Puma Sports India Pvt. Ltd. Vs JCIT (OSD) (ITAT Bangalore)
ITAT Bangalore held that rule 10B(2)(d) of the Income Tax Rules provide that the company is in the wholesale trading and retail trading have to be considered separately for the purpose of comparison.
Facts-
The case was selected for scrutiny and reference was made to the Transfer Pricing Officer (TPO) to determine the arm’s length price (ALP) of the international transactions the assessee had with its associated enterprises (AE). AO determined a TP adjustment of Rs.6,65,42,022/-. Aggrieved, the assessee raised its objections before the DRP.
DRP vide its directions dated 27.09.2019 directed the TPO to exclude the liabilities of the earlier years and to include sample sale group sale venture discount received out of miscellaneous income while computing operating income. Accordingly the TP adjustment was revised by the TPO to Rs.6,59,34,345/. The assessee filed an appeal before the Tribunal against the final assessment order passed giving effect to the directions of the DRP. Being aggrieved, the present appeal is filed.
Notably, the assessee claimed the exclusion of Metro Shoes Ltd. and Sree Leather Ltd which was rejected by the DRP on the ground that the company has both wholesale and retail trade.
Conclusion-
We notice that Rule 10B(2)(d) of the Act provide that the company is in the wholesale trading and retail trading have to be considered separately for the purpose of comparison.
From the reading of Rule 10B(2)(d) of the Income Tax Rules it is clear that for the purpose of comparability with an uncontrolled transaction, whether the market in which the companies are operating is wholesale or retail needs to be considered.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is against the final assessment order passed by the ACIT, Circle – 5(1)(2), Bengaluru dated 23.10.2019 under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) for AY 2015-16.
2. The assessee is a private limited company engaged in the business of wholesale trading of puma branded products. The assessee is a wholly owned subsidiary of Puma Austria and is a licensed distributor engaged in the wholesale trading of group projects/merchandise including footwear, apparel and accessories. The assessee filed return of income for AY 2015-16 on 29.11.2015 declaring total income of Rs.46,77,94,170/- The case was selected for scrutiny and reference was made to the Transfer Pricing Officer (TPO) to determine the arm’s length price (ALP) of the international transactions the assessee had with its associated enterprises (AE). The AO determined a TP adjustment of Rs.6,65,42,022/-. Aggrieved, the assessee raised its objections before the DRP.
3. The DRP vide its directions dated 27.09.2019 directed the TPO to exclude the liabilities of the earlier years and to include sample sale group sale venture discount received out of miscellaneous income while computing operating income. Accordingly the TP adjustment was revised by the TPO to Rs.6,59,34,345/-. The assessee filed an appeal before the Tribunal against the final assessment order passed giving effect to the directions of the DRP. The Tribunal vide order dated 13,.03.2020 remanded the issue back to the DRP for a fresh decision. The relevant portion of the decision of the Tribunal is extracted below: –
“3. Thereafter, he submitted that as per the remaining grounds, the grievance of the assessee is about T P Adjustment and in this regard, the assessee is seeking exclusion of four comparable i.e. M/s Metro Shoes Limited, M/s VF Brands India Private limited, M/s Tommy Hilfiger Arvind Fashion Limited and Sreeleathers Limited and seeking inclusion of two comparables i.e. M/s Dindayal Jalan Textiles Limited and M/s Colorplus Fashions Limited and there are some objections about margin computation and some adjustments such as Risk Adjustment and adjustment in respect of custom duty paid on import of raw materials etc. The bench wanted to see the finding of DRP on these aspects and when the order of DRP was read, it was noticed that the order of DRP is cryptic and it is not a speaking and reasoned order. At this juncture, the bench made out this proposition that the matter has to go back to DRP for a fresh decision by way of a speaking and reasoned order. In reply, both sides agreed to this proposition but this was the common request of both sides that all aspect of the matter about T P adjustment should be left open for a fresh decision by DRP.”
4. The DPR in the remand proceedings vide order dated 25.01.2022 retained the same TP adjustment as in the earlier round. The assessee is now in appeal against the order giving effect to the order of the ITAT.
5. The assessee raised 13 grounds of appeal. During the course of hearing the learned A.R. submitted that out these grounds he is contending only the following issues with regard to TP adjustment:
i. Exclusion of Metro Shoes Ltd.
ii. Exclusion of Sreeleathers Ltd.
iii. Margin correction of VF Brands India Pvt. Ltd. and Tommy Hilfiger Arvind Fashion Pvt. Ltd.
The learned A.R. prayed that if these issues are adjudicated the rest of the grounds can be left upon. Accordingly we adjudicate only the above issues in the following paragraphs.
6. The assessee has chosen the Transaction Net Margin Method (TNMM) as the most appropriate method and operating profit and operating revenue is the profit level indicator. For the year under consideration the details of international transactions entered into by the assessee is as follows: –
