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TMI Blog2018 (1) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... ('the Act') against an order dated 23rd November, 2016 passed by the Income Tax Appellate Tribunal ('ITAT') in ITA No.5713/Del/2012 for the Assessment Year ('AY') 2008-09. 3. Notice. Mr. Rahul Chaudhary, the learned Senior Standing Counsel accepts notice for the Respondents. 4. Admit. The following question of law is framed for consideration: Whether on the facts and in the circumstances of the case, the ITAT erred in law in directing the Transfer Pricing Officer (TPO) to undertake a fresh Transfer Pricing (TP) study for benchmarking of the international transactions involving the Assessee and its Associated Enterprises (AE)? 5. The Appellant Assessee is a Branch Office of the French company Corning S.A. which is a leading manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it provides services such as collecting market information on potential buyers, visiting distributors, direct customers and strategic partners, liaising and meeting with existing and potential customers/distributors, follow up until delivery in respect of the orders which are directly placed by distributors and other customers to its AEs, etc. In lieu of these services, the Assessee is reimbursed all the costs incurred by it along with a mark up of 5%. 6. It is further stated that during the financial year relevant to AY 2008-09, the Assessee entered into following international transactions with its AE: S. No. International Transactions Amount (Rs.) Method Applied 1. Import of Rough Ophthalmic Blanks 22,85,05,530 TNMM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee on the basis of the aforementioned TP analysis considered the international transaction of market support services to be at arm's length under Chapter X of the Act. 10. The return filed by the Assessee for the AY in question was picked up for scrutiny and a reference was made by the Assessing Officer ('AO') to the TPO under Section 92CA(1) of the Act. By an order dated 7th October, 2011, the TPO rejected the Assessee's TP study and recommended an upward TP adjustment of Rs. 1,32,99,572/- to the Arms Length Price ('ALP') of the international transaction undertaken by the Assessee during the relevant year. The TPO segregated the agency services from the distribution segment and clubbed them with the marketing support services for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. The revised average OP margin of the remaining comparables was worked out at 23.21% by the TPO. The TP adjustment stood increased to Rs. 1,40,30,533/-. On the basis of the above order of the DRP and the consequential order of the TPO, the AO passed the final assessment order dated 10th September, 2012 making the aforementioned increased TP adjustment. 14. Aggrieved by the aforementioned final assessment order, the Assessee went before the ITAT. Before the ITAT, the Assessee did not press the challenge to aggregation of the agency segment with the marketing support segment in view of a similar order for AY 2003-04 having attained finality. Likewise, the Assessee did not challenge the allocation of the common expenses under the agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking the TP analysis afresh. He pointed out that merely because the computation of operation margin of the Assessee as tested party was to be reworked by the TPO in terms of the ITAT's finding as regards the allocation of expenses, it did not preclude the ITAT from examining whether the selection of comparables was correct. He submitted that for the purposes of the benchmarking analysis, comparable companies have to be selected on the basis of the functions performed, assets acquired and risks assumed ('FAR' analysis) vis-a-vis the tested party. With the Assessee having accepted the aggregated benchmarking of international transactions under the agency and marketing support segments, the FAR of the said international transactions sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th reference to inter alia "the functions performed/taken into account, assets ought to be employed and the risks assumed" by the tested party and the comparable. A specific characteristic of the property transferred or services provided in both the controlled and uncontrolled transactions had to be taken into consideration. 21. It is not understood why the ITAT did not undertake such exercise regarding the correctness of the inclusion and exclusion of comparables. Consequently, the Court answers the question framed in the affirmative, that is, in favour of the Assessee and against the Revenue. The impugned order dated 23rd November, 2016 passed by the ITAT inasmuch as it remands the matter to the TPO is hereby set aside. 22. The Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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