SIVANTOS INDIA PRIVATE LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1), BANGALORE

PER PRASHANT MAHARISHI, VICE – PRESIDENT 1. ITA No. 1366/Bang/2024 for assessment year 2020-21 is filed by Sivantos India Private Limited, Bangalore (the assessee/appellant) against the assessment order passed under Section 143(3) read with Section 144C(13) read with Section 144B of the Income Tax Act, 1961 (the Act) dated 22nd of May 2024 wherein the transfer pricing adjustment made by the learned Assistant Commissioner of Income Tax Transfer Pricing 2/2/1 Bengaluru made under Section 92CA(3) by order dated 28th June 2023 of Rs. 5,10,17,935/- after

ITA No.:1366 /Bang/2024 Page 2 of 13 the direction of the learned Dispute Resolution Panel revised to Rs. 2,38,20,335/-was made.

ITA No.:1366 /Bang/2024 Page 3 of 13 Appellant’s international transactions, in the following manner: 4.1 Disregarding the economic analysis carried out by the Appellant in the Transfer Pricing documentation (‘TP documentation’); 4.2. Rejecting the filters/search criterion applied by the Appellant without giving any cogent reasons; 4.3. Not appreciating the fact that the TP documentation maintained by the Appellant cannot be rejected merely on account of difference of opinion; 4.4. Conducting a fresh search for comparable companies and following a non-transparent approach towards selection/ rejection of the companies; 4.4.1. Without prejudice, ignoring the fact that certain comparable companies selected by the TPO did not qualify the quantitative screens applied by the TPO 4.5. Adopting new filters/search criterion and inconsistently applying certain additional quantitative filters / qualitative criterion; 4.6. Not providing an adjustment towards risk differential between the Appellant and the comparable companies; 4.7. Selecting certain companies which were not comparable to the Appellant; 4.8. Rejecting certain comparable companies selected by the Appellant in its TP Documentation;

ITA No.:1366 /Bang/2024 Page 4 of 13 4.9. Not granting the benefit of working capital adjustment to the Appellant, to account for the difference in the Appellant’s working capital position vis-à-vis that of the independent comparable companies; and 4.10. Rejecting the fresh analysis of the accept reject matrix conducted by the Appellant to identify companies similar to the companies added by the Ld. TPO in the show-cause notice and also passing the filters applied by the Ld. TPO. 5. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act. 6. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act.

ITA No.:1366 /Bang/2024 Page 5 of 13 7,20,03,480/-. As the assessee has entered international transaction of import etc., the reference was made to the learned Transfer Pricing Officer for verification of the arm’s length price. 5. The assessee benchmarks the above transaction computing its own margin at 3.33% adopting transactional net margin method as the most appropriate method selecting the profit level indicator of operating profit to operating cost putting the keyword of Trading of Hearing Aids, selected 11 comparable companies and held that its international transactions are at arm’s length. 6. The learned TPO verified the TPSR and found that there are inappropriate filters, he carried out the fresh search putting the keywords of “Hearing Aids and Wholesale and Retail Trading of Medical Equipment”. He selected 8 comparable companies wherein out of 11 comparable selected by the assessee only Kox Med & Lab Pvt Ltd having weighted average margin of 3.93% was accepted, rejecting all other 10 comparables, put his 7 new comparables computed the35th percentile margin of 4.12%, median margin of 6.88% and 65th percentile margin of 10.90% issued a show cause notice to the assessee. 7. The assessee objected to the difference in working capital employed by the Taxpayer as well as comparable companies which was rejected by the learned TPO because the segmental working capital is not disclosed in the annual return of the comparables and further the cost of capital is different for different companies. Based on this he retained comparables in show cause notice , determined the arm’s length price of the price received 148,70,13,508/- at an ALP of Rs. 153,80,31,443/- by proposing an adjustment of Rs. 5,10,17,935/- by order under Section 92CA(3) of the Act. 8. Consequent to that the draft order was passed under Section 144C(1) of the Act on 31st August 2023 which was subjected to the learned Dispute Resolution Panel-2 Bengaluru (the learned DRP) which pass the direction on 6th May 2024 based on which the final

ITA No.:1366 /Bang/2024 Page 6 of 13 assessment order was passed determining the total income of the assessee wherein a variation in respect of the transfer pricing adjustment was made of Rs. 2,38,20,335/- as well as in corporate tax ground interest on income tax refund was added of Rs. 31,42,329/-. This order is under challenge before us. 9. The learned Authorized Representative Shri Vishal Kalra Advocate submitted the detailed chart along with paper book containing 1,981 pages and inthe chart wherein he asked for the exclusion of 3 comparables namely MDD MEDICAL SYSTEMS PVT. LTD., QMS MEDICAL ALLIED SERVICES PVT. LTD., RMD MEDICAL LTD. and fourth HOYA MEDICAL INDIA PVT. LTD. And inclusion of One Comparable Hicks Thermometer Limited. 10. The learned Authorized Representative submitted that MDD Medical Systems Pvt. Ltd. is selected by the learned Transfer Pricing Officer having the margin of 13.76% which is functionally not comparable and engaged in the businesses of medical related activities and support services. He referred to the annual accounts of that company to show that it is engaged in providing support services mainly whereas the assessee is purely a distributor. The support service provider would naturally have the better margins compared to the limited distributor like the assessee. He further referred to the website of their comparable companies and submitted that it is engaged into the trading products of hospital theatre and lightings whereas the assessee is purely a product distributor of hearing aids. He further referred to the page No. 280 of the paper book wherein on 28th June 2023 these reasons wereshown to the learned Transfer Pricing Officer which were rejected. 11. The learned CIT DR vehemently submitted that MDD Medical Services Pvt. Ltd. is held to be functionally comparable by the learned Dispute Resolution Panel therefore she supported strongly the direction of the learned DRP.

