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These Cross appeal appeals filed by the assessee and assessee and Revenue are directed against order dated 31/01/2019 passed by the directed against order dated 31/01/2019 passed by the directed against order dated 31/01/2019 passed by the Ld. Commissioner of Income Income-tax(Appeals)-58, Mumbai [in short, “the ld. 58, Mumbai [in short, “the ld. CIT(A)”] for assessment year 2011 CIT(A)”] for assessment year 2011-12, arising from the order passed 12, arising from the order passed by the Assessing Officer u/s. 143(3) r.w.s. 144C(1) of the Act by the Assessing Officer u/s. 143(3) r.w.s. 144C(1) of the Act by the Assessing Officer u/s. 143(3) r.w.s. 144C(1) of the Act on 18/05/2015.
No one appeared on behalf of the assessee No one appeared on behalf of the assessee despite notifying despite notifying and accordingly, we are deciding these appeals on merits of the and accordingly, we are deciding these appeals on merits of the and accordingly, we are deciding these appeals on merits of the case after hearing to the arguments of the ld. Departmental case after hearing to the arguments of the ld. Departmental case after hearing to the arguments of the ld. Departmental Representative of the Representative of the Revenue.
The grounds raised The grounds raised by the assessee are reproduced as under: by the assessee are reproduced as under:
1. On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in treating M/s Shreya Life LLC, law the Hon'ble CIT(A) erred in treating M/s Shreya Life LLC, law the Hon'ble CIT(A) erred in treating M/s Shreya Life LLC, Russia Non- -Associated Enterprise as Associated Enterprise Associated Enterprise as Associated Enterprise of the appellant without considerin of the appellant without considering the TP study report g the TP study report wherein the Auditor reported it as non associated enterprises wherein the Auditor reported it as non associated enterprises wherein the Auditor reported it as non associated enterprises and the reasons assigned for doing so are wrong and and the reasons assigned for doing so are wrong and and the reasons assigned for doing so are wrong and contrary to the provision of Income ry to the provision of Income Tax Act and rules made Tax Act and rules made there under.
2. On the facts and in the circumstances of the On the facts and in the circumstances of the case and in case and in law the Hon'ble CIT(A) erred in upholding law the Hon'ble CIT(A) erred in upholding the addition made addition made
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 3 & 2310/M/2019 by Ld AO by adopting arithmetic mean of profit margin on AO by adopting arithmetic mean of profit margin on AO by adopting arithmetic mean of profit margin on proportionate basis to the proportionate basis to the international transactions instead transactions instead of no adjustment for the reasons submitted before him and of no adjustment for the reasons submitted before him and of no adjustment for the reasons submitted before him and the reasons assigned for doing so are wrong and contrary to sons assigned for doing so are wrong and contrary to sons assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. the provision of Income Tax Act and rules made there under. the provision of Income Tax Act and rules made there under.
3. On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in law the Hon'ble law the Hon'ble CIT(A) erred in directing the Ld AO to directing the Ld AO to consider Libor rate plus mar consider Libor rate plus mark up of 4% for the purposes of k up of 4% for the purposes of arriving at arms length arriving at arms length interest instead of no interest instead of no interest chargeable on amount receivable from its AE and the reason chargeable on amount receivable from its AE and the reason chargeable on amount receivable from its AE and the reason assigned for doing so are wrong and contrary to the assigned for doing so are wrong and contrary to the assigned for doing so are wrong and contrary to the provision of Income Tax provision of Income Tax Act and rules made there under.
4. On the facts and in the 3,33,25,667/ On the facts and in the 3,33,25,667/-circumstances of the circumstances of the case and in law the Hon'ble case and in law the Hon'ble CIT(A) erred in directing the Ld directing the Ld AO to consider Libor rate plus mark up of 4% for the AO to consider Libor rate plus mark up of 4% for the AO to consider Libor rate plus mark up of 4% for the purposes of arriving at arms length purposes of arriving at arms length interest instead of no instead of no interest chargeable from interest chargeable from its AE & Non AE debtors on a/c of AE & Non AE debtors on a/c of delay in realization of delay in realization of export proceeds for the reasons proceeds for the reasons submitted before him and the reason assigned for doing so submitted before him and the reason assigned for doing so submitted before him and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act are wrong and contrary to the provision of Income Tax Act are wrong and contrary to the provision of Income Tax Act and rules made there under. and rules made there under.
3.1 The grounds raised by the The grounds raised by the Revenue are reproduced as under: are reproduced as under:
Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in holding that FE Shreya Lay law, the Ld. CIT(A) is correct in holding that FE Shreya Lay law, the Ld. CIT(A) is correct in holding that FE Shreya Lay Sainsis Farmatsevtika, Uzbekistan and LIC Sainsis Farmatsevtika, Uzbekistan and LIC Shreya Life Shreya Life Science, Uzbekistan a Science, Uzbekistan are not ABs of the assessee?
