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TMI Blog2022 (3) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... not undertake any value addition to the import of MHE, which are resold to unrelated parties. Based on the activities carried out by assessee and the functions, assets and the risk analysis ('FAR'), assessee carried out the economic analysis, primarily to identify companies that are broadly similar to the FAR of the assessee. Assessee applied Resale Price Method (RPM) and computed assessee's Margin at 15,39% and Comparables Margin at 18%. However, during the assessment proceedings, TPO held that RPM cannot be used in the instant case, owing to the fact that there is no information in the public domain of the comparables to compare the functionality of the comaprables selected by the assessee. The TPO however considering the very same comparable companies in his search process and made an upward adjustment of Rs. 225,70,105/- based on arm's length markup of the comparables at 2.43% on sales using Transaction Net Margin Method (TNMM) as most appropriate method. The CIT(A) confirmed the action of the Ld. TPO and sustained the application of TNMM method and rejected RPM Method. 4. It is the submission of the learned counsel for the assessee before the Tribunal that RPM is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 3391/Bang/2018 dated 05.03.2020 and held that RPM is the Most Appropriate Method (MAM) in the case of distribution of products. The learned DR however placed reliance on the order of the CIT(A). 5. We have considered the rival submissions. The undisputed facts are that in the material handling equipment distribution segment, the assessee performs sales marketing and distribution function and does not undertake any value addition to the imported material handling equipment. In such a scenario, the Tribunal has taken the view that RPM is the MAM for determining ALP. Those decisions have been considered by this Tribunal in the case of Element 14 India Pvt. Ltd., (supra) and has observed as follows: "8. We heard the parties and perused the record. We notice that the co-ordinate bench has examined the issue of "most appropriate method" for a distributor of products in the case of Acer India Pvt Ltd (supra). The relevant observations made by the co-ordinate bench are extracted below:- "10. In our considered view, the view so entertained by TPO is based on surmises and conjectures. He has merely relied upon the fact that the assessee was making losses in its trading segment. We not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the TNMM will not provide the most reliable arms length results. The selection of TNMM would require making reliable adjustment to arrive at the operating profit i.e., adjustment for expenditure incurred in the current year, the benefit of which will be received in the future year. In the absence of reliable adjustment, the selection of TNMM will not result in arriving at the ALP of the international transaction. In transactions method like RPM or Cost Plus method, the effect of these factors may be eliminated as natural consequences of insisting upon greater product of function similarity. Depending upon the facts and circumstances of the case and particular on the effect of functional differences on the cost structure and the revenue of the potential comparables, the net profit indicators can be less sensitive than the gross margin to the difference in the extent of complexity of function and difference in the level of risk. 15. It was further contended that comparability should not be interpreted in isolation because of the conditions and circumstances of the controlled transactions should be taken into consideration while comparing the net margin. Under the facts and circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portant to see is whether there is any value addition or not on the cost purchased for resale. If there is no value addition to the finished goods purchased from the AE are sold in the market as it is, then gross profit margin earned on such transactions become determining factor to analyse the gross compensation after the cost of sales. Accordingly the Tribunal held that the RPM is the most appropriate method. 17. Similarly, in the case of Bose Corporation Pvt. Ltd. v ACIT (supra), the assessee company was engaged in the business of distribution of sound and audio assistant for individual customers and public places. It was a wholly owned subsidiary of Bose Corporation, USA. During the relevant year, assessee purchased furnished goods from its AE and resold the same in India to unconnected parties. The assessee adopted resale price method (RPM) as most appropriate method (MAM) for determining the ALP of the said international transactions. The profit level indication (PLI) adopted by the assessee was gross profit/sale and the assessee has made itself tested party for the purpose of international transactions. The TPO rejected the transfer pricing study of the assessee and opined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised before the Hon'ble High Court of Bombay. In that case, assessee had business in 2 segments viz., manufacturing and distribution, In respect of business of distribution, the TPO suggested transfer pricing adjustment by applying the TNMM and rejected the resale price method (RPM) adopted by the assessee because the TPO found that assessee was incurring loss consistently and hence the price police was not at arm's length. The Hon'ble High Court, having examined all aspects have finally concluded that RPM is the most appropriate method. The relevant observation of the Hon'ble High Court is extracted hereunder for the sake of reference: "7. After having perused the relevant part of the order passed by the Commissioner and this Tribunal on this question, we are in IT(TP)A No.351/Bang/2016 agreement with Pardiwalla that the Tribunal did not commit any error of law apparent on the face of the record nor can the findings can be said to be perverse. The Tribunal has found that the TPO has passed an order earlier accepting this method. The Tribunal has noted in para 19 of the order under challenge that this method is one of the standard method and the OECD (Organizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted from AO Smith China in India without making any value addition to the product in a similar type of case, it has been repeatedly held by the Tribunal and the Hon'ble High Court of Bombay that in case of IT(TP)A No.351/Bang/2016 distributor, whether the product is being sold to the uncontrolled entities without making any value addition RPM is the most appropriate method and should be preferred over TNMM. Accordingly, we set aside the order of the AO, passed consequent to the direction of the DRP in this regard and direct the AOITPO to adopt the RPM as the most appropriate method." 11. Since the facts are identical in this case, we hold that the Resale Price Method is most appropriate method in the facts and circumstances of the present case. Accordingly we direct the AO/TPO to adopt Resale Price Method as most appropriate method and determine the ALP of the transactions accordingly." 6. In the instant case, the assessee has claimed that it has not carried out any value addition to the products imported by it from its Associated Enterprises. It is also submitted that the functions to be performed by the assessee as a "distributor", which is highlighted by the TPO is norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Sec.115JB of the Act were applicable. It is also not in dispute that the income tax payable on the total income as computed under the Act in respect of the previous year relevant to AY 2007-08 was less than 10% of its book profits and therefore book profit should be deemed to be the total income of the assessee and tax payable by the assessee on such total income shall be 10% of such total income. Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation as is adopted while preparing its accounts that are laid before the company at its annual general meeting in accordance with provisions of Sec.210 of the Companies Act. Explanation below Sec.115JB of the Act provides that for the purposes of section 115JB of the Act, "book profit" means the net profit as shown in the profit and loss acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Black & Decker India Limited Vs DCIT-3(1) Mumbai (2017 (11) TMI (1147)-ITAT Mumbai (ii) DOT -11, Bangalore Vs M/s L & T Valdel Engineering P Ltd 2015 (6) TMI 934- ITAT Bangalore. 12. As far as provision for long services award of Rs. 335,464 is concerned, the CIT(A) has not adjudicated on this ground. The provision for Long Service Award is computed on a scientific basis based on actuarial valuation conducted by an actuary and amounts computed as per actuarial valuation of does not make it provision for an unascertained or contingent liability. The assessee has submitted copies of actuarial valuation reports pertaining to Long Services Award it the submissions to the TPO as well as CIT(A). The said provision is capable of being estimated with reasonable certainty thereby making it ascertained and not unascertained. The following judicial pronouncements support the plea of the assessee in t6his regard : (i) Stanley Black & Decker India Limited Vs DCIT-3(1) Mumbai (2017 (11) TMI 1147)-ITAT Mumbai (ii) DCIT -11, Bangalore Vs M/s L & T Valdel Engineering P Ltd 2015 (6) TMI 984-ITAT Bangalore. (iii) DCIT, Circle-11(1), New Delhi Vs Eicher Motors Ltd 2017(2)TMI 795 (iv) DCIT, CC-18, N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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