TaxTMI 
TaxTMI 
2026 (6) TMI 1254
X X X X Extracts X X X X
X X X X Extracts X X X X
.... account of transfer pricing adjustment of Rs. 6,26,23,016; Final assessment order is bad in law and liable to be quashed 2. erred in issuing scrutiny selection notice under Section 143(2) of the Act by Assessment Unit, Income Tax Department without appreciating the fact that the said notice should have been issued by jurisdictional AO or prescribed authority as per Notification No. 56 of 2022 leading to invalid assessment proceedings and thereby the final assessment order passed by the Assessment Unit, Income Tax Department is bad in law and liable to be quashed; 3. Notice issued under Section 143(2) not being as per the format prescribed by CBDT Instruction (F. No. 225/157/2017/ITA.II) dated 23 June 2017 is invalid the Ld. AO erred in issuing notice u/s 143(2) of the Act dated 31 March 2023 without complying with the CBDT Instruction F.NO. 225/157/2017/ITA-II dated 23-06-2017, therefore the notice issued u/s 143(2) is invalid thereby leading to consequent assessment proceedings and consequent final assessment order being bad in law and liable to be quashed; 4. erred in not passing the final assessment order dated 16 October 2025 within the time....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... companies selected by the Appellant on the ground that it fails persistent loss filter applied by the Ld. ТРО: • Micro Therapeutic Research Labs Limited ('Micro') • Choksi Laboratories Ltd. 11. erred in rejecting the following comparable companies on the ground that they are functionally different as compared to the functions of the Appellant: • Priya International Limited ('PIL) • India Tourism Development Corporation Limited ('India Tourism') • Simulation Public Affairs Management Services Pvt. Ltd. ('Simulations') • Aristotle Consultancy Private Limited ('Aristotle') • SecUR Credentials Limited ('SecUR') • Russell Reynolds Associates India Private Limited ('Russell') • PR Pundit Public Relations Pvt. Ltd. ('PR Pundit') • Ketchum Sampark Pvt. Ltd. ('Ketchum') • Concept Public Relations India Limited ('Concept) • Quantum Consumer Solutions Private Limited ('Quantum') 12. erred in rejecting Quantum Consumer Solutions Priv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al grounds vide ground nos. 13 and 14 are also in respect of merits of the case on account of adjustment made for provision of contract R&D Support Services. In this respect, assessee submitted that all the facts pertaining to the said additional grounds are already on record and need no fresh verification of facts, hence prayed for their admission. No objection was put forth by the Revenue on the admission of the said additional grounds and hence, are admitted for their adjudication. Thus, in conclusion, ld. Counsel for the assessee made his submissions in the hearing before us on the merits of the case to deal with ground nos. 8, 9,10, 11 and 12 and additional ground nos. 13 and 14. 4. Brief facts as culled out from the records are that assessee is engaged in providing support services to Mondelez Group companies. It is engaged in providing services in the area of information system, business process excellence, procurement, HR, R&D support, etc. Amongst various international transactions, assessee also undertook international transaction with its associate enterprises (AEs) in respect of provision of contract R&D support services amounting to Rs. 92,31,26,214/-, falling withi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....571.00 0.38 Auditor Remuneration 1,027.00 276.30 Net Loss on Foreign Currency Transactions and Translation 3,478.00 3,478.00 Expenditure towards corporate social responsibility (CSR) activities 4,226.00 Total expenditure 31,62,160.00 8,25,585.62 Less: non-operating expenses Interest paid 21,808.00 -5.28 Donations paid / CSR Expenses 4,226.00 - Operating Expenses 31,36,126.00 8,25,590.90 III. Profits Net profits 2,72,565.00 97,540.59 Operating profits 2,95,060.00 97,535.32 IV. Profit Level Indicator OP/ OC 9.41% 11.81% 4.1. Ld. Transfer Pricing Officer (ld. TPO) upon reference made by the ld. AO for arriving at ALP of the international transactions observed that some of the companies do not appear to be comparable with that of the assessee and thus, proposed for their exclusion from the final set of comparables. The same is tabulated below for ready reference: Sr. No. Name of the Assessee Turnover (In Rs. Crores) Working capital adjusted weighted average of OP/OC (%) Remark of the TPO Reason for rej....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with the transaction entered into by a Rs. 10 crore company and two most obvious reasons are the size of the two companies and the relative economies of scale under which they operate. Thus, for better comparability this filter has been applied. This filter has been upheld by various tribunals on several occasions." and for the second one: "Persistent Loss-making Companies are rejected. If a certain on company is incurring losses for a reasonable period of time i.e. 2 out of 3 years, it indicates that the company has some peculiar problems not in line with the growth in the industry. Hence, such companies are excluded from the final set of comparables." 