The Pr. Commissioner of Income-tax -5 v. LI & Fung (India) Pvt. Ltd
[Citation -2020-LL-0312-8]

Citation 2020-LL-0312-8
Appellant Name The Pr. Commissioner of Income-tax -5
Respondent Name LI & Fung (India) Pvt. Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 12/03/2020
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags international transaction • most appropriate method • associated enterprise • determination of alp • condonation of delay • net profit margin • operating profit • question of law • compensation
Bot Summary: ITA 819/2019 The present appeal has been filed challenging the order dated 31st October, 2018 passed by the learned Income Tax Appellate Tribunal in ITA No. 2480/Del/2015 for the Assessment Year 2010-11. Learned counsels for the parties state that the issue raised in the present appeal is covered by the judgment of a Coordinate Bench of this Court in Li and Fung India Pvt. Ltd. vs. Commissioner of Income Tax, ITA 306 of 2012. 03.2020 15:21:45 39.The TPO s determination enhanced LFIL s cost base for applying the operating profit over total cost margin. LFIL s compensation model is based on functions performed by it and the operating costs incurred by it and not on the cost of goods sourced from third party vendors in India. Allotting a margin of the value of goods sourced by third party customers from Indian exporters/vendors to compute the appellant s profit is unjustified. 40.The TPO s reasoning to enhance the assessee s cost base by considering the cost of manufacture and export of finished goods, i.e., ready-made garments by the third party venders, is nowhere supported by the TNMM under Rule 10B(1)(e) of the Rules. 03.2020 15:21:45 In view of the aforesaid judgment, no question of law arises for consideration in the present matter.


IN HIGH COURT OF DELHI AT NEW DELHI ITA 819/2019 PR. COMMISSIONER OF INCOME TAX -5 Appellant Through: Mr.Ruchir Bhatia, Standing Counsel versus LI & FUNG ( INDIA ) PVT. LTD. Respondent Through: Mr.Neeraj Jain and Mr.Aniket D.Agarwal, Advocates. CORAM: HON'BLE MR. JUSTICE MANMOHAN HON'BLE MR. JUSTICE SANJEEV NARULA ORDER 12.03.2020 CM APPL. 40531/2019 (delay in filing 117 days) By this application, applicant seeks condonation of delay of 117 days in filing appeal. For reasons stated in application, delay is condoned. application stands disposed of in aforesaid terms. ITA 819/2019 present appeal has been filed challenging order dated 31st October, 2018 passed by learned Income Tax Appellate Tribunal in ITA No. 2480/Del/2015 for Assessment Year 2010-11. Learned counsels for parties state that issue raised in present appeal is covered by judgment of Coordinate Bench of this Court in Li and Fung India Pvt. Ltd. vs. Commissioner of Income Tax, ITA 306 of 2012. relevant portion of said judgment is reproduced hereinbelow: Signature Not Verified Digitally Signed By:SAPNA SETHI Signing Date:16.03.2020 15:21:45 39.The TPO s determination enhanced LFIL s cost base for applying operating profit over total cost margin. LFIL s compensation model is based on functions performed by it and operating costs incurred by it and not on cost of goods sourced from third party vendors in India. Allotting margin of value of goods sourced by third party customers from Indian exporters/vendors to compute appellant s profit is unjustified. This Court is of opinion that to apply TNMM, assessee s net profit margin realized from international transactions had to be calculated only with reference to cost incurred by it, and not by any other entity, either third party vendors or AE. Textually, and within bounds of text must AO/TPO operate, Rule 10B(1)(e) does not enable consideration or imputation of cost incurred by third parties or unrelated enterprises to compute assessee s net profit margin for application of TNMM. Rule 10B(1)(e) recognizes that net profit margin realized by enterprise from international transaction entered into with associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by enterprise ... (emphasis supplied). It thus contemplates determination of ALP with reference to relevant factors (cost, assets, sales etc.) of enterprise in question, i.e. assessee, as opposed to AE or any third party. textual mandate, thus, is unambiguously clear. 40.The TPO s reasoning to enhance assessee s cost base by considering cost of manufacture and export of finished goods, i.e., ready-made garments by third party venders (which cost is certainly not cost incurred by assessee), is nowhere supported by TNMM under Rule 10B(1)(e) of Rules. Having determined that (TNMM) to be most appropriate method, only rules and norms prescribed in that regard could have been applied to determine whether exercise indicated by assessee yielded ALP. approach of TPO and tax authorities in essence imputes notional adjustment/income in assessee s hands on basis of fixed percentage of free on board value of export made by unrelated party venders. Signature Not Verified Digitally Signed By:SAPNA SETHI Signing Date:16.03.2020 15:21:45 In view of aforesaid judgment, no question of law arises for consideration in present matter. Accordingly, present appeal is dismissed. MANMOHAN, J SANJEEV NARULA, J MARCH 12, 2020 v Signature Not Verified Digitally Signed By:SAPNA SETHI Signing Date:16.03.2020 15:21:45 Pr. Commissioner of Income-tax -5 v. LI & Fung (India) Pvt. Ltd
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