Karnataka High Court
Pr. Commissioner Of Income Tax-2 vs Toyota Tsusho India Private Limited on 2 September, 2025
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ITA No. 149 of 2025
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 2ND DAY OF SEPTEMBER, 2025
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE C M JOSHI
INCOME TAX APPEAL NO. 149 OF 2025
BETWEEN:
1. PR. COMMISSIONER OF INCOME TAX-2
KORMANGALA,
BANGALORE.
2. THE DEPUTY COMMISSIONER
OF INCOME TAX
CIRCLE- RESPONDENT
3(1)(1), BMTC BUILDING
KORMANGALA
BANGALORE - 560 095
...APPELLANTS
Digitally
signed by (BY SRI. SANMATHI E.I., ADVOCATE)
SRIDEVI S
Location:
AND:
High Court
of Karnataka 1. TOYOTA TSUSHO INDIA PRIVATE LIMITED
PLOT NO.33 AND 34
BIDADI INDUSTRIAL AREA
RAMANAGARA DISTRICT
BENGALURU - 562 109
PAN: AADCS6230 N
...RESPONDENT
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ITA No. 149 of 2025
HC-KAR
THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME
TAX ACT, 1961, PRAYING TO DECIDE THE FOREGOING QUESTION
OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE
FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET
ASIDE THE APPELLATE ORDER DATED 04.09.2024 PASSED BY THE
INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BANGALORE, AS
SOUGHT FOR, IN THE RESPONDENT ASSESSEE'S CASE, IN
APPEAL PROCEEDINGS IN M.P.NO.63/BANG/2023 IN IT (TP) A
NO.2806/BANG/2017 FOR A.Y. 2013-2014 (ANNEXURE-A) AND
GRANT SUCH OTHER RELIEF AS DEEMED FIT.
THIS APPEAL, COMING ON FOR ORDERS, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE
and
HON'BLE MR. JUSTICE C M JOSHI
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU,CHIEF JUSTICE)
1. For the reasons stated in the application - I.A.1/2025, the
same is allowed. The delay in filing the appeal is condoned.
2. The Revenue has filed the present appeal under Section
260-A of the Income Tax Act, 1961 [the Act] impugning an order
dated 04.09.2024 passed by the learned Income Tax Appellate
Tribunal [ITAT] in MP.No.63/Bang/2023 in IT(TP)A.
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No.2806/Bang/2017 in respect of the Assessment Year [AY] 2013-
2014.
3. The respondent [the Assessee] had filed the
aforementioned miscellaneous application seeking
rectification/modification of an order dated 02.03.2023 passed by
the learned ITAT in IT(TP)A.No.2806/Bang/2017. The said order
was passed in an appeal filed by the Assessee against the final
assessment order dated 21.07.2022. The principal dispute before
the learned ITAT was in respect of transfer pricing adjustments as
directed by the transfer pricing officer [TPO], which was further
reduced by the Dispute Resolution Panel [DRP].
4. The Assessee is trading in automobile components,
processing of steel products and providing logistic services,
primarily catering to the automotive industry. The Assessee had
filed his return of income for the assessment year 2013-2014 on
29.11.2013, declaring a loss of `10,86,90,508/-. After the
verification, it was found that the Assessee had entered into
international transactions with Associated Enterprises [AEs], the
value of which was more than `15 Crores. The learned Assessing
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Officer [AO] made a reference to the TPO for determination of the
arms length price [ALP] of the international transactions.
5. The Assessee furnished its transfer pricing studies in respect
to two segments, namely, the trading segment and the
manufacturing segment. The assessee's operating profit/ operating
revenue margin (which was selected as the PLI) was 0.94%. The
weighted average net profit margin of comparables selected by the
Assessee was 3.54%. The learned TPO found that the Assessee's
PLI was not within the tolerance range of plus/minus 1% and
therefore concluded that the international transactions with AE's
were not at ALP. The TPO also rejected the transfer pricing
studies and determined the mean PLI of the selected comparables
at 4.715%. And, the arms length margin of operating profit/
operating costs at 4.95%. On the aforesaid basis, the learned TPO
computed the transfer pricing adjustment at `25,23,76,521/- in the
trading segment.
