| The Tax Publishers2020 TaxPub(DT) 1782 (Del-HC) INCOME TAX ACT, 1961
Section 92C
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 was certainly not the cost incurred by assessee), was nowhere supported by TNMM under rule 10B(1)(e).
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Transfer pricing - Computation of ALP - Adjustments made in ALP applying TNMM method, contested to be contrary to transfer pricing provisions -
Assessee contended that issue raised in instant appeal was covered by judgment of Coordinate Bench of Court in Li and Fung India (P) Ltd. v. CIT, ITA 306 of 2012. Held: As decided in LI & FUNG India (P) Ltd. v. CIT (2014 TaxPub(DT) 2368 (Del-HC)) a determination of ALP with reference to the relevant factors (cost, assets, sales etc.) of the enterprise in question, i.e. the assessee, as opposed to the AE or any third party. The textual mandate, thus, was unambiguously clear. 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 was certainly not the cost incurred by assessee), was nowhere supported by TNMM under rule 10B(1)(e) of the Rules. Having determined that (TNMM) to be the most appropriate method, the only rules and norms prescribed in that regard could have been applied to determine whether the exercise indicated by the assessee yielded an ALP. Thus, approach of TPO and tax authorities in essence imputes notional adjustment/income in assessee's hands on the basis of a fixed percentage of free on board value of export made by unrelated party venders.
Followed: LI And Fung India (P) Ltd. v. CIT 2014 TaxPub(DT) 2368 (Del-HC); The A.C.I.T., Circle-15 (2), New Delhi v. M/s. Li & Fung (India) (P) Ltd. [ITA No. 2480/DEL/2015, dt. 31-10-2018]
REFERRED :
FAVOUR : In assessee's favour
A.Y. :
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