ACTAVIS PHARMA DEVELOPMENT CENTRE P.LTD,MUMBAI vs. DCIT WD 15(1)(1), MUMBAI

PER RAMIT KOCHAR, Accountant Member:

This appeal filed by the assessee is arising out of an assessment order dated 31.01.2017 passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961(hereinafter „the Act‟) by learned Assessing Officer (hereinafter called “ the AO”) in pursuance of directions issued by the Dispute Resolution Panel-I, Mumbai , [in short „DRP‟] dated 26.12.2016 u/s 144C(5) of the 1961 Act disposing of the objections filed by the assessee, wherein the additions to the tune of Rs. 3,80,43,714/- were made by the AO vide TP Adjustments w.r.t. international transactions entered into by the assessee with its Associated Enterprise. The draft assessment was framed by the AO for the assessment year 2012-13 vide

29-03-2016 passed u/s 143(3) read with section 144C(1) of the Act in pursuance to the order of learned Transfer Pricing Officer,Mumbai (hereinafter called “the TPO”) passed u/s 92CA(3) of the 1961 Act. The assessee filed objections with DRP which were disposed of by DRP vide orders dated 26-12-2016. The AO , thereafter , in pursuance to directions of DRP passed an assessment order dated 31.01.2017 u/s 143(3) r.w.s. 144C(13) of the 1961 Act, wherein the additions to the tune of Rs. 3,80,43,714/- were made by the AO vide TP Adjustments w.r.t. international transactions entered into by the assessee with its AE.

2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

“General

2. erred in making transfer pricing adjustment of Rs. 380,43,714 in relation to the international transaction of provision of contract research and development services, stability testing and database maintenance services to AEs by the Appellant.

Reference to TPO

3. erred in making a reference to the TPO in respect of the determination of the arm's length price, without recording satisfaction being

ALP to TPO.

Procedure under Section 92C(3) not followed

4. erred in arriving at the arms length price of the international transactions without appreciating the fact that none of the conditions set out in Section 92C(3) of the Act are satisfied; Rejection of economic analysis undertaken by Appellant

5. erred in rejecting the economic analysis undertaken by the Appellant in connection with its international transaction of provision of contract research and development services, stability testing and database maintenance services to AEs by the Appellant.

Inappropriate rejection of comparable companies adopted by Appellant

6. erred in rejecting IDMA Laboratories Ltd by stating that the functions of analytical and industrial testing undertaken by IDMA are not comparable to the business activities of the Appellant:

7. erred in rejecting Dolphin Medical Services Limited by stating that functions of equipment testing, providing diagnostic laboratories services and research are not Appellant:

8. erred in rejecting Vimta Labs Ltd by stating that the said company has incurred continuous losses and also stating that it is engaged in provision of wide variety of services/ activities like environmental services, pre-clinical and clinical analytical testing which are not comparable to the business activities of the Appellant:

9. erred in not giving any directions toward the objections filed by the Appellant with reference to rejection of SPAN Diagnostics Ltd by TPO and also erred in rejecting the said company by stating that the business activities of the company are not comparable to the business activities of the Appellant; Inadvertent clerical error in TP Study

10. erred in rejecting two comparable companies (i.e. IDMA Laboratories Ltd. and SPAN Diagnostics Ltd.) as non-comparable companies to the Appellant due to inadvertent error made by the Appellant in its transfer pricing study report in accept/reject matrix; Inappropriate acceptance of non-comparable company

11. erred in accepting Aurigene Discovery Technologies Ltd a non-comparable company as per the Appellant, by stating that the functions of research related to drug discovery is comparable to the business activities of the Appellant; Calculation error in margins of comparable companies

12. erred in wrongly calculating the operating profit margins of following comparable companies and not providing detailed margin calculation of the same:

Biocon Limited; and

Working capital adjustments

Risk adjustments

Appellant vis-à-vis comparable companies:

Levy of interest under section 234B of the Act

Levy of penalty under section 271(1)(c) of the Act

17. erred in initiating penalty under section 271(1)(c) of the Act; The respondent craves, to consider each of the above grounds without prejudice to each other and craves, leave to add, alter, delete or modify all or any of the above grounds”

