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TMI Blog2020 (6) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... uxembourg holding 100 % equity in Oriflame investments Ltd,[ Mauritian company] which holds almost all the shares of the appellant company. 03 Assessee is engaged in trading of beauty products . It caters to the middle as well as the premium end market and currently has a presence in, cosmetics, skincare products, toiletries and Fragrances. It imports finished products as a part of its marketing strategy and to complete its product range. It imports products through Oriflame trading Ltd [the global trading Co of the group] upto October 2002 and subsequently through Oriflame cosmetics SA . 04 The assessee filed its return of income on 30 November 2013 declaring an income of Rs. 31,60,79,260/-. As the assessee has entered into an international transaction the reference was made to the learned Transfer Pricing Officer [ ld TPO] to determine the arm's length price under section 92CA (3) of the act. The order of the ld TPO was received on 28/10/2016 wherein the transfer pricing adjustment of Rs. 66,55,27,960/- was proposed. Consequently the draft assessment order was passed on 30/11/2016 wherein the income of the assessee was computed at Rs. 98,16,07,220/-. Assessee filed objection be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been taken as a standalone comparable. 4.4 Disregarding the Hon'ble bench's decision in Appellant's own case for AY 2009-10 to AY 2011-12 by not considering the economic adjustments to account for differences in the accounting of certain significant expense items like incentive, high AMP to sales ratio, etc between Modicare Ltd and the Appellant. 4.5 Failing to appreciate that the Arm's Length Price of Appellant's international transactions of purchase of finished goods had been accepted by the customs department as per the Special Valuation Board Order. 5. The Ld. DRP erred in facts and in law in not considering the Transaction Net Margin Method (TNMM) analysis as conducted by the Appellant. 6. Without prejudice, that on the facts and circumstances of the case and in law, the Ld DRP/AO/TPO erred in incorrectly computing the gross margins of Modicare Ltd. and the Appellant. 7. The Ld. DRP/AO/TPO has erred in considering the unaudited data requisitioned and consequently obtained by taking recourse to the provisions of Section 133(6), irrespective of the availability of such information in the public domain and thereby erred in rejecting Altos Enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted all the comparables of the assessee applying the filter of different business model, turnover less than Rs. 1 crore trading sales/total sales ratio less than 50%, duplication of the companies, negative company 25% related party transaction filter and different financial year. Thereafter, he selected the single comparable namely Modicare Limited. He computed the margin of that company by adopting PLI of gross profit/sales at 71.34 percentage, computed the margin of the assessee at 42.54 percentage and thereafter putrid the shortfall of rupees 665527960/-. This adjustment is also upheld by the learned dispute resolution panel and therefore incorporated by the AO in its final order. 08 The learned authorised representative submitted that the above approach of the learned TPO is based on prior year order of the learned TPO and dispute resolution panel wherein similar adjustment have been proposed on the basis of single comparable company and other facts and circumstances are similar. He submitted that the coordinate bench in its own case for assessment year 2008 - 9 to Ay 2012-13 has decided this issue as per order dated 15 April 2019. Therefore, the issue is squarely covered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishing features to hold various differences between the Modicare Ltd. and assessee, however remanded the matter back to the TPO to examine the comparability adjustments between the Assessee Company and Modi Care Ltd. The said order of the Tribunal has been set aside by the Hon'ble High Court, wherein Hon'ble High Court, first of all agreed with the contention of the assessee that looking to such a difference, Modicare Ltd. cannot be that straightaway taken as a comparable company, what is required to be seen is: - - Firstly, whether it would be appropriate to include Modicare Ltd. having regard to the availability of data with respect to the different product segments; and - Secondly, the functional differences with respect to its marketing strategy, i.e., discount, transportation cost, insurance and performing the warranty functions; Their Lordships further directed that the Tribunal should reexamine, to what extent adjustment can be reasonably made having regard to the available data in relation to trading comparable offered for ALP determination for all the relevant years by the assessee. Further, the Tribunal was directed to consider the feasibility having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include Modicare Ltd. as a comparable company; and if data itself is not available, then adjustment also cannot be made. Simply because Modicare Ltd. is also involved in direct selling, cannot be taken as a good comparable, especially in the light of the observation and finding of the Hon'ble High Court as reproduced above. Apart from that, we agree with the contention of the learned counsel that, Modi Care Ltd. had a huge diversified product portfolio ranging from personal care, agriculture, Tea, Jewellery, Healthcare, cosmetics, etc. which had different profitability depending upon market factors. Different product items would involve different level of assets, risks and market which may affect gross margins. Though it is not always necessary under resale price analysis that each product line distributed should be examined, but there should be broadly similar products so that gross compensation of the functions performed, that is, marketing and selling functions can be analysed. If reliable data for the various product and marketing strategy is not available, then accurate comparability adjustments would be very difficult to carry out. Another distinctive feature, which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's business. Whereas, the service fee earned by Modi Care Ltd. is on account of annual maintenance contract (AMC). This factor also vitiates the comparability analysis. 19. We are thus in tandem with the contention raised by the learned counsel that due to non-comparable product profile and other differences and lack of data for various factors, reasonably accurate adjustment cannot be made. as was directed by the Hon'ble High Court. Hence Modi Care Ltd. cannot be taken as a comparable company under RPM. 20. Once, Modi Care Ltd. which is the sole comparable is removed, then as per the observation of the Hon'ble High Court, TNMM has to be adopted as the most appropriate method and that too be without enlarging the comparables, i.e., the comparables selected by the assessee has to be examined under TNNM. The TPO who was required to examine the comparables selected by the assessee under TNMM, has instead stated that TNNM cannot be applied under this case, because it requires a high degree of similarity of functions and none of the comparables are direct seller of the product. In our opinion, such an approach of the ld. TPO however cannot be upheld, because the Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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