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2017 (4) TMI 767 - AT - Income TaxTPA - selection of comparable - MAM - Held that - It is an admitted fact that the assessee is performing the function of a normal distributor with normal risk and the goods which have been purchased have been resold without any value addition. This fact is undisputed that there is no value addition by the assessee. RPM is mostly applied in the case of a distributor where reseller purchases tangible property and obtains services from the AE and without making any value addition, resells the same to third parties. Under these circumstances and looking to the fact that functions performed by the assessee is of distributor only, therefore, RPM should be reckoned as the most appropriate method and accordingly, we agree with the learned CIT(A) that on the facts of the present case, RPM should be the adopted as the most appropriate method for benchmarking assessee s international transactions. So far as the two comparables chosen by the TPO apart from assessee s comparables are concerned, we find that, T & I Global Limited has rightly been rejected by learned CIT(A), because this company was manufacturing machinery, therefore, same cannot be compared with the assessee which is purely performing the distribution function. Thus, the final list of comparables, i.e., three chosen by the assessee and accepted by the TPO and one as selected by the TPO and upheld by the learned CIT(A), is sustained for comparing the margins under RPM. As a consequence, we hold that the TP adjustment made by the learned TPO has rightly been deleted by Ld CIT(A). Accordingly, the grounds raised by the Revenue are dismissed.
Issues Involved:
1. Adjustment of ?7,33,66,467/- in arm's length price as proposed by the TPO. 2. Acceptance of TNMM as the most appropriate method for benchmarking the international transaction. 3. Acceptance of RPM with GP/Sales as PLI instead of TNMM. 4. Rejection of the comparable T&I Global. 5. Admission of additional evidence by CIT(A) in violation of Rule 46A. 6. Decision on the applicability of CUP considering geographical differences. Detailed Analysis: Issue 1: Adjustment of ?7,33,66,467/- in Arm's Length Price The Revenue contested the deletion of the adjustment of ?7,33,66,467/- in arm's length price proposed by the TPO. The assessee, engaged in the distribution of heavy machinery, used the Resale Price Method (RPM) for benchmarking its international transactions. The TPO rejected RPM, opting for the Transactional Net Margin Method (TNMM) instead, leading to the adjustment. However, the CIT(A) found that the TPO's rejection was not based on a sound analysis of the assessee's functions, assets, and risks (FAR) and upheld RPM as the most appropriate method. Issue 2: Acceptance of TNMM as the Most Appropriate Method The TPO argued that TNMM should be adopted instead of RPM, citing that the assessee maintained high inventory and had different product profiles compared to the comparables. However, the CIT(A) noted that the TPO did not provide sufficient data or proper analysis to support this claim. The CIT(A) concluded that the TPO's observations were incorrect and that RPM was indeed the most appropriate method for the assessee's distribution activities. Issue 3: Acceptance of RPM with GP/Sales as PLI The Revenue argued that RPM should not be accepted with GP/Sales as PLI. The CIT(A) found that the TPO's rejection of RPM was not based on a proper analysis of the business model and FAR of the assessee. The CIT(A) included one additional comparable proposed by the TPO, TIL Limited, and found that the assessee's gross margin was within the arm's length range, thus justifying the use of RPM. Issue 4: Rejection of the Comparable T&I Global The TPO included T&I Global Limited as a comparable. However, the CIT(A) rejected this comparable, noting that T&I Global was involved in manufacturing, whereas the assessee was purely a distributor. The CIT(A) included TIL Limited instead, which was found to be a more appropriate comparable. Issue 5: Admission of Additional Evidence by CIT(A) The Revenue argued that the CIT(A) erred in admitting additional evidence without sufficient cause, violating Rule 46A. The CIT(A) considered secondary analysis provided by the assessee using the Comparable Uncontrolled Price (CUP) method. However, since RPM was upheld as the most appropriate method, the secondary analysis using CUP was deemed academic and not necessary for adjudication. Issue 6: Decision on the Applicability of CUP The Revenue questioned the CIT(A)'s decision on the applicability of CUP considering geographical differences. The CIT(A) found that the assessee provided sufficient evidence to justify its arm's length price using CUP. However, since RPM was upheld as the most appropriate method, the discussion on CUP was considered academic. Conclusion: The appeal by the Revenue was dismissed. The Tribunal upheld the CIT(A)'s decision that RPM was the most appropriate method for benchmarking the assessee's international transactions. The TP adjustment made by the TPO was rightly deleted, and the additional evidence admitted by the CIT(A) was not necessary for adjudication as RPM was upheld. The decision was pronounced in open court on 17.04.2017.
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