Income Tax Appellate Tribunal - Delhi
Honda R & D (India) Pvt. Ltd.,Haryana vs Dcit, New Delhi on 22 April, 2026
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IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H", DELHI
BEFORE SH. RAMIT KOCHAR, ACCOUNTANT MEMBER
AND
SH. SUDHIR KUMAR, JUDICIAL MEMBER
ITA No.5758/DEL/2015
Assessment Year: 2011-12
Honda R&D (India) Private Vs. Deputy Commissioner of
Limited Technical Centre Income Tax, Circle 11(1)
Plot No.2 Sector -03 IMT New Delhi
Manesar Distt. Gurgaon
Haryana-122050
PAN No. AABCH3071N
(APPELLANT) (RESPONDENT)
Appellant by Sh. Nageswar Rao, Adv. (Virtual)
Sh. Pratik Rath, Adv,
Respondent by Shri S.K. Jadhav, CIT-DR
Date of hearing: 09/03/2026
Date of Pronouncement: 22/04/2026
ORDER
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of the Dispute Resolution Panel New Delhi [hereinafter referred to as "Ld. DRP"] vide order dated 31-07-2015 pertaining to A.Y. 2011-12, arising out the intimation order dated 11-11-2022 under section 143(1) of the Income Tax Act,1961, (in short 'the Act').
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2. The assessee has raised the following grounds in appeal:
1. That on the facts and in law Hon'ble DRP/Learned Deputy Commissioner of Income -Tax Circle-11(1), New Delhi (Hereinafter referred to as "the Ld. AO" erred in assessing the income of the Appellant for the relevant assessment year at INR 350,07,560/- the returned income of INR 82,33,481/-.
2. Hon'ble DRP /Ld. TPO erred in rejecting certain comparables, without establishing their functional non comparability, and failed to undertake appropriate functional, asset risk analysis of comparable vis-à-vis the Appellant.
3. Hon'ble DRP /Ld. TPO erred in understanding the business model of the Appellant and accordingly failed to comprehend the limited environment in which the Appellant is operating which is also confirmed by Hon'ble DRP in 2007-08 A.Y.2008- 09 and A.Y.2010-11, thereby misunderstood the operational profile of the Appellant and erred in rejecting the appropriate comparable companies while determining the arm's length price.
4. Hon'ble DRP/ Ld. TPO applied inconsistent approach;
rejected India Tourism Development Corporation Limited being the company earns most of its revenue from interest. However in contrast for the purpose of the comparability analysis the "ARMS & Misc Operation " Segment has been considered under which the company continues to operate in a functional profile which has been accepted by the Ld. CIT(A) in A.Y. 2005-06 and Hon'ble DRP in A>Y> 2010-11 in the Appellant's own case.
5. Hon'ble DRP/ Ld. TPO applied inconsistent approach; rejected Inhouse Production Limited of which the Appellant has considered " Healthcare segment" as comparable. Under such segment the companies provides access to information relating to healthcare technology including management practices and knowledge database to healthcare delivery institutions and health professionals in India. The company was also considered as comparable by Hon'ble DRP in A.Y. 2006-07 and accepted by Ld. TPO in A.Y.2010-11 in Appellant's own case. 3
6. Hon'ble DRP/ Ld. TPO applied inconsistent approach; rejected Elbit Diagnostics as persistent loss maker. However, the company has made profit in Financial Year 2008-09 and suffered losses only financial Year 2010-11 and Financial Year 2009-10, and thus cannot be considered a persistent loss maker. The company was also considered as comparable by Hon'ble DRP in A.Y. 2008-09 and A.Y. 2010-11 in Appellant's own case.
7. Hon'ble DRP/ Ld. TPO has erred in ascertaining the risk profile of the Appellant by comparing it against the companies bearing substantial entrepreneurial risk, without giving due cognizance to the fact that Appellant indeed enjoys a " No Risk" status i.e. all expenses incurred by the Appellant get reimbursed with a markup of 3 percent irrespective of their commercial success.
Hon'ble DRP/TPO has erred in not making suitable adjustment to account for differences in the risk profile of the Appellant (no risk) vis-à-vis the comparables ( bearing full- fledged entrepreneurial risk)
8. Hon'ble DRP/ Ld. TPO erred in law in determining the price of the impugned transaction of the Appellant as the circumstances necessitating the determination of price by the Learned TPO as mentioned in sub-section(3) of section 92C did not exist in the case of the Appellant.
9. Hon'ble DRP/ Ld. TPO has erred inn facts and in law in rejecting the Appellant's claim to use multiple year data for computing the ALP, and instead used single year updated data to compute arm's length price of the international transaction.
