TaxTMI 
TaxTMI 
2016 (7) TMI 15
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....1 ('the Act'). In doing so, the Ld. DRP and consequently the Ld. AO (following the directions of the Ld. DRP) have grossly erred in enhancing the income of the Appellant by INR 3,265,301,3351- on account of the Transfer Pricing ('TP') adjustment u/s 92CA(3) of the Act made by the Ld. TPO by ; 1.1 ignoring the decision of Hon'ble Income Tax Appellate Tribunal ('ITAT') in the Appellant's own case (GAP Ruling 20 ITR (Trib) 779) for earlier years i.e. assessment years ('AY') 2006-07, AY 2007-08 ), AY 2008-09 (ITA 55/Del/2013), AY 2009-10 (ITA 692/De1/2014) and AY 2010-11 (ITA 577/Del/2015) by rejecting the cost plus compensation model of the Appellant; 1.2 disregarding the fact that Hon'ble ITA T has accepted the Functional, Asset and Risk profile ('FAR') of the Appellant to be that of a low risk procurement support service provider and thereby ignoring that the Appellant neither creates supply chain or human intangibles nor bear any significant risks with respect to its business operations; 1.3 ignoring the fact that Hon 'ble ITA T has blessed the business model of the Appellant by accepting the application of 'Cost Plus&#....
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....functions at the instance, behest and diktat of its AEs. 6. The Ld. DRP and consequently the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in misinterpreting the extensive documents filed by the Appellant and drawing vague inferences from the same. 7. The Ld. DRP and consequently the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in drawing an adverse inference in terms of Section 114 of the Indian Evidence Act and upholding that Appellant has failed to produce the best available evidence available with it. 8. The Ld. DRP and consequently the Ld. AO (following the directions of the Ld. DRP) has completely disregarded the relevant judicial pronouncements which upholds cost plus remuneration for procurement support service providers. 9. The Ld. DRP and consequently the Ld. AO (following the directions of the Ld. DRP) has grossly erred in stating that for the year under consideration, the facts of the Appellant have undergone a change whereas the facts are exactly the same as prior years. In doing so, the Ld. DRP and Ld. AO have not provided any documentary evidence to substantiate their claim. 10. The Ld. DRP and consequ....
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.... the time of hearing of this appeal." 3. Briefly stated the facts of this case are : GAP International Sourcing (India) Pvt. Ltd. is a wholly owned subsidiary of GIS Inc. and its business activities are to facilitate sourcing of apparel merchandise from India and as such, GAP India acts as a sourcing support services provider of GAP Group. Functions 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. During the year under assessment, assessee company entered into international transaction as under :- Nature of transaction Method Selected Total value of transaction (Rs.) Provision of sourcing support services TNMM 59,24,41,155 5. Assessee company in its transfer pricing study to benchmark international transaction used Transactional Net Margin Method (TNMM) as the most appropriate method with Operating Profit / Total Cost (OP/TC) as Profit Level Indicator (PLI) and worked out its OP/TC a....
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....ted six companies as comparables for TP adjustment of its international transaction and the set of comparables selected in TP study is as under :- S.No. Name of the company OP/TC 2 IDC (India) Limited 12.57 3 Quadrant Communication Ltd. 9.14 4 Empire Industries Ltd. (Trading & Indenting) 15.81 5 Entertainment Network (India) Ltd. (Consolidated) -0.3 6 Priya International Limited (Indenting) 29.2 13.28 10. Assessee, by using multiple year data, computed the mean margins of the comparable companies at 13.28% as against its own margin at 15.52% and treated its international transactions at arm's length. However, ld. TPO raised the objection against the use of multiple year data and allowed the assessee to update the margin by using latest data available. 11. The compensation model in this case is based on the cost on service rendered by the provider plus 15% which has not been accepted by the TPO, who has held that the correct compensation model at ALP in this case would be commission of FOB cost of the goods sourced from India by taking into consideration the factors inter alia that the assessee is owner of supply chain management intangib....
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....ctions as a facilitator only. So, now the profit margin of the assessee is in dispute only in this case. 13. However, the ld. DR, by relying upon the order passed by the TPO/DRP, contended inter alia that the remuneration model adopted by the ld. TPO is appropriate in view of the TP provisions as the cost base was not making valid compensation; that the TP adjustment has been made by the TPO keeping in view the creation of intangibles by the assessee company and location savings to its AEs; that GAP international, AE of the assessee company, has outsourced all its functions and as such, FAR of the taxpayer is the first and foremost to determine the compensation model. 14. However, to repel the argument addressed by the ld. DR, the ld. AR for the assessee simply relied upon the findings returned by the Tribunal in assessee's own case in ITA Nos.5147/Del/2011 and 228/Del/2012 (supra) and further contended that each and every point as to creation of intangibles, location savings, assessee having no human assets intangibles have been set at rest; that the assessee company has been performing normal and routine function and no intangibles are being created. 15. Ld. DRP while rejectin....
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....Study, updated margins of the comparables are as given below :- S. No. Name of the company OP/OC 1 Pantaloon Retail (India) Limited 8.01 2 Shoppers Stop Limited 7.54 3 Trent Limited -0.12 4 Jaypee Spintex Limited 5.88 AVERAGE 5.33 Accordingly, the arm's length price in your case is calculated as below :- Details Amount in INR Total FOB Value of exports 62,756,195,910 Arm's Length margin @ 5.33% 3,344,905,242 Margin shown by the assessee 79,603,907 Difference 3,265,301,335 The above shortfall of Rs. 326,53,01,335/- is being proposed as an adjustment to the profit shown by the taxpayer in its books of account." 19. Assessee company filed comprehensive reply dated 08.05.2015 raising objection to the TP adjustment made by the TPO by relying upon the decision rendered by ITAT, Delhi in assessee's own case for AYs 2006-07 and 2007-08. However, the ld. TPO without legally controverting the fact that the decisions rendered by ITAT in assessee's own case has not been challenged by the revenue, indulged in recording findings that, "the Hon'ble ITAT erred in completely disregarding the critical functions carried out by the assessee an....