RAS LIFESCIENCES PRIVATE LIMITED,NEW DELHI vs. DCIT., CIRCLE 3(1), HYDERABAD

That on facts and circumstances of the case and in law, the AO/ DRP/Transfer Pricing Officer ("TPO") have erred in making Transfer Pricing adjustment amounting to INR 9,15,68,139 in respect of the international transactions relating to sale of goods. 3. That on facts and circumstances of the case and in law, the AO/DRP/TPO have grossly erred in rejecting the benchmarking approach and the Most Appropriate Method ("MAM") i.e., Other Method adopted by the Appellant in relation to sale of goods transaction, without providing any cogent reasoning and thereby benchmarking the said transaction on incorrect basis: 3.1. Erred in rejecting the most appropriate method selected by the Appellant to benchmark the said transaction and substituting with its own methodology for the purpose of making adjustment without appreciating and understanding functional profile and precise nature of Appellant's business; 3.2. Erred in not appreciating and accepting the documents maintained by the Appellant in support of the arm's length price of the international transactions, despite the fact that the documents provided are aligned with the requirements laid out in the Act and Income-Tax Rules, 1962 ('Rules') and further erred in incorrectly observing that the Appellant has not filed the requisite documentation; 3.3. Erred in not adhering to the provisions of section 92C(3) which provides that the TPO can proceed to determine the arm's length price only in circumstances enumerated under clause (a) to (d) provided in the said section; 3.4. Erred in not accepting 'Other Method' prescribed under Rule 10AB of the Rules without taking cognizance of the third-party quotations and invoice submitted by the Appellant in support of its arm's length price; 3.5. Erred in summarily rejecting alternative analysis of the Appellant for benchmarking the international transaction of sale of products considering Other method; 3.6. Erred in rejecting the benchmarking study conducted by the Appellant in the transfer pricing report without issuing a show cause notice on this count which is sine qua non for making an ALP adjustment under transfer pricing regulations; 3.7. Erred in considering the Transactional Net Margin Method (TNMM') as the most appropriate method and adopting operating profit on operating cost ("OP/OC") as the Profit Level Indicator for benchmarking the subject transaction without appreciating business model of the Appellant disregarding the segmental accounts drawn for transfer pricing purposes.

Without prejudice to the above grounds, the AO / DRP/TPO have erred in considering entity wide margins of the Appellant while computing the transfer pricing adjustment without appreciating the fact that Appellant is an entrepreneurial entity and that the total cost includes amount of expenses pertaining to other business stream of the Appellant and unrelated to transaction of sale of goods, i.e., not granting proportionate adjustment. 5. Without prejudice to the above grounds, the AO / DRP / TPO have erred in arbitrarily including comparable companies which have dissimilar FAR, namely, Biosite Research Pvt. Ltd., Jeevan Scientific Technology Ltd., Actimus Biosciences Pvt. Ltd., APL Institute of Clinical Laboratory & Research Private Limited, Anazeal Analytics & Research Private Limited, Sipra Labs Ltd., Theraindx Lifesciences Pvt. Ltd., Jubilant Chemsys Ltd., Prado Preclinical Research & Devp. Organization Pvt. Ltd., Vanta Bioscience Ltd., Veeda Clinical Research Ltd., Jubilant Biosys Ltd., Q P S Bioserve India Pvt. Ltd. and Ross Lifescience Ltd. 6. Without prejudice to the above grounds, the AO/ DRP/TPO have erred in arbitrarily rejecting additional functionally comparable companies identified and filed before the DRP without passing a speaking order. 7. Without prejudice to the above grounds, the AO / DRP / TPO have erred in not providing for economic adjustment to account for differences in production capacity levels of the Appellant vis-à-vis comparable companies while computing the margins of the Appellant / comparable companies. Adjustment relating to Notional Interest on Trade Receivables 8. That on the facts and in the circumstances of the case and in law, the AO / DRP / TPO have erred in framing an adjustment on account of notional income of INR 23,597 on the ground that outstanding trade receivables is a separate international transaction and does not satisfy the arm's length principle envisaged under the Act. 8.1. That on the facts and in the circumstances of the case and in law, the AO / DRP / TPO have erred in not appreciating that unlike a loan or borrowing, outstanding trade receivables is not an independent transaction which requires separate benchmarking. 8.2. That on the facts and in the circumstances of the case and in law, the AO / DRP / TPO have erred in ignoring the fact that no interest was charged on outstanding receivables from unrelated parties by the Appellant.

