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Facts
M/s. Pioneer Hi-Bred Private Limited, engaged in captive contract R&D services for its Associated Enterprises, filed its return for AY 2021-22 declaring an income of Rs. 14,13,73,480/-. The TPO/AO made an upward adjustment of Rs. 23,49,30,147/- on account of R&D services, determining the total income at Rs. 37,76,03,627/-. The assessee challenged this adjustment, primarily contesting the inclusion of Aurigene Discovery Technologies Ltd. as a comparable.
Held
The tribunal held that Aurigene Discovery Technologies Ltd. is not functionally comparable to the assessee as the assessee is exclusively engaged in R&D services, while Aurigene operates in multiple segments with R&D forming a small part of its revenue, lacking segmental profitability data. The tribunal directed the AO/TPO to exclude Aurigene from the list of comparables, making other TP-related grounds academic. Additionally, the AO was directed to reconsider an addition for interest payable to MSMEs and rectify a computational error in the aggregate income-tax liability.
Key Issues
The key legal issue was the validity of the Arm's Length Price (ALP) adjustment, specifically concerning the functional comparability of Aurigene Discovery Technologies Ltd. as a comparable for R&D services. Other issues included an addition for interest payable to MSMEs and a computational error in the income-tax liability.
Sections Cited
143(3), 144C(13), 144B, 92C(3), 92D, 271A, 234A
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
(निर्धारण वर्ा/Assessment Year:2021-22) M/s. Pioneer Hi-Bred Private Dy. Commissioner of Income Tax, Vs. Circle 5(1), Hyderabad. Limited, Hyderabad. PAN: AAHCP6154C (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri Deepak Chopra & Ashmita Sharma, Advocates. रधजस् व द्वधरध/Revenue by: Dr. Narendra Kumar Naik,CIT-DR सुिवधई की तधरीख/Date of hearing: 20/08/2025 घोर्णध की तधरीख/Pronouncement: 26/08/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. Pioneer Hi-Bred Private Limited (“the assessee”), feeling aggrieved by the final assessment order passed by the Learned Assessing Officer (“Ld. AO”) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (“the Act”) dated 24.10.2024 for the A.Y. 2021-22.
The assessee has raised the following grounds of appeal :
3. The brief facts of the case are that, the assessee is a company engaged in providing captive contract Research and Development Services (“R & D services”) to its Associated Enterprises (“AEs”) on a cost-plus basis. It filed its return of income for A.Y. 2021-22 on 11.03.2022 declaring total income of Rs.14,13,73,480/-. The case of the assessee was selected for scrutiny and in view of the international transactions involved during the year under consideration, for determination of Arm’s Length Price (“ALP”), the case was referred to Learned Transfer Pricing Officer (“Ld. TPO”). The Ld. TPO vide his order dated 30.10.2023 suggested upward adjustment of Rs.25,22,53,310 /- on account of provision of R & D services. Accordingly, the Ld. AO passed the draft assessment order on 05.12.2023.
4. Aggrieved with the draft assessment order passed by the Ld. AO, the assessee preferred objection before the Ld. DRP. In pursuance to the directions of Ld. DRP dated 18.09.2024, the Ld. TPO passed revised order on 08.10.2024 suggesting upward adjustment of Rs.23,49,30,147/- on account of provision of R & D services. Accordingly, the Ld. AO finalized the assessment on 24.10.2024 by making total addition of Rs.23,49,30,147/- on account of provision of R & D services, computing the total income at Rs.37,76,03,627/-.
5. Aggrieved with the final assessment order of Ld. AO, the assessee is in appeal before us. At the outset, the Learned Authorised Representative (“Ld. AR”) submitted that ground no.1 is general in nature, ground nos.13 and 14 are not pressed, ground no.16 is consequential, and ground no.20 relating to initiation of penalty proceedings under section 271A of the Act is premature at this stage. Accordingly, these grounds are dismissed, being not required any separate adjudication.
