BIO-ANALYTICAL TECHNOLOGIES (INDIA) PRIVATE LIMITED,PUNE vs. ITO WARD 1(1) PUNE, PUNE

आदेश/ORDER

PER Dr. DIPAK P. RIPOTE, A.M : This is an appeal filed by the assessee against the order of Assessing Officer (AO) passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act 1961 (here onward referred as Act), for AY 2022-23 dated 11.10.2025, emanating from Dispute Resolution Panel’s Directions u/s 144C(5) of the Act pertaining to Draft Assessment Order dated 27/02/2025.

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The learned TPO erred in rejecting the Cost Plus Method (CPM) adopted by the assessee as the most appropriate method (MAM) for benchmarking its international transactions with Associated Enterprises (AEs). The authorities below failed to appreciate that the assessee's transactions involved provision of services on a cost-plus basis, and hence CPM was the most appropriate method, consistent with Rule 10B(1) (c) of the Income-tax Rules, 1962. The learned TPO erred in adopting the Transactional Net Margin Method (TNMM) in spite of the availability of reliable internal comparable data under cost plus method. 3. The learned TPO ignored real nature of transaction between Assessee and its Associated Enterprises (AE), in reality AE is established for working like branch office and not a profit centre. Arm length price should be determined keeping in view that Bio-Analytical Technologies UK Ltd is not a separate stand- alone company (who has only one employee), not doing any other business than supporting service sale of Bio-Analytical Technologies (India) Ltd. 4. The learned TPO has ignored fact that assessee is also supplying newly developed software to Indian customers which is the first year of the newly developed product, where assessee has incurred loss during the year under consideration. 5. The learned TPO has made adjustment for interest on delayed receivables at Rs. 5,72,886/- ignoring real nature of transaction between AE and Non-AE. 6. The assessee preys leave to add such other evidence as may be necessary to substantiate its case. 7. The assessee prays to add, alter, amend and for withdrawal of any of the grounds of appeal as and when the occasion demands.”

Brief Facts as per Records:

IT(TP)A No.2760/PUN/2025 notices as mentioned in the assessment order .The AO also made a reference to Transfer Pricing Officer (TPO)to determine Arm’s Length Price (ALP) of the International Transactions entered with the Associated enterprises (AE). Accordingly, the Transfer Pricing Officer issued various notices which were duly complied by the assessee. The Assessee had provided Software Development Services to it’s AE namely Bioanalytical Technologies (UK) Ltd which is its subsidiary. The Assessee had benchmarked its Transaction with the AE using CPM Method. As per the assessee the Assessee had charged its AE at Cost plus 15% mark up.

3.1 However, the TPO rejected the Transfer Pricing Analysis of the Assessee and Benchmarked it using TNMM. The TPO proposed adjustments of Rs. 2,63,27,238/-. Accordingly, the AO passed Draft Assessment Order. Then the Assessee filed Objections before the Dispute Resolution Panel (DRP) . The DRP after hearing the assessee upheld the Draft Assessment Order vide its order dated 08/10/2025. Then, the AO passed the Final Assessment Order u/s 143(3) rws 144C(13) on 11/10/2025 determining the Total Income of the Assessee at Rs. 2,63,27,238/-.

3.2 Aggrieved by the Final Assessment Order the Assessee has filed appeal before this Tribunal.

Submission of Ld. Authorized Representative (AR) for the Assessee:

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invited our attention to various paragraphs of the TPO’s Orders which do not pertain to the assessee. Ld.AR submitted that most of the TPO’s order contains incorrect facts. Ld.AR submitted that though the assessee had brought to the notice of the DRP these facts the DRP failed to consider it.

