ITAT rules in favour of Hero MotoCorp in an inter group transfer pricing case

Hero MotoCorp, one of the country’s largest two-wheeler manufacturers in a recent ruling by Income Tax Appellate Tribunal (ITAT) got a reprieve from a tax demand levied on certain inter group transactions.

As per the details of the case the tax department had questioned certain inter group transactions regarding purchase of auto components within units were questioned under the transfer pricing provisions. Transfer pricing is a regulation that determines the price two related parties (companies part of the same group) must pay.

The two-wheeler manufacturer has four manufacturing plants at Gurgaon, Dharuhera, Haridwar and Neemrana. The company had purchased various components required in the assembly of two-wheelers from third-party vendors. Further, these goods were sold to one of the plants at its cost (at which the same were purchased from third parties).

The transfer pricing officer said that the company shifted these components and thereby profits from one unit to another unit in order to claim higher deduction. Accordingly, TPO computed and demanded tax by adding the margin of respective non-eligible units from where components/semi-finished goods were transferred to the value of the components/semi-finished goods.

Hero approached the ITAT following this tax demand.

ITAT observed the commercial expediency and genuineness in the transaction between units and stated that nominal processing of goods to the other unit does not demand charging of profit margin which is normally earned by non-eligible units from daily operations.

The ruling spreads light on the facts and situation where and how the application of the concept of “market price” under section 80IA (8) of the act shall be applied. The instant ruling clarifies that when non-eligible units procured goods at market price from third party vendors and supplied the same to the eligible unit at the same purchase price as increased by applicable freight cost, no further substitution of such price is warranted in terms of section 80IA(8) and the transaction was a genuine business transaction borne out commercial expediency, a research note by Nangia Anderson said.

READ  UK hit with recession warning as Brexit battle builds in parliament



Please enter your comment!
Please enter your name here