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 4 & 2310/M/2019
2) Whether on the facts and circumstances of the case and in 2) Whether on the facts and circumstances of the case and in 2) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in allowing the appeal of law, the Ld. CIT(A) is correct in allowing the appeal of law, the Ld. CIT(A) is correct in allowing the appeal of assessee though there is a reasonable prima facie case to assessee though there is a reasonable prima facie case to assessee though there is a reasonable prima facie case to treat the above two Uzbekistan entities as As of the treat the above two Uzbekistan entities as As of the treat the above two Uzbekistan entities as As of the assessee Shreya India in terms of similarities in Shreya group entity Shreya India in terms of similarities in Shreya group entity Shreya India in terms of similarities in Shreya group entity name and assessee has made huge export sales to these name and assessee has made huge export sales to these name and assessee has made huge export sales to these entities (Rs.2,70,39,916 + Rs.3,63,30,212) and that the entities (Rs.2,70,39,916 + Rs.3,63,30,212) and that the entities (Rs.2,70,39,916 + Rs.3,63,30,212) and that the assessee has not successfully rebutted this reasonable assessee has not successfully rebutted this reasonable assessee has not successfully rebutted this reasonable prima facie case aga prima facie case against it?
3) Whether on the facts and circumstances of the case and in 3) Whether on the facts and circumstances of the case and in 3) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in allowing the appeal of the law, the Ld. CIT(A) is correct in allowing the appeal of the law, the Ld. CIT(A) is correct in allowing the appeal of the assessee, though the assessee failed to furnish the assessee, though the assessee failed to furnish the assessee, though the assessee failed to furnish the shareholding patterns of the assessee and these two shareholding patterns of the assessee and these two shareholding patterns of the assessee and these two Uzbekistan entities a Uzbekistan entities and financials of these two entities to nd financials of these two entities to rebut the reasonable case against it and to prove that it rebut the reasonable case against it and to prove that it rebut the reasonable case against it and to prove that it cannot be covered as A u/s 92A(1) or as deemed A u/s cannot be covered as A u/s 92A(1) or as deemed A u/s cannot be covered as A u/s 92A(1) or as deemed A u/s 92A(2) respectively? 92A(2) respectively?
4) Whether on the facts and circumstances of the case and in 4) Whether on the facts and circumstances of the case and in 4) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is c law, the Ld. CIT(A) is correct in not appreciating the legal orrect in not appreciating the legal position that once the TPO establishes a prima facie case position that once the TPO establishes a prima facie case position that once the TPO establishes a prima facie case against the assessee based on some facts, he has against the assessee based on some facts, he has against the assessee based on some facts, he has discharged his primary onus and that the burden of proof discharged his primary onus and that the burden of proof discharged his primary onus and that the burden of proof shifts to the assessee to discharge its onus, which the shifts to the assessee to discharge its onus, which the shifts to the assessee to discharge its onus, which the assessee failed to do so? assessee failed to do so?
5) Whether on the facts and circumstances of the case and in 5) Whether on the facts and circumstances of the case and in 5) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that law, the Ld. CIT(A) is correct in not appreciating the fact that law, the Ld. CIT(A) is correct in not appreciating the fact that the assessee continued to have huge transactions with these the assessee continued to have huge transactions with these the assessee continued to have huge transactions with these
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 5 & 2310/M/2019 two Uzbekistan entities and that in view of two Uzbekistan entities and that in view of these trade these trade relations, it is in a position to obtain the details from them relations, it is in a position to obtain the details from them relations, it is in a position to obtain the details from them and discharge its shifted burden of proof by producing and discharge its shifted burden of proof by producing and discharge its shifted burden of proof by producing details in terms of Section 92A(1)&(2) in the form of details in terms of Section 92A(1)&(2) in the form of details in terms of Section 92A(1)&(2) in the form of confirmation letters from them? confirmation letters from them?
6) Whether on the facts and circumstanc 6) Whether on the facts and circumstances of the case and in es of the case and in law, the Ld. CIT(A) is correct in allowing the appeal of law, the Ld. CIT(A) is correct in allowing the appeal of law, the Ld. CIT(A) is correct in allowing the appeal of assessee as it does not provide any basis of justification and assessee as it does not provide any basis of justification and assessee as it does not provide any basis of justification and documentary evidence either before the TO or CIT(A) for documentary evidence either before the TO or CIT(A) for documentary evidence either before the TO or CIT(A) for holding these companies not as Associated Enterprises? holding these companies not as Associated Enterprises? holding these companies not as Associated Enterprises?
7) Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in allowing the appeal of the law, the Ld. CIT(A) is correct in allowing the appeal of the law, the Ld. CIT(A) is correct in allowing the appeal of the assessee where these associated enterprises namely, FE assessee where these associated enterprises namely, FE assessee where these associated enterprises namely, FE Shreya Shreya Shreya Layf Layf Layf Sainsis Sainsis Sainsis Farmatsevtika, Farmatsevtika, Farmatsevtika, Uzbekistan Uzbekistan Uzbekistan - Rs.2,70,39,916 and LLC Shreya Life Rs.2,70,39,916 and LLC Shreya Life Sciences, Uzbekistan Sciences, Uzbekistan - Rs.3,63,30,212 have huge export transactions with the Rs.3,63,30,212 have huge export transactions with the Rs.3,63,30,212 have huge export transactions with the assessee?
8) Whether on the facts and circumstances of the case and in 8) Whether on the facts and circumstances of the case and in 8) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in allowing the appeal of law, the Ld. CIT(A) is correct in allowing the appeal of law, the Ld. CIT(A) is correct in allowing the appeal of assessee in a non assessee in a non-speaking manner without any basi speaking manner without any basis and on a mere assumption that the reporting in Form 3CEB and on a mere assumption that the reporting in Form 3CEB and on a mere assumption that the reporting in Form 3CEB and TPSR of the assessee are sufficient to hold that they contain TPSR of the assessee are sufficient to hold that they contain TPSR of the assessee are sufficient to hold that they contain all the As and the transactions with them? all the As and the transactions with them?
9. Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in law, the Id. CIT(A) is corr law, the Id. CIT(A) is correct in failing to recognize that ect in failing to recognize that Section 92CA(2B) empowering the TPO to investigate the Section 92CA(2B) empowering the TPO to investigate the Section 92CA(2B) empowering the TPO to investigate the international transactions not reported in Form 3CEB clearly international transactions not reported in Form 3CEB clearly international transactions not reported in Form 3CEB clearly
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 6 & 2310/M/2019 indicates the possibility of certain transactions not reported indicates the possibility of certain transactions not reported indicates the possibility of certain transactions not reported in Form 3CEB and the TPO is duty bound to un in Form 3CEB and the TPO is duty bound to un in Form 3CEB and the TPO is duty bound to unearth such transactions also? transactions also?
Brief facts of the case are that the assessee company Brief facts of the case are that the assessee company Brief facts of the case are that the assessee company is engaged in the business of manufacturing and trading of engaged in the business of manufacturing and trading of engaged in the business of manufacturing and trading of pharmaceutical pharmaceutical products products and filed filed its its return return of of income income electronically on 30/11/2011 declaring total income at Rs. Nil. The electronically on 30/11/2011 declaring total income at Rs. Nil. The electronically on 30/11/2011 declaring total income at Rs. Nil. The return was processed u/s. 143(1) of the Income Tax Act [in short, return was processed u/s. 143(1) of the Income Tax Act [in short, return was processed u/s. 143(1) of the Income Tax Act [in short, “the Act”]. The case was selected for scrutiny and statutory notices “the Act”]. The case was selected for scrutiny and statutory notices “the Act”]. The case was selected for scrutiny and statutory notices under the Act were issued were issued and complied with. In the assessment . In the assessment completed u/s. 143(3) r.w.s. 144C of the Act, the Assessing Officer completed u/s. 143(3) r.w.s. 144C of the Act, the Assessing Officer completed u/s. 143(3) r.w.s. 144C of the Act, the Assessing Officer made total adjustment of Rs. 64,99,25,131/ adjustment of Rs. 64,99,25,131/- as per the Transfer as per the Transfer Pricing provisions based on the order passed u/s. 92CA(3) of the Pricing provisions based on the order passed u/s. 92CA(3) of the Pricing provisions based on the order passed u/s. 92CA(3) of the Act dt. 21/01/2015 by Act dt. 21/01/2015 by JCIT, Transfer Pricing 4(1), Mumbai JCIT, Transfer Pricing 4(1), Mumbai (TPO). Aggrieved by the said addition, the assessee preferred appeal before Aggrieved by the said addition, the assessee preferred appeal before Aggrieved by the said addition, the assessee preferred appeal before the ld. CIT(A) who gave partial relief to the assessee. Aggrieved by the ld. CIT(A) who gave partial relief to the assessee. Aggrieved by the ld. CIT(A) who gave partial relief to the assessee. Aggrieved by the order passed by the ld. CIT(A), both the assessee and the order passed by the ld. CIT(A), both the assessee and the order passed by the ld. CIT(A), both the assessee and Revenue are in appeal before us, the Income ppeal before us, the Income-tax Appellate Tribunal (in short tax Appellate Tribunal (in short ‘the Tribunal’) raising the grounds as reproduced above. ‘the Tribunal’) raising the grounds as reproduced above. ‘the Tribunal’) raising the grounds as reproduced above.
