TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 326
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.... Nordisk A/S. Denmark, hereinafter referred to as "Novo Nordisk A/S" is holding company of the holding companies of the Assessee. Therefore the Assessee and Novo Nordisk A/S are Associated Enterprises (AE) as defined in Sec.92A of the Act. The business of the Assessee is trading in high purity Insulin formulation, Insulin delivery system and other specified pharmaceutical products. 4. There were several international transactions between the Assessee and Novo Nordisk A/S. These transactions have to adhere to the arm's length principle embodied in the Indian Transfer Pricing Regulations contained in Sections 92, 92CA to 92F of the income Tax Act, 1961 (Act) read with Rules 10A to 10E of the Income Tax Rules, 1961 (Rules). The Assessee reported the following international transaction with Novo Nordisk A/S in the report filed u/s.92E of the Act in Form No. 3CEB:- Sl. No. Description Amount Paid Rs. Amount Received Rs. 1 Purchase of excipients 148,90,87,821 2 Purchase of finished goods 236,26,75,713 3 Quality Testing Fee 28,76,448 4 Receipt for Admin Services 22,11,19,930 5 Receipt for ITES 14,06,28,263 6 Subvention Fee &nb....
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....of the combined transactions referred to above which was termed as "Distribution segment" by the Assessee. 7. The Distribution Segment in the present AY 2010-11 is similar to the Distribution segment as explained by the Assessee in its TP study for AY 2009-10. The distribution segment was divided into two categories :- (1) Sale of products purchased locally: (2) Direct import and sale pf products from Novo Nordisk A/S and Novo Nordisk HealthCare AG. 8. The two categories as explained by the Assessee in its TP Study for AY 2009-10 was as follows:- "4.3.26 Sale of products purchased locally: Novo Nordisk India sells Human Monocomponent and Purified Insulin in 40 IU Vials purchased from Torrent Pharmaceuticals Limited, a company formed and registered under the laws of India. These insulin products have been manufactured by Torrent from crystals imported from Novo Nordisk A/S. This arrangement makes all the three parties namely Novo Nordisk A/S, Novo Nordisk India and Torrent, as associated enterprises and since one of the parties [i.e. Novo Nordisk A/S] is a nonresident, it would amount to an international transaction that needs to comply with the Indian Transfer Pricing Regulatio....
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....anufacturing process by Torrent. These checks are undertaken almost quarterly. Quality audits are undertaken once in two years. The drugs need to be maintained at prescribed conditions of temperature (cold storage). Novo Nordisk India undertakes quality inspections of the distributors, stockists, wholesalers, etc. The above arrangement is illustrated in Figure 3 below. 4.3.31 Direct Import and Sale of Products (Buy-sell arrangement): Novo Nordisk India sells various insulin formulations, growth hormones, other diabetes therapy products and related devices including Penfills, Pens, Needles, Norditropin(r), GlucaGen Hypokit(r), Novolet(r), Novonorm(r) and Analogues which are imported directly from Novo Nordisk A/S and Novo Nordisk HealthCare AG. Some of these products are covered under the DPCO. For this purpose, Novo Nordisk India and Novo Nordisk A/S and Novo Nordisk HealthCare AG have entered into a product supply agreement dated October 4, 1999 and August 17, 2004 respectively. The term of these distribution agreements shall continue until terminated with mutual consent. In order to sell the above mentioned products in India, Novo Nordisk India has entered into distribution agre....
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....ent and Highly Purified insulin in 40 IU Vials are purchased by the Assessee from Torrent Pharmaceuticals Limited a company which is not an Associated Enterprise of the Assessee. Torrent Pharmaceuticals Limited gets insulin in crystal form which is raw material required for manufacture of Human Mono Component and highly purified insulin in 40 IU Vials, which is imported from Novo Nordisk A/S. The Assessee in its TP study accepts the fact that there is an arrangement between the Assessee, Novo Nordisk A/S and Torrent Pharmaceuticals Limited (TPL) whereby insulin in crystal form will be supplied by Novo Nordisk A/S to TPL. Novo Nordisk A/S will also grant limited license with right to sub-license to TPL, know-how, trade-mark to manufacture and market with Novo Nordisk A/S's name to the Assessee to enable manufacture of purified insulin in 40 IU Vials, for ultimate sale by the Assessee in India. 11. The Assessee in its TP study had identified 4 comparable companies which were in the business of distribution. The arithmetic mean of the operating profit to sales of the 4 comparable companies chosen by the Assessee was -7.56%. The Transaction Net Margin Method (TNMM) was chosen as the M....
