HONDA R & D (INDIA) PVT. LTD.,HARYANA vs. DCIT, NEW DELHI

per annual report it can be seen that the company has reported

two separate segments i.e. Healthcare with 82.84 % revenues.

And Media division with 17.16%. The companies provide access

to information relating to health care technology including

management practices and knowledge databases to healthcare

delivery institutions and health professional in India.

10.3 The Ld. DR relied upon the order of the Ld. DRP and

submitted that this company provided access to information

related health care technology.

10.4 We have considered the submissions of the parties and

perused material on records. It is stated that the Ld. TPO has

accepted this company as a comparable in AY 2010-11. The

assessee has also demonstrated that this company functional

profile is similar to that of the assessee. Therefore, we direct the

Ld. TPO to include this company healthcare segment in the list

of comparables.

Elbit Diagnostics Limited

following findings in his order reproduced below:

23: If we must proceed wisely in the process of selecting

comparables, then we must make a distinction between

companies that make a loss in a given year as a normal

commercial incident and companies that make losses

because the discharge of their functions is compromised.

Elbit Diagnostics has reported in its annual report that it is

in the process of opening new centers, expending and

shifting ones with the result that in a matter of two years,

the accumulated losses of the company have crossed Rs.14

crores.

11.1 The Ld. AR of the assessee submitted that the company is

not a persistent loss maker. The company accepted as a

comparable by LD.DRP in A.Y.2010-11. He also submitted that

the company to be considered as a persistent loss maker if the

company making losses for a period of at least three. The

company has made the profits in F.Y. 2008-09. He relied the

above sited judgment Yazaki India Private Limited (Formely)

Known Yazaki India Limited) vs. DCIT ITA NO.621/PUN/2014.

11.2 The Ld. DR relied upon the order of the Ld. DRP and TPO

and stated that the company is a persistent loss maker and

cannot be a valid comparable.

11.3 We have heard the parties and gone through the material

available on record. The assessee demonstrated that the

company is not a persistent losses maker company. In support

of his contention the assessee has filed the profit & loss account

of the Company and the company has made the profit in F.Y.

2008-09 and suffered losses in F.Y.2009-10 & 2010-2011.

Relied the above cited judgment we hold that the Elbit

Diagnostics Limited cannot be considered a persistent loss

maker. But the company also not earned profit and did not

function for more than 3 months. This company has reported

in its annual report that it is in the process of opening new

centres, expanding and shifting existing ones with the result

that in a matter of two years, the accumulated losses of the

company have crossed Rs. 14 crores. Thus, the Ld. TPO has

rightly held that this company is not a suitable company, thus,

we do not find any reason to include the comparable as

requested by the Assessee.

Working Capital Adjustment

12.1 We have perused the order. The relevant extract of the

Hon’ble DRP direction is reproduced below:

7.2.3 TPO has also referred to OECD guideline which state

that only reasonably accurate adjustments can be made.

This Panel directs the TPO to strictly follow the guidelines

provided by OECD for the computation of working capital

adjustment, in accordance with the OECD Guidelines, the

TPO and taxpayer are directed to take following into

consideration while working out the working capital

adjustment:

a) compute the average of opening and closing balances of

inventories, trade debtors/ receivables, trade creditors/

payable of both the tested party and the comparables, on

revenue account only.

b) work out the net working capital ratio (IN Percentage) after

dividing the net working capital by operating cost/sales or

such denominator (as is used in the PLI) both for the tested

party and the comparables,

c) determine the difference between the tested party’s ratio

with that of each comparables.

d)thereafter multiply the above differences by interest rate

i.e. SBI Prime Lending Rate as on 30Th June of the relevant

financial year.

e) lastly, these adjustments are to be added to the profit

margin of comparable companies as finally determined in

accordance with the directions of the Panel.

f) Besides, credits received from various group concerns or

loans etc should not be taken into account

In this respect, TPO raised the issue of unreliable data and

has pointed out that monthly data of comparables as well as

segmental data is not available for making reasonably

accurate working capital adjustment. This DRP is of the view

that the average of opening and closing balance of the

inventories and of the trade receivable/ payable trade

debtors / creditors for the relevant year may be adopted

which may broadly give the representative level of working

capital over the year, as monthly data in respect of

comparables would not be available. Even if there is some

differences with respect to the representative level, it will not

affect the comparability as the same method will be applied

to all cases. Same is the case with segmental data.

7.2.4 Hence, from the above discussion the TPO is directed

to give working capital adjustment using the OECD

methodology given at it in Annex to Chapter III and apply

SBI Prime Lending rate (as on 30Th June of the relevant

financial year) as the interest rate.

12.2 It is clear from the above that the finding of the Hon’ble

DRP is based on cogent reasons. The Ld. TPO has also provided

working capital adjustment in subsequent A.Y.2013-14. We

therefore, direct the Ld. AO/TPO to provide working capital

adjustment.