The ground nos s. 1 to 9 of the appeal of the revenue and the 1 to 9 of the appeal of the revenue and the ground nos. 1and 2 of the appeal of the assessee relates to ground nos. 1and 2 of the appeal of the assessee relates to ground nos. 1and 2 of the appeal of the assessee relates to adjudication of three parties treated as Associate Enterprises (AE) three parties treated as Associate Enterprises (AE) three parties treated as Associate Enterprises (AE) by the TPO and Assessing Officer, whereas the ld. CIT(A) have by the TPO and Assessing Officer, whereas the ld. CIT(A) have by the TPO and Assessing Officer, whereas the ld. CIT(A) have M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 7 & 2310/M/2019 treated only one of these three parties as AE of the assessee treated only one of these three parties as AE of the assessee treated only one of these three parties as AE of the assessee company.
Brief facts qua this issue are that the Brief facts qua this issue are that the assessee company in its assessee company in its From no. 3CEB has shown transaction of exports to Shreya m no. 3CEB has shown transaction of exports to Shreya m no. 3CEB has shown transaction of exports to Shreya Corporation, Russia of Rs. 7,07,97,014/ Corporation, Russia of Rs. 7,07,97,014/- as transaction with AE as transaction with AE but the TPO and Assessing Officer made a transfer pricing TPO and Assessing Officer made a transfer pricing TPO and Assessing Officer made a transfer pricing adjustment of Rs. 9,43,10,286/ adjustment of Rs. 9,43,10,286/- in relation to other other three parties (namely, FE Shreya Layf hreya Layf SainsisFarmatSevtika, Uzbekistan; LLC SainsisFarmatSevtika, Uzbekistan; LLC Shreya Life Sciences, Russia and LLC Shreya Life Sciences, Shreya Life Sciences, Russia and LLC Shreya Life Sciences, Shreya Life Sciences, Russia and LLC Shreya Life Sciences, Uzbekistan) treating as AE as under: as AE as under:
Particulars Amount (Rs.) Amount (Rs.) Export to AEs 91,15,87,115 91,15,87,115 OP /OC of the assessee OP /OC of the assessee 15.41% Operating Cost of assessee Operating Cost of assessee on sales to AEs 78,98,68,395 78,98,68,395 Arm’s Length Margin (OP/OC) Arm’s Length Margin (OP/OC) 27.35% Arm’s Length Exports Arm’s Length Exports 100,58,97,401 100,58,97,401 Exports to AE 91,15,87,115 91,15,87,115 Adjustment / Difference Adjustment / Difference 9,43,10,286 9,43,10,286 6.1 However, the ld. CIT(A) directed that the transactions with 2 However, the ld. CIT(A) directed that the transactions with 2 However, the ld. CIT(A) directed that the transactions with 2 parties of Uzbekistan are not transactions with AEs as the TPO and Uzbekistan are not transactions with AEs as the TPO and Uzbekistan are not transactions with AEs as the TPO and Assessing Officer have not given any clear direct or indirect finding Assessing Officer have not given any clear direct or indirect finding Assessing Officer have not given any clear direct or indirect finding to substantiate the same. to substantiate the same.
The ld. Departmental Representative of the revenue argued The ld. Departmental Representative of the revenue argued The ld. Departmental Representative of the revenue argued that the transfer pricing adjustments made that the transfer pricing adjustments made by the TPO and the by the TPO and the Assessing Officer are validly made by applying correct comparables Assessing Officer are validly made by applying correct comparables Assessing Officer are validly made by applying correct comparables and therefore the addition of Rs. 9,43,10,286/ and therefore the addition of Rs. 9,43,10,286/- be upheld. be upheld.
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 8 & 2310/M/2019
We have heard the arguments made by the ld. Departmental We have heard the arguments made by the ld. Departmental We have heard the arguments made by the ld. Departmental Representative of the revenue Representative of the revenue and perused the mater and perused the material on record. The moot issue involved in these grounds of appeal of the assessee The moot issue involved in these grounds of appeal of the assessee The moot issue involved in these grounds of appeal of the assessee and the Revenue is to decide to decide whether the three parties to whom the the three parties to whom the assessee company has made exports during the year assessee company has made exports during the year assessee company has made exports during the year, falls under the definition of Associated Enterprises the definition of Associated Enterprises (AEs)?
