M/s. Corning SAS-India Branch Office, Gurgaon V. DDIT, New Delhi

ITA 1129/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97736 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2009-2010
• Appeal Filed On: 27-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIHAR RANJAN
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.1129/DEL./2014 (ASSESSMENT YEAR : 2009-10) M/S. CORNING SAS INDIA BRANCH OFFICE, VS. DDIT, CIR CLE-3 (2), 2 ND FLOOR, DLF BUILDING 9B, INTERNATIONAL TAXATION, DLF CYBER CITY, PHASE-III, NEW DELHI. GURGAON 122 002. (PAN : AAACC3889Q) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI AJAY VOHRA, SENIOR ADVOCATE, SHRI NEERAJ JAIN, ADVOCATE AND MS. DEEPIKA AGARWAL CA REVENUE BY : SHRI NIHAR RANJAN PANDEY, ADDL. CIT D R DATE OF HEARING : 05.10.2015 DATE OF PRONOUNCEMENT : 06.11.2015 O R D E R PER A.T.VARKEY JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS FI LED AGAINST THE ORDER OF THE AO, NEW DELHI DATED 22.01.2014 FOR THE ASSES SMENT YEAR 2009-10 ON THE FOLLOWING GROUNDS. 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN L AW IN COMPLETING ASSESSMENT UNDER SECTION 144C/143( 3) OF THE INCOME TAX ACT,1961 (THE ACT) AT AN INCOME OF RS. 48241533/- AS AGAINST THE INCOME OF RS. 34719813 RE TURNED BY THE APPELLANT. ITA NO.1129 /DEL./2014 2 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 13521720/- ON ACCOUNT OF THE ALLEGED DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INTERNA TIONAL 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 I NAPPROPRIATELY AGGREGATING THE INTERNATIONAL TRANSACTION OF PROVIS ION OF AGENCY SERVICES WITH MARKET SUPPORT SERVICES, WITHO UT 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 N OT5 APPRECIATING THAT THE DISTRIBUTION AND AGENCY SEGME NT RELATES TO THE SAME PRODUCTS, VIZ., ROBS AND INVOLVES PERFO RMING SOME OF THE COMMON FUNCTIONS BY THE SAME EMPLOYEES AND I T IS NOT FEASIBLE TO SEGREGATE THE COST RELATING TO THE SAME . 2.3 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE APPELLANT DOES NOT EMPLOY ANY SEPARATE. SPECIFIC PERSONNEL/ASSET FOR PROVISION OF AGENCY SE RVICES AND SAME EMPLOYEES ENGAGED IN THE DISTRIBUTION SEGMENT PERFORM THE NECESSARY FUNCTIONS FOR PROVISION OF AGENCY SER VICES. 2.4 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN A LLOCATING COMMON EXPENSES TO THE AGENCY SEGMENT IN THE RATIO OF SALES, RESULTING IN DISPROPORTIONATE ALLOCATION OF EXPENSE S NOT COMMENSURATE WITH THE FUNCTIONS PER NOT APPRECIATIN G THAT SUCH EXPENSES OUGHT TO HAVE BEEN ALLOCATED IN THE GROSS PROFIT RATIO. 2.5 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN U SING INAPPROPRIATE QUANTITATIVE FILTERS WHICH ARE NOT BA SED ON ANY RATIONAL OR REASONABLE BASIS. 