9911796707
TMI Blog2018 (7) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.Y. 2010-11 vide order dated 15.03.2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). 2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in making adjustment of ₹ 5,02,05,493/- to the international transactions of purchase of finished goods for distribution by not accepting/adopting the Comparable Uncontrolled Price (CUP) method as the most appropriate method and by applying Transactional Net Margin Method (TNMM). For this assessee has raised the following grounds: - 1. Transfer pricing adjustment of ₹ 5,02,05,493/- 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) - 15 [CIT(A)] has erred, in confirming the action of the learned Dy. Commissioner of Income-Tax, Circle 3(3) [AO] of making an adjustment, of Rs, 5,02,05493/- to the international transactions (of purchase of finished goods for distribution) and consequently, an addition to the total income of the Appellant for the year under consideration. 1.2 The appellant submits that the learned CIT(A) has erred in not accepting and considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods This itself is an absurd and non-arm's length situation. 1.11 The learned AO has erred in law and in facts, by making the transfer pricing adjustments to the entire turnover of the appellant instead of restricting such adjustments to the value of international transactions with the associated enterprise. 3. Briefly stated facts are that the assessee company is engaged in the business of import and wholesale Trade of Knives, Watches, Travel Gear, Accessories and Cutlery, etc. The AO during the course of assessment proceedings noted that the assessee has submitted transfer pricing report in respect of international transaction entered with its AE as per form No. 3CEB. The assessee adopted CUP to benchmark the purchases of its product from its AE. The AO rejected the CUP Method and also rejected the Retail Price Method (RPM) by giving following findings in Para 5.3 as under: - 5.3 In response, the assessee made written submissions on 18.02.2013 and 08.03.2013. The submissions of the assessee have been carefully considered and have been contemplated as under: i. Rejection of CUP method a. In the detailed submissions, the assessee argued th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arithmetic Mean 10.45 5. Accordingly, the AO made an adjustment of ₹ 5.02 crores on the purchase transactions of ₹ 3.85 crores. Aggrieved, assessee preferred the appeal before CIT(A). 6. The CIT(A) held that no detailed comparison of sales made by AE to third parties have been given and hence, he rejected the CUP adopted by the assessee. The assessee s submissions were that the AE s of the assessee did not have sales in India as the assessee is not the sole distributor of AE s in India. So AE would not make sales to third parties in India. But CIT(A) has not accepted the contention of the assessee. With regard to RPM the CIT(A) held that RPM was rejected by the assessee in the transfer pricing study report and further the internal RPM cannot be considered since for the application of internal RPM thereon as to protect the comparability which is not there in the case of assessee. The CIT(A) finally upheld the action of the AO regarding the applicability of TNMM despite the fact that before him, it was contended that comparables selected by the TPO were without applying proper search methodology a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack to the file of the AO for applying the most appropriate method either RPM or TNMM. The learned Sr. DR only requested for set aside the matter to the file of the AO so that the matter can be referred to TPO for benchmarking the appropriate margin and after applying appropriate method. 9. We have heard the rival contentions and gone through the facts and circumstances of the case. The assessee import product from three associate enterprises i.e. from third parties which are then traded/ supplied to retail outlets in India. The assessee has purchased good worth ₹ 3.85 crores from its overseas associated enterprise for distribution in India and adopted CUP as the most appropriate method. We find that the assessee has also justified the ALP of the transaction using the RPM method whereby, gross margin earned by the assessee from sales of its products purchased from AE, where more than the gross margin earned from sales of product purchased from non AE s. We have noticed that in the assessment order certain external comparables were given by the AO whose margin was 41.07% which in any case was lesser than the assessee margin of 48.16% in respect of ALP. The basis and justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and would require an appropriate adjustment to be considered (see in particular paragraph 2.15). Under the resale price method and cost plus method, some differences in the characteristics of property or services are less likely to have a material effect on the gross profit margin or mark-up on costs (see in particular paragraphs 2.23 and 2.41). Differences in the characteristics of property or services are also less sensitive in the case of the transactional profit method than in the case of traditional transaction method (see in particular paragraph 2.69). This however does not mean that the question of comparability in characteristics of property or services can be ignored when applying these methods, because it may be that product differences entail or applying these methods, because it may be that product difference entail or reflect different functions performed, assets used and / or risks assumed by the tested party. See paragraph 3.18-3.19 for a discussion of the notice of tested party. 1.41 In practice, it has been observed that comparability analyses for methods based on gross or net profit indicators often put more emphasis on functional similarities than on pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Counsel for the petitioner to get instruction as to whether comparable uncontrolled price method (CUP) is accepted by Transfer Pricing Officer in subsequent assessment years by accepting quotation for benchmarking international transaction. and finally the Hon ble Supreme Court passed the order as under:- Today, Mr. K Radhakrishnan, learned senior Counsel, appearing for the Revenue has brought to our notice that in the subsequent years the comparable uncontrolled price method has been accepted by the Transfer Pricing Officer. Learned senior Counsel, though sought for some time to file an affidavit as to whether the acceptance was after accepting quotations, we do not find any need for the same before this court since for the subsequent years from 2007-09 onwards the same has been accepted. If there is some irregularity on the part of any of the officers, it is for the Revenue to take appropriate action. 13. In the present case also, the Revenue has accepted the method in subsequent years i.e. AY 2011-12 to 2013-14. In view of the above given facts and circumstances, we are of the view that the Revenue should adopt the CUP method for benchmarking the international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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