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TMI Blog2019 (1) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... cy need to be followed. - I.T.A. No.4816/Mum/2015 - - - Dated:- 9-1-2019 - Shri Mahavir Singh, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri. Dhanesh Bafna/Shri. Arpit Agarwal For the Revenue : Shri. Manoj Mumar, DR ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No. 4816/Mum/2015, is directed against appellate order dated 30.03.2015 passed by learned Commissioner of Income Tax (Appeals)-55, Mumbai (hereinafter called the CIT(A) ), for assessment year 2010-11, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 04.03.2014 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) r.w.s. 144C(3)(a) of the Income-tax Act, 1961 (hereinafter called the Act ) for AY 2010-11, which assessment order was passed by the AO in pursuant to the order dated 15.01.2014 passed by learned Transfer Pricing Officer(hereinafter called the the TPO ) u/s 92CA(3) of the 1961 Act. 2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions in Form no. 3CEB for AY 2010-11, as under:- S.No. Nature of Transactions Value (in Rs.) Value (Rs) Method adopted by the assessee F.Y 2008-09 F.Y2009-10 1. Purchase of Traded/Finished Goods for Resale 74,90,52,673 48,69,75,336 Resale Price Method (RPM) 2. Sale of finished goods 41,95,709 3. Purchase of Fixed Assets 11,32,472 371,367 CUP 4. Reimbursement of expenses 8,70,132 6,00,394 CUP 5. Recovery of expenses 3,65,87,954 23,74,808 CUP 6. Guarantee charges 29,67,969 CUP Total 78,76,43,231 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee with its AE to the tune of ₹ 5,87,35,794/- which were added to the income of the assessee by the AO , vide assessment order dated 04.03.2014 passed by the AO u/s 143(3) read with section 144C(3)(a) of the 1961 Act. 6.Aggrieved by the assessment framed by the AO vide assessment order dated 04.03.2014 passed u/s 143(3) read with Section 144C(3)(a) of the 1961 Act, the assessee filed first appeal with Ld. CIT(A) who was pleased to dismiss the appeal of the assessee , vide appellate order dated 30.03.3015 , by holding as under:- 3. Through Ground No. 1 the appellant's A.R. contended that the A.O./TPO erred in not appreciating that in respect of the international transaction of import of finished goods for sale, none of the conditions set out in Section 92C(3) of the Act are satisfied and therefore, it was incorrect to disregard the transfer pricing analysis carried out by the appellant and to re-determine the arm's length price for said transaction. 4. I find that the AO passed the Assessment Order u/s. 143(3) r.w.s. 144C of the I.T.Act, 1961 dated 04.03.2014 wherein as per discussion made in para 4 of the order, the A.O. made the addition of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s own case for A. Y. 2008-09 wherein the C1T(A)-15, Mumbai as per detailed discussion made in para 5 (i to iv) has assigned detailed reasons for adjudication therein vide CIT(A) s order No.CIT(A)-15/Arr.204/JCIT(OSD)8(1)/13-14 dated 21.10.2013. Even I find similar issue was also adjudicated by DRP in the appellant s case in AY 2009-10 which was decided against the appellant vide its order dated 31.10.2013. Having perused my CIT(A)'s order also of DRP order referred as above and the reasons assigned by him I find that the appellant's this issue /submission has been dealt by my predecessor CIT(A) very meticulously while rejecting the claim of the appellant. Therefore, I find that when the facts and issue remains the same in this present appeal also, following the rules of consistency, the appellant s this ground of appeal is dismissed. The learned CIT(A) while adjudicating the appeal against the assessee was mainly guided by the decision of his predecessor who dismissed the appeal of the assessee for AY 2008-09. The learned CIT(A) had observed while dismissing the appeal of the assessee that learned DRP has also adjudicated the issue against the assessee for AY 2009-10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Rule 10C, defines most appropriate method to be one which is best suited to the facts and circumstances of each particular transaction and which provides the most reliable measure of arm's length price in relation to the international transaction. Sub rule (2) of rule 10C, specifies the factors to be considered for selecting most appropriate method. Rule 10B provides the mode and manner of determination of arm's length price under different methods. As per rule 10B(1)(b), determination of arm's length price under RPM is applicable to a case where the price at which property purchased or service obtained by the enterprise from the A.E. is resold or is provided to an unrelated enterprise. The gross profit margin in respect of such a transaction is thereafter compared to the gross profit margin of similar comparable uncontrolled transactions and after making necessary adjustment with regard to expenditure incurred, functionally and other differences the arm's length price is determined. Thus, when there is no dispute to the fact that the assessee is purchasing finished products from the A.Es for the