M/s. Alcoa India Private Limited, New Delhi V. ACIT, New Delhi

ITA 2719/DEL/2014

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0052 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 01-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA SENIOR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Set aside
• Section: 92C; 92D; 10B; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2719/DEL./2014 (ASSESSMENT YEAR : 2009-10) M/S. ALCOA INDIA PRIVATE LTD., VS. ACIT, CIRCLE 1 (1), 7 TH FLOOR, MERIDIAN COMMERCIAL TOWER, NEW DELHI. RAISINA ROAD, NEW DELHI. (PAN : AAFCA9777L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.C. SRIVASTAVA, ADVOCATE SHRI PARICHAY SOLANKI, CA SHRI MAYANK PATAWARI, CA REVENUE BY : SHRI SANJAY I. BARA, SENIOR DR DATE OF HEARING : 18.11.2019 DATE OF ORDER : 31.12.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER APPELLANT, M/S. ALCOA INDIA PRIVATE LTD., (HEREINA FTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.02.2014 PASSE D BY THE AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TP O UNDER SECTION 143 (3) QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTER ALIA THAT :- ITA NO.2719/DEL./2014 2 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER ('LD. AO') IS BAD IN LAW. 2. THE LD. AO/TRANSFER PRICING OFFICER ('TPO')I DISPUTE RESOLUTION PANEL ('DRP') ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DISTURBING THE ARM'S L ENGTH PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ('AES') WHICH RESULTED I N 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 T HE 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 UNDE R SECTION 92C (3) HAVE BEEN SATISFIED. 3.2 REJECTING THE RESALE PRICE METHOD ADOPTED BY T HE ASSESSEE FOR THE TRADING BUSINESS SEGMENT AND INSTE AD 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 WAYS OF COMPUTING THE PROFIT LEVEL INDICATORS OF TH E APPELLANT AND THE COMPARABLE COMPANIES BY ACCORDING ITA NO.2719/DEL./2014 3 DIFFERENT TREATMENT TO INVENTORY (WHICH WAS TREATED AS REVENUE ITEM FOR THE APPELLANT AND AS A COST ITEM F OR THE COMPARABLE COMPANIES. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. ALCOA INDIA PRIVATE LTD., THE TAXPAYER WAS ESTABLISHED IN 2006 AS AN INDIAN SUBSI DIARY OF THE ALCOA GROUP KNOWN AS ALUMINUM COMPANY OF AMERICA . THE TAXPAYER PROVIDES MARKET SUPPORT SERVICES TO ITS AS SOCIATED ENTERPRISES (AE). IT IS ALSO HAVING TRADING SEGMEN T THAT PROCURES GOODS FROM ITS AE FOR THE PURPOSE OF RESALE TO OTHE R PARTIES IN INDIA. THE TAXPAYER IS A SUBSIDIARY COMPANY OF ALO CA INTERNATIONAL HOLDING COMPANY, USA. DURING THE YEAR UNDER ASSESS MENT, THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS WI TH ITS AE AS UNDER:- NATURE OF TRANSACTION METHOD VALUE (INR) IMPORT OF GOODS RPM 174,911,076 PAYMENT OF ROYALTY CUP 1,353,527 BUSINESS AUXILIARY SERVICES TNMM 99,625,479 