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....ks Actrapid, Lentard, Monotard, Insulatard, Mixtard, NovoPen, NovoFine, Glucagon Novo. By the agreement dated 28.2.1994, the Assessee is given the Master License to exclusively use and or sub-license the use of the Trade Marks of the aforesaid products which are listed in Appendix-1 to the agreement. 3. Insulin Formulation Supply Agreement dated 1-3-1994: By this Agreement TPL undertakes to manufacture and supply 40iu insulin to the Assessee. There is also an arrangement whereby TPL is given sublicense to use Novo Nordisk A/S Know how to manufacture Novo Nordisk Products. 4. Facility Establishment Agreement dated 6.8.2005: Whereby the Assessee and TPL agree about the facility to be created by TPL exclusively for insulin production in terms of agreement of Assessee and TPL for insulin formulation supply. 5. Agreement for quality control testing dated 1-4-1997: This agreement is between Novo Nordisk A/S and the Assessee. Novo Nordisk A/S under this agreement undertakes to do quality control testing for 40 iu insulin manufactured by TPL pursuant to Formulations supply Agreement dated 1-3-1994. 6. Subvention Agreement dated 1-1-2003: This agreement is between Novo Nordisk A/S and t....
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.... vials through TPL and distribution of products directly imported from Novo Nordisk A/S as distribution function, was of the view that the arrangements between the Assessee, Novo Nordisk A/S and Torrent was in fact a manufacturing activity and cannot be characterized as distribution operations. The TPO in his TP order conducted a fresh comparability analysis based on the application of TNMM and arrived at a set of 15 purported comparable companies with a mean operating margin of 8.26%. Accordingly, the TPO, considered the whole distribution segment of the Assessee for the purpose of computing the Arm's Length Price (ALP) adjustment, without considering the fact that the entire sales are of purchased products (more than 61% of the total purchases being products imported from Group companies) and made an adjustment of INR 352,638,074 [including additional adjustment computed on account of application of Profit Split Method ('PSM') as discussed below]. 15. The TPO also applied Profit Split Method(PSM) of determining ALP as against TNMM applied by the Assessee in respect of the arrangement with the Torrent for purchase of Insulin. The TPO additionally analyzed purchase of insulin from....
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....a (which is purely distribution function performed by the Assessee on behalf of Novo Nordisk A/S) on the plea that both the transactions are interlinked and therefore have to be benchmarked together? 3. If the answer to the above question is in the negative, How the ALP of the transactions has to be determined? 4. Whether the determination of ALP as directed by the DRP is correct? 18. The Tribunal decided the aforesaid issues as follows: "Issue No.1: Whether transaction by which incipient (raw material for manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials) is supplied by Novo Nordisk A/S to TPL and the transaction by which the Assessee engages the services of TPL to convert the incipient into Human Mono component and Highly Purified insulin in 40 IU Vials and ultimately sells the same in Indian market on behalf of Novo Nordisk A/S. can be considered as an International Transaction between two Associated Enterprises attracting the provisions of Sec.92(1) of the Act?" 49. The learned counsel for the Assessee drew our attention to Sec.92(1) of the Act which provides that any income arising from an international transaction shall be computed having re....
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....International Transaction". In other words according to him Sec.92B(2) controls only the definition of "Associated Enterprises" as laid down in Sec.92A of the Act. 51, The learned counsel for the Assessee drew our attention to the decision of the ITAT Hyderabad Bench in the case of Swarnandra IJMII Integrated Township Development Co. Pvt. Ltd. Vs. DCIT ITA No.2071/Hyd/11 AY 07-08 dated 31.12.2012. In the aforesaid decision the facts were that the Assessee, Swarnandhra IJMII, was a Joint Venture company between APHB and IJM (India). IJM (India) was a subsidiary of a foreign group of companies i.e., IJM (Group). During the previous year the Assessee entered into a transaction with IJM (India). The question was whether the said transaction was a deemed international transaction. The Hyderabad ITAT held: "28.4. Section 92B(2) embodies a legal fiction. It deems a transaction to have been entered into between two associated enterprises. Though section 92B(2) is a part of section 92B with the heading "Definition of international transaction", it is to be read as an extension of section 92A(2) and not as an extension of section 92B(1). This is for the following reasons: (a) Both section ....
