PR. COMMISSIONER OF INCOME TAX-7 vs. M/S ORIFLAME INDIA PVT LTD

$~54 to 57 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 227/2023

PR. COMMISSIONER OF INCOME TAX-7 ..... Appellant

Through: Mr. Sanjeev Menon, Jr.SC for

Mr. Zoheb Hossain, Sr. SC.

versus

M/S ORIFLAME INDIA PVT LTD ..... Respondent

Through: Mr.Himanshu S.Sinha and

Mr.Bhuwan Dhoopar, Advs. 55 + ITA 229/2023

PR. COMMISSIONER OF INCOME TAX-7 ..... Appellant

Through: Mr. Sanjeev Menon, Jr.SC for

Mr. Zoheb Hossain, Sr. SC.

versus

M/S ORIFLAME INDIA PVT LTD ..... Respondent

Through: Mr.Himanshu S.Sinha and

Mr.Bhuwan Dhoopar, Advs. 56 + ITA 231/2023

PR. COMMISSIONER OF INCOME TAX- 7 ..... Appellant

Through: Mr. Sanjeev Menon, Jr.SC for

Mr. Zoheb Hossain, Sr. SC.

versus

M/S ORIFLAME INDIA PVT LTD ..... Respondent

Through: Mr.Himanshu S.Sinha and

Mr.Bhuwan Dhoopar, Advs. 57 + ITA 234/2023

PR. COMMISSIONER OF INCOME TAX – 7 ..... Appellant

Through: Mr. Sanjeev Menon, Jr.SC for

Mr. Zoheb Hossain, Sr. SC.

versus This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 16/12/2024 at 14:31:45

M/S ORIFLAME INDIA PVT LTD ..... Respondent

Through: Mr.Himanshu S.Sinha and

Mr.Bhuwan Dhoopar, Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

O R D E R %

05.02.2024

owned subsidiary of Oriflame International SA and is engaged in the business of sale of a wide variety of skin care and cosmetic products. As a part of its business operations, the respondent undertook international transactions with its associated enterprises [“AEs”]. The said transactions for the assessment years [“AYs”] 2009-10, 2010-11, 2011-12 and 2012-13 were referred to the TPO under Section 92CA of the Act for determination of the arm’s length price [“ALP”]. 3. The TPO vide its orders dated 30 January 2013 [AY 2009-10], 24 January 2014 [AY 2010-11], 08 January 2015 [AY 2011-12] and 19 January 2016 [AY 2012-13] rejected the comparable entities as selected by the respondent and selected Modicare as the comparable entity after considering databases, annual reports and other relevant material and proposed an upward adjustment of the income of the respondent. Consequently, assessment orders were passed by the Department for the said AYs reflecting the upward adjustments as proposed by the TPO. 4. The matter eventually reached the ITAT and the ITAT vide its common order dated 24 March 2017 for AYs 2009-10, 2010-11 and 2011-12 and its order dated 13 June 2017 for AY 2012-13 remanded the matter back to the TPO and directed it to look into the claim of adjustments as required to be made to Modicare in order to enhance its comparability with that of the respondent. 5. Aggrieved by the said orders, the respondent filed an appeal before this Court. This Court vide its judgment dated 10 April 2018 held as follows: “7. The assessee argued that the dissimilarity with respect to the products sold and the proportion borne by each of the turnover cannot but impact the profitability of the entity as a whole and further emphasized that segmental laid for each of these product lines is missing for the relevant This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 16/12/2024 at 14:31:45

year (with respect to the data available vis-à-vis Modicare Ltd.). In the opinion of this Court, it is of vital importance and was not addressed by the ITAT which even while noticing the significant differences and seemingly accepting the assessee’s arguments nevertheless did not exclude Modicare Ltd. altogether. In the opinion of this Court, this is a very vital infirmity which needs to be corrected. 8. ….. The other was with respect to the differential marketing strategy adopted for the two sets of entities i.e. the trading entity/comparable on the one hand as opposed to the direct marketing entity i.e. assessee on the other hand. The assessee had stressed that if appropriate marketing was made from the data available, the differential marketing strategy per se would not pose a difficulty with respect to the transfer pricing adjustment. The Court finds some merits in the arguments, especially since what the Revenue Authorities would be left with if the ITAT’s order was not to be disturbed, would be what a comparable in the form of Modicare Ltd (supra). 9. In view of the above reasons, this Court is of the opinion that the appeal should be re-examined by the ITAT; it should be addressed on these two aspects i.e. firstly, the appropriateness of including Modicare Ltd. having regard to the availability of data with respect to the different product segments, and secondly, involving the comparable, the functional difference with respect to its marketing strategy (i.e. discount, transportation costs, insurance and performing the warranty function). Having regard to the factors mentioned in clause 5.10 of the impugned order, the ITAT is also directed to re-examine whether and to what extent adjustment can be reasonably made, having regard to the available data in respect to the trading comparables offered for ALP determination, for all the relevant years by the assessee. It is also directed to consider the feasibility again having regard to the available data for all the concerned assessment years- marking appropriate adjustments (including with respect to the working capital adjustments as is sought to be urged by the assessee) in regard to the trading comparables offered by the assessee for these given years. 10. … Having regard to the above directions, it is open to the assessee to urge that TNMM is the most appropriate method instead of RPM. In these circumstances, it is also clarified that in the event the submission is accepted there would be no enlarging of a comparable offered. ”

segments and marketing strategies, difference between the entities in the treatment of discounts given to consultants/agents and the substantial difference between the entities in the advertising, marketing and promotion expenses incurred by them. It ultimately held that Modicare cannot be considered as a comparable entity under the RPM method. The ITAT also held that the Transactional Net Margin Method [“TNMM”] ought to be adopted as the most appropriate method for benchmarking the respondent’s case. It is against these findings of the ITAT that the Department has filed the instant appeals before us. 7. However, during the course of hearing today, it was brought to our attention that the matter has been resolved inter partes in terms of the assessment which came to be finalised for AY 2014-15 and that Modicare Limited has been excluded from the list of comparables to determine the ALP and the upward adjustments of income as proposed by the Department has not been undertaken as well. We are informed that the view taken therein has been duly accepted and followed in the subsequent years. 8. In view of the aforesaid and bearing in mind the principle of consistency, we find no justification to entertain the instant appeals. 9. They shall consequently stand dismissed on that score.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. FEBRUARY 05, 2024/MJ This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 16/12/2024 at 14:31:45