4.1 Ld.AR submitted that the assessee had benchmarked its transactions using CPM method. Ld.AR further submitted that during the year assessee had supplied identical services to the unrelated party at same Cost plus 15 % mark up. Ld.AR submitted that details were provided to the TPO and DRP but they failed to consider it as Internal CUP. The relevant paragraphs of the written submission of the Ld.AR are reproduced here as under : “The Company, Bio Analytical Technologies (India) Pvt. Ltd is promoted by Mr. S.G.Bhalerao, Mr. S.S. Bapat, Mr. V.S. Upadhye and Mr. V.M. Bibikar and all the four persons have a sound educational background and all had gained wide experience in handling sophisticated analytical / scientific instruments. BioAnalytical Technologies India Pvt. Ltd. (B.A.T.) is engaged in providing Knowledge Software Solutions in the Scientific and Engineering areas. BASIC FACTS NATURE OF BUSINESS AND ACTIVITY The Bio-Analytical Technologies India Private Limited (BAT India) which was incorporated in India in 2003, provides services for development/modification of software required for analytical instruments, as per instructions from manufactures. In the past, BAT India had been actively promoting its offerings for software services and solutions in the UK from India. Some of these companies have a good potential to forge a long-term association with BAT India. Therefore, it was thought that BAT India having its front office in the UK in the form of wholly owned subsidiary, would be of immense benefit for marketing, better coordination and relationship management with clientele in the specialized fields of Analytical Instrumentation, Life Sciences, Biotechnology and Healthcare. This

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subsidiary is working as extended arm of BAT India and not profit earning company on its own working, as the subsidiary is serving only those customers who are associated to BAT India for many years.

During the year under consideration, BAT UK has only one employee and BAT UK is acting like a branch office for BAT India. Main role of BAT UK is to collect orders and co-ordinate with BAT India for giving required services.

Assessee's say and facts on above Para's are as under

Assessee has not used TNMM Method also, assessee also has not considered operating profit to operating cost as the Profit level Indicator.

Assessee's say and facts on above Para's are as under

No data regarding any of the above companies was submitted by the Assessee to learned TPO during assessment proceedings

Learned TPO has calculated profit/adjustment under TNMM Method b. in the case of Assessee at Rs. 2,57,54,352/-. The learned TPO has not considered, the true nature of transaction between Assessee and its Associated Enterprise- Bio Analytical Technologies UK Ltd. Combined Profit of Assessee and its Associated Enterprise is at Rs. 5,14,109.41. TPO has calculated TNMM Profit/adjustment ignoring the purpose for which BAT UK was formed and International transactions were entered with BAT UK. By any method of adjustment, amount of Rs. 2,57,54,352/- is not justified.

Bio Analytical Technologies India Private Limited' ('BAT' or 'the assessee' or 'the Company') was incorporated in India in 2003. Bioanalytical Technologies (UK) Limited is a private company limited by shares incorporated in England as wholly owned subsidiary of assessee. During the previous year relevant to assessment year 2022- 23, assessee has entered into international transactions which, inter alia, included rendering of software development services to overseas affiliates. The software developed / services rendered by the assessee is only based on the instructions received from its associated enterprises. The assessee does not create / develop / sell software products and packages to Associated Enterprise. The software developed / services rendered by the assessee is used by its associated enterprises for integrating the same with other software / hardware Companies. Therefore, the assessee's business is limited to providing software development services. The assessee conducted a Transfer Pricing Study ('TP Study') in order to comply with the Indian transfer pricing provisions.

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The assessee provides software development services to its associated enterprises in the areas of embedded and information system engineering, architecture design, programming and testing. Agreement and compensation :- (a) The commercial terms and conditions of services between BAT and its associated enterprises. (b) During the relevant previous year, the assessee was remunerated on the following basis :- (i) From 1-4-2021 to 31-03-2022 on a cost plus 15 per cent mark- up basis. As is clear from the above, the assessee does not bear significant business and operational risks and is only a captive software development service provider rendering services to its associated enterprises. The profile of the assessee clearly distinguishes it from full-fledged entrepreneurial companies. The assessee selected the CPM as the most appropriate method, inter alia, on the basis that.”