REIMBURSEMENT OF EXPENSES PAID 19,495,097 PAYMENT OF NETWORKING SUPPORT SERVICES & OTHER SERVICES CUP 4,088,935 3. THE PRESENT APPEAL FILED BY THE TAXPAYER IS PRIM ARILY TO CHALLENGE THE TRANSACTIONAL NET MARGIN METHOD (TNMM ) WITH OPERATING PROFIT / SALES (OP/SALES) AS PROFIT LEVEL INDICATOR (PLI) APPLIED BY THE TRANSFER PRICING OFFICER (TPO) TO BE NCHMARK ITS ITA NO.2719/DEL./2014 4 INTERNATIONAL TRANSACTIONS BY REJECTING RPM AS MOST APPROPRIATE METHOD (MAM) WITH GROSS PROFIT/SALES (GP/SALES) AS THE PROFIT LEVEL INDICATOR (PLI) APPLIED BY THE TAXPAYER TO BE NCHMARK ITS INTERNATIONAL TRANSACTIONS QUA TRADING SEGMENT. LD . TPO, HOWEVER, FOUND REMAINING INTERNATIONAL TRANSACTIONS ENTERED INTO WITH ITS AE AT ARMS LENGTH. 4. THE TAXPAYER IN ITS TP ANALYSIS APPLIED RPM WITH GP/SALES AS PLI AS MAM TO BENCHMARK ITS INTERNATIONAL TRANSA CTIONS QUA TRADING SEGMENT AT ARMS LENGTH AS MARGIN EARNED BY THE TAXPAYER WAS MORE THAN THE MARGIN EARNED BY THE COMPARABLES, WHICH IS AS UNDER :- NATURE OF INTERNATIONAL TRANSACTION MOST APPROPRIATE METHOD APPLIED (PROFIT LEVEL INDICATOR PLI) INTERNATIONAL TRANSACTIONS (AMOUNT IN INR) NO. OF COMPARABLE COMPANIES ARMS LENGTH MARGIN (USING MULTIPLE YEAR DATA) ARMS LENGTH MARGIN (USING SINGLE YEAR DATA) MARGIN EARNED BY THE APPELLANT IMPORT OF GOODS RESALE PRICE METHOD (RPM) (GP/SALES) 174,911,076 8 16.45% 14.89% 38.29% 5. HOWEVER, LD. TPO, AFTER REJECTING RPM APPLIED BY THE TAXPAYER FOR BENCHMARKING THE INTERNATIONAL TRANSAC TIONS QUA TRADING SEGMENT APPLIED TNMM, REJECTED 6 OF THE COM PARABLES OUT OF 8 COMPARABLES CHOSEN BY THE TAXPAYER AND INTRODU CED 4 NEW ITA NO.2719/DEL./2014 5 COMPARABLES ON THE BASIS OF MODIFIED FILTERS APPLIE D BY USING CURRENT YEARS DATA ONLY. LD. TPO SELECTED 6 COMPA RABLES 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 ARMS LENGTH VA LUE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE TAXP AYER 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. D RP BY WAY OF FILING OBJECTIONS, WHO HAS UPHELD THE ORDER PROP OSED BY THE LD. TPO BUT DIRECTED TO CORRECT THE MARGIN COMPUTATION IN CASE OF ONE COMPARABLE AND EXCLUDED TWO COMPARABLES CHOSEN BY T HE TPO AND THEREBY THE MARGIN OF COMPARABLES REDUCED TO 3.96% FROM 13.84% AND RESTRICTED THE ARMS LENGTH PRICE OF THE TRANSA CTION TO ITA NO.2719/DEL./2014 6 RS.25,811,607/-. FEELING AGGRIEVED, THE TAXPAYER H AS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT AP PEAL. 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 & 2 9. GROUNDS NO.1 & 2 NEED NO FINDINGS BEING GENERAL IN NATURE. GROUND NO.3.1 10. GROUND NO.3.1 IS DISMISSED HAVING NOT BEEN PRES SED DURING THE COURSE OF ARGUMENTS. GROUND NO.3.2 11. NOW, THE ONLY DISPUTE RAISED BY THE TAXPAYER IS QUA SELECTION OF TNMM WITH OP/SALES AS PLI APPLIED BY THE LD. TPO BY REJECTING THE RPM WITH GP/SALES AS MAM APPLIED BY T HE TAXPAYER. 