Payment of Arbitration Award not part of Cost Base for Margin Calculation: ITAT Follows Rule of Consistency in Hyundai’s Case [Read Order]

ITAT Delhi, last week held that the transaction of making payment of Rs.95,50,31,150/- (on account of arbitral award) by Hyundai Rotem Company to the DMRC made on behalf of its AE would not part of the margin calculation to be added to revenue and cost for benchmarking the international transaction.

Assessee, M/s. Hyundai Rotem Company is a South Korean part of the Hyundai Motor Group providing total rail business solutions throughout the world ranging from manufacturing of rolling stock to the supply of turnkey rail systems. Out of the international transactions, the assessee reported a transaction which was reimbursed by the Associated Enterprises (AE) to the tune of Rs.95,50,32,150/- being the payment made by the assessee on behalf of its AE on account of arbitral award.

DRP held that the nature of expenses in respect of arbitration award is the same with regard to the payment of service tax, customs duty and other taxes and dues but directed the TPO to follow consistent policy in respect of arbitration award i.e. these should also form part of the cost based.

After hearing both the sides, the bench directed the DRP that the issue was required to be resolved by passing order under Rule 13 of the Rules by following the rule of consistency.

“So, following the rule of consistency and in view of the facts and circumstances of the case, we are of the considered view that payment on account of arbitration award cannot form part of the cost base for purpose of margin calculation.”

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