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Issues: Whether, on the facts of the trading segment involving import of finished goods from associated enterprises and sale to third parties without value addition, the Resale Price Method was the most appropriate method, and the adjustment made by applying the Transactional Net Margin Method was sustainable.
Analysis: The dispute was confined to benchmarking the trading segment. Segmental results were available, and the assessee did not undertake any value addition to the imported finished goods before resale. In such circumstances, the Resale Price Method under Rule 10B(1)(b) of the Income-tax Rules, 1962, was the apt method for testing the arm's length nature of the transactions. The Tribunal held that rejection of the Resale Price Method and substitution of the Transactional Net Margin Method was not justified on the facts, and the adjustment could not survive.
Conclusion: The issue was decided in favour of the assessee; the Resale Price Method was held to be the most appropriate method and the transfer pricing adjustment was deleted.
Ratio Decidendi: Where imported finished goods are resold without value addition and reliable segmental gross profit data is available, the Resale Price Method is the most appropriate transfer pricing method for the trading segment.
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