AI Drafter 
TaxTMI 
TaxTMI 
2026 (4) TMI 1766
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....rprises (AEs) and sold in Indian market. The assessee has entered into following international transactions with its AEs:- No. Type of international transaction Method selected Total value of transaction (Rs.) MAM PLI i. Purchase of traded goods RPM GP/Sales 8,28,37,833 ii. Reimbursement of TDS on salary on overseas salary (received) CUP - 41,10,480 iii. Reimbursement of expenses CUP - 1,21,362 iv. Share capital money received No separate benchmarking - 12,00,00,000 3. Since the assessee has entered into international transactions with its AE, a reference was made for determination of Arm Length Price (ALP) of international transactions u/s 92CA of the Act. The assessee in its Transfer Pricing Study Report ("TPSR") worked out G.P./sales at 11.02% wherein the assessee has excluded the Import duty payment of INR 65,43,447/- being extraordinary item however, AO/TPO has included the same in the total cost and worked out the GP/sales at 3.42%. The assessee selected Resale Price Method (RPM) as Most Appropriate Method ("MAM") for working of the PLI and after taking Four comparable, has worked out the mean ma....
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....he arm's length adjustment to the Appellant's international transactions with Associated Enterprises ("AEs") by making a TP Adjustment of INR 49,85,462 in relating to purchase of traded goods; Import duty Adjustment 3. erred in ignoring the fact that the Appellant is engaged in importing and reselling the goods from AE in India, whereas the Comparable companies are procuring the goods locally. thereby Appellant ought to have been granted comparability adjustments on account of additional import duty borne by the Appellant vis-à-vis the comparable companies. Rejecting the benchmarking using Internal Comparable Uncontrolled Price (CUP) 4. erred in arbitrarily rejecting the alternate bench marking applying Internal CUP data submitted by the Appellant without providing any cogent reasons for the same; 5. erred in not granting comparability adjustments on account of for differences in working capital employed by the Appellant vis-à-vis the comparable companies, Initiation of penalty proceedings under Section 271(1)(c) of the Act 6. erred in initiating penalty proceedings under Section 271(1)(c) of the A....
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....; and (vi) NVH India Auto parts (P) Ltd. vs DCIT [2023] 156 taxmann.com 330 (Chennai-Trib.) 10. On the other hand, Ld.CIT DR for the Revenue vehemently supported the orders of lower authorities and submits that TPO has discussed this issue at length and observed that the Import duty is part and parcel of the cost of goods sold and cannot be considered as non-operating expenses. Ld. CIT DR submits that once the assessee has taken total cost which includes purchase cost, cost of conversion and other cost incurred to bring the inventory at current location it should include payment of Import duty. Ld. CIT DR submits that assessee is dealing in the products which are available in India and the assessee has taken conscious decision of import such goods from its AEs, therefore, the assessee has always kept the issue of payment of Import Duty in mind which effect its cost. He, therefore, prayed for the confirmation of the order of the lower authorities. Regarding the judgement of Swatch Group relied upon by assessee, ld. CIT DR submits that Swatch is a branded product and there cannot be difference between rate charged from the customers vis-à-vis rates charged from non....
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....ponent and thus, the payment of import duty was having very material impact between these comparables and the assessee. Therefore, necessary adjustment should be made with regard to the Import duty payment involved in the international transactions carried out by the assessee to make it comparable with the uncontrolled transactions. 14. The Co-ordinate Bench of Tribunal in the case of ACIT vs Swatch Group (India) Pvt. Ltd. in ITA No.2264/Del/2009 vide order dated 30.01.2020 as uphold the order of Ld.CIT(A) wherein Ld.CIT(A) has allowed the adjustment with respect to the custom duty paid which had material effect on the comparability. The relevant observations of the Co-ordinate Bench of Tribunal in para 27 to 30 are as under:- 27. "We have given thoughtful consideration to the orders of the authorities below. There is no dispute in so far as the application of the most appropriate method is concerned. The assessee has used Resale Price Method as the most appropriate method in bench marking its international transactions and the TPO has accepted the same. In our considered view, the entire quarrel revolves around the adjustment of custom duty given by the ld. CIT(A) in t....
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.... 16. Similar view is expressed by the Co-ordinate Bench of Delhi Tribunal in the case of Imsofer Manufacturing India (P.) Ltd. [2020] 121 taxmann.com 209 (Delhi-Trib.) wherein Co-ordinate Bench has held that provision of impairment of assets being not regular business expenditure should be excluded for the calculation of PLI. As observed above, in the instant case, the import duty payment is an item which has material impact between the comparable uncontrolled transactions and international transactions carried out by the assessee and thus, to make it comparable with the uncontrolled comparable transactions, necessary adjustment with respect to payment of import duty is inevitable and has to be made in accordance with Rule 10B(3) of I.T. Rules. In view of above facts and discussion, we direct AO/TPO to exclude the import duty payment from the total operating cost of the assessee and work out the PLI for computing the ALP, if any. Grounds of appeal No.3 & 4 raised by the assessee are thus, allowed. 17. Ground of appeal No.5 raised by the assessee is with respect to the allowability of working capital adjustment. 18. Heard the contentions of both the parties at length and per....