TMI Blog2017 (11) TMI 1655X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Ravindra Bhat, J- These appeals by the Revenue, under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), impugn the order of the Income Tax Appellate Tribunal, Delhi Bench ( ITAT ), dated 17.10.2016, for the assessment year (AY) 2009-10.The ITAT allowed the assessee's appeal. The Revenue, in this appeal, urged three questions. By order dated 04.08.2017, this Court declined to frame questions on the issue of disallowance under Section 14A, as well as the issue of advertisement expenditures. The Court issued notice only on the issue of transfer pricing. 2. The facts necessary are that the assessee, is a private company engaged in the business of sale of airtime, renting out of handsets and SIM cards. It filed its return of income on 26.09.2009 declaring loss of Rs. l5,67,73,021/-. Its case was selected for scrutiny and notice under section 143(2)/142(1) was issued to it. The assessing officer (AO) noticed that during the relevant financial year the assessee had undertaken international transactions with its associated enterprises (AE) and therefore, referred the case to the Transfer Pricing Officer under (TPO) Section 92CA(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer pricing study report furnished by the assessee before the Transfer Pricing Officer, to justify its losses at the net level, RPM was used as a secondary method. In any case, since the ITAT concluded that the assessee's business was purely of trading, without any value addition to the goods, its finding that the RPM method was applicable was irreproachable. 7. The dispute before the Court is whether the ITAT erred in adopting the RPM in order to determine the arms' length price in relation to the assessee's business. In the relevant assessment year, the assessee had four AEs. Three of them were wholly owned subsidiaries, whereas in the fourth, the assessee held 49% shareholding. The ITAT found that the AEs were engaged in the business of identifying, negotiating and buying SIM cards from the networks of different countries and selling them to the assessee. This arrangement, according to the assessee, foreign networks were reluctant to deal with foreign companies. The ITAT, relying on the TPO's order, found that the business of the assessee only involved re-selling or distributing the SIM cards imported from the AEs, without making any value addition. The ITAT a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit margin i.e., the gross profit margin accruing in a comparable controlled transaction on resale of same or similar property or services. The RPM is mostly applied in a situation in which the reseller purchases tangible property or obtain services from an A.E. and reseller does not physically alter the tangible goods and services or use any intangible assets to add substantial value to the property or services i.e., resale is made without any value addition having been made. 11. This view has also been affirmed by the Bombay High Court in its judgment dated 07.11.2014 in CIT v. L'Oreal India (P.) Ltd.[2015] 53 taxmann.com 432/228 Taxman 360 , where the Court found that there was no error in law committed by the ITAT when it held that RPM was the Most Appropriate Method in case of distribution or marketing activities especially when goods are purchased from associated entities and there are sales effected to unrelated parties without any further processing. In fact, a Division Bench of this Court in its decision in Bausch Lomb Eyecare (India) (P.) Ltd. v. Addl. CIT[2016] 381 ITR 227/237 Taxman 24/65 taxmann.com 141 (Delhi), while considering the decision of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod and is not resulting into proper determination of ALP and some other method should be resorted. The 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. ' 14. The ITAT in this case, accordingly held that even though the assessee had in its transfer pricing report, relied on TNMM as the Most Appropriate Method, that ipso facto, cannot preclude the transfer pricing officer or the appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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