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2019 (8) TMI 1766 - AT - Income TaxTP Adjustment - selection of MAM - RPM v/s TNMM - assessee had selected “Resale Price Method” (RPM) as the most appropriate method for benchmarking its purchase transactions with the AEs - TPO rejected RPM and applied TNMM as the most appropriate method - HELD THAT:- For the purpose of application of RPM what is relevant is that as to whether there is any value addition or not to the goods purchased by the assessee for resale or not. In case, there is no significant value addition and the finished goods which are purchased from the AE are resold in the domestic market in the same form, then the gross profit margin earned on such transactions becomes the determinative factor for benchmarking the international transactions of the assessee with its AE by taking RPM as the most appropriate method. Our aforesaid view is supported by the order in the case of Fresenious Kabi India (P) Ltd. [2017 (6) TMI 1298 - ITAT PUNE] wherein it was held that in case of distribution activity the selling and marketing expenses which are borne by the assessee would not lead to any value addition to the product in question. We find substantial force in the contention advanced by the ld. A.R that as per Rule 10B(1)(b) in the Income Tax Rules, 1962, the RPM can safely be taken as the best suited method for determining the ALP of the international transactions in the case of the assessee before us, which as observed by us hereinabove had imported formulations from its AE and resold the same without making any value addition to unrelated parties in the domestic market. We are unable to subscribe to the view taken by the TPO/DRP that merely for the reason that complete information about the business profile and financial data in respect of companies selected by the assessee as comparables in its TP study report was not available in the public domain or furnished by the assessee, therefore, for the said reason the application of the said method for benchmarking the international transactions of the assessee was to be rejected. Rejection of the comparables which were selected by the assessee in its TP study report - As regards the three companies which were rejected by the TPO as comparables viz. (i) Abbott India Ltd; (ii) Duchem Laboratories Ltd.; and (iii) Lyka Exports Ltd., we are in agreement with the view taken by the TPO/DRP that as the said companies had a different year ending, therefore, the results emerging therefrom was not contemporaneous, and hence as per Rule10B(4) they were not suitable for being considered for arriving at a feasible comparison. However, at the same time, we are unable to persuade ourselves to accept the rejection of one of the comparable selected by the assessee company viz. M/s Daga Global Chemicals Ltd. It is the claim of the assessee that as the aforementioned company viz. Daga Global Chemicals Ltd. alike the assessee was engaged in the business of distribution, therefore, it was rightly selected as a comparable for benchmarking analysis. We have given a thoughtful consideration to the aforesaid contentions advanced by the ld. A.R and find substantial force in the same. In our considered view, as the DRP had declined to include the aforementioned company i.e Daga Global Chemicals Ltd. as a comparable, apparently on the basis of misconceived facts as had been canvassed by the ld. A.R before us, therefore, in all fairness the matter requires to be restored to the file of the TPO for fresh adjudication. The TPO after considering the aforesaid claim of the assessee in respect of the aforementioned company, viz. Daga Global Chemical ltd, is directed to readjudicate the issue as regards inclusion of the same in the final list of comparables for benchmarking the international transactions of the assessee as per RPM. We set aside the view taken by the TPO/DRP as regards the rejection of RPM as the most appropriate method for benchmarking the international transactions of the assessee and substituting the same by applying TNMM. The matter is restored to the file of the TPO, who is directed to re-determine the ALP of the international transactions of the assessee after accepting RPM as the most appropriate method.
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