8.1 In regard to the party namely, Shreya In regard to the party namely, Shreya Life LLC, Russia the LLC, Russia the following comments of the TPO and contentions of the assessee are following comments of the TPO and contentions of the assessee are following comments of the TPO and contentions of the assessee are relevant which are reproduced as under: relevant which are reproduced as under:-
Section TPO’s Comments Assessee’s contention Assessee’s contention 92A(2)(h) ninety percent or 92A(2)(h) ninety percent or Labour charges have been Your honour may more of the raw materials e of the raw materials debited in the book of appreciale the fact that this appreciale the fact that this and consumables required and consumables required Shreya Life LLC, Russia clause is applicable only clause is applicable only for the manufacture or for the manufacture or which shows that some when the proposed AE's when the proposed AE's processing processing of of goods goods or or value addition is done in are are engaged engaged in in articles carried out by one articles carried out by one Russia and thus the goods manufacturing manufacturing activities. activities. enterprise are supplied by enterprise are supplied by supplied from India are Thus, this clause is not Thus, this clause is not the other enterprise, or by the other enterprise, or by raw materials for the applicable applicable as as goods goods persons specified by the persons specified by the Russian entity supplied by Shreya Life supplied by Shreya Life other enterprise and the other enterprise and the India are finished goods India are finished goods prices and other conditions prices and other conditions only, requiring no further requiring no further relating to the supply are elating to the supply are processing. processing. Further the Ld influenced by such other influenced by such other AO erred in not bringing on AO erred in not bringing on enterprise; or record any cogent reason record any cogent reason or valid evidence that m/s or valid evidence that m/s Shreya Life LLC has purchased purchased raw raw material material from from appellant appellant which which needs needs further further value value addition. The Ld AO on addition. The Ld AO on presumption b presumption basis held the said company as it said company as its AE. 92A(2)(i) 92A(2)(i) the the goods goods or or The very fact that almost In the case of the assessee, In the case of the assessee, articles manufactured or articles manufactured or 100% of the requirements prices and other conditions prices and other conditions processed processed by by one one of the Russian entity is met relating thereto are solely relating thereto are solely enterprise are sold to the enterprise are sold to the by the assessee, shows decided decided by by Shreya Shreya Life Life other other enterprise enterprise or or to to that it is a tainted sciences India considering sciences India considering
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 9 & 2310/M/2019 persons specified by the persons specified by the transaction. Moreover, out prevalent market condition prevalent market condition of all exports of ₹85.91 cr other enterprise and the other enterprise and the and are never influenced and are never influenced more than 82% (₹70.92cr) by the proposed AE. prices and other conditions prices and other conditions by the proposed AE. relating relating thereto thereto are are is to LLC Shreya Life influenced by such other by such other Russia enterprise 92A(2)(m) A(2)(m) there there exists exists The interdependence of No such relationship No such relationship of between between the the two two these entities and the mutual interest has yet mutual interest has yet enterprises, enterprises, any any assessee clearly reflects the been been prescribed prescribed and and relationship relationship of of mutual mutual mutual interest of these accordingly this clause is accordingly this clause is interest, interest, as as may may be be entities on one another. not applicable. not applicable. prescribed 8.2 It is pertinent to note here that assessee company is selling It is pertinent to note here that assessee company is selling It is pertinent to note here that assessee company is selling the manufactured article to M/s. Shreya Life LLC, Russia and the the manufactured article to M/s. Shreya Life LLC, Russia and the the manufactured article to M/s. Shreya Life LLC, Russia and the TPO and the Assessing Officer has TPO and the Assessing Officer has not controverted this fact by not controverted this fact by bringing any evidence on record but merely placed an argument bringing any evidence on record but merely placed an argument bringing any evidence on record but merely placed an argument that certain labour charges have been debited in books of M/s. that certain labour charges have been debited in books of M/s. that certain labour charges have been debited in books of M/s. Shreya Life LLC to presume that some value addition is done in to presume that some value addition is done in to presume that some value addition is done in Russia. However, such a view would be r, such a view would be too farfetched in absence of fetched in absence of any evidence at all. Hence, provisions of section 92A(2)(h) cannot be any evidence at all. Hence, provisions of section 92A(2)(h) cannot be any evidence at all. Hence, provisions of section 92A(2)(h) cannot be applied. However, in applying section 92A(2)(i) of the Act, it is the applied. However, in applying section 92A(2)(i) of the Act, it is the applied. However, in applying section 92A(2)(i) of the Act, it is the finding given by the TPO and the Assessing Officer that nearly 82% finding given by the TPO and the Assessing Officer that nearly 82% finding given by the TPO and the Assessing Officer that nearly 82% of export sales made of export sales made by the assessee is to the said AE and almost by the assessee is to the said AE and almost 100% of the requirements of the said AE are met by the assessee 100% of the requirements of the said AE are met by the assessee 100% of the requirements of the said AE are met by the assessee company itself. Accordingly, the ld. CIT(A) took the view that the company itself. Accordingly, the ld. CIT(A) took the view that the company itself. Accordingly, the ld. CIT(A) took the view that the section 92A(2)(i) of the Act which provides for AE if the goods or section 92A(2)(i) of the Act which provides for AE if the goods or section 92A(2)(i) of the Act which provides for AE if the goods or articles manufactured or processed by one enterprise, are sold to ufactured or processed by one enterprise, are sold to ufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, the other enterprise or to persons specified by the other enterprise, the other enterprise or to persons specified by the other enterprise, and the process and other conditions relating thereto are influenced and the process and other conditions relating thereto are influenced and the process and other conditions relating thereto are influenced by such other enterprise gets satisfied in the case of Shreya L by such other enterprise gets satisfied in the case of Shreya L by such other enterprise gets satisfied in the case of Shreya Life