2.6 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN SELECTING THE FOLLOWING COMPANIES WHICH ARE FUNCTIONALLY DISSIMIL AR TO THE APPELLANT AS COMPARABLE FOR THE PURPOSE OF BENCHMAR KING ANALYSIS: A) CHOKSI LABORATORIES LTD. B) WAPCOS ITA NO.1129 /DEL./2014 3 2.7 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN A LLEGEDLY REJECTING THE FOLLOWING COMPARABLE COMPANIES IDENTI FIED BY THE APPELLANT: NAME OF THE COMPANY REASONS FOR REJECTION 1 EDUCATIONAL CONSULTANTS INDIA LTD FUNCTIONALLY DIFFERENT 2 INDIAN TOURISM DEVELOPMENT CORPORATION LTD FUNCTIONALLY DIFFERENT 3 IN HOUSE PRODUCTIONS LTD FUNCTIONALLY DIFFERENT 4 ICC INTERNATIONAL AGENCIES LTD SERVICE INCOME LESS THAN 75% OF TATAL SALES 5 ACCESS INDIA ADVISORS LTD TURNOVER LESS THAN RS.5 CRORE 6 INDUS TECHNICL AND FINANCIAL CONSULTANTS TURNOVER LESS THAN RS 5CRORE 7 MAFOI GLOBAL SERVICES TURNOVER LESS THAN RS.5 CRORE 8 OVERSEAS MANPOWER CORPORATION TURNOVER LESS THAN RS.5 CRORE 9 PRIYA INTERNATIONAL LTD TURNOVER LESS THAN RS.5 CRORE 2.8 THAT DRP/TPO ERRED ON FACTS AND IN LAW IN NOT A PPRECIATING THAT THE AFORESAID COMPANIES ARE FUNCTIONALLY COMPA RABLE TO THE APPELLANT. 2.9 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN A DOPTING INAPPROPRIATE FILTER OF SELECTING COMPANIES HAVING SALES MORE THAN FIVE CRORE WITHOUT OBJECTIVELY APPLYING THIS F ILTER 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 COMP ARED TO THE APPELLANT AND IS ALSO NOT FUNCTIONALLY COMPARAB LE 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 FLUCTUATIO NS CAUSED BY BUSINESS/ECONOMIC/PRODUCT LIFE CYCLE. ITA NO.1129 /DEL./2014 4 2.12 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT USE OF SINGLE YEAR DATA OF THE CO MPARABLE 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 RISK ADJUSTMENT TO ESTABLISH COMPARABIL ITY ON ACCOUNT OF THE APPELLANT BEING A LOW-RISK-BEARING C APTIVE SERVICE PROVIDER AS OPPOSED TO THE COMPARABLE COMPA NIES WHO WERE INDEPENDENT ENTREPRENEURS. 2.14 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT DEALING WITH THE OBJECTION OF THE APPELLANT OF COMPARABILIT Y ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL EMPLOYED BY THE APPEL LANT VIS-- VIS COMPARABLE COMPANIES. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E APPELLANT COMPANY IS A BRANCH OFFICE OF A FRENCH COMPANY, NAMELY, CORNING S.A. FRANCE WHICH IS A LEADING MANUFACTURER OF VERY HIGH-GRADE OPHTHALMI C 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 ROBS OF RS. 24,88,09,859/- FROM COR NING INC. AS PART OF DISTRIBUTION FUNCTION OF IMPORT OF ROUGH OP HTHALMIC BLANKS (ROBS ) AND SALE TO CUSTOMERS IN INDIA; (II) IMPORT OF ROBS OF RS. 18,843,023/- FROM CORNI NG INC. AS PART OF DISTRIBUTION FUNCTION OF IMPORT OF ROUGH OPHTHAL MIC BLANKS (ROBS) AND SALE TO CUSTOMERS IN INDIA; (III) RECEIPT OF AGENCY SERVICE COMMISSION OF RS. 5 5,83,829/- FROM THE CORNING S.A. FRANCE FOR PROVIDING SALES REPRESE