Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

GAP International Sourcing (India) Pvt. Ltd. Versus DCIT, Circle 10 (1) , New Delhi

2015 (11) TMI 788 - ITAT DELHI

Transfer pricing adjustment - TOP held that the correct compensation model at arm’s length price, in this case, would be commission of FOB cost of goods sourced from India - Held that:- In view of the enunciation of law by the Hon’ble jurisdictional High Court in the case of Li & Fung India Pvt. Ltd. order dated 16.12.2013, there remains no doubt whatsoever that the base of “total cost” as adopted by the TPO and approved by the DRP in considering the FOB value of goods between the third party en .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

DELHI HIGH COURT]

There is no necessity of any TP adjustment. Even further, for the current year, we note that both as per the comparables chosen by the assessee which yield a markup on 11.66% on operating cost and also the comparables chosen by the TPO, which yield 18.06% on operating cost, after making necessary working capital adjustment, indicates that the assessee’s markup of 15.36% charged on its operating cost falls well within the arm’s length price after considering the rang .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted 26.12.2014 under section 143 (3) read with section 144C (5) of the Income-tax Act, 1961 (hereinafter referred to the Act ) in pursuance to the direction of the DRP-IV, New Delhi for the assessment year 2010-11. 2. GAP Inc. incorporated in Delaware, USA is an international specialty retailer and operates stores selling casual apparel, shoes and other accessories. GAP Inc. is not involved in carrying out any manufacturing activity. All manufacturing is done by third-party manufactures across s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

raw material, provision of assistance to vendors in designing, inspection and quality control, and coordination with vendors to ensure delivery of goods to GAP Group as per schedule. 4. The international transactions entered into by the assessee company are tabulated below :- Nature of transaction Method Selected Total value of transaction (Rs.) Provision of sourcing support services TNMM 600,281,720 Cost allocation from GAP group 263,890,000 Cost recharges to GPA group CUP 684,164,000 5. In or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

port the search for comparables was undertaken, assuming that GAP India acts as a marketing support / low end technical support services of merchandise for GAP Group. Following set of comparables was selected in the TP Report : S.No. Name of the Company Data Source Working Capital Adjusted OP/VAE 1 Asian Business Exhibition & Conference Limited P 20.97% 2 IDC (India) Ltd., P 12.79% 3 Empire Industries Ltd. Seg- P 11.60% 4 Entertainment Network(India)Ltd Seg- P 0.22% 5 Priya International Ltd .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

owing comparables :- S.No. Name of the Company OP/TX 1 Pantaloon Retail (India) Limited 7.71 2 Shoppers Stop Limited 6.29 3 Trent Limited 9.41 4 Jaypee Spintex Limited 2.6 AVERAGE 6.50 The TPO computed the arm s length price as under :- 12. Computation of Arm's Length Price Accordingly, the arms length price in your case is calculated as below :- Details Amount in INR Total FOB Value of Exports 60,146,452,989 Arm s length margin @ 6.50% 3,909,519,444 Margin shown by the assessee 86,307,099 D .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng) as mentioned in row no. 7 of page 1 of this order. 7. Pursuant to the said order of TPO, the AO passed draft assessment order, which was challenged by the assessee before the DRP without success, so the assessee is before us and the ld. AR filed the written submissions wherein it is submitted as under :- 3. The TPO had also relied upon the ruling of the Delhi Income Tax Appellate Tribunal in the case of Li & Fung India Private Limited (Li & Fung India), where based upon the facts of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

39;ble Tribunal enhanced the mark-up on the cost from 15%, as charged by the appellant, to 32%, being the derived mark-up on operational costs, as in the case of Li & Fung India. 5. As a result of the said ruling of the Hon'ble Tribunal, the appellant had received more than 98% relief in each of the said AYs. The same resolution was reached by the Hon'ble Tribunal in the appellant's case for the subsequent year i.e. the A Y 2008-09 (copy of order dated 15th March 2013 has been en .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

