Fujitsu India Pvt. Ltd. Vs DCIT (Delhi High Court)
Delhi High Court has partially allowed an appeal by Fujitsu India Pvt. Ltd. against an Income Tax Appellate Tribunal (ITAT) order concerning a transfer pricing adjustment for Assessment Year 2008-09. The case primarily involved two questions of law: the suitability of using a “headcount” method for allocating common expenses and the validity of including certain companies as comparables. The initial assessment by the Assessing Officer (AO), based on the Transfer Pricing Officer’s (TPO) benchmarking, had resulted in a transfer pricing adjustment of ₹2,63,21,723/-.
The first key dispute revolved around the allocation of approximately ₹9.79 crores in common expenses that remained un-allocable after initial proportionate distribution by the tax authorities. Fujitsu India, engaged predominantly in online market support services, proposed using the “headcount” method to distribute these residual costs. This approach was rejected by the TPO, the Dispute Resolution Panel (DRP), and subsequently by the ITAT, primarily citing disparities in employee salaries across different business segments.
In its deliberation on the “headcount” method, the High Court referred to earlier judicial precedents. It noted its own decision in Commissioner of Income Tax vs. EHTP India Pvt. Ltd. [(2013) 350 ITR 41(Del.)], where the “headcount” basis for cost allocation was broadly acknowledged as an acceptable principle, even though that case also considered the assessee’s consistent past practice. Conversely, the court distinguished the case of M/S Continental Carriers vs. Commissioner of Income Tax, New Delhi [(2016) 384 ITR 102], where the “headcount” method had been rejected, by pointing out that the rejection there was due to the assessee’s inconsistency in applying the method and the different context of a Section 80(4) deduction claim. The Delhi High Court concluded that, given the common nature of the expenditure across segments, the assessee’s choice of the “headcount” principle should not have been rejected outright. Accordingly, this question of law was resolved in favor of the assessee.
