ITO, New Delhi V. M/s. Adidas India Marketing Pvt. Ltd., New Delhi

ITA 3922/DEL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6752 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 20-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 25-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

1 ITA NO. 3922. DEL.2011 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 3922/DEL/2011 (ASSESSMENT YEA R-2005-06) ITO COY. WARD-1(2), ROOM NO. 398-B, C. R. BUILDING NEW DELHI (APPELLANT) VS ADIDAS INDIA MARKETING PVT. LTD. C-2, ANSAL VILLA, SATBARI NEW DELHI AAACA5313P (RESPONDENT) APPELLANT BY SH.HEMANT GUPTA, SR. DR RESPONDENT BY SH. AJAY VOHRA, SR. ADV & SH. NEERAJ JAIN, ADV. ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 08/08/2011 PASSED BY CIT (A)-XX, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW I N DELETING ADDITION OF RS.2,87,51,769/- MADE ON ACCOUNT OF ADJUSTMENT P ROPOSED BY TPO IN ORDER U/S 92CA(3) OF THE I.T. ACT, AS: DATE OF HEARING 20.01.2016 DATE OF PRONOUNCEMENT 26.02.2016 2 ITA NO. 3922. DEL.2011 A) THE LD. CIT(A) HAS NOT BEEN ABLE TO SUBSTANTIATE TH AT THE GOODS SO EXPORTED WERE PART OF THE SLOW MOVING OLD STOCK, WHEREAS THE TPO HAS CLEARLY HELD THAT THE ASSESSEE COMPANY COULD NO T PRODUCE ANYTHING ON RECORD WHICH COULD SUBSTANTIATE THAT TH E GOODS SO EXPORTED WERE PART OF THE SLOW MOVING OLD GOODS. B) HAVING HELD THAT THE REJECTION OF QUOTES OF THE OTH ER COMPANIES BY THE TPO TO BE REASONABLE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPORTS OF GOODS WAS REQUIRED TO BE DETERMINED AT THE ARMS LENGTH PRICE. C) THE LD. CIT(A) HAS NOT PROVIDED ANY COGENT EXPLANAT ION TO ADOPT THE RATE OF 8.25% WHILE REJECTING THE GP OF 22.64% ADOPTED BY THE TPO TO DETERMINE ARMS LENGTH PRICE. 3. THE ASSESSEE COMPANY WAS SET UP TO ENGAGE IN SOU RCING DISTRIBUTION AND MARKETING OF SPORTSWEAR, SPORTS FO OTWEAR AND SPORTS EQUIPMENT APPEARING THE BRAND NAME ADIDAS. M/S ADIDAS A G GERMANY HAS SET UP ON THE SUBSIDIARY COMPANY IN THE NAME AND STYLE OF M/S ADIDAS INDIA PVT. LTD AFTER OBTAI NING DUE APPROVAL. M/S ADIDAS INDIA PVT. LTD. PROVIDED LICENSE TECHNOL OGY TO THE ASSESSEE COMPANY I.E. M/S ADIDAS INDIA TRADING PVT. LTD. AS PER THE AGREEMENT M/S ADIDAS INDIA PVT. LTD. WAS TO PR OVIDE EXCLUSIVE NON-TRANSFERABLE RIGHTS TO MANUFACTURE DISTRIBUTE A ND SALE THE LICENSE PRODUCTS IN INDIA, NEPAL AND BHUTAN ON PAYM ENT OF ROYALTY AT 5% OF THE SALES EFFECTED. AS PER THE AGREEMENT M/S ADIDAS INDIA PVT. LTD WAS NOT TO MANUFACTURE OR