The Income Tax Appellate Tribunal (ITAT), Delhi Bench allowed the claim of deduction under section 80C of the Income Tax Act to Hero Motocorp.
The assessee, Hero Motocorp Ltd. submitted that they related to transfer pricing adjustment on the ground that the assessee company has shifted profits from non-eligible unit to the eligible unit in order to claim higher deduction under section 80IC of the Act. It was submitted that the assessee was engaged in the business of manufacturing two-wheelers and had four manufacturing plants at Gurgaon, Dharuhera, Haridwar, and Neemrana.
It was further submitted that the assessee was entitled to deduction under section 80IC of the Act in respect of profit derived from the undertaking located at Haridwar. The assessee purchases various components required to be used in the assembly of two-wheelers, like gearbox, fuel tank, etc., from third-party vendors. In the present transaction, the components were first purchased by non-eligible units at Gurgaon or Dharuhera from third parties, due to proximity of the location of such units with third parties, business relationship, etc., and were, thereafter, transferred at the same purchase price to the eligible unit at Haridwar. In such a transaction, no value addition in such components was carried out by the non-eligible units.
The assessee submitted that the AO/TPO ignored the CUP method, being one of the methods prescribed under section 92C of the Act, and held the impugned inter-unit purchases to be not at arm’s length price on the ground that the profit margin of the non-eligible units, viz., Gurgaon and Dharuhera unit at 7.69% and 7.03% respectively ought to have been charged on such transfer of components/semi-finished goods.
Accordingly, the TPO/AO came to the conclusion that the assessee has shifted profits from non-eligible units to the eligible unit in order to claim higher deduction under section 80IC of the Act without benchmarking inter-unit transfer price with any contemporaneous evidence or acceptable method for determining arm’s length price. It was submitted that the TPO/AO worked out an adjustment
The coram of O.P.Kant and Sudhanshu Shrivastava while allowing the claim of the assessee under section 80-IC of the Act, held that for the purpose of computing market price of the inter-unit transfer of goods, when the non-eligible units procured goods at market price from third-party vendors and supplied the same to the eligible unit at the same purchase price as increased by the applicable freight cost, no further substitution of such price is warranted in terms of section 80IA(8) of the Act and the transaction was a genuine business transaction borne out of commercial expediency.