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Deputy Commissioner of Income-tax Versus M/s. Sanyo India P. Ltd

Transfer pricing adjustment - RPM method V/S TNMM method as the most appropriate method - Held that:- There is no dispute that the assessee had followed RPM method for analyzing its international transactions relating to goods imported by it from its associated enterprise abroad and sold here in the local market. There is also no dispute that the assessee was importing these goods in the finished stage and selling it without making any value additions thereon. The only work rendered by the asses .....

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rise and selling it in local market. There were substantial local purchases as well. That RPM method is the most appropriate method when assessee is selling goods purchased from the associated enterprises as such, has been held by the Mumbai Bench in the case of M/s L’Oreal India Pvt. Ltd., (2012 (11) TMI 175 - ITAT MUMBAI).

As a necessary corollary to the above discussion, we are of the opinion, that the AO/TPO has to do a fresh analysis of international transaction involving trading .....

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: Shri. Chavali Narayan, CA Respondent by : Smt. Neera Malhotra, CIT ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : In this appeal filed by Revenue, grounds read as follows : 1 . The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the AO to adopt RPM method and to reject TNMM method as the most appropriate method without ascertaining the nexus with the busin .....

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is prayed that the directions of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed. 5. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above. Grounds 1, 4 and 5 are general needing no adjudication. 02. Ld. Counsel for the assessee at the outset submitted that issue regarding most appropriate method for evaluating the pricing of international transactions of the assessee, which appears in ground 2 of the Revenue .....

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ch directions, simply deleted the adjustments recommended by TPO in full. 04. We have perused the orders and heard the rival contentions. Assessee was distributing and marketing consumer durables in the name of Sanyo and these were imported from its AE abroad, namely Sanyo Electric Co. Ltd, Japan. Assessee had used RPM in its TP study. As per the assessee, RPM was the most appropriate method since it was selling the goods which was received in finished manner from its AE abroad, in the local mar .....

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ods from its AE abroad and sale thereof in the local market. DRP had remitted the matter back to the AO for evaluating the value of international transactions of the assessee based on RPM. However, in the assessment order passed, AO had simply deleted the additions proposed by the TPO on a premise that the DRP had deleted the additions suggested by the TPO. Since the fact-situation is very similar to that in the assessment year 2008-09, in our opinion the directions given by this Tribunal for th .....

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its associated enterprise abroad namely M/s Sanyo Electric Company Ltd., Japan. Though, there were altogether five classes of international transactions for the assessee, the AO as was well as the TPO had accepted assessee s prices to be in Arm s Length vis-à-vis all of them, except for the transactions relating to import of consumer durables for re-sale. Assessee had adopted RPM using gross profit margin on sales as profit level indicator (PLI). As per the assessee re-sale price method .....

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8 were considered and weighted average margin of such comparables were worked out at 11.49%. Since the assessee had margin on sale of 8.37%, as per the assessee it was well within plus or minus 5 % of the arm s length margin of 11.49%. Thus, as per the assessee there was no requirement of any adjustment for pricing of imported goods. 12. The TPO when the matter regarding fixation of ALP of international transactions were referred to him, proposed to reject the RPM adopted by the assessee. As per .....

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st plus method could not be applied. 13. When a notice on above lines were given, reply of the assessee was that entire revenue of the assessee was not from re-sale of goods sourced from the associated enterprises. As per the assessee the aggregate value of purchases during the relevant previous year came to 97.75 Crores, whereas imports from associated enterprises only ₹ 59.96 Crores. Assessee s insisted that RPM method was the direct and most appropriate one in its case. Assessee also re .....

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ejected the re-sale price method adopted by the assessee and substituted with TNM method. 15. Assessee objected to the above treatment before the DRP. However, this was however, not successful. DRP was of the opinion that assessee could not have adopted multiple year data. It confirmed the view taken by the TPO. The AO thereafter, accepted the recommendation of the TPO and made an addition based on TNM method. 16. Now before us, learned AR strongly assailing the substitution of method submitted .....

