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Facts
The assessee, M/s. Biogenex Life Sciences Private Limited, filed an appeal against the final assessment order for AY 2017-18. The dispute arises from the Assessing Officer's (AO) upward adjustment of Rs. 1,05,79,088/- concerning the determination of Arm's Length Price (ALP) for international transactions related to the sale of diagnostic equipment and trading of reagents.
Held
The Tribunal held that the issue concerning the NOP of the support service segment requires de novo verification due to a mismatch in calculations. For unabsorbed depreciation, the Tribunal directed the AO to allow the claim as the assessee is entitled to it. Regarding MAT credit, the Tribunal directed the AO to grant the credit after factual verification.
Key Issues
Whether the NOP calculation for the support service segment is correct and if unabsorbed depreciation and MAT credit are admissible.
Sections Cited
143(3), 144C(13), 144B, 92CA(3), 92C, 10D, 35(4), 115JB, 270(A), 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI RAVISH SOOD & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by M/s. Biogenex Life Sciences Private Limited (“the assessee"), feeling aggrieved with the final assessment order of Learned Assessing Officer (“Ld. AO”) passed u/s. 143(3) r.w.s. 144C(13) & 144B of the Income Tax Act, 1961 (“the Act”) on 27.01.2022 as per the direction of Learned Dispute Resolution Panel ("Ld. DRP") dated 23.12.2021 for the A.Y. 2017-18.
The assessee has raised the following grounds of appeal : “
1. 1. On the facts and circumstances of the case, the Draft Assessment Order (DAO) dated 23.03.2021 passed by the Add./Jt./Dty/Asst. CIT/ITO, National e-Assessment Centre, Delhi, (herein after referred to as 'AO') and the Ld. TPO order dated 29.01.2021 passed u/s 92CA(3) of the Act by Deputy Commissioner of Income Tax, Hyderabad (herein after referred to as 'TPO') are bad both in the eye of law and on facts.
2. The Ld. DRP/AO/TPO erred in making an addition of Rs.1,05,79,088 adjustment towards determination of arm's length nature of sale of diagnostic equipments and trading of reagents.
The Ld. AO/TPO/DRP has erred in rejecting the search applied by the taxpayer in accordance with section 92C and Rule 10D of IT, Rules and there by undertaking an independent search by applying inappropriate filters and arriving at functionally dissimilar comparables.
3.1 erred in rejecting the TP documentation, benchmarking analysis and economic analysis submitted by the assessee by showing inappropriate reasons and not supported by any material evidence, which is not correct.
3.2 erred in rejecting the TP documentation without appreciating the fact that the assessee has maintained all the details and relevant documents in respect of additions, merely by stating that there are certain defects and the comparables of the assessee are also not properly selected.
The Ld. AO/TPO/DRP has erred in rejecting the revised transfer pricing study report submitted during the assessment proceeding. 4.1. erred by not considering the Revised TP Study and TP documentation, benchmarking analysis and economic analysis submitted by the assessee, which is not correct. 4.2. ought to have appreciated the fact that the assessee has maintained all the details and relevant documents in respect of additions made and ought to have considered the Revised TP Study and Documentation submitted by the assessee company. 4.3. ought to have considered the revised TP study report by taking TNMM as most appropriate method for benchmarking the transaction by aggregating the transactions under taken during the year as all the transactions are closed linked to each other. 4.4. ought to have appreciated that Hon'ble ITAT Hyderabad in the assessee own case vide and 519, 496/Hyd/2017 for the AY 2010-11, 2011-12 & 2012-13 has directed and sent back to Ld. AO/TPO to reconsider the issue freshly by considering the grounds/ objection raised by the assessee. 4.5. erred in not considering the revised TP study submitted by assessee, same is prepared by considering the earlier year Hon'ble ITAT judgment in assessee own case without any valid reason. 4.6. erred in rejecting the assessees contention without Assesse appreciating the facts that Hon'ble ITAT has considered the 6.1 grounds submitted and set aside the case to Ld. TPO/AO for fresh consideration. 4.7. ought to appreciate the fact the assessee has submitted details submission by considering the Hon'ble ITAT judgment for fresh consideration and passed the order which is incorrect. 4.8. ought to provide the reasonable opportunity to assessee before passing the order dated 29.01.2021 which is against to provision of the Act and bad in law.
