TaxTMI 
TaxTMI 
2015 (11) TMI 1697
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....of the learned Counsel for the assessee, these grounds are dismissed as "not pressed". 5. As far as grounds no.2 and 3(a) are concerned, they relate to addition on account of transfer pricing adjustment with regard to the international transactions between the assessee and its A.E. towards provisions of clinical study management and monitoring support services. 6. Briefly stated the facts relating to the issue are, the assessee company is engaged in manufacturing and sale of pharmaceutical products. As as per the share holding pattern Pfizer Inc., holds 40% of the equity share capital in the assessee company and rest of the share capital is held by others. Thus, the assessee and Pfizer Inc., are Associate Enterprise (A.E) of each other. Though, during the year, the assessee entered into a number of international transactions with its A.E. However, we will deal with the facts relating to international transactions which are in dispute in the present appeal. 7. As far as Clinical study Management & Monitoring Support Services (CSMM) is concerned, the assessee for bench marking the arm's length margin of the transaction adopted Transaction Net Margin Method (TNNM) as the most appro....
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....r (Appeals) after considering the submissions of the assessee, upheld selection of SIRO Clinpharm Pvt. Ltd., Vimta Labs Ltd. and Choksi Laboratory Ltd. However, the learned Commissioner (Appeals) accepted assessee's contention with regard to Syngene International Pvt. Ltd. on the ground that it has predominantly related party transaction. Further, the learned Commissioner (Appeals) also upheld the rejection of four comparables selected by the assessee. As a result of partial relief granted by learned Commissioner (Appeals), the transfer pricing adjustment was reduced to Rs. 2,01,87,000. Being aggrieved, the assessee is in appeal before us. 10. The learned Counsel for the assessee submitted before us the clinical research trial done on behalf of the A.E. is as a facilitator. It was submitted, for this purpose the assessee has identified certain hospitals which undertake such clinical research trial activity and the assessee never does it on its own. It was submitted, for carrying out such activity, assessee neither has any infrastructure, man power or the asset. He, therefore, submitted while selecting the comparable companies, this fact has not at all been considered by Transfer P....
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.... whole would suggest that assessee has not merely acted as a facilitator between the A.E. and the hospital which are carrying out clinical research. It was submitted the assessee is not simply outsourcing its activities to the hospitals but clearly monitors it. In every stage of the clinical trial, there is interaction between the doctors and assessee's personnel. Therefore, there is a value addition by the assessee. Taking us through various clauses of the agreement, the learned Departmental Representative submitted, there is continuous interface between the assessee and the hospital as far as the clinical research trial is concerned. Referring to the confidentiality and the indemnity clauses, he submitted, they indicate that the patent and IPR of the products are coming to the A.E. Therefore, it cannot be said that assessee is merely acting as a facilitator. It was submitted no two companies will be having exactly similar function, therefore, if the functions of the companies are broadly similar they can be considered as comparable. Referring to the order of the Transfer Pricing Officer, the learned Departmental Representative submitted, Transfer Pricing Officer has included both....
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....si Ltd., Vimta Lab Ltd. and SIRO Clinpharm Pvt. Ltd. As far as SIRO Clinpharm Pvt. Ltd. is concerned, the main plank of assessee's argument is the business model of this company is different from the assessee as this company itself conducts research trials whereas the assessee out-sources the entire activity. Though the learned Departmental Representative referring to the service agreement between the assessee and A.E. has stated before us that the assessee cannot be considered to be acting as mere facilitator but has actually rendered value addition to the clinical research trial, however, no substantive evidence has been brought on record to prove such facts. As it appears, the assessee has entered into agreement with hospitals for conducting the clinical research trial and the entire process of clinical research trial was conducted by the hospital. Whereas, SIRO Clinpharm Pvt. Ltd. conducts the clinical research trial activities itself. Though, it is a fact that the co-ordinate bench of the Tribunal in assessee's own case for the assessment year 2002-03, in ITA no.3098/Mum./2006 order dated 8th March 2013, has upheld selection of SIRO Clinpharm Pvt. Ltd. as a comparable but on a....
