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

4. 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.

8.3. 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.”

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 Pricing (“TP”) documentation. The Ld. AR also invited our attention to the evidence regarding filing of TP documentation placed at page nos.107 to 162 of the paper book and contended that the TP documentation were filed before the Ld. TPO. Accordingly, the Ld. AR submitted that the Ld. TPO incorrectly stated that the assessee had not filed the TP documentation. Hence, the order passed by the Ld. AO/Ld. TPO is on incorrect assumption that no TP documentation has been filed by the assessee. Further, the Ld. AR also invited our attention to the order passed by Ld. AO u/s.271G placed at page no.239 of the paper book and submitted that during penalty proceedings, the Ld. AO convinced that the TP documentation were filed by the assessee before the Ld. TPO and therefore deleted the penalty. The Ld. AR finally prayed before the bench, as the Ld. AO/Ld. TPO has passed the order on the basis of incorrect functions of the assessee and on the basis of wrong assumption that no TP documentation has been filed by the assessee, accordingly, the issue may be set aside to the file of Ld. AO/Ld. TPO for fresh adjudication.

“ 4.2 Economic Analysis The tax payer has not submitted TP Documentation. However, in Form 3CEB the tax payer has shown other method as bench mark for determining the Arm’s Length for its international transactions.

20. In so far as the prayer of the assessee in respect of set off of the trade receivables and payables and the deemed interest thereon, is concerned, learned AR placed reliance on the decision of the coordinate Bench in the case of Coim India Pvt.Ltd Vs. DCIT in ITA No.495/Del/2021. We find it reasonable because, when the assessee has both trade receivables and trade payables, it would be unreasonable to calculate interest only on trade receivables for the purpose of determining the ALP of the transaction. It would be in the interest of justice to direct the learned Assessing Officer/learned TPO to consider both trade payables and trade receivables for the purpose of notional interest to be charged for determining the ALP value of the transaction. We hold and direct so.

TPO with a direction to recompute the adjustment of interest on trade receivables after considering the interest free trade payables due to AEs with duration of outstanding receivable and payables. Accordingly, the ground no.8 of the assessee is allowed for statistical purposes.