TMI Blog2018 (6) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... s. DCIT [2014 (11) TMI 101 - ITAT DELHI] wherein it was held that the incurring of high advertisement and marketing expenses by the assessee vis-avis the other comparable companies does not in any manner affect the determination of ALP under the RPM Thus the RPM is the most appropriate method in the facts and circumstances of this case and accordingly direct the Ld. TPO to adopt the RPM as the most appropriate method for benchmarking the international transaction. - Decided in favour of assessee. - SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER For The Assessee : Sh. Ajay Wadhwa, Adv. For The Revenue : Sh. Sanjay I. Bara, CIT DR ORDER PER K.NARASIMHA CHARY, J.M. These appeals are filed by the assessee challenging the order dated 30/11/2016 and 19/12/2016 passed by the learned Assessing officer pursuant to the directions dated 18/10/2016 and 15/09/2017 respectively by the learned Dispute resolution panel-1, New Delhi for the assessment years 2012-13 and 2013-14 respectively. Since the assessee and the facts involved in these matters are identically the same, both the appeals are disposed of by this common orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards advertisement and marketing expenses however, it is clear that the assessee has incurred substantial AMP, and other expenses, in relation to its turnover, and is therefore, not a simple distributor in terms of the requirement of using RPM. The assessee has failed to demonstrate that the comparables have also incurred similar expenditure and have a similar functional profile required for RPM analysis. 6. Hence the assessee preferred this appeal. Though the assessee challenged the reference made by the Ld. Assessing Officer to the Ld. TPO, and the comparability of the companies, Ld. AR confined the challenge to the findings of the authorities below in rejecting the CUP corroborated by RPM and substituting the same with TNMM. 7. It is argued by the Ld. AR that the role of the Assessee does not involve any value addition to the product being sold in the Indian market. Assessee merely purchases from its Principal, Burberry Limited and resells the product, without adding any value to the core product as such RPM is used for cases. Even as per Rule 10B of the Income-tax Rules, 1962, RPM is used in case of a reseller. He further submitted that inasmuch as the Ld. TPO has ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure on AMP, and the business model of the company is not comparable with the comparables who are not incurring such expenditure. According to him in one case law quoted by the Ld. DRP, the company undertook building of intangibles and 65% of operating cost was incurred on AMP expense and the company was engaged in manufacturing activity too. He submitted that in Assessee s case, the Assessee has not incurred such heavy expenditure and the comparables have also incurred similar expense and have similar business model. The Assessee is not engaged in any manufacturing. The wide gap in the GP and NP is due to the heavy rental cost and not due to AMP expenses as given in the case laws cited by the Ld. DRP. 11. Ld. AR placed reliance on the decision in case of Nokia India Pvt. Ltd. v. Deputy Commissioner of Income-tax, Circle -13(1), New Delhi [2014] 52 taxmann.com 492 (Delhi Trib) wherein it was held that the incurring of high advertisement and marketing expenses by the assessee vis- -vis the other comparable companies does not in any manner affect the determination of ALP under the RPM and if the assessee has incurred more expenses on advertisement and promotion, which, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing RPM. Now we shall proceed to examine the law applicable these facts. 16. In Nokia India (P) Ltd. v. Dy. CIT[2014] 52 taxmann.com 492/153 ITD 508 (Delhi), the Delhi bench of the ITAT held that,- 9. Sub-clause (i) of clause (b) of Rule 10B(1) deals with identifying the price at which the goods purchased from an AE is resold. Sub-clause (ii) of clause (b) of Rule 10B(1) talks of reducing the amount of normal gross profit margin of comparable uncontrolled transactions from such resale price of the assessee. Sub-clause (iii) states that the result of subclause (ii) is further reduced by the expenses incurred in connection with the purchase of goods and sub-clause (iv) provides that the amount so deduced under sub-clause (iii) is adjusted on account of differences in the international transaction and comparable uncontrolled transactions which materially affect the amount of gross profit margin in the open market. Finally, sub-clause (v) provides that the adjusted price found under sub-clause (iv) is taken as arm's length price in respect of purchase of goods from the AE. When we consider the methodology given under RPM, more specifically sub-clauses (i) and (v), it become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the given circumstances, the RPM is the most appropriate method for determining the ALP of the international transaction of' Import of Crystal goods and Crystal components. 10. A similar view has been adopted by the Mumbai bench of the ITAT in Mattel Toys v. Deputy Commissioner of Income Tax, (2013) 158 TTJ (Mum) 461: Thus, the RPM method identifies the price at which the product purchased from the A.E. is resold to a unrelated party. Such price is reduced by normal 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 Commissioner of Income Tax v. L'Oreal India Pvt. Ltd. (ITA No. 1046 of 2012), where the Court found that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses debited to the Profit loss account automatically stand excluded. It is but natural that only those expenses can have bearing on the gross profit that are debited to the Trading account. As the amount of advertisement and marketing expenses falls 'below the line' and finds its place in the Profit and loss account, the higher or lower spend on it cannot affect the amount of gross profit and the resultant ALP under the RPM. If the assessee has incurred more expenses on advertisement and promotion, which, in the opinion of the ld. DR went on to brand building for an AE, then, the transfer pricing adjustment on account of such AMP expenses was separately called for. Since the TPO has not made any separate adjustment on account of AMP expenses and has given effect to the same under TNMM, we hold that the incurring of such higher advertisement and marketing spend would not affect the calculation of ALP under the RPM. Ex consequenti, we hold that RPM prima facie appears to be the most appropriate method in the facts and circumstances of the instant case. 19. The above decisions clinch the issue involved in this matter and squarely applicable to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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