The assessee was selected as tested party by the TPO based on FAR analysis as it did not owned any significant intangibles and its profitability can also be reliably ascertained. The assessee had selected net cost plus margin as Profit Level Indicator (PLI) which was submitted in the Transfer Pricing (TP) study report as under:-

The assessee had selected the following comparables and the assessee had earned NCP of 13.01% which was claimed to be at arms length range of the comparable weighted arithmetic mean margin of 14.49% , which by the single year update margin of the comparables was 11.09% which fell within 5% as permissible range allowed to the assessee. The details of single year updated margin of the comparables submitted by The TPO issued show cause notice vide order sheet entry dated 29-12- 2015 which is reproduced as under: - "On perusal of the Accept / Reject matrix submitted by the assessee through its transfer pricing study report, it is perused that the following companies does not form part of Accept / Reject matrix. However, the assessee had considered these companies as their set of comparables:-

Further, it has also been observed that following companies from part of Accept / Reject matrix . However, it has not been considered by the assessee as its sets of comparable for calculation of PLI: - 1) In this regard, you are hereby show caused as to why companies, namely IDMA Laboratories Ltd. and SPAN Diagnostics Ltd. shall not be excluded from the final set of Jubilant Chemsys Ltd. shall not be included in the final set of comparables. 2) On analyzing the annual report & financial statements of Vimta Labs Limited, it is found that the said company is Into continuous losses or it is a loss making company. Hence, you are hereby show caused as to why loss making company namely Vimta Labs Limited [submitted by you vide submission dated 09/12/2015] shall not be excluded from the final set of comparables. 3) On careful reading of the director's report to the shareholders in the case of Dolphin Medical services Limited, it has been found that during the year under consideration the company has suffered huge losses due to many intrinsic and extrinsic reasons, which is an extraordinary situation for the company. Hence, you are hereby show caused as to why the said company shall not be excluded from the final set of comparables. 4) On studying the Accept / Reject matrix submitted through Transfer Pricing Study Report, it has found that you have excluded Suven Lifesciences Ltd., Sl. No. 7170, on account of insufficient segment information. However, segmental information of the said company shows operating margin @ 73.86%. You are hereby show caused as to why this company shall not be included in the final set of comparables for calculation of PLI. 5) It is also found that you have excluded Aurigene Discovery Technologies, St No. 677 from the final set of comparables, with remarks - Non comparables Services. However, the Broad analysis of the nature of activity undertaken by you shows the said company seem to be functionally similar. Hence, you are hereby show caused as to why "Aurigene Discovery Technologies" shall not be considered in your final set of comparables."

The TPO after going through the submissions of the assessee accepted the following as comparables: - Sr. Name of the Comparables Assessee‟s remarks TPO‟s Remarks Margin No. (%) 1. Aurigene Discovery Reason for rejection: Reason for acceptance: 40.82 Technologies Ltd. main business activity of the The assessee‟s company is to undertake agreement is for research relating to drug research and discovery for its customers development and the and the risk profile of Aurigene comparable company is Discovery Technologies Ltd. engaged in undertaking Vis-à-vis the Assessee is research relating to different. drug discovery for its customers (i.e. contract R. & D). Accordingly, the said company is functionally comparable and hence selected as comparable for computing arms‟ length price.

3. Choksi Laboratories Ltd. Accepted Accepted 17.83 4. Dolphin Medical services Reason for Reason for rejection: - Ltd. acceptance: The company is the assessee submitted that engaged in 2 business Dolphin Medico! services divisions: Medical and Limited has not incurred loss Software division. The at operating profit level Medical division and has earned margin of consists of income from 8.17% on operating cost. diagnostics, herbal & biotech services, which does not pertain to contract R&D and hence not functionally comparable to the Assessee business. Hence rejected.

Nevertheless, the assessee has considered the said company as "Engaged in comparable business activity" in its accept- reject matrix in Its TP Study Report vide Sr. No. 4161.

