TMI Blog2020 (6) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No. 6535/Del/2017 - - - Dated:- 1-6-2020 - Ms. Suchitra Kamble, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Himanshu Sinha, Adv.; For the Revenue : Shri G. K. Dhall [CIT] D. R.; ORDER PER PRASHANT MAHARISHI, AM: 01 This appeal is filed by the assessee against the order of THE ADDITIONAL COMMISSIONER OF INCOME TAX, SPECIAL RANGE SEVEN, NEW DELHI [ The Ld AO ] passed on 23/9/2017 under section 143 (3) read with section 92CA (3) read with section 144C (13) of The Income Tax Act [ The Act] for Assessment Year [ AY] 2013 14 determining the total income of the assessee at ₹ 981607220/- incorporating the adjustment on account of the arm s length price [ ALP] of the international transaction of ₹ 66,55,27,960/- against the returned income filed by the assessee at ₹ 31,60,79,260/ . 02 Assessee is part of Oriflame group of companies comprising of Oriflame cosmetics SA [as the parent company] based in Luxembourg holding 100 % equity in Oriflame investments Ltd,[ Mauritian company] which holds almost all the shares of the appellant company. 03 Assessee is engaged in trading of beauty pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in law in upholding the adjustment made by the Ld. AO/TPO to the arm's length price of the Appellant's international transactions with its associated enterprises by 4.1 Considering direct selling companies to be the only appropriate comparables and in doing so arbitrary rejecting the comparables selected by the Appellant, which were selected by the Appellant on the basis of a valid scientific search process and based on the criteria of functional and product comparability. 4.2 Selecting Modicare Ltd as a single comparable company for the arm's length analysis even though this company was not comparable on a standalone basis to the appellant in terms of functions, assets and risks assumed and its product profile and by disregarding that this company was a persistent loss making company. 4.3 Disregarding the Hon'ble bench's decision in Appellant's own case for AY 2009-10 to AY 2011-12 by not considering the categorical finding of the Hon'ble Tribunal that Modicare Ltd. should not have been taken as a standalone comparable. 4.4 Disregarding the Hon'ble bench's decision in Appellant's own case for AY 2009-10 to AY 2011-12 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. DRP erred in upholding the levy of interest under section 234B and 234C of the Act. 06 The only adjustment that as made by the learned TPO with respect to the local trading segment of the cosmetic products. The learned TPO noted that assessee has bifurcated its transactions in three segments namely (i) manufacturing segment, (ii) local trading segment and (iii) export trading segment. For benchmarking transactions related to renting segment of the cosmetic products assessee has used the Transactional Net Margin Method [ TNMM] as the most appropriate method [MAM] choosing the profit level indicator [PLI] of OP /OI, conducting a search on the PROWESS and capitaline database and arrived at the set of three comparables. The average margin of this comparables is 4.71% by using multiple year data, compared its own margin of 4.13% and stated that its international transaction of that segment are at arm s length. 07 The learned transfer pricing rejected TNMM method adopted by assessee and proceeded to adopt Resale price Method. He rejected all the comparables of the assessee applying the filter of different business model, turnover less than ₹ 1 crore trading sales/tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the filter of the learned TPO also the above company has a negative net worth and therefore it should have been rejected. In view of this, he submitted that issue squarely covered in favour of the assessee. 09 The learned and departmental representative relied upon the orders of the AO/TPO/DRP. 10 We have carefully considered rival contention and perused the orders of the lower authority as well as the order of the coordinate bench in assessee s own case for assessment year 2009 10 to assessment year 2012 13. This issue stands decided in assessee s own case in 2019-TII-209-ITAT-DEL-TP for assessment year 2009 10, 2010 11, 2011 12 and 2012 13, on identical facts and circumstances where the coordinate bench as per order dated 15 April 2019 has held as under:- 16. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us at the time of hearing. As stated above, in the first round of proceedings, Tribunal though had enlisted various factors and distinguishing features to hold various differences between the Modicare Ltd. and assessee, however remanded the matter back to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate comparable. She has also referred to marketing and selling function of the assessee-company and also that of Modicare Ltd. regarding their sale and marketing pattern and concluded that Modicare Ltd. is an appropriate comparable as it has direct selling like assessee and hence majority of revenue is from the sale of products similar to that of assessee. Apart from that, she has rejected all the comparables shown by the assessee on the ground that they were dealing in different kind of product segments. 18. First of all, the entire exercise of remand proceedings was circumscribed by the direction of the Hon ble High Court as there was clear-cut direction that the appropriateness of including the Modicare Ltd. as comparable has to be seen only when there is availability of data with respect to different product segment and the functional difference with respect to its marketing strategy. If it is an admitted fact that no data of Modi Care Ltd. is available with regard to different product segment, then at the very threshold, it would very difficult to include Modicare Ltd. as a comparable company; and if data itself is not available, then adjustment also cannot be made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of goods sold ratio and value-added expenses which is apparent from the fact that in case of Modi Care Ltd. the cost of goods sold ranges from 22% to 28% of its total operating cost and value-added expenses/operating expenses are more than 70%. Modicare Ltd. has also recorded franchisee expenses and hence it cannot be inferred wholly as a direct seller. In view of such differences, it would be very difficult to carry out adjustment especially with regard to the product portfolio, functional portfolio, etc. Adjustment if at all can be made would be to some extent of differential accounting treatment for incentive/ discount. Even the TPO in her remand report has unable to demonstrate incomparable product profile of Modi Care Ltd. and assessee and how the comparability adjustment is possible on account of such huge difference in product profile. Further, the service fee earned by the assessee is on account of renewal fees and handling fees received from the individual consultants, engaged in distribution of assessee s product and directly related to assessee s business. Whereas, the service fee earned by Modi Care Ltd. is on account of annual maintenance contract (AMC). T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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