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 10 & 2310/M/2019 LLC, Russia and hence, treated this party to be the AE of the LLC, Russia and hence, treated this party to be the AE of the LLC, Russia and hence, treated this party to be the AE of the assessee company. On contrary, the assessee submitted before the assessee company. On contrary, the assessee submitted before the assessee company. On contrary, the assessee submitted before the ld. CIT(A) that no such prices are influenced by the AEs but are ld. CIT(A) that no such prices are influenced by the AEs but are ld. CIT(A) that no such prices are influenced by the AEs but are solely decided by the assessee. In this regard, it is observ solely decided by the assessee. In this regard, it is observ solely decided by the assessee. In this regard, it is observed that the averment that almost 100% of the requirements of Shreya Life LLC, averment that almost 100% of the requirements of Shreya Life LLC, averment that almost 100% of the requirements of Shreya Life LLC, Russia is not supported with any concrete evidence or finding on Russia is not supported with any concrete evidence or finding on Russia is not supported with any concrete evidence or finding on part of the TPO or the Assessing Officer and therefore, merely on part of the TPO or the Assessing Officer and therefore, merely on part of the TPO or the Assessing Officer and therefore, merely on presumptions one cannot go ahead. Further, the presumptions one cannot go ahead. Further, the presumptions one cannot go ahead. Further, the criteria of price influencing by the Russian entity is also not substantiated although influencing by the Russian entity is also not substantiated although influencing by the Russian entity is also not substantiated although primafacie, it may appear to be so. primafacie, it may appear to be so. Also, merely because the said Also, merely because the said party has been treated as AE in the subsequent year for some other party has been treated as AE in the subsequent year for some other party has been treated as AE in the subsequent year for some other reason cannot be the ground to treat reason cannot be the ground to treat the same as AE even in the the same as AE even in the year under consideration. year under consideration. Hence, in light of justice, we feel it Hence, in light of justice, we feel it appropriate to restore this matter back to the Assessing Officer for appropriate to restore this matter back to the Assessing Officer for appropriate to restore this matter back to the Assessing Officer for de novo verification and come out with clear findings on the issue de novo verification and come out with clear findings on the issue de novo verification and come out with clear findings on the issue before making any adjustmen before making any adjustments if required the Assessing Officer ts if required the Assessing Officer shall gather information under the Exchange of Information treaty shall gather information under the Exchange of Information treaty shall gather information under the Exchange of Information treaty with foreign country through appropriate route. with foreign country through appropriate route. Needless to say, Needless to say, that the assessee company shall be granted adequate opportunities that the assessee company shall be granted adequate opportunities that the assessee company shall be granted adequate opportunities of being heard before of being heard before deciding this issue.
8.3 Similarly, even for other two parties namely, M/s. Similarly, even for other two parties namely, M/s. Similarly, even for other two parties namely, M/s. FE Shreya LayfSainsisFarmatsevtika, Uzbekistan and Shreya Life Science LLC, LayfSainsisFarmatsevtika, Uzbekistan and Shreya Life Science LLC, LayfSainsisFarmatsevtika, Uzbekistan and Shreya Life Science LLC, Uzbekistan; the assessee had submitted that the said concerns are Uzbekistan; the assessee had submitted that the said concerns are Uzbekistan; the assessee had submitted that the said concerns are not the AEs and even the Assessing Of and even the Assessing Officer has not brought on ficer has not brought on M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 11 & 2310/M/2019 record any material fact and evidences in this regard to prove as to record any material fact and evidences in this regard to prove as to record any material fact and evidences in this regard to prove as to which of the categories specified for AEs are satisfied under the which of the categories specified for AEs are satisfied under the which of the categories specified for AEs are satisfied under the provisions of the Act. Even the ld. CIT(A) has given the finding that provisions of the Act. Even the ld. CIT(A) has given the finding that provisions of the Act. Even the ld. CIT(A) has given the finding that the treatments of these tw the treatments of these two parties of Uzbekistan as AEs by the TPO o parties of Uzbekistan as AEs by the TPO and the Assessing Officer are merely on assumption without any and the Assessing Officer are merely on assumption without any and the Assessing Officer are merely on assumption without any clear direct or indirect finding in support of the same. Hence, in clear direct or indirect finding in support of the same. Hence, in clear direct or indirect finding in support of the same. Hence, in light of justice, we feel it appropriate to restore this matter back to light of justice, we feel it appropriate to restore this matter back to light of justice, we feel it appropriate to restore this matter back to the Assessing Officer for de novo verification and come out with g Officer for de novo verification and come out with g Officer for de novo verification and come out with clear findings on the issue these two parties as well before making clear findings on the issue these two parties as well before making clear findings on the issue these two parties as well before making any adjustments invoking Exchange Information treaty or protocol invoking Exchange Information treaty or protocol invoking Exchange Information treaty or protocol with foreign country with foreign country. Needless to say, that the assessee company . Needless to say, that the assessee company shall be granted adequate opportunities of being heard before be granted adequate opportunities of being heard before be granted adequate opportunities of being heard before deciding this issue.
