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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Before Shri Rama Kanta Panda & Shri Laliet Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Before Shri Rama Kanta Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.952/Hyd/2017 Assessment Year: 2007-08 M/s. Astrix Laboratories Vs. The Deputy Commissioner Limited, (Amalgamated of Income Tax, with M/s. Mylan Circle 16(2), Laboratories Limited), Hyderabad. Hyderabad. PAN : AAFCA4120R. (Appellant) (Respondent) Assessee by: Sri K.A. Sai Prasad. Revenue by: Sri Rajendra Kumar, CIT Date of hearing: 20.06.2022 Date of pronouncement: 22.06.2022 O R D E R Per Laliet Kumar, J.M. This appeal is filed by the assessee feeling aggrieved by the order of Dy.Commissioner of Income Tax, Circle 16(2), Hyderabad dt.31.03.2017 for the assessment year 2007-08 on the following grounds : “1. The order passed by the Assessing Officer u/s 143(3) r.w.s. 144C and 92CA of the Income Tax Act, passed on 31.03.2017 is contrary t the facts and law. 2. The TPO erred in not following the Hon’ble Tribunal’s directions and thereby making an adjustment of Rs.4,61,00,000/- u/s 92CA of the Act in respect of sales made to Associated Enterprises.”
ITA No.952/Hyd/2017
The brief facts of the case are as under :
“Astrix Laboratories Limited (Now merged with Mylan Laboratories Ltd.) (hereinafter referred to as Assessee / Tax- payer) is a public limited company engaged in the business of manufacture of Activated Pharmaceutical Ingredients (API) (Bulk Drugs). For the Assessment Year 2007-08 in relation to the previous year ended 31st March 2007, the Assessee filed its return of income on 30.10.2007 declaring a total income of Rs. 1,26,41,273/-under normal provisions of the Income tax Act, 1961 (hereinafter referred to as the Act) and Book Profit of Rs. 14,00,00,298/- u/s 115JB of the Act. The said return was processed u/s 143(1) of the Act vide intimation dated 18.3.2009 accepting the returned income both under normal computation & book profits. Thereafter, notice u/s 143(2) of the Act was issued.
Since the assessee transacted with Associated Enterprise as defined in Section 92A of the Act, the case was referred to Transfer Pricing Officer (Additional Commissioner of Income Tax), who issued Transfer Pricing Order u/s 92CA of the Act dated 29.10.2010. The Assessing Officer framed Draft Assessment Order u/s 143(3) dated 31.12.2010 taking into account the above Transfer Pricing Order. The Assessing Officer vide his draft order has determined the total income at Rs. 42,11,41,270/- under normal computation. The Assessing officer arrived at the Tax including surcharge at Rs. 14,17,56,151/- and after adjusting taxes already paid, amount already refunded and levying interests proposed the balance tax payable at Rs.18,19,52,583/-and accordingly forwarded the draft order vide his letter dated 31.12.2010.
ITA No.952/Hyd/2017
The assessee objected to the draft order vide its objections filed before the Dispute Resolution Panel on 2nd February, 2011. It made deailed submissions relating to the facts and circumstances on the proposed disallowances / additions sought to be made by the Assessing Officer. The DRP disposed the objections vide its order dated 26.09.2011 under sec. 144C of the Act. Pursuant to the said directions, the Assessing officer passed the final order u/s 143(3) on 28.10.2011 of the Act. The Assessee is aggrieved by the said order, and preferred an appeal before the Hon'ble Income tax Appellate Tribunal u/s 253 of the Act. The Hon'ble ITAT vide order in ITA No.2181/Hyd/2011 and ITA No 312/Hyd/2012 passed order on 29-01-2016. Consequential order u/s 143(3) r.w.s 144C and 92CA giving effect to the above order was passed by the Assessing Officer on 31.03.2017 which was received by the assessee on 04-04-2017.”