purpose of reselling to unrelated parties without any value addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to examine whether the price or the margin raising from an international transaction with the related party is at ALP or not. The determination of approximate ALP is the key factor for which the MAM is to be followed. Therefore, if at any stage of the proceedings, it is found that by adopting one of the prescribed methods other than chosen earlier, the most appropriate ALP can be determined, the assessment authorities as well as the appellate Courts should take into consideration such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate ALP on the facts of the case. Accordingly, we reject the contentions of the Ld.DR and also the observations of the AO and the Ld.CIT(A) that the assessee cannot resort to adoption of RPM method instead of TNMM. 10.3 The case of the assessee is much better than the case of M/s Mattel Toys (I) Pvt.Ltd. (supra) for the reason that the assessee in its transfer pricing report has also used RSPM as the MAM. Hence this argument of the Revenue is rejected. 10.4. As the undisputed fact is that the functional profile of the assessee is that of a trader and as the characterisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business in respect of food flavours and the trading business is for products for falling under the category of food ingredients. The main grievances of the assessee against the order of the Ld. TPO upheld by the Ld.DRP are regarding their approach in the manner in which transfer pricing adjustment has been made, the approach adopted by the Ld.TPO in granting 17 comparable companies denying the economic adjustment claim made by the assessee, regarding computation of margins of the assessee, non consideration of supplementary transaction and denial of adequate opportunity of being heard to the assessee by the authorities below as well as their failure to examine the contentions and arguments of the assessee in this regard. Considering these grievances as discussed herein above by us in the arguments advanced by the parties/their submissions and having gone through the decision relied upon, we find substance in the submission of the assessee and thus we are of the view that it is a fit case to set aside the matter to the file of the Ld.TPO for his fresh consideration and decide the issue afresh after affording opportunity of being heard to the assessee and discussing their submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee buys products from the AE and sells it without any value addition to the Indian customers. In such circumstances, we are of the view that the ratio laid down by the Mumbai Bench of the Tribunal in the case of L'Oreal India Pvt. Ltd. (supra) would be squarely applicable to the facts of the assessee's case. In that event, the GP as a percentage of sales arrived at by the TPO in Annexure to the TPO's order insofar as trading activity of comparables identified by the TPO at 12.90%. The GP as a percentage of sales of the assessee is at 35.6% which is much above the percentage of comparables identified by the TPO. In such circumstances, we are of the view that no adjustment could be made by way of ALP. We, therefore, accept the alternative plea of the assessee and delete the addition made by the AO. In view of the above conclusion, we are not going into the other issues on merits raised by the assessee on the approach adopted by the TPO in arriving at the ALP.Thus, ground Nos. 2 to 7 are allowed. 10.5 In view of the above discussion, we direct the TPO to adopt RPM as the MAM in this case. 12. The aforesaid decision of the Tribunal, Delhi Bench, was chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as. Though, at first he has observed that CUP is the most appropriate method but abruptly discarded it without reason. Similarly, RPM was also discarded under flimsy ground. Even as far as selection of comparables are concerned, though, the Transfer Pricing Officer has observed that the comparables selected by the assessee cannot be similar due to broad variance, however, ultimately he has retained them while bench marking the arm's length price under TNMM. 14. As we have stated earlier, in case of international transaction relating to purchase of goods from A.E. and resale to unrelated parties, RPM is the most appropriate method. Therefore, in our considered opinion, the Assessing Officer / Transfer Pricing Officer must examine assessee s bench marking under RPM in an objective manner. If the Assessing Officer / Transfer Pricing Officer are of the view that necessary / relevant data relating to gross profit margin of the comparables selected by the assessee are not available, it is open for the Assessing Officer / Transfer Pricing Officer to call for necessary / relevant materials from the assessee or else the Assessing Officer / Transfer Pricing Officer is free to ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Traded/Finished Goods for Resale 74,90,52,673 48,69,75,336 Resale Price Method (RPM) 2. Sale of finished goods 41,95,709 3. Purchase of Fixed Assets 11,32,472 371,367 CUP 4. Reimbursement of