9911796707
TMI Blog2023 (9) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Centre) and Dispute Resolution Panel (DRP) has erred both in law as well on facts in making adjustment of Rs. 35,32,063, towards ALP of Import of men's wear for resale made by the Appellant from its Associated Enterprises (AE), based on the observation of Transfer Pricing Officer (TPO) under section 920 of the Act by applying external Transaction Net Margin Method (TNMM). 1.1. Ld. DRP/AO has erred in rejecting Retail Sales Price (RPM) method adopted by the Appellant as the most appropriate method for justifying ALP and ignored the fact that the appellant is engaged in trading and distribution activities without any value addition to products. 1.2. Ld. DRP/AO has erred in law and facts of the case while rejecting foreign AE as tested party without considering that the tested party was selected by the appellant post analysis of functions performed, risk borne and assets used by the appellant and tested party. Without prejudice to above grounds, 1.3. Ld. DRP/AO has erred in law and facts of the case while applying external TNMM as the most appropriate method for benchmarking import of men's wear transaction with AE instead of internal TNMM. Hence, Appeal. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of confirmation for sundry creditors as on 31.03.2017 were provided on sample basis, which was perused and accepted by Hon'ble DRP. Ld. AO has not followed specific directions provided by Hon'ble DRP for verification of additional evidence, exceeding its authority and has therefore erred in law while treating balance creditors of Rs. 8.04 crores as unexplained expenditure u/s 69C of the Act. 3.3. Ld. AO has erred in law by treating accrued expense, creditors of expenses and creditors below 5 lakhs as unexplained expenditure for want of supporting evidences, exceeding the directions provided by Hon'ble DRP. 3.4. Ld. AO has erred in law and in facts by treating accrued expense as 'unexplained expenditure' alleging that genuineness and creditworthiness of the same was not proved, without appreciating that accrued expenses represents provision for expenses and does not involve actual payment or credit. 3.5. Ld. DRP has erred in law and facts of the case by delegating its power to Id. AO of making further verification / enquiry, which is prohibited by section 144C(8) of the Act. Ld. DRP has further erred by directing ld. AO to conduct verification, despite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee applied Resale Price Method ("RSM") as most appropriate method. The TPO vide order dated 05/01/2021, passed under section 92CA(3) of the Act rejected the benchmarking analysis conducted by the assessee and applied Transactional Net Margin Method ("TNMM") as the most appropriate method and computed the transfer pricing adjustment of Rs. 1,02,73,426, in respect of international transaction pertaining to "import of men's wear for resale' by considering assessee as the tested party. The learned DRP vide its directions, inter-alia, rejected the objections filed by the assessee following its directions rendered in assessee's own case for the assessment year 2011-12, wherein TNMM was held to be the most appropriate method to benchmark the international transaction of purchase of finished goods from associated enterprise. In conformity with the directions issued by the learned DRP, the Assessing Officer ("AO") passed the impugned final assessment order. Being aggrieved, the assessee is in appeal before us. 5. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case in M/s.Celio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has failed to prove the genuineness and creditworthiness of the parties against whom the loans/advances are shown in its balance sheet. Accordingly, the AO, vide draft assessment order, proposed to make an addition of Rs. 1,31,02,653, being the amount shown towards loans/advances during the year under consideration as "unexplained'. 9. The learned DRP, vide its directions, held that the proposed addition is not called for, however, directed the AO to make certain verifications, such as advances have been made through banking channels, advances are recorded in the books of accounts and the details are reconciled with the increasing advances during the year. The relevant directions of the learned DRP are reproduced as under:- "Directions of the DRP 10.1 The panel has considered the submissions made by the assessee. During the course of hearing before the DRP the assessee had filed additional evidence in form of rent agreements with parties on sample basis to whom advances have been made towards security deposits for store, warehouse and offices taken on rent by the assessee forehead business use. The additional evidence was forwarded to the assessing officer using th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation letter from the parties who have received the said advances. Accordingly, the AO, vide impugned final assessment order, treated the advances amounting to Rs. 1,31,02,653, as "unexplained' and disallowed the same under section 69C of the Act. Being aggrieved, the assessee is in appeal before us. 11. We have considered the submissions of both sides and perused the material available on record. It is evident from the record that in order to substantiate its claim that the amount shown as loans/advances in its books are towards security deposits to various parties for stores, warehouse, and office taken on rent, the assessee filed additional evidence in the form of rent agreement with various parties on a sample basis before the learned DRP. Further, it cannot be disputed that the additional evidence filed by the assessee was forwarded by the learned DRP to the AO for examination and comments on merits. However, as noted in the learned DRP"s directions, till the date of issuing the directions no response was received from the AO. As noted above, the learned DRP agreed with the submission of the assessee and held that the proposed addition is not called for either under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se from the assessee, the AO vide draft assessment order treated the amount shown towards sundry creditors as "unexplained' and proposed to add the same to the total income of the assessee at a special rate under section 115BBE of the Act. 15. The learned DRP, vide its directions, held that the addition proposed by the AO is not justified. However, directed the AO to verify that the addition to creditors is on account of trade creditors and the character of royalty. The learned DRP further directed the AO to verify the reconciliation given by the assessee in respect of confirmation from 12 parties produced during the hearing before the DRP. The relevant directions of the learned DRP are reproduced as under:- "12. Directions of the DRP 12.1 The panel has considered the submissions made by the assessee. During the course of hearing before the DRP the assessee had filed additional evidence in form confirmation from creditors on sample basis. The additional evidence was forwarded lo Assessing officer using the relevant module of ITBA, for examination and comments on merits. However, till the date of issuing these directions no response has been received from the AO. 12.2 The pan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has explained sundry creditors of Rs. 7,42,08,884, with supporting documentary evidence and the same is reconciled. It was further held that in respect of the remaining sundry creditors of Rs. 8,04,10,641, the assessee has not submitted any documentary evidence like ledger accounts, confirmation letter, and reconciliation statements, and therefore, genuineness and creditworthiness of the same is not proved, thus remains "unexplained'. Accordingly, vide final assessment order, the AO treated the expenditure for sundry creditors of Rs. 8,04,10,641, as "unexplained' and disallowed the same under section 69C of the Act. Being aggrieved, the assessee is in appeal before us. 18. Having considered the submissions of both sides and perused the material available on record, we find that in respect of this issue also the learned DRP issued directions to the AO to verify certain aspects as noted in para 12.3 of its directions, which are contrary to the provisions of section 144C(8) of the Act as the same specifically prohibits issuing any direction for further enquiry. Therefore, we are of the considered view that these directions and the final assessment order passed by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
