For an asset intensive industry, the appropriate Profit Level Indicator

Court: Mumbai Bench of the Income-tax Appellate Tribunal

Citation: ACIT Vs. Fiat India Pvt. Ltd. [2010-TII-30-ITAT–MUM-TP]

Brief- In a recent ruling in the case of ACIT Vs. Fiat India Pvt. Ltd. [2010-TII-30-ITAT–MUM-TP], the Mumbai Bench of the Income-tax Appellate Tribunal (“the Tribunal”), while deciding the case in favor of the assessee, accepted various adjustments made while determining arm’s length price (“ALP”), as they had been sufficiently explained and evidenced by the assessee. The Tribunal also ruled that for an asset intensive industry, the appropriate Profit Level Indicator (“PLI”) shall be Profit Before Interest and Tax (“PBIT”) and not Profit before Depreciation Interest and Tax (“PBDIT”).

Facts- The assessee is engaged in the business of manufacturing and selling of passenger cars and trading of spare parts. The assessee adopted Transaction Net Margin Method (“TNMM”) for determining the ALP of its international transactions with its associated enterprises (“AEs”), and while working out its operating margin under TNMM, the assessee made several adjustments on account of depreciation and other fixed overheads primarily owing to capacity under utilization due to low sales/ production volume. During the course of transfer pricing (“TP”) assessment proceedings, the Transfer Pricing Officer (“TPO”) disallowed most of the adjustments.

The Assessing Officer (“AO”) passed an order, incorporating the TP order, against which the assessee filed an appeal before the Commissioner of Income-Tax, Appeals (“CIT(A)”). The CIT(A) ruled in favor of the assessee, aggrieved by which the Revenue appealed before the Tribunal.

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