DISTRIBUTE OR SA LE THE LICENSE PRODUCTS WITHIN THE LICENSE TERRITORY SO AS TO COMP LETE WITH THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAD ALSO AG REED TO MAKE 3 ITA NO. 3922. DEL.2011 FULFILL FIGURES EFFECT TO INCREASE SALES AND INHERE NCE GOOD WILL OF THE LICENSE PRODUCTS IN THE TERRITORY. THE ASSESSING O FFICER WHILE DETERMINING THE ARMS LENGTH PRICE OF SALE OF GOODS TO ASIS RS, 5,73,67,313 IN PLACE OF RS. 2,86,15,544/- WHICH IS THE BOOK VALUE OF THE INTERNATIONAL TRANSACTIONS. THE ADJUSTMENT O N THIS ACCOUNT THEREFORE CALCULATES TO RS.2,87,51,769/-. 4. THE LD. DR SUBMITTED THAT THE TRANSFER PRICING O FFICER HAS CLEARLY MENTIONED THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE SAID ARTICLES SOLD TO THE OVERSEAS ASSOCIATE WAS OL D AND SLOW MOVING INVENTORY AND A SPECIFIC QUERY WAS MADE TO THE ASSE SSEE ON 22.09.2008 MENTIONING THE SAME. IN REPLY TO THE SAM E THE ASSESSEE PRODUCED TWO INVOICES VIDE ITS SUBMISSION DATED 29. 09.2008. THESE TWO INVOICES SHOWS THAT THE GOODS WAS EXPORTED TO T HE OVERSEAS ENTITY (BUYER) IN TWO LOTS THE FIRST LOT BEING INVO ICED ON 14.07.2004 AND THE SECOND LOT BEING INVOICED ON 7.02.2005. IN THIS MANNER BOTH THE LOTS WERE EXPORTED BY TAKING INTO ACCOUNT ONLY THE TWO QUOTATION PRINCIPLE AND THE OVERSEAS ENTITY HAS NO WHERE TENDERED ANY QUOTE FOR THE SAME. THE ASSESSEE PLACED ON RECO RD THE STOCK DETAILS OF THESE GOODS WHICH MENTIONED THAT THEY HA VE BEEN PURCHASED IN 2004 AND EARLIER YEARS. THIS WOULD RES ULT IN AN OBVIOUS ARGUMENT AS TO WHAT WOULD CONSTITUTE THE OL D STOCK. IN THIS REGARD, THE REPRESENTATIVE OF THE ASSESSEE HAS SUBM ITTED THAT THE FASHION TREND OF THE ASSESSEE COMPANY CHANGES EVERY SIX MONTHS. AS SUCH THERE IS A FRESH STOCK ARRIVAL AFTER EVERY SIX MONTHS AND THE 4 ITA NO. 3922. DEL.2011 ONES THAT ARE REPLACED ARE TERMED OLD. THESE STOCK S ARE THEN TRIED AND SOLD AT THE FACTORY OUTLETS AT DISCOUNTED PRICE AND THE ONES THAT STILL REMAIN UNSOLD ARE CONSIGNED TO THE WAREHOUSE AND DUMPED. IT IS THIS INVENTORY THAT IS TERMED AS OLD AND SLOW MO VING. ONE THING THAT CLEARLY EMERGES FROM THE LIMITATIONS CONTAINED IN THE POLICY NOTE IS THAT UNDER NO CONDITIONS THE ASSESSEE COULD HAVE SOLD IN THE OPEN MARKET SINCE IT WAS BARRED BY THE POLICY TO DO SO. IN LIGHT OF THE SAME, THE TWO QUOTATIONS THAT HAVE BEEN SUBMITT ED ON RECORD CAN IN NO WAY SHOW THE INTENTION OF SELLING TO ANY PARTY OTHER THAN THE ASSOCIATED ENTERPRISE. IN VIEW OF THIS, THE SUB MISSION OF THE ASSESSEE THAT THE QUOTES WERE