Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by assessee for Assessment Year [AY] 2008-09 contest the final assessment order passed by Ld. Additional Commissioner of Income Tax-Range 8(3),Mumbai [AO] u/s 143(3) of the ITA.No.7566/Mum/2012 Roche Diagnostics India Private Limited Assessment Year 2008-09 Income Tax Act,1961 dated 23/10/2012 pursuant to the directions of Ld. Dispute Resolution Panel [DRP]. During hearing, the following effective grounds of appeal have been urged before us: -
3. Ground No.3: The Ld. AO/TPO has erred in law and on facts and in circumstances of the case in determining the Arm’s Length Price of International Transactions of the appellant with its Associated Enterprises in trading segment without considering the fresh benchmarking which was specifically asked by the Ld. TPO during assessment proceedings.
4. Ground No.4: The Ld. AO/TPO/DRP have erred in law and on facts and in circumstances of the case in not considering the qualitative data of certain comparable available at the time of assessment proceedings and accordingly: a) Not considering Frontline Electro Medical Ltd in the list of comparable, which was identified as comparable in fresh benchmarking asked by the Ld. TPO and is functionally comparable to the appellant. b) Including Ashco Niulab Industries Ltd. in the list of comparables inspite of the fact that trading income in this company is only 49.96% and rest of the income is from services and segmental Profit and Loss account for trading activity is not available. 5. Ground NO.5: The learned AO/TPO/DRP have erred in law and on facts and in circumstances of the case in rejecting certain comparables functionally comparable to the appellant on the ground of having high turnover without proving that the high turnover of the comparables had an undue influence on the operating margin of the comparables 2.1 Facts in brief are that assessee being resident corporate assessee engaged in the business of import and distribution of biomedical diagnostics equipments, reagents, spares for such equipments and manufacturing of reagents was assessed at Rs.22.04 Crores after certain Transfer Pricing [TP] adjustment of Rs.7.55 Crores as against returned income of Rs.14.48 Crores filed by the assessee on 29/09/2008 which was revised on 08/05/2009 to rectify certain TDS details. 2.2 The International Transactions carried out by the assessee with its Associated Enterprises [AE] as reported in Form 3CEB were referred for determination of Arm’s Length Price [ALP] u/s 92CA(1) to Ld. Transfer Pricing Officer [TPO] on 15/11/2010. The issue under appeal is related ITA.No.7566/Mum/2012 Roche Diagnostics India Private Limited Assessment Year 2008-09 with determination of ALP of distribution segment which consist of purchase of trading goods from AE and receipt from AE’s against sale made to Indian customers pursuant to a global master agreement. The purchase of trading goods amounts to Rs.112.32 Crores whereas receipts from AE amount to Rs.1.16 crores. Both these transactions have been aggregated for the purpose of determination of ALP. The assessee has reflected turnover of Rs.190.07 crores and profit margin of Rs.8.31 Crores which translates into margin of 4.37%. The assessee adopted TNMM method to benchmark the same with profit level indicator [PLI] as operating profit / operating income [OP/OI] and the assessee being the tested party. The average PLI of nine comparables as selected by the assessee based on single year data worked out to 5.46% as against assessee’s PLI of 4.37% and therefore, the assessee submitted that the same being within the tolerance range of +/-5%, no TP adjustment was required. However, by applying RPT turnover filter of Rs.1000 crores, four comparables got excluded and the average PLI of the remaining five comparables worked out as 8.35% as against assessee’s PLI of 4.37%, which resulted into impugned TP adjustment of Rs.7.55 Crores. In other words, the ALP of the purchases made by the assessee from its AE has been computed as Rs.104.76 crores as against Rs.112.32 crores reflected by the assessee and the difference of the two is impugned TP adjustment. Incorporating the aforesaid adjustment, draft assessment has been passed on 26/12/2011 which was subjected to objections before Ld. DRP. 2.3 Aggrieved, the assessee raised objections against the same without any success before Ld. DRP vide directions u/s 144C(5) dated ITA.No.7566/Mum/2012 Roche Diagnostics India Private Limited Assessment Year 2008-09 25/09/2012. The multiple submissions made by the assessee against the draft assessment order could not find favor before Ld. DRP and the stand of lower authorities has been confirmed by Ld. DRP. Accordingly, incorporating the aforesaid directions u/s 144C(5) of Ld. DRP, final assessment order dated 23/10/2012 has been passed, which has further been contested before us by the assessee by way of present appeal.
The Ld. Authorized Representative [AR] has reiterated the multiple submissions as raised before Ld. DRP whereas Ld. Departmental Representative [DR] supported the stand of the lower authorities. Vehement arguments have been adduced vis-à-vis turnover filter as applied by Ld. DRP and selection of comparables. Reliance has been placed on several judicial pronouncements to support the respective submissions. 4.1 We have carefully perused the rival contentions and perused relevant material on record. Upon due consideration, we find that whole controversy primarily revolves around application of Turnover Filter and functional comparability of the comparables. 4.2 During hearing before us, both the representatives heavily relied upon various judicial pronouncements to demonstrate the relevancy of turnover filter in the TP study, Ld. AR contending that the same was not a relevant factor while Ld. DR controverting the same. However, nothing has been brought on record either in the orders of the lower authorities or during submissions made before us to demonstrate that whether turnover filter was actually a relevant factor / determinative factor or not for arriving at margins in the peculiar line of business being carried on by the assessee. A perusal of nature of business carried on by assessee ITA.No.7566/Mum/2012 Roche Diagnostics India Private Limited Assessment Year 2008-09 reveal that the assessee was engaged in supply of imported biomedical diagnostic equipments which was not a normal line of business but a specialized kind of business requiring not only business skills but also technical skills as well. Upon consideration of material before us, this pertinent question has remained unanswered. As a logical consequence, if turnover filter was, at all, found to be a relevant factor for the margins earned by the assessee then the next pertinent question would be the upper / lower range thereof so as to arrive at meaningful TP study as envisaged by law. 4.3 So far as the issue of comparables is concerned, we find that under TNMM method, only a broad functional comparability is required and the statute, itself, has provided for a tolerance range of +/-5% to weed out the dissimilarities since no two entities could exactly be the identical / similar in all respect. It is noteworthy that all the comparables under dispute has been selected by the assessee itself and no comparable has been introduced by the revenue and therefore, the more onus was on assessee to justify exclusion / inclusion of two comparables namely Ashco Industries Ltd. & Frontline. The Ld. AR has brought to our notice the judicial pronouncements to contend that the comparables initially selected by the assessee could be excluded subsequently, finding them to be functionally or otherwise un-comparable in the circumstances. At the same time, we are of the opinion that there could not be any cherry picking to suit the requirement of the assessee. 4.4 Therefore, keeping in view the overall factual matrix of the case, we are left with no option, but to remit the matter back to the file of Ld. AO / TPO for fresh determination of ALP of the transactions under dispute ITA.No.7566/Mum/2012 Roche Diagnostics India Private Limited Assessment Year 2008-09 keeping in view the aforesaid factors. The assessee, in turn, is directed to demonstrate / substantiate his stand in this regard, inter-alia, by undertaking fresh TP study, if the circumstances so demand.
Resultantly, the assessee’s appeal stands partly allowed for statistical purposes.
Order pronounced in the open court on 04th May, 2018.
Sd/- Sd/- (Mahavir Singh) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांकDated : 04 .05.2018 Sr.PS:-Thirumalesh आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. 3. आयकरआयु�(अपील) / The CIT(A) आयकरआयु�/ CIT– concerned 4. 5. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai गाड�फाईल / Guard File 6.