Transfer pricing benchmark rules: DRP must consider relevant evidence, RPM applies to resale of finished goods, and packing material export needs no adjustment.

In DRP proceedings, additional evidence relevant to transfer pricing objections must be considered where the statute and rules permit it, and late filing alone is not a valid ground for rejection; the raw-material issue was therefore remitted for fresh adjudication. For import of finished goods resold without value addition, the Resale Price Method was held to be the appropriate benchmark, and the adjustment was deleted subject to verification of margins. For export of reusable packing material, no transfer pricing adjustment was warranted on the facts, and the addition was deleted. The overall effect was relief to the assessee on the substantive transfer pricing disputes, with only the raw-material issue restored to the DRP.

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Issues: (i) Whether the Dispute Resolution Panel was bound to admit and consider additional evidence filed in support of the transfer pricing adjustment relating to import of raw materials; (ii) whether the most appropriate method for benchmarking import of finished goods was the Resale Price Method; (iii) whether any transfer pricing adjustment was warranted in respect of export of packing material.

Issue (i): Whether the Dispute Resolution Panel was bound to admit and consider additional evidence filed in support of the transfer pricing adjustment relating to import of raw materials.

Analysis: Proceedings before the Dispute Resolution Panel are a continuation of the assessment process. Under section 144C(6) of the Income-tax Act, 1961, the Panel is required to consider evidence furnished by the assessee, and the DRP Rules permit filing of additional evidence with reasons and also empower the Panel to call for or permit such evidence. The absence of Rule 46A-type negative restrictions was noted. Since the assessee's evidence went to the heart of the tested party and markup controversy, and the remand report had already been called for, the evidence could not be rejected merely as late.

Conclusion: The refusal to admit the additional evidence was unjustified, and the issue was remitted to the Dispute Resolution Panel for fresh adjudication. The assessee succeeded for statistical purposes on this issue.

Issue (ii): Whether the most appropriate method for benchmarking import of finished goods was the Resale Price Method.

Analysis: The assessee imported finished goods from its associated enterprise and resold them without making any value addition. In such a distribution-type arrangement, the Resale Price Method was the proper benchmark. The attempt to apply a markup based adjustment without first applying the correct method was not justified. The margins of the assessee and comparables were to be verified under the Resale Price Method, and no adjustment was warranted if the range test was satisfied.

Conclusion: The Resale Price Method was held to be the most appropriate method, and the transfer pricing adjustment on this issue was deleted, subject to verification of the margins.

Issue (iii): Whether any transfer pricing adjustment was warranted in respect of export of packing material.

Analysis: The issue was covered by the assessee's own earlier years. The packing material consisted of reusable spools exported to the associated enterprise on a direct-cost-plus-markup basis, and no material basis was shown for allocating indirect costs in the manner adopted by the tax authorities. Applying the earlier reasoning, the export was at arm's length on the facts found.

Conclusion: No adjustment was warranted in respect of export of packing material, and the addition was deleted.

Final Conclusion: The assessee obtained relief on the substantive transfer pricing issues, while the raw-material issue was restored for fresh consideration by the Dispute Resolution Panel.

Ratio Decidendi: In proceedings before the Dispute Resolution Panel, additional evidence relevant to the objections must be considered where the statute and rules permit it; and where imported goods are resold without value addition, the Resale Price Method is the appropriate transfer pricing benchmark.

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