12. THE LD. AR FOR THE TAXPAYER CHALLENGING THE IMP UGNED ORDER PASSED BY THE TPO/DRP/AO CONTENDED INTER ALIA THAT SINCE TAXPAYER IS A PURE DISTRIBUTOR WITHOUT ADDING ANY V ALUE ADDITION TO THE GOODS SOLD, RPM IS THE MAM TO BENCHMARK THE INT ERNATIONAL TRANSACTIONS QUA TRADING SEGMENT; THAT THE TAXPAYER IS MAINTAINING VERY HIGH INVENTORY (ALMOST 35.29% OF PURCHASES AS PER NOTE-2F OF ITA NO.2719/DEL./2014 7 SCHEDULE 15 OF PROFIT & LOSS ACCOUNT) WHICH SHOWS T HAT THE PRODUCTS ARE NOT MOVING FAST FOR CORRECT APPLICABIL ITY OF RPM. 13. LD. TPO REJECTED RPM APPLIED BY THE TAXPAYER ON THE GROUNDS INTER ALIA THAT RPM IS MORE ACCURATE WHERE PRICE IS REALIZED IN A SHORT TIME OF THE RESALE OF GOODS PUR CHASED, IN OTHER WORDS PERIOD BETWEEN SALE AND PURCHASE SHOULD NOT B E EXTENDED TO APPLY THE RPM; THAT RPM BEING A DIRECT METHOD REQUI RES HIGH LEVEL OF COMPARABILITY WHEREAS TNMM IS MORE TOLERANT; THA T THE TAXPAYER JOINTLY WITH ITS OVERSEAS AE DEVELOPED THE MARKET STRATEGY IN INDIA AND PERFORMS THE MARKET STRATEGIES FOR IND IAN MARKET AND ALSO PERFORMS FUNCTIONS SUCH AS CUSTOMERS IDENTIFIC ATION, MEETING WITH CUSTOMERS, DEMONSTRATE THE PRODUCT UTILITY ETC ., UNDERTAKES PRICE NEGOTIATION WITH THE CUSTOMERS AND DECIDED UP ON THE FINANCIAL TERMS OF SALES WITH THEM; AND THAT THE TAXPAYER MAI NTAINS FINISHED GOODS INVENTORY AND PERFORMS SERVICES RELATED TO TH E INVENTORY CONTROL IN INDIA AND THEREBY LOT OF INTANGIBLES ARE BEING ADDED TO THE GOODS. LD. TPO HAS ALSO NOT OPTED FOR RESALE P RICE METHOD TO DETERMINE THE ALP OF INTERNATIONAL TRANSACTION ON T HE GROUND THAT FINANCIAL DATA IS NOT AVAILABLE IN THE PUBLIC DOMAI N IN CASE OF BUSINESS OF A DISTRIBUTOR, RPM IS REJECTED AND TNMM IS CONSIDERED AS THE MAM; THAT THERE ARE CERTAIN THIRD PARTY EXPE NSES MADE BY THE TAXPAYER AS PER PROFIT & LOSS ACCOUNT LIKE SALA RIES AND WAGES, ITA NO.2719/DEL./2014 8 TRAVELLING AND CONVEYANCE, FREIGHT OUTWARD EXPENSES WHICH ARE DIRECTED CONNECTED WITH THE SELLING AND DISTRIBUTIO N FUNCTIONS WHICH HAVE NOT BEEN CONSIDERED BY THE TAXPAYER IN I TS 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 GOOD S 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 R ULES). 15. LD. AR FOR THE TAXPAYER BY RELYING UPON THE OEC D GUIDELINES ALSO CONTENDED THAT IF THE COST STRUCTUR E OF THE COMPANY IS SUCH THAT COSTS ARE AFFECTING NET PROFIT DIRECTL Y WITHOUT AFFECTING THE PRICE OR GROSS MARGIN, THEN RPM IS THE MAM AS A GAINST TNMM. BECAUSE TAXPAYER IS A NEWLY ESTABLISHED COMP ANY WHEREAS COMPARABLES CHOSEN BY THE TPO WERE WELL EST ABLISHED COMPANIES WITH YEARS OF PRESENCE WHICH IS EVIDENT F ROM THE FACT THAT THE TAXPAYERS OPERATING EXPENSES TO SALES RAT IO WERE 44.67% AS AGAINST 3.71% THAT OF THE COMPARABLES AND AS SUC H, OPERATING PROFIT OF THE TAXPAYER IS LARGELY EFFECTED BY ADMIN ISTRATIVE AND OPERATING EXPENSES. LD. AR