TMI Blog2016 (1) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... T DR ORDER PER A.T.VARKEY JUDICIAL MEMBER : This appeal, at the instance of the assessee, is filed against the order of the AO, New Delhi dated 22.01.2014 for the assessment year 2009-10 on the following grounds. 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income Tax Act,1961 ( the Act ) at an income of ₹ 48241533/- as against the income of ₹ 34719813 returned by the appellant. 2. That the assessing officer erred on facts and in law in making addition of ₹ 13521720/- on account of the alleged difference in the arm s length price of the international transactions on the basis of the order passed under section 92CA(3) of the Act by the TPO. 2.1 That the DRP/TPO erred on facts and in law in inappropriately aggregating the international transaction of provision of agency services with market support services, without appreciating that such services ought to have been aggregated with the distribution segment, being closely linked with such segment. 2.2 That the DRP/TPO erred on facts and in law in not5 appreciating that the distribution and agency segment relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 5 crore 9 Priya International Ltd Turnover less than ₹ 5 crore 2.8 That DRP/TPO erred on facts and in law in not appreciating that the aforesaid companies are functionally comparable to the appellant. 2.9 That the DRP/TPO erred on facts and in law in adopting inappropriate filter of selecting companies having sales more than five crore without objectively applying this filter for eliminating both low and high turnover companies. 2.10 That the DRP/TPO erred on facts and in law in considering WAPCOS having significantly higher turnover as compared to the appellant and is also not functionally comparable to the appellant. 2.11 That the DRP/TPO erred on facts and in law in not considering multiple year data so as to iron out the fluctuations caused by business/economic/product life cycle. 2.12 That the DRP/TPO erred on facts and in law in not appreciating that use of single year data of the comparable companies may not adequately capture the market and business cycle reflected in the industry. 2.13 That the DRP/TPO erred on facts and in law in not allowing appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Net profit Margin based on Sales as the profit level indicator to be the most appropriate method for determining the appropriate arm s length price. It s search yielded a set of 4 independent companies that were broadly comparable to appellant s functional and risk profile for the distribution function and, based on three years date (i.e. financial year 2006-2007,2007-2008 and 2008-2009) of the 4 comparables, the net profit margin earned with an arithmetic mean of 2.17%. Accordingly for the year ended on 31.03.2009 appellant had earned a NPM of 7.37% (considering foreign exchange loss) from its distribution operations which was higher than the average OP/OC of comparable companies. Further, so far marketing support services to Corning USA, appellant selected Transactional Net Margin Method using Net Profit Margin based on cost (NCP) as the profit level indicator to be the most appropriate method for determining the appropriate arms length price. It s search yielded a set of 13 independent companies and, based on three years data (i.e. financial years 2006-2007,2007-2008, and 2008- 2009) of the 13 comparable companies, the NCP margins earned by them was found to range from 3.44% t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82,106/- as follows: Operating cost 74728396 Arms length margin% 13.75 Arms length price (ALP) 85003550 Price received 71481830 Shortfall being adjustment u/s 92CA 13,521,720 8. On the basis of above, the TPO accordingly determined arm s length price in respect of commission income at ₹ 8,50,03,550/- as compared to ₹ 7,14,81,830/- the commission income received by the assessee and computed adjustment of ₹ 1,35,21,720/- being the difference between the arm s length price determined in respect of commission income and the actual amount received by the appellant. 3.7 The Dispute Resolution panel (DRP) upheld the order of the TPO and accordingly, the assessing officer on the basis the order of the DRP passed the final order. 9. Ground No. 1 is general. 10. Ground 2 to 2.14 of appeal relates to deletion of adjustment of ₹ 1,35,21,720/- pertaining to agency services function carried on by the appellant. 11. When this appeal was called out for he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand of the assessee and uphold the findings of CIT(A) in benchmarking the distribution/agency function separately. 14. Accordingly, ground no 2.1 to 2.3 were not pressed by the appellant. 15. With respect to ground no. 2.4-2.5, the appellant further disputed the allocation of expenses relating to agency service activity in proportion to the turnover by the TPO as it is inconsistent with the accepted accounting principles of matching. The appellant contended that contract sales are made by the AE, i.e. Corning France to certain existing customers in India, on which commission is received by the appellant without significant deployment of efforts and resources. The DRP upheld the contention of the TPO. 16. Before us, the Ld. DR relied upon the findings of TPO/DRP to contend that allocation of expenses was proper. 17. So far as the allocation of expenses is concerned it is noted that TPO had identified indirect expenses common to both the functions at ₹ 4,22,77,131/- details of which are as under: Particular Distribution and Commission Salary 148,87,386 Staff Welfare ..... 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