NTATION ITA NO.1129 /DEL./2014 5 SERVICES WHERE ROBS WERE DIRECTLY IMPORTED BY CUST OMERS IN INDIA, FROM M/S CORNING S.A. FRANCE; (IV) RECEIPT OF MARKETING SUPPORT SERVICES FEE OF R S. 6,55,50,132/- FROM CORNING INC., USA; AND, (V) REIMBURSEMENT OF ACTUAL EXPENSES OF RS. 81,39,0 38/- RECEIVED FROM CORNING CHINA (SHANGHAI) AND CORNING SAS, FRAN CE. (VI) REIMBURSEMENT OF EXPENSES OF RS. 22,12,448/- P AID TO CORNING INC. 3. THE ASSESSEE COMPUTED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS WITH THE AE, M/S CORNING SA FRANCE, R ELATING TO DISTRIBUTION AND AGENCY SERVICE ACTIVITIES, WITH REFERENCE TO TH E COMBINED OPERATING PROFITS FROM THE AFORESAID ACTIVITIES, TREATING THE SAME TO BE PART OF DISTRIBUTION ACTIVITY/SEGMENT. THE APPELLANT CONSID ERING THE FUNCTIONAL AND RISK PROFILE OF THIS FUNCTION AND LOOKING AT THE AV AILABLE COMPARABLE DATA, SELECTED TRANSACTIONAL NET MARGIN METHOD USING NET PROFIT MARGIN BASED ON SALES AS THE PROFIT LEVEL INDICATOR TO BE THE MO ST APPROPRIATE METHOD FOR DETERMINING THE APPROPRIATE ARMS LENGTH PRICE. IT S SEARCH YIELDED A SET OF 4 INDEPENDENT COMPANIES THAT WERE BROADLY COMPARABL E TO APPELLANTS FUNCTIONAL AND RISK PROFILE FOR THE DISTRIBUTION FU NCTION 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 A VERAGE OP/OC OF COMPARABLE COMPANIES. FURTHER, SO FAR MARKETING SUP PORT SERVICES TO CORNING USA, APPELLANT SELECTED TRANSACTIONAL NET M ARGIN METHOD USING NET PROFIT MARGIN BASED ON COST (NCP) AS THE PROFIT LEVEL INDICATOR TO BE ITA NO.1129 /DEL./2014 6 THE MOST APPROPRIATE METHOD FOR DETERMINING THE APP ROPRIATE ARMS LENGTH PRICE. ITS SEARCH YIELDED A SET OF 13 INDEPENDENT COMPANIES AND, BASED ON THREE YEARS DATA (I.E. FINANCIAL YEARS 2006-2007,20 07-2008, AND 2008- 2009) OF THE 13 COMPARABLE COMPANIES, THE NCP MARGI NS EARNED BY THEM WAS FOUND TO RANGE FROM 3.44% TO 14.32% WITH AN ARI THMETIC MEAN OF 9.74%. ACCORDINGLY BASED ON +/5% VARIATION IN ARMS LENGTH PRICE THE ARITHMETIC MEAN OF THE AVERAGE NCP MARGINS OF THE C OMPARABLE COMPANIES WAS STATED TO BE IN RANGE 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 RE JECTED 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 A FORESAID ACTIVITIES FOR THE COMPUTATION OF ARMS LENGTH PRICE AND CONSEQUE NTLY MADE AN UPWARD ADJUSTMENT, RE-COMPUTING THE ARMS LENGTH PRICE IN RESPECT OF THE AGENCY ACTIVITIES. THE TPO HELD IN THIS REGARD AS UNDER: (I) THE FUNCTIONS PERFORMED AND RISKS ASSUMED IN TH E DISTRIBUTION FUNCTION AND THE AGENCY SERVICES FUNCTION ARE QUITE DIFFERENT AND THEREFORE ALP FOR EACH OF THEM NEEDS TO BE DETE RMINED SEPARATELY; AND, (II) AGENCY SERVICES RENDERED BY THE APPELLANT WERE IN THE NATURE OF MARKETING SERVICES AND WERE OF SIMILAR NATURE AS MA RKETING SUPPORT SERVICES PROVIDED BY THE APPELLANT TO CORNI NG INC. USA. ITA NO.1129 /DEL./2014 7 5. THE TPO IN VIEW OF THE AFORESAID BENCHMARKED THE OPERATING RESULTS OF EACH OF THE ACTIVITY, APPLYING TNMM. FOR CARRYIN G OUT THE AFORESAID ANALYSIS, THE TPO FIRSTLY DETERMINED THE NET INCOME FROM THE AGENCY SERVICES FUNCTION BY ALLOCATING EXPENSES AGGREGATIN G TO RS. 4,22,77,131/- RELATING TO THE DISTRIBUTION SEGMENT (COMPRISING OF DISTRIBUTION AND AGENCY A SERVICE FUNCTIONS) IN PROPORTION OF DISTRIBUTION SALES AND AGENCY COMMISSION (RS. 2,76,36,560/- AND RS. 1,46,40,570/- RESPECTIVELY) AS UNDER: PARTICULARS DISTRIBUTION + COMMISSION MARKETING DISTRIBUTION COMMISSION MARKET + COMMISSION SALES 333,116,146 333,116,146 OTHER INCOME- COMMISSION 5,583,829 5,583,829 5,583,829 OTHER INCOME MARKETING 17,718,834 65,550,132 17,718,834 65,550,132 OTHER INCOME 475,827 475,827 PROFIT ON SALE OF FIXED ASSET INTEREST INCOME OPERATING REVENUE 356,894,636 65,550,132 351,310,807 5,583,829 71,133 ,961 IMPUTED SALES@ 3% COMMISSION 186,127,633 SALES RATIO 65.37% 34.63% EXPENSES COST OF SALES 275,938,204 0 275,938,204 0 0 SALARY 14,887,386 28,930,631 9,731,532 5,155,854 34 ,086,485 CONTRIBUTION TO PF AND OTHERS 1,711,608 1,862,285 1,118,838 592,770 2,455,055 STAFF WELFARE 513,928 569,518 335,943 177,985 747,5 03 ADVERTISEMENT & PROMOTION 1,999,649 352,095 1,999,649 0 352,095 INSURANCE (129,957) 347,523 (129,957) 0 347,523 REPAIRS & MAINTENANCE 1,861,291 2,122,772 1,216,682 644,609 2,767,381 ITA NO.1129 /DEL./2014 8 OFFICE OTHER PROFESSIONAL SERVICE 3,710,585 10,211,376 2,425,522 1,285,063 11,496,439 RENT 2,394,226 3,389,657 1,565,049 829,177 4,218,83 4 WEREHOUSE FIXED CHARGES 9,098,994 9,098,994 0 0 TELEPHONE & TELEX 1,143,648 1,508,309 747,576 396,072 1,904,381 TRAVELLING AND CONVEYENCE 10,181,431 8,398,832 6,655,361 3,526,070 11,924,902 FREIGHT OUTWARD 1,489,326 1,489,326 0 0 DONATION 0 MEMBERSHIP & SUBSCRIPTION CHARGES 33,590 564,192 21,957 11,633 575,825 FOREIGN EXCHANGE FLUCTUATION 1,244,327 813,387 0 0 MISCELLANEOUS 594,641 1,000,047 388,703 205,938 1,2 05,985 DEPRECIATION 654,645 1,287,464 427,926 226,719 1,51 4,183 RECRUITMENT 1,848,868 1,060,150 1,208,561 640,307 1 ,700,457 REDISTRIBUTED CHARGE OUT 1,402,103 (1,402,103) 916,522 485,582 (916,522) OPERATING EXPENSES 330,578,493 60,202,748 315,969,774 14,177,780 74,38 0,527 REIMBURSEME NT OF EXPENSES 347,869 REVISED OPERATING COST 7,47,28,396 OPERATING PROFIT 26,316,143 5,347,384 35,341,033 -8,593,951 -3,246,5 66 OPERATING MARGIN (ON COST ) 8.88% -60.62% -4.34% OPERATING MARGIN (ON REVENUE) 7.37% 10.06% 6. THE TPO ON THE BASIS OF THE AFORESAID WORKING CO NCLUDED THAT IN THE AGENCY SERVICE FUNCTION THE ASSESSEE HAS INCURRED L OSS OF RS. 85,93,951/-. ITA NO.1129 /DEL./2014 9 7. FURTHER, THE TPO FOR BENCHMARKING THE AFORESAID NET INCOME FROM AGENCY SERVICE FUNCTION APPLIED THE DATA OF COMPARA BLE ENTITIES CONSIDERED IN THE TRANSFER PRICING DOCUMENTATION FOR BENCHMARK ING THE MARKETING SUPPORT FUNCTION, WHEREBY ARITHMETIC MEAN WAS DETER MINED AS 9.74%. THE TPO ACCORDINGLY, COMPUTED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF AGENCY SERVICES AT RS. 76,82,106/- AS FOLLOWS: OPERATING COST 74728396 ARMS LENGTH MARGIN% 13. 