Resale price method prevails for routine distributors reselling imported goods without value addition, making TNMM substitution unsustainable.

For benchmarking import of finished goods from associated enterprises, the resale price method remained the proper method where the assessee acted as a routine distributor, resold the goods in India without physical alteration or value addition, and no use of intangibles to enhance product value was shown. Advertising or distribution expenditure did not change the character of the transaction for transfer pricing purposes. The transfer pricing adjustment based on substituting the transactional net margin method was therefore not sustainable, and the adjustment was deleted.

---

---

Issues: Whether the resale price method was the most appropriate method for benchmarking the assessee's international transaction of import of finished goods from its associated enterprises, and whether the transfer pricing adjustment made by applying the transactional net margin method was sustainable.

Analysis: The assessee imported finished goods and resold them in India without any physical alteration or other value addition. The record did not establish that the assessee used any intangible asset to enhance the product value. On the facts, the assessee functioned as a routine distributor, and the incurrence of advertising or distribution expenditure did not alter the character of the transaction for the purpose of benchmarking under the resale price method. In such a situation, the resale price method remained the proper method for determining the arm's length price, and the transfer pricing adjustment based on substitution of transactional net margin method could not be sustained.

Conclusion: The transfer pricing adjustment was deleted and the assessee succeeded on the ground challenging the method selection.

---