10. Hon'ble DRP/ Ld. TPO has erred in not applying the proviso to section 92C(2) of the Act correctly and has failed to allow the benefit of downward variation of 5 percent in determining arm's length price so computed.
The appellant craves leave to add amend, vary omit or substitute, any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal and consider each of the grounds as without prejudice to the other grounds of appeal.
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3. The brief facts of the case are that the assessee was incorporated under the provision of the Companies Act, 1956 as a wholly owned subsidiary of Honda R&D Co. Ltd. Japan ("Honda R&D Japan"). Honda R&D is engaged in providing market research and testing services to Honda R&D Japan (which provides R&D services to all Honda Group entities) and is remunerated on a cost, plus mark-up basis for the same. The assessee filed its return of income on 16-11-2011 declaring total income of Rs.82,33,481/-. Since the assessee had undertaken international transactions with its associated enterprises, a reference was made by the Assessing Officer to the Transfer Pricing Officer, New Delhi under section 92CA(1) of the Act. The Transfer Pricing Officer proposed an addition of Rs.4,81,69,158/- and AO vide his draft assessment order proposed to assess the assessee at an income of Rs.5,64,09,439/-. The assessee entered into the international transactions tabulated below;
Sl. Nature of transaction Method Arm's length price
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No. as per taxpayer
(i) Provision of Market TNMM Rs.29,48,03,877/-
Support services and
testing services
(ii) Reimbursement of NA Rs.8,84,259/-
expenses by AE to
HRD
(iii) Reimbursement of NA Rs.1,07,577/-
Expenses by HRD to
AE
4. The assessee furnished the TP study and selected TNMM as the most appropriate method to bench mark international transaction relating to provisions of sourcing and procurement support services. The assessee selected the 10 comparable but the certain comparable were rejected by the TPO and did not find them suitable and proposed the addition of Rs.4,81,69,158/-. During transfer pricing proceedings, The Ld. TPO after detailed search process the accept/reject matrix of companies considering analysis and application filters, modified the search to arrive at the following final set of 9 comparable companies with arithmetical mean of 20.03% and ALP.
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S.No Name of the company Ld. Single year Ld. TPO"s Single year Net
TPO's margin order - margin working
order- (Unadjusted single year (Working capital
single All) margin capital days (365*
year Comparable (Working adjusted)- Net
margin Capital All working
(unadju Adjusted) comparable capital
sted) /opera ting
Revenues
1 IDTC(Segmental) Reject -13.78% Reject -11.40% -87.96
2 HI-Teach Labs Ltd 15.27& 15.27& 10.43% 10.43& 117.83
3 IDC (India) Ltd 10.33% 10.33% 7.76% 7.76% 62.88
4 In hounce Reject -0.88% Reject -10.52% 279
Productions Ltd.
5 Specta Analytical 32.07% 32.07% 23.00% 23.00% 196.65
Labs Limited
6 Dolpnin Medical 23.69% 23.69% 12.76% 12.76% 254.18
Service Limited
7 Elbit Medical Reject -19.68% Reject -19.42% -17.01
Diagnostics limited
8 ICRA Management 15.90% 15.90% 8.05% 8.05% 193.41
Consulting Service
Ltd.
9 1DMA Laboratories 22.94% 22.94% 10.54% 10.54% 290.79
Arithmetic mean 20.03% 9.54% 12.09% 3.47%
HRID(the Assessee) -0.02%
The Ld. TPO worked out an adjustment of Rs.48,169,158/- as follows:
Sl.No Particulars Amount(INR) 1 Total Cost 285,739,428 2 ALP at margin of 20.03% 342,973,035 3 Price received 294,803,877 4 Adjustments u/s 92CA 48,169,158 7
5. The AO vide his draft assessment order purposed to assess the assessee's income at Rs.5,64,09,439/-. Aggrieved by the action of the AO the assessee preferred the appeal before the Hon'ble DRP, who vide order dated 31-07-2015 dismissed the objection of the assessee against the comparable and directed the TPO to give working capital adjustment and denied the adjustments of average margins of the comparable. Being aggrieved the order of the Ld. DRP the assessee is in appeal before the tribunal.
6. The ld. AR of the assessee submitted that the TPO wrongly rejected the three comparables namely India Tourism Development Corporation Limited, Inhouse, Production Limited and Elbit Diagnostics selected by the assessee. He further submitted that out of three two comparables were accepted by Ld. CIT(A) for A.Y.2010-11 in the assessee's own case. He also submitted that third comparable was rejected on the basis of the persistent loss for three years, while the Elbit Diagnostics has made profits in financial year 2008-09.
