TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 996
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....ee to this Tribunal vide letter dated 04- 10-2022. Hence, this appellate order is passed in the name of the merged entity i.e. Panasonic Life Solutions India Private Limited. 3. The Ground Nos. 1 to 2.3. raised by the assessee are general in nature and does not require any specific adjudication. 4. With regard to the transfer pricing adjustment made in the Distribution Segment, the assessee has raised the following grounds:- "3. On the facts and circumstances of the case, and in law, the Ld. TPO as well as the Ld. DRP, erred in enhancing the income under the distribution segment with regard to purchase of traded goods from Associated Enterprises ('AEs'), excluding purchases made from Panasonic Holdings Corporation and SANYO Electric Co., Ltd., by INR 1,343,635,463 and in doing so have grossly erred in: 3.1. rejecting Resale Price Method (RPM') as adopted by the Appellant and applying Transactional Net Margin Method (TNMM') as the most appropriate method for benchmarking the international transaction; 3.2. disregarding the internal gross level comparison despite the Ld. TPO accepting that internal RPM is the more acceptable method in ....
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.... [i.e., from Original Design Manufacturer("ODM") / Original Equipment Manufacturer ("OEM")]and sells the same majorly to third-party customers in India, without performing any value addition to these products. The assessee purchased the traded goods from its AEs such as Camcorders, Airconditioners, LEDs, Telephones, Toughbooks, Projectors, Refrigerators and Washing Machines during the year under consideration Under this segment, the assessee merely performed functions akin to a pure trader / reseller of consumer electronic goods. These traded goods were purchased from its AEs on a principal to principal basis and resold to customers without undertaking any value addition or any sort of processing whatsoever to these traded goods. No intangible assets were employed to add value to these traded goods by the assessee. The assessee benchmarked the international transaction in its distribution segment by using Resale Price Method (RPM) as the Most Appropriate Method (MAM) by adopting the Profit Level Indicator (PLI) as GP /Sales. The assessee in its Transfer Pricing Study Report (TPSR) had stated that it assumes standard risks, employs normal assets and performs the function of trading ....
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....ution segment. Consequently, the Learned TPO passed an order dated 24-3-2021 to give effect to the directions of the Learned DRP by proposing an adjustment of Rs. 197,70,97,503/- in the distribution segment. The assessee filed a rectification application on 8-4-2021 before the Learned TPO seeking correction of the operating margin used for computation of the TP adjustment in the distribution segment. Subsequent reminders were also sent vide letters dated 21-4-2021, 8-6- 2023 and 25-6-2024. The Learned TPO however had not passed any order for rectification and the same is pending disposal. The Learned AO passed the final assessment order on 30-3-2021 by making a transfer pricing adjustment in the distribution segment of Rs. 197,70,97,503/-. Aggrieved, the assessee is in appeal before us. 4.4. For the TP adjustment pertaining to trading/ distribution segment, the assessee opted to file Mutual Agreement Procedure (MAP) application with respect to traded goods purchased by the assessee from its AEs present in Japan (i.e., Panasonic Holdings Corporation, Japan and SANYO Electric Co., Ltd.). Subsequently, Competent Authority of India and Japan agreed to resolve the dispute under MAP a....
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....ated enterprise, is identified; (ii) such resale price is reduced by the amount of a normal gross profit margin accruing to the enterprise or to an unrelated enterprise from the purchase and resale of the same or similar property or from obtaining and providing the same or similar services, in a comparable uncontrolled transaction, or a number of such transactions; (iii) the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services; (iv) the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause is taken to be an arm's length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise" On combined reading of the above....
