ASSISTANT COMMISSIONER OF INCOME TAX, CHENNAI vs. PHARMAZELL VIZAG PRIVATE LIMITED, VISAKHAPATANAM

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ITA 3154/CHNY/2024Status: DisposedITAT Chennai16 June 2026AY 2013-1410 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, finding that the CIT(A) had adequately examined the documentation and correctly applied the principles of the APA as a guiding benchmark for the assessment years not covered by it. The Tribunal found no infirmity in the CIT(A)'s approach.

What were the facts?

The Revenue appealed against the CIT(A)'s order which partly allowed the assessee's appeal regarding transfer pricing adjustments. The CIT(A) accepted the need-based documentation and used an Advance Pricing Agreement (APA) for subsequent years as a benchmark for earlier years.

What were the issues?

Whether the CIT(A) was correct in applying the terms of an Advance Pricing Agreement (APA) to assessment years not covered by the APA, and whether the transfer pricing adjustments were correctly determined.

Which sections of the Income-tax Act were involved?

Section 250,Section 92CA,Section 143(3),Section 144C(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA

Hearing: 15.06.2026Pronounced: 16.06.2026

आदेश /O R D E R

PER BENCH:

These appeals filed by the Revenue and the cross objections preferred by the assessee are directed against two orders of Commissioner of Income Tax (Appeals), Chennai-16 both dated

- 2 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd 21.05.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2013-14 & 2014-15.

2.

The appeals filed by the Department are delayed by 122 days. The AO has filed an affidavit stating therein the reasons for belated filing of these appeals. On perusal of the reasons stated in the condonation petition, we are of the view that there is sufficient cause for late filing of these appeals and no latches can be attributed to the Department. Hence, we condone the delay in filing these appeals and proceed to dispose off the appeals on merits.

3.

Common issue is raised in these appeals. Hence, they were heard together and are being disposed off by this consolidated order. Identical grounds are raised in these grounds. The grounds raised read as follows:- 1. 1. The order of the learned Commissioner of Income Tax (Appeals) in ITА. ITBA/APL/S/250/24-25/1065030013(1) dt. 21.05.2024for the Assessment year 2013-14 is erroneous in law, facts and circumstances of the case. 2. Whether the Ld. CIT(Appeals) is correct in accepting the need benefit documentation, which was not corroborated by evidence and which had not stood the test of enquiries in assessment proceedings? 3. Whether the Ld. CIT(A) is correct in determining the ALP of international transaction related to Management service fee, Sales and marketing fee, Royalty for technology & process know-how, Provision of Contract R&D services and

- 3 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd Export of finished goods (APIs) in the light of terms and conditions of the Advance Pricing Agreement (APA) applicable to three months in AY 2019-20 and four roll-back years from AY 2015-16 to AY 2018-19, without appreciating the fact that the terms and conditions set out in APA cannot be applied to the AY 2013-14 which is not a apart of APA? 4.Whether the Ld. CIT(A) is correct in reducing the quantum of the adjustment proposed in the order u/s 92CA(3) towards Royalty trademark and access to customer base, without discussing the issue in detail or without giving any specific directions? 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer be restored.

4.

Brief facts in relation to the appeals filed by the Department are as follows: The assessee is a private limited company incorporated in the year 2007. It is a 100% affiliate of PharmaZell GmbH and was engaged in the manufacture and sale of APIs, amino acids and their derivatives using water-based chemistry. It also provides R&D services. Pursuant to the order dated 21.02.2020 passed by the National Company Law Tribunal, the assessee stood amalgamated with PharmaZell India Pvt. Ltd. with effect from 01.07.2018. For the assessment years 2013-14 and 2014-15, the assessee filed its returns of income on 28.11.2023 and 28.11.2014 declaring total income of Rs.55,36,408/- and Rs.10,99,13,890/- respectively. The returns were selected for scrutiny and notices under section 143(2) of the Income-tax Act, 1961 were issued. During the course of scrutiny proceedings, the AO referred the case to the Transfer Pricing Officer