Submission of Ld.Departmental Representative (DR):

Findings and Analysis :

6.1 In this case the Assessee is an Indian Company. The major share holders of the Assessee company are as under (page 31 of the paper book) Name of share holder Number of shares % of shares held V.S.Upadhye 1,56,000 33.77% S.G.Bhalerao 66460 14.39% S.S.Bapat 66000 14.29% S.V.Bibikar 66000 14.29% Rohan Bhalerao 39270 8.5% Pooja Bhalerao 39270 8.5%

IT(TP)A No.2760/PUN/2025 6.2 The Assessee has a 100% subsidiary namely Bio-Analytical Technologies UK Limited in UK. During the year the Assessee had provided Software Development Services to its subsidiary Bio-Analytical Technologies UK Ltd. The details of the same are asunder :

6.3 Thus, it can be observed that the Assessee had specifically submitted before the TPO that the assessee had benchmarked the transactions using Cost Plus Method (CPM). The assessee also filed copies of the invoices to demonstrate that the Assessee had charged Cost Plus 15% mark up to its AE.

6.4 However, the TPO has rejected the method selected by the Assessee. In the TP order passed u/s 92CA(3) of the Act , there are many paragraphs which are not related to the submission or transactions of the Assessee. At page 11 of the TPO’s Order following things are mentioned :

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6.5 The facts mentioned above by the TPO in the above paragraph of the TP Order are not pertaining to the assessee. Further the TPO has mentioned in para 11.2 that certain additional comparable proposed by Assessee have failed on filters. This is absolutely incorrect facts as Assessee has never submitted those comparables. The Assessee in its paper book at page 112 onward has mentioned that TPO has reproduced incorrect facts in para 8.1, 8.2, 8.3, 8.4, 9.1, 9.2 etc . This fact has not been rebutted by the Ld.DR. This explains the utter Non application of mind by the TPO.

6.6 The TPO in the TP Order at para 3.2.2 has rejected the Cost Plus Method selected by the Assessee and decided to apply TNMM method. The relevant paragraph of the TPO is as under :

IT(TP)A No.2760/PUN/2025 “3.2.2 The arm's length price of the international transactions in SD Ssegment provided to the associated enterprises (AE) has been determined by applying Cost Plus Method (CPM), stating to be the most appropriate method in the facts and circumstances of the case. The gross profit to operating sales ratio (GP/Sales) has been taken as the profit level indicator (PLI) in CPM analysis. The assessee has not provided any rationale for the use of GP/SALES as the PLI. Further the assessee is into software development and not a distributor. The TPO has calculated the PLI using the data from financials and TNMM using OP/OC is being proposed for determining the arm's length price of the transactions.”

6.7 Thus, in the order the TPO has not specified reasons for rejection of the method adopted by the Assessee and reasons for selecting TNMM as Most Appropriate method. It is also observed that the TPO has not provided the search matrix to the assessee when he has used TNMM. Even in the above reproduced paragraph, the TPO has mentioned incorrectly that PLI applied by assessee is GP/Sales.

6.8 Thus, the TPO has rejected the CPM applied by the assessee without giving valid reasons. The TPO has not mentioned how and why the CPM is not Most Appropriate Method in the case of the Assessee. Assessee had provided detailed FAR analysis, but TPO has not commented on FAR analysis. Rather at some places the TPO has referred to Incorrect facts. In these facts and circumstances of the case we are of the considered opinion that the TPO has erred in rejecting the Cost Plus Method applied by the assessee as Most Appropriate Method for the transaction. We find support from the decision of ITAT Pune.

