Tribunal directs RPM for transfer pricing adjustment, emphasizing gross margin in distributor's case

The Tribunal set aside the previous findings and directed the Assessing Officer/Transfer Pricing Officer to consider the Resale Price Method (RPM) as the most appropriate method for transfer pricing adjustments in the case of the assessee, a distributor. The Tribunal emphasized that RPM should apply as the business involved receiving goods at no cost from the parent company and earning a gross margin after expenses, distinguishing it from a service without a profit margin. The appeal was treated as allowed for statistical purposes.

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Issues involved:
The issues involved in the judgment are related to transfer pricing adjustments in the case of the assessee for the assessment year 2011-12 under section 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961.

Summary:
1. The assessee, engaged in software development services and data storage solutions, filed an appeal against final assessment orders following directions from the Dispute Resolution Panel regarding adjustments suggested by the Transfer Pricing Officer.
2. The Transfer Pricing Officer recommended adjustments towards the arm's-length price of international transactions, leading to a draft assessment order and subsequent objections by the assessee before the DRP.
3. A final assessment order was passed after the DRP confirmed the findings, resulting in an appeal before the Tribunal which directed a fresh TP analysis to determine the most appropriate method.
4. The TPO considered the Transactional Net Margin Method (TNMM) as the most appropriate method, leading to objections by the assessee before the DRP, which again confirmed TNMM as suitable.
5. The assessee contended that the Resale Price Method (RPM) should be applied as the business was that of a distributor receiving goods at no cost from the parent company, earning a gross margin after expenses, thus TNMM was not appropriate.
6. The Revenue argued that RPM applies when products are purchased from AE and resold to a third party, emphasizing that no purchase occurred in this case, and the distribution constituted a service without a profit margin.
7. The assessee referred to a previous case for the assessment year 2013-14 where a coordinate Bench of the Tribunal held RPM as the most appropriate method, suggesting a similar approach for the current case.
8. The Tribunal reviewed the previous case's findings and observed that RPM could be applied when products purchased from AE are resold to an unrelated enterprise, concluding that RPM should be the most appropriate method in the present case.
9. Considering the functional profile of the assessee as a distributor and not a service provider, the Tribunal set aside the previous findings and restored the issue to the Assessing Officer/TPO to consider RPM as the most appropriate method. The appeal was treated as allowed for statistical purposes.

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