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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
This appeal is filed by the Torrecid India Private Limited, for A.Y. 2017-18 against the assessment order passed by National Faceless Appeal Centre, Delhi (the ld. AO) on 16.02.2022 pursuant to the direction of Dispute Resolution Panel dated 18.01.2022 u/s.143(3) r.w.s. 144C (13) of the Income Tax Act, 1961 (the Act) wherein the transfer pricing adjustment of ₹ 99,31,763/- was made on account of computation of arm’s length price of international transaction of import of finished goods rejecting the most appropriate method adopted by the assessee of resale price method, but the transactional net margin method adopted by the TPO.
Based on the facts and circumstances of the case, and in law, Torrecid India Private Limited (hereinafter referred to as „the Appellant‟) respectfully craves leave to prefer an appeal against the order passed by National Faceless Assessment Centre, Delhi / learned Assessing Officer (“ld. AO ) dated 16 February 2022/ learned Transfer Pricing Officer (“ld.TPO) in pursuance of the directions issued by Hon'ble Dispute Resolution Panel (“DRP”) (dated 18 January 2022) under Section 143(3) read with Section 144C(13) of the Income-tax Act 1961 („the Act‟) on the following grounds:
1. Transfer Pricing Adjustment INR 99,31,763/- On the facts and in the circumstances of the case and in law, the ld. TPO and the ld. AO under the directions issued by Hon'ble DRP dated January 18, 2022, erred in confirming the adjustment of INR 99,31,763 by virtue of computation of arm's length price of international transaction of import of finished goods from AEs vide its impugned order dated February 16, 2022.
Rejection of Methodical Transfer Pricing analysis and selection of most appropriate method for benchmarking analysis without providing any cogent reasons :
On the facts and in the circumstances of the case and in law, the Id. TPO erred in and the Hon'ble DRP further erred in not appreciating the fact that the appellant has not undertaking any value addition to the imported finished goods before sale to customers.
On the facts and in the circumstances of the case and in law, the id TPO erred in and the Hon'ble ORP further erred in upholding / confirming the action of the TPO in selecting the Transactional Net Margin (TMM) method, as the most appropriate method for benchmarking the international transaction of import of finished goods without providing any cogent reasons and summarily relying on the directions of Hon'ble DRP for AY 2013-14 The above grounds of appeal are mutually exclusive & without prejudice to each other.
The assessee filed return of income on 30.11.2017 declaring nil income. The assessee has entered into international transaction of purchase of ceramic colors and glaze from associated enterprises. The assessee benchmarked this international transaction taking itself as a tested party adopting profit level indicator of gross profit ratio of trading segment. The gross profit of the assessee was 8.53%. Assessee selected 8 comparable companies computed their weighted average gross profit where 35th percentile was 4.43%, 65th percentile is 13.26% and thus, median was 5.93%. Thus, the international transaction as per transfer pricing study report was claimed to be at arm’s length.
The Transfer Pricing Officer held that for A.Y. 2013-14, transactional net margin method was considered as the most appropriate method and therefore, same should be applied. Assessee was asked to show cause why TNMM should not be taken as most appropriate method .
The assessee preferred objections before the ld. Dispute Resolution Panel, which issued direction on 18.01.2022 holding that the issue is identical which came up for direction before the DRP in A.Y. 2013-14 and therefore, same was followed. The learned DRP in its direction for A.Y. 2013-14 rejected the contention of the assessee holding that RPM is not acceptable as the most appropriate method rejecting reliance on the decision of L’Oreal India Private Limited. Thus, the assessment order was passed on 16.02.2022 reinstating the total income of ₹ 99,31,760/-.
We have heard the rival contention. We have also perused the orders of the lower authorities. On careful consideration of the issued involved before us, which is limited to the fact that whether in case of the assessee Resale Price Method is the most appropriate method or not. The revenue is consistently relying on its finding for “14. We have carefully considered the rival contentions and perused the orders of the lower authorities and direction of the learned dispute resolution panel. Facts at the cost of the reiteration are stated that assessee is subsidiary of a foreign company engaged in the manufacture of products for the ceramics and glass industry. Company purchases the finished goods for distribution in India. It also imports raw material, which is used in the manufacturing activity. The international transaction shown by the assessee as under :— Serial Nature of transaction Value of the Most appropriate method selected number transaction by assessee 1 Import of raw materials 14,02,80,914 Transactional net margin Method from Torrecid SA, Al taking foreign associated farben SA enterprises as tested parties and Torrecid Suzhou 2 Import of raw materials 74,07,971 CUP from Chilches materials SA Torrecid Maxico 3 Import of finished goods 29,09,58,928 Resale price method taking from Torrecid SA and assessee as a tested party Digital Services Ceramics SL
Only issue that remains for our adjudication is whether the transactions listed at serial number 3 being import of finished goods from associated enterprises amounting to Rs. 290,958,928/- benchmarked by the assessee adopting the resale price method where the profit level indicator is determined of gross profit ratio and the gross profit ratio of assessee was found to be at 15.35% whereas of the other comparable companies was 14.64% which is stated to be at arm's-length by the assessee, is proper or not.
The assessee submitted before the lower authorities that assessee does not undertake any value addition to the goods imported from its associated enterprises and sold them to the independent third parties. Despite these facts, the learned transfer-pricing officer selected transactional net margin method without providing any cogent reasons for changing the method adopted by the assessee. Assessee is aggrieved since the learned transfer-pricing officer did not provide the assessee of an opportunity of being heard on this aspect. The claim of the assessee is that the honourable Bombay High Court affirmed a decision of the coordinate bench accepting the taxpayer's use of the resale price method is the most appropriate method with respect to its distribution activity in case of L'Oreal India (P.) ltd. (supra). The
As the issue is squarely covered in favour of the assessee and that is the only ground of appeal before us, consequently, we allow the appeal of the assessee following the decision of the co-ordinate bench in assessee’s own case for A.Y. 2013-14.
As a result, appeal of the assessee is allowed.
Order pronounced in the open court on 28.11.2022.