DCIT Vs BYD India Pvt. Ltd. (ITAT Chennai)
ITAT upholds deletion of transfer pricing adjustment relating to ‘distress sale’, holding that the TPO failed to account for the shutdown of Nokia India
Summary: Income Tax Appellate Tribunal, Chennai Bench, upheld the relief granted by the Commissioner (Appeals) on transfer pricing adjustment, disallowance of expenses, and taxability of sale of fixed assets. On transfer pricing, the Tribunal accepted that the assessee’s sale of finished goods to its associated enterprise was a distress sale arising from the shutdown of its predominant customer, Nokia India, during FY 2014–15. It observed that sales to Nokia had sharply declined while sales to the associated enterprise increased substantially, establishing that finished goods originally manufactured for Nokia were sold under extraordinary business circumstances. The Tribunal held that the Transfer Pricing Officer failed to consider the impact of reduced revenue, unabsorbed costs, and abnormal business conditions while benchmarking margins, making the adjustment unsustainable. It also noted that tax authorities cannot question commercial prudence by deciding how a business should have acted. On disallowance of expenses, the Tribunal found that the Assessing Officer had neither disputed the genuineness of the expenditure nor produced material to show that the expenses were incurred for a future business. It noted that the assessee continued trading operations, maintained accounts on a going concern basis, and that the new electric vehicle business commenced only in a later assessment year. Accordingly, ad hoc disallowance under Section 37 was held unjustified. On slump sale, the Tribunal observed that plant and machinery were sold individually with separate values assigned, the block of assets continued to exist, and no undertaking was transferred as a whole. Since the essential condition of transfer of an undertaking for lump sum consideration was absent, the transaction could not be treated as slump sale. The Revenue’s appeal was dismissed.
