Retail/After-Sales Businesses Can’t Be Compared With OEM Wholesale Trading: ITAT Deletes TP Adjustments

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has granted major relief to Astemo India Private Limited (formerly Hitachi Astemo India Pvt. Ltd.) by deleting transfer pricing (TP) adjustments for Assessment Years (AY) 2016–17 and 2017–18, holding that entities engaged in retail and after-sales trading cannot be treated as valid comparables for a taxpayer engaged in wholesale supply of automobile components to original equipment manufacturers (OEMs). The bench of Yogesh Kumar U.S. ( Judicial Member) and S. Rifaur Rahman (Accountant Member) noted that the DRP had failed to explain how the functional, asset, and risk (FAR) profile of those entities matched the assessee’s business model. Since the Revenue could not effectively dispute the assessee’s contention that the companies operated in retail markets, the Tribunal directed their exclusion as comparables. Consequently, only Stanes Motor (South India) Ltd. remained, whose margin was within the tolerance range, leading to deletion of the TP adjustment of ₹1.08 crore. The dispute arose from transfer pricing adjustments proposed by the Transfer Pricing Officer (TPO) in relation to Astemo India's international transactions with associated enterprises (AEs). The company is engaged primarily in the business of selling Electronic Control Units (ECUs), fuel injection parts, and CNG assembly components. It imports goods from associated enterprises and sells them mainly to unrelated OEM customers. For AY 2016–17, the company adopted the Resale Price Method (RPM) as the Most Appropriate Method and benchmarked its trading segment by comparing its gross profit margin of 2.46% with a selected comparable having a margin of 3.77%. Astemo claimed that its international transactions fell within the permissible arm’s length tolerance range. However, the TPO rejected the sole comparable selected by the company and conducted a fresh search exercise. The officer introduced four new comparables and arrived at an average gross profit margin of 10.28%, resulting in a proposed transfer pricing adjustment of approximately ₹2.03 crore. Upon objections before the Dispute Resolution Panel (DRP), one comparable, Advantek Fuel Systems Pvt. Ltd., was excluded because it was found to be a manufacturer rather than a trader. Nevertheless, three other entities—Associated Auto Parts Ltd., Salsons Impex Pvt. Ltd., and Stanes Motor (South India) Ltd.—were retained, reducing the TP adjustment to ₹1.12 crore. Before the Tribunal, Astemo argued that the retained entities were functionally different because the company primarily undertook wholesale trading and supplied products directly to OEMs such as India Yamaha Motor, Maruti Suzuki, and others, while the selected comparables operated in retail and after-sales market segments. The company contended that retail markets involve distinct customer bases, marketing functions, and risk profiles compared with wholesale OEM transactions. The Tribunal examined Rule 10B(2)(d) of the Income Tax Rules, which specifically requires consideration of prevailing market conditions, including whether markets are wholesale or retail, while evaluating comparability. The assessee relied on a number of judicial precedents emphasizing the importance of product and functional similarity in transfer pricing analysis. After considering the submissions, the Tribunal observed that the Revenue authorities had not rebutted the assessee’s claim regarding functional differences. It held that Associated Auto Parts Ltd. and Salsons Impex Pvt. Ltd. could not be retained as comparables because they operated in different market segments. Once these companies were excluded, only Stanes Motor (South India) Ltd. remained, whose margin stood at 2.03% compared to the assessee’s margin of 2.46%. Since the transaction fell within the arm’s length range, the Tribunal deleted the TP adjustment of ₹1.12 crore. The Tribunal adopted a similar approach for AY 2017–18. The TPO had selected four comparables and proposed an adjustment of approximately ₹1.08 crore. Astemo challenged the inclusion of Associated Auto Parts Ltd., India Motor Parts Accessories Ltd., and Jullunder Motor Agencies Ltd., arguing that these entities were primarily involved in retail and after-sales activities. The Tribunal also dealt with a separate issue concerning disallowance under Section 40(a)(ia) for AY 2017–18. The issue related to payments made to transporters without deduction of tax at source (TDS). Astemo argued that a revised tax audit report had been filed after obtaining a certificate from one transporter claiming exemption under Section 194C(6). Since the relevant facts and documents had not been properly examined by the lower authorities, the Tribunal remanded the issue back to the Assessing Officer for verification. Case Details Case Title: Astemo India Private Limited Versus Addl. CIT Citation: JURISHOUR-1329-ITA-2026(DEL) Case No.: ITA No.523//Del./2021 Date: 20.05.2026 Counsel For Appellant: Pradeep Dinodia, CA Counsel For Respondent: Nikhil Kumar Govila, CIT DR Click Here To Read Order Read More: Melodi Meets Melody: Viral Modi-Meloni Moment Sparks GST Debate Over Toffee vs Chocolate

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