2018 (7) TMI 2083 - AT - Income Tax

TP Adjustment - MAM selection - Method for benchmarking the international transaction - HELD THAT:- findings returned by TPO/DRP that the taxpayer being a full-fledged risk bearing distributor performing numerous functions, RPM is not the MAM, is not sustainable for the reason that in a comparable uncontrolled transaction, normally distributor requires to carry out all the functions necessary to enhance the sales like market research, inventory risk, credit risk etc.. In such circumstances, no comparable instances have been brought on record by the TPO/DRP. So, when finished goods purchased by the taxpayer are resold in the market without any value addition, then gross margin earned on such transaction is the only determinative factor to analyse gross compensation after the cost of sale. So, we are of the considered view that RPM in this case is the MAM to bench mark the international transactions. In these circumstances, addition made by the TPO/AO merely by disputing the method applied by the taxpayer is not sustainable in the eyes of law. Method for benchmarking the international transaction cannot be changed merely because of the fact that the taxpayer has suffered loss at the net level but has positive gross profit in trading segment as it depends on host of circumstances.

TP adjustment on account of AMP expenses - HELD THAT:- When we examine letter dated December 29, 2015 written by the taxpayer to the ld. DRP, no opportunity of being heard has been given to the taxpayer before making ALP adjustment on account of AMP expenses

Bare perusal of the letter dated 29.12.2015, undisputedly received by the ld. DRP, goes to prove that when letter (supra) issued by the taxpayer seeking opportunity to explain the query raised by the ld. DRP but the ld. DRP without affording any opportunity of being heard, ld. DRP has passed the impugned order on 30.12.2015. So, ld. DRP being a quasi-judicial authority is under legal obligation to afford an opportunity of being heard to the taxpayer before passing any order. In these circumstances, TP adjustment made by the ld. DRP/TPO/AO on account of AMP expenses is not sustainable, hence the issue is remitted back to the TPO to decide afresh after providing an opportunity of being heard to the taxpayer.