-up of 5% on the operational costs of Li & Fung India, i.e. without considering the value of goods procured by the foreign AE of Li & Fung India, directly from third party vendors in India. 8. As opposed to a mark-up of 5% on operational costs, as blessed by the Hon'ble Delhi High Court in the case of Li & Fung India, the appellant operates on a mark-up of 15% of operational costs, which is any way more conservative. 9. The mark-up of 32%, as adopted by the Hon'ble Tribunal i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

troverted for the current assessment year. Accordingly, the TP adjustment ofRs.382.32 crore has no legs to stand and is liable to be struck down in the merit appeal as well. 11. Further, for AY 2009-10 in the appellant's own case, the Hon'ble Tribunal was pleased to pronounce the order on April 8, 2015 (Refer Annexure -1 to the synopsis) wherein the entire adjustment was deleted based upon the above stated arguments i.e. the Company is already earning a mark-up of 15% on operational cost .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

res (alongwith interest). When the matter came up before the Dispute Resolution Panel (DRP), the assessee submitted that its case is squarely covered in favour by the decision of the Tribunal rendered in the assessee's own case for the earlier years as above. However, the DRP reiterated TPO's stand that the ITAT's decision in its own case was not final as the order has been challenged by the Department in the Hon'ble High court of Delhi and the appeal is pending. 13. During the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

argin, selected distributors as comparables earning mean margin of 6.50% (Refer Page 140 of Appeal set) and determined the TP adjustment of ₹ 382.32 crores. 15. Following the approach as done in earlier years, the assessee has provided the following alternative comparable sets to demonstrate the tentative Operating Profit / Total Cost ratio for AY 2010-11 :- PARTICULARS OP/TC or OP/VAE* (FY 2009-10) Companies engaged in marketing support and low end technical support services (Refer TP Stu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hin the arm's length range. Hence, there exists no case for adjustment in the assessee's case. 8. The ld AR, took our attention to orders passed in assessee s own case in Assessment Years 2006-07 and 2007-08; and also took our attention to the order passed in AY 2009-10 in ITA No.692/Del/2014 order dated 08.04.2015 wherein the Tribunal, relying on the decision of Hon ble jurisdictional High Court in the case of Li & Fung India Pvt. Ltd. Vs. CIT in ITA 306/2012 order dated 16.12.2013, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

147/Del/2011 & 228/Del/2012 order dated 18.09.2012, the Tribunal has upheld the business model of the assessee and held as under :- 9.4 ….. iv. However, the facts in the appellant s case are different in as much as all the significant directions relating to procurement of goods from third party vendors in India, namely - (a) designs & trends of apparel; (b) quality parameters of materials: (c) terms & conditions for dealing with vendors, etc, are all provided by GAP US to the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

old the net profit / total cost remuneration model adopted by the assessee. Having held so now we proceed to decide the percentage of markup to be applied to assessee s cost. 9.5 ….. (iii) In view of the foregoing we have no hesitation to accept a candid proposal given by the assessee and hold that assessee TP adjustments be made by adopting the 32% cost plus mark up of the assessee for AY 2006-07 and 2007-08. The mark-up proposal of assessee is higher than mark-up over total cost earned .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ame order as above is applicable in the current year. Accordingly, in view of the forgoing, we hold that the assessee s TP adjustment be made by adopting 34% cost plus markup of the assessee for A.Y. 2008-09. In view of the above, the appeal filed by the Assessee is partly allowed. We take note that the TPO had also relied upon the ruling of the Delhi Bench of the Tribunal in the case of Li & Fung India Private Limited (Li & Fung India), where based upon the facts of the said case, a com .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

& Fung India. We take note that the order of the Tribunal in the case of Li & Fung India with reference to which the TPO and the DRP had applied a commission based remuneration model in the appellant's case for the earlier years, was overturned by the Hon'ble Delhi High Court vide order dated 16th December 2013 (pages 841 to 881 of the Paperbook). The Hon'ble High Court, vide the said order, had approved the remuneration model of mark-up of 5% on the operational costs of Li .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the order reversing the same by the Hon'ble Delhi High Court in December 2013. In the light of the said order of the Hon ble Delhi High Court, the mark up on operational costs of the assessee i.e. 15.36% is conservative. 11. While reversing the order of the Tribunal in Li & Fung India Pvt. Ltd., the Hon ble jurisdictional High Court held as follows :- 49. This court summarizes its conclusions as follows: (a) The broad basing of the profit determining denominator as the entire FOB value .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

risk , enterprise risk etc. without any material on record to establish such findings. If such findings are warranted, they should be supported by demonstrable reason, based on objective facts and the relative evaluation of their weight and significance. (d) Where all elements of a proper TNMM are detailed and disclosed in the assessee s reports, care should be taken by the tax administrators and authorities to analyze them in detail and then proceed to record reasons why some or all of them are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, Delhi Branch is liable to be and is accordingly set aside. The questions of law framed are answered in favour of the assessee, and against the revenue. The appeal is allowed in the above terms. In view of the enunciation of law by the Hon ble jurisdictional High Court in the case of Li & Fung India Pvt. Ltd. order dated 16.12.2013, there remains no doubt whatsoever that the base of total cost as adopted by the TPO and approved by the DRP in considering the FOB value of goods between the th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version