ACIT, CIRCLE-49(1), KOLKATA, KOLKATA vs. M/S. ALKALOIDS CORPORATION, KOLKATA

The Revenue is aggrieved by the action of the CIT(A) in deleting arm’s length price adjustment of Rs.2,41,33,061/- made by the Assessing Officer/TPO on account of import of raw material, processing charges and purchase by the assessee from its associate enterprises.

The assessee in the business of manufacturing of ingredients of drugs and pharmaceutical products. The assessee as required by section 92D r.w.r. 10D of the Act, the assessee firm had obtained a Transfer Pricing Study Report for the financial year 2013-14 relevant to assessment year 2014-15. In the Transfer Pricing Study Report, the assessee applied the following filters:

1. 1. Industry- Pharmaceutical 2. Segment – Drugs 3. Financial Year-2013-14 4. Turnover Filter- Rs 50-100 crores Hereinafter 45 companies were left. Thereafter filter applied of: 1. Net-Worth. Range selected was Rs 0-100 crores. 7 companies were filtered out.

The ld. TPO though accepted all the 14 functionally comparable companies chosen by the assessee for determining of arm’s length price of the transaction, however, the TPO selected 6 more companies in addition to the aforesaid 14 companies selected by the assessee and thereby the Assessing Officer/TPO determined the profit level indicator of 19.63% taken by the assessee as per the Transfer Pricing Study Report.

Being aggrieved by the above action of the Assessing Officer, the assessee preferred appeal before the CIT(A). The ld. CIT(A) vide impugned order dated 25.03.2022 directed the Assessing Officer to delete the impugned additions. The relevant part of the order of the CIT(A) is reproduced as under:

A perusal of the above directions of the CIT(A) would reveal that in this case, the 14 comparables selected by the assessee for determining of arm’s length price have not been rejected by the Assessing Officer. The TPO however added 6 more comparables but the assessee disputed the same on the ground that the said comparables were not appropriate as the 5 companies out of the said 6 comparables were different, had a size differential with the assessee company in terms of turnover. They had a size differential about 7 times or more in terms of turnover.

Further, the AR of the assessee also explained that even the said companies were involved in manufacturing of complete drugs, whereas, the assessee was involved in manufacturing of ingredients to be used in manufacturing drugs and pharmaceuticals and that the said companies were not functionally comparables with the assessee. The ld. CIT(A) out of the 6 more comparables taken by the TPO has accepted one comparable and directed the Assessing Officer to remove the remaining 5 companies from the list of valid comparables. The ld. counsel for the assessee has submitted that the TPO has not found any fault with the transfer pricing study taken by the assessee and even has not rejected any comparable chosen by the assessee. It was well demonstrated before the CIT(A) that the additional comparables taken by the TPO were not functionally similar not only on account of their large turnover which was more than 7 times than that of the assessee, rather, the product manufactured by them were formulations of complete drugs, whereas, the products manufacturing by the assessee were used by the other companies for formation of drugs.

The ld. DR, on the other hand, could not point out any distinct fact warranting our interference in the above order of the CIT(A).

In view of the above, we upheld the order of the CIT(A). 10. So far as the cross-objection of the assessee is concerned, the ld. counsel stated in the Bar that he does not press the cross-objection. 11. In the result, the appeal of the Revenue and cross-objection of the assessee are hereby dismissed. Kolkata, the 19th April, 2023. Sd/- Sd/- [�गर�श अ�वाल /Girish Agrawal] [संजय गग� /Sanjay Garg] लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member Dated: 19.04.2023. RS Copy of the order forwarded to: 1. ACIT, Circle-49(1), Kolkata 2. M/s Alkaloids Corporation 3. CIT (A)- 4. CIT- , 5. CIT(DR),