Honda Trading Corporation India Pvt. Ltd Vs DCIT/ ACIT (ITAT Delhi)
ITAT Delhi partly allowed the assessee’s appeal for AY 2021-22 in Honda Trading Corporation India Pvt. Ltd., deleting TP adjustment of ₹2.57 crore on commission paid, while noting that the large trading-segment TP adjustment of ₹11.58 crore already stood rectified to NIL u/s 154.
The impugned ₹2.57 crore adjustment arose solely from DRP’s vague direction to “verify” why commission paid on exports (2.05%) was higher than commission received on imports (0.59%). Acting on this, the TPO applied a pro-rata thumb rule, treating commission received from AE as ALP to benchmark commission paid to AE, without issuing any fresh notice or giving hearing.
The Tribunal held this approach patently illegal:
– ALP must be derived from uncontrolled transactions;
– One controlled transaction cannot benchmark another controlled transaction;
– Pro-rata / ad-hoc adjustments have no place in Chapter X;
– DRP directions cannot authorise fresh enquiry or arbitrary adjustment u/s 144C(8); and
– Adjustment made behind assessee’s back violates natural justice.
Strong reliance was placed on Delhi HC in PCIT v. Coim India (P) Ltd., affirming that comparison of controlled vs controlled transactions is impermissible. The Tribunal also noted that the adjustment was not part of the draft order, and hence could not be foisted at the give-effect stage.
Result:
– ₹11.58 crore trading TP adjustment: NIL (already rectified)
– ₹2.57 crore commission TP adjustment: deleted in full
– Interest issues made consequential; penalty ground held premature
– Appeal partly allowed
Key takeaway: Controlled transactions can never be the ALP benchmark for another controlled transaction—thumb-rule TP has no legal sanction.
FULL TEXT OF THE ORDER OF ITAT DELHI
