TMI Blog2017 (10) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the assessee filed the return of income on 30.09.2009 declaring carried forward loss of ₹ 5,96,09,802/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had entered into international transaction with its associated enterprises. He, therefore, made the reference to the TPO to determine the arm s length price u/s 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) in respect of international transaction entered into by the assessee. The TPO noticed that the assessee had undertaken the following international transactions: S. No. Description of Transaction Method Value 1. Purchase of Food Supplements and Health Equipments RPM 31,10,33,139/- 2. Sale of Food Supplements and Health Equipments RPM 9,25,485/- 5. The TPO observed that the assessee had purchased food supplements and healthcare instruments from Tianjin Tianshi Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of goods acting as a distributor. Under the RPM comparability is dependent upon the similarity of functions performed and the risk assumed by the controlled and uncontrolled distributors. RPM focuses on the gross profit margin, which are heavily influenced by the scope and intensity of the functions performed, which may vary widely among uncontrolled parties. Therefore, RPM is not appropriate method. 3.4 In the case of the assessee it is a multi level marketing company and through reply dated 07.12.2012 it has explained its multilevel marketing model. The marketing model followed by Tianshi group is a Multi Level Marketing ( MLM ) model, whereby numerous networks of franchises and distributors get together and they are involved directly in retail selling. The Group does not undertake retail setting on its own. Also, there are no retail outlets, shops or showrooms for the sale of TIENS products by the company. 3.5 The marketing of the products in this company is done by a Network Marketing Plan. In Network Marketing, all the intermediaries in the Retail Sales Distribution Line up to the end user or consumer are replaced by Distributor Networks. Network marketing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to benchmark international transaction relating to purchase of goods from its AE the transaction is not at Arm's Length. But following the past precedence we will use TNMM as TNMM tests the Arm's Length character of Transfer Prices in the control transaction by comparing the operating profits earned by uncontrolled parties engaged in similar business activities. This method measures the total return derived from the control taxpayer s most narrowly defined business activity for which reliable data incorporating the controlled transaction under review is available. The strength of this method is that Net margins are less affected by transactional differences and also some functional diversity between the controlled and uncontrolled parties is acceptable. Therefore, I have considered TNMM with OP/Sales as PLI the most appropriate method in this case. 6. The TPO accepted only 4 comparables out of the 15 selected by the assessee and worked out the TP adjustment of ₹ 18,58,14,299/- in the following manner: 6. TP Adjustment: 6.1 In view of the observations above, the OP/Sales margin of comparables considered as functionally similar to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the TNMM as the most appropriate method, however, he accepted the contention of the assessee for inclusion of Cravatex Ltd. as comparable and worked out the addition of ₹ 16,73,35,606/- on account of arm s length price by observing in paras 11 to 11.2 of the order dated 22.01.2013 which reads as under: 11. Given the discussions in the preceding paragraphs, the comparables that shall be used in the Software Development Services are as below: S. No Name of the company OP/Sales 1. Cravatex Ltd. 6.83% 2. Emami Ltd. 16.31% 3. Dabur India Ltd. 17.26% 4. Fern Care Pharma Ltd. 13.79% 5. ZanduPharma Ltd. 19.88% Arithmetic Mean 14.83% 11.1 The Operating Profit of the assessee as per the P L account is (5.96 crores) and the turnover dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AM and using Gross Profit/ Sales as the Profit Level Indicator (PLI). 11. Now the assessee is in appeal. The ld. DR strongly supported the orders of the TPO and the AO and reiterated the observations made in the said orders. 12. In his rival submissions, the ld. Counsel for the assessee submitted that this issue is covered vide order dated 21.05.2013 of the ITAT Delhi Bench I , New Delhi in ITA No. 2299/Del/2011 for the assessment year 2007-08 in assessee s own case wherein the additional ground was raised and the issue was set aside to the file of the AO. It was further submitted that the TPO on the direction of the ITAT passed the order dated 30.01.2016 and accepted the RPM as the most appropriate method and thereafter no TP adjustment was made (copy of the said order was furnished which is placed on record). 13. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the ITAT Delhi Bench I , New Delhi in ITA No. 2299/Del/2011 for the assessment year 2007-08 remitted the issue relating to the rejection of RPM as the most appropriate method vide order dated 21.05.2013. The relevant fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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