8.4 As regards the comparables selected for making the transfer As regards the comparables selected for making the transfer As regards the comparables selected for making the transfer pricing adjustments, we are in agreement with the ld. CIT(A) to pricing adjustments, we are in agreement with the ld. CIT(A) to pricing adjustments, we are in agreement with the ld. CIT(A) to confirm the criteria laid down by the TPO and Asse confirm the criteria laid down by the TPO and Asse confirm the criteria laid down by the TPO and Assessing Officer as the assessee do not have any definite criteria in selection of its the assessee do not have any definite criteria in selection of its the assessee do not have any definite criteria in selection of its comparables. Before us, neither any one has appeared on behalf of Before us, neither any one has appeared on behalf of Before us, neither any one has appeared on behalf of the assessee nor any written submission has been filed on this the assessee nor any written submission has been filed on this the assessee nor any written submission has been filed on this issue in dispute. Therefore, in absence of issue in dispute. Therefore, in absence of any documentary any documentary evidence in support of the ground raised on the issue in dispute evidence in support of the ground raised on the issue in dispute evidence in support of the ground raised on the issue in dispute rebutting the finding of the ld. CIT(A), we do not find any infirmity rebutting the finding of the ld. CIT(A), we do not find any infirmity rebutting the finding of the ld. CIT(A), we do not find any infirmity in the order passed by the ld. CIT(A). in the order passed by the ld. CIT(A).
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 12 & 2310/M/2019 8.5 Accordingly, the grounds nos. Accordingly, the grounds nos.1 to 9 of the appeal of the 1 to 9 of the appeal of the revenue and the ground nos. 1and 2 of the appeal of the assessee ue and the ground nos. 1and 2 of the appeal of the assessee ue and the ground nos. 1and 2 of the appeal of the assessee are allowed for statistical purposes. are allowed for statistical purposes.
The ground nos s. 3 and 4 of the assessee relates to 3 and 4 of the assessee relates to the addition of Rs. 55,56,14,845/ of Rs. 55,56,14,845/- on account of transfer pricing adjustment on account of transfer pricing adjustment made for the outstanding re made for the outstanding receivables from AEs.
Brief facts qua this issue is that the Brief facts qua this issue is that the TPO and the TPO and the Assessing Officer treated above discussed three parties as AEs of the assessee above discussed three parties as AEs of the assessee above discussed three parties as AEs of the assessee and found that total opening debit balance of the AE in the books of and found that total opening debit balance of the AE in the books of and found that total opening debit balance of the AE in the books of the assessee company stands at R the assessee company stands at Rs. 273,44,69,745/ s. 273,44,69,745/- on which notional interest @ 16.50% has been levied. As against this, the ld. notional interest @ 16.50% has been levied. As against this, the ld. notional interest @ 16.50% has been levied. As against this, the ld. CIT(A) followed its own order for A.Y. 2010 CIT(A) followed its own order for A.Y. 2010-11 wherein the notional 11 wherein the notional interest to be levied was directed at LIBOR plus 4% mark interest to be levied was directed at LIBOR plus 4% mark interest to be levied was directed at LIBOR plus 4% mark-up. Aggrieved by the same, the as Aggrieved by the same, the assessee is in appeal before us. sessee is in appeal before us.
