TMI Blog2021 (11) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... rgin earned on such transaction is the only determinative factor to analyse gross compensation after the cost of sale. So, we are of the considered view that RPM in this case is the MAM to bench mark the international transactions. In these circumstances, addition made by the TPO/AO merely by disputing the method applied by the taxpayer is not sustainable in the eyes of law. Method for benchmarking the international transaction cannot be changed merely because of the fact that the taxpayer has suffered loss at the net level but has positive gross profit in trading segment as it depends on host of circumstances. We allow ground of the appeal of the assessee and direct the ld TPO to adopt the resale price as the most appropriate method and compute the difference in ALP thereafter. TPO is directed to examine the transfer pricing analysis and decide the issue afresh. - ITA. No. 7363/Del/2018 - - - Dated:- 23-11-2021 - SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For the Appellant :Shri K. M. Gupta, Advocate; For the Respondent :Shri Surendra Pal [CIT] DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions of Hon‟ble Income Tax Appellate Tribunal ( Hon‟ble ITAT) in Appellant‟s own case for AY 2011-12, AY 2012-13 and AY 2013-14 wherein the Hon‟ble ITAT, for each of the aforesaid years, by characterising the Appellant as a normal risk distributor, has upheld the application of RPM as the most appropriate method in order to benchmark the international transaction of purchase of traded goods; 7. The Ld. AO has erred in initiating penalty proceedings u/s 27i(i)(c) read with section 274 of the Act mechanically and without recording any adequate satisfaction for such initiation; and 8. That on the facts and circumstances of the case and in law, the Ld. AO erred in charging interest u/s 234A, 234B, 234C of the Act without assigning cogent reasons for the same. 3. The brief facts of the case shows that the assessee is leading provider of ICT based business solution for global marketplace. It combines worldwide Corps of systems and services exports with highly reliable computing and communication products and advanced microelectronics to deliver added value to customers. It is also engaged in business of sale of goods and services. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn loss of Rs. 10,36,15,530/- thereby making an adjustment on account of the arm's length price on the international transaction of Rs. 17,64,93,064/-. The assessee preferred objection before the ld DRP to consider the objection of the assessee passed an direction dated 13/08/2018. It upheld the action of the ld TPO in rejecting RPM as the most appropriate method. It upheld the TNMM method as the most appropriate method. This was because of the risk with similar directions were given by the ld DRP for Assessment Year 2012-13 and 2013-14. It also dealt with certain comparables and directed their exclusion. Working capital adjustment was also granted. The ld AO directed to consider 60 days credit period using LIBOR rates for interest on outstanding receivables. Based on this the ld TPO passed an order dated 24/09/2018 wherein the transfer pricing adjustment on account of purchase of goods was reduced to Rs. 1,48,65,293/- and adjustment on account of interest on receivable was determined at Rs. Nil. Based on this the assessment order was passed on 28/09/2018 where the assessed income was determined at Rs, 4,12,49,763/- against the return loss of Rs. 10,36,15,304/-. Thus, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... function performed by the taxpayer for issuance of the purchase order, budget control, quality checks, etc. would not change the role of the taxpayer other than a normal distributor 6. He submitted that coordinate bench has not all given any hheed to the arguments of the ld TPO and DRP that assessee assumes considerable risk in the form of market risk. credit risk, inventory risk foreign exchange risk, contract risk, service liability risk and manpower risk. He further held that since all the relevant cost incurred to discharge these functions cannot be captured in the recent price method, it cannot be taken as most appropriate method. He otherwise submitted that the matter is pending before the Hon'ble Delhi High Court and therefore the issue needs to be decided afresh. 7. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also perused the order of the coordinate bench in assessee s own case in earier years. We appreciate the arguments of the parties with respect to the risk assumed by the normal distributor as well as the risk assumed by the assessee. However , we find that the issue is squarely covered by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer with regard to quality control, warehousing, sales and marketing etc. are required to be captured in the resale price margin. 19. Undisputedly, these costs are qua unrelated parties and to our mind, these activities are not linked to the international transactions entered into between the taxpayer and the AEs as the AEs do not have any control on such activities and the answer to the question is to be found in case law relied upon by the taxpayer as under. 20. Coordinate Bench of the Tribunal in Horiba India (P.) Ltd. v. Dy. CIT [2017] 81 taxmann.com 209 (Delhi-Trib.) while deciding the identical issue as to whether RPM or TNMM is the most appropriate method to determine ALP of international transactions in case of distribution of marketing activities by relied upon the decision rendered by Hon'ble Mumbai High Court in CIT v. L'oreal India (P.) Ltd. [2015] 53 taxmann.com 432 decisions of the Tribunal in Nokia India (P.) Ltd. v. Dy. CIT [2015] 153 ITD 508/[2014] 53 taxmann.com 492 (Delhi) and Mattel Toys (I.)(P.) Ltd. v. Dy. CIT [2013] 34 taxmann.com 203/[2013] 144 ITD 76 (Mum. - Trib.) and decided the issue in favour of the assessee by returning follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the AE and without making any value addition, resells the same to third parties. Under these circumstances and looking to the fact that functions performed by the assessee is of distributor only, therefore, RPM should be reckoned as the most appropriate method and accordingly, we agree with the learned CIT(A) that on the facts of the present case, RPM should be the adopted as the most appropriate method for benchmarking assessee's international transactions. So far as the two comparables chosen by the TPO apart from assessee's comparables are concerned, we find that, T I Global Limited has rightly been rejected by learned CIT(A), because this company was manufacturing machinery, therefore, same cannot be compared 15 ITA-6401/Del/2012 with the assessee which is purely performing the distribution function. Thus, the final list of comparables, i.e., three chosen by the assessee and accepted by the TPO and one as selected by the TPO and upheld by the learned CIT(A), is sustained for comparing the margins under RPM. As a consequence, we hold that the TP adjustment made by the learned TPO has rightly been deleted by Ld CIT(A). Accordingly, the grounds raised by the Revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s performed by the reseller. This level of activities can range widely from the case where the reseller performs only minimal services as a forwarding agent to the case where the reseller takes on the full risk of ownership together with the full responsibility for and the risks involved in advertising, marketing, distributing and guaranteeing the goods, financing stocks, and other connected services. If the reseller in the controlled transaction does not carry on a substantial commercial activity but only transfers the goods to a third party, the resale price margin could, in light of the functions performed, be a small one. The resale price margin could be higher where it can be demonstrated that the reseller has some special expertise in the marketing of such goods, in effect bears special risks, or contributes substantially to the creation or maintenance of intangible property associated with the product. However, the level of activity performed by the reseller, whether minimal or substantial, would need to be well supported by relevant evidence. This would include justification for marketing expenditures that might be considered unreasonably high; for example, when part or mos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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