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7. Ld. DR relied the order of the Ld. DRP. He further submitted that the Ld. DRP rightly rejected the comparables because they are not similar and belonging to different industries and functionally different and having peculiar economic circumstances. He also submitted that considered the principal of res judicata is not applicable in the Income Tax cases. We have the parties and gone through the material available on record.
Inclusion/exclusion of comparables
8. The assessee has objected to the exclusion of certain comparable companies by the Ld. DRP/AO/TPO India Tourism Development Corporation Limited ( ITDC)
9. During the transfer pricing assessment, this comparable was rejected on the ground that there seems to be a name change and the company's main income is from interest. 9.1 The Ld. AR of the assessee submitted that the annual report of ITDC is available on the public domain. Further there has been no change in the name of the company. The extract of the 9 audit report of the company for the financial year was filed by the assessee. This comparable was accepted by the DRP for the A.Y.2010-11. He further submitted that the company is not persistent loss company.
9.2 The DRP relied upon the order of the Ld. TPO and submitted that this company be excluded on the ground that this company persistent losses on year to year for three years. 9.3 We have considered the submissions of the Ld. Representatives of the parties and perused material on records. We note that the information regarding the losses has been misquoted by the Ld. TPO. The assessee has also demonstrated that this company has earned the profit for the A.Y. 2010-11. This comparable was also accepted by the DRP for the A.Y.2010-11. In the case of Yazaki India Private Limited (Formely) Known Yazaki India Limited) vs. DCIT ITA NO.621/PUN/2014 the co-ordinate bench held as under:
"21. The Hon'ble Jurisdictional High Court in CIT vs. Goldman Sachs (India) securities (P) Ltd. (2016) 290 CTR 10 236(Bom) considered a similar issue of persistent loss- making companies. In that case, the TPO excluded Capital Trust Ltd. on the ground of persistent loss-making company. The tribunal included this company by noticing that it was not a persistent loss-making company as for the A.Y.2005- 06 it made profit although it was loss for subsequent two years, namely A.Y.2006-2007 and 2007-08. Considering the factual position obtaining in the instant case, it is seen that though FCI Technology Services Ltd. suffered, loss for the A.Y. 2008-09 and the year under consideration but, in fact, there was profit for the A.Y. 2007-08 at %.08%. As this company earned profit of 5.08% for the A.Y.2007-08, it ceases to be a persistent loss, making company in so far as the A.Y. 2009-10 is concerned, since, one of the three years is in profit through the other years are in loss. 9.4 The ITDC Company is not a persistent losses company because the company earned profit for the A.Y.2010-11 in the ARM Segment. Relying the judgment, we remand this 11 comparable to the Ld. AO/TPO to consider it afresh taking as a comparable for the ARM segment after giving reasonable opportunity of being heard to the assessee. Inhouse Production Ltd.
10. The Ld. TPO rejected this company in the final list of the comparables on the ground that this company the media division the revenue is being earned from sale of television programs and assignment of film distribution rights, has been used.
10.1 The Ld. Counsel for the assessee has submitted that Hon'ble DRP does not consider the comparable valid comparable. The relevant extract of DRP order is reproduced below:
The above functions can by no stretch of imagination be compared with the nature of services performed by Inhouse Production even if it is compared with the services being rendered by the Health Care Division which caters to providing access to information relating health care 12 technology. These cannot be compared to the function been carried out by the assessee thus it cannot be considered a valid comparable.
10.2 The Ld. AR submitted that assessee has considered "Healthcare Segment" as a comparable. The company continues to operate in a functional profile which has been accepted by the tax authority in earlier years. He further submitted that as per annual report it can be seen that the company has reported two separate segments i.e. Healthcare with 82.84 % revenues.
And Media division with 17.16%. The companies provide access to information relating to health care technology including management practices and knowledge databases to healthcare delivery institutions and health professional in India. 10.3 The Ld. DR relied upon the order of the Ld. DRP and submitted that this company provided access to information related health care technology.
10.4 We have considered the submissions of the parties and perused material on records. It is stated that the Ld. TPO has 13 accepted this company as a comparable in AY 2010-11. The assessee has also demonstrated that this company functional profile is similar to that of the assessee. Therefore, we direct the Ld. TPO to include this company healthcare segment in the list of comparables.
