IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM ITA No. 726/JP/2016 Assessment Year : 2009-10. Assistant Commissioner of cuke M/s. Supreme Tradelinks Pvt. Ltd. Income Tax, Circle-6, Vs. 1st Floor, Anand Bhawan, Jaipur. Sansar Chandra Road, Jaipur. PAN No. AAGCS 0373 K Appellant Respondent Revenue by: Smt. Pratima Kaushik (CIT) Assessee by : Shri Rajeev Sogani (CA) Date of Hearing : 05.10.2016. Date of Pronouncement : 18/10/2016. ORDER PER SHRI KUL BHARAT, JM. This appeal by revenue is filed against order of ld. CIT (A)-5, Jaipur dated 13.05.2012 pertaining to assessment year 2009-10. revenue has raised following grounds of appeal :- 1. Whether on facts and in circumstances of case and in law, CIT (A) was justified in rejecting Transactional Net Margin Method as most appropriate method for determining arm s length price as reported by TPO. 2. Whether on facts and in circumstances of case and in law, CIT (A) was justified in deleting addition of Rs. 8,30,04,000/- made by AO on account of application of transactional Net margin method in determining Arm s length Price. 2 ITA NO. 726/JP/2016 Supreme Tradelinks P. Ltd. 2. Briefly stated facts are that case of assessee was picked up for scrutiny assessment and assessment under section 143(3) of I.T. Act, 1961 (hereinafter referred to as Act) was framed vide order dated 08.03.2013. While framing assessment, AO made adjustment to Arm s Length Price by observing that looking at nature of international transactions, Transactional Net Margin Method (TNMM) is most appropriate method to compute Arm s Length Price in this case. Further, as per provisions of section 92CA(4), AO has to compute total income of assessee in conformity with ALP so determined by Transfer Pricing Officer. He observed that Transfer Pricing Officer (in short TPO) has considered that arm s length price for import of goods comes to Rs. 1982.74 lacs instead of Rs. 2812.78 lacs. difference accordingly, is added to returned income of assessee. assessee aggrieved by this order, preferred appeal before ld. CIT (A), who after considering submissions and following judgment of Coordinate Bench of Tribunal in assessee s own case in ITA No. 857/JP/2009 deleted addition. 3. Aggrieved, revenue is in appeal before us. 4. only effective ground of revenue is against deleting addition of Rs. 8,30,04,000/- made by AO on account of application of transactional Net margin method in determining Arm s Length Price. 4.1. ld. CIT D/R supported order of AO. However, she fairly conceded that issue has been decided against revenue by Coordinate Bench of Tribunal in assessee s own case in ITA No. 857/JP/2009. 3 ITA NO. 726/JP/2016 Supreme Tradelinks P. Ltd. 4.2. On contrary, ld. Counsel for assessee has supported order of ld. CIT (A). 4.3. We have heard rival contentions and perused material available on record. only basis for filing present appeal is as per Scrutiny Report, order of Coordinate Bench has been changed before Hon ble Jurisdictional High Court. We find that ld. CIT (A) has decided issue in para 2.3 of his order as under :- 2.3. I have considered facts of case, assessment order and submissions of appellant. issue regarding Most Appropriate Method (MAM) to be adopted in appellant s case has been decided in appellant s case by ITAT, Jaipur Bench for A.Y. 2005-06 in ITA No. 857/JP/2009 vide order dated 26.11.2010 holding that Resale Price Method (RPM) as adopted by appellant is MAM in cases like that of appellant where only distribution of finished products is involved, which does not contain any value addition. relevant extract of order is as follows :- As gross profit margin of assessee (46.33%) was better than average gross profit margin of comparables (38.42%), it is held that international transactions of assessee with it associated enterprises viz Marks and Spencer Plc. UK were at Arm s Length Price and no addition was required to be made in assessee s case. Accordingly, we confirm order passed by CIT (A) deleting addition of Rs. 63,27,789/-. ld. CIT (A) has also taken into consideration that even if TNM method is applied then also no addition can be made. Working of adjustments on basis of TNM method is also given by which as addition comes to only Rs. 13,27,977/- which is about 1.22% of profit shown by assessee. This difference is less than 5% as prescribed in proviso to section 92C(2) of Act by which it has been provided that if difference is less than 5% then no adjustment can be made. Therefore, contention of department that TNM method is most appropriate even then no addition is warranted. Nothing has been stated by ld. D/R that no these findings of ld. CIT (A) are not correct. Without bringing any material finding of ld. CIT (A) should not be and cannot be faulted. 