MYLAN LABORATORIES LIMITED,HYDERABAD vs. ACIT, CIRCLE-5(1), HYDERABAD

ITA 663/HYD/2022Status: DisposedITAT Hyderabad06 June 2025AY 2016-1766 pages
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What did the Tribunal hold?

The Tribunal held that the TPO's rejection of the TP documentation and aggregation of transactions to apply TNMM was justified, considering the interlinked nature of the business segments and lack of comparability on a standalone basis. The Tribunal also upheld the TPO's inclusion of depreciation on goodwill as operating in nature for PLI computation. Regarding Section 14A, the Tribunal rejected the assessee's argument that investments were out of own funds, noting the lack of a cash flow statement to prove this and the existence of huge borrowings. Therefore, the disallowance of interest expenditure under Rule 8D(2)(ii) was upheld. However, for the disallowance of other expenditure under Rule 8D(2)(iii), the Tribunal followed the decision in ACIT vs. Vireet Investments Private Limited (SB) and directed the Assessing Officer to consider only those investments that yielded exempt income for computing the disallowance.

What were the facts?

The assessee, Mylan Laboratories Limited, and the Revenue have filed appeals against the order of the CIT(A) for assessment year 2016-2017. The assessee is engaged in manufacturing APIs, FDFs, and injectables, and undertakes R&D. The assessee had entered into an Advance Pricing Agreement (APA) for FDF sales to AEs. The return declared a total loss of Rs.1143,75,70,959/- under normal provisions and a book loss of Rs.306,42,31,817/- under Section 115JB. The case was selected for scrutiny, and a reference was made to the TPO for determining the ALP of international transactions. The TPO rejected the assessee's TP documentation, aggregating transactions and applying TNMM. The TPO also recomputed operating cost by including depreciation on goodwill. The Assessing Officer made a disallowance of Rs.7,64,07,586/- under Section 14A for exempt dividend income.

What were the issues?

1. Whether the Tribunal had to decide if the TPO erred in rejecting the assessee's TP documentation and aggregating all transactions into one basket to apply TNMM as the most appropriate method for benchmarking international transactions with AEs, and if the TPO correctly included depreciation on goodwill in the operating cost for computing the PLI. The assessee contended that it adopted a hybrid method and benchmarked transactions appropriately, including using an uncontrolled third-party arrangement with Pfizer for injectables. The revenue supported the TPO's aggregation and TNMM approach, citing OECD and UNTP guidelines and the interlinked nature of the assessee's business segments. 2. Whether the Tribunal had to decide if the Assessing Officer erred in disallowing interest expenditure under Section 14A read with Rule 8D(2)(ii) and other expenditure under Rule 8D(2)(iii) for the assessment year 2016-2017. The assessee argued that investments were made from own funds and no borrowed funds were used, and that the AO considered investments not yielding exempt income for disallowance. The revenue supported the CIT(A)'s order, stating the assessee failed to prove availability of own funds and that the AO and CIT(A) rightly considered investments and borrowings.

Which sections of the Income-tax Act were involved?

Section 115JB,Section 92CA,Section 14A,Section 10(34)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD “B” BENCH: HYDERABAD

Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G

Hearing: 19.03.2025Pronounced: 06.06.2025

PER MANJUNATHA G.:

This appeal has been filed by the Assessee- Company as well as cross-appeal filed by the Revenue against the order dated 30.09.2022 of the learned CIT(A), Hyderabad-10, Hyderabad, relating to the assessment year

2016-2017. 2. Brief facts of the case are that, the appellant is a public limited company, engaged in the business of manufacturing Active Pharmaceutical Ingredients [in short “API

The order continues below.

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