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2022 (3) TMI 297 - AT - Income TaxTP Adjustment - international transaction involving payment of royalty undertaken by Diesel India with its Associated Enterprise (“AE”) - approach by considering “Rampage” and “Bill Blass” with a Guaranteed Minimum Royalty (“GMR”) clause for the purpose of benchmarking the payment of royalty transaction, while rejecting “Antik Denim” as it also has GMR clause - HELD THAT:- We have noted that admittedly in the cases of Rampage as also Bill Blass, there is clause for guaranteed minimum royalty and even though this fact is clearly noted by the CIT(A), these cases are accepted as valid comparables. That is, in our considered view, an unacceptable approach. Once it is clear that the guaranteed minimum royalty clauses are present in comparables adopted and these clauses are missing in the assessee”s case and admittedly guaranteed minimum return clause makes the situation maternally different there could not be any valid justification in including these comparables. We, therefore, direct exclusion of these cases. On doing so, we find that the arithmetic mean of comparables comes to 5.25 which is more than the royalty paid by the assessee. The royalty paid by the assessee thus within arm”s length range. We, therefore, uphold the plea of the assessee, and direct deletion of impugned ALP adjustment. The assessee gets the relief accordingly. International transaction of payment of design fees undertaken by the Appellant with its AE - assessee had paid design fees to Diesel SPA but TPO held that the design fees was part of royalty agreement, and as such the payment so made was in excess of the arm”s length price of royalty because inter alia, royalty paid itself has been held to be more than it”s arms length price - HELD THAT:- We find that even if the payment of ₹ 14,00,761 is to be treated as part of payment for royalty, the total payment for royalty will be less than 5.25% which is held to be arm”s length price in our findings in paragraph 9 above. The impugned ALP adjustment is, therefore, devoid of legally sustainable basis. We delete the same. Addition in respect of international transactions involving purchase of merchandise and samples - Selection of MAM - CIT rejecting the Transactional Net Margin Method (TNMM) adopted by the AO/TPO as the Most Appropriate Method and in directing adoption of Resale Price Method (RPM) as done by the Assessee - HELD THAT:- On a careful consideration of all these factors, as also entirety of the case, we are of the considered view that the rejection of RPM method adopted by the assessee was incorrect, and learned CIT(A) has rightly reversed the said action. We have also noted that the conclusion arrived at by the learned CIT(A) were not solely on the basis of Hon”ble Bombay High Court in the case of L”oreal India Pvt. Ltd., [2014 (11) TMI 1216 - BOMBAY HIGH COURT] as alleged in the ground of appeal before us. On this count, grievances of the Assessing Office ill conceived TNMM is in away provision. As long as RPM can be reasonably applied, we see no issues with the same. Nothing, therefore, turns on the decision either. - Decided against revenue.
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