In the annual report and segmental The company has margin comes to 73.86% on Identified the following 3 cost and hence, the company segments as reportable should be Included in the final segments: list of comparable companies. • Manufacturing (CRAMS) As per the assessee, company • Services (DDDSS) is not functionally comparable • Research and and also has undertaken Development extra-ordinary activity of amalgamation during AY Manufacturing 2012-13. The assessee also (CRAMS) is into Bulk mentioned that margin Drugs & Intermediates computed needs to be revised under contract services as the expense has been products are developed shown separately for R&D and produced on an amounting to Rs 3304.91 exclusive basis under lakhs. contract manufacturing services. Hence, this segment Is considered as functionally comparable and not Service (DDDSS) as submitted by the assessee. Further, as submitted by the Assessee that R & D expenses need to be reduced from other segment, in response to same it is pertinent to note that the R&D is a separate segment (as per the audited financial statements) and hence the expenses incurred thereon cannot be reduced from any other segments. Further, since the assessee could not provide reasons as to how the amalgamation affects the profitability and how is not comparable to assessee the extra ordinary events cannot be reason for rejections.

Moreover, the amalgamation is effective from 1 January 2012 (i.e. only 3 months during the year under consideration) and hence cannot be considered as basis for extra-ordinary activity. Nevertheless, the assessee has considered the said company as comparable services in its accept-reject matrix in its TP Study Report vides Sr. No. 7170.

The addition of ₹ 4,66,02,804/- was proposed by way of TP adjustment to the value of international transactions entered into by the assessee with its AE , by the TPO vide its orders dated 29-01-2016 passed u/s. 92CA(3) which led the AO to issuing of draft assessment order dated 29- 03-2016 passed u/s 143(3) read with section 144C(1) of the Act.

4.Aggrieved by the draft assessment order dated 29-03-2016 passed by the AO u/s 143(3) r.w.s. 144C(1) by the AO , the assessee filed objections with DRP and raised several grounds of objections before the DRP who vide directions dated 26-12-2006 passed u/s. 144C(5) of the Act granted certain relief which finally led to the assessment order dated 31-01-2017 passed under section 143(3) read with section 144C(13) of the Act which led to TP additions to the tune of Rs. 3,80,43,714/- by way of adjustment to arm lengths price of international transaction entered by assessee with its AE.

5. Ground No. 1 to 5 - It is prayed by learned Counsel for the assessee that ground No. 1 to 5 are general in nature and does not require separate adjudication. The learned CIT DR did not objected to the dismissal of these grounds bearing number 1 to 5 being general in nature.

After hearing both the sides, we are of the considered view that these grounds of appeal from 1 to 5 being general in nature does not require separate adjudication and hence as conceded by the learned counsel for the assessee, these grounds bearing number 1 to 5 stood dismissed. We order accordingly.

6. Ground No. 6- Rejection of IDMA Laboratories Limited(hereinafter called “IDMA”) as comparable by Revenue:-

The assessee has claimed to be engaged in the business of providing contract R & D services in respect of generic APIs. The services provided also involves database maintenance , statistical analysis and project management in respect of development of such generic APIs. The assessee included IDMA as comparable in its Transfer Pricing Study Report with OP/OC weighted average margin of 16.32% while the OP/OC margin for AY 2012-13 was 12.58%. The TPO observed that in accept /reject matrix of TP study , this company „IDMA‟ was reflected as having non comparable services vis-a-vis services rendered by the assessee. On being show-caused, the assessee submitted before TPO that this company „IDMA‟ is engaged in the business of analytical and industrial testing which is comparable services to the assessee and due to typographical error in accept reject matrix , the company was reflected as an rejected company. This did not go well with TPO and he came to the conclusion that this company „IDMA‟ cannot be accepted as comparable as said company is engaged in business of quality control testing and trading in products. It was also held by TPO that in TP study of the assessee itself this company is reflected as rejected company and hence the same cannot be accepted as comparable. The matter reached DRP . The assessee submitted that „IDMA‟ is engaged in the business of providing analytical and industrial testing services such as drug testing, chemical testing and microbiological testing to pharma industries which is akin to the services provided by the assessee and such services constitutes 90% of the total revenue. The assessee prayed that this company be accepted as comparable. The DRP after going through the material before it came to the conclusion that the assessee is mainly engaged in contract R & D services to its AEs and testing services represents only a miniscule part of its activities as compared to R & D activities. The DRP while giving above finding had observed that revenue from Activis Iceland is Rs. 24.75 crores and the assessee as per agreement with this party is required to perform contract R & D services . The agreement for analytical testing with this AE in Iceland is only signed on 07-11-2011 which is towards the later part of the financial year. It was observed that the assessee is engaged in business of contract R & D as well analytical testing(primarily in contract R&D) while the comparable is engaged in business of providing analytical and industrial testing services , which led to upholding of rejection of this comparable IDMA by the DRP. Now , the assessee is before the tribunal.

