TaxTMI 
TaxTMI 
2019 (1) TMI 879
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....ed by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- "1. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 55 ['Ld. CIT(A)'] erred in confirming the adjustment of Rs. 5,87,35,794/- made by the Learned Deputy. Commissioner of Income-Tax Circle -8(1), ('Ld. AO') towards the international transaction of import of finished goods for resale. The Appellant prays that the aforesaid adjustment be deleted. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in making a disallowance of Rs. 1,05,53,740/- by applying the provisions of section 4o(a)(ia) of the Income Tax Act , 1961 ('the Act') being charges paid for processing of credit card transactions on the alleged ground that the Appellant was liable to deduct tax at source on such amount as per provision of section 194 H of the Act. 3. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in making a disallowance of Rs. 95,75,838/- applying the provision of section 40(a)(ia) ....
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....(RPM) and Profit Level Indicator(PLI) was Gross Profit/Sales(GP/Sales). The assessee selected itself as tested party and eleven comparables were identified by assessee with PLI of 24.87% , while assessee own PLI was 58.01% and thus, it was concluded by the assessee in its TP study report that international transaction entered into by the assessee are at Arms Length Price. The assessee had submitted before TPO that it is reseller of products and does not add substantial value to the goods by physically altering them. The assessee submitted before the TPO that the RPM measures the value of functions performed and is ordinarily appropriate in cases involving the purchase and resale of tangible goods/services in which the buyer/seller does not add substantial value to the goods by physically altering them. Thus, the assessee pleaded before the TPO that the RPM should be considered as the most appropriate method(MAM) in case of the assessee. 5. The TPO after going through the contentions of the assessee held that Transactional Net Margin Method(TNMM) is the most appropriate method to compute ALP and to benchmark the international transaction entered into by the assessee with its AE. ....
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.... However, after taking note of the appellant's submissions, the TPO did not agree with the appellant's submission and as per the details assigned in para 6.5 of the TPO's order dated 15.01.2014, the TPO determined the ALP of Rs. 5,87,35,794/- Having taken note to the TPO's order, 1 find that the TPO has assigned very valid reasons for working out the aforesaid adjustment in determining the total arm's length price in relation to the international transactions entered into by the appellant company with its Associated Enterprise. 5. I have considered the AO/TPO's order as well as the appellant A.R's submission. I find that similar issue has been adjudicated in the appellant's own case for A.Y.2008-09 wherein the CIT(A)-15, Mumbai as per detailed discussion made in para 4.3 has assigned detailed reasons for adjudication therein vide CIT(A)'s order No.CIT(A)-15/Arr.204/JCIT(OSD) 8(1)/13-14 dated 21.10 2013. Even I find that similar issue was also adjudicated by DRP in the appellant's own case in A.Y.2009-10 which was decided against the appellant vide its order dated 31.10.2013. Having perused my predecessor CIT(A)'s order and the re....
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....o. 158/Mum/2014 for AY 2008-09 and ITA no. 1762/Mum/2014 for AY 2009-10 , vide common orders dated 17.01.2017 , wherein tribunal held as under:- "10. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. As could be seen from the transfer pricing order as well as the facts materials on record, there is no dispute to the fact that the assessee is a reseller of finished goods, in the duty free shops set up at the Delhi Airport. It is also accepted that the products sold by the assessee such as liquor, perfumes, confectionary, tobacco, etc., are purchased from A.Es and sold to customers without any value addition or material change to such products. It is a fact that the assessee had bench marked the international transaction relating to purchase of finished goods from A.Es by adopting RPM. However, the Transfer Pricing Officer has rejected RPM primarily on the ground that gross profit computation of comparables was not produced by the assessee. He had also stated that the gross profit margin of the products sold by the assessee cannot be compared with gross profit margin of the products sold ....
