Delhi HC Upholds RPM for Distributor Reselling Unmodified Goods without Value Addition [Read Order]

The Delhi High Court Bench upheld the use of the Resale Price Method (RPM) for benchmarking international transactions in a case involving a distributor reselling unmodified solar products without adding value.

The Revenue-appellant  filed an appeal under Section 260A of the Income Tax Act, 1961, against the ITAT’s order dated 10.06.2024 where the ITAT had allowed the appeal in favour of the respondent.In this case, D Light Energy  P. Ltd,respondent-assessee, was engaged in manufacturing and selling solar lights and power products. It filed its return on 30.11.2017, declaring nil income and claiming a loss of ₹9.45 crore. The case was selected for scrutiny, and a notice was issued under Section 143(2).

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During assessment, the Revenue found that the company had entered into international transactions worth ₹138.54 crore with its Associated Enterprises. These included purchases, reimbursements, and warranty claims. The matter was referred to the Transfer Pricing Officer (TPO), who treated the purchase and warranty costs as closely linked and applied the Transactional Net Margin Method (TNMM), proposing an adjustment of ₹10.61 crore.

The Assessing Officer (AO) passed a draft order on 27.03.2021, determining the income at ₹1.16 crore. The respondent filed objections before the Dispute Resolution Panel (DRP), which upheld the use of TNMM and directed certain changes, reducing the adjustment to ₹6.94 crore. The final order was passed on 31.01.2022, assessing the income at ₹2.51 crore.

The respondent challenged the order before the ITAT, which partly allowed the appeal. The ITAT accepted the RPM as the correct approach for benchmarking the transaction, noting that the reimbursement and warranty costs were minor compared to the total purchases. It held that aggregation was not justified and rejected the TPO and DRP’s findings, relying on decisions in Matrix Cellular and Fujitsu India cases.

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The Revenue, aggrieved by the ITAT’s decision, filed the present appeal.

Chief Justice Devendra Kumar Upadhyay and Justice Tushar Rao Gedela held that the key issue was whether the RPM was the right method to benchmark international transactions. It noted that the respondent was a distributor, importing solar products from its AE and reselling them in India without any value addition. Warranty-related repairs were handled by the respondent but reimbursed by the AE under a valid agreement. This reimbursement did not involve any service element, and the Tribunal found that the purchase of goods and warranty costs were not closely linked.

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The bench found RPM to be the correct method, as the respondent only resold finished goods. It rejected the TPO and DRP’s view that warranty costs were part of the purchase transaction. Since the respondent didn’t alter the products or add value, RPM was considered appropriate.

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The Delhi High Court, in ITA 53/2025, upheld this view and referred to its earlier ruling in Burberry India. It stated that when a distributor resells finished goods without modification, RPM is the most suitable method. The Court clarified that even if the distributor incurs advertising and marketing expenses, it doesn’t count as value addition if the goods remain unchanged.

It also referred to OECD Guidelines and UN TP Manual, which support RPM in such cases. The Court found the appellant’s arguments unsupported by evidence and dismissed the appeal.

To Read the full text of the Order CLICK HERE

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