TMI Blog2019 (3) TMI 1696X X X X Extracts X X X X X X X X Extracts X X X X ..... s actually rendered by the AE, it would be difficult for the tax authorities as well as for the Tribunal to appreciate the contentions of assessee. Before us, the Ld. AR submitted that the assessee has prepared a detailed note explaining the details of services received by it. In the interest of natural justice, we are of the view that the assessee may be provided with one more opportunity in this matter. Accordingly we admit the additional evidences furnished by the assessee explaining the details of received services provided by its AE. In view of the above, this issue requires fresh examination at the end of AO/TPO. TP adjustment made in respect of import of men s wear from its AE - Selection of MAM - RPM or TNMM - AR submitted that the assessee imports men s wear from its AE and distributes the same as it is without making any value addition - HELD THAT:- The assessee is the distributor of men s wear imported from its AE. It does not carry out any value addition. Though the assessee is alleged to have incurred huge expenses on advertisement and market promotion, the same would not increase the inherent value of the products. In the case of simple distribution of product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r) from its AE, the assessee had benchmarked the transaction under Transactional Net Margin Method (TNMM). The assessee initially adopted cost + mark up as PLI based on the single year data. The PLI of the comparable companies was arrived at 10.61%. The assessee was importing goods at cost + mark up of 9%. Accordingly, the assessee submitted that the difference falls within (+)/(-) 5% range and hence the transactions of import of goods are at arm s length. 4.1. The TPO noticed that the assessee has incurred loss during the year, i.e., the net margin was negative at (-) 8.21%. The TPO selected certain comparables and the Net Profit margin of those comparable companies was 1.12%. 4.2. Accordingly, the TPO proposed the TP adjustment of ₹ 320.52 Lakhs in respect of import of men s wear from the AE. 5. Before the Ld. DRP, the assessee submitted that in the case of distribution of goods, Re-sale Price Method is the most appropriate method. However, the Ld. DRP noticed that the assessee has incurred heavy expenses towards branding in the form of Advertisement and Market Promotion Expenses (AMP). Accordingly, Ld. DRP took the view that the said expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining ALP of a transaction is to find out as to whether similar kind of payments would have been made to an unrelated party for similar kind of services rendered. Hence the details relating to nature of services that were received by the assessee are, in our view, crucial for determining ALP. Hence we are of the view that the TPO has not questioned the genuineness of transactions. We also agree with the contentions of the Ld. DR that the copies of invoices received by the assessee from its AE would not demonstrate the details of services received by the assessee. From the order of TPO, we noticed that the assessee has given examples of services received by it from its AE. The TPO has described the same as under: Assistance/advice in analysis for validation of store locations, organization and management of the stores; Assistance/advice in processes for stocks sales control, control management, procurement scheduling, co-ordination etc; Assistance/advice in determining store layouts, controlling visual merchandising of the stores; Assistance/advice in preparation and elaboration of creatives (windows, instore) for point of sale ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Method. He submitted that the advertisement and sales promotion expenses are not to be deducted for computing gross profit margin. Accordingly he submitted that the Ld. DRP was not justified in holding that the advertisement and sales promotion expenses should also be taken into account and accordingly holding that TNMM is the most appropriate method. Ld. AR relied on the host of the case law to support its contentions. 7.2. On the contrary, Ld. DR submitted that the advertisement and sales promotion expenses incurred by the assessee huge. He submitted that, since the assessee has incurred these expenses, it should have imported the goods at a lower rate than that the rate that should have been charged to an un-related party, since the unrelated party would not have incurred advertisement expenses at such level. In this view of the matter, the Ld D.R submitted that Ld. DRP was justified in holding that the ALP should be determined under TNMM method by considering the Net Profit margin of the assessee. 7.3. We have heard the parties on this issue and perused the record. Admittedly, the assessee is a mere distributor of men s wear, imported from its AE. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 becomes patent that sub-clause (i) refers to 'property purchased by the enterprise ... is resold ' and sub-clause (v) refers to 'arm's length price in respect of the purchase of the property ... by the enterprise '. A close scrutiny of the above two sub-clauses along with the remaining sub-clauses of rule 10B(1)(b) makes it clear beyond doubt that RPM is best suited for determining ALP of an international transaction in the nature of purchase of from an AE which are resold as such to unrelated parties. Ordinarily, this method pre-supposes no or insignificant value addition to the goods purchased from foreign AE. 17. While noting the above decision also, Hon ble jurisdictional High Court, in Principal Commissioner of Income-tax-6 v. Matrix Cellular International Services (P.) Ltd. [2018] 90 taxmann.com 54 (Delhi) found that, - 8. This Court finds that once the ITAT, on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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) Pvt. Ltd. v. Additional Commissioner of Income Tax, (2016) 381 ITR 227 (Del), while considering the decision of this Court in Sony Ericsson Mobile Communications India Pvt. Ltd. v. Commissioner of Income Tax, (2015) 374 ITR 118 (Del), noted that: The RP Method loses its accuracy and reliability where the reseller adds substantially to the value of the product or the goods are further processed or incorporated into a more sophisticated product or when the product/service is transformed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtisement 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 case. We, therefore, while respectfully following the same hold that 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 . 7.3.ii. The facts prevailing in the instant case are also that the assessee is the distributor of men s wear imported from its AE. It does not carry out any value addition. Though the assessee is alleged to have incurred huge expenses on advertisement and market promotion, the same would not increase the inherent value of the products. In the case of simple distribution of products, it has been consistently held in the above said case laws that the Resale Price method (RPM) is the most appropriate method. Under the RPM, the profits are compared at Gross M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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