TaxTMI 
TaxTMI 
2025 (12) TMI 737
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....action pertaining to import of finished goods. 4. We have heard the rival submissions and perused the materials available on record. The Assessee was incorporated on 12-12-2013 as a joint venture between Grupo Massimo Dutti S.A (Massimo Dutti Spain) and Trent, the retail arm of the Tata group. The Assessee is engaged in the fashion retail business and operates the "Massimo Dutti‟ chain of retail stores in India which sells garments, shoes and accessories. The Assessee is a "routine distributor‟ and assumes all routine risks associated with its local business operations and employs routine tangible assets. During the year under consideration, amongst others, the Assessee entered into an international transaction with respect to import of finished goods from its Associated Enterprise (AE) for resale in India. For benchmarking the impugned international transaction, the Assessee selected "Resale Price Method‟ (RPM) as the Most Appropriate Method (MAM) with Gross profit /Sales as the relevant Profit Level Indicator (PLI). The Assessee considered itself as the tested party. The tested party‟s margin was 45.65%. The Assessee selected few comparables which are e....
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....les period, market risk of the same is borne by the Assessee. Thus the Assessee operates on a relatively autonomous basis in India. b) Inventory management - Once the goods are imported into India the Assessee is responsible for warehousing / stocking the same in its retail outlets till they are sold to the customers in India. The Assessee bears the entire cost associated with warehousing of its products in India. c) Sales and marketing - The Assessee handles the local sales and distribution of its products in India. The Assessee is responsible for after sales service such as handling customer complaints and arranging product returns. d) Pricing - Based on its extensive knowledge of the local market, the Assessee is responsible for defining the prices offered to its customers together with its AEs in line with the group's pricing policy. Further the negotiations are possible based on varying regional and local market conditions such as market capacity, customer preferences, price responsiveness. 7. The Assessee being a reseller, procures 100 % of its inventory of finished goods from its AEs and then in turn resells those through retail stores run b....
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....t and also accepted the functional profile of the assessee as a routine distributor. Ld. DRP, however, recorded that the assessee has incurred substantial AMP, and other expenses, in relation to its turnover, and is therefore, not a simple distributor in terms of the requirement of using RPM Now we shall proceed to examine the law applicable these facts. 16. In Nokia India (P) Ltd. v. Dy. CIT[2014] 52 taxmann.com 492/153 ITD 508 (Delhi), the Delhi bench of the ITAT held that,- 9. Sub-clause (i) of clause (b) of Rule 10B(1) deals with identifying the price at which the goods purchased from an AE is resold. Sub-clause (ii) of clause (b) of Rule 10B(1) talks of reducing the amount of normal gross profit margin of comparable uncontrolled transactions from such resale price of the assessee. Sub-clause (iii) states that the result of sub-clause (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 (ii) is adjusted on account of differences in the international transaction and comparable uncontrolled transactions which materially affect the amount of gross profit ....
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....Similarly, in Swarovski India Pvt. Ltd. v. ACIT, IT'A No. 5621/Del/2014, the ITAT held: "Adverting to 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." 10. A similar view has been adopted by the Mumbai bench of the ITAT in Mattel Toys v. Deputy Commissioner of Income Tax, (2013) 158 TTJ (Mum) 461: 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....
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....d on behalf of the Revenue. The obvious reason for this is that the incurring of high advertisement and marketing expenses by the assessee vis-a-vis the other comparable companies does not in any manner affect the determination of ALP under the RPM. When we consider gross profit in numerator and net sales in denominator, all the expenses debited to the Profit & loss account automatically stand excluded. It is but natural that only those expenses can have bearing on the gross profit that are debited to the Trading account. As the amount of advertisement and marketing expenses falls below the line and finds its place in the Profit and loss account, the higher or lower spend on it cannot affect the amount of gross profit and the resultant ALP under the RPM. If the assessee has incurred more expenses on advertisement and promotion, which, in the opinion of the Id. DR went on to brand building for an AE, then, the transfer pricing adjustment on account of such AMP expenses was separately called for. Since the TPO has not made any separate adjustment on account of AMP expenses and has given effect to the same under TNMM, we hold that the incurring of such higher advertisement and marketi....