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TMI Blog2022 (2) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case & in law, the ld. CIT(A) erred in deleting the addition of Rs.6,47,95,611/- made on account of ALP adjustment vide order u/s 154/143(3) r.w.s. 144C of the Income Tax Act, 1961 passed by the DCIT, Cicel-11(1) ignoring the fact that the assessee company has failed to give substantial proof of its claim and also to substantiate the same wholly and exclusively for the purpose of the company." 3. The assessee is engaged in the business of general trading, procurement and supply of chemicals, textiles, paper, garments, machinery & equipment and entering into strategic alliances by investing in different lines of business and also provide financial, technological, logistic, marketing & administrative support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is assuming limited risk; that the taxpayer has not developed any of its intangibles or accorded locational savings to its AEs. 9. The issue in controversy has been squarely covered in taxpayer's own case for AY 2007-08 and 2008-09 in ITA Nos.6287/Del/2012 & 6288/Del/2012 order dated 18.08.2017 decided by the Co-ordinate Bench of the Tribunal and also relied upon the judgment of Hon'ble Delhi High Court in Li & Fung India Pvt. Ltd. 361 ITR 85 and the decision of the Co-ordinate Bench of the Tribunal in the case of GAP International Sourcing India Pvt. Ltd. in ITA No.5147/Del/2011 & 228/Del/2012. 10. We have examined the decision rendered by the Hon'ble High Court in Li & Fung India Pvt. Ltd. (supra) having identical facts vis-&agrav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, handicrafts, leather products, etc., in India for its associated enterprise, and was paid service charges of 5 per cent of cost plus mark-up incurred for providing these services. The assessee worked out the arm's length price of the international transactions applying the transactional net margin method by comparing the operating profit margin of 26 companies and the assessee's operating profits/operating costs taken at 5.17 per cent. It contended that it was a low risk captive sourcing service provider performing limited functions with minimal risk as an off-shore provider and substantial functions relating to buying services were performed by the associated enterprise, which also assumed various enterprise risks. Alternativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to the associated enterprise, equivalent to the cost plus 5 per cent mark-up, was not at arm's length. Since the assessee was providing crucial sourcing services and the associated enterprise was remunerated by third parties based on such services, the Tribunal relied upon the mark-up on the free on board value of goods sourced through the assessee as the appropriate method to work out the arm's length compensation. The Tribunal accepted the Transfer Pricing Officer's reasoning for applying the 5 per cent of the free on board value of exports to third parties by Indian manufacturers. On appeal: Held, allowing the appeal, (i) that to apply the transactional net margin method the assessee's net profit margin realised from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactional net margin method to be the most appropriate method, only the rules and norms prescribed in that regard could have been applied to determine whether the exercise indicated by the assessee yielded an arm's length price. The approach of the Transfer Pricing Officer and the tax authorities in essence imputed notional adjustment/income in the assessee's hands on the basis of a fixed percentage of the free on board value of export made by unrelated party vendors. (iii) That the assessee had neither made investment in the plant, inventory, working capital, etc., nor did it claim to have any expertise in the manufacture of garments. More importantly, and given no material to the contrary, the assessee did not bear the enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using the transactional net margin method was without foundation and liable to be deleted." 12. The Co-ordinate Bench of the Tribunal held that in view of the undisputed fact that AEs of the taxpayer is into trading activities of various products, such as, textiles, machinery, information and communications related products, metals, products related to oil and other energy resources, general merchandise chemicals, provisions and food and the taxpayer is merely rendering business support services to these AEs in the form of facilitation services to source goods from India. So, the limited activities carried out by the taxpayer for its AEs in the nature of licensing and facilitation of business of its AEs separates the taxpayer from the Sog ..... X X X X Extracts X X X X X X X X Extracts X X X X
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