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....ntermediary itself to be one with an associated enterprise. 28.7 The legal fiction created in respect of the specified transaction can be used only for the purpose of examining whether such transaction constitutes an 'international transaction' under section 92B(1). In case section 92B(1) is not attracted, the fiction under section 92B(2) ceases to operate. In our opinion, the impugned transaction between the assessee and IJMII does not fall under section 92B(2). This is for the following reasons. (a) Both the assessee and IJMII are residents of India for tax purposes. They pay their taxes in India. To fall under 92B(1), the international transaction has to be between associated enterprises, at least one of whom is a non-resident. As both the parties are residents, the transaction between the assessee and IJMII do not constitute an international transaction. Thus the basic premise for invoking the deeming fiction under section 92B(2) does not arise. (b) The transaction in question did not involve transfer of goods or services from the assessee to IJM Group or to any other non-resident enterprise, either directly or indirectly, or by using IJMII as an intermediary. The tr....
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....oses of sub-section (1), be [deemed to be a transaction] entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise [where the enterprise or the associated enterprise or both of them are non-residents irrespective of whether such other person is a nonresident or not]. 53. The words in brackets in italics were introduced only w.e.f 1-4-2015. Prior to the said amendment, if either or both the parties to a transaction are not non-residents, than the provisions of Sec.92B(2) of the Act were not attracted and therefore the transaction was outside the purview of Sec.92(1) of the Act. He also placed reliance on the decision of the ITAT Mumbai in the case of Kodak India Pvt. Ltd. Vs. ACIT ITA No.7349/Mum/2012 order dated 30.4.2013 wherein a view similar to the view expressed by the ITAT Hyderabad Bench in the case of Swarnandhra IJMII (supra) was expressed. 54. The learned DR drew our attention to the various agreement between the parties and hig....
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.... of quality of the product manufactured by TPL is undertaken by Novo Nordisk A/S. 55. According to him all the terms of all the agreements have to be read together and if so read it becomes clear that the arrangement between the parties was that the Assessee will carry out manufacture and sale of Human Mono component and Highly Purified insulin in 40 IU Vials through TPL. According to him both the TPO and the DRP have rightly drawn conclusion that the transaction of manufacture and sale of Human Mono component and Highly Purified insulin in 40 IU Vials through TPL was an international transaction entered into between the Assessee and Novo Nordisk A/S. Novo Nordisk A/S is admittedly an Associated Enterprise and was a non-resident. Therefore the conditions for applicability of the provisions of Sec.92B(1) of the Act were satisfied and therefore the said transaction was rightly held to be subject to scrutiny u/s.92(1) of the Act. 56. The learned DR next laid emphasis on the Transfer Pricing Study carried out by the Assessee in support of ALP of the international transactions entered into by it with its AE. In Para 4.3.26 of its T.P. Study at page-26, the Assessee has specifically me....
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....e arrangement was between the Assessee and Novo Nordisk A/S for carrying out manufacture and sale of Human Mono component and Highly Purified insulin in 40 IU Vials through TPL, the latter supplying raw materials and the Assessee carrying out manufacture through TPL. The arrangement starts with supply of raw materials and ends with manufacture of finished products. Thereafter the Assessee sells the finished product in Indian market. 60. It was also submitted by the learned DR that the amendment to the provisions of Sec.92B(2) of the Act by the Finance Act, 2014 w.e.f. 1-4-2015 is clarificatory in nature, clarifying the law as always out to be. It may in that sense be held to be retrospective. 61. In his rejoinder, the learned counsel for the Assessee submitted that Sec.92F specifically provides that "Unless the context otherwise requires" and thereafter gives definition of certain terms. According to him in the present case, the definition of "Transaction" as given in Sec.92F(v) of the Act cannot be pressed into service in this case because provisions of Sec.92B(1) of the Act provides otherwise i.e., it lays down that at least one party to the transaction should be a non-resident....