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Quote “22. In a situation in which the revenue authorities seek to disturb the method of determining the arm's length price, as adopted by the assessee, it is necessary for them to demonstrate that, on the given facts of the case, a particular method will be more appropriate vis-á-vis the method adopted by the assessee, and such an appropriateness of method must be shown on the touchstone of the factors set out in Rule 10C(2) above. The ALP adjustments are counter measures to ensure that the prices at which international transactions are entered into by the associated enterprises are not so contrived as to adversely affect the domestic tax base, and, therefore, most appropriate method should be decided in the light of this basic governing principle alone. The consideration as to which method will be more beneficial to the revenue authorities is certainly not germane to the selection of most appropriate method. While there is no particular order or priority of methods which the assessee must follow, and no method can invariability be considered to be more reliable than others, on a conceptual note, transactional profit methods (i.e., Transactional Net Margin Method and Profit Split Method)are treated as methods of last resort which are pressed into service only when the standard methods, which are also termed as 'traditional methods' (i.e., Comparable Uncontrolled Price Method, Resale Price Method and Cost Plus Method) cannot be reasonably applied. The OECD Guidelines also recognize this fact and state that transactional profit methods might be used to "approximate arm's length conditions when traditional methods cannot be relied applied alone or exceptionally cannot be applied at all". We are in considered agreement with this approach. In our considered view, the transaction profit methods should be applied only when standard or traditional methods are incapable of being properly applied on the facts of a case. While traditional methods seek to compute the prices at which international transactions would normally be entered into by the associated enterprise, but for their interdependence and relationship, transactional profit methods seek to compute the profits that the tested party would normally earn on such transactions with unrelated parties. It is only axiomatic that the profits earned by an enterprise is dependent on several factors, and not only on the prices at which transactions have been entered into with the associated enterprises. The profit based results thus admit possibility of vitiation of results by a number of factors which are not relevant to the determination of prices at which international transactions are entered into by the associated enterprises. These methods, which are a step removed from the methods of computing the prices at which independent transactions would normally take place in respect of the product or service, must therefore be put to service when the traditional methods, which seek to compute prices in independent situations, fail or are incapable of being implemented, as there are large number of situations in which, for a variety of reasons, traditional methods are simply unworkable. The inputs necessary for applying the traditional

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methods are not always available and that is the reason that despite better results produced by these methods, these methods are not as much put to use. However, whenever necessary inputs for applying one of these methods are available and there is no dispute about comparability of those inputs, there is no good reason to resort to transactional profit methods. It would thus follow that in a situation in which the assessee has followed one of the standard methods of determining ALP, such a method cannot be discarded in preference over transactional profit methods unless the revenue authorities are able to demonstrate the fallacies in application of standard methods. In any event, any preference of one method over the other method must be justified by the Transfer Pricing Officer on the basis of cogent material and sound reasoning.” Unquote.

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paragraphs of the TP Order to demonstrate that no valid reasons given by the TPO to reject CPM .

Cost Plus Method:

10.1 Thus for CPM one has to consider the cost incurred and then add appropriate mark up. The mark up should be compared with the Uncontrolled transaction.

10.2 In the case of the Assessee, the Assessee had bench marked its International transaction by using CPM. The Assessee had submitted copies of invoices (page 158-161 of the PB) to prove that Assessee has charged Cost plus 15% mark up. Assess had also provided details of Cost incurred for providing Software development Services to the AE.

IT(TP)A No.2760/PUN/2025 10.3 The Assessee provides Software Development Services to its AE in UK, the AE is 100% subsidiary of the assessee. It has been submitted by the assessee that the AE procures orders from UK, Europe market, then the assessee as per the instruction of the AE provides services to the AE. Assessee submitted that the AE has only one employee in UK and his role is only to procure orders. These facts have not been doubted by the TPO and DRP.

10.4 The Assessee had submitted before the TPO and DRP that Assessee provides similar Software Development Services to another Independent entity called Labworks LLC USA . The Assessee had filed sample invoices of Labworks LLC to prove that Assessee is charging Cost Plus 15 % to Labworks LLC which is an independent entity. Assessee also filed elaborate Cost details at page 155 of the paper book. These facts have not been disputed by TPO or DRP. As per Annual Report of the assessee, the Net Profit earned by AE in UK is 2.9 % only (page 16 of the paper book).

