AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 468
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....ct. 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- 1.1 " In the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in giving direction to exclude M/s. Celestial Labs Ltd. from the comparables for determining the ALP on the sole ground that said company has abnormal profit level indicator." 1.2 " In the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that functional analysis of M/s. Celestial Labs Ltd. reveals that it is involved in similar functional activity as the assessee", 1.3 " In the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that M/s .Tonira Pharma Ltd. is to be included in the final set of comparables for determining the arithmetical mean without appreciating that it is a functionally different company." 2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored. 3. "The appellant craves leave to amend or alter any of th....
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....d. 17.86% 7 ABL Bio-Technologies Ltd. 17.80% 8 TCG Lifesciences Ltd. 30.07% 9 Tonira Pharma Ltd. -16,90% 10 Zandu Pharmaceutical Works Ltd. 17.48% Arithmetic Mean 13.45% The TPO found above comparables as not exactly comparables to the assessee and thus, the assessee was directed by TPO to conduct a fresh search of comparables which were arrived at by the assessee as detailed hereunder:- Sr. No. Name of Comparable Cost plus mark-up FY 2007-08 1 Dolphin Medical Services Ltd. 15.56% 2 Fortis Clinical Research Ltd. 20.55% 3. Research Support Inti. P. Ltd. 8.35% 4. Vimta Labs Ltd. 14.62% 5. Wintac Ltd. -0.50% Arithmetic Mean 11.71% The TPO however was not satisfied with the fresh comparables identified by the assessee as they were found to be not exactly comparables and the TPO shortlisted following comparables:- Sr. No. Name of Comparable cost plus mark-up FY 07-08 1 Engineers India Ltd. (Seg.) 35.10% 2 Alphageo (India) Ltd. 40.52% 3 Agile Electric Technologies Pvt. Ltd. 6.05% 4 Vimta Labs Ltd. 19.67% 5 ID....
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....n entered into by the assessee with its AE for product development activity , thus holding in favour of assessee directing exclusion of M/s. Celestial Labs Ltd. as comparable by holding as under:- " 15. The TPO has selected M/s. Celestial Labs Ltd. as one of the comparables for determining the arms length price. As per the web-site of said company, the functional profile of M/s. Celestial Labs Ltd. is production and sale of biotechnological products having industrial implications. The appellant on the other hand is engaged in providing contractual product development services to its AE on cost plus markup basis. The functional profile of M/s. Celestial Labs Ltd. is therefore different from the tested party, warranting its exclusion from the set of comparables. Even otherwise, the abnormal profit margin of 87.94% reported by the said company, when none of the other selected comparables by the TPO reflect profit level indicator exceeding 30.07% requires its exclusion on account of existence of super normal profits. The decisions relied upon by the appellant in the written submission also support the claim of the appellant .that company showing extra-ordinary profit is requir....
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....ion of Celestial Lab Ltd. which has PLI of 87.94%, while the assessee also pleaded for inclusion of Tonira Pharma Ltd. which has negative PLI of (-)16.90% . The TPO excluded Tonira Pharma Ltd. as comparable while learned CIT(A) directed for its inclusion. The learned CIT(A) also directed for exclusion of Celestial Lab Ltd. as comparable on the grounds of super normal profits and different functional profile. Reference was drawn to Rule 10B(2) and 10B(3) of Income-tax Rules, 1962. our attention was also drawn to decision of Mumbai-trib. In the case of Wills Processing Services Private Limited v. DCIT reported in (2013) 30 taxmann.com 350(Mum.) . The learned DR also relied upon decision of Hon'ble Delhi High Court decision in the case of Chryscapital Investment Advisors (India) Private Limited v. DCIT reported in (2015) 56 taxmann.com 417(Delhi) . Our attention was drawn to decision of Hon'ble Delhi High Court decision in the case of Rampgreen Solution Pvt. Ltd. v. CIT reported in (2015) 60 taxmann.com 355(Del) . It was thus contended that learned CIT(A) has wrongly excluded Celestial Lab Ltd. on the grounds of super normal profits without doing exercise to find out reasons for mater....