75 ARMS LENGTH PRICE (ALP) 850035 50 PRICE RECEIVED 71481830 SHORTFALL BEING ADJUSTMENT U/S 92CA 13,521,720 8. ON THE BASIS OF ABOVE, THE TPO ACCORDINGLY DETER MINED ARMS LENGTH PRICE IN RESPECT OF COMMISSION INCOME AT RS. 8,50,0 3,550/- AS COMPARED TO RS. 7,14,81,830/- THE COMMISSION INCOME RECEIVED BY THE ASSESSEE AND COMPUTED ADJUSTMENT OF RS. 1,35,21,720/- BEING THE DIFFERENCE BETWEEN THE ARMS LENGTH PRICE DETERMINED IN RESPECT OF COM MISSION INCOME AND THE ACTUAL AMOUNT RECEIVED BY THE APPELLANT. 3.7 TH E DISPUTE RESOLUTION PANEL (DRP) UPHELD THE ORDER OF THE TPO AND ACCORDI NGLY, THE ASSESSING OFFICER ON THE BASIS THE ORDER OF THE DRP PASSED TH E FINAL ORDER. 9. GROUND NO. 1 IS GENERAL. 10. GROUND 2 TO 2.14 OF APPEAL RELATES TO DELETION OF ADJUSTMENT OF RS.1,35,21,720/- PERTAINING TO AGENCY SERVICES FUNC TION CARRIED ON BY THE APPELLANT. ITA NO.1129 /DEL./2014 10 11. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS APPEAL CAN BE DECIDED ON THE SHORT GROUND AS TO WHETHER OR NOT AGGREGATE INDIRECT EXPENSES COMMO N TO BOTH DISTRIBUTION AND AGENCY FUNCTIONS SHOULD BE DONE ON THE BASIS OF GROSS MARGIN AND NOT ON THE BASIS O9F SALES, AS ADOPTED BY THE TPO. IT I S CONTENTED THAT IN THE EVENT OF THIS ISSUE BEING DECIDED IN FAVOUR OF THE ASSESSEE, ALL OTHER ISSUES RAISED IN THIS APPEAL WILL BE RENDERED ACADEMIC. LE ARNED 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 ACTI VITY AND AGENCY SERVICE ACTIVITY ARE TO BE CONSIDERED TOGETHER AND ARE NOT TO BE EVALUATED SEPARATELY TO DETERMINE THE ARMS LENGTH PRICE IN R ELATION TO THE AFORESAID INTERNATIONAL TRANSACTIONS AS THE AFORESAID TWO A CTIVITIES TRANSACTIONS FORM PART OF NATURAL BUSINESS SEGMENT OF DISTRIBUTI ON 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 TH E COMMON FUNCTIONS BY THE SAME EMPLOYEES AND IT IS NOT FEASIBLE TO SEG REGATE THE COST RELATING TO THE SAME; (II) THE AGENCY SERVICES RENDERED BY T HE 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 ENSURE THAT ARM S LENGTH PROFIT IS ITA NO.1129 /DEL./2014 11 EARNED CONSIDERING THE AGENCY SERVICE ACTIVITIES AS PART OF THE DISTRIBUTION BUSINESS. 