Tribunal orders transfer pricing reassessment, excludes comparables, remands margin corrections for reconsideration.

The Tribunal directed the Transfer Pricing Officer to re-compute the Arm's Length Price based on the given order. Metro Shoes Ltd. and Sreeleathers Ltd. were excluded as comparables in favor of the assessee. The margin corrections for VF Brands India Pvt. Ltd. and Tommy Hilfiger Arvind Fashion Pvt. Ltd. were remanded back to the TPO for reconsideration. The appeal by the assessee was allowed.

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Issues Involved:
1. Exclusion of Metro Shoes Ltd. as a comparable.
2. Exclusion of Sreeleathers Ltd. as a comparable.
3. Margin correction of VF Brands India Pvt. Ltd. and Tommy Hilfiger Arvind Fashion Pvt. Ltd.

Detailed Analysis:

1. Exclusion of Metro Shoes Ltd. as a Comparable:
The assessee argued for the exclusion of Metro Shoes Ltd. on the grounds that it is involved in both wholesale and retail trade and has a small portion of manufacturing income, indicated by the payment of excise duty. The assessee contended that Metro Shoes does not pass the more than 75% trading income filter applied by the TPO. The financials of Metro Shoes Ltd. showed that trading income as a percentage of total revenue is less than 75%, thus failing the trade filter. The Tribunal agreed with the assessee, stating, "We hold that Metro Shoes fails the trade filter of more than 75% and therefore should be excluded from the comparable companies."

2. Exclusion of Sreeleathers Ltd. as a Comparable:
The assessee contended that Sreeleathers Ltd. is engaged in both wholesale and retail trading of footwear, with a significant portion of its revenue derived from retail trading. The financials indicated that 66.76% of its turnover is from retail trading, and only 12.78% is from wholesale trading. The Tribunal referenced Rule 10B(2)(d) of the Income Tax Act, which mandates considering whether the market is wholesale or retail for comparability. The Tribunal concluded, "In view of the above and considering the provisions contained in Rule 10B (2)(d) we are of the considered view that Sreeleather Ltd. should be excluded as comparable."

3. Margin Correction of VF Brands India Pvt. Ltd. and Tommy Hilfiger Arvind Fashion Pvt. Ltd.:
The assessee argued that the margins considered by the TPO for these companies were incorrect. The submitted working showed the margin for VF Brands Pvt. Ltd. at 12.07%, while the TPO considered it at 14.56%. Similarly, the margin for Tommy Hilfiger Arvind Fashion Pvt. Ltd. was computed at 3.23%, whereas the TPO considered it at 8.24%. The Tribunal decided to remand this issue back to the TPO, stating, "We therefore remit this issue back to the TPO to look at the financials of these two companies and arrive at the margins afresh in accordance with law."

Conclusion:
The Tribunal directed the TPO to re-compute the Arm's Length Price (ALP) based on the directions given in the order. The issues regarding the exclusion of Metro Shoes Ltd. and Sreeleathers Ltd. were resolved in favor of the assessee, while the margin correction for VF Brands India Pvt. Ltd. and Tommy Hilfiger Arvind Fashion Pvt. Ltd. was remanded back to the TPO for fresh consideration. The appeal filed by the assessee was allowed.

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