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2016 (4) TMI 663 - AT - Income TaxDetermination of Arm's Length Price - whether the goods so exported were part of the slow moving old stock? - Held that:- There is absolutely no doubt that the toning down of inventory which was written down in valuation of stock has been based on the retail pricing method. TPO, on the one hand, accepting these goods as slow moving, on the other, he expects the assessee to earn margin at the same rate at which the normal goods of the assessee are also earning. TPO is contradicting himself. Secondly, the TPO had not disputed that these goods are sold to foreign entity. Therefore, even on this ground to expect the assessee to earn the same margin as in Indian market is also an unacceptable logic. Thirdly, the calculation of GP at 22.64% includes the transaction with related party. It is 'tainted' transactions, because this GP of 22.64% is not the result of transactions with independent parties alone, but with related parties as well. It was the duty of the TPO to arrive at the ALP of this international transaction. TPO cannot use this figure of 22.64% itself as at arm's length. In effect, the sale invoices of the assessee to its AE can be compared with the sale of invoices of the AE to the independent party. The goods sold are exactly the same, as the goods were dispatched from the warehouse of the assessee to the ultimate buyer who is an independent entity. The time gap between the sale of the assessee and the sale of the AE are negligible because it has happened within the same month. Therefore, this is a fit case to use CUP as a most appropriate method. Thus the CIT(A) has rightly allowed the appeal of the assessee. The contention of the DR that the assessee instead of selling old stock through AE has directly sold the same to the third party is not correct. The CIT(A) gave finding after considering all the aspects to that effect. It can be found that the said stock was of old stock and the sale was also through the AE as well. The goods sold are exactly the same, as the goods were dispatched from the warehouse of the assessee to the ultimate buyer who is an independent entity. The time gap between the sale of the assessee and the sale of the AE are negligible because it has happened within the same month. The gross profit earned by the assessee is in India. TPO had not disputed the classification of the goods as slow moving or as old stock. Therefore, the CIT(A) has rightly held in favour of the assessee.
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