6. In so far as manufacturing segment is concerned, the
learned TPO determined the arms length PLI at 3.45% and
accordingly made in adjustment of `6,02,89,351/- for the
manufacturing segment.
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7. The learned AO passed a draft assessment based on the
adjustments made by the learned TPO. The Assessee preferred its
objections before the DRP.
8. The learned DRP disposed of the objections raised by the
Assessee in terms of the directions issued on 26.09.2017 under
Section 144-C(5) of the Act. One of the objections raised by the
Assessee related to the adoption of tolerance limit of 1% variation
under Section 92-C(2) of the Act instead of 3% in respect to the
trading segment. However, the learned DRP rejected the said
objection. The learned AO passed the final Assessment Order on
the basis of the aforesaid directions on 21.07.2022.
9. The Assessee appealed the said order before the learned
ITAT. The learned ITAT considered the appellants' objection
regarding the tolerance range in trading activity. Whereas the
assessee had claimed that he was a trader and therefore tolerance
limit of 3% would apply; the learned TPO and the DRP had fixed
the tolerance variation limit at 1% of PLI. There is no dispute that
in terms of the notification No.30/2013 issued by the Central Board
of Direct Taxes [CBDT] on 15.04.2013, the tolerance range for
wholesale traders was fixed at 1% and for other cases at 3%. Thus
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the question whether tolerance limit was a variation of 1% or 3%
was required to be determined on the basis whether the Assessee
could be construed as a wholesale trader in respect of its trading
activities.
10. The learned ITAT noted that the term 'wholesale trader' was
defined in terms of the notification No.86/2015 dated 29.10.2015. It
stipulated that the expression 'wholesale trading' would mean
international transaction or specified domestic transaction for
trading in goods, which fulfilled two conditions. The first being that
the purchase cost of finished goods is 80% of the total costs
pertaining to such trading activities. And the second condition being
that the average monthly closing inventory of goods is 10% or less
of the sales pertaining to such trading activities. The Assessee had
furnished data to establish that its average monthly closing
inventory was more than 10% of the sales pertaining to the trading
activities and therefore it did not satisfy the second condition. Thus,
it could not be considered as a wholesale trader. The learned ITAT
had noted the same, as is evident from the following extract from
the Order dated 02.03.2023 passed by the learned ITAT:
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"13. The Id.AR of the assessee submitted that the TPO
has considered the tolerance range in trading activity
+1%, whereas the assessee's comparables margin is
3.54%. The OP/OR of the assessee is 0.94%. The TPO
for trading segment computed OP/OR at 0.22%. The
tolerance range of 1% as notified by the CBDT on April
15th, 2013 vide notification No.30/2013
(F.No.500/185/2011-FDT-1 for whole sale traders and
3% for other cases shall be applicable for the financial
year 2012-13. However, there was no definition of
wholesale traders was given in the said notification.
Further the central government issued another
notification No.86/2015 dated 29/10/2015. The term
whole sale trader was defined in the expression to the
notification as under:-
3. Further, Central government issued
notification. 86/2015) dated. 29.10.2015, the
term wholesale traders was defined in the
explanation to the notification as under:
"Explanation. For the purposes of this
notification, "wholesale trading" means an
international transaction or specified domestic
transaction of trading in goods, which fulfils the
following conditions, namely:-
purchase cost of finished goods is eighty
percent or more of the total cost pertaining to
such trading activities: and
average monthly closing inventory of such
goods is ten percent or less of sales pertaining
to such trading activities."
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13.1 He further referred to the chart submitted, which is
as under:-
4. The definition requires twin conditions for application
of term Wholesale Traders"
First Condition: Purchase cost of finished goods is
eighty Percent or more of the total cost pertaining to
such trading activities;
In the present case, purchase cost of finished goods is
Rs.10,06,99,08,117/- and total cost 10,74,34,03,259/-
pertaining to trading activities and thus it is 93.73% of
the total cost and satisfies the First criteria.
