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India: Resale price method, distributor adds no value to goods

India: Resale price method

The Delhi Bench of Income-tax Appellate Tribunal held that the “resale price method” is the most appropriate method to benchmark an international transaction for the taxpayer’s trading activity involving purchases of goods from foreign related parties and then reselling the same goods without adding any value to them. The tribunal also found that comparables must be limited to comparable companies for which the gross profit margin can be computed without allocations/ truncations.


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The case is: Swarovski India Private Ltd. v. ACIT (ITA No. 5621/Del/2014 and ITA No. 5622/Del/2014)


The taxpayer, in its transfer pricing study, used the comparable uncontrolled price (CUP) method with respect to its international transactions involving the imported goods. The Transfer Pricing Officer rejected the CUP method, finding that the data related to different items, and instead applied the transactional net margin method (TNMM) as the most appropriate method. 

During administrative proceedings, the taxpayer submitted an alternative analysis and applied the resale price method. This was rejected by the Commissioner of Income-tax (Appeals) [CIT(A)]. 

The tribunal rejected the CUP method as the most appropriate method because complete data for analysis was not available. The tribunal then turned to measure the TNMM against use of the resale price method, and concluded that the resale price method was the most appropriate method when the goods purchased from related parties is resold with no value added to the imported goods before the resale. 


Read a February 2017 report [PDF 326 KB] prepared by the KPMG member firm in India: Resale price method considered as most appropriate method for distributors engaged in buying and reselling of goods without any value addition to such goods

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