2016-TII-103-HC-P&H-TP

HONDA MOTORCYCLE AND SCOOTER INDIA PVT LTD Vs ACIT: PUNJAB AND HARYANA HIGH COURT (Dated: December 23, 2016)

Income tax - Rule 10B(1)(e).

Keywords - abnormal event - operating cost - profit margin - international transactions & strike in company.

The assessee during the subject year, had claimed an adjustment in the operating margin of the assessee on account of a strike in the assessee Company. It was submitted that the strike adversely effected the production/sales of the assessee but the fixed costs continued to be the same. Therefore, abnormal fixed cost incurred during the strike was sought to be excluded from the operating costs for computing profit margin. The TPO was of the view that the assessee had made sales of Rs. 1952 crores as against sales of Rs. 1697 crores in the immediate preceding year. This data, according to him, proved that there was no effect of the strike on the manufacturing turn over of the assessee and as a matter of fact, in the relevant year, the sales had increased by Rs. 255 crores. Accordingly, he rejected the claim of assessee.

On appeal, the ITAT held that on the happening of any abnormal event like a strike, it would be the net operating profit margin of the comparable companies, which would need adjustment to bring both the international transactions and comparable costs at the same pedestal and that such adjustment was not to be made in the net operating profit margin of the assessee. Since the assessee had failed to bring on record any material to the effect that profit of any of the comparable entities was affected due to any strike in their premises, the claim of the assessee was negatived.

On appeal, the HC held that,

Whether the profit margin of comparables are required to be adjusted after taking into account a strike like situation as had taken place in the assessee company - YES: HC

+ As per Rule 10B(1)(e), the net profit margin of the comparable company is required to be adjusted to bring the international transaction by the assessee Company and that of the comparable company at the same pedestal. Therefore, the Tribunal, after rightly observing that the adjustments in the net operating profit margin on account of any strike etc. was to be made in the profit margin of the comparable company, erred in rejecting the case of the assessee Company on the ground that the assessee had failed to bring on record any material to show that the profit of the comparable companies had been hit by a strike. The profit margin of the comparable company was required to be adjusted after taking into account a strike like situation as had taken place in the assessee company. Therefore, the matter remitted to the TPO for fresh assessment in accordance with law.

Case remanded

2016-TII-102-HC-DEL-TP

FRITIDSRESOR TOURS & TRAVELS INDIA PVT LTD Vs DCIT: DELHI HIGH COURT (Dated: December 7, 2016)

Income tax - The assessee under present appeal pointed out that pursuant to the remand by the ITAT, which led to the determination of the issue that the transactions between the assessee and the AE were on principal to principal basis and that based on this conclusion and the facts presented before him, the TPO and later the AO finalized the assessment. This apparently led to non-adjustment for the A.Y 2006-07.

On appeal, the HC held that,

Whether when the ultimate outcome of the remand has resulted in no addition on account of TP adjustment, then examination of TP matter does not warrant additional interference - YES: HC

+ This Court is of the opinion that since the ultimate outcome of the remand has resulted in no addition, the examination of the issued urged would be an academic exercise. At the same time, the Court is conscious of the fact that left undisturbed, the ITAT’s observations may constitute a barrier and work adversely against the assessee in later years. In the circumstances, it is clarified that the observations of the ITAT shall not be binding and taken as conclusive for later years and that the TPO/AO shall consider the matter independently.

Case disposed of