The ld.AR has submitted that in the first round of litigation, the Transfer Pricing Officer (TPO) has selected 8 companies as comparables namely,
Sl. No. Company Name Data Source Average PLI 1. Auro Laboratories Ltd. P 2.75% 2. Dabur Pharma Ltd. P 8.73% 3. Divi’s Laboratories Ltd. P 28.27% 4. Marksans Pharma Ltd P 13.36% 5. Nectar Lifesciences Ltd. P 6.50% 6. Neuland Laboratories Ltd. P 8.22% 7. Shasun Chemicals & Drugs Ltd. P 12.53%
ITA No.952/Hyd/2017
Thereafter, the TPO has proceeded to consider the appropriateness of the comparables selected by the assessee and after considering the various filters and the objections raised by the assessee, the TPO has rejected the following companies as comparables: (a) Auro Laboratories Ltd. (b) Dabur Pharma Ltd. (now known as Fresenius Kabi Oncology Ltd.) (c) Divi’s Laboratories ltd. (d) Marksans Pharma Ltd. (e) Nectar Lifesciences Ltd. (f) Shasun Chemicals & Drugs Ltd. (g) Transchem Ltd.
After considering the objections of the assessee, the TPO 5. had determined the Arm’s Length Price (ALP) of the assessee. Feeling aggrieved by the TPO’s draft assessment order, the assessee preferred its objections before the DRP, who thereafter passed an order against the assessee. In para 16 of the Tribunal’s order, it was held that out of various comparables selected by the TPO, only six companies were available for comparison which were in the manufacturing of bulk drugs in the case of the assessee. Therefore, the Tribunal hold that only six comparables should be adopted for the purpose of determination of ALP. “16. Having regard to the rival contentions and material on record, we find that Rule 10D of IT Rules itself provides that the TPO has to conduct the FAR analysis and adopt such companies as comparable which are in similar business as the assessee and that other companies may also be taken into consideration, provided the adjustment for dissimilarities, if any, can be made. The coordinate Bench of this Tribunal at Delhi in the case of Global Vantedge Pvt. Ltd. V/s. DCIT (2010-TIOL-24-ITAT-DEL) held that if a company
ITA No.952/Hyd/2017
engages in a variety of different controlled transactions that cannot be appropriately compared on an aggregate basis with those of an independent enterprise then, while analyzing the transactions between independent enterprises to the extent they are needed, profit attributable to transactions that are not similar to the controlled transactions under examination should be excluded from comparison. Similar view has been expressed by the Tribunal at Mumbai in the case of IL Jin Electronics (I) P. Ltd. V/s. ACIT (2010- TIOL-151-ITATMUM) and also in the case of ACIT V/s. T Two International Pvt. Ltd.(2010- TIOL-166-ITAT-MUM). Thus, for making necessary adjustment if separate segmental accounts are available, the TPO ought to take only the segmental details of the comparable company. In the case before us, the Transfer Pricing Officer has taken companies which are involved in both the activities on the ground that sufficient number of comparables are not available. But, from the order of the TPO, we find that even as per the filter adopted by the Transfer Pricing Officer, at least six companies are available for comparison, which are into manufacture of only bulk drugs as in the case of the assessee. Therefore, we hold that only such companies are to be adopted for the purpose of determination of Arm’s Length Price.”
The assessee before the Tribunal in the earlier round in ITA 2181/Hyd/2001 and 312/Hyd/2012 has challenged the inclusion of two companies namely, Suven Life Sciences Ltd and Natco Pharma. The Tribunal had given the following finding in respect of Suven Life Sciences Ltd which is as under :
“17…… We find this contention of the assessee to be correct and we therefore direct the Assessing Officer / TPO to recompute the margin of the Suven Life by taking the segmental result of bulk drugs only and not the total turnover as done by the TPO in the earlier proceedings.” 7. With respect to Natco Pharma, the Tribunal had given the following finding which reads as under :
“20…. Therefore, the TPO ought to have proportionately between all the to have considered the turnover of the exercise has not been carried out by the to remit this issue to the file of the TPO for bulk drug segment of Natco Pharma Ltd and Length Price accordingly. As for the only bulk drugs turnover is taken into filter of Rs.100 to 300 crores, we
ITA No.952/Hyd/2017
direct margin of this company, and if it fails comparables, he shall not take this company into consideration.
