Requirement of Transaction-Specific Benchmarking - No Blanket Validation Across Inter-Company Dealings
Delhi ITAT in the case of Honda R&D (India) Private Limited v. DCIT ITA No.4930/DEL/2024 Dated 8 October 2025
The Delhi ITAT has reiterated that each international transaction must be benchmarked independently under the transfer pricing framework. The Tribunal remanded the matter for fresh examination, emphasizing that acceptance of one transaction as being at arm’s length does not automatically validate other related transactions embedded in the same financials.
1. Brief Facts of the Case
Honda R&D (India) Pvt. Ltd. (“the taxpayer”) is engaged in providing basic market research and testing services to its Associated Enterprises (AEs), along with certain other support functions. For AY 2021–22, the taxpayer entered into multiple international transactions, including:
• Provision of basic market research and testing services – ₹139.85 crore
• Infrastructure service fees – ₹0.52 crore
• Reimbursement of personnel costs – ₹18.15 crore
• Other minor transactions such as purchase/sale of parts and technical services
The Transfer Pricing Officer (TPO) accepted the arm’s length nature of the principal transaction (provision of market research and testing services) but separately benchmarked and made adjustments on the payments towards infrastructure service fees and reimbursement of employee costs, determining their arm’s length price (ALP) more info at Nil.
The Dispute Resolution Panel (DRP) upheld the TPO’s approach. Consequently, a TP adjustment of ₹18.85 crore was made to the taxpayer’s income.
Aggrieved, the taxpayer appealed before the ITAT, contending that the infrastructure fees and reimbursements were already part of the cost base used in benchmarking the market research and testing services, which had itself been accepted to be at arm’s length. Therefore, a separate adjustment would result in double taxation of the same cost base.
2. Tribunal’s Observations
The Tribunal noted that the taxpayer had undertaken multiple international transactions as disclosed in Form 3CEB. While the benchmarking for the provision of market research and testing services was accepted within the arm’s length range, the TPO was still required to evaluate each distinct transaction independently.
It held that merely because certain costs—such as infrastructure fees and reimbursements—form part of another tested transaction’s cost base, they cannot be automatically exempted from separate benchmarking. Each transaction must be tested on its own nature, functions and supporting documentation.
The ITAT rejected the taxpayer’s plea against separate benchmarking but accepted that the additional evidences warranted re-examination. Accordingly, it set aside the TP adjustment and remanded the matter to the AO/TPO to re-benchmark the transactions after verifying the new documentation in accordance with law.
Key Takeaways / Implications
• Each international transaction must be independently benchmarked, even if its costs overlap with another transaction’s base.
• Acceptance of one transaction at arm’s length does not automatically validate others; authorities will rely on transaction-specific documentation and evidence.
• Taxpayers should maintain robust contemporaneous support demonstrating the benefit, need, and reasonableness of intra-group charges to mitigate TP disputes.
This ruling serves as a timely reminder that even seemingly minor intra-group transactions can trigger significant scrutiny. Taxpayers should proactively ensure that every inter-company charge, however small is contemporaneously supported with clear documentation on benefit, need and value, as transaction-specific benchmarking continues to gain sharper regulatory focus.
Author: Mr. HARINATH CHITTURI [PARTNER]
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