INVITED FOR THE PURPO RTED SALE ON THE HIGHEST QUOTE PRINCIPLE BASIS DEFIES LOGIC. MOREO VER, THERE IS NO SUBMISSION ON RECORD TO PROVE THAT THE TWO QUOTES W ERE EVEN USED TO END UP IN A NEGOTIATION PROCESS. HOWEVER, IT IS SEEN THAT THE INVENTORY EXPORTED TO THE OVERSEAS AE IS NOT THE SA ME THAT HAS BEEN FURTHER SOLD TO SIMO. THIS IS ESTABLISHED FROM THE CONTENTS OF THE ARTICLES RECORDED IN THE INVOICE OF SALE TO THE AE AND THE INVOICE OF SALE TO SIMO. THIS PROVES THAT THE SAME ARTICLES HA VE NOT BEEN SOLD TO ANY THIRD PARTY AS CLAIMED BY ASSESSEE BY FILING INVOICE OF SALE TO SIMO. IF THE ASSESSEE IS TO BE BELIEVED THEN AS PER CLAIM IT HAS EXPORTED A PART OF ITS OLD GOODS TO ITS AE IN SINGA PORE IN THE MONTH OF JUNE, 2004 AND THESE GOODS WERE SOLD TO THIRD PA RTY I.E. SIMO ONLY IN THE MONTH OF FEBRUARY, 2005 I.E. AFTER A GA P OF EIGHT MONTHS. TAKING INTO ACCOUNT THE FACT THAT GOODS WERE KEPT I N WAREHOUSE IN SINGAPORE FOR A LONG PERIOD OF EIGHT MONTHS AND HUG E WAREHOUSING COST AT SINGAPORE IT WOULD FURTHER INCREASE THE COS T OF THESE ALLEGED 5 ITA NO. 3922. DEL.2011 REJECTED GOODS AND THIS WILL NOT MAKE ANY BUSINESS SENSE. THE CLAIM OF SALE OF REJECTED GOODS EX-SINGAPORE WHICH HAS A HIGH COST OF INVENTORY HOLDING, CANNOT BE BELIEVED FOR THE FOLLO WING REASONS 1. THE SALE INVOICE DID NOT CONTAIN SALE OR RESALE OF REJECTED GOODS. 2. IT IS AGAINST PRUDENT BUSINESS PRACTICE DUE TO HUGE WARE HOUSING CHARGES. THE CLAIM IS NOT SUPPORTED BY ANY CREDIBLE EVIDENCE . THE PURPORTED SALE TO THE THIRD PARTY DOES NOT CORROBORATE ECONOM IC PRUDENCE AND THIS FURTHER ESTABLISHES THAT THE ASSESSEES EXPORT OF THE INVENTORY WAS NOT RESOLD TO SI MO AS CLAIMED. THE ASSESSEE HA S NOT SOLD ANY OLD STOCK AND THE SALE IS SIMPLY OUT OF THE NORMAL STOCK- AND- SELL, AS NO MENTION OF THE SAME IS FOUND IN ANY OF THE IN VOICES RAISED ON THE OVERSEAS AE. IN VIEW OF THE SAME, THE MARKET VA LUE OF THE INVENTORY HAS TO BE SEEN IN ECONOMIC REALITY AND AL SO IN LIGHT OF THE ACCOUNTING STANDARDS ADOPTED IN INDIA. AS PER AS-2 THE NET REALIZABLE VALUE BOOKED IN THE BALANCE SHEET IS NET OF GROSS MARGINS AND COVERS INCIDENTAL COSTS. AS SUCH THE VALUE OF T HE CLOSING STOCK WHICH HAS BEEN TONED DOWN BY RS.4.67 CRORES CONTAIN S NO ELEMENT OF PROFIT WHICH THE ASSESSEE SHOULD HAVE EARNED IN TERMS OF MARKET OUTGO. THE GROSS PERCENTAGE EARNED BY THE ASSESSEE HAS BEEN FOUND AT ANNEXURE-XIII OF THE TAX AUDIT REPORT. THE GROSS PROFIT MARGIN POSTED BY THE ASSESSEE IN THIS YEAR IS 22.64% WHICH THE ASSESSEE SHOULD HAVE EARNED OVER AND ABOVE THE COST OF THE I NVENTORY. THEREFORE, THE MARKET PRICE OF THE INVENTORY REPORT EDLY SOLD TO THE 6 ITA NO. 3922. DEL.2011 OVERSEAS AE IS DETERMINED AT RS. 5,73,67,313 (4,67, 77,000 X 1,2264.) 