Toyota Gets Partial Relief as ITAT Orders Investigation into Capitalized Expenses for Transfer Pricing Adjustment Computation [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) recently ordered an investigation into capitalized expenses for transfer pricing adjustment computation.

The assessee Toyota Industries Engine India Pvt. Ltd filed an appeal against the final assessment order passed by the Assessing Officer /The National Faceless Assessment Center (NFAC) for the assessment year 2016-17

The Assessing Officer has erred in computation of proportionate adjustment by including the two international transactions which are capital in nature: Payment of professional and consultancy charges Purchase of fixed assets. 

The counsel for the assessee submitted that before the Dispute resolution panel (DRP), the assessee has contended that the transfer pricing adjustment should be limited to the specific transactions related to the textile machinery/auto component segment rather than being applied to the entire range of international transactions.

 Accordingly, the DRP has directed the TPO to re-verify the computation of TP adjustment only with reference to the value of international transactions and not the entire revenue/cost of the assessee company.

The counsel for the assessee, argued that the Assessing Officer (AO) / Transfer Pricing Officer (TPO) issued the final assessment order, they included payments such as professional and consultation charges, as well as the purchase of fixed assets, in order to calculate the transfer pricing (TP) adjustment.

The counsel believes that these specific payments were erroneously included by the Assessing Officer/TPO in determining the Transfer Pricing adjustment. The counsel further submitted that these two expenditures are to be excluded for the purpose of TP adjustment.

 The counsel for the revenue submitted that this issue may be remitted back to the file of the Assessing Officer not to consider these two expenditures, while making TP adjustment, if it is capitalized by the assessee in its books of accounts.

 After hearing both the parties, The bench consisting of two members, the Judicial Member Beena Pillai and the Accountant Member Chandra Poojari observed that “we are inclined to remit this issue to the file of Assessing Officer/TPO to examine whether these two expenditures namely payment of professional and consultation charges & purchase of fixed assets are capitalized in the books of accounts of assessee. If it is so, these expenditures cannot be considered for computation of proportionate TP adjustment and the Assessing Officer/TPO has to decide the issue after giving the opportunity of hearing to the assessee.”

In  result,the appeal of the assessee was  partly allowed.

To Read the full text of the Order CLICK HERE

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