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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order passed by Ld.CIT(A) dated 09.03.2023 for A.Y. 2012-13 on following grounds of appeal.
2. At the outset, the Ld.AR submitted that the assessee wish to restrict its arguments only to Ground nos. 2.1 and 2.2 pertaining to the adjustment made under transfer pricing provisions. He also submitted that these issues are covered by decision of Coordinate Bench of this Tribunal in assessee’s own case for A.Ys. 2010-11 and 2011-12 in & 496/Bang/2015 by order dated 25.09.2020. Accordingly we are restricting this order by adjudicating Grounds 2.1 and 2.2 raised by the assessee in the present appeal.
Brief facts of the case are as under: 3.1 The Ld.AR submitted that assessee is a pharmaceutical data analysis and pharmaceutical market research company. It filed its return of income for the year under consideration on 11.03.2013 declaring total income of Rs.2,49,40,420/-. The case was selected for scrutiny and statutory notices were issued to the assessee, in response to which the assessee filed details and furnished relevant documents as called for. 3.2 As there was international transaction involved, reference was made to the transfer pricing officer for determining the arms length price of the transactions between the assessee and its AE. The order u/s 92CA of the Act dated 29.01.2016 was received on 29.01.2016 wherein the Ld.TPO determined the transfer pricing adjustment u/s 92CA to be Rs. 1,24,90,379/-.
Page 5 of 3.3 On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order on 29.02.2016 by making following additions: a) Deduction disallowed u/s. 14A – Rs.2,38,621/- b) Interest on TDS disallowed – Rs.60,746/- 3.4 The assessee on receipt of the draft assessment order, chose to file appeal before the Ld.CIT(A), and accordingly the final assessment order was passed u/s. 143(3) r.w.s. 144C of the act on 25.04.2016 by making addition of Rs.4,30,98,033/- in the hands of the assessee. 3.5 Aggrieved by the order of the Ld.AO, assessee filed appeal before the Ld.CIT(A). 3.6 The Ld.CIT(A) while considering the grounds of the assessee did not allow the plea of foreign AE to be the tested party for the purposes of computing the arms length margin. However the Ld.CIT(A) directed the Ld.TPO to verify whether the price paid by the assessee to its AE falls within the range of +/- 5% of the arms length price so determined. 3.7 In respect of the corporate tax issues raised by assessee, the Ld.CIT(A) upheld the disallowances made by the Ld.AO in respect of 14A, but directed the Ld.AO to verify MAT credit admissibility. 3.8 Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.
As submitted by the Ld.AR, the only issue that needs consideration regarding Ground no. 2.1, wherein the assessee is challenging the selection of tested party by the Ld.TPO to be the assessee itself.
Page 6 of 4.1 It is submitted that Coordinate Bench of this Tribunal for A.Ys. 2010-11 to 2011-12 in assessee’s own case upheld the foreign AE to be the tested party by observing as under: “6. We have considered the rival submissions. First of all, we reproduce paras 7.1 to 7.3 from the direction of DRP in Assessment Year 2010-11. These are as under: “7.1 Foreign Tested Party ought not to be rejected: Rejection of foreign tested party is unjustified. Accordingly, The arm's length comparability analysis using the associated enterprises as tested parties as per the transfer pricing documentation ought to be accepted. 7.2 It is seen that the Assessee has chosen its subsidiaries M/s PharmARC Inc USA and M/s. PharmARC, its own AEs as tested parties for TP analysis and the same was rejected by TPO. 7.3 This Panel is not able to accept the objection regarding rejection of foreign AEs as tested parties. The functions and risks of the assessee are more complex in nature and that numerous adjustments would have to be made if a foreign entity would be taken as a tested party. Guidance is taken from decisions of Mumbai ITAT in Onward Technologies & Aurionpro Solutions cases.”
From the above paras reproduced from the DRP directions, it is seen that this is the finding of DRP that the functions and risks of the assessee are more complex in nature and that numerous adjustments would have to be made if the foreign entity would be taken as a tested party. We fail to understand the logic behind this observation of DRP because if we are taking the foreign AEs as tested party, comparison has to be between comparables of the respective country selected by the assessee in TP study and such foreign AE selected as tested party and there is no need to compare with the data of the assessee company. More over when it is admitted by DRP that the functions and risks of the assessee are more complex in nature and numerous adjustments would have to be made, in our considered opinion, as per the Tribunal order cited by learned AR of the assessee having been rendered in the case of Ranbaxy (supra), the foreign AEs in the present case should be considered as tested party as has been considered by the assessee in the TP study………………….”
Page 7 of 4.2 The Ld.DR on the contrary relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 4.3 It is a settled principle in the transfer pricing provisions that the tested party should be the party in respect of which reliable data for comparison is easily and readily available. This view has been considered by Hon’ble Delhi Tribunal in case of Ranbaxy Laboratories Ltd. vs. ACIT reported in 110 ITD 428.
Space Respectfully following the above decision in assessee’s own case for the preceding assessment years, we direct the Ld.AO/TPO to consider foreign AE as the tested party. Accordingly ground no. 2.1 raised by assessee stands allowed.
The Ld.AR submitted that ground no. 2.2 is in respect of not testing the international transaction within the range of +/- 5% variation. 5.1 We note that this issue has been already allowed by the Ld.CIT(A) in favour of assessee in para 5.5 of the impugned order. Therefore this ground need not be adjudicated. However we direct the Ld.AO to follow the directions by the Ld.CIT(A) while passing OGE.
Rest of the issues and grounds raised by assessee are submitted to be not pressed.
Page 8 of Accordingly, we are not inclined to adjudicate these grounds and are left open to be argued in an appropriate circumstances. In the result, the appeal filed by assessee stands partly allowed. Order pronounced in the open court on 18th August, 2023.