Case Law Details
Honda Motorcycle and Scooter India Pvt. Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi deleted TP adjustment on payment of model fee for export to AEs stating that scope of TPO is limited to determination of arm’s length price and TPO cannot adjudge commercial expediency of a transaction.
Facts- The assessee is a subsidiary of Honda Motor Co. Ltd. Japan. The assessee had entered into an Export Agreement dated 13.07.2000 under which Honda Motor Co. Ltd. Japan (HMJ) accorded consent to the assessee to export specific models of two wheelers to certain countries on payment of export commission @ 5% of the FOB value of such exports. The assessee in its TP study had benchmarked the transactions related to Export Commission taking combined transaction approach using TNMM. The TPO rejected this approach without any basis and selected two transactions and decided to benchmark them separately using CUP method. On such payment of export commission, the TPO / DRP determined the arm’s length price at NIL.
Apropos issue of transfer pricing adjustment relating to model fee paid for strips and color change : The TPO/DRP have made the aforesaid disallowance by holding that model fee paid by the assessee to its AE is nothing but in the nature of royalty which is already paid separately to the AE. It was held that the model fee appearing as a separate transaction is in essence a duplicate transaction already subsumed in the royalty payment by the assessee to its AE.
Conclusion- In assessee’s own case it was held 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.
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