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of <h1>Tribunal rules for taxpayer using Resale Price Method in international transactions</h1> <h3>Fujitsu India (P.) Lt. d Versus Assistant Commissioner of Income-tax, Circle-9 (2), New Delhi</h3> Fujitsu India (P.) Lt. d Versus Assistant Commissioner of Income-tax, Circle-9 (2), New Delhi - TMI Issues Involved:1. Transfer Pricing Methodology.2. Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses.3. Opportunity of Being Heard.4. Penalty Proceedings.5. Interest Charges and TDS Credit.Detailed Analysis:1. Transfer Pricing Methodology:The primary issue in these appeals pertains to the selection of the Most Appropriate Method (MAM) for benchmarking international transactions. The taxpayer, engaged in trading IT solutions and services, selected the Resale Price Method (RPM) with Gross Profit/Sales (GP/Sales) as the Profit Level Indicator (PLI). The Transfer Pricing Officer (TPO) rejected RPM and applied the Transactional Net Margin Method (TNMM) with Operating Profit/Sales (OP/Sales) as the PLI, citing that the taxpayer performed multiple functions beyond those of a normal distributor, including warehousing, inventory control, and marketing.The Tribunal, referring to precedents like Horiba India (P.) Ltd. v. Dy. CIT, and CIT v. L'oreal India (P.) Ltd., held that RPM is the MAM when the taxpayer purchases finished goods from its Associated Enterprises (AEs) and resells them without value addition. The Tribunal emphasized that the taxpayer's additional functions do not alter its role as a distributor. Consequently, the Tribunal ruled in favor of the taxpayer, stating that RPM should be used for benchmarking the international transactions.2. Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses:The TPO did not initially make any adjustments for AMP expenses. However, the Dispute Resolution Panel (DRP) directed an adjustment, treating AMP expenses as a separate international transaction. The taxpayer contended that AMP expenses are not international transactions and should not be benchmarked separately, citing decisions in cases like Maruti Suzuki India Ltd. vs. CIT and CIT vs. Whirlpool of India Ltd.The Tribunal noted that the DRP made the adjustment without providing the taxpayer an opportunity to be heard, violating the principles of natural justice. The Tribunal remitted the issue back to the TPO for fresh consideration, ensuring the taxpayer is given an opportunity to present its case.3. Opportunity of Being Heard:The Tribunal found that the DRP failed to provide the taxpayer an opportunity to respond to queries regarding AMP adjustments, despite the taxpayer's request for a hearing. This procedural lapse led the Tribunal to remand the matter back to the TPO for reconsideration, emphasizing the necessity of adhering to the principles of natural justice.4. Penalty Proceedings:The taxpayer challenged the initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act. The Tribunal deemed these grounds premature and consequential, requiring no specific adjudication at this stage.5. Interest Charges and TDS Credit:The taxpayer also contested the charging of interest under sections 234A, 234B, and 234C, and the denial of TDS credit. Similar to the penalty proceedings, the Tribunal considered these issues premature and consequential, thus not warranting detailed adjudication.Conclusion:The appeals were partly allowed for statistical purposes, with the Tribunal ruling in favor of the taxpayer on the primary issue of transfer pricing methodology, remanding the AMP adjustment issue for fresh consideration, and deeming the penalty and interest-related grounds premature.
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