Both ld counsel for the assessee and learned CIT DR has submitted their detailed arguments before us. It is the say of learned counsel for the assessee that its only due to typographic error this company was reflected as rejected company in accept/reject matrix in TP study. It is also say of the learned counsel that as much as 39.55% of the revenue of the assesse for relevant financial year is from stability studies and testing services, while it is the say of the Revenue that there was no error committed by the assessee in the rejection of this company IDMA in TP study and this company IDMA was rightly rejected as comparable and also this is the say of the Revenue that miniscule portion of revenue is derived from stability studies and testing services by the assessee during the relevant financial year as its contract for such services was entered only on 07-11-2011 with Activis, Iceland , AE of the assessee company. We have perused the audited financial statement of the assessee for the financial year ended 31-03-2012 which is placed in paper book/page 114 and we have observed that at para 28 of the said audited financial statements , it is stipulated as under:-

28. The company‟s sole business segment is to provide research and development services and the Company considers such activities to constitute a single business segment in the context of AS-17 „Segment Reporting‟ . Similarly , the Company considers Europe as its only geographical segment. The company considers business segment as its primary segment and geographical segment based on the location of customers as the secondary segment. Since the company comprises a single business segment and a single geographical segment, disclosures relating to the primary and secondary segments have not been presented.

Thus, on perusal of audited financial statement of the assessee , it is observed that it is only engaged in providing R & D services which is the sole segment in which the assessee is operating. The bifurcation of revenue is not given in segment reporting while claim of the assessee is that around 39.55% revenue is from stability studies and testing services. The said services towards analytical studies commenced operations vide agreement dated 07-11-2011 by which time eight months in the financial year had already passed.

The analysis of the financial statements of IDMA which is placed in paper book reveals that IDMA is engaged in the business of analytical and industrial testing(page 388/pb) . It is also mentioned at page 391/PB that IDMA is engaged in quality control testing and some trading activities. However, the sale of product in statement of profit and loss (pb/395) is nil while Revenue has originated mainly from sale of services.

There are contrarian facts as averred by rival parties and requires proper investigation by the AO/TPO including analysis of revenue derived and functions performed , risk involved and assets deployed , and in the fitness of the matter , we are inclined to set aside this issue regarding functional analysis of IDMA as comparable with the assessee to the file of the AO/TPO to properly investigate this comparable before arriving at the decision. The assessee is directed to provide all necessary details and information to substantiate its claim of IDMA being comparable with the assessee. The AO/TPO to provide proper opportunity of being heard to the assesee in accordance with principles of natural justice. This ground of appeal no. 6 is allowed for statistical purposes. We order accordingly.

