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The Tax Publishers Gap International Sourcing India Pvt. Ltd. v. DCIT [ITA No. 1077 Del of 2016, dt. 17-5-2016] : 2016 TaxPub(DT) 2456 (Del-Trib) *Facts:* Assessee a wholly owned subsidiary of GIS Inc. was offering sourcing support/buying house for apparel merchandise from India. It was reimbursed at cost plus 15% by its AEs. TPO rejected the cost plus logic and applied a commission percentage on the FOB value. The contention of the TPO was that the assessee was providing supply chain, HR intangibles, support intangibles etc. like a commission agent while that of the assessee was that they were only a pure service provider with limited risks thus cost plus is a correct benchmark. To benchmark the cost plus ALP TNMM was used by the assessee where in the TPO using a benchmarking commission percentage made additions on TPO. This was approved by the DRP. Thus the appeal before the ITAT was whether a buying house agency service was to be benchmarked as a % of the FOB value or a cost plus benchmark is in sink with TP provisions. Held in favour of the assessee that cost plus was a right method of benchmark in line with the functional, risk analysis of the assessee but on other facts on the TP comparables was remanded to TPO for fresh consideration. 12. Undisputedly, identical issue was cropped up before the ITAT, Delhi in assessee's own case qua the assessment years 2006- 07 and 2007-08 bearing ITA Nos.5147/Del/2011 and 228/del/2012, Order, dated 18-9-2012, wherein the Delhi Bench of the Tribunal distinguished the assessee's case from Li & Fung India Pvt. Ltd. v. DCIT reported in 12 ITR (Trib) 748 relied upon by the TPO to benchmark the international transactions and held that the assessee company was entitled to a cost plus form of remuneration, as claimed by the assessee and not a commission based remuneration. So, in other terms, the assessee company has been declared as a service provider and not being into buy and sell company rather functions as a facilitator only. So, now the profit margin of the assessee is in dispute only in this case. 16. So, by respectfully following the decisions rendered by the coordinate Bench of the Tribunal in assessee's own case in assessment years 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 and judgment delivered by the Hon'ble jurisdictional High Court in case entitled Li & Fung India Pvt. Ltd. on 16-12-2013 wherein remuneration model of markup of 5% on the operation cost without considering the value of the cost procured by the AE directly from the third party vendors in India has been held as a valid remuneration model for benchmarking the TP adjustment. So, we are of the considered view that the assessee is not into buy and sell rather it is a facilitator/service provider and its compensation model at ALP would not be commission of FOB cost of goods sourced from India, rather assessee company is entitled to cost plus remuneration and not a commission based remuneration. Note: In Li Fung on similar facts a remuneration of 5% of FOB value was held to be appropriate. In the end it is not about the basis of application of 5% on FOB or 15% cost plus, whether the remuneration is in line with the functions performed and risks assumed is what is the right criteria, thus having a high cost plus % or a small % on FOB value though appear analogous may not be a deciding factor it is the appropriateness of the remuneration is what is more relevant.

The Tax Publishers

Gap International Sourcing India Pvt. Ltd. v. DCIT [ITA No. 1077 Del of 2016, dt. 17-5-2016] : 2016 TaxPub(DT) 2456 (Del-Trib)

Facts:

Assessee a wholly owned subsidiary of GIS Inc. was offering sourcing support/buying house for apparel merchandise from India. It was reimbursed at cost plus 15% by its AEs. TPO rejected the cost plus logic and applied a commission percentage on the FOB value. The contention of the TPO was that the assessee was providing supply chain, HR intangibles, support intangibles etc. like a commission agent while that of the assessee was that they were only a pure service provider with limited risks thus cost plus is a correct benchmark. To benchmark the cost plus ALP TNMM was used by the assessee where in the TPO using a benchmarking commission percentage made additions on TPO. This was approved by the DRP. Thus the appeal before the ITAT was whether a buying house agency service was to be benchmarked as a % of the FOB value or a cost plus benchmark is in sink with TP provisions.

Held in favour of the assessee that cost plus was a right method of benchmark in line with the functional, risk analysis of the assessee but on other facts on the TP comparables was remanded to TPO for fresh consideration.

12. Undisputedly, identical issue was cropped up before the ITAT, Delhi in assessee's own case qua the assessment years 2006- 07 and 2007-08 bearing ITA Nos.5147/Del/2011 and 228/del/2012, Order, dated 18-9-2012, wherein the Delhi Bench of the Tribunal distinguished the assessee's case from Li & Fung India Pvt. Ltd. v. DCIT reported in 12 ITR (Trib) 748 relied upon by the TPO to benchmark the international transactions and held that the assessee company was entitled to a cost plus form of remuneration, as claimed by the assessee and not a commission based remuneration. So, in other terms, the assessee company has been declared as a service provider and not being into buy and sell company rather functions as a facilitator only. So, now the profit margin of the assessee is in dispute only in this case.

16. So, by respectfully following the decisions rendered by the coordinate Bench of the Tribunal in assessee's own case in assessment years 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 and judgment delivered by the Hon'ble jurisdictional High Court in case entitled Li & Fung India Pvt. Ltd. on 16-12-2013 wherein remuneration model of markup of 5% on the operation cost without considering the value of the cost procured by the AE directly from the third party vendors in India has been held as a valid remuneration model for benchmarking the TP adjustment. So, we are of the considered view that the assessee is not into buy and sell rather it is a facilitator/service provider and its compensation model at ALP would not be commission of FOB cost of goods sourced from India, rather assessee company is entitled to cost plus remuneration and not a commission based remuneration.

Note: In Li Fung on similar facts a remuneration of 5% of FOB value was held to be appropriate. In the end it is not about the basis of application of 5% on FOB or 15% cost plus, whether the remuneration is in line with the functions performed and risks assumed is what is the right criteria, thus having a high cost plus % or a small % on FOB value though appear analogous may not be a deciding factor it is the appropriateness of the remuneration is what is more relevant.