10.1 In this regard, we find that this issue is now covered by the In this regard, we find that this issue is now covered by the In this regard, we find that this issue is now covered by the decision in the case of assessee’s own case for A.Y. 2010 decision in the case of assessee’s own case for A.Y. 2010 decision in the case of assessee’s own case for A.Y. 2010-11 wherein the ITAT (ITA no. wherein the ITAT (ITA no. 3713 & 4372/M/2016) has deleted the same following the decision of Hon’ same following the decision of Hon’ble Bombay High Court in the ble Bombay High Court in the case of Indo American Jewellery Ltd. (44 taxmann.com 310) (Bom). case of Indo American Jewellery Ltd. (44 taxmann.com 310) (Bom). case of Indo American Jewellery Ltd. (44 taxmann.com 310) (Bom). The relevant extract of the said decision of ITAT is reproduced The relevant extract of the said decision of ITAT is reproduced The relevant extract of the said decision of ITAT is reproduced below:
“23. We find that the assessee deserves to succeed firstly on the We find that the assessee deserves to succeed firstly on the We find that the assessee deserves to succeed firstly on the ground that the assessee is not charging interest on outstanding ground that the assessee is not charging interest on outstanding ground that the assessee is not charging interest on outstanding
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 13 & 2310/M/2019 both with the A as wel as non both with the A as wel as non-AEs. In this regard issue is AEs. In this regard issue is covered in favour of the assessee by the decision of Hon'ble covered in favour of the assessee by the decision of Hon'ble covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court in the case of Indo Americar Jewellery onal High Court in the case of Indo Americar Jewellery onal High Court in the case of Indo Americar Jewellery Ltd. (44 taxman.com 310). In this case, it was held that when Ltd. (44 taxman.com 310). In this case, it was held that when Ltd. (44 taxman.com 310). In this case, it was held that when ther is complete uniformity in the act of the assessee in not ther is complete uniformity in the act of the assessee in not ther is complete uniformity in the act of the assessee in not charging interest fro charging interest from both the AEs and non-AEs debtors and AEs debtors and the delay in real the delay in realization of the export proceeds, deletion of proceeds, deletion of addition of interest on outstanding amount of expor addition of interest on outstanding amount of expor addition of interest on outstanding amount of export proceeds was justified. We find that this case law is fully applicable on was justified. We find that this case law is fully applicable on was justified. We find that this case law is fully applicable on the facts of the present case. The Revenue has not disputed that the facts of the present case. The Revenue has not disputed that the facts of the present case. The Revenue has not disputed that the assessee is not the assessee is not uniform in its act of not charging interest uniform in its act of not charging interest from both AEs and non from both AEs and non-AEs for delay in realization of export AEs for delay in realization of export proceeds.
Apart from the above, assesses’s other limb of submission Apart from the above, assesses’s other limb of submission Apart from the above, assesses’s other limb of submission is also germane. is also germane. The Authorities below have erred in The Authorities below have erred in disregarding the fact that disregarding the fact that A had itself in problem in making A had itself in problem in making realization from its debtors because fluctuating economic realization from its debtors because fluctuating economic realization from its debtors because fluctuating economic condition at that time prevailing Russia/CIS countri where AE is condition at that time prevailing Russia/CIS countri where AE is condition at that time prevailing Russia/CIS countri where AE is operating. No defect in the evidences submitted by the assessee operating. No defect in the evidences submitted by the assessee operating. No defect in the evidences submitted by the assessee this regard is noted by the author this regard is noted by the authorities below. In these ities below. In these circumstanc assessee's submission is quite cogent that when circumstanc assessee's submission is quite cogent that when circumstanc assessee's submission is quite cogent that when recovery of principal doubtful there is no point in charging recovery of principal doubtful there is no point in charging recovery of principal doubtful there is no point in charging notional interest on the outstandin Accordingly, we set aside the notional interest on the outstandin Accordingly, we set aside the notional interest on the outstandin Accordingly, we set aside the orders of the authorities below on this issue a orders of the authorities below on this issue a orders of the authorities below on this issue as delete the addition.”
10.2 In light of the above discussion, we find that the said decision In light of the above discussion, we find that the said decision In light of the above discussion, we find that the said decision of ITAT for AY 2010 of ITAT for AY 2010-11 squarely applies in this year as well. 11 squarely applies in this year as well.
M/s Shreya Life Sciences Pvt. Ltd. M/s Shreya Life Sciences Pvt. Ltd. 14 & 2310/M/2019 However, as no one has appeared before us on behalf of the However, as no one has appeared before us on behalf of the However, as no one has appeared before us on behalf of the assessee, we feel it appropriate to direc assessee, we feel it appropriate to direct the Assessing Officer to t the Assessing Officer to verify that the assessee has not been charging interest to non AEs verify that the assessee has not been charging interest to non AEs verify that the assessee has not been charging interest to non AEs also in order to apply the ratio of the aforesaid decisions. also in order to apply the ratio of the aforesaid decisions. also in order to apply the ratio of the aforesaid decisions. Accordingly, the ground nos. 3 and 4 of the assessee stands allowed Accordingly, the ground nos. 3 and 4 of the assessee stands allowed Accordingly, the ground nos. 3 and 4 of the assessee stands allowed for statistical purposes. for statistical purposes.
In the result, the appeal the result, the appeals of the assessee and Revenue are of the assessee and Revenue are allowed for statistical purposes. allowed for statistical purposes.
Order pronounced under Rule 34(4) of the ITAT Rules, Order pronounced under Rule 34(4) of the ITAT Rules, Order pronounced under Rule 34(4) of the ITAT Rules, 1963 on 30/12/2022. 12/2022.