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GAP International Sourcing (India) Pvt. Ltd. Versus Deputy Commissioner of Income Tax

2015 (6) TMI 32 - ITAT DELHI

Transfer pricing adjustment - Held that:- In the present case since the assessee is already earning a markup of 15% which is more than the 5% markup in the case of Li & Fund India (2014 (1) TMI 501 - DELHI HIGH COURT), therefore, markup of 15% on operational costs in assessee’s case is more conservative. As such no TP adjustment is required in assessee’s case. - Decided in favour of assesse. - ITA No. 692/Del/2014 - Dated:- 8-4-2015 - Sh. N. K. Saini And Sh. I. C. Sudhir JJ. For the Appellant : .....

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support services to associated enterprises ( AEs ) undertaken by the Appellate does not satisfy the arm s length principle envisaged under the Income-tax Act 1961 ( the Act ). In doing so, the Hon be DRP and consequently the Ld. AO (following the directions of the Hon ble DRP) have grossly erred in enhancing the income of the Appellant by ₹ 186,68,46,190/- on account of the Transfer Pricing ( TP ) adjustment u/s 92CA(3) of the Act made by the Ld. TPO by; 1.1 ignoring the decision of Hon bl .....

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es supply chain or human intangibles nor bear any significant risks with respect to its business operations; and 1.3 ignoring the fact that Hon ble ITAT has blessed the business model of the Appellant by accepting the application of Cost Plus remuneration model followed by it. 2. The Hon ble DRP and consequently the Ld. AO (following the directions of the Hon ble DRP), erred on facts and in law in upholding the Ld. TPO s approach of disregarding the benchmarking approach adopted by the Appellant .....

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he Appellant, for the purpose of computing the arm s length profit margin of the Appellant on the alleged ground that it created supply chain and human asset intangibles in India and generated location savings in India which have not been factored in its prevailing/current remuneration model. 4. The Hon ble DRP and consequently the Ld. AO (following the directions of the Hon ble DRP), erred on facts and in law in disregarding the detailed submissions and extensive analysis to demonstrate that Ap .....

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directions of the Hon ble DRP), erred on facts and in law in upholding the Ld. TPO s stance of rejecting the Appellant s reliance on relevant international judicial precedents on absolutely irrelevant, inconsistent and extraneous reasons. 6. Without prejudice to the above, the Appellant humbly submits that judgment pronounced by Hon ble Delhi Tribunal in case of Li & Fung India Pvt. Ltd. (Li & Fung), which was heavily relied by the Revenue in Appellant s case of Hon ble Tribunal for ear .....

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draw any grounds of appeal either before or at the time of hearing of the appeal. 3. Facts of the case in brief are that the assessee is engaged in the business of transportation of time sensitive packages, documents and cargo to domestic and international destinations. The assessee filed its return of income on 29.09.2009 declaring an income of ₹ 8,24,64,443/-. Later on, the case was selected for scrutiny. The assessee operates as a procurement support services company for its foreign ass .....

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86,68,46,190/- as shortfall u/s 92CA of the Income Tax Act, 1961 (hereinafter referred to as the Act) which was arrived at after making cumulative adjustments. Thereafter the AO passed the draft order u/s 144C of the Act on 27.02.2013 and the assessee went before the DRP who gave certain direction vide order dated 20.12.2013. The DRP accepted that the ITAT had acknowledged the fact that the assessee s roles, functions and activities did not lead to creation of any human intangibles and supply ch .....

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in appeal. The ld. Counsel for the assessee submitted that the order of the ITAT in the case of Li & Fung India with reference to which the TPO and DRP had applied a commission based remuneration model in assessee s case for the earlier years had recently been overruled by the Hon ble Delhi High Court vide order dated 16.12.2013, a reference was made to page no. 139 to 179 of the assessee s paper book which is the copy of the said order. It was further stated that the Hon ble High Court had .....

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ed that the markup of 32% as adopted by the ITAT is assessee s own case in the earlier assessment years, being the derived markup on operational costs even with reference to commission base model which was approved by the ITAT in the case of Li & Fung India, which was prevalent at the material time, namely, prior to its dilution by the Hon ble Delhi High Court on 16.12.2013, thus, also stands diluted as of today. Therefore, the markup on operational costs as adopted by the assessee, namely, .....

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and low end technical support services (Refer TP Study on Page 67 of the Merit Appeal Paper book) 11.62% Companies engaged in distribution which are selected by the TPO in his order for AY 2009-10 11.86% 12.01% *For service provider total cost and value added expenses are same. 5. It was accordingly submitted that the maximum markup which can be attributed to the assessee can in no case exceed 12% and since the assessee was already earning a markup of 15%, there existed no case for adjustment. 6 .....

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izes its conclusions as follows: (a) The board basing of the profit determining denominator as the entire FOB value of the contracts entered into by the AE to determine the LFIL s ALP, as an adjustment , is contrary to provisions of the Act and Rules; (b) The impugned order has not shown how, and to what extent, LIFIL bears significant risks, or that the AE enjoys such locational advantages, as to warrant rejection of the Transfer pricing exercise undertaken by LFIL; (c) Tax authorities should b .....

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