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TMI Blog2017 (8) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... g of transfer pricing adjustment amounting to Rs. 48,90,27,914/-. 3. Succinctly, the facts of the case are that the assessee is an Indian company, which is a part of the Oriflame Group founded in 1967. This group provides about 1000 products in skin care, make-up, fragrances and toiletries through its various subsidiaries and independent licensees across 60 countries all over the world and 3.6 million independent consultants in these countries. The assessee is, inter alia, engaged in the trading of beauty products. The main business activity of the assessee under this segment is distribution and sales of cosmetic products directly to customers through its consultants, i.e., without the chain of wholesalers and retailers. A return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p in appeal before us. 4. We have heard the rival submissions and perused the relevant material on record. It is observed that the assessee is continuing the business model as a direct marketer since last several years. In the immediately preceding three years also, the assessee applied the RPM as the most appropriate method to prove that its international transaction of purchase of traded goods was at ALP, which was not disputed by the TPO. In such earlier years also, the TPO shortlisted Modicare Ltd. as the only comparable from a list of companies claimed as comparable by the assessee. The view of the AO/TPO in such earlier years was challenged before the tribunal. The assessee, apart from assailing the comparability of Modicare Ltd., al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the Tribunal held that the retail sellers should be rejected at the very outset. Eventually, the Tribunal restored the matter to the file of TPO/AO for carrying out necessary adjustments to the profit margin of Modicare Ltd., by giving further liberty to the assessee to place on record certain other comparables in direct marketing. The assessee has not filed any rectification petition against it. Admittedly, the facts and circumstances of the instant year are, mutatis mutandis, similar to those of immediately preceding three assessment years. In that view of the matter, the earlier order of the tribunal becomes a precedent to be respectfully followed. 5. The ld. AR once again raked up the contention that other companies engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity'. Similar proposition has been laid down by the Hon'ble Punjab & Haryana High Court in Principal CIT vs. IHG IT Services (India) P. Ltd. (2017) 392 ITR 77 (P&H). In view of the foregoing discussion, it is manifest that two companies though dealing in similar products, but, having different business models, cannot be compared with each other. It is, ergo, held that the assessee's contention for inclusion of other companies in the list of comparables who are not into the direct marketing, deserves to be and is hereby repelled. 6. The ld. AR took up another argument to the effect that the Transactional Net Margin Metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elected on the basis of similarity found even under the TNMM. Relevant discussion made in paras 42 and 43 accentuates the importance of functional similarity even under the TNMM :'Before concluding, there is yet another aspect of the matter that needs consideration. The Tribunal proceeded on the basis that while applying TNMM method, broad functionality is sufficient and it is not necessary that further effort be taken to find a comparable entity rendering services of similar characteristics as the tested entity. The DRP held that TNMM allows flexibility and tolerance in selection of comparables, as functional dissimilarities are subsumed at net margin levels, as compared to Resale Price Method or Comparable Uncontrolled Price Method and, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC), we admit the additional ground for consideration and decision. 9. It can be seen from the TPO's order that while calculating the amount of transfer pricing adjustment, he has taken Operating income of the assessee at Rs. 205,18,55,944/-. It is on the basis of this operating income that the transfer pricing adjustment of Rs. 48.90 crore has been determined. On going through the Annual accounts of the assesseecompany, it is lucid that the transfer pricing adjustment has been made with reference to the figures which also include non-AE transactions. The Hon'ble Delhi High Court in CIT vs. Keihin Panalfa Ltd. (2016) 381 ITR 407 (Del), has held that the transfer pricing adjustment can be made only with reference to the international ..... X X X X Extracts X X X X X X X X Extracts X X X X
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