2024 (6) TMI 464 - AT - Income Tax

TP Adjustment - selection of MAM Most Appropriate Method - RPM or TNMM - international transaction of purchase of solar goods/lights and reimbursement of expenses and warranty cost claim - TPO rejected RPM and applied Transactional Net Margin Method (TNMM) as the most appropriate method - HELD THAT - We find that international transaction of purchase of solar products is to the tune of Rs. 136.63 crores, whereas, the total cost of reimbursement of expenses and warranty claims put together is only Rs. 1.9 crores. The reimbursement expenses and warranty claims are minuscule part of total transaction. The cost of reimbursement and warranty claims is merely little over 1.5% of purchase cost of solar products from AE. If the contention of Department is accepted then it would be like putting a cart before the horse. Apart from aforesaid objection, no other reason has been given by the revenue to replace RPM with TNMM. As in the case PCIT vs. Fujitsu India (P.) Ltd 2023 (11) TMI 289 - DELHI HIGH COURT placing reliance on the decision of PCIT vs. Matrix Cellular International Services (P.) Ltd 2017 (11) TMI 1655 - DELHI HIGH COURT that where there is no value addition made before reselling the product, RPM is the most appropriate method. Except for suspicion the revenue has not placed on record, any documentary evidence to substantiate that the assessee has undertaking any other activity resulting in value addition to the solar goods purchased by the assessee from the AEs. In such circumstances, we do not find any merit in the contentions of the revenue that TNMM should be applied as the most appropriate method. As emanating from the records, the assessee is merely a reseller of solar goods in India, therefore, we are of considered view that the assessee has rightly adopted RPM is the most appropriate method to bench mark the transaction of purchase of solar goods. We further hold that even if the transaction of reimbursement of expenses warranty claims is aggregated with the transaction of purchase of solar goods, it would not impact the method of bench marking as the former transactions are far smaller in value as compared to later transaction of purchase of solar goods. In light of our above findings, the assessee succeeds on ground no 1 to 4 of appeal.

Summary

Issues:
1. Adjustment of Rs. 6,94,53,296/- on account of international transaction of purchase of solar goods/lights and reimbursement of expenses and warranty cost claim.
2. Selection of comparables to benchmark the transactions of purchase of solar lights and goods.
3. Adjustment in respect of interest rates.

Analysis:

Issue 1: Adjustment of Rs. 6,94,53,296/-
The assessee appealed against the assessment order that adjusted Rs. 6,94,53,296 on account of international transactions involving purchase of solar goods, reimbursement of expenses, and warranty cost claim. The TPO rejected the Resale Price Method (RPM) chosen by the assessee and applied the Transactional Net Margin Method (TNMM) instead. The TPO aggregated the transactions of purchase of solar goods and warranty claims, leading to an adjustment of Rs. 10,61,47,428. The assessee contended that RPM was appropriate as it was a reseller without value addition, supported by case laws. The DRP upheld TNMM but included incomparable companies. The Tribunal held that the assessee's RPM was suitable, as warranty claims were covered by the AEs, and the assessee was a pass-through entity without value addition, leading to the partial allowance of the appeal.

Issue 2: Selection of Comparables
The assessee challenged the selection of comparables for benchmarking the transactions. As the Tribunal found RPM to be the appropriate method, the issue of comparables was left open and not discussed further.

Issue 3: Adjustment in Respect of Interest Rates
The assessee raised a ground regarding adjustment in interest rates but did not press it due to the minimal amount involved. Consequently, this ground was dismissed as not pressed, and the appeal was partly allowed.

In conclusion, the Tribunal upheld the Resale Price Method as the most appropriate for benchmarking the purchase of solar goods, rejected TNMM, left the issue of comparables open, and dismissed the interest rate adjustment ground due to insignificance. The appeal was partially allowed.