CORNING TECHNOLOGIES INDIA PVT. LTD.,GURUGRAM vs. DCIT, GURUGRAM

The present appeal has been filed by the assessee against the order dated 30.01.2017 passed by the AO u/s 143(3)/144C of the Income Tax Act, 1961.

Following grounds have been raised by the assessee:

Corning Technologies India Pvt. Ltd. (CTIPL) was incorporated on 02.06.2009. The company is engaged in the business of purchase and sale of ophthalmic glass products, ophthalmic plastic lenses and life science products in the Indian market and rendering marketing services and support services to its Group companies. CTIPL has taken over the entire business of Corning India, on a slump sale basis w.e.f. 01.02.2012, pursuant to the approval of the Reserve Bank of India for a purchase consideration of Rs.19,44,70,482/-.

In accordance with the provisions of Section 92C r.w. Rule 10B & 10C, the assessee has choosen TNMM as the most appropriate method vide order u/s 92CA(3) dated 29.01.2016. The TPO determined ALP of the transactions and proposed an adjustment of Rs.3,49,96,839/- vide order dated 11.03.2016. The AO pursuant to the directions of the ld. DRP made adjustments of Rs.3,15,29,495/- on account of Intra Group Services and Rs.34,67,344/- on account of market support services.

The assessee mainly involved in three different activities namely ophthalmic support, marketing support and provision of Intra Group services.

With reference to the marketing research, the assessee appraises the AE of current market trends and developments in India by monitoring the industry, capital prices, political factors, supply and demand of the relevant Indian market in addition to identifying the potential customers in India. It is also involved in providing support and liason between the customers and Corning France (AE).

With regard to the comparables selected by the AO in his TP study, the assessee objected to the inclusion of “Just Dial Ltd.” The TPO held that it is functionally comparable to the assessee, as the comparable also provides information to the users and connects the buyers to the sellers, the same way “Just Dial” operates. The ld. DRP confirmed the inclusion holding that since the comparable is effectively involved in marketing the information pertaining to different categories of SMEs across multiple platforms and is facilitating trade transactions.

Before us, it was argued by the ld. AR that “Just Dial” is having a website and the search service is available to users across multiple platforms such as internet, mobile, voice and text. It was argued that the assessee is a captive service provider providing services only to its AE, and is devoid of any excess remuneration attributable to “brand ownership”.

The ld. DR argued that what needs to be seen is the functional commonality but not any other issues or functional dissimilarities. It was argued that both the assessee and the comparable in question (Just Dial) are involved in getting new clients, customers to the principle. It is the common functionality that both entities are involved in client procurement and liason work.

Having gone through the facts on record and the FAR analysis, we find that while “Just Dial” is a search engine for multifarious activities and is a search engine using different

With regard to capital adjustment, we find that the ld. DRP allowed the working capital adjustment, however the AO failed to take the cognizance of the same while giving effect to the ld. DRP directions. Hence, the AO is directed to rectify the orderto that extent.

With regard to the risk adjustment, the TPO denied risk adjustment on the grounds that the assessee has not clearly shown that the comparables had actually undertaken risks.

The ld. DRP held that in cross border transactions, the tested party will typically always be a captive while comparables will always be entrepreneurs for ALP determination. It held that risks can be adjusted only if there is complete and reliable data available otherwise the entire exercise will be tainted by the inaccuracies.

Hence, the question before us would be whether the risk of having a single customer is equivalent to the marketing and technical risks attached to the comparable. A single customer risk is an anticipated risk ab initio. The anticipated risk may happen or it may not happen. Whereas the risk attributed to the comparables is an existing risk. At the same time, we find that 7 Corning Technologies India Pvt. Ltd. the assessee is not exposed to any of the risks such as market risk or service liability risk, collection risk, capacity utilization risk for the AE being the sole customer. The question before us is as to whether the risk of having a single customer is equivalent to the marketing and technical risk attached to the comparables. According to the TPO, the assessee has the ‘single customer risk' meaning, if the single customer refuses to have any dealings with the assessee, the assessee would lose all of its business and there would be no profit at all. But, as we see it, the risk of having a single customer is anticipated risk which may or may not happen. What we have to see is the position in the relevant period whether the appellant had encountered such a risk during the relevant period or not .

In the instant case, it can be seen that the assessee has not encountered the risk of having a single customer, whereas the same cannot be said as regards the comparables. The comparables were dealing in open market and therefore, they were prone to the marketing and technical risks. They would invariably incur certain expenditure on marketing services and also to safeguard the technical inputs used by them. In such a case, the risk encountered by the assessee cannot be said to be the equivalent risks attached to the comparables. The risk attributed to the assessee by the TPO is an anticipated risk whereas the risk attributed by the assessee to the comparables is an existing risk. In such situation, we direct that the risk adjustment be accorded to the net margin of the comparables for bringing them on par with the assessee company.

During the financial year 2011-12, the assessee received “Administrative Support Services” from its associated enterprises for assisting it in carrying its business operations in India. For the aforesaid services, the assessee paid administrative and support service fees amounting to Rs.3,15,29,495/- to the following associated enterprises:

In the Transfer Pricing Documentation, for the purpose of benchmarking, the assessee applied TNMM as the most appropriate method considering itself to be the tested party. The assessee conducted two separate searches on Onesource Database for determination of the arms length price of the international transactions undertaken with Corning Inc. and Corning China. The results of the benchmarking analysis is summarized as under:

The TPO determined the value of such “expenditure” at ‘NIL’ holding that:

The ld. AR argued that during the relevant financial year, the assessee paid administrative and support fees of Rs.3,15,29,495/- to the associated enterprises which are remunerated at a cost plus 5 percent markup, wherein, cost includes all direct and indirect cost incurred in the provision of aforesaid services. This entails payment of all fixed costs, recognized on the basis of time spent by the service provider, and the same is allocated to the service recipient on the basis of the volume of usage, plus a mark-up of 5 percent.

For provision of administrative support services, the assessee entered into the following agreements with its associated enterprise namely Corning China (Shanghai) Regional Headquarter for the purpose of Accounting services

Cost allocation keys applied by respective associated enterprises for the purpose of allocating expenses to group entities alongwith the invoices raised by the associated enterprises are as under:

Similarly, accounting services provided by Corning Shanghai in the nature of processing of accounting vouchers, sanctioning of payments, undertaking monthly closings, and various other accounting processes to other group entities, rather than each entity maintaining its own department to undertake such functions, and incurring costs in this regard.

It was argued that the shared service centers offer the advantage of economical, specialized services, expertise in terms of knowledge of Corning products, adherence to Corning culture, Corning rules and procedures and most importantly confidentiality. Apart from that, the shared service centers cater to all Corning entities based out of Asia and the volumes of transactions of the assessee are very less compared to the volume of other Corning Asian entities.

It was argued that outsourcing the same, work to third party vendors would not only involve training them in Corning group’s procedures and infrastructure but also involve a compromise on data confidentiality as well as on the stability of the services. Further, if each group entity is expected to contract with local vendors themselves, the group’s operations as a whole will not only become far more expensive but also inefficient since each group entity will be replicating the same work and multiple third party vendors shall be involved in processing the same transactions. Arguing thus, the ld. AR canvassed that the mark-up of 5% on the services is to be allowed.

The entire grounds consists of two issues, whether in fact the services were rendered and availed by the assesse and if so, whether the mark-up of 5% can be considered as comparable with the market averages. Culling from the details filed and arguments of both the parties, we find that there is no dispute about availing of the services. The evidences include the e-mails, invoices, agreements submitted at page nos. 294 to 397 of the paper book. The assessee has also provided

In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 17/09/2021.