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....ld be a transaction between two or more associated enterprises and (ii) either or both of them should be non-residents. According to the Assessee at least one party to a transaction should be a non-resident. According to the Assessee the transaction for supply of incipient was between Novo Nordisk A/S and TPL. Though the condition that at least one of the parties to a transaction should be a non-resident is satisfied in respect of this transaction, TPL is admittedly not an associated enterprise of Novo Nordisk A/S and therefore the said transaction cannot be regarded as "International Transaction". As far as the transaction of manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials between TPL and the Assessee, it is the stand of the Assessee that both the Assessee and TPL are residents and therefore the condition that either or both the parties to a transaction should be non-resident is not satisfied and therefore the said transaction cannot also be regarded as "International Transaction". The above argument on behalf of the Assessee overlooks the overall arrangement between the Assessee and Novo Nordisk A/S as evidenced by the various agreements entered int....
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....riginal license agreement will be deemed to be incorporated in the sub-license agreement. 3. Insulin Formulation Supply Agreement dated 1-3-1994: By this Agreement TPL undertakes to manufacture and supply 40iu insulin to the Assessee. There is also an arrangement whereby TPL is given sub-license to use Novo Nordisk A/S Know how to manufacture Novo Nordisk Products. Insulin formulations supply agreement between the Assessee and TPL in clause 14.2 specifically provides that the agreement is co-terminus with the bulk supply agreement shall be coterminus with the Insulin Crystals and Excepients Supply agreement between Novo Nordisk A/S and TPL and the know-how and trade mark sub-license agreement between the Assessee and TPL. 4. Facility Establishment Agreement dated 6.8.2005: Whereby the Assessee and TPL agree about the facility to be created by TPL exclusively for insulin production in terms of agreement of Assessee and TPL for insulin formulation supply. 5. Agreement for quality control testing dated 1-4-1997: This agreement is between Novo Nordisk A/S and the Assessee. Novo Nordisk A/S under this agreement undertakes to do quality control testing for 40 iu insulin manufactured b....
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....bulk supply of excepient between Novo Nordisk A/S and TPL, which the raw material for manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials by TPL, in its preamble, there is a reference to the Agreement for long term insulin formulations supply agreement between TPL and the Assessee i.e., the Human Mono component and Highly Purified insulin in 40 IU Vials. Clause 7.1 of the agreement provides that in the event of discontinuance of production by TPL, the all saleable unexpired stock of Insulin Crystals and excepient should be delivered to Novo Nordisk A/s. Clause- 11.2 of the Agreement specifically provides that the bulk supply agreement shall be co-terminus with the Insulin Formulations Supply agreement between TPL and the Assessee and the know-how and trade mark sub-license agreement between the Assessee and TPL. 65. It is clear from the aforesaid agreements that the sum and substance of all the agreements is the supply of raw material by Novo Nordisk A/S to Assessee to enable it to manufacture Mono component and Highly Purified Insulin in 40 IU Vials and sell it in India. It is a concerted action or arrangement which is brought out in a form which appare....
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....ssociated enterprises or nonresidents, one cannot claim that the Transfer Pricing regulations were not applicable, if in reality and in substance transactions were with related parties one or both of whom might be nonresidents. For example in the present case if the cost of excepient/insulin crystal which is the raw material for manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials, is not subjected to the test of ALP, it could result in erosion of tax base in India. The transfer pricing provisions will therefore apply to such transactions. We therefore hold that the transaction by which supply of excepients was made by Novo Nordisk A/S to TPL was in effect an international transaction between the Assessee and Novo Nordisk A/S. The income from such transaction had to be computed having regard to Arm's Length Price as laid down in Sec.92(1) of the Act. The conditions laid down in Sec.92B(1) of the Act are satisfied and there is no necessity in our view to look to the provisions of Sec.92B(2) or Sec.92A(2) of the Act, though the reasons given by the DRP in its order on this aspect also, in our view is acceptable. The transaction between TPL and the Assessee f....
