TaxTMI 
TaxTMI 
2017 (3) TMI 1028
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....arned AO and the learned Panel erred in upholding the learned Transfer Pricing Officer's ("TPO") approach of rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant; 4. That the learned AO and the learned Panel erred both in facts and law in confirming the action of the learned TPO of making an adjustment to the transfer price of the Appellant in respect of contract research and development services provided to its associated enterprises by Rs. 37,922,569, holding that the international transactions do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 (the 'Act') and in doing so grossly erred in: 4.1 Upholding the rejection of comparability analysis of the Appellant in the TP documentation and confirming the comparability analysis as adopted by the learned TPO in the TP Order. 4.2 Disregarding application of multiple year/prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2008-09) data for comparable companies should be used. 4.3 Upholding the learned TPO's approach of using data as at the time of transfer pricing assessment proceedings whic....
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....ore or at the time of hearing of this Appeal," 2. With regard to Transfer Pricing issues, the Id. counsel for the assessee has filed a chart with the submission that the TPO has chosen 10 comparables out of which assessee has objection for the inclusion of 4 comparables. The total comparables taken by the TPO for the purpose of computing the ALP are as under:- 1. Aurigene Discovery Technologies Ltd. 2. Celestial Biolabs Ltd. 3. Clinigene International Ltd. 4. IDC India Ltd. 5. Jubilant Chemys 6. Oil field Instrumentations (India) Ltd. 7. Tata Elxsi Ltd. 8. TCG Lifesciences Ltd. 9. Technicom Chemie (India) Ltd. 10. Vimta Labs 3. With respect to inclusion of Aurigene Discovery Technologies Ltd., Jubilant Chemys and Vimta Labs, assessee has no objection and with regard to Clinigene international and Tata Elxsi Ltd., DRP has already issued directions for exclusion of these comparables. Therefore, no further direction is called for. With respect to Technicom Chemie (India) Ltd., the exclusion of this comparable is not strongly contested by the assessee, therefore, we find no merit in his contentions with respect to exclusion of this comparable. Therefore, the same may be inc....
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....ld that this company has to be excluded from the list of comparables for computing the ALP. Copy of the order is placed on record. Similarly, profile of this company was also examined in the case of Tevapharm (P.) Ltd. (supra) of which copy is placed on record. 8. With respect to Oil field Instrumentations Ltd., the Id, counsel for the assessee has contended that this company belongs to oil field and is engaged in providing mud logging services. The company receives various mud logging service orders from domestic and international markets, public/private and multinational companies etc. Thus not functionally comparable to assessee's nature of business, in support of his contention, he has also placed reliance upon the order of Tribunal in assessee's own case for the AY 2007-08. The nature and profile of this comparable was also examined by the Tribunal in the case of FMC India (P.) Ltd. (supra) and Tevapharm (P.) Ltd. (supra) for the AY 2007-08. Copies of the orders are placed on record. 9. With respect to TCG Lifesciences Ltd., the Id. counsel for the assessee has contended that this company has to be excluded from the list of comparables by applying the operating reven....
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....s cover areas like Enterprise Management Applications, Broadband, Internet and eBusiness, Mobile Usage, IT Service Exports and Continuous Market Review of Computing and Peripheral Products. Such research reports provide market forecasts, competitive analyses, vendor profiles, and information on customer requirements and buying patterns. Further, the areas of research include Communication Services Broadband Business, Network Services, IP based services, residential small business and wireless communications. The products and services of IDC consist of the following: - Customised Services: IDC delivers strategic and tactical research, and consulting services to support the development and implementation of business strategies of ICT builders and providers. These projects are customised to address the client's specific business problem. The uniquely qualified, multi-disciplinary experts help you develop business strategies, fine tune product development and pricing, define and implement marketing goals, assess competitive forces, and evaluate joint ventures and acquisitions. - Standard research reports: These research documents cover everything in hardware-PCs, peripherals, ser....
