The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the adjustment regarding the arm’s length pricing of export commission payment against Honda subsidy.
The assessee was a resident corporate entity and a subsidiary of Honda Motor Co. Ltd., Japan. As stated, the assessee is engaged in the business of manufacture and sale of motorcycles and scooters. In the year under consideration, the assessee had entered into various international transactions with its associate enterprises (AEs).
One amongst them being payment of export commission of Rs.16,10,03,387/- to Honda Motor Co. Ltd., Japan. As could be seen from the facts on record, the assessee had entered into an export agreement with Honda Motor Co. Ltd., Japan on 13.07.2000, in terms of which, the assessee was granted consent to export specific models of two wheelers to certain countries on payment of export commission @ 5% of the freight on board (FOB) value of such export. In the transfer pricing study report, the assessee benchmarked the transaction by using transactional net margin method (TNMM).
The assessee’s submission was to the effect that the transaction relating to payment of export commission was intrinsically linked with manufacture and sale of products, hence, could not be segregated to be benchmarked separately. It was further submitted that assessee pays export commission to its parent entity to keep access to various markets globally, which is possible only due to the existence of AEs network in those countries.
The bench considered the view that the assessee has successfully demonstrated not only the benefits but has also shown that the profitability is higher (as per the charts exhibited elsewhere). Considering the totality of the facts we have no hesitation in directing the AO/TPO to delete the impugned addition on account of export commission.
The two member bench of the tribunal comprising Pradip Kumar Kediya (Accountant member) and Saktijit Dey (Vice President) allowed this ground of the appeal and thereby directed the transfer pricing officer/assessing officer to delete the adjustment on account of the arm’s-length price of the export commission payment of ₹495,348,444/-. ITAT respectfully followed the earlier decision of the coordinate Bench and decided the issue in favour of the assessee. The addition is deleted. Accordingly, Appeal of the assessee was allowed.
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