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....cluding orders of the authorities below and cited cases before us. We have carefully gone through material on record. We have observed that the assessee is engaged in business of import, wholesale trade, manufacture of drug and medicines and research in pharmaceuticals products. The assessee is 99.9% subsidiary of Ferring BV. The assessee is mainly engaged in distribution of finished formulations imported from its AE. The assessee imports finished formulations from its AE for sale in domestic market and these formulations are in the nature of super speciality and temperature sensitive products for treating infertility, bed wetting etc.. The assessee also carries out product developmental services on contract basis for its AE . The international transactions reported by the assessee with its AE are as under:- Sr. No. Name of the AE Nature of transaction Amount (Rs.) Method used 1 Different AEs Purchase of finished Goods 139,345,778 TNMM 2 Different AEs Sale of finished Goods 647,821 TNMM 3 Ferring International Centre S.A. Interest on Early Payment 29,21,609 TNMM 4 Ferring International Centre S.A. Provision of pro....
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....Rs. 50 each. The said draft Prospectus was issued by said company Celestial Labs Limited in the year 2006 while the Initial Public Offer came in June 2007. As per the said draft prospectus, the said company Celestial Labs Limited is engaged in following activities:- " CELESTIAL BUSINESS MODEL CELESTIAL LABS LIMITED is 8 years old Hyderabad based ISO 9001-2000 certified company, It has been providing customized enterprise solutions, bioinformatics services to health and life science sector, like gene sequence comparison and analysis, prediction modeling, design and development of Drug Molecules; and development of industrial enzymes. The Department of Science and Industrial Research (DSIR), Ministry of Science and Technology, New Delhi has recognized the company's research and development center. CELESTIAL is in contact with IICT, CCMB IMTECH and Osmania University, the premier research institutions at Hyderabad for its chemical technology, molecular biology and microbiology collaborative research projects. PRESENT EXPANSION The expansion has been planned: ° To scale up the contract research and Project management service....
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..... The company has achieved business of Rs. 1022.18 Lakhs in the year 2005-06 in comparison to Rs. 804.98 Lakhs during the year 2004-05. Products & Services of the company CELSUITE Structure-based drug design plays a crucial role in the discovery of novel chemical entities, which are of immense use in health care market. Using in silica tool, one can appreciably reduce the high costs involved in synthesizing and testing the potential bioactive compounds or drug molecules. CELESTIAL LABS has developed CELSUITE- a drug design tool, which facilitates molecular modeling; active site prediction and ligand build up, the important features of a drug discovery process. Starling with molecular coordinates of the test candidate, the CELSUITE predicts the potential of the ligand molecules, builds virtual drug, screens out unfavourables, and predicts toxicity through a logical and rational process. The visualizer displays the result molecules on the screen in a variety of representation and colours. CELSUITE will be licensed individually once it is integrated with toxicity prediction module and also it will used by Celestial to offer the drug molecul....
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....umber of new products, and in improvement in the process and performance of several " existing products. In view of the optimum utilization of expertise and resources, CELESTIAL LABS is developing the appropriate technological-base for the production of two important industrial enzymes, Alpha Amylase and Alkaline Protease, with the requisite infrastructure for manufacturing and quality control. CELESTIAL LABS has tied up with IMTECH at Chandigarh for the technology transfer and will avail the services of leading plant & machinery providers to help the company establish and scale-up of manufacturing processes. Consumption of the proposed enzymes to be manufactured is shared mainly by detergents, textiles, food and pharmaceutical industries in India, currently with an import of 70% of these enzyme products. Services Celestial has been providing customized enterprise solutions, bioinformatics services to health and life science sector, like database preparation and management, gene sequence comparison and analysis, prediction modeling, design and development of Drug Molecules. Further the services are being strengthened by applying suitable....
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....below :- PARTICULARS INCOME YEAR ENDED 31/3/2002 YEAR ENDED 31/3/2003 YEAR ENDED 31/3/2004 YEAR ENDED 31/3/2005 YEAR ENDED. 31/3/200.6 Rs. In Lacs Sales 363.83 373.54 502.8 804.98 1022.18 Others 2.09 Total 363.83 373.54 502.8 807.07 1022.18 EXPENDITURE Salaries 154.51 169.96 192.36 253.55 288,91 Communications 13.87 15.26 17.55 21.94 21.11 Administrative Expenditure 65.1 78.44 94.16 164,44 188.98 Selling Expenses 13.43 14.76 36.2 50.82 78.76 Interest 0.63 0.63 1.58 0.15 Deferred Revenue Expenditure write off 6.76 9.15 11.44 30.87 55,55 Deferred Revenue Expenditure write off (Product Development) 31.10 Preliminary expenses w/o 0.01 0.01 0.01 0.01 0.01 Total :""*' - " 254.31 288.21 353.31 521.63 664.57 Profit Before Depreciation 109.52 85.33 149.49 285.44 357.61 Depreciation 12.73 18.55 26.92 17.5 25.....