4 ITA NO. 726/JP/2016 Supreme Tradelinks P. Ltd. ld. D/R has mentioned that some of expenses should be excluded while making arm s length price adjustment. However, on specific query from Bench, ld. D/R could not point out that which expenses are liable to be excluded. By merely saying that assessee s case cannot be compared with big company like Shoppers Stop which has big infrastructure and they want to build up their reputation and therefore expenses incurred by assessee which is small in nature as compared to big company should be excluded. In our considered view this submission of ld. D/R are without any basis and cannot be accepted. In view of above facts and circumstances we hold that ld. CIT (A) was justified in holding that RPM method is most appropriate method applied by assessee, accordingly we confirm his order. revenue has not controverted finding of ld. CIT (A) by bringing any contrary material on record. However, ld. Counsel for assessee has also filed written synopsis. In para 3, assessee has submitted as under :- 3.1. assessee s case is squarely covered by decision of Hon ble ITAT Jaipur Bench in assessee s own case for AY 2005-06 in ITA 857/JP/2009 [Case Law Pg 1-46], order dated 26th November 2010, wherein exactly same issue was decided by Hon ble ITAT, dismissing departmental appeal and holding that where goods are resold without any value addition RPM is most appropriate method. 3.2. As per guidelines issued by OECD and ICAI, Resale Price Method is Most Appropriate Method where goods are resold without any significant value addition. 3.3. Reliance is placed on following judicial pronouncements: L oreal india (P) Ltd. [2015] 276 CTR 484 (Bombay) [Case Law Pg 47-49] High court vide its order dated 7th November 2014 upheld Tribunal s order (L oreal India (P) Ltd, ITA 5423/Mum/2009), 5 ITA NO. 726/JP/2016 Supreme Tradelinks P. Ltd. wherein Tribunal has noted in para 19 of order that RPM is one of standard method and OECD guidelines state in case of distribution or marketing activities when goods are purchased from associated entities and there are sales effected to unrelated parties without any further processing then RPM can be adopted.[ Case Law Pg 49] M/s Luxottica India Eyewear (P) Ltd [ITA No. 1115/Del-Trib/2014 and 617/Del-Trib/2014] [Case Law Pg 50-66] Textronic India Pvt.Ltd. vs. DCIT (ITA no. 1334/Bang/2010), it is held as follows: "We have considered rival submissions. dispute is with regard to ALP in respect of international transactions whereby assessee imports equipment from its AE and resells them without any value addition to Indian customers. In similar circumstances, Mumbia Bench of Tribunal in case of L'Oreal India Pvt.Ltd. (supra) has taken view that RPM would be most appropriate method for determining ALP. Mumbai Bench of Tribunal in this regard, has referred to OECD guidelines wherein view has been expressed that RPM would be best method when re- sale takes place without any value addition to product. In view of above discussion, we direct TPO to adopt RSPM as MAM in this case. [Case Law Pg 59] Rayban Sun Optics India Ltd [2016] 179 TTJ 219 (Delhi - Trib.) [Case Law Pg 67-78] We have heard rival submissions and perused relevant material. first issue is determination of most appropriate method, being either TNMM or RPM. international transaction under consideration is 'Import of finished goods' which have been sold by assessee in India as such, without any value addition. TPO applied RPM, which has not been disturbed by ld. CIT(A) and further there is no challenge to it by assessee. In our considered opinion, RPM is quite useful method where goods purchased by Indian AE are sold without doing any value enhancement. We, therefore, 6 ITA NO. 726/JP/2016 Supreme Tradelinks P. Ltd. approve application of RPM as most appropriate method. [Case Law Pg 76] 3.4. TNMM method is residuary method and is to be applied as last resort when no other method is workable. Many factors may affect net profit margins but may have nothing to do with transfer pricing. 