TMI Blog2018 (1) TMI 976X X X X Extracts X X X X X X X X Extracts X X X X ..... ts law. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 1,05,50,000/- made by Assessing Officer on account of T.P. Adjustments. 3. The Ld. CIT(A) ignored the finding recorded by the TPO Assessing Officer and the fact that the TNMM method has been correctly adopted by TPO Assessing Officer as against RPM directed in the impugned order. 4. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing. 3. The only grievance of the department in this appeal relates to the deletion of addition of ₹ 1,05,50,000/- on account of TP adjustment made by the AO, directed by the ld. CIT(A) to adopt RPM method as against TNMM method which was adopted by the AO/TPO. 4. Facts of the case in brief are that the assessee filed the return of income on 28.11.2013 declaring loss of ₹ 36,08,670/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny and the AO referred the case to the TPO to determine the arm s length price. The TPO observed that Schedule 9 of profit and loss accounts revealed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice only when the standard methods, which are also termed as 'traditional methods', ( i.e. Comparable Uncontrolled Price Method, Resale Price Method and Cost Plus Method) cannot be reasonably applied. The OECD Guidelines also recognize this fact and state that transactional profit methods might be used to approximate arms length conditions when traditional methods cannot be relied applied alone or exceptionally cannot be applied at all . We are in considered agreement with this approach. In our considered view, the transaction profit methods should be applied only when standard or traditional methods are incapable of being properly applied on the facts of a case. While traditional methods seek to compute the prices at which international transactions would normally be entered into by the associated enterprise, but for their interdependence and relationship, transactional profit methods seek to compute the profits that the tested party would normally earn on such transactions with unrelated parties. It is only axiomatic that the profits earned by an enterprise is dependent on several factors, and not only on the prices at which transactions have been entered into with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer in his order dated 7-3-2005 for the assessment year 2002- 2003 and order dated 20-3-2006 for the assessment year 2003-2004, has agreed with the computation of arms length price made by the assesses under the resale price method. If the comparables are not found appropriate, fresh comparables can be searched, but the method adopted need not be rejected . Further, Reference can be made to OECD guidelines pertaining to the choice of most appropriate method which are as under: A Selection of the most appropriate transfer pricing method to the circumstances of the case. 2.3 Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm's length. This is because any difference in the price of a controlled transaction from the price in a comparable uncontrolled transaction can normally be traced directly to the commercial and financial relations made or imposed between the enterprises, and the arm's length conditions can be established by directly substituting the price in the comparable uncontrolled transaction for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial statement of the comparable companies. Each of the comparables selected has separately reported its sales from trading activity and the cost for such purchases in the Notes to Accounts of their audited financial statements. In a trading activity involving the simple purchase and resale of goods (without substantial or any value addition), the only direct cost involved which is relevant for the computation of the gross margin, is the payment made for the purchases also commonly referred to as cost of sales. In this regard, reference can also be drawn from Schedule VI of the Companies Act, 1956 which casts an obligation on companies to submit the quantitative information (quantity and value of purchases, opening stock, closing stock and sales) of each principal product traded by such companies. The relevant extract of Part II to Schedule VI of the Companies Act, 1956 has been reproduced below for your kind reference: 3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads; and in particular, shall disclose the following information in respect of the period co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the ld. CIT(A) admitted the additional evidence, even when the proper opportunity was given by the AO/TPO. It was contended that the TNMM method had been correctly adopted by the TPO/AO. Therefore, the ld. CIT(A) was not justified in directing to adopt RPM as the most appropriate method. 7. In his rival submissions, the ld. Counsel for the assessee submitted that the department for the succeeding assessment years 2005-06, 2008-09 and 2009-10 had accepted the RPM as the most appropriate method and the facts for the year under consideration are similar to those assessment years, therefore, the ld. CIT(A) was fully justified in directing the AO/TPO to adopt RPM as the most appropriate method. It was further submitted that the issue under consideration is squarely covered by the decisions of the various benches of the ITAT and the Hon ble Bombay High Court. The reliance was placed on the following case laws: CIT Vs L Oreal India (P.) Ltd. (2015) 53 Taxmann.com 432 (Bom.) ITO Vs L oreal India P. Ltd. in ITA No. 5423/Mum/2009, order dated 25.04.2012 DCIT Vs Delta Power Solution India P. Ltd. in ITA No. 3004/Del/2013, order dated 14.03.2016 8. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al that the RPM has been accepted by the TPO in the preceding as well as succeeding assessment years. That is in respect of distribution segment activity of the Assessee. In such circumstances, and when no distinguishing features were noted by the Tribunal, it did not commit any error in allowing the Assessee's Appeal. Such findings do not raise any substantial question of law. The Appeal is devoid of merits and is, therefore, dismissed. There would be no orders as to costs. 11. Similarly, the ITAT Delhi Bench F , New Delhi in the case of DCIT Vs Delta Power Solution India P. Ltd. in ITA No.3004/Del/2013 (supra) held as under: 6.1. It is observed that the primary objective of the assessee is of manufacturing /trading/ assembling of Telecom Power Equipment, visual display products, industrial automation and magnetic components, etc. The only issue in dispute is in regards to the MAM for determining ALP in respect of the trading section. The assessee had used TNMM as MAM for arriving at the ALP in respect of purchase of raw materials, export of finished goods and in respect of Transaction relating to import of industrial automation products and sales commission it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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