In the case of : CIT v. L’Oreal India Pvt. Ltd. (ITA No. 1046 of 2012 (7 November 2014), The Bombay High Court confirmed a tribunal decision that, the taxpayer’s use of the Resale Price Method (RPM) for purposes of determining the arm’s length price of its international transactions.
When administrative appeal filed by the taxpayer, the Commissioner for Income-tax (Appeals) rejected the transfer pricing adjustment (in part, by relying on OECD Transfer Pricing Guidelines).After the review, the Mumbai Bench of the Income-tax Appellate Tribunal agreed with the administrative determination and noted that there is no order of priority for transfer pricing methodologies in India. The tribunal also observed that the RPM is the most appropriate method for distributing and marketing activities when goods are purchased from related parties and resold to unrelated parties.
The High Court affirmed the determination of the tribunal:
While India’s tax department stated that use of the Transfer Pricing Officer applied the Transaction Net Margin Method (TNMM) more properly reflected the arm’s length price of international transactions in respect of the taxpayer’s distribution activity. Moreover The High Court observed that because RPM had been previously accepted by the Transfer Pricing Officer.