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....aid company as comparable and hence the onus is on the TPO/AO to bring on record the audited financial statements for the year ended 31-03-2008 and to make deeper analyses of its financial statements to weed out impact of extra-ordinary events such as IPO on its profitability . The said company Celestial Labs Limited came out with IPO in June 2007 , and hence the impact of this extra-ordinary event in the profitability is to be excluded before computing PLI. Hence , in our considered view, impact of the expenses incurred in connection with IPO as well interest income earned on escrow account wherein proceeds of IPO were kept shall be excluded while computing PLI of the said company for benchmarking international transactions of the assessee with its AE, as it is clearly visible that this extra-ordinary event of IPO happened in the relevant period under consideration before us. Thus, there is a need to further analyse the financial statements of Celestial Labs Limited. Thus, adopting PLI of 87.94% for the year under consideration of Celestial Labs Limited without deeper analysis of financial statements was not justified on the part of TPO/AO and hence we are setting aside the matter....
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.... from its WHO, G.MP, ISO 9000 plant at Ankleshwar and Nandesari. With the US FDA approval of the Nandesari Plant, the Company will have access to more customers from regulated markets. Our Operations and Business Strategy: The Company is in the process o( stepping up commercial production at its Nandesari plant to meet increased demand from new Customers. The Company has already filed 8 DMFs with US FDA. SWOT Analysis Strengths: (i) Tonira is a quality producer of exclusive products of its customers as per their specific requirements, (ii) Its Nandesari Unit is USFDA compliant plant and ISO 9002 certified with Good Manufacturing Practices (GMP) certificate for several API products. (iii) The Company has a state- of- the- art R & D Center at Nandesari having multiple class capabilities. The Center is in the process of continuously developing newer value added molecules through innovative and cost-effective process routes to tap the market opportunities. (iv) Tonira is constantly involved in R & D lo achieve cost reduction through alternative process routes, manufacturing excellence and reduction in energy costs.....
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....functioning of all departments. New recruitments have been made to keep pace with increasing requirement of skilled and experienced technical personnel for new projects and expansion. Initiative to develop a team compatible of functioning in ever changing technology have been taken. The Company has total 368 Employees as of 31st March, 2008 Outlook and Future Strategy: With commencement of commercial production at UDFDA approved manufacturing facility at Nandesari, the Company is confident of registering higher production and sales in the coming year. The Company depends more on strengthening core business with proven skills and Research and Development to put on fast track for cost' effectiveness and to have World Class manufacturing facility so it can continue to cater to developed countries in long run. Armed with strong resource base and a vision to be a leading manufacturer of bulk drugs and high value Active Pnarma Ingredients (APIs) in selected therapeutic areas, Tonira is poised to uhfeash its true potentials to meet the challenges and exploit the growth opportunities ahead. Cautionary Statement: Statement i....
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....o consideration loss(before exceptional items) of Rs. 190.79 lacs. Thus as could be seen that the Ankleshwar unit was adversely affected due to litigation with custom and excise departments and inventories were attached and clearances of finished goods were disallowed. The impact of this extraordinary event is also to be excluded while computing PLI for benchmarking international transaction of the assessee with its AE of product development activity because perusal of the exceptional loss clearly reveals that only impact payment of interest, duties and penalties pertaining to earlier years were considered but operational loss incurred due to impact of stoppage of clearance by excise and custom department and attachment of inventories was not considered . The relevant extract of the Director Report attached with audited financial statements is reproduced hereunder ::- "Operations In Retrospect.: - During the year-under review, the Company recorded total Income of Rs. 3295.88 Lacs and the operations resulted in net loss of Rs. 190.79 lacs before exceptional items as against a profit of Rs. 164.03 lacs in the previous year. After provision of exceptional items being....