13. WITH RESPECT TO THE AFORESAID GROUND OF APPEAL, THE TRIBUNAL IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2003-2 004, REJECTED THE CONTENTION OF THE APPELLANT HOLDING AS UNDER: HAVING REGARD TO THE ABOVE FACTUAL MATRIX WE ARE T HUS INCLINED TO UPHOLD THE CONCLUSION OF THE CIT(A) TO BENCHMARK TH E TWO INDEPENDENT FUNCTIONS SEPARATELY. WE DO NOT FIND AN Y MERIT IN THE CONTENTION RAISED BY THE LEARNED COUNSEL THAT THESE ARE CLOSELY LINKED TRANSACTIONS UNDERTAKEN BY THE APPELLANT. ON THE CO NTRARY THE NATURE OF TRANSACTIONS ARE FUNCTIONALLY DIFFERENT AND EVEN THE RISK ASSUMED ARE DIFFERENT WE THUS NEGATE THE STAND OF THE ASSES SEE AND UPHOLD THE FINDINGS OF CIT(A) IN BENCHMARKING THE DISTRIBUTIO N/AGENCY FUNCTION SEPARATELY. 14. ACCORDINGLY, GROUND NO 2.1 TO 2.3 WERE NOT PRES SED BY THE APPELLANT. 15. WITH RESPECT TO GROUND NO. 2.4-2.5, THE APPELLA NT FURTHER DISPUTED THE ALLOCATION OF EXPENSES RELATING TO AGENCY SERVICE A CTIVITY IN PROPORTION TO THE TURNOVER BY THE TPO AS IT IS INCONSISTENT WITH THE ACCEPTED ACCOUNTING PRINCIPLES OF MATCHING. THE APPELLANT CONTENDED THA T CONTRACT SALES ARE MADE BY THE AE, I.E. CORNING FRANCE TO CERTAIN EXIS TING CUSTOMERS IN INDIA, ON WHICH COMMISSION IS RECEIVED BY THE APPELLANT WI THOUT 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. ITA NO.1129 /DEL./2014 12 17. SO FAR AS THE ALLOCATION OF EXPENSES IS CONCERN ED IT IS NOTED THAT TPO HAD IDENTIFIED INDIRECT EXPENSES COMMON TO BOTH THE FUNCTIONS AT RS. 4,22,77,131/- DETAILS OF WHICH ARE AS UNDER: PARTICULAR DISTRIBUTION AND COMMISSION SALARY 148,87,386 STAFF WELFARE 5,13,928 REPAIRS & MAINTENANCE- OFFICE 18,61,291 OTHER PROFESSIONAL SERVICE 37,10,585 PAYROLL OUTSOURCED 13,39,181 RENT 23,94,226 TELEPHONE & TELEX 11,43,648 TRAVELLING & CONVEYANCE 101,81,431 CONTRIBUTION TO PF AND OTHERS 17,11,608 MEMBERSHIP & SUBSCRIPTION CHARGES 33,590 MISCELLANEOUS 5,94,641 DEPRECIATION 6,54,645 RECRUITMENT 18,48,868 REDISTRIBUTED CHARGE OUT 14,02,103 TOTAL 422,77,131 18. WITH RESPECT TO THE AFORESAID GROUND OF APPEAL, THE TRIBUNAL IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2003-2 004, UPHELD THE ACTION OF THE LD. CIT(A) AND DIRECTED THE TPO TO ALLOCATE COMMON EXPENSES IN THE RATIO OF GROSS PROFIT. 19. FOLLOWING THE DECISION FOR THE ASSESSMENT YEAR 2003-2004, THUS WE HOLD THAT AGGREGATE INDIRECT EXPENSES COMMON TO BOT H THE FUNCTIONS SHOULD BE DONE ON THE BASIS OF GROSS MARGIN OF DISTRIBUTIO N FUNCTION AND COMMISSION INCOME RECEIPTS AND NOT ON THE BASIS OF SALES, AS ADOPTED BY THE TPO. ALLOCATION OF EXPENSES IN PROPORTION TO SA LES WOULD AMOUNT TO GIVE EQUAL WEIGHTAGE IN TERMS OF FUNCTIONS PERFORME D, ASSETS UTILIZED AND ITA NO.1129 /DEL./2014 13 RISKS ASSUMED TO BOTH DISTRIBUTION FUNCTION AS WELL AS AGENCY SERVICE ACTIVITY, WHICH OTHERWISE INVOLVES MUCH LESSER FUNC TIONS AND UTILIZATION OF ASSETS AND RISK. 20. IN THE RESULT, THE APPEAL FILED BY THE APPELLAN T IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THIS 6 TH DAY OF NOVEMBER 2015. SD/- SD/- (S.V. MEHROTRA) (A.T.VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 6 TH DAY OF NOVEMBER 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.