2015 (8) TMI 6

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ned the total income at Rs. 12,71,70,274/- vide Draft Order dated 31-01-2014 by making the following adjustments : i. Transfer pricing adjustment u/s.92CA Rs. 8,86,12,580 ii. Belated payment of Provident Fund Rs. 1,81,191 iii. Belated payment of Employees State Insurance Rs. 4,58,162 iv Disallowance of GDR expenses u/s.35D Rs. 17,60,140 v. Disallowance of deduction u/s.10B Rs. 3,33,94,883   4. The assessee raised various objections before the DRP and the DRP considered the objections and passed the order dt. 27-11-2013, whereby the addition under TP adjustment was confirmed and on the other additions, the matter was restored to the file of the AO for verification/fresh examination. Now the assessee has filed the present appeal challenging the order of Hon'ble DRP confirming the TP adjustment raising the following Grounds of Appeal: "1. The TPO erred in rejecting the economic analysis undertaken by the assessee in accordance with the provisions of the Act read with the Income Tax Rules 1962 and consequently making adjustments to the transfer pricing of its international transaction with AE. ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ibunal that the above addition be deleted and necessary order be passed". 5. The assessee has raised 10 grounds in its appeal. Ground No. 1 and 10 are general in nature. Hence, does not require any adjudication. Ground No. 2 to 8 pertains to TP adjustments made under section 92C. 6. Transfer Pricing adjustments : Ground No. 2 is with reference to issue of selection of tested party in determination of Arm's Length Price (ALP). Briefly stated, during the financial year assessee entered into various international transactions with its Associated Enterprise (AE) for a total sum of Rs. 1,03,86,76,126/- as under : S. N. Class of transactions Paid/Received A.E. Amount (in INR) Method applied 1. Export of finished goods Received Granules USA Inc. 83,06,28,503 RPM 2. Purchase of raw materials Paid Hubei Granules Biocause Pharmaceu ticals Co. Ltd., China 20,76,29,307 CUP 3. Interest received on loan Received Granules USA Inc. 4,18,316 CUP         1,03,86,76,126     7. In the T.P. study assessee had furnished profitability analysis in respect of domestic....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ction of RPM was not justified. The assessee submitted before DRP that it is engaged in the manufacture of API, PFI and FD and is the parent company and assumes the responsibility to manufacture the pharmaceutical products, undertakes to maintain the quality standards and specifications as per the requirements of the AE. In the TP study, the tested party was the associated enterprise in USA. The assessee exported the finished goods to AE in USA for a sum of Rs. 83.06 Crores and for the TP study purpose, the entity in USA was selected and the taxpayer submitted before the AO and DRP that it had the least complex transactions and ALP can be determined accurately by adopting the RPM and selected 6 comparables from the business of marketing and distribution and concluded that the international transactions with the AE were at arm's length. 11. However, the DRP following its order for earlier years i.e., AY. 2007-08 and 2008-09, rejected the submission of the assessee. 12. The assessee in the TP study report, in addition to the analysis of international transactions under RPM, also made an alternative analysis under TNMM and conducted search in the Capitaline plus database and id....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....e of turnover, the TPO's selection of companies which have similar scale of operation is nearer to the turnover of the assessee and more accurate. Therefore, the turnover filter applied by the TPO was held to be justified and accordingly, the objection was rejected. 15. On the next issue regarding the export revenue filter, the assessee's submission before DRP was that, revenues from exports in a comparable should be in excess of 60% of the total turnover. Since the assessee had not substantiated this ground with any facts and figures neither before the TPO nor before the panel, the objection was rejected. 16. As regard to the assessee's argument that some of the comparables selected by the TPO were functionally dissimilar had been considered. The panel noted that the TPO had given the profile of the comparables selected and also noted that the companies Natco Pharma Ltd., Venus Remedies Ltd., Hitkal Ltd., had been held to be functionally similar to the assessee-company in the AY. 2008-09 and the DRP had endorsed/considered the view of the TPO. Accordingly, the panel upheld the selection of these three companies as comparables. Regarding Indoco Remedies Ltd., the ....