TaxTMI 
TaxTMI 
2026 (7) TMI 945
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....Dispute Resolution Panel (hereinafter referred to as the 'Hon'ble DRP'). On the facts and in the circumstances of the case and in law, the learned AO/ Joint Commissioner of Income-tax - Transfer Pricing - 4(3), Mumbai (hereinafter referred to as the 'learned TPO') / Hon'ble DRP has: General: 1. erred in assessing the total income at Rs. 1,29,80,71,771 as against the returned income of Rs. 1,22,01,01,380 disclosed in the return of income filed; Final assessment order bad in law and liable to be quashed: Final assessment order passed beyond the period of limitation: 2. erred in passing the order under section 143(3) read with section 144C(13) of the Act dated 11 November 2025 beyond the time limit prescribed under section 153 of the Act which is the outer time limit to issue assessment orders and thereby, making the impugned order bad in law and liable to be quashed; 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 erred in issuing notice u/s. 143(2) of the Act dated 02 June 2023 without complying with the CBD....
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....er consideration; Levy of interest under Section 234B of the Act: 8. erred in levying interest under section 234B of the Act of Rs. 1,10,22,340; Initiating penalty proceedings under Section 270A of the Act: 9. erred in initiating penalty proceedings u/s. 270A of the Act. The Appellant submits that each of the above grounds of appeal is without prejudice to the other. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal." 2. Brief facts of the case are as under: The assessee company-Watson Pharma Private Limited (WPPL) is the wholly owned subsidiary of Watson Laboratories Inc., USA. The principal activity of the company is to manufacture Finished Drug Formulation (FDF). The company is also engaged in providing research and development services to the group companies. The Ld. TPO has passed order u/s. 92CA(3) of the Income Tax Act, 1961, wherein the arm's length price various eligible transactions have been determined with a proposed adjustment of Rs. 7,79,70,391/- Accordingly, the Ld. A.O. undertook certain variations to the income....
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....o the drugs supplied to end customers. In consideration of the services/products supplied to its AEs, the assessee received an amount of Rs. 5,56,20,69,195/-. 3.1. As per the Transfer Pricing Study Report (TPSR), the assessee aggregated and benchmarked the international transactions relating to its manufacturing segment as a closely linked set of transactions. The transactions so clubbed comprised sale of formulations and active pharmaceutical ingredients (APIs), purchase of raw materials and packing materials, purchase of consumables, sale of raw and packing materials, income from manufacturing site transfer activities, interest on delayed realization of receivables, and reimbursement of expenses. The assessee treated the aforesaid transactions as being intrinsically connected with its overall manufacturing operations and benchmarked the same on a combined basis under the transfer pricing provisions of the Act. 3.2. The assessee adopted TNMM as most appropriate method for benchmarking this transaction by choosing itself to be the tested party. The assessee used OP/OC as PLI to compute its margin at 14.01%. The assessee considered following 30 companies as comparable companie....
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....s as comparable companies with median of 19.19%: Sr. No. Name of the company Weighted average of operating profits on operating cost 1 Finoso Pharma Pvt. Ltd. -3.97% 2 Synchron Research Services Private Limited 1.31% 3 Choksi Laboratories Ltd. 2.74% 4 Vimta Labs Ltd. 5.41% 5 Raptim Research Ltd. 11.02% 6 Veeda Clinical Research Pvt. Ltd. 16.14% 7 Vivo Bio Tech Ltd. 18.56% 8 Panexcell Clinical Lab Pvt. Ltd. 19.74% 9 Azidus Laboratories Ltd. 19.94% 10 Jeevan Scientific Technology Ltd. 20.17% 11 Vanta Bioscience Ltd. 20.90% 12 Eurofins Advinus Limited (Formerly Advinus Therapeutics Limited) 26.74% 13 Jubilant Biosys Limited 32.88% 14 QPS Bioserve India Pvt. Ltd. 54.42% Data place Range OP/OC 5 35th Percentile 11.02% Median 19.19% 10 65th Percentile 20.17% 4.2. During the course of transfer pricing proceedings, the Ld. TPO observed that the assessee had entered into an Advance Pricing Agreement ("APA") with the Central Board of Direct Taxes ("CBDT") on 31.05.2016. It was noted that the APA covered a period o....
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....ing of the assessee's transactions and, therefore, the margins agreed therein constituted a reliable benchmark. 4.6. The assessee further submitted vide reply dated 16.12.2024 that one of its AEs, namely Tevapharm India Private Limited, was engaged in similar business activities of contract manufacturing as well as contract research and development services and possessed a functional profile similar to that of the assessee. It was submitted that the said entity had entered into a Unilateral Advance Pricing Agreement ("UAPA") dated 21.05.2019, applicable from AY 2017-18 to AY 2021-22, which also covered the period relevant to the year under consideration. Relying upon the said UAPA, the assessee contended that the operating margin of 14.01% earned in its contract manufacturing segment and the operating margin of 18.02% earned in its contract R&D segment were in line with the margins accepted under the UAPA entered into by the aforesaid AE and, therefore, no further transfer pricing adjustment was warranted. 4.7. The aforesaid contention of the assessee was, however, rejected by the Ld. TPO on the ground that an APA entered into by one entity cannot automatically be applied to ....
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....t was argued that transfer pricing analysis is year-specific and margins may vary from year to year depending upon prevailing economic and business conditions, market circumstances and operational factors. 8.2. Referring to the observations of the Ld. TPO regarding consistency in FAR profile, the Ld. AR submitted that although the broad FAR profile remained similar, that by itself could not be a ground to mechanically apply the APA margins without undertaking an independent benchmarking exercise for the relevant assessment year. 8.3. The Ld. AR further submitted that one of the assessee's AEs, namely Tevapharm India Private Limited, which was engaged in similar contract manufacturing and contract R&D activities and possessed a comparable functional profile, had entered into a Unilateral Advance Pricing Agreement ("UAPA") dated 21.05.2019 applicable for AYs 2017-18 to 2021-22. It was contended that the operating margins earned by the assessee, i.e., 14.01% in the contract manufacturing segment and 18.02% in the contract R&D segment, were in line with the margins accepted under the said UAPA. Accordingly, it was argued that the international transactions undertaken by the asses....
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....ing the period from FY 2013-14 to FY 2017-18 along with rollback for the preceding four years. The Ld. TPO, after examining the FAR profile of the assessee for the year under consideration vis-à-vis the FAR profile accepted under the APA, has himself recorded a categorical finding that there was no material change in the functions performed, assets employed or risks assumed by the assessee in respect of the contract manufacturing and contract R&D segments. 9.1. In our considered view, though the APA may not be strictly binding for a year not specifically covered therein, the terms agreed under the APA nevertheless carry considerable persuasive value, particularly when the Revenue itself accepts that the FAR profile of the assessee continues to remain unchanged. An APA is arrived at after detailed analysis, negotiations and examination of the functional profile, industry conditions and economic circumstances surrounding the international transactions of the assessee. Therefore, in the absence of any material change in facts or business model, the agreed margins under the APA constitute a reliable guiding factor for determining the arm's length nature of similar transaction....