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....on the other hand reiterated the stand of the Assessee as made before the TPO/DRP. 68. We have given a careful consideration to the rival submissions. The Act and the Rules contemplate determining ALP by aggregating international transactions which are multiple, interlinked or inter-related to each other and cannot be evaluated separately. A 'combined transaction approach' where the transactions are closely linked or continuous that they cannot be evaluated adequately on an individual basis, is advocated by the OECD Guidelines on Transfer Pricing. In such a situation, rather than assessing the ALP of the transactions individually, the transactions could be evaluated together using the most appropriate method. 69. In the present case, can it be said that the transaction of supply of raw material and the transaction of sale of imported products directly from Novo Nordisk A/S said to be interlinked or closely linked? In our view the two transactions have no connection whatsoever and can be evaluated individually. While the sale of imported products is a trading activity, the purchase of raw material would be part of manufacturing activity and different parameters would need consider....
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....t assessment year also. Accordingly, we hold that the issues raised in Grounds No. 39 to 47 in the present assessment year are decided according to the decision rendered in AY 09-10 referred to above. The AO is directed to give effect to the directions as are contained in AY 09-10 in the present assessment year also. 20. We shall next take up for consideration grounds No.4 to 16 raised by the Assessee which projects the grievance of the Assessee with regard to disallowance made u/s.40(a)(ia) of the Act. As we have already seen Human Mono component and Highly Purified insulin in 40 IU Vials are purchased by the Assessee from Torrent Pharmaceuticals Limited a company which is not an Associated Enterprise of the Assessee. Torrent Pharmaceuticals Limited gets insulin in crystal form which is raw material required for manufacture of Human Mono Component and highly purified insulin in 40 IU Vials, which is imported from Novo Nordisk A/S. TPL after completing the process of manufacture of purified insulin in 40IU Vials sold it to the Assessee at a sum of Rs. 192,89,16,836 as stated in the orders of the revenue authorities. According to the Assessee the correct sale value was only Rs. 184....
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....as amended by Finance Act, 2012 is linked to Section 201 of the Act, in which a proviso was inserted, the Tribunal took notice of those provisions which read thus: "Sec.201: (1) Where any person, including the principal officer of a company - (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of Section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident - (i) has furnished his return of income under Section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) ha....
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.... prescribed. 25. The Tribunal thereafter considered the question as to whether the amendment made as above is prospective or retrospective w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced. Keeping in view the purpose behind the proviso inserted by the Finance Act, 2012 in section 40(a)(ia) of the Act, it can be said to be declaratory and curative in nature and therefore, should be given retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 26. The learned counsel for the Assessee brought to our notice that a certificate in Form No.26A of the Rules had already been filed before the AO and DRP. The said Certificate in Form No.26A of a Chartered Accountant is a certificate certifying that TPL has paid tax on the sum of Rs. 184,95,91,300/- received from the Assessee. It was therefore contended by him that in view of the amended provisions of law referred to above which have been held to have retrospective operation and in view of the fact that the Assessee has satisfied the Revenue that taxes due on payment made by it to TPL have been declared by TPL in their return of i....
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.... at 27.62%. 29. The TPO ultimately made an addition of Rs. 67,83,95,931 which was subsequently reduced to Rs. 83,95,931. The addition was sustained by the DRP. Hence, the aforesaid grounds of appeal by the Assessee before the Tribunal. 30. Before us the learned counsel for the Assessee prays for exclusion of 2 comparable companies out of the 9 comparable companies finally chosen by the TPO for the purpose of comparison. A chart was filed before us showing how the 2 comparable companies which the Assessee seeks to exclude viz., Accentia Technology Limited and Infosys BPO Ltd., were also considered by ITAT Bangalore Bench in the case of Symphony Marketing Solutions India Pvt.Ltd. Vs. ITO IT (TP) A/No.1316/Bang/2012 for AY 08- 09, by the Hyderabad Bench of ITAT in the case of Paraxel International (India) Private Limited Vs. ACIT ITA No.144/Hyd/2014 AY 09-10 order dated 30.9.2014 and it was held therein that the aforesaid companies are not comparable with a ITES service providers such as the Assessee. 31. We deal with the comparable companies which the Assessee seeks exclusion. 1. Accentia Technology Ltd., 2. Infosys BPO Ltd. The comparability of these company with a ITES company w....
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....ny was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected." 13. As pointed out by the learned counsel for the assessee, there was acquisition of a company by M/s. Accentia Technologies Limited during the relevant year, and the said company, therefore, cannot be considered as comparable due to this extraordinary event which occurred in the relevant year as rightly held by the Tribunal inter alia in the case of Excellence Data Research P. Ltd. (supra). Although the learned Departmental Representative has sought to contend that the acquisition of a company by M/s. Accentia Technologies Ltd. took place at the fag end of the year under consideration, the lea....