5. THE LD. DR SUBMITTED THAT IN THE MANNER DISCUSSE D ABOVE, THE VALUE OF STOCK SOLD BY THE ASSESSEE TO ASIS IS DETE RMINED AT RS. 5,73,67,313. THE SAME IS HELD TO BE THE PRICE WHICH THE STOCK WOULD HAVE FETCHED IN REALIZATION BY APPLICATION OF COMPA RABLE UNCONTROLLED PRICE METHOD. MOREOVER, WHEN THE AUDIT ED FIGURES ARE AVAILABLE AND THE ASSESSEE HAS CHOSEN AN EQUIVALENT PLATFORM IN ITS TP STUDY, THE ALTERNATE RECOURSE TO A DIFFERENT GEO GRAPHICAL TERRAIN IS NEITHER CORRECT NOR WOULD LEAD TO ANY CREDIBLE D ETERMINATION OF ARMS LENGTH PRICE. IN LIGHT OF THE ABOVE OBSERVATI ONS OF THE TPO, THE ARMS LENGTH PRICE OF SALE OF GOODS TO ASIS IS DETERMINED AT RS. 5,73,67,313 IN PLACE OF RS. 2,86,15,544 WHICH IS TH E BOOK VALUE OF THE INTERNATIONAL TRANSACTIONS. THE ADJUSTMENT ON T HIS ACCOUNT THEREFORE WAS CORRECTLY CALCULATED TO RS. 2,87,51.7 69 . 6. THE LD. AR SUBMITTED THAT A GROUP MANUAL WHICH S UMMARIZES THAT THE INVENTORY PROVISIONS HAS TO BE MADE IN RES PECT OF GOODS WHICH CAN NO LONGER BE SOLD FOR THEIR FULL VALUE OR ARE SLOW MOVING TO ENSURE THEY ARE VALUED AT THE LOWER OF THEIR COS T OR NET REALIZABLE VALUE. THE PROVISIONS ARE TO BE CALCULATED MONTHLY BASED ON STANDARD COST; HOWEVER FOR PRACTICAL PURPOSES, THE CALCULATION MAY BE BASED ON THE ACTUAL COST OF THE INVENTORY AS IT APPROXIMATES TO 7 ITA NO. 3922. DEL.2011 THE STANDARD COST. THE VALUE OF THE INVENTORY IS TO BE DEPRECIATED AT VARIABLE RATES OVER A ONE YEAR PERIOD. A CLOSER LOO K SHOWS THAT THERE EXISTS A CLOSE OUT DATE FOR AN INVENTORY AND IT STA RTS GETTING DEPRECIATED EVEN BEFORE THE CLOSE OUT DATE AND CONT INUES PROGRESSIVELY AT REGULAR INTERVALS OF THREE MONTHS. THE LD. AR FURTHER STATED THAT THE INVENTORY WAS VALUED AT STA NDARD COST. IN THIS LIGHT THE PROVISIONS OF AS-2 WHICH DEFINES THE VALUATION OF INVENTORIES WAS REQUIRED TO BE VISITED. THE ACCOUNT ING STANDARD (AS-2) STIPULATED THAT WHEN IT WAS IMPRACTICAL TO C ALCULATE AT COST, THE FOLLOWING METHODS MAY BE FOLLOWED TO ASCERTAIN COST. > STANDARD COST > RETAIL COST THE ACCOUNTING STANDARD STIPULATES THAT THESE METHO DS MAY BE USED FOR CONVENIENCE IF THE RESULTS APPROXIMATE ACT UAL COST. > THE STANDARD COST TAKES INTO ACCOUNT NORMAL LEVEL OF CONSUMPTION OF MATERIAL AND SUPPLIES, LABOUR, EFFIC IENCY AND