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TMI Blog2021 (10) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... retail entities on its own account. In other words, the assessee does not bear any risk associated with carrying/owing/maintaining stock of inventory. The glaring fallacy in the approach of the TPO lies on the fact that he has adopted FOB cost of goods procured from India by the AEs through the assessee as cost base. In our considered view, this approach of the TPO is in complete disregard to the functional profile of the assessee. The assessee operates in a limited risk environment providing routine support services to group entities and accordingly, entitled to be remunerated based on assured return. TPO has not accepted the decision of Li Fund [ 2014 (1) TMI 501 - DELHI HIGH COURT] solely on the ground that an appeal has been recommended before the Hon'ble Apex Court. In our considered view, when the operation of the decision of the Hon'ble Jurisdictional High Court has not been suspended or stayed, it was mandatory upon the TPO to follow the binding decision of the Hon'ble Jurisdictional High Court. We set aside the TP adjustment made by the Assessing Officer and direct him to delete the addition - Decided in favour of assessee. - ITA No. 907/DEL/2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case and in law, the Ld. TPO/Ld. DRP have erred in selecting companies carrying out trading activities as comparable to the Appellant's business of provision of sourcing support services for computation of alleged arm's length price and in doing so have grossly erred in selection of: 5.1 Shoppers Stop Limited; 5.2 Isha Natural Beauty Products Wellness Private Limited; 5.3 Lifestyle International Private Limited; 5.4 Future Enterprises Limited; 5.5 Bioworld Merchandising (India) Private Limited; 5.6 Avenue Supermarts Limited; 5.7 V2 Retail Limited; 5.8 Parin Furniture Limited All the above grounds are without prejudice to each other. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds or at facts and circumstances of the case. 3. The representatives of both the sides were heard at length, the case records carefully perused. Judicial decisions brought to our notice duly considered. 4. Briefly stated, the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 959.4 1052.2 1101.7 30262.8 33897 37864.6 3.05' 2 Isha Natural Beauty Products Wellness Pvt. Ltd. 14.2 15 14.1 246.3 261.4 332.8 5.15' 3 Lifestyle International Pvt. Ltd. 1940 2470 2699.8 33500 41950 50740 5.63' 4 Future Enterprises Ltd. 7245 6778.4 5083.6 123483.8 110474.7 88168.4 5.93' 5 Bioworld Merchandising (India) Pvt. Ltd. 22.8 45.3 36.8 440.8 598.6 707.7 6.00' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties within the group conduct their business. AEs have also laid down specific guidelines (written document termed as I-START) which stipulates the procedure which is required to be followed by every sourcing entity within the group for identification, selection and starting up of suppliers. OBTAINING OFFERS IKEA Services obtains price quotations, delivery and other contractual terms for the suppliers located in India. IKEA Services then submits this information to the relevant purchasing company, who alone has the authority to conclude purchase agreements with suppliers. IKEA Services does not have the right to negotiate with suppliers or to make any decisions in regard to purchasing the goods. PLACING OF ORDERS AND QUALITY CONTROL When a purchasing contract has been successfully concluded between a purchasing company (AE) and a supplier, orders are generated electronically up to the maximum amount of products as included in the purchasing contract. Prior to commencement of full-fledged production by supplier, sourcing entity/the Appellant is required to ensure that the supplier complies with a working manual, which is formulated by AE namely, 'First Batch Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d FOB cost of goods procured from India by the AEs through the assessee as cost base. In our considered view, this approach of the TPO is in complete disregard to the functional profile of the assessee. The assessee operates in a limited risk environment providing routine support services to group entities and accordingly, entitled to be remunerated based on assured return. 14. The Hon'ble High Court of Delhi in the case of Li and Fung India Ltd. ITA No. 306 of 2012 has considered a similar quarrel. The most relevant part of the judgment is extracted hereinbelow: 39...This Court is of opinion that to apply the TNMM, the assessee's net profit margin realized from international transactions had to be calculated only with reference to cost incurred by it, and not by any other entity, either third party vendors or the AE. Textually, and within the bounds of the text must the AO/TPO operate, Rule 10B(1)(e) does not enable consideration or imputation of cost incurred by third parties or unrelated enterprises to compute the assessee's net profit margin for application of the TNMM. Rule 10B(1)(e) recognizes that the net profit margin realized by the enterprise from an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements, to the tests for determining arms' length price. Respectfully following the esteemed views of Their Lordships, we hold that the adjustments carried out in the cost base of ALP computation, in respect of service fee/commission segment, are indeed devoid of legally sustainable merits. 16. The TPO has not accepted the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of Li Fund [supra] solely on the ground that an appeal has been recommended before the Hon'ble Apex Court. In our considered view, when the operation of the decision of the Hon'ble Jurisdictional High Court has not been suspended or stayed, it was mandatory upon the TPO to follow the binding decision of the Hon'ble Jurisdictional High Court. 17. Be that as it may, considering the facts of the case in totality, as discussed hereinabove, in light of the decision of the Hon'ble High Court of Delhi [supra], we set aside the TP adjustment made by the Assessing Officer and direct him to delete the addition of ₹ 43,01,97,828/-. 18. In the result, the appeal of the assessee in ITA No. 907/DEL/2021 is allowed. The order is pronounced in the open court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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