ACTAVIS PHARMA DEVELOPMENT CENTRE PRIVATE LIMITED,MUMBAI vs. DCIT-15(1)(1), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER:

under section 143(3) r.w.s. 144C(13) dated 24.05.2024, passed in

pursuance of direction of Dispute Resolution Penal (DRP) dated 09.05.2024

for assessment year (AY) 2020-21. The assessee has raised following

grounds of appeal:

“1. erred in making transfer pricing adjustment of INR 46,88, 168 to total income declared by Appellant.

4 erred in re-characterizing reimbursement received from Associated Enterprises to be part of stability testing services without indicating any basis for such presumption and erred in charging same mark-up on cost- to-cost reimbursement.

5.Without prejudice to above. Ld. TPO erred in benchmarking reimbursement appropriately as per law

The learned Authorised Representative (ld. AR) of the assessee submits

that though the assessee has raised multiple grounds of appeal. However,

the substantial grounds of appeal in 1 to 7 to re-characterizing

reimbursement expenses from Associated Enterprises (AE) which was

received on account of deputing employee for stability testing services. The

assessee charged on mark-up on cost-to-cost reimbursement. The ld. AR

further submits that no method as prescribed in section 92CA was applied

by TPO / AO while making such adjustment, which is a condition precedent

for suggesting any transfer pricing adjustment. Thus, entire transfer pricing

adjustment is liable to be deleted. The ld. AR of the assessee submits that

although he has filed a number of decision but solely relying on the decision in Capgemini India (P) Ltd. vs DCIT (2023) 150 taxmann.com 21

(Mumbai).

DR) for the revenue supported the order of AO / TPO. The ld. SR DR for

the Revenue submits that assessee has not disputed most appropriate

method before TPO. The ratio of decision relied by ld. AR of the assessee is

not applicable on the facts of the present case.

gone through the orders of lower authorities carefully. We find that

assessee is a company engaged in conducting stability studies for group

companies located outside India. The assessee operates on cost plus

model. The assessee filed its return on A.Y. 2020-21 declaring income of

Rs. 7.60 crore. During assessment, the assessing officer noted that

assessee had reported international transaction with its associated

enterprises in its transfer pricing study report (TPSR) in Form No. 3CEB.

The assessee reported reimbursement of expenses received from AE of Rs.

46,88,168/-. The assessing officer made reference to transfer pricing office

(TPO). The TPO recorded the details of international transaction of

assessee with its AEs in para 6 of his order. In para 7 of his order, the TPO

recorded that during the year, the assessee has shown reimbursement of

expenses of Rs. 2.60 crore from its AEs. In the show cause notice, the TPO

recorded that as per the details filed on 04.05.2022 and 10.03.2023, the

assessee has received reimbursement expenses from its AE of Rs. 2.60 crore. The details furnished have shown that five employees were deployed

to the AEs for on-site work and have recovered salary cost from AEs. The

TPO further mentioned in the show cause notice that assessee has shown

to have provided stability testing services and making a mark-up of 18%

on entire cost. The employees sent on-site are working almost like regular

employee and accordingly similar mark-up is to be made on the salary paid

to these employees. The TPO asked the assessee as to why adjustment of

18% on the salary paid to employees deployed to AE should not be made.

The assessee filed its reply dated 16.03.2023. The contents of reply of

assessee is recorded in para 7.3 of order of TPO. The assessee in its reply

contended that they have recovered Rs. 2.60 crore from its AE namely

Teva Pharmaceutical Industries Ltd., Israel towards salary and travel cost of

five employees deputed on AEs location for on-site work and has recovered

salary and travel cost on cost basis. This transaction is reported by

assessee in its TPSR. The assessee also explained the working of

employees deputed and submitted that they are recovered the amount

from AE on cost-to-cost basis. The assessee or the home country was not

responsible for the work done by these employees during deputation

period. The assessee also explained that the entered in Advance Pricing

Agreement (APA) with CBDT for FY 2013-14 to FY 2017-18. The ALP was

negotiated under APA for recovery of expenses states that if the recovery

of expenses related to the share holder activity of AE, then recovery of

expenses should be on cost-to -cost and shall not form part of the operating expenses. Further there is no change in the fact for the year

under consideration. The reply of assessee was not accepted by TPO. The

TPO held that purpose of deployment of five employees is to rendered

services to AE and this is not a shareholder activity. There is no difference

whether employees working on-site or at the assessee’s premises.

Therefore, ALP of the employee cost is to be determined at cost plus 18%.

Accordingly, ALP of mark-up on reimbursement is determined at Rs.

46,88,168/- (18% of 2.60 crore) and suggested upward adjustment. On

receipt of order of TPO, the assessee passed draft assessment order. The

draft assessment order was served upon the assessee. The assessee

exercised its option to file objection before DRP. Before DRP, the assessee

raised factual and legal submission.

of assessing officer in its direction dated 09.05.2025. The AO on receipt of

direction of DRP passed final assessment order. We find that TPO has not

applied the method prescribed under section 92CA, rather suggested

adjustment on adhoc basis. We find that co-ordinate bench of Mumbai

Tribunal in Capgemini India (P) Ltd. (supra) held that ALP for international

transaction shall be determined by the method prescribed by law and in

case of failure to do so, the TPO cannot be given another innings to rectify

such mistake. The co-ordinate bench followed the decision of jurisdictional

High Court in Kodak India (P) Ltd. (2017) 79 taxmann.com 362. Thus,

respectfully following the ratio of decision, we do not find any justification of making any adjustment without following the mandate of law. In the

result, ground no. 1 to 7 of appeal are allowed. Considering the fact that

we have allowed appeal on merit, therefore, adjudication of ground no. 8

which relates to passing the assessment order beyond limitation period has

become infructuous and dismissed as such.

Order was pronounced on 29/04/2026.

Sd/- Sd/-

BIJAYANANDA PRUSETH PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, Dated: 29/04/2026 Biswajit Sr PS

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant Registrar ITAT, Mumbai