2018 (8) TMI 1133

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....PO u/s 92CA of the Act. The TPO passed an order dated 22.01.2013 and in accordance with the same, a draft assessment order was passed. The assessee filed its objections before the DRP, which was allowed in part, and in accordance with the directions of the DRP, the final assessment order was passed. Against the final assessment order, the assessee is in second appeal before us by raising the following grounds of appeal: "1. That the order of the Deputy Commissioner of Income Tax, Circle 16(1), Hyderabad (hereinafter referred to as 'AO') in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as 'DRP'), Hyderabad in so far as it is prejudicial to the Appellant, is contrary to law, facts and circumstances of the case. 2. Transfer Pricing Adjustments 2.1 General Grounds 2.1.1 The assessment order passed by the Learned AO under section 143(3) read with section 144C and read with the order passed by the Learned Transfer Pricing Officer (hereinafter referred to as 'TPO'), under section 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') is bad in law and void ab-init....

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.... 2.4.4 The Learned AO/DRP erred in accepting the incorrect margins of the following comparable companies as computed by the TPO, while determining the ALP: 2.4.4.1 TCG Lifesciences Ltd 2.4.4.2 Manipal Acunova Limited 2.4.4.3 Choksi Laboratories Ltd. 2.4.5 The Learned AO/DRP erred in confirming the TPO's stand in considering the provision for bad and doubtful debts and bad debts as non-operating expenses for the purpose of margin computation of the comparable companies. 2.5 Incorrect computation of margin of Appellant 2.5.1 Based on the facts and the circumstances of the case and in law, the DRP/AO erred in confirming the action of the TPO in considering the foreign exchange loss as operating. 2.6 Use of multiple year data 2.6.1 The Learned AO/DRP erred in rejecting the multiple year analysis for computing the operating margins earned by the alleged comparable companies. 2.5 Risk Profile for captive service provider 2.5.1 The Learned AO/DRP/TPO ought to have appreciated that margins earned by the Appellant (being a captive service provider) were reflective of the functions performe....

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.... companies led to the conclusion of the AO that there is no uniformity in the items under the receivables and payables, as these are the categorised differently in different companies. He, therefore, observed that in the absence of any correct characterization of the element constituting the same, it would not be feasible to accept the figures on the face value. Further, he observed that where a company is having multiple segments, it is difficult to pinpoint as to which pertains to which segment and the anomalies involved in the whole exercise would result in factually incorrect results. He observed that the other liabilities have not been included and no break up is available in the AR (Annual Reports) of the comparables, as to what it constitutes and whether some part could be included or not is also not known. Therefore, he refused to allow the benefit of working capital adjustment. The DRP also confirmed the order of the TPO and the assessee is in appeal before us. 5. The learned Counsel for the assessee has drawn our attention to Page No.105 of the Paper Book, which is the working capital adjustment as computed by the assessee and submitted before the TPO and also to page ....

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....l profit of Suven Life Sciences Ltd, we find that Suven Life Science has been adopted by the assessee also in its TP study as a comparable, but during the TP proceedings, assessee had argued that that it has been wrongly considered as a comparable, as it was functionally different. According to the assessee, under the segmental reporting, Suven Life Sciences has identified three business segments i.e. (a) manufacturing; (b) services and; (c) research & development and business segment was considered erroneously by the TPO for comparison and has also erred in computing the operating margin of Suven Life Science, by not considering research and development segment expenditure which was not apportioned to any segment for apportionment between the two segments of manufacturing & services. The TPO however, did not accept the assessee's contention. He observed that the comparable has described R&D as an independent segment i.e. research and development. Thus, according to him, the expenditure on R&D need not be apportioned to Drugs Discovery and Development Support Services (DDDSS) and manufacturing segment. However, the unallocated loss of Rs. 73,31,47,000 was apportioned between the se....

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....189 patents in CNS arena and 10 inventions till March, 2009. He has also drawn our attention to page No.401 and 402 of the Paper Book to demonstrate that the said company had incurred huge expenditure on R&D and by use of technology in drugs discovery and innovations, it was generating new novel leads for further development and therefore, is not comparable to the assessee and thus, according to him, Suven Life Science has to be excluded from the list of comparables. 11. The learned DR however, supported the orders of the authorities below. 12. Having regard to the rival contentions and the material on record, we find that the assessee is into simple drug testing, whereas Suven Life Science is undertaking not only drug discovery, but is also involved in development of new drugs. Therefore, these activities are clearly functionally distinguishable. The TPO as well as the DRP have chosen to retain Suven Life Sciences as a comparable because the assessee itself has taken the company as a comparable and further because, Suven Life Science is also into R&D. But as seen from the TP order, the segmental details of drug discovery activity (DDDSS) of Suven Life Science have been consi....