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....nalysis relied upon by the Appellant in its TP documentation. The Ld. TPO and the Hon'ble Panel, while rejecting the RPM as the most appropriate method, erred in making flawed observations and not appreciating the established judicial precedents that support the applicability of RPM in the Company's case. In this regard, the observations made by the Ld. TPO in its order and the Appellant's rebuttals have been provided below: a. Ld. TPO's contention: The Appellant does not perform the functions of a pure reseller/ low risk distributor but is also performing additional activities like maintaining inventory, claiming depreciation on the tangible assets utilized while performing distribution activities, sales promotion activities, etc. Appellant's counter argument: In this regard, the Appellant would like to state that such functions are performed by the Appellant on its own account and it bears normal risk for the same. Further, such functions performed does not entail any value addition to the traded goods purchased by the Appellant from the AEs for resale to third parties in India. Therefore, since the Appellant being a routine distributor bearing routine ....
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....vt. Ltd. v. ACIT Circle 5(1) New Delhi [ITA No. 758/DEL/2017 & 7684/DEL/2017]: The Hon'ble Tribunal held that "incurring of high advertisement and marketing expenses by the assessee vis-à-vis the other comparable companies does not in any manner affect the determination of ALP under the RPM". Further, the decision of Hon'ble Tribunal was upheld by the Hon'ble High Court vide IT Appeal No. 471 of 2019. (Emphasis supplied) Drawing inference from the above, it can be concluded that RPM is the most appropriate method in the case of the Appellant who is engaged in performing functions in its capacity as routine/ normal distributor which does not add any value to the traded goods purchased by the Appellant from the AEs for resale to third parties in India and accordingly the contention of the Ld. TPO is not justified. b. Ld. TPO's contention: RPM cannot be applied as the Company is maintaining very high inventory. Appellant's counter argument: At the outset, it is submitted that the Ld. TPO has not provided any facts or justification to conclude that the Appellant was maintaining "very high inventory." Without prejudice to the same, the Company's inve....
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....ellant in the TP order. Accordingly, the Appellant submits that the above contentions presented by the Ld. TPO are not based on facts of the case and should not be considered. Without prejudice to the contention of the Appellant that the functional analysis stated by the Ld. TPO is different from the functional analysis captured in the TP documentation, it is respectfully submitted that even for a Company whose functional analysis is similar to the one stated by the Ld. TPO, RPM is the most appropriate method to benchmark the international transaction of purchase of traded goods. Reliance in this regard is placed on the judgment pronounced by the Hon'ble Tribunal in the case of Horiba India Pvt. Ltd. v. Dy.Commissioner of Income Tax Circle 11(1), New Delhi. [ITA No.-6638/Del/2015] wherein it was held that in a comparable uncontrolled transactions scenario, a normal distributor undertakes all kind of functions which are related to sales of the product and observed that functions like market research, sales and marketing, ware-housing, inventory control, quality control etc. and also risk like market risk, inventory risk, credit risk etc. all are undertaken by any distributo....
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....ecision of Delhi Tribunal in the case of Burberry India Pvt Ltd vs ACIT in ITA No. 7864/Del/2017 dated 22-06-2018 b) Decision of Hon'ble Delhi High Court in the case of PCIT vs Burberry India Pvt Ltd in ITA 471 of 2019 dated 24-10-2024 reported in 169 taxmann.com 6 c) Decision of Hon'ble Delhi High Court in the case of PCIT vs Fujitsu India P Ltd in ITA 34, 224 & 243 of 2019 dated 12-10-2023 dated 24-10-2024 reported in 156 taxmann.com 310 d) Decision of Hon'ble Delhi High Court in the case of PCIT vs Matrix Cellular International Services Pvt Ltd in ITA 484 of 2017 dated 22-11- 2017 e) Decision of Delhi Tribunal in the case of Nokia India (P) Ltd vs DCIT in ITA Nos. 178 & 242/Del/2010 dated 31-10-2014 reported in 153 ITD 508 f) Decision of Delhi Tribunal in the case of Horiba India Pvt Ltd vs DCIT in ITA No. 6638/Del/2015 dated 18-04-2017 g) Decision of Delhi Tribunal in the case of Swarovski India P Ltd vs ACIT in ITA 5496 and 5621 (Delhi) of 2014 dated 10-02-2017 h) Decision of Delhi Tribunal in the case of DCIT vs Tianjin Tianshi India P Ltd in ITA 2847 (Delhi) of 2014 dated 13-10-2017 i) Decision of Hon'bl....