Second condition: Average monthly closing inventory of
such goods is ten percent or less of sales pertaining to
such trading activities
In the present case, Assessee's total inventory of traded
goods as on 31.03.2013 is Rs. 122,99,44,688/- and as
on 31.03.2012 is Rs. 110,03,72,957/- and thus average
inventory is Rs. 116,51,58,822/ (FIB Pg. 301) which is
more than 10% of total sales of trading goods is Rs.
103,68,56,2581-(10% of 1036,85,62,584) (PB Pg. 300).
Since, Average inventory i.e., is higher than 10% of total
sales of traded goods the assessee does not lie in the
definition of Wholesale traders and thus tolerance band
of +/-3% is applicable to the assessee.
5. Therefore, assessee being not a wholesaler trader
and accordingly, selected 3% tolerance band as the
appropriate tolerance band applicable, in accordance
with the activities Carried out by the Assessee."
11. Although the ITAT had noted the above, the Tribunal
remanded the matter to the AO/TPO/DRP to determine whether the
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Assessee was covered under the definition of wholesale trader
under the relevant notification.
12. In the aforesaid context, the assessee filed a miscellaneous
application inter alia seeking modification of the order dated
02.03.2023 to the extent of directing that the tolerance limit of 3%
be adopted instead of remanding the matter to the learned AO.
The said application is premised essentially on two grounds. First,
that the learned ITAT had in assessee's own case for the year
2014-15, held that the Assessee was not a wholesale trader and
therefore the tolerance band of plus/minus 3% was applicable to
the trading segment. Second, that the learned TPO had not
categorized the assessee as a wholesale trader and therefore
there was no requirement of remanding the matter to the learned
AO/TPO.
13. The learned ITAT considered the aforesaid contentions as
well as the record placed before it and passed the impugned order
inter alia accepting the Assessee's contention. Paragraph 6 of the
impugned order is relevant and is set out below.
"6. We have perused the submissions advanced by both
sides in the light of records placed before us.
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On perusal of the transfer pricing order passed by the
Ld.TPO, we note that the assessee has not been
categorised as a wholesale trader but it has been called
a "stripped-down distributer if it takes risks of distributer"
as per TPO order 6.4.3. In assessee's own case for
subsequent year in ITA NO. 3372/Bang/2018 at para
No. 28 Tribunal held that the assessee is trader and
fixed the tolerance limit at 3% as per para No. 28 which
is quoted by us in our order at para No. 13.4. Therefore,
para 13.5 deserves to be amended as under:
"13.5. The Ld.DR has relied on Notification
No.30/2013 dated 15/04/2013 and has
considered assessee to be a wholesale trader
which is contrary to the facts of the case. This
Tribunal in assessee's own case for A.Y.
2014-15 has upheld the assessee to be a
trader even the Ld. TPO in para 2 of the
92CA order has considered assessee to be a
trader. There is nothing on record placed by
the Ld.AR to establish that the assessee is a
wholesale trader for the year under
consideration. Under such circumstances,
respectfully following the view taken by the
Coordinate Bench of this Tribunal in
assessee's own case for A.Y. 2014-15, we
direct the Ld.AO to apply tolerance limit at 3%
as assessee is categorised to be a trader by
the authorities for the year under
consideration."
14. The question whether the assessee is required to be
considered as a trader other than a wholesale trader, is essentially
dependent on whether the two conditions as set out in the CBDT
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notification dated 29.10.2015 are satisfied or not. As noted above,
the Assessee had furnished data to establish that it did not comply
with one of the conditions for being considered as a wholesale
trader. In addition, the learned ITAT had also accepted that the
Assessee was not a wholesale trader for the assessment year
2014-2015. There is no cavil that the Assessee could not be
classified as a wholesale trader, if it did not cumulatively comply
with both the conditions as set out in the explanation under the
notification dated 29.10.2015. Thus, the controversy, if any, is fact
centric and no substantial question of law arises for consideration
by this court. The appeal is accordingly dismissed.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C M JOSHI)
JUDGE
SD
