CIT-LTU Vs Honda Cars India Ltd. (Delhi High Court)
The Delhi High Court considered Departmental appeals challenging the ITAT’s deletion of additions made under Section 40(a)(i) of the Income-tax Act, 1961. The appeals also questioned the ITAT’s reliance on the Delhi High Court’s decision in Herbalife International India Pvt. Ltd. and its failure to adjudicate whether certain Honda affiliates had a Permanent Establishment (PE) in India.
The principal issue concerned the Section 40(a)(i) additions, which were connected with proceedings initiated under Section 201 of the Act.
The High Court noted that the Section 201 proceedings had subsequently been closed by an order dated 10 December 2018 passed by the Income Tax Officer. After considering the facts, the ITO concluded that, except Honda Car Japan, the other affiliates did not have a PE in India. The ITO relied on the Supreme Court ruling in Honda Motor Co. Ltd. Japan S. Assistant Commissioner of Income Tax, Civil Appeals No. (s) 2833 of 2018, and noted that where the arm’s length principle had been satisfied, no further profit could be attributed to a person merely because it had a PE in India.
The ITO further found that the transactions were conducted at arm’s length and consequently Honda Cars India Ltd. should not be treated as an assessee-in-default under Section 201 regarding payments made to Honda Motor Japan and its affiliates.
