TaxTMI 
TaxTMI 
2019 (1) TMI 879
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....d 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) of the Act being charges paid for collection and deposit of foreign excha....
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....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. While arriving at this decision, the TPO was also guided by the decision of Ld. CIT(A) for AY 2008-09 , wherein the Ld. CIT(A) vide appellate order dated 21.10.2013 has upheld the....
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....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 reasons assigned by him I find that the appellant's this issue /submission has been dealt by my predecessor CIT(A) very meticulously while rejecting the claim of the appellant. Therefore, I find that ....
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....terial 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 by the comparables as they are different in nature. In this context, it is to be noted that at the outset, the Transfer Pricing Officer had opined that the transaction of purchase of finished goods for resale was to be bench ma....
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....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 cannot resort to change its method at an assessment or appellate stage. In our opinion, such a contention cannot be upheld because if it is found on the facts of the case that a particular method will not result into proper determination of the ALP, the....
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....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) that there is no order of priority of methods to determine ALP. RPM is one of the standard method and OECD guidelines also states that in case of distribution and marketing activities when the goods are purchased from AEs which are sold to unrelated parties, RPM is the most appr....
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....ng 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 returned by the assessee is upheld. The Assessee's TP grounds are allowed." (v) Textronic India Pvt.Ltd. vs. DCIT (ITA no. 1334/Bang/2010), it is held as follows: "We have considered the rival submissions. The dispute is with regard to the ALP in respect of international transactions whereby the assess....
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....ions 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 has not made any genuine effort to find out whether bench marking can be done under RPM considering the fact that in these types of transactions, RPM is the best suited method. Instead of doing that the Transfer Pricing Officer had straight away proceeded to bench mark the transaction under TNMM. Further, it is necessary to observe, only when i....
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....hat 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 appellate order passed by Ld. CIT(A). 9. We have considered rival contentions and have perused the material on record including cited judicial orders. We have observed that the assessee company is in the business of retail trade and operation of duty free shops at airports in India. The assessee had entered into international transactions within the meaning of Section 9....
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.... 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, with certain direction as detailed here 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 so....
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....fferences 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 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'....
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....er 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 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 ....
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....t 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. (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'....
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....und 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. 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 becaus....
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.... 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 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 f....
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.... 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 the proceedings before the DRP, the assessee had submitted copies of agreement with bank as well as with Thomas Cook India Ltd., the authorities concerned have not properly examined the issue to ascertain the fact whether there is any principal-agent relationship between the assessee and Thomas Cook India Ltd. We, therefore, set aside the issue to the file of the Assessing Officer for fresh consideration after providing adequate opportunity of hearing to the assessee. Ground no.2, is allowed and ground no.3 is allowed for statistical purposes." We have observed that Ld. CIT(A) has followed the earlier years order fo....
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....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 the proceedings before the DRP, the assessee had submitted copies of agreement with bank as well as with Thomas Cook India Ltd., the authorities concerned have not properly examined the issue to ascertain the fact whether there is any principal-agent relationship between the assessee and Thomas Cook India Ltd. We, therefore, set aside the issue to the file of the Assessing Officer for fresh consideration after providing adequate opportunity of hearing to the assessee. Grou....