5. The Ld. AO/TPO/DRP erred in not adopting the assessee's entity level margin for computation of PLI for comparing with the range PLI of the external comparables. 5.1 erred in not following the procedure laid down under the Provisions of Canti of Section 92C of the Act relating to the 'Computation of Arm's Length Price'. 5.2 ought to have considered the entity level operating margin of the assessee is much higher than the margin of the comparable companies as selected by the Ld. TPO in the TP Analysis. busine ness erred in calculating the margins of the assessee by dividing the expenses on the basis of turnover which is incorrect and also gives an incorrect margin of the assessee.
5.4 erred in not appreciating the fact that the margin of the for assessee company in respect of transactions with AEs is much higher than the average margin of the comparables. 5.5 ought to provide the reasonable opportunity to assessee before passing the order dated 29.01.2021 which is against to provision of the Act and bad in law. 5.6 ought to appreciate the fact that the assessee maintains the segmental data with respect to transaction undertaken with AE. The Ld. TPO has passed the order without given reasonable opportunity to submit the information. 5.7 ought to have considered the segmental information which provides more reliability on comparability factors with relevant operations of the tested party. 5.8 ought to have adjusted the operating margin of the assessee by considering the differences between the international transactions undertaken with AE and comparable uncontrolled transactions.
The Ld. AO/TPO/DRP erred in selecting incorrect comparables by applying the fresh search process by rejecting the search of Assessee Company. 6.1 erred in taking the data that which is not publicly available by the prescribed date. 6.2 erred in considering data of the comparable companies that becomes available subsequent to date of TP documentation which is not in accordance with the provisions of the Act. 6.3 erred in not considering the TP documentation submitted by the assessee. 6.4 ought to appreciate the fact that the assessee has prepared the TP study and selected the comparables as per provision of the Act and same should be accepted. 6.5 erred in applying the fresh search process by rejecting the search of Assessee Company and derived final 4 comparables for the purpose of comparability for sale of diagnostic equipment and 4 for the purpose of comparability for trading of reagents which is incorrect. 6.6 ought to have appreciated that the final company which is selected are not appropriated as compared to function of the assessee business.
6.7 ought to consider the fact that TP adjustment with respect to sale of diagnostic equipment and trading of reagent only to the transactions undertaken with AE.
The Ld. AO/TPO/DRP erred in not considering the Brought Forward losses of Rs. 80,05,365/- while passing the Final Assessment Order dated 27.01.2022.
8. The Ld. AO/TPO/DRP erred in not considering the Unabsorbed Depreciation and allowance of Rs. 1,87,83,938/-under section 35(4) of the Act while passing the Final Assessment Order dated 27.01.2022.
9. The Ld. AO/ TPO / DRP erred in not considering the MAT credit of Rs. 27,66,279/- available under section 115JB of the Act while passing the Final Assessment Order dated 27.01.2022. 10. The Ld. AO/TPO/DRP erred in levying interest under section 234B of the Act while passing the Final Assessment Order dated 27.01.2022 11. The Ld. AO/TPO/DRP erred in initiating penalty proceedings u/s 270(A) of the Income Tax Act. 12. The appellant may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal.”
3. The brief facts of the case are that the assessee is a subsidiary company of M/s. Biogenex Laboratories USA, is engaged in manufacturing of diagnostic instruments, trading of reagents and providing supports services to the holding company, filed its return of income for A.Y. 2017-18 on 30.11.2017 declaring total loss of Rs.28,74,492/-. 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 dt.29.01.2021 suggested upward adjustment of Rs.1,05,79,088/-. Accordingly, the Ld. AO passed the draft assessment order on 23.03.2021.
4. Aggrieved with the draft assessment order passed by the Ld. AO, the assessee preferred objections before the Ld. DRP. In pursuance to the directions of Ld. DRP dated 23.12.2021, the Ld. AO finalized the assessment on 27.01.2022 by making total addition of Rs.1,05,79,088/- on account of upward adjustment of ALP.
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, only following issues are involved out of their grounds of appeal :
a) Upward adjustment of Rs.1,05,79,088/- on account of Transfer Pricing (“TP”) adjustment. b) Claim on account of unabsorbed depreciation and allowances of Rs.1,87,83,938/- u/s.35(4) of the Act. c) MAT credit of Rs.27,66,279/- u/s.115JB of the Act.