7. Ground No. 7- Rejection of Dolphin Medical Services Limited(hereinafter called “Dolphin”) as comparable by Revenue:-

The assessee included Dolphin Medical Services Limited as comparable in its Transfer Pricing Study Report with OP/OC weighted average margin of 17.45% while the OP/OC margin for AY 2012-13 was 8.17%. The TPO observed that this company „Dolphin‟ had suffered huge losses due to many intrinsic and extrinsic reasons , which is an extraordinary situation for the said company. The assessee submitted in response to show cause notice before the TPO that on operating profit level , this company Dolphin has not incurred losses but has earned profit margin of 8.17%. The TPO observed that this company is engaged in two business divisions namely medical and software division. The Medical division consists of income from diagnostics, herbal and biotech services , which does not pertain to contract R & D and hence not functionally comparable to the assessee‟s business and hence this comparable was rejected by TPO. The assessee carried the matter before DRP and submitted that this company Dolphin is engaged in equipment testing, establishing , providing and maintaining diagnostic laboratories and setting up laboratories for medical investigations and research. The assessee further submitted that the business of the assessee is of providing stability testing services, database maintenance, statistical analysis , project management in respect of generic APIs and provides contract development support for off-patent APIs which already exists in the market which is comparable to the services provided by Dolphin. The assessee further submitted that Dolphin has not suffered any loss at operating profit level and had infact earned an healthy margin of 8.17% on operating cost. It was submitted that loss of Rs. 1.14 crores suffered at profit before tax level is mainly on account of interest expenses on loan amounting to Rs. 1.18 crores which is treated as non-operating costs. Thus, it was submitted that operating profit of Dolphin was 8.17% on operating cost. It was thus prayed that Dolphin be included as comparable. The DRP after hearing the assessee arguments rejected the Dolphin as comparable because the said company was held to be functionally different from the assessee company because the assessee was primarily engaged in the business of contract R & D and also analytical testing while the comparable was stated to be engaged in the business analytical and industrial testing services. We have gone through the submissions of both the parties and perused the material on record. Perusal of the audited financial statements of Dolphin as are placed in paper book reveals that its operations were mainly affected due to the its bank loan with Canara bank being declared as Non Performing Asset, huge marketing costs, old equipments , major repairs and problems with landlords . We have observed that major flow of revenue of Dolphin was from medical diagnostic and other allied services amounting to Rs. 3.75 crores. We have perused the audited financial statement of the assessee for the financial year ended 31-03-2012 which is placed in paper book/page 114 and we have observed that at para 28 of the said audited financial statements , it is stipulated as under:-

28. The company‟s sole business segment is to provide research and development services and the Company considers such activities to constitute a single business segment in the context of AS-17 „Segment Reporting‟ . Similarly , the Company considers Europe as its only geographical segment. The company considers business segment as its primary segment and geographical segment based on the location of customers as the secondary segment. Since the company comprises a single business segment and a single geographical segment, disclosures relating to the primary and secondary segments have not been presented.

Thus, on perusal of audited financial statement of the assessee , it is observed that it is only engaged in providing R & D services which is the sole segment in which the assessee is operating. The bifurcation of revenue is not given in segment reporting while claim of the assessee is that around 39.55% revenue is from stability studies and testing services which required verification.

There are contrarian facts as averred by rival parties and requires proper investigation by the AO/TPO including analysis of revenue derived and functions performed , risk involved and assets deployed , and in the fitness of the matter , we are inclined to set aside this issue

Dolphin as comparable with the assessee to the file of the AO/TPO to properly investigate this comparable before arriving at the decision including considering extra ordinary events such as impact of declaration of bank accounts being NPA and extraordinary expenses incurred by this company Dolphin. The assessee is directed to provide all necessary details and information to substantiate its claim of Dolphin being comparable with the assessee before the AO/TPO in set aside proceedings. The AO/TPO to provide proper opportunity of being heard to the assesee in accordance with principles of natural justice. This ground of appeal no. 7 is allowed for statistical purposes. We order accordingly.

8. Ground No. 8- Rejection of Vimta Labs Limited as comparable by Revenue:-

The assessee included Vimta Labs Limited as comparable in its Transfer Pricing Study Report with OP/OC weighted average margin of (-)1.32% while the OP/OC margin for AY 2012-13 was (-)10.04%. The TPO observed that this company „Vimta‟ had suffered continuous losses and is an loss making company . The assessee submitted in response to show cause notice before the TPO that this company Vimta has earned profit in AY 2010-11 ad AY 2013-14 but incurred losses in AY 2012-13 and AY 2011-12. The assessee submitted that variation in profitability is due to cyclical business reasons. The TPO observed that this company Vimta has incurred losses in AY 2011-12 and 2012-13 while it earned profit in AY 2013-14. There is a huge fluctuation in profitability (including losses) trends and abnormal business circumstances cannot be ruled out. Thus, this company was rejected as comparable by TPO. The matter reached DRP. The assessee submitted that Vimta is not a persistent loss making company . The operating margins of Vimta Labs Limited were reproduced by the assessee before DRP, as under:

