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2021 (10) TMI 610 - Income Tax
TP Adjustment - International transaction pertaining to provision of sourcing support services to its Associated Enterprises ('AEs') - functional profile of the Appellant - characterizing as a trader OR service provider - Whether Appellant has developed human resource and supply chain intangible for its AEs? - HELD THAT:- As entire TP approach was on the premise that the services of the appellant are akin to that of a trader and therefore, the TPO has selected the comparables identifying traders as comparables. We are of the considered view that the TPO has proceeded on an erroneous premise which has resulted into his TP adjustment erroneously.
The assessee does not have any market risk, product liability risk, service liability risk, credit risk and price risk. The facts on record show that the assessee does not take part in purchase decisions. In fact, the assessee is not engaged and does not have any legal right to do so, in the activity relating to maintaining any stock of merchandise manufactured by vendors and/or reselling the same to group's retail entities on its own account. In other words, the assessee does not bear any risk associated with carrying/owing/maintaining stock of inventory.
The glaring fallacy in the approach of the TPO lies on the fact that he has adopted FOB cost of goods procured from India by the AEs through the assessee as cost base. In our considered view, this approach of the TPO is in complete disregard to the functional profile of the assessee. The assessee operates in a limited risk environment providing routine support services to group entities and accordingly, entitled to be remunerated based on assured return.
TPO has not accepted the decision of Li & Fund [2014 (1) TMI 501 - DELHI HIGH COURT]solely on the ground that an appeal has been recommended before the Hon'ble Apex Court. In our considered view, when the operation of the decision of the Hon'ble Jurisdictional High Court has not been suspended or stayed, it was mandatory upon the TPO to follow the binding decision of the Hon'ble Jurisdictional High Court.
We set aside the TP adjustment made by the Assessing Officer and direct him to delete the addition - Decided in favour of assessee.