6. As far as the upward adjustment of Rs.1,05,79,088/- on account of TP adjustment is concerned, the Ld. AR submitted that the assessee is engaged in three segments, i.e. assembly segment, trading segment and support service segment. The Ld. TPO did not make any addition on account of support service segment. However, the Ld. AO made addition of Rs.1,05,79,088/- towards assembly segment and trading segment on the basis of wrong calculation. The Ld. AR invited our attention to para no.10.4 of page nos. 9 & 10 of the order of Ld. TPO and submitted that, the Ld. TPO has calculated Net Operating Profit (“NOP”) of “trading segment” and “assembly segment” by allocating expenditure in the ratio of their respective turnover. The Ld. AR further invited our attention to audited NOP of trading segment placed at page no.436 of the paper book and audited NOP of assembly segment placed at page no.439 of the paper book and submitted that, the assessee has provided the audited working of NOP of trading segment and assembly segment separately. However, without considering the audited figure, the Ld. TPO/DRP worked out the NOP of trading segment and assembly segment by allocating the expenditure in the ratio of turnover. Hence, the Ld. TPO/DRP has worked out the NOP without any actual data. Therefore, the Ld. AR prayed before the bench to set aside the issue to the file of Ld. TPO/A.O. for fresh adjudication of the issue on the basis of the audited NOP of trading segment and assembly segment.
7. Per contra, the Learned Department Representative (“Ld. DR”) invited our attention to NOP of “support service segment” placed at page nos.219 & 220 of the paper book and the consolidated working of NOP for trading segment, assembly segment and supporting service segment placed at page no.473 of the paper book (“Consolidated Statement of NOP”). On the basis of these documents, the Ld. DR demonstrated that although the NOP of trading segment and assembly segment as per the consolidated statement of NOP are matching with the audited NOP of trading segment and assembly segment, however, the NOP of support service segment as per consolidated statement of NOP are not matching with the NOP of support service segment provided as per page nos.219 & 220 of the paper book. She further submitted that, the NOP of support service segment calculated separately (page nos.219 & 220 of the paper book) is Rs.101,89,207/-, however, the NOP of support service segment as per consolidated statement of NOP is Rs.40,82,163/-. Therefore, there is mismatch in the working of NOP provided by the assessee himself, which requires de novo verification of NOP of all the three segments. Accordingly, the Ld. DR prayed before the bench to set aside the issue to the file of Ld. TPO/A.O. for de novo verification of NOP of all the three segments.
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the working of individual NOP of assembly segment (page no.439 of paper book), trading segment (page no.436 of paper book) and supporting service segment (page nos.219 & 220 of the paper book) which are to the following effect :
8.1 We have also gone through the consolidated statements of NOP for assembly segment, trading segment and supporting service segment placed at page no.473 of the paper book which is to the following effect :
8.2 On perusal of above, we found that the NOP of assembly segment and trading segment worked out as per consolidated statement of NOP matching with the NOP calculated as per separate audited statements. However, as far as the NOP of support service segment is concerned, it is Rs.1,01,89,207/- as per separate working sheet (page nos.219 & 220 of paper book) and is Rs.40,82,163/- as per the consolidated working statement of NOP. Therefore, we found merits in the submission of Ld. DR that, there is mismatch in the working of NOP provided by the assessee, which requires de novo verification on the part of Ld. TPO/A.O. Accordingly, we set aside the issue to the file of Ld. TPO/A.O. for de novo verification of NOP of all the three segments and readjudicate the issue as per law.
The next issue of the assessee is related to unabsorbed depreciation and allowance of Rs.1,87,83,938/- claimed u/s.35(4) of the Act. In this regard, the Ld. AR submitted that, the Ld. TPO/A.O. has not considered the unabsorbed depreciation and allowance of Rs.1,83,83,938/- claimed u/s.35(4) of the Act while passing the final assessment order. In this regard, we are of the opinion that the assessee cannot be refrained from claiming any deduction / allowances which is entitled under the Act. Therefore, we direct the Ld. TPO/A.O. to allow claim to the assessee on account of unabsorbed depreciation and allowances u/s.35(4) of the Act as per law.
The next issue is related to MAT credit of Rs.27,66,279/- u/s.115JB of the Act. In this regard, the Ld. AR submitted that, the