FURTHER RELIED UPON THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN LOREAL INDIA P. LTD. APPEAL ITA NO.2719/DEL./2014 9 NO.1046 OF 2012, HONBLE DELHI HIGH COURT IN M/S. L UXOTTICA INDIA EYEWEAR PVT. LTD. IN ITA 852/2015, M/S. SWARO VSKI INDIA PVT. LTD. ITA NO.5621/DEL/2014, AXALTO CARDS AND TE RMINALS INDIA LTD. VS. ACIT 131 TTJ 65 (DELHI BENCH-ITAT), SANYO INDIA P. LTD, (I.T(TP).A NO.436/BANG/2015, M/S. OSI SYSTEMS PVT. LTD. IN ITA NO.683/HYD/2004, M/S DELTA POWER S OLUTIONS INDIA PVT. LTD. IN ITA NO.3004/DE1/2013, STAR DIAM OND GROUP IN ITA. NO.3923/MUM/2008, MATTEI TOYS (I) PVT. LTD VS. DCIT IN ITA NO.2476/MUM/2008, DANISCO (INDIA) PVT. LTD. IN ITA NO.5291/DEL/2010, FRIGOGLASS INDIA PVT. LTD. IN ITA NO.463/DEL/2013, M/S LUXOTTICA INDIA EYEWEAR PVT. L TD. IN ITA NO.1115/DEL/2014, L'OREAL INDIA P.LTD. VS. ITO (ITA NO.5423/MUM/2009, M/S SANYO INDIA PVT. LTD. IN ITA NO. 1022(B)/2012 AND M/S TUPPERWARE INDIA PVT. LTD. IN ITA NO. 2140/DEL/2011 AND 1323/DEL/2012. 16. LD. DR FOR THE REVENUE BY RELYING UPON THE DETA ILED COMMENTS GIVEN BY THE LD. TPO AT PAGES 36 TO 41 OF THE TP ORDER CONTENDED THAT THIRD PARTY EXPENSES MENTIONED BY TH E TPO IN PARAS A TO J AT PAGE 30 SHOWS THAT THE TAXPAYER IS NOT A PURE DISTRIBUTOR RATHER ADDING INTANGIBLES TO THE PRODUCTS SOLD BY I TS. 17. IN VIEW OF THE DISCUSSION MADE IN THE PRECEDING PARAS AND FROM THE TP ANALYSIS MADE BY THE TAXPAYER, WE ARE O F THE ITA NO.2719/DEL./2014 10 CONSIDERED VIEW THAT IT IS PROVED ON FILE THAT THE TAXPAYER IS A PURE DISTRIBUTOR/ TRADER WHICH RESALE THE GOODS AFTER PU RCHASING FROM ITS AE WITHOUT ANY VALUE ADDITION. REASONS FOR REJECTI ON OF RPM APPLIED BY THE TAXPAYER GIVEN BY THE LD. TPO ARE GE NERIC IN NATURE. WHEN APPARENTLY THERE IS NO VALUE ADDITION TO THE G OODS PURCHASED AND RESOLD BY THE TAXPAYER, RPM IS THE MAM. NOT AN IOTA OF EVIDENCE IS THERE ON THE FILE IF THE TAXPAYER HAS M ADE ANY VALUE ADDITION TO THE GOODS PURCHASED FROM THE AE BEFORE THE RESELLING THE SAME TO THE THIRD PARTY OR HAS CREATED ANY INTA NGIBLE IN FAVOUR OF AE. 18. COORDINATE BENCH OF THE TRIBUNAL DECIDED THE ID ENTICAL ISSUE AS TO RPM VS. TNMM AS THE MAM IN CASE OF A TRADER W HO PURCHASES AND SELLS THE GOODS IN CASE OF M/S. LUXOTTICA INDIA EYEWEAR PVT. LTD. (SUPRA), WHICH HAS BEEN AFFIRMED BY THE HONBLE HIGH COURT IN ITA 852/2015 BY RETURNING FOLLOWING FINDINGS :- 10.4. AS THE UNDISPUTED FACT IS THAT THE FUNCTION AL PROFILE OF THE ASSESSEE IS THAT OF A TRADER AND AS THE CHARACTERIS ATION 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 (IT A NO.3923/MUM/2008), IT IS HELD AS FOLLOWS: ITA NO.2719/DEL./2014 11 13. THIS FINDING IN OUR HUMBLE OPINION IS WRONG FO R 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 TH AT 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 EARLI ER 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, HAS AGREED WITH THE COMPUTATION OF ARMS LENGTH PRICE MADE BY THE ASSESSEE UNDER THE RESALE PRICE METHOD. (III) IN THE CASE OF DANISCO (INDIA) PVT.LTD. VS. ACIT, CIRCLE 10(1), NEW DELHI (ITA NO.5291/DEL/2010), IT IS HELD AS FOLLOWS: 22. