TaxTMI 
TaxTMI 
2015 (11) TMI 788
X X X X Extracts X X X X
X X X X Extracts X X X X
....c. GAP India's primary business activity is to facilitate sourcing of apparel merchandise from India. Therefore, GAP India essentially acts as a sourcing support services provider for GAP Group. The key activities performed by GAP India include support to GAP Group in identification and evaluation of vendors, provision of assistance to vendors in procurement of raw material, provision of assistance to vendors in designing, inspection and quality control, and coordination with vendors to ensure delivery of goods to GAP Group as per schedule. 4. The international transactions entered into by the assessee company are tabulated below :- Nature of transaction Method Selected Total value of transaction (Rs.) Provision of sourcing support services TNMM 600,281,720 Cost allocation from GAP group 263,890,000 Cost recharges to GPA group CUP 684,164,000 5. In order to benchmark the international transactions TNMM has been used as the most appropriate method with OP /TC as the PLI. The margin of the assessee company has been worked out in Ann-H of TP Report as tabulated below: - Particulars Amount (In Rupees) Gross Receipts 600,2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mputing its total income. The assessee was afforded reasonable opportunity of being heard (including personal hearing) as mentioned in row no. 7 of page 1 of this order." 7. Pursuant to the said order of TPO, the AO passed draft assessment order, which was challenged by the assessee before the DRP without success, so the assessee is before us and the ld. AR filed the written submissions wherein it is submitted as under :- "3. The TPO had also relied upon the ruling of the Delhi Income Tax Appellate Tribunal in the case of Li & Fung India Private Limited (Li & Fung India), where based upon the facts of the said case, a commission based model was determined by the Hon'ble Tribunal. 4. When the matter reached the Hon'ble Tribunal in the appellant's case for the AY 2006-07 and 2007-08 (disposed by a consolidated order dated 18th September 2012 Refer pages 142 to 192 of Appeal set), the Hon'ble Tribunal was pleased to distinguish the case of Li & Fung and held that GIS India was entitled to a cost plus form of remuneration and not a commission based remuneration. However, the Hon'ble Tribunal enhanced the mark-up on the cost from 15%, as charged by the appellant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tional costs which is more than the 5% mark-up in case of Li & Fung India and even more than those of the comparable companies. 12. For the AY under consideration i.e. AY 2010-11, the TPO has adopted a similar commission based model as in earlier years (a commission of 6.50%(refer page 140 of appeal set for TPO's order) has been adopted by the TPO), as a result of which an adjustment of Rs. 382.32 crores has been inflicted upon the assessee, resulting in a total tax demand of Rs. 205.93 crores (alongwith interest). When the matter came up before the Dispute Resolution Panel (DRP), the assessee submitted that its case is squarely covered in favour by the decision of the Tribunal rendered in the assessee's own case for the earlier years as above. However, the DRP reiterated TPO's stand that the ITAT's decision in its own case was not final as the order has been challenged by the Department in the Hon'ble High court of Delhi and the appeal is pending. 13. During the AY 2010-11, the assessee benchmarked the transaction relating to provision of sourcing support services by considering the similar service providers earning mean margin(OP/TC) of 11.66% (Refer Pag....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tribunal has upheld the business model of the assessee and held as under :- "9.4 ..... iv. However, the facts in the appellant's case are different in as much as all the significant directions relating to procurement of goods from third party vendors in India, namely - (a) designs & trends of apparel; (b) quality parameters of materials: (c) terms & conditions for dealing with vendors, etc, are all provided by GAP US to the appellant through the voluminous vendor handbook & other correspondences which are placed on record and have not been controverted by the department. It emerges that assessee follows and executes them as a service provider. .... vi. Considering above we conclude that non risk bearing procurement facilitating functions which are preordained by contract and hand book, the appropriate PLI will be net profit / total cost and not the % of FOB value of goods sourced by AE. Accordingly, we uphold the net profit / total cost remuneration model adopted by the assessee. Having held so now we proceed to decide the percentage of markup to be applied to assessee's cost. 9.5 ..... (iii) In view of the foregoing we have no hesitation to accept a candid propo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mark-up of 32%, as adopted by the Tribunal in the appellant's own case for the earlier AYs, being the derived mark up on operational costs even with reference to the commission base model which was approved by the Tribunal in the case of Li & Fung India, which was prevalent at the material time, was prior to the order reversing the same by the Hon'ble Delhi High Court in December 2013. In the light of the said order of the Hon'ble Delhi High Court, the mark up on operational costs of the assessee i.e. 15.36% is conservative. 11. While reversing the order of the Tribunal in Li & Fung India Pvt. Ltd., the Hon'ble jurisdictional High Court held as follows :- "49. This court summarizes its conclusions as follows: (a) The broad basing of the profit determining denominator as the entire FOB value of the contracts entered into by the AE to determine the LFIL‟s ALP, as an "adjustment", is contrary to provisions of the Act and Rules; (b) The impugned order has not shown how, and to what extent, LIFIL bears "significant" risks, or that the AE enjoys such locational advantages, as to warrant rejection of the Transfer pricing exercise undertaken by LFIL; (c) Tax au....