9911796707
TMI Blog2017 (4) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... venture between Alpha Airports Retails Holdings Pvt. Ltd. (a subsidiary of Alpha Airports Group PLC) and Pantaloon Retail India Ltd. with the purpose of undertaking Airport retailing at international and domestic terminal at the Indian Airports and food and beverages catering at domestic and international terminal. For the purpose of its business activities, the assessee has entered into an agreement with Delhi Airport India Pvt. Ltd. and in pursuance to that assessee purchase products from its A.E. and sells it at the Airport retail shops set-up by the company. During the relevant previous year, as per Form 3CEB, the assessee reported the following international transactions with its A.E. 1. Purchase of finished goods Rs. 29,74,41,013 Resale Price method (RPM) 2. Purchase of fixed assets Rs. 59,024 Resale Price Method (RPM) 3. Cost Recharges (paid) Rs. 55,58,830 Comparable Uncontrolled Price (CUP) 4. Cost Recharges (received) Rs. 63,032 CUP Rs. 30,31,21,899 CUP 4. However, since the dispute in present appeal is confined to the international transaction relating to purchase of finished goods from A.E. we will discuss facts in relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Pricing Officer observed, RPM applied by the assessee in transfer pricing study report suffers from various defects. He observed, the gross profit computation of comparables was never produced by the assessee. He also observed, the assessee deals in liquor, confectionary, cigarette and perfumes. Hence, the gross profit margin of these goods cannot be compared with goods sold by the comparables like books, foot ware, garments, etc. He, therefore, observed, the gross profit margin of these goods could not be relevant to determine the arm's length price of liquor, confectionary, cigarette and perfume for duty free shops which are high profit margin goods. He further noted that one of the comparables selected by the assessee viz. Liberty Retailing Revolution Ltd., had incurred losses in last two years, hence, cannot be taken as a comparable. He observed, the assessee could not furnish details of other contractors who were having similar business of duty free shops at Delhi or Mumbai Airports as such details are not available in public domain. The Transfer Pricing Officer observed, in view of the aforesaid facts, RPM and comparables selected by the assessee will not be able to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to select most appropriate method to bench mark its international transaction based on FAR (Function, Asset and Risk) analysis and comparable data available and chose RPM as the most appropriate method. He submitted, RPM evaluates the arm's length nature of controlled transaction by reference to the gross profit margin realized in a comparable uncontrolled transaction. He submitted, the RPM measures a value of functions performed and is appropriate in cases involving purchase and re-sale of tangible goods / services in which the buyer / reseller does not add substantial value to the goods by physically altering them or by using marketing intangibles. Referring to the provisions of section 10B(1)(b), learned Authorised Representative submitted, RPM begins with the price at which a product has been purchased from A.E. is resold to an independent enterprise. The resale price is then reduced by an appropriate gross margin representing the amounts out of which the reseller would seek to cover its selling and other operating expenditure and in the light of the functions performed and accordingly, product similarity is not relevant in RPM. He submitted, as the assessee is involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on products which is comparable to products sold by the comparables. Referring to the license agreement with Delhi International Airport Pvt. Ltd., the learned Authorised Representative submitted, the assessee has been permitted to sell products such as liquor, tobacco, perfume, cosmetics, packaged food, fashion-ware and leather goods which is similar to product sold by the comparables. As far as the contention of the learned Departmental Representative with regard to user of intangible in the form of license fee, learned Authorised Representative submitted fixed license fee and additional license fee are in order to set-up and operate the duty free shops at the Airport. He submitted, the role of the Airport Authorities is limited to the extent of granting license to the assessee to set-up, operate and maintain duty free shops at Airport. Referring to the meaning ascribed to the expression "intangibles" in OECD guide lines, the learned Authorised Representative submitted, considered in the light of the agreement with the Delhi Airport, the license fee paid was not for acquiring any "marketing intangible" such as trade mark, brand name, customer, etc., or "trade intangible" such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the methods prescribed therein. Rule 10C, defines most appropriate method to be one which is best suited to the facts and circumstances of each particular transaction and which provides the most reliable measure of arm's length price in relation to the international transaction. Sub-rule (2) of rule 10C, specifies the factors to be considered for selecting most appropriate method. Rule 10B provides the mode and manner of determination of arm's length price under different methods. As per rule 10B(1)(b), determination of arm's length price under RPM is applicable to a case where the price at which property purchased or service obtained by the enterprise from the A.E. is resold or is provided to an unrelated enterprise. The gross profit margin in respect of such a transaction is thereafter compared to the gross profit margin of similar comparable uncontrolled transactions and after making necessary adjustment with regard to expenditure incurred, functionally and other differences the arm's length price is determined. Thus, when there is no dispute to the fact that the assessee is purchasing finished products from the A.Es for the purpose of reselling to unrelated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ultimate aim of the TP is to examine whether the price or the margin raising from an international transaction with the related party is at ALP or not. The determination of approximate ALP is the key factor for which the MAM is to be followed. Therefore, if at any stage of the proceedings, it is found that by adopting one of the prescribed methods other than chosen earlier, the most appropriate ALP can be determined, the assessment authorities as well as the appellate Courts should take into consideration such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate ALP on the facts of the case. Accordingly, we reject the contentions of the Ld.DR and also the observations of the AO and the Ld.CIT(A) that the assessee cannot resort to adoption of RPM method instead of TNMM." 10.3 The case of the assessee is much better than the case of M/s Mattel Toys (I) Pvt.Ltd. (supra) for the reason that the assessee in its transfer pricing report has also used RSPM as the MAM. Hence this argument of the Revenue is rejected. 