RPM is most appropriate method When No Value Addition Before Resale

D Light Energy P. Ltd. Vs Assessing Officer (ITAT Delhi)

The case of D Light Energy P. Ltd. vs. Assessing Officer (ITAT Delhi) revolves around transfer pricing issues concerning the purchase and resale of solar goods by the assessee, D Light Energy P. Ltd., for the assessment year 2017-18. The primary contention in this appeal was the method used to benchmark the international transactions involving the purchase of solar goods and related expenses like reimbursement and warranty claims.

Facts of the Case

• D Light Energy P. Ltd. (the assessee) purchases solar products such as lanterns and lights from its Associated Enterprises (AEs) abroad and resells them in India without any value addition.
• The assessee applied the Resale Price Method (RPM) to benchmark the purchase of solar goods, citing that no value addition was made before resale. For reimbursement of expenses and warranty claims, another method was applied.
• The Transfer Pricing Officer (TPO) rejected RPM and applied the Transactional Net Margin Method (TNMM), arguing that warranty claims and other expenses were inherently linked to the purchase of solar goods. The TPO aggregated these transactions and made adjustments.
• The Dispute Resolution Panel (DRP) upheld TNMM as the most appropriate method, despite objections from the assessee regarding the comparables chosen and the functional dissimilarities of additional companies included by the DRP.
•  The assessee appealed to the Income Tax Appellate Tribunal (ITAT) against the TPO’s decision, arguing that RPM should have been accepted as the most appropriate method due to the lack of value addition before resale.

Arguments Presented

• The assessee contended that RPM is appropriate because it accurately reflects the resale scenario where no significant value addition occurs. They cited precedents like PCIT vs. Fujitsu India (P.) Ltd. to support their stance that RPM is suitable when there is no value addition.
• The revenue argued that TNMM should apply because the expenses like warranty claims and other costs are part of the overall transaction involving the solar goods. They highlighted the responsibilities taken on by the assessee, such as marketing and warranty handling, as evidence of value addition.

Decision of ITAT