Particulars AY 2013-14 AY 2012-13 AY 2011-12 AY 2010-11 Operating 1,09,75,46,255 89,57,43,498 95,70,22,717 88,25,36,096 Revenue Operating 86,67,14,717 99,56,91,599 97,11,29,612 81,06,55,795 Cost Operating 23,08,31,538 (9,99,48,101) (1,41,06,895) 7,18,80,301 Profit OP/OC% 26.63% -10.04% -1.45% 8.87% The assessee submitted that these variations in profits are normal in competitive business environment and same cannot be considered as a reason for rejecting the said company Vimta as comparable. The assessee submitted that this company is not a persistent loss making entity since it is not incurring operating losses for continuous period of three previous years and company cannot be rejected on the grounds that it has incurred losses in current year. The assessee also drew attention to Rule 10B(4) of Income-tax Rules, 1962. It was also submitted that profit as mentioned in rule 10B(4) will also include losses within its purview. It was also submitted that the comparables as detailed below selected by the TPO also suffered from high fluctuation in profit margins and the same should also then be rejected:

Particulars AY 2013-14 AY 2012-13 AY 2011-12 AY 2010-11 Aurigene 50.27% 40.92% 18.69% 18.83% Discovery Technologies Limited Jubiliant -5.72% 28.25% 16.16% 21.61% Chemsys Limited Suven 67.83% 20.35% 5.36% 6.26% Lifesciences Limited

The DRP rejected Vimta as not functionally comparable with the assessee as the assessee is engaged in the business of contract R&D activities of API and analytical testing while Vimta is a company engaged in pre-clinical and clinical analytical in the pharma and food segment and cell and molecular biology , food safety evaluation, etc . It was also observed by DRP that this company Vimta is also engaged in providing environment services like analysis of water, soil, air , waste , source emissions etc.. Thus, in the absence of information as to that Vimta also derived major chunk of revenues from contract R & D in respect of generic APIs, the said comparable Vimta was rejected by DRP as the said company was held to be functionally different. The assessee is now in appeal before the tribunal. Heard both the parties. The assessee is mainly engaged in contract R & D for generic API and also its activities extend to testing and analysis. We have carefully gone through the audited financial statements of Vimta Labs Limited which is placed in paper book filed with the tribunal(page 435-469) . Perusal of audited financial statements for the year ended 31st March 2012 , reveals that this company Vimta is engaged in contract research and testing activities in analytical , preclinical , clinical , clinical diagnostics, cellular and molecular biology and environment assessments. In SWOT analysis , it has described that the preclinical , clinical and analytical contract research and testing activities demand is growing due to growth in biologics and drug discovery projects and it is also mentioned that various multinational contract testing and research organizations are anchoring in India to reduce their service cost which is causing threat to Vimta due to increased competition. It is also mentioned that in-time benefit from various regulatory bodies have direct impact on profitability of Vimta. This is a single segment company in testing and research activities in various discipline. Vimta has four labs in Coimbatore, Vishakhapatnam and Vijaywada. The Revenue from operations is from sale of services(testing and analysis). So far as variations in profitability trend is concerned, reasons for Chairman and Managing Director Report of Vimta as under:

“ During the year under review a number of Clinical studies got delayed due to unprecedented regulatory developments in Clinical Research Industry causing inordinate delays in receiving the approvals. Further, the Company had to accept cancellation of some of the studies due to withdrawal by the Customers as they did not want to proceed further resulting in steep decline in top line. It was an aberration . Adding to this , the input costs have gone up significantly resulting in low EBIDTA as compared to previous year.” Perusal of the above reasons clearly reveals that these are normal business risks attached to this industry to all players and merely because Vimta has incurred operating losses in the year under consideration , the same cannot be rejected as comparable. The functional profile of Vimta is comparable with the assessee as we have elaborated above and in our considered view, we donot find any justification for exclusion of Vimta as comparable. Thus, we hold that Vimta activities / functions are comparable to the assessee company and the same should be included as comparable. The assessee succeeds on this ground. We order accordingly.