ITA No.:1366 /Bang/2024 Page 7 of 13 12. With respect to the QMS Medical Allied Services Pvt. Ltd. which is the comparable of the learned Transfer Pricing Officer having a margin of 11.55% selected by the learned TPO despite showing the extraordinary events in that company and further the margins of the company were also not correctly computed according to the learned AR the correct margin is 9.75% whereas the TPO has computed the margin of 11.55%. 13. With respect to the QMS Medical Allied Services Private Limited Ld. CIT DR submitted that there is no extraordinary event but merely the capital of the assessee is increased by 3.01 crores without any corporate reorganization but infusion of the firms and therefore this ground deserves to be rejected however with respect to incorrect margin she submitted that the issue may be verified by the learned Transfer Pricing Officer. With respect to the 3rd comparable RMD Mediaids Limited which is 14. the margin of 10.90% and selected by the learned TPO having a huge turnover and is engaged in the trading of indigenous medical equipment and diagnostic kits. It was submitted that the product profile of this company is also not comparable. 15. With respect to RMD Mediaids Limited ld. DR submitted that functionally this company is trading of indigenous medical equipment and diagnostic kits whereas the assessee is dealing with Hearing Aids both are functionally comparable. 16. With respect to the last comparable Hoya Medical India Private Limited the learned Authorized Representative submitted that margin computed by the TPO selected of this comparable is 8.77% however its total related party transaction are more than 25% and therefore it fails the filter adopted by the learned Transfer Pricing Officer. The learned AR submitted that it has 31% related party transactions. Over and above it was submitted that it is subsidiary company of Hoya Medical Singapore Pte. Ltd. and engaged in the business of trading, buying, selling, transporting of the entire range

ITA No.:1366 /Bang/2024 Page 8 of 13 of medical devices which includes ophthalmic products. Further it is also involved in rendering of services he referred to the profit and loss account wherein assessee earns revenue from sale of services also. He further submitted that the learned Transfer Pricing Officer has incorrectly computed the margin of this comparable company at 8.77% whereas the correct margin is 7.17%. 17. With respect to the Hoya Medical India Private Limited ld. CIT DR submitted that the learned TPO has held that it crosses the RPT filter and therefore how the RPT is computed by the assessee is not known even otherwise functionally that company is comparable as it is dealing in ophthalmic products whereas the assessee is dealing with Hearing Aids. The revenue from sale of services is very nominal which cannot be used for exclusion of this company. For the purpose of margin she submitted that the same will be verified. 18. Though in the chart submitted before us the assessee has mentioned few other comparables to be excluded however no arguments were advanced and therefore those are not considered. 19. The learned AR further stated that Hicks Thermometer Limited is the comparable selected by the assessee which is engaged in the business of scientific and medical equipment such as thermometer which is comparable with the assessee qualifies all the filters applied by the TPO, did not have any related party transactions despite this the same was not included. 20. With respect to the inclusion of Hicks Thermometer (India) Limitedshe relied upon the matrix of the TPO where this company was not found and therefore same cannot be included. 21. We have carefully considered the rival contentions and perused the orders of the learned TPO, direction of the learned Dispute Resolution Panel as well as the submissions made by the assessee and the learned DR. The brief facts of the case shows that Sivantos India Private Limited entered into a supply agreement in relation to the supply of products by Sivantos Pte Ltd. formerly known as

ITA No.:1366 /Bang/2024 Page 9 of 13 Siemens Medical Instruments Ltd. The parent company shall provide to the assessee manufacture and supply of the products, handling of returns, repair and packaging and supply of spare parts and equipment. The purchase price of the assessee is fixed annually as per the agreement. The international transaction entered into by the assessee is the taxpayer’s operating revenueof Rs. 148,70,13,508/-. This was having the margins of 3.25% as per the assessee but was recalculated at 3.33% by the learned TPO and post direction of the learned Dispute Resolution Panel the margin was computed at 4.99% resulting into a transfer pricing adjustment of Rs. 2,38,20,335/-. The Assessee’s selection of 11 comparables stating that international transaction is at arm’s length was rejected by the TPO and also rejected 10 comparables but included one of them in the fresh search carried out by the TPO introducing 7 comparables, DRP further introduced 2 comparables resulting into the final set of comparables at 9 comparables resulting into the above adjustments. 22. Before us the assessee has contested that MDD Medical Systems Private Limited comparable included by the learned Transfer Pricing Officer deserves to be excluded. The claim of the assessee is that it is functionally dissimilar, and it has incurred investment in Research and Development further the assessee relied on the website to show that the company trades in products relating to operation theatre. The annual accounts of the company are placed at page No. 89 to 998 of the paper books. On verification of the profit and loss account and the revenue streams of the assessee at page No. 991 of the paper books it shows the comparable company has revenue from sale of products of Rs. 105,40,51,86. The total revenue from sale of services is zero. Further in the revenue recognition policy it is only sale of goods. Thus, we do not find from the financial any evidence that assessee is engaged in any medical related support services. The assessee is purely into sale of the