Elbit Diagnostics Limited
11. The Ld. TPO rejected this company by recording the following findings in his order reproduced below:
23: If we must proceed wisely in the process of selecting comparables, then we must make a distinction between companies that make a loss in a given year as a normal commercial incident and companies that make losses because the discharge of their functions is compromised. Elbit Diagnostics has reported in its annual report that it is in the process of opening new centers, expending and shifting ones with the result that in a matter of two years, the accumulated losses of the company have crossed Rs.14 crores.14
24. For all these reasons this is not a suitable comparable. 11.1 The Ld. AR of the assessee submitted that the company is not a persistent loss maker. The company accepted as a comparable by LD.DRP in A.Y.2010-11. He also submitted that the company to be considered as a persistent loss maker if the company making losses for a period of at least three. The company has made the profits in F.Y. 2008-09. He relied the above sited judgment Yazaki India Private Limited (Formely) Known Yazaki India Limited) vs. DCIT ITA NO.621/PUN/2014. 11.2 The Ld. DR relied upon the order of the Ld. DRP and TPO and stated that the company is a persistent loss maker and cannot be a valid comparable.
11.3 We have heard the parties and gone through the material available on record. The assessee demonstrated that the company is not a persistent losses maker company. In support of his contention the assessee has filed the profit & loss account of the Company and the company has made the profit in F.Y. 2008-09 and suffered losses in F.Y.2009-10 & 2010-2011. 15
Relied the above cited judgment we hold that the Elbit Diagnostics Limited cannot be considered a persistent loss maker. But the company also not earned profit and did not function for more than 3 months. This company has reported in its annual report that it is in the process of opening new centres, expanding and shifting existing ones with the result that in a matter of two years, the accumulated losses of the company have crossed Rs. 14 crores. Thus, the Ld. TPO has rightly held that this company is not a suitable company, thus, we do not find any reason to include the comparable as requested by the Assessee.
Working Capital Adjustment
12. with respect to working capital adjustment not allowed by the Ld. AO, the Ld. AR submitted that the Hon'ble DRP vide its order 31-07-2015 directed the Ld. AO to grant working capital adjustment. However, the AO failed to do so while passing his final assessment order. He further submitted that the Ld. TPO has granted the working capital adjustment to the assessee in the subsequent A.Y.2013-14. The Ld. DR fairly conceded the order of the Hon'ble DRP.
1612.1 We have perused the order. The relevant extract of the Hon'ble DRP direction is reproduced below:
7.2.3 TPO has also referred to OECD guideline which state that only reasonably accurate adjustments can be made.
This Panel directs the TPO to strictly follow the guidelines provided by OECD for the computation of working capital adjustment, in accordance with the OECD Guidelines, the TPO and taxpayer are directed to take following into consideration while working out the working capital adjustment:
a) compute the average of opening and closing balances of inventories, trade debtors/ receivables, trade creditors/ payable of both the tested party and the comparables, on revenue account only.
b) work out the net working capital ratio (IN Percentage) after dividing the net working capital by operating cost/sales or such denominator (as is used in the PLI) both for the tested party and the comparables, 17
c) determine the difference between the tested party's ratio with that of each comparables.
d)thereafter multiply the above differences by interest rate i.e. SBI Prime Lending Rate as on 30Th June of the relevant financial year.
e) lastly, these adjustments are to be added to the profit margin of comparable companies as finally determined in accordance with the directions of the Panel.
f) Besides, credits received from various group concerns or loans etc should not be taken into account In this respect, TPO raised the issue of unreliable data and has pointed out that monthly data of comparables as well as segmental data is not available for making reasonably accurate working capital adjustment. This DRP is of the view that the average of opening and closing balance of the inventories and of the trade receivable/ payable trade debtors / creditors for the relevant year may be adopted which may broadly give the representative level of working 18 capital over the year, as monthly data in respect of comparables would not be available. Even if there is some differences with respect to the representative level, it will not affect the comparability as the same method will be applied to all cases. Same is the case with segmental data.
7.2.4 Hence, from the above discussion the TPO is directed to give working capital adjustment using the OECD methodology given at it in Annex to Chapter III and apply SBI Prime Lending rate (as on 30Th June of the relevant financial year) as the interest rate.
12.2 It is clear from the above that the finding of the Hon'ble DRP is based on cogent reasons. The Ld. TPO has also provided working capital adjustment in subsequent A.Y.2013-14. We therefore, direct the Ld. AO/TPO to provide working capital adjustment.
Adjustments on account of risk ete.
13. The Ld. Counsel for the assessee submitted that the Hon'ble DRP/ Ld. TPO has erred in ascertain the risk profile of the 19 assessee by comparing it against the companies bearing substantial entrepreneurial risk, without giving due cognizance to the fact that the assessee indeed enjoys a "No Risk Status"
and all expenses incurred by the assessee get reimbursed with a markup of 3% irrespective of their commercial success. He further submitted that the Hon'ble DRP/ Ld. TPO has not made the suitable adjustments on account for differences in the risk profile of the assessee.