10.4. As the undisputed fact is that the functional profile of the assessee is that of a trader and as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring business in respect of food flavours and the trading business is for products for falling under the category of food ingredients. The main grievances of the assessee against the order of the Ld. TPO upheld by the Ld.DRP are regarding their approach in the manner in which transfer pricing adjustment has been made, the approach adopted by the Ld.TPO in granting 17 comparable companies denying the economic adjustment claim made by the assessee, regarding computation of margins of the assessee, non consideration of supplementary transaction and denial of adequate opportunity of being heard to the assessee by the authorities below as well as their failure to examine the contentions and arguments of the assessee in this regard. Considering these grievances as discussed herein above by us in the arguments advanced by the parties/their submissions and having gone through the decision relied upon, we find substance in the submission of the assesse3e and thus we are of the view that it is a fit case to set aside the matter to the file of the Ld.TPO for his fresh consideration and decide the issue afresh after affording opportunity of being heard to the assessee and discussing their subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee buys products from the AE and sells it without any value addition to the Indian customers. In such circumstances, we are of the view that the ratio laid down by the Mumbai Bench of the Tribunal in the case of L'Oreal India Pvt. Ltd. (supra) would be squarely applicable to the facts of the assessee's case. In that event, the GP as a percentage of sales arrived at by the TPO in Annexure to the TPO's order insofar as trading activity of comparables identified by the TPO at 12.90%. The GP as a percentage of sales of the assessee is at 35.6% which is much above the percentage of comparables identified by the TPO. In such circumstances, we are of the view that no adjustment could be made by way of ALP. We, therefore, accept the alternative plea of the assessee and delete the addition made by the AO. In view of the above conclusion, we are not going into the other issues on merits raised by the assessee on the approach adopted by the TPO in arriving at the ALP. Thus, ground Nos. 2 to 7 are allowed. 10.5 In view of the above discussion, we direct the TPO to adopt RPM as the MAM in this case." 12. The aforesaid decision of the Tribunal, Delhi Bench, was challenged befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst he has observed that CUP is the most appropriate method but abruptly discarded it without reason. Similarly, RPM was also discarded under flimsy ground. Even as far as selection of comparables are concerned, though, the Transfer Pricing Officer has observed that the comparables selected by the assessee cannot be similar due to broad variance, however, ultimately he has retained them while bench marking the arm's length price under TNMM. 14. As we have stated earlier, in case of international transaction relating to purchase of goods from A.E. and resale to unrelated parties, RPM is the most appropriate method. Therefore, in our considered opinion, the Assessing Officer / Transfer Pricing Officer must examine assessee's bench marking under RPM in an objective manner. If the Assessing Officer / Transfer Pricing Officer are of the view that necessary / relevant data relating to gross profit margin of the comparables selected by the assessee are not available, it is open for the Assessing Officer / Transfer Pricing Officer to call for necessary / relevant materials from the assessee or else the Assessing Officer / Transfer Pricing Officer is free to independently proceed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antee (MAG) at this stage. Thus, ground no.1, is allowed for statistical purposes. 20. In grounds no.2 and 3, the assessee has challenged the disallowance of Rs. 77,00,236. 21. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of Rs. 1,59,03,545, under the head "commission" on credit card and collection, the details of which are as under:- Bank charges for credit card Rs. 77,00,236 Charges for conversion of forex into cash Rs. 82,03,309 Total:- Rs. 1,59,03,545 22. The Assessing Officer called upon the assessee to show cause as to why the payment made should not be disallowed as the assessee has not deducted tax at source in terms of section 194H. The assessee objecting to proposed disallowance submitted, the provisions of section 194H are not applicable. The Assessing Officer, however, did not find merit in the submissions of the assessee. He was of the view that the provisions of section 194H is applicable to both the payments and accordingly disallowed the amount of Rs. 1,59,03,545. Though, the assessee objected to the disallowance before the DRP, however, the DRP confirmed the disallowance m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lationship between the assessee and Thomas Cook, therefore, provisions of section 194H is not applicable. We have noticed, though, in the course of the proceedings before the DRP, the assessee had submitted copies of agreement with bank as well as with Thomas Cook India Ltd., the authorities concerned have not properly examined the issue to ascertain the fact whether there is any principal-agent relationship between the assessee and Thomas Cook India Ltd. We, therefore, set aside the issue to the file of the Assessing Officer for fresh consideration after providing adequate opportunity of hearing to the assessee. Ground no.2, is allowed and ground no.3 is allowed for statistical purposes. 26. In ground no.4, the assessee has challenged the addition of an amount of Rs. 13,48,450, being the difference between Form no.26As and returned income. 27. The Assessing Officer, at the time of assessment proceedings, noticing that there is a difference of Rs. 12,71,104, between Form no.AS26 and return of income, called upon the assessee to reconcile the difference. Though, the assessee made submissions to explain the difference, however, the Assessing Officer not being satisfied with the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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