9.Ground No. 9 Rejection of SPAN Diagnostics Limited as comparable by Revenue:-

The assessee included SPAN Diagnostics Limited as comparable in its Transfer Pricing Study Report with OP/OC weighted average margin of - 9.76% while the OP/OC margin for AY 2012-13 was 3.78%. The TPO observed that in accept /reject matrix of TP study , this company „SPAN‟ was reflected as having non comparable functions vis-a-vis services rendered by the assessee. On being show-caused, the assessee submitted before TPO that this company „SPAN‟ is engaged in the comparable activity and therefore comparable company . The assessee submitted that due to typographical error in accept reject matrix , the company was reflected as an rejected company. The TPO after perusal of the audited financial statement of „SPAN‟ rejected the contentions of the assessee by holding that this company SPAN is not functionally comparable as it is engaged in the business of manufacturing, marketing and trading of diagnostics instruments and allied products . The said company SPAN also provides annual maintenance services for diagnostic instruments. It was also observed by the TPO that the assessee had itself treated the said company as rejected company in its accept/reject matrix. The matter was carried to DRP by the assessee. The DRP did not gave any directions as to the exclusion of the said company SPAN by TPO as comparable as selected by the assessee. We have perused the audited financial statements of SPAN for the financial year ended 31-03-2012 which is placed in paper book filed by the assessee (pb/page 470-512). Thus, it appears prima-facie that SPAN is not doing any contract R & D or analysis / testing for other companies. The assessee on the other hand is mainly engaged in contract R & D for generic APIs and is also engaged in analysis and testing for its AE. The DRP unfortunately has not given any finding on the functional analysis of this company SPAN. These prima-facie findings of ours need to be verified by the authorities below and assessee is required to rebut these prima-facie findings , which may require investigation into facts. Thus , this issue is restored to the file of the AO for necessary verifications and de-novo determination after considering our preliminary findings . The AO shall grant proper and adequate opportunity of being heard to the assessee before adjudicating this issue in set aside proceedings. This ground no. 9 is allowed for statistical purposes.We order accordingly.

10.Ground No. 10 is regarding inadvertent clerical error in TP study in accept/reject matrix w.r.t. two companies namely IDMA and SPAN which has been already been adjudicated by us in preceding para‟s of this order while deciding the inclusion of those comparables and this ground does not require separate adjudication. This ground stood dismissed. We order accordingly.

13.With respect to ground No. 14 for not providing an adjustment to the assessee in relation to the working capital by the assessee vis-a-vis comparable companies. It was submitted by learned counsel for the assessee that the same is not pressed and the same should be dismissed as not pressed. The learned CIT DR did not raised any objections to the dismissal of the ground no. 14. After hearing both the parties, we dismiss ground no. 14 raised by the assessee. We order accordingly.

14.Similarly, with respect to ground No. 15 it is submitted by learned counsel for the assessee that the assessee was not provided with risk adjustments for the risk assumed by the assessee vis-à-vis comparable companies. The learned counsel prayed that the same should be dismissed as not being pressed. The learned CIT DR did not raise any objection to dismissal of this ground. After hearing both the parties, we direct dismissal of this ground no.15 as not being pressed. We order accordingly.

15.With respect to ground No. 16 , it was submitted that it is concerning levy of interest amounting to ₹ 53,11,350 under section 234B of the Act. It was submitted by learned counsel for the assessee that this ground of appeal is consequential in nature and need to be dismissed. The learned CIT DR has not objected to the dismissal of the said ground of appeal being consequential in nature. After hearing both the parties, we are of the considered view that this ground no. 16 need to be dismissed as consequential in nature and is not required to be adjudicated by us. We order accordingly.

16.With respect to ground No. 17 , it is prayed by the assessee that it is concerning the levy of penalty under section 271(1)(c) of the Act and its adjudication at this stage is premature and hence the same should be dismissed. The learned CIT DR did not objected to the dismissal of this ground. After hearing both the parties, we dismiss this ground of appeal bearing number 17 as premature at this stage .We order accordingly.

Order pronounced in the open court on 09-03-2018.