13.1 Ld. DR has relied the orders of the Hon'ble DRP/Ld. TPO and reiterated submissions stated in para8 for the denying adjustments on account of risk etc. 13.2 We have heard the parties and gone through the material available on record. The relevant extract of the Hon'ble DRP direction is reproduced below:
8.1. With regard to the risk adjustments after going through the taxpayer's submission and AO/TPO's order, the judicial decisions, it is seen that this issue is amply supported by 20 * Order of the TPO has he has discussed in detail in his order as to why this adjustment cannot be carried out.
*Rule 10B (2) and 10B(3) of Income Tax Rules1962. Indian transfer pricing provisions prescribe only for" reasonable accurate adjustment" and further adjustment to the margins of comparables can be made only if they enhance comparability. The data for the same must be relevant reliable and robust. Risk adjustment as a general rule cannot be allowed unless it is clearly shown that the comparables had actually undertaken such risk and how the same materially affected their margins. * As per the revised OECD guidelines of 2010 it can be seen that unless it is shown that how the risk adjustment would change the result of each comparable and how the same would improve the comparability and unless adequate reasons are given for such adjustments, no adjustments can be allowed to the taxpayer. Thus para 3,54,states as under:
Ensuring the needed level of transparency of comparability adjustments may depend upon the availability of an explanation of 21 any adjustments performed the reasons for the adjustments being considered appropriate, how they were calculated how they changed the results for each comparable and how the adjustments improves comparability. Issues regarding documentation of comparability adjustments are discussed in Chapter V"
Even the various judicial decisions on the issue of adjustment and even OECD guidelines, impresses upon time and again that the adjustment should br" reasonable accurate adjustment"
In the present case except pointing out various risks, the taxpayer has not shown with evidence as to whether each of the risk actually undertaken or not by the comparables and if so, how these risks affected each of them and whether such adjustment improve the comparability. In the absence of robust and reliable data, both for the taxpayer and the comparables risk adjustments cannot be considered for enhancing comparability. 13.3 We observed that the assess works as per the directions received from Honda R&D Japan. The assessee acts in the capacity of an Independent, contractor and does not bear risks associated with the provision of the market research and testing services to Honda R &D Japan. The margins of the Assessee 22 operating as a risk mitigated contract service provider are not dependent on scale or size of operations. It is evident from the records that the assessee had acquired the business and also earned income out of the said transaction by cost plus basis. The assessee enjoys the no risk status therefore the assessee is entitled the reimbursed with the status of no risk. Ground No9:
14. Ld. AR of the assessee submitted that Ld. TPO has used the current year data. He further submitted that as per the Rule 10B(4) of the Income Tax Rules 1962 the assessee can use the multiple year data. According to Ld. TPO the earlier period data may also be considered only if it reveals certain facts which have an influence on the determination of transfer prices in relation to the transactions being compared. The Ld. TPO has discussed the issue at length and relying the various pronouncements, rightly used the current year data. We do not find any reason to interfere the findings of the Hon'ble DRP/Ld. TPO. The ground raised by the assessee is decided accordingly. 23 Ground No.10
15. The Ld. AR of the assessee submitted that the assessee has made the claim of benefit of the arm's length range of plus/minus 5 %. The Ld. DR has relied the order of the ld. TPO and reiterated the para 39. The Ld. TPO relying the decision of Deloite Consulting India Ltd. and the amendment of the subsection (2A) of section 92C held that the taxpayer is not entitled to benefit of claim of the standard deduction. Sub section 2(A) of the section 92 C of the Act, as under:
"(2A) where the first proviso to sub-section (2) as it stood before its amendment by the Finance (No.2) Act 2009 is applicable in respect of an international transaction for an assessment year and the variation between the arithmetical mean referred to in the said proviso and the price at which such transaction has actually been undertaken exceeds five percent of the arithmetical mean, then the assessee shall not be entitled to exercise the option as referred to in the said proviso."24
16. The issue was discussed at length, we do not find any reason to interfere the findings of the Ld. TPO. Ground raised by the assessee decided accordingly.
17. From the above discussion the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 22.04.2026.
Sd/- Sd/-
(RAMIT KOCHAR) (SUDHIR KUMAR)
ACCOUNTANT MEMBER (JUDICIAL MEMBER)
SR BHATNAGGR
Date: 22.04.2026
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals) `
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT DELHI