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2024 (11) TMI 434 - HC - Income TaxTP Adjustment - MAM selection - CUP or the RPM - Tribunal s conclusion that RPM is the most appropriate method - TPO and the DRP had rejected RPM as a most appropriate method for computing the ALP on the ground that the assessee had incurred significant advertisement, marketing and promotion (AMP) expenses - HELD THAT - The question whether RPM is the most appropriate method in cases of the distributor that purchases the products from its AE and resells the same to unrelated parties without any further processes is covered by the several decisions. As decided in L Oreal India (P) Limited. 2015 (2) TMI 407 - BOMBAY HIGH COURT had considered the Revenue s challenge to an order passed by the learned Tribunal in a similar case holding that the RPM was the most appropriate method in a case where the assessee had imported the finished goods and resold the same in the same condition. In the present case, as noted above, the learned Tribunal had accepted the assessee s contention that its AMP expenses were not excessive and were similar to those incurred by other comparable entities.There is no cavil that the AMP activities are a part of the functional profile of the assessee. In the given facts, the DRP s decision that the assessee was not a routine distributor is clearly sustainable. No merits in the Revenue s challenge to the decision of the learned Tribunal. No substantial question of law.
Issues Involved:
1. Determination of the Most Appropriate Method (MAM) for benchmarking international transactions for determining the Arm's Length Price (ALP). 2. Consideration of the Resale Price Method (RPM) versus the Transactional Net Margin Method (TNMM) for the import of finished goods. 3. Evaluation of the functional profile of the assessee and its impact on the selection of the MAM. 4. Assessment of the appropriateness of AMP expenses in determining the functional profile of the assessee. Issue-Wise Detailed Analysis: 1. Determination of the Most Appropriate Method (MAM): The central issue in the appeal was the determination of the MAM for benchmarking the international transactions entered by the assessee. The Tribunal held that the Resale Price Method (RPM) was the most appropriate method for determining the ALP of the international transaction involving the import of finished goods. The Tribunal directed the Transfer Pricing Officer (TPO) to adopt RPM, which was contested by the Revenue on the grounds that the TPO/Dispute Resolution Panel (DRP) had provided elaborate reasons for rejecting RPM as the MAM. 2. Resale Price Method (RPM) vs. Transactional Net Margin Method (TNMM): The assessee initially used the Comparable Uncontrolled Price (CUP) method and corroborated it with RPM. However, the TPO rejected both methods and adopted TNMM, using operating profit/operating cost as the profit level indicator. The Tribunal found fault with the TPO's rejection of RPM, citing that the assessee merely resold imported goods without adding value, thus making RPM the most appropriate method. The Tribunal relied on previous decisions, including Nokia India (P) Ltd and Matrix Cellular International Services (P) Ltd, which supported the use of RPM in similar cases. 3. Functional Profile of the Assessee: The Tribunal concluded that the functional profile of the assessee was not in dispute. The assessee was engaged in importing and retailing luxury goods without adding value, which aligned with the functional profile suitable for RPM. The Tribunal noted that the assessee's activities did not extend beyond those of a routine distributor, despite the DRP's contrary findings based on AMP expenses. 4. AMP Expenses and Functional Profile: The DRP had rejected RPM, considering the assessee's AMP expenses as substantial, thus categorizing the assessee as more than a simple distributor. The Tribunal disagreed, accepting the assessee's argument that AMP expenses were not excessive compared to other comparable entities. The Tribunal emphasized that the assessee's functional profile as a routine distributor was not disputed by the TPO, reinforcing RPM as the MAM. Conclusion: The High Court upheld the Tribunal's decision, finding no merit in the Revenue's challenge. The Court affirmed that RPM was the most appropriate method for determining the ALP in the given facts, as the assessee was a routine distributor reselling imported goods without value addition. The Court dismissed the appeal, concluding that no substantial question of law arose from the Tribunal's decision.
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