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IT/ILT : Where assessee is purchasing finished products from AE for purpose of reselling to unrelated parties without any value addition, under normal circumstances, most appropriate method to bench mark arm's length price of such transaction in terms of rule 10B is RPM
• The assessee was a reseller of finished goods, in the duty free shops set up at the Delhi Airport and the products sold by the assessee such as liquor, perfumes, confectionary, tobacco, etc., are purchased from A.Es and sold to customers without any value addition or material change to such products.
• The assessee had bench marked the international transaction relating to purchase of finished goods from A.Es by adopting RPM.
• The Transfer Pricing Officer has rejected RPM primarily on the ground that gross profit computation of comparables was not produced by the assessee. He had also stated that the gross profit margin of the products sold by the assessee could not be compared with gross profit margin of the products sold by the comparables as they were different in nature. Further, the Transfer Pricing Officer had opined that the transaction of purchase of finished goods for resale was to be bench marked as per CUP method.
• As per rule 10B(1)(b), determination of arm's length price under RPM is applicable to a case where the price at which property purchased or service obtained by the enterprise from the A.E. is resold or is provided to an unrelated enterprise. The gross profit margin in respect of such a transaction is thereafter compared to the gross profit margin of similar comparable uncontrolled transactions and after making necessary adjustment with regard to expenditure incurred, functionally and other differences the arm's length price is determined. Thus, when there is no dispute to the fact that the assessee is purchasing finished products from the A.Es for the purpose of reselling to unrelated parties without any value addition, under normal circumstances, the most appropriate method to bench mark the arm's length price of such transaction in terms of 10B is RPM.