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2016 (4) TMI 803 - AT - Income TaxMAM for determining ALP in respect of the trading section - Held that - It is observed that the primary objective of the assessee is of manufacturing/trading/assembling of Telecom Power Equipment, visual display products, industrial automation and magnetic components, etc. The assessee had used TNMM as MAM for arriving at the ALP in respect of purchase of raw materials, export of finished goods and in respect of Transaction relating to import of industrial automation products and sales commission it had used RPM as MAM. It is observed that the ld.CIT(A) has dealt with the issues relating to the timing difference and sufficient data not being available to reconcile the change in the market, change in rate of exchange, change in cost etc. at length in paragraph 3.1.at pages 3 to 9. The ld.CIT(A) has reproduced in paragraph G, the relevant extract of the accepted position for A.Y 2009-10, wherein the TPO has accepted the RPM as the most appropriate method for calculating the ALP in respect of trading segment. We do not find any infirmity in the findings of the ld.CIT(A). As in the subsequent year the TPO himself has accepted RPM to the MAM for determining the ALP for the trading segment, on the similar facts and circumstances, as recorded by the ld.CIT(A). We therefore uphold the findings of ld.CIT(A) - Decided against revenue.
Issues:
1. Selection of appropriate method for determining the Arm's Length Price (ALP) in international transactions. 2. Application of Resale Price Method (RPM) vs. Transactional Net Margin Method (TNMM) for benchmarking the transactions. 3. Discrepancy in determining ALP for import of industrial automation products. Analysis: Issue 1: Selection of appropriate method for determining ALP The Revenue appealed against the order of the ld. CIT(A)-II, Dehradun, challenging the direction to adopt RPM for working out the value of transactions with related parties. The Revenue contended that TNMM should be used as the most appropriate method. The ld. CIT(A) allowed the appeal in favor of the assessee, citing the precedent of adopting RPM in a similar case for AY 2009-10. The Revenue further appealed the decision. Issue 2: Application of RPM vs. TNMM for benchmarking transactions The assessee used TNMM for purchase of raw materials and export of finished goods, while RPM was applied for import of industrial automation products and sales commission. The TPO determined the ALP for industrial automation products using TNMM, rejecting the RPM applied by the assessee. The ld. CIT(A) supported the use of RPM based on the precedent of a similar case for AY 2009-10. Issue 3: Discrepancy in determining ALP for import of industrial automation products The TPO rejected the RPM used by the assessee and proposed an adjustment for import of industrial automation products. The ld. CIT(A) directed the adoption of RPM for calculating the ALP, considering the TPO's acceptance of RPM in a subsequent year. The Revenue challenged this decision, arguing for TNMM as the most appropriate method. The Tribunal upheld the findings of the ld. CIT(A), noting the acceptance of RPM by the TPO in a similar case for the subsequent year. The Tribunal dismissed the Revenue's appeal, affirming the use of RPM as the most appropriate method for determining the ALP in the trading segment.
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