CAPACITY UTILIZATION. IT MAY BE REGULARLY REVIEWED AND REVISED TAKING INTO CONSIDERATION THE CURRENT SITUATION > RETAIL METHOD IS GENERALLY USED IN RETAIL BUSINESS, WHEN IT IS DIFFICULT TO ASCERTAIN COST OF INDIVIDUAL ITEM. IT IS APPLICABLE WHEN ITEMS OF INVENTORIES ARE RAPIDLY CHANGING ITEMS AND HAVE SIMILAR MARGINS AND FOR WHICH IT IS IMPRACTICABLE TO USE OT HER COSTING METHOD. UNDER THIS METHOD, THE COST OF INVENTORY IS DETERMINED BY REDUCING FROM THE SALE VALUE OF INVENTORIES THE APP ROXIMATE VALUE OF 8 ITA NO. 3922. DEL.2011 GROSS MARGIN. THE PERCENTAGE USED TAKES INTO CONSID ERATION THE INVENTORY THAT HAS BEEN MARKED DOWN TO BELOW ITS OR IGINAL SELLING PRICE. IN VIEW OF THE ABOVE, IT IS SEEN THAT THE ST ANDARD COSTING APPLIES MOSTLY TO MANUFACTURING INDUSTRIES WITHOUT ANY SPECK OF DOUBT. THE USUALLY FOLLOWED ACCOUNTING PRINCIPLES A CROSS THE WORLD FOLLOW THE LIFO METHOD AND IT IS WIDELY USED AS PER US GAAP (ARB- 3). HOWEVER, THE ACCOUNTING PRINCIPLE THAT IS FOLLO WED IN INDIA WOULD BE BASED ON THE ACCOUNTING PRINCIPLES IN VOGUE AND THIS IS CERTAINLY NOT STANDARD COSTING. THE INDICATION IS THEREFORE C ERTAINLY INCLINED TOWARDS RETAIL COSTING THAT HAS BEEN DISCUSSED IN T HE DISCUSSION ABOVE. IN VIEW OF THE FOREGOING, THERE IS ABSOLUTELY NO DO UBT THAT THE TONING DOWN OF INVENTORY WHICH WAS WRITTEN DOWN IN VALUATI ON OF STOCK HAS BEEN BASED ON THE RETAIL PRICING METHOD. THE ABOVE WAS DEMONSTRATED BY THE NOTE 13 OF THE SC HEDULE 19 OF THE NOTES TO ACCOUNTS. NOTE 13 OF SCHEDULE 19 OF NO TES TO ACCOUNTS OF THE ASSESSEE COMPANY VALUES THE STOCK OF THE GOO DS AND IN THE FOOTNOTE TO THE SAME IT READS AS UNDER:- CLOSING STOCK IS A DERIVED FIGURE, BASED ON BOOK R ECORDS OF THE COMPANY AND IS NET OF RS. 46,777 THOUSANDS (PREVIOU S YEAR RS. 77,784 THOUSANDS) WRITTEN DOWN FROM THE EARN ING VALUE OF INVENTORIES, TO BRING THEM TO NET REALIZABLE VALUE IN ACCORDANCE WITH LAID DOWN POLICY OF THE COMPANY .' 1 9 ITA NO. 3922. DEL.2011 7. FURTHER, THE LD. AR SUBMITTED THAT THE NET REALI ZABLE VALUE WAS AS PER AS-2 OF THE ACCOUNTING STANDARDS. THE NE T REALIZABLE VALUE MEANS THE ESTIMATED SELLING PRICE IN ORDINARY COURSE OF BUSINESS, LESS ESTIMATED COST OF COMPLETION AND EST IMATED COST NECESSARY TO MAKE THE SALE. NET REALIZABLE VALUE IS ESTIMATED ON THE BASIS OF MOST RELIABLE EVIDENCE AT THE TIME OF VALU ATION. SUCH NET REALIZABLE VALUE IS REDUCED BY THE GROSS MARGINS' A ND IS ARRIVED AT THE FIGURE THAT IS REFLECTED IN THE BALANCE SHEET. ESTIMATION OF NET REALIZABLE