2016 (3) TMI 1393 - HC - Income Tax

TP Adjustment - whether the ITAT was correct in accepting the Assessee s contention regarding the application of the resale price method ( RPM ) for determining the arm s length price ( ALP ) of the international transaction entered into by the Assessee with its associated enterprise ( AE )? - HELD THAT - The Court finds that the ITAT has in the impugned order held that even if the ALP is determined by applying the Transactional Net Margin Method ( TNMM ) the gross profit margin earned by the Assessee in respect of export of motorcycles to its AE is 15.83% as compared to 10.75% in respect of export of motorcycles to unrelated parties. It was also seen that the export price realised per motor bike in the case of Assessee was much better when compared to that realised by other companies in the same line of business. These findings of fact have not been specifically assailed by the Revenue. Consequently the Court declines to frame a question on this issue. Appeal dismissed.

Summary

Issues:
1. Application of resale price method (RPM) for determining arm's length price (ALP) of international transaction with associated enterprise (AE).

Analysis:
The High Court heard an appeal by the Revenue against an order passed by the Income Tax Appellate Tribunal (ITAT) regarding the application of the resale price method (RPM) for determining the arm's length price (ALP) of an international transaction with the Assessee's associated enterprise (AE) for the Assessment Year 2008-09. The Revenue contended that the ITAT erred in accepting the Assessee's plea to apply the RPM, citing Rule 10 B (1)(b)(i) of the Income Tax Rules 1962.

The Court noted that the ITAT, in its order, found that even if the ALP is determined using the Transactional Net Margin Method (TNMM), the gross profit margin earned by the Assessee was significantly higher in export transactions with its AE compared to unrelated parties. Specifically, the Assessee's gross profit margin was 15.83% for exports to the AE, whereas it was 10.75% for exports to unrelated parties. Additionally, the export price per motorcycle realized by the Assessee was better than that of other companies in the same industry. These factual findings were not challenged by the Revenue, leading the Court to decline framing a question on this issue.

In conclusion, the High Court dismissed the appeal by the Revenue, upholding the ITAT's decision regarding the application of the resale price method (RPM) for determining the arm's length price (ALP) of the international transaction with the associated enterprise (AE).