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2017 (11) TMI 1655 - HC - Income Tax


Issues:
1. Adoption of Resale Price Method (RPM) by ITAT as the Most Appropriate Method for determining arms' length price.
2. Disallowance of advertisement and publicity expenses.
3. Disallowance under Section 14A of the Income Tax Act.

Issue 1: Adoption of Resale Price Method (RPM) by ITAT
The High Court examined the Revenue's grievance regarding the ITAT's adoption of RPM as the Most Appropriate Method for calculating the arms' length price. The Revenue argued that since the assessee initially considered Transactional Net Margin Method (TNMM) as the Most Appropriate Method in its transfer pricing report, the ITAT erred in rejecting TNMM and adopting RPM. However, the ITAT concluded that the assessee's business involved no value addition, making it a pure trading business, justifying the use of RPM. The High Court referenced precedents such as Nokia India and Swarovski India cases, which supported the use of RPM in similar scenarios. The Court affirmed the ITAT's decision, emphasizing that the ultimate goal is to determine an accurate arms' length price, allowing flexibility in method selection.

Issue 2: Disallowance of Advertisement and Publicity Expenses
The AO had disallowed advertisement and publicity expenses claimed by the assessee during assessment. The DRP upheld this disallowance, leading to the assessment order under Section 143(3) with the disallowance. However, the ITAT, in its order dated 17.10.2016, allowed the appeal and deleted all additions/disallowances, including the advertisement and publicity expenses disallowance. The High Court did not delve into this issue further as it focused on the transfer pricing method adopted by the ITAT.

Issue 3: Disallowance under Section 14A of the Income Tax Act
The Revenue urged questions on disallowance under Section 14A, but the High Court declined to frame these questions in its order dated 04.08.2017. Therefore, the Court only issued notice on the issue of transfer pricing, indicating that the issue of disallowance under Section 14A was not extensively discussed in the judgment. The High Court dismissed the appeal, finding no substantial question of law arising from the issues presented.

In conclusion, the High Court upheld the ITAT's decision to adopt RPM as the Most Appropriate Method for determining the arms' length price in the context of the assessee's trading business model. The Court emphasized the flexibility in method selection to achieve an accurate arms' length price. The judgment did not extensively address the issues of disallowance of advertisement and publicity expenses or disallowance under Section 14A, as the focus remained on the transfer pricing methodology.

 

 

 

 

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