGH COURT - [2016] 381 ITR 407 - Transfer pricing adjustment - international transactions relating to the purchases made and the royalty paid by the assessee to Keihin Corporation, Japan (hereafter "KC") - Held that:- The amounts paid were not in accordance with the agreement between the assessee and the KC is concerned, we find that no such contention had been urged by the Revenue either before the Commissioner of Income-tax (Appeals) or before the Tribunal. Therefore, .....

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7; 68,00,88,000. Admittedly, the international transactions in question amounted to ₹ 15,90,66,935 which were only 23.38 per cent. in value of the total expenses. The Transfer Pricing Officer had determined the profit level indicator (operating profit over total cost) of comparable cases at 8.29 per cent. against 6.22 per cent. as declared by the assessee. Applying the profit level indicator of comparable cases, the adjusted total expenses were computed at ₹ 66,71,17,924, thus, indic .....

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ed by the Commissioner of Income-tax (Appeals) as well as the Tribunal.

We also find no infirmity with the view of the Commissioner of Income- tax (Appeals) and the Tribunal that the assessee had acted like any other original equipment manufacturer (OEM) and could not be treated as a job worker or a contractor. - Decided against revenue - I. T. A. Nos. 11 and 12 of 2015 - Dated:- 9-9-2015 - Dr. S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Ashok Manchanda, Arjun Harkauli Fo .....

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7, 2012 allowing the appeals preferred by the assessee against the assessment orders passed by the Assessing Officer (hereafter "AO") in respect of the assessment years 2004-05 and 2005-06 respectively. 2. The controversy involved in the present case relates to the transfer pricing adjustment (hereafter "TP Adjustment") made by the Assessing Officer in respect of international transactions relating to the purchases made and the royalty paid by the assessee to Keihin Corporati .....

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ational transactions were more than ₹ 5 crores in value, a reference was made to the Transfer Pricing Officer (hereafter "TPO") for determining of the arm's length price (hereafter "ALP") under the provisions of section 92CA of the Act. 3.2 The assessee submitted a transfer pricing report calculating the arm's length price by using transactional net margin method (hereafter "TNMM") and using the ratio of operating profit to capital employed as the prof .....

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the relevant period was ₹ 72,24,22,000. Applying the margin of 8.29 per cent.-as determined by the Transfer Pricing Officer on the basis of selected com parables-The Transfer Pricing Officer concluded that the total operating expenses ought to have been ₹ 66,71,17,924. Since the actual operating expenses incurred by the assessee during the period were ₹ 68,00,88,000, the Transfer Pricing Officer held that a transfer pricing adjustment of ₹ 1,29,70,076 ought to be made in .....

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9 per cent. of the said company were held by the Honda Motors Co. Ltd. (Japan), which also held 41.33 per cent. of KC (the associated enterprise in the present case). KC in turn held 74 per cent. shares in the assessee. The Transfer Pricing Officer reasoned that since the products being manufactured by the assessee were specifically designed for Honda cars produced by the Honda Siel Cars India Ltd. and the technical designs and intellectual property rights were held by their parent or group comp .....

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r Pricing Officer. The assessee had reflected ₹ 1,24,41,000 as expenses on royalty. The Transfer Pricing Officer computed the arm's length price for royalty as nil, which was subsumed in the transfer pricing adjustment of ₹ 1,29,70,076. In addition, the Assessing Officer disallowed 25 per cent. of the expenses on account of royalty amounting to ₹ 22,53,000 as being capital in nature. 4. With respect to the assessment year 2005-06, the Transfer Pricing Officer did not draw a .....

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er, made an addition of the aforesaid sum and passed an assessment order dated December 29, 2008. 5. The assessee preferred appeals before the Commissioner of Income-tax (Appeals) against the assessment orders dated December 26, 2006 in respect of the assessment year 2004-05 and the assessment order dated December 29, 2008 in respect of the assessment year 2005-06. 6. The Commissioner of Income-tax (Appeals), by an order dated March 29, 2011 allowed the assessee's appeal against the assessme .....

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xpenses attributable to international transaction would necessarily be in the same proportion. According to the assessee, the same would amount to ₹ 30,33,593. The expenses attributable to the international transaction (i.e., 23.38 per cent. of the total expenses) amounted to ₹ 15,90,66,935 and after the transfer pricing adjustment, the expenses on arm's length basis were computed at ₹ 15,60,33,342 (i.e., ₹ 15,90,66,935 †30,33,593). The assessee further c .....

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x (Appeals) also held that the Transfer Pricing Officer was in error in holding that no royalty was payable. The Commissioner of Income-tax (Appeals) held that the functions performed by the assessee included procurement and inventory management, production and manufacturing planning, co-ordination of production and sales, import of goods, maintenance of production facilities and quality control functions ; therefore, the assessee could not be considered as a contract manufacturer. The Commissio .....

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the appeal relating to the assessment year 2004-05. 9. The Revenue appealed against the decisions of the Commissioner of Income-tax (Appeals) before the Tribunal. Before the Tribunal, the assessee conceded that it had no objection to the decision of the Transfer Pricing Officer regarding the adoption of profit level indicator of operating profit to total cost. However, the assessee urged that the adjustments computed in respect of the entire expenses could not be loaded on the international tra .....

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s of ₹ 1,29,70,076 as determined by the Transfer Pricing Officer ought to have been adjusted only against the international transaction, which admittedly constituted only 23.38 per cent. of the operating income or revenue. He next referred to the technical collaboration agreement dated September 12, 1997 entered into between KC and the assessee and contended that the royalty paid by the assessee was in excess of the amounts as computed under the said agreement. 11. In so far as the content .....

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