Libertatem Magazine

Whether Resale Price Method or “Other Method” Should Be Used To Calculate Tax Payable?

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In this case, Carrier Midea Pvt Ltd filed an appeal to follow-up on two Grounds which remained undecided earlier by the co-ordinate bench of the Tribunal and the Tribunal afterwards ordered the appeal to be in favour of the taxpayer permitting them for statistical purposes.

Facts of the Case

In the case, Carrier Midea Pvt Ltd filed an appeal in the tribunal based on two undecided grounds (2 & 3) from the order dated 22.11.2018 passed by the co-ordinate bench of the Tribunal and subsequently the Tribunal vide order dated 29.06.2020 passed in MA No.425/Del/2019 for deciding the “Most Appropriate Method” for determination of Arm’s Length Price (ALP) of taxpayer’s manufacturing segment. The Appellant is a manufacturer and trader of light commercial air-conditioning systems. The Appellant has applied “other method” for international transactions by considering the gross margin of comparable companies with gross margin earned by it and rejected the Resale Price Method (RPM). 

Pleadings before the Court

The import of raw material for manufacturing operations applied Transactional Net Margin Method (TNMM) made an adjustment Rs.16,04,47,763/-. The taxpayer carried the matter before the ld. DRP by filing the objections who confirmed the TNMM adopted by the TPO by partly accepting the objections and confirmed the adjustment made by the TPO to the extent of Rs.15,51,55,954/- as against adjustment of Rs.16,04,47,763/-. 

The Ld. Authorized Representative for the Appellant testing the reprimanded approach of ld. TPO/DRP dismissing the “other technique” applied by the taxpayer to benchmark the worldwide exchanges qua its assembling activity and applying the TNMM battled that this is its first year of assembling attempted by the citizen who is continually following the other strategy in the succeeding years which has been acknowledged by the TPO and to support its contentions welcomed on record duplicate of the orders passed by the TPO just as ld. DRP for Assessment Years 2014-15, 2015-16, 2016-17, and 2017-18, accessible on pages 910 to 1126 of the paper book. This reality has not been disputed by the ld. DR for the Revenue who was rather dependent upon the orders passed by the TPO just as ld. DRP. 

In the cases of Greaves Travel India Pvt. Ltd. vs. ACIT in ITA No.6722/Del/2015 order dated 24.10.2018 and JCIT vs. M/s. Michelin India Pvt. Ltd. 2018 (1) TMI 976-ITAT Delhi, the tribunal has dealt with the identical issues as to applying the “rule of consistency” while applying the MAM for benchmarking the international transactions when there is no change in the business model of the taxpayer.

Court’s Observation

The court observed that there were no distinctive highlights and adjustments in the plan of action of the taxpayer. This issue was needed to be transmitted back to the TPO to decide whether “other strategy” applied by the taxpayer to benchmark its global exchanges qua fabricating section is the MAM by giving a chance of being heard. Thus, grounds no.2 and 3 are resolved for the taxpayer for statistical purposes.

Court’s Judgement

The orders for ground no. 2 and 3 were made in favour of the appellant and the appellant was allowed to use it for statistical purposes only.

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