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE ASSESSEE ESTABLISHED IN 1998 AS A 100% SUBSIDIARY O F DANISCO A/S DENMARK. DANISCO INDIA IS ENGAGED IN TH E BUSINESS OF MANUFACTURING AND TRADING OF FOOD ADDIT IVES. THE MANUFACTURING BUSINESS IN RESPECT OF FOOD FLAVO URS AND THE TRADING BUSINESS IS FOR PRODUCTS FOR FALLIN G UNDER THE CATEGORY OF FOOD INGREDIENTS. THE MAIN GRIEVANC ES OF THE ASSESSEE AGAINST THE ORDER OF THE LD.TPO UPHELD BY THE LD.DRP ARE REGARDING THEIR APPROACH IN THE MANN ER IN WHICH TRANSFER PRICING ADJUSTMENT HAS BEEN MADE, THE APPROACH ADOPTED BY THE LD.TPO IN GRANTING 17 COMPARABLE COMPANIES DENYING THE ECONOMIC ADJUSTMEN T CLAIM MADE BY THE ASSESSEE, REGARDING COMPUTATION O F MARGINS OF THE ASSESSEE, NON CONSIDERATION OF SUPPLEMENTARY TRANSACTION AND DENIAL OF ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BY THE AUTHORITIES BELOW AS WELL AS THEIR FAILURE TO EXAMI NE THE CONTENTIONS AND ARGUMENTS OF THE ASSESSEE IN THIS R EGARD. CONSIDERING THESE GRIEVANCES AS DISCUSSED HEREIN AB OVE BY US IN THE ARGUMENTS ADVANCED BY THE PARTIES/THEI R SUBMISSIONS AND HAVING GONE THROUGH THE DECISION RE LIED UPON, WE FIND SUBSTANCE IN THE SUBMISSION OF THE ASSESSE3E AND THUS WE ARE OF THE VIEW THAT IT IS A FIT CASE TO SET ASIDE THE MATTER TO THE FILE OF THE LD.TPO FOR HIS FRESH CONSIDERATION AND DECIDE THE ISSUE AFRESH AFTER AFF ORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DISC USSING THEIR SUBMISSIONS IN THE ORDER AND REASONS, IF ANY, FOR NOT AGREEING OR AGREEING WITH THEM. IT IS ORDERED ACCOR DINGLY WITH DIRECTION TO THE LD.TPO TO: ITA NO.2719/DEL./2014 12 A) FIRST EXAMINE AS TO WHETHER, WAS THERE ANY VALUE ADDITION ON IMPORTED GOODS, AND IF ANSWER IS IN NEG ATIVE THEN APPLY RPM AS A MOST APPROPRIATE METHOD FOR TRA DING TRANSACTIONS OF IMPORTED GOODS AND IN CONSEQUENCE EXAMINE THE APPLICATION OF APPROPRIATE METHOD AS COMMISSION PAYMENT; (IV) FRIGOGLASS INDIA P.LTD. (ITA NO.463/DEL/2013), IT IS HELD AS FOLLOWS: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIE W, ONCE ASSESSEE HAS GIVEN A METHODOLOGY FOR WORKING OF ALP ON SELECTION OF A PARTICULAR METHOD SUPPORTED BY APPRO PRIATE 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 ADOPT ION 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 ASSES SEE 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 ME THODS OF CPM AND RPM RESPECTIVELY WORKED BY APPLYING APPROPRIATE COMPARABLES IS TO BE UPHELD. THUS THE A LP 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 DISP UTE IS WITH REGARD TO THE ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS WHEREBY THE