VALUE ALSO TAKES INTO ACCOUNT THE PURPOS E FOR WHICH THE INVENTORY IS HELD. ESTIMATION OF NET REALIZABLE VAL UE IS MADE AT EACH BALANCE SHEET DATE. 8. THE LD. AR FURTHER SUBMITTED THAT TO BRING THE I NVENTORY TO ITS NET REALIZABLE VALUE STOCK OF VALUATION OF RS. 46,7 77,000/- HAS TO BE TONED DOWN. THIS IS INDICATION ENOUGH THAT THE TONE D DOWN VALUE OF STOCK IS THE LEAST VALUE THAT HAS TO BE NETTED OFF FROM THE CLOSING VALUE OF STOCK AND THAT THE SAME IS CONGRUENT TO TH E MARKET VALUE WITHOUT THE GROSS MARGIN. DURING THE COURSE OF DIS CUSSION, THE ASSESSEE HAS FURTHER CONFIRMED THAT THE STOCK PERTA INS TO THIS BLOCK. THE ASSESSEE WAS ALSO SPECIFICALLY ASKED AS TO WHAT AMOUNT OUT OF THIS STOCK PERTAINED TO ITS SALE TO ITS OVERSEAS AS SOCIATED ENTERPRISE. THE ASSESSEE HAS NOT BEEN ABLE TO SUBMIT ANY DETAIL . HOWEVER, THE FIGURATIVE DETAILS FURNISHED ON RECORD SHOWS THAT T HE ASSESSEE HAS SOLD THE STOCK WHICH TOTALLY PERTAINS TO THE TONED DOWNED VALUE. IT WAS CONTENDED THAT THE ASSESSEE SUBMITTED BEFORE TH E ASSESSING 10 ITA NO. 3922 .DEL.2011 OFFICER THAT THE OVERSEAS SUBSIDIARY HAS FURTHER SO LD THE STOCK TO AN INDEPENDENT THIRD PARTY SIMO. THE MARGIN OF PROFIT EARNED IS LESS THAN 8.25% WHICH HAS BEEN REPORTEDLY PAID BY THE AS SESSEE AS COMMISSION FOR PROCUREMENT. THEREFORE, A CUP METHO D WAS INTENDED TO BE ESTABLISHED BY THE ASSESSEE. 9 . THE AR SUBMITTED THAT THE ASSESSMENT OF THE TPO T HAT THE ASSESSEE SHOULD HAVE EARNED 22.64% GROSS PROFIT ON OLD STOCK AND SLOW MOVING ITEMS IS FARFETCHED AND NOT BASED ON AN Y SOUND REASONING. THE GROSS PROFIT EARNED BY THE ASSESSEE IS IN INDIA. TPO HAD NOT DISPUTED THE CLASSIFICATION OF THE GOODS AS SLOW MOVING OR AS OLD STOCK. THE VERY NATURE OF SLOW MOVING AND O LD STOCK IS THAT THE ASSESSEE IS NOT ABLE TO SELL THEM IN THE MARKET AT THE MARKET PRICE. THIS IS A KIND OF DEPRESS SALE OR CLEARANC E SALE. THEREFORE, TO EXPECT THE ASSESSEE TO EARN THE SAME MARGIN ON S UCH GOODS IS UNREASONABLE AND NOT BASED ON APPRECIATION OF CIRCU MSTANCES OF THE ASSESSEE. TPO, ON THE ONE HAND, ACCEPTING THES E GOODS AS SLOW MOVING, ON THE OTHER, HE EXPECTS THE ASSESSEE TO EA RN MARGIN AT THE SAME RATE AT WHICH THE NORMAL GOODS OF THE ASSESSEE ARE ALSO EARNING. TPO IS CONTRADICTING HIMSELF. SECONDLY, THE TPO HAD NOT DISPUTED THAT THESE GOODS ARE SOLD TO FOREIGN ENTIT Y. THEREFORE, EVEN ON THIS GROUND TO EXPECT THE ASSESSEE TO EARN THE S AME MARGIN AS IN INDIAN MARKET IS ALSO AN UNACCEPTABLE LOGIC. THIRD LY, THE CALCULATION OF