Adjustments on account of risk ete.

DRP/ Ld. TPO has erred in ascertain the risk profile of the

assessee by comparing it against the companies bearing

substantial entrepreneurial risk, without giving due cognizance

to the fact that the assessee indeed enjoys a “No Risk Status”

and all expenses incurred by the assessee get reimbursed with

a markup of 3% irrespective of their commercial success. He

further submitted that the Hon’ble DRP/ Ld. TPO has not made

the suitable adjustments on account for differences in the risk

profile of the assessee.

13.1 Ld. DR has relied the orders of the Hon’ble DRP/Ld. TPO

and reiterated submissions stated in para8 for the denying

adjustments on account of risk etc.

13.2 We have heard the parties and gone through the material

available on record. The relevant extract of the Hon’ble DRP

direction is reproduced below:

8.1. With regard to the risk adjustments after going through

the taxpayer’s submission and AO/TPO’s order, the judicial

decisions, it is seen that this issue is amply supported by

* Order of the TPO has he has discussed in detail in his

order as to why this adjustment cannot be carried out.

*Rule 10B (2) and 10B(3) of Income Tax Rules1962. Indian

transfer pricing provisions prescribe only for” reasonable

accurate adjustment” and further adjustment to the margins

of comparables can be made only if they enhance

comparability. The data for the same must be relevant

reliable and robust. Risk adjustment as a general rule

cannot be allowed unless it is clearly shown that the

comparables had actually undertaken such risk and how

the same materially affected their margins.

* As per the revised OECD guidelines of 2010 it can be seen

that unless it is shown that how the risk adjustment would

change the result of each comparable and how the same

would improve the comparability and unless adequate

reasons are given for such adjustments, no adjustments can

be allowed to the taxpayer. Thus para 3,54,states as under:

Ensuring the needed level of transparency of comparability adjustments may depend upon the availability of an explanation of

any adjustments performed the reasons for the adjustments being considered appropriate, how they were calculated how they changed the results for each comparable and how the adjustments improves comparability. Issues regarding documentation of comparability adjustments are discussed in Chapter V” Even the various judicial decisions on the issue of adjustment and even OECD guidelines, impresses upon time and again that the adjustment should br” reasonable accurate adjustment” In the present case except pointing out various risks, the

taxpayer has not shown with evidence as to whether each of the

risk actually undertaken or not by the comparables and if so,

how these risks affected each of them and whether such

adjustment improve the comparability. In the absence of robust

and reliable data, both for the taxpayer and the comparables risk

adjustments cannot be considered for enhancing comparability.

13.3 We observed that the assess works as per the directions

received from Honda R&D Japan. The assessee acts in the

capacity of an Independent, contractor and does not bear risks

associated with the provision of the market research and testing

services to Honda R &D Japan. The margins of the Assessee

operating as a risk mitigated contract service provider are not

dependent on scale or size of operations. It is evident from the

records that the assessee had acquired the business and also

earned income out of the said transaction by cost plus basis.

The assessee enjoys the no risk status therefore the assessee is

entitled the reimbursed with the status of no risk.

Ground No9:

current year data. He further submitted that as per the Rule

10B(4) of the Income Tax Rules 1962 the assessee can use the

multiple year data. According to Ld. TPO the earlier period data

may also be considered only if it reveals certain facts which

have an influence on the determination of transfer prices in

relation to the transactions being compared. The Ld. TPO has

discussed the issue at length and relying the various

pronouncements, rightly used the current year data. We do not

find any reason to interfere the findings of the Hon’ble DRP/Ld.

TPO. The ground raised by the assessee is decided accordingly.

Ground No.10

made the claim of benefit of the arm’s length range of

plus/minus 5 %. The Ld. DR has relied the order of the ld. TPO

and reiterated the para 39. The Ld. TPO relying the decision of

Deloite Consulting India Ltd. and the amendment of the

subsection (2A) of section 92C held that the taxpayer is not

entitled to benefit of claim of the standard deduction. Sub

section 2(A) of the section 92 C of the Act, as under:

“(2A) where the first proviso to sub-section (2) as it stood

before its amendment by the Finance (No.2) Act 2009 is

applicable in respect of an international transaction for an

assessment year and the variation between the arithmetical

mean referred to in the said proviso and the price at which

such transaction has actually been undertaken exceeds five

percent of the arithmetical mean, then the assessee shall not

be entitled to exercise the option as referred to in the said

proviso.”

reason to interfere the findings of the Ld. TPO. Ground raised

by the assessee decided accordingly.

partly allowed for statistical purposes.

Order pronounced in the open court on 22.04.2026.

Sd/- Sd/-

(RAMIT KOCHAR) (SUDHIR KUMAR) ACCOUNTANT MEMBER (JUDICIAL MEMBER) SR BHATNAGGR Date: 22.04.2026 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) ` 5. DR: ITAT ASSISTANT REGISTRAR ITAT DELHI