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TMI Blog2016 (11) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... law in making addition of Rs. 1,40,30,553 of the alleged difference in the arm's length price of the international transactions undertaken by the appellant. 2.1 That the assessing officer/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 The TPO erred on facts and in law in inappropriately allocating expenses to the agency segment in the ratio of sales, not appreciating that such allocation ought to have been done on the basis functions performed, assets employed and risks assumed by the appellant in the agency segment. 2.3 That the assessing officer I TPO erred on facts and in law in using inappropriate quantitative filters which are not based on any rational or reasonable basis. 2.4 That the assessing officer I TPO erred on facts and in law in rejecting the comparable companies selected by the appellant, without appreciating that such companies are comparable to the appellant on the parameters of functions performed, assets empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts in India market and is remunerated for such services at cost plus mark up at 5%; that assessee claimed that its agency service activities and distribution activities are similar in nature, thus clubbed together and determined the Arms Length Price (ALP) by applying TNMM. However, TPO disagreed with the assessee company and segregated agency activities from distribution and clubbed it with marketing activities for computation of ALP. 4. Assessee company being a service provided applied TNMM with OP/OC as the Profit Level Indicator (PLI) and worked out tested party margin at 5.73%. 5. Assessee company chosen 12 comparables showing margins of the comparables at 8.86% by using data for 2006, 2007 and 2008 and found its international transaction at arms level, so far as marketing support services are concerned. 6. TPO, in order to benchmark the international transaction, combined all agency services activities with market support activities and applied TNMM and determined the income from the agency services by allocating indirect expenses aggregating to Rs. 28,99,07,910/- relating to distribution segment comprising of distribution and agency service functions in proportion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is no change in the facts and circumstances during the year under assessment; that the ground no.1 is general in nature, ground no.2.1 has already been decided against the assessee in assessee's own case being ITA No.2564/Del/2011 for AY 200304 (supra) and the said order has since attained finality; that ground no.2.2 needs to be argued and grounds no.2.3 to 2.7 need to be determined in the light of the findings to be returned in ground no.2.2, which is also covered by aforesaid order dated 28.08.2015 for AY 2003-04. This factual position has not been controverted by the ld. DR for the revenue. GROUND NO.2.2 12. Undisputedly, assessee company entered into international transactions duly described in preceding para 3. The Assessee company is into the distribution business involving import of Rough Ophthalmic Blanks (ROB) from AE; providing agency services in respect of ophthalmic glass products sold by Corning France directly to buyers in India at the commission of 3% of the sales value as per Agreement dated 01.01.2011; and the assessee company is also into marketing support services involving collection of marketing information, exploring sales and distribution service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aggregate indirect expenses common to both the functions are of Rs. 1,58,72,993/- (Rs. 1,93,29,321/- - Rs. 30,78,570/- - Rs. 3,77,758/-). The CIT(A) further more held that allocation of such expenses should be done on the basis of gross margin of distribution function and commission income receipts and not on the basis of sales, as adopted by the TPO. Here too, we do not find any infirmity in the approach adopted by the CIT(A). The CIT(A) has correctly held that allocation of expenses in proportion to sales would amount to give equal weightage in terms of functions performed, assets utilized and risks assumed to both distribution function as well as agency service activity, which otherwise involves 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, han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing support segment and agency services activities, selected 10 comparables for benchmarking the international transactions having average OP/OC at 22.12%. However, DRP excluded 2 comparables, namely, RITES Limited and Vapi Waste and Effluent Management Co. Ltd. and enhanced the average margin of 23.21% and made ALP adjustment at Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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