INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - MAM - TNMM v. RPM

Assessee benchmarked transaction relating to import of finished goods from its AE by applying TNMM as the most appropriate method (MAM). Whereas, TPO considered RPM as the MAM. While doing so, TPO applied gross profit margin of 42 per cent to make adjustment on the basis of projected resale discount percentage for the financial years 2002-03 to 2006-07 furnished by assessee in the course of TP proceedings. Assessee contended that resale discount margin of 42 per cent was only a target margin provided by assessee's group and was not the actual margin. Held: Applying resale discount percentage of 42 per cent of financial year 2006-07 TPO ultimately determined gross margin of assessee. However, facts on record revealed that for financial year 2006-07, assessee's gross margin was 31.65 per cent. No material brought on record by TPO to demonstrate that gross profit margin of 42 per cent was the actual margin of assessee and was not target margin. Moreover, TPO while applying RPM referred to the gross margin earned by Medtronic International Ltd., Malaysia, for adopting gross profit margin of 42 per cent. On examination of the provisions of rule 10B(1)(b), it is clear that even under RPM only gross margin derived on an uncontrolled transaction can be considered for comparability analysis. Therefore, under no circumstances, margin earned in a controlled transaction could be considered for comparability purpose and when sufficient information relating to gross margin in uncontrolled transaction was not available and when no other method was applicable, as a method of last resort, TNMM was to be applied as MAM.

REFERRED :

FAVOUR : in assessee's favour

A.Y. : 2007-08

INCOME TAX ACT, 1961

Section 92B

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