TaxTMI 
TaxTMI 
2026 (7) TMI 133
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....of import of goods from Associated Enterprises (AE). 4. We have heard the rival submissions and perused the material available on record. The assessee is engaged in the production and sale of alcoholic beverages in India. The return of income for AY 2011-12 was filed by the assessee company on 30.11.2011, declaring total income of Rs. 54,02,95,256. During the year under consideration, the assessee entered into international transaction with Associated Enterprises with respect to import of finished goods from its AE for resale in India. The assessee has got manufacturing segment, distribution segment and provision of services segment. The dispute prevailing in this appeal is only with regard to distribution segment in respect of import of finished goods from its AE. The share of distribution segment is 3.56 % of total turnover of the company. 5. The assessee has entered into a distributorship agreement with Beam Group entities and undertaken the business activities of distribution of the Bottle-in-origin (BIO) products which are imported from Beam Group Entities in India. The assessee also provides need based marketing support services to Beam Group Entity in order to promote ....
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....to 3rd party customers. We find there is absolutely no value addition made in this regard to the product. During the year under consideration, the assessee had incurred substantial advertising, sales and marketing expenses in a bid to establish itself in the local market. The traded goods were purchased by the assessee from its AEs on principal to principal basis and resold to customers without undertaking any value addition or any sort of processing whatsoever to the traded goods. There is no evidence brought on record by the revenue to prove that any physical alteration to the traded goods have been done by the assessee or the assessee had employed any intangible assets to add some economic value to the traded goods. In these circumstances, the assessee could be construed only as a mere routine distributor. Hence, in our considered opinion, resale price method adopted by the assessee should be the most appropriate method for benchmarking the international transaction of import of finished goods. The assessee assumed all the routine risks associated with its local business operation. From the FAR (i.e functions performed, assets employed and risks assumed) analysis of the assessee....
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....ocument 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 p....
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....ilarly, 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 pr....
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....n 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 marketing ....