ITAT directs re-consideration of Arms Length Price using Resale Price Method

The ITAT Hyderabad allowed the assessee's appeal for statistical purposes, directing a re-consideration of the Arms Length Price determination using the Resale Price Method for the distribution function. This decision was based on consistency with a previous decision in the assessee's case for the assessment year 2011-12, where the RPM was considered the Most Appropriate Method.

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Issues:
The judgment involves the determination of the Arms Length Price (ALP) for international transactions with Associated Enterprises (AE) by the assessee, specifically focusing on the appropriate method for benchmarking such transactions.

Summary:
The appellate tribunal, ITAT Hyderabad, addressed the appeal filed by the assessee against the final assessment order for the assessment year 2012-13, following directions from the Dispute Resolution Panel, Bengaluru. The assessee, engaged in Software Development Services & Unified Data Storage Solutions, had entered into international transactions with its AE, leading to a transfer pricing adjustment by the Transfer Pricing Officer (TPO). The DRP enhanced the addition to the income of the assessee based on the earlier assessment year's transfer pricing adjustment.

The Tribunal had previously remanded the issue back to the Assessing Officer/TPO to conduct a fresh Transfer Pricing (TP) analysis by treating the disputed transaction as a distribution agreement. Subsequently, the TPO considered the transaction as a distribution transaction and adopted the Transactional Net Margin Method (TNMM) for benchmarking, resulting in a proposed adjustment.

The assessee contended that the Resale Price Method (RPM) should be applied as the most appropriate method, highlighting that goods provided by the parent company were distributed in the Indian market at a maximum gross margin. The Revenue argued against the RPM, stating that since the goods were received for free, there was no purchase for resale, making RPM unsuitable. The learned DR emphasized that the agreement constituted a service without a profit element or margin due to the absence of a purchase price.

In a detailed analysis, the Tribunal referred to a previous decision in the assessee's case for the assessment year 2011-12, where the Co-ordinate Bench restored the issue to consider RPM as the Most Appropriate Method (MAM). Following this precedent for consistency, the Tribunal allowed the appeal for statistical purposes, directing a re-consideration of the ALP determination using RPM for the distribution function.

In conclusion, the appeal of the assessee was treated as allowed for statistical purposes, maintaining consistency with the previous decision for the assessment year 2011-12.

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