TaxTMI 
TaxTMI 
2020 (1) TMI 128
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.... Enterprises ("AEs") which resulted in the enhancement of returned income of the Appellant by Rs. 25,811,607. 3. The Ld. AO/Ld. TPO erred on facts and in law in making an adjustment to the arm's length price of the Appellant's international transactions by : 3.1 Not accepting the analysis conducted in the TP documentation maintained by the Assessee as per section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ("Rules") without appreciating that none of the conditions given under section 92C (3) have been satisfied. 3.2 Rejecting the Resale Price Method adopted by the Assessee for the Trading business segment and instead applied Transactional Net Margin Method without ascribing valid and cogent reasoning for the same. 3.3 Applying inappropriate filters to select comparable companies for application of Transaction Net Margin Method. 3.4 Rejecting comparable companies selected by the Assessee in its TP documentation. 4. The Ld. AO/Ld. TPO/Ld. DRP erred in making an adjustment to the entire income of the Appellant and by not confining the addition to the international transactions as mandated by law. 5. AO/Ld.TPO/Ld.DRP erred in adopting different....
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.... 8 16.45% 14.89% 38.29% 5. However, ld. TPO, after rejecting RPM applied by the taxpayer for benchmarking the international transactions qua trading segment applied TNMM, rejected 6 of the comparables out of 8 comparables chosen by the taxpayer and introduced 4 new comparables on the basis of modified filters applied by using current year's data only. Ld. TPO selected 6 comparables with average of 13.84% which are as under :- Name of the Company OP/Sales (%) Kant & Company 19.97 Manak Overseas Ltd. 12.69 MKJ Enterprises Ltd. 37.90 Modern India 9.29 Bhagwandas Metals Ltd. 0.83 SKM Steels Ltd. 8.33 Average 13.84 6. Ld. TPO proceeded to compute the arm's length value of the international transactions entered into by the taxpayer with its AE as under :- Sales 226,261,335 Arms length margin 13.84 Operating Profit a ALP 31,314,569 Operating profit of assessee 16,715,901 Adjustment u/s 92CA 48,030,470 7. The taxpayer carried the matter before the ld. DRP by way of filing objections, who has upheld the order proposed by the Ld. TPO but directed to correct the margin computation in case of one comparable and excluded two comparables chosen b....
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....ound that financial data is not available in the public domain in case of business of a distributor, RPM is rejected and TNMM is considered as the MAM; that there are certain third party expenses made by the taxpayer as per profit & loss account like salaries and wages, travelling and conveyance, freight outward expenses which are directed connected with the selling and distribution functions which have not been considered by the taxpayer in its own case nor in case of comparables for comparability. 14. On the other hand, it is the categoric case of the taxpayer that since it is engaged in procurement of aluminum goods e.g. fasteners, sheets, extrusions, etc. from its AE for resale to independent parties without any value addition, RPM is the MAM for the said transactions of import of goods as per Rule 10B and 10C of the Income-tax Rules, 1962 (for short 'the Rules'). 15. Ld. AR for the taxpayer by relying upon the OECD Guidelines also contended that if the cost structure of the company is such that costs are affecting net profit directly without affecting the price or gross margin, then RPM is the MAM as against TNMM. Because taxpayer is a newly established company whereas compa....
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.... MAM in case of a trader who purchases and sells the goods in case of M/s. Luxottica India Eyewear Pvt. Ltd. (supra), which has been affirmed by the Hon'ble High Court in ITA 852/2015 by returning following findings :- "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. (i) In the case of Star Diamond Group NV Mumbai (ITA No.3923/Mum/2008), it is held as follows: "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....
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....riate 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 assessee imports equipment from its AE and resells them without any val....
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....o the facts of the instant case, we find that the assessee purchased Crystal goods and Crystal components from its AE. No value addition was made to such imports. The goods were sold as such. In the given circumstances, the RPM is the most appropriate method for determining the ALP of the international transaction of Import of Crystal goods and Crystal components." 20. Coordinate Bench of the Tribunal in case of Oriflame India Pvt. Ltd. vs. ACIT (TS-673-ITAT-2017 (Del.)-TP) also held the RPM as the MAM as compared to TNMM in case of purchasing and reselling the same goods without any value addition by returning following findings :- "The ld. AR took up another argument to the effect that the Transactional Net Margin Method (TNMM) should be considered as the most appropriate method instead of the RPM We are disinclined to accept this contention for more than one reasons. Firstly, the assessee is engaged in purchasing and reselling the same goods without any value addition, and as such, the RPM is the most appropriate method in such circumstances. Secondly, the Tribunal in earlier years has upheld the RPM as the most appropriate method. In the absence of any change in the fact....