Assessee is Piaggio Vehicles Pvt. Ltd
Whether the Transfer Pricing adjustment by combining all exports (both manufactured goods and goods sourced from third parties) to AEs under a single internal TNMM approach was appropriate.
Assessee’s Contentions | Revenue’s Contentions |
|---|---|
The assessee maintained that it had used internal TNMM for spare parts manufactured by it and exported to AEs and external TNMM for spare parts sourced from the domestic market and exported to AEs (Global Sourcing). | The Revenue argued that all exports of spare parts, whether manufactured by the assessee or sourced from third parties, constitute a single trading function and therefore should be evaluated together under one Transfer Pricing method. |
The two segments are functionally different and should not be combined, citing distinct profit margins (28.96% for manufactured exports to AEs vs. 2.44% for global sourcing). | They contended that artificially segmenting these transactions into manufactured and sourced categories was not justified, as it could lead to manipulation or distortion of the true profitability of the overall export function. |
Relied on earlier ITAT rulings in its own case (AY 2006–07 onwards) where such segmentation was accepted. | The Revenue maintained that a unified approach would better reflect the commercial reality and align with the arm’s length principle, thereby opposing the assessee’s reliance on different TNMM methods for different segments. |
ITAT's Judgement
ITAT held that the TPO incorrectly combined functionally distinct transactions under internal TNMM.
Directed AO to verify the correctness of internal TNMM for exports of manufactured goods and apply external TNMM for global sourcing transactions based on assessee’s TP report.
Cited earlier ITAT rulings in assessee’s favour, acknowledging functional differences in spare parts segments.
The Pune ITAT directed separate benchmarking for manufactured and sourced exports, holding that the TPO erred in applying a combined approach for functionally distinct transactions.