expenses 8,70,132 6,00,394 CUP 5. Recovery of expenses 3,65,87,954 23,74,808 CUP 6. Guarantee charges 29,67,969 CUP Total 78,76,43,231 The assessee has purchased finished goods to the tune of ₹ 48.70 crores from its Associated Enterprise(AE) i.e. Alfa Group entities to resell the same at the retail shops setup by assessee in India. The assessee adopted Resale Price Method(RPM) and Profit Level Indicator(PLI) being Gross Profit/Sales(GP/Sales). The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that the assessee is a reseller of finished goods, in the duty free shops set up at the Delhi Airport. It is also accepted that the products sold by the assessee such as liquor, perfumes, confectionary, tobacco, etc., are purchased from A.Es and sold to customers without any value addition or material change to such products. It is a fact that the assessee had bench marked the international transaction relating to purchase of finished goods from A.Es by adopting RPM. However, the Transfer Pricing Officer has rejected RPM primarily on the ground that gross profit computation of comparables was not produced by the assessee. He had also stated that the gross profit margin of the products sold by the assessee cannot be compared with gross profit margin of the products sold by the comparables as they are different in nature. In this context, it is to be noted that at the outset, the Transfer Pricing Officer had opined that the transaction of purchase of finished goods for resale was to be bench marked as per CUP method. We are unable to understand why the Transfer Pricing Officer abandoned bench marking under CUP if he considered it as the most appropriate method to bench mark the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Bench that in such case of purchase and resale of finished products without any value addition RPM, is the best method to evaluate the arm's length price of the transactions. In case of Luxottica India Eyeware Pvt. Ltd. (supra), the Tribunal, Delhi Bench, following a number of other decisions held as under: 10.2. Coming to the argument that the assessee himself has adopted TNMM as the MAM for its transfer pricing study and hence it cannot turn around and argue for adoption of RSPM as the MAM, we find that the Mumbai Bench of the Tribunal in the case of Mattel Toys(I) Pvt.Ltd. in ITA no.2476/Mum/2008 held as follows. 41. Now coming to the argument of the Ld. DR that once the assessee itself has chosen TNMM as the MAM in TPR, then it cannot resort to change its method at an assessment or appellate stage. In our opinion, such a contention cannot be upheld because if it is found on the facts of the case that a particular method will not result into proper determination of the ALP, the TPO or the appellate authorities can very well hold that why a particular method can be applied for getting proper determination of ALP or the assessee can demonstrate a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee under the resale price method. (ii) In the case of L Oreal India P. Ltd. vs. ITO (ITA no.5423/Mum/2009) it is held as follows: 19. During the course of hearing, ld. DR also supported the method considered by TPO and referred to Para 2.29 of OECD price guidelines 2010 as stated hereinabove. On the other hand, ld.AR justified the RPM method adopted by it and also referred to order of TPO in the preceding AY as well as succeeding AY to the AY under consideration to substantiate that RPM is the most appropriate method to determine ALP. He submitted that the assessee made adjustment for marketing and selling expenses to the profits to make it comparable to the comparable companies profits. We agree with the Ld.CIT(A) that there is no order of priority of methods to determine ALP. RPM is one of the standard method and OECD guidelines also states that in case of distribution and marketing activities when the goods are purchased from AEs which are sold to unrelated parties, RPM is the most appropriate method. In the case before us, there is no dispute to the fact that the assessee buys products from its AEs and sells to unrelated parties without any further pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jective findings. In this case except theoretical assertions and generalized observations, no objective findings have been given to come to a reasoned conclusion that assessee's adoption of CPM for manufacturing segment and RPM for trading segment was Factually and objectively not correct. Thus the rejection of methods by TPO as adopted by assessee is bereft of any cogency and objectivity. The same is a work of guessing and conjectured. Similarly the TNMM method applied by the TPO suffers from the same inherent aberrations as mentioned above. In these circumstances we are of the view that Assessee's methods of CPM and RPM respectively worked by applying appropriate comparables is to be upheld. Thus the ALP working returned by the assessee is upheld. The Assessee's TP grounds are allowed. (v) Textronic India Pvt.Ltd. vs. DCIT (ITA no. 1334/Bang/2010), it is held as follows: We have considered the rival submissions. The dispute is with regard to the ALP in respect of