By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 92C – Transfer Pricing(i) Resale price method is an appropriate method in case where resale takes place without any value addition to product – where the assessee had followed Transactional Net Margin method but later on during the assessment proceedings claimed that Resale Price Method be followed, the same should be considered.
(ii) An internal comparable can be followed for computation of ALP against external comparable where the assessee sends goods back to its associated enterprise (AE) to get a best available price in comparison to the sale made to a third party.
Facts I:
The assessee-company, a subsidiary of a U.S.A. company being its Associated Enterprise (‘AE’), was engaged in marketing and selling of toys and games imported from its AE. The assessee adopted Transactional Net Margin Method (TNMM) in its transfer pricing report and rejected the Resale Price Method (RPM). Further, the assessee claimed that RPM should be followed instead of TNMM which was rejected by the Commissioner as detailed analysis was given in the TP study report as to why RPM was not taken.
Held I:
The assessee is a distributor of toys and resells the same to independent parties without any value addition. In such situation, RPM can be the best method as there is no much alteration to the products which are resold by the assessee. On the other hand, TNMM can be resorted to only if the other methods have been rendered inapplicable. The revenue contended that once the assessee has chosen a method as appropriate then it should not resort to any other method at an assessment or appellate stage. If a particular method will not result in proper determination of the ALP then it will not serve the purpose of transfer pricing. Therefore, it was held that if at any stage of the proceedings, it is found that another method will result in more appropriate ALP then the assessment officers and the appellate Courts cannot reject the plea of the assessee.
Facts II:
The assessee resells the goods which are imported from the associated enterprise. The assessee in this case has sent the goods back to the associated enterprise. These goods were the unsold ones. The assessee preferred to return the goods to the AE as there was no demand for the product due to change in consumer preferences. The Transfer Pricing officer treated these goods as export to the AE.
Held II:
The assessee returned the goods to the assessee due to a negative trend in the market. It was stated that the assessee had suffered a greater loss while making sale in case of third party in comparison to the sale made to the AE. Thus, the margin of export sale to third party i.e internal comparable should be compared to the export sale made to the AE. Therefore, the issue was remanded to the file of the Transfer Pricing Officer for the purpose of carrying out comparability analysis under internal CUP.
