Extraordinary Profit cannot be a criterion for Adjustment in Transfer Price: ITAT [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal has held that extraordinary profit cannot be a criterion for adjustment in the transfer price.

The assessee, M/s Deepak Industries Ltd. has three manufacturing units at Kolkata, Faridabad, and Rudrapur. The Faridabad units manufacture gears for tractors and bigger trucks whereas the Rudrapur unit produces 3rd & 4th gear for small trucks manufactured by Tata Motors Ltd and is a contract manufacturer. The Rudrapur unit procures semi-finished goods in the form of shaft/blank from the Faridabad unit and the same is further subjected to manufacturing processes for the production of 3rd & 4th gears as such. The unit at Rudrapur was set up in FY 2007-08 and is eligible for deduction u/s 80IC of the Act and accordingly has been claiming deduction u/s 80IC of the Act right from AY 2008- 09.

The specified domestic transactions between the eligible unit and non-eligible units were made and ALP was determined at 22.10 cr. Similarly, the Rudrapur unit also does some job work for a non-eligible unit which was transferred for Rs. 4.11 cr. The assessee followed CPM as the most appropriate method (MAM). The TPO proposed the adjustment in the arm’s length price on the ground that there is a huge difference in the profit margin of both the units. On appeal, the CIT(A) has reversed the order of AO/TPO. Aggrieved, Revenue filed an appeal before ITAT.

The counsel for the assessee submitted that mere extraordinary profit cannot be a criterion for adjustment in the transfer price. The assessee’s counsel further submitted that inter-unit transfer/services were never disputed by the TPO/AO in the earlier years even though the assessment was finalized u/s 143(3) and failed to follow the principle of consistency.

The Tribunal observed that the assessee made similar transactions between Rudrapur unit to Faridabad unit in the earlier years right from AY 2008-09 to 2013-14 which were accepted by the revenue even in scrutiny proceedings. Therefore, on the principle of consistency, the TPO/AO cannot be allowed to disturb the arm’s length price adopted by the assessee.

The Coram of Mr. Rajesh Kumar, Accountant Member, and Mr. Sonjoy Sarma, Judicial Member has held that price, as determined by the assessee, is at ALP and upholds the order of CIT(A) deleting TP adjustment and holds that CPM as MAM.

Mr. Siddharth Jhajharia and Mr. Amol Kamat appeared on behalf of the appellant and the respondent respectively.

To Read the full text of the Order CLICK HERE

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