TaxTMI 
TaxTMI 
2026 (6) TMI 1072
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....ircle-8(1), Hyderabad (hereinafter referred as 'Ld. AO'), in so far as it is prejudicial to the Appellant, is contrary to law, facts and circumstances of the case. 2. Time Limitation: 2.1 That on the facts and circumstances of the case, the final assessment order dated 27 August 2024 (received on 29 August 2024) is barred by limitation of time as provided in section 144C (13) as the said order has been passed and received after the expiry of one month from the end of month in which the directions of Dispute Resolution Panel (DRP) was received. Hence, the order passed is contrary to law. 3. Non-quoting of DIN 3.1 That on the facts and circumstances of the case and in law, the Ld. AO has erred in not quoting the computer-generated DIN on the body of the manual order issued under section 144C(13) of the Act, which is in contravention of circular No. 19/2019 issued by CBDT, there by such order to be invalid and never to have been issued as per para 4 of the above said circular. 4. Variation in taxable income (draft order vs final order): 4.1 That on the facts and circumstances of the case and in law, the Ld. AO, while passin....
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....u/s 92D of the Act read with Rule 10D of the Rules in relation to the international transactions entered into by the Appellant for the year under consideration. 7. Shareholder Corporate Guarantee 7.1. That on the facts and circumstances of the case and in law, the Ld. TPO/AO/DRP erred in determination of Arm's Length Price ("ALP") in respect of Shareholder Corporate Guarantee by: i. Erred in making transfer pricing adjustment of Rs. 13,75,97,088 with respect to fee for corporate guarantee given by Appellant to its AEs. ii. Rejecting the Other Method adopted in the TP study. iii. Without prejudice to the above, not appreciating the fact that, provision of corporate guarantee not an international transaction as it does not have any bearing on profits, incomes, losses or assets of such enterprises. iv. Without prejudice to the above, not appreciating the fact that, issuance of corporate guarantee by the parent entity to its group entities is a shareholder activity and does not warrant any charge. V. Without prejudice to the above, not appreciating the fact that, 0.53% was upheld as an arm's length guarantee fee in ....
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....v. Combining the costs of the product distribution function and the marketing function and then determining the remuneration for both functions together using the cost-plus method, applying the lower quartile from the benchmarking report for agency services in case of 000 Dr Reddy's Laboratories Limited, Russia and lower quartile from the benchmarking report for marketing services in case of Dr. Reddy laboratories LLC and Dr. Reddy Laboratories Kazakhastan LLP. vi. Determining the arm's length price of the international transaction by following ad-hoc approach vii. Erred in proposing adjustment that leading to non-arm's length results at AE level. viii. Erred in ignoring the fact that the profitability of th AEs from the relevant international transactions with the Appellant are at arm's length. ix. Erred in considering the lower quartile of MSS Set as arm's length margin. x. Disallowing 50% of the amount paid towards Marketing services to Dr Reddy Farmaceutica Brazil, Dr. Reddy's (WUXI) Pharmaceutical Co. Limited, Promius Pharma LLC, USA, Dr. Reddy's Laboratories Japan KK on ad-hoc basis. 9. Interest....
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.... ii. Rejecting the TNMM as most appropriate method for determining arm's length price of international transactions and following the approach of aggregation of transactions adopted by the Appellant by stating that the Appellant has not done any benchmarking for R&D services separately in the TP study report. iii. Erred in not considering the fact that payment of Research and development charges is closely linked with the main international transactions of the Appellant. iv. failed to appreciate the direct nexus between the R&D activities and the development of pharmaceutical products that generate revenue to the Appellant v. applying 'benefit test' principle and questioning the commercial expediency of the arrangement vi. erred in disregarding the TP documentation maintained by the AEs to justify the R&D charges paid by the Appellant vii. erred in disallowing the entire mark-up on adhoc basis though there is no dispute on receipt of services. viii. erred in application of "the other method" without determining any arm's length price. 11. Receipt of Service Income and License fee 11.1 That....
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....ricing policy mechanism in line with arm's length standard for purchase of APIs irrespective of the level of profits earned in each of manufacturing units whether tax exempt or not. viii. Erred in proposing the adjustment which would lead to erosion of tax base in India. ix. Without prejudice to the above, failed appreciate the fact that the impugned tax exempt units have availed exemption only on 50% and 30% of business profits as per eligible limits. The Id. A.O should have restricted the disallowance to 50% and 30% as per the applicable exemption limit of the tax exempt unit. 13. That on the facts and circumstances of the case and in law, the Ld. TPO/AO/DRP erred in determination of Arm's Length Price ("ALP") in respect of international loans to overseas Associated Enterprises by directing the Ld. A.O/TPO to adopt the LIBOR rate applicable for the year under consideration+200 basis points to arrive at ALP instead of only LIBOR. Corporate tax matters 14. Disallowance on Expenditure under ESOP 14.1 That on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in disallowing Employee stock option plan ....
