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TMI Blog2016 (4) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect, the sale invoices of the assessee to its AE can be compared with the sale of invoices of the AE to the independent party. The goods sold are exactly the same, as the goods were dispatched from the warehouse of the assessee to the ultimate buyer who is an independent entity. The time gap between the sale of the assessee and the sale of the AE are negligible because it has happened within the same month. Therefore, this is a fit case to use CUP as a most appropriate method. Thus the CIT(A) has rightly allowed the appeal of the assessee. The contention of the DR that the assessee instead of selling old stock through AE has directly sold the same to the third party is not correct. The CIT(A) gave finding after considering all the aspects to that effect. It can be found that the said stock was of old stock and the sale was also through the AE as well. The goods sold are exactly the same, as the goods were dispatched from the warehouse of the assessee to the ultimate buyer who is an independent entity. The time gap between the sale of the assessee and the sale of the AE are negligible because it has happened within the same month. The gross profit earned by the assessee is in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of royalty at 5% of the sales effected. As per the agreement M/s Adidas India Pvt. Ltd was not to manufacture or distribute or sale the license products within the license territory so as to compete with the assessee company. The assessee company had also agreed to make fulfil figures effect to increase sales and inherence good will of the license products in the territory. The Assessing Officer while determining the arm's length price of sale of goods to aSIS Rs, 5,73,67,313 in place of ₹ 2,86,15,544/- which is the book value of the international transactions. The adjustment on this account therefore calculates to ₹ 2,87,51,769/-. 4. The Ld. DR submitted that the Transfer Pricing Officer has clearly mentioned that there was nothing on record to show that the said articles sold to the overseas associate was old and slow moving inventory and a specific query was made to the assessee on 22.09.2008 mentioning the same. In reply to the same the assessee produced two invoices vide its submission dated 29.09.2008. These two invoices shows that the goods was exported to the overseas entity (buyer) in two lots the first lot being invoiced on 14.07.2004 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and this will not make any business sense. The claim of sale of rejected goods Ex-Singapore which has a high cost of inventory holding, cannot be believed for the following reasons 1. The sale invoice did not contain sale or resale of rejected goods. 2. It is against prudent business practice due to huge ware housing charges. The claim is not supported by any credible evidence. The purported sale to the third party does not corroborate economic prudence and this further establishes that the assessee's export of the inventory was not resold to SIMO as claimed. The assessee has not sold any old stock and the sale is simply out of the normal stock- and- sell, as no mention of the same is found in any of the invoices raised on the overseas AE. In view of the same, the market value of the inventory has to be seen in economic reality and also in light of the accounting standards adopted in India. As per AS-2 the net realizable value booked in the balance sheet is net of gross margins and covers incidental costs. As such the value of the closing stock which has been toned down by ₹ 4.67 crores contains no element of profit which the assessee should have earned in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard Cost Retail Cost The accounting standard stipulates that these methods may be used for convenience if the results approximate actual cost. The standard cost takes into account normal level of consumption of material and supplies, labour, efficiency and capacity utilization. It may be regularly reviewed and revised taking into consideration the current situation Retail method is generally used in retail business, when it is difficult to ascertain cost of individual item. It is applicable when items of inventories are rapidly changing items and have similar margins and for which it is impracticable to use other costing method. Under this method, the cost of inventory is determined by reducing from the sale value of inventories the approximate value of gross margin. The percentage used takes into consideration the inventory that has been marked down to below its original selling price. In view of the above, it is seen that the standard costing applies mostly to manufacturing industries without any speck of doubt. The usually followed accounting principles across the world follow the LIFO method and it is widely used as per US GAAP (ARB- 3). However, the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee has sold the stock which totally pertains to the toned downed value. It was contended that the assessee submitted before the Assessing Officer that the overseas subsidiary has further sold the stock to an independent third party SIMO. The margin of profit earned is less than 8.25% which has been reportedly paid by the assessee as commission for procurement. Therefore, a CUP method was intended to be established by the assessee. 9. The AR submitted that the assessment of the TPO that the assessee should have earned 22.64% gross profit on old stock and slow moving items is farfetched and not based on any sound reasoning. The gross profit earned by the assessee is in India. TPO had not disputed the classification of the goods as slow moving or as old stock. The very nature of slow moving and old stock is that the assessee is not able to sell them in the market at the market price. This is a kind of 'depress sale or clearance sale'. Therefore, to expect the assessee to earn the same margin on such goods is unreasonable and not based on appreciation of circumstances of the assessee. TPO, on the one hand, accepting these goods as slow moving, on the other, h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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