6. Ground nos. 2 to 12, 15 and 17 of the assessee are related to TP adjustment of Rs.23,49,30,147/- made by the Ld. AO/TPO in respect of R&D services. The Ld. AR submitted that, if the objection of the assessee regarding the inclusion of Aurigene Discovery Technologies Limited (“Aurigene”) is found acceptable, then the other objections raised by the assessee with regard to transfer pricing issues (including other comparables) would become academic in nature. In this regard, the Ld. AR raised a two-fold objections against the inclusion of Aurigene. In their first objection, the Ld. AR submitted that bifurcation of domestic and export revenue is not available from the financials of Aurigene. He invited our attention to export filter applied by the Ld. TPO, placed at page no.6 of the TPO’s order (page no.125 of the paper book no.1) and submitted that the Ld. TPO had applied a filter excluding companies having foreign exchange earnings of less than 25% of revenue. Therefore, in the absence of bifurcation of domestic and export revenue, the export filter applied by Ld. TPO fails in this case.
The Ld. AR alternatively argued that Aurigene is engaged in three segments, namely research services, discovery and collaboration, and licensing. He invited our attention to (i) page no.1086 of the paper book no.2 showing receipt of revenues from these three segments; (ii) page no.1070 of the paper book no.2 where the Aurigene has disclosed that its revenue is from service income, sale of goods, out-licensing arrangements, milestone payments, and royalties; and (iii) page no. 919 of the paper book no.2 disclosing accounting policy wherein under “Corporate Information” the company states that it undertakes drug discovery research, long-term collaborations for drug discovery and licensing of intellectual property. He further submitted that the total turnover of Aurigene is Rs.30617 crores, while turnover from R & D services is only Rs.2449 crores, i.e. about 8% of the total. Hence, the major revenue of Aurigene is from other than R & D Service segment. Further, in the absence of segmental results, the profit margin from R & D services of Aurigene cannot be ascertained, making the company not comparable with the assessee which is solely engaged in R&D services. Accordingly, the Ld. AR prayed before the bench to exclude Aurigene from the list of comparables.
Per contra, the Learned Departmental Representative (“Ld. DR”) relying on the order of Ld. AO/TPO, submitted that though Aurigene has disclosed revenues under different heads, all are essentially related to R & D services. Hence, he argued that segmental details are not required in the case of Aurigene. Accordingly, there is no infirmity in the order of Ld. AO / TPO while including Aurigene in the list of comparables.
We have considered the rival submissions and perused the material available on record. As far as the objection of the assessee regarding export revenue filter is concerned, on perusal of page nos.1102 & 1103 of the paper book no.2, we find that in the financials statement of Aurigene, the details of revenues from customers in India and outside India have been provided, which is to the following effect :
9.1 On perusal of above, we find that the domestic revenue of Aurigene is only Rs.74 crores out of the total revenue of Rs.30617 crores. Although no segment detail is available, even then, assuming the whole domestic revenue of Rs.74 crores is from R & D service segment, still Aurigene passes the export filter applied by the Ld. TPO. Therefore, we are of the considered view that, from the available details, export revenue can be computed qua the export filter applied by the Ld. TPO. Accordingly, the contention of the assessee that the export filter fails in absence of bifurcation of domestic and export revenue, is rejected.
On the issue of segmental details, on perusal of the financials statement of Aurigene (page no.1102 of the paper book no.2, reproduced herein above), it is clear that the company is engaged in multiple streams of revenue, i.e. research services, discovery & collaborations and licensing. The turnover from R & D services forms only a small part of total revenue, and segmental profitability is not available. In the absence of segmental data, the profit margin relatable to R & D services cannot be reliably ascertained. Considering that the assessee is engaged exclusively in R&D services, Aurigene is not functionally comparable. Accordingly, we direct the Ld. AO/TPO to exclude Aurigene from the list of comparables.
10.1 As the issue related to exclusion of Aurigene is decided in favour of the assessee, the other objections relating to transfer pricing raised in ground nos. 2 to 12, 15, and 17 are rendered academic and do not require adjudication.
With regard to the ground no.18 of the assessee, the Ld. AR submitted that an addition of Rs.13 lakhs has been made by the Ld. AO on account of interest payable to MSMEs, contrary to the specific directions of the Ld. DRP. In this regard, the Ld. AO is directed to reconsider the issue in line with the directions of the Ld. DRP.
With regard to the ground no.19 of the assessee, the Ld. AR submitted that there is an error in totalling of the aggregate income-tax liability, which has been wrongly computed at Rs.12,10,94,594/- instead of Rs.12,08,65,259/-. Hence, we direct the Ld. AO to verify the claim and rectify the computational error, if found correct.
In the result, the appeal of the assessee is partly allowed for statistical purposes.