TMI Blog2016 (11) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited for benchmarking the international transaction and considered its international transactions at arm’s length. Since in view of the findings returned by the Tribunal on ground no.2.2 the basis for allocating the expenses to the agency segment is ordered to be changed, it would be futile to go into the validity of the comparables considered by the TPO for benchmarking international transactions as it would change the entire scenario and fresh TP study analysis is required to be done by the TPO. So, we hereby direct the TPO to make fresh TP study analysis after providing adequate opportunity of being heard to the assessee company to benchmark the international transactions undertaken by the assessee company. So, we decide grounds no.2.2 to 2.7 accordingly. - ITA No. 5713/Del./2012 - - - Dated:- 23-11-2016 - SHRI R.S. SYAL, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER Assessee By: Shri Ajay Vohra, Senior Advocate Shri Neeraj Jain, Advocate and Ms. Deepika Agarwal, CA Revenue By: Shri Amrendra Kumar, CIT DR O R D E R PER KULDIP SINGH, JUDICIAL MEMBER: Appellant, Corning SAS India Branch Office (for short the assessee company ), by fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating that the assessee operates as a low-risk-bearing contract service provider and a risk adjustment on a conservative basis to the extent of 5% over the cost should be provided, as risk and reward to this extent vest with the overseas associated enterprise. 2. Briefly stated the facts necessary to adjudicate the issues in controversy are: assessee company is into the distribution of Rough Ophthalmic Blanks (ROB) in India and providing agency services for sale of certain non-ophthalmic products viz. optical fiber, optical fiber cable and other telecommunication equipments to the head office and entered into international transactions with its head office and other Corning group companies during the year under assessment as under :- S.No. Nature of Transaction Amount Method PLI 1 Import of Rough Ophthalmic Blanks 228,505,530 TNMM OP/OR 2 Marketing support services 60,400,045 TNMM OP/OC 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47.75%. TPO then came to the conclusion that in the agency service business, assessee incurred loss of ₹ 17,37,667/- and TPO has further considered the cost of ₹ 99,34,705/- as part of the market support services at ₹ 5,71,27,738/- and aggregate cost of ₹ 6,70,62,443/- was considered as cost base for undertaking benchmarking of agency service commission and marketing support services. 7. TPO, for TP study, applied the filters inter alia that comparables whose data is not available for FY 2007-08 is not available; companies whose business support service at ₹ 1 crore; companies whose revenue from business support service is less than 75% of the total operating revenues; companies having more than 25% related party transaction s of income; companies having different financial year ending (i.e. not March 31,2008); companies that are functionally different from the taxpayer and companies that are having peculiar circumstances are to be excluded from the list of comparables. 8. On the basis of TP study conducted in view of the submissions made by the assessee, the TPO proceeded to select 10 comparables having average margin of 21.76% which the TPO con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awareness of Corning products in Indian market at cost plus a mark-up of 5%. 13. For benchmarking the international transaction, assessee company clubbed together agency services activities and distribution activities and by applying the TNMM treated its international transactions at arm s length. However, TPO for the purpose of computation of ALP segregated agency activities from distribution and clubbed the same with marketing activities and his opinion has been affirmed by the ld. DRP after rejecting objections raised by the assessee company, which has been challenged before the Tribunal by the assessee company. 14. Now, the assessee company challenged the segregation of its agency activities form distribution and clubbing the same with marketing activities for the purpose of determining ALP. From the grounds of appeal and arguments addressed by the parties to the appeal, the question arises for determination in this case is :- as to whether TPO has erred in allocating expenses to the agency segment in the ratio of sales by ignoring the fact that such allocation is to be made on the basis of function performed, assets employed and risk assumed by the assessee in agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much lesser functions and utilization of assets and risk. The CIT(A) has held as under: It would not be correct to allocate expenses attributed to purchase/sale of finished goods, warehousing and handling of inventory etc., to the agency service activity, wherein such activities are not involved. Allocation of common expenses in proportion to gross margin/income from distribution function and the commission income, irons out or eliminate the impact of purchase of finished goods, handling of inventory and undertaking distribution function, etc. Allocation of common expenses in proportion to gross margin from distribution function and commission income is a reasonable and rationale basis of allocating of such common expenses between the two activities. I accordingly uphold allocation of common cost by the assessee and accordingly computed the adjustment after combining the agency service activity with marketing service function, as follows: Particulars Rupees Income from market support services 3,41,76,307 Add: Commission income 55,94,311 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Waste and Effluent Management Co. Ltd. and enhanced the average margin of 23.21% and made ALP adjustment at ₹ 1,40,30,553/-. Assessee company, by relying upon the order passed by the Tribunal in assessee s own case of AY 2002-03 that allocation of expenses to the agency segment in the ratio of sales cannot be made, as has been held by the Bench in the preceding paras, sought to exclude three comparables, namely, Aptico Ltd., Choksi Laboratories Ltd. and Wapcos Ltd. and also sought to include three comparables, namely, Educational Consultants India Limited, India Tourism Development Corporation Limited and In House Productions Limited for benchmarking the international transaction and considered its international transactions at arm s length. 18. However, we are of the considered view that since in view of the findings returned by the Tribunal on ground no.2.2 the basis for allocating the expenses to the agency segment is ordered to be changed, it would be futile to go into the validity of the comparables considered by the TPO for benchmarking international transactions as it would change the entire scenario and fresh TP study analysis is required to be done by the TPO. So, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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