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....er instruments clearly demonstrate the disparity between Oil Field's and Assessee's operations, As discussed earlier the functional profile of Assessee is in the nature of providing - Contract Research and testing services. Oil field does not carry out any of these stipulated activities and accordingly Oil field ought not to be considered a comparable. (Emphasis Supplied) 5. Celestial Labs Limited (Celestial Labs): According to assessee Celestial Labs as a comparable has been cheery picked by the TPO. Celestial Labs is a diversified company operating in varied fields such as rendering IT services encompassing application development and maintenance, production support, EERP, data warehousing, SAP implementation. Celestial Labs also is into manufacturing and trading of products such as ERP package for manufacturing and has a product 'Sanjivani' which is a portal for live ayurvedic consultation. The company is also engaged in the distribution of herbal ayurvedic products. SAP Services: Celestial delivers SAP consulting, SAP implementation and post-SAP implementation services for its customers. Celestial is engaged in implementing SAP for customers from initial plann....
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.... industrial enzymes. This facility would also include the research laboratories for carrying out further R & D activities to develop new candidates' drug molecules and license them to Interested Pharma and Bio Companies across the GLOBE. The proposed Facility will be set up in Genome Valley at Hyderabad in Andhra Pradesh." According to the learned D.R. celestial labs is also in the field of research in pharmaceutical products and should be considered as comparable. As rightly submitted by the learned counsel for the Assessee, the discovery is in relation to a software for discovery of new drugs. Moreover the company also is owner of the IPR. There is however a reference to development of a molecule to treat cancer using bio-informatics tools for which patenting process was also being pursued. As explained earlier it is a diversified company and therefore cannot be considered as comparable functionally with that of the Assessee. There has been no attempt made to identify and eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustment, the TPO has rendered this c....
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....ay also come to 75%. Therefore, we are of the view that on technical ground, the comparables cannot be excluded. Had it been a difference of 1% or 2%, one can understand that comparable has to be excluded on the basis of benchmark adopted by the TPO, but where the difference is 0.1% to 0.9%, the same should not be considered to be substantial difference for the application of benchmark. We therefore find no force in the contention of the assessee that this comparable has to be excluded on the basis of benchmark adopted by the revenue for operating revenue filter. We accordingly reject the submission of the assessee for exclusion of TCG Lifesciences Ltd. from the list of comparables. 14. We accordingly set aside the order of AO/TPO/DRP in this regard and direct the TPO/AO to compute the ALP in the terms indicated above. 15. During the course of hearing, the Id. counsel for the assessee has contended that while working out the ALP, the TPO has not given the working capital adjustment, therefore necessary direction may be issued to examine this aspect and to allow the working capital adjustment while computing the ALP. We find force in the contention of the assessee and accordingly ....
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.... Section 10A cannot be understood in the same sense as in Section 2(45). The phrase "total income" used in Section 10A(1) is to be understood as the total income of the STP unit. This is clear from the first proviso to Section 10A(l) which makes a reference to the total income of the undertaking and not to the total income of the assessee. The definition of any term given in Section 2 will apply only when the contest does not otherwise require. The placement, language and setting of Section 10A cannot mean the total income computed in accordance with the provisions of the Act. Instead, such a phrase, in the context of Section 10A, means profits and gains of the STP undertaking as understood in its commercial sense. As the relief under Section 10A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore, the twin provisions of Section 14 are not existing in the case of income of STP undertaking and accordingly such income is not liable to be computed under Chapter-IV. The deduction shall be given first and process of computa....
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....h ss. 10A and 10B indicates the legislative intention of providing the benefit of carry forward of depreciation and business loss relating to any year of the tax holiday period to be set off against income of any year post tax holiday. This is supported by Circular No. 7 of 2003. The expression "deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of the assessee" has to be understood in the context with which the said provision is inserted in Chapter III. Sub-s. (4) of S. 10A clarifies this position. It provides that the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of s. 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such pro....