Law & Society

Toyoda Micromatic Machinery India Pvt Ltd vs Dy. CIT

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Appeal filed by the assessee against the order of The Deputy Commissioner Of Income Tax, Circle – 25 (2) New Delhi passed u/s 143 (3) read with Section 144C. Assessee is a company primarily engaged in the business of distribution in providing delivery and/or installation services of the machines tools and assessee sold it directly or through third parties to the customers. Assessee company is jointly owned by a Japanese and an Indian company.

CIT A directed the learned transfer pricing officer to select resale price method as the most appropriate method for distribution function, however, while computing the profit level indicator for resale price method the expenditure paid to these expatriates is to be treated as the expenses and AO/TPO was directed to recompute the arm’s-length adjustment of international transaction for distribution functions.

According to the provisions of rule 10 B for the determination of the arm’s-length price u/s 92C, the resale price method computation shall be determined according to subrule (1) (b) of the income tax rules. Mostly looking at the profile of the expatriates provided by the ld AR, it is apparent that either those are for providing Warranty services or after sales services. When the goods are sold all the price of theses items/services are already embedded in the sales price. Therefore naturally when sales price consists of price for warranty and After sales services, which are promised at the time of sales, naturally corresponding expenses are also to be considered while computing the margin of the assessee. After sale support services, training to customers and local staff for troubleshooting and service coordination expenses are thus, required to be included for determining the gross profit margin in resale price method. In view of this, Delhi ITAT did not find any infirmity in the order the ld TPO and CIT (A).

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