The Delhi Bench of the Income-tax Appellate Tribunal in the case of: Swarovski India Private Ltd. v. ACIT (ITA No. 5621/Del/2014 and ITA No. 5622/Del/2014), 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 comparable transactions must be limited to comparable companies for which the gross profit margin can be computed without allocations.

In the case of Swarovski India Private Ltd. v. ACIT, 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 comparable data related to different items, and instead applied the transactional net margin method (TNMM) as the most appropriate method. In the course of administrative proceedings the taxpayer submitted an alternative analysis and applied the resale price method. This was rejected by the Commissioner of Income-tax (Appeals).

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 the 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 are resold with no value added to the imported goods before the resale.