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....carrying out comparability analysis but operational comparability is to be seen. The Bench observed, gross profit margin earned by the independent enterprise in comparable uncontrolled transaction will serve as a guiding factor which is also the case in case of a distributor wherein property and service purchased from the A.E. are resold to other independent entities without any value addition. Thus, it was concluded by the Bench that in such case of purchase and resale of finished products without any value addition RPM, is the best method to evaluate the arm's length price of the transactions. In case of Luxottica India Eyeware Pvt. Ltd. (supra), the Tribunal, Delhi Bench, following a number of other decisions held as under:- "10.2. Coming to the argument that the assessee himself has adopted TNMM as the MAM for its transfer pricing study and hence it cannot turn around and argue for adoption of RSPM as the MAM, we find that the Mumbai Bench of the Tribunal in the case of Mattel Toys(I) Pvt.Ltd. in ITA no.2476/Mum/2008 held as follows. "41. Now coming to the argument of the Ld. DR that once the assessee itself has chosen TNMM as the MAM in TPR, then it canno....
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....he assessee is a trader, without value addition to the goods, we find force in the submissions of the assessee that resale price method is the most appropriate method for determining the ALV with respect to AE transaction. In fact, the Revenue has accepted this method in earlier two years. The TPO in his order dt. 7.3.2005 for the AY 2002-03 and order dt. 20.3.2006 for the AY 2003-04, has agreed with the computation of arm's length price made by the assessee under the resale price method." (ii) In the case of L'Oreal India P. Ltd. vs. ITO (ITA no.5423/Mum/2009) it is held as follows: "19. During the course of hearing, ld. DR also supported the method considered by TPO and referred to Para 2.29 of OECD price guidelines 2010 as stated hereinabove. On the other hand, ld.AR justified the RPM method adopted by it and also referred to order of TPO in the preceding AY as well as succeeding AY to the AY under consideration to substantiate that RPM is the most appropriate method to determine ALP. He submitted that the assessee made adjustment for marketing and selling expenses to the profits to make it comparable to the comparable companies' profits. We agree with the Ld.CIT(A) tha....
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....application of appropriate method as commission payment; (iv) Frigoglass India P.Ltd. (ITA no.463/Del/2013), it is held as follows: "We have heard the rival contentions and perused the material available on record. In our considered view, once assessee has given a methodology for working of ALP on selection of a particular method supported by appropriate comparables, the working can be dislodged by TPO on the basis of cogent reasons and objective findings. In this case except theoretical assertions and generalized observations, no objective findings have been given to come to a reasoned conclusion that assessee's adoption of CPM for manufacturing segment and RPM for trading segment was Factually and objectively not correct. Thus the rejection of methods by TPO as adopted by assessee is bereft of any cogency and objectivity. The same is a work of guessing and conjectured. Similarly the TNMM method applied by the TPO suffers from the same inherent aberrations as mentioned above. In these circumstances we are of the view that Assessee's methods of CPM and RPM respectively worked by applying appropriate comparables is to be upheld. Thus the ALP working returne....
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....ng the decision in case of Luxottica India Eyeware Pvt. Ltd. (supra) held as under:- "44. On a perusal of the extracted portion from the order of the Coordinate Bench, it is very much clear that after considering a number of decisions on the very same issue from different Benches of the ITAT, it was held that in case of transactions related to purchase and sale of goods, RPM is the most appropriate method. The principles laid down by the Delhi Bench clearly applies to the facts of the present case not only because the assessee is involved purely in trading activity, but also in the TP study assessee has adopted RPM as the most appropriate method. Only because in the preceding assessment year for some reason assessee has not challenged the decision of DRP in upholding application of TNMM, assessee cannot be prevented from objecting to adoption of TNMM in the impugned assessment year. In view of the aforesaid, we remit the matter back to the file of the AO/TPO to examine assessee's analysis under the RPM and decide the issue accordingly after due opportunity of being heard to the assessee." 13. At this stage, it is necessary to observe, the Transfer Pricing Officer ....
