TaxTMI 
TaxTMI 
2017 (8) TMI 944
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.... Indian subsidiary of Akzo Noble Coatings International, B.V. The assessee is engaged in the business of distribution and sale of car paints and refinishes and also undertakes contract research and development for the Akzo group. The assessee reported five international transactions in Form No.3CEB. The Assessing Officer referred the matter of determination of ALP of the international transactions to the Transfer Pricing Officer (TPO). The extant dispute relates to the deletion of transfer pricing addition made by the AO from the international transaction of 'Purchase of finished goods' with transacted value of Rs. 5,17,19,544/-. The assessee applied Resale Price Method (RPM) with Profit level indicator (PLI) of Gross profit/Sales for demonstrating that its international transaction of 'Purchase of finished goods' for resale was at arm's length price. The assessee computed its own gross profit margin from sales at 37%. Two companies were chosen as comparable, namely, Mafatlal Dyes and Chemicals Ltd. and Vipul Dyes and Chemicals Ltd.. Their mean margin on the basis of figures for the preceding year, namely, year ending 31.03.2002 was worked out at 18%. That is how, the assessee clai....
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....ransfer pricing adjustment from the international transaction of 'Purchase of finished goods' got deleted. The Revenue is aggrieved against such deletion of addition. 5. We have heard the rival submissions and perused the relevant material on record. There are basically two larger issues requiring adjudication at our end. First is the selection of most appropriate method and the second is about comparables. We will espouse these issues one by one for consideration and decision. Whether RPM is the most appropriate method ? 6. Whereas the assessee chose the RPM, the TPO rejected the same and treated the TNMM as the most appropriate method. However, the ld. CIT(A) restored the assessee's point of view of the RPM as the most appropriate method. The Revenue's contention is that the TNMM should be applied for benchmarking the international transaction of 'Purchase of finished goods'. In order to analyse the most appropriate method in the given facts and circumstances, it is necessary to note that the assessee purchased finished goods from its AE under this segment and then resold the same to the customers in India. On a specific query, it was submitted that the assessee did not carry ....
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....the amount of expenses incurred by the enterprise in connection with the purchase of goods. The price so arrived at is adjusted to take into account differences, if any, under sub-clause (iv) and the adjusted price is taken as arm's length price in respect of property purchased. It is apparent from the nomenclature of the method, that is, 'Resale price method' and the modus operandi given in Rule 10B(1)(b) that where the goods purchased by an enterprise are resold as such, without making any value addition, the RPM is the most appropriate method as it specifically deals with the situations of resale of the goods purchased by an enterprise from its AE. In contrast to that, the TNMM is a method of last resort. When none of the specified methods out of the given methods in section 92C(1) can be applied, then, the TNMM is applied for determining the ALP of an international transaction. As the assessee in the instant case is directly engaged in reselling the goods, in our considered opinion, the RPM is the most appropriate method in the given circumstances. The same is directed to be applied for benchmarking the international transaction of 'Purchase of finished goods'. Comparables 8....
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....pposite. Insofar as identifying comparable transactions/entities is concerned, the same would not differ irrespective of the transfer pricing method adopted. In other words, the comparable transactions/entities must be selected on the basis of similarity with the controlled transaction/entity. Comparability of controlled and uncontrolled transactions has to be judged, inter alia, with reference to comparability factors as indicated under rule 10B(2) of the Income Tax Rules, 1962. Comparability analysis by TNMM method may be less sensitive to certain dissimilarities between the tested party and the comparables. However, that cannot be the consideration for diluting the standards of selecting comparable transactions/entities.' It is apparent from the above that there is no compromise on the functional similarity even under the TNMM. Thus the contention of the ld. DR in this regard does not hold water. 10. Now we take up the companies for consideration chosen by the TPO, which were excluded by the ld. CIT(A). Page 20 of the impugned order discusses the nature of business carried out by these companies, which is admittedly, 'Manufacturing'. In that view of the matter, it becomes manif....
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.... fresh set of comparables after due opportunity to the assessee and then determining the ALP of the international transaction of purchase of goods. Before parting, we deem it pertinent to mention that it transpired during the course of hearing that in addition to the sale of goods imported from its AE, the assessee also sold some similar goods purchased from unrelated parties. The TPO, if considered expedient, may also explore the possibility of finding internal comparables provided they are really comparable. 12. The next ground is against the deletion of addition of Rs. 33,25,517/- on account of business promotion expenses. The facts apropos this issue are that the assessee claimed deduction of Rs. 66,51,033/- on account of business promotion expenses. The Assessing Officer observed that such expenses led to enhancement of value of brand owned by the parent company. He, therefore, disallowed 50% of the expenses amounting to Rs. 33,25,517/-. The ld. CIT(A) deleted the addition. 13. We have gone through the relevant material on record and find the details of 'Business promotion expenses' at page 462 of the paper book, as under :- Details of Business Promotion Expenses Amount (....
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....he Special Bench of the Tribunal in DCIT vs. Data Craft India Ltd. (2010) 133 TTJ (Mum) (SB) 377. In view of the above decisions, it is clear that the items of computer peripherals, which work in tandem with computers, can be rightly classified as computer for the purpose of granting depreciation at the enhanced rate. The items taken note of by the Assessing Officer for not granting higher rate of depreciation are UPS and Printers. These items do not have any stand alone application without computers. Going by the ratio decidendi of the above decisions, we hold that these items are also eligible for depreciation @ 60%. The addition thus made is held to be rightly deleted. 17. The last ground of this appeal is against deletion of addition of Rs. 60,17,801/-, being the amount of testing material purchased. The assessee considered this amount as a revenue expenditure. The Assessing Officer treated it as an expenditure of capital nature and, hence, disallowed. The ld. CIT(A) overturned the action of the Assessing Officer. 18. After considering the rival submissions and perusing the relevant material on record, we find that this expenditure includes cost of empty tins, test cards, col....
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....2005-06 25. Ground Nos.1 and 2 of the Revenue's appeal are directed against the rejection of the TNMM as the most appropriate method and upholding the RPM for determining the ALP of the international transaction of 'Purchase of goods'. For this year, again, it is seen that the assessee applied the RPM as the most appropriate method for indicating that the international transaction of 'Purchase of finished goods' was at ALP. The TPO applied TNMM. Taking a different view from the preceding year, the ld. CIT(A) upheld the application of RPM as the most appropriate method for this year. As the nature of international transaction continues to remain the same, we approve the application of the RPM as the most appropriate method. 26. As regards comparables, both the sides fairly conceded that none of the comparables chosen either by the assessee or by the TPO is functionally similar with the assessee and it was requested that the matter may be examined afresh by the TPO for selecting fresh comparables. Following the view taken for earlier years, we set aside the impugned order on this score and remit the matter to the file of Assessing Officer/TPO for choosing fresh comparables (extern....