The Income Tax Appellate Tribunal, (ITAT) Bangalore bench has granted relief to Toyota by deleting the addition of 7.5 crores as Transfer Pricing adjustments.
The appellant, Toyota Boshoku Automotive India Pvt. Ltd., is engaged in the business of manufacturing automobile components such as seats, door strings, and interiors for the automobile industry. During scrutiny proceedings, it was noticed that the company had entered into several international transactions with its associated enterprises and the case was referred to the transfer pricing officer as per sec.92CA and made an adjustment of Rs.7,52,74,460/-.
Aggrieved by the decision the appellant filed an appeal before the ITAT. The appellant submitted that TPO/DRP has erred in rejecting the Transactional Net Margin Method (TNMM) used by the Appellant and applying the Profit Split method (PSM) as the most appropriate method (MAM) to benchmark the international transaction of payment of royalty.
The Tribunal observed that the appellant aggregated payment of royalty with the transaction of manufacturing as it was closely linked and adopted TNMM but that does not mean that the transactions are so interrelated that they cannot be evaluated separately for applying PSM. Further, the Assessee does not make any unique contribution to the transaction, hence PSM in this case cannot be applied.The decision of the Tribunal in the case of the appellant in an earlier assessment year has been upheld by the High Court of Karnataka.
The Coram of Mr. N.V Vasudevan, Vice President and Mr. Laxmi Prasad Sahu, Accountant Member by following the view taken by the coordinate bench of the Tribunal in the case of Toyota Kirloskar has held that TNM Method is the Most Appropriate Method and the AO/TPO is directed to apply the said method in determining the ALP, after affording an opportunity of being heard to the assessee.
Ms. Hirali Desai and Mr. Pradeep Kumar appeared on behalf of the appellant and respondent respectively.
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