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.... is not an issue arising out of the order of the Transfer Pricing Officer or learned Commissioner (Appeals). It is open for the parties concerned to dwell upon all the issues while determining the arm's length price of the international transaction with the A.E. The grounds raised are allowed for statistical purposes. 15. We must make it clear that the Assessing Officer / Transfer Pricing Officer should afford adequate opportunity of hearing to the assessee and then decide the issue after considering the submissions of the assessee and keeping in view the judicial precedents which may be relied upon by the assessee. 16. In the result, appeal for A.Y. 2008-09 is allowed for statistical purposes." It was submitted by learned counsel for the assessee that in nutshell the tribunal accepted the Resale Price method(RPM) as the most appropriate method(MAM) adopted by the assessee and TNMM was rejected by tribunal while adjudicating the appeal of the assessee for AY 2008-09 and 2009-10 in assessee's own case and the matter was set aside to the file of the AO to re-compute ALP after considering RPM method. 8. The Ld. DR on the other hand placed reliance on the ap....
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....national transaction entered into by the assessee with its AE. The TPO selected its own comparables and finally it led to the additions to the tune of Rs. 5,87,35,794/- to the income of the assessee by way of TP adjustment by the AO while passing assessment order, and the appeal against assessment order stood dismissed by learned CIT(A) The learned CIT(A) while dismissing appeal of the assessee relied upon the appellate order passed by its predecessor for AY 2008-09. The assessee has claimed that it has not added any substantial value to the goods imported from its AE. We have observed that the said issue was adjudicated by the tribunal for AY 2008-09 and 2009-10 in ITA no. 158/Mum/2014 and 1762/Mum/2014 for AY 2008-09 and 2009-10 respectively , vide common orders dated 17.01.2017 wherein the tribunal has accepted the resale price method(RPM) as adopted by assessee for computation of ALP of the international transaction of import of finished goods entered into by the assessee with its AE i.e. Alpha Group of entities. The tribunal set aside the matter to the file of AO/TPO in the aforesaid common order dated 17.01.2017 for AY 2008-09 and 2009-10 respectively in assessee's own case, ....
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....mination of arm's length price under RPM is applicable to a case where the price at which property purchased or service obtained by the enterprise from the A.E. is resold or is provided to an unrelated enterprise. The gross profit margin in respect of such a transaction is thereafter compared to the gross profit margin of similar comparable uncontrolled transactions and after making necessary adjustment with regard to expenditure incurred, functionally and other differences the arm's length price is determined. Thus, when there is no dispute to the fact that the assessee is purchasing finished products from the A.Es for the purpose of reselling to unrelated parties without any value addition, under normal circumstances, the most appropriate method to bench mark the arm's length price of such transaction in terms of 10B is RPM. The Tribunal, Mumbai Bench, in Mattel Toys India Pvt. Ltd. (supra), after analyzing the applicability of most appropriate method in respect of such kind of international transactions has observed, under RPM product similarity is not a vital aspect for carrying out comparability analysis but operational comparability is to be seen. The Bench observ....
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....n such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate ALP on the facts of the case. Accordingly, we reject the contentions of the Ld.DR and also the observations of the AO and the Ld.CIT(A) that the assessee cannot resort to adoption of RPM method instead of TNMM." 10.3 The case of the assessee is much better than the case of M/s Mattel Toys (I) Pvt.Ltd. (supra) for the reason that the assessee in its transfer pricing report has also used RSPM as the MAM. Hence this argument of the Revenue is rejected. 10.4. As the undisputed fact is that the functional profile of the assessee is that of a trader and as the characterisation of the transaction is purchase and sale of goods, we hold that RSPM is the MAM by applying the following decisions of the Co-Ordinate Bench of the Tribunal. " "13. This finding in our humble opinion is wrong for the reason that the CIT(A) has adopted these very comparables, along with three others while arriving at the operating margins at Para 7.16 of his order. As the assessee is a trader, without value addition to the goods, we find force in the submissions of....
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....putation of margins of the assessee, non consideration of supplementary transaction and denial of adequate opportunity of being heard to the assessee by the authorities below as well as their failure to examine the contentions and arguments of the assessee in this regard. Considering these grievances as discussed herein above by us in the arguments advanced by the parties/their submissions and having gone through the decision relied upon, we find substance in the submission of the assessee and thus we are of the view that it is a fit case to set aside the matter to the file of the Ld.TPO for his fresh consideration and decide the issue afresh after affording opportunity of being heard to the assessee and discussing their submissions in the order and reasons, if any, for not agreeing or agreeing with them. It is ordered accordingly with direction to the Ld.TPO to: a) first examine as to whether, was there any value addition on imported goods, and if answer is in negative then apply RPM as a most appropriate method for trading transactions of imported goods and in consequence examine the application of appropriate method as commission payment; (iv) Frigoglass India P.Ltd. (I....