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....rate overheads net off corporate income. 17.3 That on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in reducing the exemption/deduction claimed u/s 80IC/80IAB/10AA by allocating ESOP and Research and Development expenditure to the units eligible for deduction u/s 80-IC/80IAB/10AA of the Act. 18. Deductions u/s 80G 18.1 The Ld. AO erred in making the addition on account of the deduction claimed by the Appellant under section 80G of the Act towards donations. 18.2 The Ld. AO erred in holding that the amount paid towards Corporate Social Responsibility ("CSR") by the Appellant were not eligible for deduction under section 80G of the Act, without considering the various case laws holding that the same is allowable. 18.3 That the Ld. AO grossly erred in not appreciating that the payments made by the appellant were eligible for deduction under section 80G and that Explanation 2 to section 37 of the Act which denies deduction for CSR expenditure could, in no manner, be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter of the Act. 18.4 The....
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....e under section 143(2) of the Act dated 29.06.2021 was issued by the Ld. AO. Since the assessee had entered into international transactions with its Associated Enterprises, the case of the assessee was referred to the Learned Transfer Pricing Officer ("Ld. TPO") for determination of Arm's Length Price. The Ld. TPO passed an order under section 92CA(3) of the Act dated 31.07.2023 suggesting a transfer pricing adjustment of Rs. 209,09,89,146/ -. After considering the TPO's order and submissions of the assessee on other issues, the Ld. AO passed a draft assessment order under section 144C(1) of the Act on 30.09.2023 computing the total income of the assessee at Rs. 2174,25,01,782/-, including the TP adjustment. 4. Aggrieved with the draft assessment order of the Ld. AO the assessee filed objections before the Ld. DRP. The Ld. DRP issued directions under section 144C(5) of the Act on 27.06.2024. Pursuant to these directions, the Ld. AO passed the final assessment order under section 143(3) read with section 144C(13) of the Act on 27.08.2024 determining the total income of the assessee at Rs. 2194,76,22,334/-, including TP adjustment of Rs. 208,91,09,288/ -. 5. Aggrieved b....
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....tation period and is liable to be quashed. 6. The Learned Departmental Representative ("Ld. DR"), on the other hand, submitted that a factual report was called from the Ld. AO, which was received on 10.12.2024. As per the said report, the physical copy of the Ld. DRP's directions was received by the Ld. AO on 05.07.2024. It was submitted that the date of receipt of the physical copy of the Ld. DRP's directions should be considered as the relevant date for computing limitation under section 144C(13) of the Act. On this basis, it was argued that if 05.07.2024 is taken as the date of receipt, the limitation period for passing the final assessment order would expire on 31.08.2024. Since the final assessment order was passed by the Ld. AO on 27.08.2024, the same is within the limitation period. Accordingly, the Ld. DR submitted that the order passed by the Ld. AO is within time and does not suffer from any infirmity. 7. We have heard the rival submissions and perused the material available on record including the case laws relied upon. The short issue for our consideration is whether the final assessment order passed by the Ld. AO under section 143(3) read with section 144....
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....T (Int. Tax.) (Supra), which is to the following effect: 23. The pivotal question is whether in view of the language employed in Section 144C(13) whether directions of DRP can be said to be received by the assessing officer on 30.06.2022. A conjoint reading of Section 144C(5) and (13) makes it clear that upon receipt of directions issued under Section 144C(5), it is imperative for assessing officer to complete the proceedings within one month from end of the month in which such a direction is received. Thus, key words used in Section 144C(13) are 'upon receipt of directions issued under Sub-Section (5)'. 24. Although, Delhi, Bombay and Madras High Courts have already taken a view and we respectfully agree with that once such directions of DRP are uploaded on the portal, the DRP lost control over it and date on which it entered the portal, the recipient i.e, the assessing officer comes to know about it. 25. To elaborate, it is profitable to refer to Section 13(1) of the I.T. Act. This Sub- Section deals with 'despatch of electronic record' and envisages that 'despatch' of IT(TP)A No. 1844/Bang/2024 & an electronic record is when it ....
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....me, place of 'despatch' and 'receipt' of electronic record. 30. In order to meticulously examine the aspect of 'despatch' and 'receipt', in the present case, it is apt to quote the relevant portion of letter dated 05.03.2024 filed along with I.A. No.1 of 2024 in the present matter, which reads as under: "2. In this regard, it is hereby stated that the direction dated 30.06.2022 were uploaded on ITBA portal on 30.06.2022. Further, physical copy of the Directions was also sent to the Assessing Officer on 30.06.2022 through Speed Post." (Emphasis Supplied) 31. The Income Tax Department through communication dated 30.06.2022 (Annexure P-19) informed that the order under Section 144C(5) dated 30.06.2022 is having Document No.(DIN) ITBA/DRP/M/144C(5)/2022-23/1043689612(1). This is a system generated document and it does not require any signature. A conjoint reading of communications dated 30.01.2024 and 05.03.2024 (Annexure P-18) and communication dated 30.06.2022 (Annexure P-19) leaves no room for any doubt that DRP's directions were despatched on 30.06.2022 and also uploaded on the portal on the same date. Thus, th....