ASSESSEE IMPORTS EQUIPMENT FROM ITS AE AND RESELLS THEM WITHOUT ANY VALUE ADDI TION TO THE INDIAN CUSTOMERS. IN SIMILAR CIRCUMSTANCES, MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF LOREAL INDIA PVT.LTD. (SUPRA) HAS TAKEN THE VIEW THAT THE RPM WOULD BE THE MOST APPROPRIATE METHOD FOR DETERMININ G THE ALP. THE MUMBAI BENCH OF TRIBUNAL IN THIS REGAR D, HAS REFERRED TO THE OECD GUIDELINES WHEREIN A VIEW HAS BEEN EXPRESSED THAT RPM WOULD BE THE BEST METHOD WH EN A RESALE TAKES PLACE WITHOUT ANY VALUE ADDITION TO A ITA NO.2719/DEL./2014 13 PRODUCT. IN THE PRESENT CASE, THE ASSESSEE BUYS PRO DUCTS FROM THE AE AND SELLS IT WITHOUT ANY VALUE ADDITION TO THE INDIAN CUSTOMERS. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE RATIO LAID DOWN BY THE MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF L'OREAL INDIA PVT. LTD. (SU PRA) WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE AS SESSEE'S CASE. IN THAT EVENT, THE GP AS A PERCENTAGE OF SALE S ARRIVED AT BY THE TPO IN ANNEXURE TO THE TPO'S ORDE R INSOFAR AS TRADING ACTIVITY OF COMPARABLES IDENTIFI ED BY THE TPO AT 12.90%. THE GP AS A PERCENTAGE OF SALES OF T HE ASSESSEE IS AT 35.6% WHICH IS MUCH ABOVE THE PERCEN TAGE OF COMPARABLES IDENTIFIED BY THE TPO. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT NO ADJUSTMEN T COULD BE MADE BY WAY OF ALP. WE, THEREFORE, ACCEPT THE ALTERNATIVE PLEA OF THE ASSESSEE AND DELETE THE ADD ITION MADE BY THE AO. IN VIEW OF THE ABOVE CONCLUSION, WE ARE NOT GOING INTO THE OTHER ISSUES ON MERITS RAISED BY THE ASSESSEE ON THE APPROACH ADOPTED BY THE TPO IN ARRI VING AT THE ALP. THUS, GROUND NOS. 2 TO 7 ARE ALLOWED. 10.5. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT TH E TPO TO ADOPT RSPM AS THE MAM IN THIS CASE. 19. SIMILARLY, COORDINATE BENCH OF THE TRIBUNAL IN CASE OF SWAROVSKI INDIA PV.T LTD. VS. ACIT (TS-94-ITAT-2017 (DEL.)-TP) ALSO HELD THE RPM AS THE MAM FOR DETERMINING ALP OF INTERNATIONAL TRANSACTIONS OF IMPORT OF GOODS FROM AE AND RESALE AS SUCH BY RETURNING FOLLOWING FINDINGS :- IT IS CLEAR FROM THE COMMAND OF SUB-CLAUSE (I) ITS ELF THAT THE RPM IS APPLIED WHEN THE PROPERTY PURCHASED BY THE A SSESSEE IS RESOLD AS SUCH. SUB-CLAUSE (II FURTHER PROVIDES FOR CHOOSING COMPARABLE CASES IN WHICH SIMILAR PROPERTY IS PURCH ASED AND RESOLD. THUS IT IS APPARENT THAT THIS METHOD, BY IT S VERY LANGUAGE, IS APPLICABLE WHERE A PROPERTY PURCHASED FROM AN AE IS RESOLD AS SUCH. WHERE, HOWEVER, SOME VALUE ADDITION IS MADE T O THE GOODS BEFORE RESALE, THE RP M CEASES TO BE AN UNFAILING M ETHOD. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE ASSESSEE PURCHASED CRYSTAL GOODS AND CRYSTAL COMPON ENTS FROM ITA NO.2719/DEL./2014 14 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 GOOD S 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 PURCH ASING AND RESELLING THE SAME GOODS WITHOUT ANY VALUE ADDI TION 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 O F THE RPM WE ARE DISINCLINED TO ACCEPT THIS CONTENTION FOR MO RE THAN ONE REASONS. FIRSTLY, THE ASSESSEE IS ENGAGED IN PURCHA SING AND RESELLING THE SAME GOODS WITHOUT ANY VALUE ADDITION , AND AS SUCH, THE RPM IS THE MOST APPROPRIATE METHOD IN SUCH CIRC UMSTANCES. SECONDLY, THE TRIBUNAL IN EARLIER YEARS HAS UPHELD THE RPM AS THE MOST APPROPRIATE METHOD. IN THE ABSENCE OF ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT YEAR VIS -A-VIS THE EARLIER YEARS, WE CANNOT ORDER THE SWITCH OVER FROM THE RP M TO THE TNMM. IT WAS SUBMITTED THAT THE TNMM IS MORE TOLERANT TO FUNCTIONAL DIFFERENCES AND, AS THE SEQUITUR, A WIDER RANGE OF COMPANIES CAN ALSO BE ROPED IN UNDER THIS METHOD WHICH ARE NOT ST RICTLY COMPARABLE. WE ARE UNABLE TO ACCEPT THIS CONTENTION FOR THE OBVIOUS REASON THAT SIMILARITY OF THE FUNCTIONS PER FORMED UNDER ANY OF THE METHODS FOR DETERMINING THE ALP IS ESSEN TIAL AND CANNOT BE DISPENSED WITH EVEN UNDER THE TNMM THE HO N'BLE JURISDICTIONAL HIGH COURT IN RAMPGREEN SOLUTIONS PV T. LTD. (SUPRA) HAS HELD THAT THE SELECTION OF COMPARABLES DOES NOT DIFFER WITH THE METHODS ADOPTED AND THE COMPARABLES SHOULD BE SELECTED ON THE BASIS OF SIMILARITY FOUND EVEN UNDER THE TNM M. ITA NO.2719/DEL./2014 15 21. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, W E ARE OF THE CONSIDERED VIEW THAT TPO/DRP/AO HAVE ERRED IN APPLY ING THE TNMM AS THE MAM IN CASE OF TAXPAYER WHO IS A PURE D ISTRIBUTOR OF GOODS PURCHASED FROM ITS AE AND RESELL THE SAME TO THIRD PARTY WITHOUT ANY VALUE ADDITION. SO, TPO/AO ARE DIRECTE D TO APPLY THE TNMM AS THE MAM TO BENCHMARK THE INTERNATIONAL TRAN SACTIONS UNDERTAKEN BY THE TAXPAYER QUA ITS TRADING SEGMENT BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. SO, GR OUND NO.3.2 IS DETERMINED IN FAVOUR OF THE TAXPAYER. GROUNDS NO.3.3 & 3.4 22. GROUNDS NO.3.3 & 3.4 ARE DISMISSED HAVING NOT B EEN PRESSED DURING THE COURSE OF ARGUMENTS. GROUND NO.4 23, THE GRIEVANCE OF THE TAXPAYER IS THAT THE TPO H AS MADE ADJUSTMENT TO THE ENTIRE INCOME OF THE TAXPAYER AND NOT CONFINED TO THE ADDITION OF THE INTERNATIONAL TRANSACTIONS AS M ANDATED BY LAW. IN VIEW OF THE SETTLED PRINCIPLE OF LAW THAT TRANSF ER PRICING ADJUSTMENT IS REQUIRED TO BE RESTRICTED TO THE AMOU NT OF INTERNATIONAL TRANSACTIONS ONLY AND NOT TO THE ENTI RE INCOME OF THE TAXPAYER, THE TPO IS DIRECTED TO MAKE THE ADJUSTMEN T ACCORDINGLY. GROUND NO.4 IS DETERMINED IN FAVOUR OF THE TAXPAYER . ITA NO.2719/DEL./2014 16 GROUND NO.5 24. GROUND NO.5 IS DISMISSED HAVING NOT BEEN PRESSE D DURING THE COURSE OF ARGUMENTS. 25. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF DECEMBER, 2019. SD/- SD/- (N.K.BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 31 ST DAY OF DECEMBER , 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.