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....is directly applicable to the facts of the instant case. The relevant operative portion of the said Tribunal order is as under:- "38. Thus, the RPM method identifies the price at which the product purchased from the A.E. is resold to a unrelated party. Such price is reduced by normal gross profit margin i.e., the gross profit margin accruing 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. Therefore, in such a situation, the nature of products has not much relevance, though their closer comparable may produce a better result. The focus is more on same or similar nature of properties or services rather than similarity of products. The main reason is that the product differentiation does not materially affect the gross profit margin as it represents gross compensation after the cost of sales for spe....
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....ed by an assessee when compared to earlier years, and in the earlier years, the MAM adopted by the assessee has been accepted consistently by the Learned TPO in scrutiny assessments, then there is no reason to take a divergent stand for the year under consideration alone. Hence even on the principle of consistency, the assessee is entitled for relief in the instant case. 4.10. In view of the aforesaid observations, we hold that considering the FAR analysis of the assessee, RPM has been rightly adopted by the assessee as the MAM. We find that even by using the comparables of the Learned TPO and RPM applied thereon, the assessee's margin is well within the range as worked out in the aforesaid table. Hence the assessee's margin is to be accepted to be at ALP in the instant case. Accordingly, the other arguments advanced by the Learned AR on the inclusion and exclusion of certain comparables, incorrect computation of assessee's operating margin under TNMM and incorrect inclusion of purchases from domestic AEs under TNMM need not be gone into as adjudication of the same would be academic in the facts and circumstances of the instant case and hence left open. Hence the Ground Nos. 3 t....
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....21 Price support for air conditioner parts Adjustment proposed Panasonic Procurement Malaysia Sdn Bhd 31,52,321 Price support for air conditioner parts Adjustment proposed Panasonic System Networks Co. Ltd. 1,22,61,052 Support for price protectionand recovery for replacement cost for product failure Adjustment proposed Total 8,65,39,181 5.2.1. A brief description of these expenses has been provided below: Price support for goods sold by the assessee in the Indian market and Project support for goods sold by the assessee in the Indian market Due to prevailing market conditions in India the assessee had to offer price support to its distributors so that the assessee's traded goods and manufactured goods are able to compete with the products offered by its competitors. In such cases, the AEs supported the assessee by funding these price support in line with the terms of agreement entered into between the assessee and AEs so that the assessee is able to create a market for its products in India. Such part of expenses was recovered by the assessee on a cost-to-cost basis without charging any markup as the assessee has rece....
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....s and perused the materials available on record. During the year under consideration, the assessee had reported an amount of Rs 3,08,85,89,347/- as support income in the audited financial statements. The break up of the same is as under:- Particulars Amount (in Rs) Support income received by the assessee from its international AEs-reported in the Form 3CEB 2,96,66,72,526 Domestic support income - not liable to be reported in Form 3CEB 12,19,16,821 Total 3,08,85,89,347 6.2. The break up of support income received by the assessee from its International AEs are as under:- Name of AE Amount (in INR) Panasonic Corporation, Japan 2,69,42,31,211 Panasonic Eco Solutions (Hong Kong) Co. Ltd. 92,97,235 Panasonic Systems Solutions Asia Pacific 2,36,56,530 Panasonic Industrial Devices Sales Asia 8,62,44,009 Panasonic Marketing Middle East & Africa Fze 41,410 Panasonic System Networks Co. Ltd. 1,44,91,293 Panasonic Welding Systems Co.Ltd. 1,66,62,062 Sanyo Electric Co. Ltd. 3,29,58,156 Panasonic Appliance Air-Conditioning 1,32,78,606 Panasonic Industrial Devices Automation Controls Sales Asia Pacific 7,....