LUXOTTICA INDIA EYEWEAR PVT. LTD.,GURGAON vs. ACIT, NEW DELHI

PER MANISH AGARWAL, AM:

This appeal is filed by the assessee against the final assessment order dated
30.01.2015 passed U/s 143(3) r.w.s.144C(1) of the Income Tax Act, 1961
(hereinafter called ‘the Act’) in compliance to the direction given by Ld. Dispute
Resolution Panel (DRP) vide order dated 15.12.2014 for Asst. Year 2010-11. 2. In the present appeal, the Co-ordinate Bench vide order dated 26.05.2017 in ITA No.1492/Del/2015 has remand the issue of TP Adjustment towards alleged
AMP expenses to the file of TPO to decide afresh with certain directions, however,
Luxottica India Eyewear Pvt. Ltd. vs. ACIT ground in respect of TP Adjustment made towards International transactions of import of finished goods remained un-adjudicated.

“12. Mr. Nageshwar Rao, the learned counsel appearing for the Assessee referred to the grounds of appeal filed before the learned ITAT and had drawn the attention of this Court to grounds raised for challenging the adjustment in respect of transactions pertaining to purchase of finished goods. The said grounds are set out below:

"4.1 That the action of Hon'ble DRP/Ld. AO/Ld. TPO of rejecting the Resale Price Method ("RPM") applying Transaction Net Margin
Method ("TNMM") as the Most appropriate Method ("MAM") under section 92C of the Act to determine ALP of impugned international transaction is completely arbitrary and calls for being reversed.

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“5. From the details filed by the assessee, it is observed that the company has been established primarily for the purpose of carrying on the business of trading of sun glasses and frames. Keeping the functional profile of the assessee in mind, it is held that RPM is the MAM for this case. The RPM is applicable in a resale situation, wherein the property or services purchased from an associated enterprise are resold to unrelated enterprises. Further more, RPM is generally adopted where the tested party ie. trader purchases from an associated enterprise and resells to an independent enterprise without adding substantial value to the product, or does not contribute substantially to the creation of maintenance of intangible property associated with the product (trade mark or trade names) which are owned by the AES.

Luxottica India is a full fledged distributor engaged in reselling goods purchased from AEs to unrelated parties in India. Luxottica India does not add value to the goods purchased from related party, which are resold to unrelated parties. Accordingly, the RPM is the MAM to establish the arm's length nature for Luxottica India's inter company transaction of the import of sun glasses/sun glass frames from AEs for resale in India."

“41. Now coming to the argument of the Ld. DR that once the assessee itself has chosen TNMM as the MAM in TPR, then it cannot resort to change its method at an assessment or appellate stage. In our opinion, such a contention cannot be upheld because if it is found on the facts of the case that a particular method will not result into proper determination of the ALP, the TPO or the appellate authorities can very well hold that why a particular method can be applied for getting
Luxottica India Eyewear Pvt. Ltd. vs. ACIT proper determination of ALP or the assessee can demonstrate a particular method to justify its ALP. Thus, even if the assessee had adopted TNMM as the MAM in the TP report, then also it is not precluded from raising the contentions/objections before the TPO or the appellate Courts that such a method was not an appropriate method and is not resulting into proper determination of ALP and some other method should be resorted. The ultimate aim of the TP is to examine whether the price or the margin raising from an international transaction with the related party is at ALP or not. The determination of approximate ALP is the key factor for which the MAM is to be followed. Therefore, if at any stage of the proceedings, it is found that by adopting one of the prescribed methods other than chosen earlier, the most appropriate ALP can be determined, the assessment authorities as well as the appellate Courts should take into consideration such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate
ALP on the facts of the case. Accordingly, we reject the contentions of the Ld. DR and also the observations of the AO and the Ld. CIT(A) that the assessee cannot resort to adoption of RPM method instead of TNMM."

(i) In the case of Star Diamond Group NV Mumbai (ITA No.3923/Mum/2008), it is held as follows:

"13. This finding in our humble opinion is wrong for 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 that 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 earlier two years. The TPΟ 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 arm's length price made by the assessee under the resale price method.
(ii) In the case of L'Oreal India P. Ltd. vs. ITO (ITA no.5423/Mum/2009) it is held as follows:

“19. During the course of hearing, Id. DR also supported the method considered by TPO and referred to para 2.29 of OECD price guidelines
2010 as stated hereinabove. On the other hand, Id.AR justified the RP<
method adopted by it and also referred to order of TPO in the preceding
AY as well as succeeding AY to the AY under consideration to substantiate that RPM is the most appropriate method to determine
ALP. He submitted that the assessee made adjustment for marketing and selling expenses to the profits to make it comparable to the comparable companies profits. We agree with the Ld. CIT(A) that there is no order of priority of methods to determine ALP. RPM is one of the standard method and OECD guidelines also states that in case of distribution and marketing activities when the goods are purchased from AEs which are sold to unrelated parties, RPM is the most appropriate method. In the case before us, there is no dispute to the fact that the assessee buys products from its AEs and sells to unrelated parties without any further processing.”

(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 of Danisco A/S Denmark.
Danisco India is engaged in the business of manufacturing and trading of food additives. The manufacturing business in respect of food flavours and the trading business is for products for falling under the category of food ingredients. The main grievances of the assessee against the order of the Ld. TPO upheld by the Ld. DRP are regarding their approach in the manner in which transfer pricing adjustment has been made, the approach adopted by the Ld. TPO in granting 17
comparable companies denying the economic adjustment claim made by the assessee, regarding computation of 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 examine the contentions and arguments of the assessee in this regard. Considering these grievances as discussed herein above by us in the arguments advanced by the parties/their submissions and having gone through the decision relied 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 affording opportunity of being heard to the assessee and discussing their submissions in the order and reasons, if any, for not agreeing or Luxottica India Eyewear Pvt. Ltd. vs. ACIT agreeing with them. It is ordered accordingly with direction to the Ld.
TPO to:

a) first examine as to whether, was there any value addition on imported goods, and if answer is in negative then apply RPM as a most appropriate method for trading 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 the material available on record. In our considered view, once assessee has given a methodology for working of ALP on selection of a particular method supported by appropriate 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 adoption 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 assessee 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 methods of CPM and RPM respectively worked by applying appropriate comparables is to be upheld. Thus the ALP 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 dispute 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 addition to the Indian customers. In similar circumstances,
Mumbia Bench of the Tribunal in the case of L'Oreal India Pvt. Ltd.
(supra) has taken the view that the RPM would be the most appropriate method for determining the ALP. The Mumbai Bench of Tribunal in this regard, has referred to the OECD guidelines wherein a view has been expressed that RPM would be the best method when a re-sale takes place without any value addition to a product. In the present case, the assessee buys products 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 of the Tribunal in the case of L 'Oreal India Pvt. Ltd. (supra) would be squarely
Luxottica India Eyewear Pvt. Ltd. vs. ACIT applicable to the facts of the assessee's case. In that event, the GP as a percentage of sales arrived at by the TPO in Annexure to the TPO's order insofar as trading activity of comparables identified by the TPO at 12.90%. The GP as a percentage of sales of the assessee is at 35.6%
which is much above the percentage of comparables identified by the TPO. In such circumstances, we are of the view that no adjustment could be made by way of ALP. We, therefore, accept the alternative plea of the assessee and delete the addition 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 arriving at the ALP. Thus, ground Nos. 2 to 7 are allowed."

Dated: 31.12.2025
PK/Sr. Ps