After passing the order, the learned lower authorities had passed the order on 20.03.2017 whereby the TPO had decided the matter as per Para 4.1 which reads as under :
“4.1. As directed by the ITAT the Annual Reports of both the companies have been examined and it is found that the Bulk Drugs segmental turnover of these companies was found to be below Rs.100 crores and thus failed the turnover filter adopted by the TPO and hence these companies have not been excluded from the list of comparables. The relevant extract from the Annual Reports of these companies are enclosed herewith. Keeping the above discussion in view the revised margins are recalculated as under. Sl.No. Name of the Company OP/OC as per the TP order dt.29.10.2010 (Rs. In crores) 1 Anu’s Labs Ltd 22.98 2 SMS Pharmaceuticals Ltd 27.01 3 Neuland Labs Ltd 7.87 4 Aarti Drugs Ltd 10.75 Average 17.15
Since the Average PLI of the comparable companies is still not within +/- 5 Range of the PLI of the Taxpayer, the Arms Length Price of the sale transactions and provision service is calculated as under. Item Code Arms Length Margin 17.15% % of AE transactions on revenue 43.67%
Total Operating cost Rs.202.64 crores Proportionate operating cost Rs.88.49 crores (Total OC X 3.67 / 100 )
Adjusted Arms Length Margin (%) (AALM) 17.15% Arms Length Price= (100 + AALM) *OC
Price Received (OR) Rs.103.67crores Revised adjustment consequent to ITAT’s order Rs.99.06 crores Revised adjustment consequent to ITAT’s order Rs.4.61 crores.
ITA No.952/Hyd/2017
Therefore, the revised adjustment out of ITAT’s order will be Rs.4.61 crores as against Rs.27.81 crores originally made vide proceedings of this office dt.29.10.2010.”
Based on the draft assessment order, the Assessing Officer had passed a consequential order on 31.03.2017 computing the income of the assessee which is the subject matter of challenge before us. 10. At the outset, ld.AR has submitted that out of the four comparables, two comparables are required to be deleted being not satisfying turnover filters. 11. Per contra, the ld.DR submitted that the assessee in the first round of litigation has only challenged the exclusion of the above two companies i.e. Suven Life Sciences Ltd and Natco Pharma.as comparables and the same had been adjudicated by the Tribunal. The relief had been granted by the TPO after excluding these two comparable. Now ALP was determined by TPO / AO based on remaining four comparables, which had attained finality and therefore, no exclusion can be made by the Tribunal at this stage. 12. We have heard the rival submissions and perused the material on record. Undoubtedly, the Tribunal has passed a detailed order dt.29.01.2016 after considering the detailed objections of the assessee with respect to TPO order and the draft assessment order passed by the authorities. After considering all the contentions of the assessee, the Tribunal at Paras 17 and 20(supra ) had given finding with respect to the two companies namely, Suven Life Sciences Ltd and Natco Pharma. However, no challenge was made with respect to other remaining 4 comparables. Since there was no challenge by the assessee in respect of inclusion 7
ITA No.952/Hyd/2017
of remaining four selected comparables by the TPO / Assessing Officer at the time of first appeal before Tribunal, therefore, the selection of comparables had attained finality by virtue of the order of the Tribunal on the appeal of the assessee on 29.01.2016. In view of the above, no appeal can be filed in respect of the decision which has been already adjudicated and decided by the Tribunal in the earlier round of litigation. In the light of the above, we do not find any reason to interfere in the present set of facts and accordingly, the appeal filed by the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 22nd June, 2022. TYNM/sps
Copy to: S.No Addresses 1 M/s. Astrix Laboratories Limited, (Amalgamated with M/s. Mylan Laboratories Limited), Plot No.564/A/22, Road No.92, Jubilee Hills, Hyderabad. 2 ACIT(Transfer Pricing), Hyderabad. 3 Dispute Resolution Panel, Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File
By Order