TaxTMI 
TaxTMI 
2025 (2) TMI 1901
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....n of companies failing the related party transactions. 4. Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidence brought on record, duly considered in the light of Rule 18(6) of the ITAT Rules, 1963. 5. Briefly stated, the facts of the case are that the assessee is a wholly owned subsidiary of Pharmacia & Upjohn LLC, Kalamazoo USA. The ultimate parent company is Pfizer Inc., USA. The assessee is engaged in trading of pharmaceutical products and providing business support services to its group companies. The list of associated enterprises (AEs) with whom the assessee has entered into international transactions, are as under :- SI. No. Name of the AE Nature of Relationship with AE Brief Description of Business of AE 1 Pfizer Innovative Supply Point Int. SPRL Any person or enterprise holds, directly or indirectly, shares carrying not less than twenty- six percent of the voting power in each of such enterprises Manufacturing and Trading in Pharma Products 2 Pfizer Service Co BVBA Any person or enterprise holds, directly or indirectly, shares carrying not less than twenty- six pe....
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....e insofar Most Appropriate Method (MAM) is concerned. The quarrel revolves around the international transactions of purchase of finished goods for which the margin of the assessee as per the Transfer pricing report (TPSR) is 6.30% whereas the same has been determined by the TPO at 8.59%. The assessee selected the following comparable in its TPSR :- Sr. No. Name of Company Margin (OP/OC) 1 Aarey Drugs & Pharmaceuticals Ltd. 1.95% 2 Earum Pharmaceuticals Ltd 5.45% 3 Lucky Pharmaceuticals Ltd. 4.01% 4 Merix Laboratories Pvt. Ltd. 3.46% 5 Neelkanth Drugs Pvt. Ltd. 3.08% 6 Orbit Lifescience Pvt. Ltd. 1.72% 7 Sanitex Chemicals Ltd. 0.21% 8 Systopic Laboratories Pvt. Ltd. 6.22% 9 Usan Pharmaceuticals Pvt. Ltd. 5.14% 10 Vardhman Pharma Distributors Pvt Ltd. 2.76% 35th percentile 2.76% Median 3.27% 65th percentile 4.01% 8. Comparable companies as per the TP Order are as under :- Sr. No. Name of the company Assessee / TPO comparable Margin (OP/OC) 1 Orbit Lifescience Pvt. Ltd. Assessee 2.26% 2 Vardhman Pharma Distributors Pvt. Ltd. Assessee ....
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.... 65th percentile 9.39% 10. In light of the above, the TP adjustment made by the TPO is as under :- Particulars Amount (in INR) Operating Revenue (A) 5,10,91,09,504 Purchase price adjustment (B) 21,34,39,034 Operating Income (C) [A+B] 5,32,25,48,538 Cost of goods sold (D) 4,05,05,05,478 Operating expenses (E) 95,01,67,373 Operating Cost (F) [D+E] 5,00,06,72,851 Operating Profit at 6.05% (G) [C-F] [i.e. 6.05% of (F)] 32,18,75,687 ALP [OP/OR] (H) 8.28% ALP OP (I) [H*C] 44,07,07,019 ALP OC (J) [C-I] 4,88,18,41,519 Transfer Pricing Adjustment (F) - (J) 11,88,31,332 11. The first grievance is the erroneous recomputation of assessee's operating margin by considering purchase price adjustment as part of operating income. While computing its operating profit for the year under consideration, the assessee had reduced the purchase price adjustment from the operating cost since the said amount was received from the AE as an adjustment to the purchase price. The facts show that the assessee had entered into a distribution agreement dated 01/04/2017 with both AEs, namely, Pfizer Service Co. BVBA and ....
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....hat, the observation that the agreement is a colorable device is not acceptable. Thus, solely based on the assumption and surmises and conjectures of the DRP. Moreover, if any adjustment has to be made toward purchase of finished goods then, obviously, the said adjustment will be towards the purchase price as done by the assessee whereas the TPO has done the adjustment to the sales of the assessee which is against the accounting principles. We are of the view that reducing the credit from the cost of goods sold is because the said reduction is clearly a reduction in the purchase price both as per the agreement as well as the credit memo. We find that the assessee forwarded the credit memos raised by the purchase price agreement which evidence the fact that adjustment in price was clearly allocated against the original invoices and underlying product. 14. In our considered view, the reduction for the purchase price adjustment can only be done to the cost of goods sold/ operating cost and not to the operating revenue as is done by the TPO/DRP. The aforementioned discussion can be summarized into the following margin computations :- Particulars As per the Appellant [Refer Pag....