ITA No.:1366 /Bang/2024 Page 10 of 13 products. The products are also sold relating to medical industry and in TNMM, there cannot be product to product comparison. This is so for the reason that assessee has never challenged the search matrix and key words put in by the ld. TPO. With respect to the claim of the assessee that assessee has R&D expenditure however only the accounting policy with respect to Research and Development was shown which is placed at page No. 986 of the paper book whereas in the annual accounts and in the Director’s report no research and development activities are visible. Thus, assessee did not incur any R & D Expenditure as per profit and loss account. In fact, in the Director’s report no such expenditure is incurred by the assessee. Even the profit and loss accounts available at page No. 991 also do not show any Research and Development expenses. Accordingly, we find that company was correctly included by the learned AO. 23. With respect to QMS Medical Allied Services Private Limited the annual accounts are perused at Page No. 808 of the paper book. The first contention of the assessee that during the year the assessee company has increased the authorized capital and has also issued the share capital has resulted into an extraordinary event. We find that share capital of the assessee shown at page No. 843 of the paper book there is merely an increase of Rs. 3 crores. Merely an introduction of fresh capital into the business of the company does not result into any extraordinary events which could have impacted the financial result of the company and therefore this argument deserves to be rejected. With respect to the incorrect margin assessee submitted that correct margin is 9.75% whereas the TPO has computed margin at 11.55%, for the verification we direct the learned Assessing Officer to correct the margin if found erroneous. 24. With respect to the RMD Mediaids Limited, the argument of the assessee that it is functionally not comparable as it is engaged in

ITA No.:1366 /Bang/2024 Page 11 of 13 sale of medical equipment. The annual accounts of this company are placed at page No. 861 to 888 of the paper books. This company is engaged in the trading of imported and indigenous medical equipment and diagnostic kits which are marketed in the domestic and foreign health sector as stated at Page No. 874 of the paper book. The assessee is merely saying that it should be excluded because there is a product dissimilarity. However, both the companies are engaged in the trading of medical equipment and diagnostic. Assessee has not objected to the key words selected by the ld. TPO for search on database. Therefore, we do not find any reason for exclusion of this comparable. 25. The fourth comparable contested is of Hoya Medical India Private Limited stating that it fails an RPT filter assessee has computed the RPT at 31% but the objections were raised before the learned Dispute Resolution Panel which was not at all challenged on this ground before the learned Dispute Resolution Panel. The challenge of the assessee on this comparable at serial No. 11 at Page 15 of 21 of the DRP direction clearly shows that this argument was not taken. Therefore, we direct the learned Assessing Officer to examine that whether it really clears the RPT filters set by the learned TPO or not. The learned AO may also verify the computation provided by the assessee which shows that out of the total revenue of 38.42 crores the RPT transactions are Rs. 11.83 crores. This may be verified by the AO and if found to be breaching the RPT filter, same needs to be excluded. With respect to the correct margin computation the assessee submits that its margin is merely 7.17% whereas the margin taken by the learned TPO is 8.77%, the learned AO may verify the same and if found correct rectify the margins. 26. With respect to the introduction of fresh comparable Hicks Thermometer (India) Private Limited the assessee has stated that it is engaged in the wholesale business of scientific and surgical machineries qualifies all the filters and therefore should have been

ITA No.:1366 /Bang/2024 Page 12 of 13 included. The learned Dispute Resolution Panel dealt with this issue at paragraph No. 17 stating that it does not include in the search matrix of the learned TPO this is despite the fact that two comparables have been directed to be included by the learned DRP and if Hicks Thermometer (India) Private Limited does not appear into the search matrix of the learned TPO, despite it carrying on the trading of surgical events and the keyword selected by the learned TPO clearly shows wholesale and retail trading of medical equipment, it is surprising that why it did not appear into the search matrix of the TPO. The learned AO is directed to verify about this company and then if found to be clearing all the filters, the same deserves to be included. Further when the Kox Med & Lab Pvt Ltd was accepted as good comparable despite same not being part of search matrix of the TPO but was part of the search matrix of the assessee, it was included. For the same reason we direct the learned AO to examine the inclusion of Hicks Thermometer (India) Pvt. Ltd. 27. In view of these facts, ground No. 4 of the appeal is adjudicated as above and partly allowed. 28. In the result appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 27th April 2026.

Sd/- Sd/- (KESHAV DUBEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 27th April, 2026. *VM*

ITA No.:1366 /Bang/2024 Page 13 of 13

Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A) By order

Assistant Registrar ITAT, Bangalore