Pr. Commissioner of Income-tax-2, Bangalore & Anr. v. Toyota Tsusho India Private Limited

1. FACTS OF THE CASE

After condoning filing delay, the Court considered Revenue’s challenge to the Tribunal order of 4 September 2024 in M. P.63/Bang/2023, modifying its 2 March 2023 order in IT(TP)A 2806/Bang/2017. Toyota Tsusho traded automobile components, processed steel and provided logistics; the dispute here concerned the trading-segment tolerance band.

Source: PDF pp.2–5, paras 1–9

2. DISCUSSION BY THE COURT

The Tribunal initially remanded the wholesale-trader classification but later directed a 3% band. It relied on the data showing failure of the inventory condition, the TPO’s description of the assessee as a trader, and the assessee’s AY 2014-15 decision. The cited notification required both a finished-goods purchase-cost test and an inventory-to-sales test.

Source: PDF pp.6–10, paras 10–13

3. JUDICIAL DECISION

The Court held the two wholesale-trading conditions cumulative. Evidence that one was unmet made the controversy fact-dependent; no substantial question of law arose.

Source: PDF pp.10–11, para 14

4. OUTCOME

Revenue’s appeal dismissed; the Tribunal direction to apply a 3% tolerance limit remained effective for the trading segment.

Source: PDF pp.10–11

5. Expert Comments

AKHB editorial analysis, distinct from the Court’s findings.

Classification depends on both conditions

A high finished-goods purchase ratio alone did not establish wholesale trading. The quoted data satisfied the first condition at 93.73%, but the inventory condition was not met. A comparable analysis should test each requirement separately; commercial labels such as distributor or trader cannot replace the quantitative criteria used by the Court.

Source: PDF pp.6–8, para10 and quoted chart

Retain the inventory-method qualification

The notification refers to average monthly closing inventory, while the reproduced chart calculates an average from two year-end balances. The Court accepted the factual conclusion that the condition was unmet, but did not independently explain that methodological difference. The case should not be treated as a general approval of substituting two balances for monthly inventory data.

Source: PDF pp.7–8, 11

Do not turn the narrow result into a universal allowance

This was a challenge to modification of the Tribunal’s remand direction, not a fresh High Court computation of all transfer-pricing adjustments. The 2015 definition was applied in the reasoning concerning AY 2013-14, without a separate discussion of retrospectivity. The judgment neither grants every trader a permanent 3% band nor decides the manufacturing segment or general limits of rectification.

Source: PDF pp.5–11, paras9–14