TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 1696
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....the Transfer Pricing Officer (TPO) noticed that assessee has failed to furnish the justification and evidences for services received from its Associated Enterprise (AE). The TPO took the view that the services rendered by assessee are of routine nature that are given in the normal course of carrying on of business transactions. Accordingly, the TPO determined the Arm's Length Price (ALP) of the reimbursement of technical fee as NIL. The assessee had paid technical fee of Rs. 104.27 Lakhs and the TPO held that the ALP of the same is NIL. 4. In respect of the transactions of import of finished goods (men's wear) from its AE, the assessee had benchmarked the transaction under Transactional Net Margin Method (TNMM). The assessee initially adopted "cost + mark up" as PLI based on the single year data. The PLI of the comparable companies was arrived at 10.61%. The assessee was importing goods at cost + mark up of 9%. Accordingly, the assessee submitted that the difference falls within (+)/(-) 5% range and hence the transactions of import of goods are at arm's length. 4.1. The TPO noticed that the assessee has incurred loss during the year, i.e., the net margin was negative at (-) 8.2....
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.... as additional evidence and prayed the same may be admitted and the matter may be restored to the file of AO/TPO. The Ld D.R, however, objected to the same. 6.4. We have heard the parties and perused the material on record. Admittedly, the assessee did not furnish any document to show that the assessee has received any services from its AE. There should not be any dispute that the nature, quality and quantity of services rendered by a person would determine the quantum of payment to be made for rendering of such services. The purpose of determining ALP of a transaction is to find out as to whether similar kind of payments would have been made to an unrelated party for similar kind of services rendered. Hence the details relating to nature of services that were received by the assessee are, in our view, crucial for determining ALP. Hence we are of the view that the TPO has not questioned the genuineness of transactions. We also agree with the contentions of the Ld. DR that the copies of invoices received by the assessee from its AE would not demonstrate the details of services received by the assessee. From the order of TPO, we noticed that the assessee has given examples of servi....
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.... promotion expenses incurred by the assessee was huge and hence the net profit margin alone should be considered under TNMM method for determining ALP. He submitted that the Advertisement and Sales Promotion expenses do not increase the inherent value of the products. Further, the provisions of Rule 10B(1)(b) defines the Re-Sale Price Method and the said definition provides for computing "gross profit margin" in order to determine the ALP under Re-sale Price Method. He submitted that the advertisement and sales promotion expenses are not to be deducted for computing gross profit margin. Accordingly he submitted that the Ld. DRP was not justified in holding that the advertisement and sales promotion expenses should also be taken into account and accordingly holding that TNMM is the most appropriate method. Ld. AR relied on the host of the case law to support its contentions. 7.2. On the contrary, Ld. DR submitted that the advertisement and sales promotion expenses incurred by the assessee huge. He submitted that, since the assessee has incurred these expenses, it should have imported the goods at a lower rate than that the rate that should have been charged to an un-related party,....
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....se (iii) states that the result of subclause (ii) is further reduced by the expenses incurred in connection with the purchase of goods and sub-clause (iv) provides that the amount so deduced under sub-clause (iii) is adjusted on account of differences in the international transaction and comparable uncontrolled transactions which materially affect the amount of gross profit margin in the open market. Finally, sub-clause (v) provides that the adjusted price found under sub-clause (iv) is taken as arm's length price in respect of purchase of goods from the AE. When we consider the methodology given under RPM, more specifically sub-clauses (i) and (v), it becomes patent that sub-clause (i) refers to 'property purchased by the enterprise ... is resold ' and sub-clause (v) refers to 'arm's length price in respect of the purchase of the property ... by the enterprise '. A close scrutiny of the above two sub-clauses along with the remaining sub-clauses of rule 10B(1)(b) makes it clear beyond doubt that RPM is best suited for determining ALP of an international transaction in the nature of purchase of from an AE which are resold as such to unrelated parties. Ordinar....
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.... in a comparable controlled transaction on resale of same or similar property or services. The RPM is mostly applied in a situation in which the reseller purchases tangible property or obtain services from an A.E. and reseller does not physically alter the tangible goods and services or use any intangible assets to add substantial value to the property or services i.e., resale is made without any value addition having been made." 11. This view has also been affirmed by the Bombay High Court in its judgment dated 07.11.2014 in Commissioner of Income Tax v. L'Oreal India Pvt. Ltd. (ITA No. 1046 of 2012), where the Court found that there was no error in law committed by the ITAT when it held that RPM was the Most Appropriate Method in case of distribution or marketing activities especially when goods are purchased from associated entities and there are sales effected to unrelated parties without any further processing. In fact, a Division Bench of this Court in its decision in Bausch & Lomb Eyecare (India) Pvt. Ltd. v. Additional Commissioner of Income Tax, (2016) 381 ITR 227 (Del), while considering the decision of this Court in Sony Ericsson Mobile Communications India Pvt. L....