TaxTMI 
TaxTMI 
2018 (1) TMI 976
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....nt craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing." 3. The only grievance of the department in this appeal relates to the deletion of addition of Rs. 1,05,50,000/- on account of TP adjustment made by the AO, directed by the ld. CIT(A) to adopt RPM method as against TNMM method which was adopted by the AO/TPO. 4. Facts of the case in brief are that the assessee filed the return of income on 28.11.2013 declaring loss of Rs. 36,08,670/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny and the AO referred the case to the TPO to determine the arm's length price. The TPO observed that Schedule 9 of profit and loss accounts revealed that there were certain expenses like salaries, staff welfare, travelling & conveyance, freight outward, advertisement & publicity and octroi charges which were directly connected with the selling and distribution function. However, neither in the case of the assessee nor in the case of comparables, the same had been considered for comparability, therefore, the manner in which the RPM has been applied, had not given the true picture of the comparability analysis....
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....sidered agreement with this approach. In our considered view, the transaction profit methods should be applied only when standard or traditional methods are incapable of being properly applied on the facts of a case. While traditional methods seek to compute the prices at which international transactions would normally be entered into by the associated enterprise, but for their interdependence and relationship, transactional profit methods seek to compute the profits that the tested party would normally earn on such transactions with unrelated parties. It is only axiomatic that the profits earned by an enterprise is dependent on several factors, and not only on the prices at which transactions have been entered into with the associated enterprises. The profit based results thus admit possibility of vitiation of results by a number of factors which are not relevant to the determination of prices at which international transactions are entered into by the associated enterprises. These methods, which are a step removed from the methods of computing the prices at which independent transactions would normally take place in respect of the product or service, must therefore be put to serv....
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....te method which are as under: "A Selection of the most appropriate transfer pricing method to the circumstances of the case. 2.3 Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm's length. This is because any difference in the price of a controlled transaction from the price in a comparable uncontrolled transaction can normally be traced directly to the commercial and financial relations made or imposed between the enterprises, and the arm's length conditions can be established by directly substituting the price in the comparable uncontrolled transaction for the price of the controlled transaction. As a result, where, taking account of the criteria described at paragraph 2.2, a traditional transaction method and a transactional profit method can be applied in an equally reliable manner, the traditional transaction method is preferable to the transactional profit method. Moreover, where, taking account of the criteria described at paragraph 2.2, the comparable uncontrolled price method (CUP) and another transfer pricing met....
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....ade for the purchases also commonly referred to as cost of sales. In this regard, reference can also be drawn from Schedule VI of the Companies Act, 1956 which casts an obligation on companies to submit the quantitative information (quantity and value of purchases, opening stock, closing stock and sales) of each principal product traded by such companies. The relevant extract of Part II to Schedule VI of the Companies Act, 1956 has been reproduced below for your kind reference: "3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads; and in particular, shall disclose the following information in respect of the period covered by the account: (i)(a) The turnover, that is, the aggregate amount for which sales are affected by the company, giving the amount of sales in respect of each class of goods dealt with by the company, and indicating the quantities of such sales for each class separately. (b) In the case of trading companies, the purchases made and the opening and closing stocks, giving break-up in respect of each class of goods traded in by t....
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...., 2008-09 and 2009-10 had accepted the RPM as the most appropriate method and the facts for the year under consideration are similar to those assessment years, therefore, the ld. CIT(A) was fully justified in directing the AO/TPO to adopt RPM as the most appropriate method. It was further submitted that the issue under consideration is squarely covered by the decisions of the various benches of the ITAT and the Hon'ble Bombay High Court. The reliance was placed on the following case laws: CIT Vs L'Oreal India (P.) Ltd. (2015) 53 Taxmann.com 432 (Bom.) ITO Vs L'oreal India P. Ltd. in ITA No. 5423/Mum/2009, order dated 25.04.2012 DCIT Vs Delta Power Solution India P. Ltd. in ITA No. 3004/Del/2013, order dated 14.03.2016 8. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the TPO has accepted the RPM as the most appropriate method for the assessments 2005-06, 2008-09 and 2009-10, which is evident from the observation of the ld. CIT(A) in para 4.8 of the order dated 13.03.2013 for the assessment year 2007- 08 which read as under: ....