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TMI Blog2021 (2) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... tock assessee made provision of obsolete stock and the DRP had mistakenly considered the disallowance of foreign exchange loss made by the assessing officer in the draft order as disallowance of obsolete stock and directed the assessing officer to make disallowance - HELD THAT:- It is the contention of the Revenue that the details of the valuation of closing stock was not submitted by the assessee and on the other hand it is assessee s contention that it the method of valuation has been regular followed by the assessee and required details were also submitted before the authorities. We however do not find any findings to the lower authorities on the method of valuation adopted by the assessee and the basis for its write down in the value of stock. Considering the totality of the aforesaid facts, we are of the view that the matter needs re-examination at the end of AO. We therefore restore restore the issue to the file of AO. The AO is directed to verify the submissions of the assessee. This ground of appeal is allowed for statistical purposes. - ITA No.2040/Del/2017 - - - Dated:- 11-11-2020 - Sh. Anil Chaturvedi, Accountant Member And Sh. Kuldip Singh, Judicial Member For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the returned loss of ₹ 10,89,39,514/-. 2. That the AO erred on facts and in law in making an adjustment of ₹ 1,73,97,217/- on account of difference in arm s length price of the international transactions undertaken with the associated enterprises on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ( TPO ). 2.1 That the DRP/TPO erred on facts and in law in rejecting Resale Price Method ( RPM ) applied by the appellant and instead applied TNMM as the most appropriate method, allegedly holding that the appellant was not a simple trader and performs additional functions. 2.2 That the DRP/TPO erred on facts and in law in not appreciating that qua international transaction of purchase of finished goods (telecom equipment), the appellant was only acting as a distributor and hence the international transactions were appropriately and correctly benchmarked applying Resale Price Method as the most appropriate method. 2.3 Without prejudice that on facts and circumstances of the case and in law, the DRP/ TPO erred in not allowing comparability adjustment on account of underutilization of capacity allegedly on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant on account of reinstatement by applying Instruction No.3 dated 23.03.2010. 3.9 That the DRP/AO erred on facts and in law in erroneously holding that the method of accounting followed by the appellant for valuation of inventories is without any reasonable basis. 3.10 That the DRP/AO erred on facts and in law in rejecting the claim of the appellant which has been consistently followed and accepted by the department in the preceding years. 4. That the AO erred on facts and in law in levying interest under section 234A, 234B and section 234C of the Act. The Appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal. 4. Before us, at the outset, Learned AR submitted that though the assessee has raised various grounds but the grounds raised at serial no.2 and sub grounds are with respect to one issue and ground no.3 and sub grounds are with respect to another issue and the adjudication is required only for the aforesaid grounds. We first proceed with deciding the ground no.2 and sub ground which is with respect to addition of ₹ 1,73,97,217/-. 5. On pursuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount of Transaction (in Rs.) 1. Purchase of finished goods 184,393,983 2. Sale of finished goods 79,517,520 3. Service provided (marketing support services against receipt of commission) 14,32,650 7. He submitted that in the Transfer Pricing Document, for the purpose of benchmarking the international transaction of purchase and sale of finished goods, the assessee had applied Resale Price Method by considering itself to be the tested party and Gross Profit to Sales was considered as Profit Level Indicator but inadvertently the method selected was referred as TNMM. For application of RPM, the assessee had considered the Compunics Information System Ltd. having weighted average of gross profit/Sales of 6.07% and Mobile Telecommunications Ltd. having weighted average of GP/Sales of 4.77% and the Arithmetic mean comparable was 5.42%. Since the gross profit to sales ratio of the assessee was 5.95%, which were higher than the average gross profit to sales ratio of the comparable companies at 5.42%, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC). He further submitted that the Institute of Chartered Accountants of India in its Guidance note on Report under Section 92E of the Income Tax Act, 1961, also states that RPM method should be applied in a situation wherein the reseller does not add significant value to the product. He further placing reliance on the decision of the Hon ble Delhi High Court in the case of Matrix Cellular International Services (P.) Ltd reported in 90 Taxmann.com 54 submitted that the Hon ble High court has also upheld the application of RPM as the most appropriate method in the case of a distributor who are not adding any value to the goods. He also relied on the other decisions of the Tribunal which are cited in the written submission for the proposition that RPM to be the most appropriate method of benchmarking the transaction of purchase of finished goods. 10. With respect to the observation of the DRP that assessee is not a simple trade in view of the fact that assessee has undertaken various functions like pre and post sales services, advertising and business promotion etc, he submitted that the condition precedent for application of RPM is reselling of goods as such without making any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 14.01.2015. He pointed to the copy of the order placed at page 243 to 244 of the paper book. 11. Learned DR on the other hand supported the order of lower authorities and further submitted that since the assessee does pre and post sales support services in relation to telecom product itself,it results into value addition and therefore the RPM method cannot be considered to be an appropriate method. He further submitted that the issue in A.Y. 2011-12 is not comparable to A.Y. 2012-13 as in the earlier year no services were provided by the assessee but in the current year services have been provided. He further submitted that when the assessee is seeking adjustment of capacity utilization it shows that it is not a mere distributor. He thus supported the order of lower authorities. 12. Learned AR in the rejoinder with respect to the provision of services pointed out that assessee has exclusive jurisdiction to sale products in India and any direct sale by any group entity to any Indian customer will give rise commission to the assessee. He submitted that the amount of ₹ 14,32,650/- was received on account of commission from its AE for the sales made by its AE in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a conceptual note, transactional profit methods (i.e. Transactional Net Margin Method and Profit Split Method) are treated as methods of last resort which are pressed into service only when the standered methods, which are also termed as 'traditional methods', (i.e. Comparable Uncontrolled Price Method, Resale Price Method and Cost Plus Method) cannot be reasonably applied. 18. We further find that it is assessee's contentions that the purchase of trading goods undertaken by the assessee and application of Reselling Price Methods for determining the arm's length price has been accepted by the Revenue in preceding and succeeding assessment years. The aforesaid contention of the Ld AR is found correct in view of the assessment orders of the Assessee for AY 2012-13,2013-14 and AY 2015-16 (which are placed at page 460 to 465 of the paper book). Further before us, the aforesaid contentions of the Ld AR have not been controverted by Revenue. We are aware of the fact that Res Judicta principles are not applicable to the income tax proceedings but at the same time we find that the Honorable Supreme Court in the case of Radhasoami Satsang vs. CIT (supra) has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its correctness. He therefore held that the company has booked huge losses on reinstatement of the accounts of the associated concerns without any justification. He accordingly held 20% of such net foreign exchange fluctuation to be not justified and made addition of ₹ 1,98,20,542/- in the proposed draft order. When the matter was carried before the DRP, DRP directed the AO to verify the crytalisation of foreign exchange losses and also directed the AO to add the entire difference in closing stock which resulted because of revaluation i.e. ₹ 99,102,710/- as against the addition of ₹ 1,98,20,542/- made by AO. AO thereafter, pursuant to the direction of DRP made addition of ₹ 99,102,710/-. Aggrieved by the order of AO, assessee is now before us. 17. Before us, Learned AR reiterated the submission before the AO and CIT(A) and further submitted that the foreign exchange loss incurred by the assessee was on account of actual payment to suppliers and reinstatement of books of account at the end of the year. With respect to revaluation of closing stock, he submitted that during the year under consideration, the assessee made provision of obsolete stock of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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