Marks & Spencer (India) Pvt. Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi held that deriving Arm’s Length Price without resorting to any method prescribed as per the Income Tax Rules is unjustifiable. Accordingly, TPO/ AO directed to determine Arm’s Length Price.
Facts- M&S India is a subsidiary of Marks and Spencer Investments Pte. Ltd. engaged in the wholesale business of procuring and selling branded apparels and accessories including leather products and toiletries. Under the trading business of the Assessee, it procures branded apparels and accessories from third party suppliers who manufactures for and on behalf of it, for further resale to affiliate joint venture entities in India. The Assessee had entered into an agreement with Marks and Spencer pic, UK wherein royalty @ 1% of revenue was paid by the Assessee to AE on account of grant of trademark.
The Assessee entered into a revised agreement with its AE for license of valuable rights and business services for efficient conduct of business operations of the Assessee in India. For obtaining the bundled rights and services, the Assessee pays royalty at 6% on revenue to its AE.
The TPO disallowed the incremental royalty i.e. 5% on revenue and proposed an adjustment of INR 11,06,15,455.
Conclusion- We find that the revenue has derived ALP without resorting to any method prescribed as per the Income Tax Rules. The disallowance of 6% during the current year has been merely made on the pretest that in the earlier year, the royalty paid was @ 1%. Hence, it is directed that the TPO/AO shall undertake appropriate TP study and determine Arm’s Length Price.
In the result, the appeal of the assessee is allowed for statistical purpose.
