India: Effects of customs duty, air freight, currency fluctuation adjustments

India: Effects of customs duty, air freight, currency

The Chennai Bench of the Income-tax Appellate Tribunal returned a case to the Transfer Pricing Officer with instructions that, in determining the arm’s length price, various adjustments for customs duty, air freight, and foreign exchange fluctuations are to be taken into account.

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The case is: Motonic India Automotive Pvt Ltd. v. ACIT (ITA No. 741/Mds/2014)


The taxpayer manufacturers and tests automotive components and parts. During the course of the transfer pricing assessment proceedings, the Transfer Pricing Officer characterized the taxpayer as a distributor, and rejected the taxpayer's own economic analysis and made an upward adjustment.

The taxpayer countered that certain items—such as customs duty, air freight, and a foreign exchange loss—were not to be included in determining the arm's length price of the international transactions. 

The tribunal agreed with the taxpayer that the customs duty expenses were "abnormal expenses" and as such, were not to be included in determining the arm's length price. The tribunal also directed the Transfer Pricing Officer to consider the air freight charges incurred by the taxpayer and the foreign exchange fluctuation adjustment for purposes of determining the arm's length price.


Read an October 2016 report [PDF 408 KB] prepared by the KPMG member firm in India: Issue remitted to TPO for determining ALP after considering adjustments on account of customs duty, air freight expenses, and foreign exchange fluctuation

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