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of <h1>Tribunal directs adjustments for fair transfer pricing analysis</h1> <h3>Honda R & D (India) Pvt. Ltd., Versus DCIT, Circle 11 (1), New Delhi</h3> Honda R & D (India) Pvt. Ltd., Versus DCIT, Circle 11 (1), New Delhi - TMI Issues:1. Transfer pricing adjustments made by TPO and subsequent assessment order2. Exclusion and inclusion of comparables in the transfer pricing analysis3. Working capital adjustment calculationTransfer Pricing Adjustments:The assessee, engaged in two-wheeler and power producer research and development, filed its income return declaring &8377;1,19,16,780. The TPO made an adjustment of &8377;10,28,08,892, leading to a revised income of &8377;4,10,07,860. The DRP directed the TPO to re-verify certain issues, resulting in an ALP adjustment of &8377;4,74,55,478 by the Assessing Officer. The assessee appealed against this assessment order.Exclusion and Inclusion of Comparables:The main issue in the appeal was the exclusion and inclusion of comparables in the transfer pricing analysis. The assessee contested the exclusion of companies like M/s Aptico Ltd., Axis Integrated System Ltd., and Killik Agencies and Marketing Ltd., arguing they were functionally dissimilar. The assessee relied on various legal precedents to support its argument. On the other hand, the TPO defended the inclusion of these comparables, stating they were functionally similar and within acceptable margins. Regarding the inclusion of comparables like Hi-Tech Laboratories Ltd., ITDC Ltd., and Cyber Media Research Ltd., the assessee argued for their inclusion based on past acceptance and comparable margins, while the TPO rejected them as functionally dissimilar. The Tribunal found that proper verification of the functional profiles was lacking and directed the TPO to exclude certain comparables and re-verify the inclusion of others.Working Capital Adjustment:The Tribunal noted that the working capital adjustment calculation was not properly done by the TPO/Assessing Officer and directed a re-computation in accordance with ALP margins. The assessee was to be given an opportunity for a hearing following the principles of natural justice. The appeal was partly allowed for statistical purposes.In conclusion, the Tribunal partially allowed the assessee's appeal, directing the exclusion of certain comparables, re-verification of inclusion of others, and a re-computation of the working capital adjustment. The decision aimed at ensuring a fair and accurate transfer pricing analysis in line with legal requirements and principles.
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