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ssessee had pointed out that it was having purchases and sale from unrelated enterprises also, and was not solely doing the business of importing goods from associated enterprises and selling it in the local market. As per the learned AR, assessee was a trader simplicitier. It had analysed 612 companies which were importing consumer durables for re-sale and out of that selected 5 companies as proper comparables, while working out the ALP. The TPO had rejected the TP documentation for vague reaso .....

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the case of ITO Vs M/s L oreal India Pvt.Ltd.,(ITA No.5423/Mum/2009 dated 25-04-2012), M/s Star Diamond Group Vs DDIT (ITA No.3923/Mum/2008 dated 28-01-2011 that of coordinate bench of this Tribunal in the case of M/s Textronix India Pvt. Ltd., Vs DCIT(ITA No.1334/B/2010) and M/s Mattel Toys(I) Pvt.Ltd., Vs DCIT(ITA No.2810/M/2008 dated 12-06-2013) and M/s Frigoglass India Pvt.Ltd., Vs DCIT (ITA No.463/Del/2013 dated 11-04-2013) and that of M/s Tupperware India Pvt. Ltd., Vs DCIT (ITA No.2140/D .....

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ns why he was rejecting the RPM method. Assessee could not establish the functional similarity of the product imported and sold by it with that of the comparables selected by it. Therefore, according to him, the lower authorities had taken a correct view on this issue. 18. We have perused the order, and heard the rival contentions. There is no dispute that the assessee had followed RPM method for analyzing its international transactions relating to goods imported by it from its associated enterp .....

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ional transaction and which provide most reliable measure of an ALP in relation to the international transactions. It is an accepted position that the entire trading of the assessee did not comprise of imports from associated enterprise and selling it in local market. There were substantial local purchases as well. That RPM method is the most appropriate method when assessee is selling goods purchased from the associated enterprises as such, has been held by the Mumbai Bench in the case of M/s L .....

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most appropriate method to determine ALP. He submitted that the assessee made adjustment for making and selling expenses to the profits to make it comparable to the comparable companies profits. We agree with ld.CIT(A) that there is no order of priority of methods to determine ALP. RPM is one of the standard method and OECD guidelines also states that in case of distribution and marketing activities when the goods are purchased from AEs which are sold to unrelated parties, RPM is the most approp .....

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ld.CIT(A) that the margin of profit earned by AEs themselves is also reasonable and therefore, it could not be said that there is shift of profits by the assessee to its AEs at overseas. Considering the facts of the case and also the order of TPO that RPM method has been accepted in the preceding as well as succeeding assessment years to the assessment year under consideration in respect of distribution segment activity of the assessee, we do not find any infirmity with the order of the ld.CIT( .....

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ithout value addition to the goods, we find force in the submission of the assessee that resale price method is the most appropriate method for determining the ALV with respect to AE transaction. In fact, the revenue has accepted this method in earlier two years. The transfer pricing officer in his order dated 7-3-2005 for the assessment year 2002-03 and order dated 20-03-2006 for the assessment year 2003-04, has agreed with the computation of arms length price made by the assessee under the res .....

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ng out appropriate comparables and adopting resale price method. Before doing so we observe as follows; The Co-ordinate Bench in the case of M/s Textronix India Pvt.Ltd., Vs DCIT(supra), at para-6 of its order held as under; 6. We have considered the rival submissions. The dispute is with regard to the ALP in respect of international transactions whereby the assessee imports equipments from its AE and re-sells them without any value addition to the India customers. In similar circumstances, Mumb .....

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dian customers. In such circumstances, we are of the view that the ratio laid down y the Mumbai Bench of this Tribunal in the se of M/s L Oreal India Pvt.Ltd., (supra), would be squarely applicable to the facts of the assessee s case . 19. The only discernable reason why the TPO has rejected the re-sale method adopted by the assessee to our eyes is that assessee had given multiple year data of comparables. The data given by the assessee for the five comparables selected by it were as under; Comp .....

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the TPO was having results of the comparables selected by the assessee for the relevant previous year as well. If the TPO found that the comparables were dealing in different type of goods, he could select by himself a set of comparables after giving proper reasons. There were many other companies dealing with goods similar to that of the assessee. Nothing stopped the TPO from working out the ALP based on the data which was available on record or from getting a fresh set of comparables, which wa .....

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