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....e disputed that the functions performed by an entity would have a material bearing on the value and profitability of the entity. It is, therefore, obvious that the comparables selected and the tested party must be functionally similar for ascertaining a reliable ALP by TNMM. Rule 10B(2) of the Income Tax Rules, 1962 also clearly indicates that the comparability of controlled transactions would be judged with reference to the factors as indicated therein. Clause (a) and (b) of Rule 10B(2) expressly indicate that the specific characteristics of the services provided and the functions performed would be factors for considering the comparability of uncontrolled transactions with controlled transactions." The Hon'ble Court further held:- "30. As indicated above, in order to determine the ALP in relation to a controlled transaction, the analysis must include comparables which are similar in all aspects that have a material bearing on their profitability. Paragraph 1.36 of the "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations" published in 2010 (hereafter 'OECD Guidelines') indicates the "comparability factors" which are important while co....
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....g held as under:- "38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity." 17. Thus, keeping in view the principle laid down by the Hon'ble Delhi High Court as above, in our view, SIRO Clinpharm Pvt. Ltd. cannot be considered as a comparable to the assessee as the business model of this company is not only....
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....nstrated by the learned Counsel for the assessee, from the material on record it is also seen that the Transfer Pricing Officer himself in assessment year 2005-06, has rejected this company as comparable by observing that not only it is engaged in diversified activity but the business model is different. We, therefore, hold that this company cannot be considered as comparable. 20. In ground no.3(c)(i), the assessee has challenged estimating indirect cost at 5% notionally while computing the margin. 21. Briefly stated the facts are, in the course of proceedings before him, the Transfer Pricing Officer on verifying the records noticed that assessee had shown cost on clinical support services under various heads at Rs.Rs. 16,50,21,000. Though, as per assessee the total operating cost shown consists of direct and indirect costs but the Transfer Pricing Officer was under an impression that the total cost represents only direct costs. Referring to the agreement with A.E., he observed, as per the terms of agreement, the assessee is required to recover indirect costs from the A.E. but the assessee has not done so. Though, the assessee contended that mark-up of 10% was earned on total cos....
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....relevant record, the stand taken by the assessee that indirect cost of Rs. 285.48 Lakhs was already included in the total cost of Rs. 1080.25 Lakhs and if the same is found to be correct, the AO is directed not to add separately indirect cost @ 5% of the direct cost for the purpose of Transfer Pricing exercise. Ground No. 2(d) is accordingly treated as allowed for statistical purposes." 25. The fact and issue being materially same, respectfully following the aforesaid decision of the Tribunal in assessee's own case, we remit the matter back to the file of the Assessing Officer for deciding matter afresh in terms with the direction of the co-ordinate bench (supra) after providing adequate opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 26. The next issue on transfer pricing adjustment which arise for consideration is with regard to adjustment made to the arm's length price of international transaction involving import of finished direct formulation (FDF) for re-sale in India, which is raised in grounds no.4 and 5 of concise ground. However, subsequently, the assessee on 20th April 2010, has sought permission to raise following addit....
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....) ITO v/s LÓreal India Pvt. Ltd., 53 SOT 0263 (URO) (2012) (Mum.); iii) Luxottica India Eyewear Pvt. Ltd. v/s DCIT, ITA no.1115/ Del./2014 (Del.) 29. As far as the issue whether the additional ground can be admitted at this stage, the learned Counsel for the assessee relying upon the decision of the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v/s CIT, [1997] 229 ITR 383 (SC), submitted when all the basic facts relating to assessee's transaction with the A.E. in respect of import of FDFs are available on record, and the issue raised can be decided on the basis of such available material the additional ground can be entertained. 30. The learned Departmental Representative strongly opposing the contention of the assessee's counsel submitted, while preparing the transfer pricing study, the assessee itself has rejected re-sale price method by giving certain reasons which are specifically mentioned in the transfer pricing study. In this context, he referred to the transfer pricing study submitted in the paper book. He submitted, the assessee while rejecting RSPM as most appropriate method has stated that reliable data is not available in public domain and it i....
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.... It was submitted, as per the transfer pricing provisions, arm's length price has to be determined by applying the most appropriate method. Considering the nature of transaction, if it is found that RSPM is the most appropriate method even if the assessee had selected some other method the Assessing Officer / Transfer Pricing Officer is entitled to apply the correct method. In this context, he relied upon a decision of the Tribunal, Mumbai Bench, in ACIT v/s Chemtech Global Engineers Pvt. Ltd., ITA no.3590/Mum./ 2010, order dated 12th June 2013. He submitted, all basic and primary facts relating to the nature of transaction involving import of FDFs between the assessee and its A.E. is already available on record before the Assessing Officer / Transfer Pricing Officer, therefore, the issue relating to selection of most appropriate method which is a purely legal issue can be entertained by way of additional ground. He submitted only after applicability of most appropriate method is decided, issue of selection of comparable will come which can be examined by the Transfer Pricing Officer by verifying the data available in public domain. 33. We have considered the submissions of th....
