Honda R & D (India) Private Limited Vs Additional/Joint/Deputy/ACIT/ITO (ITAT Delhi)
In this case, the assessee challenged the final assessment order for Assessment Year 2017-18, which included transfer pricing adjustments, disallowance of depreciation on computer software, and disallowance under Section 40(a)(ia) relating to international travel expenses. The assessment arose after the Transfer Pricing Officer (TPO) proposed an adjustment in respect of international transactions involving the provision of basic market research and testing services to associated enterprises. The final assessment order made additions on account of arm’s length price (ALP) adjustment, excess depreciation on intangible assets, and disallowance under Section 40(a)(ia). Subsequently, a rectification order reduced the transfer pricing adjustment from ₹17.99 crore to ₹7.90 crore.
The assessee argued that the TPO and Assessing Officer (AO) wrongly rejected its transfer pricing analysis, incorrectly excluded certain comparable companies, improperly included functionally dissimilar comparables, and failed to account for differences in risk profiles. It also challenged the treatment of computer software as an intangible asset eligible for 25% depreciation instead of 60% depreciation applicable to computers including computer software, and disputed the disallowance relating to international travel expenses.
The Income Tax Appellate Tribunal (ITAT) examined the comparability analysis and noted that the assessee was engaged in basic market research and testing services involving information gathering, data compilation, market studies, testing, and reporting for Honda R&D Japan. The Tribunal referred to the Delhi High Court’s decision in the assessee’s own case for Assessment Year 2005-06 and held that the rejection of India Tourism Development Corporation Ltd. (Ashok Events & Miscellaneous Operations) as a comparable was not justified. The Tribunal directed the AO/TPO to include it in the final set of comparables.