10.5 Thus in the case of the assessee, the assessee has provided Software services to its AE at cost plus 15% mark up. Assessee also provided Software services to Independent entity at Cost Plus 15% mark up. Assessee had applied CPM for benchmarking ALP. We have already reproduced above the OECD Guidelines which have explained that Cost Plus Mark up of Controlled transaction should be established in comparison to Cost Plus Mark up of Transaction entered with Independent Entity. In the case of the Assessee, the Assessee has established that it had charged Cost Plus 15 % mark up to its AE and to Independent Entity also. The DRP has mentioned that there is difference in Geographical Market of USA and UK,

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also terms of contract not submitted. However, the objection raised by DRP cannot be sustained as in this case Services are provided by the Assessee situated in India, the services are provided from India. The assets used for the services, are in India. Functions performed for both AE and Non-AE are from India. Therefore, geographical location of the receiver of services, in this case have, no bearing on the cost incurred by the assessee.

10.6 Thus, the Assessee has established that its impugned transaction is at Arm’s Length Price by using the CPM Method. In these facts and circumstances of the case ,for all the reasons discussed above, we are of the considered opinion that the International transaction of the Assessee with its AE is at Arm’s Length .

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traditional or standard method is the price of the product or the mark up over costs of sales in independent transactions. Whether or not the additional costs are to be passed on to the AEs is a business decision, which may or may not be relevant in an ALP determination on the basis of transactional profit methods, but when traditional methods of ALP determination are being pressed into service, such consideration are wholly irrelevant. We are, therefore, not inclined to approve the line of reasoning adopted by the Transfer Pricing Officer in adopting this approach. We have also noted that the TPO has observed that Cost Plus Method cannot be applied as the relevant data is not available in the databases available to him, but this reasoning proceeds on the fallacy that for application of Cost Plus Method, internal comparable uncontrolled transaction is not sufficient. Rule 10B(c)(ii ), inter alia, provides for determination of the amount of normal gross profit mark up to direct and indirect costs, computed according to the same accounting norms as followed in the transaction with AE, by the enterprise in a comparable uncontrolled transaction. In the present case the assessee has entered into export transactions with the unrelated parties and the assessee's mark up on such transactions is admittedly comparable with the exports to related parties.

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transaction and the uncontrolled transaction and between the enterprises entering into such transactions, the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; and the nature, extent and reliability of assumptions required to be made for application of the method. On none of these tests, the method adopted by the assessee can be discarded. As regards non-availability of gross margins of the comparable companies in Prowess database or Capital Line databases, it is sufficient to take note of the provision of Rule 10(1)(c)( ii) which refers to the gross profit mark up to such costs arising from the transfer of similar property by the assessee in a comparable controlled transactions. The assessee had offered the comparison of gross profit mark up margin of the assessee-company on transactions with AEs with gross profit mark up margin of the assessee-company on transactions with unrelated parties, which, in our considered view, was a sufficient basis for determination of ALP under rule 10(1)(c). The Transfer Pricing Officer therefore did not have any good reasons to reject the method adopted by the assessee.” Unquote.

12.1 This explains that Assessee has been consistently following CPM .The mark up is also same.

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Order pronounced in the open Court on 31st August, 2026

Sd/- Sd/- (VINAY BHAMORE) (Dr. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे/Pune; दिन ांक/Dated : 31-08-2026 Ravi Kumar Digitally signed by Ravi Kumar Ravi Kumar Date: 2026.08.31 17:18:27 +05'30' आदेशकीप्रतितितिअग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी/ The Appellant 2. प्रत्यर्थी/ The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘C’ Bench, Pune 5. ग र्डफ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकरअपीलीयअदिकरण, पुणे / ITAT, Pune