2016 (1) TMI 855

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....e 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 relates to the same products, viz., ROBs and involves performing some of the common functions by the same employees and it is not feasible to segregate the cost relating to the same. 2.3 That the DRP/TPO erred on facts and in law in not appreciating that the appellant does not employ any separate. Specific personnel/asset for provision of agency services and same employees engaged in the distribution segment perform the necessary functions for provision of agency services. 2.4 That the DRP/TPO erred on facts and in law in allocating common expenses to the agency segment in the ratio of sales, resulting in disproportionate allocation of expenses not commensurate with the functions per not appreciating that such expenses ought to have been allocated in ....

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....e independent entrepreneurs. 2.14 That the DRP/TPO erred on facts and in law in not dealing with the objection of the appellant of comparability adjustment on account of working capital employed by the appellant vis-àvis comparable companies." 2. Briefly stated the facts of the case are that the appellant company is a branch office of a French company, namely, Corning S.A. France which is a leading manufacturer of very high-grade ophthalmic and non-ophthalmic glass products in the world e.g., ophthalmic blanks for eyeglasses and optical fibre etc. For the instant year, appellant filed return of income on 20.09.2009 declaring an income of Rs. 3,47,19,813/-. The appellant had entered into following "international transactions" with the head office in France and other Corning group companies during the relevant previous year: (i) Import of ROB's of Rs. 24,88,09,859/- from Corning Inc. as part of distribution function of import of rough ophthalmic blanks ("ROB's ) and sale to customers in India; (ii) Import of ROB's of Rs. 18,843,023/- from Corning Inc. as part of distribution function of import of rough ophthalmic blanks (ROB's") and sale to customers in India; (iii)....

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....from 3.44 to 14.32%. Thus, as for financial year ending 31.03.2009 appellant had earned a NCP margin of 8.88% from its marketing support services function it was claimed to be within the above mentioned +/-5% range prescribed under the Act. 4. However, the TPO in an order dated 14.12.2012 rejected the combined evaluation of agency service activity and distribution activity with M/s Corning SA France, as part of distribution activity/segment, followed by the appellant. The TPO segregated the aforesaid activities for the computation of arm's length price and consequently made an upward adjustment, re-computing the arm's length price in respect of the agency activities. The TPO held in this regard as under: (i) the functions performed and risks assumed in the distribution function and the agency services function are quite different and therefore ALP for each of them needs to be determined separately; and, (ii) agency services rendered by the appellant were in the nature of marketing services and were of similar nature as marketing support services provided by the appellant to Corning Inc. USA. 5. The TPO in view of the aforesaid benchmarked the operating results of each of the ....

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....demic. Learned counsel thus prays that this issue raised in ground no. 2.4 and 2.5 can be taken up at the threshold itself. 12. Apropos the adjustment of Rs. 20,87,795/- it was contended before the DRP by the appellant that the distribution activity and agency service activity are to be considered together and are not to be evaluated separately to determine the arm's length price in relation to the aforesaid "international transactions" as the aforesaid two activities transactions form part of natural business segment of distribution of ROBs and are inter linked and closely connected in as much as, (i) the two activities relate to the same products and involve performing some of the common functions by the same employees and it is not feasible to segregate the cost relating to the same; (ii) the agency services rendered by the assessee in relation to sale of ROBs to the customers of Corning France in India, is akin to the distribution of ROBs, in as much as both are aimed at sales and revenues arise to the assessee in both the cases on sale of products to the buyer; in the other hand marketing support service fee is not related to sales; (iii) Corning SA and the assessee branch en....