3.5. During course of proceedings before ld. TPO fact of Hon ble ITAT decision in assessee s own case holding RPM method being most appropriate method was conveyed. (TPO Order, Para 1.4, Pg 8) Ld. TPO has not followed order of Hon ble ITAT for sole reason that said order is not accepted by department and it has preferred further appeal before Hon ble High Court. (TPO Order Pg 11). 3.6. It was also conveyed to ld. TPO that as per guidelines issued by OECD and ICAI, RPM is most appropriate method where goods are sold without any significant value addition. This proposition is not disputed but has also not been accepted by ld. TPO by merely observing that guidelines issued by OECD and ICAI are only advisory in nature (TPO Order Pg 11). 3.7. It is submitted that except theoretical assertions and generalized observations, no objective findings have been given to come to reasoned conclusion that assessee s adoption of RPM for its international transaction was factually and objectively not correct. 3.8. It is also submitted that method adopted by assessee as most appropriate method to justify Arm s Length Price of its international transactions cannot be lightly displaced and substituted with another method without pointing out fallacies in method adopted. Reliance is placed on following judicial pronouncements: 7 ITA NO. 726/JP/2016 Supreme Tradelinks P. Ltd. Kailash Jewels (P.) Ltd. [2015] 59 taxmann.com 473 (Delhi - Trib.) [Case Law Pg 79-97] TNMM method can only be applied when direct and traditional methods are incapable of determining arm's length price of transaction. TNMM method is profit based method which might result in possibility of vitiation of results by number of factors which are not relevant to determination of prices at which international transactions are entered into by associated enterprises. It would thus follow that in situation in which assessee has followed one of standard methods of determining ALP, such method cannot be discarded in preference over transactional profit methods unless revenue authorities are able to demonstrate fallacies in application of standard methods. [Case Law Pg 96]. Philips Software Centre (P.) Ltd. [2008] 26 SOT 226 (BANG.) [Case Law Pg 98-172] Very clearly, in instant case, TPO/Assessing Officer has not discharged onus of proving that methodology followed by assessee is erroneous in any manner, before rejecting same. learned counsel submitted that TPO is not justified in considering another method as most appropriate method, even though there is no shortcoming in method adopted by assessee in TP Study. Reference in this connection can also be made to decision of Delhi Tribunal in case of Mentor Graphics (Nokia) (P.) Ltd.(supra). At para 39.4 of said order, Tribunal has observed as follows : "The TPO could have carried fresh search only of comparables drawn by taxpayer was insufficient or had other deficiency." [Case Law Pg 149] In view of above, order of ld. CIT(A) is fully justified who has followed judgment of Hon ble ITAT in assessee s own case, therefore deserves to be upheld by dismissing departmental appeal. revenue has not brought any contrary binding precedent to our notice and also could not point out as to how Coordinate Bench decision is not applicable on 8 ITA NO. 726/JP/2016 Supreme Tradelinks P. Ltd. facts of present case. Therefore, taking consistent view, we do not find any reason to interfere in order of ld. CIT (A). ground of revenue is dismissed. 5. In result, appeal of revenue is dismissed. Order pronounced in open court on 18/10/2016. Sd/- Sd/- (VIKRAM SINGH YADAV) ( KUL BHARAT ) Accountant Member Judicial Member Jaipur Dated:- 18/10/2016. Das/ Copy of order forwarded to: s 1. Appellant- ACIT, Circle-6, Jaipur. 2. Respondent- M/s. Supreme Tradelinks Pvt. Ltd., Jaipur. 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 726/JP/2016) By order, Assistant. Registrar Assistant Commissioner of Income Tax, Circle-6, Jaipur v. M/s. Supreme Tradelinks Pvt. Ltd