- 4 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd (TPO) to determine the Arm’s Length Price (ALP) of international transactions undertaken by the assessee with its AEs. For the assessment year 2013-14, the TPO vide order dated 31.10.2016 passed u/s.92CA(3) of the Act, proposed an upward adjustment of Rs.26,89,957/- on the ALP of sale of products and downward adjustment of Rs.13,34,60,552/- to the ALP of cross charge payments made by the assessee. Similarly, for the assessment year 2014-15, the TPO, vide order dated 31.10.2017 passed u/s. 92CA(3) of the Act, proposed an upward adjustment of Rs.27,60,561/- on the ALP of the sale of products and downward adjustment of Rs.11,68,78,220/- to the ALP of cross charges such as royalty and management and sales & marketing fees, etc. Based on the aforesaid transfer pricing adjustments proposed by the TPO, the AO passed assessment orders u/s.143(3) read with section 144C(3) of the Act on 17.01.2017 and 27.02.2018 for AYs 2013-14 and 2014-15 respectively, incorporating the transfer pricing adjustments recommended by the TPO.

5.

Aggrieved by the above orders of the AO, assessee filed appeals before the CIT(A). The CIT(A) partly allowed the appeals of the assessee. While adjudicating the transfer pricing adjustments relating to royalty, management fees and other cross-charge

- 5 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd payments, the CIT(A) accepted the assessee’s contention that the services received from its Associated Enterprises were need-based and had been availed for legitimate business purposes. The CIT(A) further took note of the signed Advance Pricing Agreement (APA) entered into between the assessee and the CBDT covering Assessment years 2015-16 to 2019-20. The CIT(A) held that, where the facts and circumstances remain identical, there is no impediment in applying the principles and parameters agreed upon under the APA for determining the arm’s length nature of similar international transactions in assessment years not covered by the APA. Accordingly, the CIT(A) applied the terms of the APA as a guiding benchmark and restricted the disallowance of royalty towards trademark and customer database only to the extent that such payments exceeded the arm’s length rate prescribed under the APA. Consequently, the transfer pricing adjustment was substantially reduced, and the adjustment sustained by the CIT(A) worked out to Rs.2,20,25,488/- for AY 2013-14 and Rs.2,58,90,138/- for AY 2014- 15.

6.

Aggrieved by the orders of the CIT(A) for the assessment years 2013-14 & 2014-15, the Department has filed the present appeals

- 6 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd before the Tribunal. The Ld.DR apart from relying on the grounds raised strongly supported the orders of the TPO.

7.

The Ld.AR on the other hand relied on the findings of the CIT(A) and placed reliance on various case laws in support of its contention that for the relevant assessment years, the functional profile and the nature of international transaction undertaken are identical, the margin mutually agreed under the APA can be adopted as arm’s length margin for the relevant assessment years also.

8.

We have heard rival submissions and perused the material on record. The solitary issue relates to the transfer pricing adjustment made by the TPO in respect of royalty and other payments made by the assessee to its Associated Enterprises. From the records, we find that the assessee had furnished detailed documentation to substantiate the need for the services availed and the benefits derived therefrom. However, the TPO rejected the need-benefit analysis and supporting documentation in a summary manner without carrying out any meaningful examination of the evidences furnished by the assessee. The TPO proceeded to determine the ALP of the impugned transactions afresh, substantially on the ground that the

- 7 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd assessee had failed to establish the necessity of the services and the benefits derived therefrom. On appeal, the CIT(A) examined the material placed on record and found that the assessee had adequately demonstrated the commercial expediency of availing the services from its Associated Enterprises and had furnished sufficient evidence to establish the need for such services as well as the benefits derived therefrom. Accordingly, the CIT(A) held that the expenditure could not be disallowed merely on the basis of a subjective assessment of the benefit derived by the assessee and, therefore, accepted the assessee’s claim on merits.

9.