3. That on the facts and in the circumstances of the case and in law, the AO/DRP/TPO have erred in ignoring the fact that the Assessee is in net payable position with the AE and the AE did not charge any interest towards the extended credit period. 9. That on the facts and circumstances of the case and in law, the AO erred in initiating penalty proceedings under section 270A of the Act. The Appellant craves leave to add to and/ or to alter, amend, rescind, modify, the grounds herein above or produce further documents before or at the time of hearing of the appeal.” 3. The brief facts of the case are that the assessee is a company, filed its original Return of Income (“ROI”) for A.Y. 2020-21 on 11.02.2021 declaring loss of Rs.9,44,44,121/- under normal provisions of the Income Tax Act, 1961 (“the Act”) and loss of Rs. 13,41,40,090/- u/s 115JB of the Act. 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 (“TPO”). The Ld. TPO vide his order dated 30.07.2021 suggested upward adjustment of Rs.9,15,68,139/- on account of sale of goods and Rs.23,597/- on account of interest on trade receivables. Accordingly, the Ld. AO passed the draft assessment order on 28.08.2023. Aggrieved with the draft assessment order passed by the Ld. AO, the assessee preferred objection before the Learned Dispute Resolution Panel (“Ld. DRP”). In pursuance to the directions of Ld. DRP dated 27.05.2024, the Ld. AO finalized the assessment on 25.06.2024 by making total addition of Rs.9,15,91,736/- on account of upward adjustment of ALP.

Aggrieved with the order of Ld. AO/Ld. TPO, the assessee is in appeal before us. The Ld. AR submitted that, ground nos.1 & 2 are general in nature and ground no.9 is consequential, therefore, no separate adjudication is required. These grounds are accordingly dismissed as not pressed. 5. Ground nos.3 to 7 of the assessee are related to adjustment made by the Ld. AO/Ld. TPO on account of sale of goods of Rs.9,15,68,139/-. The Ld. AR submitted that, the assessee is engaged in trading of diagnostic kits and adopted the Comparable Uncontrolled Price (“CUP”) as Most Appropriate Method (“MAM”) for determining the Arm’s Length Price (“ALP”). However, the Ld. TPO rejected the method adopted by the assessee and adopted the Transaction Net Margin Method (“TNMM”) as MAM. The Ld. AR further submitted that, the Ld. TPO selected the comparables that do not match with the functions of the assessees. In support of their submission, the Ld. AR invited our attention to para nos.2 & 7 of the order of Ld. TPO and submitted that Ld. TPO has selected the company having R & D services, R&D Centre for bio medical and radiology research, R & D in natural science, etc. Accordingly, the Ld. AR objected that, as the assessee is engaged in trading and not in R&D activity, which makes the selection of comparable inappropriate. The Ld. AR also invited our attention to para nos.4.2 & 5 of the order of Ld. TPO wherein the Ld. TPO has mentioned that the assessee has not submitted Transfer

We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As far as the non-filing of TP documentation, the Ld. DR herself accepted that the assessee has filed TP documentation on 22.07.2023. We have gone through the para nos.4.2 and 5 of order of Ld. TPO which are reproduced as under for ready reference : “ 4.2 Economic Analysis

On perusal of above, we found that Ld. TPO has specifically stated that the assessee has not filed TP documentation. Therefore, it is abundantly clear that the Ld. AO/Ld. TPO has passed his order without considering the TP documentation filed by the assessee. Accordingly, without going into the objections with regards to the functionality, we set aside this issue to the file of Ld. AO/Ld. TPO for fresh adjudication as per law. Accordingly, the ground nos.3 to 7 of the assessee are allowed for statistical purposes. 9. Ground no.8 of the assessee is related to adjustment of Rs.23,597/- made by the Ld. AO/Ld. TPO on account of interest on trade receivables. In this ITA No.788/Hyd/2024 8

M/s. RAS Lifesciences Pvt. Ltd., 43A, 1st Floor, Okhla Industrial Estate, Modi Mill Compound, Okhla Phase III, New Delhi. 2. Assessment Unit, DCIT, Circle 3(1), Hyderabad. 3. Pr. CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard File.