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....t this stage in the form of additional ground. Having held so, it is required to be seen whether re-sale price method is the most appropriate method as claimed by the assessee. On a perusal of the order of the Departmental Authorities as well as other material on record, it is observed that the assessee claimed that it re-sells / distributes the FDFs imported from its A.E. without making any value addition. Therefore, it simply acts like a trader. If the assessee can prove this fact with supporting documentary evidence, then in our view re-sale price method can be considered to be the most appropriate method as assessee is supposed to be engaged in a purely trading activity. The decision relied upon by the learned Counsel for the assessee overwhelmingly support this view. Only because the assessee, at the initial stage, while preparing transfer pricing study, has rejected RSPM and selected TNMM for insufficient data in the public domain, it cannot be precluded from making a plea at a later stage before the appellate authorities that RSPM is the most appropriate method for determining the arm's length price of transaction relating to import and sale of FDFs. In our view, the who....
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....lating to Ankleshwar plant at Rs. 32,87,058. The assessee challenged the disallowance before the first appellate authority. 37. The learned Commissioner (Appeals) also sustained the disallowance. 38. The learned Counsel for the assessee submitted before us, the issue in dispute is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case for the assessment year 2002-03 and of the Hon'ble Jurisdictional High Court in assessee's own case for the assessment year 2001-02. Respective orders were also placed before the Bench. 39. The learned Departmental Representative has not controverted the aforesaid factual position. 40. We have considered the submissions of the parties and perused the material available on record. As far as the factual aspect of the issue is concerned, there is no dispute that assessee has claimed depreciation on block of asset which also includes assets of Ankleshwar plants. It is observed, when identical issue of disallowance of depreciation on the assets of Ankleshwar plants came up for consideration before the Tribunal, Mumbai Bench, in assessee's own case for the assessment year 2002-03, the Tribunal in order date....
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....n order for assessment year 2000-01 as well as earlier assessment year. It is further evident, the Hon'ble Jurisdictional High Court has approved such view of the Tribunal taken in assessment year 2000-01 and 2001-02 in ITA no.128/2009 and 6776/201. In view of such uncontroverted factual position, following the decision of the co-ordinate bench as well as jurisdictional High Court, we allow assessee's claim of house property income in respect of sub-leasing of office premises. 45. The last issue in ground no.9 relates to levy of interest under section 234D of the Act. 46. At the outset, the learned Counsel for the assessee fairly submitted that the issue has been decided against the assessee by the Tribunal in assessee's own case for the assessment year 2002-03. 47. On a perusal of the order of the co-ordinate bench of the Tribunal referred to above, it is found that the Bench has decided the issue against the assessee taking into consideration the retrospective amendment made to section 234D. In view of the aforesaid, we uphold the levy of interest by dismissing the ground raised by the assessee. 48. In the result, assessee's appeal is partly allowed. We now take up Reven....
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....g comparables. However, the learned Departmental Representative fairly submitted the exclusion of this company will not have much impact on the profit margin. 51. The learned Counsel for the assessee, on the other hand, strongly supporting the view expressed by the first appellate authority, submitted, apart from the fact that it is having substantial related party transaction being a subsidiary of Biocon Ltd. but as per its own annual report no segmental analysis has been done He, therefore, submitted that in the absence of segmental analysis, it cannot be considered as a comparable. In this context, he relied upon the decision of the Tribunal, Mumbai Bench, in Evonik Degussa India Pvt. Ltd. v/s ACIT, ITA no.7653/Mum./2011, order dated 21st November 2012. 52. Having considered the submissions of the parties, we are of the view that Syngene International Pvt. Ltd. has been correctly treated as uncomparable to the assessee. As could be seen from the material placed before us, it is wholly owned subsidiary of Biocon India Ltd. and having substantial related party transaction. This fact has not been controverted by the learned Departmental Representative with contrary evidence. More....