The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed the appeal filed by Honda R&D (India) Private Limited and granted relief on multiple transfer pricing and corporate tax issues. The Tribunal held that India Tourism Development Corporation Ltd. (ITDC) ought to be included in the final set of comparables while excluding IGT Solutions Pvt. Ltd. and Fuzen Software Pvt. Ltd. from the comparability analysis. The Bench comprising Judicial Member Vimal Kumar and Accountant Member Ramit Kochar also restored certain issues relating to depreciation on computer software and disallowance under Section 40(a)(ia) to the Assessing Officer for fresh examination.

The assessee, a wholly owned subsidiary of Honda R&D Co. Limited, Japan, is engaged in providing basic market research and testing services in relation to two-wheelers and power products. For AY 2017-18, the Transfer Pricing Officer proposed an adjustment in respect of international transactions relating to market research and testing services, which ultimately resulted in an adjustment under the final assessment order.

Before the Tribunal, the assessee challenged the transfer pricing adjustment and contended that the authorities had wrongly rejected functionally comparable companies while including entities that were not comparable to its low-risk market research and testing service profile.

A significant dispute related to the exclusion of India Tourism Development Corporation Ltd. (ITDC) from the final set of comparables. The assessee relied upon the Delhi High Court’s decision in its own case for AY 2005-06, wherein ITDC had been accepted as a comparable.

“The DRP in its order dated 12th July, 2011, gave cogent reasons why ITDC should be included as a comparable.” Accepting the assessee’s contention, the Tribunal held that the TPO was not justified in excluding ITDC and directed its inclusion in the final list of comparables.

However, the Tribunal upheld the exclusion of Unimed Diagnostics Pvt. Ltd. and Medall Healthcare Pvt. Ltd. It observed that both entities were engaged in healthcare, pathology, radiology and diagnostic services, which were functionally different from the assessee’s activities of market research, data compilation and testing support services.

The Bench also found merit in the assessee’s objections against the inclusion of IGT Solutions Pvt. Ltd. and Fuzen Software Pvt. Ltd. It noted that these companies were engaged in software-related and data processing activities and therefore could not be regarded as functionally comparable to the assessee. “It is evident that the IGT Solutions has a different profile than that of the Assessee Company.”

On the corporate tax issues, the Tribunal followed its earlier decision in the assessee’s own case and directed the Assessing Officer to re-examine the claim of depreciation on computer software after verifying whether the assets qualified for depreciation as computer software or as intangible assets. Similarly, the issue relating to disallowance under Section 40(a)(ia) on international travel expenses was restored for fresh verification of the assessee’s claim that tax had already been deducted and deposited.

Thus, the Tribunal partly allowed the appeal, directed modification of the transfer pricing comparables, restored certain corporate tax issues for fresh adjudication, and dismissed the stay application as infructuous.