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....ssue that arises for consideration in this appeal is Ground Nos. 33 to 38 of the grounds of appeal raised by the Assessee are with regard to an addition of Rs. 1,17,46,336 to the total income of the Assessee on account of adjustment in the arm's length price with respect to co-ordination/monitoring services relating to clinical trial activities undertaken in India provided by the Assessee to its associated enterprises. It is the grievance of the Assessee that the TPO/AO/DRP have erred in recharacterizing the Assessee as a Clinical Research Organization ("CRO") as opposed to a mere coordinator of clinical trial activities being carried out in India on behalf of its AE. Without prejudice it has also been prayed that TPO/AO/DRP erred in accepting certain comparables which do not render clinical trial services. It has also been urged by the Assessee that TPO/AO/DRP have erred, in law and in facts, by not accepting the functional and economic analysis undertaken by the Assessee in accordance with the provisions of the Act read with the Rules, which was duly accepted by the learned AO/ TPO under identical facts and circumstances in the Assessee's own case for the earlier assessment year ....
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.... the additional activities necessary to perform the above activities, such as supplying services the investigators with the appropriate forms and questionnaires for each phase of the research, ordering translation of the necessary documents and supplying the investigators with study medication to be used exclusively within the trials. Further, the Assessee basically acts as the first line local liaison and is responsible for complying with all the local regulatory requirements including filing price information with the price control authorities. The costs of local registration trials and phase IV (Post Marketing Studies) trials are met by the Assessee as part of its distribution activities. Phase IV trials have a mainly marketing function to spread knowledge about a new drug and to induce doctors to prescribe it. If a competitive product already exists in the Indian market and Novo Nordisk A/S is introducing a similar but superior product, the medical department provides information about the superiority of Novo Nordisk A/S product to the Indian drug control authorities and obtains the necessary permission to launch the product. However, in case of launching a new product then th....
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....oes not perform any services/functions of a clinical research or organization as alleged by your good(self) during the hearing. 37. The Assessee also objected to the choice of comparable companies as adopted by the TPO. The Assessee placed reliance on the decision of the ITAT Mumbai Bench in the case of Zydus Atlanta Healthcare Pvt. Ltd. ITA No.3311 & 3312/Mum/2008 wherein on identical facts as the case of the Assessee the Mumbai Bench held that the services rendered cannot be characterized as clinical trial services. 38. The TPO however did not deal with any of the objections raised by the Assessee but computed the ALP as follows: "5.7 ALP COMPUTATION: In the light of the above discussions, the arm's length price of receipt of compensation in clinical Trial Segment, is computed as under. Arm's Length Mean Margin 18.37% Clinical Trial cost + Reimbursement relating to clinical trial (Rs.68,03,275 + Rs. 6,19,54,270) Rs.6,87,57,545 Arms Length Price (ALP) @ 118.37% of Clinical trial operating cost Rs.8,13,88,306 Price received + Reimbursement relating to clinical trial (Rs.76,87,700 + Rs. 6,19,54,270) Rs.6,96,41,970 Adjustment u/s. 92CA Rs.1,17,46,336 The above amount ....
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....l trial activities are fully justified. For determination of the ALP, therefore, the AO has correctly adopted certain comparables which are however not acceptable to the assessee. The argument of the assessee seeks to lighten the depth of its involvement in clinical trials which we do not find acceptable. It performs as a full fledged clinical services provider to its AE and ought to be compensated as such. Accordingly, this objection is not acceded to." 40. Before us the learned counsel for the Assessee reiterated the stand of the Assessee as was put forth before the TPO/DRP. The learned DR relied on the order of the DRP. 41. After considering the rival submissions, we are of the view that the order of the DRP has to be set aside and the issue requires to be remanded for fresh consideration by the TPO. We have perused the decision of the Mumbai ITAT in the case of Zydus Atlanta Healthcare (P) Ltd. (supra) and find that the issue as to whether the AE was doing clinical research or administrative service is essentially a factual issue. The Assessee to substantiate its case that it was only coordinating in the matter of carrying out clinical research on behalf of the AE has not fil....