In a ruling in favour of Puma, the Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that Retail trading and wholesale trading companies have to consider separately while deciding Comparables.
Shri Nageshwar Rao, Advocate appeared for the assessee and Shri Gopinath CHV appeared for the revenue.
M/s. Puma Sports India Pvt. Ltd, the assessee 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 a return of income for AY 2015-16 on 29.11.2015 declaring a total income of Rs.46,77,94,170/- which 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/-. The assessee raised its objections before the DRP.
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. The TP adjustment was revised by the TPO to Rs.6,59,34,345/-. On appeal before the Tribunal, the issue was remanded back to the DRP for a fresh decision.
The assessee claimed the exclusion of Metro Shoes Ltd. and Sree Leather Ltd which was rejected by the DRP as the company is functionally similar to the assessee and rejected the assessee’s contention that the company has both wholesale and retail wings being not valid
The ITAT noticed that the TPO has applied a trade filter of 75% while selecting fresh comparable companies and according to the above working the company fails the trade filter of more than 75% and held that Metro Shoes fails the trade filter of more than 75% and therefore should be excluded from the comparable companies.
An ITAT bench consisting of Shri George George K., Judicial Member and Ms Padmavathy S., Accountant Member has observed that Rule 10B(2)(d) of the Act provided that the company is in the wholesale trading and retail trading have to be considered separately for comparison.
Considering the provisions contained in Rule 10B (2)(d), the ITAT held that Sreeleather Ltd. should be excluded as comparable. Further held that for comparability with an uncontrolled transaction, whether the market in which the companies are operating is wholesale or retail needs to be considered. The appeal filed by the assessee was allowed.
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