GP AT 22.64% INCLUDES THE TRANSACTIO N WITH RELATED PARTY. IT IS TAINTED TRANSACTIONS, BECAUSE THIS G P OF 22.64% IS NOT THE RESULT OF TRANSACTIONS WITH INDEPENDENT PARTIES ALONE, BUT WITH RELATED PARTIES AS WELL. IT WAS THE DUTY OF THE TP O TO ARRIVE AT THE 11 ITA NO. 3922 .DEL.2011 ALP OF THIS INTERNATIONAL TRANSACTION. TPO CANNOT USE THIS FIGURE OF 22.64% ITSELF AS AT ARMS LENGTH. IN EFFECT, THE SALE INVOICES OF THE ASSESSEE TO ITS AE CAN BE COMPARED WITH THE SALE OF INVOICES OF THE AE TO THE INDEPENDENT PARTY. THE GOODS SOLD ARE EX ACTLY THE SAME, AS THE GOODS WERE DISPATCHED FROM THE WAREHOUSE OF THE ASSESSEE TO THE ULTIMATE BUYER WHO IS AN INDEPENDENT ENTITY. T HE TIME GAP BETWEEN THE SALE OF THE ASSESSEE AND THE SALE OF TH E AE ARE NEGLIGIBLE BECAUSE IT HAS HAPPENED WITHIN THE SAME MONTH. THEREFORE, THIS IS A FIT CASE TO USE CUP AS A MOST APPROPRIATE METHOD. THUS THE CIT(A) HAS RIGHTLY ALLOWED THE APP EAL OF THE ASSESSEE. 10. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH THE PARTIES. THE CONTENTION OF THE DR THAT THE ASSESSEE INSTEAD OF SELLING OLD STOCK THROUGH AE HAS DIRECTLY SOLD THE SAME TO THE THIRD PARTY IS NOT CORRECT. THE CIT(A) GAVE FINDING AFTER CONSIDE RING ALL THE ASPECTS TO THAT EFFECT. IT CAN BE FOUND THAT THE S AID STOCK WAS OF OLD STOCK AND THE SALE WAS ALSO THROUGH THE AE AS WELL. THE GOODS SOLD ARE EXACTLY THE SAME, AS THE GOODS WERE DISPATCHED FROM THE WAREHOUSE OF THE ASSESSEE TO THE ULTIMATE BUYER WHO IS AN INDEPENDENT ENTITY. THE TIME GAP BETWEEN THE SALE OF THE ASSESSEE AND THE SALE OF THE AE ARE NEGLIGIBLE BECAUSE IT HA S HAPPENED WITHIN THE SAME MONTH. THE GROSS PROFIT EARNED BY T HE ASSESSEE IS IN INDIA. TPO HAD NOT DISPUTED THE CLASSIFICATION OF THE GOODS AS 12 ITA NO. 3922 .DEL.2011 SLOW MOVING OR AS OLD STOCK. THEREFORE, THE CIT(A) HAS RIGHTLY HELD IN FAVOUR OF THE ASSESSEE. 11. IN RESULT, THE APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 26TH OF FEBRUARY 2016. SD/- SD/- ( N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26/02/2016 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 18/01/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 19/01/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 02.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY JM/AM 13 ITA NO. 3922 .DEL.2011 SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 26.02.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 29 .02.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 14 ITA NO. 3922 .DEL.2011