We further find that the CIT(A) took note of the fact that an identical set of transactions involving similar expenses had been accepted by the Department under the Advance Pricing Agreement (APA) entered into with the assessee for subsequent assessment years. The CIT(A) recorded a categorical finding that there was no change in the functions performed, assets employed and risks assumed (FAR analysis) by the assessee, nor was there any change in the nature of the international transactions undertaken during the years under consideration vis-à-vis the APA years. In such circumstances, the CIT(A) held that the terms agreed upon under the

- 8 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd APA possess significant persuasive value while determining the arm’s length nature of similar transactions in the impugned assessment years. We find considerable force in the aforesaid reasoning of the CIT(A). Though an APA is not strictly applicable to assessment years falling outside its coverage period, the pricing methodology and margins agreed upon between the taxpayer and the Revenue, after detailed examination of the functional profile and economic analysis, constitute a highly relevant guiding factor where the facts and circumstances remain unchanged. The aforesaid view is fortified by the following judicial precedents:- I. Hon’ble Delhi High Court in the case of PCIT Delhi vs. Springer India Private Limited (ITA 451/2022, judgment dated 15.03.2023) II. ITAT, Chennai Benches in the case of ACIT Vs. Phillips Foods India Private Limited (ITA No.: 739/CHNY/2024, order dated 08.07.2025) III. ITAT, Delhi Benches in the case of FIS Global Solutions vs DCIT (ITA no. 422/Del/2019, order dated 18.06.2020) IV. ITAT, Chennai Benches in the case of Lotus Footwear Enterprises Ltd vs DCIT (ITA 779/MDS/2014,801/MDS/2015 and 810/MDS/2016, order dated 21.09.2016) V. ITAT, Chennai Benches in the case of M/s. Sanmina - SCI India Pvt. Ltd vs. ACIT (IT(TP) A No: 82/CHNY/2018, order dated 04.02.2022)

10.

In the present case, the CIT(A) has accepted the genuineness and business necessity of the services on merits and has not upheld the TPO’s determination of ALP. At the same time, the CIT(A), taking

- 9 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd guidance from the APA, restricted the royalty payment to the arm’s length rate accepted under the APA and sustained a disallowance only to the extent the royalty paid exceeded such benchmark. Consequently, out of the total royalty expenditure for trade mark and access to customer base of Rs.3.88 crore which was entirely disallowed by TPO, the CIT(A) sustained a transfer pricing adjustment of Rs.2.20 crore for the assessment year 2013-14. For the assessment year 2014-15, out of total royalty expenditure and access to customer base of Rs.4,56,53,602/-, TPO proposed disallowance of Rs.2,38,35,220/- and same was increased by CIT(A) to Rs.2,58,90,138/- in tune with APA margin. In the absence of any material brought on record by the Revenue to demonstrate a change in the FAR profile or in the nature of the international transactions as compared to the APA years, we find no infirmity in the approach adopted by the CIT(A). The findings of the CIT(A) are based on proper appreciation of facts and are in consonance with the settled legal position regarding the persuasive value of APAs for years not formally covered by the agreement. Accordingly, we uphold the order of the CIT(A) and dismiss the grounds raised by the Revenue on this issue.

- 10 - ITA Nos.3154 & 3155/CHNY/2024 & CO Nos.8 & 9/CHNY/2025 PharmaZell (Vizag) Pvt. Ltd CO Nos.8 & 9/CHNY/2025 11. Since we have upheld the orders of the CIT(A) on the issue raised by the Revenue, the Cross Objections filed by the assessee merely in support of the order of the CIT(A) does not call for separate adjudication and is accordingly dismissed as infructuous.

12.

In the result, the appeals filed by the Revenue and the cross objections preferred by the assessee are dismissed.

Order pronounced in the open court on 16th June, 2026 at Chennai.

Sd/- Sd/- (एस.आर. रघुनाथा) (जॉज� जॉज� के) (S.R. RAGHUNATHA) (GEORGE GEORGE K) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated, the 16th June, 2026 RSR, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. िनधा�रती /Assessee 2. राज� /Revenue 3. आयकर आयु�त /CIT, Chennai 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF. By Order Digitally signed by REKHA REKHA SENTHIL RAJ SENTHIL RAJ Date: 2026.06.19 09:54:40 +05'30'

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