The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has directed denovo benchmarking holding that the Resale Price Method (RPM) is the most appropriate method in international transactions of Celio future fashion pertaining to import of men’s wear for resale.
The assessee, Celio Future Fashion Pvt. Ltd was a company engaged in the business of trading in ready-made garments and accessories under the name and style of “Celio”. For the year under consideration, the assessee filed its return of income on 28/11/2017, declaring a total loss. The return filed by the assessee was selected for scrutiny under CASS and statutory notices under Section 143(2) of the Income Tax Act as well as Section 142(1) of the Income Tax Act were issued and served on the assessee.
During the assessment proceedings, it was noticed that the assessee had entered into international transactions with its associated enterprises. Accordingly, a reference under Section 92CA(1) of the Income Tax Act was made to the Transfer Pricing Officer (TPO) for computation of arm’s length price in relation to international transactions. During the year under consideration, the assessee, inter-alia, entered into an international transaction pertaining to import of men’s wear for resale‟ with its associated enterprise.
The assessee purchased finished goods (men’s wear) from its associated enterprise for the purpose of stock and sale in the domestic market. For benchmarking the said international transaction, the assessee applied Resale Price Method (“RSM”) as the most appropriate method. The TPO rejected the benchmarking analysis conducted by the assessee and applied Transactional Net Margin Method (“TNMM”) as the most appropriate method and computed the transfer pricing adjustment in respect of international transaction pertaining to import of men’s wear for resale by considering assessee as the tested party.
The DRP vide its directions, inter-alia, rejected the objections filed by the assessee following its directions rendered in assessee’s own case for the assessment year 2011-12, wherein TNMM was held to be the most appropriate method to benchmark the international transaction of purchase of finished goods from associated enterprise.
Sumant Chadha, appeared on behalf of the assessee and Pravin Salunkhe, appeared on behalf of the revenue.
The two-member Bench of Prashant Maharishi, (Accountant Member) and Sandeep Singh Karhail, (Judicial Member) observed that the coordinate bench of the Tribunal in assessee’s own case in Celio Future Fashion Private Limited v/s ACIT, for the assessment year 2011-12, while deciding a similar issue had held that RPM was the most appropriate method for benchmarking the international transaction of import of men’s wear for resale‟
The Bench further noted that the Departmental Representative could not show us any reason to deviate from the aforesaid decision rendered in assessee’s own case and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in assessee’s own case the contention of the assessee in applying RPM as the most appropriate method had been upheld.
Accordingly, this ground of appeal filed by the assessee was allowed and the order passed by the TPO/AO on this issue was set aside and the TPO/AO was directed to de novo benchmark the international transaction pertaining to import of men’s wear for resale‟ by applying RPM as the most appropriate method.
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