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....ading activity of comparables identified by the TPO at 12.90%. The GP as a percentage of sales of the assessee is at 35.6% which is much above the percentage of comparables identified by the TPO. In such circumstances, we are of the view that no adjustment could be made by way of ALP. We, therefore, accept the alternative plea of the assessee and delete the addition made by the AO. In view of the above conclusion, we are not going into the other issues on merits raised by the assessee on the approach adopted by the TPO in arriving at the ALP.Thus, ground Nos. 2 to 7 are allowed. 10.5 In view of the above discussion, we direct the TPO to adopt RPM as the MAM in this case." 12. The aforesaid decision of the Tribunal, Delhi Bench, was challenged before the Hon'ble Delhi High Court by the Department. However, the High Court dismissed the appeal of the Revenue on the issue of acceptance of RPM selected by the assessee over TNMM applied by the Department. It is further necessary to observed, in case of OSI Systems Pvt. Ltd. (supra), the Tribunal, Hyderabad Bench, following the decision in case of Luxottica India Eyeware Pvt. Ltd. (supra) held as under:- "44....
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....ch marking the arm's length price under TNMM. 14. As we have stated earlier, in case of international transaction relating to purchase of goods from A.E. and resale to unrelated parties, RPM is the most appropriate method. Therefore, in our considered opinion, the Assessing Officer / Transfer Pricing Officer must examine assessee's bench marking under RPM in an objective manner. If the Assessing Officer / Transfer Pricing Officer are of the view that necessary / relevant data relating to gross profit margin of the comparables selected by the assessee are not available, it is open for the Assessing Officer / Transfer Pricing Officer to call for necessary / relevant materials from the assessee or else the Assessing Officer / Transfer Pricing Officer is free to independently proceed for selection of comparables under RPM after obtaining necessary information. As far as the contention of the learned Departmental Representative in relation to the issue whether license fee / addition license fee should form the cost based, in our view, it does not merit consideration at this stage as this is not an issue arising out of the order of the Transfer Pricing Officer or learned Com....
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....ssee's own case and the tribunal was pleased , vide orders dated 17.01.2017 in ITA no. 1762/Mum/2014 for AY 2009-10, to delete the additions made on the grounds of non deduction of income-tax at source(TDS) u/s 194H on payments made to the banks towards credit card charges, by holding as under:- "25. We have considered the submissions of the parties and perused the material available on record. As far as payment to bank towards credit card charges is concerned, as per the decision relied upon by the learned Authorised Representative cited supra, provisions of section 194H are not applicable as the bank makes payments to the assessee after deducting certain fees and it is not a commission. In view of the aforesaid, no disallowance under section 40(a)(ia) can be made in respect of payments made to bank towards credit card charges. As far as the amount paid towards charges for conversion of forex into cash, we are of the view that the matter needs re-examination in view of assessee's submissions that there is no principal-agent relationship between the assessee and Thomas Cook, therefore, provisions of section 194H is not applicable. We have noticed, though, in the course of ....
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....rincipal-agent relationship between assessee and Thomas Cook India Ltd., and this issue of disallowance of conversion charges of foreign exchanged into cash by invoking provisions of Section 40(a)(ia) for non deduction of income-tax at source u/s 194H of the 1961 Act, was restored to the file of the AO for denovo determination of the issue by the AO , in an order passed by tribunal in assessee's own case with certain directions, by holding as under: "25. We have considered the submissions of the parties and perused the material available on record. As far as payment to bank towards credit card charges is concerned, as per the decision relied upon by the learned Authorised Representative cited supra, provisions of section 194H are not applicable as the bank makes payments to the assessee after deducting certain fees and it is not a commission. In view of the aforesaid, no disallowance under section 40(a)(ia) can be made in respect of payments made to bank towards credit card charges. As far as the amount paid towards charges for conversion of forex into cash, we are of the view that the matter needs re- examination in view of assessee's submissions that there is no principa....