4.3. On the above, contention of the assessee before the ld. TPO was that it has considered comparable companies having turnover more than Rs. 1 crore. According to the assessee, application of filters for selection of comparable companies is for the purpose of ensuring that sufficient number of potential comparable companies are selected for comparison. The objective is to identify comparables that are sufficiently similar to the tested party in terms of functionality, risk, financial parameters, business operations....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t companies sustaining losses in two out of three concerned years should be rejected. According to the assessee, the correct way of applying this filter would be to reject wholly those companies which have sustained losses in all three years under review. The term "persistent" indicates that the company should have incurred losses consistently for all concerned years. Thus, according to the assessee only those companies making losses for three consecutive years under consideration are to be rejected by taking them as persistent loss making companies. 4.7. To buttress this contention, reliance is placed on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. Goldman Sachs (India) Securities Pvt. Ltd. [2016] 69 taxmann.com 19, wherein it is held that if company has earned profit in one out of three preceding years, then the said company cannot be called as persistent loss making. Relevant extract in this respect is as under: "(b) The Revenue on the other hand contended that Capital Trust Limited is a persistent loss-making unit and, thus, cannot be used as a comparable of for the purpose by the impugned order held on a determining the finding....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment cannot be made to account for the differences in exceptional circumstances. The companies with losses in two out of three years are rightfully excluded by the ld. TPO and thus rejected the objections raised by the assessee. Ld. TPO had selected the final set of comparables for the purpose of benchmarking the international transaction of provision of contract R&D services by selecting four comparables and worked out the ALP margin at 19.40% for which the details are tabulated below: Sr. No. Company Name Turnover (Rs. Crores) OP/OC (%) 1 Veeda Clinical Research Ltd. 224 15.76 2 Vinta Labs Ltd. 275.98 16.76 3 Vivo Bio Tech Ltd. 51.39 21.72 4 Raptim Research Pvt. Ltd. 166.43 23.39 Arm's Length Price 19.40% 4.10. Based on the above, he computed the adjustment of Rs. 6,26,23,016/- after taking into account margin reported by the assessee at 11.81%, details of which are also tabulated above. Description Figures (in Rs.) Operating revenue A 92,31,26,214 Operating cost B 82,55,85,620 Operating profit C=A-B 9,75,40,594 OP/OC% D=C/B 11.81% ALP (OP/OC) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... in ITA No. 7724/Mum/2011 dated 23.01.2013 (Mum) Affirmed by Hon'ble Bombay High Court in [2016] 290 CTR 236 (Bom) ii. John Deere India Pvt. Ltd. in ITA No. 63 OF 2017 (Bom HC) dated 17.06.2019 iii. MOL Maritime (India) Pvt. Ltd. in ITA No. 6397/MUM/2006 dated 31.07.2020 iv. Star India (P.) Ltd. in ITA No. 1724/Mum/2017 dated 01.08.2019 v. Inteva Products India Automotive Pvt. Ltd. vs DCIT in IT(TP)A No. 2843/Bang/2017 dated 23.12.2020 vi. Imsofer Manufacturing India (P.) Ltd. in ITA No. 5158/Del/2015 dated 21.08.2020 vii. Nordex India Pvt. Ltd. in IT(TP)A No. 265/Bang/2022 dated 31.05.2023 viii. Daido India Pvt. Ltd. in ITA No. 5761/Del/2018 dated 21.07.2025 6.2. Respectfully following the above judicial precedents in the given set of facts as tabulated above, we hold that both Micro Therapeutic Research Labs Ltd. and Choksi Laboratories Ltd. are to be considered as comparable company for the purpose of bench marking. 7. On the additional filter relating to turnover criteria adopted by ld. TPO, a set of four final comparable companies was short listed, based on which transfer pricing adjustment has been made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as not disputed the otherwise functional comparability of the case with that of the assessee. It held that the comparable merits inclusion, as it passes the test of the ratio of export turnover to local turnover, on a pragmatic rational basis. 7.2. In another case of JP Morgan Advisors India (P) Ltd. [2019] 109 taxmann.com 136 (Mum), in similar factual position, the Coordinate Bench held that there is no threshold limit fixed by the ld. TPO at the rate of 75% and the export revenue earned by the company. The Coordinate Bench by placing reliance on the decision of Hon'ble High Court of Punjab and Haryana in the case of Mercer Consulting (India) (P) Ltd. (supra) held to include the comparable in the final list, ignoring the miniscule difference. 7.3. In the present case before us, Micro Therapeutic Research Labs Ltd. turnover exceeds the threshold of 10 times of turnover adopted by the ld. TPO with the marginal difference of 0.40 times with that of the assessee. Considering the judicial precedents noted above, we are of the view that this comparable is ought to be included as contended by the ld. Counsel for the assessee, for the purpose of bench marking, taking into account th....