international transactions whereby the assessee imports equipment from its AE and resells them without any value addition to the Indian customers. In similar circumstances, Mumbai Bench of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case not only because the assessee is involved purely in trading activity, but also in the TP study assessee has adopted RPM as the most appropriate method. Only because in the preceding assessment year for some reason assessee has not challenged the decision of DRP in upholding application of TNMM, assessee cannot be prevented from objecting to adoption of TNMM in the impugned assessment year. In view of the aforesaid, we remit the matter back to the file of the AO/TPO to examine assessee s analysis under the RPM and decide the issue accordingly after due opportunity of being heard to the assessee. 13. At this stage, it is necessary to observe, the Transfer Pricing Officer has not made any genuine effort to find out whether bench marking can be done under RPM considering the fact that in these types of transactions, RPM is the best suited method. Instead of doing that the Transfer Pricing Officer had straight away proceeded to bench mark the transaction under TNMM. Further, it is necessary to observe, only when it is impossible or rather difficult to determine the arm's length price by applying any of the direct methods like CUP, RPM, CPM, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the issue after considering the submissions of the assessee and keeping in view the judicial precedents which may be relied upon by the assessee. 16. In the result, appeal for A.Y. 2008 09 is allowed for statistical purposes. We do not find any reason to deviate from the aforesaid common order dated 17.01.2017 passed by the tribunal for AY 2008-09 and 2009-10 respectively in assessee s own case . Thus, Respectfully following the decision of tribunal in assessee own case for AY 2008-09 and 2009-10 as detailed above, the issue is being restored to the file of the AO/TPO for fresh adjudication with similar directions as were given by tribunal in assessee s own case vide its orders dated 17.01.2017 for AY 2008-09 and 2009-10 respectively to re-compute ALP of international transaction of import of finished goods entered into by assessee with its AE i.e. Alfa Group of entities by following resale price method(RPM). While arriving at aforesaid decision, we are guided by the decision of Hon ble Supreme Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321(SC) that rule of consistency need to be followed. Thus, ground of appeal No. 1 is allowed for statistical purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration after providing adequate opportunity of hearing to the assessee. Ground no.2, is allowed and ground no.3 is allowed for statistical purposes. We have observed that Ld. CIT(A) has followed the earlier years order for 2009-10 passed by learned DRP , while upholding the additions made by the AO. The facts are similar in this year before us which is not disputed by rival parties before the bench and hence we do not find any reason to deviate from the orders of the tribunal for the AY 2009-10 as detailed above in assessee own case and Respectfully following the aforesaid decision of the coordinate benches of the tribunal in assesse s own case for 2009-10 , we allow the claim of the assessee and order deletion of the additions made by the AO and as were confirmed by Ld. CIT(A). While arriving at aforesaid decision, we are guided by the decision of Hon ble Supreme Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321(SC) that rule of consistency need to be followed. This ground number 2 of the assessee is allowed. We order accordingly. 11. The third issue relates to the disallowance made by the AO u/s 40(a)(ia) of the 1961 Act on non deduction of Income-tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al agent relationship between the assessee and Thomas Cook India Ltd. We, therefore, set aside the issue to the file of the Assessing Officer for fresh consideration after providing adequate opportunity of hearing to the assessee. Ground no.2, is allowed and ground no.3 is allowed for statistical purposes. We have observed that Ld. CIT(A) has followed the earlier years order for 2009-10 passed by learned DRP , while upholding the additions made by the AO. The facts are similar in this year before us which is not disputed by rival parties before the bench and hence we do not find any reason to deviate from the orders of the tribunal dated 17.01.2017 for the AY 2009-10 as detailed above in assessee own case and Respectfully following the aforesaid decision of the coordinate benches of the tribunal in assesse s own case for 2009-10 , we set aside the issue to the file of the AO for fresh consideration of the issue in accordance with law , with similar directions as were given by the tribunal vide its order dated 17.01.2017 for AY 2009-10 in assessee s own case as detailed above . While arriving at aforesaid decision, we are guided by the decision of Hon ble Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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